<PAGE>

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                                    FORM 1O-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON D.C., 20549

                                    FORM 1O-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                    For the Fiscal Year Ended April 30, 2000

                           COMMISSION FILE NO. 2-31909

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


          NEW JERSEY                                   22-3067701
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 (State of Incorporation)                        (IRS Employer I.D. Number)


                    2685 CULVER AVENUE, KETTERING, OHIO 45429
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               (Address of Principal Executive Offices) (Zip Code)


           Registrant's Telephone Number and Area Code: (937) 298-6070

        Securities Registered Pursuant to Section 12(b) of the Act: NONE
        Securities Registered Pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                 YES [X]  NO [_]

Indicate by check mark if disclosure of delinquent filings pursuant to Item 405
of Regulation S-K is not contained herein, and will not be continued, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

                 YES [X]  NO [_]

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date, July 31, 2000: 83,686,672
shares of $.01 par value common stock. The aggregate market value of the shares
held by non-affiliates of the registrant (assuming officers, directors and 10%
shareholders are affiliates) was approximately $38,055,443 based on the closing
bid price of the Registrants Common Stock on July 31, 2000 of $0.515 per share.

List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424 (b) or (c) under the Securities Act of
1933. None of the above-listed documents are incorporated by reference.

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FORWARD-LOOKING STATEMENTS

This Form 10-K contains forward-looking statements in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere.
These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology such as
"may", "will", "should", "expects", "plans", "anticipates", "believes",
"estimates", "predicts", "potential" or "continue" or the negative of such terms
or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the
risks outlined under "Risk Factors," that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activities, performance or
achievements expressed or implied by such forward-looking statements.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this Form 10-K or to conform such statements to actual results.


                                     PART I

ITEM 1 -- BUSINESS

Synthetic Blood International, Inc. ("SBI" or the "Company") is a
development-stage company which is developing OXYCYTE, a proprietary synthetic
blood substitute and FLUOROVENT, a liquid for assisting oxygen exchange in
damaged or diseased lungs based upon perfluorocarbon ("PFC") technology. In
addition the Company has developed an implantable continuous reading glucose
biosensor for diabetics. The Company is now in the preclinical stage and is
completing activities necessary for the preparation of applications with the
United States Food and Drug Administration ("FDA") to begin clinical testing.
After the submission to the FDA, the Company's products will require extensive
clinical testing before FDA approval may be granted. No assurance may be given
that FDA approval will be granted.

The Company's technology is based on research done by Dr. Leland C. Clark, Jr.,
a widely recognized, pioneering inventor and scientist. Dr. Clark, who is
credited with developing the first blood oxygenator for open heart surgery as
well as biomedical applications for perfluorocarbons and biosensors, was the
Company's Vice President of R&D until 1998. Dr. Clark currently serves as a
consultant to SBI.

The Company began conducting business in its current form in September 1990,
shortly thereafter changed its name to Synthetic Blood International, Inc., and
revised its business purpose to developing a line of blood substitutes.

MARKET

The Company's lead products - Oxycyte(TM), Fluorovent(TM), and an implantable
glucose biosensor - will compete in what the Company believes are four
multibillion-dollar markets: blood substitutes, oxygen therapeutics, acute
respiratory distress, and diabetes.


Blood Substitutes
-----------------

The search for blood replacement fluids began centuries ago. In modern times,
this search has been given a new impetus by the threat of disease transmission,
most notably HIV and hepatitis C. The risks are low but unacceptable because of
the high death rate from these diseases. In underdeveloped countries, the risk
of serious disease transmission is much greater.

An increasingly short supply of blood is also driving this research. In the US,
the number of blood donors continues to fall while the number of elderly, the
group that needs blood the most, is growing. By 2030, experts project an annual
shortfall of 4 million units in the US. In other countries where cultural and
logistical issues constrain blood collection even more, the shortfall is
believed to be much greater.

                                       2
<PAGE>

The third major force behind this search is the military's desire for a blood
substitute that can be stockpiled and used immediately when needed in
battlefield conditions without special storage and matching of human donor
blood. Current techniques for blood transfusions do not meet these requirements.

Approximately 100 million units of human donor blood are collected annually
worldwide. About 15 million units are collected in the US each year. The global
market for blood substitutes has been estimated at $2-5 billion.


Oxygen Therapeutics
-------------------

The availability of parenteral oxygen-carrying products for animal and clinical
research has lead to the identification of potential new uses for products
traditionally defined as blood substitutes. These uses, for example in ischemic
conditions, specifically depend on the ability to deliver oxygen, not on a
patient's need for blood or blood components. These new uses include stroke,
myocardial infarction, angioplasty, and malignant disease. In ischemic
conditions, cell damage is caused by a lack of oxygen. In cancer, enhanced
oxygen delivery is thought to make solid tumors, and possibly diffuse cancer
cells, more susceptible to radiation and chemotherapy. Combined, these
conditions affect 3-4 million people in the U.S. The company estimates these new
uses for oxygen-carrying blood substitutes to constitute a multibillion-dollar
market.


Acute Respiratory Distress
--------------------------

Thousands of premature infants are born each year with underdeveloped lungs and
a condition of impaired pulmonary function known as acute respiratory distress
syndrome (ARDS). This syndrome has multiple causes and also occurs in children
and adults. Although many of these patients are treated with mechanical
ventilation, this treatment can add further injury to the lungs and the
mortality rate is still high. This has prompted research for a safer, more
effective treatment. While more research is needed, current studies with partial
liquid ventilation in animals and patients, both infants and adults, suggest
that liquid ventilation may be a safe and effective treatment of ARDS.

The incident of ARDS in the US is about 250,000 cases annually. While ARDS is
the primary disease target for liquid ventilation at this time, SBI believes
that it may also be beneficial in chronic obstructive pulmonary disease (COPD),
a condition that occurs in 10 million people in the US. The company believes
that the ultimate market for liquid ventilation is in the multibillion-dollar
range.


Diabetes
--------

Diabetes and its associated complications are among the most prevalent, costly
diseases in the world. Its incidence is increasing at a significant rate.
Diabetes affects men and women equally but occurs most frequently in the
elderly. Direct costs are estimated at about $50 billion, almost 6% of the total
personal healthcare expenditures in the US.

A ten year study, the Diabetes Control and Complications Trial (DCCT) sponsored
by the National Institutes of Diabetes and Digestive and Kidney Diseases, showed
that "tight diabetes control," keeping blood sugar levels close to normal by
recent blood sugar testing, several daily insulin shots, and lifestyle changes,
was associated with a major reduction in diabetic complications. These findings
led the American Diabetes Association to recommend tight control as an important
way to delay the onset and dramatically slow the progression of complications
from diabetes.

People with diabetes measure their blood glucose levels by sticking a finger
with a needle to obtain a blood drop that is placed on a test strip and analyzed
by a portable instrument. Repeating this procedure several times a day becomes
painful, leading many patients, especially the elderly, to perform the procedure
infrequently. Furthermore, the accuracy of some blood glucose analyzers is poor.
A less invasive system for accurately measuring blood glucose on demand would
increase glucose monitoring compliance and provide a better basis for tight
diabetes control.

More than 16 million people, approximately half undiagnosed, are estimated to
suffer from diabetes in the US. Between 600,000 and 700,000 new cases are
diagnosed each year. About 800,000 diabetics are insulin-dependent. Mortality
from diabetes and its associated complications is high; it is the seventh
leading cause of death in the US.

                                       3
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Globally, the incidence of diabetes is estimated at 120 million people. While
insulin-dependant diabetics are thought to have the greatest need for tight
diabetic control, evidence is increasing that better control of blood glucose in
type 2 diabetics also leads to a reduction in diabetic complications. The
company estimates the global market for a less invasive glucose monitoring
system to be a multibillion-dollar market.


TECHNOLOGY

The Company's principal technologies - biomedical uses for perfluorocarbons and
substrate analysis with biosensors were conceptualized and advanced by Dr.
Leland C. Clark, Jr. While his pioneering discoveries in these two areas spawned
decades of research worldwide, Dr. Clark has been one of the most prolific
contributors and has remained at the forefront of scientific advances in these
areas, leading to the Company's patented perfluorocarbon and biosensor
technology platforms.


Perfluorocarbons in Biomedicine
-------------------------------

Following an experiment showing that a mouse could live and breathe submerged in
oxygen-saturated silicone oil, Dr. Clark showed in 1965 that animals could be
kept alive submerged for several hours in oxygen-saturated perfluorocarbon
liquids. These experiments suggested that perfluorocarbons might be useful in
medicine, principally in liquid breathing and in blood substitutes, and in 1975,
Dr. Clark was issued the first patent for an oxygen-carrying,
perfluorocarbon-based blood substitute. Although the technology described in
this patent was used by the Green Cross Corporation in Japan to develop and
obtain FDA approval for Fluosol DA, Dr. Clark recognized that further research
would be necessary before safe, effective perfluorocarbons could be identified.
Since that time, a principal focus of his research has been the identification
of optimal properties for biomedical perfluorocarbons, and the screening of
numerous compounds.


Biosensor Substrate Analysis
----------------------------

In the mid-1950's, Dr. Clark developed the first oxygen electrode. Ten years
later, he applied for a patent describing enzyme-based biosensors that could
accurately measure glucose, lactate, and other substrates. By 1974, Yellow
Springs Instrument Company had developed and marketed the Clark glucose analyzer
based on this technology. In the early 1980's, Dr. Clark published studies with
implanted glucose biosensors, and in the late 1980's and early 1990's, was
issued several seminal patents on implanted glucose biosensors. Since then,
research and development efforts at SBI have focused on optimizing performance
and design characteristics of the implanted glucose biosensor.


PRODUCTS

Fluorovent(TM)
--------------

Fluorovent(TM), a unique oxygen-carrying perfluorocarbon, has been selected for
the treatment of ARDS after screening numerous available perfluorocarbons for
optimal properties. When given as a liquid directly into the lungs, it acts as a
surfactant and a highly effective medium for gas exchange, thus increasing
pulmonary function and the diffusion of oxygen and carbon dioxide in respiratory
distress.

Based on laboratory and animal studies thus far, the company believes that
Fluorovent(TM) has significant competitive advantages as a liquid ventilation
treatment. Its boiling point and vapor pressure result in longer pulmonary
retention without the need for continuous replacement of evaporated fluid,
offering the potential for less costly, less time-intensive procedures. It does
not contain bromine or chlorine and thus presents no environmental hazard. In
animals, it does not produce a hyperinflated, noncollapsible lung condition seen
with other perfluorocarbon liquids being tested. There can be no assurance any
such advantages will be demonstrated if Fluorovent(TM) enters clinical trials,
or that it will ever be marketed, sold or generate revenue for the Company.

                                       4
<PAGE>

Oxycyte(TM)
-----------

SBI is developing Oxycyte(TM), an oxygen-carrying intravenous emulsion made from
the same base perfluorocarbon in Fluorovent(TM). Blood gases such as oxygen and
carbon dioxide are highly soluble in perfluorocarbons, making Oxycyte(TM) an
effective means of transporting oxygen to tissues and carbon dioxide to the
lungs. In comparison to hemoglobin, the component of blood that binds with and
transports oxygen, Oxycyte(TM) can carry at least five times more oxygen.
Additionally, perfluorocarbons are much more effective than hemoglobin at
unloading oxygen at the tissue level. Oxycyte(TM) is directed at the blood
substitute and oxygen therapeutics markets. There can be no assurance any such
advantages will be demonstrated if Oxycyte enters clinical trials, or that it
will ever be marketed, sold or generate revenue for the Company.


Implanted Glucose Biosensor
---------------------------

SBI has developed an implanted glucose biosensor to monitor blood glucose
without the need for finger sticks. Termed a biosensor because it utilizes an
enzyme specific for glucose, SBI believes it will provide glucose measurement
significantly more accurate than possible from current portable measuring
devices. Once implanted in subcutaneous tissue during a simple outpatient
procedure, the biosensor, which is about the size of a cardiac pacemaker,
provides continuous, accurate monitoring of blood glucose. A radio frequency
signal from the implanted biosensor is transmitted to an external receiving
device the size of a pager that displays blood glucose as a digital readout, has
high and low glucose alarms, and stores data for downloading at the physician's
office. The external device can also be programmed to monitor glucose according
to a preset schedule, eliminating the monitoring compliance problem and
providing the data necessary for tight glucose control. Ultimately, it is
intended the biosensor will be linked to an implanted insulin pump, creating a
closed-loop mechanical pancreas. It is anticipated the implant life of the
biosensor will exceed one year. There can be no assurance any such advantages
will be demonstrated if the biosensor enters clinical trials, or that it will
ever be marketed, sold or generate revenue for the Company.


OTHER PRODUCTS

Perfluorocarbons
----------------

SBI is evaluating the use of perfluorocarbons for drug delivery, especially
pulmonary drug delivery, and believes this represents a substantial new market
opportunity for its proprietary perfluorocarbons.


Biosensors
----------

SBI has identified potential new applications for its biosensor technology in
the following areas:

 . Clinical analysis of other biochemical substrates
 . In-process analysis in bulk biotechnology and chemical synthetic processes
 . Veterinary medicine


MARKETING/BUSINESS STRATEGY

Three important elements to the Company's strategy are:

Virtual Operation
-----------------

The Company's strategy is to operate and develop products as a virtual company,
a strategy proven sound by numerous successful start-up companies. Staff will be
added only as necessary to meet the Company's goals, minimize fixed expenses,
and utilize contract services where possible to assist the Company in its goal
to move quickly and maximize the return and progress from invested funds.

                                       5
<PAGE>

Partnering
----------

SBI intends to partner as early as possible with global and/or national
pharmaceutical and medical device companies to attain additional funding,
commercial-scale manufacturing capabilities, and maximum global market
penetration for the Company's products. While major partnerships many times are
not consummated until clinical trials are under way, SBI has begun to
systematically identify and meet with interested and appropriate candidate
companies. The Company has not entered into any partnership arrangements and
there can be no assurance it will enter into such arrangements in the future.


Market Entry
------------

A final important element of the Company's strategy deals with the timing of
market entry. The Company's current product markets - liquid ventilation, blood
substitutes, oxygen therapeutics, and implantable biosensors - are new and will
require considerable effort and money to develop. If SBI is not the first
company to market these products, the Company believes it should benefit from
the investment made by the competition, and its future strategy will be to enter
established markets and capture market share with superior products that have
significant competitive advantages. Additionally, SBI intends to be selective in
picking the most appropriate corporate marketing partner for each product.


COMPETITION

Fluorovent(TM)
--------------

SBI is aware of only one other company developing a liquid ventilation product.
Alliance Pharmaceutical Corporation's product, LiquiVent, is in Phase III
clinical trials in adults with acute respiratory distress.


Oxycyte(TM)
-----------

Eight other companies in addition to SBI are believed to be developing
oxygen-carrying blood substitutes. Seven - Apex Bioscience, Baxter
International, Biopure, Enzon, Hemosol, Northfield Laboratories, and Somatogen
-are developing hemoglobin-based products and one - Alliance Pharmaceutical - is
developing a perfluorocarbon based product. All of these products are in Phase
I, II or III clinical trials. Baxter recently terminated clinical trials with
HemAssist, their bovine hemoglobin product.


Implanted Glucose Sensor
------------------------

Historically, the critical issues that have confronted the development and
commercialization of effective, less-invasive glucose monitoring systems include
stable sensor life, accuracy through a wide glucose range, inappropriate
biological ratios of oxygen and glucose to optimally drive enzyme biosensors,
and biocompatibility. Many research groups have attempted to resolve these
problems with varying success. SBI does not consider glucose sensor systems
proposed by academic groups as viable competition because it believes they lack
commercial input, and promising systems are usually acquired by industry.

SBI is aware of 8 other companies that are developing less-invasive glucose
monitoring systems - MiniMed, Cygnus Therapeutic, Biocontrol Technology, Sensor
Solutions, Integ, Bioject Medical, Sensors for Medicine and Technology, and
Technical Chemicals and Products. Only one - Sensors for Medicine - is pursuing
a sensor that is fully implantable. However, it is in the design stage and no
performance test data are available. Systems under development by the other
companies are skin surface or percutaneous systems that are at least minimally
invasive and/or require replacement every few hours to days. For example,
MiniMed's system requires subcutaneous insertion of a catheter-like device every
three days, while the Cygnus GlucoWatch requires replacement of its autosensor
pad every 12 hours. Six systems are in clinical trials, Biocontrol Technology
has made 510(k) submissions, and Cygnus and MiniMed recently received approval
to market their system.

The Company believes the ability to begin and then to complete clinical trials
on a timely basis with the desired results, and the ability to obtain timely
regulatory approvals to market its product candidates are likely to be
significant competitive factors.

                                       6
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MANUFACTURING AND SOURCES OF SUPPLY

The Company believes it has suitable sources of supply for key ingredients and
components, e.g. perfluorocarbons and biosensor materials, for all three
products under development. It also believes it has or will be able to reach
suitable agreements with appropriate contract manufacturers to implement its
strategy for not manufacturing these products internally at commercial scale.
The Company is using its best efforts to secure these relationships on a long
tern basis. However, there cannot be complete assurance that these relationships
can be secured or maintained to the benefit of the Company.


PATENTS/INTELLECTUAL PROPERTY

Perfluorocarbon products:
-------------------------

SBI has three issued U.S. (5,674,913; 5,824,703; 5,840,767) and one Australian
(690277) perfluorocarbon patents that protect the use of perfluorocarbons of
interest to the Company as gas transport agents in blood substitutes and liquid
ventilation. Another U.S. perfluorocarbon patent application has been allowed
and is expected to issue during fiscal year 2001. Additionally, through an
exclusive supply agreement with the Company's perfluorocarbon supplier, SBI has
exclusive rights to eight perfluorocarbon manufacturing process patents that
further protect the perfluorocarbons with which the Company is working.


Biosensor:
----------

The Company has two issued U.S. biosensor patents (5,914,026; 5,964,993) that
protect what the Company believes are important design features of the Company's
implanted glucose biosensor and other biosensor applications, both medical and
industrial. Another biosensor patent application has been submitted and is
pending. SBI has also exclusively licensed three fundamental biosensor patents
issued to Dr. Clark that have been assigned to Children's Hospital in
Cincinnati.

For all U.S. patents and applications, the Company also submits applications and
pursues patents in Europe, Canada, Japan and Australia. There can be no
assurance that any issued patents would survive a challenge and be valid and
enforceable. Also, there can be no assurance any pending applications will
result in issued U.S. or foreign patents. SBI therefore has a number of foreign
perfluorocarbon and biosensor patent applications submitted and pending.


GOVERNMENT REGULATION

Regulation by governmental authorities in the United States and other countries
is a significant factor in the manufacture and marketing of pharmaceuticals and
in the Company's ongoing research and development activities. All of the
Company's products will require regulatory approval by governmental agencies
prior to commercialization. In particular, human therapeutic products are
subject to rigorous preclinical testing and clinical trials and other
pre-marketing approval requirements by the FDA and regulatory authorities in
other countries. In the United States, various federal, and in some cases state
statutes and regulations also govern the Company's impact upon the
manufacturing, safety, labeling, storage, record-keeping and marketing of such
products. The lengthy process of seeking required approvals and the continuing
need for compliance with applicable statutes and regulations, require the
expenditure of substantial resources. Regulatory approval, when and if obtained,
may be limited in scope, which may significantly limit the indicated uses for
which a product may be marketed. Further, approved drugs, as well as their
manufacturers, are subject to ongoing review, and discovery of previously
unknown problems with such products may result in restrictions on their
manufacture, sale or use or in their withdrawal from the market.

To obtain FDA approval, the FDA requires clinical trials to demonstrate the
safety, efficacy, and potency of the product candidates. Clinical trials are the
means by which experimental drugs or treatments are tested in humans. New
therapies typically advance from laboratory, research, testing through animal,
preclinical testing and finally through several phases of clinical, human
testing. Upon successful completion of clinical trials, approval to market the
therapy for a particular patient population may be requested from the FDA in the
United States and/or its counterparts in other countries.

                                       7
<PAGE>

Clinical trials are normally done in three phases. In Phase I, trials are
conducted with a small number of patients or healthy volunteers to determine the
safety profile, the pattern of drug distribution and metabolism and early
evidence on effectiveness. In Phase II, trials are conducted with a larger group
of patients afflicted with a target disease in order to determine preliminary
efficacy, optimal dosages and expanded evidence of safety, efficacy, and potency
required by the FDA and other regulatory authorities.

Obtaining FDA approval is a costly and time-consuming process. Generally, in
order to gain FDA pre-market approval, preclinical studies must be conducted in
the laboratory and in animal model systems to gain preliminary information on an
agent's efficacy and to identify any major safety concerns. The results of these
studies are submitted as a part of an application for an Investigational New
Drug, IND, which the FDA must review and allow before human clinical trials can
start. The IND includes a detailed description of the clinical investigations.

A company must sponsor and file an IND for each proposed product and must
conduct clinical studies to demonstrate the safety, efficacy and potency that
are necessary to obtain FDA approval. The FDA receives reports on the progress
of each phase of clinical testing, and it may require the modification,
suspension, or termination of clinical trials if an unwarranted risk is
presented to patients.

After completion of clinical trials of a new product, FDA marketing approval
must be obtained. If the product is classified as a new drug, a New Drug
Application (NDA), is required. The NDA must include results of product
development activities, preclinical studies and clinical trials in addition to
detailed manufacturing information.

Applications submitted to the FDA are subject to an unpredictable and
potentially prolonged approval process. The FDA may ultimately decide that the
application does not satisfy its criteria for approval or require additional
preclinical or clinical studies. Before marketing clearance is secured, the
manufacturing facility will be inspected for current Good Manufacturing
Practices (GMP) compliance by FDA inspectors. The manufacturing facility must
satisfy current GMP requirements prior to marketing clearance. In addition,
after marketing clearance is secured, the manufacturing facility will be
inspected periodically for GMP compliance by FDA inspectors, and, if the
facility is located in California, by inspectors from the Food and Drug Branch
of the California Department of Health Services

The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances used in connection
with our research. The extent of government regulation which might result from
any future legislation or administrative action cannot be accurately predicted.


EMPLOYEES

On April 30, 2000, the Company employed 8 individuals, three of whom were
scientific personnel with Ph.D's, four are executives, and one office
manager/bookkeeper. None of its employees are currently represented by a union
or any other form of collective bargaining unit.


ITEM 2 -- PROPERTIES

The Company owns no real property and currently leases its principal
administrative and laboratory facilities at 3189 Airway Avenue, Building C,
Costa Mesa, California 92626. In addition the company leases office and
laboratory space at Kettering Research Center in Kettering, Ohio. The current
monthly rent is approximately $7,000 per month.


ITEM 3 -- LEGAL PROCEEDINGS

None

                                       8
<PAGE>

ITEM 4 -- SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

The Common Stock of the Company is traded on the OTC Electronic Bulletin Board.
The over-the-counter quotations set forth below reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. For the past two fiscal years, the minimum bid
and highest ask prices as determined by Company records were as follows:

                        2000                           1999
                ---------------------         ---------------------
Quarter          Low            High           Low            High
-------         -------        ------         ------         ------
1st             $0.128         $ 0.21         $0.190         $0.255
2nd              0.125          0.190          0.125          0.200
3rd              0.105          0.180          0.093          0.180
4th              0.120          2.250          0.093          0.235


During fiscal 2000, the Company issued 200,000 shares of unregistered,
restricted common stock to an unrelated party for services rendered. The Company
recognized an expense of $22,400 representing the fair value of the stock at the
date of issuance.

During fiscal 2000, the Company issued 10,000 shares of unregistered, restricted
common stock in satisfaction of an interest expense liability to the former law
firm of the Company. The Company recognized an expense of $13,600 representing
the fair value of the stock at the date of issuance.

During fiscal 2000, the Company issued 12,676,714 shares of unregistered common
stock to third party investors for $3,045,837 at a share price ranging from $.06
to $.75 and 75,000 shares of unregistered common stock to related parties for
$6,000; these shares were issued at a share price of $.08. The Company issued
5,457,871 options with the sale of the above stock with exercise prices ranging
from $.11 to $1.00.

During fiscal 2000, the Company issued 2,831,260 shares of unregistered common
stock to third party investors in connection with the exercise of options for
$551,970 with a range of exercise prices from $.07 to $.014. The Company also
issued 400,000 shares of unregistered common stock to related parties, in
connection with the exercise of options for $40,000; at an exercise price of
$.10.

During fiscal 2000, 400,000 options were exercised of unregistered common stock
in satisfaction of $40,000 in related party notes payable. The options had an
exercise price of $.10.

During fiscal 2000, the Company sold 9,000,000 shares of common stock at $.13 a
share in exchange for a promissory note of $1,200,000 payable in 12 equal
monthly installments of $100,000, commencing in April 2000. The note has been
recorded as a stock subscription receivable and has been presented in the
stockholders' equity section of the accompanying Balance Sheet for amounts not
received prior to the filing of this report.

During fiscal 2000, the Company received $2,500,000 in deposits for 6,500,000
shares of unregistered common stock that were committed to be issued at April
30, 2000 and were issued subsequent to year-end at a share price of $.385. The
Company received an additional $35,471 in deposits for the exercise of 394,452
shares of unregistered common stock that were committed to be issued at April
30, 2000 and were issued subsequent to year-end at a share price ranging from
$.07 to $.14.

                                       9
<PAGE>

The sale and issuance of each of the transactions referenced above were deemed
to be exempt transactions under Section 4(2) of the Securities Act of 1933, as
transactions by an issuer not involving any public offering. In each of the
referenced transactions appropriate legends were placed on the certificates
issued to the purchasers.

As of April 30, 2000 the approximate number of holders of the Common stock of
the Company was 1,112. To the best knowledge of management, the Company has
never paid dividends since the date of its incorporation. The Company does not
expect to declare or pay dividends in the foreseeable future.


ITEM 6 -- SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>


                               April 30,       April 30,       April 30,       April 30,      April 30,
                                 2000            1999            1998            1997            1996
                            ----------------------------------------------------------------------------
<S>                         <C>             <C>             <C>             <C>             <C>
Income                      $     16,141    $     23,994    $      3,069    $        914    $      5,916

Total expenses              $    927,480    $    857,829    $  1,284,101    $  1,911,290    $  2,352,143

Net loss from operations    $    911,339    $    833,835    $  1,281,032    $  1,910,376    $  2,346,227
                            ============    ============    ============    ============    ============

Weighted average number
   of shares outstanding,
   basic and diluted          65,365,438      51,388,471      46,000,749      36,053,557      28,894,248
Net loss per share,
   basic and diluted        $      (0.01)   $      (0.02)   $      (0.03)   $      (0.05)   $      (0.08)
                            ============    ============    ============    ============    ============

Cash                        $  5,466,391    $    193,013    $    740,215    $     53,857    $     76,312

Working capital             $  5,592,016    $   (348,339)   $   (228,400)   $   (529,393)   $   (581,030)

Total assets                $  6,199,651    $    530,906    $    985,914    $    318,163    $    393,939

Total liabilities           $    345,440    $    602,226    $    531,340    $    600,675    $    974,969

Long-term debt              $        --     $     47,327    $    103,021     $       --      $     16,573

Stockholders' equity        $  5,854,211    $   (118,647)   $    351,553    $   (282,512)   $   (597,603)
</TABLE>



ITEM 7 -- MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

FISCAL 2000 COMPARED TO FISCAL 1999

The Company is a development-stage company that is developing products in the
medical field and therefore has no revenue from operations. For the fiscal year
ended April 30, 2000, other income decreased to $16,141 from $23,994 for the
fiscal year ended April 30, 2000. This decrease was mainly due to a forfeiture
of a stock subscription fee of $10,000 received in during fiscal year 1999.

The General and Administrative expenses of $687,575 remained substantially the
same for fiscal year 2000 as for fiscal year 1999. During the year ended April
30, 2000 legal fees and moving expenses increased $22,000 and $18,000,
respectively. These increases were offset by a decrease in fiscal 2000 wages and
contract labor of $60,000

                                       10
<PAGE>

over the amounts recorded in fiscal year 1999. Also, in the year ended April 30,
2000 the Company realized a loss of $13,000 due to the write-off of old and
obsolete furniture and equipment.

The Research and Development expenses increased 32% from $170,058 for the fiscal
year ended April 30, 1999, to $224,023 for the fiscal year ended April 30, 2000.
This increase was due substantially to the addition of a laboratory in
California with corresponding increases in lab supplies of $18,000, lab rent of
$15,000 and wages and contract labor of $55,000.

The interest expense decreased 28% from $20,395 for the fiscal year ended April
30, 1999, to $15,882 for the fiscal year ended April 30, 2000. This decrease was
due to a reduction of outstanding notes payable during fiscal year 2000.


FISCAL 1999 COMPARED TO FISCAL 1998

The Company is a development-stage company that is developing products in the
medical field and therefore has no revenue from operations. For the fiscal year
ended April 30, 1999, other income increased to $23,994 from $3,069 for the
fiscal year ended April 30, 1998. This increase was due to more funds available
to earn interest, in addition to the forfeiture of a stock subscription fee of
$10,000 that was recorded as income during 1999.

The General and Administrative expenses decreased 37% from $1,055,143 for the
fiscal year ended April 30, 1998 to $667,376 for the fiscal year ended April 30,
1999. This decrease was primarily due to a one-time expense of $180,000 related
to stock issued below fair market value that was incurred in 1998 and reductions
in wages and contract salaries during 1999.

The Research and Development expenses decreased 16% from $201,433 for the fiscal
year ended April 30, 1998, to $170,058 for the fiscal year ended April 30, 1999.
This decrease was due to a reduction in laboratory rent of $14,000 and equipment
rental of $26,000.

The interest expense decreased 26% from $27,525 for the fiscal year ended April
30, 1998, to $20,395 for the fiscal year ended April 30, 1999. This decrease was
due to a reduction is notes payable.


LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since September 1990, when current
management became involved, through the issuance of debt and equity securities
and loans from stockholders. As of April 30, 2000 the Company had $5,937,456 in
total current assets and working capital of $5,592,016 compared to $253,887 in
total current assets and a working capital deficit of $324,351 as of April 30,
1999.

During the year ended April 30, 2000, the Company had a net increase in cash and
cash equivalents of $5,273,378, of which $913,301 was used in operations and
$52,041 was used for investing activities, primarily the purchase of equipment
and patent expenditures. These cash outflows were offset by cash provided from
financing activities of $6,238,720, primarily through the sale of common stock.
The Company does not have any lines of credit or other arrangements with
lenders. The Company believes its existing cash should fund current operations
for approximately 3 years.

The Company is in the pre-clinical trial stage in the development of its
products. These products must undergo further development and testing prior to
submission to the FDA for approval to market its products. This additional
development and testing will require significant additional financing. There can
be no assurance these proposed funding arrangements will be successful, or that
if they are not the Company will be able to secure additional capital.

RISK FACTORS

You should carefully consider the risks described below together with all of the
other information included in this report on Form 10-K. An investment in the
Company's common stock is very risky. If any of the following risks actually
occur, our business, financial condition or results of operations could be
harmed. In such an event, the trading price of the Company's common stock could
decline, and you may lose part or all of your investment.


                                       11

<PAGE>

THE COMPANY EXPECTS TO INCUR LOSSES FOR THE FORESEEABLE FUTURE AND MAY NEVER
ACHIEVE PROFITABILITY.

The Company has incurred net losses since the business was revised in 1990 to
develop a line of blood substitutes. Net losses were approximately ($1,281,032)
in 1998, ($833,835) in 1999, and ($911,339) in 2000. As of April 30, 2000, the
accumulated deficit was approximately ($11,313,338).

The Company expects to incur substantial and increasing losses for the
foreseeable future as a result of increases in research and development costs,
including costs associated with conducting preclinical testing and clinical
trials. It is expected that the amount of operating losses will fluctuate
significantly from quarter to quarter as a result of increases or decreases in
research and development efforts, the initiation, success or failure of clinical
trials, or other factors.

Chances for achieving profitability will depend on numerous factors, including
success in:

     .    developing and testing new product candidates;

     .    receiving regulatory approvals;

     .    manufacturing products;

     .    marketing products; and

     .    competing with products from other companies.

Many of these factors will depend on circumstances beyond the Company's control.
The Company expects to rely heavily on third parties with respect to many
aspects of its business, including research and development, clinical testing,
manufacturing and marketing. It cannot be assured the Company will ever become
profitable.

THE COMPANY NEEDS SUBSTANTIAL ADDITIONAL FINANCING TO COMPLETE DEVELOPMENT AND
INTRODUCE PRODUCTS.

The costs to complete preclinical tests and to begin and complete the Company's
proposed clinical trials are very high. It is expected existing capital
resources will satisfy capital requirements through approximately December 2003.
However, substantial additional financing will be needed to begin and continue
clinical trials on its products. Currently there are no commitments for any
additional financing. Any addition equity financing may be dilutive to
stockholders, and debt financing, if available, may include restrictive
covenants and there can be no assurance additional financing will be received.
Future capital requirements will depend on many factors, including:

     .    results of preclinical tests;

     .    results of any clinical trials;

     .    continued scientific progress in the research and development program;

     .    the time and cost involved in obtaining regulatory approvals;

     .    future collaborative relationships;

     .    competing technological and market developments;

     .    patient costs; and

     .    the cost of manufacturing.

If adequate funds are not available, the Company may be required to curtail
operations or to cease operations. The amount of additional financing required
cannot be estimated, however it will be substantial.

                                       12
<PAGE>

IF THE COMPANY IS UNABLE TO DEVELOP AND SUCCESSFULLY COMMERCIALIZE ITS PRODUCT
CANDIDATES, IT MAY NEVER GENERATE SIGNIFICANT REVENUES OR BECOME PROFITABLE.

Product candidates are all in early stages of development, and none are in
clinical trials. The Company must successfully complete preclinical tests on
product candidates before applying for or beginning clinical trials on any of
the product candidates. The Company has not commercialized any products or
recognized any revenue from product sales. It will require significant
additional investment in research and development, preclinical testing and
clinical trials, regulatory approval, and sales and marketing activities.
Product candidates, if successfully developed, may not generate sufficient or
sustainable revenues to enable the Company to be profitable.

THE COMPANY MUST OVERCOME SIGNIFICANT OBSTACLES TO SUCCESSFULLY DEVELOP OR
MARKET PRODUCT CANDIDATES.

The development of product candidates is subject to the significant risks of
failure which are inherent in the development of new pharmaceutical products and
products based on new technologies. These risks include:

     .    delays in preclinical testing, product development, clinical testing
          or manufacturing;

     .    unplanned expenditures for product development, clinical testing or
          manufacturing;

     .    failure of the product candidates to have the desired effect or an
          acceptable safety profile;

     .    failure to receive regulatory approvals;

     .    emergence of superior or equivalent products;

     .    inability to manufacture on our own, or through others, product
          candidates on a commercial scale;

     .    inability to market products due to third-party proprietary rights;

     .    inability to find collaborative partners to pursue product
          development; and

     .    failure by future collaborative partners to successfully develop
          products.

Research and development efforts may not result in any commercially viable
products if those risks materialize.

COMMERCIALIZATION OF PRODUCTS DEPENDS ON COLLABORATIONS WITH OTHERS. IF THE
COMPANY IS UNABLE TO FIND COLLABORATORS IN THE FUTURE, IT MAY NOT BE ABLE TO
DEVELOP PRODUCTS.

The Company's strategy for the research, development and commercialization of
products requires it to enter into contractual arrangements with corporate
collaborators, licensors, licensees and others. The Company does not have the
funds to develop products and intends to depend on collaborators to develop
products. Currently there are no contractual arrangements with any corporate
collaborators, licensors, licensees or others to develop products. Even if
collaborative partners are found, it may not be possible to completely control
the amount and timing of resources future collaborative partners will devote to
products. The Company intends to seek collaborative arrangements for Oxycyte,
Fluorovent and implantable glucose biosensor to help cover the cost of
development, however, there is no assurance this will be successful. If
collaborative relationships or other sources of financing cannot be found, the
Company may not be able to continue development programs and may be forced to
sell assets, including technology, to raise capital.

Dependence on collaborative arrangements with third parties subjects the Company
to a number of risks. These future collaborative arrangements may not be on
terms favorable to the Company. Agreements with collaborative partners typically
allow partners significant discretion in electing whether to pursue any of the
planned activities. The Company cannot control the amount and timing of
resources collaborative partners may devote to the product candidates, and
partners may choose to pursue alternative products. Partners may not perform
their obligations as expected. Business combinations or significant changes in a
collaborative partner's business strategy may adversely

                                       13
<PAGE>

affect a partner's willingness or ability to complete its obligations under the
arrangement. Moreover, the Company could become involved in disputes with
partners, which could lead to delays or termination of development programs with
them and time-consuming and expensive litigation or arbitration. Even if the
Company fulfills its obligations under a collaborative agreement, a partner can
terminate the agreement under certain circumstances. If any collaborative
partner were to terminate or breach an agreement with it, or otherwise fail to
complete its obligations in a timely manner, chances of successfully
commercializing products would be materially and adversely affected.

IF CLINICAL TRIALS FOR THE COMPANY'S PRODUCTS ARE UNSUCCESSFUL OR DELAYED, THE
STOCK PRICE MAY DECLINE.

The Company must demonstrate first through preclinical testing and then through
clinical trials that its product candidates are safe and effective for use in
humans before it obtains regulatory approvals for the commercial sale of any
products. The Company has not yet completed preclinical testing on any of its
products. Conducting clinical trials is a lengthy, time-consuming and expensive
process.

If there are sufficient results from the preclinical tests to begin clinical
trials, completion of clinical trials may take several years or more. The start
of and rate of completion of clinical trials may be delayed by many factors,
including:

     .    unsuccessful preclinical testing results;

     .    lack of efficacy during the clinical trials;

     .    unforeseen safety issues;

     .    slower than expected rate of patient recruitment;

     .    government or regulatory delays;

     .    inability to adequately follow patients after treatment; or

     .    inability to manufacture sufficient quantities of materials for use in
          clinical trials.

The results from preclinical testing and early clinical trials are often not
predictive of results obtained in later clinical trials. A number of new drugs
have shown promising results in clinical trials, but subsequently failed to
establish sufficient safety and efficacy data to obtain necessary regulatory
approvals. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including perceived defects in the
design of clinical trials and changes in regulatory policy during the period of
product development.

The Company's product candidates are in preclinical development, and the Company
has not submitted investigational new drug applications to commence clinical
trials involving these products. Preclinical development efforts may not be
successfully completed and the Company may not file any investigational new drug
applications. If there is progress to clinical trials, any delays in, or
termination of, clinical trials will materially and adversely affect development
and commercialization timelines, which would cause the stock price to decline.
Any of these events would also seriously impede the ability to obtain additional
financing.

IF FUTURE THIRD PARTY CLINICAL TRIAL MANAGERS DO NOT PERFORM, CLINICAL TRIALS
FOR PRODUCT CANDIDATES MAY BE DELAYED OR UNSUCCESSFUL.

The Company has no experience in conducting and managing clinical trials. The
Company intends to rely on third parties, including future collaborative
partners, clinical research organizations and outside consultants, to assist in
managing and monitoring future clinical trials. Reliance on these third parties
may result in delays in completing, or failing to complete, these trials if they
fail to perform under the terms of agreements with them.

                                       14
<PAGE>

IF THE COMPANY'S PRODUCTS ARE NOT ACCEPTED BY THE MARKET, IT IS NOT LIKELY TO
GENERATE SIGNIFICANT REVENUES OR BECOME PROFITABLE.

Even if the Company obtains regulatory approval to market a product, products
may not gain market acceptance among physicians, patients, healthcare payors and
the medical community. The degree of market acceptance of any pharmaceutical
product that is developed will depend on a number of factors, including:

     .    demonstration of clinical efficacy and safety;

     .    cost-effectiveness;

     .    potential advantages over alternative therapies;

     .    reimbursement policies of government and third-party payors; and

     .    effectiveness of our marketing and distribution capabilities.

Physicians will not recommend therapies using products until clinical data or
other factors demonstrate their safety and efficacy as compared to other drugs
or treatments. Even if the clinical safety and efficacy of therapies using
products is established, physicians may elect not to recommend the therapies for
any number of other reasons, including whether the mode of administration of
products is effective for certain indications. Physicians, patients, third-party
payors and the medical community may not accept and utilize any product
candidates that the Company or its future collaborative partners, if any,
develop. If products do not achieve significant market acceptance, the Company
is not likely to generate significant revenues or become profitable.

IF THE COMPANY IS UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS, IT
WILL BE UNABLE TO DEVELOP AND COMMERCIALIZE PRODUCTS.

The Company is highly dependent on the principal members of its scientific and
management staff. In order to pursue product development, marketing and
commercialization plans, the Company will need to hire personnel with experience
in clinical testing, government regulation, manufacturing, marketing and
finance. The Company may not be able to attract and retain personnel on
acceptable terms given the intense competition for such personnel among high
technology enterprises, including biotechnology, pharmaceutical and healthcare
companies, universities and non-profit research institutions. Most of the
Company's scientific and management staff does not have employment contracts. If
the Company loses any of these persons, or is unable to attract and retain
qualified personnel, business, financial condition and results of operations may
be materially and adversely affected.

IF THE COMPANY FAILS TO ENTER INTO SUCCESSFUL MARKETING ARRANGEMENTS WITH THIRD
PARTIES, IT WOULD NOT BE ABLE TO COMMERCIALIZE PRODUCTS AND IT WOULD NOT BECOME
PROFITABLE.

The Company currently has no sales and marketing infrastructure and has no
experience in marketing, sales and distribution. Future profitability will
depend in part on plans to enter into successful marketing arrangements with
third parties. To the extent that the Company enters into marketing and sales
arrangements with other companies, revenues will depend on the efforts of
others. These efforts may not be successful. If the Company is unable to enter
into third-party arrangements, it may not be able to commercialize its products.

IF THE COMPANY DO NOT COMPETE SUCCESSFULLY IN THE DEVELOPMENT AND
COMMERCIALIZATION OF PRODUCTS AND KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, IT
WILL BE UNABLE TO CAPTURE AND SUSTAIN A MEANINGFUL MARKET POSITION.

The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. The Company is aware of
several pharmaceutical and biotechnology companies that are actively engaged in
research and development in areas related to the Company's products. Most of
these companies have commenced clinical trials. Many of these companies are
addressing the same diseases and disease indications.

                                       15
<PAGE>

Many of these companies and institutions, either alone or together with their
collaborative partners, have substantially greater financial resources and
larger research and development staffs. In addition, many of these competitors,
either alone or together with their collaborative partners, have significantly
greater experience in:

     .    developing products;

     .    undertaking preclinical testing and human clinical trials;

     .    obtaining FDA and other regulatory approvals of products; and

     .    manufacturing and marketing products.

Developments by others may render the Company's product candidates or
technologies obsolete or noncompetitive. The Company faces and will continue to
face intense competition from other companies for collaborative arrangements
with pharmaceutical and biotechnology companies for establishing relationships
with academic and research institutions and for licenses of proprietary
technology. These competitors, either alone or with their collaborative
partners, may succeed in developing technologies or products that are more
effective than those the Company has.

IF THE COMPANY'S INTELLECTUAL PROPERTY DOES NOT ADEQUATELY PROTECT PRODUCT
CANDIDATES, OTHERS COULD COMPETE MORE DIRECTLY AGAINST THE COMPANY, WHICH WOULD
HURT PROFITABILITY.

Success depends in part on the Company's ability to:

     .    obtain patents or rights to patents;

     .    protect trade secrets;

     .    operate without infringing upon the proprietary rights of others; and

     .    prevent others from infringing on its proprietary rights.

The Company will be able to protect proprietary rights from unauthorized use by
third parties only to the extent that proprietary rights are covered by valid
and enforceable patents or are effectively maintained as trade secrets. The
patent position of biopharmaceutical companies involves complex legal and
factual questions and, therefore, enforceability cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or circumvented.
Thus, any patents that are owned or licensed from third parties may not provide
any protection against competitors. Pending patent applications, those that the
Company may file in the future, or those that may be licensed from third
parties, may not result in patents being issued. Also, patent rights may not
provide adequate proprietary protection or competitive advantages against
competitors with similar technologies. The laws of certain foreign countries do
not protect intellectual property rights to the same extent as do the laws of
the United States.

In addition to patents, the Company relies on trade secrets and proprietary
know-how. Protection is sought, in part, through confidentiality and proprietary
information agreements. These agreements may not provide meaningful protection
or adequate remedies for technology in the event of unauthorized use or
disclosure of confidential and proprietary information. Failure to protect
proprietary rights could seriously impair the Company's competitive position.

IF THIRD PARTIES CLAIM THE COMPANY IS INFRINGING THEIR INTELLECTUAL PROPERTY
RIGHTS, IT COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE
PREVENTED FROM MARKETING ITS PRODUCTS.

The areas in which the Company has focused research and development have a
number of competitors. This has resulted in a number of issued patents and
still-pending patent applications. Patent applications in the United States are,
in most cases, maintained in secrecy until patent issue. The publication of
discoveries in the scientific or patent literature frequently occurs
substantially later than the date on which the underlying discoveries were made.

                                       16
<PAGE>

Commercial success depends significantly on the Company's ability to operate
without infringing the patents and other proprietary rights of third parties.
The Company's technologies may infringe the patents or violate other proprietary
rights of third parties. In the event of such infringement or violation, the
Company may be prevented from pursuing product development or commercialization.

The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
The defense and prosecution of intellectual property suits, U.S. Patent and
Trademark Office interference proceedings and related legal and administrative
proceedings in the United States and internationally involve complex legal and
factual questions. As a result, such proceedings are costly and time-consuming
to pursue and their outcome is uncertain. Litigation may be necessary to:

     .    enforce patents that we own or license;

     .    protect trade secrets or know-how that we own or license; or

     .    determine the enforceability, scope and validity of the proprietary
          rights of others.

If the Company became involved in any litigation, interference or other
administrative proceedings, it will incur substantial expense and the efforts of
technical and management personnel will be significantly diverted. An adverse
determination may subject the Company to loss of proprietary position or to
significant liabilities, or require licenses that may not be available from
third parties. The Company may be restricted or prevented from manufacturing and
selling products, if any, in the event of an adverse determination in a judicial
or administrative proceeding or if we fail to obtain necessary licenses. Costs
associated with these arrangements may be substantial and may include ongoing
royalties. Furthermore, the necessary licenses may not be obtained on
satisfactory terms, if at all.

IF THE GOVERNMENT AND THIRD PARTY PAYORS FAIL TO PROVIDE ADEQUATE COVERAGE AND
REIMBURSEMENT RATES FOR PRODUCT CANDIDATES, THE MARKET ACCEPTANCE OF PRODUCTS
MAY BE ADVERSELY AFFECTED.

In both domestic and foreign markets, sales of product candidates will depend in
part upon the availability of reimbursement from third-party payors. Such
third-party payors include government health administration authorities, managed
care providers, private health insurers and other organizations. These
third-party payors are increasingly challenging the price and examining the cost
effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. The Company may need to conduct post-marketing studies in order to
demonstrate the cost-effectiveness of products. Such studies may require the
commitment of a significant amount of management time and financial and other
resources. Product candidates may not be considered cost-effective. Adequate
third-party reimbursement may not be available to maintain price levels
sufficient to realize an appropriate return on investment in product
development. Domestic and foreign governments continue to propose and pass
legislation designed to reduce the cost of healthcare. Accordingly, legislation
and regulations affecting the pricing of pharmaceuticals may change before
proposed products are approved for marketing. Adoption of such legislation could
further limit reimbursement for pharmaceuticals.

IF A SUCCESSFUL PRODUCT LIABILITY CLAIM OR SERIES OF CLAIMS IS BROUGHT AGAINST
THE COMPANY FOR UNINSURED LIABILITIES OR IN EXCESS OF INSURED LIABILITIES, IT
COULD BE FORCED TO PAY SUBSTANTIAL DAMAGE AWARDS.

The use of any of product candidates in clinical trials, and the sale of any
approved products, may expose the Company to liability claims and financial
losses resulting from the use or sale of our products. Although it is intended
that insurance coverage will be obtained before the Company begins clinical
trials, currently there is no liability insurance. The Company intends to obtain
insurance coverage to include the sale of commercial products if marketing
approval is obtained for product candidates in development. Insurance coverage
may not be able to be maintained at a reasonable cost or in sufficient amounts
or scope to protect against losses.

                                       17
<PAGE>

IF THE COMPANY FAILS TO MANAGE GROWTH, BUSINESS COULD BE HARMED.

The business plan contemplates a period of substantial growth if clinical trials
begin on one or more products and the Company develops other products that will
place a strain on administrative and operational infrastructure. Management
infrastructure has been very limited. The ability to manage effectively its
operations and growth requires the Company to expand and improve operational,
financial and management controls, reporting systems and procedures and to
attract and retain sufficient numbers of talented employees. The Company may not
successfully implement improvements to management information and control
systems in an efficient or timely manner and may discover deficiencies in
existing systems and controls.

IF USE OF HAZARDOUS MATERIALS RESULTS IN CONTAMINATION OR INJURY, THE COMPANY
COULD SUFFER SIGNIFICANT FINANCIAL LOSS.

Research and manufacturing activities involve the controlled use of hazardous
materials. The Company cannot eliminate the risk of accidental contamination or
injury from these materials. In the event of an accident or environmental
discharge, the Company may be held liable for any resulting damages, which may
exceed available financial resources.

THE COMPANY'S STOCK PRICE COULD CONTINUE TO BE HIGHLY VOLATILE AND INVESTORS MAY
NOT BE ABLE TO RESELL SHARES AT OR ABOVE THE PRICE PAID FOR THEM.

The market price of the Company's common stock, like that of many other life
sciences companies, has been highly volatile and is likely to continue to be
highly volatile. The following factors, among others, could have a significant
impact on the market price of the common stock:

     .    the results of preclinical tests and future clinical trials or those
          of future collaborators or competitors;

     .    evidence of the safety or efficacy of products or the products of
          competitors;

     .    the announcement by the Company or its competitors of technological
          innovations or new products;

     .    developments concerning patents or other proprietary rights or those
          of future competitors, including litigation or patent office
          proceedings;

     .    loss of key personnel;

     .    governmental regulatory actions;

     .    changes or announcements in reimbursement policies;

     .    agreements with future collaborators;

     .    period-to-period fluctuations in operating results;

     .    market conditions for life science stocks in general; and

     .    changes in estimates of performance by securities analysts.


ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data as required by this item are set
forth in a separate section of this report.

                                       18
<PAGE>

ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURES

None


ITEM 10 -- DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT

The directors, officers and key employees of the Company are as follows:

<TABLE>
<CAPTION>

Name                           Age         Position
----                           ---         --------
<S>                            <C>         <C>

Roger A. Ekbom                 73          Chairman of the Board

Robert W. Nicora               60          President and Chief Executive Officer
                                           Director

Robert J. Larsen               71          Corporate Secretary
                                           Director

Gerald D. Schlatter            66          Director

David Johnson                  53          Chief Financial Officer

Howard Jones                   63          Director

Richard Kiral, Ph.D            59          Vice President, Research and Development

Douglas Kornbrust, Ph.D.       49          Consultant Director, PreClinical Toxicology &
                                           Pharmacology

Elmo Blubaugh, Jr., Ph.D.      47          Manager, Biosensor Research and Development

James Reavis                   65          Consultant Director of Marketing
</TABLE>


DIRECTORS AND EXECUTIVE OFFICERS

Roger A. Ekbom has been Chairman of the Board of Directors since 1990. Mr. Ekbom
was Chief Executive Officer from 1991 to March 1998 and has extensive experience
with medical device companies including managing companies from startup through
full development and subsequent sales. He is the founder and former President of
Cardio Vista Systems, Inc., and founder and Chairman of Tronomed, Inc. From 1976
until 1993, Mr. Ekbom was the Vice President of and a major stockholder in
Respiratory Support Products, Inc. and Tronomed International, Inc. Mr. Ekbom
was formerly the general manager of a division of Becton Dickinson, an
international medical device company, and of Marion Scientific, a subsidiary of
Marion Laboratories. Mr. Ekbom graduated from the University of Minnesota.

Robert W. Nicora became the President, Chief Executive Officer and Director on
March 1, 1998. Mr. Nicora has BS in chemistry, five years of graduate study in
biochemistry and medical sciences, and over 30 years of experience in various
laboratory, management and regulatory positions with pharmaceutical and medical
device companies. While at McGaw Laboratories, he was responsible for the
development and FDA approval of hetastarch, a synthetic blood expander, now
marketed by DuPont Pharma. He led the team that evaluated a joint partnership
with Green Cross to develop their perfluorocarbon blood substitute, Fluosol.
From 1994 through March 1998, he was director of scientific and regulatory
services with Quintiles, the world's largest global contact pharmaceutical
company. He has provided preclinical and clinical drug and device consulting
services to a number of startup biomedical companies, including SBI.

Robert J. Larsen, Corporate Secretary and Director since 1990, is a former
President and Chief Executive Officer of Bay Hospital Medical Center, Chula
Vista, California. Mr. Larsen has 25 years of experience in the development and
management of hospitals and other related enterprises in California and Oregon.
Mr. Larsen is a former trustee of the California Hospital Association and the
past president of the San Diego Healthcare Financial Management Association. Mr.
Larsen received his graduate degree in Hospital Administration from the
University of California, Santa Barbara, and his BA from the University of
Washington.

                                       19
<PAGE>

Gerald D. Schlatter, Director and former President from 1990 to 1998 and has
over 25 years experience in sales and marketing of medical supplies and devices.
He has served as sales manager with both American Hospital Supply and Xerox in
their medical products divisions. He is the founder and former president of
Delamesa Medical Equipment Leasing Co. in Irvine California, specializing in
equipping and financing new start up medical, dental, and optical health care
clinics. Mr. Schlatter obtained his BS degree in business finance and labor law
from California State University of Fresno.

David H. Johnson, CPA, is Chief Financial Officer. Mr. Johnson has over 25 years
of financial and administrative management experience in a diverse range of
industries including high technology. His most recent position was chief
financial officer of Center Court Concierge, an information service start up
company. Previous positions included vice president, finance and administration,
Vista Paint Corporation, and a regional partner at McGladrey and Pullen, a major
public accounting firm. Mr. Johnson has a BA in accounting and is a certified
public accountant.

Howard Jones, Ph.D., is a member of the board of directors. Dr. Jones' most
recent position was president of the biopharmaceutical business unit of Curative
Health Services where he was responsible for R&D, licensing, and manufacturing
of wound healing technology that incorporates growth factors from patient blood.
He has more than 30 years of experience in directing research and development of
drugs at Revlon, Bristol-Myers Squibb, Amylin Pharmaceuticals, and Cypros
Pharmaceuticals, a company he co-founded. He started his career at Merck where
he discovered Clinoril, a drug for the treatment of rheumatoid arthritis that
has annual sales of $400,000,000. He has had more than 84 patents issued for his
biopharmaceutical developments.

`
KEY EMPLOYEES

Richard Kiral, Ph.D., Vice President of Research and Development holds a Ph.D.
in analytical chemistry and has over of 20 years of experience in the
pharmaceutical and medical device industries. He has held vice president
positions in R&D at Anthony Products, Ioptex Research, Allergan, and McGaw
Laboratories, where he was responsible for development of a nutritional fat
emulsion.

Douglas Kornbrust, Ph.D., Consultant Director, Preclinical Toxicology and
Pharmacology holds a Ph.D. in toxicology and currently is vice president and
scientific director at Sierra Biomedical, a leading contract primate testing
facility for the pharmaceutical and biotechnology industries. He previously held
senior technical and management positions at ISIS Pharmaceuticals,
Rhone-Poulenc-Rorer, Merck, and Alliance Pharmaceuticals, where he was
responsible for the development and implementation of preclinical toxicology
programs for their perfluorocarbon liquid ventilation and blood substitute
products.

Elmo A. Blubaugh, Jr., Ph.D., Manager of Biosensor Research and Development is
an electrochemist specializing in the chemical modification of electrode
surfaces with thin polymer films. Dr. Blubaugh previously was laboratory
research manager at the University of Cincinnati. He taught both graduate and
undergraduate courses at the university and holds a patent in the field of
polymer-film electrodes. He received his graduate degree in analytical chemistry
from the University of Cincinnati.

James H. Reavis, Consultant director of marketing received a BS in chemistry and
has a career of over 35 years in sales and marketing of pharmaceutical products
and biomedical devices. He has owned and operated full-service advertising
agencies and, for the last ten years, has consulted with high technology
healthcare clients. His client roster includes Abbott, Baxter Edwards, Allergan,
Genentech, Invacare, Kyocera, Advanced Cardiovascular Systems, IVAC, and IMED.
Mr. Reavis provides qualitative and quantitative market research services to
help guide product development, product positioning, and partnering strategies.

ITEM 11 -- EXECUTIVE COMPENSATION

The following table provides certain summary information concerning compensation
earned for services rendered in all capacities to the Company for the fiscal
years ended April 30, 2000, 1999 and 1998, by all persons who served as the
Chief Executive Officer during 1998, and by the other most highly compensated
executive officers of the Company ("Named Executive Officers"). Mr. Nicora
became President and Chief Executive Officer on the

                                       20
<PAGE>

resignation of Mr. Schlatter on March 1, 1998. This information includes the
dollar amount of base salaries, bonus awards, stock options and all other
compensation, if any, whether paid or deferred.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                          Long-tern
                                                                                        Compensation
                                                 Annual Compensation                       Awards
                                       ----------------------------------------    ---------------------
                                                                    Other                Securities,              All
                                                                    Awards               Underlying              Other
    Name and Position         Year     Salary       Bonus        Compensation           Options/SARs         Compensation
                                         $            $               $                      $                     $
-------------------------------------------------------------------------------    ---------------------   ----------------
<S>                           <C>      <C>          <C>          <C>               <C>                     <C>
Robert Nicora (1)             2000     126,000           --                  --                      --                 --
President                     1999     125,000           --                  --                      --             12,600
                              1998      20,833       45,000                  --                      --                 --

Gerald Schlatter              2000      10,500           --                  --                      --                 --
Former President              1999      24,000           --                  --                      --                 --
                              1998      75,750           --                  --                  26,911                 --

Richard Kiral                 2000     118,243           --                  --                      --                 --
Vice President of Product     1999      97,830           --                  --                      --                 --
Development
</TABLE>
---------
(1)  Mr. Nicora received a $6,000 car allowance and $6,600 in medical premiums
     paid for by the Company.


OPTION GRANTS

In April 1995, the Company's Board of Directors approved a stock option plan
providing for the granting of options to officers, directors, consultants and
key employees to purchase up to 2,500,000 shares of the Company's common stock
at prices not less than the fair market value of the stock at the date of grant.
No shares were exercised or issued under this plan. The Company has since
determined that they never requested or received shareholder approval as
required to formally approve the plan. The Company adopted a new plan in October
1999, subject to ratification by shareholders within twelve months.

The 1999 plan provides for the granting of incentive and non-qualified options
to officers, directors, consultants and key employees to purchase up to
4,000,000 shares of the Company's common stock at prices not less than the fair
market value of the stock at the date of grant for incentive options. The total
number of options issued under the proposed plan at April 30, 2000 were 675,000
with a weighted average exercise price of $.14. The Company must record an
expense equal to the intrinsic value (if any) of the options multiplied by the
percent vested at the date the plan is ratified by the shareholders. The Company
can not reasonably determine at the present time whether they will receive the
necessary shareholder approval to ratify the plan. However, the Company believes
the outcome of this uncertainty will not have a material effect on the financial
statements. The option expiration dates are determined at the date of grant, but
may not exceed ten years.

The following table summarizes certain information as of April 30, 2000
concerning the stock option grants to the Company's Chief Executive Officer and
the other Named Executive Officers made for the fiscal year ended April 30,
2000. No stock appreciation rights, restricted stock awards or long-term
performance awards have been granted as of the date hereof and no options have
been exercised.

                                       21
<PAGE>

<TABLE>
<CAPTION>

                                         OPTION GRANTS IN LAST FISCAL YEAR

                                                                                          Potential Realizable Value
                               Number of    % of Total                                    at Assumed Annual Rates of
                              Securities      Options      Exercise                        Stock Price Appreciation
                              Underlying    Granted to      or Base                         of Option Terms (1)(2)
                               Options     Employees in    Price Per                      --------------------------
                               Granted      Fiscal Year      Share     Expiration Date        5%              10%
                              --------------------------------------------------------------------------------------
<S>                           <C>           <C>            <C>         <C>                  <C>           <C>
Robert W. Nicora                  150,000     66.67%         $.12      February 2010        $214,350       $388,350
Richard Kiral                      75,000     33.33%         $.12      February 2010        $107,175       $194,175
</TABLE>
----------
(1)  Each option listed in the table above was fully vested as of the date of
     grant. The potential realizable value is calculated based on the ten-year
     term of the option at the time of grant. It is calculated based on assumed
     annualized rates of stock price appreciation from the exercise price at the
     date of grant of 5% and 10% (compounded annually) over the full term of the
     grant with appreciation determined as of the expiration date. The 5% and
     10% assumed rates of appreciation are mandated by the Securities and
     Exchange Commission and do not represent the Company's estimate or
     projection of future common stock prices. Actual gains, if any, on stock
     options exercised are dependent on the future performance of the common
     stock and overall stock market conditions. The amounts reflected in the
     table may not be achieved.

(2)  At April 30, 2000 the stock option plan under which the options have been
     issued has not been ratified by the shareholders. Since the plan has not
     received shareholder approval, this schedule has assumed the grant date to
     be April 30, 2000 and the fair value of the option to be the stock price at
     April 30, 2000.

   AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR AND YEAR END OPTION VALUES

<TABLE>
<CAPTION>

                                                                     Number of
                                                                     Securities              Value of
                                                                     Underlying            Unexercised
                                                                    Unexercised            In-the-Money
                                                                 Options At Fiscal      Options at Fiscal
                                   Shares                             Year End               Year End
                                 Acquired On        Value            Exercisable/           Exercisable/
                                  Exercise        Realized        Unexercisable (1)        Unexercisable (2)
                                 -----------      --------       ------------------     --------------------
     <S>                         <C>              <C>            <C>                    <C>
     Robert Nicora                  None             None                100,000 /          $  80,000 /
                                                                         350,000            $ 284,500

     Gerald D. Schlatter            None             None               305,000  /          $ 250,125 /
                                                                               0                    0

     Richard Kiral                  None             None                 33,333 /         $   26,667 /
                                                                         141,667           $  115,583
</TABLE>
----------
(1)  The option agreements with Nicora and Kiral give them the right to exercise
     all of the options at April 30,2000, however the 1999 Plan requires
     shareholder approval prior to exercise. At April 30, 1999 the 1999 Plan was
     not approved by the shareholders.

(2)  Based on the closing sale price on the OTC Bulletin Board on the last day
     of the 2000 fiscal year, less the option exercise price payable per share.

                                       22
<PAGE>
DEFINED BENEFIT AND ACTUARIAL PLANS

The Company has not supplied Defined Benefits, or similar Pension, Benefit or
Actuarial Plan Benefits to its Executive Officers.


COMPENSATION OF DIRECTORS

During the fiscal year ended April 30, 2000 each director received $3,000 for
their services as directors.


EMPLOYMENT CONTRACTS

On March 1, 1998 the Board of Directors approved a three-year employment
contract with Robert W. Nicora, as President and Chief Executive Officer. The
employment contract provides a base annual salary of $125,000, an automobile
allowance, medical and dental coverage, participation in the Executive Bonus
Plan, $200,000 life insurance payable by the corporation and payable to a
beneficiary named by the insured, and participation in the Company's stock
option plan with the grant of an option for 300,000 shares at signing and
150,000 shares to be granted annually. As of May 18, 1998 Mr. Nicora assumed the
title of Chief Executive Officer. Mr. Nicora's employment agreement provides
that Mr. Nicora may, at his election receive a severance payment equal to 299%
of his average annual salary and bonuses received during the prior two-year
period in the event of a change in control as defined.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

The Company does not presently have a Compensation Committee of the Board of
Directors, or other Board Committees performing equivalent functions, and did
not at any time during the last four years. The Executive Committee of the Board
of Directors presently performs these functions. Roger Ekbom and Gerald
Schlatter, directors and former officers, and Robert Larsen, a director and
current officer of the Company, participated in deliberations of the Board of
Directors concerning executive officer compensation during the last fiscal year.
None of the Company's executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more of its
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.


ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables sets forth as of April 30, 2000 the stock ownership of all
persons who, to the registrants knowledge, own of record and beneficially (i)
five (5%) per cent or more of its outstanding Common Stock, (ii) all executive
officers and directors as a group, and (iii) the Named Executive Officers.

MANAGEMENT OWNERS

<TABLE>
<CAPTION>
      Name of                            Amount & Nature of                Percent
 Beneficial Owner                     Beneficial Ownership(1)             of Class
 ----------------                     -----------------------             --------
<S>                                   <C>                                 <C>
Roger A. Ekbom (2)                           1,996,778                      2.47%
Robert W. Nicora (3)                           492,858                       .61%
Gerald D. Schlatter (4)                      1,262,929                      1.60%
Robert J. Larsen (5)                         1,642,553                      2.03%
Howard Jones (6)                               105,000                       .13%
David Johnson (7)                               33,333                       .01%

All Directors and Officers as
 a group - 6 persons                         5,566,118                      6.88%

UBS  AG (Switzerland)                        4,226,490                      5.22%
</TABLE>
                                       23
<PAGE>

----------

(1)  This table is based upon information supplied by officers, directors and
     principal shareholders and on any Schedules 13D or 13G filed with the
     Securities and Exchange Commission. Unless otherwise indicated in the
     footnotes to this table and subject to community property laws where
     applicable, each stockholder named in this table has sole voting and
     investment power with respect to the shares indicated as beneficially
     owned.

(2)  Includes options to purchase 410,000 shares of common stock currently
     exercisable or exercisable within 60 days of July 31, 2000.

(3)  Includes options to purchase 100,000 shares currently exercisable or
     exercisable within 60 days of July 31, 2000.

(4)  Includes options to purchase 480,000 shares currently exercisable or
     exercisable within 60 days of July 31, 2000.

(5)  Includes options to purchase 480,000 shares currently exercisable or
     exercisable within 60 days of July 31, 2000 and also includes shares
     beneficially owned by virtue of Mr. Larsen's control of Peso, Inc. and
     Jada, Inc.

(6)  Includes options to purchase 105,000 shares currently exercisable or
     exercisable within 60 days of July 31, 2000.

(7)  Includes options to purchase 33,333 shares currently exercisable or
     exercisable within 60 days of July 31, 2000.


ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the fiscal year ended April 30, 2000 the Company recorded expenses of
$5,825 for services rendered by a company controlled by Robert Larsen, a
Director and Officer of the Company.

During the fiscal year ended April 31, 2000 the Company issued options to
purchase common stock to the following Officers of the Company under the 1999
Plan that has not yet been ratified by the shareholders:

 Robert Nicora, President and CEO          150,000 options at $.12 per share
                                           expiring February 1, 2010

 Richard Kiral, Vice President             75,000 options at $.12 per share
                                           expiring February 1, 2010

During fiscal 2000, the Company issued warrants to purchase 590,000 shares of
common stock to certain directors with an exercise price of 80% of fair market
value. These warrants were issued pursuant to an agreement whereby such
directors cancelled certain of their shares to assist the Company obtain
additional financing. Part of the agreement included a provision that if the
stock dropped below the market price at the time the shares were cancelled, new
unregistered stock would be issued to make up the dollar deficit in each
director's holdings at the time of the return, not to exceed the total value of
the stock returned. Pursuant to the agreement, the Company issued these
directors 590,000 shares in November 1999. The directors and the Company
cancelled the shares in return for the grant of a warrant to purchase 590,000
shares of common stock that were issued in February 2000 as follows:

 Roger Ekbom, Director                     200,000 warrants at $.12 per share
                                           expiring February 1, 2010

 Robert Larsen, Director & Secretary       215,000 warrants at $.12 per share
                                           expiring February 1, 2010

 Gerald Schlatter, Director                175,000 warrants at $.12 per share
                                           expiring February 1, 2010

During the fiscal year ended April 30, 2000 Directors Ekbom, Larsen, Schlatter
and Jones were each issued 5,000 options to purchase the Company's common stock
at $.125 per share. The options were issued at an exercise price that
approximated the fair value of the Company's common stock at the date of grant
and expire February 1, 2010.

During fiscal year 2000 the Company issued 10,000 shares of common stock to
Director Roger Ekbom at $.10 per share in satisfaction of a $10,000 note
payable.

During fiscal year 2000 the Company issued 10,000 shares of common stock to
Director Gerald Schlatter at $.10 per share in satisfaction of a $10,000 note
payable.

During fiscal year 2000 the Company issued 20,000 shares of common stock to
Director/Officer Robert Larsen at $.10 per share in satisfaction of a $20,000
note payable.

                                       24
<PAGE>

ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM S-K

Response to Item 8.

A.       Documents Filed as a Part of This Report:

(1)      FINANCIAL STATEMENTS

         (a)      Reports of Independent Certified Public Accountants.

         (b)      Balance Sheets as of April 30, 2000 and 1999.

         (c)      Statements of operations for each of the three years in the
                  period ended April 30, 2000.

         (d)      Statements of Stockholders' Equity for each of the three years
                  in the period ended April 30, 2000.

         (e)      Statements of Cash Flows for the three years in the period
                  ended April 30, 2000.

         (f)      Notes to the Financial Statements.

                                       25
<PAGE>

                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
                                                                                       Exhibits
                                                                                       to Prior       Exhibits to
                Exhibits Required by Item 601 of Regulation S-K                         Reports        This Year
                -------------------------------------------------------------------    -----------    -------------
      <S>       <C>                                                                    <C>            <C>

     3 (a)      Registrants Amended Articles of Incorporation                            A-1

     3 (b)      Specimen Form of Common Stock Certificate                                  X

     4 (a)      Specimen three year Warrants to Purchase Stock dated July 24,              X
                1992 with amendments

     4 (b)      Specimen three years Warrants to Purchase Stock dated September            X
                30, 1992 with amendments

     4 (c)      Specimen three year Warrants to Purchase Stock dated November 20,          X
                1992 with amendments

     4 (d)      Warrant to Purchase Stock issued February 28,1994 to American              X
                Heritage Fund

     4 (e)      Warrant to Purchase Stock issued July 24, 1992  to Cato Portfolio          X
                AG

     4 (f)      Specimen two year Warrant to Purchase Stock dated September 30,            X
                1992 and November 20, 1992

     4 (g)      Warrant to Purchase Stock issued April 29, 1994 to                         X
                Cato Portfolio AG

     4 (k)      Warrant to Purchase Stock issued August 19, 1993  and September            X
                9, 1993 to Cato Portfolio

     4 (1)      Specimen two year Warrants to Purchase Stock issued on various             X
                dates from January 21, 1993 to February 23, 1994

     10(a)      Agreement between the Registrant and Leland C. Clark, Jr., Ph.D.           X
                dated October 1, 1991 with amendments, Re: Assignment of
                Intellectual Property and Trade Secrets

     10(b)      Agreement between the Registrant and Keith R. Watson, Ph.D., Re:           X
                Assignment of Invention

     10(c)      Agreement between the Registrant and Children's Hospital Medical           X
                Center dated, July 6, 1992

     10(d)      Agreement between the Registrant and Children's Hospital Medical           X
                Center dated, July 6, 1993

     10(e)      Agreement between the Registrant and Children's Hospital Medical           X
                Center dated, July 6, 1993

     10(f)      Agreement between the Registrant and Roger R. Ekbom                        X
                dated, April 1, 1995

     10(g)      Agreement between the Registrant and Gerald D. Schlatter                   X
                dated, July 11, 1994 with Amendments

     10(h)      Agreement between the Registrant and Robert J. Larsen                      X
                dated, April 1, 1995

     10(i)      Agreement between the Registrant and L.G. Kurtz &    Associates            X
                dated, July 22, 1994

     10(j)      Agreement between the Registrant and Broadgate Consultant, Inc.,           X
                dated, July 29, 1994

     10(k)      Agreement between the Registrant and San Diego Contract Research           X
                Associates, Inc. dated November 21, 1995

     10(l)      Agreement between the Registrant and Glen Wegner,                          X
                M.D., J.D. dated, April 27, 1995

     10(m)      Employee Stock Plan dated, April 28, 1995
                                X
     10(n)      Indemnification Agreement between the Registrant and                       X
                members of the Board of Directors dated, April 26, 1995

     10(o)      Agreement between the Registrant and Air Products & Chemical,              X
                Inc., dated January 30, 1995.
</TABLE>


Pursuant to the requirements of Section 13 of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.

                                       26
<PAGE>

                       SYNTHETIC BLOOD INTERNATIONAL, INC.




              Robert W. Nicora, President & Chief Executive Officer

                                        By: /S/ ROBERT W. NICORA


                    David H. Johnson, Chief Financial Officer

                                        By: /S/ DAVID H. JOHNSON


Dated: 8/2/00

Pursuant to the requirements of Instruction D to Form 10-K under the Securities
and Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated. The following represent at least a majority of the Board of Directors
of the Registrant.


Date                     Name & Title
----                     ------------

8/2/00                   Roger A. Ekbom
                         Chairman of the
                         Board of Directors
                         By: /S/ ROGER A. EKBOM


8/2/00                   Robert W. Nicora
                         President & Director
                         By: /S/ ROBERT W. NICORA

8/2/00                   Robert J. Larsen
                         Corporate Secretary
                         By: /S/ ROBERT LARSEN

8/2/00                   Gerald D. Schlatter
                         Director
                         By: /S/ GERALD SCHLATTER

                                       27
<PAGE>

SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

FINANCIAL STATEMENTS FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED APRIL 30, 2000
AND FOR THE PERIOD FROM MAY 26, 1967
(DATE OF INCORPORATION) TO APRIL 30, 2000 AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

                                       28
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Synthetic Blood International, Inc.

We have audited the accompanying balance sheets of Synthetic Blood
International, Inc. (a company in the development stage) as of April 30, 2000
and 1999 and the related statements of operations, stockholders' equity
(deficiency) and cash flows for the years then ended and for the period from
inception (May 26, 1967) to April 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The Company's
financial statements as of April 30, 1998 and for the period from inception (May
26, 1967) to April 30, 1998 were audited by other auditors whose report, dated
June 26, 1998, included an explanatory paragraph regarding a substantial doubt
about the ability of the Company to continue as a going concern. The financial
statements for the period from inception (May 26, 1967) to April 30, 1998
reflect cumulative net losses of $9,568,164 of the cumulative totals. The other
auditors' report has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts for such prior periods, is based solely on
the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Synthetic Blood International, Inc. as of April 30,
2000 and 1999 and the results of its operations and its cash flows for the years
then ended and for the period from inception (May 26, 1967) to April 30, 2000,
in conformity with accounting principles generally accepted in the United States
of America.


Grant Thornton LLP

Irvine, California
July 20, 2000

                                       29
<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
  Synthetic Blood International, Inc.:


We have audited the statements of operations, stockholders' equity (deficiency)
and cash flows for the year ended April 30, 1998, and for the period from May
26, 1967 (date of incorporation) to April 30, 1998, of Synthetic Blood
International, Inc. (a development stage enterprise) (the Company). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit. The financial statements for the period May 26, 1967 through April 30,
1994 were audited by other auditors and reflected an accumulated net loss of
$2,148,706. The other auditors' report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for such prior period, is
based solely on the report of such other auditors.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, such
financial statements present fairly, in all material respects, the results of
operations and cash flows of Synthetic Blood International, Inc. for the year
ended April 30, 1998, and for the period from May 26, 1967 (date of
incorporation) to April 30, 1998, in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing certain medical products. As discussed in Note
1 to the financial statements, the Company's accumulated losses from operations
and negative operating cash flows; its necessity to obtain additional financing
to fund operations until the necessary regulatory approvals are obtained, if
ever; and its ability to ultimately attain successful operations raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.


DELOITTE & TOUCHE LLP

Costa Mesa, California
June 26, 1998

                                       30
<PAGE>

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

BALANCE SHEETS
AS OF APRIL 30, 2000 AND 1999
--------------------------------------------------------------------------------

                         ASSETS
<TABLE>
<CAPTION>
                                                                       2000            1999
                                                                   -----------      -----------
<S>                                                                <C>              <C>
CURRENT ASSETS
  Cash and cash equivalents                                        $ 5,466,391      $   193,013
  Common stock subscription receivable                                 400,000              --
  Prepaid expenses:
    Insurance                                                           49,076           54,189
    Other                                                               21,989            6,685
                                                                   -----------      -----------
    Total current assets                                             5,937,456          253,887

PROPERTY AND EQUIPMENT
  Laboratory equipment                                                  47,290          240,788
  Furniture and fixtures                                                28,435           66,024
                                                                   -----------      -----------
                                                                        75,725          306,812
  Less accumulated depreciation                                        (43,994)        (245,210)
                                                                   -----------      -----------

PROPERTY AND EQUIPMENT, net                                             31,731           61,602

PATENTS, net                                                           230,464          215,417
                                                                   -----------      -----------
                                                                   $ 6,199,651      $   530,906
                                                                   ===========      ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       31
<PAGE>

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

BALANCE SHEETS
AS OF APRIL 30, 2000 AND 1999 (CONTINUED)
--------------------------------------------------------------------------------


      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
                                                                        2000            1999
                                                                    -----------      -----------
<S>                                                                 <C>              <C>
CURRENT LIABILITIES:
  Current portion of notes payable                                  $    44,534      $   101,170
  Accounts payable                                                      211,460          305,686
  Accrued payroll                                                        89,446           94,500
  Notes payable to stockholders                                             --            76,900
                                                                    -----------      -----------
    Total current liabilities                                           345,440          578,256

NOTES PAYABLE, less current portion                                         --            47,327

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIENCY):

  Common stock, par value $0.01 per share, authorized
   100,000,000 shares; 80,907,298 and 55,314,324 shares
   issued and outstanding at April 30, 2000 and 1999
   respectively                                                         809,073          553,143
  Stock subscription receivable                                        (600,000)             --
  Deposits on common stock                                            2,535,471           23,970
  Additional paid-in capital                                         14,423,005        9,730,209
  Deficit accumulated during the development stage                  (11,313,338)     (10,401,999)
                                                                    -----------      -----------
    Total stockholders' equity (deficiency)                           5,854,211          (94,677)
                                                                    -----------      -----------
                                                                    $ 6,199,651      $   530,906
                                                                    ===========      ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                       32
<PAGE>

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

STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                      Period from
                                      May 26, 1967
                                    (incorporation)
                                          to
                                     April 30, 2000          2000              1999              1998
                                     --------------     --------------    --------------    --------------
<S>                                  <C>                <C>               <C>               <C>
EXPENSES:
  Research and development           $   3,387,947      $    224,023       $   170,058      $     201,433
  General and administrative             7,851,422           687,575           667,376          1,055,143
  Interest                                 165,474            15,882            20,395             27,525
                                     -------------      ------------      ------------      -------------
    Total expenses                      11,404,843           927,480           857,829          1,284,101

OTHER INCOME                               (91,505)          (16,141)          (23,994)            (3,069)
                                     -------------      ------------      ------------      -------------
NET LOSS                             $ (11,313,338)     $   (911,339)     $   (833,835)     $  (1,281,032)
                                     =============      ============      ============      =============

NET LOSS PER SHARE -
  Basic and diluted                                           ($0.01)           ($0.02)            ($0.03)
                                                        ============       ===========       ============

WEIGHTED AVERAGE NUMBER OF
 COMMON SHARES OUTSTANDING -
  Basic and diluted                                       65,365,438        51,388,471         46,000,749
                                                        ============       ===========       ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       33
<PAGE>

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

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                            Deficit
                                                                                            Deposits     accumulated      Total
                                                              Additional        Stock          on         during the   stockholders'
                                    Number of     Common       paid-in       Subscription    Common      development      equity
                                     shares        stock       capital        Receivable     Stock         stage       (deficiency)
                                  ------------ -------------  ------------- -------------   ---------  -------------- --------------
<S>                               <C>          <C>            <C>            <C>            <C>        <C>            <C>
BALANCES, May 26, 1967                    --    $       --     $      --     $    --       $    --       $ --               --

Issuance of common stock            30,292,293       302,923   4,959,798          --            --         --         5,262,721

Conversion of convertible
  debentures into common
  stock                                870,199         8,702     771,298          --            --         --           780,000
Issuance of common stock
  to employees and
  compensatory options                 218,800         2,188      81,312          --            --         --            83,500

Common stock issues in
  conjunction with funding
  agreements and services
  rendered                           5,376,365        53,764     883,160          --            --         --           936,924

Common stock issued upon
  conversion of notes
  payable                            4,766,820        47,668     637,607          --            --         --           685,275

Issuance of warrants                       --            --       60,000          --            --         --            60,000

Exercise of warrants                 1,305,000        13,050     117,450          --            --         --           130,500

Contributions of capital for
  cash and services rendered               --            --       65,700          --            --         --            65,700

Net loss                                   --            --          --           --            --     (8,287,132)   (8,287,132)
                                   ------------   ----------  ----------     ------------    -------   ----------     ---------

BALANCES, April 30, 1997            42,829,477       428,295   7,576,325          --            --     (8,287,132)     (282,512)

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       34
<PAGE>

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

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 - CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                         Deficit
                                                                                                       accumulated        Total
                                                          Additional         Stock          Deposits   during the      stockholders'
                              Number of      Common        paid-in        Subscription     on Common   development       equity
                                shares       stock         capital         Receivable        Stock        stage        (deficiency)
                             ----------   ------------  -------------     --------------  ---------- --------------    ------------
<S>                          <C>          <C>            <C>              <C>              <C>        <C>              <C>
Issuance of common stock      6,000,000   $     60,000   $    850,033     $     --        $     --    $         --     $    910,033

Issuance of common stock
  upon conversion
  of debentures                 531,200          5,312         46,936           --              --              --           52,248

Issuance of common stock
  to officers to retire
  shareholder loans           1,044,450         10,444        177,556           --              --              --          188,000

Issuance of common stock
  for services rendered         324,175          3,242         49,350           --              --              --           52,592

Contribution of capital
  by shareholders                  --             --          581,818           --             --               --          581,818

Issuance of warrants               --             --          130,406           --             --               --          130,406

Net loss                           --             --             --             --             --         (1,281,032)    (1,281,032)
                            -----------   ------------   ------------   ------------      ----------    ------------    ------------

BALANCES, April 30, 1998     50,729,302        507,293      9,412,424           --             --         (9,568,164)       351,553

Issuance of common stock      4,265,022         42,650        262,500           --             --               --          305,150

Common stock issued
   for services rendered        320,000          3,200         53,725           --             --               --           56,925

Stock options granted              --                           1,560           --             --               --            1,560

Net loss                           --             --             --             --             --          (833,835)       (833,835)
                            -----------   ------------   ------------   ------------      ----------    ------------    ------------

BALANCES, April 30, 1999     55,314,324        553,143      9,730,209           --              --       (10,401,999)      (118,647)

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       35
<PAGE>

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

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 - CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                         Deficit
                                                                                                       accumulated        Total
                                                          Additional         Stock          Deposits   during the      stockholders'
                              Number of      Common        paid-in        Subscription     on Common   development       equity
                                shares       stock         capital         Receivable        Stock        stage        (deficiency)
                             ----------   ------------  -------------     --------------  ---------- --------------    ------------
<S>                          <C>          <C>            <C>              <C>              <C>        <C>              <C>

Issuance of common stock     17,882,974    $   178,830   $  3,705,283   $       --        $     --      $       --      $ 3,884,113

Issuance of common stock for
  services rendered             200,000          2,000         20,400           --              --              --           22,400

Issuance of common stock for
  payable settlement             10,000            100         13,500           --              --              --           13,600

Issuance of common stock
  for prommisary note         7,500,000         75,000        925,000       (600,000)           --              --          400,000

Options issued for services        --             --           28,613           --              --              --           28,613

Deposits received for common
  stock not issued                 --             --             --             --         2,535,471            --        2,535,471

Net loss                           --             --             --             --              --          (911,339)      (911,339)
                            -----------   ------------   ------------   ------------      ----------    ------------    -----------
BALANCES, April 30, 2000     80,907,298    $   809,073   $ 14,423,005   $   (600,000)     $2,535,471    $(11,313,338)   $ 5,854,211
                            ===========   ============   ============   ============      ==========    ============    ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       36
<PAGE>

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

STATEMENT OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                          Period from
                                                          May 26, 1967
                                                        (incorporation)
                                                               to
                                                         April 30, 2000       2000            1999            1998
                                                        ---------------    -----------     -----------     -----------
<S>                                                     <C>                <C>             <C>             <C>
CASH FLOWS FROM OPERATING
  ACTIVITIES:
Net loss                                                  $(11,313,338)    $ (911,339)     $ (833,835)    $ (1,281,032)
Adjustments to reconcile net loss to net
cash used in operating activities:
  Depreciation and amortization                                415,551         53,992          54,412           71,107
  Loss on disposal of property and equipment                    15,284         12,874
  Disposal and write-down of other assets                      126,800             --              --               --
  Issuance of compensatory stock options/
    warrants                                                   279,079         28,613           1,560          130,406
  Issuance of stock below fair market value                    695,248              -               -          155,248
  Issuance of stock for services rendered                    1,068,841         22,400          56,925           52,592
  Contribution of capital through services
    rendered by stockholders                                   216,851             --              --          186,851
  Changes in operating assets and liabilities:
    Prepaid expenses                                           (71,065)       (10,191)        (41,349)          (2,100)
    Accounts payable and accrued expenses                      477,499       (109,650)        (32,212)         111,238
                                                          ------------     ----------      ----------     ------------
        Net cash used in operating activities               (8,089,250)      (913,301)       (794,499)        (575,690)

CASH FLOWS FROM INVESTING
  ACTIVITIES:
Purchase of property and equipment                            (302,861)       (17,664)        (13,795)            (762)
Proceeds from sale of property and
  equipment                                                     15,457             --              --               --
Purchase of other assets                                      (480,087)       (34,377)        (91,462)         (49,638)
                                                          ------------     ----------      ----------     ------------
        Net cash used in investing activities                 (767,491)       (52,041)       (105,257)         (50,400)
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      37
<PAGE>

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

STATEMENT OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 - (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                        Period from
                                                        May 26, 1967
                                                       (incorporation)
                                                             to
                                                       April 30, 2000          2000             1999            1998
                                                      ----------------     -----------      -----------     -----------
<S>                                                   <C>                  <C>              <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder debt                                977,692               --           61,900          79,538
Repayments of amounts due
  to stockholders                                            (121,517)              --               --         (46,517)
Proceeds from long-term debt                                  140,248               --          140,248             --
Proceeds from issuance of convertible debentures              811,000               --               --          31,000
 Payments on short term notes payable                         (56,637)         (56,637)              --             --
Payments on long-term debt                                   (238,971)         (84,227)        (154,744)            --
Payments on capital lease obligation                          (52,338)              --               --         (16,573)
Proceeds from common stock not issued at year-end           2,535,471        2,535,471               --             --
Contribution of capital from stockholders                      40,700               --               --           5,000
Proceeds from issuance of common stock                     10,287,484        3,844,113          305,150       1,260,000
                                                          -----------     ------------      -----------     -----------
    Net cash provided by financing activities              14,323,132        6,238,720          352,554       1,312,448
                                                          -----------     ------------      -----------     -----------

NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                      5,466,391        5,273,378        (547,202)         686,358

CASH AND CASH EQUIVALENTS,
  beginning of period                                             --           193,013         740,215           53,857
                                                          -----------      -----------      ----------       ----------
CASH AND CASH EQUIVALENTS,
  end of period                                           $ 5,466,391      $ 5,466,391      $  193,013       $  740,215
                                                          ===========      ===========      ==========       ==========
CASH PAID FOR:
Interest                                                  $   125,960      $    15,882      $   20,395       $    3,174
                                                          ===========      ===========      ==========       ==========
Taxes                                                     $     7,940      $     1,250      $      800       $      527
                                                          ===========      ============     ==========       ==========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      38
<PAGE>

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

STATEMENT CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 - (CONTINUED)
--------------------------------------------------------------------------------


SUPPLEMENTAL INFORMATION:
During fiscal 1998: Transfer of $162,993 trade accounts payable and accrued
liabilities to notes payable.

During fiscal 2000: Exchange of $1,200,000 stock subscription receivable for
common stock subscription of 9,000,000 shares, of which 7,500,000 shares
($1,000,000) were issued and not paid as of April 30, 2000 and 4,500,000 shares
($600,000) were issued and not paid through the date of this filing.

The Company permitted the exercise of 400,000 options of unregistered common
stock at a $.10 exercise price in satisfaction of $40,000 in related party notes
payable.





   The accompanying notes are an integral part of these financial statements.

                                       39
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000
--------------------------------------------------------------------------------


1.       GENERAL

         The Company was incorporated on May 26, 1967 and was inactive through
         September 1990, when it began conducting operations for the purpose of
         developing a synthetic blood emulsion to act as a human blood
         substitute, and a method of using a perfluorocarbon compound to
         facilitate oxygen exchange for individuals with respiratory distress
         syndrome. Shortly after commencing these operations, the Company
         changed its name to Synthetic Blood International, Inc. The Company is
         also developing an implantable, continuous reading glucose biosensor to
         be used primarily by individuals with diabetes. All of the Company's
         products are currently in the preclinical trial stage. This stage
         requires a sufficient level of animal testing to be performed in order
         to file certain applications with the United States Food and Drug
         Administration (FDA), which is necessary to obtain FDA approval to
         proceed with human testing and, ultimately, approval to market the
         products. No assurances can be given that such approvals, once applied
         for, will be granted. The Company has not generated any revenues since
         inception.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Development Stage -- Because the Company has commenced its planned
         -----------------
         principal operations, but there has been no significant revenue
         therefrom, it is considered a "Development Stage Enterprise".

         Cash and Cash Equivalents -- The Company considers highly-liquid
         -------------------------
         investments with original maturities of three months or less to be cash
         equivalents.

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

                                       40
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued

         Patents -- Patent costs are being amortized over the lesser of the
         -------
         remaining life of the patent or the estimated useful life of the
         related product, ranging from eight to ten years. Patent costs totaled
         $230,464 and $215,417, net of accumulated amortization of $94,815 and
         $75,484, at April 30, 2000 and 1999, respectively. The Company
         evaluates recoverability of patents on at least an annual basis by
         comparing the estimated resale value of the patents to the remaining
         carrying values. An adjustment to the carrying value of the patent
         rights would be made if the estimated resale value of the patents is
         determined to be insufficient to recover such value.

         Pricing of Common Stock and Options to Purchase Common Stock -- The
         ------------------------------------------------------------
         Company's Board of Directors determines the issuance price of its
         common stock and the exercise price of options to purchase common
         stock, based on a good faith estimate of fair value, which is derived
         from recent issuances of common stock to unrelated parties and/or from
         common stock market quotations, after giving effect to the restricted
         nature of the stock issued. In the event that stock is issued at a
         price below fair market value for services rendered, an expense is
         recorded for the difference between fair market value and the issuance
         price and is included in general and administrative expenses.

         Loss Per Share -- Basic loss per share, which includes no dilutive
         --------------
         securities, is computed by dividing loss available to common
         shareholders by the weighted-average number of common shares
         outstanding for that particular period. In contrast, diluted loss per
         share considers the potential dilution that could occur from other
         financial instruments that would increase the total number of
         outstanding shares of common stock. Potentially dilutive securities,
         however, have not been included in the diluted loss per share
         computation because their effect is antidilutive.

                                       41
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

         Income Taxes -- Deferred tax assets and liabilities are recorded for
         ------------
         differences between the financial statement and tax basis of the assets
         and liabilities that will result in taxable or deductible amounts in
         the future based on enacted tax laws and rates applicable to the
         periods in which the differences are expected to affect taxable income.
         Valuation allowances are established when necessary to reduce deferred
         tax assets to the amount expected to be realized. Income tax expense is
         recorded for the amount of income tax payable or refundable for the
         period increased or decreased by the change in deferred tax assets and
         liabilities during the period.

         Reclassifications -- Certain amounts as previously reported have been
         -----------------
         reclassified to conform to the 2000 presentation.

         Use of Estimates -- The preparation of financial statements in
         ----------------
         conformity with generally accepted accounting principles requires
         management to make estimates and assumptions that affect the reported
         amounts of assets and liabilities at the date of the financial
         statements and the reported amounts of other income and expenses during
         the reporting periods. Actual results could differ from those
         estimates.

         Fair Value of Financial Instruments -- The Company's balance sheet
         -----------------------------------
         includes the following financial instruments: cash and cash
         equivalents, accounts payable, accrued expenses, amounts due to
         stockholders, and notes payable. The Company considers the carrying
         amount in the financial statements to approximate fair value for these
         financial instruments because of the relatively short period of time
         between origination of the instruments and their expected realization.
         The Company considers the carrying value of its notes payable to
         approximate fair market value based on the borrowing rates currently
         available to the Company for bank loans with similar terms and
         maturities.

         Stock-Based Compensation -- The Company accounts for stock-based
         ------------------------
         employee compensation as prescribed by APBOpinion No. 25, "Accounting
         for Stock Issued to Employees," and has adopted the disclosure
         provisions of Statement of Financial Accounting Standards
         123,"Accounting for Stock-based Compensation" ("SFAS 123"). SFAS 123
         requires proforma disclosures of net income and net income per share as
         if the

                                       42
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued

         fair value based method of accounting for stock-based awards had been
         applied. Under the fair value based method, compensation cost is
         recorded based on the value of the award at the grant date and is
         recognized over the service period. with Accounting Principles Board
         (APB) Opinion No. 25, Accounting for Stock Issued to Employees (Note
         8).

3.       COMMITMENTS AND CONTINGENCIES

         Litigation -- The Company is subject to litigation in the normal course
         ----------
         of business, none of which management believes will have a material
         adverse effect on the Company's financial statements.

4.       AMOUNTS DUE TO STOCKHOLDERS

         The amounts due to stockholders were $0 and $76,900 at April 30, 2000
         and 1999, respectively. Such loans were payable on demand and were
         noninterest-bearing.

5.       NOTES PAYABLE

         Notes payable consist of the following at April 30:
<TABLE>
<CAPTION>

                                                                       2000        1999
                                                                    ---------    ---------
<S>                                                                 <C>          <C>
Installment contract payable, secured by unearned
  insurance premiums, payable in monthly installments of
  $8,500 through October 2000                                       $  44,534    $  49,517

Unsecured subordinated notes payable to former employees, bearing
  interest at 10% per annum, payable in monthly principal and
  interest installments of $1,500, due at various dates through
  June 2003                                                              --         59,899

Unsecured subordinated notes payable to vendor, bearing interest
  at 10% per annum, payable in monthly principal and interest
  installments of $5,000, remaining balance due in August 1999           --         39,081
                                                                    ---------    ---------
                                                                       44,534      148,497
Less current maturities of notes payable                              (44,534)    (101,170)
                                                                    ---------    ---------
                                                                    $    --      $  47,327
                                                                    =========    =========
</TABLE>

                                       43
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


6.       STOCKHOLDERS' EQUITY

         During fiscal 1998, the Company issued and subsequently converted
         outstanding debentures to shareholders totaling $31,000 into 531,200
         shares of common stock. As a result of this transaction, the Company
         recorded $21,248 of interest expense associated with the conversion
         feature, which represents the difference between the fair value and the
         conversion price of the common stock.

         During fiscal 1998, the Company issued 1,044,450 shares of common stock
         to retire $94,000 of officer loans. As a result of this transaction,
         the Company recognized expense of $94,000, representing the difference
         between the fair market value and the issuing value of the common
         stock.

         During fiscal 1998, the Company issued 324,175 shares of common stock
         in exchange for services rendered by stockholders. As a result of this
         transaction, the Company recognized expense of $52,592, representing
         the fair market value of the common stock issued.

         During fiscal 1998, the Company issued 6,000,000 shares in private
         placements for aggregate proceeds of $1,260,000. In conjunction with
         such offerings, the Company recognized a charge of $40,000, which
         represents the difference between the fair market value and issuance
         price of one of the offerings. Additionally, the Company's officers
         contributed personal holdings of the Company's stock to certain
         investors on behalf of the Company. The fair market value of such stock
         was $389,967. Such has been recorded in the financial statements as a
         contribution of capital by the shareholders and as a direct cost of the
         private placement, offset against the proceeds received.

                                       44
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


6.       STOCKHOLDERS' EQUITY -- Continued

         During fiscal 1998, the Company's officers forgave salaries totaling
         $186,851, related to services performed in fiscal year 1998.
         Additionally, a stockholder contributed $5,000. Such have been recorded
         in the financial statements as contributions of capital.

         During fiscal 1999, the Company issued 125,000 shares in satisfaction
         of a $26,250 liability for rent on a Company research facility. An
         additional 25,000 shares were issued to a consultant for services
         rendered. The Company recognized an expense of $2,625 representing the
         fair value of the stock at the date of issuance.

         During fiscal 1999, the Company issued 170,000 shares to a
         director/officer in exchange for services rendered. The Company
         recognized an expense of $28,050 representing the fair value of the
         stock at the date of issuance.

         During fiscal 1999, the Company issued 4,265,022 shares of unregistered
         common stock for $305,150; these shares were issued at a share price
         ranging from $.07 to $.11.

         During fiscal 1999, the Company issued 125,000 shares in satisfaction
         of a $26,250 liability for rent on a Company research facility. An
         additional 25,000 shares were issued to a consultant for services
         rendered. The Company recognized an expense of $2,625 representing the
         fair value of the stock at the date of issuance.

         During fiscal 2000, the Company issued 200,000 shares of unregistered,
         restricted common stock to an unrelated party for services rendered.
         The Company recognized an expense of $22,400 representing the fair
         value of the stock at the date of issuance.

         During fiscal 2000, the Company issued 10,000 shares of unregistered,
         restricted common stock in satisfaction of an interest expense
         liability. The Company recognized an expense of $13,600 representing
         the fair value of the stock at the date of issuance.

                                       45
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


6.       STOCKHOLDERS' EQUITY -- Continued

         During fiscal 2000, the Company issued 12,676,714 shares of
         unregistered common stock to third party investors for $3,045,837 at
         share prices ranging from $.06 to $.75 and 75,000 shares of
         unregistered common stock to related parties for $6,000; these shares
         were issued at a share price of $.08. The Company issued 5,457,871
         options with the sale of the above stock with exercise prices ranging
         from $.11 to $1.00.

         During fiscal 2000, the Company issued 2,831,260 shares of unregistered
         common stock to third party investors in connection with the exercise
         of options for $551,970 with a range of exercise prices from $.07 to
         $.14. The Company also issued 400,000 shares of unregistered common
         stock to related parties in connection with the exercise of options for
         $40,000, at an exercise price of $.10.

         During fiscal 2000, 400,000 options were exercised of unregistered
         common stock in satisfaction of $40,000 in related party notes payable.
         The options had an exercise price of $.10.

         During fiscal 2000, the Company sold 9,000,000 shares of common stock
         at $.13 per share in exchange for a promissory note of $1,200,000
         payable in 12 equal monthly installments of $100,000, commencing in
         April 2000. The note has been recorded as a stock subscription
         receivable and has been presented in the stockholders' equity section
         of the accompanying Balance Sheet for amounts not received prior to the
         filing of this report.

         During fiscal 2000, the Company received $2,500,000 in deposits for
         6,500,000 shares of unregistered common stock that were committed to be
         issued at April 30, 2000, of which 1,900,000 shares were issued
         subsequent to year-end at a share price of $.385. The Company received
         an additional $35,471 in deposits for the exercise of 394,452 shares of
         unregistered common stock that were committed to be issued at April 30,
         2000 and were issued subsequent to year-end at share prices ranging
         from $.07 to $.14.

                                       46
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


7.       STOCK OPTIONS AND WARRANTS

         In April 1995, the Company's Board of Directors approved a stock option
         plan providing for the granting of options to officers, directors,
         consultants and key employees to purchase up to 2,500,000 shares of the
         Company's common stock at prices not less than the fair market value of
         the stock at the date of grant. However, the Company has since
         determined that they never requested or received shareholder approval
         as required to formally approve the plan. The Company adopted a new
         plan in October 1999, subject to ratification by shareholders within
         twelve months, and is taking steps to obtain shareholder approval, and
         has granted shares with identical terms and conditions to those
         individuals who were previously granted options under the 1995 plan.
         The Plan has not yet been ratified by the shareholders.

         The 1999 plan provides for the granting of incentive and non-qualified
         options to officers, directors, consultants and key employees to
         purchase up to 4,000,000 shares of the Company's common stock at prices
         not less than the fair market value of the stock at the date of grant
         for incentive options. The total number of options issued under the
         proposed plan at April 30, 2000 were 675,000 with a weighted average
         exercise price of $.14. The Company must record an expense equal to the
         intrinsic value (if any) of the options multiplied by the percent
         vested at the date the plan is ratified by the shareholders. The
         Company can not reasonably determine at the present time whether they
         will receive the necessary shareholder approval to ratify the plan.
         However, the Company believes the outcome of this uncertainty will not
         have a material effect on these financial statements. The option
         expiration dates are determined at the date of grant, but may not
         exceed ten years.

                                       47
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


7.       STOCK OPTIONS AND WARRANTS -- Continued

         Changes in shares under options issued outside the plan to employees or
         directors for the years ended April 30, 2000, 1999 and 1998 are
         summarized as follows:
<TABLE>
<CAPTION>
                                      2000                                1999                                 1998
                          --------------------------------    ---------------------------------    ---------------------------------
<S>                          <C>                 <C>             <C>                  <C>             <C>                  <C>
                                                 Weighted                             Weighted                             Weighted
                                                  Average                              Average                              Average
                                                 Exercise                             Exercise                             Exercise
                                Shares             Price            Shares              Price            Shares              Price
                          ----------------    ------------    ----------------     ------------    ----------------     ------------

Outstanding, beginning
  of year                          900,000           $0.16           1,200,000            $0.17             100,000            $0.25
Granted at fair market
 value                             350,000            0.14                  --             0.15           1,200,000             0.17
Forfeited                               --              --            (300,000)            0.28            (100,000)            0.25
                          ----------------    ------------    ----------------     ------------    ----------------     ------------
Outstanding, end of
 year                            1,250,000           $0.15             900,000            $0.16           1,200,000            $0.17
                          ================    ============    ================     ============    ================     ============
</TABLE>

         The following table summarizes information about stock options
         outstanding at April 30, 2000.

<TABLE>
<CAPTION>
                                               Options
                                             Outstanding
                      ----------------------------------------------------------

                                                Weighted             Weighted
      Range of                                   Average              Average
      Exercise               Number             Remaining            Exercise
       Prices             Outstanding             Life                 Price
 ----------------     -----------------    ----------------     ----------------
<S>                      <C>                  <C>                  <C>

      $.14 - $.16          1,250,000              8.34                $0.15
                      =================    ================     ================

</TABLE>
                                       48
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


7.       STOCK OPTIONS AND WARRANTS -- Continued

         At April 30, 2000, 1,020,000 options of the total outstanding were
         exercisable at a weighted-average exercise price of $.15. During the
         year ended April 30, 2000, the Company issued 230,000 options to
         non-employees at an exercise price of $.14. The options issued to
         non-employees are included in the above stock option table, but are
         excluded from the calculation of pro forma compensation expense. As
         permitted under SFAS No. 123, Accounting for Stock-Based Compensation,
         the Company accounts for its stock option plan in accordance with the
         provisions of APB Opinion No. 25, Accounting for Stock Issued to
         Employees. Had compensation cost for the stock option plan been
         determined based on the fair value at the grant date consistent with
         the method of SFAS No. 123, the Company's net loss and net loss per
         share would have been the pro forma amounts indicated below:

         <TABLE>
         <CAPTION>
                                                   Years ended April 30,
                                        --------------------------------------------
                                            2000           1999            1998
                                        ------------   ------------   --------------
         <S>                            <C>            <C>            <C>
         Actual net loss                $  (911,339)   $  (833,835)   $  (1,281,032)
         Pro forma net loss             $  (937,906)   $  (882,635)   $  (1,364,429)

         Actual net loss per share      $      (.01)   $      (.02)   $        (.03)
         Pro forma net loss per share   $      (.01)   $      (.02)   $        (.03)
         </TABLE>

         The fair value of each option grant was estimated at the grant date
         using the Black-Scholes option-pricing model for the year ended April
         30, 2000, 1999 and 1998. The assumptions were as follows: a risk-free
         interest rate of 6.12% for 2000, 6% for 1999 and 6.35% for 1998;
         volatility of 152% for 2000, 90% for 1999 and 97% for 1998; zero
         dividend yield for all years; and expected lives of 1 to 10 years.

                                       49
<PAGE>


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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


7.       STOCK OPTIONS AND WARRANTS -- Continued

         The Black-Scholes option valuation model was developed for use in
         estimating the fair value of traded options and warrants which have no
         vesting restrictions and are fully transferable. In addition, option
         valuation models require the input of highly subjective assumptions,
         including the expected stock price volatility. Because the Company's
         employee stock options and warrants have characteristics significantly
         different from those of traded options, and because changes in the
         subjective input assumptions can materially affect the fair value
         estimate, in management's opinion, the existing models do not
         necessarily provide a reliable single measure of the fair value of its
         employee stock options.

         Furthermore, during 1998 and 1999, in connection with various
         agreements for the sale of the Company's common stock (Note 6) and in
         lieu of payment for services rendered, the Company issued warrants to
         purchase shares of its common stock.

         During fiscal 2000, the Company issued approximately 5,450,000 warrants
         in connection with the sale of stock, with a weighted average exercise
         price of $.45.

         During fiscal 2000, the Company issued 1,240,000 warrants to certain
         directors with an exercise price of 80% of fair market value. These
         warrants were issued pursuant to an agreement entered into in 1998
         whereby such directors gave back stock in order to help the Company
         obtain additional financing. Part of the agreement included a caveat
         that if the stock dropped below the market price at the time the shares
         were returned (February 98) new unregistered stock would be issued to
         make up the dollar deficit in each director's holdings at the time of
         the return, not to exceed the total value of the stock returned.
         Pursuant to the agreement, the Company issued these directors 1,240,000
         shares in November 1999. However, the directors returned the shares to
         the Company in return for being granted 1,240,000 warrants which were
         issued in February 2000.

                                       50
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


7.       STOCK OPTIONS AND WARRANTS -- Continued

         Changes in warrants for the years ended April 30, 2000, 1999 and 1998
         are summarized as follows:
<TABLE>
<CAPTION>
                                               Weighted Average
                                                Exercise Price
                                                  per Share                   Shares
                                              ------------------       -----------------

<S>                                            <C>                     <C>
Warrants outstanding at May 1, 1997                        $0.67                 600,000
       Granted                                              0.53               2,000,000
       Exercised                                              --                      --
       Terminated                                           0.67                (600,000)
                                              ------------------       -----------------

Warrants outstanding at April 30, 1998                      0.53               2,000,000
       Granted                                              0.13               3,559,151
       Exercised                                              --                      --
       Terminated                                             --                      --
                                              ------------------       -----------------

Warrants outstanding at April 30, 1999                      0.28               5,559,151
       Granted                                              0.39               6,697,871
       Exercised                                            0.17              (3,631,260)
       Terminated                                           0.20                 (60,000)
                                              ------------------       -----------------

Warrants outstanding at April 30, 2000                     $0.41               8,565,762
                                              ==================       =================
</TABLE>

8.       INCOME TAXES

         No provision for federal and state income taxes has been recorded as
         the Company has incurred net operating losses through April 30, 2000.
         At April 30, 2000, the Company has net operating loss carryforwards
         available to offset future taxable income for federal tax purposes of
         approximately $10,401,940; such carryforwards expire in various years
         through 2020. Deferred tax assets totaling $3,966,855 at April 30, 2000
         include the effects of these net operating loss carryforwards, and
         research and development credit carryforwards. The Company has provided
         a valuation allowance to offset all deferred tax assets due to the
         uncertainty of realization.

                                       51
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 2000 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 2000 -- (Continued)
--------------------------------------------------------------------------------


9.       RELATED PARTIES

         During fiscal 2000, 1999 and 1998, the Company recorded expenses of
         approximately $5,825, $70,500 and $49,000, respectively, for services
         provided by a company in which an officer of the Company has a
         controlling interest.


                                       52