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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-QSB







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

For the quarterly period ended January 31, 2008



| ̈ | 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 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 March 15, 2008: 143,431,894 shares of common stock, par value $0.01.









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FORM 10-QSB

SYNTHETIC BLOOD INTERNATIONAL, INC.

INDEX



|         |  |                                                                                                                                                                          |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                                                                                                                                                          |  | Page
|         |  |                                                                                                                                                                         
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                                                    |  |     
|         |  |                                                                                                                                                                         
|         |  | Item 1. Financial Statements                                                                                                                                             |  |     
|         |  |                                                                                                                                                                         
|         |  | Balance Sheets as of January 31, 2008 (unaudited) and April 30, 2007                                                                                                     |  | 3   
|         |  |                                                                                                                                                                         
|         |  | Statements of Operations for the Three and Nine Months Ended January 31, 2008 and 2007, and for the Period From May 26, 1967 (inception) to January 31, 2008 (unaudited) |  | 4   
|         |  |                                                                                                                                                                         
|         |  | Statements of Cash Flows for the Nine Months Ended January 31, 2008 and 2007, and for the Period From May 26, 1967 (inception) to January 31, 2008 (unaudited)           |  | 5   
|         |  |                                                                                                                                                                         
|         |  | Notes to Condensed Financial Statements                                                                                                                                  |  | 7   
|         |  |                                                                                                                                                                         
|         |  | Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                            |  | 12  
|         |  |                                                                                                                                                                         
|         |  | Item 3.
Controls and Procedures                                                                                                                                          |  | 16  
|         |  |                                                                                                                                                                         
|PART II. |  | OTHER INFORMATION                                                                                                                                                        |  |     
|         |  |                                                                                                                                                                         
|         |  | Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                      |  | 17  
|         |  |                                                                                                                                                                         
|         |  | Item 3.
Defaults Upon Senior Securities                                                                                                                                  |  | 17  
|         |  |                                                                                                                                                                         
|         |  | Item 6.
Exhibits                                                                                                                                                         |  | 18  
|         |  |                                                                                                                                                                         
|         |  | Signatures                                                                                                                                                               |  | 18  



|** | Items 1,4 and 5 of Part II have been omitted because they are not applicable for the period.
|-- | --------------------------------------------------------------------------------------------



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Part I-Financial Information



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

SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

BALANCE SHEETS



|                                                                                                                                        |  |                 |             |   |               |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                                                                        |  | January 31,2008 |             |   | April 30,2007 |  
|                                                                                                                                        |  | (Unaudited)     |             |   |               |  
|ASSETS                                                                                                                                  |  |                 |             |   |               |   |             |  
|CURRENT ASSETS                                                                                                                          |  |                 |             |   |               |   |             |  
|Cash and cash equivalents                                                                                                               |  | $               | 940,239     |   |               | $ | 16,234      |  
|Debt issuance costs, net of accumulated amortization of $0 and $921,678, respectively                                                   |  |                 | 132,256     |   |               |   | 1,403,806   |  
|Prepaid expenses                                                                                                                        |  |                 | 118,061     |   |               |   | 63,308      |  
|                                                                                                                                        |  |                 |             |   |               |   |             |  
|Total current assets                                                                                                                    |  |                 | 1,190,556   |   |               |   | 1,483,348   |  
|PROPERTY AND EQUIPMENT, net of accumulated depreciation of $579,218 and $531,003                                                        |  |                 | 148,451     |   |               |   | 194,216     |  
|DEBT ISSUANCE COSTS, net of accumulated amortization of $0                                                                              |  |                 | 529,024     |   |               |   |            |  
|PATENTS, net                                                                                                                            |  |                 | 133,500     |   |               |   | 144,958     |  
|                                                                                                                                        |  |                 |             |   |               |   |             |  
|                                                                                                                                        |  | $               | 2,001,531   |   |               | $ | 1,822,522   |  
|                                                                                                                                        |  |                 |             |   |               |   |             |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                   |  |                 |             |   |               |   |             |  
|CURRENT LIABILITIES                                                                                                                     |  |                 |             |   |               |   |             |  
|Accounts payable                                                                                                                        |  | $               | 27,112      |   |               | $ | 391,627     |  
|Amounts due to former officer                                                                                                           |  |                 | 39,500      |   |               |   |            |  
|Accrued debt issuance costs                                                                                                             |  |                 | 2,090,280   |   |               |   |            |  
|Other accrued liabilities                                                                                                               |  |                 | 187,524     |   |               |   | 183,866     |  
|Notes payable, net of unamortized discount of $0 and $370,423, respectively                                                             |  |                 | 75,863      |   |               |   | 1,145,025   |  
|Convertible debentures, net of unamortized discount of $0 and $4,884, respectively                                                      |  |                 |            |   |               |   | 125,116     |  
|                                                                                                                                        |  |                 |             |   |               |   |             |  
|Total current liabilities                                                                                                               |  |                 | 2,420,279   |   |               |   | 1,845,634   |  
|LONG TERM PORTION of convertible debentures, net of unamortized discount of $9,340,824 and $0, repsectively                             |  |                 | 39,499      |   |               |   |            |  
|                                                                                                                                        |  |                 |             |   |               |   |             |  
|Total liabilities                                                                                                                       |  |                 | 2,459,778   |   |               |   | 1,845,634   |  
|                                                                                                                                        |  |                 |             |   |               |   |             |  
|COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)                                                                                           |  |                 |             |   |               |   |             |  
|STOCKHOLDERS DEFICIT                                                                                                                   |  |                 |             |   |               |   |             |  
|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 142,196,306 and 139,854,859,
respectively |  |                 | 1,421,963   |   |               |   | 1,398,549   |  
|Additional paid-in capital                                                                                                              |  |                 | 33,424,529  |   |               |   | 29,598,533  |  
|Deficit accumulated during the development stage                                                                                        |  |                 | (35,304,739 | ) |               |   | (31,020,194 | )
|                                                                                                                                        |  |                 |             |   |               |   |             |  
|Total stockholders deficit                                                                                                             |  |                 | (458,247    | ) |               |   | (23,112     | )
|                                                                                                                                        |  |                 |             |   |               |   |             |  
|                                                                                                                                        |  | $               | 2,001,531   |   |               | $ | 1,822,522   |  
|                                                                                                                                        |  |                 |             |   |               |   |             |  

See accompanying condensed notes to financial statements.



3



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS



|                                                                        |  |                                                      |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|----------------------------------------------------------------------- |  | ---------------------------------------------------- | ----------- | - | ----------------------------- | ---- | ----------- | ---------------------------- | ---- | - | ----------- | ---- |  | ----------- | ----------- | - |  | - | ----------- | -
|                                                                        |  | Period FromMay 26, 1967(inception) toJanuary 31,2008 |             |   | Three Months EndedJanuary 31, |      |             | Nine Months EndedJanuary 31, |     
|                                                                        |  |                                                      | 2008        |   |                               | 2007 |             |                              | 2008 |   |             | 2007 | 
|                                                                        |  | (Unaudited)                                          |             |   | (Unaudited)                   |      |             | (Unaudited)                  |      |   | (Unaudited) |      |  | (Unaudited) |            
|EXPENSES                                                                |  |                                                      |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|Research and development                                                |  |                                                      | 11,909,952  |   |                               |      | 222,142     |                              |      |   | 157,689     |      |  |             | 492,505     |   |  |   | 567,917     |  
|General and administrative                                              |  |                                                      | 17,932,858  |   |                               |      | 635,915     |                              |      |   | 319,994     |      |  |             | 1,028,029   |   |  |   | 818,952     |  
|Interest                                                                |  |                                                      | 6,086,249   |   |                               |      | 1,238,903   |                              |      |   | 437,735     |      |  |             | 2,569,244   |   |  |   | 970,765     |  
|                                                                        |  |                                                      |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|Total expenses                                                          |  |                                                      | 35,929,059  |   |                               |      | 2,096,960   |                              |      |   | 915,418     |      |  |             | 4,089,778   |   |  |   | 2,357,634   |  
|LOSS ON EXTINGUISHMENT OF DEBT                                          |  |                                                      | 250,097     |   |                               |      | 250,097     |                              |      |   |            |      |  |             | 250,097     |   |  |   |            |  
|OTHER INCOME                                                            |  |                                                      | (874,417    | ) |                               |      | (21,678     | )                            |      |   | (24,131     | )    |  |             | (55,330     | ) |  |   | (59,962     | )
|                                                                        |  |                                                      |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|NET LOSS                                                                |  | $                                                    | (35,304,739 | ) |                               | $    | (2,325,379  | )                            |      | $ | (891,287    | )    |  | $           | (4,284,545  | ) |  | $ | (2,297,672  | )
|                                                                        |  |                                                      |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|NET LOSS PER SHARE, basic and diluted                                   |  |                                                      |             |   |                               | $    | (0.016      | )                            |      | $ | (0.006      | )    |  | $           | (0.030      | ) |  | $ | (0.017      | )
|                                                                        |  |                                                      |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, basic and diluted |  |                                                      |             |   |                               |      | 141,460,300 |                              |      |   | 138,736,978 |      |  |             | 140,699,818 |   |  |   | 137,829,180 |  
|                                                                        |  |                                                      |             |   |                               |      |             |                              |      |   |             |      |  |             |             |   |  |   |             |  

See accompanying condensed notes to financial statements.



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS



|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------- | ----------- | - | ---------------------------- | ---- | ---------- | ----------- |  | - | ---------- | -
|                                                                                                       |  | Period FromMay 26, 1967(inception) toJanuary 31,2008 |             |   | Nine Months EndedJanuary 31, |     
|                                                                                                       |  |                                                      | 2008        |   |                              | 2007 |           
|                                                                                                       |  | (Unaudited)                                          |             |   | (Unaudited)                  |      |            | (Unaudited) | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                   |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Net loss                                                                                               |  | $                                                    | (35,304,739 | ) |                              | $    | (4,284,545 | )           |  | $ | (2,297,672 | )
|Adjustments to reconcile net loss to net cash used in operating activities                             |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Depreciation and amortization                                                                          |  |                                                      | 1,344,891   |   |                              |      | 25,347     |             |  |   | 102,089    |  
|Amortization of deferred compensation                                                                  |  |                                                      | 336,750     |   |                              |      |           |             |  |   | 15,831     |  
|Interest on debt instruments                                                                           |  |                                                      | 5,696,158   |   |                              |      | 2,479,109  |             |  |   | 905,308    |  
|Loss on debt settlement and extinguishment                                                             |  |                                                      | 163,097     |   |                              |      | 250,097    |             |  |   |           |  
|Loss on disposal and write down of property and equipment and other assets                             |  |                                                      | 219,305     |   |                              |      |           |             |  |   |           |  
|Issuance of compensatory stock options and warrants                                                    |  |                                                      | 2,453,038   |   |                              |      | 161,575    |             |  |   | 47,000     |  
|Issuance of stock below market value                                                                   |  |                                                      | 695,248     |   |                              |      |           |             |  |   |           |  
|Issuance of stock for services rendered                                                                |  |                                                      | 1,265,279   |   |                              |      |           |             |  |   |           |  
|Issuance of note payable for services rendered                                                         |  |                                                      | 120,000     |   |                              |      |           |             |  |   |           |  
|Contributions of capital through services rendered by stockholders                                     |  |                                                      | 216,851     |   |                              |      |           |             |  |   |           |  
|Changes in operating assets and liabilities                                                            |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Prepaid expenses and other assets                                                                      |  |                                                      | 49,798      |   |                              |      | 113,106    |             |  |   | (16,500    | )
|Accounts payable and accrued liabilities                                                               |  |                                                      | 430,231     |   |                              |      | (360,855   | )           |  |   | 268,006    |  
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Net cash used in operating activities                                                                  |  |                                                      | (22,314,093 | ) |                              |      | (1,616,166 | )           |  |   | (975,938   | )
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                   |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Purchase of property and equipment                                                                     |  |                                                      | (1,086,352  | ) |                              |      | (2,450     | )           |  |   |           |  
|Purchase of other assets                                                                               |  |                                                      | (713,329    | ) |                              |      | (13,890    | )           |  |   | (15,847    | )
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Net cash used in investing activities                                                                  |  |                                                      | (1,799,681  | ) |                              |      | (16,340    | )           |  |   | (15,847    | )
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|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  |   |                              |      |           |             |  |   |           |  
|Repayments of amounts due stockholders                                                                 |  |                                                      | (121,517    | ) |                              |      |           |             |  |   |           |  
|Proceeds from stockholder notes payable                                                                |  |                                                      | 977,692     |   |                              |      |           |             |  |   |           |  
|Proceeds from former officer loans                                                                     |  |                                                      | 39,500      |   |                              |      | 39,500     |             |  |   |           |  
|Proceeds from issuance of notes payable, net of issuance costs                                         |  |                                                      | 2,138,225   |   |                              |      | 265,638    |             |  |   | 1,013,501  |  
|Proceeds from convertible debentures and other obligations, net of issuance costs                      |  |                                                      | 4,236,654   |   |                              |      | 2,295,154  |             |  |   |           |  
|Payments on notes - current                                                                            |  |                                                      | (540,751    | ) |                              |      | (43,781    | )           |  |   |           |  
|Payments on notes - long term                                                                          |  |                                                      | (291,309    | ) |                              |      |           |             |  |   |           |  
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Net cash provided by financing activities                                                              |  |                                                      | 25,054,013  |   |                              |      | 2,556,511  |             |  |   | 1,013,501  |  
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Net change in cash and cash equivalents                                                                |  |                                                      | 940,239     |   |                              |      | 924,005    |             |  |   | 21,716     |  
|Cash and cash equivalents, beginning of period                                                         |  |                                                      |            |   |                              |      | 16,234     |             |  |   | 382        |  
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Cash and cash equivalents, end of period                                                               |  | $                                                    | 940,239     |   |                              | $    | 940,239    |             |  | $ | 22,098     |  
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Cash paid for:                                                                                         |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Interest                                                                                               |  | $                                                    | 247,823     |   |                              | $    | 96,103     |             |  | $ | 2,524      |  
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  
|Income taxes                                                                                           |  | $                                                    | 20,554      |   |                              | $    | 581        |             |  | $ | 1,148      |  
|                                                                                                       |  |                                                      |             |   |                              |      |            |             |  |   |            |  

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 nine months ended January 31, 2008:



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



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



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



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



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



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



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



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



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

Non-cash financing activities during the nine months ended January 31, 2007:



| | (1) | In connection with the issuance of $935,890 of one-year notes payable, the Company recorded aggregate discounts on notes payable of $570,976. These discounts related to the original
issue discount of $50,690 and $520,286 for 19,356,703 warrants issued in the transactions.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The Company made principal payments on its convertible notes payable of $268,071 through the issuance of 2,544,148 shares of common stock.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The Company recorded debt issue costs of $1,308,244 through the issuance of 11,683,593 warrants for capital raising services.
| | --- | -----------------------------------------------------------------------------------------------------------------------------

See accompanying condensed notes to financial statements.



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

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
January 31, 2008, and the results of its operations for the three months and nine months ended January 31, 2008 and 2007, and for the period from May 26, 1967 (inception) to January 31, 2008, and its cash flows for the nine
months ended January 31, 2008 and 2007, and for the period from May 26, 1967 (inception) to January 31, 2008. 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, 2007 filed with the
Commission on August 14, 2007.

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 January 31, 2008, has an accumulated deficit of $35,304,739,
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

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

The Company uses the historical stock price volatility to value stock options under SFAS
123R. 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 Companys net loss for the three months ended January 31, 2008 and 2007 includes approximately $137,500 and $13,000 and $161,600 and $47,000 for the nine months ended January 31, 2008 and 2007 of non-cash stock-based
compensation costs. As of January 31, 2008, there was approximately $99,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements.



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

3. NOTES PAYABLE

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

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

The Company is in the process of issuing five year convertible debentures with a total face amount of $13,500,000, discounted at 55%, with total net proceeds of
$6,075,000. The debentures are convertible at any time prior to maturity into a total of 54,655,870 shares of common stock, or $0.247 per share. In addition, the Company will issue 5-year warrants to purchase 27,327,935 shares of common stock at
$0.247 per share to investors.

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

As overall consideration for
capital raising services in connection with above $6,075,000 financing, the Company will pay a cash fee of 7% of the funds received from non-US investors, issue 2,063,580 restricted shares of common stock, plus issue 8,254,321 five year common stock
purchase warrants with an exercise price of $0.247. These fees are payable upon receipt of the full $6,075,000 proceeds by the Company.

4.
STOCKHOLDERS EQUITY

During the three months ended January 31, 2008:



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



| | (2) | In connection with the above $1,000,000 bridge loans, the Company issued 2,500,000 warrants for capital raising services and recorded debt issue cost of $288,750 which represents
the fair value of these warrants estimated using the Black-Scholes valuation model. The warrants are exercisable at a price of $0.245 per share. In addition, the Company paid $100,000 in cash for capital raising services.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The Company made principal payments on its debentures of $58,000 through the issuance of 339,045 shares of common stock.
| | --- | ------------------------------------------------------------------------------------------------------------------------



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



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

4. STOCKHOLDERS
EQUITY - CONTINUED

The following table summarizes the Companys stock warrant information during the quarter ended January 31, 2008:



|                                   |  |                                   |   |  |                              |      
|---------------------------------- |  | --------------------------------- | - |  | ---------------------------- | -----
|                                   |  | The Quarter EndedJanuary 31, 2008
|                                   |  | Warrants                          |   |  | WeightedAverageExercisePrice
|Outstanding as of October 31, 2007 |  | 77,048,155                        |   |  | $                            | 0.255
|Granted                            |  | 17,560,257                        |   |  |                              | 0.246
|Exercised                          |  | (6,590,903                        | ) |  |                              | 0.242
|Forfeited                          |  | (2,884,337                        | ) |  |                              | 0.275
|                                   |  |                                   |   |  |                              |      
|Outstanding as of January 31, 2008 |  | 85,133,172                        |   |  | $                            | 0.254
|                                   |  |                                   |   |  |                              |      

The effect of potentially issuable shares of common stock was not included in the calculation of diluted loss per
share given that the effect would be anti-dilutive.

5. RELATED PARTY TRANSACTIONS

During the nine months ended January 31, 2008, the Company borrowed $39,500 from its former President and Chief Executive Officer (Note 7). The loan is not collateralized, has no stated maturity date, does not
have a stated interest rate and no repayments have been made.

6. INCOME TAXES

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

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

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

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

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



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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

7. COMMITMENTS AND
CONTINGENCIES

Effective November 20, 2007, Robert W. Nicora, the Companys President, Chief Executive Officer and Chief Financial Officer
resigned from all officer positions and from his directorship. Mr. Nicora will receive a total amount of $378,233 which includes accrued salaries, repayment of advances and severance payments. A total of $201,500 was paid on this obligation
during the quarter ended January 31, 2008.

Effective November 20, 2007, the Company elected two individuals to its Board of Directors, one of
which was also elected as interim President and Chief Executive Officer. The Director and interim President and Chief Executive Officer is paid an annual salary of $120,000, $550 per month car allowance, reimbursement for housing costs while in
California during his term as an officer and options to purchase 30,000 shares of common stock for each month of service. The stock option is exercisable for three years following the issuance at a price equal to the market price on the date of each
monthly issuance. The second Director is paid a monthly consulting fee of $15,000 and options to purchase 1,000,000 common shares as of November 20, 2007 at an exercise price of $0.245 per share expiring three years from the date of grant.
Additionally, if the Company enters into a license agreement or is sold, it will issue to the second Director an option to purchase 4,000,000 common shares at an exercise price of $0.245 per share expiring three years from the date of grant.

Warrants totaling 17,560,257 and convertible notes issued during the three months ended January 31, 2008 are subject to a requirement that the
Company file a registration statement with the SEC to register the underlying shares, and that it be declared effective on or before January 9, 2009. In the event that the Company does not have an effective registration statement as of that
date, or if at some future date the registration ceases to be effective, then the Company is obligated to pay liquidated damages to each holder in the amount of 1% of the aggregate market value of the stock, as measured on January 9, 2009 or at
the date the registration statement ceases to be effective. As an additional remedy for non-registration of the shares, the holders would also receive the option of a cashless exercise of their warrant or conversion shares (see Note 8).

8. SUBSEQUENT EVENTS

In February and March 2008, the Company
received the remaining cash proceeds of $4,646,000 on its five year convertible debentures (described in Note 3). A total of 20,889,685 warrants will be issued to the investors, valued at approximately $4,441,147. As consideration for capital
raising services in connection with above financing, the Company will pay a cash fee of 7% of the $3,585,500 funds received from the non-US investors, issue 1,475,514 restricted shares, plus issue 5,902,058 five year warrants with an exercise price
of $0.247.

The agreement underlying issue the above warrants (Warrant Agreement) asserts that, prior to September 30, 2008, the Company
is required to take action to submit to the shareholders of the Company a proposal to amend the Companys articles of incorporation to increase the number of authorized shares of common stock by such amount as is necessary to reserve for
issuance the maximum aggregate number of warrant shares then issued or potentially issuable in the future upon exercise of the Warrant Agreement. The number of potentially issuable common shares under the Companys options, warrants, and
convertible debt instruments is subject to a downward adjustment in the event of a cashless exercise of warrant or conversion shares (see Note 7).

In
connection with the convertible debenture financing described above, the Company will issue a total of 6,000,000 two year warrants to Aventis Invest and Horizon Financial Capital Group Ltd. (3,000,000 to each) at an exercise price of $0.20 as
additional consideration for capital raising services. The issuance of these warrants was conditional on receiving the full $6,075,000 proceeds from the convertible debentures.

In connection with the convertible debenture financing described above, the Company will extend a total of 2,500,000 warrants to PS Capital for an additional three years at an exercise price of $0.28 as additional
consideration for capital raising services. The extension of these warrants was conditional on receiving the full $6,075,000 proceeds from the convertible debentures.

In connection with the convertible debenture financing described above, the Company will extend a total of 5,000,000 warrants to Mr. Ivan Bergamin and Maylands Investment Corp. (2,500,000 each) for an additional
two years at an exercise price of $0.247 as additional consideration for capital raising services. The extension of these warrants was conditional on receiving the full $6,075,000 proceeds from the convertible debentures.



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From February 1, 2008 through March 15, 2008, the Company received $7,500 and issued 50,000 common shares
pursuant to the exercise of options. The Company also issued 170,000 additional common shares in a cashless exercise of options during this period.

In
March 2008, the Company issued a total of 910,082 common shares in two cashless exercises of warrants, and issued an additional 105,506 shares in the conversion of a $26,060 note.

In February 2008, the United States Department of Defense approved the award of a $1.9 million grant to the Companys principal traumatic brain injury (TBI) investigator at the University of Miami Miller School
of Medicine.



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|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 blood substitutes that act as oxygen carriers for human tissue and fluids that carry
oxygen to the lungs 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 in 2005 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 and the results were
considered within expectations and favorable. 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.

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 or
until we obtain additional financing.

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.

In February 2008, the United States Department of Defense approved the award of a $1.9 million grant to the Companys principal traumatic brain injury (TBI)
investigator at the University of Miami Miller School of Medicine. With this grant, the TBI investigator will be able to double the planned enrollment in the Phase IIb trial to 200 TBI patients, providing a large statistical basis for evaluating
Oxycytes effectiveness.

We have announced other US Government Military grants totaling in excess of $7 million to researchers that are ordering
Oxycyte for these additional pre-clinical studies, where the results of these studies will help support additional clinical testing applications to the FDA. While these grants are not to the Company, they have all been approved for testing our
Oxycyte product in a variety of situations, such as Sickle Cell Disease, Decompression Sickness, Blast Traumatic Brain Injury, Spinal Cord Injury, CPR, and Brain Ischemia.

RESULTS OF OPERATIONS

Three
months ended January 31, 2008 and 2007

Research and Development expenses for the three months ended January 31, 2008 were $222,142, compared
to $157,689 for the same period in the prior year. Due to the financing we obtained during the current quarter, we were able to resume funding of our Phase II clinical trials and increase our lab personnel and related expenses. Phase II expenses
totaled $14,359 for the quarter ended January 31, 2008, compared to $0 for the quarter ended January 31, 2007. Lab salaries and benefits totaled $86,827 during the quarter ended January 31, 2008, compared to $76,820 during the quarter
ended January 31, 2007. Lab supplies totaled $30,929 during the quarter ended January 31, 2008, compared to $2,201 during the quarter ended January 31, 2007. Because of the nature of our ongoing research and development activities and
depending on our cash flow levels, accounting periods may reflect significant changes in expenses resulting from the timing of research related to our developmental products.



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General and Administrative expenses for the three months ended January 31, 2008 were $635,915, compared to $319,994
for the same period in the prior year. During the current quarter we incurred compensation expense from the issuance of stock options (and extensions of terms of certain existing options) that totaled approximately $137,500, compared to $13,000 for
the same period in the prior year. In addition, during the quarter ended January 31, 2008 we incurred approximately $240,000 of additional payroll expenses for a severance package for our former President, pursuant to his resignation in
November 2007. Our outside consulting and contract management costs in total were approximately $58,000 lower during the current quarter compared to the same period in the prior year.

The net loss for the three months ended January 31, 2008 was $2,325,379 compared to a net loss of $891,287 for the same period in the prior year. Total expenses, excluding interest expense and loss on debt
extinguishment, increased $380,374 during the three months ended January 31, 2008 over the comparable period in 2007. In addition to the items noted above, interest expense increased $801,168. This increase during the current quarter was due to
the interest costs associated with the notes and debentures payable and related amortization of associated debt discounts, and the significant additional financing costs related to the exchange of our short-term notes for 5 year convertible
debentures during the current quarter. During the quarter ended January 31, 2008, we also incurred a debt extinguishment loss of $250,097 related to the exchange of our short-term notes for 5 year convertible debentures. The extinguishment was
recognized in accordance with EITF 96-19 and results principally from the write off of unamortized debt discounts and debt issue costs. Additionally, other income, consisting principally of sub-rental income decreased $2,453 in the quarter ended
January 31, 2008 compared to the same period ended January 31, 2007.

Nine months ended January 31, 2008 and 2007

Research and Development expenses for the nine months ended January 31, 2008 were $492,505, compared to $567,917 for the same period in the prior
year. During the nine months ended January 31, 2007 we concentrated our research activities on our Oxycyte product that included Phase II clinical trials, while during the nine months ended January 31, 2008 we curtailed some of our
research activities, especially with Phase II clinical trials, due to constraints of cash flow.

General and Administrative expenses for the nine months
ended January 31, 2008 were $1,028,029, compared to $818,952 for the same period in the prior year. In October 2006, the Company decided to temporarily cease operations and lay-off exiting employees. The reduced levels of operations, due to
limited working capital sources, continued during the nine months ended January 31, 2008. However, during the nine months January 31, 2008 our payroll expenses increased approximately $263,000 which was primarily due to the costs of a
severance package for our former President, pursuant to his resignation in November 2007. We also incurred compensation expense from the issuance of stock options (and extensions of terms of certain existing options) that totaled approximately
$162,000 during the nine months ended January 31, 2008, compared to approximately $47,000 for the same period in the prior year. Significant decreases in our general and administrative costs during the nine months ended January 31, 2008
included consulting and contract management expenses (decrease of approximately $120,000) and investor relations (decrease of approximately $55,000).

The
net loss for the nine months ended January 31, 2008 was $4,284,545 compared to a net loss of $2,297,672 for the same period in the prior year. Total expenses, excluding interest expense and loss on debt extinguishment, increased $133,665 during
the nine months ended January 31, 2008 over the comparable period in 2007. Interest expense increased $1,795,337 due to the interest costs associated with the notes and debentures payable and related amortization of associated debt discounts,
and the significant additional financing costs related to the exchange of our short-term notes for 5 year convertible debentures during the quarter ended January 31, 2008. During the nine months ended January 31, 2008, we also incurred a
debt extinguishment loss of $250,097 related to the exchange of our short-term notes for 5 year convertible debentures. The extinguishment was recognized in accordance with EITF 96-19 and results principally from the write off of unamortized debt
discounts and debt issue costs. Additionally, other income, consisting principally of sub-rental income decreased $4,632 in the nine months ended January 31, 2008 compared to the same period in 2007.

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 January 31, 2008, we had $1,190,556 of total current assets and a working capital deficit of $1,229,723. Our
current liabilities include a total of $2,090,280 noncash debt issuance costs we incurred on the partial proceeds received on our $6,075,000 convertible notes. Our working capital deficit at the end of the current quarter is a result of this noncash
liability. This liability will be extinguished in the quarter ended April 30, 2008 through the issuance of warrants to the related investors and finders. Our practice is to invest excess cash, where available, in short-term money market investment
instruments.

Since receiving the full remaining proceeds of $6,075,000 on our five year convertible notes in February and March 2008, we believe we have
adequate cash through the next 18 months for operations and planned clinical testing. The Department of Defense grant of $1.9 million to our principal Traumatic Brain Injury (TBI) investigator allows us to increase our planned enrollment in our
Phase IIb trial from 100 to 200 patients. The only incremental costs involved in this clinical testing should be the cost of supplying additional Oxycyte and data management, thus enabling us to double the enrollment size without substantially
increasing our costs.



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We have announced other US Government Military grants totaling in excess of $7 million to researchers that are ordering
Oxycyte for these additional pre-clinical studies, where the results of these studies will help support additional clinical testing applications to the FDA. While these grants are not to the Company, they have all been approved for testing our
Oxycyte product in a variety of situations, such as Sickle Cell Disease, Decompression Sickness, Blast Traumatic Brain Injury, Spinal Cord Injury, CPR, and Brain Ischemia.

We anticipate a significant amount of new capital through the conversion of options and warrants to common stock after our current quarter recapitalization because, at the present time, our stock price exceeds the
option and warrant strike prices. These funds will be used as received for additional pre-clinical animal testing for other conditions where Oxycyte may provide a benefit.

In February and March 2008, the Company received the remaining proceeds of $4,646,000 on its five year convertible debentures (described in Note 3). A total of 20,889,685 warrants will be issued to the investors,
valued at approximately $4,441,147. As consideration for capital raising services in connection with above $4,646,000 financing, the Company will pay a cash fee of 7% of the funds received from the non-US investors, issue 1,475,514 restricted
shares, plus issue 5,902,058 five year warrants with an exercise price of $0.247.

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. 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 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 depends on obtaining outside financial resources, and there is no assurance we will succeed in obtaining the necessary resources.

Although we believe we have adequate cash through the next 18 months for operations and planned clinical testing, we are in the development stage, have an accumulated
deficit of $35,304,739, continue to sustain operating losses on a monthly basis, and expect to incur operating losses for the foreseeable future. These factors, among others, raise substantial doubt about our ability to continue as a going concern.
Our 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 we be unable to continue as a going
concern for a reasonable period of time.

Cash used in operating activities during the nine months ended January 31, 2008 was $1,616,166, compared to
$975,938 used 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 nine months
ended January 31, 2008 was $16,340 compared to $15,847 for the comparable period of the prior year. Investing activities consisted primarily of expenditures related to our patent rights and capital assets. Synthetic Blood does not anticipate
significant future capital expenditures in the near term.

Cash provided by financing activities during the nine months ended January 31, 2008 was
$2,556,511 compared to cash provided by financing activities of $1,013,501 for the comparable period of the prior year. Cash provided by financing activities consists primarily of the proceeds from the sale of debentures, short term notes payable
and advances from officers.

RISK FACTORS

Under Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended April 30, 2007, 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.



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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:

Share-Based Payment - 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 standard requires the expensing of all share-based compensation, including options and warrants, 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 impairment on a quarterly basis in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144).

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

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

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

Registration Payment Arrangements - In connection with prior private placements of our common stock and warrants to purchase shares of our common stock, we entered into agreements that committed us to timely register the shares of
common stock purchased as well as the shares underlying the issued warrants. Those registration agreements specified potential cash penalties if we did not timely register the related shares with the SEC.

In accordance with EITF 00-19, Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Companys Own Stock, when the
potential cash penalties were included in registration payment arrangements, the estimated fair value of the warrants would be recorded as a liability, with an offsetting reduction to additional paid-in capital received from the private placement.
The fair value of the warrants would be estimated using the Black-Scholes option pricing model.

Under EITF 00-19, the estimated fair value of the warrants
would be re-measured at each reporting date and on the date of effectiveness of the related registration statement, with the increase in fair value recorded as other expense in our Statement of Operations. As of the date of effectiveness of the
registration statement, the warrant liability would be reclassified to additional paid-in capital, evidencing the non-impact of these adjustments on our financial position and business operations.

In December 2006, the FASB issued FASB Staff Position, or FSP, EITF No. 00-19-2, Accounting for Registration Payment Arrangements. This FSP specifies that
companies that enter into agreements to register securities will be required to recognize a liability if a payment to investors for failing to fulfill the agreement is probable and can be reasonably estimated. This accounting differs from the
guidance in EITF 00-19, which required a liability to be recognized and measured at fair value, regardless of probability.

EITF 00-19-2 is effective
immediately for registration payment arrangements and the financial instruments subject to those arrangements that we enter into or modify after the date of issuance of this FSP. For our registration payment arrangements and financial instruments
subject to those arrangements that were entered prior to the issuance of this FSP, the guidance was effective beginning January 1, 2007.

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, 2007 and subsequent filings made with the Securities and Exchange
Commission.



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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. | 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 who also serves as 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 errors 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.

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. However, on November 20, 2007 our President,
Chief Executive Officer and Chief Financial Officer terminated his services. We have appointed an interim President, Chief Executive Officer and Chief Financial Officer and we are currently performing a search to replace the Chief Financial Officer.



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Part II-Other Information



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

In
December 2007, the Company exchanged its $1,000,000 bridge loans for 5 year convertible debentures with a face amount of $2,222,222. The notes are unsecured, convertible into shares of common stock at $0.247, and were issued with a 55% original
issue discount totaling $1,222,222. In addition, the Company issued 5-year warrants to purchase 4,498,426 shares of common stock at $0.247 per share to investors. Additional discounts of $703,554 and $296,446 were recorded for the relative fair
values of the warrants and beneficial conversion feature, respectively. The securities were issued to fund the current working capital requirements of the Company and were sold in reliance on the exemptions or exclusions from registration set forth
in Section 4(2) of the Securities Act of 1933 and Regulation S adopted thereunder.

In January 2008, the Company exchanged its remaining outstanding
short term loans for 5 year convertible debentures with a face amount of $3,982,545. The notes are unsecured, convertible into shares of common stock at $0.247, and were issued with a 55% original issue discount totaling $2,190,400. In addition, the
Company issued 5-year warrants to purchase 8,061,831 shares of common stock at $0.247 per share to investors. Additional discounts of $1,035,945 and $756,200 were recorded for the relative fair values of the warrants and beneficial conversion
feature, respectively. Pursuant to this exchange transaction, the Company recorded a debt extinguishment loss of $250,097. The securities were issued to fund the current working capital requirements of the Company and were sold in reliance on the
exemptions or exclusions from registration set forth in Section 4(2) of the Securities Act of 1933 and Regulation S adopted thereunder.

In March
2008, the Company closed the offering of five year convertible debentures with a total face amount of $13,500,000, discounted at 55%, with total proceeds of $6,075,000. The debentures are convertible at any time prior to maturity into a total of
54,655,870 shares of common stock. In addition, the Company issued 5-year warrants to purchase 27,327,935 shares of common stock at $0.247 per share to investors. As consideration for capital raising services in connection with above financing, the
Company will pay a cash fee of 7% of the $3,585,500 funds received from the non-US investors ($250,985), issue 1,475,514 restricted shares, plus issue 5,902,058 five year warrants with an exercise price of $0.247. In addition, the Company will issue
a total of 6,000,000 two year warrants to Aventis Invest and Horizon Financial Capital Group Ltd. (3,000,000 to each) at an exercise price of $0.20 as additional consideration for capital raising services. Also, the Company will extend a total of
2,500,000 warrants to PS Capital for an additional three years at an exercise price of $0.28 as additional consideration for capital raising services. Finally, the Company will extend a total of 5,000,000 warrants to Mr. Ivan Bergamin and
Maylands Investment Corp. (2,500,000 each) for an additional two years at an exercise price of $0.247 as additional consideration for capital raising services. The securities were issued to fund the current working capital requirements of the
Company and were sold in reliance on the exemptions or exclusions from registration set forth in Section 4(2) of the Securities Act of 1933 and Regulation S adopted thereunder.

From February 1, 2008 through March 15, 2008, the Company received $7,500 and issued 50,000 common shares pursuant to the exercise of options. The Company also issued 170,000 additional common shares in a
cashless exercise of options during this period. In March 2008, the Company issued a total of 910,082 common shares in two cashless exercises of warrants, and issued an additional 105,506 shares in the conversion of a $26,060 note. The securities
were issued in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act of 1933.



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

As of October 31, 2007, the
Company was past due on certain notes payable which had a due date of one year from date of issuance in the approximate amount of $846,000 plus accrued and unpaid interest. The Company was able to become current on these obligations through the
exchange of the short term notes for 5 year convertible debentures in January 2008.



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



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



|     |  |                                                                                                                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------
|4.1  |  | Form of Convertible Note                                                                                                       
|     | 
|4.2  |  | Form of Warrant                                                                                                                
|     | 
|10.1 |  | Form of Purchase Agreement  US Purchase (without the exhibits which are included as separate exhibits to this report)         
|     | 
|10.2 |  | Form of Purchase Agreement  Non-US Purchase (without the exhibits which are included as separate exhibits to this report)     
|     | 
|10.3 |  | Form of Purchase Agreement  US Note Exchange (without the exhibits which are included as separate exhibits to this report)    
|     | 
|10.4 |  | Form of Purchase Agreement  Non-US Exchange (without the exhibits which are included as separate exhibits to this report)     
|     | 
|31.1 |  | Certification of Chief Executive Officer and 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.        

SIGNATURE

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.                           
|               |  | 
|March 21, 2008 |  |  |  | /s/ Robert J. Larsen                                          
|               |  |  |  | Robert J. Larsen                                              
|               |  |  |  | President, Chief Executive Officer and Chief Financial Officer



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