##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED October 31, 2010

OR



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

FOR THE TRANSITION PERIOD FROM  TO

Commission File Number 001-34600





OXYGEN BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)







|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 26-2593535                          
|(State of incorporation) |  | (I.R.S. Employer Identification No.)

2530 Meridian Parkway, Suite 3078, Durham, North Carolina 27713

(Address
of principal executive offices)

(919) 855-2100

(Registrants telephone number, including area code)





Indicate by 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), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

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

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



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

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

As of
December 3, 2010, the registrant had outstanding 23,391,183 shares of Common Stock.









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##### Table of Contents

TABLE OF CONTENTS



|                              |  |                                                                                                 |  |      |    | 
|----------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                              |  |                                                                                                 |  | PAGE |   
|PART I. FINANCIAL INFORMATION |  |                                                                                                 |  |     
|                              |  |                                                                                                
|Item 1.                       |  | Unaudited Financial Statements                                                                  |  |      | 2  | 
|                              |  |                                                                                                
|                              |  | Balance Sheet as of October 31, 2010 and as of April 30, 2010                                   |  |      | 2  | 
|                              |  |                                                                                                
|                              |  | Statement of Operations for the Three Months and the Six Months Ended October 31, 2010 and 2009 |  |      | 3  | 
|                              |  |                                                                                                
|                              |  | Statement of Cash Flows for the Six Months Ended October 31, 2010 and 2009                      |  |      | 4  | 
|                              |  |                                                                                                
|                              |  | Notes to Financial Statements                                                                   |  |      | 6  | 
|                              |  |                                                                                                
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations           |  |      | 16 | 
|                              |  |                                                                                                
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                      |  |      | 25 | 
|                              |  |                                                                                                
|Item 4.                       |  | Controls and Procedures                                                                         |  |      | 25 | 
|                              |  |                                                                                                
|Item 4T.                      |  | Controls and Procedures                                                                         |  |      | 25 | 
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                 |  |     
|                              |  |                                                                                                
|Item 1.                       |  | Legal Proceedings                                                                               |  |      | 26 | 
|                              |  |                                                                                                
|Item 1A.                      |  | Risk Factors                                                                                    |  |      | 26 | 
|                              |  |                                                                                                
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                     |  |      | 31 | 
|                              |  |                                                                                                
|Item 3.                       |  | Defaults Upon Senior Securities                                                                 |  |      | 31 | 
|                              |  |                                                                                                
|Item 4.                       |  | (Removed and Reserved)                                                                          |  |      | 31 | 
|                              |  |                                                                                                
|Item 5.                       |  | Other Information                                                                               |  |      | 31 | 
|                              |  |                                                                                                
|Item 6.                       |  | Exhibits                                                                                        |  |      | 32 | 



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

BALANCE SHEET



|                                                                                                                                        |  |                             |             |   |                |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | - | -------------- | - | ----------- | -
|                                                                                                                                        |  | October 31, 2010(Unaudited) |             |   | April 30, 2010 |  
|ASSETS                                                                                                                                  |  |                             |             |   |                |   |             |  
|Current assets                                                                                                                          |  |                             |             |   |                |   |             |  
|Cash and cash equivalents                                                                                                               |  | $                           | 837,167     |   |                | $ | 632,706     |  
|Accounts receivable                                                                                                                     |  |                             | 22,144      |   |                |   | 72,055      |  
|Inventory                                                                                                                               |  |                             | 443,044     |   |                |   | 535,090     |  
|Prepaid expenses                                                                                                                        |  |                             | 228,118     |   |                |   | 249,780     |  
|Other current assets                                                                                                                    |  |                             | 81,247      |   |                |   | 695,195     |  
|                                                                                                                                        |  |                             |             |   |                |   |             |  
|Total current assets                                                                                                                    |  |                             | 1,611,720   |   |                |   | 2,184,826   |  
|Property and equipment, net                                                                                                             |  |                             | 439,666     |   |                |   | 383,959     |  
|Intangible assets, net                                                                                                                  |  |                             | 918,567     |   |                |   | 907,710     |  
|Other assets                                                                                                                            |  |                             | 123,877     |   |                |   | 52,651      |  
|                                                                                                                                        |  |                             |             |   |                |   |             |  
|Total assets                                                                                                                            |  | $                           | 3,093,830   |   |                | $ | 3,529,146   |  
|                                                                                                                                        |  |                             |             |   |                |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                    |  |                             |             |   |                |   |             |  
|Current liabilities                                                                                                                     |  |                             |             |   |                |   |             |  
|Accounts payable                                                                                                                        |  | $                           | 1,076,425   |   |                | $ | 499,044     |  
|Accrued liabilities                                                                                                                     |  |                             | 381,928     |   |                |   | 843,903     |  
|Notes payable                                                                                                                           |  |                             | 7,195       |   |                |   | 56,394      |  
|                                                                                                                                        |  |                             |             |   |                |   |             |  
|Total current liabilities                                                                                                               |  |                             | 1,465,548   |   |                |   | 1,399,341   |  
|Long-term portion of convertible debt, net                                                                                              |  |                             |            |   |                |   | 2,767       |  
|                                                                                                                                        |  |                             |             |   |                |   |             |  
|Total liabilities                                                                                                                       |  |                             | 1,465,548   |   |                |   | 1,402,108   |  
|                                                                                                                                        |  |                            
|Stockholders equity                                                                                                                    |  |                             |             |   |                |   |             |  
|Preferred stock, undesignated, authorized 10,000,000 shares; none issued or outstanding                                                 |  |                             |            |   |                |   |            |  
|                                                                                                                                        |  |                            
|Common stock, par value $.0001 per share; authorized 400,000,000 shares; issued and outstanding 23,390,221 and 21,457,265,
respectively |  |                             | 2,339       |   |                |   | 2,146       |  
|Stock subscription receivable                                                                                                           |  |                             |            |   |                |   | 500,000     |  
|Additional paid-in capital                                                                                                              |  |                             | 88,147,757  |   |                |   | 83,092,470  |  
|Deficit accumulated during the development stage                                                                                        |  |                             | (86,521,814 | ) |                |   | (81,467,578 | )
|                                                                                                                                        |  |                             |             |   |                |   |             |  
|Total stockholders equity                                                                                                              |  |                             | 1,628,282   |   |                |   | 2,127,038   |  
|                                                                                                                                        |  |                             |             |   |                |   |             |  
|Total liabilities and stockholders equity                                                                                              |  | $                           | 3,093,830   |   |                | $ | 3,529,146   |  
|                                                                                                                                        |  |                             |             |   |                |   |             |  

The accompanying notes are an integral part of these Financial Statements.



2



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OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

STATEMENT OF OPERATIONS



|                                                                        |  |                                                        |            |   |                                |   |            |                              |  |   |             |   |  |             |            |   |  |   |            |  
|----------------------------------------------------------------------- |  | ------------------------------------------------------ | ---------- | - | ------------------------------ | - | ---------- | ---------------------------- |  | - | ----------- | - |  | ----------- | ---------- | - |  | - | ---------- | -
|                                                                        |  | Period from May 26,1967 (Inception) toOctober 31, 2010 |            |   | Three months ended October 31, |   |            | Six months ended October 31, | 
|                                                                        |  |                                                        |            |   | 2010                           |   |            | 2009                         |  |   | 2010        |   |  | 2009        |           
|                                                                        |  | (Unaudited)                                            |            |   | (Unaudited)                    |   |            | (Unaudited)                  |  |   | (Unaudited) |   |  | (Unaudited) |           
|Revenue                                                                 |  | $                                                      | 114,617    |   |                                | $ | 36,083     |                              |  | $ | 6,561       |   |  | $           | 42,981     |   |  | $ | 6,561      |  
|Cost of sales                                                           |  |                                                        | 61,049     |   |                                |   | 8,957      |                              |  |   |            |   |  |             | 10,745     |   |  |   |           |  
|                                                                        |  |                                                        |            |   |                                |   |            |                              |  |   |             |   |  |             |            |   |  |   |            |  
|Net Revenue                                                             |  |                                                        | 53,568     |   |                                |   | 27,126     |                              |  |   | 6,561       |   |  |             | 32,236     |   |  |   | 6,561      |  
|                                                                        |  |                                                        |            |   |                               
|Operating Expenses                                                      |  |                                                        |            |   |                                |   |            |                              |  |   |             |   |  |             |            |   |  |   |            |  
|Selling, general, and administrative                                    |  |                                                        | 36,529,456 |   |                                |   | 1,511,214  |                              |  |   | 2,185,917   |   |  |             | 3,394,282  |   |  |   | 3,937,196  |  
|Research and development                                                |  |                                                        | 18,591,832 |   |                                |   | 572,649    |                              |  |   | 407,134     |   |  |             | 1,717,892  |   |  |   | 946,390    |  
|Loss on impairment of long-lived assets                                 |  |                                                        | 32,113     |   |                                |   |           |                              |  |   |            |   |  |             |           |   |  |   |           |  
|                                                                        |  |                                                        |            |   |                                |   |            |                              |  |   |             |   |  |             |            |   |  |   |            |  
|Total operating expenses                                                |  |                                                        | 55,153,401 |   |                                |   | 2,083,863  |                              |  |   | 2,593,051   |   |  |             | 5,112,174  |   |  |   | 4,883,586  |  
|                                                                        |  |                                                        |            |   |                               
|Net operating loss                                                      |  |                                                        | 55,099,833 |   |                                |   | 2,056,737  |                              |  |   | 2,586,490   |   |  |             | 5,079,938  |   |  |   | 4,877,025  |  
|                                                                        |  |                                                        |            |   |                               
|Interest expense                                                        |  |                                                        | 32,146,535 |   |                                |   | 5,383      |                              |  |   | 23,274      |   |  |             | 6,589      |   |  |   | 150,699    |  
|Loss on extinguishment of debt                                          |  |                                                        | 250,097    |   |                                |   |           |                              |  |   |            |   |  |             |           |   |  |   |           |  
|Other income                                                            |  |                                                        | (974,651   | ) |                                |   | (10,183    | )                            |  |   | (20,552     | ) |  |             | (32,291    | ) |  |   | (41,834    | )
|                                                                        |  |                                                        |            |   |                                |   |            |                              |  |   |             |   |  |             |            |   |  |   |            |  
|Net loss                                                                |  | $                                                      | 86,521,814 |   |                                | $ | 2,051,937  |                              |  | $ | 2,589,212   |   |  | $           | 5,054,236  |   |  | $ | 4,985,890  |  
|                                                                        |  |                                                        |            |   |                                |   |            |                              |  |   |             |   |  |             |            |   |  |   |            |  
|                                                                        |  |                                                        |            |   |                               
|Net loss per share, basic and diluted                                   |  |                                                        |            |   |                                | $ | (0.09      | )                            |  | $ | (0.13       | ) |  | $           | (0.22      | ) |  | $ | (0.28      | )
|                                                                        |  |                                                        |            |   |                               
|Weighted average number of common shares outstanding, basic and diluted |  |                                                        |            |   |                                |   | 23,387,979 |                              |  |   | 19,603,257  |   |  |             | 23,301,844 |   |  |   | 18,002,270 |  

The accompanying notes
are an integral part of these Financial Statements.



3



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OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

STATEMENT OF CASH FLOWS



|                                                                                                                    |  |                                        |             |   |                              |   |            |             |  |   |            |  
|------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ----------- | - | ---------------------------- | - | ---------- | ----------- |  | - | ---------- | -
|                                                                                                                    |  | Period from May 26,1967
(Inception) to |             |   | Six months ended October 31, |  
|                                                                                                                    |  | October 31,                            |             |   | 2010                         |   |            | 2009        | 
|                                                                                                                    |  | (Unaudited)                            |             |   | (Unaudited)                  |   |            | (Unaudited) | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Net Loss                                                                                                            |  | $                                      | (86,521,814 | ) |                              | $ | (5,054,236 | )           |  | $ | (4,985,890 | )
|Adjustments to reconcile net loss to net cash used in operating activities                                          |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Depreciation and amortization                                                                                       |  |                                        | 1,743,843   |   |                              |   | 190,738    |             |  |   | 54,509     |  
|Amortization of deferred compensation                                                                               |  |                                        | 336,750     |   |                              |   |           |             |  |   |           |  
|Interest on debt instruments                                                                                        |  |                                        | 31,753,662  |   |                              |   | 6,588      |             |  |   | 150,703    |  
|Loss (gain) on debt settlement and extinguishment                                                                   |  |                                        | 163,097     |   |                              |   |           |             |  |   |           |  
|Loss on impairment, disposal and write down of long-lived assets                                                    |  |                                        | 365,611     |   |                              |   |           |             |  |   |           |  
|Issuance and vesting of compensatory stock options and warrants                                                     |  |                                        | 8,190,192   |   |                              |   | 92,124     |             |  |   | 820,270    |  
|Issuance of common stock below market value                                                                         |  |                                        | 695,248     |   |                              |   |           |             |  |   |           |  
|Issuance of common stock as compensation                                                                            |  |                                        | 548,842     |   |                              |   | 53,250     |             |  |   | 25,299     |  
|Issuance of common stock for services rendered                                                                      |  |                                        | 1,265,279   |   |                              |   |           |             |  |   | 395,000    |  
|Issuance of note payable for services rendered                                                                      |  |                                        | 120,000     |   |                              |   |           |             |  |   |           |  
|Contributions of capital through services rendered by stockholders                                                  |  |                                        | 216,851     |   |                              |   |           |             |  |   |           |  
|Changes in operating assets and liabilities                                                                         |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Accounts receivable, prepaid expenses and other assets                                                              |  |                                        | (603,670    | ) |                              |   | 153,977    |             |  |   | (400,713   | )
|Inventory                                                                                                           |  |                                        | 52,364      |   |                              |   | 52,364     |             |  |   |            |  
|Accounts payable and accrued liabilities                                                                            |  |                                        | 1,664,905   |   |                              |   | 115,399    |             |  |   | 1,108,097  |  
|                                                                                                                    |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Net cash used in operating activities                                                                               |  |                                        | (40,008,840 | ) |                              |   | (4,389,796 | )           |  |   | (2,832,725 | )
|                                                                                                                    |  |                                        |            
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                                |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Purchase of property and equipment                                                                                  |  |                                        | (1,642,065  | ) |                              |   | (138,798   | )           |  |   | (63,408    | )
|Capitalization of patent costs and license rights                                                                   |  |                                        | (1,409,728  | ) |                              |   | (118,504   | )           |  |   | (173,530   | )
|                                                                                                                    |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Net cash used in investing activities                                                                               |  |                                        | (3,051,793  | ) |                              |   | (257,302   | )           |  |   | (236,938   | )
|                                                                                                                    |  |                                        |            
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Proceeds from sale of common stock and exercise of stock options and warrants, net of related expenses and
payments |  |                                        | 35,744,664  |   |                              |   | 4,901,400  |             |  |   | 4,362,000  |  
|Repurchase of outstanding warrants                                                                                  |  |                                        | (2,836,520  | ) |                              |   |           |             |  |   | (2,836,520 | )
|Proceeds from stockholder notes payable                                                                             |  |                                        | 977,692     |   |                              |   |           |             |  |   |           |  
|Proceeds from issuance of notes payable, net of issuance costs                                                      |  |                                        | 2,291,128   |   |                              |   |           |             |  |   |           |  
|Proceeds from convertible notes, net of issuance costs                                                              |  |                                        | 8,807,285   |   |                              |   |           |             |  |   |           |  
|Payments on notes - short-term                                                                                      |  |                                        | (1,086,449  | ) |                              |   | (49,841    | )           |  |   | (36,665    | )
|                                                                                                                    |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Net cash provided by financing activities                                                                           |  |                                        | 43,897,800  |   |                              |   | 4,851,559  |             |  |   | 1,488,815  |  
|                                                                                                                    |  |                                        |            
|Net change in cash and cash equivalents                                                                             |  |                                        | 837,167     |   |                              |   | 204,461    |             |  |   | (1,580,848 | )
|                                                                                                                    |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Cash and cash equivalents, beginning of period                                                                      |  |                                        |            |   |                              |   | 632,706    |             |  |   | 2,555,872  |  
|                                                                                                                    |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Cash and cash equivalents, end of period                                                                            |  | $                                      | 837,167     |   |                              | $ | 837,167    |             |  | $ | 975,024    |  
|                                                                                                                    |  |                                        |             |   |                              |   |            |             |  |   |            |  
|                                                                                                                    |  |                                        |            
|Cash paid for:                                                                                                      |  |                                        |             |   |                              |   |            |             |  |   |            |  
|Interest                                                                                                            |  | $                                      | 248,266     |   |                              | $ | 863        |             |  | $ |           |  
|Income taxes                                                                                                        |  | $                                      | 27,528      |   |                              | $ |           |             |  | $ |           |  

The accompanying notes
are an integral part of these Financial Statements.



4



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OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

STATEMENT OF CASH FLOWS, Continued



Non-cash financing activities during the six months ended October 31, 2010:



| | (1) | The Company issued 2,350 shares of common stock for the conversion of notes payable with a gross carrying value of $8,707 at a conversion price of $3.705 per share. The
notes included a discount totaling $5,206 that was recognized as interest expense upon conversion.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Non-cash financing
activities during the six months ended October 31, 2009:



| | (1) | The Company issued 83,143 shares of common stock for the conversion of notes payable with a gross carrying value of $308,049, at a conversion price of $3.705 per share.
These notes included a discount totaling $116,910, and thus had a net carrying value of $191,139. The unamortized discount of $116,910 was recognized as interest expense upon conversion.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The Company issued 2,363,767 shares of common stock and paid $2,836,520 in cash to repurchase 4,727,564 outstanding warrants.
| | --- | -----------------------------------------------------------------------------------------------------------------------------



| | (3) | The Company recorded a stock subscription receivable of $4,779,000 against the 1,440,000 restricted common shares to be issued under terms of the securities purchase
agreement with JP SPC 1 Vatea Segregated Portfolio, (Vatea Fund), an investment fund formed under the laws of the Cayman Islands (the Securities Purchase Agreement). The shares were issued to Vatea Fund at $3.75 per share.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these Financial Statements.



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OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS

Oxygen
Biotherapeutics (the Company) was originally formed as a New Jersey corporation in 1967 under the name Rudmer, David & Associates, Inc., and subsequently changed its name to Synthetic Blood International, Inc. On June 17,
2008, the stockholders of Synthetic Blood International approved the Agreement and Plan of Merger dated April 28, 2008, between Synthetic Blood International and Oxygen Biotherapeutics, Inc., a Delaware corporation. Oxygen Biotherapeutics was
formed on April 17, 2008, by Synthetic Blood International to participate in the merger for the purpose of changing the state of domicile of Synthetic Blood International from New Jersey to Delaware. Certificates of Merger were filed with the
states of New Jersey and Delaware and the merger was effective June 30, 2008. Under the Plan of Merger, Oxygen Biotherapeutics is the surviving corporation and each share of Synthetic Blood International common stock outstanding on
June 30, 2008 was converted to one share of Oxygen Biotherapeutics common stock.

Going ConcernThe accompanying financial
statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), which contemplate continuation of the Company as a going concern. The Company has an accumulated deficit
during the development stage of $86,521,814 and $81,467,578 at October 31, 2010 and April 30, 2010, respectively, and stockholders equity of $1,628,282 and $2,127,038 as of October 31, 2010 and April 30, 2010, respectively.
The Company requires substantial additional funds to complete clinical trials and pursue regulatory approvals. Management is actively seeking additional sources of equity and/or debt financing; however, there is no assurance that any additional
funding will be available.

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in
the accompanying October 31, 2010 balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Companys ability to meet its financing requirements on a continuing basis, to maintain present
financing, and to generate cash from future operations. These factors, among others, raise substantial doubt about the Companys ability to continue as a going concern. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company has prepared the accompanying interim financial statements in accordance with GAAP for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements and accompanying notes do not include all of the information and disclosures required by GAAP for complete financial statements. The
financial statements include all adjustments (consisting of normal recurring adjustments) that management believes are necessary for the fair statement of the balances and results for the periods presented. These interim financial statement results
are not necessarily indicative of the results to be expected for the full fiscal year or any future interim period.

Fair Value
Measurements

Fair ValueOn May 1, 2008, the Company adopted ASC 820 Fair Value Measurements, as it relates to
financial assets and financial liabilities. The Companys balance sheet includes the following financial instruments: cash and cash equivalents, short-term notes payable and convertible debentures. The Company considers the carrying amount of
its cash and cash equivalents and short-term notes payable to approximate fair value due to the short-term nature of these instruments. It is not practical for the Company to estimate the fair value of its convertible debentures as such estimates
cannot be made without incurring excessive costs, but management believes the difference between fair value and carrying value is not material. The significant terms of the Companys convertible debentures are described in Note 3. At
October 31, 2010 the debentures had a carrying value of $7,195.



6



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Net Loss per Share

Basic loss per share, which excludes antidilutive securities, is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding for that particular
period. In contrast, diluted loss per share considers the potential dilution that could occur from other equity instruments that would increase the total number of outstanding shares of common stock. Such amounts include shares potentially issuable
under outstanding options, warrants and convertible debentures. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows.



|                                                                      |  |                                |            |   |                              |   |            |      |  |   |            |   |  |   |            |  
|--------------------------------------------------------------------- |  | ------------------------------ | ---------- | - | ---------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                      |  | Three months ended October 31, |            |   | Six months ended October 31, |  
|                                                                      |  | 2010                           |            |   | 2009                         |   |            | 2010 |  |   | 2009       |  
|Historical net loss per share:                                        |  |                                |            |   |                              |   |            |      |  |   |            |   |  |   |            |  
|Numerator                                                             |  |                                |            |   |                              |   |            |      |  |   |            |   |  |   |            |  
|Net loss, as reported                                                 |  | $                              | (2,051,937 | ) |                              | $ | (2,589,212 | )    |  | $ | (5,054,236 | ) |  | $ | (4,985,890 | )
|Less: Effect of amortization of interest expense on convertible notes |  |                                |           |   |                              |   |           |      |  |   |           |   |  |   |           |  
|                                                                      |  |                                |            |   |                              |   |            |      |  |   |            |   |  |   |            |  
|                                                                      |  |                                |            |  
|Net loss attributed to common stockholders (diluted)                  |  |                                | (2,051,937 | ) |                              |   | (2,589,212 | )    |  |   | (5,054,236 | ) |  |   | (4,985,890 | )
|Denominator                                                           |  |                                |            |   |                              |   |            |      |  |   |            |   |  |   |            |  
|Weighted-average common shares outstanding                            |  |                                | 23,387,979 |   |                              |   | 19,603,257 |      |  |   | 23,301,844 |   |  |   | 18,002,270 |  
|Effect of dilutive securities                                         |  |                                |           |   |                              |   |           |      |  |   |           |   |  |   |           |  
|                                                                      |  |                                |            |   |                              |   |            |      |  |   |            |   |  |   |            |  
|                                                                      |  |                                |            |  
|Denominator for diluted net loss per share                            |  |                                | 23,387,979 |   |                              |   | 19,603,257 |      |  |   | 23,301,844 |   |  |   | 18,002,270 |  
|                                                                      |  |                                |            |   |                              |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted net loss per share                                  |  | $                              | (0.09      | ) |                              | $ | (0.13      | )    |  | $ | (0.22      | ) |  | $ | (0.28      | )
|                                                                      |  |                                |            |   |                              |   |            |      |  |   |            |   |  |   |            |  

The following outstanding options, convertible note shares and warrants were excluded from the computation of basic and
diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect.



|                                    |  |                              |           |  |      |  |           | 
|----------------------------------- |  | ---------------------------- | --------- |  | ---- |  | --------- | 
|                                    |  | Six months ended October 31, |          
|                                    |  | 2010                         |           |  | 2009 | 
|Options to purchase common stock    |  |                              | 976,233   |  |      |  | 1,037,667 | 
|Convertible note shares outstanding |  |                              | 1,942     |  |      |  | 11,827    | 
|Warrants to purchase common stock   |  |                              | 4,199,466 |  |      |  | 3,339,927 | 

Recent Accounting
Pronouncements

On April 29, 2010, the Financial Accounting Standards Board (FASB), issued Accounting Standards Update
(ASU), No. 2010-17, Revenue RecognitionMilestone Method (Topic 605): Milestone Method of Revenue Recognition (a consensus of the FASB Emerging Issues Task Force). It establishes a revenue recognition model for
contingent consideration that is payable upon the achievement of an uncertain future event, referred to as a milestone. The scope of the ASU is limited to research or development arrangements and requires an entity to record the milestone payment in
its entirety in the period received if the milestone meets all the necessary criteria to be considered substantive. The ASU is effective for fiscal years (and interim periods within those fiscal years) beginning on or after June 15, 2010. Early
application is permitted. Entities can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. As a result, it is effective for us in the first quarter of
fiscal year 2012. The Company does not believe that the adoption of ASU 2010-17 will have a material impact on its financial statements.

In
September 2009, the FASB ratified Revenue Arrangements with Multiple Deliverables issued as ASU 2009-13. ASU 2009-13 updates the existing multiple-element arrangements guidance currently included in ASC 605-25, Revenue Recognition 
Multiple-Element Arrangements. The revised guidance provides for two significant changes to the existing multiple-element arrangements guidance. The first relates to the determination of when the individual deliverables included in a
multiple-element arrangement may be treated as separate units of accounting. This change is significant as it will likely result in the requirement to separate more deliverables within an arrangement, ultimately leading to less revenue deferral. The
second change modifies the manner in which the transaction consideration is allocated across the separately identifiable deliverables. These changes are likely to result in earlier recognition of revenue for multiple-element arrangements than under
previous guidance. ASU 2009-13 also significantly expands



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the disclosures required for multiple-element revenue arrangements. The revised multiple-element arrangements guidance will be effective for the first annual reporting period beginning on or
after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or modified after the adoption date. Early adoption is permitted provided that the revised guidance is retroactively
applied to the beginning of the year of adoption. If the guidance is adopted prospectively, certain transitional disclosures are required for each reporting period in the initial year of adoption. As a result, it is effective for the Company in the
first quarter of fiscal year 2012. The Company does not believe that the adoption of ASU 2009-13 will have a material impact on its financial statements.

NOTE 3. BALANCE SHEET COMPONENTS

Inventory

The Company operates in an industry characterized by rapid improvements and changes to its technology and products. The introduction of new products by
the Company or its competitors can result in its inventory being rendered obsolete or requiring it to sell items at a discount. The Company evaluates the recoverability of its inventory by reference to its internal estimates of future demands and
product life cycles. If the Company incorrectly forecasts demand for its products or inadequately manages the introduction of new product lines, this could materially impact its financial statements by having excess inventory on hand. The
Companys future estimates are subjective and actual results may vary. Management evaluated the Companys inventory and determined that, due to the results of on-going stability testing, the value of the clinical grade Oxycyte is
permanently impaired. The Company recorded $162,326 as a charge to Oxycyte development costs which is reflected in Research and Development costs for the six month period ended October 31, 2010.

Inventories are recorded at cost using the First-In-First-Out (FIFO) method. Ending inventories are comprised of raw materials and direct
costs of manufacturing and valued at the lower of cost or market. Inventories consisted of the following as of October 31, 2010 and April 30, 2010:



|                |  |                  |         |  |                |   |         | 
|--------------- |  | ---------------- | ------- |  | -------------- | - | ------- | 
|                |  | October 31, 2010 |         |  | April 30, 2010 |  
|Raw materials   |  | $                | 173,927 |  |                | $ | 310,315 | 
|Work in process |  |                  | 28,386  |  |                |   |        | 
|Finished goods  |  |                  | 240,731 |  |                |   | 224,775 | 
|                |  |                  |         |  |                |   |         | 
|                |  | $                | 443,044 |  |                | $ | 535,090 | 
|                |  |                  |         |  |                |   |         | 

Property and equipment, net

Property and equipment consisted of the following as of October 31, 2010 and April 30, 2010:



|                                                |  |                  |           |   |                |   |           |  
|----------------------------------------------- |  | ---------------- | --------- | - | -------------- | - | --------- | -
|                                                |  | October 31, 2010 |           |   | April 30, 2010 |  
|Laboratory equipment                            |  | $                | 997,771   |   |                | $ | 980,025   |  
|Office furniture and fixtures                   |  |                  | 113,634   |   |                |   | 32,900    |  
|Computer equipment and software                 |  |                  | 87,650    |   |                |   | 53,921    |  
|Leasehold improvements                          |  |                  | 4,810     |   |                |   | 4,810     |  
|                                                |  |                  |           |   |                |   |           |  
|                                                |  |                  | 1,203,865 |   |                |   | 1,071,656 |  
|Less: Accumulated depreciation and amortization |  |                  | (764,199  | ) |                |   | (687,697  | )
|                                                |  |                  |           |   |                |   |           |  
|                                                |  | $                | 439,666   |   |                | $ | 383,959   |  
|                                                |  |                  |           |   |                |   |           |  

Depreciation and amortization expense was approximately $42,845 and $16,910 for the three months ended October 31, 2010
and 2009, respectively, and approximately $83,091 and $31,349 for the six months ended October 31, 2010 and 2009, respectively.



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Other assets

Other assets consisted of the following as of October 31, 2010 and April 30, 2010:



|                                           |  |                  |         |  |                |   |        | 
|------------------------------------------ |  | ---------------- | ------- |  | -------------- | - | ------ | 
|                                           |  | October 31, 2010 |         |  | April 30, 2010 |  
|Reimbursable patent expenses- Glucometrics |  | $                | 71,226  |  |                | $ |       | 
|Prepaid royalty fee                        |  |                  | 50,000  |  |                |   | 50,000 | 
|Other                                      |  |                  | 2,651   |  |                |   | 2,651  | 
|                                           |  |                  |         |  |                |   |        | 
|                                           |  | $                | 123,877 |  |                | $ | 52,651 | 
|                                           |  |                  |         |  |                |   |        | 

In accordance with the Glucometrics, Inc. license agreements, Glucometrics, Inc. is required to reimburse the Company for
all of the legal and filing costs associated with prosecuting and maintaining the licensed patents. Payment of the accumulated patent costs is due following a financing transaction in excess of $500,000. As of October 31, 2010, Glucometrics,
Inc. had not achieved such a transaction. This balance was reclassed out of accounts receivable pending managements evaluation of Glucometrics compliance with the license agreement and efforts to raise capital. As of October 31,
2010 the Company has accrued $71,226 in reimbursable patent costs, up from the $65,895 balance in Accounts receivable as of April 30, 2010.

Accrued liabilities

Accrued liabilities consisted of the following
as of October 31, 2010 and April 30, 2010:



|                       |  |                  |         |  |                |   |         | 
|---------------------- |  | ---------------- | ------- |  | -------------- | - | ------- | 
|                       |  | October 31, 2010 |         |  | April 30, 2010 |  
|Clinical trial related |  | $                | 75,000  |  |                | $ | 135,276 | 
|Employee related       |  |                  | 249,881 |  |                |   | 254,485 | 
|Professional services  |  |                  |        |  |                |   | 391,210 | 
|Other                  |  |                  | 57,047  |  |                |   | 62,932  | 
|                       |  |                  |         |  |                |   |         | 
|                       |  | $                | 381,928 |  |                | $ | 843,903 | 
|                       |  |                  |         |  |                |   |         | 

Notes payable

Notes payable consisted of the following as of October 31, 2010 and April 30, 2010:



|                           |  |                  |       |  |                |   |        |  
|-------------------------- |  | ---------------- | ----- |  | -------------- | - | ------ | -
|                           |  | October 31, 2010 |       |  | April 30, 2010 |  
|Note payable               |  | $                |      |  |                | $ | 48,983 |  
|Convertible notes payable  |  |                  | 7,195 |  |                |   | 15,903 |  
|                           |  |                  |       |  |                |   |        |  
|                           |  |                  | 7,195 |  |                |   | 64,886 |  
|Less: Unamortized discount |  |                  |      |  |                |   | (5,725 | )
|                           |  |                  |       |  |                |   |        |  
|                           |  | $                | 7,195 |  |                | $ | 59,161 |  
|                           |  |                  |       |  |                |   |        |  

In November 2009, the Company financed its annual commercial, product liability, and Director and Officer insurance policy
through the issuance of a short-term note payable. The note was in the amount of $96,563 with a ten-month term and 6.99% interest. Interest expense was $173 and $686 for the three months and six months ended October 31, 2010, respectively.

In 2008 the Company issued $20,282,532 five-year convertible debentures. These notes were issued at a 55% discount and were convertible into
common shares at $3.705 per share. As part of the financing agreement, the Company also issued five-year warrants with an exercise price of $3.705. In accordance with ASC815-40-05, the Company valued the embedded conversion feature and warrants
utilizing the Black-Scholes valuation model. As of October 31, 2010 and April 30, 2010, the outstanding notes had a principal balance of $7,195 and $15,903 and unamortized discounts of $0 and $5,725, respectively.



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NOTE 4. INTANGIBLE ASSETS

Agreement with Virginia Commonwealth University- In May 2008 the Company entered into a license agreement with Virginia Commonwealth University (Licensor, VCU) whereby it
obtained a worldwide, exclusive license to valid claims under three of the Licensors patent applications that relate to methods for non-pulmonary delivery of oxygen to tissue and the products based on those valid claims used or useful for
therapeutic and diagnostic applications in humans and animals. The Company has capitalized $547,231 and $519,353 in costs as of October 31, 2010 and April 30, 2010, respectively, to acquire the license rights and legal fees to maintain the
licensed patents. These costs are being amortized over the life of the agreement.

Pursuant to the agreement, the Company must make minimum
annual royalty payments to VCU totaling $70,000 as long as the agreement is in force. These payments are fully creditable against royalty payments due for sales and sublicense revenue earned during the fiscal year. As of October 31, 2010, the
Company has paid $70,000 in royalty fees. These fees were recorded as an other current asset and are being amortized over the fiscal year. For the three months and six months ended October 31, 2010, amortization of the royalty payments totaled
$17,500 and $35,000, respectively.

Patents-The Company currently holds, or has filed for, US and worldwide patents covering 13
various methods and uses of its PFC technology. The Company capitalizes amounts paid to third parties for legal fees, application fees and other direct costs incurred in the filing and prosecution of its patent applications. These capitalized costs
are amortized on a straight-line method over their useful life or legal life, whichever is shorter. As of October 31, 2010 and April 30, 2010, the Company has capitalized $490,022 and $434,612, respectively, for costs incurred to maintain
the patents.

Trademarks- The Company currently holds, or has filed for, trademarks to protect the use of names and descriptions
of its products and technology. The Company capitalizes amounts paid to third parties for legal fees, application fees and other direct costs incurred in the filing and prosecution of its trademark applications. As of October 31, 2010 and
April 30, 2010, the Company has capitalized $138,366 and $103,150, respectively, for costs incurred to maintain the trademarks.



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The following table summarizes our intangible assets as of October 31, 2010:



|               |  |                |           |  |                                             |  |      |             |  |   |                         |  |  |                                                              |          |   |  |   |         | 
|-------------- |  | -------------- | --------- |  | ------------------------------------------- |  | ---- | ----------- |  | - | ----------------------- |  |  | ------------------------------------------------------------ | -------- | - |  | - | ------- | 
|Asset Category |  | Value Assigned |           |  | WeightedAverageAmortizationPeriod (inYears) |  |      | Impairments |  |   | AccumulatedAmortization |  |  | Carrying Value(Net ofImpairments andAccumulatedAmortization) |         
|               |  |                |           |  |                                            
|Patents        |  | $              | 490,022   |  |                                             |  | 12.4 |             |  | $ |                        |  |  | $                                                            | (205,640 | ) |  | $ | 284,382 | 
|License Rights |  |                | 547,231   |  |                                             |  | 18.1 |             |  |   |                        |  |  |                                                              | (51,412  | ) |  |   | 495,819 | 
|Trademarks     |  |                | 138,366   |  |                                             |  | N/A  |             |  |   |                        |  |  |                                                              |         |   |  |   | 138,366 | 
|               |  |                |           |  |                                             |  |      |             |  |   |                         |  |  |                                                              |          |   |  |   |         | 
|               |  |                |           |  |                                            
|Total          |  | $              | 1,175,619 |  |                                             |  |      |             |  | $ |                        |  |  | $                                                            | (257,052 | ) |  | $ | 918,567 | 
|               |  |                |           |  |                                             |  |      |             |  |   |                         |  |  |                                                              |          |   |  |   |         | 

The following table summarizes our intangible assets as of April 30, 2010:



|               |  |                |           |  |                                             |  |      |             |  |   |                         |  |  |                                                              |          |   |  |   |         | 
|-------------- |  | -------------- | --------- |  | ------------------------------------------- |  | ---- | ----------- |  | - | ----------------------- |  |  | ------------------------------------------------------------ | -------- | - |  | - | ------- | 
|Asset Category |  | Value Assigned |           |  | WeightedAverageAmortizationPeriod (inYears) |  |      | Impairments |  |   | AccumulatedAmortization |  |  | Carrying Value(Net ofImpairments andAccumulatedAmortization) |         
|               |  |                |           |  |                                            
|Patents        |  | $              | 434,612   |  |                                             |  | 12.6 |             |  | $ |                        |  |  | $                                                            | (111,363 | ) |  | $ | 323,249 | 
|License Rights |  |                | 519,353   |  |                                             |  | 18.6 |             |  |   |                        |  |  |                                                              | (38,042  | ) |  |   | 481,311 | 
|Trademarks     |  |                | 103,150   |  |                                             |  | N/A  |             |  |   |                        |  |  |                                                              |         |   |  |   | 103,150 | 
|               |  |                |           |  |                                             |  |      |             |  |   |                         |  |  |                                                              |          |   |  |   |         | 
|               |  |                |           |  |                                            
|Total          |  | $              | 1,057,115 |  |                                             |  |      |             |  | $ |                        |  |  | $                                                            | (149,405 | ) |  | $ | 907,710 | 
|               |  |                |           |  |                                             |  |      |             |  |   |                         |  |  |                                                              |          |   |  |   |         | 

For the three months ended October 31, 2010 and 2009, the aggregate amortization expense on the above intangibles was
approximately $14,656 and $11,747, respectively.

For the six months ended October 31, 2010 and 2009, the aggregate amortization expense
on the above intangibles was approximately $107,647 and $23,165, respectively.

NOTE 5. COMMITMENTS AND CONTINGENCIES

Operating Leases-The Company leases its laboratory space under an operating lease that includes fixed annual increases and expires
in July 2015. The Company leases its office space under a short-term operating lease that is renewable for three, six, or twelve month terms. Total rent expense for the two leases was $164,859 and $123,751 for the six months ended October 31,
2010 and 2009, respectively.

The Company has sublet a portion of its lab facility in California to an unrelated third party. The sublease is
for a 12 month term with an annual option to renew. At each renewal period, the monthly rental fee escalates 5%. For the six months ended October 31, 2010 and 2009, the Company recorded $38,790 and $38,644, respectively, as other income for the
rents received under the sublease agreement.

Exfluor Manufacturing Agreement- The Company entered into a Supply Agreement with
Exfluor for the manufacturing and supply of FtBu. Under the terms of the Agreement, Exfluor is to supply FtBu exclusively to the Company, and no other party. The fee for this exclusivity is a non-refundable, non-creditable fee of $25,000 each
quarter for the term of the Agreement. The term of the Agreement is three years, beginning on January 1, 2010. The process of manufacturing FtBu is a trade secret owned by Exfluor; therefore, the Agreement also contains a provision requiring
Exfluor to maintain documentation of the entire manufacturing process in an Escrow Account, to be released to the Company only upon the occurrence of a triggering event, which includes dissolution, acquisition by another company who is not a
successor, bankruptcy or creditors taking action to secure rights against the manufacturing technology to satisfy a financial obligation.



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Litigation- The Company is subject to litigation in the normal course of business, none of
which management believes will have a material adverse effect on the Companys financial statements. At October 31, 2010 the Company is not a party to any litigation matters.

Registration Requirement- As further described in Note 6, warrants and convertible notes issued during the year ended April 30, 2008 are subject to a requirement that the Company file a
registration statement with the SEC to register the underlying shares, and that it be declared effective on or before January 9, 2009. In the event that the Company does not have an effective registration statement as of that date, or if at
some future date the registration ceases to be effective, then the Company is obligated to pay liquidated damages to each holder in the amount of 1% of the aggregate market value of the stock, as measured on January 9, 2009 or at the date the
registration statement ceases to be effective. As an additional remedy for non-registration of the shares, the holders would also receive the option of a cashless exercise of their warrant or conversion shares. As of October 31, 2010,
approximately 44,669 of these warrants are subject to the registration requirement. EITF 00-19 provides guidance to proper recognition, measurement, and classification of certain freestanding financial instruments that are indexed to, and
potentially settled in, any entitys own stock. If an issuer does not control the form of settlement, an instrument is classified as an asset or liability. An issuer is deemed to control the settlement if it has both the contractual
right to settle in equity shares and the ability to deliver equity shares. EITF 00-19 states that the existence of a contractual requirement for the issuer to deliver registered shares is one of the conditions that is considered outside the control
of the issuer. However, the Financial Accounting Standards Board issued a FASB Staff Position on EITF 00-19-2, Accounting for Registration Payment Arrangements (FSP EITF 00-19-2) in December 2006. The FSP specifies that the
contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with ASC 450, Accounting for Contingencies.

Pursuant to the guidance in EITF 00-19
and FSP EITF 00-19-2, the Company has accounted for the warrants as equity instruments in the accompanying financial statements. The Company does not believe the registration payments are probable, and as such, has not recorded any amounts with
respect to the separately measured registration rights agreement.

NOTE 6. STOCKHOLDERS EQUITY

During the six months ended October 31, 2010:



| | (1) | The Company received $4,401,400 (net of closing costs) from the issuance of 1,724,138 shares of common stock as part of the registered direct offering (the
Offering) described below.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The Company received $500,000 (net of closing costs), from the issuance of 133,334 shares of restricted common stock in accordance with the Securities Purchase
Agreement with Vatea Fund. An additional 53,334 shares of common stock were issued as compensation for services provided in closing the Securities Purchase Agreement.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The Company issued 2,018 shares of common stock from the cashless exercise of 6,333 stock options.
| | --- | --------------------------------------------------------------------------------------------------



| | (4) | The Company issued 2,350 shares of common stock for the conversion of notes payable with a gross carrying value of $8,707, at a conversion price of $3.705 per share.
These notes included a discount totaling $868, and thus had a net carrying value of $7,839. The unamortized discount of $868 was recognized as interest expense upon conversion. The remaining unamortized discount of $4,859 was also recognized as
interest expense.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | The Company issued 17,782 shares of its common stock as compensation. These shares had a fair value at the grant date of $53,250.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



| | (6) | As further discussed below, the company recorded $91,931 for the computed fair value of options issued to employees, nonemployee directors, and consultants.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

During the six months ended October 31, 2009:



| | (1) | The Company issued 83,143 shares of common stock for the conversion of convertible notes with a gross carrying value of $308,049, at a conversion price of $3.705 per
share. These convertible notes included discounts totaling $116,910, and thus had a net carrying value of $191,139. The unamortized discounts of $116,910 were recognized as interest expense upon conversion.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



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| | (2) | The Company issued 2,363,767 shares of common stock and $2,836,520 in cash to warrant holders in exchange for 4,727,564 outstanding warrants. The warrants were returned
to the Company and cancelled.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The company recorded $563,392 for the computed fair value of options issued to employees, nonemployee directors, and consultants.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



| | (4) | The Company issued 4,263 shares of its common stock as compensation to its Chief Executive Officer, valued at $20,164.
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (5) | The Company issued 66,667 shares of common stock to Melixia SA as compensation for services provided in closing the Securities Purchase Agreement with Vatea Fund. The
Company recognized $395,000 as compensation expense for the fair value of the shares issued.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | The Company received $4,425,000 (net of closing costs) from the issuance of 1,333,334 shares of common stock at $3.75 per share.
| | --- | --------------------------------------------------------------------------------------------------------------------------------



| | (7) | The Company extended the term for 151,111 outstanding warrants. The company recorded $256,181 as additional compensation cost for the computed fair value of the
modification.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | The Company issued 867 shares of common stock to its employees as bonus compensation. The Company recognized $5,135 in additional compensation expense for the fair
value of the shares issued.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | The Company achieved a milestone under the Securities Purchase Agreement. Under the terms of the agreement, the Company received $5,310,000 (net of closing costs) from
the issuance of 1,600,000 shares of common stock at $3.75 per share. The Company received $531,000 and issued 160,000 shares of common stock as initial payment for the milestone achievement. The remaining $4,779,000 was recorded as a stock
subscription receivable against the 1,440,000 shares and issued in two additional installments.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | The Company received $27,000 from the exercise of 12,000 option shares of common stock.
| | ---- | ---------------------------------------------------------------------------------------

Securities Purchase AgreementOn June 8, 2009, the Company entered into a Securities Purchase Agreement with Vatea Fund. The Securities Purchase Agreement establishes milestones for the
achievement of product development and regulatory targets and other objectives, after which Vatea Fund is required to purchase up to 4 million additional shares of common stock at a price of $3.75 per share. On April 23, 2010, the Company
and Vatea Fund entered into a second amendment to the Securities Purchase Agreement. Under the second amendment, the parties agreed to modify two provisions of the Securities Purchase Agreement. The first modification was a change to the form of
fees paid to the facilitating agent, Melixia SA. For all closings under the Securities Purchase Agreement occurring on or after April 23, 2010, cash fees will no longer be paid. Fees will be paid in the form of restricted shares of common
stock, issued in an amount equal to 20% of the shares issued at each closing. The second modification changes the schedule of milestones. The new schedule includes a closing of $500,000 on or before April 30, 2010, another closing in the same
amount on or before May 30, 2010, and a closing in the amount of $3,500,000 on the earlier of (1) closing of a license or sales agreement with an aggregate value in excess of $500,000 or (2) December 31, 2011. The remaining
balance of $4,000,000 under the Securities Purchase Agreement shall be paid upon achievement of the amended product development and regulatory milestones.



| |  |  | On April 26, 2010, in accordance with the second amendment of the agreement, the Company received $500,000 and issued 133,334 shares to Vatea
Fund.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On May 27, 2010, in accordance with the second amendment of the agreement, the Company received $500,000 and issued 133,334 shares to Vatea Fund.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

In connection with the two closings, the Company issued 53,334 shares of restricted common stock valued at $160,002 to
Melixia SA for their services provided as facilitating agent. The Company also paid $67,500 in fees to another consultant who assisted with the Securities Purchase Agreement.

On May 4, 2010, the Company entered into a placement agency agreement (the Placement Agency Agreement) with Roth Capital Partners, LLC (the Placement Agent) relating to the
sale by the Company of 1,724,138 units to certain institutional investors pursuant to a registered direct offering at a purchase price of $2.90 per unit (each, a Unit and collectively, the Units). Each Unit consisted of one
share of the Companys common stock and a warrant to purchase 0.425 shares of common stock. The warrants have a five-year term from the date of issuance, are exercisable on or after the date of issuance, and are exercisable at an exercise price
of $5.32 per share of Common Stock.

The sale of the Units was made pursuant to subscription agreements, dated May 4, 2010 (the
Subscription Agreements), with each of the investors. The Offering was completed on May 7, 2010.



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The aggregate net proceeds to the Company, after deducting placement agent fees and other estimated offering
expenses payable by the Company, were approximately $4.4 million. The Placement Agent received a placement fee equal to 6.5% of the gross proceedings of the Offering. The Company also reimbursed the Placement Agent $75,000 for expenses incurred in
connection with the Offering. The Placement Agency Agreement contained customary representations, warranties, and covenants by the Company. It also provided for customary indemnification by the Company and the Placement Agent for losses or damages
arising out of or in connection with the sale of the securities offered.

Warrants

During the six months ended October 31, 2010, the Company issued 732,758 warrants as part of the Offering. The following table summarizes the
Companys warrant activity for the six month ended October 31, 2010:



|                                |  |          |           |     |                                |   |      |    
|------------------------------- |  | -------- | --------- | --- | ------------------------------ | - | ---- | ---
|                                |  | Warrants |           |     | Weighted AverageExercise
Price |  
|Outstanding at April 30, 2010   |  |          | 3,322,154 |     |                                | $ | 3.89 |    
|Granted                         |  |          | 732,758   |     |                                |   | 5.32 |    
|Other                           |  |          | 144,554   | (1) |                                |   | 2.90 | (1)
|                                |  |          |           |     |                                |   |      |    
|Outstanding at October 31, 2010 |  |          | 4,199,466 |     |                                | $ | 4.01 |    



|(1) | The Company has a class of warrants outstanding that contain an anti-dilution clause requiring a repricing in the event of a capital raise whereby the equity shares
sold were priced below the exercise price of the outstanding warrants. Subsequent to the direct registered offering in May 2010, the repricing of these warrants resulted in an increase of 144,554 potentially issuable shares. The original exercise
price of these warrants was $3.705 prior to the offering.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock Options

1999 Amended Stock Plan

In October 2000, the Company adopted the 1999 Stock Plan (the Plan), as amended and restated on June 17, 2008. Under the Plan, with the
approval of the Compensation Committee of the Board of Directors, the Company may grant stock options, restricted stock, stock appreciation rights and new shares of common stock upon exercise of stock options. Stock options granted under the Plan
may be either incentive stock options (ISOs), or nonqualified stock options (NSOs). ISOs may be granted only to employees. NSOs may be granted to employees, consultants and directors. Stock options under the Plan may be
granted with a term of up to ten years and at prices no less than fair market value for ISOs and no less than 85% of the fair market value for NSOs. To date, stock options granted generally vest over one to three years and vest at a rate of 34% upon
the first anniversary of the vesting commencement date and 33% on each anniversary thereafter. As of October 31, 2010 the Company had 176,004 shares of common stock available for grant under the Plan.



14



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Option activity under the Plan is as follows:



|                              |  |                          |         |   |                     |  |         |                               |  |   |      | 
|----------------------------- |  | ------------------------ | ------- | - | ------------------- |  | ------- | ----------------------------- |  | - | ---- | 
|                              |  |                          |         |   | Outstanding Options | 
|                              |  | SharesAvailablefor Grant |         |   | Number ofShares     |  |         | WeightedAverageExercise Price | 
|Balances, at April 30, 2010   |  |                          | 182,424 |   |                     |  | 585,172 |                               |  |   |      | 
|Options granted               |  |                          | (10,670 | ) |                     |  | 10,670  |                               |  | $ | 3.27 | 
|Restricted stock granted      |  |                          | (7,500  | ) |                     |  |         |                               |  |   |      | 
|Options exercised             |  |                          |         |   |                     |  | (1,193  | )                             |  | $ | 1.69 | 
|Options cancelled             |  |                          | 31,142  |   |                     |  | (31,142 | )                             |  | $ | 7.17 | 
|                              |  |                          |         |   |                     |  |         |                               |  |   |      | 
|                              |  |                          |        
|Balances, at July 31, 2010    |  |                          | 195,396 |   |                     |  | 563,507 |                               |  | $ | 4.51 | 
|Options granted               |  |                          | (22,503 | ) |                     |  | 22,503  |                               |  | $ | 2.63 | 
|Options cancelled             |  |                          | 3,111   |   |                     |  | (3,111  | )                             |  | $ | 6.31 | 
|                              |  |                          |         |   |                     |  |         |                               |  |   |      | 
|                              |  |                          |        
|Balances, at October 31, 2010 |  |                          | 176,004 |   |                     |  | 582,899 |                               |  | $ | 4.43 | 
|                              |  |                          |         |   |                     |  |         |                               |  |   |      | 

The following table summarizes the grant date fair value stock-based compensation expense for stock options and
the registered stock issued during the six months ended October 31, 2010 and 2009, respectively:



|                           |  |                                      |        |  |      |   |         | 
|-------------------------- |  | ------------------------------------ | ------ |  | ---- | - | ------- | 
|                           |  | For the six months ended October 31, |       
|                           |  | 2010                                 |        |  | 2009 |  
|                           |  |                                     
|General and administrative |  | $                                    | 47,566 |  |      | $ | 589,657 | 
|Research and development   |  |                                      | 19,428 |  |      |   | 32,188  | 
|                           |  |                                      |        |  |      |   |         | 
|                           |  | $                                    | 66,994 |  |      | $ | 621,845 | 
|                           |  |                                      |        |  |      |   |         | 

The Company used the following assumptions to estimate the fair value of options granted under its stock option plans for
the six months ended October 31, 2010 and 2009:



|                                           |  |                                      |       |   |      |  |        |  
|------------------------------------------ |  | ------------------------------------ | ----- | - | ---- |  | ------ | -
|                                           |  | For the six months ended October 31, |      
|                                           |  | 2010                                 |       |   | 2009 | 
|                                           |  |                                     
|Risk-free interest rate (weighted average) |  |                                      | 1.83  | % |      |  | 1.74   | %
|Expected volatility (weighted average)     |  |                                      | 86.44 | % |      |  | 102.20 | %
|Expected term (in years)                   |  |                                      | 6     |   |      |  | 3-10   |  
|Expected dividend yield                    |  |                                      | 0.00  | % |      |  | 0.00   | %



|                        |  |                                                                                                                                                                                                                                
|----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Risk-Free Interest Rate |  | The risk-free interest rate assumption was based on U.S. Treasury instruments with a term that is consistent with the expected term of the Companys stock
options.                                                            
|                        | 
|Expected Volatility     |  | The expected stock price volatility for the Companys common stock was determined by examining the historical volatility and trading history for its common stock over a term
consistent with the expected term of its options.



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|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Expected Term           |  | The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. It was calculated based on the historical experience
with the Companys stock option grants.                                                                                                                                                                                                                                                  
|                        | 
|Expected Dividend Yield |  | The expected dividend yield of 0% is based on the Companys history and expectation of dividend payouts. The Company has not paid and do not anticipate paying any dividends in
the near future.                                                                                                                                                                                                                                                                              
|                        | 
|Forfeitures             |  | As stock-based compensation expense recognized in the statement of operations for the six months ended October 31, 2010 and 2009 is based on awards ultimately expected to vest, it
has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on the
Companys historical experience.

As of October 31, 2010, there were unrecognized compensation costs of approximately
$38,000 related to unvested stock option awards granted after May 1, 2004 that will be recognized on a straight-line basis over the weighted average remaining vesting period of 0.90 years.

Other Stock Options

In the past, the
Company issued options outside the 1999 Amended Stock Plan. These options were granted to outside consultants and directors and had exercise prices ranging between $2.25 and $4.50 with 3 to 10 year terms. During the six months ended October 31,
2010, the holder of 3,333 non-qualified options exercised the option using the cashless exercise provision in the option contract. The Company issued 825 shares of common stock and cancelled the remaining 2,508 option shares. As of October 31,
2010, there were 393,334 non-qualified options outstanding.

NOTE 7. SUBSEQUENT EVENTS

On October 12, 2010 we entered into a Note Purchase Agreement with Vatea Fund whereby we agreed to issue and sell to Vatea Fund an aggregate of $5,000,000
of senior unsecured promissory notes (the Notes) on or before December 31, 2010. The Notes will mature on October 31, 2013, unless the holders of a majority of the Notes consent in writing to a later maturity date. Interest
does not accrue on the outstanding principal balance of the Notes (other than following the maturity date or earlier acceleration). Instead, on the maturity date, we must pay the holders of the Notes a final payment premium aggregating $3,000,000,
in addition to the principal balance then otherwise outstanding under the Notes. The Notes provide that we have the option, at our sole discretion and without penalty, to prepay the outstanding balance under the Notes plus the amount of the final
payment premium prior to the maturity date. In addition, the holders of majority of the Notes may request that we prepay the Notes in an amount equal to the proceeds of any subsequent closings under the Securities Purchase Agreement.

On November 10, 2010 the Company issued a $600,000 promissory note under the Note Purchase Agreement with Vatea Fund. Pursuant to the agreement, the
promissory note requires the Company to pay to the holder of the note a $360,000 final payment premium. This premium will be accreted as interest expense over the life of the note using an effective interest rate of 15.77%



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, which are subject to the safe harbor created by those sections. Forward-looking statements are based on our managements beliefs and assumptions and on information currently available to
them. In some cases you can identify forward-looking statements by words such as may, will, should, could, would, expects, plans, anticipates,
believes, estimates, projects, predicts, potential and similar expressions intended to identify forward-looking statements. Examples of these statements include, but are not limited to,
statements regarding: the implications of interim or final results of our clinical trials, the progress of our research programs, including clinical testing, the extent to which our issued and pending patents may protect our products and



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technology, our ability to identify new product candidates, the potential of such product candidates to lead to the development of commercial products, our anticipated timing for initiation or
completion of our clinical trials for any of our product candidates, our future operating expenses, our future losses, our future expenditures for research and development, and the sufficiency of our cash resources. Our actual results could differ
materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A of this quarterly report on Form 10-Q, Part I, Item IA of our Annual Report on Form 10-K
and our other filings with the SEC. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report on Form 10-Q. You should read this quarterly report on Form 10-Q completely and
with the understanding that our actual future results may be materially different from those we expect. Except as required by law, we assume no obligation to update these forward-looking statements, whether as a result of new information, future
events or otherwise.

The following discussion and analysis should be read in conjunction with the unaudited financial statements and
notes thereto included in Part I, Item 1 of this quarterly report on Form 10-Q and with the audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended April 30,
2010.

All references in this Quarterly Report to Oxygen Biotherapeutics, we, our and
us means Oxygen Biotherapeutics, Inc.

Overview

Oxygen Biotherapeutics is engaged in the business of developing biotechnology products with a focus on oxygen delivery to tissue. We are currently developing Oxycyte; a product we believe is a safe and
effective oxygen carrier for use in surgical and similar medical situations. We have developed a family of perfluorocarbon-based oxygen carriers, or PFC, for use in personal care, topical wound healing, and other topical indications. In addition, we
also have under development Vitavent (formerly called Fluorovent), an oxygen exchange fluid for facilitating the treatment of lung conditions.

Oxycyte

Our Oxycyte oxygen carrier product is a PFC emulsified with water and a
surfactant, which is provided to the patient intravenously. The physical properties of PFC enable our product to gather oxygen from the lungs and transport the oxygen through the body releasing it along the way. Over a period of days Oxycyte
gradually evaporates in the lungs from where it is exhaled. Oxycyte requires no cross matching, so it is immediately available and compatible with all patients blood types. Oxycyte has an extended shelf life compared to blood. Oxycyte is
provided as a sterile emulsion ready for intravenous administration. Because it contains no biological components, there is no risk of transmission of blood-borne viruses from human blood products. Further, since Oxycyte is based on readily
available inert compounds, we believe it can be manufactured on a cost-effective basis in amounts sufficient to meet demand.

We received
approval of our Investigational New Drug application, or IND, for severe traumatic brain injury, or TBI, filed with the U.S. Food and Drug Administration, or FDA, and began Phase I clinical studies in October 2003, which were completed in December
2003. We submitted a report on the results to the FDA along with a Phase II protocol in 2004. Phase II-A clinical studies began in the fourth quarter 2004, and were completed in 2006. A further Phase II study protocol was filed with the FDA in the
spring of 2008, but remained on clinical hold by the FDA due to safety concerns raised by the regulatory agency. We are continuing to respond to the FDAs requests for data required to address their concerns. After receiving this clinical hold,
we filed a revised protocol as a dose-escalation study with the regulatory authorities in Switzerland and Israel. The protocol received Ethic Commission approval in Switzerland and Israel. The relevant Swiss regulatory body approved the protocol in
August 2009, and the Israel Ministry of Health approved the protocol in September 2009. The new study began in October 2009 and is currently under way both in Switzerland and Israel. In March 2010, we determined that it is feasible to simplify the
trial design and also reduce the number of patients to be enrolled. In May 2010, we entered into a relationship with a contract research organization, or CRO, to assist us as we expand our study into India to initiate five to ten new sites for our
Phase II-b clinical trial. Study objectives, safety and efficacy endpoints would remain



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unchanged, and we feel with these optimizations the study could be concluded faster and more economically. We expect to commit a substantial portion of our financial and business resources over
the next three years to testing Oxycyte and advancing this product to regulatory approval for use in one or more medical applications.

Should
Oxycyte successfully progress in clinical testing and if it appears regulatory approval for one or more medical uses is likely, either in the United States or in another country, we will evaluate our options for commercializing the product. These
options include licensing Oxycyte to a third party for manufacture and distribution, manufacturing Oxycyte ourselves for distribution through third party distributors, manufacturing and selling the product ourselves, or establishing some other form
of strategic relationship for making and distributing Oxycyte with a participant in the pharmaceutical industry. We are currently investigating and evaluating all options.

Dermacyte

The Dermacyte line of topical cosmetic products employs our patented PFC
technology and other known cosmetic ingredients to promote the appearance of skin health and other desirable cosmetic benefits. Dermacyte is designed to provide a moist and oxygen-rich environment for the skin when it is applied topically, even in
small amounts. Dermacyte Concentrate has been formulated as a cosmetic in our lab and Dermacyte Eye Complex was created by a contract formulator, with the patent held by Oxygen Biotherapeutics. Both formulas have passed all safety and toxicity
tests, and we have filed a Cosmetic Product Ingredient Statement, or CPIS with the FDA. The market for oxygen-carrying cosmetics includes anti-aging, anti-wrinkle, skin abrasions and minor skin defects.

In September 2009, we started production of our first commercial product under our topical cosmetic line, Dermacyte Concentrate. We produced and sold a
limited pre-production batch in November 2009 as a market acceptance test. The product was sold in packs of 8 doses of 0.4ml. Based on the test market results we identified specific market opportunities for this product and reformulated Dermacyte
Concentrate for better product stability. Marketing and shipments of the new Dermacyte Concentrate formulation began in April 2010. We worked with a contract formulator in California to develop the Dermacyte Eye Complex which contains PFC technology
as well as other ingredients beneficial to the healthy appearance of the skin around the eyes.

We market and sell these products through
www.buydermacyte.com and to dermatologists and medical spas with a combination of in-house sales, independent sales agents and exclusive distributors. We have hired a sales director based in North Carolina, and we intend to add sales people in other
major markets. We have entered into an agreement with a sales representative for the territories of Arizona and Michigan, and we intend to add more territories with agents or distributors.

Additional potential topical applications of our PFC technology that are under development include:



| |  |  | Dermacyte Moisturizing Lotion: an evolution of the Dermacyte line that will contain SPF to protect the skin from UV-rays while beautifying.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rosacyte: incorporates perfluorocarbon technology to be used as a healing gel against rosacea.
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | Acnecyte: incorporates perfluorocarbon technology to be used as a healing gel against acne.
| | - |  | -------------------------------------------------------------------------------------------

Wundecyte

Our
wound product, Wundecyte, is a novel gel developed under a contract agreement with a lab in Virginia. Wundecyte is designed to be used as a wound-healing gel. In July 2009, we filed a 510K medical device application for Wundecyte with the FDA.
Several oxygen-producing and oxygen-carrying devices were cited as predicate devices. The FDA response was that the application likely would be classified as a combination device. The drug component of the combination device will require extensive
preclinical and clinical studies to be conducted prior to potential commercialization of the product.



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We have also developed an oxygen-generating bandage that can be combined with Wundecyte gel. Wundecyte gel
and the oxygen-generating bandage both entered preclinical testing in our first quarter of fiscal 2011. The studies will look at factors such as time to wound closure and reduction in scar tissue formation as compared to a control group. Preliminary
results are expected later this year. Our current product development plan is for Wundecyte to emerge into more complex wound-healing indications, also in combination with oxygen-producing technologies based on hydrogen peroxide.

Additionally, we are developing preclinical research protocols for the treatment of burns and other topical indication based on our PFC. We intend to
develop additional clinical research protocols for topical indications, including the treatment of acne and rosacea. However, we can provide no assurance that the topical indications we have under development will prove their claims and be
successful commercial products.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes in critical accounting policies during the six months ended October 31, 2010, as compared to the critical
accounting policies described in Item 7Managements Discussion and Analysis of Financial Condition and Results of OperationsSummary of Critical Accounting Policies in our Annual Report on Form 10-K for the
fiscal year ended April 30, 2010.

Financial Overview

Results of operations- Comparison of the three and six months ended October 31, 2010 and 2009

Research and Development Expenses

Research and development expenses include, but
are not limited to, (i) expenses incurred under agreements with CROs and investigative sites, which conduct our clinical trials and a substantial portion of our pre-clinical studies; (ii) the cost of manufacturing and supplying clinical
trial materials; (iii) payments to contract service organizations, as well as consultants; (iv) employee-related expenses, which include salaries and benefits; and (v) facilities, depreciation and other allocated expenses, which
include direct and allocated expenses for rent and maintenance of facilities and equipment, depreciation of leasehold improvements and equipment and laboratory and other supplies. All research and development expenses are expensed as incurred.

Research and development expenses and percentage changes as compared to the prior year are as follows:



|                                  |  |                               |         |  |                     |   |         |                       |  |   |                             |  |  |                     |    |   |                       |   |           |  |  |   |         |  |  |   |         |  |  |  |    |  
|--------------------------------- |  | ----------------------------- | ------- |  | ------------------- | - | ------- | --------------------- |  | - | --------------------------- |  |  | ------------------- | -- | - | --------------------- | - | --------- |  |  | - | ------- |  |  | - | ------- |  |  |  | -- | -
|                                  |  | Three Months EndedOctober 31, |         |  | Increase/(Decrease) |   |         | % Increase/(Decrease) |  |   | Six Months EndedOctober 31, |  |  | Increase/(Decrease) |    |   | % Increase/(Decrease) |  
|                                  |  | 2010                          |         |  | 2009                |   |         |                       |  |   |                             |  |  | 2010                |    |   | 2009                  |   |           |  |  |   |         | 
|Research and development expenses |  | $                             | 572,649 |  |                     | $ | 407,134 |                       |  | $ | 165,515                     |  |  |                     | 41 | % |                       | $ | 1,717,892 |  |  | $ | 946,390 |  |  | $ | 771,502 |  |  |  | 82 | %

The increase in research and development
expenses for the three months ended October 31, 2010 was driven primarily by payroll and other costs incurred in connection with the Phase II-b clinical trials for Oxycyte partially offset by a reduction in costs for the development of Oxycyte.



| |  |  | For the three months ended October 31, 2010, as compared to the same period in 2009, we incurred a decrease of approximately $120,000 in costs
associated with the development and manufacture of Oxycyte.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | For the three months ended October 31, 2010, as compared to the same period in 2009, the costs associated with the ongoing Phase II-b clinical
trials for Oxycyte increased approximately $105,000. Included in these costs are site set-up fees, CRO costs, and supplying all of the sites with equipment and Oxycyte.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Also included in the increase in research and development costs for the three months ended October 31, 2010, as compared to the same period in
2009 were increases in payroll costs of approximately $255,000 as headcount was increased to manage the growth and development of the topical indications for Oxycyte and Dermacyte.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The increase in research and development expenses for the six months ended October 31, 2010 was driven primarily by costs incurred for compensation,
the costs associated with the Phase II-b clinical trials for Oxycyte, and the costs incurred for the development of Oxycyte, partially offset by a reduction in Dermacyte development costs.



| |  |  | For the six months ended October 31, 2010, as compared to the same period in 2009, we incurred an increase of approximately $78,000 in costs
associated with the development and manufacture of Oxycyte.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the six months ended October 31, 2010, as compared to the same period in 2009, the costs associated with the ongoing Phase II-b clinical
trials for Oxycyte increased approximately $430,000. Included in these costs are site set-up fees, CRO costs, and supplying all of the sites with equipment and Oxycyte.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the six months ended October 31, 2010, as compared to the same period in 2009, we incurred an increase in payroll costs of approximately
$385,000 as headcount was increased to manage the growth and development of the topical indications for Oxycyte and Dermacyte.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the six months ended October 31, 2010, as compared to the same period in 2009, costs incurred for consultants, Dermacyte formulation and
quality programs, were reduced by approximately $170,000.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Conducting a significant amount of research and development is
central to our business model. Product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration of clinical
trials. We plan to incur substantial research and development expenses for the foreseeable future in order to complete development of our most advanced product candidate, Oxycyte, and to conduct earlier-stage research and development projects.

The process of conducting preclinical studies and clinical trials necessary to obtain FDA approval is costly and time consuming. The
probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among other things, the quality of the product candidates early clinical data, investment in the program, competition,
manufacturing capabilities and commercial viability. As a result of the uncertainties discussed above, uncertainty associated with clinical trial enrollment and risks inherent in the development process, we are unable to determine the duration and
completion costs of current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates. Development timelines, probability of success
and development costs vary widely. We are currently focused on developing our most advanced product candidate, Oxycyte; however, we will need substantial additional capital in the future in order to complete the development and potential
commercialization of Oxycyte and other product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of compensation for executive, finance, marketing, legal and
administrative personnel, including stock-based compensation. Other selling, general and administrative expenses include facility costs not otherwise included in research and development expenses, legal and accounting services, other professional
services, market research activities, and consulting fees.



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Selling, general and administrative expenses and percentage changes as compared to the prior year are as
follows:



|                                             |  |                               |           |  |                     |   |           |                       |  |   |                             |   |  |                     |     |    |                       |   |           |  |  |   |           |  |  |   |          |   |  |  |     |   
|-------------------------------------------- |  | ----------------------------- | --------- |  | ------------------- | - | --------- | --------------------- |  | - | --------------------------- | - |  | ------------------- | --- | -- | --------------------- | - | --------- |  |  | - | --------- |  |  | - | -------- | - |  |  | --- | --
|                                             |  | Three Months EndedOctober 31, |           |  | Increase/(Decrease) |   |           | % Increase/(Decrease) |  |   | Six Months EndedOctober 31, |   |  | Increase/(Decrease) |     |    | % Increase/(Decrease) |  
|                                             |  | 2010                          |           |  | 2009                |   |           |                       |  |   |                             |   |  | 2010                |     |    | 2009                  |   |           |  |  |   |           | 
|Selling, general and administrative expenses |  | $                             | 1,511,214 |  |                     | $ | 2,185,917 |                       |  | $ | (674,703                    | ) |  |                     | (31 | )% |                       | $ | 3,394,282 |  |  | $ | 3,937,196 |  |  | $ | (542,914 | ) |  |  | (14 | )%

The decrease in selling, general and
administrative expenses for the three months ended October 31, 2010 was driven primarily by a reduction in costs incurred for legal and accounting fees, compensation, and consulting fees; partially offset by an increase in costs associated with
marketing and selling Dermacyte.



| |  |  | For the three months ended October 31, 2010, we incurred approximately $160,000 in costs related to marketing and selling the cosmetic topical
product line Dermacyte that were not incurred in the same period in 2009. These costs include direct advertising costs and compensation costs for marketing and sales personnel.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the three months ended October 31, 2010, as compared to the same period in 2009, we incurred a decrease of approximately $80,000 in legal and
accounting fees associated with our fiscal year-end audit and annual shareholder meeting.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the three months ended October 31, 2010, as compared to the same period in 2009, we incurred a decrease of approximately $85,000 for
investment banking fees and investor relation costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the three months ended October 31, 2010, as compared to the same period in 2009, compensation costs decreased approximately $428,000 due to
the $500,000 fair value of stock options granted to new board members in 2009, offset by an increase of approximately $72,000 in salaries and bonuses paid.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the three months ended October 31, 2010, as compared to the same period in 2009, rent expense increased approximately $15,000 due to expansion
of the corporate offices in North Carolina.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the three months ended October 31, 2010, as compared to the same period in 2009, travel costs decreased approximately $32,000 due to a
reduction in international travel to Switzerland and Israel, road shows, and costs related to Board meetings and investor presentations.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the three months ended October 31, 2010, as compared to the same period in 2009, consultant costs were reduced by approximately $690,000 due
to a reduction in recruiting costs and fees paid to third parties for Dermacyte marketing, public relations firms, and financing activities.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The decrease in selling, general and administrative expenses for the six months ended October 31, 2010 was driven primarily by a reduction in costs incurred for stock-based compensation and
consulting fees; partially offset by an increase in costs associated with marketing and selling Dermacyte, legal and accounting fees, and salaries paid.



| |  |  | For the six months ended October 31, 2010, we incurred approximately $215,000 in costs related to marketing and selling the cosmetic topical
product line Dermacyte that were not incurred in the same period in 2009. These costs include direct advertising costs and compensation costs for marketing and sales personnel.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the six months ended October 31, 2010, as compared to the same period in 2009, we incurred an increase of approximately $165,000 in legal and
accounting fees associated with our S-3 and S-8 registration statements, proxy statement, and listing fees for the NASDAQ Capital Market and Swiss Exchange.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the six months ended October 31, 2010, as compared to the same period in 2009, compensation costs decreased approximately $190,000 due to the
fair value of stock options granted to new board members, approximately $500,000, in 2009, offset by an increase of approximately $220,000 in salaries and bonuses paid.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the six months ended October 31, 2010, as compared to the same period in 2009, rent expense increased approximately $50,000 due to expansion
of the corporate offices in North Carolina.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the six months ended October 31, 2010, as compared to the same period in 2009, travel costs increased approximately $65,000 due to
international travel to Switzerland and Israel, road shows, and costs related to Board meetings and investor presentations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | For the six months ended October 31, 2010, as compared to the same period in 2009, consultant costs were reduced by approximately $690,000 due to
a reduction in recruiting costs and fees paid to third parties for Dermacyte marketing, public relations firms, and financing activities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other income and expense

During the three and six months ended October 31,
2010, as compared to the same period in 2009, the decrease in other income was due to approximately $14,000 in realized losses on foreign currency translation

Interest expense

Interest expense decreased approximately $18,000 in the three
months ended October 31, 2010, due to the conversion of our notes payable and the related amortization of debt discounts and issue costs during the three months ended October 31, 2009.

Interest expense decreased approximately $144,000 in the six months ended October 31, 2010, due to the conversion of our notes payable and the
related amortization of debt discounts and issue costs during the six months ended October 31, 2009.

Liquidity, capital resources
and plan of operation

We have incurred losses since our inception and as of October 31, 2010 we had an accumulated deficit of
$86.5 million. We will continue to incur losses until we generate sufficient revenue to offset our expenses, and we anticipate that we will continue to incur net losses for at least the next several years. We expect to incur increased expenses
related to our development and potential commercialization of Oxycyte and, as a result, we will need to generate significant net product sales, royalty and other revenues to achieve profitability.

Liquidity

We
have financed our operations since September 1990 through the issuance of debt and equity securities and loans from stockholders. We had $1,611,720 and $2,184,826 of total current assets and working capital of $146,172 and $785,485 as of
October 31, 2010 and April 30, 2010, respectively. Our practice is to invest excess cash, where available, in short-term money market investment instruments.

We are in the preclinical and clinical trial stages in the development of our product candidates. We are currently conducting Phase II-b clinical trials for the use of Oxycyte in the treatment of severe
traumatic brain injury. Even if we are successful with our Phase II-b study, we must then conduct a Phase III clinical study and, if that is successful, file with the FDA and obtain approval of a Biologics License Application to begin commercial
distribution, all of which will take more time and funding to complete. Our other product candidates must undergo further development and testing prior to submission to the FDA for approval to initiate clinical trials, which also requires additional
funding. Management is actively pursuing private and institutional financing, as well as strategic alliances and/or joint venture agreements to obtain the necessary additional financing and reduce the cost burden related to the development and
commercialization of our products though we can give no assurance that any such initiative will be successful. We expect our primary focus will be on funding the continued testing of Oxycyte, since this product is the furthest along in the
regulatory review process. Our ability to continue to pursue testing and development of our products beyond December 31, 2010 depends on obtaining license income or outside financial resources. There is no assurance that we will obtain any license
agreement or outside financing or that we will otherwise succeed in obtaining the necessary resources.

On May 7, 2010 we closed a direct
registered offering pursuant to which we sold to certain investors 1,724,138 shares of common stock at $2.90 per share and warrants to purchase 732,758 shares of common stock with an exercise price of $5.32 per share. The financing
provided approximately $4.4 million in net proceeds to the Company after deducting the placement agent fee and offering expenses.



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Pursuant to our Securities Purchase Agreement, as amended, with JP SPC 1 Vatea, Segregated Portfolio, or
Vatea Fund, we issued 133,334 shares to, and received $500,000, net of facilitating agent fees, from, Vatea Fund on May 27, 2010.

On
October 12, 2010 we entered into a Note Purchase Agreement with Vatea Fund whereby we agreed to issue and sell to Vatea Fund an aggregate of $5,000,000 of senior unsecured promissory notes (the Notes) on or before December 31,
2010. The Notes will mature on October 31, 2013, unless the holders of a majority of the Notes consent in writing to a later maturity date. Interest does not accrue on the outstanding principal balance of the Notes (other than following the
maturity date or earlier acceleration). Instead, on the maturity date, we must pay the holders of the Notes a final payment premium aggregating $3,000,000, in addition to the principal balance then otherwise outstanding under the Notes. The Notes
provide that we have the option, at our sole discretion and without penalty, to prepay the outstanding balance under the Notes plus the amount of the final payment premium prior to the maturity date. In addition, the holders of majority of the Notes
may request that we prepay the Notes in an amount equal to the proceeds of any subsequent closings under the Securities Purchase Agreement.

On November 5, 2010 we received an award of $244,489 under the Patient Protection and Affordable Care Act of 2010, or PPACA. The award was given for
our qualified investments under Section 48D of the PPACA for the clinical development of Oxycyte perfluorocarbon emulsion for traumatic brain injury, or TBI, and spinal cord injury.

Based on our working capital at October 31, 2010 and the $600,000 of promissory notes issued under the Note Purchase Agreement, we believe we have sufficient capital on hand to continue to fund
operations through December 31, 2010.

Cash Flows

The following table shows a summary of our cash flows for the periods indicated:



|                            |  |                             |            |   |      |   |            |  
|--------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                            |  | Six Months
EndedOctober 31, |           
|                            |  | 2010                        |            |   | 2009 |  
|Cash provided by (used in): |  |                             |            |   |      |   |            |  
|Operating activities        |  | $                           | (4,389,796 | ) |      | $ | (2,832,725 | )
|Investing activities        |  |                             | (257,302   | ) |      |   | (236,938   | )
|Financing activities        |  |                             | 4,851,559  |   |      |   | 1,488,815  |  

Net cash used in operating
activities.Net cash used in operating activities was $4.4 million for the six months ended October 31, 2010 compared to net cash used in operating activities of $2.8 million for the six months ended October 31, 2009. The increase of
cash used for operating activities was due primarily to:



| |  |  | the costs of conducting our Phase IIb clinical trials for TBI;
| | - |  | --------------------------------------------------------------



| |  |  | the costs of manufacturing Oxycyte;
| | - |  | -----------------------------------



| |  |  | increased payroll costs associated with our expansion in North Carolina; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | increased costs associated with marketing and selling our cosmetic products.
| | - |  | ----------------------------------------------------------------------------

Net cash used in investing activities. Net cash used in investing activities was $257,302 for the six months ended October 31, 2010
compared to net cash used in investing activities of $236,938 for the six months ended October 31, 2009. The increase of cash used for investing activities was due primarily to the cost of maintaining our portfolio of patents and trademarks and
in upgrading our information technology infrastructure.



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Net cash provided by financing activities. We received $4.9 million from financing activities
for the six months ended October 31, 2010 compared to receiving $1.5 million for the six months ended October 31, 2009. The increase in net cash provided by financing activities was due primarily to net proceeds of $4.4 million received
from the closing of a direct registered direct offering on May 4, 2010.

Operating Capital and Capital Expenditure Requirements

Our future capital requirements will depend on many factors and include, but are not limited to the following:



| |  |  | the initiation, progress, timing and completion of clinical trials for our product candidates and potential product candidates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | the outcome, timing and cost of regulatory approvals and the regulatory approval process;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | delays that may be caused by changing regulatory requirements;
| | - |  | --------------------------------------------------------------



| |  |  | the number of product candidates that we pursue;
| | - |  | ------------------------------------------------



| |  |  | the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the timing and terms of future in-licensing and out-licensing transactions;
| | - |  | ---------------------------------------------------------------------------



| |  |  | the cost and timing of establishing sales, marketing, manufacturing and distribution capabilities;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | the cost of procuring clinical and commercial supplies of our product candidates;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the extent to which we acquire or invest in businesses, products or technologies; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the possible costs of litigation.
| | - |  | ---------------------------------

We believe that our existing cash and cash equivalents will be sufficient to fund our projected operating requirements through December 31, 2010. We will need substantial additional capital in the future
in order to complete the development and commercialization of Oxycyte and to fund the development and commercialization of our future product candidates. Until we can generate a sufficient amount of product revenue, if ever, we expect to finance
future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. Such funding, if needed, may not be available on favorable terms, if at all. In the event we are unable to obtain
additional capital, we may delay or reduce the scope of our current research and development programs and other expenses.

To the extent that
we raise additional funds by issuing equity securities, our stockholders may experience additional significant dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through
collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates or grant licenses on terms that may not be favorable to us. We may seek to access the public or private capital
markets whenever conditions are favorable, even if we do not have an immediate need for additional capital.

Recent Accounting
Pronouncements

On April 29, 2010, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU,
No. 2010-17, Revenue RecognitionMilestone Method (Topic 605): Milestone Method of Revenue Recognition (a consensus of the FASB Emerging Issues Task Force). It establishes a revenue recognition model for contingent consideration
that is payable upon the achievement of an uncertain future event, referred to as a milestone. The scope of the ASU is limited to research or development arrangements and requires an entity to record the milestone payment in its entirety in the
period received if the milestone meets all the necessary criteria to be considered substantive. The ASU is effective for fiscal years (and interim periods within those fiscal years) beginning on or after June 15, 2010. Early application is
permitted. Entities can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. As a result, it is effective for us in the first quarter of fiscal year 2012.
We do not believe that the adoption of ASU 2010-17 will have a material impact on our financial statements.



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In September 2009, the FASB ratified Revenue Arrangements with Multiple Deliverables issued as ASU 2009-13
in early October. ASU 2009-13 updates the existing multiple-element arrangements guidance currently included in ASC 605-25, Revenue Recognition  Multiple-Element Arrangements. The revised guidance provides for two significant changes to
the existing multiple-element arrangements guidance. The first relates to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. This change is significant as
it will likely result in the requirement to separate more deliverables within an arrangement, ultimately leading to less revenue deferral. The second change modifies the manner in which the transaction consideration is allocated across the
separately identifiable deliverables. These changes are likely to result in earlier recognition of revenue for multiple-element arrangements than under previous guidance. ASU 2009-13 also significantly expands the disclosures required for
multiple-element revenue arrangements. The revised multiple-element arrangements guidance will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented
or prospectively to arrangements entered into or modified after the adoption date. Early adoption is permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. If the guidance is adopted
prospectively, certain transitional disclosures are required for each reporting period in the initial year of adoption. As a result, it is effective for us in the first quarter of fiscal year 2012. We do not believe that the adoption of ASU 2009-13
will have a material impact on our financial statements.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or
variable interest entities.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Management does not believe that we possess any instruments that are sensitive to market risk. Our debt instruments bear interest at fixed interest rates.

We believe that there have been no significant changes in our market risk exposures for the three months ended October 31, 2010.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of
Disclosure Controls and Procedures : As required by paragraph (b) of Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, for the Exchange Act, our management, including our Chief Executive
Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of October 31, 2010, the period covered by this report in that they provide
reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the SEC.

Changes in Internal Control Over Financial Reporting : There were no significant changes in our internal control over financial reporting during
our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We routinely review or internal control over financial reporting and, from time to
time, make changes intended to enhance the effectiveness of our internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal controls over financial reporting on an
ongoing basis and will take action as appropriate.



|ITEM 4T. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Not applicable.



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##### Table of Contents

PART II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We are not presently
involved in any legal proceedings and were not involved in any such legal proceedings during the three months ended October 31, 2010.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

We are supplementing the
risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2010 with the risk factors below.

Risks Related to Our Financial Position and Need for Additional Capital

We require
substantial additional capital to continue as a going concern, and there can be no assurance that we will be able to obtain such capital on favorable terms, or at all.

To date, we have incurred significant net losses and negative cash flow in each year since our inception, including net losses of approximately $10.5 million and $33.2 million for the years ended
April 30, 2010 and 2009, respectively and $5.1 million for the six months ended October 31, 2010. As of October 31, 2010 our accumulated deficit was approximately $86.5 million. These amounts raise substantial doubt about our ability
to continue as a going concern. We will need to raise additional capital through debt and/or equity offerings in order to continue to develop our drug products. Based on our working capital at October 31, 2010 and the additional
$600,000 received under the Note Purchase Agreement, we believe we have sufficient capital on hand to continue to fund operations through December 31, 2010.

The additional financing we will need to continue to develop our drug products may not be available on favorable terms, if at all. If we are not able to raise sufficient funds in the future, we may
be required delay, reduce the scope of, or eliminate one or more of our research and development activities. In addition, we may be forced to reduce or discontinue product development or product licensing, reduce or forego sales and marketing
efforts and forego other business opportunities in order to improve our liquidity to enable us to continue operations.

As a result of the
foregoing circumstances our independent registered public accounting firm has included, and is likely in the future to include, an explanatory paragraph in their audit opinions based on uncertainty regarding our ability to continue as a going
concern. An audit opinion of this type may interfere with our ability to obtain debt or equity financing in the future.

Risks Related to Commercialization and Product Development

We currently have no approved drug products for sale and we cannot guarantee that we will ever have marketable drug products.

We currently have no approved drug products for sale. The research, testing, manufacturing, labeling, approval, selling, marketing, and distribution of drug products are subject to extensive regulation by
the FDA and other regulatory authorities in the United States and other countries, with regulations differing from country to country. We are not permitted to market our product in the United States until we receive approval of a new drug
application, or an NDA, from the FDA for each product candidate. We have not submitted an NDA or received marketing approval for any of our product candidates. Obtaining approval of an NDA is a lengthy, expensive and uncertain process. Markets
outside of the United States also have requirements for approval of drug candidates which we must comply with prior to marketing. Accordingly, we cannot guarantee that we will ever have marketable drug products.



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Any collaboration we enter with third parties to develop and commercialize our product candidates may
place the development of our product candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.

We may enter into collaborations with third parties to develop and commercialize our product candidates, including Oxycyte. Our dependence on future partners for development and commercialization of our
product candidates would subject us to a number of risks, including:



| |  |  | we may not be able to control the amount and timing of resources that our partners may devote to the development or commercialization of product
candidates or to their marketing and distribution;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate,
repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | disputes may arise between us and our partners that result in the delay or termination of the research, development or commercialization of our product
candidates or that result in costly litigation or arbitration that diverts managements attention and resources;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | partners may experience financial difficulties;
| | - |  | -----------------------------------------------



| |  |  | partners may not properly maintain or defend our intellectual property rights, or may use our proprietary information, in such a way as to invite
litigation that could jeopardize or invalidate our intellectual property rights or proprietary information or expose us to potential litigation;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | business combinations or significant changes in a partners business strategy may adversely affect a partners willingness or ability to meet
its obligations under any arrangement;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a partner could independently move forward with a competing product candidate developed either independently or in collaboration with others, including
our competitors; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the collaborations with our partners may be terminated or allowed to expire, which would delay the development and may increase the cost of developing
our product candidates.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Delays in the commencement, enrollment and completion of clinical testing could result in
increased costs to us and delay or limit our ability to obtain regulatory approval for our product candidates.

Delays
in the commencement, enrollment and completion of clinical testing could significantly affect our product development costs. We do not know whether planned clinical trials for Oxycyte will begin on time or be completed on schedule, if at all. The
commencement and completion of clinical trials requires us to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs for the same indication as our product candidates or may be
required to withdraw from our clinical trial as a result of changing standards of care or may become ineligible to participate in clinical studies. The commencement, enrollment and completion of clinical trials can be delayed for a variety of other
reasons, including delays related to:



| |  |  | reaching agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation and may vary
significantly among different CROs and trial sites;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | obtaining regulatory approval to commence a clinical trial;
| | - |  | -----------------------------------------------------------



| |  |  | obtaining institutional review board, or IRB, approval to conduct a clinical trial at numerous prospective sites;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our study
and competition from other clinical trial programs for the same indication as our product candidates;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | retaining patients who have initiated a clinical trial but may be prone to withdraw due to the treatment protocol, lack of efficacy, personal issues or
side effects from the therapy or who are lost to further follow-up;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | maintaining and supplying clinical trial material on a timely basis; and
| | - |  | ------------------------------------------------------------------------



| |  |  | collecting, analyzing and reporting final data from the clinical trials.
| | - |  | ------------------------------------------------------------------------



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In addition, a clinical trial may be suspended or terminated by us, the FDA or other regulatory authorities
due to a number of factors, including:



| |  |  | failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unforeseen safety issues or any determination that a trial presents unacceptable health risks; and
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | lack of adequate funding to continue the clinical trial, including unforeseen costs due to enrollment delays, requirements to conduct additional trials
and studies and increased expenses associated with the services of our CROs and other third parties.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Changes in regulatory
requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination,
which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, our clinical trials, the commercial prospects for our product candidates will be harmed, and our
ability to generate product revenues will be delayed. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product
candidate. Even if we are able to ultimately commercialize our product candidates, other therapies for the same or similar indications may have been introduced to the market and established a competitive advantage.

We have little experience marketing a commercial product, and if we are unable to establish, or access an effective and focused sales force and
marketing infrastructure, we will not be able to commercialize our product candidates successfully.

Commercializing our product
candidates will require that we establish significant internal sales, distribution and marketing capabilities, which we do not currently have. For example, in order to commercialize Dermacyte, we intend to develop a focused sales force and marketing
capabilities in the United States directed at dermatologists, medi-spas, and salons. The development of a focused sales and marketing infrastructure for our domestic operations will require substantial resources, will be expensive and time consuming
and could negatively impact our commercialization efforts, including delay of any product launch. We may not be able to hire a focused sales force in the United States that is sufficient in size or has adequate expertise in the markets that we
intend to target. If we are unable to establish our focused sales force and marketing capability for our products, we may not be able to generate any product revenue, may generate increased expenses and may never become profitable.

We expect intense competition with respect to our existing and future cosmetic product candidates.

The cosmetic industry is highly competitive, with a number of established, large companies, as well as many smaller companies. Many of these companies
have greater financial resources and marketing capabilities for product candidates.

Competitors may seek to develop alternative formulations
of our product candidates that address our targeted indications. The commercial opportunity for our cosmetic product candidates could be significantly harmed if competitors are able to develop alternative formulations outside the scope of our
products. Compared to us, many of our potential competitors have substantially greater:



| |  |  | capital resources;
| | - |  | ------------------



| |  |  | research and development resources, including personnel and technology;
| | - |  | -----------------------------------------------------------------------



| |  |  | expertise in prosecution of intellectual property rights;
| | - |  | ---------------------------------------------------------



| |  |  | manufacturing and distribution experience; and
| | - |  | ----------------------------------------------



| |  |  | sales and marketing resources and experience.
| | - |  | ---------------------------------------------

As a result of these factors, our competitors may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our cosmetic product candidates. Our
competitors may also develop products that are more effective, useful and less costly than ours and may also be more successful than us in manufacturing and marketing their products.



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Risks Related to Regulatory Matters

It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our product candidates and the
methods used to manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products is dependent upon the extent
to which we have rights under valid and enforceable patents or trade secrets that cover these activities.

We license certain intellectual
property from third parties that covers our product candidates. We rely on certain of these third parties to file, prosecute and maintain patent applications and otherwise protect the intellectual property to which we have a license, and we have not
had and do not have primary control over these activities for certain of these patents or patent applications and other intellectual property rights. We cannot be certain that such activities by third parties have been or will be conducted in
compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. Our enforcement of certain of these licensed patents or defense of any claims asserting the invalidity of these
patents would also be subject to the cooperation of the third parties.

The patent positions of pharmaceutical and biopharmaceutical companies
can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biopharmaceutical patents has emerged to date in the
United States. The biopharmaceutical patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of
our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in the patents we own or to which we have a license from a third-party. Further, if any of our patents are deemed invalid and
unenforceable, it could impact our ability to commercialize or license our technology.

The degree of future protection for our proprietary
rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:



| |  |  | others may be able to make compositions or formulations that are similar to our product candidates but that are not covered by the claims of our
patents;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we might not have been the first to make the inventions covered by our issued patents or pending patent applications;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | we might not have been the first to file patent applications for these inventions;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | others may independently develop similar or alternative technologies or duplicate any of our technologies;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | it is possible that our pending patent applications will not result in issued patents;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | our issued patents may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third
parties;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may not develop additional proprietary technologies that are patentable; or
| | - |  | ------------------------------------------------------------------------------



| |  |  | the patents of others may have an adverse effect on our business.
| | - |  | -----------------------------------------------------------------

We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although we
use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a
third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover,
our competitors may independently develop equivalent knowledge, methods and know-how.

We may incur substantial costs as a result of
litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use, our technology.



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If we or our partners choose to go to court to stop someone else from using the inventions claimed in our
patents, that individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if we were
successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the
risk that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that such other partys activities do not infringe our rights to these patents.

Furthermore, a third party may claim that we or our manufacturing or commercialization partners are using inventions covered by the third partys
patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert the attention of
managerial and technical personnel. There is a risk that a court would decide that we or our commercialization partners are infringing the third partys patents and would order us or our partners to stop the activities covered by the patents.
In addition, there is a risk that a court will order us or our partners to pay the other party damages for having violated the other partys patents. We have agreed to indemnify certain of our commercial partners against certain patent
infringement claims brought by third parties. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The
coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the patent
claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of
validity enjoyed by issued patents.

Because some patent applications in the United States may be maintained in secrecy until the patents
are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing and because publications in the scientific literature often lag behind actual discoveries, we
cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications, or that we were the first to invent the technology. Our competitors may have filed, and may in the future
file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications or patents, which could further require us to obtain rights to issued patents by others covering such
technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention
in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior to our own
invention, resulting in a loss of our U.S. patent position with respect to such inventions.

Some of our competitors may be able to
sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material
adverse effect on our ability to raise the funds necessary to continue our operations.

Risks Related to Owning Our Common
Stock

Our share price has been volatile and may continue to be volatile which may subject us to securities class action litigation
in the future.

The market price of shares of our common stock has been, and may be in the future, subject to wide fluctuations in
response to many risk factors listed in this section, and others beyond our control, including:



| |  |  | actual or anticipated fluctuations in our financial condition and operating results;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | status and/or results of our clinical trials;
| | - |  | ---------------------------------------------



| |  |  | results of clinical trials of our competitors products;
| | - |  | --------------------------------------------------------



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| |  |  | regulatory actions with respect to our products or our competitors products;
| | - |  | -----------------------------------------------------------------------------



| |  |  | actions and decisions by our collaborators or partners;
| | - |  | -------------------------------------------------------



| |  |  | actual or anticipated changes in our growth rate relative to our competitors;
| | - |  | -----------------------------------------------------------------------------



| |  |  | actual or anticipated fluctuations in our competitors operating results or changes in their growth rate;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | competition from existing products or new products that may emerge;
| | - |  | -------------------------------------------------------------------



| |  |  | issuance of new or updated research or reports by securities analysts;
| | - |  | ----------------------------------------------------------------------



| |  |  | fluctuations in the valuation of companies perceived by investors to be comparable to us;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | market conditions for biopharmaceutical stocks in general; and
| | - |  | --------------------------------------------------------------



| |  |  | general economic and market conditions.
| | - |  | ---------------------------------------

On April 30, 2010 the closing price of our common stock was $5.00 as compared with $2.11 as of October 31, 2010. During the twelve months ended April 30, 2010, the lowest closing price of
our common stock was $2.25 and the highest closing price was $14.01.

Some companies that have had volatile market prices for their securities
have had securities class action lawsuits filed against them. Such lawsuits, should they be filed against us in the future, could result in substantial costs and a diversion of managements attention and resources. This could have a material
adverse effect on our business, results of operations and financial condition.

We are likely to attempt to raise additional capital
through issuances of debt or equity securities, which may cause our stock price to decline, dilute the ownership interests of our existing stockholders, and/or limit our financial flexibility.

Historically we have financed our operations through the issuance of equity securities and debt financings, and we expect to continue to do so for the
foreseeable future. Based on our working capital at October 31, 2010, we believe that we will require additional capital to fund our operations beyond December 31, 2010. To the extent that we raise additional funds by issuing equity securities,
our stockholders may experience significant dilution of their ownership interests. Debt financing, if available, may involve restrictive covenants that limit our financial flexibility or otherwise restrict our ability to pursue our business
strategies. Additionally, if we issue shares of common stock, or securities convertible or exchangeable for common stock, the market price of our existing common stock may decline. There can be no assurance that we will be successful in obtaining
any additional capital resources in a timely manner, on favorable terms, or at all.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

In the second quarter of fiscal 2011, the Company issued to Christian Stern, its Chief Executive Officer, 1,621 shares of common stock as compensation pursuant to the terms of his compensation agreement.
The shares were valued at $4,512 at the date of issue.

All of the securities described above were issued in reliance on the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | (REMOVED AND RESERVED)
|------- | ----------------------



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

Severance Agreement
with Kirk Harrington

On December 6, 2010, we entered into a Severance Agreement and General Release (the Severance Agreement) with
Kirk Harrington, our former Chief of Staff. Under the terms of the Agreement, we will provide to Mr. Harrington as severance (i) a lump sum amount of $70,000, payable upon expiration of the revocation period set forth in the Severance Agreement,
(ii) a lump sum amount of $100,000, contingent upon our receipt of a certain grant, and (iii) reimbursements for the costs of Mr. Harringtons COBRA coverage through June 30, 2011. In consideration of such severance payments and benefits, Mr.
Harrington released all potential claims against us relating to his employment with and separation from employment with us.

Employment
Agreement with Michael Jebsen

On December 7, 2010, we entered into an Employment Agreement with Michael Jebsen, our Chief Financial
Officer. Pursuant to the agreement, Mr. Jebsens employment will be for an initial one-year term from December 1, 2010 through December 1, 2011, which will automatically renew for additional one-year terms unless Mr. Jebsen terminates
the agreement in advance of the renewal date or we give Mr. Jebsen at least 120 days advance notice that we elect not to renew for another term.

Under the agreement, Mr. Jebsen will receive as compensation (i) an annual base salary of $210,000, (ii) an annual cash bonus of $50,000 based on 100%
achievement of annual goals (with no cap on the bonus for greater than 100% achievement of goals), (iii) an annual grant of options to purchase 12,500 shares of our common stock, (iv) a fixed monthly automobile allowance of $800, and (iv)
participation in medical insurance, dental insurance, and other benefit plans on the same basis as our other officers. Additionally, Mr. Jebsen shall receive a monthly grant of options to purchase 667 shares of our common stock as compensation for
holding the position of Corporate Secretary.

The agreement provides that if Mr. Jebsen is terminated without cause, or if Mr. Jebsen
terminates his employment for good reason, he will be entitled to receive (i) one-year of base salary, (ii) all bonuses then payable, and (iii) the economic value of the replacement cost for one-year of benefits under the agreement. Mr. Jebsen
would also have the right to exercise immediately all outstanding options, vested and unvested, on the terms set forth in the options he holds, including cashless exercise through conversion of the options to common shares based on the
difference between market price and exercise price.

For purposes of the agreement cause means willful misconduct, conflict of
interest or breach of fiduciary duty or a material breach of any provision of the employment agreement, and good reason includes, among other things, us giving notice to Mr. Jebsen that we do not intend to renew the agreement at the end
of the then current term, any person or group acquiring 25% or more of our outstanding common stock, a change in a majority of our Board, a merger or sale of substantially all our assets, or a breach of certain terms of the agreement by us.



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|ITEM 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|No.  |  | Description                                                                                                                                       
|10.1 |  | Note Purchase Agreement (1)                                                                                                                       
|10.2 |  | Form of Promissory Note under Note Purchase Agreement (1)                                                                                         
|10.3 |  | Severance Agreement with Kirk Harrington dated December 6, 2010                                                                                   
|10.4 |  | Employment Agreement with Michael B. Jebsen dated December 7, 2010                                                                                
|31.1 |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                               
|31.2 |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                               
|32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2 |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



| | (1) | These documents were filed as exhibits to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on October 13, 2010, and are incorporated
herein by reference.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SIGNATURES

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.

Date: December 9, 2010



OXYGEN BIOTHERAPEUTICS, INC.By:

/s/ Chris J. SternChris J. Stern Chairman and Chief Executive Officer (Principal Executive
Officer)By:

/s/ Michael B. JebsenMichael B. Jebsen Secretary and Chief Financial Officer (Principal Financial
Officer)




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