UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 January 31, 2009



| ̈ | 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:
002-31909

OXYGEN BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 26-2593535                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

2530 Meridian Parkway, Suite 3005, Durham, North Carolina 27713

(Address of Principal Executive Office)

714-427-6363

(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 (the Exchange Act) 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 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.



|                          |  |                     |  |                         |  |                            
|------------------------- |  | ------------------- |  | ----------------------- |  | ---------------------------
|Large accelerated filer  ̈ |  | Accelerated filer  ̈ |  | Non-accelerated filer  ̈ |  | Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES   ̈         NO  x

The number of shares outstanding of each of the issuers classes of common stock as of March 12, 2009:
227,746,391 shares of common stock, par value $0.0001.









---

FORM 10-Q

OXYGEN BIOTHERAPEUTICS, INC.

INDEX



|         |  |                                                                                                                                                                                                        |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                                                                                                                                                                                        |  | Page
|         |  |                                                                                                                                                                                                       
|PART I.  |  | FINANCIAL INFORMATION *                                                                                                                                                                                |  | 1   
|         |  |                                                                                                                                                                                                       
|         |  | Item 1. Financial Statements                                                                                                                                                                           |  | 1   
|         |  |                                                                                                                                                                                                       
|         |  | Consolidated Condensed Balance Sheets as of January 31, 2009 (unaudited) and April 30,
2008                                                                                                            |  | 1   
|         |  |                                                                                                                                                                                                       
|         |  | Consolidated Condensed Statements of Operations for the Three Months and Nine Months Ended January 
31, 2009 and 2008 and for the Period From May 26, 1967 (inception) to January 31, 2009 (unaudited) |  | 2   
|         |  |                                                                                                                                                                                                       
|         |  | Consolidated Condensed Statements of Cash Flows for the Nine Months Ended January 
31, 2009 and 2008, and for the Period From May 26, 1967 (inception) to January 31, 2009 (unaudited)                 |  | 3   
|         |  |                                                                                                                                                                                                       
|         |  | Notes to Consolidated Condensed Financial Statements                                                                                                                                                   |  | 6   
|         |  |                                                                                                                                                                                                       
|         |  | Item 2.Managements Discussion and Analysis of Financial Condition and Results of
Operations                                                                                                           |  | 13  
|         |  |                                                                                                                                                                                                       
|         |  | Item 4T.Controls and Procedures                                                                                                                                                                        |  | 15  
|         |  |                                                                                                                                                                                                       
|PART II. |  | OTHER INFORMATION *                                                                                                                                                                                    |  | 16  
|         |  |                                                                                                                                                                                                       
|         |  | Item 1.Legal Proceedings                                                                                                                                                                               |  | 16  
|         |  |                                                                                                                                                                                                       
|         |  | Item 2.Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                     |  | 16  
|         |  |                                                                                                                                                                                                       
|         |  | Item 3.Defaults Upon Senior Securities                                                                                                                                                                 |  | 16  
|         |  |                                                                                                                                                                                                       
|         |  | Item 4.Submission of Matters to a Vote of Security Holders                                                                                                                                             |  | 16  
|         |  |                                                                                                                                                                                                       
|         |  | Item 5.Other Information                                                                                                                                                                               |  | 16  
|         |  |                                                                                                                                                                                                       
|         |  | Item 6.Exhibits                                                                                                                                                                                        |  | 16  
|         |  |                                                                                                                                                                                                       
|         |  | Signatures                                                                                                                                                                                             |  | 16  

* Item 3 of Part I and Item 1A of Part II are not included in this filing as they are not required for
Smaller Reporting Companies as defined in Rule 12b-2 of the Exchange Act.





---

Part I-Financial Information



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

OXYGEN BIOTHERAPEUTICS,
INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED BALANCE SHEETS



|                                                                                                                                          |  |                 |             |   |               |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                                                                          |  | January 31,2009 |             |   | April 30,2008 |  
|                                                                                                                                          |  | (Unaudited)     |             |   |               |  
|ASSETS                                                                                                                                    |  |                 |             |   |               |   |             |  
|CURRENT ASSETS                                                                                                                            |  |                 |             |   |               |   |             |  
|Cash and cash equivalents                                                                                                                 |  | $               | 4,146,010   |   |               | $ | 4,880,633   |  
|Prepaid expenses                                                                                                                          |  |                 | 133,562     |   |               |   | 72,084      |  
|                                                                                                                                          |  |                 |             |   |               |   |             |  
|Total current assets                                                                                                                      |  |                 | 4,279,572   |   |               |   | 4,952,717   |  
|PROPERTY AND EQUIPMENT, net of accumulated depreciation of $646,225 and $599,448                                                          |  |                 | 213,102     |   |               |   | 177,605     |  
|DEBT ISSUANCE COSTS, net of accumulated amortization of $2,308,161 and $213,234, respectively                                             |  |                 | 3,202,401   |   |               |   | 5,297,289   |  
|PATENTS, net                                                                                                                              |  |                 | 96,278      |   |               |   | 129,102     |  
|LICENSING RIGHTS, net                                                                                                                     |  |                 | 439,895     |   |               |   |            |  
|OTHER ASSETS                                                                                                                              |  |                 | 163,558     |   |               |   |            |  
|                                                                                                                                          |  |                 |             |   |               |   |             |  
|                                                                                                                                          |  | $               | 8,394,806   |   |               | $ | 10,556,713  |  
|                                                                                                                                          |  |                 |             |   |               |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                            |  |                 |             |   |               |   |             |  
|CURRENT LIABILITIES                                                                                                                       |  |                 |             |   |               |   |             |  
|Accounts payable                                                                                                                          |  | $               | 78,954      |   |               | $ | 63,907      |  
|Accrued liabilities                                                                                                                       |  |                 | 60,613      |   |               |   | 54,453      |  
|Related party payables                                                                                                                    |  |                 |            |   |               |   | 103,000     |  
|Note payable                                                                                                                              |  |                 | 460,842     |   |               |   | 43,631      |  
|                                                                                                                                          |  |                 |             |   |               |   |             |  
|Total current liabilities                                                                                                                 |  |                 | 600,409     |   |               |   | 264,991     |  
|LONG TERM PORTION of convertible notes, net of debt discount of $ 11,574,101 and $19,716,686 , respectively                               |  |                 | 1,191,633   |   |               |   | 539,786     |  
|                                                                                                                                          |  |                 |             |   |               |   |             |  
|Total liabilities                                                                                                                         |  |                 | 1,792,042   |   |               |   | 804,777     |  
|                                                                                                                                          |  |                 |             |   |               |   |             |  
|COMMITMENTS AND CONTINGENCIES                                                                                                             |  |                 |             |   |               |   |             |  
|STOCKHOLDERS EQUITY (DEFICIT)                                                                                                            |  |                 |             |   |               |   |             |  
|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 183,824,561 and 146,405,576,
respectively |  |                 | 18,380      |   |               |   | 1,464,056   |  
|Additional paid-in capital                                                                                                                |  |                 | 60,842,558  |   |               |   | 46,029,242  |  
|Deficit accumulated during the development stage                                                                                          |  |                 | (54,258,174 | ) |               |   | (37,741,362 | )
|                                                                                                                                          |  |                 |             |   |               |   |             |  
|Total stockholders equity (deficit)                                                                                                      |  |                 | 6,602,764   |   |               |   | 9,751,936   |  
|                                                                                                                                          |  |                 |             |   |               |   |             |  
|                                                                                                                                          |  | $               | 8,394,806   |   |               | $ | 10,556,713  |  
|                                                                                                                                          |  |                 |             |   |               |   |             |  

See accompanying notes to consolidated condensed financial statements.



1



---

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS



|                                                                 |  |                                                       |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|---------------------------------------------------------------- |  | ----------------------------------------------------- | ----------- | - | ----------------------------- | ---- | ----------- | ---------------------------- | ---- | - | ----------- | ---- |  | ----------- | ----------- | - |  | - | ----------- | -
|                                                                 |  | Period FromMay 26, 1967(inception) toJanuary 31, 2009 |             |   | Three Months EndedJanuary 31, |      |             | Nine Months EndedJanuary 31, |     
|                                                                 |  |                                                       | 2009        |   |                               | 2008 |             |                              | 2009 |   |             | 2008 | 
|                                                                 |  | (Unaudited)                                           |             |   | (Unaudited)                   |      |             | (Unaudited)                  |      |   | (Unaudited) |      |  | (Unaudited) |            
|OPERATING EXPENSES AND LOSSES                                    |  |                                                       |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|Research and development                                         |  | $                                                     | 13,329,979  |   |                               | $    | 440,077     |                              |      | $ | 222,142     |      |  | $           | 972,534     |   |  | $ | 492,505     |  
|General and administrative                                       |  |                                                       | 24,360,142  |   |                               |      | 523,463     |                              |      |   | 635,915     |      |  |             | 5,462,626   |   |  |   | 1,028,029   |  
|Loss on impairment of long-lived assets                          |  |                                                       | 39,225      |   |                               |      |            |                              |      |   |            |      |  |             | 7,112       |   |  |   |            |  
|                                                                 |  |                                                       |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|Total operating expenses and losses                              |  |                                                       | 37,729,346  |   |                               |      | 963,540     |                              |      |   | 858,057     |      |  |             | 6,442,272   |   |  |   | 1,520,534   |  
|INTEREST EXPENSE                                                 |  |                                                       | 17,366,380  |   |                               |      | 7,421,916   |                              |      |   | 1,238,903   |      |  |             | 10,237,473  |   |  |   | 2,569,244   |  
|LOSS ON EXTINGUISHMENT OF DEBT                                   |  |                                                       | 250,097     |   |                               |      |            |                              |      |   | 250,097     |      |  |             |            |   |  |   | 250,097     |  
|OTHER INCOME AND GAINS                                           |  |                                                       | (1,087,649  | ) |                               |      | (28,937     | )                            |      |   | (21,678     | )    |  |             | (162,933    | ) |  |   | (55,330     | )
|                                                                 |  |                                                       |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|NET LOSS                                                         |  | $                                                     | (54,258,174 | ) |                               | $    | (8,356,519  | )                            |      | $ | (2,325,379  | )    |  | $           | (16,516,812 | ) |  | $ | (4,284,545  | )
|                                                                 |  |                                                       |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|NET LOSS PER SHARE, BASIC AND DILUTED                            |  |                                                       |             |   |                               | $    | (.051       | )                            |      | $ | (.160       | )    |  | $           | (.105       | ) |  | $ | (.030       | )
|                                                                 |  |                                                       |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED |  |                                                       |             |   |                               |      | 162,643,672 |                              |      |   | 141,460,300 |      |  |             | 156,842,035 |   |  |   | 140,699,818 |  
|                                                                 |  |                                                       |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  

See accompanying notes to consolidated condensed financial statements.



2



---

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS



|                                                                                                |  |                                                       |             |   |                              |      |             |             |  |   |            |  
|----------------------------------------------------------------------------------------------- |  | ----------------------------------------------------- | ----------- | - | ---------------------------- | ---- | ----------- | ----------- |  | - | ---------- | -
|                                                                                                |  | Period fromMay 26, 1967(inception) toJanuary 31, 2009 |             |   | Nine months endedJanuary 31, |     
|                                                                                                |  |                                                       | 2009        |   |                              | 2008 |            
|                                                                                                |  | (Unaudited)                                           |             |   | (Unaudited)                  |      |             | (Unaudited) | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                            |  |                                                       |             |   |                              |      |             |             |  |   |            |  
|Net loss                                                                                        |  | $                                                     | (54,258,174 | ) |                              | $    | (16,516,812 | )           |  | $ | (4,284,545 | )
|Adjustments to reconcile net loss to net cash used in operating activities                      |  |                                                       |             |   |                              |      |             |             |  |   |            |  
|Depreciation and amortization                                                                   |  |                                                       | 1,512,623   |   |                              |      | 90,625      |             |  |   | 25,347     |  
|Amortization of deferred compensation                                                           |  |                                                       | 336,750     |   |                              |      |            |             |  |   |           |  
|Interest on debt instruments                                                                    |  |                                                       | 16,976,290  |   |                              |      | 10,237,473  |             |  |   | 2,479,109  |  
|Bad debt expense                                                                                |  |                                                       | 12,500      |   |                              |      | 12,500      |             |  |   |           |  
|Loss on debt settlement and extinguishment                                                      |  |                                                       | 163,097     |   |                              |      |            |             |  |   | 250,097    |  
|Loss on impairment of long-lived assets                                                         |  |                                                       | 39,225      |   |                              |      | 7,112       |             |  |   |           |  
|Loss (gain) on disposal or assignment and write down of property and equipment and other assets |  |                                                       | 192,683     |   |                              |      | (26,622     | )           |  |   |           |  
|Issuance and vesting of compensatory stock options and warrants                                 |  |                                                       | 4,638,473   |   |                              |      | 1,577,679   |             |  |   | 161,575    |  
|Issuance of common stock below market value                                                     |  |                                                       | 695,248     |   |                              |      |            |             |  |   |           |  
|Issuance of common stock as compensation                                                        |  |                                                       | 86,240      |   |                              |      | 73,780      |             |  |   |           |  
|Issuance of common stock for services rendered                                                  |  |                                                       | 3,436,311   |   |                              |      | 2,171,032   |             |  |   |           |  
|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                                                     |  |                                                       |             |   |                              |      |             |             |  |   |            |  
|Prepaid expenses and other assets                                                               |  |                                                       | (77,738     | ) |                              |      | (125,298    | )           |  |   | 113,106    |  
|Accounts payable and accrued liabilities                                                        |  |                                                       | 215,161     |   |                              |      | (221,793    | )           |  |   | (360,855   | )
|                                                                                                |  |                                                       |             |   |                              |      |             |             |  |   |            |  
|Net cash used in operating activities                                                           |  |                                                       | (25,694,460 | ) |                              |      | (2,720,324  | )           |  |   | (1,616,166 | )
|                                                                                                |  |                                                       |             |   |                              |      |             |             |  |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                            |  |                                                       |             |   |                              |      |             |             |  |   |            |  
|Purchase of property, equipment and other assets                                                |  |                                                       | (1,257,236  | ) |                              |      | (89,387     | )           |  |   | (16,340    | )
|Capitalization of patent costs                                                                  |  |                                                       | (773,653    | ) |                              |      | (56,060     | )           |  |   |           |  
|Purchase of licensing rights                                                                    |  |                                                       | (114,735    | ) |                              |      | (114,735    | )           |  |   |           |  
|                                                                                                |  |                                                       |             |   |                              |      |             |             |  |   |            |  
|Net cash used in investing activities                                                           |  | $                                                     | (2,145,624  | ) |                              | $    | (260,182    | )           |  | $ | (16,340    | )
|                                                                                                |  |                                                       |             |   |                              |      |             |             |  |   |            |  

See accompanying notes to consolidated condensed financial statements.



3



---

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSCONTINUED



|                                                                                                       |  |                                                       |            |   |                              |      |           |             |  |   |           |  
|------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------- | ---------- | - | ---------------------------- | ---- | --------- | ----------- |  | - | --------- | -
|                                                                                                       |  | Period fromMay 26, 1967(inception) toJanuary 31, 2009 |            |   | Nine months endedJanuary 31, |     
|                                                                                                       |  |                                                       | 2009       |   |                              | 2008 |          
|                                                                                                       |  | (Unaudited)                                           |            |   | (Unaudited)                  |      |           | (Unaudited) | 
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                   |  |                                                       |            |   |                              |      |           |             |  |   |           |  
|Proceeds from sale of common stock and exercise of stock options and warrants, net of related expenses |  | $                                                     | 21,062,248 |   |                              | $    | 2,225,625 |             |  | $ |          |  
|Repayments of amounts due stockholders                                                                 |  |                                                       | (121,517   | ) |                              |      |          |             |  |   |          |  
|Proceeds from stockholder notes payable                                                                |  |                                                       | 977,692    |   |                              |      |          |             |  |   |          |  
|Proceeds from former and current officer loans                                                         |  |                                                       | 39,500     |   |                              |      |          |             |  |   | 39,500    |  
|Repayments of former and current officer loans                                                         |  |                                                       | (39,500    | ) |                              |      |          |             |  |   |          |  
|Proceeds from issuance of notes payable, net of issuance costs                                         |  |                                                       | 2,104,420  |   |                              |      | 19,999    |             |  |   | 265,638   |  
|Proceeds from convertible notes, net of issuance costs                                                 |  |                                                       | 8,807,285  |   |                              |      |          |             |  |   | 2,295,154 |  
|Payments on notesshort-term                                                                           |  |                                                       | (552,725   | ) |                              |      |          |             |  |   | (43,781   | )
|Payments on noteslong term                                                                            |  |                                                       | (291,309   | ) |                              |      |          |             |  |   |          |  
|                                                                                                       |  |                                                       |            |   |                              |      |           |             |  |   |           |  
|Net cash provided by financing activities                                                              |  |                                                       | 31,986,094 |   |                              |      | 2,245,624 |             |  |   | 2,556,511 |  
|                                                                                                       |  |                                                       |            |   |                              |      |           |             |  |   |           |  
|Net change in cash and cash equivalents                                                                |  |                                                       | 4,146,010  |   |                              |      | (734,623  | )           |  |   | 924,005   |  
|Cash and cash equivalents, beginning of period                                                         |  |                                                       |           |   |                              |      | 4,880,633 |             |  |   | 16,234    |  
|                                                                                                       |  |                                                       |            |   |                              |      |           |             |  |   |           |  
|Cash and cash equivalents, end of period                                                               |  | $                                                     | 4,146,010  |   |                              | $    | 4,146,010 |             |  | $ | 940,239   |  
|                                                                                                       |  |                                                       |            |   |                              |      |           |             |  |   |           |  
|Cash paid for:                                                                                         |  |                                                       |            |   |                              |      |           |             |  |   |           |  
|Interest                                                                                               |  | $                                                     | 241,855    |   |                              | $    |          |             |  | $ | 96,103    |  
|                                                                                                       |  |                                                       |            |   |                              |      |           |             |  |   |           |  
|Income taxes                                                                                           |  | $                                                     | 20,739     |   |                              | $    |          |             |  | $ | 581       |  
|                                                                                                       |  |                                                       |            |   |                              |      |           |             |  |   |           |  

See accompanying notes to consolidated condensed financial statements.



4



---

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSCONTINUED

Non-cash financing activities during the nine months ended January 31, 2009:



|(1) | The Company issued 27,343,205 shares of common stock for the conversion of notes payable with a gross carrying value of $7,093,526, at a conversion price of $0.247 per share. These
notes included discounts totaling $6,334,234, and thus had a net carrying value of $759,292. The unamortized discounts of $ 6,334,234 was recognized as interest expense upon conversion.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | As further discussed in Note 4, the Company entered into a license agreement in May 2008 with Virginia Commonwealth University (Licensor) whereby the Company obtained
certain rights in connection with three of the Licensors patents. The purchase price of these licensing rights totaled $369,728, which included a $16,228 cash payment by the Company plus the issuance of five-year warrants to purchase 500,000
shares of common stock at $0.42 per share. These warrants were valued at $376,970. In connection with the license agreement, the Company also paid the Licensor $50,000 as a deposit towards future royalties.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | During the first nine months of fiscal year ending April 30, 2009, the Company received a total of $2,225,624 from the exercise of warrants. Due to errors made by the Company
in the pricing of certain warrant exercise transactions, $140,000 of this total was owed back to the related investors. The Company paid off this obligation during this period and therefore there are no amounts related this obligation shown on the
balance sheet. Additionally, the Company is owed $12,500 for a similar warrant exercise pricing error with another investor. This amount has been expensed as a bad debt, as the Company does not intend to take further action to collect this
receivable.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The Company assigned patents related to their glucose monitoring technology with a total historical cost of $180,751 and accumulated amortization of $107,373 to Glucometrics, Inc
for a 10 % interest in the company and the right to receive royalty payments on revenues received by Glucometrics, Inc on any products developed using our patented technology. The total investment was recorded at $100,000 and we recognized a
gain of $26,622 on the assignment of the patents to Glucometrics, Inc.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Non-cash financing activities during the nine months ended
January 31, 2008:



|(1) | In connection with the issuance of $282,055 of two-year notes payable, the Company recorded discounts on notes payable related to the original issue discount of $16,417, and
additional discounts of $70,282 related to the relative fair value of 2,820,550 warrants issued in the transaction.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The Company made principal payments on its convertible notes payable of $130,000 through the issuance of 1,228,381 shares of common stock.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The Company recorded debt issue costs of $542,820 of which $408,973 was non-cash through the issuance of 5,320,550 warrants for capital raising services.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The Company issued 1,113,066 shares of common stock in a cashless exercise of 6,590,903 warrants.
|--- | -------------------------------------------------------------------------------------------------



|(5) | In November and December 2007, the Company received $1,000,000 from the issuance of short term bridge loans to fund operations and other working capital needs. The notes are
unsecured and pay interest at 10% per year. In addition, the Company issued 5-year warrants to purchase 2,500,000 shares of common stock at $0.245 per share to investors. An additional discount of $288,750 was recorded for the relative fair
value of the warrants (see (6)).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | In December 2007, the Company exchanged its $1,000,000 bridge loans (see (5)) for 5 year convertible debentures with a face amount of $2,222,222. The notes are unsecured and
were issued with a 55% original issue discount totaling $1,222,222. In addition, the Company issued 5-year warrants to purchase 4,498,426 shares of common stock at $0.247 per share to investors. Additional discounts of $703,554 and $296,446 were
recorded for the relative fair values of the warrants and beneficial conversion feature, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | In January 2008, the Company exchanged its remaining outstanding short term loans for 5 year convertible debentures with a face amount of $3,982,545. The notes are unsecured and
were issued with a 55% original issue discount totaling $2,190,400. In addition, the Company issued 5-year warrants to purchase 8,061,831 shares of common stock at $0.247 per share to investors. Additional discounts of $1,035,945 and $756,200 were
recorded for the relative fair values of the warrants and beneficial conversion feature, respectively. Pursuant to this refinancing transaction, the Company recorded a debt extinguishment loss of $250,097.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | The Company financed the prepayment of certain insurance premiums with a short-term note totaling $119,644. The Company repaid a total of $43,781 on this note during the nine months
ended January 31, 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | As of January 31, 2008, the Company had received a total of $1,429,000 towards the $6,075,000 convertible notes (Note 3). On a pro rata basis, the Company has recorded the 55%
original issue discount of $1,746,556 and accrued debt issuance costs totaling $2,090,280 in connection with proceeds received. This accrual consists of the fair value of the 6,428,250 investor warrants ($1,051,662) and a beneficial conversion
feature ($377,338) which have been recorded as discounts to the related notes payable, plus $661,280 for capital raising services. The accrued costs of the capital raising services consist a of $100,030 cash finders fee, plus $176,420 for the
fair value of 588,066 restricted shares of common stock, plus $384,830 for the fair value of 2,352,263 finders warrants that are exercisable at $0.247 per share. All of the accrued warrants on these transactions will not be issued until the
full $6,075,000 is received by the Company.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated condensed financial statements.



5



---

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

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.

The accompanying unaudited
consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of January 31,
2009, and the results of its operations for the three months and nine months ended January 31, 2009 and 2008, and for the period from May 26, 1967 (inception) to January 31, 2009, and its cash flows for the nine months ended
January 31, 2009 and 2008, and for the period from May 26, 1967 (inception) to January 31, 2009. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules
and regulations of the U.S. Securities and Exchange Commission (the Commission). The Company believes that the disclosures in the financial statements are adequate to make the information presented not misleading. However, the financial
statements included herein should be read in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended April 30, 2008 filed with the Commission on August 13,
2008.

The accompanying consolidated condensed financial statements have been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company is in the development stage and, at January 31, 2009, has an accumulated deficit of $54,258,174,
continues to sustain operating losses on a monthly basis, and expects to incur operating losses for the foreseeable future. The Company requires substantial additional funds to complete clinical trials and pursue regulatory approvals. Although
management believes that the Company has necessary working capital to fund operations through calendar year 2009, 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 January 31, 2009 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 consolidated 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.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, FASB issued
SFAS No. 141 (revised 2007), Business Combinations,(SFAS 141R) effective for fiscal years beginning after December 15, 2008. The new standard is based on a fair value model and requires an acquirer to measure all assets
acquired and liabilities assumed at their respective fair values at the date of acquisition. This includes measuring non controlling (minority) interests at fair value. SFAS 141R establishes principles and requirements for recognizing and measuring
goodwill arising from a business combination, and any gain from a bargain purchase. SFAS 141R establishes new disclosure standards and significantly alters the accounting for contingent consideration, pre-acquisition contingencies, in-process
research and development and restructuring costs. It requires expensing of acquisition-related costs as incurred. Transactions consummated after the effective date of SFAS 141R apply the new standard prospectively. Existing guidance in SFAS 141
applies to business combinations consummated prior to the effective date of SFAS 141R. The Company does not anticipate the adoption of SFAS 141R to have a material impact on its results of operations, financial position, or cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements,(SFAS 160) which amends
Accounting Research Bulletin No. 51 and provides accounting and reporting standards for noncontrolling (minority) interests in a subsidiary and deconsolidation of a subsidiary. SFAS 160 requires noncontrolling interests to be presented
separately within equity in the consolidated statement of financial position. Consolidated net income attributable to the parent and noncontrolling interests are to be separately presented on the face of the statement of operations. A change in
ownership that does not affect control of a subsidiary is to be accounted for as an equity transaction. A change in ownership that affects control results in recognition of a gain or loss and remeasurement at fair value of any remaining
noncontrolling interest. Because SFAS 160 requires that a noncontrolling interest continue to be attributed its share of losses, a noncontrolling interest could have a negative carrying balance. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. In the year of adoption, presentation and disclosure requirements will apply retrospectively to all periods presented. The Company does not expect adopting SFAS 160 will materially affect its consolidated financial statements
or results of operations.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally
Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS 162 will become effective 60 days following Securities and Exchange Commission (SEC) approval of the Public Company
Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not anticipate the adoption of SFAS 162 to have a
material impact on its results of operations, financial position, or cash flows.

In June 2008, the FASB issued EITF 07-05, Determining whether an
instrument (or Embedded Feature) is indexed to an Entitys Own Stock, (EITF 07-05). EITF 07-05 provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be
considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in paragraph 11(a) of FAS 133. EITF 07-05 is effective for financial statements issued for fiscal years beginning after December 15,
2008 and early application is not permitted. Management is evaluating what effect EITF 07-05 will have on Oxygen Biotherapeutics, Inc financial position and operating results.



6



---

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTSCONTINUED

(UNAUDITED)



2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In June 2008, the FASB issued Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF
03-6-1). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore, need to be included in the earnings allocation in calculating earnings
per share under the two-class method described in FASB Statement of Financial Accounting Standards No. 128, Earnings Per Share. FSP EITF 03-6-1 requires companies to treat unvested share-based payment awards that have
non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per shared. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. FSP EITF 03-6-1 is
effective for the Company in the quarter ending July 31, 2009. The Company is currently assessing the impact of FSP EITF 03-6-1, but does not expect that such adoption will have a material effect on its results of operations, financial
position, or cash flows.

In October 2008, the FASB issued Staff Position No EITF. 08-9, Milestones Method of Revenue Recognition
(EITF 08-9). EITF 08-9 addresses the accounting when entities enter into revenue arrangements with multiple payment streams for a single deliverable or a single unit of accounting. The FASB staff could not reach agreement on
transition of EITF 08-9. The Company does not anticipate the adoption of Staff Position No EITF 08-9 to have a material impact on its results of operations, financial position, or cash flows.

3. STOCK-BASED COMPENSATION

The fair value of the Companys
stock options is determined using a Black-Scholes option pricing model, consistent with the provisions of SFAS No. 123R (Share-Based Payment) and Securities and Exchange Commission Staff Accounting Bulletin No. 107 (SAB
107). The fair value of stock options granted is recognized as compensation expense over the requisite service period. Compensation expense for all share-based payment awards is recognized using the straight-line single-option method.
Effective May 1, 2006, the Company adopted SFAS No 123R, using a modified prospective application. Prior to May 1, 2006, the Company measured employee and board member compensation cost under the intrinsic method provided by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) whereby compensation expense is recognized for the excess, if any, of the fair value of the Companys common stock over the
option price on the date the option is granted.

The Company uses the historical stock price volatility to value stock options within the Black-Scholes
option pricing model. The expected term of stock options represents the period of time options are expected to be outstanding and is based on observed historical exercise patterns for the Company, which management believes are indicative of future
exercise behavior. For the risk free interest rate, the Company uses the observed interest rates appropriate for the term that the options are expected to be outstanding.

The Companys net loss for the nine months ended January 31, 2009 and 2008 includes approximately $1,577,679 and $24,093 of non-cash stock-based compensation costs. As of January 31, 2009, there was
approximately $127,363 of total unrecognized compensation cost related to non-vested share-based compensation arrangements.

The fair value of each option
grant during the nine months ended January 31, 2009 was estimated at the grant date using the Black-Scholes option pricing model using the following assumptions: an average risk-free interest rate of 3.95%; average volatility of 105.34%; zero
dividend yield for all years, expected life of either 3 years or 10 years depending on the option agreement, and an estimated forfeiture rate of 25.6%. There were 4,570,000 options to purchase shares of the Companys common stock during the
nine months period ending January 31, 2009.

4. LICENSING RIGHTS AND PATENTS

In May 2008, the Company entered into a license agreement with Virginia Commonwealth University (Licensor) whereby Oxygen Biotherapeutics 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
license includes the right to sub-license to third parties. The term of the agreement is the life of the patents covered by the patent applications, except that the Company can terminate the agreement at any time on not less than 90 days advance
notice.



7



---

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTSCONTINUED

(UNAUDITED)



4. LICENSING RIGHTS AND PATENTS (CONTINUED)

The Company has an obligation to diligently pursue product development and also pursue new patent applications covered by this agreement; both at its own cost. The Company paid an initial fee of $50,000 in cash and
paid an additional $16,228 to the Licensor as reimbursement of costs paid by the Licensor on patent applications and related work. The Company also issued to the licensor a warrant for the purchase of 500,000 shares of common stock at an exercise
price of $0.42 per share that expires May 22, 2013. These warrants were valued at $353,500.

The $50,000 initial fee is fully credited towards future
royalty or sublicensing revenue payments to the Licensor. This fee has been accounted for as a deposit and is included in other assets at January 31, 2009.

The $16,228 reimbursement costs and the $353,500 value of the 500,000 warrants discussed above were capitalized as licensing rights and are being amortized over a period of ten years. Accumulated amortization on the licensing rights at
January 31, 2009 totaled $28,340. The Company agreed to pay to the Licensor a royalty on net sales of licensed products as follows:



|                                |  |                    |  
|------------------------------- |  | ------------------ | -
|Net Sales                       |  | Applicable Royalty |  
|Up to $10 million               |  | 25                 | %
|Over $10 million to $49 million |  | 15                 | %
|Over $49 million                |  | 10                 | %

The Company also agrees to pay to the Licensor a percentage of sublicensing revenue received from sub-licensees or
other third parties in regards to the licensed patents, equal to 33% of any such third party payments, which may be reduced to 25% if the Company completes pre-clinical studies on a licensed product, reduced further to 20% if the Company completes
Phase I clinical studies, reduced further to 17% if the Company completes Phase II clinical studies, and reduced further to 10% if the Company completes Phase III clinical studies on a licensed product.

The Company agreed to pay a $20,000 annual maintenance fee to the Licensor, starting in May 2009 and payable in each following May as long as the agreement is in force.
The maintenance fee payments will be fully credited towards future royalty or sublicensing revenue payments to the Licensor.

The Company agreed to pay a
$50,000 annual minimum royalty to the Licensor, starting in May 2009 and payable in each following May as long as the agreement is in force. The minimum royalty fee payments will be fully credited towards future royalty or sublicensing revenue
payments to the Licensor.

Lastly, the agreement provides that the Company will make the following minimum milestone payments to the Licensor, with respect
to the first licensed product to achieve each milestone. However, if new licensed products are separately patentable, the same milestone payments shall apply to them.



|                                                                      |  |                                                                      
|--------------------------------------------------------------------- |  | ---------------------------------------------------------------------
|Clinical Indication                                                   |  | Medical Device                                                       
|$25,000 upon filing of IND                                            |  | $25,000 upon filing of FDA 510K or PMA                               
|$100,000 upon completion of Phase I clinical trial                    |  | $250,000 upon receipt of FDA or foreign equivalent marketing approval
|$200,000 upon completion of Phase II human clinical trial             |  |                                                                      
|$300,000 upon completion of Phase III human clinical trial            |  |                                                                      
|$500,000 upon receipt of FDA or foreign equivalent marketing approval |  |                                                                      

As of January 31, 2009, the Company has not met any of the milestones identified above and therefore has not
incurred any liabilities related to this licensing agreement. The Company expects to have to pay $25,000 under this agreement at the completion of the Traumatic Brain Injury/ Spinal cord trial and we expect this to be completed sometime in the first
quarter of fiscal 2012. The Company expects to pay an additional $50,000 during the second quarter of calendar 2009 under this agreement because of the development of a wound product (medical device) and a dermatology product (wound device).

In September 2008, the Company assigned all of its patent rights on glucose monitoring technology to Glucometrics, Inc. The agreement calls for
Glucometrics, Inc to have exclusive rights to this technology for the entire life of the patent. In exchange for the use of these patent rights the Company acquired a ten percent interest in Glucometrics, Inc and acquired the right to receive
royalty payments on revenues generated by any product developed by Glucometrics that uses our glucose monitoring technology. The patents assigned to Glucometrics. Inc had a cost of $180,751 and had accumulated amortization of $107,373. The Company
valued the entire investment in Glucometrics, Inc at $100,000, The Company believes that $100,000 represents the fair value of assets received from Glucometrics in an arms-length- agreement. The Company has recognized a gain on the assignment of
patent rights in the amount of $26,622. In the future, the Company will recognize in revenue any royalty payments received as part of this agreement. The Company records all such equity acquisitions using the cost method.

One of the officers of Glucometrics, Inc is a former employee of Synthetic Blood International and did extensive research work under the guidance of Dr. Leland
Clark, Founder of Synthetic Blood International. Both he and Dr. Richard Kiral, President and Chief Operating Officer of Oxygen Biotherapeutics, Inc worked on Dr. Clarks team during the same period of time.

The Glucometrics, Inc agreement calls for royalties to be paid to Oxygen Biotherapeutics, Inc as follows:

Net sales related to the marketing of an implantable licensed product:



|                                |  |                    |  
|------------------------------- |  | ------------------ | -
|Net Sales                       |  | Applicable Royalty |  
|Up to $10 million               |  | 10                 | %
|Over $10 million to $49 million |  | 8                  | %
|Over $49 million                |  | 6                  | %

Net sales related to the marketing of a non-implantable licensed product:



|                                |  |                    |  
|------------------------------- |  | ------------------ | -
|Net Sales                       |  | Applicable Royalty |  
|Up to $10 million               |  | 8                  | %
|Over $10 million to $49 million |  | 6                  | %
|Over $49 million                |  | 4                  | %



8



---

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTSCONTINUED

(UNAUDITED)



5. STOCKHOLDERS EQUITY

During the nine months ended January 31, 2009:



|(1) | The Company issued 27,343,205 shares of common stock for the conversion of notes payable with a gross carrying value of $7,093,526, at a conversion price of $0.247 per share. These
notes included discounts totaling $6,334,234, and thus had a net carrying value of $759,292. The unamortized discounts of $ 6,334,234 was recognized as interest expense upon conversion.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Pursuant to the exercise of warrants, the Company issued 8,163,000 shares and received a total of $2,225,624. Due to errors made by the Company in the pricing of certain warrant
exercise transactions, $140,000 of this total is owed back to the related investors. The Company has included this obligation in current liabilities. Additionally, the Company is owed $12,500 for a similar warrant exercise pricing error with another
investor. This amount has been expensed as a bad debt, as the Company does not intend to take further action to collect this receivable.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The Company issued 126,000 shares of its common stock as compensation to its Chief Executive Officer, valued at $73,780.
|--- | ------------------------------------------------------------------------------------------------------------------------



|(4) | The Company issued 411,250 shares of its common stock to Fiona International at a price of $0.27 per share for a total value of $296,100 in payment for consulting services related
to licensing of the Companys Oxycyte product and other corporate matters.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | The Company issued a total of 5,520,000 options to employees as compensation during the nine-month period ending January 31, 2009 which included 4,000,000 shares to the Chief
Executive Officer for services rendered in relation to the negotiating of a royalty agreement. The 5,520,000 options had exercise prices ranging from $0.245 to $0.720 and also contained three-year terms. The company charged $1,577,679 to
compensation expense during the nine-month period ending January 31, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On June 17, 2008, the stockholders of the Company
approved the amendment of the Companys 1999 Stock Plan to increase the number of shares of common stock available for awards under the plan from 4,000,000 to 12,000,000, increase the maximum number of shares covered by awards granted under the
plan to an eligible participant from 4,000,000 shares to 5,000,000 shares, and make additional technical changes to update the plan. Persons eligible to receive grants under the Plan consist of all of the Companys employees (including
executive officers and employee directors), non-employee directors, and consultants and advisors who perform services for the Company.

The following table
summarizes the Companys stock warrant information during the nine month period ended January 31, 2009:



|                                   |  |                                             |   |  |                              |     
|---------------------------------- |  | ------------------------------------------- | - |  | ---------------------------- | ----
|                                   |  | The nine month period EndedJanuary 31,
2009
|                                   |  | Warrants                                    |   |  | WeightedAverageExercisePrice
|Outstanding as of April 30, 2008   |  | 125,647,919                                 |   |  | $                            | 0.25
|Granted                            |  | 3,532,000                                   |   |  |                              | 0.27
|Exercised                          |  | (8,163,000                                  | ) |  |                              | 0.27
|Forfeited                          |  | (2,500                                      | ) |  |                              |    
|                                   |  |                                             |   |  |                              |     
|Outstanding as of January 31, 2009 |  | 121,014,419                                 |   |  | $                            | 0.25
|                                   |  |                                             |   |  |                              |     

As of January 31, 2009, potentially issuable shares of common stock included 13,305,000 options and
121,014,419 warrants.

6. RELATED PARTY TRANSACTIONS

During the nine months ended January 31, 2009, the Company paid $ 88,238 in severance payments to Robert Nicora, a former President and Chief Executive Officer of the Company.



9



---

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTSCONTINUED

(UNAUDITED)



7. INCOME TAXES

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. Interpretation No. 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with Interpretation No. 48 involves determining
whether it is more likely than not that a tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount
of benefit to recognize in the financial statements. If a tax position does not meet the more-likely-than-not recognition threshold, the financial statements do not recognize a benefit for that position.

As required, the Company adopted Interpretation No. 48 during the quarter ended July 31, 2007. The adoption did not result in a material impact to the
Companys results of operations or its financial condition.

The Company is subject to taxation in the U.S. and a small number of state jurisdictions.
The material jurisdictions subject to potential examination by taxing authorities include the U.S. and California.

From time to time, the Company may be
assessed interest or penalties by its tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Companys financial results. In the event the Company has received an assessment for interest and/or
penalties, it has been classified in the financial statements as general and administrative expense.

The utilization of net operating loss carry forwards
will likely be limited based on past and future issuances of common and preferred stock due to the ownership change provisions of Internal Revenue Code Section 382.

8. COMMITMENTS AND CONTINGENCIES

Employment Agreements  Effective March 25, 2008,
Dr. Chris J. Stern, the Companys Chairman of the Board, was appointed to the office of Chief Executive Officer and will retained his position as Chairman. At the time Dr. Stern was elected to the Board in November 2007 and
appointed Chairman, the Company agreed to pay to Dr. Sterns consulting firm a monthly fee of $15,000 for consulting services that Dr. Stern provides to the Company, issued to him options to purchase 1,000,000 common shares at an
exercise price of $0.245 per share that expire three years from the grant date, and subsequently issued to him in September 2008 under his agreement with the Company options to purchase an additional 4,000,000 common shares at an exercise price of
$0.245 per share that expire three years from the grant date. As a result of Dr. Sterns appointment as Chief Executive Officer, the Board has agreed to pay Dr. Sterns consulting company an additional $5,000 per month by way of
consulting fees and also to pay the consulting company $2,500 per month for additional secretarial and administration expenses. Furthermore, the Board also agreed (i) to issue to Dr. Stern an aggregate of 14,000 shares of the
Companys common stock on the 1st of every month, commencing with April 1, 2008, for so long as Dr. Stern serves on the Board, and (ii) to issue and pay to Dr. Stern, upon his termination as a board member by the Company for
whatever reason, with or without cause, an aggregate of 100,000 shares of the Companys common stock and the sum of $200,000, payable upon such termination.



10



---

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTSCONTINUED

(UNAUDITED)



8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

On February 1, 2000 the Board of Directors approved a two-year employment contract with Dr. Richard Kiral, as Vice President of Product Development. Dr. Kirals current base annual salary is $247,000
for the year ending April 2009 and includes an automobile allowance, medical and dental coverage, participation in the Executive Bonus Plan, $200,000 life insurance payable by the corporation and payable to a beneficiary named by the insured, and
options granted for 75,000 shares annually. The contract will renew automatically annually unless terminated by either party. Dr. Kirals employment agreement provides that he is to receive a minimum severance payment equal to 9 months of
his annual salary period in the event of a change in control as defined. Effective March 25, 2008, the Board appointed Dr. Kiral to serve as President and Chief Operating Officer of the Company. Pursuant to an agreement executed on
March 26, 2008, Dr. Kirals employment agreement with the Company has been amended to provide for payment of a sum equal to Dr. Kirals annual base salary in the event of Dr. Kirals termination without cause, as
that term is defined in the employment agreement. Furthermore, the Board has increased Dr. Kirals monthly compensation by $6,000 and has agreed to (i) to issue to Dr. Kiral an aggregate of 20,000 options to purchase shares of
the Companys common stock, at a price to be determined, on the 1st of every month, commencing with April 1, 2008, for so long as Dr. Kiral serves on the Board, and (ii) to issue and pay to Dr. Kiral, upon his termination as
a board member by the Company for whatever reason, with or without cause, an aggregate of 100,000 shares of the Companys common stock and the sum of $200,000, payable upon such termination.

Effective November 20, 2007, Robert W. Nicora, the Companys President, Chief Executive Officer and Chief Financial Officer resigned from all officer positions
and from his directorship. In accordance with his employment agreement, Mr. Nicora is entitled to receive a total amount of $378,233 which includes accrued salaries, repayment of advances and severance payments. A total of $88,238 was paid on
this obligation during the current nine month period and the Company has a $15,000 obligation on this agreement as of January 31, 2009.

Effective
September 26,2008, The Board of Directors approved the appointment of Charles H. Seeman to the position of Chief Financial Officer and Executive Vice President, Finance and Administration. In accordance with his employment agreement,
Mr. Seeman is entitled to receive a base salary of $100,000, a $800 a month car allowance and upon approval of the Chief Executive Officer a grant to purchase 50,000 shares of the Company stock at a price of $.460 per share and additional
grants of 50,000 shares each at each successful completion of each year of service. Mr. Seeman is also entitled to receive a bonus equal to 10 percent of his base salary for each year of service upon the approval of the Chief Executive Officer.

Consulting AgreementOn May 5, 2008 the Company entered into a consulting agreement with Fiona International SA for the provision of
consulting services concerning licensing of the Companys Oxycyte product and other corporate matters. The agreement was effective through August 4, 2008, and involved the following remuneration: (a) Cash payments during the current
quarter totaling $87,500; (b) the issuance of 3,032,000 five year common stock purchase warrants with an exercise price of $0.247 during the current quarter; (c) and the issuance of 411,250 shares of common stock on August 1, 2008. At
January 31,2009, the Company did not have any obligation under this agreement.

Other AgreementsThe Company has entered into agreements
with two of its Board members and a consultant whereby it will grant 3-year options for a total of 1,800,000 shares at an exercise of price of $0.30 per share in the event the Company enters into a license agreement, undergoes a change of control,
or is sold.

As a result of the Glucometrics, Inc licensing agreement; Dr. Bruce Spies (board member), Dr. Gerry Klein (board member) and
Dr. Ross Bullock (consultant) received these options. Each board member received his shares in two installments: 300,000 shares dated March 26, 2008 and an additional 300,000 shares each dated September 24, 2009. All of these options
carry a 3 year expiration date.

Registration RequirementWarrants totaling 49,410,844 and convertible notes with a face amount of $20,256,472
and conversion shares totaling 82,010,008 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. As of March 12, 2009, the Company has received signed waivers from all but four of these warrant holders and the company believes it does not have any obligation under this agreement.

The agreement underlying the issue of the above warrants (Warrant Agreement) asserts that, prior to September 30, 2008, the Company is required to take
action to submit to the shareholders of the Company a proposal to amend the Companys articles of incorporation to increase the number of authorized shares of common stock by such amount as is necessary to reserve for issuance the maximum
aggregate number of warrant shares then issued or potentially issuable in the future upon exercise of the Warrant Agreement. As a result of the June 30, 2008 merger (further described in Note 9), this action was completed and the number of
authorized common shares was increased from 200 million common shares, par value $0.01, to 400 million common shares, par value $0.0001. The Company has withdrawn the registration statement and is currently in the process of resolving the
registration requirement issue with the holders of the notes and warrants.



11



---

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTSCONTINUED

(UNAUDITED)



9. MERGER

On
June 17, 2008, the stockholders of Synthetic Blood International, Inc. approved the Agreement and Plan of Merger dated April 28, 2008 (Plan of Merger), 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, Synthetic Blood International has been merged with and into Oxygen Biotherapeutics,
which is the surviving corporation. As a result of the merger: (a) each share of Synthetic Blood International common stock outstanding on June 30, 2008, has been converted to one share of Oxygen Biotherapeutics common stock; (b) the
name of the corporation is changed to Oxygen Biotherapeutics, Inc.; (c) the number of authorized common shares changed from 200,000,000 common shares, par value $0.01, to 400,000,000, par value $0.0001; (d) the Certificate of Incorporation
and Bylaws of Oxygen Biotherapeutics are now the charter documents for the corporation; and (e) the General Corporation Law of the State of Delaware now applies to the corporation, rather than the New Jersey Business Corporation Act.

10. SUBSEQUENT EVENTS

On January 23, 2009 the
company received a letter from the United States Food and Drug Administration (FDA) claiming two deficiencies still pending in our Traumatic Brain Injury indication proposal. The Company disagrees with the FDAs interpretation of data and on
February 4, 2009 submitted rebuttal to the FDAs claim. On February 10, 2009 the Company asked the FDA CBER Ombudsman to mediate in the process.

The Board of Directors approved a new employment agreement with Mr. Stern effective February 1, 2009, that supercedes all prior compensatory arrangements with Mr. Stern and his associates. The agreement is effective for a
one-year term commencing February 1, 2009, and automatically renews for additional one-year terms, unless Mr. Stern terminates the agreement in advance of renewal or the Company gives Mr. Stern at least 120 days advance notice that it
elects not to renew at the end of the then current term. Under the agreement Mr. Stern will receive as compensation:



| |  |  | Annual base salary of $300,000;
| | - |  | -------------------------------



| |  |  | Cash bonus equal to one percent of base salary for each two percent of the Companys annual goals and/or milestones achieved, which are established annually by
the Board of Directors; provided, that no bonus is paid unless at least 100 percent of annual goals and/or milestones are achieved (the Board has not yet established 2009 annual goals or milestones on which to base the payment of any bonus);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 14,000 shares of the restricted common stock of the Company on a monthly basis (a total of 168,000 shares per year);
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | Fixed monthly automobile allowance of $800;
| | - |  | -------------------------------------------



| |  |  | Fixed payment of $2,500 per month for secretarial and related office support; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Other employee benefits.
| | - |  | ------------------------

If Mr. Stern ceases
to be a director of the Company for any reason, he is entitled to receive $200,000 in cash and 100,000 restricted common shares. Furthermore, if Mr. Stern is terminated without cause or Mr. Stern terminates the agreement for good reason,
then he is entitled to receive one-year of base salary, all bonuses then payable, and the economic value of the replacement cost for one-year of the other benefits under the agreement, and he has 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. In connection
with the adoption of this agreement, the Company agreed that options previously issued to Mr. Stern to purchase 1,000,000 common shares at an exercise price of $0.245 per share that originally expired in November 2010 are extended to November
2017, options to purchase 4,000,000 common shares at an exercise price of $0.245 per share that originally expired in September 2011 are extended to September 2018, and all of the options are amended to allow for cashless exercise
through conversion of the options to common shares based on the difference between market price and exercise price.

On February 22, 2009 the Company
signed a memorandum of understanding (MOU) with Virginia Commonwealth University to jointly establish the Purple Heart Injury Lab (PHIL) to focus on development of battlefield injury treatment and then translate such treatments for civil commercial
use. The MOU requires that the two organizations develop a business plan for the operation of PHIL within ninety (90) days of the signing of this MOU. To fund the PHIL initiative, on February 22, 2009 the Company filed a Senate Defense
Appropriation request for $15 million in federal funding for the PHIL initiative.



12



---

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

Overview

Since 1990, Oxygen Biotherapeutics has pursued the development of medical products based on
perfluorocarbon technology. These products include Oxycyte, a synthetic oxygen carrier substance, and Fluorovent, an oxygen exchange fluid for facilitating the treatment of lung conditions. Since 1993 Oxygen Biotherapeutics has also
pursued development of a glucose biosensor implant, which we recently licensed to a third party for development. In September 2008 we engaged a researcher to pursue application of the same perfluorocarbon oxygen carrier technology to development of
topical wound healing therapies.

The nature of our business is to spend years in development and testing of pharmaceutical and medical
device products, take products through to the stage of 2-B trials with the United States Food and Drug Administration (FDA) and after 2B trials have been completed we then contract with a major pharmaceutical manufacturer to market and distribute
the product under royalty contract. During the periods of development and regulatory review we have no product to sell and no revenue. Nevertheless, we incur substantial costs pursuing this process, which requires cash that comes from outside
sources. We rely on outside financing to fund our operations, and will for the foreseeable future. That means we must continue to show progress with our products and be able to locate investors willing to commit their funds to a speculative venture
that will ultimately be successful only if we can actually bring a product to market and gain a meaningful level of market acceptance and penetration. Because of these factors a larger number of biotechnology products under development fail, and
there is no assurance that the products we have under development will not suffer the same fate.

We received approval of the
Investigational New Drug application we filed with the FDA on Oxycyte and began Phase I clinical tests in October 2003. We completed the clinical tests in December 2003. The results of the Phase I tests were in line with our safety and efficacy
expectations for the performance of Oxycyte. We started Phase II testing in 2004.

Five clinical sites received local Institutional Review
Board approval to participate in the first Phase II trial with Oxycyte in hip surgery patients. In this first Phase II trial we were evaluating both efficacy and safety in the prevention of tissue hypoxia (the effects of reduced oxygen levels) in
hip surgery patients who experience mild to moderate blood loss during surgery. We closed this study in 2006 due to a lack of enrollment.

A Phase II-A trial in severe brain injury patients was started in 2006 and has been completed with good results. The Phase II-B trial protocol was filed in April 2008. In October 2008, we met with the FDA regarding the trial protocol. The
FDA requested additional information on the patient experience of the participants in the Phase II-A trial for purposes of evaluating potential side-effects associated with the use of Oxycyte, including thrombocytopenia, which is a deficiency of
platelets in the blood that could then cause bleeding into the tissues, bruising and or slow blood clotting after injury. We collected the information and submitted a response to the FDA; which we believe addressed all of their concerns and included
an additional proposal for conducting a dosing study. The FDA responded that they felt that there were still two deficiencies outstanding and we have engaged the FDA Ombudsman to review our documentation and mediate the process on our behalf. In
conjunction with the application to conduct trials in the United States, we have initiated the process to conduct the same study in Switzerland. We believe that even though the process is different in Switzerland; the information obtained in the
Swiss study can be used in the United States as well. The goal of Swiss dosing study is to show that lower doses of Oxycyte can achieve acceptable therapeutic results. Our objective is to file a Phase II-B type study with Swiss-med during the second
quarter of calendar year 2009, and simultaneously work on resolving the issues with the U.S. FDA. We have also been working on a Phase II protocol for a study in patients with sickle cell pain crisis to be filed with the FDA, but we do not plan on
pursuing that filing until our other Phase II-B protocol is approved by the FDA. Our future plans include testing Oxycyte in stroke, myocardial infarction, malignant tumors, trauma, coronary bypass surgery and decompression sickness. We expect Phase
II studies will continue through the end of 2011, at a minimum, after which Phase III studies may be able to commence depending on results of Phase II trials. The business model of the Company is to develop indications and then out-license them to a
partner once they are ready to begin Phase III trials.

While pursuing Oxycyte, we are increasing our focus on a new application of
perfluorocarbon oxygen carrier technology to therapies applied to the skin, rather than infused, for treating wounds and abrasions. To that end we recently licensed certain technology related to that application from Virginia Commonwealth University
and engaged the services of an independent consultant to pursue research and development of the therapies. Also the Company has developed a wound dressing in gel form and is currently in the FDA filing process for this topical wound dressing; which
we believe will qualify as a non-prescription drug.

Fluorovent is still at the animal testing stage and we have not filed any applications
with the FDA for human testing of this product. Since we will likely devote less of our time and resources to advancing this product because of the priority placed on Oxycyte and topical therapies, we do not expect we will be in a position to file
any application for this product with the FDA in the near future. Since our priority for the foreseeable future is Oxycyte and topical wound therapy, the following discussion of our business focuses primarily on those products.

Our biosensor implant is still at the animal testing stage of development and we have not filed any applications with the FDA for human testing. Since we
do not expect to commit significant resources to development of this technology in the foreseeable future, we recently licensed the technology to an unrelated party who is more focused on research and development in the area of glucose testing and
related technologies.

Results of operations  Quarter ended January 31, 2009 compared to quarter ended January 31, 2008

Research and Development expenses for the three months ended January 31, 2009 were $440,077 as compared to $222,142 for the same period in the
prior year. The bulk of this increase, $133,511, was due to costs associated with Oxycete development and the additional costs related to conducting the Phase II-A and Phase II-B study in Traumatic Brain Injury (TBI) . General and Administration
expenses for the three month period ended January 31, 2009 were $523,463 as compared to $635,915 for the same period in the prior year. The bulk of this decrease was due to a decrease in the value of stock options issued. Finally the company
recorded an additional $6,183,013 in interest cost in the quarter-ended January 31, 2009 as compared to the quarter-ended January 31, 2008. The reason for this $6,183,013 increase in interest cost was due to the Company exchanging its
convertible debt instruments into common stock and the related recording of unamortized discounts on these notes as interest expense when converted. Overall the Company reported a net loss of $8,356,519 during the quarter-ending January 31,
2009 as compared with net loss of $2,325,379 for the same period in the prior year.

Results of operations  nine month period ended
January 31, 2009 compared to nine month period ended January 31, 2008

Research and development expenses for the nine month
period ending January 31, 2009 were $972,534 as compared to $492,505 for the same period in the prior year. Approximately one-half of this increase was again due to costs associated with Oxycete development and the additional costs related to
conducting the Phase II-A and Phase II-B study in Traumatic Brain Injury (TBI) General and Administrative expenses for the nine-month period ending January 31, 2009 were $5,462,636 as compared to $1,028,029 for the same period in the prior
year. $1,416,105 of this increase was due to the issuance of stock options to key employees. The Company also incurred additional costs of $2,298,930 related to the use of professional consultants to help resolve regulatory issues and an additional
$332,902 to help manage the FDA trials . Finally the Company recorded an additional $7,668,229 in interest cost during the nine month period ending January 31, 2009 as compared to the same period ending January 31, 2008. The reason for
this $7,668,229 increase in interest cost was due to the Company exchanging its convertible debt instruments into common stock and the related recording of unamortized discounts on these notes as interest expense when converted. Overall the Company
reported a net loss of $16,516,812 during the nine-month period ending January 31, 2009 as compared with net loss of $4,284,545 for the same period in fiscal year 2008. Because of the nature of our ongoing research and development activities
and depending on our cash flow levels, accounting periods may reflect significant changes in expenses resulting from the timing of research related to our developmental products.



13



---

Liquidity, capital resources and plan of operation

We have financed our operations since September 1990 through the issuance of debt and equity securities and loans from stockholders. As of
January 31, 2009 we had $4,279,572 of total current assets and working capital of $3,679,163. Our practice is to invest excess cash, where available, in short-term money market investment instruments.

During the third quarter of fiscal year 2008, the Company exchanged its outstanding short term loans for five-year convertible notes with a face amount
of $6,204,767. The notes are unsecured, convertible into shares of common stock at $0.247 per share, and were issued with a 55% original issue discount totaling $3,412,622. In addition, the Company issued five-year warrants to purchase 12,560,257
shares of common stock at $0.247 per share to investors. Additional discounts of $1,739,499 and $1,052,646 were recorded for the relative fair values of the warrants and beneficial conversion feature, respectively. Pursuant to this exchange
transaction, the Company recorded a debt extinguishment loss of $250,097.

During the third and fourth quarters of fiscal year 2008, the
Company received a total of $6,335,000 in cash from the sale of convertible notes, with a total face amount of $14,077,778. The notes are convertible at any time prior to maturity into a total of 56,995,053 shares of common stock, or at a conversion
rate of $0.247 per share. In connection with the issuance of these obligations, the Company recorded a 55% original issue discount of $7,742,778, and additional discounts of $4,864,998 related to the relative fair value of the 28,497,501 five-year
warrants to purchase common stock at $0.247 per share that were issued in the transaction, and $1,470,002 for the relative fair value of the embedded beneficial conversion feature. The Company also incurred total costs of $5,510,562 for capital
raising services on these transactions. The costs of the capital raising services include a $369,215 cash fee, plus $768,337 for the fair value of 2,088,272 restricted shares of common stock, plus $4,373,010 for the fair value of warrants to
purchase 21,853,086 common shares at prices ranging from $0.20 to $0.28.

During the nine month period ended January 31, 2009, the
Company issued 27,343,205 shares of common stock for the conversion of notes payable with a gross carrying value of $7,093,526, at a conversion price of $0.247 per share. These notes included discounts totaling $6,334,234, and thus had a net
carrying value of $759,292. The unamortized discounts of $6,334,234 was recognized as interest expense upon conversion.

During the nine
months ended January 31, 2009, net cash provided by financing activities was $2,245,624, which included $2,225,625 proceeds from the exercise of warrants, plus an additional $19,999 in financing from a short term note. Of the $ 2,225,624
proceeds received from warrant exercises, we returned $140,000 due to a pricing error in the exercise. Net cash of $ 2,720,324 was used to fund operating activities and $ 260,182 was used for investing activities, which included $11,466 in lab
equipment expenditures, $ 70, 028 for the purchase of licensing rights on three patents and other patent additions, and the remaining $12,165 on other equipment. Consequently, our cash and cash equivalents increased from $4,880,633 at April 30,
2008 to $4,146,010 at January 31, 2009. We do not have any lines of credit or other borrowing arrangements with lenders.

We are in
the pre-clinical and clinical trial stages in the development of our products. Under an Investigational New Drug application filed with the FDA, we completed Phase I clinical studies on Oxycyte in December 2003. The results of the Phase I study were
in line with our expectations for the performance of Oxycyte. We submitted a report to the FDA along with a Phase II protocol, received FDA approval, and started Phase II testing in the fourth quarter of 2004, which is expected to continue through
2009 for Phase II-b studies in severe traumatic brain injury. Even if we are successful with our Phase II 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 products, Fluorovent and the glucose biosensor, 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. 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 2009 depends on achieving license income, or obtaining outside financial resources. There is no assurance that needed license agreement, or financing will
occur or that we will succeed in obtaining the necessary resources.

We are entirely dependent on outside financing to continue our
operations. We will not generate operating revenue unless and until one of our products is approved for commercial sale and sales activity begins. We will require substantial additional funds to complete clinical trials, pursue regulatory approval
for our products, establish commercial scale manufacturing capabilities, and establish marketing, sales, and administrative capabilities. Expenditures for these purposes will result in substantial losses for at least the next several years. The
expense and the time required to realize any product revenues or profitability are highly uncertain. We cannot ensure that we will be able to achieve product revenues or profitability on a sustained basis, or at all. The foregoing factors highlight
that the Company must achieve license agreements, or additional financing by end of 2009.

We do have the
working capital necessary to fund our operations through the first quarter of calendar year 2010. We believe that as early as July 31, 2009, latest end of 2009 we will need additional financing to cover administrative expenses and on-going
expenses of testing Oxycyte. 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 time. Furthermore, management is hoping to generate income
in 2009. Should we be unable to obtain additional financing, or income, to meet mid-term needs, we may be forced to cease operations. Our ability to continue as a going concern depends on success of these activities.

Critical accounting policies

Our discussion and
analysis of our financial condition and results of operations is based upon the financial statements presented in this report, which have been prepared in accordance with Accounting Principles Generally Accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate our
estimates, including those related to stock-based compensation and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial
statements:

Stock-Based CompensationWe account for stock-based compensation as prescribed by of SFAS No. 123R,
which requires stock options and warrants issued to employees and nonemployees to be valued using the fair value method. Under the fair value based method, compensation cost is recorded based on the value of the award at the grant date and is
recognized over the service period.

The fair value of each option and warrant grant was estimated at the grant date using the
Black-Scholes option-pricing model. The BlackScholes option valuation model was developed for use in estimating the fair value of traded options and warrants that have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions, including the expected stock price volatility and expected term.

Convertible NotesIf the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature
(BCF). A BCF is recorded by the Company as a debt discount pursuant to EITF Issue No. 98-5 (EITF 98-05), Accounting for Convertible Securities with Beneficial Conversion Features or Contingency Adjustable Conversion
Ratio, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5 to Certain Convertible Instruments. In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. The Company amortizes the
discount to interest expense over the life of the debt using the effective interest method.



14



---

Registration Payment ArrangementsIn connection with prior private placements of our common
stock and warrants to purchase shares of our common stock, we entered into agreements that committed us to timely register the shares of common stock purchased as well as the shares underlying the issued warrants. Those registration agreements
specified potential cash penalties if we did not timely register the related shares with the SEC. In accordance with EITF 00-19, Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Companys Own
Stock, when the potential cash penalties were included in registration payment arrangements, the estimated fair value of the warrants would be recorded as a liability, with an offsetting reduction to additional paid-in capital received from
the private placement. The fair value of the warrants would be estimated using the Black-Scholes option pricing model. EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those
arrangements that we enter into or modify after the date of issuance of this FSP. For our registration payment arrangements and financial instruments subject to those arrangements that were entered prior to the issuance of this FSP, the guidance was
effective beginning January 1, 2007.

Long-Lived Assets  Our intangible assets consist of patents related to our various technologies.
These assets are amortized on a straight-line method over their estimated useful life, which ranges from eight to ten years. We review these intangible assets for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS 144).

FORWARD LOOKING STATEMENTS

Except for the historical information contained herein, the discussion and information presented in this report contain forward-looking statements that involve risks and uncertainties. Oxygen Biotherapeutics
actual results could differ materially from those presented in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section and those discussed in the
Oxygen Biotherapeutics Annual Report on Form 10-K for the year ended April 30, 2008 and subsequent filings made with the Securities and Exchange Commission.

Although Oxygen Biotherapeutics believes that the expectations reflected in the forward-looking statements are reasonable, Oxygen Biotherapeutics cannot guarantee future results, levels of performance or achievements.
Moreover, neither Oxygen Biotherapeutics nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Oxygen Biotherapeutics is under no obligation to update any of the forward-looking statements
after the filing of this report to conform such statements to actual results or changes in expectations.



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

This Report includes the certifications
of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the Exchange Act). See Exhibits 31.1 and 31.2. This Item 4T includes information concerning the controls and
control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), are designed to ensure that
information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission
(SEC), and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this report, Oxygen Biotherapeutics management, under the supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer, assessed the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2009. Because of the material weaknesses in our internal control over financial reporting
described below, our Chief Executive Officer and Chief Financial Officer conclude that our disclosure controls and procedures were not effective as of January 31, 2009.

Material Weaknesses

In our annual report on Form 10-K for the year ended April 30, 2008, we reported that our
disclosure controls and procedures were not effective as of April 30, 2008, because of material weaknesses in our internal control over financial reporting. A material weakness is defined under SEC rules as a deficiency, or a
combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a companys annual or interim financial statements will not be prevented or detected on a
timely basis by the Companys internal controls. As a result of managements review and evaluations that were completed after the end of fiscal year 2008 related to the preparation of managements report on internal controls over
financial reporting required for this annual report on Form 10-K, management concluded that we had material weaknesses in our control environment and financial reporting process consisting of the following:



| |  |  | We have incompatible duties in our cash disbursement process. Due to our small staff and historically limited financing, our President has had to maintain
responsibility for check signing and authorizing invoices and purchase orders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have not always consistently maintained final, complete and executed copies of significant contracts, including financing agreements, warrant and option
agreements, and note agreements. We rely on a very small staff, and have been a party to numerous complex financing transactions that required significant changes to terms, which were not clearly and effectively processed and recorded as they
occurred.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Given our cash position for most of fiscal year 2008 and the limited number of accounting resources available to us, we did not maintain sufficient accounting
personnel knowledgeable in US Generally Accepted Accounting Principles, did not measure board committee performance against established charters, have not implemented an anonymous whistle-blower process, and did not utilize a formal financial
reporting close process that ensured sufficient levels of review of all key financial statement account reconciliations, significant judgments/estimates and period end financial statements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Changes in Internal Controls

The changes in Oxygen
Biotherapeutics internal control over financial reporting during the three-month period ended January 31, 2009, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.



| |  |  | During the 3rdquarter of 2009 we added a computer server that will be used to maintain all corporate documents. We also developed a program to track changes in company debt and equity instruments. Also during the current quarter we developed a high-level
Sarbanes-Oxley test plan and developed an employee handbook that stresses the importance of internal controls in each job function.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Managements conclusions regarding material weaknesses disclosed in our Form 10-K for the year ended April 30, 2008, were reached at the end of the first quarter of fiscal year 2009. Following the end of the first quarter, our
management has pursued, and will continue to pursue, implementation of corrective measures to address the material weaknesses described above. These measures, outlined below, are intended both to address the identified material weaknesses and to
enhance our overall financial control environment.



| |  |  | We are adding administrative staff. The addition of administrative staff will facilitate the design and implementation of document collection and retention
procedures with respect to the agreements and documents generated in our financing and business activities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



---

| |  |  | In fiscal year 2009 the Board of Directors intends to review existing committee charters, implement evaluation programs called for by the charters, and evaluate
what changes, if any, are necessary or appropriate to make the functioning of Board committees more effective and meaningful.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We will examine options for an anonymous whistle blower process or system that is practical and meaningful in light of the fact that we have only four full-time
employees who do have regular access to, and communication with, our executive officers and directors.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe the remediation
measures described above will, if we can effectively implement the measures, remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal
control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take
additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.

Part II-Other Information



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

Oxygen Biotherapeutics is not presently
involved in any legal proceedings and was not involved in any such proceedings during the nine-month period ended January 31, 2009.



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

None.



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

None.



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

None.



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

None.



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



| | (a) | Exhibits:
| | --- | ---------



|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|     | 
|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 Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.



|              |  |                                           
|------------- |  | ------------------------------------------
|              | 
|              |  | OXYGEN BIOTHERAPEUTICS INTERNATIONAL, INC.
|              | 
|March 13 2009 |  | /s/ Chris J. Stern                        
|              |  | Chris J. Stern, Chief Executive Officer   
|              |  | (Principal Executive Officer)             



|              |  |                                               
|------------- |  | ----------------------------------------------
|              | 
|March 13 2009 |  | /s/ Charles H. Seeman, CPA                    
|              |  | Charles H. Seeman, CPA Chief Financial Officer
|              |  | (Principal Financial Officer and Principal    
|              |  | Accounting Officer)                           



16