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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 October 31, 2006



| ̈ | 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

SYNTHETIC BLOOD INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|New Jersey                                                     |  | 33-0112644                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

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

(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, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ̈an accelerated filer ̈or a non-accelerated filer  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

Indicate the number of shares outstanding of each of the issuers classes of common stock as of December 1, 2006:
138,673,320 shares of common stock, par value $0.01.



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FORM 10-Q

SYNTHETIC BLOOD INTERNATIONAL, INC.

INDEX



|         |  |                                                                                                                                                                                    |  |     
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                                                                                    |  | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                                                              |  |     
|         |  |                                                                                                                                                                                   
|         |  | Item 1. Financial Statements                                                                                                                                                       |  |     
|         |  |                                                                                                                                                                                   
|         |  | Balance Sheets as of October 31, 2006 (unaudited) and April 30, 2006                                                                                                               |  | 3   
|         |  |                                                                                                                                                                                   
|         |  | Statements of Operations for the Three Months and the Six Months Ended October 31, 2006 and 2005, and for the Period From May 26, 1967 (inception) to October 31, 2006 (unaudited) |  | 4   
|         |  |                                                                                                                                                                                   
|         |  | Statements of Cash Flows for the Six Months Ended October 31, 2006 and 2005, and for the Period From May 26, 1967 (inception) to October 31, 2006 (unaudited)                      |  | 5   
|         |  |                                                                                                                                                                                   
|         |  | Condensed Notes to Financial Statements                                                                                                                                            |  | 7   
|         |  |                                                                                                                                                                                   
|         |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                      |  | 11  
|         |  |                                                                                                                                                                                   
|         |  | Item 3. Quantitative and Qualitative Disclosure About Market Risk                                                                                                                  |  | 15  
|         |  |                                                                                                                                                                                   
|         |  | Item 4. Controls and Procedures                                                                                                                                                    |  | 15  
|         |  |                                                                                                                                                                                   
|PART II. |  | OTHER INFORMATION                                                                                                                                                                  |  |     
|         |  |                                                                                                                                                                                   
|         |  | Item 1A. Risk Factors                                                                                                                                                              |  | 16  
|         |  |                                                                                                                                                                                   
|         |  | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                |  | 16  
|         |  |                                                                                                                                                                                   
|         |  | Item 6. Exhibits                                                                                                                                                                   |  | 17  
|         |  |                                                                                                                                                                                   
|         |  | Signatures                                                                                                                                                                         |  | 18  



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Part I-Financial Information



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

SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

BALANCE SHEETS



|                                                                                                                                 |  |                  |             |   |                |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | -------------- | - | ----------- | -
|                                                                                                                                 |  | October 31, 2006 |             |   | April 30, 2006 |  
|                                                                                                                                 |  | (Unaudited)      |             |   |                |  
|ASSETS                                                                                                                           |  |                  |             |   |                |   |             |  
|Current Assets:                                                                                                                  |  |                  |             |   |                |   |             |  
|Cash and cash equivalents                                                                                                        |  | $                | 101,850     |   |                | $ | 382         |  
|Debt issuance cost, net of accumulated amortization of $277,253 and $112,338, respectively                                       |  |                  | 343,081     |   |                |   | 78,012      |  
|Prepaid expenses                                                                                                                 |  |                  | 13,575      |   |                |   | 76,213      |  
|                                                                                                                                 |  |                  |             |   |                |   |             |  
|Total Current Assets                                                                                                             |  |                  | 458,506     |   |                |   | 154,607     |  
|Property and Equipment, net                                                                                                      |  |                  | 246,294     |   |                |   | 298,370     |  
|Patents, net                                                                                                                     |  |                  | 153,660     |   |                |   | 157,811     |  
|                                                                                                                                 |  |                  |             |   |                |   |             |  
|                                                                                                                                 |  | $                | 858,460     |   |                | $ | 610,788     |  
|                                                                                                                                 |  |                  |             |   |                |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                             |  |                  |             |   |                |   |             |  
|Current Liabilities:                                                                                                             |  |                  |             |   |                |   |             |  
|Accounts payable                                                                                                                 |  | $                | 326,781     |   |                | $ | 151,670     |  
|Accrued liabilities                                                                                                              |  |                  | 148,764     |   |                |   | 81,813      |  
|Notes payable, net of unamortized discount of $390,541 and $149,662, respectively                                                |  |                  | 455,294     |   |                |   | 14,794      |  
|Convertible Debentures, net of unamortized discount of $97,243 and $288,291, respectively                                        |  |                  | 189,256     |   |                |   | 176,295     |  
|                                                                                                                                 |  |                  |             |   |                |   |             |  
|Total Current Liabilities                                                                                                        |  |                  | 1,120,095   |   |                |   | 424,572     |  
|                                                                                                                                 |  |                  |             |   |                |   |             |  
|Stockholders Equity:                                                                                                            |  |                  |             |   |                |   |             |  
|Preferred Stock, undesignated, authorized 10,000,000 shares, none issued or outstanding                                          |  |                  |            |   |                |   |            |  
|Common Stock, par value $.01 per share; authorized 200,000,000 shares; issued and outstanding 138,377,565 and 136,589,119
shares |  |                  | 1,383,776   |   |                |   | 1,365,891   |  
|Additional paid-in capital                                                                                                       |  |                  | 27,450,287  |   |                |   | 26,525,469  |  
|Deferred compensation                                                                                                            |  |                  |            |   |                |   | (15,831     | )
|Deficit accumulated during the development stage                                                                                 |  |                  | (29,095,698 | ) |                |   | (27,689,313 | )
|                                                                                                                                 |  |                  |             |   |                |   |             |  
|Total Stockholders Equity                                                                                                       |  |                  | (261,635    | ) |                |   | 186,216     |  
|                                                                                                                                 |  |                  |             |   |                |   |             |  
|                                                                                                                                 |  | $                | 858,460     |   |                | $ | 610,788     |  
|                                                                                                                                 |  |                  |             |   |                |   |             |  

See accompanying condensed notes to financial statements.



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS



|                                                                 |  |                                                                          |             |   |                                                             |   |             |                                                           |  |   |             |   |  |   |             |   |  |   |             |  
|---------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ----------- | - | ----------------------------------------------------------- | - | ----------- | --------------------------------------------------------- |  | - | ----------- | - |  | - | ----------- | - |  | - | ----------- | -
|                                                                 |  | Deficit Accumulated During the
Development Stage
Through October 31,2006 |             |   | Three Months Ended October 31, 2006                    2005 |   |             | Six Months Ended October 31, 2006                    2005 | 
|                                                                 |  | (Unaudited)                                                              |             |   | (Unaudited)                                                 |   |             | (Unaudited)                                               | 
|Expenses:                                                        |  |                                                                          |             |   |                                                             |   |             |                                                           |  |   |             |   |  |   |             |   |  |   |             |  
|Research and development                                         |  | $                                                                        | 11,075,061  |   |                                                             | $ | 180,049     |                                                           |  | $ | 290,362     |   |  | $ | 410,228     |   |  | $ | 630,535     |  
|General and administrative                                       |  |                                                                          | 16,383,980  |   |                                                             |   | 214,446     |                                                           |  |   | 395,700     |   |  |   | 498,957     |   |  |   | 671,368     |  
|Interest                                                         |  |                                                                          | 2,371,547   |   |                                                             |   | 313,027     |                                                           |  |   | 1,016,652   |   |  |   | 533,030     |   |  |   | 1,016,652   |  
|                                                                 |  |                                                                          |             |   |                                                             |   |             |                                                           |  |   |             |   |  |   |             |   |  |   |             |  
|Total Expense                                                    |  |                                                                          | 29,830,588  |   |                                                             |   | 707,522     |                                                           |  |   | 1,702,714   |   |  |   | 1,442,215   |   |  |   | 2,318,555   |  
|Other Income                                                     |  |                                                                          | (734,890    | ) |                                                             |   | (12,207     | )                                                         |  |   | (25,633     | ) |  |   | (35,830     | ) |  |   | (29,126     | )
|                                                                 |  |                                                                          |             |   |                                                             |   |             |                                                           |  |   |             |   |  |   |             |   |  |   |             |  
|NET LOSS                                                         |  | $                                                                        | (29,095,698 | ) |                                                             | $ | (695,315    | )                                                         |  | $ | (1,677,081  | ) |  | $ | (1,406,385  | ) |  | $ | (2,289,429  | )
|                                                                 |  |                                                                          |             |   |                                                             |   |             |                                                           |  |   |             |   |  |   |             |   |  |   |             |  
|NET LOSS PER SHARE, BASIC AND DILUTED                            |  |                                                                          |             |   |                                                             | $ | (0.005      | )                                                         |  | $ | (0.013      | ) |  | $ | (0.010      | ) |  | $ | (0.018      | )
|                                                                 |  |                                                                          |             |   |                                                             |   |             |                                                           |  |   |             |   |  |   |             |   |  |   |             |  
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED |  |                                                                          |             |   |                                                             |   | 137,813,964 |                                                           |  |   | 130,153,437 |   |  |   | 137,375,281 |   |  |   | 128,232,764 |  
|                                                                 |  |                                                                          |             |   |                                                             |   |             |                                                           |  |   |             |   |  |   |             |   |  |   |             |  

See accompanying condensed notes to financial statements.



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS



|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------- | ----------- | - | ---------------------------- | - | ---------- | - |  | - | ---------- | -
|                                                                                                       |  | Period From May 26, 1967 (inception)
to October 31, 2006 |             |   | Six Months Ended October 31, |  
|                                                                                                       |  | 2006                                                     |             |   | 2005                         |  
|                                                                                                       |  | (Unaudited)                                              |             |   | (Unaudited)                  |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                  |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Net loss                                                                                               |  | $                                                        | (29,095,698 | ) |                              | $ | (1,406,385 | ) |  | $ | (2,289,429 | )
|Adjustments to reconcile net loss to net cash used in operating activities:                            |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Depreciation and amortization                                                                          |  |                                                          | 1,251,209   |   |                              |   | 67,956     |   |  |   | 84,639     |  
|Amortization of deferred compensation                                                                  |  |                                                          | 336,750     |   |                              |   | 15,831     |   |  |   | 56,126     |  
|Amortization of discounts on notes payable                                                             |  |                                                          | 2,155,750   |   |                              |   | 499,876    |   |  |   | 1,016,652  |  
|Loss on disposal and write-down of property and equipment and other assets                             |  |                                                          | 219,305     |   |                              |   |           |   |  |   | 34,205     |  
|Compensatory stock options/warrants issued                                                             |  |                                                          | 2,272,463   |   |                              |   | 34,000     |   |  |   |           |  
|Issuance of stock below market value                                                                   |  |                                                          | 695,248     |   |                              |   |           |   |  |   |           |  
|Contribution of capital through services rendered by stockholders                                      |  |                                                          | 216,851     |   |                              |   |           |   |  |   |           |  
|Issuance of stock for services rendered                                                                |  |                                                          | 1,265,279   |   |                              |   |           |   |  |   |           |  
|Changes in operating assets and liabilities:                                                           |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Prepaid expenses and other assets                                                                      |  |                                                          | (13,576     | ) |                              |   | 62,638     |   |  |   | 4,437      |  
|Accounts payable and accrued liabilities                                                               |  |                                                          | 652,136     |   |                              |   | 242,070    |   |  |   | (200,006   | )
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Net cash used in operating activities                                                                  |  |                                                          | (20,044,283 | ) |                              |   | (484,014   | ) |  |   | (1,293,376 | )
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                  |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Purchase of property and equipment                                                                     |  |                                                          | (1,083,902  | ) |                              |   |           |   |  |   | (14,185    | )
|Purchase of other assets                                                                               |  |                                                          | (691,885    | ) |                              |   | (11,729    | ) |  |   | (21,385    | )
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Net cash used in investing activities                                                                  |  |                                                          | (1,775,787  | ) |                              |   | (11,729    | ) |  |   | (35,570    | )
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                  |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Proceeds from sale of common stock and exercise of stock options and warrants, net of related expenses |  |                                                          | 18,615,519  |   |                              |   |           |   |  |   | 321,730    |  
|Repayments of amounts due stockholders                                                                 |  |                                                          | (121,517    | ) |                              |   |           |   |  |   |           |  
|Proceeds from stockholder notes payable                                                                |  |                                                          | 977,692     |   |                              |   |           |   |  |   |           |  
|Proceeds from notes, debentures and other obligations, net of issue costs                              |  |                                                          | 3,167,526   |   |                              |   | 597,211    |   |  |   | 1,130,500  |  
|Payments on notes and capital lease obligations                                                        |  |                                                          | (717,300    | ) |                              |   |           |   |  |   |           |  
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Net cash provided by financing activities                                                              |  |                                                          | 21,921,920  |   |                              |   | 597,211    |   |  |   | 1,452,230  |  
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Net change in cash and cash equivalents                                                                |  |                                                          | 101,850     |   |                              |   | 101,468    |   |  |   | 123,284    |  
|Cash and cash equivalents, beginning of period                                                         |  |                                                          |            |   |                              |   | 382        |   |  |   | 588,763    |  
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Cash and cash equivalents, end of period                                                               |  | $                                                        | 101,850     |   |                              | $ | 101,850    |   |  | $ | 712,047    |  
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Cash paid for:                                                                                         |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Interest                                                                                               |  | $                                                        | 145,653     |   |                              | $ | 2,524      |   |  | $ |           |  
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  
|Taxes                                                                                                  |  | $                                                        | 19,973      |   |                              | $ | 1,148      |   |  | $ | 1,800      |  
|                                                                                                       |  |                                                          |             |   |                              |   |            |   |  |   |            |  

See accompanying condensed notes to financial statements.



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS - CONTINUED

Non-cash financing activities during the six months ended October 31, 2006:



| | (1) | As further disclosed in Notes 3 and 4 to the condensed financial statements, in connection with the issuance of $665,890 of one-year notes payable, the Company recorded aggregate
discounts on notes payable of $418,070. These discounts related to the original issue discount of $35,690 and $382,380 for 16,656,703 warrants issued in the transaction.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The Company made principal payments on its convertible notes payable of $178,717 through the issuance of 1,788,446 shares of common stock.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The Company recorded debt issue costs of $378,244 through the issuance of 4,183,593 warrants for capital raising services.
| | --- | --------------------------------------------------------------------------------------------------------------------------

Non-cash financing activities during the six months ended October 31, 2005:



| | (1) | As further disclosed in Note 3 to the condensed financial statements, in connection with the sale of convertible debentures, the Company recorded original issue discount of
$555,000, discount of $525,000 related to the value of warrants issued in the transaction, and additional discount of $770,000 related to the value of the beneficial conversion feature.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The Company made principal payments on its convertible notes payable of $86,631 through the issuance of 504,548 shares of common stock.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Investors converted $813,357 of convertible debentures into 3,697,078 shares of common stock.
| | --- | ---------------------------------------------------------------------------------------------

See accompanying condensed notes to financial statements.



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

CONDENSED NOTES TO FINANCIAL STATEMENTS



|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 as of October 31, 2006, and the results of
its operations for the three months and six months ended October 31, 2006 and 2005, and for the period from May 26, 1967 (inception) to October 31, 2006, and its cash flows for the six months ended October 31, 2006 and 2005, and
for the period from May 26, 1967 (inception) to October 31, 2006. 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, 2006 filed with the Commission on July 28, 2006.

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 accompanying financial statements, the Company is in the development stage and, at October 31, 2006, has an accumulated deficit of $29,095,698, continues to sustain operating losses
on a monthly basis, and expects to incur operating losses for the foreseeable future. Since the Company is in the pre-clinical and clinical trial stages of its products, these products must undergo considerable 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 obtain additional financing sufficient to fund the required additional development and testing and to meet its
obligations on a timely basis. 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.



|2. | STOCK-BASED COMPENSATION
|-- | ------------------------

Stock-Based Compensation
Valuation Assumptions

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, Securities and Exchange Commission Staff Accounting Bulletin No. 107 (SAB 107) and prior period pro forma disclosures of net loss, including stock-based compensation as required
by SFAS No. 123. The fair value of stock options granted is recognized to expense over the requisite service period. Compensation expense for all share-based payment awards is recognized using the straight-line single-option method.



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|2. | STOCK-BASED COMPENSATION (Continued)
|-- | ------------------------------------

The Company
used the historical stock price volatility to value stock options under SFAS 123R and in accordance with SFAS 123 for purposes of pro forma information. 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 of time options are expected to be outstanding.

The following weighted average assumptions were used for grants issued in the
three and six months ended October 31, 2006 under the SFAS No. 123R requirements and in the three and six months ended October 31, 2005 under the SFAS No. 123 requirements:



|                        |  |                               |   |  |                             |   |  |          |   |  |           |  
|----------------------- |  | ----------------------------- | - |  | --------------------------- | - |  | -------- | - |  | --------- | -
|                        |  | Three Months Ended October 31 |   |  | Six Months Ended October 31 |  
|                        |  | 2006                          |   |  | 2005                        |   |  | 2006     |   |  | 2005      |  
|Risk-free interest rate |  | 4.71                          | % |  | 3.59                        | % |  | 4.71     | % |  | 3.60      | %
|Volitility              |  | 101.7                         | % |  | 116.8                       | % |  | 101.7    | % |  | 116.4     | %
|Expected life           |  | 10 Years                      |   |  | 6.2 Years                   |   |  | 10 Years |   |  | 6.3 Years |  

Impact of SFAS No. 123R

The following table presents the impact to the Companys financial statements as a result of the adoption of SFAS No. 123R for the three and six
months ended October 31, 2006:



|                                 |  |                                     |        |                                   |   |       
|-------------------------------- |  | ----------------------------------- | ------ | --------------------------------- | - | ------
|                                 |  | Three Months Ended October 31, 2006 |        | Six Months Ended October 31, 2006
|Stock-based compensation expense |  | $                                   | 20,000 |                                   | $ | 34,000
|Effect on earnings per share     |  | $                                   |       |                                   | $ |      

As of October 31, 2006, the unamortized compensation expense related to outstanding unvested
options was approximately $70,000. The Company expects to amortize this expense over the remaining vesting period of these stock options.

Prior to the adoption of SFAS No. 123R, for options granted to employees, the Company applied Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees and provided the pro forma disclosures
of SFAS No. 123, as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. No compensation expense has been recognized for options granted unless
the grants were issued at exercise prices below market value prior to the adoption of SFAS No. 123R.



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|2. | STOCK-BASED COMPENSATION (Continued)
|-- | ------------------------------------

Pro forma for
2005 Under SFAS No. 123R

The following table compares the loss per share to the pro forma amounts that would have been reported for
the three and six months ended October 31, 2005 had the Company recognized compensation expense for stock-based compensation plans in accordance with SFAS No. 123R:



|                                                        |  |                                     |            |   |                                   |   |            |  
|------------------------------------------------------- |  | ----------------------------------- | ---------- | - | --------------------------------- | - | ---------- | -
|                                                        |  | Three Months Ended October 31, 2005 |            |   | Six Months Ended October 31, 2005 |  
|Net loss, as reported                                   |  | $                                   | (1,677,081 | ) |                                   | $ | (2,289,429 | )
|Add: stock-based employee compensation expenses         |  |                                     | 71,957     |   |                                   |   | 56,126     |  
|Deduct: fair value based employee compensation expenses |  |                                     | (153,710   | ) |                                   |   | (135,898   | )
|                                                        |  |                                     |            |   |                                   |   |            |  
|Pro forma net loss                                      |  | $                                   | (1,758,834 | ) |                                   | $ | (2,369,201 | )
|                                                        |  |                                     |            |   |                                   |   |            |  
|Net loss per share:                                     |  |                                     |            |   |                                   |   |            |  
|As reported                                             |  | $                                   | 0.013      |   |                                   | $ | 0.018      |  
|                                                        |  |                                     |            |   |                                   |   |            |  
|Pro forma                                               |  | $                                   | 0.012      |   |                                   | $ | 0.017      |  
|                                                        |  |                                     |            |   |                                   |   |            |  

Stock Option Plans

In September 1999, the Companys Board of Directors approved the 1999 Stock Plan (the 1999 Plan) which provides for the granting of incentive and nonstatutory stock options to employees, directors and
consultants to purchase up to 4,000,000 shares of the Companys common stock. The 1999 Plan was approved by stockholders on October 10, 2000. Options granted under the 1999 Plan are exercisable at various dates up to four years and have
expiration periods of generally ten years. As of October 31, 2006, the Company had 2,925,000 qualified stock options outstanding under the 1999 Plan. In addition, the Company has 3,050,000 non-qualified stock options outstanding as of
October 31, 2006.

Stock Options

The following table summarizes stock option activity for the six months ended October 31, 2006:



|                             |  |           |   |  |                                 |     
|---------------------------- |  | --------- | - |  | ------------------------------- | ----
|                             |  | Options   |   |  | Weighted Average Exercise Price
|Outstanding April 30, 2006   |  | 5,935,000 |   |  | $                               | 0.19
|Granted                      |  | 170,000   |   |  |                                 | 0.13
|Forfeited                    |  | (130,000  | ) |  |                                 | 0.20
|Exercised                    |  |          |   |  |                                 |    
|                             |  |           |   |  |                                 |     
|Outstanding October 31, 2006 |  | 5,975,000 |   |  | $                               | 0.19
|                             |  |           |   |  |                                 |     



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|2. | STOCK-BASED COMPENSATION (Continued)
|-- | ------------------------------------

Warrants

The Company grants warrants to non-employees in payment for services received and in connection capital raising efforts.

The following summarizes warrant activity for the six months ended October 31, 2006:



|                             |  |            |   |  |                         |     
|---------------------------- |  | ---------- | - |  | ----------------------- | ----
|                             |  | Warrants   |   |  | WeightedAverageExercise
|Outstanding April 30, 2006   |  | 39,972,654 |   |  | $                       | 0.19
|Granted                      |  | 20,840,294 |   |  |                         | 0.25
|Forfeited                    |  | (13,393    | ) |  |                         | 0.01
|Exercised                    |  |           |   |  |                         |    
|                             |  |            |   |  |                         |     
|Outstanding October 31, 2006 |  | 60,799,555 |   |  | $                       | 0.27
|                             |  |            |   |  |                         |     



|3. | STOCKHOLDERS EQUITY
|-- | --------------------

During the six months
ended October 31, 2006:



| | (1) | the Company received a net amount of $300,200 from the issuance of one-year notes payable. The notes are unsecured and were issued with a 9% original issue discount totaling $29,690
and pay interest at 9% per year. In addition, the Company issued 5-year warrants to purchase 9,896,703 shares of common stock at $0.245 per share. Additional discount of $227,869 was recorded for the relative fair value of the warrants. The
Company issued five-year warrants to purchase 4,183,591 shares of common stock at $0.245 per share in connection with placing the 9% notes payable.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | the Company received a net amount of $270,000 from the issuance of one-year notes payable. The notes are unsecured and pay interest at 18% per year. In addition, the Company
issued one-year warrants to purchase 760,000 shares of common stock at $0.245 per share and five-year warrants to purchase 6,000,000 shares of common stock at $0.245 per share. Additional discount of $154,511 was recorded for the relative fair value
of the warrants.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | the Company made principal payments on its debentures of $178,717 through the issuance of 1,788,446 shares of common stock.
| | --- | ---------------------------------------------------------------------------------------------------------------------------



|4. | RELATED PARTY TRANSACTIONS
|-- | --------------------------

During the six months
ended October 31, 2006 and 2005, the Company paid $17,334 and $32,100, respectively, to a specialty contract manufacturer of pharmaceutical products to manufacture Oxycyte, the Companys perfluorocarbon-based blood substitute and
therapuetic oxygen carrier, for upcoming clinical trials. No payments were made during the three months ended October 31, 2006 and 2005.



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|4. | RELATED PARTY TRANSACTIONS (Continued)
|-- | --------------------------------------

An officer
of the Company is a minority shareholder and director of this specialty manufacturer. At October 31, 2006, the Company had no outstanding purchase orders with this specialty manufacturer. During June 2006, the Company borrowed a net amount of
$60,000 from this officer, net of an original issue discount of $6,000.

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

Synthetic Blood International, Inc., is a New Jersey corporation that, since 1990, has pursued the development of medical products based on perfluorocarbon technology. Since 1993, Synthetic Blood has also pursued development of a glucose
biosensor implant on a limited basis.

Perfluorocarbons are biologically inert compounds containing carbon and fluorine. The chemical
composition of perfluorocarbons allows them to readily absorb and give up oxygen and carbon dioxide. This property creates opportunities for developing products that act as oxygen carriers for human tissue and fluids that carry oxygen to tissues for
remedial uses.

Synthetic Blood developed Oxycyte as a synthetic blood substitute and therapeutic oxygen carrier. We received approval of
our Investigational New Drug application filed with the U.S. Food and Drug Administration (FDA) in 2003 and completed a Phase I safety study in normal volunteers in December 2003. The results of the Phase I study were in line with our expectations
for the performance of Oxycyte.

Enrollment started last year in a Phase II orthopedic surgery trial, and five study sites have been
qualified and approved to participate in this study. In this first Phase II trial we are 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. While blood transfusions are typically not given during such procedures, blood loss may result in postoperative complications caused by tissue hypoxia. Three study sites have enrolled 12 patients in this study.
This is less than expected, so enrollment has been temporarily put on hold so resources can be refocused on shorter term Phase II trials. Additional financing will be required to restart enrollment, and a completion date cannot be projected at this
time.

An eight patient proof of concept Phase II Oxycyte study in patients with brain ischemia due to severe head injury has been
completed. A 20 patient proof of concept Phase II Oxycyte trial in patients with sickle cell anemia was put on clinical hold by the FDA for requested protocol changes before enrollment could begin. It is not known at this time if or when enrollment
in this study might begin. In addition to these studies, our future clinical development plans include testing Oxycyte in acute myocardial ischemia, high blood loss surgery, coronary bypass surgery, stroke, myocardial infarction, malignant tumors
and decompression sickness.



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We expect to commit a substantial portion of our financial and business resources over the next 3 years
to testing Oxycyte and advancing this product to licensing and commercial distribution.

Fluorovent is an oxygen exchange fluid and
surfactant for facilitating the treatment of lung conditions, which the Company has been developing. We have not filed any applications on this product with the FDA and do not expect we will do so while we are focusing on Oxcyte clinical trials.

Our biosensor product uses an enzyme process for measuring the glucose level in the blood stream of a diabetic patient. It is a
subcutaneous implant programmed to measure the glucose level and transmit the results to a wearable receiver. We do not expect we will file any applications with the FDA for at least the next 2 years.

RESULTS OF OPERATIONS

Three
months ended October 31, 2006 and 2005

Research and Development expenses for the three months ended October 31, 2006 were
$180,049, compared to $290,362 for the same period in the prior year. During the quarter ended October 31, 2006, we continued to concentrate our research activities on our Oxycyte product that included Phase II clinical trials. Phase II
expenses totaled $31,988 for the quarter ended October 31, 2006, compared to $83,470 for the quarter ended October 31, 2005. Because of the nature of our ongoing research and development activities, accounting periods may reflect
significant changes in expenses resulting from the timing of research related to our developmental products.

General and Administrative
expenses for the three months ended October 31, 2006 were $214,446, compared to $395,700 for the same period in the prior year. Due to a lack of existing working capital, the Company decided in October 2006 to temporarily cease operations and
lay-off existing employees. The Company has been forced to conserve what limited resources it has while it continues to search for financing with which to fund administrative expenses and continue product testing. As a result of this decision,
general operating expenses have been significantly reduced over the same period in 2005.

The net loss for the three months ended
October 31, 2006 was $695,315 compared to a net loss of $1,677,081 for the same period in the prior year. Total expenses decreased $995,192 during the three months ended October 31, 2006 over the comparable period in 2005. In addition to
the items noted above, interest expense decreased $703,625 due to a reduction in the interest cost associated with the notes and debentures payable and the related amortization of associated debt discounts. Additionally, other income, consisting
principally of sub-rental income of $12,203, decreased $13,426 from the quarter ended October 31, 2005.

Six months ended
October 31, 2006 and 2005

Research and Development expenses for the six months ended October 31, 2006 were $410,228, compared
to $630,535 for the same period in the prior year. During the six months ended October 31, 2006, we continued to concentrate our research activities on our Oxycyte product that included Phase II clinical trials. Phase II expenses totaled
$50,018 for the six months ended



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October 31, 2006, compared to $194,325 for the six months ended October 31, 2005. Because of the nature of our ongoing research and development
activities, accounting periods may reflect significant changes in expenses resulting from the timing of research related to our developmental products.

General and Administrative expenses for the six months ended October 31, 2006 were $498,957, compared to $671,368 for the same period in the prior year. Due to a lack of existing working capital, the Company
decided in October 2006 to temporarily cease operations and lay-off existing employees. The Company has been forced to conserve what limited resources it has while it continues to search for financing with which to fund administrative expenses and
continue product testing. As a result of this decision, general operating expenses have been significantly reduced over the same period in 2005.

The net loss for the six months ended October 31, 2006 was $1,406,385 compared to a net loss of $2,289,429 for the same period in the prior year. Total expenses decreased $876,340 during the six months ended October 31, 2006 over
the comparable period in 2005. In addition to the items noted above, interest expense decreased $483,622 due to a reduction in the interest cost associated with the notes and debentures payable and the related amortization of associated debt
discounts. Additionally, other income, consisting principally of sub-rental income of $35,778, increased $6,704 from the six months ended October 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES

Synthetic Blood has financed its operations since September 1990
through the issuance of debt and equity securities and loans from stockholders. As of October 31, 2006, we had $458,506 of total current assets and negative working capital of $661,589. Our practice is to invest excess cash, where available, in
short-term money market investment instruments.

We do not have the working capital necessary to fund our current operations in fiscal year
2007. We need financing immediately 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. Should we be unable to obtain additional financing to meet our short-term needs, we may be forced to cease operations. These factors raise substantial doubt about our ability to continue as a going concern.

As a result of the foregoing circumstances our independent registered public accounting firm has, and is likely in the future to, include an explanatory
paragraph in their audit opinions based on uncertainty regarding our ability to continue as a going concern.

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 a Phase I clinical study on Oxycyte in December 2003. The results of the Phase I study were in line with our
expectations for the performance of Oxycyte. Phase II clinical testing started in 2005. We estimate the additional cost of pursuing our Phase II clinical trials to approximate $8,000,000. Even if we are successful with our Phase II studies, we must
then conduct Phase III clinical studies and, if they are successful, file with the FDA and obtain approval of



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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 the end of the third quarter of the 2006/2007
fiscal year depends on obtaining outside financial resources, and there is no assurance we will succeed in obtaining the necessary resources.

Cash used in operating activities during the six months ended October 31, 2006 was $484,014, compared to $1,293,376 for the comparable period of the prior year. Operating activities consisted primarily of product research and
development and the general operation of our corporate office. Cash used in operating activities is primarily dependent on the timing and extent of our research and development activities and our available liquidity.

Cash used in investing activities during the six months ended October 31, 2006 was $11,729, compared to $35,570 for the comparable period of the
prior year. Investing activities consisted primarily of expenditures related to our patent rights. Synthetic Blood does not anticipate significant future capital expenditures in the near term.

Cash provided by financing activities during the six months ended October 31, 2006 was $597,211, compared to cash provided by financing activities of
$1,452,230 for the comparable period of the prior year. Cash provided by financing activities consists primarily of the proceeds from the sale of short-term notes payable. As discussed earlier in this quarterly report, Synthetic Blood is attempting
to raise additional funds that may take the form of equity or debt securities.

CRITICAL ACCOUNTING POLICIES

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

In December 2004, the FASB issued SFAS No. 123 (Revised), Share-Based Payment. This standard revises SFAS
No. 123, APB Opinion No. 25 and related accounting interpretations, and eliminates the use of the intrinsic value method for employee stock-based compensation. SFAS No. 123(R) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. The new standard requires the expensing of all share-based compensation, including options, using the fair
value-based method. We adopted the new standard effective May 1, 2006.

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



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impairment on a quarterly basis in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144).
At October 31, 2006, management believes no indications of impairment existed.

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. Synthetic Bloods 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 Synthetic Bloods Annual Report on Form 10-K for the year ended April 30, 2006 and subsequent filings made with the Securities and Exchange Commission.

Although Synthetic Blood believes that the expectations reflected in the forward-looking statements are reasonable, Synthetic Blood cannot guarantee
future results, levels of performance or achievements. Moreover, neither Synthetic Blood nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Synthetic Blood 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 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
|------- | ----------------------------------------------------------

We have no derivative financial instruments and no exposure to foreign currency exchange rates or interest rate risk. Our convertible debentures and notes payable that are described elsewhere in this report bear a fixed interest rate, and
therefore, are not subject to interest rate risk.



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

We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate, to allow timely
decisions regarding required disclosures. Our management, including our Principal Executive Officer and our Principal Financial Officer, does not expect that our disclosure controls or procedures will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation or controls can provide absolute assurance that all control issues and instances of fraud, if any, within Synthetic Blood have been detected.



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We carried out an evaluation, under the supervision and with the participation of our management,
including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarterly period covered by this report. Based on the
foregoing, our Principal Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect our internal controls over financial reporting.

Part II-Other Information



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

Under Item 1A. Risk
Factors in our Annual Report on Form 10-K for the fiscal year ended April 30, 2006, we describe a number of risks associated with our business and our financial condition. Those factors continue to be meaningful for your evaluation of
Synthetic Blood and we urge you to review and consider the risk factors presented in the Annual Report.

One risk we identified was the lack
of working capital. This risk continues to be significant. We do not have the working capital necessary to fund our operations in fiscal year 2007. We need financing immediately 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. Should we be unable to obtain additional financing to meet our short-term needs,
we may be forced to cease operations. These factors raise substantial doubt about our ability to continue as a going concern.



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

The Company received a net amount of $300,200 from the issuance of one-year notes payable. The notes are unsecured and were issued with a 9% original issue discount totaling $29,690 and pay interest at 9% per year. In addition, the
Company issued 5-year warrants to purchase 9,896,703 shares of common stock at $0.245 per share. Additional discount of $227,869 was recorded for the relative fair value of the warrants. The Company issued five-year warrants to purchase 4,183,591
shares of common stock at $0.245 per share in connection with placing the 9% notes payable.

The Company received a net amount of $270,000
from the issuance of one-year notes payable. The notes are unsecured and pay interest at 18% per year. In addition, the Company issued one-year warrants to purchase 760,000 shares of common stock at $0.245 per share and five-year warrants to
purchase 6,000,000 shares of common stock at $0.245 per share. Additional discount of $154,511 was recorded for the relative fair value of the warrants.

The foregoing securities were sold in reliance on the exemption set forth in Section 4 (2) of the Securities Act of 1933.



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|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.



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



|                 |  |                                     |  |                                      
|---------------- |  | ----------------------------------- |  | -------------------------------------
|                 |  | SYNTHETIC BLOOD INTERNATIONAL, INC.
|                 |  |                                    
|December 1, 2006 |  |                                     |  | /s/ Robert W. Nicora                 
|                 |  |                                     |  | Robert W. Nicora                     
|                 |  |                                     |  | President and Chief Executive Officer



|                 |  |  |  |                           
|---------------- |  |  |  | --------------------------
|                 |  | 
|December 1, 2006 |  |  |  | /s/ David H. Johnson      
|                 |  |  |  | David H. Johnson          
|                 |  |  |  | Chief Financial Officer   
|                 |  |  |  | (Chief Accounting Officer)



18