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**UNITED STATES********SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

**(Mark One)**
| **x** | ** ** | **ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|-----------------------------------------------------------------------------------------------|

 

**For the fiscal year ended February 28,2009**

 
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For the transition period from                      to                      **

 

**Commission file number 000-23425**

 

**BURZYNSKIRESEARCH INSTITUTE, INC.**

(Exact name of registrant asspecified 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)          |

 

Registrant’s telephonenumber, including area code:  **(713) 335-5697**

 

Securities registered under Section 12(b) ofthe Exchange Act:

**None**

 

Securities registered under Section 12(g) ofthe Exchange Act:

**Common Stock, $.001 par value**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.    Yes o  No x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or15(d) of the Act.    Yes x  No o

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for thepast 90 days.    Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).   Yes o  No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§ 229.405) is not contained herein, and will not contain, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment of this Form 10-K.  x

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer, or a smaller reportingcompany.  See definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in  Rule 12b-2 of the Exchange Act.  (Check one):

 

| Large  accelerated filer o                                              |   | Accelerated  filer o              |
|-------------------------------------------------------------------------|--------|-----------------------------------|
|                                                                    |   |                              |
| Non-accelerated  filer o  (Do not check if a smaller reporting company) |   | Smaller  reporting company x |

 

Indicate by check mark whether the registrant isa shell company (as defined in Rule 12b-2 of the Act).    Yes o  No x

 

As of May 1, 2009, the aggregate market value of the Common Stockheld by non-affiliates was approximately $3,168,653.02 based on the lastreported sales price on May 1, 2009.

 

As of May 1, 2009, there were 131,388,444 shares of the Registrant’sCommon Stock outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Documents incorporated by reference:            None.

 

 

 

 

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**BURZYNSKI RESEARCH INSTITUTE, INC.**

 

**FORM 10-K**

 

**FISCAL YEAR ENDED FEBRUARY 28, 2009**

 

**TABLE OF CONTENTS**

** **
| **PART I**   | ** **                                                                                                          | **3**      |
|-------------------|---------------------------------------------------------------------------------------------------------------------|------------|
| ** **        | ** **                                                                                                          | ** ** |
| ITEM 1.           | BUSINESS                                                                                                            | 3          |
| ITEM 2.           | PROPERTIES                                                                                                          | 12         |
| ITEM 3.           | LEGAL PROCEEDINGS                                                                                                   | 12         |
| ITEM  4.          | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                | 12         |
|              |                                                                                                                |       |
| **PART II**  | ** **                                                                                                          | **12**     |
| ** **        | ** **                                                                                                          | ** ** |
| ITEM  5.          | MARKET  FOR REGISTRANT’S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES | 12         |
| ITEM  6.          | SELECTED FINANCIAL  DATA                                                                                            | 13         |
| ITEM  7.          | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         | 13         |
| *** ***      | *** ***                                                                                                        |
| ITEM  8.          | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        | 15         |
| ITEM  9.          | CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               | 15         |
| ITEM  9A(T).      | CONTROLS AND  PROCEDURES                                                                                            | 15         |
| ITEM 9B.          | OTHER INFORMATION                                                                                                   | 16         |
|              |                                                                                                                |       |
| **PART III** | ** **                                                                                                          | **16**     |
| ** **        | ** **                                                                                                          | ** ** |
| ITEM 10.          | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                              | 16         |
| ITEM  11.         | EXECUTIVE  COMPENSATION                                                                                             | 17         |
| ITEM  12.         | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    | 18         |
| ITEM  13.         | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          | 18         |
| ITEM  14.         | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             | 20         |
| ITEM 15.          | EXHIBITS  AND FINANCIAL STATEMENT SCHEDULES                                                                         | 22         |

 

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**FORWARD LOOKING STATEMENTS**

 

This reportcontains forward-looking statements, including statements regarding futurefinancial performance and results and other statements that are not historicalfacts. Such statements are included in “Business,” “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and elsewhere inthis report. When used in this report, words such as “may,” “will,” “should,” “could,”“anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “predict,” “potential,”“continue” and similar expressions are intended to identify forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933,as amended, and Section 21E of the Securities Exchange Act of 1934, asamended. Although the Company believes that the expectations reflected in theseforward-looking statements are reasonable, there can be no assurance thatactual results or developments anticipated by the Company will be realized or,even if realized, that they will have the expected effects on its business oroperations. Actual results could differ materially from those contemplated bythe forward-looking statements as a result of certain factors beyond theCompany’s control including: the ability to develop safe and efficacious drugs,the failure to achieve positive clinical trials, the failure to successfullycommercialize our products, competition and technological change and existingand future regulations affecting our business.

 

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# **PART I**

 

## **ITEM 1.**                                  BUSINESS

 

**General**

 

Burzynski ResearchInstitute, Inc. (the “Company”) was incorporated under the laws of theState of Delaware in 1984 in order to engage in the research, production,marketing, promotion and sale of certain medical chemical compounds composed ofgrowth-inhibiting peptides, amino acid derivatives and organic acids which areknown under the trade name “Antineoplastons.” The Company believesAntineoplastons are useful in the treatment of human cancer and is currentlyconducting Phase II clinical trials of Antineoplastons relating to thetreatment of cancer. Antineoplastons have not been approved for sale or use bythe Food and Drug Administration of the United States Department of Health andHuman Services (“FDA”) or anywhere in the world. In the event Antineoplastonsreceive such approval and are registered in the United States, Canada, orMexico, of which there can be no assurance, the Company will commencecommercial operations, which shall include the production, marketing, promotionand sale of Antineoplastons in the United States, Canada, or Mexico. In 2004,the FDA approved the designation of Antineoplastons as an “orphan drug” underthe 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 hasnot generated any significant operating revenue since its inception. TheCompany’s sole source of funding for its operations has been and continues tobe payments made by Dr. Burzynski from funds generated from Dr. Burzynski’smedical practice pursuant to various arrangements between the Company and Dr. Burzynski.*See*“*Certain Relationships and Related Transactions*.” The Companyreports funds 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. Burzynskicommenced his cancer research in 1967 focusing on the isolation of variousbiochemicals produced by the human body as part of the body’s possible defenseagainst cancer. In the course of his research, Dr. Burzynski identifiedcertain peptides, amino acid derivatives and organic acids in thesebiochemicals which appear to inhibit the growth of cancer cells. Thesederivatives were given the name “Antineoplastons” by Dr. Burzynski.

 

Antineoplastonsare found in the bodily fluids of humans and food and were initially isolatedby Dr. Burzynski from normal human blood and urine. Dr. Burzynskibelieves these substances counteract the development of cancerous growththrough a biochemical process which does not inhibit the growth of normaltissues. To date, Dr. Burzynski has developed six formulations of naturalAntineoplastons and six synthetic formulations of Antineoplastons. All of thePhase II and anticipated Phase III 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.

 

**OrphanDrug Designation**

 

On September 7,2004, the FDA granted “orphan drug” status to the Company’s Antineoplastonsunder the Orphan Drug Act of 1983. In enacting the Orphan Drug Act of 1983,Congress sought to provide incentives to promote the development of drugs forthe treatment of rare diseases. A drug may be considered for orphan drugdesignation if the drug is intended to treat a rare disease or condition affectingfewer than 200,000 people in the United States or, even if the drug treats adisease affecting more than 200,000 people in the United States, the drug isnot expected to be profitable from sales in the United States. Subject toapplicable laws and regulations, the first sponsor to obtain FDA marketingapproval for a drug with orphan drug designation for the designated disease orcondition receives limited marketing exclusivity for seven years; no othersponsor may bring to market the “same drug” for the treatment of the samedisease or condition for a period of seven years from the date the applicationis approved by the FDA. A drug with orphan drug designation must meet the samecriteria for safety and efficacy as a 

 

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drug without orphan drugdesignation. Please see “—Government Regulation” for a complete description ofthe regulatory approval process with the FDA and other regulatory agencies.

 

**Phase IIClinical Trials**

 

The Company beganPhase II clinical studies in 1994 with four studies. At that time, a number ofpatients were also receiving Antineoplastons at Dr. Burzynski’s clinic inHouston, Texas (the “Burzynski Clinic”) outside these clinical trials. On February 23,1996, the FDA requested that all then-current patients of the Burzynski Clinicdesiring to continue Antineoplaston treatment be admitted to a Phase II Study,according to Protocol CAN-1. This action resulted in the formation of sixcohorts of patients in the CAN-1 study, with the largest group suffering fromprimary brain tumors. New patients either were admitted to the CAN-1 study orhave been admitted to one of the other studies sponsored by the Company, asappropriate.

 

The Companycurrently sponsors 12 ongoing Phase II clinical trials that are open forenrollment, 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 approvinga New Drug Application (“NDA”), the FDA requires that a drug’s safety andefficacy be demonstrated in “well-controlled” clinical trials. Several types ofcontrols are acceptable to the FDA. One of these is a “Historic Control.” Undera “Historic Control” if the course of a disease is well-known, the response ofpatients taking a drug can be compared to a historic group of patients withthat disease who have not had medical intervention. For example, it is knownthat the tumors of patients suffering from primary malignant brain tumors (“PMBT”)will continue to grow, eventually causing the patient’s death. If a drug isadministered to a patient with PMBT and the tumors of the patient disappear orshrink significantly, an assumption is made that there has been a response tothe drug.

 

All of the Company’sclinical trials, except one, involve the use of Historic Controls. Further, alltrials except the CAN-1 study are “prospective clinical trials” (“PCT”). A PCTis a clinical trial wherein patients are accrued into and follow the clinicaltrial protocol from the very beginning of the trial. A retrospective trial is atrial in which data from patients treated prior to the start of a clinicaltrial is considered. Results of retrospective trials are, in most instances,not acceptable to the FDA. In addition, there are no clinical trials beingconducted that involve “double blind” studies and all but one clinical trialinvolve no randomization into multiple treatment groups.

 

The ultimate goalof any treatment for cancer is patient survival. However, the FDA hasdetermined that requiring exhaustive data showing improved patient survival mayunnecessarily delay the approval of new cancer drugs. For that reason, the FDAmay grant marketing approval for a new drug product on the basis of adequateand well-controlled clinical trials establishing that the drug has an effect ona surrogate endpoint (“Milestone”) that is reasonably likely to predictclinical benefit. Each of the Company’s Phase II trials describes suchMilestones which are used to determine success or failure of the treatmentemployed. In most of the trials, the Milestones are radiographic evidence oftumor shrinkage by X-ray, computer aided tomography or magnetic resonanceimaging. Where appropriate, tumor markers such as Prostate Specific Antigen,blood counts, or bone marrow biopsy are used in order to assess a tumor’sgrowth.

 

Where tumor sizeis used as the Milestone, each clinical trial protocol that is open forenrollment describes a “complete response” as a complete disappearance of alltumors 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 BT-08, BT-09,BT-10, BT-13, BT-15, BT-18, BT-21, BT-22, BT-23 and BT-35. “Stable disease” isdescribed as less than 50% reduction in size but no more than 50% increase insize of the tumor mass, lasting for at least twelve 

 

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weeks. An objectiveresponse for protocol BT-34 is no sign of tumor recurrence. “Progressivedisease” is described as more than 50% increase in total tumor mass oroccurrence of new tumors.

 

The protocols ofthe Company’s clinical trials involve a two-stage design, wherein the firststage proceeds until the Company admits twenty patients into the trial. After aspecified time period, if there are zero responses by the first twentypatients, the trial will be discontinued and the drug declared to have lessthan desired activity. If there is at least one response, the trial will becontinued until forty patients have been accrued. If the study continues, thefollowing conclusions according to protocols based on forty patients can bemade: If there are three or fewer responses, then there is less than desiredactivity. If there are four or more responses, then there is sufficientevidence to conclude that the Antineoplaston regimen used shows beneficialactivity.

 

As of May 1,2009, twelve of the prospective clinical trials have reached a Milestone. Theseare:

 

·                  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-08, involving the study of AntineoplastonsA10 and AS2-1 in patients with anaplastic astrocytoma.

 

·                  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.  This study is already completed.

 

·                  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 noassurance that the results of any of these trials can be repeated or that theother clinical trials will result in the same or similar responses.

 

The results ofProtocols BT-07, BT-08, BT-09, BT-11, BT-12, BT-13, BT-15, BT-18, BT-20, BT-21,BT-23 and BT-34 are set forth below (as of May 1, 2009).

 

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| **Protocol  Number** | ** ** | **Patients  Accrued** | ** ** | **Evaluable  Patients** |   | **Number and  Percentage of  Patients Showing  Complete  Response** |   | **Number and  Percentage of  Patients Showing  Partial Response** |   | **Number and  Percentage of  Patients  Showing Stable  Disease** |   | **Number and  Percentage of  Patients  Showing  Progressive  Disease** |   |
|----------------------|------------|-----------------------|------------|-------------------------|--------|---------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|
| BT-07                |       | 40                    |       | 24                      |   | 2                                                                   |   | 8.3                                                               | %      | 1                                                                |   | 4.2                                                                    | %      | 3 |   | 12.5 | % | 18 |   | 75.0 | % |
| BT-08                |       | 19                    |       | 13                      |   | 4                                                                   |   | 30.8                                                              | %      | 0                                                                |   | 0.0                                                                    | %      | 5 |   | 38.5 | % | 4 |   | 30.8 | % |
| BT-09                |       | 38                    |       | 26                      |   | 4                                                                   |   | 15.4                                                              | %      | 6                                                                |   | 23.1                                                                   | %      | 11 |   | 42.3 | % | 5 |   | 19.2 | % |
| BT-11                |       | 40                    |       | 28                      |   | 5                                                                   |   | 17.9                                                              | %      | 4                                                                |   | 14.3                                                                   | %      | 12 |   | 42.9 | % | 7 |   | 25.0 | % |
| BT-12                |       | 13                    |       | 11                      |   | 3                                                                   |   | 27.3                                                              | %      | 1                                                                |   | 9.1                                                                    | %      | 3 |   | 27.3 | % | 4 |   | 36.4 | % |
| BT-13                |       | 11                    |       | 9                       |   | 5                                                                   |   | 55.6                                                              | %      | 1                                                                |   | 11.1                                                                   | %      | 3 |   | 33.3 | % | 0 |   | 0.0 | % |
| BT-15                |       | 27                    |       | 20                      |   | 3                                                                   |   | 15.0                                                              | %      | 2                                                                |   | 10.0                                                                   | %      | 9 |   | 45.0 | % | 6 |   | 30.0 | % |
| BT-18                |       | 20                    |       | 13                      |   | 3                                                                   |   | 23.1                                                              | %      | 1                                                                |   | 7.7                                                                    | %      | 3 |   | 23.1 | % | 6 |   | 46.2 | % |
| BT-20                |       | 40                    |       | 22                      |   | 1                                                                   |   | 4.5                                                               | %      | 1                                                                |   | 4.5                                                                    | %      | 12 |   | 54.5 | % | 8 |   | 36.4 | % |
| BT-21                |       | 36                    |       | 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                       |   | 4                                                                   |   | 80.0                                                              | %      | 0                                                                |   | 0.0                                                                    | %      | 0 |   | 0.0 | % | 1 |   | 20.0 | % |

 

The Phase II Studyaccording to Protocol CAN-1 included 35 evaluable brain tumor patients.Complete and partial responses were obtained in patients diagnosed withglioblastoma multiforme, astrocytoma, oligodendroglioma, mixed glioma,medulloblastoma, and malignant meningioma. The treatment with AntineoplastonsA10 and AS2-1 resulted in 48.6% cases of objective responses and 31.4% cases ofstable disease. The largest group of evaluable patients involved in the studyhad glioblastoma multiforme. Six of the cases were classified as complete andpartial responses, four obtained stabilization and four developed progressionof the disease. One of the glioblastoma patients is now alive and completelyfree from tumor for over twelve years after her pathology diagnosis.

 

Notwithstandingthe response results of the trials that have reached a Milestone, managementbelieves it is likely that the FDA may require additional clinical trials basedupon such protocols to be conducted by an institution not affiliated with theCompany or Dr. Burzynski before advising that an NDA filing is warranted.In addition, the FDA has indicated it will not accept the efficacy data, butwill accept toxicity data generated by the Phase II study according to ProtocolCAN-1 because the trial was partially retrospective. At this time, the Companycannot predict if and/or when it will submit an NDA to the FDA, nor can theCompany estimate the number or type of additional trials the FDA may require.Further, there can be no assurance that an NDA for Antineoplastons, as atreatment for cancer, will ever be approved by the FDA.

 

No assurance canbe given that any new IND for clinical tests on humans will be approved by theFDA for human clinical trials on cancer or other diseases, that the results ofsuch human clinical trials will prove that Antineoplastons are safe oreffective in the treatment of cancer or other diseases, or that the FDA wouldapprove the sale of Antineoplastons in the United States.

 

**Open forEnrollment Phase II Clinical Trials**

 

The followingtable sets forth the title of each active Protocol, the subject of the Protocolwith dates submitted to the FDA and approved by the IRB and the number ofpersons currently enrolled in each study. All of the following trials are PhaseII studies and, except as otherwise indicated, are of Antineoplastons A10 andAS2-1 in patients with the conditions listed. For purposes of this table,active means that the study is still under open enrollment. In addition, all ofthe studies listed have a maximum of 40 patients who may ultimately participatein the study, except for protocols BT-34 and BT-35, which have a maximum of 20patients who may ultimately participate in the study. The information in thistable is updated as of May 1, 2009.

 

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| **Title  of  Protocol** | ** ** | **Subject of Protocol**                                                                                                                                                                                              | ** ** | **Number of  Persons Enrolled** |
|-------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|
| AD-02                   |       | Carcinoma of the  Adrenal Gland                                                                                                                                                                                      |       | 6                               |
| BT-08                   |       | Anaplastic Astrocytoma                                                                                                                                                                                               |       | 19                              |
| BT-09                   |       | Brain Tumors                                                                                                                                                                                                         |       | 38                              |
| BT-10                   |       | Children with Brain  Tumors                                                                                                                                                                                          |       | 22                              |
| BT-13                   |       | Children with Low Grade  Astrocytoma                                                                                                                                                                                 |       | 11                              |
| BT-15                   |       | Adult Patients with  Anaplastic Astrocytoma                                                                                                                                                                          |       | 27                              |
| BT-18                   |       | Adult Patients with  Mixed Glioma                                                                                                                                                                                    |       | 20                              |
| BT-21                   |       | Adult Patients with  Primary Malignant Brain Tumors                                                                                                                                                                  |       | 36                              |
| 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 |       | 3                               |

 

**Phase IIIClinical Trials**

 

On January 13,2009, the Company announced that it has reached an agreement with the FDA thatenables the Company to move forward immediately with a pivotal Phase IIIclinical trial of combination Antineoplaston therapy plus radiation therapy inpatients with newly-diagnosed, diffuse, intrinsic brainstem glioma. Theagreement was made under the FDA’s Special Protocol Assessment procedure andmeans that the design and planned analysis of the Phase III study is acceptableto support a regulatory submission seeking new drug approval.

 

On March 2,2009, the Company entered into an agreement with Premier Research Group, Ltd.(Premier Research) to initiate and manage a pivotal Phase III clinical trial ofcombination Antineoplastons A10 and AS2-1 plus radiation therapy in patientswith newly-diagnosed, diffuse, intrinsic brainstem glioma. Premier Research iscurrently conducting a feasibility assessment. Premiere has secured interest and commitment from a number of sitesselected. Upon completion of this assessment, a randomized, international phaseIII study will commence. The study’s objective is to compare overall survivalof children with newly-diagnosed, diffuse, intrinsic brain stem glioma (DBSG)who receive combination Antineoplastons A10 and AS2-1 plus radiation therapy(RT) versus RT alone.

 

**GovernmentRegulation**

 

The FDA imposessubstantial requirements upon, and conditions precedent to, the introduction oftherapeutic drug products through lengthy and detailed laboratory and clinicaltesting procedures, sampling activities and other costly and time consumingprocedures. To obtain FDA approval for Antineoplastons, we must submitextensive preclinical and clinical data and supporting information to the FDAto establish the safety and efficacy of Antineoplastons. The approval processtakes many years, requires the expenditure of substantial resources and mayinvolve ongoing requirements for post-marketing studies. Additional governmentregulation may be established that could prevent or delay regulatory approvalof Antineoplastons. Moreover, there can be no assurance that the Company cansatisfy FDA requirements to gain approval for Antineoplastons in the UnitedStates or that FDA approval for the sale of Antineoplastons in the United Stateswill be obtained. If regulatory approval is granted, the approval may includesignificant limitations on the indicated uses for which Antineoplastons may bemarketed.

 

The effect of theFDA drug approval process for Antineoplastons may impose costly procedures uponthe Company’s activities which may furnish a competitive advantage to the othercompanies that compete with the Company in the field of cancer treatment drugs.The extent of potentially adverse government regulations which might arise fromfuture legislation or administrative action cannot be predicted.

 

TheInvestigational New Drug Application Process in the United States is governedby regulations established by the FDA which strictly control the use anddistribution of investigational drugs in the United States. The guidelinesrequire that an IND, filed by a sponsor, contain sufficient information tojustify administering the drug to humans, that the application include relevantinformation on the chemistry, pharmacology and toxicology of the drug derivedfrom chemical, laboratory and animal or in vitro testing, and that a protocolbe provided for the initial study of the new drug to be conducted on humans.

 

In order toconduct a clinical trial of a new drug in humans, a sponsor must prepare and submitto the FDA a comprehensive IND. Such application must contain an investigator’sbrochure, a description of the composition, 

 

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manufacture and controlof the drug substance and the drug product, sufficient information to assurethe proper identification, quality, purity and strength of the investigationaldrug, a description of the drug substance, including its physical, chemical,and biological characteristics, the general method of preparation of the drugsubstance, a list of all components including interactive ingredients, adequateinformation about pharmacological and toxicological studies of the drug involvinglaboratory animals or in vitro tests on the basis of which the sponsor hasconcluded that it is reasonably safe to conduct the proposed clinicalinvestigation and a summary of any previous human experience with the drug.Where there has been widespread use of the drug outside of the United States orotherwise, it is possible in some limited circumstances to use well-documentedclinical experience in place of some other pre-clinical work.

 

The focal point ofthe IND is on the general investigational plan and the protocols for specifichuman studies. The plan is carried out in three phases:  Phase I includesthe initial introduction of an investigational new drug into humans and may beconducted in patients or normal volunteer subjects. The studies are closelymonitored to determine the metabolism and pharmacologic actions of the drug inhumans, the potential side effects and, if possible, to gain early evidence oneffectiveness. During Phase I testing, sufficient information about the drug isgathered to design well-controlled, scientifically valid Phase II studies.Phase II includes controlled clinical studies conducted to evaluate theeffectiveness of the drug for a particular indication in patients with thedisease or condition under study and to determine the common short-term sideeffects and risks associated with the drug. Phase II studies are controlled,closely monitored and conducted in a relatively small number of patients,usually involving no more than several hundred subjects. Phase III includesexpanded controlled and uncontrolled trials and are intended to gather theadditional information about effectiveness and safety that is needed toevaluate the overall benefit-risk relationship of the drug and to provide anadequate basis for physician labeling. Phase III studies usually includeanywhere from several hundred to several thousand subjects.

 

An IND willautomatically become effective 30 days after receipt by the FDA, unless beforethat time the FDA raises concerns about issues such as the conduct of thetrials as outlined in the IND. After the IND becomes effective, theinvestigation is permitted to proceed, during which the sponsor must keep theFDA informed of new studies, including animal studies, make progress reports onthe study or studies covered by the IND, and also be responsible for informingFDA and clinical investigators immediately of unforeseen serious side effectsor injuries. There can be no assurance that Phase I, Phase II or Phase IIItesting will be completed successfully by the Company within any specifiedperiod of time, if at all. Furthermore, the Company or the FDA may suspendclinical trials at any time on various grounds, including a finding that thesubjects or patients are being exposed to an unacceptable health risk.

 

Assumingsuccessful completion of the clinical studies, the results of the studies,together with other detailed information, including, among other information,details concerning the manufacture and composition of the drug, proposedlabeling, environmental impact and the scientific rationale for the drug, itsintended use and the potential benefits of the drug product, are submitted tothe FDA in the form of an NDA requesting approval to market the drug. If theFDA finds the NDA submission and the manufacturing process to be acceptable,the FDA will issue an approval letter. If the FDA does not find the NDAsubmission or the manufacturing process to be sufficient, it will issue a “notapprovable letter” describing the deficiencies in the NDA and allowing the NDAapplicant to either amend the NDA, withdraw the NDA or request a hearing. Evenif the NDA is amended or a hearing is held, the FDA ultimately may decide thatthe NDA does not satisfy the regulatory criteria for approval. In addition, asa result of the Company’s use of Milestones to predict the benefits ofAntineoplastons, the FDA may subject any such approval to the requirement thatthe Company study the drug further, to verify and describe its clinical benefit(Phase IV testing). Further, the FDA may also impose post-marketingrestrictions on Antineoplastons. The FDA may withdraw approval of any drug ifthe Phase IV trials fail to verify clinical benefit, use of the drugsdemonstrates that post-marketing restrictions are inadequate to assure safe useof the drug, the Company fails to adhere to the post-marketing restrictionsagreed upon, the promotional materials are false or misleading or otherevidence demonstrates that the drug is not shown to be safe or effective underits conditions of use.

 

The testing andapproval process requires substantial time, effort and financial resources, andthere can be no assurance that any approval will be granted for any product orthat approval will be granted according to any schedule. Moreover, if regulatoryapproval of a drug is granted, the approval will be limited to specificindications. There can be no assurance that any of the Company’s productcandidates will receive regulatory approvals for commercialization.

 

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The FDA hasimplemented an accelerated review process for pharmaceutical agents that treatserious or life-threatening disease and conditions, subject to payment of userfees. Approval may be conditioned on a requirement that, following productlaunch, a company continue to study the drug to verify and describe itsclinical benefit. Under “fast track” procedures, the FDA may withdraw approvalon an expedited basis if the company fails to show due diligence in conductingpost-marketing clinical trials or if the post-approval clinical trials fail todemonstrate that the product is safe or effective. When appropriate, theCompany intends to pursue opportunities for accelerated review of its products.The Company cannot predict the ultimate effect of this review process on thetiming or likelihood of FDA review of any of its products.

 

Please see “—OrphanDrug Designation” for a description of the FDA’s orphan drug designation underthe Orphan Drug Act of 1983 as it applies to the Company’s Antineoplastons.

 

Even if theregulatory approvals for the Company’s products are obtained, its products andits manufacturing facility are subject to continuous review and periodicinspection. The FDA will require post-marketing reporting to monitor the safetyof the Company’s products. The Company’s drug manufacturing facility must beinspected and approved by the FDA and must comply with the FDA’s current goodmanufacturing practice regulations, which are strictly enforced. Full technicalcompliance requires manufacturers to expend funds, time and effort in the areaof production and quality control. In addition, discovery of problems with aproduct after approval or failure to comply with applicable FDA or otherapplicable regulatory requirements may result in restrictions on a product,manufacturer, or holder of an approved NDA, including restrictions on theproduct, manufacturer or facility, including warning letters, suspension ofregulatory approvals, operating restrictions, delays in obtaining new productapprovals, withdrawal of the product from the market, product recalls, fines,injunctions and criminal prosecution. New government requirements may beestablished that could delay or prevent regulatory approval of the Company’sproducts under development.

 

The Company’sresearch and development involves the controlled use of hazardous materials,chemicals and various radioactive compounds. Although the Company believes itsprocedures for handling and disposing of those materials comply with state andfederal regulations, the risk of accidental contamination or injury from thesematerials cannot be eliminated. If an accident of this type occurs, the Companycould be held liable for resulting damages, which could be material to itsfinancial condition and business. The Company is also subject to numerousenvironmental, health and workplace safety laws and regulations, includingthose governing laboratory procedures and the handling of biohazardousmaterials. Additional federal, state and local laws and regulations affectingthe Company may be adopted in the future. Any violation of these laws andregulations, and the cost of compliance, could materially and adversely affectthe Compan**y**. The Company spends approximately$40,000 per year on environmental compliance matters and expects to spendapproximately $10,000 for repairs and upgrades during the fiscal year ending February 28,2010.

 

**ResearchAnd Development**

 

The Company’s principalresearch and development efforts currently focus on Antineoplastons. Theanticancer activity of these compounds has been documented in preclinicalstudies employing the methods of cell culture, pharmacology, cell biology,molecular biology, experimental therapeutics and animal models of cancer. Atthe level of Phase II clinical studies, the Company believes the anticanceractivity of Antineoplastons is supported by preliminary results from ongoing,FDA-authorized, Phase II clinical trials.

 

The cellularmechanism underlying the anticancer effects of Antineoplastons continues to beinvestigated in both the Company’s own basic preclinical research program andin independent laboratories around the world. A review of this work suggestsseveral mechanisms that may underlie the antineoplastic activity ofAntineoplastons. For example, it has been found, in cell culture experiments,that Antineoplastons induce pathologically undifferentiated cancer cells toassume a more normal state of differentiation. Cell culture experiments havealso shown that Antineoplaston components can kill some cancer cells byactivating the cell’s intrinsic “suicide” program. It must be noted that datacollected in cell culture experiments may or may not indicate the mechanism ofaction of Antineoplastons in humans.

 

At a moremolecular or sub-cellular level, cell culture experiments have shown thatAntineoplastons can block biochemical pathways involving oncogenes required toproduce abnormal cell growth. In addition, cell culture 

 

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experiments have shownthat Antineoplastons can increase the expression of anticancer tumor suppressorgenes. Although these experiments were conducted using human cancer cells, theymay or may not indicate the mechanism of Antineoplaston action in humans.

 

In addition to theoriginal family of Antineoplaston compounds (the “Parental Generation”), theCompany continues its development of a second generation of Antineoplastons. Incell culture experiments, the second generation Antineoplastons, which weredeveloped by the Company, have been shown to be significantly more potent thanthe Parental Generation.

 

The Company isalso developing a third generation of structurally altered Antineoplastons thatthe Company believes will exhibit markedly improved anticancer activity inhuman cancer cell lines that have been resistant to the Parental Generation.However, increases of antineoplastic activity in cell culture experiments mayor may not translate into increased efficacy in humans.

 

The Company isalso involved in ongoing studies examining the pharmacokinetics (absorption,distribution, metabolism, and excretion) and pharmacodynamics (dose-response)of Antineoplastons in patients with neoplastic disease.

 

The Company usesvarious scientific reagents from several different suppliers to conduct itsresearch activities.

 

Total research anddevelopment costs for the fiscal years ended February 28, 2009 and February 29,2008 were approximately $4,894,000 and $4,365,000, respectively.

 

**IntellectualProperty**

 

Since 1984, eightpatents involving the formulation, preparation, manufacture, production, use,dosage and treatment of cancer with Antineoplastons (the “Patents”) have beenissued to Dr. Burzynski by the United States Patent Office and the PatentOffices of 34 other countries. The Patents for cancer treatment and diagnosisin the United States and Canada are licensed to the Company pursuant to aLicense Agreement dated June 29, 1983, as superseded by an Amended LicenseAgreement dated April 24, 1989 and a Second Amended License Agreementdated March 1, 1990 (collectively, the “License Agreement”). Pursuant tothe License Agreement, the Company holds an exclusive right in the UnitedStates, Canada, and Mexico (the “Territory”) to use, manufacture, develop,sell, distribute, sub-license and otherwise exploit all of Dr. Burzynski’srights, title, and interests, including patent rights, in Antineoplastons inthe treatment and diagnosis of cancer. See “*CertainRelationships and Related Transactions.*”  The Company will notbe able to exploit such rights until such time as Antineoplastons are approved,of which there can be no assurance, by the FDA for sale in the United States.The License Agreement is to continue in effect until the expiration of the lastPatent that was licensed under the agreement or termination pursuant to certainother provisions. The Company and Dr. Burzynski also entered into aRoyalty Agreement, dated March 25, 1997, and a First Amended RoyaltyAgreement, dated September 29, 1997 (collectively, the “Royalty Agreement”),pursuant to which Dr. Burzynski will receive a royalty interest from allfuture sales, distribution, and manufacture of Antineoplastons by the Company.The Company owns, pursuant to the License Agreement, exclusive rights to eightissued United States Patents, four issued Canadian Patents and one issuedMexican Patent.

 

The five initialUnited States Patents (the “Initial Patents”) relate to: (i) Determinationof Antineoplastons in body tissue or fluids as a testing procedure to aid inthe diagnosis of cancer; (ii) Processes for the preparation of purifiedfractions of Antineoplastons from human urine; (iii) Processes for thesynthetic production of Antineoplastons and methods of treating neoplasticdisease (cancer); (iv) Administration of Antineoplastons to humans; and (v) Methodsof synthesizing A-10. The Initial Patents expire from September 11, 2001to January 11, 2009, however the Company does not believe the expirationof any of the Initial Patents will have a material adverse effect on theCompany.

 

The sixth UnitedStates Patent (the “2000 U.S. Patent”) covers Liposomal Antineoplaston therapieswith markedly improved anti-cancer activity. The 2000 U.S. Patent expires on May 14,2017.

 

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The seventh UnitedStates Patent (the “2001 U.S. Patent”) is for a treatment regimen for theadministration of phenylacetylglutamine, phenylacetylisoglutamine, and/orphenylacetate. The 2001 U.S. Patent expires on July 23, 2018.

 

The eighth UnitedStates Patent (the “2005 U.S. Patent”) relates to a divisional application tothe 2001 U.S. Patent. The 2005 U.S. Patent issued in September 2005 andwill expire July 2018.

 

The four CanadianPatents (the “Canadian Patents”) relate to: (i) Processes for thepreparation of purified fractions of Antineoplastons from human urine, (ii) Processesfor the synthetic production of Antineoplastons and methods of treatingneoplastic disease (cancer), (iii) Liposomal formulation ofAntineoplastons and (iv) Treatment regimen for the administration ofphenylacetylglutamine. The Canadian Patents expired or will expire on June 4,2002, November 14, 2006, May 14, 2017 and July 2, 2019,respectively; however, the Company does not believe the expiration of theCanadian Patents will have a material adverse effect on the Company.

 

The Mexican Patentrelates to a treatment regimen for the administration of phenylacetylglutamine.This patent will expire in the year 2019.

 

The Company alsodepends upon unpatented proprietary technology, and may determine inappropriate circumstances that its interest would be better served by relianceupon trade secrets or confidentiality agreements rather than patents.

 

The Company’ssuccess will depend in part on its ability to enforce patent protection for itsproducts, preserve its trade secrets, and operate without infringing on theproprietary rights of third parties in the United States, Canada, and Mexico.Because of the substantial length of time and expense associated with bringingnew products through development and regulatory approval to the marketplace,the pharmaceutical and biotechnology industries place considerable importanceon obtaining and maintaining patent and trade secret protection for newtechnologies, products and processes. There can be no assurance that theCompany will develop additional products and methods that are patentable orthat present or future patents will provide sufficient protection to theCompany’s present or future technologies, products and processes. In addition,there can be no assurance that others will not independently developsubstantially equivalent proprietary information, design around the Company’spatents or obtain access to the Company’s know-how or that others will notsuccessfully challenge the validity of the Company’s patents or be issuedpatents which may prevent the sale of one or more of the Company’s productcandidates, or require licensing and the payment of significant fees orroyalties by the Company to third parties in order to enable the Company toconduct its business. Legal standards relating to the scope of claims and thevalidity of patents in the fields in which the Company is pursuing research anddevelopment are still evolving, are highly uncertain and involve complex legaland factual issues. No assurance can be given as to the degree of protection orcompetitive advantage any patents issued to the Company will afford, thevalidity of any such patents or the Company’s ability to avoid violating orinfringing any patents issued to others. Further, there can be no guaranteethat any patents issued to or licensed by the Company will not be infringed bythe products of others. Litigation and other proceedings involving the defense andprosecution of patent claims can be expensive and time-consuming, even in thoseinstances in which the outcome is favorable to the Company, and can result inthe diversion of resources from the Company’s other activities. An adverseoutcome could subject the Company to significant liabilities to third parties,require the Company to obtain licenses from third parties or require theCompany to cease any related research and development activities or sales.

 

The Companydepends upon the knowledge, experience and skills (which are not patentable) ofits key scientific and technical personnel. To protect its rights to itsproprietary information, the Company requires all employees, consultants,advisors and collaborators to enter into confidentiality agreements whichprohibit the disclosure of confidential information to anyone outside theCompany and require disclosure and assignment to the Company of their ideas,developments, discoveries and inventions. There can be no assurance that theseagreements will effectively prevent the unauthorized use or disclosure of theCompany’s confidential information.

 

Antineoplastonagents is a trademark registered with the U.S. Patent and Trademark Office.

 

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**Competition**

 

There are many companies, universities, research teams and scientists,both private and government-sponsored, that are engaged in research to producecancer treatment agents and that have greater financial resources and largerresearch staffs and facilities than the Company. In addition, there are othercompanies and entities, both private and government-sponsored, that are engagedin research aimed at compounds similar or related to the Company’sAntineoplastons. To the extent that the United States Government also conductsresearch or supports other companies or individuals in their research, suchcompanies or individuals may have a competitive advantage over the Company.

 

**Employees**

 

As of May 1,2009, the Company had three employees, all of whom were full-time employees.None of the Company’s employees is a party to a collective bargainingagreement. The Company considers the relations with its employees to be good.

 

## **ITEM 2.**                                  PROPERTIES

## ** **

The Company doesnot own or invest in real estate, interests in real estate, real estatemortgages or securities of or interests in persons primarily engaged in realestate activities.

 

The Companyconducts its business in premises owned by Dr. Burzynski and his wife, Dr. BarbaraBurzynski (the “Burzynskis”). Pursuant to arrangements with the Burzynskis (see“*Certain Relationships and RelatedTransactions—Research Funding Arrangements*”), the Company occupies (i) 675square feet at 12707 Trinity Drive, Stafford, Texas for office, laboratory andmedical research purposes and (ii) 540 square feet at 9432 Old Katy Road, Suite 200for its executive offices. Management of the Company believes that each ofthese properties is adequately covered by insurance.

 

## **ITEM 3.**                                  LEGAL PROCEEDINGS

## ** **

The Company’sactivities are subject to regulation by various governmental agencies,including the FDA, which regularly monitor the Company’s operations and oftenimpose requirements on the conduct of its clinical trials and other aspects ofthe Company’s business operations. The Company’s policy is to comply with allsuch regulatory requirements. From time to time, the Company is also subject topotential claims by patients and other potential claimants commonly arising outof the operation of a medical practice. The Company seeks to minimize itsexposure to claims of this type wherever 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.

 

## **ITEM 4.**                                  SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS

## ** **

No matter wassubmitted to a vote of security holders during the fourth quarter of the fiscalyear ended February 28, 2009.

 

# **PART II**

# ** **

## **ITEM 5.**                                  MARKET FOR REGISTRANT’SCOMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES

## ** **

Since October 15,2001, the Company’s Common Stock has remained in good standing for trading onthe OTCBB. Nevertheless, a public trading market having the characteristics ofdepth, liquidity and orderliness depends upon the existence of market makers aswell as the presence of willing buyers and sellers, which are circumstancesover which the Company does not have control. There can be no assurance thatthe market will provide significant liquidity for the Company’s Common Stock.As a result, an investment in the Company’s Common Stock may be highly illiquid.Investors may not be able to sell their shares readily or at all when theinvestor needs or desires to sell.

 

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The followingtable sets forth closing high and low bid prices of the shares of Common Stockof the Company for the periods indicated (as reported by Pink Sheets LLC).

 
| ** **                               | ** ** | **Price Range** | ** ** |
|------------------------------------------|------------|-----------------|------------|
| ** **                               | ** ** | **High**        | ** ** | **Low** | ** ** |
| Fiscal year ended February 29, 2008 |       |            |       |   |   |
| First Quarter                            |       | $               | 0.13       |   | $ | 0.06 |   |
| Second Quarter                           |       | 0.10            |       | 0.08 |   |
| Third Quarter                            |       | 0.10            |       | 0.06 |   |
| Fourth Quarter                           |       | 0.07            |       | 0.05 |   |
|                                     |       |            |       |   |   |
| Fiscal year ended February 28, 2009 |       |            |       |   |   |
| First Quarter                            |       | $               | 0.08       |   | $ | 0.05 |   |
| Second Quarter                           |       | 0.065           |       | 0.03 |   |
| Third Quarter                            |       | 0.04            |       | 0.01 |   |
| Fourth Quarter                           |       | 0.11            |       | 0.03 |   |

 

The quotations setforth above reflect inter-dealer prices, without retail mark-up, mark-down orcommission, and may not represent actual transactions.

 

As of May 1,2009, there were approximately 2,027 holders of record of the Company’s CommonStock, as shown on the records of the Transfer Agent and Registrar of theCommon Stock. Since many shares may be held by investors in nominee names, suchas the name of their broker or their broker’s nominee, the number of recordholders often bears little relationship to the number of beneficial owners ofthe Common Stock.

 

The Company hasnever paid cash dividends on its Common Stock and the Board of Directorsintends to retain all of its earnings, if any, to finance the development andexpansion of its business. However, there can be no assurance that the Companycan successfully expand its operations, or that such expansion will proveprofitable. Future dividend policy will depend upon the Company’s earnings,capital requirements, financial condition and other factors considered relevantby the Company’s Board of Directors.

 

## **ITEM 6.**                                  SELECTEDFINANCIAL DATA

 

**None.**

 

## **ITEM 7.**                                  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

## ** **

The following is adiscussion of the financial condition of the Company as of February 28,2009 and February 29, 2008 and the results of operations for the fiscalyears ended February 28, 2009 and February 29, 2008. It should beread in conjunction with the financial statements and the notes theretoincluded elsewhere in this report. The following discussion containsforward-looking statements.

 

**Introduction**

 

The Company hasgenerated no significant revenue since its inception, and does not expect togenerate any operating revenues until such time, if any, as Antineoplastons areapproved for use and sale by the FDA. The Company’s sole source of funding is Dr. Burzynski,who funds the Company’s operations from his medical practice pursuant tocertain agreements between Dr. Burzynski and the Company*. See*“*CertainRelationships and Related Transactions*.”  Funds received by theCompany from Dr. Burzynski are reported as additional paid-in capital tothe Company.

 

The Company isprimarily engaged as a research and development facility of Antineoplastondrugs currently being tested for use in the treatment of cancer, and providesconsulting services. The Company is currently conducting 12 FDA-approvedclinical trials. The Company holds the exclusive right in the United States,Canada and Mexico to use, manufacture, develop, sell, distribute, sublicenseand otherwise exploit all the rights, titles and interest in Antineoplastondrugs used in the treatment of cancer, once the drugs are approved for sale bythe FDA*. See*“*Certain Relationships and Related Transactions.*”

 

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**ResultsOf Operations**

# ** **

# ***Fiscal Year Ended February 28, 2009Compared to Fiscal Year Ended February 29, 2008***

# ** **

Research anddevelopment costs were approximately $4,894,000 and $4,365,000 for the fiscalyears ended February 28, 2009 and February 29, 2008, respectively.The increase of $529,000 or 12% was due to an increase in material costs of$421,000 and an increase in facility and equipment costs of  $171,000, and an increase in other researchand development costs of $1,000, offset by a decrease in personnel cost of$56,000, and a decrease in consulting and quality control costs of $8,000.

 

General and administrative expenses were approximately $231,000 and$155,000 for the fiscal years ended February 28, 2009 and February 29,2008, respectively. The increase of $76,000 or 49% was due to an increase inlegal and professional fees of $66,000, and an increase in other general andadministrative expenses of $10,000.

 

The Company hadnet losses of approximately $5,128,000 and $4,522,000 for the fiscal yearsended February 28, 2009 and February 29, 2008, respectively.  The increase in the net loss from 2008 to2009 was primarily due to an overall increase in research and development costand an overall increase in general and administrative expenses of the Companydescribed above.  As of February 28,2009, the Company had a total stockholders’ deficit of approximately $(87,000).

 

**Liquidityand Capital Resources**

 

The Company’soperations have been funded entirely by Dr. Burzynski with funds generatedfrom Dr. Burzynski’s medical practice. Effective March 1, 1997, theCompany entered into a Research Funding Agreement with Dr. Burzynski (the “ResearchFunding Agreement”), pursuant to which the Company agreed to undertake allscientific research in connection with the development of new or improvedAntineoplastons for the treatment of cancer and Dr. Burzynski agreed tofund the Company’s Antineoplaston research for that purpose. Under the ResearchFunding Agreement, the Company hires such personnel as is required to conductAntineoplaston research, and Dr. Burzynski funds the Company’s researchexpenses, including expenses to conduct the clinical trials. Dr. Burzynskialso provides the Company laboratory and research space as needed to conductthe Company’s research activities. The Research Funding Agreement also providesthat 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 ownall such patents, but shall license to the Company the patents based on thesame terms, conditions and limitations as are in the current license between Dr. Burzynskiand 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) anyincome which 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 Companyentered into a third amendment to the Research Funding Agreement, effective March 1,2007, whereby the Company and Dr. Burzynski extended the term thereofuntil February 28, 2008, with an automatic renewal for an additionalone-year term, unless one party notifies the other party at least thirty daysprior to the expiration of the term of the agreement of its intention not torenew the agreement.  Subject to theforegoing, the term of the Research Funding Agreement has renewed and extendeduntil February 28, 2010.

 

The ResearchFunding Agreement automatically terminates in the event that Dr. Burzynskiowns less than fifty percent of the outstanding shares of the Company, or isremoved as President and/or Chairman of the Board of the Company, unless Dr. Burzynskinotifies the Company in writing of his intention to continue the agreementnotwithstanding this automatic termination provision.

 

The Companyestimates that it will spend approximately $5.2 million in the fiscal yearending February 28, 2010. The Company estimates that ninety-five percent(95%) of this amount will be spent on research and development and thecontinuance of FDA-approved clinical trials. While the Company anticipates that

 

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Dr. Burzynski willcontinue to fund the Company’s research and FDA-related costs, there is noassurance that Dr. Burzynski will be able to continue to fund the Company’soperations pursuant to the Research Funding Agreement or otherwise. However,because the net assets available to Dr. Burzynski from his personal assetsand the assets of his medical practice currently exceed the Company’s projectedtwelve-month funding requirements, the Company believes Dr. Burzynski willbe financially able to fund the Company’s operations at least through thefiscal year ending February 28, 2010. In addition, Dr. Burzynski’smedical practice has successfully funded the Company’s research activities overthe last 25 years and, in 1997, his medical practice was expanded to includetraditional cancer treatment options such as chemotherapy, immunotherapy andhormonal therapy in response to FDA requirements that cancer patients utilizemore traditional cancer treatment options in order to be eligible toparticipate in the Company’s Antineoplaston clinical trials. As a result of theexpansion of Dr. Burzynski’s medical practice, the financial condition ofthe medical practice has improved Dr. Burzynski’s ability to fund theCompany’s operations.

 

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

 

## **ITEM 8.**                                  FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

## ** **

The Company’sAnnual Financial Statements, Notes to Financial Statements and the reports of PannellKerr Forster of Texas, P.C. (“PKF”) and Fitts, Roberts & Co., P.C. (“FittsRoberts”) independent registered public accounting firms, with respect thereto,referred to in the Table of Contents to the Financial Statements, appearelsewhere in this report beginning on Page F-1.

 

## **ITEM 9.**                                  CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

## ** **

None.

 

## **ITEM 9A(T).**         CONTROLS AND PROCEDURES

## ** **

(a) *Evaluation of Disclosure Controls and Procedures.*Within the90 days prior to the date of this report, the Company carried out anevaluation, under the supervision and with the participation of the Company’smanagement, including the Company’s principal executive officer and principalfinancial officer, of the effectiveness of the Company’s disclosure controlsand procedures pursuant to Rule 13a-14 under the Securities Exchange Actof 1934, as amended. Based upon that evaluation, the Company’s principalexecutive officer and principal financial officer concluded that the Company’sdisclosure controls and procedures are effective in timely alerting them tomaterial information required to be included in periodic Securities andExchange Commission filings. A controls system cannot provide absoluteassurance, however, that the objectives of the controls system are met, and noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within a company have been detected.

 

*Management’sAnnual Report on Internal Control over Financial Reporting.*The Company’s management is responsiblefor establishing and maintaining adequate internal control over financialreporting (as defined in Rule 13a-15(f) under the Exchange Act). Ourinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withaccounting principles generally accepted in the United States.

 

Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Therefore, even those systems determined to beeffective can provide only reasonable assurance of achieving their controlobjectives.

 

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The Company’smanagement, with the participation of the Company’s principal executive officerand principal financial officer, evaluated the effectiveness of the Company’sinternal control over financial reporting as of February 28, 2009. Inmaking this assessment, the Company’s management used the criteria set forth bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework. Based on this evaluation, the Company’smanagement, with the participation of the principal executive officer andprincipal financial officer, concluded that, as of February 28, 2009, theCompany’s internal control over financial reporting was effective.

 

This annual reportdoes not include an attestation report of the Company’s registered publicaccounting firm regarding internal control over financial reporting. Management’sreport was not subject to attestation by the Company’s registered publicaccounting firm pursuant to temporary rules of the Securities and ExchangeCommission that permit the company to provide only management’s report in thisannual report.

 

(b) *Changes in Internal Control Over Financial Reporting*. Therewere no significant changes in the Company’s internal controls or in otherfactors that could significantly affect internal controls over financialreporting that occurred during the fiscal quarter ended February 28, 2009 thathave materially affected or are reasonably likely to materially affect ourinternal controls subsequent to that date.

 

## **ITEM 9B.**                         OTHERINFORMATION

## ** **

None.

 

# **PART III**

# ** **

## **ITEM 10.**                           DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

## ** **

Set forth beloware the names, ages and positions of the Company’s directors and executive officers:

 
| **Name**                            | ** ** | **Age** | ** ** | **Office**                                     | ** ** |
|-------------------------------------|------------|---------|------------|------------------------------------------------|------------|
| Stanislaw R. Burzynski, M.D., Ph.D. |       | 66      |       | Director, President,  Secretary, and Treasurer |       |
| Barbara Burzynski, M.D.             |       | 68      |       | Director                                       |       |
| Michael H. Driscoll, J.D.           |       | 62      |       | Director                                       |       |
| Carlton Hazlewood, Ph.D.            |       | 73      |       | Director                                       |       |

 

STANISLAW R. BURZYNSKI,M.D., PH.D., has been the President and Chairman of the Board of Directors ofthe Company since its inception in 1984. He also serves as the Company’sSecretary and Treasurer. Dr. Burzynski is a physician in private practicein Houston, Texas specializing in the treatment of cancer. Dr. Burzynskiis the husband of Barbara Burzynski, M.D., who is a director of the Company.

 

Currently listedin Who’s Who In The World and a member in good standing with both the Americanand World Medical Associations, Dr. Burzynski is an internationallyrecognized physician and scientist who has pioneered the development and use ofbiologically active peptides in diagnosing, preventing, and treating cancersince 1967. In 1967, Dr. Burzynski graduated with distinction with an M.D.degree from the Medical Academy in Lublin, Poland, finishing first in his classof 250, and he subsequently earned his Ph.D. in Biochemistry.

 

From 1970 to 1977,he was a researcher and Assistant Professor at Baylor College of Medicine inHouston. At Baylor, Dr. Burzynski’s research was sponsored and partiallyfunded by the National Cancer Institute. Also at Baylor, he authored andco-authored sixteen publications, including five concerning his research onpeptides and their effect on human cancer. Four of these publications were alsoco-authored by other doctors associated with M.D. Anderson Hospital and TumorInstitute and Baylor College of Medicine. In May 1977, Dr. Burzynskireceived a Certificate of Appreciation from Baylor College of Medicine and inthat same year founded the Company.

 

Dr. Burzynskiis a member of the American Medical Association, American Association forCancer Research, Harris County Medical Society, New York Academy of Sciences,Society for Neuroscience, Texas Medical Association, the Society of Sigma Xi,and the Society of Neuro-oncology. He is the author of 295 scientificpublications, presenter of scientific papers at major international conventions,and has been awarded 228 patents 

 

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covering 42 countries forhis Antineoplaston treatment and other inventions. Other groups are working inconjunction with him, including researchers at the University of Kurume MedicalSchool in Japan.

 

BARBARA BURZYNSKI,M.D., a Director since 1984 and the wife of Dr. Burzynski, has been theChairman of the Department of Pharmacy of the Burzynski Clinic since 1977. FromJanuary 1976 to July 1977, she was a Research Assistant in theDepartment of Pediatrics at Baylor College of Medicine. She was a physician atthe Medical Academy, Lublin, Poland, from 1970 to 1975. Dr. BarbaraBurzynski graduated with an M.D. in 1966 from the Medical Academy, Lublin,Poland, and has published six publications on studies with Antineoplastons.

 

MICHAEL H.DRISCOLL, J.D. has been a Director of the Company since 1984. Mr. Driscollwas formerly a judge and served as the County Attorney of Harris County, Texasfrom 1981 until he retired in 1997.

 

CARLTON HAZLEWOOD,PH.D. has been a Director of the Company since 1997. He also serves as Chairmanof the IRB, an independent review board for the Company’s clinical trialsdesignated according to federal regulations. Dr. Hazlewood currentlyoperates his own consulting company, Research Consultant’s International, andis president of Petroclean, L.L.C. In addition, Dr. Hazlewood was employedin various capacities by the Baylor College of Medicine from 1965 until December 31,1997, where he was a professor of Molecular Biology and Biophysics. Dr. Hazlewoodreceived his Ph.D. in Medical Physiology from the University of Tennessee. Dr. Hazlewoodis a prolific writer on medical topics and has been recognized for his researchwith numerous awards, honors and research grants.

 

**AuditCommittee Financial Expert**

 

The Company hasnot established an Audit Committee. Therefore, the Board of Directors has notdesignated any of its members as an “audit committee financial expert” asdefined by the rules and regulations of the Securities and ExchangeCommission.

 

**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Based solely upona review of Forms 3 and 4 and amendments thereto furnished to the Company underRule 16a-3(e) during the fiscal year ended February 28, 2009 andForm 5 and amendments thereto furnished to the Company with respect tosuch period, the Company is not aware of any director, officer, or beneficialowner of more than 10% of any class of equity securities of the Company registeredpursuant to Section 12 of the Securities Exchange Act of 1934 (the “ExchangeAct”) that has failed to file on a timely basis, as disclosed in the aboveforms, reports required by Section 16(a) of the Exchange Act duringthe Company’s most recent fiscal year.

 

**Code ofEthics**

 

The Company hasadopted a code of ethics that applies to our chief executive officer, chieffinancial officer, chief accounting officer and all persons performing similarfunctions. The Company hereby undertakes to provide a copy of this code ofethics to any person, without charge upon request made in writing to: InvestorRelations, 9432 Old Katy Road, Suite 200, Houston, Texas 77055.

 

## **ITEM 11.**                           EXECUTIVECOMPENSATION

## ** **

**SUMMARY COMPENSATION TABLE**

 
| ** **                                 | ** ** | **Annual Compensation**  | ** ** | **Long-Term Compensation** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| **Name and Principal  Position** | ** ** | **Fiscal  Year  Ending** | ** ** | **Salary($)**              | ** ** | **Bonus  ($)** | ** ** | **Other Annual  Compensation  ($)** | ** ** | **Restricted  Stock  Awards($)** | ** ** | **Securities  Underlying  Options/SARs($)** | ** ** | **LTIP  Payouts  ($)** | ** ** | **All Other  Compensation  ($)** | ** ** |
| Stanislaw R. Burzynski,                    |       | 2007                     |       | -0-                        |       | -0- |   | -0- |   | -0- |   | -0- |   | -0- |   | -0- |   |
| M.D., Ph.D., President,                    |       | 2008                     |       | -0-                        |       | -0- |   | -0- |   |  -0- |   | -0- |   |  -0- |   |  -0- |   |
| Secretary and Treasurer(1)                 |       | 2009                     |       | -0-                        |       | -0- |   | -0- |   |  -0- |   |  -0- |   |  -0- |   |  -0- |   |

 

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(1)           In May of 2000, Dr. Burzynskibegan drawing his entire salary through his medical practice and is notcurrently compensated by the Company for his services.

 

Directors do notreceive any compensation for serving as directors; however, directors arereimbursed for all ordinary and necessary expenses incurred in attendingmeetings of the Board of Directors or otherwise incurred in their capacity asdirectors. In addition, any director also serving as a director of the IRB, theindependent review board for the Company’s clinical trials designated accordingto federal regulations, is compensated by the IRB approximately $1,800****annually for serving as a director of theIRB.

 

## **ITEM 12.**                           SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

## ** **

The followingtable sets forth, as of May 1, 2009, the number of outstanding shares ofCommon Stock (the Company’s only class of voting securities) owned by (i) eachperson known by the Company to beneficially own more than 5% of its outstandingCommon Stock, (ii) each director, (iii) each named executive officer,and (iv) all officers and directors as a group. The address for all of thebeneficial owners listed below is the Company’s address.

 
| **Name  of  beneficial owner**                                            | ** ** | **Amount and nature of  beneficial ownership** | ** ** | **Percent of class (1)** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------------|------------|--------------------------|------------|
|                                                                      |       |                                           |       |                     |       |
| Stanislaw R. Burzynski, M.D., Ph.D.                                       |       | 106,444,190                                    |       | 81.0                     | %          |
| Barbara Burzynski, M.D.                                                   |       | 106,444,190                                    | (2)        | 81.0                     | %          |
| Michael H. Driscoll                                                       |       | 570,000                                        |       | *                        |       |
| Carlton Hazlewood                                                         |       | 0                                              |       | *                        |       |
| All Current Directors and Executive Officers as a  group (4 persons) |       | 107,014,190                                    |       | 81.45                    | %          |

 

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*                                        Less than one percent.

 

(1)                                 Percentages shown are based upon131,388,444 shares of Common Stock outstanding as of May 1, 2009. Certainshares are deemed beneficially owned by more than one person listed in thetable.

 

(2)                                 All of the shares listed above forDr. Barbara Burzynski are included in the total number of shares forDr. Burzynski, her husband.

 

## **ITEM 13.**                           CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

## ** **

Dr. Burzynskiis the President, Secretary, Treasurer and Chairman of the Board of theCompany, as well as the beneficial owner of 81.0% of the Company’s outstandingCommon Stock. Since 1983, Dr. Burzynski has personally funded andsupported the Company’s operations out of funds generated from his medicalpractice pursuant to various agreements with the Company.

 

**LicenseAgreement**

 

The Companyentered into the License Agreement with Dr. Burzynski which gives theCompany the exclusive right in the Territory (composed of the United States,Canada and Mexico) to use, manufacture, develop, sell, distribute, sublicenseand otherwise exploit all of his rights, title and interests in Antineoplastonsin the treatment and diagnosis of cancer, including but not limited to anypatent rights which may be granted in these countries. The License Agreementwill terminate upon the earlier of the expiration of the last patent licensedto the Company, or termination by Dr. Burzynski, at his option, if he isremoved as a director or officer of the Company without his consent, if theCompany files for bankruptcy or is the subject of any proceeding underapplicable bankruptcy laws where such proceeding is not dismissed within 90days from the date a petition is filed, or if any shareholder or group ofshareholders acting in concert becomes the beneficial owner of the Company’ssecurities having voting power equal to or greater than the voting power of thesecurities Dr. Burzynski holds. Amendments to the License Agreement on April 24,1984 and on March 1, 1990 granted Dr. Burzynski the limited right to 

 

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manufacture, use, andexploit Antineoplastons in the Company’s exclusive territory solely for thepurpose of enabling Dr. Burzynski to treat patients in his medicalpractice until such date that the FDA may approve the sale of Antineoplastonsfor the treatment of cancer in the United States.

 

**ResearchFunding Arrangements**

 

Effective March 1,1997, the Company entered into the Research Funding Agreement with Dr. Burzynskiand terminated all of the prior funding agreements between the Company and Dr. Burzynski.Pursuant to the Research 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;

 

·                                          Dr. Burzynski agreed to pay theexpenses to 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. Burzynskimay fulfill his obligations in part by providing such administrative staff asis necessary 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 themonthly budget shall be made in two equal installments on the first andfifteenth of each 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 unlimitedand free access to all equipment which the Company owns, so long as such use isnot in 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 a third amendment to the Research FundingAgreement, whereby the Company and Dr. Burzynski extended the term thereofuntil February 28, 2008, with an 

 

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automatic renewal for anadditional one-year term, unless one party notifies the other party at leastthirty days prior to the expiration of the term of the agreement of itsintention not to renew the agreement.  Inaddition to the foregoing termination provisions, the agreement automaticallyterminates in the event that Dr. Burzynski owns less than fifty percent ofthe outstanding shares of the Company, or is removed as President and/orChairman of the Board of the Company, unless Dr. Burzynski notifies theCompany in writing of his intention to continue the agreement notwithstandingthis automatic termination provision. Subject to the foregoing, the term of theResearch Funding Agreement has renewed and extended until February 28,2010.

 

**RoyaltyAgreement**

 

The Company and Dr. Burzynskientered into the Royalty Agreement, pursuant to which Dr. Burzynski agreedto act as the principal clinical investigator of the clinical trials necessaryfor obtaining FDA approval for interstate marketing of Antineoplastons. TheCompany and Dr. Burzynski agreed that in the event the Company receivesFDA approval for interstate marketing and distribution, of which there can beno assurance, the Company shall pay Dr. Burzynski a royalty of 10% (tenpercent) of the Company’s gross income, which royalty shall be paid on allgross receipts from all future sales, distributions and manufacture ofAntineoplastons.

 

Pursuant to theRoyalty Agreement, Dr. Burzynski retains the right to either (i) produceAntineoplaston products for use in his medical practice to treat up to 1,000patients, at any one time, without paying any fees to the Company or (ii) purchasefrom the Company Antineoplaston products to treat up to 1,000 patients, at anyone time, at a price equal to cost plus 10% (ten percent). Dr. Burzynskihas the right to lease or purchase all the manufacturing equipment located at12707 Trinity Drive, Stafford, Texas at a fair market price. The RoyaltyAgreement further provides that the Company will have the right, when and ifAntineoplastons are approved for use and sale by the FDA, (i) to produce allAntineoplaston products to be sold or distributed in the United States, Canadaand Mexico for the treatment of cancer and (ii) to lease from Dr. Burzynskithe entire premises located at 12707 Trinity Drive, Stafford, Texas at termsand rates competitive with those available in the real estate market at thattime, provided that Dr. Burzynski does not need the facility for his use.

 

**OtherTransactions**

 

Since TadeuszBurzynski’s death on June 13, 1998, the Company has paid his widow, ZofiaBurzynski, $1,000 per month as death benefit payments. Tadeusz Burzynski wasformerly an officer and a director of the Company and the brother of Dr. Burzynski.

 

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

## ** **

PKF examined the financial statements of the Companyfor the fiscal year ended February 28, 2009. Fitts Roberts examined thefinancial statements for the fiscal years ended February 28, 2009 and February29, 2008.

 

The following table sets forth the aggregate feesbilled to the Company by its principal accounting firm, PKF for the audit ofthe year ended February 28, 2009, and Fitts Roberts for the quarterly periodsduring the year ended February 28, 2009 and for the fiscal year ended February 29,2008, respectively:

 

**PKF**

 

| *** ***         | *** *** | **2009** |
|----------------------|--------------|----------|
| * *             | * *     | * * |
| *Audit Fees*         | * *     | *$*      | *25,000* |
| *Audit-Related Fees* | * *     | *$*      | *0* |
| *Tax Fees*           | * *     | *$*      | *0* |
| *All Other Fees*     | * *     | *$*      | *0* |
| *Total*              | * *     | *$*      | *25,000* |

 

**Fitts Roberts**

 
| *** ***         | *** *** | **2009** | ** ** | **2008** | ** ** |
|----------------------|--------------|----------|------------|----------|------------|
| * *             | * *     | * * | * *   | * * |       |
| *Audit Fees*         | * *     | *$*      | *22,750*   | * * | *$*        | *32,700* |   |
| *Audit-Related Fees* | * *     | *$*      | *0*        | * * | *$*        | *0* |   |
| *Tax Fees*           | * *     | *$*      | *0*        | * * | *$*        | *0* |   |
| *All Other Fees*     | * *     | *$*      | *0*        | * * | *$*        | *0* |   |
| *Total*              | * *     | *$*      | *22,750*   | * * | *$*        | *32,700* |   |

 

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**Audit Fees** for Fitts Roberts werefor professional services rendered for the audit of BRI’s financial statementsand review of the interim financial statements included in quarterly reportsand services in connection with statutory and regulatory filings orengagements.  Audit Fees for PKF consistsof the estimated fees of $25,000 to complete the audit for fiscal year endedFeb 28, 2009.

 

**Audit-Related Fees** for FittsRoberts are for assurance and related services that are reasonably related tothe performance of the audit or review of BRI’s financial statements and arenot reported under “Audit Fees.”  Therewere no Audit-Related Fees incurred in fiscal years 2009 or 2008.

 

**Tax Fees** were for professionalservices for federal and state tax compliance, tax advice and taxplanning.  There were no Tax Feesincurred in fiscal years 2009 or 2008.

 

**All Other Fees** were for servicesother than the services reported above. There were no Other Fees incurred in fiscal years 2009 or 2008.

 

**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.

 

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## **ITEM 15.**         EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES

## ** **

| **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  Form 10-KSB filed with the Securities and Exchange Commission on  May 2, 2001 (File No. 000-23425)).           |
|                 |       |                                                                                                                                                                                                                                                                                                                                    |
| 10.6                 |       | Second Amendment to the Research Funding Agreement, effective as of  February 29, 2004, by and between the Company and Dr. Stanislaw R.  Burzynski (incorporated by reference from Exhibit 10.6 to  Form 10-KSB filed with the Securities and Exchange Commission on  June 1, 2004 (File No. 000-23425)). |
|                 |       |                                                                                                                                                                                                                                                                                                                                    |
| 10.7                 |       | Royalty Agreement, dated March 25, 1997, by and between the  Company and Dr. Stanislaw R. Burzynski (incorporated by reference from  Exhibit 10(5) to Form 10-SB filed with the Securities and  Exchange Commission on November 25, 1997 (File No. 000-23425)).                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                    |
| 10.8                 |       | First Amended Royalty Agreement, dated September 29, 1997, by and  between the Company and Dr. Stanislaw R. Burzynski (incorporated by  reference from Exhibit 10(6) to Form 10-SB filed with the  Securities and Exchange Commission on November 25, 1997 (File No. 000-23425)).                    |
|                 |       |                                                                                                                                                                                                                                                                                                                                    |
| 10.9                 |       | Third Amendment to Research Funding Agreement, effective as of  March 1, 2007, by and between the Company and Dr. Stanislaw R.  Burzynski (incorporated by reference from Exhibit 10.9 to  Form 10-KSB filed with the Securities and Exchange Commission on  May 29, 2007 (File No. 000-23425)).          |
|                 |       |                                                                                                                                                                                                                                                                                                                                    |
| 23.1                 |       | Consent of Fitts, Roberts, & CO., P.C.                                                                                                                                                                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                    |
| 24                   |       | Power of Attorney (Included with the Signature Page).                                                                                                                                                                                                                                                                                   |

 

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| 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). |

 

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### **SIGNATURES**

### ** **

In accordance with Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
|   | **BURZYNSKI RESEARCH INSTITUTE, INC.** |
|--------|----------------------------------------|
|   | ** **                             |
|   | ** **                             |
|   | By:                                    | /s/ Stanislaw R. Burzynski |
|   |                                   | Stanislaw R. Burzynski, President, |
|   |                                   | Secretary, Treasurer and Chairman of the Board of Directors |

 

 

Date:  May 29, 2009

 

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Each person whose signature appears below constitutes and appoints Dr. StanislawR. Burzynski his/her true and lawful attorney-in-fact and agent, with fullpower of substitution and resubstitution, severally, for him/her in his/hername, 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, 2009 |
| President, Secretary, Treasurer and |   |                    |
| Chairman of the Board of Directors  |   |                    |
|                                |   |                    |
|                                |   |                    |
| /s/ Barbara Burzynski               |   |                    |
| Barbara Burzynski                   |   | Date: May 29, 2009 |
| Director                            |   |                    |
|                                |   |                    |
|                                |   |                    |
| /s/ Michael H. Driscoll             |   |                    |
| Michael H. Driscoll                 |   | Date: May 29, 2009 |
| Director                            |   |                    |
|                                |   |                    |
|                                |   |                    |
| /s/ Carlton Hazlewood               |   |                    |
| Carlton Hazlewood                   |   | Date: May 29, 2009 |
| Director                            |   |                    |

 

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**Burzynski Research Institute, Inc.**

** **

**Financial Statements**

** **

**For the years ended**

**February 28, 2009 and February 29,2008**

 

TABLE OF CONTENTS

 
| ** **                                                 | **Page**       |
|------------------------------------------------------------|----------------|
|                                                       |           |
| Reports  of Independent Registered Public Accounting Firms | F-2 – F-3 |
|                                                       |           |
| Balance Sheets                                             | F-4            |
|                                                       |           |
| Statements  of Operations                                  | F-5            |
|                                                       |           |
| Statements of Stockholders’ Deficit                   | F-6            |
|                                                       |           |
| Statements  of Cash Flows                                  | F-7            |
|                                                       |           |
| Notes to Financial Statements                              | F-8            |

 

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REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

   ofBurzynski Research Institute, Inc.

 

We have audited the accompanying balancesheet of Burzynski Research Institute, Inc. as of February 28, 2009and the related statements of operations, stockholders’ deficit, and cash flowsfor the years then ended.  These financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting.  Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation.  We believe that our audit provides areasonable 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, 2009, and the results of its operations and its cashflows for the year then ended, in conformity with U.S. generally acceptedaccounting principles.

 

 
| May 29, 2009 |   |                                    |
|-------------------|--------|-----------------------------------------|
| Houston, Texas    |   | /s/ Pannell Kerr Forster of Texas, P.C. |

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

To the Board of Directors and Stockholders

 of Burzynski Research Institute, Inc.

 

We have audited the accompanying balance sheet of Burzynski ResearchInstitute, Inc. as of February 29, 2008, and the related statementsof operations, stockholders’ deficit, and cash flows for the year thenended.  These financial statements are the responsibility of the Company’smanagement.  Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements.  An audit also includes assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  Webelieve that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of Burzynski ResearchInstitute, Inc. as of February 29, 2008 and the results of theiroperations and their cash flows for the year then ended, in conformity withU.S. generally accepted accounting principles.

 

We were not engaged to examine management’s assertion about theeffectiveness of Burzynski Research Institute, Inc.’s internal controlover financial reporting as of February 29, 2008 included as Item 9A(T) inthe accompanying 10-K, and accordingly, we do not express an opinion thereon.

 

 
| May 28, 2008 |                              |
|-------------------|-----------------------------------|
| Houston, Texas    | /s/ Fitts Roberts & CO., P.C. |

 

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**BURZYNSKIRESEARCH INSTITUTE, INC.**

**BALANCESHEETS**

**February 28,2009 and February 29, 2008**

 
| ** **                                                                                                | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ASSETS                                                                                                    |       |        |       |        |       |
|                                                                                                      |       |        |       |        |       |
| Current assets                                                                                            |       |        |       |        |       |
|                                                                                                      |       |        |       |        |       |
| Cash and cash  equivalents (Note 1)                                                                       |       | $           | 10,695     |        | $          | 3,161 |   |
|                                                                                                      |       |        |       |        |       |
| Total current  assets                                                                                     |       | 10,695      |       | 3,161       |       |
|                                                                                                      |       |        |       |        |       |
| Property and  equipment, net of accumulated depreciation (Notes 1 and 3)                                  |       | 5,761       |       | 7,150       |       |
|                                                                                                      |       |        |       |        |       |
| Total assets                                                                                              |       | $           | 16,456     |        | $          | 10,311 |   |
|                                                                                                      |       |        |       |        |       |
| LIABILITIES AND  STOCKHOLDERS’ DEFICIT                                                               |       |        |       |        |       |
|                                                                                                      |       |        |       |        |       |
| Current  liabilities                                                                                      |       |        |       |        |       |
|                                                                                                      |       |        |       |        |       |
| Accounts payable                                                                                          |       | $           | 78,457     |        | $          | 33,430 |   |
| Accrued  liabilities                                                                                      |       | 25,348      |       | 35,127      |       |
|                                                                                                      |       |        |       |        |       |
| Total current  liabilities                                                                                |       | 103,805     |       | 68,557      |       |
|                                                                                                      |       |        |       |        |       |
| Total  liabilities                                                                                        |       | 103,805     |       | 68,557      |       |
|                                                                                                      |       |        |       |        |       |
| 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                                                                               |       | 84,362,921  |       | 79,264,295  |       |
| Discount on  common stock                                                                                 |       | (100        | )          | (100        | )          |
| Retained deficit                                                                                          |       | (84,581,559 | )          | (79,453,830 | )          |
|                                                                                                      |       |        |       |        |       |
| Total  stockholders’ deficit                                                                         |       | (87,349     | )          | (58,246     | )          |
|                                                                                                      |       |        |       |        |       |
| Total  liabilities and stockholders’ deficit                                                         |       | $           | 16,456     |        | $          | 10,311 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

 

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**BURZYNSKIRESEARCH INSTITUTE, INC.**

**STATEMENTSOF OPERATIONS**

**For theYears Ended February 28, 2009 and February 29, 2008**

 
| ** **                                   | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|----------------------------------------------|------------|-------------|------------|-------------|------------|
|                                         |       |        |       |        |       |
| Operating  expenses                          |       |        |       |        |       |
| Research and  development (Notes 1 and 2)    |       | $           | 4,894,255  |        | $          | 4,365,074 |   |
| General and  administrative                  |       | 231,374     |       | 155,059     |       |
| Depreciation (Notes  1 and 3)                |       | 1,389       |       | 1,964       |       |
|                                         |       |        |       |        |       |
| Total operating  expenses                    |       | 5,127,018   |       | 4,522,097   |       |
|                                         |       |        |       |        |       |
| Operating loss  before other income          |       | (5,127,018  | )          | (4,522,097  | )          |
|                                         |       |        |       |        |       |
| Other income                                 |       | 1,500       |       | —      |       |
|                                         |       |        |       |        |       |
| Loss before  provision for income tax        |       | (5,125,518  | )          | (4,522,097  | )          |
|                                         |       |        |       |        |       |
| Income tax  expense (Notes 1 and 6)          |       | 2,211       |       | —      |       |
|                                         |       |        |       |        |       |
| Net loss                                     |       | $           | (5,127,729 | )           | $          | (4,522,097 | ) |
|                                         |       |        |       |        |       |
| Net loss per  common share:                  |       |        |       |        |       |
| Basic and  diluted                           |       | $           | (0.04      | )           | $          | (0.03 | ) |
|                                         |       |        |       |        |       |
| Weighted average  common shares outstanding: |       |        |       |        |       |
| Basic and diluted                            |       | 131,388,444 |       | 131,388,444 |       |

 

The accompanying notes are an integral part of these financialstatements.

 

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**BURZYNSKIRESEARCH INSTITUTE, INC.**

**STATEMENTSOF STOCKHOLDERS’ DEFICIT**

**Forthe Years Ended February 28, 2009 and February 29, 2008**

 
| ** **                                                                | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional** | ** ** | **Discount on** | ** ** | ** **             | ** ** | **Total**   | ** ** |
|---------------------------------------------------------------------------|------------|------------------|------------|-------------|------------|----------------|------------|-----------------|------------|------------------------|------------|-------------|------------|
| ** **                                                                | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Common**     | ** ** | **Retained**    | ** ** | **Stockholders’** | ** ** |
| ** **                                                                | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Stock**       | ** ** | **Deficit**            | ** ** | **Deficit** | ** ** |
|                                                                      |       |             |       |        |       |           |       |            |       |                   |       |        |       |
| Balance February 28, 2007                                            |       | 131,388,444      |       | $           | 131,389    |           | $          | 74,747,268      |       | $                      | (100       | )           | $          | (74,931,733 | ) | $ | (53,176 | ) |
|                                                                      |       |             |       |        |       |           |       |            |       |                   |       |        |       |
| Cash contributed by S.R. Burzynski M.D., Ph.D.                            |       | —           |       | —      |       | 368,000        |       | —          |       | —                 |       | 368,000     |       |
|                                                                      |       |             |       |        |       |           |       |            |       |                   |       |        |       |
| FDA clinical trial expenses paid directly by S.R.  Burzynski M.D., Ph. D. |       | —           |       | —      |       | 4,149,027      |       | —          |       | —                 |       | 4,149,027   |       |
|                                                                      |       |             |       |        |       |           |       |            |       |                   |       |        |       |
| Net loss                                                                  |       | —           |       | —      |       | —         |       | —          |       | (4,522,097             | )          | (4,522,097  | )          |
|                                                                      |       |             |       |        |       |           |       |            |       |                   |       |        |       |
| Balance February 29, 2008                                            |       | 131,388,444      |       | 131,389     |       | 79,264,295     |       | (100            | )          | (79,453,830            | )          | (58,246     | )          |
|                                                                      |       |             |       |        |       |           |       |            |       |                   |       |        |       |
| Cash contributed by S.R. Burzynski M.D., Ph.D.                            |       | —           |       | —      |       | 420,000        |       | —          |       | —                 |       | 420,000     |       |
|                                                                      |       |             |       |        |       |           |       |            |       |                   |       |        |       |
| FDA clinical trial expenses paid directly by S.R.  Burzynski M.D., Ph. D. |       | —           |       | —      |       | 4,678,626      |       | —          |       | —                 |       | 4,678,626   |       |
|                                                                      |       |             |       |        |       |           |       |            |       |                   |       |        |       |
| Net loss                                                                  |       | —           |       | —      |       | —         |       | —          |       | (5,127,729             | )          | (5,127,729  | )          |
|                                                                      |       |             |       |        |       |           |       |            |       |                   |       |        |       |
| Balance February 28, 2009                                            |       | 131,388,444      |       | $           | 131,389    |           | $          | 84,362,921      |       | $                      | (100       | )           | $          | (84,581,559 | ) | $ | (87,349 | ) |

 

The accompanying notes are an integral part of these financialstatements.

 

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**BURZYNSKIRESEARCH INSTITUTE, INC.**

**STATEMENTSOF CASH FLOWS**

**For theYears Ended February 28, 2009 and February 29, 2008**

 
| ** **                                                                   | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                                         |       |      |       |      |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                        |       |      |       |      |       |
| Net loss                                                                     |       | $         | (5,127,729 | )         | $          | (4,522,097 | ) |
| Adjustments to  reconcile net loss to net cash used by operating activities: |       |      |       |      |       |
| Depreciation                                                                 |       | 1,389     |       | 1,964     |       |
| FDA clinical  trial expenses paid directly by S.R. Burzynski M.D., Ph. D.    |       | 4,678,626 |       | 4,149,027 |       |
| Change in  Operating Assets & Liabilities                                |       |      |       |      |       |
| Accounts payable                                                             |       | 45,027    |       | (10,794   | )          |
| Accrued  liabilities                                                         |       | (9,779    | )          | 13,249    |       |
|                                                                         |       |      |       |      |       |
| NET CASH USED IN  OPERATING ACTIVITIES                                       |       | (412,466  | )          | (368,651  | )          |
|                                                                         |       |      |       |      |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                        |       |      |       |      |       |
| Purchase of  property and equipment                                          |       | —    |       | (6,838    | )          |
|                                                                         |       |      |       |      |       |
| NET CASH USED IN  INVESTING ACTIVITIES                                       |       | —    |       | (6,838    | )          |
|                                                                         |       |      |       |      |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                        |       |      |       |      |       |
| Additional  paid-in capital                                                  |       | 420,000   |       | 368,000   |       |
|                                                                         |       |      |       |      |       |
| NET CASH  PROVIDED BY FINANCING ACTIVITIES                                   |       | 420,000   |       | 368,000   |       |
|                                                                         |       |      |       |      |       |
| NET INCREASE  (DECREASE) IN CASH                                             |       | 7,534     |       | (7,489    | )          |
|                                                                         |       |      |       |      |       |
| CASH AT  BEGINNING OF YEAR                                                   |       | 3,161     |       | 10,650    |       |
|                                                                         |       |      |       |      |       |
| CASH AT END OF  YEAR                                                         |       | $         | 10,695     |      | $          | 3,161 |   |
|                                                                         |       |      |       |      |       |
| SUPPLEMENTAL  CASH FLOW DISCLOSURES:                                         |       |      |       |      |       |
| Cash Paid During  the Year For:                                              |       |      |       |      |       |
| Income Taxes                                                                 |       | $         | 2,211      |      | $          | — |   |

 

The accompanying notesare an integral part of these financial statements.

 

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BURZYNSKI RESEARCH INSTITUTE, INC.

NOTES TO FINANCIALSTATEMENTS

 

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

 

# **Background and Basis ofPresentation**

# ** **

The financial statements of BurzynskiResearch Institute, Inc. (BRI or the Company), a Delaware corporation,include expenses incurred related to clinical trials, which were sanctioned bythe U.S. Food and Drug Administration (FDA) in 1993, for antineoplaston drugsused in the treatment of cancer.  Theseexpenses incurred directly by S.R. Burzynski, M.D., Ph.D. (Dr. Burzynski)have been reported as research and development costs and as additional paid-incapital.  Other funds received from Dr. Burzynskihave also been reported as additional paid-in capital.  Expenses related to Dr. Burzynski’smedical practice (unrelated to the clinical trials) have not been included inthese financial statements.  Dr. Burzynskiis the President, Chairman of the Board and owner of over 81% of theoutstanding stock of Burzynski Research Institute, Inc., and also is theinventor and original patent holder of certain drug products knows as “antineoplastons”,which he has licensed to the Company.

 

The Company and Dr. Burzynski haveentered into various agreements, as further described in Note 2, which providethe Company the exclusive right in the United States, Canada and Mexico to use,manufacture, develop, sell, distribute, sublicense and otherwise exploit allthe rights, titles and interest in antineoplaston drugs used in the treatmentof cancer, once the drug is approved for sale by the FDA.

 

BRI’s administrative offices are located inHouston, Texas; its research and production facilities are in Stafford, Texas.The Company operates primarily as a research and development facility ofantineoplaston drugs currently being tested for the use in the treatment ofcancer, and provides consulting services. Segment information is not presented since all of the Company’soperations are attributed to a single reportable segment.  The Company has had no significant revenuefrom external sources.  BRI is currentlyconducting clinical trials on various antineoplastons in accordance with FDAregulations, however, at this time none of the antineoplaston drugs havereceived FDA approval; further, there can be no assurance FDA approval will begranted.

 

Economic Dependency

 

BRI has generated nosignificant revenues since its inception. As of February 28, 2009, the Company had a working capital deficitof approximately $93,000 and accumulated deficit of approximately$85,000,000.  For the years ended February 28,2009 and February 29, 2008 the Company incurred losses of approximately$5,128,000 and $4,522,000, respectively.

 

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BURZYNSKI RESEARCHINSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS - continued

 

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

 

Dr. Burzynski has funded the capital andoperational needs of the Company since its inception from revenues generatedthrough his medical practice pursuant to various agreements as described inNote 2.

 

BRI is economicallydependent on its funding from Dr. Burzynski through his medicalpractice.  Management estimates thatapproximately one-tenth of Dr. Burzynski’s patients are admitted andtreated as part 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.

 

In addition, as with anymedical practice, Dr. Burzynski is subject to potential claims by patientsand other potential claimants commonly arising out of the operation of amedical practice.  The risks associatedwith Dr. Burzynski’s medical practice directly affect his ability to fundthe operations of BRI.

 

It is the intention of thedirectors and management to seek additional capital through the sale ofsecurities.  The proceeds from such saleswill be used to fund BRI’s operating deficit until it achieves positiveoperating cash flow.  However, there canbe no assurance that the Company will be able to raise such additional capital.

 

Significant AccountingPolicies

 

## ***Cash and Cash Equivalents***

## ** **

TheCompany considers all highly liquid investments purchased with an originalmaturity of three months or less to be cash equivalents.

 

## ***Property and 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 10 years.  Expenditures for major renewals andbetterments that extend the useful lives of property and equipment arecapitalized; maintenance and repairs are charged against earnings asincurred.  Upon disposal of assets, therelated cost and accumulated depreciation are removed from the accounts and anyresulting gain or loss is recognized currently.

 

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BURZYNSKI RESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS - continued

 

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

 

## ***Income Taxes***

## ** **

The Company uses the assetand liability method of accounting for income taxes, under which deferredincome taxes are recognized for the tax consequences of temporary differencesby applying 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 deducted by Dr. Burzynskiand are not included in the Company’s tax provision.  The portion of the Texas gross margin taxthat is based on income is treated as income taxes and included in the incometax provision.

 

***Loss Per Common Share***

 

Basic and diluted loss percommon share information for all periods is presented under the requirements ofFinancial Accounting Standards Board’s Statement of Financial Accounting Standards(“SFAS”) 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.

 

### ***ManagementEstimates***

### ** **

The preparation of financialstatements in conformity with U.S. generally accepted accounting principlesrequires management to make estimates and assumptions that affect reportedamounts of assets and liabilities at the dates of the financial statements andthe reported amounts of revenues and expenses during the reported periods.  The significant estimates are the allocationof payroll and other expenses between the clinical trial expenses reported withBurzynski Research Institute, Inc. expenses and Dr. Burzynski’smedical practice expenses.  Departmentmanagers review at least quarterly the duties of each employee in theirdepartment and estimate the percentage of time each employee spends betweenclinical trials and the medical practice. Payroll costs are allocated between clinical trials and the medicalpractice based on these percentages. Other expenses are allocated based on the percentage of payrollallocated to either clinical trials or the medical practice.  Management believes that the estimates andallocations are reasonable.  Actualresults could differ from these estimates.

 

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BURZYNSKI RESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS - continued

 

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

 

***Stock Options***

 

EffectiveMarch 1, 2006, the Company adopted the fair value recognition provisionsof SFAS 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 costfor all share-based payments granted prior to , but not yet vested as of March 1,2006, based on the grant date fair value estimated in accordance with theoriginal provisions of SFAS No. 123, and (b) compensation cost for allshare-based payments granted subsequent to March 1, 2006, based on thegrant-date fair value estimated in accordance with the provisions of SFAS No. 123(R).  Results for prior periods have not beenrestated.

 

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 net lossand earnings per share regarding the provisions of SFAS No. 123(R) in anyof the periods presented.

 

### ***Research and Development***

### ** **

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

 

***Fair Value of FinancialInstruments***

 

The carrying value of cash, receivables and accounts payablesapproximates fair value due to the short-term maturity of theseinstruments.  None of the financialinstruments are held for trading purposes.

 

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BURZYNSKIRESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS — continued

 

**2.****                                    ****Agreements With, and Other Related Party Transactions:**

 

TheCompany has agreements with its majority shareholder and President Dr. Burzynskias further described below:

 

License Agreement

 

Dr. Burzynskiis the owner of patents involving the formulation, preparation, manufacture,production, use, dosage and treatment with antineoplastons.  The United States Patent Office and PatentOffices and Patent Officers of thirty-four other countries have issued thepatents.  The Patents for cancertreatment and diagnosis in the United States and Canada are licensed to theCompany pursuant to a License Agreement.

 

The License Agreement grantsto the Company the exclusive right, in the United States, Canada, and Mexico,to use, manufacture, develop, sell, distribute, sub-license and otherwiseexploit all of Dr. Burzynski’s rights, title, and interests, includingpatent rights, in antineoplaston drugs in the treatment and diagnosis ofcancer.  The Company will not be able toexploit such rights until such time as antineoplastons are approved, of whichthere can be no assurance, by the FDA for sale in the United States and theappropriate authority in Canada and Mexico.

 

TheAgreement gives Dr. Burzynski the right to make, use, sell, distribute,and otherwise exploit antineoplastons in connection with the treatment ofpatients in his medical practice.

 

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 removedas a director or officer of the Company without his consent, if the Companyfiles for bankruptcy or if any shareholder or group of shareholders acting inconcert becomes the beneficial owner of the Company’s securities having votingpower equal to or greater than the voting power of the securities Dr. Burzynskiholds.

 

Under the License Agreement,the Company currently owns exclusive rights to eight (8) issued UnitedStates Patents, four (4) issued Canadian Patents and one (1) issuedMexican Patent.

 

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BURZYNSKI RESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS — continued

 

**2.****                                    ****Agreements With, and Other Related Party Transactions: (continued)**

 

The five initial United States Patents (the “Initial Patents”) relateto: (i) Determination of Antineoplastons in body tissue or fluids as atesting procedure to aid in the diagnosis of cancer; (ii) Processes forthe preparation of purified fractions of Antineoplastons from human urine; (iii) Processesfor the synthetic production of Antineoplastons and methods of treatingneoplastic disease (cancer); (iv) Administration of Antineoplastons tohumans; and (v) Methods of synthesizing A-10.  All of these Initial Patents have expired asof February 28, 2009. The Company does not believe the expiration of anyof the Initial Patents will have a material adverse effect 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 expires May 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 eighth United States Patent (the “2005 U.S. Patent”) relates to adivisional application to the 2001 U.S. Patent. The 2005 U.S. Patent was issued in September 2005 and will expire July 31,2018.

 

The four Canadian Patents (the “Canadian Patents”)relate to: (i) Processes for the preparation of purified fractions ofAntineoplastons from human urine, (ii) Processes for the syntheticproduction of Antineoplastons and methods of treating neoplastic disease (cancer),(iii) Liposomal formulation of Antineoplastons, and (iv) Treatmentregimen for the administration of phenylacetylglutamine.  The Canadian Patents expired or will expireon November 14, 2006, June 4, 2002, May 14, 2017, and July 2,2019, respectively; however, the Company does not believe the Canadian Patentsthat expired in 2002 or in 2006 will have a material adverse effect on theCompany.

 

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

 

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BURZYNSKI RESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS — continued

 

**2.****                                    ****Agreements With, and Other Related Party Transactions: (continued)**

 

Research Funding Agreement

 

EffectiveMarch 1, 1997, Dr. Burzynski restructured his funding arrangementwith the Company and entered into a Research Funding Agreement.  Under this agreement the two parties agreedto the following:

 

1.                                       BRI agrees toundertake all scientific research in connection with the development of new orimproved antineoplastons for the treatment of cancer.  BRI will hire such personnel as is requiredto fulfill its obligations under the agreement.

 

2.                                       Dr. Burzynskiagrees to fund in its entirety all basic research, which BRI undertakes inconnection with the development of other antineoplastons or refinements toexisting antineoplastons for the treatment of cancer.

 

3.                                       As FDA approvalof antineoplastons will benefit both parties, Dr. Burzynski agrees to paythe expenses to conduct the clinical trials for BRI.

 

4.                                       Dr. Burzynskiagrees to provide BRI such laboratory and research space as BRI needs at theTrinity Drive facility in Stafford, Texas, and such office space as isnecessary at Trinity Drive and at his medical facility.

 

5.                                       In the eventthe research described in the agreement results in the approval of anyadditional patents for the treatment of cancer, Dr. Burzynski shall ownall such patents, but shall license to BRI the patents based on the same terms,conditions and limitations as is in the current license between the parties.

 

6.                                       Dr. Burzynskishall have unlimited and free access to all equipment which BRI owns, so longas such use is not in conflict with BRI’s use of such equipment, includingwithout limitation to all equipment used in manufacturing of antineoplastonsused in the clinical trials.

 

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BURZYNSKI RESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS — continued

 

**2.****                                    ****Agreements With, and Other Related Party Transactions: (continued)**

 

7.                                       The amounts, whichDr. Burzynski is obligated to pay under the agreement, shall be reduceddollar for dollar by the following:

 

a.                                       Any incomewhich BRI receives for services provided to other companies for research and/ordevelopment of other products, less such identifiable marginal or additionalexpenses necessary to produce such income (such as the purchase of chemicals,products or equipment) solely necessary to engage in such other research anddevelopment activity, and

 

b.                                      The netproceeds of any stock offering or private placement, which BRI receives duringthe term of the engagement up to a maximum of $1,000,000 in a given BRI fiscalyear.

 

8.                                       Effective March 1, 2009, the term of the Research Funding Agreementwas extended to February 28, 2010, and is automatically renewable for anadditional one-year term thereafter, unless one party notifies the other partyat least thirty days prior to the expiration of the term of the agreement ofits intention not to renew the agreement. In addition to the foregoing termination provisions, the agreementautomatically terminates in the event that Dr. Burzynski owns less thanfifty percent of the outstanding shares of the Company, or is removed asPresident and/or Chairman of the Board of the Company, unless Dr. Burzynskinotifies the Company in writing of his intention to continue the agreementnotwithstanding this automatic termination provision.

 

F-15

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# **Table of Contents**

 

# **BURZYNSKI RESEARCH INSTITUTE, INC.**

# ** **

# **NOTES TO FINANCIAL STATEMENTS - continued**

# ** **

**2.****                                     ****Agreements With, and Other Related Party Transactions: (continued)**

 

Royalty Agreement

 

The Company entered into a royalty agreement with Dr. Burzynskiwhereby upon receiving FDA approval for interstate marketing and distribution,the Company agrees to pay Dr. Burzynski a royalty interest equivalent to10% of the Company’s gross income, which royalty interest shall include grossreceipts from all future sales, distributions and manufacture ofantineoplastons.  Dr. Burzynski willhave the right to either produce antineoplaston products for use in his medicalpractice to treat up to 1,000 patients without paying any fees to the Company,or purchase from the Company antineoplaston products for use in his medicalpractice to treat up to 1,000 patients at a price of the Company’s cost toproduce the antineoplaston products plus 10%. Dr. Burzynski will also have the right to either lease or purchaseall the manufacturing equipment located at 12707 Trinity Drive, Stafford, Texasat a fair market price.  The Company willalso have the right to lease from Dr. Burzynski the entire premise locatedat 12707 Trinity Drive, Stafford, Texas at arms-length terms at rates competitivewith those available in the market at that time, provided that Dr. Burzynskidoes not need the facility for his 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 haspaid his 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 FundingAgreement described above provides that Dr. Burzynski will allow theCompany the use of the building.  Inaddition, the Royalty Agreement states that after FDA approval is granted(though approval is not assured) the Company may rent the facility atcompetitive 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.  Since May of 2000, Dr. Burzynski’sentire salary is paid through his medical practice and he is not compensated directlyby BRI for his services.

 

F-16

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Table of Contents

 

BURZYNSKIRESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS - continued

 

**2.****                                     ****Agreements With, and Other Related Party Transactions: (continued)**

 

The Company has received allsignificant funding from Dr. Burzynski through either cash contributed toBRI or the payment of the cost to conduct FDA approved clinical trials throughhis medical practice, as disclosed in Note 1. Following is a summary of the capital contributed and clinical trialcosts paid by Dr. Burzynski.

 
| ** **                       | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |
| Capital contributed              |       | $        | 420,000    |     | $          | 368,000 |   |
| Clinical trial costs paid direct |       | $        | 4,678,626  |     | $          | 4,149,027 |   |

 

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

 

Property and equipment consists of thefollowing as of February 28th and February 29th:

 
| ** **                   | ** ** | **Estimated**    | ** ** | ** ** | ** **  | ** ** | ** ** |
|------------------------------|------------|------------------|------------|------------|-------------|------------|------------|
| ** **                   | ** ** | **Useful Lives** | ** ** | **2009**   | ** **  | **2008**   | ** ** |
|                         |       |             |       |       |        |       |       |
| Furniture and equipment      |       | 5 - 10 years     |       | $          | 22,415      |       | $          | 22,415 |   |
|                         |       |             |       |       |        |       |       |
| Total property and equipment |       |             |       | 22,415     |        | 22,415     |       |
|                         |       |             |       |       |        |       |       |
| Accumulated depreciation     |       |             |       | (16,654    | )           | (15,265    | )          |
|                         |       |             |       |       |        |       |       |
|                         |       |             |       | $          |  5,761 |       | $          | 7,150 |   |

 

Depreciation expense for the years ended February 28,2009, and February 29, 2008 was $1,389 and $1,964, respectively.

 

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

 

The Company participates in aself-funded employee benefit plan providing health care benefits for all itsemployees. It also provides for them group dental insurance, short-term andlong-term disability insurance, and life insurance.  Employees pay pre-tax premiums from $40 to$400 per month depending upon the insurance coverage selected by theemployee.  Employees can select from twocoverage plans, both of which have a $500 deductible, varying out-of-pocketmaximums, and a maximum lifetime benefit of $1,000,000 per covered participant.

 

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Table of Contents

 

BURZYNSKIRESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS - continued

 

**4.****                                     ****Employee Benefits: (continued)**

 

Due to stop-loss insurance,benefits payable by the Company are limited to $25,000 per person during thepolicy year.  The Company charged tooperations a provision of $249,606  for2009 and $274,899 for 2008, which represents the sum of actual claims paid andan estimate of liabilities relating to claims, both asserted and unasserted, resultingfrom incidents that occurred during the year. These amounts include costs related to employees of the medical clinicthat have been allocated 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 RevenueCode.  At the Company’s discretion, itcan match a portion of the participants’ contributions.  The Company’s matching contribution was $449and $346 for the years ended February 28, 2009 and February 29, 2008,respectively.

 

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

 

Dr. Burzynskileases certain equipment used in the clinical trials under leases maturing inone to four years.  Rent expense incurredunder these leases was approximately $106,605 and $59,645 for the years ended February 28,2009, and February 29, 2008, respectively. Future minimum lease payments are as follows:

 

| 2010   |   | $      | 77,040  |   |
|--------|--------|--------|---------|--------|
| 2011   |   | 77,040 |    |
| 2012   |   | 51,840 |    |
| 2013   |   | 14,100 |    |
|   |   | $      | 220,020 |   |

 

Inaddition, as explained in Note 2, Dr. Burzynski owns the facility used bythe 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 financialstatements as rental expense.  The rentalexpense is derived from not only utilities and expenses normally incurred by atenant but also mortgage interest, insurance, property taxes and buildingdepreciation.  Rent expense totaled$189,761 and $194,219 for 2009 and 2008, respectively.

 

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Table of Contents

 

BURZYNSKI RESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS - continued

 

**6.****                                    ****IncomeTaxes:**

 

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 theCompany’s tax provision.

 

The actual income taxbenefit attributable to the Company’s losses for the years ended February 28,2009 and February, 29, 2008 differ from the amounts computed by applying theU.S. federal income tax rate of 34% to the pretax loss as a result of thefollowing:

 
| ** **                                                  | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|-------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                        |       |      |       |      |       |
| Expected benefit                                            |       | $         | (1,742,676 | )         | $          | (1,537,513 | ) |
| Effect of expenses deducted directly by  Dr. Burzynski |       | 1,742,676 |       | 1,537,513 |       |
| Other adjustments                                           |       | 9,861     |       | 1,717     |       |
| Change in valuation allowance                               |       | (9,861    | )          | (1,717    | )          |
| Texas gross margin tax, based on income                     |       | 2,211     |       | —    |       |
|                                                        |       |      |       |      |       |
| Income tax expense                                          |       | $         | 2,211      |      | $          | — |   |

 

The components of the Company’s deferred income taxassets as of February 28, 2009 and February 29, 2008 are as follows:

 
| ** **                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
|                                         |       |     |       |     |       |
| Deferred tax assets:                         |       |     |       |     |       |
|                                         |       |     |       |     |       |
| Net operating loss carryforwards             |       | $        | 418,448    |     | $          | 407,614 |   |
| Excess book (tax) depreciation               |       | (532     | )          | (397     | )          |
| Accrued expenses                             |       | 3,645    |       | 4,483    |       |
|                                         |       |     |       |     |       |
| Alternative minimum tax credit carryforwards |       | 42,603   |       | 42,603   |       |
|                                         |       |     |       |     |       |
| Total deferred tax assets                    |       | 464,164  |       | 454,303  |       |
| Less valuation allowance                     |       | (464,164 | )          | (454,303 | )          |
|                                         |       |     |       |     |       |
| Net deferred tax assets                      |       | $        | —     |     | $          | — |   |

 

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Table ofContents

 

BURZYNSKI RESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS - continued

 

**6.****                                    ****Income Taxes:  (continued)**

 

The Company’s ability to utilize net operating losscarryforwards and alternative minimum tax credit carryforwards will depend onits ability to generate adequate future taxable income.  The Company has no historical earnings onwhich to base an expectation of future taxable income.  Accordingly, a valuation allowance for thetotal deferred tax assets has been provided.

 

The Company has net operating losscarryforwards available to offset future income in the amount of $1,230,730 asof February 28, 2009.  The netoperating loss carryforwards expire as follows:

 

| **Year ending**              | ** ** | ** ** | ** ** |
|------------------------------|------------|------------|------------|
| **February 28, or 29,** | ** ** | ** ** | ** ** |
|                         |       |       |       |
| 2013                         |       |       | $          | 303,069 |
| 2016                         |       |       | $          | 11,818 |
| 2017                         |       |       | $          | 511,871 |
| 2018                         |       |       | $          | 50,786 |
| 2020                         |       |       | $          | 49,976 |
| 2021                         |       |       | $          | 24,117 |
| 2022                         |       |       | $          | 19,315 |
| 2023                         |       |       | $          | 75,450 |
| 2024                         |       |       | $          | 59,706 |
| 2025                         |       |       | $          | 13,732 |
| 2026                         |       |       | $          | 47,083 |
| 2027                         |       |       | $          | 31,219 |
| 2028                         |       |       | $          | 722 |
| 2029                         |       |       | $          | 31,866 |

 

In addition, the Company has alternative minimum taxcredit carryforwards of $42,603 at February 28, 2009.

 

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

 

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

 
| 400,000 options |   | September 14, 1996 |
|-----------------|--------|-------------------------|
| 100,000 options |   | June 1, 1997       |
| 100,000 options |   | June 1, 1998       |

 

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Table of Contents

 

BURZYNSKIRESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS - continued

 

**7.****                                    ****Stock Options: (continued)**

 

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, 2009.

 

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

 

In the ordinary course of conducting business, the Company may be aparty to legal proceedings and claims. As of February 28, 2009 and February 29, 2008, the Company was not awareof any pending or threatening litigation.

 

As described in Note 2, the Company 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 40to 50 patients during the year ended February 28, 2009 and 85 to 100patients during the year ended February 29, 2008.  Management estimates the current productionfacilities have the capacity to produce product to treat approximately 1,500patients per year.  There is spaceavailable at the current site to expand the facility for increased capacity ifnecessary.

 

The Company receivedapproximately 92% of the chemicals used in producing antineoplastons from onesupplier during the year ended February 28, 2009 and 49%, 15% and 11% fromthree suppliers respectively, during the year ended February 29,2008.  The Company has establishedadditional vendors to supply these chemicals should there be a loss of one ofthese suppliers.

 

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