**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-KSB**

 

**(MarkOne)**

 

**ANNUAL REPORT UNDER SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thefiscal year ended February 29, 2008**

 

**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thetransition period from                      to**

 

**Commissionfile number 000-23425**

 

**BURZYNSKIRESEARCH INSTITUTE, INC.**

(Name of smallbusiness issuer in its charter)

 

| **Delaware**                     | ** ** | **76-0136810**       |
|----------------------------------|------------|----------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer     |
| incorporation or  organization)  |       | Identification  No.) |

 

| **9432  Old Katy Road, Suite 200**   | ** ** | ** ** |
|-------------------------------------------|------------|------------|
| **Houston,  Texas**                       | ** ** | **77055**  |
| (Address of  principal executive offices) |       | (Zip Code) |

 

Issuer’s telephonenumber:  **(713)335-5697**

 

Securitiesregistered under Section 12(b) of the Exchange Act:

**None**

 

Securitiesregistered under Section 12(g) of the Exchange Act:

**CommonStock, $.001 par value**

 

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

 

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

 

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

 

State issuer’s revenuesfor its most recent fiscal year:  $0.

 

As of May 20, 2008131,388,444 shares of the Registrant’s Common Stock were outstanding, and theaggregate market value of the Common Stock held by non-affiliates wasapproximately $1,520,626.51 based on the last reported sales price on May 20,2008.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Documents incorporated byreference: None.

 

Transitional SmallBusiness Disclosure Format (Check One): Yes   o;  No.  x

 

 

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**BURZYNSKI RESEARCH INSTITUTE, INC.**

 

**FORM 10-KSB**

 

**FISCAL YEAR ENDED FEBRUARY 29, 2008**

 

**TABLE OF CONTENTS**

 
| **PART I**                                                                                      | ** **                                                                                                                  | **3**      |
|------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                           | ** **                                                                                                                  | ** ** |
| ITEM  1.                                                                                             | DESCRIPTION OF BUSINESS                                                                                                     | 3          |
| ITEM 2.                                                                                              | DESCRIPTION  OF PROPERTY                                                                                                    | 12         |
| ITEM 3.                                                                                              | LEGAL  PROCEEDINGS                                                                                                          | 12         |
| ITEM 4.                                                                                              | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                                        | 12         |
|                                                                                                 |                                                                                                                        |       |
| **PART II**                                                                                     | ** **                                                                                                                  | **12**     |
| ** **                                                                                           | ** **                                                                                                                  | ** ** |
| ITEM 5.                                                                                              | MARKET FOR  COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER  PURCHASES OF EQUITY SECURITIES            | 12         |
| ITEM 6.                                                                                              | MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                             | 13         |
|                                                                                                 |                                                                                                                        |       |
| ***Fiscal Year Ended February 29, 2008 Compared to  Fiscal Year Ended February 28, 2007*** | **14**                                                                                                                      |
| *** ***                                                                                         | ** **                                                                                                                  |
| ITEM 7.                                                                                              | FINANCIAL  STATEMENTS                                                                                                       | 15         |
| ITEM 8.                                                                                              | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                       | 15         |
| ITEM 8A.                                                                                             | CONTROLS AND  PROCEDURES                                                                                                    | 15         |
| ITEM 8B.                                                                                             | OTHER  INFORMATION                                                                                                          | 16         |
|                                                                                                 |                                                                                                                        |       |
| **PART III**                                                                                    | ** **                                                                                                                  | **16**     |
| ** **                                                                                           | ** **                                                                                                                  | ** ** |
| ITEM 9.                                                                                              | DIRECTORS,  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH  SECTION 16(a) OF THE EXCHANGE ACT | 16         |
| ITEM 10.                                                                                             | EXECUTIVE  COMPENSATION                                                                                                     | 18         |
| ITEM 11.                                                                                             | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                            | 18         |
| ITEM 12.                                                                                             | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                             | 18         |
| ITEM 13.                                                                                             | EXHIBITS                                                                                                                    | 20         |
| ITEM 14.                                                                                             | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                                     | 22         |

 

 

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**FORWARD LOOKING STATEMENTS**

 

This reportcontains forward-looking statements, including statements regarding futurefinancial performance and results and other statements that are not historicalfacts. Such statements are included in “Description of Business,” “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andelsewhere 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 toidentify forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Although the Company believes that theexpectations reflected in these forward-looking statements are reasonable,there can be no assurance that actual results or developments anticipated bythe Company will be realized or, even if realized, that they will have theexpected effects on its business or operations. Actual results could differmaterially from those contemplated by the forward-looking statements as aresult of certain factors beyond the Company’s control including: the abilityto develop safe and efficacious drugs, the failure to achieve positive clinicaltrials, the failure to successfully commercialize our products, competition andtechnological change and existing and future regulations affecting ourbusiness.

 

 

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# **PART I**

# ** **

| **ITEM 1.** | **DESCRIPTION  OF BUSINESS** |
|-------------|------------------------------|

** **

**General**

 

Burzynski ResearchInstitute, Inc. (the “Company”) was incorporated under the laws of theState of Delaware in 1984 in order to engage in the research, production,marketing, promotion and sale of certain medical chemical compounds composed ofgrowth-inhibiting peptides, amino acid derivatives and organic acids which areknown under the trade name “Antineoplastons.” The Company believesAntineoplastons are useful in the treatment of human cancer and is currentlyconducting Phase II clinical trials of Antineoplastons relating to thetreatment of cancer. Antineoplastons have not been approved for sale or use bythe Food and Drug Administration of the United States Department of Health andHuman Services (“FDA”) or anywhere in the world. In the event Antineoplastonsreceive such approval and are registered in the United States, Canada, orMexico, of which there can be no assurance, the Company will commencecommercial operations, which shall include the production, marketing, promotionand sale of Antineoplastons in the United States, Canada, or Mexico. In 2004,the FDA approved the designation of Antineoplastons as an “orphan drug” underthe Orphan Drug Act of 1983. See “—Orphan Drug Designation” below for adetailed description of this designation and its meaning. The Company currentlyprovides Antineoplastons solely for the use of Stanislaw R. Burzynski, M.D.,Ph.D. (“Dr. Burzynski”) in clinical research.

 

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

 

**Antineoplastons**

 

Dr. Burzynskicommenced his cancer research in 1967 focusing on the isolation of variousbiochemicals produced by the human body as part of the body’s possible defenseagainst cancer. In the course of his research, Dr. Burzynski identifiedcertain peptides, amino acid derivatives and organic acids in thesebiochemicals which appear to inhibit the growth of cancer cells. Thesederivatives were given the name “Antineoplastons” by Dr. Burzynski.

 

Antineoplastonsare found in the bodily fluids of humans and food and were initially isolatedby Dr. Burzynski from normal human blood and urine. Dr. Burzynskibelieves these substances counteract the development of cancerous growththrough a biochemical process which does not inhibit the growth of normaltissues. To date, Dr. Burzynski has developed six formulations of naturalAntineoplastons and six synthetic formulations of Antineoplastons. All of thePhase II clinical trials currently sponsored by the Company involve the use offour formulations of synthetic Antineoplastons known as A10 and AS2-1 incapsules and injections. The Company is also conducting laboratory researchinvolving new generations of Antineoplastons A10 and AS2-1.

 

**OrphanDrug Designation**

 

On September 7,2004, the FDA granted “orphan drug” status to the Company’s Antineoplastonsunder the Orphan Drug Act of 1983. In enacting the Orphan Drug Act of 1983,Congress sought to provide incentives to promote the development of drugs forthe treatment of rare diseases. A drug may be considered for orphan drugdesignation if the drug is intended to treat a rare disease or conditionaffecting fewer than 200,000 people in the United States or, even if the drugtreats a disease affecting more than 200,000 people in the United States, thedrug is not expected to be profitable from sales in the United States. Subjectto applicable laws and regulations, the first sponsor to obtain FDA marketingapproval for a drug with orphan drug designation for the designated disease orcondition receives limited marketing exclusivity for seven years; no othersponsor may bring to market the “same drug” for the treatment of the samedisease or condition for a period of seven years from the date the applicationis approved by the FDA. A drug with orphan drug designation must meet the samecriteria for safety and efficacy as a 

 

 

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

 

**Phase IIClinical Trials**

 

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

 

The Companycurrently sponsors 19 ongoing Phase II clinical trials, which are conductedpursuant to investigational new drug applications (“INDs”) filed with the FDAand approved by an Institutional Review Board (“IRB”) designated according tofederal regulations. All clinical trials are for the treatment of a widevariety of cancers using only a combination of Antineoplastons A10 andAS2-1.  Most of the trials involve theuse of intravenous formulations of Antineoplastons; however, a few trials useoral formulations. Dr. Burzynski acts as principal investigator for allclinical trials pursuant to a Royalty Agreement between the Company and Dr. Burzynski.See “*Certain Relationships and RelatedTransactions*.” All of the clinical trials are conducted at theBurzynski Clinic. Each trial provides for the admission of up to 40 patients,except the CAN-1 study, in which 133 patients were enrolled, and the BT-34 andBT-35 studies, in which up to 20 patients will be enrolled. Please see “—ActivePhase II Clinical Trials” for a list of all of these clinical trials.

 

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

 

All of the Company’sclinical trials, except one, involve the use of Historic Controls. Further, alltrials except the CAN-1 study are “prospective clinical trials” (“PCT”). A PCTis a clinical trial wherein patients are accrued into and follow the clinicaltrial protocol from the very beginning of the trial. A retrospective trial is atrial in which data from patients treated prior to the start of a clinical trialis considered. Results of retrospective trials are, in most instances, notacceptable to the FDA. In addition, there are no clinical trials beingconducted that involve “double blind” studies and all but one clinical trialinvolve no randomization into multiple treatment groups.

 

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

 

Where tumor sizeis used as the Milestone, each clinical trial protocol describes a “completeresponse” as a complete disappearance of all tumors with no reoccurrence oftumors for at least four weeks. A “partial response” is described as at least a50% reduction in total tumor size, with such reduction lasting at least fourweeks. An “objective response” is described as either a complete or partialresponse for protocols BT-06, BT-09, BT-10, BT-12, BT-13, BT-14, BT-15, BT-17,BT-18, BT-21, BT-22, BT-23, BT-35, ES-02, LY-06 and MA-02. “Stable disease” isdescribed as less than 50% reduction in size but no more than 50% increase insize of the tumor mass, lasting for at least twelve weeks. An objectiveresponse for protocols BT-07 and BT-20 is described as either 

 

 

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complete or partialresponse or stable disease. An objective response for protocol BT-34 is no signof tumor recurrence. An objective response for protocol MM-02 is at least 75%reduction in the production of serum myeloma protein, at least 95% reduction inmyeloma proteins in urine and less than 5% bone marrow myeloma cells. “Progressivedisease” is described as more than 50% increase in total tumor mass oroccurrence of new tumors.

 

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

 

As of May 22,2008, twelve of the prospective clinical trials have reached a Milestone. Theseare:

 

·                                          Protocol BT-07, involving the study ofAntineoplastons A10 and AS2-1 in patients with glioblastoma multiforme, nottreated with radiation therapy or chemotherapy. This study is alreadycompleted.

 

·                                          Protocol BT-08, involving the study ofAntineoplastons A10 and AS2-1 in patients with anaplastic astrocytoma.

 

·                                          Protocol BT-09, involving the study ofAntineoplastons A10 and AS2-1 in patients with brain tumors.

 

·                                          Protocol BT-11, involving the study ofAntineoplastons A10 and AS2-1 in patients with brain stem glioma.  This study is already completed.

 

·                                          Protocol BT-12, involving the study ofAntineoplastons A10 and AS2-1 in children with primitive neuroectodermal tumors(PNET).

 

·                                          Protocol BT-13, involving the study ofAntineoplastons A10 and AS2-1 in children with low grade astrocytoma, a type ofPMBT.

 

·                                          Protocol BT-15, involving the study ofAntineoplastons A10 and AS2-1 in adult patients with anaplastic astrocytoma, atype of PMBT.

 

·                                          Protocol BT-18, involving a study ofAntineoplastons A10 and AS2-1 in the treatment of “mixed glioma,” a type ofPMBT.

 

·                                          Protocol BT-20, involving the study ofAntineoplastons A10 and AS2-1 in patients with glioblastoma multiforme, whichrecurred after standard radiation and/or chemotherapy. This study is alreadycompleted.

 

·                                          Protocol BT-21, involving the study ofAntineoplastons A10 and AS2-1 in adults with primary malignant brain tumors.

 

·                                          Protocol BT-23, involving a study ofAntineoplastons A10 and AS2-1 in children with visual pathway glioma.

 

·                                          Protocol BT-34, involving the study ofmaintenance treatment with Antineoplastons A10 and AS2-1 capsules for patientswith malignancies in complete response following initial intravenous treatmentwith Antineoplastons A10 and AS2-1.

 

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

 

 

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The results ofProtocols BT-07, BT-08, BT-09, BT-11, BT-12, BT-13, BT-15, BT-18, BT-20, BT-21,BT-23 and BT-34 are set forth below (as of May 22, 2008).

 
| **Protocol  Number** | ** ** | **Patients  Accrued** | ** ** | **Evaluable  Patients** | ** ** | **Number and  Percentage of  Patients Showing  Complete  Response** | ** ** | **Number and  Percentage of  Patients Showing  Partial Response** | ** ** | **Number and  Percentage of  Patients  Showing Stable  Disease** | ** ** | **Number and  Percentage of  Patients  Showing  Progressive Disease** | ** ** |
|----------------------|------------|-----------------------|------------|-------------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| BT-07                |       | 40                    |       | 24                      |       | 2                                                                   |       | 8.3                                                               | %          | 1                                                                |       | 4.2                                                                   | %          | 3 |   | 12.5 | % | 18 |   | 75.0 | % |
| BT-08                |       | 19                    |       | 13                      |       | 4                                                                   |       | 30.8                                                              | %          | 0                                                                |       | 0.0                                                                   | %          | 5 |   | 38.5 | % | 4 |   | 30.8 | % |
| BT-09                |       | 37                    |       | 26                      |       | 4                                                                   |       | 15.4                                                              | %          | 6                                                                |       | 23.1                                                                  | %          | 11 |   | 42.3 | % | 5 |   | 19.2 | % |
| BT-11                |       | 40                    |       | 28                      |       | 5                                                                   |       | 17.9                                                              | %          | 4                                                                |       | 14.3                                                                  | %          | 12 |   | 42.9 | % | 7 |   | 25.0 | % |
| BT-12                |       | 13                    |       | 11                      |       | 3                                                                   |       | 27.3                                                              | %          | 1                                                                |       | 9.1                                                                   | %          | 3 |   | 27.3 | % | 4 |   | 36.4 | % |
| BT-13                |       | 11                    |       | 9                       |       | 5                                                                   |       | 55.6                                                              | %          | 1                                                                |       | 11.1                                                                  | %          | 3 |   | 33.3 | % | 0 |   | 0.0 | % |
| BT-15                |       | 27                    |       | 20                      |       | 3                                                                   |       | 15.0                                                              | %          | 2                                                                |       | 10.0                                                                  | %          | 9 |   | 45.0 | % | 6 |   | 30.0 | % |
| BT-18                |       | 20                    |       | 13                      |       | 3                                                                   |       | 23.1                                                              | %          | 1                                                                |       | 7.7                                                                   | %          | 3 |   | 23.1 | % | 6 |   | 46.2 | % |
| BT-20                |       | 40                    |       | 22                      |       | 1                                                                   |       | 4.5                                                               | %          | 1                                                                |       | 4.5                                                                   | %          | 12 |   | 54.5 | % | 8 |   | 36.4 | % |
| BT-21                |       | 35                    |       | 20                      |       | 2                                                                   |       | 10.0                                                              | %          | 2                                                                |       | 10.0                                                                  | %          | 7 |   | 35.0 | % | 9 |   | 45.0 | % |
| BT-23                |       | 12                    |       | 8                       |       | 3                                                                   |       | 37.5                                                              | %          | 1                                                                |       | 12.5                                                                  | %          | 3 |   | 37.5 | % | 1 |   | 12.5 | % |
| BT-34                |       | 5                     |       | 5                       |       | 5                                                                   |       | 100.0                                                             | %          | 0                                                                |       | 0.0                                                                   | %          | 0 |   | 0.0 | % | 0 |   | 0.0 | % |

 

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

 

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

 

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

 

**ActivePhase II Clinical Trials**

 

The followingtable sets forth the title of each active Protocol, the subject of the Protocolwith dates submitted to the FDA and approved by the IRB and the number ofpersons currently enrolled in each study. All of the following trials are PhaseII studies and, except as otherwise indicated, are of Antineoplastons A10 andAS2-1 in patients with the conditions listed. For purposes of this table,active means that the study is still under open enrollment. In addition, all ofthe studies listed have a maximum of 40 patients who may ultimately participatein the study, except for protocols BT-34 and BT-35, which have a maximum of 20patients who may ultimately participate in the study. The information in thistable is updated as of May 22, 2008.

 
| **Title  of  Protocol** | ** ** | **Subject of Protocol**        | ** ** | **Number of  Persons Enrolled** | ** ** |
|-------------------------|------------|--------------------------------|------------|---------------------------------|------------|
| AD-02                   |       | Carcinoma of the Adrenal Gland |       | 6                               |       |

 

 

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| BT-06 |   | Children with High Grade Glioma                                                                                                                                                                                      |   | 9  |   |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----|--------|
| BT-08 |   | Anaplastic Astrocytoma                                                                                                                                                                                               |   | 19 |   |
| BT-09 |   | Brain Tumors                                                                                                                                                                                                         |   | 37 |   |
| BT-10 |   | Children with Brain Tumors                                                                                                                                                                                           |   | 19 |   |
| BT-12 |   | Children with Primitive Neuroectodermal (PNET)                                                                                                                                                                       |   | 13 |   |
| BT-13 |   | Children with Low Grade Astrocytoma                                                                                                                                                                                  |   | 11 |   |
| BT-14 |   | Children with Rhabdoid Tumor of the Central Nervous  System                                                                                                                                                          |   | 4  |   |
| BT-15 |   | Adult Patients with Anaplastic Astrocytoma                                                                                                                                                                           |   | 27 |   |
| BT-17 |   | Adult Patients with Oligodendroglioma                                                                                                                                                                                |   | 13 |   |
| BT-18 |   | Adult Patients with Mixed Glioma                                                                                                                                                                                     |   | 20 |   |
| BT-21 |   | Adult Patients with Primary Malignant Brain Tumors                                                                                                                                                                   |   | 35 |   |
| BT-22 |   | Children with Primary Malignant Brain Tumors                                                                                                                                                                         |   | 7  |   |
| BT-23 |   | Children with Visual Pathway Glioma                                                                                                                                                                                  |   | 12 |   |
| BT-34 |   | Maintenance Treatment with Antineoplastons A10 and  AS2-1 Capsules for Patients with Malignancies in Complete Response Following  Initial Intravenous Treatment with Antineoplastons A10 and AS2-1                   |   | 5  |   |
| BT-35 |   | Maintenance Treatment with Antineoplastons A10 and  AS2-1 Capsules for Patients with Malignancies in Partial Response or Stable  Disease Following Initial Intravenous Treatment with Antineoplastons A10 and  AS2-1 |   | 2  |   |
| ES-02 |   | Adenocarcinoma of the Esophagus                                                                                                                                                                                      |   | 8  |   |
| LY-06 |   | Non-Hodgkin’s Lymphoma, Low Grade                                                                                                                                                                               |   | 31 |   |
| MA-02 |   | Mesothelioma                                                                                                                                                                                                         |   | 8  |   |

 

**GovernmentRegulation**

 

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

 

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

 

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

 

In order toconduct a clinical trial of a new drug in humans, a sponsor must prepare andsubmit to the FDA a comprehensive IND. Such application must contain aninvestigator’s brochure, a description of the composition, manufacture andcontrol of the drug substance and the drug product, sufficient information toassure the proper identification, quality, purity and strength of theinvestigational drug, a description of the drug substance, including itsphysical, chemical, and biological characteristics, the general method ofpreparation of the drug substance, a list of all components includinginteractive ingredients, adequate information about pharmacological andtoxicological studies of the drug involving laboratory animals or in vitrotests on the basis of which the sponsor has concluded that it is reasonablysafe to conduct the proposed clinical investigation and a summary of anyprevious human experience with the drug. Where there has been widespread use ofthe drug outside of the United States or otherwise, it is 

 

 

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possible in some limitedcircumstances to use well-documented clinical experience in place of some otherpre-clinical work.

 

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

 

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

 

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

 

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

 

The FDA hasimplemented an accelerated review process for pharmaceutical agents that treatserious or life-threatening disease and conditions, subject to payment of userfees. Approval may be conditioned on a requirement that, following productlaunch, a company continue to study the drug to verify and describe itsclinical benefit. Under “fast track” procedures, the FDA may withdraw approvalon an expedited basis if the company fails to show due diligence in conductingpost-marketing clinical trials or if the post-approval clinical trials fail todemonstrate that the product is safe or effective. When appropriate, theCompany intends to pursue opportunities for 

 

 

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accelerated review of itsproducts. The Company cannot predict the ultimate effect of this review processon the timing or likelihood of FDA review of any of its products.

 

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

 

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

 

The Company’sresearch and development involves the controlled use of hazardous materials,chemicals and various radioactive compounds. Although the Company believes itsprocedures for handling and disposing of those materials comply with state andfederal regulations, the risk of accidental contamination or injury from thesematerials cannot be eliminated. If an accident of this type occurs, the Companycould be held liable for resulting damages, which could be material to itsfinancial condition and business. The Company is also subject to numerousenvironmental, health and workplace safety laws and regulations, includingthose governing laboratory procedures and the handling of biohazardousmaterials. Additional federal, state and local laws and regulations affectingthe Company may be adopted in the future. Any violation of these laws andregulations, and the cost of compliance, could materially and adversely affectthe Company. The Company spends approximately $100,000****peryear on environmental compliance matters and expects to spend approximately$40,000 for repairs and upgrades during the fiscal year ending February 28,2009.

 

**ResearchAnd Development**

 

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

 

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

 

At a moremolecular or sub-cellular level, cell culture experiments have shown thatAntineoplastons can block biochemical pathways involving oncogenes required toproduce abnormal cell growth. In addition, cell culture experiments have shownthat Antineoplastons can increase the expression of anticancer tumor suppressorgenes. Although these experiments were conducted using human cancer cells, theymay or may not indicate the mechanism of Antineoplaston action in humans.

 

In addition to theoriginal family of Antineoplaston compounds (the “Parental Generation”), theCompany continues its development of a second generation of Antineoplastons. Incell culture experiments, the second 

 

 

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generationAntineoplastons, which were developed by the Company, have been shown to besignificantly more potent than the Parental Generation.

 

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

 

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

 

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

 

Total research anddevelopment costs for the fiscal years ended February 29, 2008 and February 28,2007 were approximately $4,365,000 and $4,133,000, respectively.

 

**IntellectualProperty**

 

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

 

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

 

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

 

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

 

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

 

 

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The three CanadianPatents (the “Canadian Patents”) relate to: (i) Processes for thepreparation of purified fractions of Antineoplastons from human urine, (ii) Processesfor the synthetic production of Antineoplastons and methods of treatingneoplastic disease (cancer) and (iii) Liposomal Formulation ofAntineoplastons. The Canadian Patents expired or will expire on June 4,2002, November 14, 2006 and May 14, 2017, respectively; however, theCompany does not believe the expiration of the Canadian Patents will have amaterial adverse effect on the Company.

 

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

 

The pending patentapplication in Canada relates to a treatment regimen for the administration ofphenylacetylglutamine. Should this patent be granted, of which there can be noassurance, it would expire in the year 2019.

 

The Company alsodepends upon unpatented proprietary technology, and may determine in appropriatecircumstances that its interest would be better served by reliance upon tradesecrets or confidentiality agreements rather than patents.

 

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

 

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

 

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

 

**Competition**

 

There are manycompanies, universities, research teams and scientists, both private andgovernment-sponsored, that are engaged in research to produce cancer treatmentagents and that have greater financial resources and larger research staffs andfacilities than the Company. In addition, there are other companies andentities, both private and government-sponsored, that are engaged in researchaimed at compounds similar or related to the 

 

 

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Company’sAntineoplastons. To the extent that the United States Government also conductsresearch or supports other companies or individuals in their research, suchcompanies or individuals may have a competitive advantage over the Company.

 

**Employees**

 

As of May 20,2008, the Company had three employees, all of whom were full-time employees.None of the Company’s employees is a party to a collective bargainingagreement. The Company considers the relations with its employees to be good.

 
| **ITEM 2.** | **DESCRIPTION  OF PROPERTY** |
|-------------|------------------------------|

## ** **

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

 

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

 

On November 26,2005, the Company completed the sale of selected equipment to Dr. Burzynski,the Company’s President and Chief Executive Officer, in an arms-lengthtransaction approved by both of the Company’s disinterested directors. Theequipment sold to Dr. Burzynski is not necessary for the Company’s ongoingoperations and was sold for a purchase price of $95,000. The amount of thepurchase price was based on an independent third party appraisal received bythe Company’s disinterested directors to assist them in approving the sale ofthe equipment to Dr. Burzynski. This sale of equipment will not affect theCompany’s operations in any significant way.

 
| **ITEM 3.** | **LEGAL  PROCEEDINGS** |
|-------------|------------------------|

 

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

 

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

 
| **ITEM 4.** | **SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|-------------|----------------------------------------------------------|

 

No matter wassubmitted to a vote of security holders during the fourth quarter of the fiscalyear ended February 29, 2008.

 

**PART II**

 
| **ITEM 5.** | **MARKET  FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER  PURCHASES OF EQUITY SECURITIES** |
|-------------|----------------------------------------------------------------------------------------------------------------------|

 

Since October 15,2001, the Company’s Common Stock has remained in good standing for trading onthe OTCBB. Nevertheless, a public trading market having the characteristics ofdepth, liquidity and orderliness depends upon the existence of market makers aswell as the presence of willing buyers and sellers, which are circumstancesover which the Company does not have control. There can be no assurance thatthe market will provide significant 

 

 

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liquidity for the Company’sCommon Stock. As a result, an investment in the Company’s Common Stock may behighly illiquid. Investors may not be able to sell their shares readily or atall when the investor needs or desires to sell.

 

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

 
| ** **                                | ** ** | **Price Range** | ** ** |
|-------------------------------------------|------------|-----------------|------------|
| ** **                                | ** ** | **High**        | ** ** | **Low** | ** ** |
| Fiscal year ended  February 28, 2007 |       |            |       |   |   |
| First Quarter                             |       | $               | 0.22       |   | $ | 0.10 |   |
| Second Quarter                            |       | 0.12            |       | 0.08 |   |
| Third Quarter                             |       | 0.16            |       | 0.08 |   |
| Fourth Quarter                            |       | 0.15            |       | 0.10 |   |
|                                      |       |            |       |   |   |
| Fiscal year ended  February 29, 2008 |       |            |       |   |   |
| First Quarter                             |       | $               | 0.13       |   | $ | 0.06 |   |
| Second Quarter                            |       | 0.10            |       | 0.08 |   |
| Third Quarter                             |       | 0.10            |       | 0.06 |   |
| Fourth Quarter                            |       | 0.07            |       | 0.05 |   |

 

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

 

As of May 20,2008, there were approximately 2,027 holders of record of the Company’s CommonStock, as shown on the records of the Transfer Agent and Registrar of theCommon Stock. Since many shares may be held by investors in nominee names, suchas the name of their broker or their broker’s nominee, the number of recordholders often bears little relationship to the number of beneficial owners ofthe Common Stock.

 

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

 
| **ITEM 6.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION** |
|-------------|---------------------------------------------------------------------|

 

The following is adiscussion of the financial condition of the Company as of February 29,2008 and February 28, 2007 and the results of operations for the fiscalyears ended February 29, 2008 and February 28, 2007. It should beread in conjunction with the financial statements and the notes theretoincluded elsewhere in this report. The following discussion containsforward-looking statements.

 

**Introduction**

 

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

 

The Company isprimarily engaged as a research and development facility of Antineoplastondrugs currently being tested for use in the treatment of cancer, and providesconsulting services. The Company is currently conducting 19 FDA-approvedclinical trials. The Company holds the exclusive right in the United States,Canada and Mexico to use, manufacture, develop, sell, distribute, sublicenseand otherwise exploit all the rights, titles and interest in Antineoplastondrugs used in the treatment of cancer, once the drugs are approved for sale bythe FDA*. See*“*Certain Relationships and Related Transactions.*”

 

 

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**ResultsOf Operations**

 

# ***Fiscal Year Ended February 29, 2008Compared to Fiscal Year Ended February 28, 2007***

# ** **

                Research and development costswere approximately $4,365,000 and $4,133,000****forthe fiscal years ended February 29, 2008 and February 28, 2007,respectively. The increase of $232,000 or 6%****wasdue to an increase in personnel cost of $96,000, an increase in material costsof $396,000 and an increase in facility and equipment costs of $34,000, offsetby a decrease in consulting and quality control costs of $283,000, and adecrease in other research and development costs of $11,000.

 

General and administrative expenses were approximately $155,000 and$169,000 for the fiscal years ended February 29, 2008 and February 28,2007, respectively. The decrease of $14,000 or 8% was due to a decrease inlegal and professional fees of $2,000, and a decrease in other general andadministrative expenses of $12,000.

 

                The Company had net losses ofapproximately $4,522,000 and $4,303,000 for the fiscal years ended February 29,2008 and February 28, 2007, respectively. The increase in the net lossfrom 2007 to 2008 was primarily due to an overall increase in research anddevelopment cost, offset by a decrease in general and administrative expensesof the Company described above. As of February 29, 2008, the Company hadtotal stockholders’ deficit of $(58,246).

 

**Liquidityand Capital Resources**

 

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

 

The Companyentered into a third amendment to the Research Funding Agreement, effective March 1,2007, whereby the Company and Dr. Burzynski extended the term thereofuntil February 28, 2008, with an automatic renewal for an additionalone-year term, unless one party notifies the other party at least thirty daysprior to the expiration of the term of the agreement of its intention not torenew the agreement.  Subject to theforegoing, the term of the Research Funding Agreement has renewed and extendeduntil February 28, 2009.

 

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

 

 

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The Companyestimates that it will spend approximately $4.6 million in the fiscal yearending February 28, 2009. The Company estimates that ninety-five percent (95%)of this amount will be spent on research and development and the continuance ofFDA-approved clinical trials. While the Company anticipates that Dr. Burzynskiwill continue to fund the Company’s research and FDA-related costs, there is noassurance that Dr. Burzynski will be able to continue to fund the Company’soperations pursuant to the Research Funding Agreement or otherwise. However,because the net assets available to Dr. Burzynski from his personal assetsand the assets of his medical practice currently exceed the Company’s projectedtwelve-month funding requirements, the Company believes Dr. Burzynski willbe financially able to fund the Company’s operations at least through thefiscal year ending February 28, 2009. In addition, Dr. Burzynski’s medicalpractice has successfully funded the Company’s research activities over thelast 22 years and, in 1997, his medical practice was expanded to includetraditional cancer treatment options such as chemotherapy, immunotherapy andhormonal therapy in response to FDA requirements that cancer patients utilizemore traditional cancer treatment options in order to be eligible toparticipate in the Company’s Antineoplaston clinical trials. As a result of theexpansion of Dr. Burzynski’s medical practice, the financial condition ofthe medical practice has improved Dr. Burzynski’s ability to fund theCompany’s operations.

 

Because theCompany currently is entirely dependent upon the contributions for researchprovided by Dr. Burzynski under the Research Funding Agreement, theCompany would not be able to continue conducting its clinical trials if Dr. Burzynskiceased funding the Company’s research. In such event, the Company would berequired to find immediate funding which may not be available on acceptable termsor at all. If this were to occur and the Company were not able to find adequatesources of funding, the Company would be required to cease operations. Evenwith Dr. Burzynski’s continued contributions under the Research FundingAgreement, the Company may be required to seek additional capital throughequity or debt financing or the sale of assets until the Company’s operatingrevenues are sufficient to cover operating costs and provide positive cashflow; however, there can be no assurance that the Company will be able to raisesuch additional capital on acceptable terms to the Company. In addition, therecan be no assurance that the Company will ever achieve positive operating cashflow.

 
| **ITEM 7.** | **FINANCIAL  STATEMENTS** |
|-------------|---------------------------|

 

The Company’sAnnual Financial Statements, Notes to Financial Statements and the report ofFitts, Roberts & Co., P.C., independent registered public accountingfirm, with respect thereto, referred to in the Table of Contents to theFinancial Statements, appear elsewhere in this report beginning on Page F-1.

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

 

None.

 
| **ITEM  8A.** | **CONTROLS  AND PROCEDURES** |
|---------------|------------------------------|

 

(a) *Evaluation of Disclosure Controls and Procedures.*Within the90 days prior to the date of this report, the Company carried out anevaluation, under the supervision and with the participation of the Company’smanagement, including the Company’s principal executive officer (who is alsothe Company’s principal financial officer), of the effectiveness of the Company’sdisclosure controls and procedures pursuant to Rule 13a-14 under theSecurities Exchange Act of 1934, as amended. Based upon that evaluation, theCompany’s principal executive officer (who is also the Company’s principalfinancial officer) concluded that the Company’s disclosure controls andprocedures are effective in timely alerting them to material informationrequired to be included in periodic Securities and Exchange Commission filings.A controls system cannot provide absolute assurance, however, that theobjectives of the controls system are met, and no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within a company have been detected.

 

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

 

 

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

 

The Company’smanagement, with the participation of the Company’s principal executive officer(who is also the Company’s principal financial officer), evaluated theeffectiveness of the Company’s internal control over financial reporting as of February 29,2008. In making this assessment, the Company’s management used the criteria setforth by the Committee of Sponsoring Organizations of the Treadway Commission(COSO) in Internal Control — Integrated Framework. Based on this evaluation,the Company’s management, with the participation of the principal executiveofficer (who is also the Company’s principal financial officer), concludedthat, as of February 29, 2008, the Company’s internal control overfinancial reporting was effective.

 

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

 

(b) *Changes in Internal Control Over Financial Reporting*. Therewere no significant changes in the Company’s internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of the evaluation above.

 
| **ITEM  8B.** | **OTHER  INFORMATION** |
|---------------|------------------------|

** **

None.

 

**PART III**

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

 

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

 
| **Name**                             | ** ** | **Age** | ** ** | **Office**                                     |
|--------------------------------------|------------|---------|------------|------------------------------------------------|
| Stanislaw R. Burzynski,  M.D., Ph.D. |       | 65      |       | Director, President,  Secretary, and Treasurer |
| Barbara Burzynski, M.D.              |       | 67      |       | Director                                       |
| Michael H. Driscoll, J.D.            |       | 61      |       | Director                                       |
| Carlton Hazlewood,  Ph.D.            |       | 71      |       | Director                                       |

 

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

 

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

 

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

 

 

16

----

 

Dr. Burzynskiis a member of the American Medical Association, American Association forCancer Research, Harris County Medical Society, New York Academy of Sciences,Society for Neuroscience, Texas Medical Association, the Society of Sigma Xi, andthe Society of Neuro-oncology. He is the author of 220 scientific publications,presenter of scientific papers at major international conventions, and has beenawarded 222 patents covering 42 countries for his Antineoplaston treatment andother inventions. Other groups are working in conjunction with him, includingresearchers at the University of Kurume Medical School in Japan.

 

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

 

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

 

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

 

**AuditCommittee Financial Expert**

 

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

 

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

 

Based solely upona review of Forms 3 and 4 and amendments thereto furnished to the Company underRule 16a-3(e) during the fiscal year ended February 29, 2008 andForm 5 and amendments thereto furnished to the Company with respect tosuch period, the Company is not aware of any director, officer, or beneficialowner of more than 10% of any class of equity securities of the Companyregistered 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 inthe above forms, reports required by Section 16(a) of the ExchangeAct during the Company’s most recent fiscal year.

 

**Code ofEthics**

 

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

 

 

17

----

 
| **ITEM  10.** | **EXECUTIVE  COMPENSATION** |
|---------------|-----------------------------|

 

**SUMMARY COMPENSATION TABLE**

 
| ** **                           | ** ** | **Annual Compensation**  | ** ** | **Long-Term Compensation** | ** ** |
|--------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| **Name  and Principle Position**     | ** ** | **Fiscal  Year  Ending** | ** ** | **Salary($)**              | ** ** | **Bonus  ($)** | ** ** | **Other Annual  Compensation  ($)** | ** ** | **Restricted  Stock  Awards($)** | ** ** | **Securities  Underlying  Options/SARs($)** | ** ** | **LTIP  Payouts  ($)** | ** ** | **All Other  Compensation  ($)** | ** ** |
| Stanislaw R. Burzynski,              |       | 2006                     |       | 0                          |       | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| M.D., Ph.D., President,              |       | 2007                     |       | 0                          |       | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| Secretary and Treasurer(1) |       | 2008                     |       | 0                          |       | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   |

----

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

 

Directors do notreceive any compensation for serving as directors; however, directors arereimbursed for all ordinary and necessary expenses incurred in attendingmeetings of the Board of Directors or otherwise incurred in their capacity asdirectors. In addition, any director also serving as a director of the IRB, theindependent review board for the Company’s clinical trials designated accordingto federal regulations, is compensated by the IRB approximately $1,600****annually for serving as a director of theIRB.

 
| **ITEM  11.** | **SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS** |
|---------------|------------------------------------------------------------------------------------------------------|

 

The following table sets forth, as of May 20, 2008,the number of outstanding shares of Common Stock (the Company’s only class ofvoting securities) owned by (i) each person known by the Company tobeneficially own more than 5% of its outstanding Common Stock, (ii) eachdirector, (iii) each named executive officer, and (iv) all officers anddirectors as a group. The address for all of the beneficial owners listed belowis the Company’s address. 

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

----

*                             Less than one percent.

 

(1)                      Percentages shown are based upon131,388,444 shares of Common Stock outstanding as of May 20, 2008. Certainshares are deemed beneficially owned by more than one person listed in thetable.

 

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

 
| **ITEM  12.** | **CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS** |
|---------------|-----------------------------------------------------|

 

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

 

**LicenseAgreement**

 

The Companyentered into the License Agreement with Dr. Burzynski which gives theCompany the exclusive right in the Territory (composed of the United States, Canadaand Mexico) to use, manufacture, develop, sell, distribute, sublicense andotherwise exploit all of his rights, title and interests in Antineoplastons inthe treatment and diagnosis of cancer, including but not limited to any patentrights which may be granted in these countries. The License Agreement willterminate upon the earlier of the expiration of the last patent licensed to theCompany, or termination by Dr. Burzynski, at his option, if he is removedas a director or officer of the Company without his consent, if the Companyfiles for bankruptcy or is the subject of any proceeding under applicable 

 

 

18

----

 

bankruptcy laws wheresuch proceeding is not dismissed within 90 days from the date a petition isfiled, or if any shareholder or group of shareholders acting in concert becomesthe beneficial owner of the Company’s securities having voting power equal toor 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, andexploit Antineoplastons in the Company’s exclusive territory solely for thepurpose of enabling Dr. Burzynski to treat patients in his medicalpractice until such date that the FDA may approve the sale of Antineoplastonsfor the treatment of cancer in the United States.

 

**ResearchFunding Arrangements**

 

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

 

·                                          The Company agreed to undertake allscientific research in connection with the development of new or improved Antineoplastonsfor the treatment of cancer and other diseases. The Company will hire suchpersonnel as is required to fulfill its obligations under the agreement;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

19

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

 

Effective March 1,2007, the Company entered into a third amendment to the Research FundingAgreement, whereby the Company and Dr. Burzynski extended the term thereofuntil February 28, 2008, with an automatic renewal for an additionalone-year term, unless one party notifies the other party at least thirty daysprior to the expiration of the term of the agreement of its intention not torenew the agreement.  In addition to theforegoing termination provisions, the agreement automatically terminates in theevent that Dr. Burzynski owns less than fifty percent of the outstandingshares of the Company, or is removed as President and/or Chairman of the Boardof the Company, unless Dr. Burzynski notifies the Company in writing ofhis intention to continue the agreement notwithstanding this automatictermination provision. Subject to the foregoing, the term of the ResearchFunding Agreement has renewed and extended until February 28, 2009.

 

**RoyaltyAgreement**

 

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

 

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

 

**Sale ofAssets**

 

Certain items ofequipment previously owned by the Company were sold to Dr. Burzynski in September 2005.Item 2 of Part I of this Form 10-KSB includes a description of suchsale.

 

**OtherTransactions**

 

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

 
| **ITEM 13.** | **EXHIBITS** |
|--------------|--------------|

## ** **

| **EXHIBIT NO.** | ** ** | **EXHIBIT NAME**                                                                                                                                                                                                                                               |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1             |       | Certificate of Incorporation of the Company, as amended (incorporated  by reference from Exhibit 3(i) — (iii) to Form 10-SB  filed with the Securities and Exchange Commission on November 25, 1997  (File No. 000-23425)). |
|            |       |                                                                                                                                                                                                                                                           |
| 3.2             |       | Amended Bylaws of the Company (incorporated by reference from Exhibit (3)(iv) to  Form 10-SB filed with the Securities and Exchange Commission on November 25,  1997 (File No. 000-23425)).                                           |

 

 

20

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| 4.1    |   | Form of Certificate Representing Common Stock (incorporated by  reference from Exhibit 4.1 to Form 10-KSB filed with the Securities  and Exchange Commission on May 2, 2001 (File No. 000-23425)).                                                                                                            |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10.1   |   | License Agreement, effective as of June 29, 1983, by and between  the Company and Dr. Stanislaw R. Burzynski (incorporated by reference  from Exhibit 10(1) to Form 10-SB filed with the Securities and  Exchange Commission on November 25, 1997 ( File No. 000-23425)).                           |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10.2   |   | Amended License Agreement, dated April 2, 1984, by and between the  Company and Dr. Stanislaw R. Burzynski (incorporated by referenced from Exhibit 10(2) to  Form 10-SB filed with the Securities and Exchange Commission on November 25,  1997 (File No. 000-23425)).                             |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10.3   |   | Second Amended License Agreement, dated March 1, 1990, by and  between the Company and Dr. Stanislaw R. Burzynski (incorporated by  reference from Exhibit 10(3) to Form 10-SB filed with the  Securities and Exchange Commission on November 25, 1997 (File No. 000-23425)).                       |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10.4   |   | Research Funding Agreement, effective as of March 1, 1997, by and  between the Company and Dr. Stanislaw R. Burzynski (incorporated by  reference from Exhibit 10(4) to Form 10-SB filed with the  Securities and Exchange Commission on November 25, 1997 (File No. 000-23425)).                   |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10.5   |   | First Amendment to Research Funding Agreement, effective as of March 1,  2001, by and between the Company and Dr. Stanislaw R. Burzynski  (incorporated by reference from Exhibit 10.5 to Form 10-KSB filed  with the Securities and Exchange Commission on May 2, 2001 (File No. 000-23425)).           |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10.6   |   | Second Amendment to the Research Funding Agreement, effective as of February 29,  2004, by and between the Company and Dr. Stanislaw R. Burzynski  (incorporated by reference from Exhibit 10.6 to Form 10-KSB filed  with the Securities and Exchange Commission on June 1, 2004 (File No. 000-23425)). |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10.7   |   | Royalty Agreement, dated March 25, 1997, by and between the  Company and Dr. Stanislaw R. Burzynski (incorporated by reference from Exhibit 10(5) to  Form 10-SB filed with the Securities and Exchange Commission on November 25,  1997 (File No. 000-23425)).                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10.8   |   | First Amended Royalty Agreement, dated September 29, 1997, by and  between the Company and Dr. Stanislaw R. Burzynski (incorporated by  reference from Exhibit 10(6) to Form 10-SB filed with the  Securities and Exchange Commission on November 25, 1997 (File No. 000-23425)).                   |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10.9   |   | Third Amendment to Research Funding Agreement, effective as of March 1,  2007, by and between the Company and Dr. Stanislaw R. Burzynski (incorporated  by reference from Exhibit 10.9 to Form 10-KSB filed with the Securities and  Exchange Commission on May 29, 2007 (File No. 000-23425)).                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 24     |   | Power of Attorney (Included with the Signature Page).                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 31.1   |   | Certification pursuant to Rules 13a-14 and 15d-14 of the  Securities Exchange Act of 1934, as amended, filed herewith (Chief Executive  Officer and Principal Financial Officer).                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 32.1   |   | Certification furnished pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief  Executive Officer and Principal Financial Officer).                                                                                                                                |

 

 

21

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## ** **

| **ITEM 14.** | **PRINCIPAL ACCOUNTANT FEES AND SERVICES** |
|--------------|--------------------------------------------|

## ** **

The following table sets forth the aggregate fees billed to the Companyby its principal accounting firm, Fitts, Roberts & Co., P.C., forfiscal years ended February 29, 2008 and February 28, 2007,respectively:

 

| ** **           | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------|------------|----------|------------|----------|------------|
| *Audit Fees (1)*     | * *   | *$*      | *32,700*   | * * | *$*        | *31,800* |   |
| *Audit-Related Fees* | * *   | *$*      | *0*        | * * | *$*        | *0* |   |
| *Tax Fees*           | * *   | *$*      | *0*        | * * | *$*        | *0* |   |
| *All Other Fees*     | * *   | *$*      | *0*        | * * | *$*        | *0* |   |
| *Total*              | * *   | *$*      | *32,700*   | * * | *$*        | *31,800* |   |

----

(1)        The2008 amount includes estimated fees of $16,000 to complete the audit.

 

**Audit Fees** were for professional services rendered for the auditof BRI’s consolidated financial statements and review of the interimconsolidated financial statements included in quarterly reports and servicesthat are normally provided by Fitts,Roberts & Co., P.C. in connection with statutory and regulatoryfilings or engagements.

 

**Audit-Related Fees** are for assurance and related services that arereasonably related to the performance of the audit or review of BRI’sconsolidated financial statements and are not reported under “Audit Fees.”  There were no Audit-Related Fees incurred infiscal years 2008 or 2007.

 

**Tax Fees** were for professional services for federal and statetax compliance, tax advice and tax planning. There were no Tax Fees incurred in fiscal years 2008 or 2007.

 

**All Other Fees** were for services other than the services reportedabove.  There were no Other Fees incurredin fiscal years 2008 or 2007.

 

**Audit Committee’s Pre-Approval Policies andProcedures**.  As disclosed above in Item 9, the Companydoes not have an Audit Committee.  TheBoard of Directors has not adopted any pre-approval policies or procedures.

 

 

22

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### **SIGNATURES**

### ** **

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

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

 

Date:  May 28, 2008

 

 

23

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                Each person whosesignature appears below constitutes and appoints Dr. Stanislaw R.Burzynski his/her true and lawful attorney-in-fact and agent, with full powerof 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 tothis report, and to file the same, with all exhibits thereto and otherdocuments in connection therewith, with the Securities and Exchange Commission,granting unto said attorney-in-fact and agent full power and authority to doand perform each and every act and thing requisite and necessary to be done inand about the premises, as fully to all intents and purposes as he/she might orcould do in person, hereby ratifying and confirming all that saidattorney-in-fact and agent may lawfully do or cause to be done by virtuehereof.

 

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

 
| /s/ Stanislaw R. Burzynski          |   |                    |
|-------------------------------------|--------|-------------------------|
| Stanislaw R. Burzynski              |   | Date: May 28, 2008 |
| President, Secretary, Treasurer and |   |                    |
| Chairman of the Board of Directors  |   |                    |
|                                |   |                    |
| /s/ Barbara Burzynski               |   |                    |
| Barbara Burzynski                   |   | Date: May 28, 2008 |
| Director                            |   |                    |
|                                |   |                    |
| /s/ Michael H. Driscoll             |   |                    |
| Michael H. Driscoll                 |   | Date: May 28, 2008 |
| Director                            |   |                    |
|                                |   |                    |
| /s/ Carlton Hazlewood               |   |                    |
| Carlton Hazlewood                   |   | Date: May 28, 2008 |
| Director                            |   |                    |

 

 

24

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**Burzynski Research Institute, Inc.**

 

**Financial Statements**

 

**For the years ended**

**February 29, 2008 and February 28, 2007**

 

 

----

 

CONTENTS

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

 

 

F-2

----

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

To the Board of Directorsand Stockholdersof Burzynski Research Institute, Inc.

 

We have audited the accompanying balance sheets of Burzynski ResearchInstitute, Inc. as of February 29, 2008 and February 28, 2007,and the related statements of operations, stockholders’ deficit, and cash flowsfor the years then ended.  Thesefinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonablebasis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of Burzynski Research Institute, Inc. asof February 29, 2008 and February 28, 2007 and the results of theiroperations and their cash flows for the years then ended, in conformity withU.S. generally accepted accounting principles.

 

We were not engaged to examine management’s assertionabout the effectiveness of Burzynski Research Institute, Inc.’s internalcontrol over financial reporting as of February 29, 2008 included as Item8A in the accompanying 10-KSB, and accordingly, we do not express an opinionthereon.

 

/s/ Fitts, Roberts & Co., P.C.

 

May 28, 2008

Houston, Texas

 

 

F-3

----

 

**BURZYNSKI RESEARCH INSTITUTE, INC.**

**BALANCESHEETS**

**February 29,2008 and February 28, 2007**

 
| ** **                                                                                               | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ASSETS                                                                                                   |       |        |       |        |       |
|                                                                                                     |       |        |       |        |       |
| Current assets                                                                                           |       |        |       |        |       |
|                                                                                                     |       |        |       |        |       |
| Cash and cash equivalents (Note 1)                                                                       |       | $           | 3,161      |        | $          | 10,650 |   |
|                                                                                                     |       |        |       |        |       |
| Total current assets                                                                                     |       | 3,161       |       | 10,650      |       |
|                                                                                                     |       |        |       |        |       |
| Property and equipment, net of accumulated  depreciation (Notes 1 and 3)                                 |       | 7,150       |       | 2,276       |       |
|                                                                                                     |       |        |       |        |       |
| Total assets                                                                                             |       | $           | 10,311     |        | $          | 12,926 |   |
|                                                                                                     |       |        |       |        |       |
| LIABILITIES AND  STOCKHOLDERS’ DEFICIT                                                              |       |        |       |        |       |
|                                                                                                     |       |        |       |        |       |
| Current liabilities                                                                                      |       |        |       |        |       |
|                                                                                                     |       |        |       |        |       |
| Accounts payable                                                                                         |       | $           | 33,430     |        | $          | 44,224 |   |
| Accrued liabilities                                                                                      |       | 35,127      |       | 21,878      |       |
|                                                                                                     |       |        |       |        |       |
| Total current liabilities                                                                                |       | 68,557      |       | 66,102      |       |
|                                                                                                     |       |        |       |        |       |
| Total liabilities                                                                                        |       | 68,557      |       | 66,102      |       |
|                                                                                                     |       |        |       |        |       |
| Commitments,  contingencies and related parties (Notes 2, 5 and 8)                                       |       |        |       |        |       |
|                                                                                                     |       |        |       |        |       |
| Stockholders’ deficit                                                                               |       |        |       |        |       |
|                                                                                                     |       |        |       |        |       |
| Common stock, $.001 par value; 200,000,000 shares  authorized, 131,388,444 shares issued and outstanding |       | 131,389     |       | 131,389     |       |
| Additional paid-in capital                                                                               |       | 79,264,295  |       | 74,747,268  |       |
| Discount on common stock                                                                                 |       | (100        | )          | (100        | )          |
| Retained deficit                                                                                         |       | (79,453,830 | )          | (74,931,733 | )          |
|                                                                                                     |       |        |       |        |       |
| Total stockholders’ deficit                                                                         |       | (58,246     | )          | (53,176     | )          |
|                                                                                                     |       |        |       |        |       |
| Total liabilities and stockholders’ deficit                                                         |       | $           | 10,311     |        | $          | 12,926 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

 

 

F-4

----

 

**BURZYNSKI RESEARCH INSTITUTE, INC.**

**STATEMENTSOF OPERATIONS**

**For theYears Ended February 29, 2008 and February 28, 2007**

 
| ** **                                | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------------|------------|------------|------------|------------|------------|
| Operating expenses                        |       |       |       |       |       |
| Research and development (Notes 1 and 2)  |       | $          | 4,365,074  |       | $          | 4,132,689 |   |
| General and administrative                |       | 155,059    |       | 168,673    |       |
| Depreciation (Notes 1 and 3)              |       | 1,964      |       | 1,344      |       |
|                                      |       |       |       |       |       |
| Total operating expenses                  |       | 4,522,097  |       | 4,302,706  |       |
|                                      |       |       |       |       |       |
| Net loss before provision for taxes       |       | (4,522,097 | )          | (4,302,706 | )          |
|                                      |       |       |       |       |       |
| Provision for income  tax (Notes 1 and 6) |       | —     |       | —     |       |
|                                      |       |       |       |       |       |
| Net loss                                  |       | $          | (4,522,097 | )          | $          | (4,302,706 | ) |
|                                      |       |       |       |       |       |
| Earnings per share  information:          |       |       |       |       |       |
| Basic and diluted                         |       |       |       |       |       |
| Loss per common share                     |       | $          | (0.03      | )          | $          | (0.03 | ) |

 

The accompanying notes are an integral part of thesefinancial statements.

 

 

F-5

----

 

**BURZYNSKIRESEARCH INSTITUTE, INC.**

**STATEMENTOF STOCKHOLDERS’ DEFICIT**

**Forthe Years Ended February 29, 2008 and February 28, 2007**

 
| ** **                                                                | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Discount on  Common  Stock** | ** ** | **Retained  Deficit** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------------------|------------|
| Balance  February 28, 2006                                           |       | $                 | 131,389    |                             | $          | 70,469,459                     |       | $                     | (100       | ) | $ | (70,629,027 | ) |
|                                                                      |       |              |       |                             |       |                           |       |                  |       |
| Cash contributed by S.R. Burzynski M.D., Ph.D.                            |       | —            |       | 597,000                          |       | —                         |       | —                |       |
|                                                                      |       |              |       |                             |       |                           |       |                  |       |
| FDA clinical trial expenses paid directly by S.R.  Burzynski M.D., Ph. D. |       | —            |       | 3,680,809                        |       | —                         |       | —                |       |
|                                                                      |       |              |       |                             |       |                           |       |                  |       |
| Net loss                                                                  |       | —            |       | —                           |       | —                         |       | (4,302,706            | )          |
|                                                                      |       |              |       |                             |       |                           |       |                  |       |
| Balance  February 28, 2007                                           |       | 131,389           |       | 74,747,268                       |       | (100                           | )          | (74,931,733           | )          |
|                                                                      |       |              |       |                             |       |                           |       |                  |       |
| Cash contributed by S.R. Burzynski M.D., Ph.D.                            |       | —            |       | 368,000                          |       | —                         |       | —                |       |
|                                                                      |       |              |       |                             |       |                           |       |                  |       |
| FDA clinical trial expenses paid directly by S.R.  Burzynski M.D., Ph. D. |       | —            |       | 4,149,027                        |       | —                         |       | —                |       |
|                                                                      |       |              |       |                             |       |                           |       |                  |       |
| Net loss                                                                  |       | —            |       | —                           |       | —                         |       | (4,522,097            | )          |
|                                                                      |       |              |       |                             |       |                           |       |                  |       |
| Balance  February 29, 2008                                           |       | $                 | 131,389    |                             | $          | 79,264,295                     |       | $                     | (100       | ) | $ | (79,453,830 | ) |

 

The accompanying notes are an integral part of these financialstatements.

 

 

F-6

----

 

**BURZYNSKI RESEARCH INSTITUTE, INC.**

**STATEMENTSOF CASH FLOWS**

**For theYears Ended February 29, 2008 and February 28, 2007**

 
| ** **                                                                   | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| CASH FLOWS FROM OPERATING  ACTIVITIES                                        |       |      |       |      |       |
| Net loss                                                                     |       | $         | (4,522,097 | )         | $          | (4,302,706 | ) |
| Adjustments to reconcile net loss to net cash used  by operating activities: |       |      |       |      |       |
| Depreciation                                                                 |       | 1,964     |       | 1,344     |       |
| FDA clinical trial expenses paid directly by S.R.  Burzynski M.D., Ph. D.    |       | 4,149,027 |       | 3,680,809 |       |
| Increase (decrease) in                                                       |       |      |       |      |       |
| Accounts payable                                                             |       | (10,794   | )          | 30,178    |       |
| Accrued liabilities                                                          |       | 13,249    |       | (13,772   | )          |
|                                                                         |       |      |       |      |       |
| NET CASH (USED) IN OPERATING ACTIVITIES                                      |       | (368,651  | )          | (604,147  | )          |
|                                                                         |       |      |       |      |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                        |       |      |       |      |       |
| Purchase of property and equipment                                           |       | (6,838    | )          | —    |       |
|                                                                         |       |      |       |      |       |
| NET CASH (USED) BY INVESTING ACTIVITIES                                      |       | (6,838    | )          | —    |       |
|                                                                         |       |      |       |      |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                        |       |      |       |      |       |
| Additional paid-in capital                                                   |       | 368,000   |       | 597,000   |       |
|                                                                         |       |      |       |      |       |
| NET CASH PROVIDED BY FINANCING ACTIVITIES                                    |       | 368,000   |       | 597,000   |       |
|                                                                         |       |      |       |      |       |
| NET (DECREASE) IN CASH                                                       |       | (7,489    | )          | (7,147    | )          |
|                                                                         |       |      |       |      |       |
| CASH AT BEGINNING OF  YEAR                                                   |       | 10,650    |       | 17,797    |       |
|                                                                         |       |      |       |      |       |
| CASH AT END OF YEAR                                                          |       | $         | 3,161      |      | $          | 10,650 |   |
|                                                                         |       |      |       |      |       |
| SUPPLEMENTAL CASH FLOW  DISCLOSURES:                                         |       |      |       |      |       |
| Cash Paid During the Year For:                                               |       |      |       |      |       |
| Interest                                                                     |       | $         | 101,422    |      | $          | 85,984 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

 

 

F-7

----

 

BURZYNSKI RESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS

 

**1.****                                     ****Background, Basis ofPresentation, Economic Dependency and Significant Accounting Policies:**

 

# **Backgroundand Basis of Presentation**

# ** **

The financial statementsof Burzynski Research Institute, Inc. (BRI or the Company), a Delawarecorporation, include expenses incurred related to clinical trials, which weresanctioned by the U.S. Food and Drug Administration (FDA) in 1993, forantineoplaston drugs used in the treatment of cancer.  These expenses incurred directly by S.R.Burzynski, M.D., Ph.D. (Dr. Burzynski) have been reported as research anddevelopment costs and as additional paid-in capital.  Other funds received from Dr. Burzynskihave also been reported as additional paid-in capital.  Expenses related to Dr. Burzynski’smedical practice (unrelated to the clinical trials) have not been included inthese financial statements.  Dr. Burzynskiis the President, Chairman of the Board and owner of over 80% of theoutstanding stock of Burzynski Research Institute, Inc., and also is theinventor and original patent holder of certain drug products knows as “antineoplastons”,which he has licensed to the Company.

 

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

 

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

 

Economic Dependency

 

BRI has generated no significant revenues since its inception.  As of February 29, 2008, the Company hada working capital deficit of approximately $65,000 and accumulated deficit ofapproximately $79,000,000.  For the yearsended February 29, 2008 and February 28, 2007 the Company incurredlosses of approximately $4,522,000 and $4,303,000, respectively.

 

 

F-8

----

 

BURZYNSKI RESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS - continued

 

**1.****                                     ****Background, Basis ofPresentation, Economic Dependency and Significant Accounting Policies:(continued)**

 

Dr. Burzynski hasfunded the capital and operational needs of the Company since its inceptionfrom revenues generated through his medical practice pursuant to variousagreements as described in Note 2.

 

BRI iseconomically dependent on its funding from Dr. Burzynski through hismedical practice.  Management estimatesthat approximately one-tenth of Dr. Burzynski’s patients are admitted andtreated as part of the clinical trial programs which the FDA regulates.  The FDA imposes numerous regulations andrequirements’ regarding these patients and the Company is subject to inspectionat any time by the FDA.  Theseregulations are complex and subject to interpretation and though it ismanagement’s intention to comply fully with all such regulations, there is therisk that the Company is not in compliance and is thus subject to sanctionsimposed by the FDA.

 

Inaddition, as with any medical practice, Dr. Burzynski is subject topotential claims by patients and other potential claimants commonly arising outof the operation of a medical practice. The risks associated with Dr. Burzynski’s medical practice directlyaffect his ability to fund the operations of BRI.

 

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

 

Significant Accounting Policies

 

## ***Cashand Cash Equivalents***

## ** **

The Company considers all highly liquid investmentspurchased with an original maturity of three months or less to be cashequivalents.

 

## ***Propertyand Equipment***

## ** **

Property and equipment are recorded at cost and depreciated using thestraight-line method over the estimated useful lives of the assets, which rangefrom 5 to 10 years.  Expenditures formajor renewals and betterments that extend the useful lives of property andequipment are capitalized; maintenance and repairs are charged against earningsas incurred.  Upon disposal of assets,the related cost and accumulated depreciation are removed from the accounts andany resulting gain or loss is recognized currently.

 

 

F-9

----

 

BURZYNSKIRESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS - continued

 

**1.****                                     ****Background, Basis ofPresentation, Economic Dependency and Significant Accounting Policies:(continued)**

 

## ***IncomeTaxes***

## ** **

The Company uses the liability method of accounting for income taxes,under which deferred income taxes are recognized for the tax consequences oftemporary differences by applying the enacted statutory tax rate applicable tofuture years to differences between financial statement carrying amounts andthe tax basis of existing assets and liabilities.  Valuation allowances are established whennecessary to reduce deferred tax assets to the amount expected to berealized.  Income tax expense is the taxpayable or refundable for the period plus or minus the change during the periodin deferred tax assets and liabilities. The costs incurred related to the conduct of FDA approved clinicaltrials incurred directly by Dr. Burzynski within his medical practice aretaxed directly to Dr. Burzynski and are not included in the Company’s taxprovision.  The portion of the Texasfranchise tax that is based on income is treated as income taxes and includedin the income tax provision.

 

***Loss Per CommonShare***

 

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

 

### ***ManagementEstimates***

### ** **

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect reported amounts of assets and liabilities at the dates of thefinancial statements and the reported amounts of revenues and expenses duringthe reported periods.  The significantestimates are the allocation of payroll and other expenses between the clinicaltrial expenses reported with Burzynski Research Institute, Inc. expensesand Dr. Burzynski’s medical practice expenses.  Department managers review at least quarterlythe duties of each employee in their department and estimate the percentage oftime each employee spends between clinical trials and the medicalpractice.  Payroll costs are allocatedbetween clinical trials and the medical practice based on thesepercentages.  Other expenses areallocated based on the percentage of payroll allocated to either clinicaltrials or the medical practice. Management believes that the estimates and allocations arereasonable.  Actual results could differfrom these estimates.

 

 

F-10

----

 

BURZYNSKIRESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS - continued

 

**1.****                                     ****Background, Basis ofPresentation, Economic Dependency and Significant Accounting Policies:(continued)**

 

***Stock Options***

 

EffectiveMarch 1, 2006, the company adopted the fair value recognition provisionsof FASB Statement No. 123(R), *Share-Based Payment,*using the modified-prospective-transition method.  Under that transition method, compensationcost recognized after March 1, 2006 includes: (a) compensation costfor all share-based payments granted prior to , but not yet vested as of March 1,2006, based on the grant date fair value estimated in accordance with theoriginal provisions of Statement 123, and (b) compensation cost for allshare-based payments granted subsequent to March 1, 2006, based on thegrant-date fair value estimated in accordance with the provisions of Statement123(R).  Results for prior periods havenot been restated.

 

Thecompany did not grant any options and no options previously granted vested inany of the periods presented in these financial statements.  Due to this fact there was no effect on netincome and earnings per share regarding the provisions of Statement 123(R) inany of the periods presented.

 

***Research and Development***

 

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

 

***Fair Value of Financial Instruments***

 

Thecarrying value of cash, receivables and accounts payables approximates fairvalue due to the short maturity of these instruments.  None of the financial instruments are heldfor trading purposes.

 

 

F-11

----

 

BURZYNSKI RESEARCHINSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS - continued

 

**2.             Agreements With, and Other RelatedParty Transactions:**

 

The Company hasagreements with its majority shareholder and President Dr. Burzynski asfurther described below:

 

License Agreement

 

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

 

The License Agreementgrants to the Company the exclusive right, in the United States, Canada, andMexico, to use, manufacture, develop, sell, distribute, sub-license andotherwise exploit all of Dr. Burzynski’s rights, title, and interests,including patent rights, in antineoplaston drugs in the treatment and diagnosisof cancer.  The Company will not be ableto exploit such rights until such time as antineoplastons are approved, of whichthere can be no assurance, by the FDA for sale in the United States and theappropriate authority in Canada and Mexico.

 

The Agreement gives Dr. Burzynskithe right to distribute, use and otherwise exploit antineoplastons inconnection with treatment of patients in his medical practice until such timeas the FDA approves them for sale.

 

The License Agreementwill terminate upon the earlier of the expiration of the last patent licensedto the Company, or termination by Dr. Burzynski, at his option, if he isremoved as a director or officer of the Company without his consent, if theCompany files for bankruptcy or if any shareholder or group of shareholdersacting in concert becomes the beneficial owner of the Company’s securitieshaving voting power equal to or greater than the voting power of the securitiesDr. Burzynski holds.

 

Under the LicenseAgreement, the Company currently owns exclusive rights to eight (8) issuedUnited States Patents, three (3) issued Canadian Patents and one (1) issuedMexican Patent.  The Company has onepatent application pending in Canada.

 

 

F-12

----

 

BURZYNSKIRESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS — continued

 

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

 

The five initial United States Patents (the “Initial Patents”) relateto: (i) Determination of Antineoplastons in body tissue or fluids as atesting procedure to aid in the diagnosis of cancer; (ii) Processes forthe preparation of purified fractions of Antineoplastons from human urine; (iii) Processesfor the synthetic production of Antineoplastons and methods of treatingneoplastic disease (cancer); (iv) Administration of Antineoplastons tohumans; and (v) Methods of synthesizing A-10.  All but one of these Initial Patents have expiredas of February 29, 2008, the one remaining expires January 11, 2009.The Company does not believe the expiration of any of the Initial Patents willhave 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-canceractivity.  The 2000 U.S. Patent expires May 14,2017.

 

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

 

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

 

 

F-13

----

 

BURZYNSKI RESEARCH INSTITUTE, INC.

NOTES TO FINANCIALSTATEMENTS — continued

 

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

 

The three Canadian Patents (the “CanadianPatents”) relate to: (i) Processes for the preparation of purifiedfractions of Antineoplastons from human urine, (ii) Processes for thesynthetic production of Antineoplastons and methods of treating neoplasticdisease (cancer) and (iii) Liposomal Formulation of Antineoplastons.  The Canadian Patents expired or will expireon November 14, 2006, June 4, 2002 and May 14, 2017,respectively; however, the Company does not believe the Canadian Patents thatexpired in 2002 or in 2006 will have a material adverse effect on the Company.

 

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

 

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

 

Research Funding Agreement

 

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

 

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

 

2.                                       Dr. Burzynski agrees to fund in itsentirety all basic research, which BRI undertakes in connection with the developmentof other antineoplastons or refinements to existing antineoplastons for thetreatment of cancer.

 

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

 

4.                                       Dr. Burzynski agrees to provide BRIsuch laboratory and research space as BRI needs at the Trinity Drive facilityin Stafford, Texas, and such office space as is necessary at Trinity Drive andat his medical facility.

 

 

F-14

----

 

BURZYNSKI RESEARCH INSTITUTE, INC.

NOTES TO FINANCIAL STATEMENTS — continued

 

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

 

5.                                       In the event the research described inthe agreement results in the approval of any additional patents for thetreatment of cancer, Dr. Burzynski shall own all such patents, but shalllicense to BRI the patents based on the same terms, conditions and limitationsas is in the current license between the parties.

 

6.                                       Dr. Burzynski shall have unlimitedand free access to all equipment which BRI owns, so long as such use is not inconflict with BRI’s use of such equipment, including without limitation to allequipment used in manufacturing of antineoplastons used in the clinical trials.

 

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

 

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

 

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

 

8.                                       Effective March 1,2007, the term of the Research Funding Agreement was extended to February 29,2008, and is automatically renewable for an additional one-year termthereafter, unless one party notifies the other party at least thirty daysprior to the expiration of the term of the agreement of its intention not torenew the agreement.  In addition to theforegoing termination provisions, the agreement automatically terminates in theevent that Dr. Burzynski owns less than fifty percent of the outstandingshares of the Company, or is removed as President and/or Chairman of the Boardof the Company, unless Dr. Burzynski notifies the Company in writing ofhis intention to continue the agreement notwithstanding this automatictermination provision.

 

 

F-15

----

 

BURZYNSKI RESEARCHINSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS - continued

 

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

 

Royalty Agreement

 

The Company entered into a royalty agreement with Dr. Burzynskiwhereby upon receiving FDA approval for interstate marketing and distribution,the Company agrees to pay Dr. Burzynski a royalty interest equivalent to10% of the Company’s gross income, which royalty interest shall include grossreceipts from all future sales, distributions and manufacture ofantineoplastons.  Dr. Burzynski willhave the right to either produce antineoplaston products for use in his medicalpractice to treat up to 1,000 patients without paying any fees to the Company,or purchase from the Company antineoplaston products for use in his medicalpractice to treat up to 1,000 patients at a price of the Company’s cost toproduce the antineoplaston products plus 10%. Dr. Burzynski will also have the right to either lease or purchaseall the manufacturing equipment located at 12707 Trinity Drive, Stafford, Texasat a fair market price.  The Company willalso have the right to lease from Dr. Burzynski the entire premise locatedat 12707 Trinity Drive, Stafford, Texas at arms-length terms at ratescompetitive with those available in the market at that time, provided that Dr. Burzynskidoes not need the facility for his use.

 

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

 

Other Related Party Transactions

 

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

 

Dr. Burzynski owns the production facility located at TrinityDrive.  There is no formal leaseagreement between Dr. Burzynski and BRI; however, the Research FundingAgreement described above provides that Dr. Burzynski will allow theCompany the use of the building.  Inaddition, the Royalty Agreement states that after FDA approval is granted(though approval is not assured) the Company may rent the facility atcompetitive rates if Dr. Burzynski does not need the facility for hisuse.  The actual facility costs areincluded in the financial statements as set forth in note 5.  In addition, Dr. Burzynski’s medicalclinic performs certain administrative functions such as accounting, and allowsBRI the use of some office space at no charge to the Company.  Since May of 2000, Dr. Burzynski’sentire salary is paid through his medical practice and he is not compensated byBRI for his services.

 

 

F-16

----

 

BURZYNSKI RESEARCHINSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS - continued

 

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

 

The Company has received all significant funding from Dr. Burzynskithrough either cash contributed to BRI or the payment of the cost to conductFDA approved clinical trials through his medical practice, as disclosed in Note1.  Following is a summary of the capitalcontributed and clinical trial costs paid by Dr. Burzynski.

 
| ** **                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Capital contributed               |       | $        | 368,000    |     | $          | 597,000 |   |
| Clinical trial costs  paid direct |       | $        | 4,149,027  |     | $          | 3,680,809 |   |

 

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

 

Property and equipment consists of the following as ofFebruary 29th and February 28th:

 
| ** **                    | ** ** | **Estimated**    | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------------|------------|------------|------------|------------|------------|
| ** **                    | ** ** | **Useful Lives** | ** ** | **2008**   | ** ** | **2007**   | ** ** |
| Furniture and equipment       |       | 5 - 10 years     |       | $          | 22,415     |       | $          | 15,577 |   |
| Total property and  equipment |       |             |       | 22,415     |       | 15,577     |       |
| Accumulated  depreciation     |       |             |       | (15,265    | )          | (13,301    | )          |
|                          |       |             |       | $          | 7,150      |       | $          | 2,276 |   |

 

Depreciationexpense for the years ended February 29, 2008, and February 28, 2007was $1,964 and $1,344, respectively.

 

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

 

The Company has a self-funded employee benefit planproviding health care benefits for all its employees. It also provides for themgroup dental insurance, short-term and long-term disability insurance, and lifeinsurance.  Employees pay pre-taxpremiums from $40 to $400 per month depending upon the insurance coverageselected by the employee.  Employees canselect from two coverage plans, which have a $200 or $300 deductible, varyingout-of-pocket maximums, and a maximum lifetime benefit of $1,000,000 percovered participant.

 

 

F-17

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BURZYNSKIRESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS - continued

 

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

 

Due to stop-loss insurance, benefits payable by theCompany are limited to $25,000 per person during the policy year.  The Company charged to operations a provisionof $274,899  for 2008 and $221,294 for2007, which represents the sum of actual claims paid and an estimate ofliabilities relating to claims, both asserted and unasserted, resulting fromincidents that occurred during the year. These amounts include costs related to employees of the medical clinicthat have been allocated to the Company.

 

The Company has a qualified 401(k) plan whichcovers substantially all employees meeting certain eligibilityrequirements.  Participants maycontribute a portion of their compensation to the plan, up to the maximumamount permitted under Section 401(k) of the Internal RevenueCode.  At the Company’s discretion, itcan match a portion of the participants’ contributions.  The Company’s matching contribution was $346and $560 for the years ended February 29, 2008 and February 28, 2007,respectively.

 

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

 

Dr. Burzynski leases certain equipment used inthe clinical trials under leases maturing in one to four years.  Rent expense incurred under these leases wasapproximately $59,645 and $71,354 for the years ended February 29, 2008,and February 28, 2007, respectively. Future minimum lease payments are as follows:

 
|   |   | 2008   |   | $      | 82,064  |   |
|--------|--------|--------|--------|--------|---------|--------|
|   |   | 2009   |   | 77,040 |    |
|   |   | 2010   |   | 77,040 |    |
|   |   | 2011   |   | 32,100 |    |
|   |   |   |   | $      | 268,244 |   |

 

In addition, as explained in Note 2, Dr. Burzynski owns thefacility used by the Company to perform research and produce its drugproducts.  There is currently no leaseagreement; however, the facility’s costs are included in the accompanying financialstatements.  Those costs include not onlyutilities and expenses normally incurred by a tenant but also mortgageinterest, insurance, property taxes and building depreciation.  Interest, insurance, property taxes andbuilding depreciation totaled $194,219 and $194,452 for 2008 and 2007,respectively.

 

 

F-18

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BURZYNSKIRESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS - continued

 

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

 

The costs incurred related to the conduct of FDA approvedclinical trials incurred directly by Dr. Burzynski within his medicalpractice are deducted by Dr. Burzynski and are not included in the Company’stax provision.

 

The actual income tax benefit attributable to the Company’s losses forthe years ended February 29, 2008 and February, 28, 2007 differ from theamounts computed by applying the U.S. federal income tax rate of 34% to thepretax loss as a result of the following:

 
| ** **                           | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|--------------------------------------|------------|-----------|------------|-----------|------------|
| Expected benefit                     |       | $         | (1,537,513 | )         | $          | (1,462,920 | ) |
| Taxed directly to Dr. Burzynski |       | 1,537,513 |       | 1,462,920 |       |
| Other adjustments                    |       | 1,717     |       | 8,465     |       |
| Change in valuation allowance        |       | (1,717    | )          | (8,465    | )          |
| Texas franchise tax, based on income |       | —    |       | —    |       |
| Income tax expense                   |       | $         | —     |      | $          | — |   |

 

The components of the Company’s deferred income taxassets as of February 29, 2008 and February 28, 2007 are as follows:

 
| ** **                                   | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:                         |       |     |       |     |       |
| Net operating loss carryforwards             |       | $        | 407,614    |     | $          | 407,368 |   |
| Excess book (tax) depreciation               |       | (397     | )          | (638     | )          |
| Accrued expenses                             |       | 4,483    |       | 3,253    |       |
| Alternative minimum tax credit carryforwards |       | 42,603   |       | 42,603   |       |
| Total deferred tax assets                    |       | 454,303  |       | 452,586  |       |
| Less valuation allowance                     |       | (454,303 | )          | (452,586 | )          |
| Net deferred tax assets                      |       | $        | —     |     | $          | — |   |

 

 

F-19

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BURZYNSKI RESEARCHINSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS - continued

 

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

 

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

 

The Company has net operating loss carryforwardsavailable to offset future income in the amount of $1,198,864 as of February 29,2008.  The net operating losscarryforwards expire as follows:

 

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

 

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

 

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

 

On September 14, 1996 the Company granted 600,000 stock options,with an exercise price of $.35 per share, to an officer who is no longer withthe Company.  The options vested asfollows:

 

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

 

 

F-20

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BURZYNSKIRESEARCH INSTITUTE, INC.

NOTESTO FINANCIAL STATEMENTS - continued

 

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

 

The options are valid in perpetuity.  In addition, for a period of 10 years fromthe grant date, they increase in the same percentage of any new shares of stockissued; however, no additional shares have been issued since September 14,1996.  None of the options have beenexercised as of February 29, 2008.

 

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

 

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

 

The Company produced antineoplaston products to treat approximately 85to 100 patients during the years ended February 29, 2008 and February 28,2007.  Management estimates the currentproduction facilities have the capacity to produce product to treatapproximately 1,500 patients.  There isspace available at the current site to expand the facility for increasedcapacity if necessary.

 

The Company received approximately forty-nine percent, fifteen percentand eleven percent of the chemicals used in producing antineoplastons fromsuppliers A, B, and C, respectively during the year ended February 29,2008 and twenty-four percent and nineteen percent from suppliers D and C,respectively during the year ended February 28, 2007.  The Company has established additionalvendors to supply these chemicals.

 

 

F-21

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