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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|For the fiscal year ended February 28, 2003                  
|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

BURZYNSKI RESEARCH INSTITUTE, INC.(Name of small business issuer in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                       |  | 76-0136810(I.R.S. Employer
Identification No.)
|-------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|9432 Old Katy Road, Suite 200
Houston, Texas(Address of principal executive offices)         |  | 77055(Zip Code)                               
|Issuer's telephone number:(713) 335-5697                                                    
|Securities registered under Section 12(b) of the Exchange Act: None                         
|Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained herein, and no disclosure will be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. ý

State
issuer's revenues for its most recent fiscal year: $0.

As
of May 15, 2003, 131,388,444 shares of the Registrant's Common Stock were outstanding, and the aggregate market value of the Common Stock held by non-affiliates was
approximately $3,656,138 based on the last reported sales price on May 16, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Documents incorporated by reference: None.

Transitional
Small Business Disclosure Format (Check
One): Yes o    No ý

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BURZYNSKI RESEARCH INSTITUTE, INC.

FORM 10-KSB

FISCAL YEAR ENDED FEBRUARY 28, 2003

TABLE OF CONTENTS



|PART I  
|--------
|ITEM 1. 
|ITEM 2. 
|ITEM 3. 
|ITEM 4. 
|PART II 
|ITEM 5. 
|ITEM 6. 
|ITEM 7. 
|ITEM 8. 
|PART III
|ITEM 9. 
|ITEM 10.
|ITEM 11.
|ITEM 12.
|ITEM 13.
|ITEM 14.

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FORWARD LOOKING STATEMENTS

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

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

The Burzynski Research Institute, Inc. (the "Company") was incorporated under the laws of the State of Delaware in 1984 in order to engage in the research,
production, marketing, promotion and sale of certain medical chemical compounds composed of growth-inhibiting peptides, amino acid derivatives and organic acids which are known under the trade name
"Antineoplastons." The Company believes Antineoplastons are useful in the treatment of human cancer and is currently conducting Phase II clinical trials of Antineoplastons relating to the treatment of
cancer. Antineoplastons have not been approved for sale or use by the Food and Drug Administration of the United States Department of Health and Human Services ("FDA") or anywhere in the world. In the
event Antineoplastons receive such approval and are registered in the United States, Canada, or Mexico, of which there can be no assurance, the Company will commence commercial operations, which shall
include the production, marketing, promotion and sale of Antineoplastons in the United States, Canada, or Mexico. The Company currently manufactures Antineoplastons solely for the use of Stanislaw R.
Burzynski, M.D., Ph.D. ("Dr. Burzynski") in clinical research.

The
Company has not generated any significant operating revenue since its inception. The Company's sole source of funding for its operations has been and continues to be payments made by
Dr. Burzynski from funds generated from Dr. Burzynski's medical practice pursuant to various arrangements between the Company and Dr. Burzynski. See"Certain
Relationships and Related Transactions." The Company reports funds pursuant to such
arrangements as additional paid-in capital.See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The
Company does not expect to generate significant operating revenue until such time, if any, as Antineoplastons are
approved for use and sale by the FDA. However, the Company may seek additional funding for operations through the sale of its securities.

Antineoplastons

Dr. Burzynski commenced his cancer research in 1967 focusing on the isolation of various biochemicals produced by the human body as part of the body's
possible defense against cancer. In the course of his research, Dr. Burzynski identified certain peptides, amino acid derivatives and organic acids in these biochemicals which appear to inhibit
the growth of cancer cells. These derivatives were given the name "Antineoplastons" by Dr. Burzynski.

Antineoplastons
are found in the bodily fluids of humans and were initially isolated by Dr. Burzynski from normal human blood and urine. Dr. Burzynski believes these
substances counteract the development of cancerous growth through a biochemical process which does not inhibit the growth of normal tissues. To date, Dr. Burzynski has developed six
formulations of natural Antineoplastons and six synthetic formulations of Antineoplastons. All of the Phase II clinical trials currently sponsored by the Company involve the use of four formulations
of synthetic Antineoplastons known as A10 and AS2-1 in capsules and injections. The Company is also conducting laboratory research involving new generations of Antineoplastons A10 and
AS2-1.

Phase II Clinical Trials

The Company began Phase II clinical studies in 1994 with four studies. At that time, a number of patients were also receiving Antineoplastons at
Dr. Burzynski's clinic in Houston, Texas (the "Burzynski Clinic") outside these clinical trials. On February 23, 1996, the FDA requested that all then current patients of the Burzynski
Clinic desiring to continue Antineoplaston treatment be admitted to a Phase II Study, according to Protocol CAN-1. This action resulted in the formation of 6 cohorts of patients in

1

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the
CAN-1 study, with the largest group suffering from primary brain tumors. New patients have been admitted either to the CAN-1 study or have been admitted to one of the other
studies sponsored by the Company, as appropriate.

The
Company currently sponsors 74 ongoing Phase II clinical trials, which are conducted pursuant to investigational new drug applications ("INDs") filed with the FDA and approved by an
Institutional Review Board ("IRB") designated according to federal regulations. All clinical trials except one are for
the treatment of a wide variety of cancers using only a combination of Antineoplastons A10 and AS2-1. The one exception involves the treatment of breast cancer using A10 capsules in
combination with the FDA-approved drug Methotrexate. Most of the trials involve the use of intravenous formulations of Antineoplastons; however, a few trials use oral formulations.
Dr. Burzynski acts as principal investigator for all clinical trials pursuant to a Royalty Agreement between the Company and Dr. Burzynski. See"Certain
Relationships and Related Transactions."All of the clinical trials are conducted at the Burzynski Clinic. Each trial provides for the admission of up to 40 patients, except
the CAN-1 study, in which 133 patients have been accrued, and the BT-34 and BT-35 studies, in which 20 patients will be accrued.

Prior
to approving a New Drug Application ("NDA"), the FDA requires that a drug's safety and efficacy be demonstrated in "well-controlled" clinical trials. Several types of
controls are acceptable to the FDA. One of these is a "Historic Control." If the course of a disease is well-known, the response of patients taking a drug can be compared to a historic
group of patients with that disease who have not had medical intervention. For example, it is known that the tumors of patients suffering from primary malignant brain tumors ("PMBT") will continue to
grow, eventually causing the patient's death. If a drug is administered to a patient with PMBT and the tumors of the patient disappear or shrink significantly, an assumption is made that there has
been a response to the drug.

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

The
ultimate goal of any treatment for cancer is patient survival. However, the FDA has determined that requiring exhaustive data showing improved patient survival may unnecessarily
delay the approval of new cancer drugs. For that reason, the FDA may grant marketing approval for a new drug product on the basis of adequate and well-controlled clinical trials
establishing that the drug has an effect on a surrogate endpoint ("Milestone") that is reasonably likely to predict clinical benefit. Each of the Company's Phase II trials describes such Milestones
which are used to determine success or failure of the treatment employed. In most of the trials, the Milestones are radiographic evidence of tumor shrinkage by X-ray, computer aided
tomography or magnetic resonance imaging. Where appropriate, tumor markers such as Prostate Specific Antigen, blood counts, or bone marrow biopsy are used in order to assess a tumor's growth.

Where
tumor size is used as the Milestone, each clinical trial protocol describes a "complete response" as a complete disappearance of all tumors with no reoccurrence of tumors for at
least four weeks. A "partial response" is described as at least a 50% reduction in the size of the total tumor size, with such reduction lasting at least four weeks. A "response" is described as
either a complete or partial response. "Stable disease" is described as less than 50% reduction in size but no more than 50% increase in size of the tumor mass, lasting for at least twelve weeks.
"Progressive disease" is described as more than 50% increase in total tumor mass or occurrence of new tumors.

The
protocols of the Company's clinical trials involve a two-stage design, wherein the first stage proceeds until the Company admits twenty patients into the trial. After a
specified time period, if there

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are
zero responses by the first twenty patients, the trial will be discontinued and the drug declared to have less than desired activity. If there is at least one response, the trial will be continued
until forty patients have been accrued. If the study continues, the following conclusions according to protocols based on forty patients can be made: If there are three or fewer responses, then there
is less than desired activity. If there are four or more responses, then there is sufficient evidence to conclude that the Antineoplaston regimen used shows beneficial activity.

As
of May 14, 2003, six of the clinical trials have reached a Milestone. These are:



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

The
results of the Protocols BT-09, BT-11, BT-13, BT-15 and BT-18 are set forth below (as of May 14, 2003).

Protocol
Number

Patients
Accrued

Evaluable Patients

Patients
Showing
Complete
Response

%

Patients
Showing
Partial Response

%

Patients
Showing Stable
Disease

%

Patients
Showing Progressive
Disease

%BT-9

23

16

5

31.25
%
5

31.25
%
5

31.25
%
1

6.25
%BT-11

28

19

3

15.79
%
5

26.32
%
5

26.32
%
6

31.58
%BT-13

10

8

4

50.00
%
2

25.00
%
2

25.00
%
0

0.00
%BT-15

25

17

3

17.65
%
2

11.76
%
6

35.29
%
6

35.29
%BT-18

14

11

3

27.27
%
1

9.09
%
2

18.18
%
5

45.45
%


The Phase II Study according to Protocol CAN-1 included 35 evaluable patients. Complete and partial responses were obtained in
patients diagnosed with glioblastoma multiforme, astrocytoma, oligodendroglioma, mixed glioma, medulloblastoma, and malignant meningioma. The treatment with Antineoplastons A10 and AS2-1
resulted in 48.6% of objective responses and 31.4% cases of stable disease. Most of the surviving patients have now been alive for over nine years since the pathology diagnoses of their tumors were
established. Two patients, one suffering from oligodendroglioma and another from low grade astrocytoma, have now been alive for over 14 years since pathology diagnosis. The largest group of 14
patients involved in the study had glioblastoma multiforme. Six of the cases were classified as complete and partial responses, four obtained stabilization and four developed progression of the
disease. One of the glioblastoma patients is now alive and completely free from tumor for over eight years after her pathology diagnosis.

Notwithstanding
the response results of the trials that have reached a Milestone, management believes it is likely that the FDA may require additional clinical trials based upon such
protocols to be conducted by an institution not affiliated with the Company or Dr. Burzynski before advising that an

3

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NDA
filing is warranted. In addition, the FDA has indicated it will not accept the data generated by the Phase II Study according to Protocol CAN-1 because the trial was partially
retrospective. At the present time the Company cannot predict when the Company will submit an NDA to the FDA, nor can the Company estimate the number or type of additional trials the FDA may require.
Further, there can be no assurance that an NDA for Antineoplastons, as a treatment for cancer, will ever be approved by the FDA.

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

The
following table sets forth the title of each active Protocol, the subject of the Protocol with dates submitted to the FDA and approved by the IRB, the number of persons currently
enrolled in each study, and the number of persons who may ultimately participate in each study.

Active Phase II Clinical Trials

|Title of
Protocol |  | Subject of Protocol and Date
(as of May 14, 2003)                                                                                                                            |  | Number of
Persons
Enrolled |  | Number of
Patients
who may
Participate
in the Study
|----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- |  | ---------------------------------------------------
|AD-2              |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF THE ADRENAL GLAND; Revised 7/20/96; Revised 9/28/96; Revised 4/14/97.                           |  | 4                          |  | 40                                                 
|BL-2              |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF THE BLADDER;.Revised 7/20/96; Revised 9/28/96; Revised 4/14/97.                                 |  | 4                          |  | 40                                                 
|BR-10             |  | PROTOCOL FOR RANDOMIZED CONTROLLED TRIAL COMPARING METHOTREXATE TREATMENT ALONE TO THE COMBINATION OF METHOTREXATE AND ANTINEOPLASTON A10; Revised 4/12/97; Revised 7/28/97. |  | 8                          |  | 40                                                 
|BR-12             |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF THE BREAST; Revised 7/20/96; Revised 4/29/97.                                                   |  | 19                         |  | 40                                                 
|BR-14             |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 CAPSULES IN PATIENTS WITH ADVANCED BREAST CANCER; 8/26/96; Revised 12/10/96; Revised 4/12/97.                                 |  | 7                          |  | 40                                                 
|BT-6              |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 INFUSIONS IN CHILDREN WITH HIGH GRADE GLIOMA; March 1996.                                                                     |  | 9                          |  | 40                                                 
|BT-7              |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH GLIOBLASTOMA MULTIFORME; March 1996.                                                                         |  | 38                         |  | 40                                                 
|BT-8              |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH ANAPLASTIC ASTROCYTOMA; Revised 4/14/97; Revised 9/15/97.                                                    |  | 14                         |  | 40                                                 
|                  |  |                                                                                                                                                                              |  |                            |  |                                                    

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|BT-9  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH BRAIN TUMORS; Revised 7/11/96; Revised 9/28/96; Revised 4/14/97.                                                  |  | 23 |  | 40
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -- |  | --
|BT-10 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN CHILDREN WITH BRAIN TUMORS; Revised 7/11/96; Revised 9/28/96; Revised 4/14/97.                                                  |  | 13 |  | 40
|BT-11 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH BRAIN STEM GLIOMA; Revised 5/15/96; Revised 7/11/96; Revised 9/28/96; Revised 5/10/97.                            |  | 28 |  | 40
|BT-12 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN CHILDREN WITH PRIMITIVE NEUROECTODERMAL TUMORS; (PNET) Revised 7/11/96; Revised 9/28/96; Revised 4/14/97.                       |  | 10 |  | 40
|BT-13 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN CHILDREN WITH LOW GRADE ASTROCYTOMA; Revised 7/11/96; Revised 9/28/96; Revised 4/14/97; Revised 9/5/97.                         |  | 10 |  | 40
|BT-14 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN CHILDREN WITH RHABDOID TUMOR OF THE CENTRAL NERVOUS SYSTEM; Revised 5/17/96; Revised 7/11/96; Revised 9/28/96; Revised 4/14/97. |  | 4  |  | 40
|BT-15 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN ADULT PATIENTS WITH ANAPLASTIC ASTROCYTOMA; Revised 7/26/96; Revised 10/4/96; Revised 4/14/97; Revised 9/5/97.                   |  | 25 |  | 40
|BT-16 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN ADULT PATIENTS WITH LOW GRADE ASTROCYTOMA; Revised 7/26/96; Revised 10/4/96; Revised 4/14/97.                                    |  | 6  |  | 40
|BT-17 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN ADULT PATIENTS WITH OLIGODENDROGLIOMA; Revised 7/26/96; Revised 10/4/96; Revised 4/14/97.                                        |  | 10 |  | 40
|BT-18 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN ADULT PATIENTS WITH MIXED GLIOMA; Revised 7/26/96; Revised 10/4/96; Revised 12/9/96; Revised 4/14/97.                           |  | 14 |  | 40
|BT-19 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH NEUROFIBROMA AND SCHWANNOME; Revised 4/14/97.                                                                     |  | 3  |  | 40
|BT-20 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN ADULT PATIENTS WITH GLIOBLASTOMA MULTIFORME; Revised 7/26/96; Revised 10/4/96; Revised 4/14/97.                                 |  | 40 |  | 40
|      |  |                                                                                                                                                                                   |  |    |  |   

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|BT-21 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN ADULT PATIENTS WITH PRIMARY MALIGNANT BRAIN TUMORS; Partially Amended, pg. 9/5/95; Revised 9/10/96; Revised 4/14/97; Revised 8/25/97.                                                                                     |  | 29  |  | 40 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- |  | ---
|BT-22 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN CHILDREN WITH PRIMARY MALIGNANT BRAIN TUMORS; Partially Amended, pg. 11/5/97; Revised 4/14/97; Revised 9/10/97.                                                                                                           |  | 6   |  | 40 
|BT-23 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 INFUSIONS IN CHILDREN WITH VISUAL PATHWAY GLIOMA; 5/22/96; Revised 11/18/96; Revised 4/14/97.                                                                                                                                |  | 9   |  | 40 
|BT-24 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 INFUSIONS IN PATIENTS WITH EPENDYMOMA; 5/15/96; Revised 11/18/96; Revised 4/14/97.                                                                                                                                           |  | 9   |  | 40 
|BT-25 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 INFUSIONS IN PATIENTS WITH CRANIOPHARYNGIOMA; 5/15/96; Revised 11/18/96; Revised 4/14/97.                                                                                                                                    |  | 1   |  | 40 
|BT-26 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 INFUSIONS IN PATIENTS WITH CHOROID PLEXUS NEOPLASM; 5/15/96; Revised 11/18/96; Revised 4/14/97.                                                                                                                              |  | 1   |  | 40 
|BT-27 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 INFUSIONS IN PATIENTS WITH GERM CELL TUMOR OF THE BRAIN; 5/15/96; Revised 11/18/96; Revised 4/14/97.                                                                                                                         |  | 1   |  | 40 
|BT-28 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 INFUSIONS IN PATIENTS WITH MENINGIOMA; 5/17/96; Revised 9/10/96; Revised 4/14/97.                                                                                                                                            |  | 2   |  | 40 
|BT-34 |  | PHASE II STUDY OF MAINTENANCE TREATMENT WITH ANTINEOPLASTONS A10 AND AS2-1 CAPSULES FOR PATIENTS WITH MALIGNANCIES IN COMPLETE RESPONSE FOLLOWING INITIAL INTRAVENOUS TREATMENT WITH ANTINEOPLASTONS A10 AND AS2-1. Approved 12/5/2002; Revised
3/27/2003.                  |  | 5   |  | 20 
|BT-35 |  | PHASE II STUDY OF 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. Approved 12/5/2002;
Revised 1/22/2003. |  | 0   |  | 20 
|CAN-1 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH REFRACTORY MALIGNANCIES; Revised 7/11/96.                                                                                                                                                                   |  | 133 |  | 133
|      |  |                                                                                                                                                                                                                                                                             |  |     |  |    

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|CO-2  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH ADENOCARCINOMA OF THE COLON; Revised 7/9/96; Revised 9/7/96; (RE2 was added to this Protocol) Revised 4/14/97.                        |  | 15 |  | 40
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -- |  | --
|CO-3  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 CAPSULES IN PATIENTS WITH ADENOCARCINOMA OF THE COLON; Revised 8/12/96; Revised 12/21/96.                                                              |  | 9  |  | 40
|ES-2  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH ADENOCARCINOMA OF THE ESOPHAGUS; Revised 7/9/96; Revised 9/10/96; Revised 10/30/96; Revised 4/14/97.                                  |  | 8  |  | 40
|HB-2  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN CHILDREN WITH HEPATOBLASTOMA; Revised 7/8/96; Revised 9/10/96; Revised 3/2/97; Revised 4/14/97.                                                     |  | 0  |  | 40
|HE-2  |  | PHASE II STUDY OF ANTINEOPLASTON A10 IN PATIENTS WITH PRIMARY LIVER CANCER; Origination dated 2/12/97; Revised 5/28/97.                                                                               |  | 3  |  | 40
|HN-2  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF THE HEAD AND NECK; Revised 7/9/96; Revised 9/10/96; Revised 11/6/96; added Children's Informed Consent, Revised 4/14/97. |  | 7  |  | 40
|LA-3  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH ADENOCARCINOMA OF THE LUNG; Revised 7/20/96; Revised 9/28/96; Revised 4/14/97; Revised 6/26/97.                                       |  | 17 |  | 40
|LA-4  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH LARGE CELL, UNDIFFERENTIATED CARCINOMA OF THE LUNG; Revised 7/20/96; Revised 9/28/96; Revised 12/11/96; Revised 4/14/97.              |  | 9  |  | 40
|LA-5  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH BRONCHIAL ALVEOLAR CARCINOMA OF THE LUNG; Revised 7/20/96; Revised 9/28/96; Revised 12/11/96; Revised 4/14/97.                        |  | 4  |  | 40
|LA-6  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH SQUAMOUS CELL CARCINOMA OF THE LUNG; Revised 7/26/96; Revised 10/4/96; Revised 4/14/97.                                               |  | 6  |  | 40
|LA-7  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH SMALL CELL CARCINOMA OF THE LUNG; Revised 7/20/96; Revised 9/28/96; Revised 4/14/97.                                                  |  | 3  |  | 40
|LA-10 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 CAPSULES IN PATIENTS WITH NON SMALL CELL LUNG CANCER; Revised 8/12/96; Revised 9/9/96; Revised 12/9/96.                                                 |  | 9  |  | 40
|      |  |                                                                                                                                                                                                       |  |    |  |   

7

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|LY-3  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH NONHODGKIN'S LYMPHOMA; Revised 7/11/96; Revised 9/28/96; Revised 4/14/97.                                                       |  | 4  |  | 40
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -- |  | --
|LY-6  |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH NONHODGKIN'S LYMPHOMA, LOW GRADE; Revised 6/22/96; Revised 8/12/96; Revised 9/28/96; Revised 10/23/96; Revised 5/11/97.          |  | 31 |  | 40
|LY-7  |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH NONHODGKIN'S LYMPHOMA, INTERMEDIATE GRADE; Revised 6/22/96; Revised 8/12/96; Revised 9/28/96; Revised 10/23/96; Revised 4/14/97. |  | 12 |  | 40
|LY-8  |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH NONHODGKIN'S LYMPHOMA, HIGH GRADE; Revised 6/22/96; Revised 5/11/96.                                                             |  | 1  |  | 40
|LY-9  |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH MANTLE ZONE LYMPHOMA., Revised 6/22/96; Revised 9/10/96; Revised 4/14/97.                                                        |  | 5  |  | 40
|LY-10 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 WITH CHRONIC MYELOGENOUS LEUKEMIA; Revised 10/4/96; Revised 4/14/97.                                                                              |  | 0  |  | 40
|LY-11 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH MYCOSIS FUNGOIDES SEZARY SYNDROME; Revised 9/10/96; Revised 4/14/97.                                                             |  | 0  |  | 40
|LY-12 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH PRIMARY CENTRAL NERVOUS SYSTEM LYMPHOMA; Revised 9/10/96; Revised 4/14/97.                                                       |  | 0  |  | 40
|LY-13 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH PRIMARY LYMPHOMA OF THE GASTROINTESTINAL TRACT; Revised 9/10/96; Revised 4/14/97.                                                |  | 0  |  | 40
|LY-14 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 INFUSIONS IN PATIENTS WITH CHRONIC LYMPHOCYTIC LEUKEMIA; Revised 5/22/96; Revised 9/18/96; Revised 12/9/96; Revised 4/14/97.                      |  | 2  |  | 40
|MA-2  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH MESOTHELIOMA; Revised 7/8/96; Revised 9/10/96; Revised 4/14/97.                                                                 |  | 6  |  | 40
|ME-2  |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH MALIGNANT MELANOMA; Revised 7/26/96; Revised 10/4/96; Revised 4/14/97.                                                          |  | 12 |  | 40
|      |  |                                                                                                                                                                                                 |  |    |  |   

8

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|MF-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH MALIGNANT FIBROUS HISTIOCYTOMA; June 1997.                                                                                |  | 0  |  | 40
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -- |  | --
|MM-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH MULTIPLE MYELOMA; Revised 7/26/96; Revised 10/2/96.                                                                       |  | 5  |  | 40
|MW-2 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH MACROGLOBULINEMIA OF WALDESTROM; Revised 7/26/96; Revised 10/4/96; Revised 4/14/97.                                        |  | 0  |  | 40
|NB-2 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH NEUROBLASTOMA; Orig: Dec. 6, 1996; Revised 2/13/97; Revised 4/14/97.                                                       |  | 3  |  | 40
|NE-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH NEUROENDOCRINE TUMORS; Revised 7/9/96; Revised 9/10/96; Revised 4/14/97.                                                  |  | 6  |  | 40
|OV-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF THE OVARY; Revised 7/20/96; Revised 9/28/96; Revised 4/14/97.                                                |  | 7  |  | 40
|PA-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF THE PANCREAS; Revised 7/20/96; Revised 9/28/96; Revised 4/14/97.                                             |  | 12 |  | 40
|PN-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH PRIMITIVE NEUROECTODERMAL TUMOR OUTSIDE THE CENTRAL NERVOUS SYSTEM; Orig: Dec. 6, 1996; Revised 2/10/97; Revised 4/14/97. |  | 1  |  | 40
|PR-4 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH ADENOCARCINOMA OF THE PROSTATE; Revised 7/5/96; Revised 10/3/96; Revised 7/9/97; Revised 10/14/97.                        |  | 12 |  | 40
|PR-5 |  | PHASE II STUDY OF ADENOCARCINOMA OF THE PROSTATE WITH ANTINEOPLASTON A10 AND AS21 CAPSULES; Revised 5/16/96; Revised 7/29/96; Revised 10/3/96; Revised 10/14/97.                          |  | 16 |  | 40
|PR-6 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 CAPSULES IN COMBINATION WITH TOTAL ANDROGEN BLOCKADE IN PATIENTS WITH ADENOCARCINOMA OF THE PROSTATE; 8/1/97; Revised 8/25/97.              |  | 1  |  | 40
|PR-7 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS2-1 IN COMBINATION WITH TOTAL ANDROGEN BLOCKADE IN PATIENTS WITH ADENOCARCINOMA OF THE PROSTATE.                                              |  | 1  |  | 40
|     |  |                                                                                                                                                                                           |  |    |  |   

9

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|PR-8 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH ADENOCARCINOMA OF THE PROSTATE; Revised 7/5/96; Revised 9/10/96; Revised 4/14/97; Revised 10/14/97. |  | 0  |  | 40
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -- |  | --
|RN-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF THE KIDNEY, Revised 7/20/96; Revised 9/28/96; Revised 10/25/96; Revised 4/14/97.      |  | 14 |  | 40
|SA-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH SOFT TISSUE SARCOMA; Revised 7/8/96; Revised 9/10/96; Revised 4/14/97.                             |  | 13 |  | 40
|SI-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF THE SMALL INTESTINE; Revised 7/9/96; Revised 9/10/96; Revised 4/14/97.                |  | 1  |  | 40
|ST-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH ADENOCARCINOMA OF THE STOMACH; Revised 7/8/96; Revised 9/10/96; Revised 4/14/97.                   |  | 7  |  | 40
|UC-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF THE UTERINE CERVIX AND/OR VULVA; Revised 7/20/96; Revised 9/28/96; Revised 4/14/97.   |  | 8  |  | 40
|UP-2 |  | PHASE II STUDY OF ANTINEOPLASTONS A10 AND AS21 IN PATIENTS WITH CARCINOMA OF AN UNKNOWN PRIMARY; Revised 7/8/96; Revised 9/10/96; Revised 4/14/97.                 |  | 6  |  | 40
|WT-2 |  | PHASE II STUDY OF ANTINEOPLASTON A10 AND AS21 IN PATIENTS WITH WILMS' TUMOR; Revised 7/8/96; Revised 9/10/96; Revised 4/14/97.                                     |  | 2  |  | 40

Government Regulation

The FDA imposes substantial requirements upon, and conditions precedent to, the introduction of therapeutic drug products through lengthy and detailed laboratory
and clinical testing procedures, sampling activities and other costly and time consuming procedures. To obtain FDA approval for Antineoplastons, we must submit extensive preclinical and clinical data
and supporting information to the FDA to establish the safety and efficacy of Antineoplastons. The approval process takes many years, requires the expenditure of substantial resources and may involve
ongoing requirements for post-marketing studies. Additional government regulation may be established that could prevent or delay regulatory approval of Antineoplastons. Moreover, there can
be no assurance that the Company can satisfy FDA regulatory protocol to gain approval for Antineoplastons in the United States or that FDA approval for the sale of Antineoplastons in the United States
will be obtained. If regulatory approval is granted, the approval may include significant limitations on the indicated uses for which Antineoplastons may be marketed.

The
effect of the FDA drug approval process for Antineoplastons may impose costly procedures upon the Company's activities which may furnish a competitive advantage to the other
companies that

10

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compete
with the Company in the field of cancer treatment drugs. The extent of potentially adverse government regulations which might arise from future legislation or administrative action cannot be
predicted.

The
Investigational New Drug Application Process in the United States is governed by regulations established by the FDA which strictly control the use and distribution of investigational
drugs in the United States. The guidelines require that an IND, filed by a sponsor, contain sufficient information to justify administering the drug to humans, that the application include relevant
information on the chemistry, pharmacology and toxicology of the drug derived from chemical, laboratory and animal or in vitro testing, and that a protocol be provided for the initial study of the new
drug to be conducted on humans.

In
order to conduct a clinical trial of a new drug in humans, a sponsor must prepare and submit to the FDA a comprehensive IND. Such application must contain an investigator's brochure,
a description of the composition, manufacture and control of the drug substance and the drug product, sufficient information to assure the proper identification, quality, purity and strength of the
investigational drug, a description of the drug substance, including its physical, chemical, and biological characteristics, the general method of preparation of the drug substance, a list of all
components including interactive ingredients, adequate information about pharmacological and toxicological studies of the drug involving laboratory animals or in vitro tests on the basis of which the
sponsor has concluded that it is reasonably safe to conduct the proposed clinical investigation and a summary of any previous human experience with the drug. Where there has been widespread use of the
drug outside of the United States or
otherwise, it is possible in some limited circumstances to use well-documented clinical experience in place of some other pre-clinical work.

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

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

11

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Assuming
successful completion of the clinical studies, the results of the studies, together with other detailed information, including, among other information, details concerning the
manufacture and composition of the drug, proposed labeling, environmental impact and the scientific rationale for the drug, its intended use and the potential benefits of the drug product, are
submitted to the FDA in the form of an NDA requesting approval to market the drug. If the FDA finds the NDA submission and the manufacturing process to be acceptable, the FDA will issue an approval
letter. If the FDA does not find the NDA submission or the manufacturing process to be sufficient, it will issue a "not approvable letter" describing the deficiencies in the NDA and allowing the NDA
applicant to either amend the NDA, withdraw the NDA or request a hearing. Even if the NDA is amended or a hearing is held, the FDA ultimately may decide that the NDA does not satisfy the regulatory
criteria for approval. In addition, as a result of the Company's use of Milestones to predict the benefits of Antineoplastons, the FDA may subject any such approval to the requirement that the Company
study the drug further, to verify and describe its clinical benefit (Phase IV testing). Further, the FDA may also impose
post-marketing restrictions on Antineoplastons. The FDA may withdraw approval of any drug if the Phase IV trials fail to verify clinical benefit, use of the drugs demonstrates that
post-marketing restrictions are inadequate to assure safe use of the drug, the Company fails to adhere to the post-marketing restrictions agreed upon, the promotional materials
are false or misleading or other evidence demonstrates that the drug is not shown to be safe or effective under its conditions of use.

The
testing and approval process requires substantial time, effort and financial resources, and there can be no assurance that any approval will be granted for any product or that
approval will be granted according to any schedule. Moreover, if regulatory approval of a drug is granted, the approval will be limited to specific indications. There can be no assurance that any of
the Company's product candidates will receive regulatory approvals for commercialization.

The
FDA has implemented an accelerated review process for pharmaceutical agents that treat serious or life-threatening disease and conditions, subject to payment of user
fees. Approval may be conditioned on a requirement that, following product launch, a company continue to study the drug to verify and describe its clinical benefit. Under "fast track" procedures, the
FDA may withdraw approval on an expedited basis if the company fails to show due diligence in conducting post-marketing clinical trials or if the post-approval clinical trials
fail to demonstrate that the product is safe or effective. When appropriate, the Company intends to pursue opportunities for accelerated review of its products. The Company cannot predict the ultimate
effect of this review process on the timing or likelihood of FDA review of any of its products.

Even
if the regulatory approvals for the Company's products are obtained, its products and its manufacturing facility are subject to continuous review and periodic inspection. The FDA
will require post-marketing reporting to monitor the safety of the Company's products. The Company's drug manufacturing facility must be inspected and approved by the FDA and must comply
with the FDA's good manufacturing practice regulations, which are strictly enforced. Full technical compliance requires manufacturers to expend funds, time and effort in the area of production and
quality control. In addition, discovery of problems with a product after approval or failure to comply with applicable FDA or other applicable regulatory requirements may result in restrictions on a
product, manufacturer, or holder of an approved NDA, including restrictions on the product, manufacturer or facility, including warning letters, suspension of regulatory approvals, operating
restrictions, delays in obtaining new product approvals, withdrawal of the product from the market, product recalls, fines, injunctions and criminal prosecution. New government requirements may be
established that could delay or prevent regulatory approval of the Company's products under development.

The
Company's research and development involves the controlled use of hazardous materials, chemicals and various radioactive compounds. Although the Company believes its procedures for
handling and disposing of those materials comply with state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident of this

12

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type
occurs, the Company could be held liable for resulting damages, which could be material to its financial condition and business. The Company is also subject to numerous environmental, health and
workplace safety laws and regulations, including those governing laboratory procedures and the handling of biohazardous materials. Additional federal, state and local laws and regulations affecting
the Company may be adopted in the future. Any violation of these laws and regulations, and the cost of compliance, could materially and adversely affect the Company. The Company spends approximately
$102,000 per year on environmental compliance matters and expects to spend an additional $25,000 for repairs and upgrades during the fiscal year ending February 28, 2004.

Research And Development

The Company's principal research and development efforts currently focus on Antineoplastons. The anticancer activity of these compounds has been documented in
preclinical studies employing the methods of cell culture, pharmacology, cell biology, molecular biology, experimental therapeutics and animal models of cancer. At the level of Phase II clinical
studies, the Company believes the anticancer activity of Antineoplastons is supported by preliminary results from ongoing, FDA authorized, Phase II clinical trials.

The
cellular mechanism underlying the anticancer effects of Antineoplastons continues to be investigated in both the Company's own basic preclinical research program and in independent
laboratories around the world. A review of this work suggests several mechanisms that may underlie the antineoplastic activity of Antineoplastons. For example, it has been found, in cell culture
experiments, that Antineoplastons induce pathologically undifferentiated cancer cells to assume a more normal state of differentiation. Cell culture experiments have also shown that Antineoplaston
components can kill some cancer cells by activating the cell's intrinsic "suicide" program. It must be noted that data collected in cell culture experiments may or may not indicate the mechanism of
action of Antineoplastons in humans.

At
a more molecular or sub-cellular level, cell culture experiments have shown that Antineoplastons can block biochemical pathways involving oncogenes required to produce
abnormal cell growth. In addition, cell culture experiments have shown that Antineoplastons can increase the expression of anticancer tumor suppressor genes. Although these experiments were conducted
using human cancer cells, they may or may not indicate the mechanism of Antineoplaston action in humans.

In
addition to the original family of Antineoplaston compounds (the "Parental Generation"), the Company continues its development of a second generation of Antineoplastons. In cell
culture experiments the second generation Antineoplastons which were developed by the Company, have been shown to be at least a thousand times more potent then the Parental Generation.

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

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

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

Total
research and development costs for the fiscal years ended February 28, 2003 and February 28, 2002 were approximately $4,197,000 and $4,903,000, respectively.

13

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Intellectual Property

Since 1984, eight patents involving the formulation, preparation, manufacture, production, use, dosage and treatment of cancer with Antineoplastons (the
"Patents") have been issued by the United States Patent Office and Patent Offices and Patent Officers of 28 other countries to Dr. Burzynski. The Patents for cancer treatment and diagnosis in
the United States and Canada are licensed to the Company pursuant to a License Agreement dated June 29, 1983, as superseded by Amended License Agreement dated April 24, 1989 and Second
Amended License Agreement dated March 1, 1990 (collectively, the "License Agreement"). Pursuant to the License Agreement, the Company holds an exclusive right in the United States, Canada, and
Mexico (the "Territory") to use, manufacture, develop, sell, distribute, sub-license and otherwise exploit all of Dr. Burzynski's rights, title, and interests, including patent
rights, in Antineoplastons in the treatment and diagnosis of cancer. See "Certain Relationships and Related Transactions." The Company will not be able
to exploit such rights until such time as Antineoplastons are approved, of which there can be no assurance, by the FDA for sale in the United States. The License Agreement is to continue in effect
until the expiration of the last Patent that was licensed under the agreement or termination pursuant to certain other provisions. The
Company and Dr. Burzynski also entered into a Royalty Agreement, dated March 25, 1997, and a First Amended Royalty Agreement, dated September 29, 1997 (collectively, the "Royalty
Agreement"), pursuant to which Dr. Burzynski will receive a royalty interest from all future sales, distribution, and manufacture of Antineoplastons by the Company. The Company owns, pursuant
to the License Agreement, exclusive rights to eight issued United States Patents and two issued Canadian Patents. The Company has no patents in Mexico. The Company has one pending patent application
in the United States, two pending patent applications in Canada, and one pending patent application in Mexico.

The
five initial United States Patents (the "Initial Patents") relate to: (i) Determination of Antineoplastons in body tissue or fluids as a testing procedure to aid in the
diagnosis of cancer; (ii) Processes for the preparation of purified fractions of Antineoplastons from human urine; (iii) Processes for the synthetic production of Antineoplastons and
methods of treating neoplastic disease (cancer); (iv) Administration of Antineoplastons to humans; and (v) Methods of synthesizing A-10. The Initial Patents expire from
September 11, 2001 to January 11, 2009, however the Company does not believe the expiration of any of the Initial Patents will have a material adverse effect on the Company.

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

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

The
eighth United States Patent (the "2002 U.S. Patent") relates to the synthesis of 4-Phenylbutric Acid. The 2002 U.S. Patent expires on May 21, 2021.

The
two Canadian Patents (the "Canadian Patents") relate to: (i) Processes for the preparation of purified fractions of Antineoplastons from human urine, and (ii) Processes
for the synthetic production of Antineoplastons and methods of treating neoplastic disease (cancer). The Canadian Patents expire on November 14, 2006 and June 4, 2002, respectively,
however, the Company does not believe the expiration of the Canadian Patents will have a material adverse effect on the Company.

The
pending patent application in the United States relates to a divisional application to the 2001 U.S. Patent. Should this patent be granted, of which there can be no assurance, it
would expire in the year 2018.

The
pending patent applications in Canada relate to Liposomal Antineoplaston Therapy using a "second generation" of Antineoplastons and a treatment regimen for the administration of

14

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phenylacetylglutamine.
Should these patents be granted, of which there can be no assurance, they would expire in the years 2017 and 2019, respectively.

The
pending patent application in Mexico relates to a treatment regimen for the administration of phenylacetylglutamine. Should this patent be granted, of which there can be no
assurance, it would expire in the year 2019.

The
Company also depends upon unpatented proprietary technology, and may determine in appropriate circumstances that its interest would be better served by reliance upon trade secrets or
confidentiality agreements rather than patents.

The
Company's success will depend in part on its ability to enforce patent protection for its products, preserve its trade secrets, and operate without infringing on the proprietary
rights of third parties in the United States, Canada, and Mexico. Because of the substantial length of time and expense associated with bringing new products through development and regulatory
approval to the marketplace, the pharmaceutical and biotechnology industries place considerable importance on obtaining and maintaining patent and trade secret protection for new technologies,
products and processes. There can be no assurance that the Company will develop additional products and methods that are patentable or that present or future patents will provide sufficient protection
to the Company's present or future technologies, products and processes. In addition, there can be no assurance that others will not independently develop substantially equivalent proprietary
information, design around the Company's patents or obtain access to the Company's know-how or that others will not successfully challenge the validity of the Company's patents or be
issued patents which may prevent the sale of one or more of the Company's product candidates, or require licensing and the payment of significant fees or royalties by the Company to third parties in
order to enable the Company to conduct its business. Legal standards relating to the scope of claims and the validity of patents in the fields in which the Company is pursuing research and development
are still evolving, are highly uncertain and involve complex legal and factual issues. No assurance can be given as to the degree of protection or competitive advantage any patents issued to the
Company will afford, the validity of any such patents or the Company's ability to avoid violating or infringing any patents issued to others. Further, there can be no guarantee that any patents issued
to or licensed by the Company will not be infringed by the products of others. Litigation and other proceedings involving the defense and prosecution of patent claims can be expensive and time
consuming, even in those instances in which the outcome is favorable to the Company, and can result in the diversion of resources from the Company's other activities. An adverse outcome could subject
the Company to significant liabilities to third parties, require the Company to obtain licenses from third parties or require the Company to cease any related research and development activities or
sales.

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

Competition

There are many companies, universities, research teams and scientists, both private and government-sponsored, that are engaged in research to produce cancer
treatment agents and that have greater financial resources and larger research staffs and facilities than the Company. In addition, there are other companies and entities, both private and
government-sponsored, that are engaged in research aimed at compounds similar or related to the Company's Antineoplastons. To the extent that the

15

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United
States Government also conducts research or supports other companies or individuals in their research, such companies or individuals may have a competitive advantage over the Company.

Employees

As of May 21, 2003, the Company had 10 employees, all of whom were full-time employees. None of the Company's employees is a party to a
collective bargaining agreement. The Company considers the relations with its employees to be good.

ITEM 2. DESCRIPTION OF PROPERTY

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

The
Company conducts its business in premises owned by Dr. Burzynski and his wife, Dr. Barbara Burzynski (the "Burzynskis"). Pursuant to arrangements with the Burzynskis
(see "Certain Relationships and Related TransactionsResearch Funding Arrangements"), the Company occupies:
(i) 675 square feet at 12707 Trinity Drive, Stafford, Texas for office, laboratory and medical research purposes and (ii) 540 square feet at 9432 Old Katy Road, Suite 200 for its
executive offices. Management of the Company believes that each of these properties are adequately covered by insurance.

ITEM 3. LEGAL PROCEEDINGS

The Company's activities are subject to regulation by various governmental agencies, including the FDA, which regularly monitor the Company's operations and often
impose requirements on the conduct of its clinical trials and other aspects of the Company's business operations. The Company's policy is to comply with all such regulatory requirements. From time to
time, the Company is also subject to potential claims by patients and other potential claimants commonly arising out of the operation of a medical practice. The Company seeks to minimize its exposure
to claims of this type wherever possible.

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of security holders during the fiscal year ended February 28, 2003.

16

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PART II

ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

After being removed from listing on the NASD Over-the-Counter Bulletin Board ("OTCBB") on July 25, 2000, the Company's Common Stock
resumed trading on the OTCBB on October 15, 2001. Between those dates, the Company's Common Stock was trading in the "Grey Market," which involves the trading of a security that is not listed
on any stock exchange or quoted on the OTCBB or the National Quotation Bureau's Pink Sheets. Since October 15, 2001, the Company's Common Stock has remained in good standing for trading on the
OTCBB. Nevertheless, a public trading market having the characteristic of depth, liquidity and orderliness depends upon the existence of market makers as well as the presence of willing buyers and
sellers, which are circumstances over which the Company does not have control. There can be no assurance that the market will provide significant 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 the investor needs or desires to sell.

The
following table sets forth high and low sales prices of the shares of Common Stock of the Company for the periods indicated (as reported by Pink Sheets LLC).

High

Low2001 First Quarter

.10

.012001 Second Quarter

.15

.032001 Third Quarter

.15

.03


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

High

Low2001 Third Quarter

.07

.022001 Fourth Quarter

.06

.052002 First Quarter

.06

.032002 Second Quarter

.11

.062002 Third Quarter

.075

.0312002 Fourth Quarter

.07

.026


The
quotations set forth above reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

As
of May 15, 2003, there were approximately 2,068 holders of record of the Company's Common Stock, as shown on the records of the Transfer Agent and Registrar of the Common
Stock. Since many shares may be held by investors in nominee names, such as the name of their broker or their broker's nominee, the number of record holders often bears little relationship to the
number of beneficial owners of the Common Stock.

The
Company has never paid cash dividends on its Common Stock and the Board of Directors intends to retain all of its earnings, if any, to finance the development and expansion of its
business. However, there can be no assurance that the Company can successfully expand its operations, or that such expansion will prove profitable. Future dividend policy will depend upon the
Company's earnings, capital requirements, financial condition and other factors considered relevant by the Company's Board of Directors.

17

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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the financial condition of the Company as of February 28, 2003 and February 28, 2002 and the results of operations
for the fiscal years ended February 28, 2003 and February 28, 2002. It should be read in conjunction with the financial statements and the notes thereto included elsewhere in this
report. The following discussion contains forward-looking statements.

Introduction

The Company has generated no significant revenue since its inception, and does not expect to generate any operating revenues until such time, if any, as
Antineoplastons are approved for use and sale by the FDA. The Company's sole source of funding is Dr. Burzynski, who funds the Company's operations from his medical practice pursuant to certain
agreements between Dr. Burzynski and the Company. See "Certain Relationships and Related Transactions." Funds received by the Company from
Dr. Burzynski are reported as additional paid-in capital to the Company.

The
Company is primarily engaged as a research and development facility of Antineoplaston drugs currently being tested for use in the treatment of cancer, and provides consulting
services. The Company is currently conducting approximately 74 FDA approved clinical trials. The Company holds the exclusive right in the United States, Canada and Mexico to use, manufacture, develop,
sell, distribute, sublicense and otherwise exploit all the rights, titles and interest in Antineoplaston drugs
used in the treatment of cancer, once the drug is approved for sale by the FDA. See "Certain Relationships and Related Transactions."

Results Of Operations

Fiscal Year Ended February 28, 2003 Compared to Fiscal Year Ended February 28, 2002

Research and development costs were approximately $4,197,000 and $4,903,000 for the fiscal years ended February 28, 2003 and February 28, 2002,
respectively. The decrease of $706,000, or 14%, was due to a decrease in personnel cost of $274,000, a decrease in material costs of $441,000, and a decrease in consulting and quality control costs of
$25,000, all of which were partially offset by an increase in facility and equipment costs of $20,000 and an increase in other research and development costs of $14,000.

General
and administrative expenses were approximately $206,000 and $239,000 for the fiscal years ended February 28, 2003 and February 28, 2002, respectively. The decrease
of $33,000, or 14%, was due to a decrease in legal and professional fees of $40,000 and was partially offset by an increase in other general and administrative expenses of $7,000.

The
Company had net losses of approximately $4,420,000 and $5,176,000 for the fiscal years ended February 28, 2003 and February 28, 2002, respectively. The decrease in the
net loss from 2002 to 2003 was primarily due to an overall decrease in research and development costs of the Company, as described above.

As
of February 28, 2003, the Company had a total stockholders' deficit of $(4,687).

Liquidity and Capital Resources

The Company's operations have been funded entirely by Dr. Burzynski with funds generated from Dr. Burzynski's medical practice. Effective
March 1, 1997, the Company entered into a Research Funding Agreement with Dr. Burzynski (the "Research Funding Agreement"), pursuant to which the Company agreed to undertake all
scientific research in connection with the development of new or improved Antineoplastons for the treatment of cancer and Dr. Burzynski agreed to fund the Company's

18

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Antineoplaston
research for that purpose. Under the Research Funding Agreement, the Company hires such personnel as is required to conduct Antineoplaston research, and Dr. Burzynski funds the
Company's research expenses, including expenses to conduct the clinical trials. Dr. Burzynski also provides the Company laboratory and research space as needed to conduct the Company's research
activities. The Research Funding Agreement also provides that Dr. Burzynski may fulfill his funding obligations in part by providing the Company such administrative support as is necessary for
the Company to manage its business. Dr. Burzynski pays the full amount of the Company's monthly and annual budget or expenses for the operation of the Company, together with other unanticipated
but necessary expenses which the Company incurs. In the event the research results in the approval of any additional patents for the treatment of cancer, Dr. Burzynski shall own all such
patents, but shall license to the Company the patents based on the same terms, conditions and limitations as is in the current license between Dr. Burzynski and the Company.
Dr. Burzynski has unlimited and free access to all equipment which the Company owns, so long as such use does not conflict with the Company's use of such equipment, including without
limitation, to all equipment used in the manufacturing of Antineoplastons used in the clinical trials. The amounts which Dr. Burzynski is obligated to pay under the agreement shall be reduced
dollar for dollar by the following: (1) any income which the Company receives for services provided to other companies for research and/or development of other products, less such identifiable
marginal or additional expenses necessary to produce such income, or (2) the net proceeds of any stock offering or private placement which the Company receives during the term of the agreement
up to a maximum of $1,000,000 in a given Company fiscal year.

Effective
March 1, 2001, the Company and Dr. Burzynski extended the term of the Research Funding Agreement until March 1, 2002, with an automatic renewal for two
additional one-year terms, unless one party notifies the other party at least ninety days prior to the expiration of the term of the agreement of its intention not to renew the agreement.
Subject to the foregoing, the term of the Research Funding Agreement is currently extended until March 1, 2004.

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

The
Company estimates that it will spend approximately $4,800,000 in the fiscal year ending February 28, 2004. The Company estimates that ninety-five percent (95%) of
this amount will be spent on research and development and the continuance of FDA-approved clinical trials. While the Company anticipates that Dr. Burzynski will continue to fund the
Company's research and FDA-related costs, there is no assurance that Dr. Burzynski will be able to continue to fund the Company's operations pursuant to the Research Funding
Agreement or otherwise. However, because the net assets available to Dr. Burzynski from his personal assets and the assets of his medical practice currently exceed the Company's projected
twelve-month funding requirements, the Company believes Dr. Burzynski will be financially able to fund the Company's operations at least through the fiscal year ending February 28, 2004.
In addition, Dr. Burzynski's medical practice has successfully funded the Company's research activities over the last 20 years and, in 1997, his medical practice was expanded to include
traditional cancer treatment options such as chemotherapy, immunotherapy and hormonal therapy in response to FDA requirements that cancer patients utilize more traditional cancer treatment options in
order to be eligible to participate in the Company's Antineoplaston clinical trials. As a result of the expansion of Dr. Burzynski's medical practice, the financial condition of the medical
practice has improved Dr. Burzynski's ability to fund the Company's operations.

The
Company may be required to seek additional capital through equity or debt financing or the sale of assets until the Company's operating revenues are sufficient to cover operating
costs and provide positive cash flow; however, there can be no assurance that the Company will be able to raise

19

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such
additional capital on acceptable terms to the Company. In addition, there can be no assurance that the Company will ever achieve positive operating cash flow.

ITEM 7. FINANCIAL STATEMENTS

The Company's Annual Financial Statements, Notes to Financial Statements and the report of Fitts, Roberts & Co., P.C., independent certified public
accountants, with respect thereto, referred to in the Table of Contents to the Financial Statements, appear elsewhere in this report beginning on Page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

20

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Set forth below are the names, ages and positions of the Company's directors and executive officers, including the directors and executive officers of the Company
since March 1, 1997:

Name

Age

OfficeStanislaw R. Burzynski, M.D., Ph.D.

60

Director, President, Secretary, and TreasurerBarbara Burzynski, M.D.

62

DirectorMichael H. Driscoll, J.D.

57

DirectorCarlton Hazlewood, Ph.D.

67

Director


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

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

From
1970 to 1977, he was a researcher and Assistant Professor at Baylor College of Medicine in Houston. At Baylor, Dr. Burzynski's research was sponsored and partially funded by
the National Cancer Institute. Also at Baylor, he authored and co-authored sixteen publications, including five concerning his research on peptides and their effect on human cancer. Four
of these publications were also co-authored by other doctors associated with M.D. Anderson Hospital and Tumor Institute and Baylor College of Medicine. In May 1977,
Dr. Burzynski received a Certificate of Appreciation from Baylor College of Medicine and in that same year founded the Company.

Dr. Burzynski
is a member of the American Medical Association, American Association for Cancer Research, Harris County Medical Society, New York Academy of Sciences, Society for
Neuroscience, Texas Medical Association, the Society of Sigma Xi, the Society of Neuro-oncology and has privileges at Twelve Oaks Medical Center at River Oaks located near the Burzynski Research
Institute in Houston. He is the author of 172 scientific publications, presenter of scientific papers at major international conventions, and has been awarded 166 patents covering 39 countries for his
Antineoplaston treatment. Other groups are working in conjunction with him, including researchers at the University Kurume Medical School in Japan.

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

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

21

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CARLTON
HAZLEWOOD, PH.D. has been a Director of the Company since 1997. He also serves as Chairman of the IRB, an independent review board for the Company's clinical trials designated
according to federal regulations. Dr. Hazlewood is currently operating his own consulting company, Research Consultant's International, and is president of Petroclean, L.L.C. He is also the
owner of Applied Advanced Technology and BRI-IRB of Houston. In addition, Dr. Hazlewood had been employed in various capacities by the Baylor College of Medicine from 1965 until
December 31, 1997, when he was a professor of Molecular Biology and Biophysics. Dr. Hazlewood received his Ph.D. in Medical Physiology from the University of Tennessee.
Dr. Hazelwood is a prolific writer on medical topics and has been recognized for his research with numerous awards, honors and research grants.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Rule 16a-3(e) during the fiscal year ended
February 28, 2003 and Form 5 and amendments thereto furnished to the Company with respect to such period, the Company is not aware of any director, officer, or beneficial owner of more
than 10% of any class of equity securities of the Company registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act") that has failed to file on a timely
basis, as disclosed in the above forms, reports required by Section 16(a) of the Exchange Act during the Company's most recent fiscal year.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

|                                                                            |  | Annual Compensation |  | Long-Term Compensation |                         | 
|--------------------------------------------------------------------------- |  | ------------------- |  | ---------------------- | ----------------------- | 
|
|Stanislaw R. Burzynski, M.D.,  Ph.D., President, Secretary and Treasurer(1) |  | 2001
2002
2003      |  | $$$                    | 87,000
0
0              | 
|Robert Waldbillig, Ph.D.,  Vice President of Research                       |  | 2001
2002
2003      |  | $$$                    | 103,333
110,512
113,400 | 

---

Directors
do not receive any compensation for serving as directors; however, directors are reimbursed for all ordinary and necessary expenses incurred in attending meetings of the Board
of Directors or otherwise incurred in their capacity as directors. In addition, any director also serving as a director of the IRB, the independent review board for the Company's clinical trials
designated according to federal regulations, is compensated by the IRB approximately $1,600 annually for serving as a director of the IRB.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of May 15, 2003, the number of outstanding shares of Common Stock (the Company's only class of voting securities) owned
by (i) each person known by the Company

22

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to
beneficially own more than 5% of its outstanding Common Stock, (ii) each director, (iii) each named executive officer, and (iv) all officers and directors as a group.

|Title of class |  | Name and Address of
Beneficial Owner                                                  |  | Amount and Nature of
Beneficial Owner |  | Percent of Class (1)
|-------------- |  | ------------------------------------------------------------------------------------- |  | ------------------------------------- |  | --------------------
|Common Stock   |  | Stanislaw R. Burzynski, M.D., Ph.D
9432 Old Katy Road, Suite 200
Houston, Texas 77055 |  | 106,444,190 shares                    |  | 81.01%              
|Common Stock   |  | Barbara Burzynski, M.D.
9432 Old Katy Road, Suite 200
Houston, Texas 77055            |  | 106,444,190 shares                    |  | 81.01%              
|Common Stock   |  | Michael H. Driscoll, J.D.
9432 Old Katy Road, Suite 200
Houston, Texas 77055          |  | 570,000 shares                        |  | 0.43%               
|Common Stock   |  | Carlton Hazlewood
9432 Old Katy Road, Suite 200
Houston, Texas 77055                  |  | 0 shares                              |  | 0.00%               
|Common Stock   |  | All Current Directors and Executive Officers as a group                               |  | 107,014,190                           |  | 81.45%              

---

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Dr. Burzynski is the President, Secretary, Treasurer and Chairman of the Board of the Company, as well as the beneficial owner of 81.01% of the Company's
outstanding Common Stock. Since 1983, Dr, Burzynski has personally funded and supported the Company's operations pursuant to various agreements with the Company out of funds generated from his medical
practice.

License Agreement

The Company entered into the License Agreement with Dr. Burzynski which gives the Company the exclusive right in the Territory (composed of the United
States, Canada and Mexico) to use, manufacture, develop, sell, distribute, sublicense and otherwise exploit all of his rights, title and interests in Antineoplastons in the treatment and diagnosis of
cancer, including but not limited to any patent rights which may be granted in these countries. The License Agreement will terminate upon the earlier of the expiration of the last patent licensed to
the Company, or termination by Dr. Burzynski, at his option, if he is removed as a director or officer of the Company without his consent, if the Company files for bankruptcy or is the subject
of any proceeding under applicable bankruptcy laws where such proceeding is not dismissed within 90 days from the date a petition if filed, or if any shareholder or group of shareholders acting
in concert becomes the beneficial owner of the Company's securities having voting power equal to or greater than the voting power of the securities Dr. Burzynski holds. Amendments to the
License Agreement on April 24, 1984 and on March 1, 1990 granted Dr. Burzynski the limited right to manufacture, use, and exploit Antineoplastons in the Company's exclusive
territory solely for the purpose of enabling Dr. Burzynski to treat patients in his medical practice until such date that the FDA may approve the sale of Antineoplastons for the treatment of
cancer in the United States.

23

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Research Funding Arrangements

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



Effective
March 1, 2001 the term of the Research Funding Agreement was extended to March 1, 2002, and is automatically renewable for two additional one-year
terms thereafter, unless one party notifies the other party at least ninety days prior to the expiration of the term of the agreement of its intention not to renew the agreement. In addition to the
foregoing termination provisions, the agreement automatically terminates in the event that Dr. Burzynski owns less than fifty percent of the outstanding shares of the Company, or is removed as
President and/or Chairman of the Board of the Company, unless Dr. Burzynski notifies the Company in writing of his intention to continue the

24

---

agreement
notwithstanding this automatic termination provision. Subject to the foregoing, the term of the Research Funding Agreement is currently extended until March 1, 2004.

Royalty Agreement

The Company and Dr. Burzynski entered into the Royalty Agreement, pursuant to which Dr. Burzynski agreed to act as the principal clinical
investigator of the clinical trials necessary for obtaining FDA approval for interstate marketing of Antineoplastons. The Company and Dr. Burzynski agreed that in the event the Company receives
FDA approval for interstate marketing and distribution, of which there can be no assurance, the Company shall pay Dr. Burzynski a royalty of 10% (ten percent) of the Company's gross income,
which royalty shall be paid on all gross receipts from all future sales, distributions and manufacture of Antineoplastons.

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

Other Transactions

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

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

|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)).
|            |  |                                                                                                                                                                                                                                                                      

25

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|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 |  | Royalty Agreement, dated March 25, 1997, by and between the Company and Dr. Stanislaw R. Burzynski (incorporated by referenced from Exhibit 10(5) to Form 10-SB filed with the Securities and Exchange Commission on November 25,
1997 (File No. 000-23425)).                              
|10.7 |  | First Amended Royalty Agreement, dated September 29, 1997, by and between the Company and Dr. Stanislaw R. Burzynski (incorporated by referenced from Exhibit 10(6) to Form 10-SB filed with the Securities and Exchange Commission on
November 25, 1997 (File No. 000-23425)).            
|24   |  | Power of Attorney (Included with the Signature Page)                                                                                                                                                                                                                                       
|99.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.                                                                                                                                                     
|99.2 |  | Certification pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended, filed herewith.                                                                                                                                                                       

There
were no reports on Form 8-K filed by the Company during the last quarter of fiscal year ended February 28, 2003.

ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's principal executive and financial officer (who is the same person), of the effectiveness of the Company's disclosure controls and procedures pursuant to
Rule 13a-14 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company's principal executive and financial officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to material information required to be included in periodic Securities and Exchange Commission filings.

There
were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation above.

26

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SIGNATURES

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

| |  | Burzynski Research Institute, Inc.
| |  | ----------------------------------
| |  | By:                               
| |  |                                   

Date:
May 28, 2003

27

---

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

Pursuant
to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

|/s/STANISLAW R. BURZYNSKIStanislaw R. Burzynski
President, Secretary, Treasurer (Chief Financial Officer), and Chairman of the Board of Directors |  | Date: May 28, 2003
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|/s/BARBARA BURZYNSKIBarbara Burzynski
Director                                                                                                    |  | Date: May 28, 2003
|/s/MICHAEL H. DRISCOLLMichael H. Driscoll
Director                                                                                                |  | Date: May 28, 2003
|/s/CARLTON HAZLEWOODCarlton Hazlewood
Director                                                                                                    |  | Date: May 28, 2003

28

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Burzynski Research Institute, Inc.    Financial Statements    For the years ended  February 28, 2003 and 2002

---



CONTENTS



|                                  
|----------------------------------
|Independent Auditor's Report      
|Balance Sheets                    
|Statements of Operations          
|Statements of Stockholders' Equity
|Statements of Cash Flows          
|Notes to Financial Statements     

F-2

---



INDEPENDENT AUDITOR'S REPORT

To
the Board of Directors and Stockholders
of Burzynski Research Institute, Inc.

We
have audited the accompanying balance sheets of Burzynski Research Institute, Inc. as of February 28, 2003 and 2002, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Burzynski Research Institute, Inc. as of
February 28, 2003 and 2002 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of
America.



May 23,
2003
Houston, Texas

F-3

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BURZYNSKI RESEARCH INSTITUTE, INC.        BALANCE SHEETS        February 28, 2003 and 2002

|                                                                                           |                                                                                                         | 2003                                 |                                            | 2002        |       
|------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------------ | ----------- | ------
|ASSETS                                                                                     |                                                                                                         |                                      |                                            |             |       
|Current assets                                                                             |                                                                                                         |                                      |                                            |             |       
|                                                                                           | Cash and cash equivalents (Note 1)                                                                      |                                      | $                                          | 1,926       |       
|                                                                                           |                                                                                                         |                                      |                                            |             |       
|                                                                                           |                                                                                                         | Total current assets                 |                                            |             | 1,926 
|Property and equipment, net of accumulated depreciation and amortization (Notes 1,3 and 5) |                                                                                                         |                                      | 63,839                                     |             |       
|                                                                                           |                                                                                                         |                                      |                                            |             |       
|                                                                                           |                                                                                                         | Total assets                         |                                            | $           | 65,765
|                                                                                           |                                                                                                         |                                      |                                            |             |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                       |                                                                                                         |                                      |                                            |             |       
|Current liabilities                                                                        |                                                                                                         |                                      |                                            |             |       
|                                                                                           | Accounts payable                                                                                        |                                      | $                                          | 23,384      |       
|                                                                                           | Accrued liabilities                                                                                     |                                      |                                            | 47,068      |       
|                                                                                           |                                                                                                         |                                      |                                            |             |       
|                                                                                           |                                                                                                         | Total current liabilities            |                                            |             | 70,452
|                                                                                           |                                                                                                         |                                      |                                            |             |       
|                                                                                           |                                                                                                         | Total liabilities                    |                                            |             | 70,452
|Commitments and contingencies (Note 8)                                                     |                                                                                                         |                                      |                                            |             |       
|Stockholders' equity (deficit)                                                             |                                                                                                         |                                      |                                            |             |       
|                                                                                           | Common stock, $.001 par value; 200,000,000 shares authorized, 131,388,444 shares issued and outstanding |                                      |                                            | 131,389     |       
|                                                                                           | Additional paid-in capital                                                                              |                                      |                                            | 56,542,945  |       
|                                                                                           | Discount on common stock                                                                                |                                      |                                            | (100        | )     
|                                                                                           | Retained deficit                                                                                        |                                      |                                            | (56,678,921 | )     
|                                                                                           |                                                                                                         |                                      |                                            |             |       
|                                                                                           |                                                                                                         | Total stockholders' equity (deficit) |                                            |             | (4,687
|                                                                                           |                                                                                                         |                                      |                                            |             |       
|                                                                                           |                                                                                                         |                                      | Total liabilities and stockholders' equity |             | $     
|                                                                                           |                                                                                                         |                                      |                                            |             |       

The
accompanying notes are an integral part of these financial statements.

F-4

---

BURZYNSKI RESEARCH INSTITUTE, INC.        STATEMENTS OF OPERATIONS        For the Years Ended February 28, 2003 and 2002

|                                         |                                          | 2003                     |     | 2002       |          
|---------------------------------------- | ---------------------------------------- | ------------------------ | --- | ---------- | ---------
|Revenue                                  |                                          |                          |     |            |          
|                                         | Other income                             |                          | $   |           |          
|Operating expenses                       |                                          |                          |     |            |          
|                                         | Research and development (Notes 1 and 2) |                          |     | 4,197,298  |          
|                                         | General and administrative               |                          |     | 205,581    |          
|                                         | Depreciation (Notes 1 and 3)             |                          |     | 17,127     |          
|                                         |                                          |                          |     |            |          
|                                         |                                          | Total operating expenses |     |            | 4,420,006
|                                         |                                          |                          |     |            |          
|                                         | Net loss before provision for taxes      |                          |     | (4,420,006 | )        
|Provision for income tax (Notes 1 and 6) |                                          |                          | 780 |            |          
|                                         |                                          |                          |     |            |          
|                                         | Net loss                                 |                          | $   | (4,420,786 | )        
|                                         |                                          |                          |     |            |          
|Earnings per share information:          |                                          |                          |     |            |          
|Basic and diluted                        |                                          |                          |     |            |          
|                                         | (Loss) per common share                  |                          | $   | (0.0336    | )        
|                                         |                                          |                          |     |            |          

The
accompanying notes are an integral part of these financial statements.

F-5

---



BURZYNSKI RESEARCH INSTITUTE, INC.        STATEMENTS OF STOCKHOLDERS' EQUITY        For the Years Ended February 28, 2003 and 2002

|                          |                                                                          | Common
Stock |         | Additional
Paid-in
Capital |   | Discount on
Common
Stock |           | Retained
Deficit |     
|------------------------- | ------------------------------------------------------------------------ | ------------ | ------- | -------------------------- | - | ------------------------ | --------- | ---------------- | ----
|Balance February 28, 2001 |                                                                          | $            | 131,389 |                            | $ | 46,979,684               |           | $                | (100
|                          | Cash contributed by S.R. Burzynski M.D., Ph.D.                           |              |         |                           |   |                          | 699,000   |                  |     
|                          | FDA clinical trial expenses paid directly by S.R. Burzynski M.D., Ph. D. |              |         |                           |   |                          | 4,482,163 |                  |     
|                          | Net loss                                                                 |              |         |                           |   |                          |          |                  |     
|                          |                                                                          |              |         |                            |   |                          |           |                  |     
|Balance February 28, 2002 |                                                                          |              | 131,389 |                            |   | 52,160,847               |           |                  | (100
|                          | Cash contributed by S.R. Burzynski M.D., Ph.D.                           |              |         |                           |   |                          | 712,000   |                  |     
|                          | FDA clinical trial expenses paid directly by S.R. Burzynski M.D., Ph. D. |              |         |                           |   |                          | 3,670,098 |                  |     
|                          | Net loss                                                                 |              |         |                           |   |                          |          |                  |     
|                          |                                                                          |              |         |                            |   |                          |           |                  |     
|Balance February 28, 2003 |                                                                          | $            | 131,389 |                            | $ | 56,542,945               |           | $                | (100
|                          |                                                                          |              |         |                            |   |                          |           |                  |     

The
accompanying notes are an integral part of these financial statements.

F-6

---

BURZYNSKI RESEARCH INSTITUTE, INC.        STATEMENTS OF CASH FLOWS        For the Years Ended February 28, 2003 and 2002

|                                        |                                                                                   | 2003                                                                     |          | 2002       |          
|--------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -------- | ---------- | ---------
|CASH FLOWS FROM OPERATING ACTIVITIES    |                                                                                   |                                                                          |          |            |          
|                                        | Net loss                                                                          |                                                                          | $        | (4,420,786 | )        
|                                        | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                          |          |            |          
|                                        |                                                                                   | Depreciation                                                             |          |            | 17,127   
|                                        |                                                                                   | FDA clinical trial expenses paid directly by S.R. Burzynski M.D., Ph. D. |          |            | 3,670,098
|                                        | Decrease in                                                                       |                                                                          |          |            |          
|                                        |                                                                                   | Other assets                                                             |          |            |         
|                                        | Increase (decrease) in                                                            |                                                                          |          |            |          
|                                        |                                                                                   | Accounts payable                                                         |          |            | 12,018   
|                                        |                                                                                   | Accrued liabilities                                                      |          |            | 598      
|                                        |                                                                                   |                                                                          |          |            |          
|NET CASH (USED) IN OPERATING ACTIVITIES |                                                                                   |                                                                          | (720,945 | )          |          
|CASH FLOWS FROM INVESTING ACTIVITIES    |                                                                                   |                                                                          |          |            |          
|                                        | Purchases of property and equipment                                               |                                                                          |          | (11,714    | )        
|                                        |                                                                                   |                                                                          |          |            |          
|                                        | NET CASH (USED) IN INVESTING ACTIVITIES                                           |                                                                          |          | (11,714    | )        
|CASH FLOWS FROM FINANCING ACTIVITIES    |                                                                                   |                                                                          |          |            |          
|                                        | Payments on capital lease obligations                                             |                                                                          |          |           |          
|                                        | Additional paid-in capital                                                        |                                                                          |          | 712,000    |          
|                                        |                                                                                   |                                                                          |          |            |          
|                                        | NET CASH PROVIDED BY FINANCING ACTIVITIES                                         |                                                                          |          | 712,000    |          
|                                        |                                                                                   |                                                                          |          |            |          
|                                        | NET INCREASE (DECREASE) IN CASH                                                   |                                                                          |          | (20,659    | )        
|CASH AT BEGINNING OF YEAR               |                                                                                   |                                                                          | 22,585   |            |          
|                                        |                                                                                   |                                                                          |          |            |          
|CASH AT END OF YEAR                     |                                                                                   | $                                                                        | 1,926    |            | $        
|                                        |                                                                                   |                                                                          |          |            |          
|SUPPLEMENTAL CASH FLOW DISCLOSURES:     |                                                                                   |                                                                          |          |            |          
|                                        | Cash Paid During the Year For:                                                    |                                                                          |          |            |          
|                                        |                                                                                   | Income taxes                                                             |          | $          | 2,830    
|                                        |                                                                                   | Interest                                                                 |          | $          | 70,829   

The
accompanying notes are an integral part of these financial statements.

F-7

---



BURZYNSKI RESEARCH INSTITUTE, INC.        NOTES TO FINANCIAL STATEMENTS

1. Background, Basis of Presentation, Economic Dependency and Significant Accounting Policies:

Background and Basis of Presentation

The financial statements of Burzynski Research Institute, Inc. (BRI or the Company), a Delaware corporation, include expenses incurred related to clinical
trials, which were sanctioned by the Federal Drug Administration (FDA) in 1993, for antineoplaston drugs used in the treatment of cancer. These expenses incurred directly by S.R. Burzynski, M.D., PhD
(Dr. Burzynski) have been reported as research and development costs and as additional paid-in capital. Other funds received from Dr. Burzynski have also been reported as
additional paid-in capital. Expenses related to Dr. Burzynski's medical practice (unrelated to the clinical trials) have not been included in these financial statements.
Dr. Burzynski is the President, Chairman of the Board and owner of over 80% of the outstanding stock of Burzynski Research Institute, Inc., and also is the inventor and original patent
holder of certain drug products knows as "antineoplastons", which he has licensed to the Company.

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

BRI's
administrative offices are located in Houston, Texas; its research and production facilities in Stafford, Texas. The Company operates primarily as a research and development
facility of
antineoplaston drugs currently being tested for the use in the treatment of cancer, and provides consulting services. Segment information is not presented since all of the Company's operations are
attributed to a single reportable segment. The Company has had no significant revenue from external sources. BRI is currently conducting clinical trials on various antineoplastons in accordance with
FDA regulations, however, at this time none of the antineoplaston drugs have received FDA approval; further, there can be no assurance FDA approval will be granted.

Economic Dependency

BRI has generated no significant revenues since its inception. As of February 28, 2003, the Company had a working capital deficit of approximately $69,000
and accumulated deficit of approximately $56,700,000. For the years ended February 28, 2003 and 2002 the Company incurred losses of approximately $4,421,000 and $5,176,000, respectively.

Dr. Burzynski
has funded the capital and operational needs of the Company since its inception from revenues generated through his medical practice pursuant to various agreements
as described in Note 2.

BRI
is economically dependent on its funding from Dr. Burzynski through his medical practice. Approximately twenty percent (20%) of Dr. Burzynski's patients are admitted
and treated as part of the clinical trial programs which are regulated by the FDA. The FDA imposes numerous regulations and requirements regarding these patients and the Company is subject to
inspection at anytime by the FDA. These regulations are complex and subject to interpretation and though it is management's intention to comply fully with all such regulations, there is the risk that
the Company is not in compliance and is thus subject to sanctions imposed by the FDA.

F-8

---

In
addition, as with any medical practice, Dr. Burzynski is subject to potential claims by patients and other potential claimants commonly arising out of the operation of a
medical practice. The risks associated with Dr. Burzynski's medical practice directly affect his ability to fund the operations of BRI.

It
is the intention of the directors and management to seek additional capital through the sale of securities. The proceeds from such sales will be used to fund BRI's operating deficit
until it achieves positive operating cash flow. However, there can be no assurance that the Company will be able to raise such additional capital.

Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Property and Equipment

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

Income Taxes

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

Loss Per Common Share

Basic and diluted loss per common share information for all periods is presented under the requirements of FASB Statement No. 128, "Earnings per share".
Basic loss per common share has been computed using the weighted average number of common shares outstanding during the period. Potentially dilutive securities have been excluded from the computation
of diluted loss per common share, as their inclusion would be antidilutive.

F-9

---

Research and Development

Research and development cost are charged to operations in the year incurred. Equipment used in research and development activities, which have alternative uses,
are capitalized.

Management Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ
from those estimates.

Stock-Based Compensation

As
permitted under generally accepted accounting principles, stock-based awards granted to employees are accounted for following APB 25, as further described in Note 7.
Accordingly, the Company has not recognized compensation expense for its stock-based awards to employees. No additional compensation expense would be incurred during 2003 or 2002 if compensation costs
for the Company's stock-based compensation plans had been determined based on the fair value approach of SFAS 123.

2. Agreements With, and Other Related Party Transactions:

The Company has agreements with its majority shareholder and President Dr. Burzynski as further described below:

License Agreement

Dr. Burzynski is the owner of patents involving the formulation, preparation, manufacture, production, use, dosage and treatment with antineoplastons. The
patents have been issued by the United States Patent Office and Patent Offices and Patent Officers of twenty-eight other countries. The Patents for cancer treatment and diagnosis in the United States
and Canada are licensed to the Company pursuant to a License Agreement.

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

The
Agreement gives Dr. Burzynski the right to distribute, use and otherwise exploit antineoplastons in connection with treatment of patients in his medical practice until such
time as they are approved for sale by the FDA.

The
License Agreement will terminate upon the earlier of the expiration of the last patent licensed to the Company, or termination by Dr. Burzynski, at his option, if he is
removed as a director or officer of the Company without his consent, if the Company files for bankruptcy or if any shareholder

F-10

---

or
group of shareholders acting in concert becomes the beneficial owner of the Company's securities having voting power equal to or greater than the voting power of the securities Dr. Burzynski
holds.

Under
the License Agreement, the Company currently owns exclusive rights to eight (8) issued United States Patents and two (2) issued Canadian Patents. The Company has no
patents in Mexico. The Company has one (1) pending patent application in the United States, two (2) pending patent applications in Canada and one (1) in Mexico.

The
five initial United States Patents (the "Initial Patents") relate to: (i) Determination of Antineoplastons in body tissue or fluids as a testing procedure to aid in the
diagnosis of cancer; (ii) Processes for the preparation of purified fractions of Antineoplastons from human urine; (iii) Processes for the synthetic production of Antineoplastons and
methods of treating neoplastic disease (cancer); (iv) Administration of Antineoplastons to humans; and (v) Methods of synthesizing A-10. The Initial Patents expire from
September 11, 2001 to January 11, 2009; however, the Company does not believe the expiration of any of the Initial Patents will have a material adverse effect on the Company.

The
sixth United States Patent (the "2000 U.S. Patent") covers Liposomal Antineoplaston therapies with markedly improved anti-cancer activity. The 2000 U.S. Patent expires
May 14, 2017.

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

The
eighth United States Patent (the "2002 U.S. Patent" relates to the synthesis of 4-Phenylburtric Acid. The 2002 U.S. Patent expires on May 21, 2021.

The
two Canadian Patents (the "Canadian Patents") relate to: (i) Processes for the preparation of purified fractions of Antineoplastons from human urine, and (ii) Processes
for the synthetic production of Antineoplastons and methods of treating neoplastic disease (cancer). The Canadian Patents expire on November 14, 2006 and June 4, 2002, respectively.
However, the Company does not believe the expiration of any of the Initial Patents will have a material adverse effect on the Company.

Research Funding Agreement

Effective March 1, 1997, Dr. Burzynski restructured his funding arrangement with the Company and entered into a Research Funding Agreement. Under
this agreement the two parties agreed to the following:

F-11

---

Royalty Agreement

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

F-12

---

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

Other Related Party Transactions

Dr. Burzynski owns the production facility located at Trinity Drive. There is no formal lease agreement between Dr. Burzynski and BRI, however, the
Research Funding Agreement described above provides that Dr. Burzynski will allow the Company the use of the building, in addition, the Royalty agreement states that after FDA approval is
granted (though approval is not assured) the Company may rent the facility at competitive rates if Dr. Burzynski does not need the facility for his use. The actual facility costs are included
in the financial statements as set forth in note 5. In addition, Dr. Burzynski's medical clinic performs certain administrative functions such as accounting, and allows BRI the use of
some office space at no charge to the Company. In May of 2000, Dr. Burzynski began drawing his entire salary through his medical practice and is not currently compensated by BRI for his
services.

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

2003

2002Capital contributed

$
712,000

$
699,000Clinical trial costs paid direct

$
3,670,098

$
4,482,163


3. Property and Equipment:

Property and equipment consists of the following as of February 28th:

Estimated
Useful Lives

2003

2002Production equipment

5 - 10 years

$
3,314,342

$
3,314,342Leasehold improvements

5 - 31.5 years


1,543,490


1,543,490Furniture and equipment

5 - 10 years


631,020


619,306Equipment

4 - 5 years


288,943


288,943Total property and equipment




5,777,795


5,766,081Accumulated depreciation and amortization




(5,713,956
)

(5,696,829
)$
63,839

$
69,252


Depreciation
and amortization expense for the years ended February 28, 2003, and 2002 was $17,127 and $36,874, respectively.

4. Employee Benefits:

The Company has a self-funded employee benefit plan providing health care benefits for all its employees. It also provides for them group dental
insurance, short-term and long-term disability

F-13

---

insurance,
and life insurance. The Company pays 100% of the cost for its employees and 50% of any dependent coverage. The plan has a $200 deductible and a maximum lifetime benefit of $1,000,000 per
covered participant. Due to stop-loss insurance, benefits payable by the Company are limited to $12,500 per person during the policy year. The Company charged to operations a provision of
$221,153 for 2003 and $218,662 for 2002, which represents the sum of actual claims paid and an estimate of liabilities relating to claims, both asserted and unasserted, resulting from incidents that
occurred during the year.

5. Lease Commitments:

The Company leases certain equipment under agreements which are classified as operating leases. Rent expense incurred under these leases was approximately $9,077
and $5,744 for the years ended February 28, 2003, and 2002, respectively. All lease agreements are on a month-to-month basis.

In
addition, as explained in Note 2, Dr. Burzynski owns the facility used by the Company to perform research and produce its drug products. There is currently no lease
agreement, however, the facility's costs are included in the accompanying financial statements. Those costs include not only utilities and expenses normally incurred by a tenant but also mortgage
interest, insurance, property taxes and building depreciation. Interest, insurance, property taxes and building depreciation totaled $182,216 for 2003. Interest, property taxes and building
depreciation totaled $146,395 in 2002.

6. Income Taxes:

The actual income tax benefit attributable to the Company's losses for the years ended February 28, 2003 and 2002 differ from the amounts computed by
applying the U.S. federal income tax rate of 34% to the pretax loss as a result of the following:

|                                     |  | 2003 |            | 2002 |  
|------------------------------------ |  | ---- | ---------- | ---- | -
|Expected benefit                     |  | $    | (1,502,802 | )    | $
|Nondeductible expenses               |  |      |           |      |  
|Other adjustments                    |  |      | (201       | )    |  
|Taxed directly to Dr. Burzynski      |  |      | 1,503,067  |      |  
|Change in valuation allowance        |  |      | (64        | )    |  
|Texas franchise tax, based on income |  |      | 780        |      |  
|                                     |  |      |            |      |  
|Income tax expense                   |  | $    | 780        |      | $
|                                     |  |      |            |      |  

F-14

---

The
components of the Company's deferred income tax assets as of February 28, 2003 and 2002 are as follows:

|                                             |  | 2003 |          | 2002 |  
|-------------------------------------------- |  | ---- | -------- | ---- | -
|Deferred tax assets:                         |  |      |          |      |  
|Net operating loss carryforwards             |  | $    | 355,777  |      | $
|Excess book depreciation                     |  |      | 39,348   |      |  
|Accrued expenses                             |  |      | 6,959    |      |  
|Investment tax credit carryforwards          |  |      |         |      |  
|Alternative minimum tax credit carryforwards |  |      | 42,603   |      |  
|                                             |  |      |          |      |  
|Total deferred tax assets                    |  |      | 444,687  |      |  
|Less valuation allowance                     |  |      | (444,687 | )    |  
|                                             |  |      |          |      |  
|Net deferred tax assets                      |  | $    |         |      | $
|                                             |  |      |          |      |  

The
Company's ability to utilize net operating loss carryforwards and alternative minimum tax credit carryforwards will depend on its ability to generate adequate future taxable income.
The Company has no historical earnings on which to base an expectation of future taxable income. Accordingly, a valuation allowance for the total deferred tax assets has been provided.

The
Company has net operating loss carryforwards available to offset future income in the amount of $1,046,402 as of February 28, 2003. The net operating loss carryforwards expire
as follows:

Year ending
February 28, or 29,2013

$
303,0692016

$
11,8182017

$
511,8712018

$
50,7862020

$
49,9762021

$
24,1172022

$
19,3152023

$
75,450


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

7. Stock Options:

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" (FAS 123) defines a fair value based method of
accounting for employee stock options or similar equity instruments and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. Under the fair
value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period of the award, which is usually the vesting period.
However, FAS 123 also allows entities to continue to measure compensation costs for employee stock compensation plans using the intrinsic value method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock

F-15

---

Issued
to Employees" (APB 25). The Company has adopted FAS 123 and has elected to remain with the accounting prescribed by APB 25.

On
September 14, 1996 the Company granted 600,000 stock options, with an exercise price of $.35 per share, to a former officer of the Company. The options vested as follows:

400,000 options

September 14, 1996100,000 options

June 1, 1997100,000 options

June 1, 1998


The
options are valid in perpetuity. In addition, for a period of 10 years from the grant date, they increase in the same percentage of any new shares of stock issued; however, no
additional shares have been issued since September 14, 1996. None of the options have been exercised as of February 28, 2003.

F-16

---

8. Commitments and Contingencies and Supply Source:

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

The
Company produced antineoplaston products to treat approximately 104 patients during the year ended February 28, 2003 and 118 for 2002. Management estimates the current
production facilities have the capacity to produce product to treat approximately 1,500 patients. There is space available at the current site to expand the facility for increased capacity if
necessary.

The
Company received approximately sixty one percent and eighty two percent of the chemicals used in producing antineoplastons from a single supplier during the years ended
February 2003 and 2002, respectively. The Company has established an additional vendor to supply these chemicals.

F-17

---