**SYNTHETIC BLOOD INTERNATIONAL, INC.**

**FORM 10-Q**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.**

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended  July 31, 2001

Commission File Number        2-31909

**SYNTHETIC BLOOD INTERNATIONAL, INC.**

(Exact name of registrant as specified in its charter)

**New Jersey                                                                                                 22-3067701**

(State of Incorporation)                                                                         (IRS Employer ID Number)

**3189 Airway Avenue, Building C, Costa Mesa, California 92626**

(Office of Principal Executive Office)

**714-427-6363**

(Registrant's telephone number, including area code)

Indicate by the check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports).

YES   (X)     NO   (  )

and (2) has been subject to such filing requirements for the past 90 days.

YES   (X)     NO   (  )

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 2001.

87,350,309 shares of common stock par value $0.01

**SYNTHETIC BLOOD INTERNATIONAL, INC.**

(A Development Stage Company)

**BALANCE SHEETS**

**ASSETS**

|                              |  | July 31,        |  | April 30,     
|----------------------------- |  | --------------- |  | --------------
|                              |  | 2001            |  | 2001          
|                              |  | (Unaudited)     |  |               
|Current Assets:               |  |                 |  |               
|Cash and cash
equivalents     |  | $     4,009,613 |  | $    4,250,898
|Note receivable from
director |  | 30,000          |  | 30,000        
|Prepaid expenses              |  | 80,780          |  | 83,373        
|                              |  |                 |  |               
|Total Current
Assets          |  | 4,120,393       |  | 4,364,271     
|                              |  |                 |  |               
|Property and
Equipment, net   |  | 366,187         |  | 243,904       
|Patents, net                  |  | 245,445         |  | 234,121       
|                              |  |                 |  |               
|                              |  | $     4,732,025 |  | $    4,842,296

**LIABILITIES AND STOCKHOLDERS' EQUITY**

|Current Liabilities:                                                                                                    |  |                |  |                
|----------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | ---------------
|Notes Payable                                                                                                           |  | $      181,319 |  | $       177,534
|Accounts payable                                                                                                        |  | 129,499        |  | 87,256         
|Accrued liabilities                                                                                                     |  | 81,842         |  | 79,454         
|                                                                                                                        |  |                |  |                
|Total Current
Liabilities                                                                                               |  | 392,660        |  | 344,068        
|Stockholders' Equity:                                                                                                   |  |                |  |                
|Common Stock, par
value $.01 per share;
authorized 100,000,000
shares; issued and
outstanding 87,350,309
and 84,474,547 |  | 873,503        |  | 844,745        
|Deposits on common
stock                                                                                                |  | -              |  | 94,231         
|Additional paid-in
capital                                                                                              |  | 16,968,812     |  | 16,544,832     
|Deficit accumulated
during development
stage                                                                            |  | (13,502,950)   |  | (12,985,580)   
|                                                                                                                        |  |                |  |                
|Total Stockholders'
Equity                                                                                              |  | 4,339,365      |  | 4,498,228      
|                                                                                                                        |  |                |  |                
|                                                                                                                        |  | $   4,732,025  |  | $    4,842,296 

See accompanying notes to financial statements

**SYNTHETIC BLOOD INTERNATIONAL, INC.**

**(A Development Stage Company)**

**STATEMENTS OF OPERATIONS**



| | Accumulated |  | 
| | ----------- |  | 

| | During the  | Three Months Ended | Three Months Ended
| | ----------- | ------------------ | ------------------
| | Development | July 31,           | July 31,          

| | Stage | 2001 | 2000
| | ----- | ---- | ----

| | (Unaudited) |  | 
| | ----------- |  | 

|Expenses:                                                        |                 |                   |                 
|---------------------------------------------------------------- | --------------- | ----------------- | ----------------
|Research and development                                         | $    4,529,057  | $       316,881   | $       116,504 
|                                                                 |                 |                   |                 
|General and administrative                                       | 9,275,375       | 245,991           | 227,306         
|                                                                 |                 |                   |                 
|Interest                                                         | 169,461         | 2,917             | 808             
|                                                                 |                 |                   |                 
|Total Expenses                                                   | 13,973,893      | 565,789           | 344,618         
|                                                                 |                 |                   |                 
|Other Income                                                     | (470,943)       | (48,419)          | (90,935)        
|                                                                 |                 |                   |                 
|NET LOSS                                                         | $  (13,502,950) | $     (517,370)   | $     (253,683) 
|                                                                 |                 |                   |                 
|NET LOSS PER SHARE,
BASIC   AND DILUTED                          |                 | $         (0.006) | $        (0.003)
|                                                                 |                 |                   |                 
|WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING, BASIC
AND DILUTED |                 | 85,139,699        | 81,917,908      

See accompanying notes to financial statements

**SYNTHETIC BLOOD INTERNATIONAL, INC.**

**(A Development Stage Company)**

**STATEMENT OF CASH FLOWS**

| | Accumulated |  | 
| | ----------- |  | 
| | During      |  | 

| | Development | Three Months Ended July 31, | Three Months Ended July 31,
| | ----------- | --------------------------- | ---------------------------

| | Stage | 2001 | 2000
| | ----- | ---- | ----

| | (Unaudited) | (Unaudited) | (Unaudited)
| | ----------- | ----------- | -----------

|CASH FLOWS FROM
OPERATING ACTIVITIES:                                                |                    |                    |                   
|------------------------------------------------------------------------------------ | ------------------ | ------------------ | ------------------
|Net loss                                                                             | $  (13,502,700)    | $     (517,370)    | $  (253,683)      
|Adjustments to reconcile net
loss to cash used in operating
activities:              |                    |                    |                   
|Depreciation and amortization                                                        | 512,226            | 25,048             | 6,812             
|Loss on disposal of property
and equipment                                           | 15,284             | -                  | -                 
|Disposal and write-down of
other assets                                              | 126,800            | -                  | -                 
|Compensatory stock
options/warrants issued                                           | 367,213            | -                  | -                 
|Issuance of stock below
market value                                                 | 695,248            | -                  | -                 
|Contribution of capital
through services      rendered
by stockholders               | 216.851            | -                  | -                 
|Issuance of stock for
services rendered                                              | 1,190,209          | -                  | -                 
|Changes in operating
assets and liabilities:                                         |                    |                    |                   
|Prepaid expenses and
other assets                                                    | (81,030)           | 2,593              | 24,832            
|Accounts payable and
accrued expense                                                 | 387,934            | 44,631             | 15,091            
|Net cash used in operating
activities                                                | (10,071,965)       | (445,098)          | (206,948)         
|                                                                                     |                    |                    |                   
|CASH FLOW FROM
INVESTING ACTIVITIES:                                                 |                    |                    |                   
|Purchase of property and
equipment                                                   | (680,782)          | (137,675)          | (99,242)          
|Proceeds from the sale of
equipment                                                  | 15,457             | -                  | -                 
|Purchase of other assets                                                             | (578,279)          | (20,980)           | (20,389)          
|Net cash used in investing
activities                                                | (1,243,604)        | (158,655)          | (119,631)         
|                                                                                     |                    |                    |                   
|CASH FLOWS FROM
FINANCING ACTIVITIES:                                                |                    |                    |                   
|Proceeds from sale of common
stock and exercise of common
stock options and warrants | 13,593,988         | 358,507            | 52,336            
|Repayments of amounts due
stockholders                                               | (121,517)          | -                  | -                 
|Proceeds from stockholder
notes payable                                              | 977,692            | -                  | -                 
|Contribution of capital by
stockholder                                               | 40,700             | -                  | -                 
|Proceeds from common stock
not yet issued                                            | 94,231             | -                  | -                 
|Proceeds from stock
subscription                                                     | -                  | -                  | 400,000           
|Proceeds from notes,
debentures and lease
obligations                                | 1,160,248          | 74,000             | -                 
|Payments on notes and lease
obligations                                              | (420,160)          |                    | (70,039)          
|Net cash provided by
financing activities                                            | 15,325,182         | 362,468            | 430,102           
|                                                                                     |                    |                    |                   
|Net change in cash and cash
equivalents                                              | 4,009,613          | (241,285)          | 103,523           
|Cash and cash equivalents,
beginning of period                                       | -                  | 4,250,898          | 5,466,391         
|                                                                                     |                    |                    |                   
|Cash and cash equivalents,
ending of period                                          | $     4,009,613    | $     4,009,613    | $   5,569,914     
|                                                                                     |                    |                    |                   
|Cash paid for:                                                                       |                    |                    |                   
|Interest                                                                             | $        129,947   | $            2,917 | $              808
|Taxes                                                                                | $           14,380 | $            5.640 | $           1,250 

See accompanying notes to financial statements

**SYNTHETIC BLOOD INTERNATIONAL, INC.**

**(A Development Stage Company)**

**NOTES TO FINANCIAL STATEMENTS**

**BASIS OF PRESENTATION**

The accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments)
which in the opinion of management, are necessary to present fairly the financial position of the Company at July 31, 2001, and
the results of its operations for the three month periods ended July 31, 2001 and 2000 and its cash flows for the three month
periods ended July 31, 2001 and 2000. Certain information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission although the
Company believes that the disclosures in the financial statements are adequate to make the information presented not
misleading.

Certain amounts as previously reported have been reclassified to conform with the 2001 presentation.

The financial statements included herein should be read in conjunction with the financial statements of the Company, included
in the Company's Annual Report on Form 10-K for the year ended April 30, 2001 filed with the Securities and Exchange
Commission on July 26, 2001.

**STOCKHOLDERS' EQUITY**

During the three months ended July 31, 2001, the Company issued 245,000 shares of common stock for $0.385 per share.  The
net proceeds received in connection with these shares, $94,227, were received during fiscal year 2000.  These proceeds were
presented as deposits on common stock in the accompanying balance sheet as of April 30, 2001.

During the three months ended July 31, 2001, the Company issued 1,000,000 shares of common stock for $0.133 per share.

During the three months ended July 31, 2001 the Company issued 1,630,762 shares of common stock resulting from the
exercise of previously issued stock warrants. The shares were issued at a weighted-average price of $0.135 per share. The
proceeds received in connection with the exercise of the warrants were $358,507.

**SYNTHETIC BLOOD INTERNATIONAL, INC**

(A Development Stage Company)

**ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS**.

Except for the historical information contained herein, the following discussion contains forward-looking statements that
involve risks and uncertainties.  The Company's actual results could differ materially from those projected in the
forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those
discussed in this section and those discussed in the Company's Annual Report on Form 10K for the year ended April 30, 2001
and the filings made with the Securities and Exchange Commission.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company
can not guarantee future results, levels of performance or achievements.  Moreover, neither the Company nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking statements.  The Company is under no
obligation to update any of the forward-looking statements after the filing of the Form 10-Q to conform such statements or
actual results or to changes in expectations.

Potential risks and uncertainties include, but are not limited to: an inability to achieve results from the pre-clinical studies which
are determined to merit requesting FDA approval to begin clinical trials for one or more of the Company's products; an inability
to receive FDA approval to begin clinical trials for one or more of its products; an inability to enter into or maintain the future
strategic collaborative relationships the Company believes are essential to further develop and commercialize the Company's
products; uncertainties associated with the lengthy and complicated testing and regulatory approval process, in particular the risk
that the Company's products, assuming pre-clinical tests are successful, may be found ineffective during clinical trials, if any, or
the Company is unable to obtain the necessary regulatory approvals to commercialize these products; uncertainties associated
with obtaining and enforcing patents for the Company's products and technology; the risks of infringing patents held by other
parties; uncertainties associated with changing or new technology; difficulties in scaling up manufacturing operations to
commercial scale and in obtaining raw materials in a quantity and at prices necessary to produce profitable products; an inability
to have the Company's products manufactured by future strategic partners or contract manufacturing companies; and failure to
obtain market acceptance, significant market  share, or third party reimbursement at profitable price levels.

Significant risks and uncertainties are associated with the Company's ability to obtain the required financing to develop its
products.  The Company's projected capital requirements are based on the expectation that strategic partners will assume further
development and regulatory costs for each product during Phase II clinical trials and thereafter.  If that does not happen, the
amount of financing the Company will be required to raise could increase substantially.  If the Company is unable to raise
adequate financing, it may be required to delay, scale-back, or eliminate one or more product development programs, or sell the
rights to certain technologies or products.

**RESULTS OF OPERATIONS**

**Three months ended July 31, 2001 and 2000:**

The Research and Development expenses for the three-month period ended July 31, 2001 were $316,881 compared to $116,504
for the same period in the prior year.  This increase is attributed to an increase in wages, salaries and contract that reflects the
substantial increase in research and development activities over the comparable period in 2000.

General and Administrative expenses for the three-month period ended July 31, 2001 were $245,991, compared to $227,306 for
the same period in the prior year.  Payroll expenses increased $8,000 during the three-months ended July 31, 2001 along with
increases in outside consulting expenses of $18,000 and insurance expenses of $8,000. These increases were offset by decreases
in general office expenses of $8,000 and travel expenses of $5,000 from the same three-month period in 2000.

The net loss for the three months ended July 31, 2001 was $517,370, compared to a net loss of $253,683 for the same period in
the prior year.  Although, as noted above, expenses increased $221,171 during the three-month period ended July 31, 2001 over
the comparable period in 2000, the Company's net loss increased $263,687 due to an decrease in other income of $42,516
attributed to reduced interest income earned on the Company's cash balances because of falling interest rates and smaller
invested balances.

**LIQUIDITY AND CAPITAL RESOURCES**

The Company has financed its operations since September 1990, when the current management became involved, through the
issuance of debt and equity securities and loans from stockholders. As of July 31, 2001, the Company had $4,120,393 in total
current assets and working capital of $3,727,733.  The Company has invested excess working capital in short-term money
market investment instruments.  The Company believes its cash and cash equivalents at July 31, 2001 will be sufficient to meet
its liquidity needs for the next 18 months.

The Company is in the pre-clinical trial stage in the development of its products. These products must undergo further
development and testing prior to submission to the FDA for approval to initiate clinical trials. This additional development and
testing and, if approved, the FDA required clinical testing will require significant additional financing. Management is actively
pursuing private and institutional financing as well as strategic alliances and/or joint venture agreements to assist the Company
in acquiring the necessary additional financing, although there are no commitments as of July 31, 2001.  If the Company raises
additional funds through the issuance of equity securities, the percentage ownership of existing stockholders will be reduced,
stockholders may experience additional dilution or such equity securities may provide for rights, preferences and privileges
senior to those of the common stock.

There can be no assurance that FDA approval will be granted, if and when it is applied for one or more of the Company's
products, or that necessary funding will be obtained.  The Company does not have any firm commitments for additional capital
as of July 31, 2001.

**Financial Condition**

**July 31, 2001 compared to April 30, 2001:**

Cash used in operating activities during the three-month period ended July 31, 2001 was $445,098 compared to $206,948 for the
comparable period of the prior year, an increase of $238,150.  Operating activities consisted primarily of product research and
development and the general operation of corporate office.

Cash used in investing activities during the three-month period ended July 31, 2001 was $158,655 compared to $119,631 for the
comparable period of the prior year.  Investing activities consisted primarily of the purchase of equipment and expenditures
related to the patent rights.

Cash provided by financing activities during the three-month period ended July 31, 2001 was $362,468 compared to $430,102
for the comparable period of the prior year.  Financing activities consisted primarily of the sale of common stock.

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

The Company has no derivative financial instruments and no exposure to foreign currency exchange rates or interest rate risk.

**Part II-Other Information**

Item 1. Legal Proceedings.

None

Item 2. Changes in Securities.

1. During June 2001, the Company issued 245,000 shares of common stock at $.385 per share to one individual, whom the
Company reasonably believes was an accredited investor.

2. During May 2001, warrants were exercised for the purchase of 110,000 shares of common stock at a weighted average
exercise price $0.115 per share by two individuals. During June 2001, warrants were exercised for the purchase of 121,429
shares of common stock at a weighted average exercise price $0.14 per share by three individuals.  In addition, during July
2001, warrants were exercised for the purchase of 1,399,333 shares of common stock at a weighted average exercise price $0.14
per share by fifteen individuals.

3. In May 2001, the Company issued options pursuant to the 1999 Stock Option Plan to four outside directors.  Each director
was issued an option to purchase 10,000 shares of common stock at an exercise price of $0.255 per share.  The options expire in
ten years.

4. During June 2001, the Company issued options to two individuals for the purchase of a total of 12,500 shares of common
stock at $0.01 per share.  The options are for a term of five years.

The registrant relied upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended ("1933 Act") for
the transactions described above to issue the common stock..  No commissions or fees were paid on the transaction and the
Company had a prior existing relationship with the purchasers who had access to information regarding the Company.
Restrictive legends were placed on the common stock certificates.

5. During July 2001, the Company issued 1,000,000 shares pursuant to Regulation S for a price of $0.133 per share or a total
of $133,000.

6. Subsequent to the date of this report, in August 2001, pursuant to Regulation S, the Company issued options to one
individual for the purchase of 5,500,000 shares of common stock.  3,500,000 options are exercisable at $0.133 per share and
2,000,000 options are exercisable at $0.60 per share.  The options are only exercisable following a recapitalization of the
Company for a period of one year.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matter to a Vote of Security Holders.

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K.

Exhibits:

1. Stock Option Agreement, June 6 2001 with Robert Skalnik   Attached

2. Stock Option Agreement, June 6, 2001 with James Reavis   Attached

3. Stock Option Agreement, August 23, 2001 with Andreas Camenzind Attached

4. Stock Option Agreement, August 23, 2001 with Andreas Camenzind Attached

(b) Reports on Form 8-K:

None

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

SYNTHETIC BLOOD INTERNATIONAL, INC.

(Registrant)

September 11, 2001                                           /s/ David H. Johnson

(Date)                                              David H. Johnson, Chief Financial Officer