<PAGE>   1
                       SYNTHETIC BLOOD INTERNATIONAL, INC.


                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.



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

For the quarterly period ended  January 31, 1998

Commission File Number        2-31909

                       SYNTHETIC BLOOD INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

           New Jersey                                     22-3067701
     (State of Incorporation)                      (IRS Employer ID Number)

                  2685 Culver Avenue   Kettering, Ohio 45429

                                  937-298-6070
              (Registrant's telephone number, including area code)


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

                                 YES (X) NO ( )

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

                                 YES (X) NO ( )

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1998.

                46,480,950 shares of common stock par value $0.01



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                       SYNTHETIC BLOOD INTERNATIONAL, INC.
                          (A Development Stage Company)
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                            ASSETS

                                 January 31,       April 30,
                                    1998             1997
                                 (Unaudited)       (Audited)
                                 -----------      -----------
<S>                              <C>              <C>        
Current Assets:
  Cash                           $     2,862      $    53,857
  Prepaid Expense                     23,849           17,425
                                 -----------      -----------
    Total Current Assets         $    26,711      $    71,282

Property & Equipment, net            102,217          137,433

Other Assets:
  Patents and Technology             120,851          109,448
                                 -----------      -----------
Total Assets                     $   249,779      $   318,163
                                 ===========      ===========

             LIABILITIES AND STOCKHOLDERS'S EQUITY

Current Liabilities:
  Accrued Expenses               $   449,659      $   473,974
  Stockholders loans                  14,787           75,979
  Accrued Payroll & Other            233,852           50,722
                                 -----------      -----------

Total Current Liabilities        $   698,298      $   600,675

Total Liabilities                $   698,298      $   600,675

Stockholder's Equity:
  Common Stock $0.01 par
   Value: Authorized
   100,000,000 shares
  Issued & outstanding
   46,480,950 & 42,829,500       $   464,809      $   428,295
  Additional Paid in capital       8,116,081        7,576,325
  Deficit Accumulated since
Development Stage                 (9,029,409)      (8,287,132)
                                 -----------      -----------
Total Stockholder's Equity
  (Deficit)                      $ ( 448,519)     $ ( 282,512)
                                 -----------      -----------
Total Liabilities &
  Stockholder's Equity           $   249,779      $   318,163
                                 ===========      ===========
</TABLE>

See accompanying notes to financial statements



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                       SYNTHETIC BLOOD INTERNATIONAL, INC.
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                              Accumulated             Three Months Ended                  Nine Months Ended
                              during the                  January 31,                         January 31,
                              development       ------------------------------      ------------------------------
                                 stage              1998              1997              1998              1997
                              ------------      ------------      ------------      ------------      ------------
                              (Unaudited)                (Unaudited)                         (Unaudited)
<S>                           <C>               <C>               <C>               <C>               <C>         
Expenses:

 Research and
  development                 $  2,901,444      $     26,733      $    156,628      $    109,011      $    440,675

 General and
  administrative                 6,072,039           122,949           165,790           630,711           890,736

 Interest                          105,403               442             2,401             3,731             6,724
                              ------------      ------------      ------------      ------------      ------------

  Total Expense                  9,078,886           150,124           324,819           743,453         1,338,135

           OTHER INCOME            (49,477)             (282)              (68)           (1,176)             (331)
                              ------------      ------------      ------------      ------------      ------------

  NET LOSS                    $ (9,029,409)     $ ( 149,842)      $    324,751)         (742,277)       (1,337,804)
                                                ============      ============      ============      ============
  NET LOSS PER SHARE
         Basic                                  $      (0.01)     $      (0.01)     $      (0.02)     $      (0.04)
         Diluted                                $      (0.01)     $      (0.01)     $      (0.02)     $      (0.04)
  WEIGHTED AVERAGE
   NUMBER OF SHARES
    OUTSTANDING
                  Basic                           46,276,391        38,485,094        44,404,874        32,274,295
                  Diluted                         46,276,391        38,485,094        44,404,874        32,274,295
                                                ============      ============      ============      ============
</TABLE>

                 See accompanying notes to financial statements



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                       SYNTHETIC BLOOD INTERNATIONAL, INC.
                             STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
                                                      Accumulated      Nine months      Nine months
                                                      during the         ended            ended
                                                      development      January 31,      January 31,
                                                         stage            1998             1997
                                                      -----------      -----------      -----------
<S>                                                   <C>              <C>              <C>         
CASH FLOWS FROM OPERATING
  ACTIVITIES:
 Net loss                                             $(9,029,409)     $  (742,277)     $(1,351,554)

Adjustments to reconcile net
  cash used in operating activities:
  Depreciation and amortization                           300,567           62,117           34,718
  Write down other assets                                 126,800
  Issuance of compensatory stk options                    118,500
  Contribution of capital through
   services rendered                                       30,000
Issuance of stock for services rendered                   936,924                           402,675
Issuance of stock below FMV                               720,000          180,000
Changes in operating assets and
    liabilities:
    Prepaid expenses & other assets                       (23,849)          (6,424)           4,791
    Accounts payable and accrued
      expense                                             698,298          158,815          217,484
                                                      -----------      -----------      -----------
      Net cash used in operating
       activities                                      (6,122,169)        (347,769)        (691,886)

CASH FLOWS FROM INVESTING
  ACTIVITIES:
Purchase of other assets                                 (342,914)         (38,304)         (19,060)
Proceeds from the sale of equipment                        15,457
Purchase of property and equipment                       (270,640)
                                                      -----------      -----------      -----------
      Net cash used in investing
       activities                                        (629,011)         (38,304)         (19,060)

CASH FLOWS FROM FINANCING
  ACTIVITIES:
Proceeds from sale of common stock                      5,224,491          266,270          629,500
Payments on capital lease obligations                     (35,765)                          (11,631)
Proceeds from issuance of notes
 payable to stockholder                                   866,254           31,000          (66,825)
Contribution of capital stockholder                        35,700



Proceeds from convertible debentures                      780,000
Repayments of notes payable                              (116,638)          37,808          (42,500)
                                                      -----------      -----------      -----------
      Net cash provided by financing
       activities                                       6,754,042          335,078          642,194

NET DECREASE IN CASH AND CASH
  EQUIVALENTS:                                              2,862          (50,995)          68,752
CASH AND CASH EQUIVALENTS,
  beginning of period                                                       53,857           76,312
CASH AND CASH EQUIVALENTS,
  end of period                                       $     2,862      $     2,862      $     7,560
                                                      ===========      ===========      ===========
Cash paid for Interest                                $   105,403      $     3,731      $     5,724
              Taxes                                         5,600              800              800

SUMMARY OF SIGNIFICANT NON-CASH
  INVESTING & FINANCING ACTIVITIES:
 Issuance of common stock to retire notes                              $    36,000
 Issuance of common stock to retire accrued wages                           94,000
</TABLE>

See accompanying notes to financial statements



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                       SYNTHETIC BLOOD INTERNATIONAL, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

                                January 31, 1998

1.   BASIS OF PRESENTATION

     The accompanying unaudited financial statements contain all adjustments
     (consisting only of normal recurring adjustments) which in the opinion of
     management, are necessary to present fairly the financial position of the
     Company at January 31, 1998 and the results of its operations and its cash
     flows for the three month and nine month periods ended January 31, 1998 and
     1997. Certain information and footnote disclosures normally included in
     financial statements have been condensed or omitted pursuant to rules and
     regulations of the Securities and Exchange Commission although the Company
     believes that the disclosures in the financial statements are adequate to
     make the information presented not misleading.

     The financial statements included herein should be read in conjunction with
     the financial statements of the Company, included in the Company's Annual
     Report on Form 10-K for the year ended April 30, 1997 filed with the
     Securities and Exchange Commission on August 29, 1997.

     Going Concern - The accompanying 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 financial statements, the Company is in the development stage and, at
     January 31, 1998 has accumulated losses from operations amounting to
     $9,029,409, a working capital deficit of $671,587. The Company is in the
     pre-clinical trial stage of its products. These products must undergo
     further development and testing prior to submission to the FDA for approval
     to market the products. The Company's continuation as a going concern is
     dependent on its ability to generate sufficient cash flow, to meet its
     obligations on a timely basis, to obtain additional financing as may be
     required,



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     and ultimately to attain successful operations. However, no assurance can
     be given at this time as to whether the Company will achieve any of these
     conditions or that the FDA approval will be granted, once applied for.
     These factors, among others, raise substantial doubt about the Company's
     ability to continue as a going concern. The financial statements do not
     include any adjustments relating to the recoverability and classification
     of recorded asset amounts or the amounts and classification of liabilities
     that might be necessary should the Company be unable to continue as a going
     concern for a reasonable period of time. Additional funding will be
     necessary which will require future private placements and/or joint
     ventures to enable the Company to continue the required testing through
     Phase I, II and III human testing.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Development Stage - Because the Company has not commenced principal
     operations, it is considered a "Development Stage Enterprise" as defined by
     Statement of Financial Accounting Standards No. 7, Accounting and Reporting
     by Development Stage Enterprises.

     Pricing of Common Stock and Options to Purchase Common Stock - The
     Company's Board of Directors determines the fair market value of its
     common stock and options to purchase common stock, based on a good faith
     estimate which is derived from recent issuance of common stock to
     unrelated parties and/or from common stock market quotations, after
     giving effect to the restricted nature of the stock issued.

     Property and Equipment - Property is recorded at cost. Depreciation and
     amortization are computed using the straight-line method over the shorter
     of the estimated useful lives of the related assets, ranging from three to
     ten years, or lease term, if applicable.

     Patents - Patent costs are being amortized over the lesser of the remaining
     life of the patent or the estimated useful life of the related product,
     ranging from eight to ten



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     years. The Company evaluates recoverability of patents on at least an
     annual basis by comparing the estimated resale value of the patents to the
     remaining carrying values. An adjustment to the carrying value of the
     patent rights would be made if the estimated resale value of the patents is
     determined to be insufficient to recover such value.

3.   COMMITMENTS AND CONTINGENCIES

     Employment Contracts - The Company had employment agreements with certain
     officers and an employee with aggregate future commitments of $240,000 in
     1998.

     During fiscal 1995, the Company entered into a consulting agreement with an
     unrelated party which required monthly payment of $5,000. This agreement
     expired in December 1995. In conjunction with this agreement, the Company
     issued warrants to purchase 100,000 shares of the Company's common stock at
     $1.00 per share, which exceeded the fair market value at the date of the
     agreement. The warrants expire in April 1999.

     Litigation - The Company is subject to litigation in the normal course of
     business, none of which management believes will have a material adverse
     effect on the Company's financial statements as of January 31, 1998, except
     as follows:

     The Company has two legal matters pending at January 31, 1998. These legal
     actions were filed by former employees alleging unfair treatment during a
     temporary layoff in December 1995. These cases are presently in discovery.
     Company management's communications with legal counsel have indicated that
     the Company's exposure related to these legal actions could amount to
     $124,000. Thus, while the outcome of such litigation is uncertain, the
     Company has provided an accrual for such loss contingency using the best
     available estimate of $124,000, as initially disclosed in audited April 30,
     1997 Financial Statements.



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<PAGE>   8
4.   STOCKHOLDERS' EQUITY

     On August 1, 1997 convertible debentures were issued to a stockholder that
     are convertible into 516,667 shares of the Company's common stock, for an
     investment of $31,000 with a annual interest rate of 8%. An amount
     representing the fair market value less the conversion price of the
     Company's common stock as of the date the debentures were issued was
     recognized as an expense related to this issuance.

     On September 22, 1997 the Company issued 2,000,000 shares of its common
     stock under a Regulation S subscription agreement to Argos Invest Consult
     AG, a Zurich Switzerland asset manager, for an $260,000 investment. An
     amount representing the difference between the fair market value of the
     Company's common stock at the date of the agreement less the purchase
     price, was recognized as expense related to this issuance. As part of this
     agreement, warrants to purchase one million shares of common stock at an
     exercise price of $0.70 per share were issued.

     On September 23, 1997 the Company issued 1,044,450 shares of its common
     stock under Regulation 144 to officers and directors for the cancellation
     of $94,000 of loans made to the corporation remaining unpaid as of
     September 23, 1997. An amount representing the fair market value of the
     Company's common stock at the date of the issuance less the loan balance,
     was recognized as expense.

     On November 3, 1997 the Company issued 75,800 shares of its common stock
     under Regulation 144 to a stockholder for cancellation of debt of $5,000
     and $6,270 in services.

     On December 5, 1997 the holder of convertible debentures converted $31,000
     of debt and accrued interest to stock. In conjunction with such transaction
     the Company issued 531,200 shares.

5.   RECENTLY ISSUED ACCOUNTING STANDARDS

     The Company has adopted SFAS No.128, Earnings per Share, which replaces the
     presentation of "primary" earnings per share with "basic" earnings per
     share and the presentation of "fully diluted"



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     earnings per share with "diluted" earnings per share. All previously
     reported earnings per share amounts have been restated based on the
     provisions of the new standard. Basic earnings per share are based upon the
     weighted average number of common shares outstanding. Diluted earnings per
     share are based upon the weighted average number of common and common
     equivalent shares for each period presented. Common equivalent shares
     include stock option assuming conversion under treasury stock method.

6.   SUBSEQUENT EVENTS

     During February 1998 all officers and directors agreed to forfeit the total
     accumulated compensation for their services rendered the current fiscal
     year. This commitment was given as a condition of a new funding agreement
     which provided for funding in the amount of $1,000,000 which was received
     March 13, 1998. Pursuant to such agreement the accrued payroll was reduced
     by $186,851 and the amount transferred to paid in capital to recognize
     services contributed to the company. An additional condition of the
     agreement required that certain officers transfer one-half of their
     stockholdings, approximately 4.6 million shares, to an individual involved
     in the fund raising activities. The value of the stock transferred has been
     recorded as a cost of raising capital, and netted against the funds
     obtained. The funding represents the sale of four million shares of stock
     at $0.25 per share.



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                       SYNTHETIC BLOOD INTERNATIONAL, INC
                          (A Development Stage Company)
                          Part I- Financial Information

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Third Quarter of 1998 and 1997.

The Research and Development expenses for the three and nine month periods ended
January 31, 1998 were $26,733 and $109,011 respectively, compared to $156,628
and $440,675 for the same periods in the prior year. This decrease was due to a
significant reduction in research personnel, outside laboratory confirmation of
test results and the purchase of fewer animals and supplies.

General and Administrative expenses for the three and nine month periods ended
January 31, 1998 were $122,949 and $ 630,711 respectively, compared to $165,790
and $890,736 for the same periods in the prior year. This decrease was due to a
significant reduction in legal fees, licensing fees, and research staff. In
addition wages and salaries for the officers and directors that had been
expensed for the full fiscal year to date, have been voluntarily waived and
canceled.

The net loss for the three and nine month periods ended January 31, 1998 was
$149,842 and $742,277, compared to $324,751 and $ 1,337,804 for the same periods
in the prior year. This represented a substantial reduction of research and
general administrative expenses, including salaries of officers and directors,
as the primary activity was writing patent applications during this period.

LIQUIDITY AND CAPITAL SOURCES

The Company has financed its operations since September 1990, when the current
management became involved, through the issuance of debt and equity securities
and loans from stockholders. As of January 31, 1998 the Company had $26,711 in
total current assets and a working capital deficit of $671,587.



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The Company is in the pre-clinical trial stage in the development of its
products. These products must undergo further development and testing prior to
submission to the FDA for approval to market its products. This additional
development and testing and if approved, the FDA required clinical testing will
require significant additional financing. Management is actively pursuing
strategic alliance and joint venture agreements to enable the Company to develop
its products. There can be no assurance that FDA approval will be granted, once
applied for, or that necessary funding will be obtained.



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                       SYNTHETIC BLOOD INTERNATIONAL, INC.
                          (A Development Stage Company)

                            Part II-Other Information

Item 1. Legal Proceedings.

        Described in Financial Statement notes.

Item 2. Changes in Securities.

        On November 3, 1997, the Company issued 75,800 shares of its common
        stock to one existing stockholder for the cancellation of debt of
        $5,000 and for a total of $6,270 in consulting fes pursuant to
        Section 4/2 of the Securities Act for transactions not involving a
        public offering, and a legend was placed on the certificates issued.

        On December 5, 1997, one individual holder of convertible debentures
        converted $31,000 of debt and accrued interest to common stock of the
        Company. In connection with this conversion, the Company issued
        531,200 shares of its common stock pursuant to Section 4/2 of the
        Securities Act for transactions not involving a public offering, and
        a legend was placed on the certificates.

Item 3. Defaults Upon Senior Securities.

        None



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

        None

Item 5. Other Information

        None

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

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 hereunto duly authorized.

                                        SYNTHETIC BLOOD INTERNATIONAL, INC.
                                        (Registrant)


3/16/98                                  //SS//SS//
-------------------------               -----------------------------------
(Date)                                  Robert J. Larsen, Secretary/Treasurer



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