UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K





x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934


For the
fiscal year ended December 31, 2009





 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934


For the
transition period from __________ to __________




COMMISSION
FILE NUMBER 0-24050


HEMOBIOTECH,
INC.


(Exact
name of Registrant as Specified in Its Charter)





DELAWARE
              
              33-0995817(State
      or other jurisdiction of
              
              (I.R.S.
      Employerincorporation
      or organization)
              
              Identification
      No.)5001
      SPRING VALLEY RD, SUITE 1040 - WESTDALLAS,
      TEXAS
              
              75244(Address
      of principal executive offices)
              
              (Zip
      Code)





Registrant's
telephone number, including area code:(972) 455-8950




SECURITIES
REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE





SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:


COMMON
STOCK, PAR VALUE $.001 PER SHARE




Indicate
by check mark if the registrant is a well-known seasoned issuer.  ̈ Yes  þ No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. ̈





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 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.þ  Yes ̈  No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).þ  Yes ̈  No




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-KB is not contained herein, and will not be contained, to the best
of the 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. ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act


Large
accelerated filer o     Accelerated
filer o     Non-accelerated
filero       Smaller Reporting
Company þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). ̈ Yesþ
No




As of May
26, 2010, 23,693,434 shares of the Registrant's common stock, par value $.001
per share, were outstanding.





On June
30, 2009, the aggregate market value of voting stock (based upon the closing
price of the Registrant's common stock on that date) held by nonaffiliates of
the Registrant was $4,397,621 (7,995,674 of 20,735,458 shares outstanding
at $0.55 per share).





Documents Incorporated By
Reference: None.











CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION




Except
for historical information, the matters discussed in this document may be
considered "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements include declarations regarding the
intent, belief or current expectations of HemoBioTech, Inc., and its management
and are valid only as of today, and we disclaim any obligation to update this
information. These statements are subject to known and unknown risks and
uncertainties that may cause actual future experience and results to differ
materially from the statements made. Factors that might cause such a difference
include, among others, the successful pre-clinical development, the successful
completion of clinical trials, the FDA review process and other governmental
regulation, pharmaceutical collaborator interest and ability to successfully
develop and commercialize drug candidates, competition from other pharmaceutical
companies, product pricing and third party reimbursement, and other factors
which are included in this report and HemoBioTech, Inc.'s other reports filed
with the Securities and Exchange Commission.





2





PART I





ITEM
1. BUSINESS





We were
founded in 2001 as "HemoBioTech, Inc.," a Texas corporation. In 2003, we
incorporated a sister corporation named "HemoBioTech, Inc." in the State of
Delaware. On December 1, 2003, HemoBioTech, Inc. (Texas) was merged with and
into HemoBioTech, Inc. (Delaware) with HemoBioTech, Inc. (Delaware) as the
surviving entity. Our principal executive offices are located at 5001 Spring
Valley Road, Suite 1040-West, Dallas, TX 75244; our telephone number is (972)
455-8950, and our website is www.hemobiotech.com.





We are a
biopharmaceutical company engaged in the research and development of human blood
substitute technology exclusively licensed from Texas Tech University Health
Sciences Center (“TTUHSC”).  After reviewing the blood substitute
technology developed by researchers at Texas Tech, in January 2002 we licensed
from TTUHSC the exclusive rights to various alternative compositions of what we
call “HemoTech,” a human blood substitute that is based on hemoglobin (which is
the key protein in red blood cells that carries oxygen) of both bovine (cow) and
human origin, as well as methods for its production and use.  We
believe that what makes HemoTech a novel potential blood substitute product is
the fact that it is comprised of hemoglobin that has been isolated from bovine
blood and then chemically modified to make the product non-toxic.  For
HemoTech production, hemoglobin is modified with Adenosine, ATP and Glutathione
(GSH).  The Adenosine has activities which appear to overcome the
toxicities which have prevented other hemoglobin based blood substitutes from
gaining U.S. Food and Drug Administration (“FDA”) approval.





Our goal
is to address an increasing demand for a safe and inexpensive human blood
substitute product in the United States and worldwide through our licensed
technology.  We believe that certain initial pre-clinical and early
stage human trials undertaken outside the U.S. by prior holders of this
technology suggest, although there can be no assurance that later stage trials
will confirm, that this novel red blood substitute:





·
            can
      act as a carrier of oxygen;


·
            produces
      no adverse toxicity of the kidneys, or the nervous
  system;


·
            produces
      no adverse inflammatory reactions;


·
            can
      dilate the blood vessels (which is called vasodilatory activity) and can
      reduce narrowing of blood vessels (or vasoconstriction) that follows
      hemorrhage;


·
            has
      erythropoietic activity (which is the production of red blood cells in the
      body);


·
            has
      lower oxygen affinity (which is how tightly oxygen binds to the
      hemoglobin) than other competing blood substitutes, approximating the
      oxygen affinity of native human red blood
cells;


·
            has
      the ability to remain in the blood vessels; and can sustain a
      close-to-normal amount of plasma in the
blood.





Dr. Mario
Feola and Dr. Jan Simoni, officers of the Company, TTUHSC researchers, and
recognized blood substitute authorities, developed HemoTech over 20 years of
research.  HemoTech has been tested in preclinical studies at ISI St.
Antimo in Naples, Italy, and in a European pre-clinical regulatory study
conducted at the Research Toxicology Centre S.p.A. in Rome, Italy, in 1990 to
1992 resulting in certain European approvals.  The initial human
clinical trial of HemoTech, in which patients received HemoTech making up 25% of
their blood volume, occurred at the Institute de la Recherche en Sciences de la
Sante, Centre de l”Anemie S.S. in Zaire, Africa in 1990.  The clinical
study showed no toxicity and the HemoTech stimulated the production of red blood
cell production in the patients.  Subsequent studies on HemoTech have
delineated steps in the mechanism of action of HemoTech which supports the
positive pre-clinical and initial clinical studies.





We have
obtained an exclusive worldwide license from Texas Tech University for the core
patents covering certain key markets, including primary markets in North
America, Europe and Asia.  We also have a strategic partnership with
TTUHSC that allows us to utilize research and production facilities at TTUHSC
and TTUHSC scientists, surgeons and medical staff.  Our relationship
with TTUHSC is governed by license and research agreements that, among other
things, grant us the exclusive worldwide intellectual property rights to the
HemoTech technology in exchange for equity ownership and payment of the fees
associated with our use of TTUHSC facilities, materials and
personnel.  We believe the structure of these license and research
agreements could be attractive to potential pharmaceutical company partners and
could be positive factors for the commercialization of HemoTech.





3





In
January 2007, the Company entered into a Stage IV Strategic Research Agreement
(“SRA”) with TTUHSC beginning January 1, 2007.  In connection
therewith, the Company made an initial payment of approximately
$780,000.  This amount will be charged to operations as incurred based
on monthly reporting to the Company by TTUHSC.  As of December 31,
2009, approximately $15,000 was included in prepaid expenses on the Company’s
balance sheet.  Additional payments may be made to TTUHSC under the
agreement based on mutually agreed upon budgets.  The SRA IV
activities include maintaining the animal facility which houses a controlled
herd of Hereford cows needed for the production of HemoTech and assistance in
the implementation of FDA recommendations.  The agreement will also
involve further research and development with a focus on additional uses of
HemoTech and expanded patent protection.





The FDA
has cited the Adenosine/ GSH modified hemoglobin strategy used in HemoTech as a
viable strategy for a needed new generation red blood cell
substitute.  The FDA indicted at a meeting on April 29, 2008 the
toxicity of previous first generation substitutes and the need for a new
generation substitute.  Our Adenosine/GSH modified hemoglobin
HemoTech, is protected by issued patents in 21 countries.





On May 5,
2008, the Company agreed to license certain technology from TTUHSC titled
Orthogonal Method for the Removal of Transmissible Spongiform Encephalopathy
Agents from Biological Fluids (“ORTH Technology”). This is a technology that
results in the removal and inactivation of infectious agents such as prions
(which can cause Mad Cow Disease) and viruses.  Such removal and
inactivation is critical in the purification of animal products for human
use.  It can be used not only for HemoTech production but also has the
potential for generating sublicensing revenue from pharmaceutical, biotechnology
and the cosmetic industries. The term of the agreement extends to the full end
of the term or terms for which patent rights have not expired or, if only
technology rights are licensed and no patent rights are applicable, for a term
of 15 years. The license agreement calls for a nonrefundable license
documentation fee of $10,000 and 500,000 shares of the Company’s common
stock.  The price per share of the Company’s common stock on May 5,
2008 was $1.29 per share.  Accordingly, the Company recorded a charge
to research and development expense for $655,000. The agreement also contains an
annual renewal fee of $10,000 per year and a royalty based on net sales of
Licensed Products (as defined by the agreement) sold by the Company that contain
the patented ORTH Technology.  The royalty percentage will be lower if
Licensed Products are not protected by a valid patent. The agreement calls for a
minimum royalty beginning six months after approval of a Licensed Product by the
FDA. No royalty applies to the embedded ORTH Technology in the sale of our
HemoTech product. The Company is permitted to sublicense the ORTH Technology and
TTUHSC will receive a portion of both cash and non cash remuneration received by
the Company for a sublicense.  Additionally, the Company will pay a
portion of any royalty received to TTUHSC.





The
Company has also agreed to issue up to 275,000 additional shares of the
Company’s common stock in the event TTUHSC purchases certain equipment used in
the HemoTech process. The equipment will be owned by TTUHSC, which will be used
to further the development of HemoTech, among other possible research uses and
will be charged to research and development expense when purchased. As of March
24, 2009, no such equipment has been purchased by TTUHSC.  The
agreement may be terminated by either party by mutual written agreement upon 180
days notice, or by TTUHSC based on certain provisions relating to defaults
according to the agreement.





On
October 26, 2009, the Company and the Texas Tech University System (TTUS)
entered into an agreement where the Company was required to raise a minimum of
$3 million prior to February 19, 2010 which did not occur.  If the
Company is unable to raise $3 million, unless such deadline is extended, of
which there can be no assurance, the Company agreed that its Board of Directors
“in cooperation with TTUS will replace the management team at HemoBioTech within
30 days and TTUS could decide on other causes of actions related to the license
agreements with TTUS.”  As of the date of this report, TTUS has not
taken any action to enforce its rights.  In addition, if we do not
fund a $1.5 million major primate study out of the $3 million capital raised, or
otherwise, the management team will be replaced under such terms described above
and TTUS may pursue all rights and remedies under the 2002 and 2008 license
agreements.


Also
pursuant to this letter agreement, the Company issued 600,000 shares valued at
$174,000 to TTUS for past scientist services and use of TTUS’s facilities for
development of HemoTech and the ORTH technologies.





On March
10, 2009, the Company reported results from the testing of its ORTH technology
for the clearance of prions and viruses from biological fluids.  Since
a component of HemoTech is bovine hemoglobin, it is necessary to have a high
clearance of prions and viruses.  This analysis was one of the
recommendations from the FDA.  The ORTH technology resulted in the
clearance of prions during the purification process of bovine hemoglobin that
was 10-10 which
is approximately 100,000 times better than required by the FDA.  This
ORTH technology could also be used for other products from bovine sources and
human plasma.  The Company is marketing the ORTH technology to
potential sub-licensing clients such as contract manufacturing companies and
pharmaceutical companies.





During
February 2009 the Company announced that R.E. “Corky” Dragoo, Jr. has joined its
Board of Directors.  Mr. Dragoo is Executive Assistant to the
Chancellor of Texas Tech University and is Director of Policy for Texas Tech
University.  Mr. Dragoo was formerly Ernst and Young National Director
for the energy industry and was a Senior Partner of Ernst and Young’s Center for
Business Innovation located in Cambridge, Massachusetts.





4





In
February 2009, the Company engaged an advisor who is a major HIV/AIDS advocate
to help the company in the development of HemoTech to address the global need
for safe blood substitute. About 10% of new HIV/AIDS cases result from HIV
contaminated blood. Also, in March 2009, the Company added a new member to its
Scientific Advisory Board. The new member is a former U.S. Assistant Surgeon
General with experience in national and global medical needs. Both advisors will
help the company in advocating congressional leaders in the need for a safe
blood substitute and exploring federal and private funding
opportunities.





A
presentation entitled “Developing Blood substitutes for the prevention of HIV
Transmission” was made by HemoBioTech representatives at the “5th International
AIDS Society Conference on HIV Prevention and Treatment”  held in Cape
Town,  South Africa during July 2009.





A
presentation entitled “Commercial Development Status of HemoTech, the
hemoglobin-ATP-adenosine-Glutathione based blood substitute”, was made by
HemoBioTech and Texas Tech university representatives at the XII International
Symposium on Blood Substitutes held in Parma, Italy during August
2009.





On August
10, 2009, Congressman Edolphus Towns (D- N.Y.) sent a letter to all members of
the House of Representatives that there is a need for a blood substitute to
prevent 10% of new global HIV-AIDS cases caused by HIV contaminated
blood.  He indicated that our Adenosine modified hemoglobin is a
promising new generation blood substitute to address this need.  He
recommended financial support from Congress and accelerated development of the
technology.  The Company’s representatives are working with members of
Congress to hold Congressional hearings on our blood substitute during the first
half of 2010 addressing the need for a safe blood substitute and funding of
HemoTech development.





We have a
limited operating history, no customer base and no revenues to
date.  Our goal is to build on initial clinical studies with further
animal studies, human clinical trials in the US, and in other FDA approved
studies, although there can be no assurance that later stage trials will confirm
these initial findings.  Our plan of operations for the next twelve
months is focused primarily on the development of our licensed technology and
business: production of our product, HemoTech, in association with TTUHSC, for
use in cell and animal studies and upon approval of an Investigational New Drug
(“IND”) application with the FDA, U.S. Phase I clinical trials; analysis of
HemoTech in cell and animal studies to be used in the IND application; progress
towards filing an IND;  working with TTUHSC on  upgrading
the production facility based on FDA recommendations;  furthering our
intellectual property position through the introduction of additional patents
including the management of the new pending patent for induction of red blood
cell production by HemoTech; preparation of Phase I U.S. clinical studies if the
IND is accepted; and continued interaction with members of the U.S. Congress
addressing funding opportunities for HemoTech development.





The
financial statements have been prepared assuming that the Company will continue
as a going concern which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company has incurred
cumulative losses of $18,032,000 from inception through December 31, 2009, has
not generated any revenue, and has been dependent on funding operations through
the private sale of convertible debt and equity securities. These conditions
indicate that there is substantial doubt upon the Company’s ability
to  continue as a going concern. Management’s plans include continuing
to fund  operations through one or more public or private offerings of
equity securities, although there is no assurance they will be able to do so in
the future, and monitoring and reducing discretionary expenses.





Background





The
development of HemoTech is based on the idea that free hemoglobin-based blood
substitutes can no longer be considered simply vehicles for transporting oxygen
and carbon dioxide. Rather, they should possess properties that diminish the
intrinsic toxic effects of hemoglobin and help eliminate the abnormal reactions
associated with the loss of blood pressure and the lowering of vital signs
resulting from the loss of blood during hemorrhage. We believe we have a
purification method necessary for the purity of our hemoglobin solutions. We
believe this purification method will allow us to produce HemoTech in a
cost-effective manner by avoiding many of the expensive and capital intensive
purification methods used by some of our competitors.





We
believe the potential market for red blood cell substitutes is large and
growing. The Theta Reports indicate that each year in the United States, over
four million patients receive transfusions of over 14 million units of red blood
cells in HemoBioTech, Inc.'s targeted markets of acute anemia, cancer and
ischemia (the inadequate flow of blood due to constriction or obstruction of
blood supply).





5





In
addition to peacetime need, emergencies typically add to the demand for blood
substitutes. For many years, the U.S. military has had an interest in an
effective blood substitute.





There are
several critical factors shaping the U.S. blood market. The market is facing
increasing demand while the available supply remains stagnant. Banked blood
continues to increase in cost and still entails risks related to infection and
immune response. A safe, cost effective blood substitute has numerous advantages
over the current blood supply:





·
            minimize
      the risk of infections by infectious agents such as hepatitis and HIV
      (which causes AIDS) and adverse reactions in
  patients;





·
            be
      compatible with all blood types, allowing earlier administration,
      increasing survivability for trauma patients and preventing supply
      shortages related to specific blood
types;





·
            possess
      a significantly longer shelf life (six months or greater) than that of
      donated red blood cells (42 days), allowing a wider range of
      administration and increased stockpiling;
and





·
            derived
      from a potentially large supply, countering the critical shortage of
      banked human blood worldwide.





HemoBioTech,
Inc.'s scientific team has delineated molecular mechanisms to explain both
HemoTech's non-toxicity and pharmacological activities. This team first
identified the factors that lead to toxicity. They then developed both an
isolation method that ensures the purity of Hb solutions and a chemical
modification method that results in the lack of intrinsic toxicity. This
research led to the development of HemoTech, which, in addition to its
physiological properties of Hb, has additional pharmacological activities that
effectively eliminate blood vessel constriction, improve the release of oxygen
into the body and produce an anti-oxidant and anti-inflammatory effect and
induces erythropoiesis production (production of red blood cells).





HemoTech
Description





Our
product, HemoTech, is an oxygen-carrying solution that performs like red blood
cells. It can address an increasing yet unmet demand for safe and inexpensive
blood in the US and around the world. It also can address many of the medical,
logistical and economical concerns associated with red blood cell
transfusion.





HemoTech
is created by reacting pure bovine hemoglobin with three chemicals: o-adenosine
5'-triphosphate ("o-ATP"), o-adenosine and reduced glutathione ("GSH"). These
chemicals permit chemical modification of the hemoglobin to create the observed
beneficial activities of HemoTech and introduce necessary changes to the
hemoglobin that control oxygen affinity and other biological
activities.





The use
of o-adenosine has a number of biological benefits. First, it counteracts the
properties of hemoglobin that cause narrowing of the blood vessels.
Additionally, the o-adenosine reduces the potential of hemoglobin to cause
inflammation in the body. HemoTech also relaxes hemorrhage-induced narrowing of
the blood vessels. GSH permits the alteration of the surface charge of HemoTech,
which is also an essential feature of our novel hemoglobin modification
procedure. GSH also lowers oxygen affinity to a level that is near that of
native red blood cells.





Bovine
blood isolated and utilized for the commercial production of HemoTech will be
taken only from healthy cows from a controlled herd with records over several
generations and a controlled diet to protect against "BSE" (bovine spongiform
encephalopathy, also known as mad cow disease). Immunological test for special
proteins called prions which cause BSE can be utilized to test brain and spinal
cord material.





We
believe that blood substitutes currently undergoing FDA trials have limited
potential for success in the broad human blood use market because they generate
various levels of hemoglobin-based toxicity. A number of blood substitute
candidates were developed before the intrinsic toxicity of hemoglobin was
identified, and few companies have modified their approach to creating blood
substitutes based on recent findings related to hemoglobin toxicity because of
significant investments already made to advance lead compounds through FDA
trials. Based on initial studies, we believe that HemoTech's primary benefits
include:





·
            non-toxicity:





6





·
            an
      oxygen affinity that closely mimics that of human red blood cells and does
      not cause an adverse affect that results from excessive interaction with
      oxygen;





·
            the
      stimulation of the production of red blood cells in the body, which allows
      the body to replace its native blood supply in half the time it would
      otherwise take following a
transfusion;





·
            a
      half life of approximately 24 hours, which is desirable given the body's
      ability to produce red blood cells, which allows the body to replace it
      with its own supply;





·
            high
      purification, which may eliminate the risk of infection and adverse immune
      reactions in patients;





·
            the
      ability to be stored at 4oC (39oF) for six months or more and for an
      extended period when frozen (compared to 42 days for banked blood at 4oC),
      and the ability to be stockpiled
easily;





·
            compatibility
      with all blood types and availability for administration within
      minutes;





·
            the
      ability to be produced from a ready and vast supply of cow blood;
      and





·
            the
      potential to be produced at a price competitive with current banked blood
      and other blood substitute
products.





Clinical
Status - HemoTech





HemoTech
underwent foreign pre-clinical and human clinical testing in the late 1980's and
early 1990's. Pre-clinical testing included research performed by TTUHSC at its
laboratories in Lubbock, Texas in the mid to late 1980's, at ISI St. Antimo
Laboratories in Naples, Italy from 1989 through 1991, and a European IND study
conducted from 1990 through 1992 at the Research Toxicology Center S.p.A. (the
"RTC") in Rome, Italy. This research was based on the following:





·
            in
      vivo animal studies; and





·
            in
      vitro testing using various human cell
lines.





These
tests focused on:





·
            toxicity;





·
            the
      way in which the product affects blood
vessels;





·
            immunological
      and inflammatory activity, as well as the way in which HemoTech interacts
      with oxygen (which is called oxidative
  activity);





·
            stability;
      and





·
            therapeutic
      potential.





We
believe the results of these pre-clinical tests support HemoTech's non-toxicity
and biological activity, although there can be no assurance that future later
stage trials will confirm these findings. These pre-clinical tests generated
more than 80 abstracts and papers, and an official European IND report has been
issued supporting the pre-clinical non-toxicity results in cell and animal
studies.





7





The human
non-FDA clinical trial was performed at the Institut de la Recherche en Sciences
de la Sante, Centre de l'Anemie S. S. (Kinshasa, Zaire) in 1990. In that
study, nine children suffering from sickle cell anemia received HemoTech in
significant volumes (approximately 25% of total blood volume) over a two-hour
period. These patients experienced significant near-term improvements as their
general condition improved, episodes in which sickle cells block the blood
vessels were reduced, pain was quickly relieved, and blood vessel dilatation and
better tissue oxygenation were indicated. The patients were monitored over a
three-month period. These studies showed no toxicity and an induction of red
blood cell production. These studies were published in the medical journal,
Surgical Gynecology & Obstetrics, volume 174, number 5, pages 379-386
(1992). In addition to the clinical improvements in the patients, these initial
studies indicate that HemoTech:





·
            produces
      no adverse kidney, nervous system, oxidative or inflammatory reactions in
      humans;





·
            can
      reduce the narrowing of blood vessels that follows
    hemorrhage;





·
            has
      low oxygen affinity and can work as a physiological oxygen
      carrier;





·
            induces
      red blood cells production in the
body;





·
            has
      prolonged intravascular persistence;
and





·
            can
      sustain a close-to-normal level of plasma in the
  blood.





The
results of the HemoTech clinical studies have not demonstrated any negative side
effects. Since the results of the HemoTech clinical studies showed that the
product promotes vasodilation, rather than narrowing of the blood vessels, and
that the product increases red blood cell production, the product has indicated,
in such clinical studies, that it is non-toxic. However, the corporation that
sponsored the European IND faced financial difficulties that were independent of
the HemoTech program and, therefore, was unable to continue to sponsor the
program. Accordingly, the HemoTech technology was returned to TTUHSC in 1995.
TTUHSC subsequently constructed a production facility for HemoTech and attempted
to raise money to support the research, development, testing and
commercialization of HemoTech, but these activities were outside the scope of
TTUHSC's expertise, so the university then sought to license the HemoTech
technology. In 2002, we entered into our license agreement with
TTUHSC.





We
believe the results of the HemoTech clinical trials are significant because they
represent a rare example of a non-toxic administration of a blood substitute
product. Furthermore, this trial demonstrated in humans the pharmacological
activity of HemoTech. There can be no assurance, however, that future later
stage trials will support or confirm these findings.





The
HemoBioTech team, under the direction of Dr. Simoni, is currently working on
advanced research in the fields of toxicity and efficacy which will be funded by
us, and expects to develop innovative modifications of the existing patented
technology resulting in new clinical applications for HemoTech in the following
areas:





·
            trauma
      and blood disorders;





·
            cardiopulmonary
      bypass surgery including
angioplasty;





·
            organ
      and tissue transplantation; and





·
            oncology
      (the treatment of cancer).





One of
the chief objectives of the team is to further evaluate the pharmacological
effects of HemoTech. The proposed research is aimed at further understanding the
vasodilatory and anti-inflammatory action of HemoTech at the molecular level.
The team also is developing improved laboratory methods for the evaluation of
clinical samples during HemoTech's human trials, which will be licensed by
us.





ORTH
Technology





Orthogonal
Purification Technology makes use of a combination of techniques that include a
series of steps to deactivate and clear transmissible spongiform
encephalopathies (“TSE”) agents and viruses from animal fluids. This technology
has first been applied to the production of bovine hemoglobin. Such a method
does not affect the hemoglobin chemical structure and biochemical/physiological
functions and preserves its value as a starting material in free
hemoglobin-based blood substitute production. This combinational technique could
apply towards purification of TSE agents from animal fluids for the production
of hemoglobin and various plasma protein fractions of bovine and human origin.
The novelty of this technology is to achieve more efficient elimination and
inactivation of TSE based agents and viruses from hemoglobin solutions or
various plasma protein fractions. This technology has been tested by a
nationally recognized independent laboratory and has shown higher elimination
rates than other technologies.





8





The
pharmaceutical industry methods for TSE agent removal are based mainly on
affinity and ion exchange chromatography and size-exclusion filtration. The
existing industry methods are expensive and time consuming and use chemical
treatment which is not applicable to unstable proteins like hemoglobin. The heme
protein can easily dissociate into unstable dimers and oxidize thereby losing
its ability to transport oxygen. Other industrial filtration methods are capable
of reducing prion proteins less efficiently, but do not inactivate infectious
agents.





The ORTH
Technology allows robust and reliable elimination of infectious agents, such as
prions and viruses from the final product, using independent clearance steps,
inactivation and removal. This is a critical purification process in enhancing
the safety that is needed for approval to sell such products. HemoBioTech
believes that the orthogonal approach may purify significantly more than the
current governmental standard.





The ORTH
Technology prevents the spread of transmissible spongiform encephalopathies
(“TSE”), also know as prions or mad cow disease, as well as viruses. The Food
and Drug Administration (“FDA”) strictly regulates medicinal products and
cosmetics that contain ingredients from animals. The technology is being used in
the manufacturing of HemoBioTech’s lead product, HemoTech, potentially the first
viable substitute for human blood. HemoTech is composed of chemically modified
bovine hemoglobin.





The ORTH
Technology could allow robust and reliable elimination of infectious agents,
such as prions and viruses from the final product, using independent clearance
steps, inactivation and removal. This is a critical purification process in
enhancing the safety that is needed for approval to sell such products. The
market for pharmaceutical and cosmetic products for human use derived from
animals (including human sources) is in excess of $7 billion. The ORTH
Technology provides a significant improvement in the methods currently available
to clear TSE/BSE.





Research
and Development Activities





During
the years ended December 31, 2009 and 2008, the Company's financial statements
reflect, $568,000 and $1,366,000 respectively, charged to expense for research
and development activities.  These expenses include the acquisition of
a new technology, ORTH, that removes and inactivates infectious agents (which
can cause Mad Cow disease) and viruses valued at $655,000 (See also Note D of
the Company’s Notes to Financial Statements). Spending related to the Stage IV
Sponsored Research Agreement with Texas Tech Health Sciences Center was higher
in 2009 compared to the same period a year ago due to increasedspending related to
laboratory upgrades and costs associated with outside laboratory
testing.  The Company issued 600,000 shares valued at $300,000 to
TTUHSC in December 2009 under their agreement.





On
January 22, 2002, the Company entered into an exclusive license agreement with
TTUHSC with respect to receiving certain patented rights.  The Company
is committed to the exploitation of such patented rights. In consideration for
entering into the agreement, the Company issued 678,820 shares of common stock
to TTUHSC (subject to anti-dilution protection).  In addition, the
Company has agreed to fund, over a four-year period, $1.2 million to support
efforts in incubating and commercializing other TTUHSC
technologies.  The funding of the $1.2 million is subject to the
Company obtaining FDA approval of a blood substitute product. Under the
agreement, the Company reserves the right of first refusal on licensing and
commercializing other technology developed from such funding. The shares issued
were valued at approximately $1,000, their estimated fair value, and charged to
operations.  As of December 31, 2009, such approval had not been
obtained.  In addition, the Company reimburses TTUHSC for all
intellectual property protection costs and patent maintenance fees related to
HemoTech.  On May 20, 2004, TTUHSC agreed to waive its anti-dilution
protection in exchange for 135,765 additional shares of common
stock.  Such shares were valued at approximately $115,000, their
estimated fair value, and charged to operations.





In
addition, in July 2002, the Company entered into a Sponsored Research Agreement
(“SRA”) with TTUHSC for the period September 1, 2002 through August 31, 2006,
subject to a two-year extension to be mutually agreed on by the parties in the
second year of the agreement and prior to December 31, 2006. Our Stage III SRA
was for the period January 1, 2006 through December 31, 2006.  Through
the SRA, the Company funds, on a yearly basis, costs associated with the further
research of HemoTech conducted at TTUHSC. In December 2004 and January 2006, the
Company paid approximately, $231,000 and $287,000 respectively, to fund the
ongoing phases of research under the SRA.





9





In
January 2007, the Company entered into a Stage IV SRA with TTUHSC for the period
beginning January 1, 2007. In connection therewith, the Company made an initial
payment of approximately $780,000.  This amount will be charged to
operations as incurred based on monthly reporting to the Company by TTUHSC.
Additional payments may be made to TTUHSC under the agreement based on mutually
agreed upon budgets. The SRA IV activities include maintaining the animal
facility which houses a controlled herd of Hereford cows needed for the
production of HemoTech and assistance in the implementation of FDA
recommendations received at a Pre-IND meeting with the FDA in April
2006.  The SRA IV activities also include the manufacture of HemoTech.
The product will be made at the production facility at TTUHSC and will be used
for pre-clinical and clinical studies upon acceptance of the IND.  The
agreement will also involve further research and development with a focus on
additional uses of HemoTech and expanded patent protection.





At
December 31, 2009, approximately $15,000 remained as available funds at TTUHSC
and are included in the Company’s prepaid assets.





Intellectual
Property





HemoTech





We have
licensed from TTUHSC exclusive worldwide rights to HemoTech under a U.S. patent
issued in August 1995. The patent, U.S. Patent No. 5,439,882, entitled "Blood
Substitute," and its foreign counterparts, claim various alternative
compositions of the novel blood substitute based on hemoglobin of both bovine
and human origin as well as methods for its production and use. Protection under
this U.S. patent expires on August 8, 2012.





Under the
terms of the license agreement, in 2002 we issued to TTUHSC in lieu of any
royalties, licensing fees, sublicensing fees and any other payments (other than
certain patent maintenance costs), 678,820 shares (approximately 5% of our
then-authorized common stock) to TTUHSC. These shares initially were subject to
anti-dilution protection until such time as we expend at least $15,000,000 on
the research, development, testing and commercialization of HemoTech. In
connection with the issuance of units in our October 2004 Private Placement, in
lieu of receiving the entire number of shares of common stock to which it would
have been entitled as a result of our issuance of units, under the terms of a
letter agreement with us, dated May 20, 2004, TTUHSC agreed to accept an
additional 135,765 shares of our common stock and an aggregate payment of
$60,000 (including payment of patent maintenance costs and expenses paid by
TTUHSC) in exchange for removing the anti-dilution provision. We have not made
any other payments to TTUHSC under the license agreement and we are not required
to make any payments under the license agreement except as follows:





·
            to
      reimburse TTUHSC for certain patent maintenance costs of the HemoTech
      patent and any other patent that becomes covered by the license agreement,
      within 30 days of receiving notice from TTUHSC that such amounts are
      due;





·
            to
      pay prosecution costs and costs of foreign counterpart applications on all
      future "designated inventions," which includes patentable inventions
      created by TTUHSC's employees under the Sponsored Research Agreement;
      and





·
            costs
      to maintain our patent position in 21 foreign
  countries.





In May
2006 TTUHSC filed a new patent application to cover the induction of
erythropoiesis (which is the increase of red blood cell production), which is a
major activity of HemoTech. We have exercised our option to include this
technology in our license agreement with TTUHSC.  There can be no
assurance that TTUHSC will be granted a new patent prior to expiration in August
2012 or at all. If issued, this new patent, exclusively owned by TTUHSC, could
give us additional protection for the commercial use of HemoTech. Under the
terms of our license agreement with TTUHSC, title to inventions made solely by
inventive contributions of employees of TTUHSC shall be owned by TTUHSC; title
to inventions made solely by inventive contributions of employees of
HemoBioTech, shall be owned by HemoBioTech; and title to inventions made by
joint inventive contributions of employees of both TTUHSC and HemoBioTech shall
be jointly owned by TTUHSC and HemoBioTech. In addition to the proposed
erythropoiesis patent, the Company, working with TTUHSC, are developing a broad
patent strategy that focuses on improvements in production and purification
methods used in the manufacturing of HemoTech, use of HemoTech and other
potential future product formulations for specific medical indications,
formulaic modifications of HemoTech's platform technology and use of the
platform technology for other targets.





In
addition to our U.S. rights, we enjoy patent protection in several European and
Asian nations as well as Australia and Canada. In all, our licensed foreign
patents have been issued by or designated (in the case of patents issued by the
European Patent Office) in 21 foreign nations. Furthermore, continued testing of
HemoTech may, although there can be no assurance, result in refinements that are
patentable, thereby extending patent protection for forthcoming HemoTech
derivatives.





10





ORTH
Technology





We have
obtained an exclusive, worldwide license from Texas Tech University for
commercialization of the ORTH technology. Our strategic partnership with TTUHSC
allows us to utilize the research facilities at TTUHSC and TTUHSC scientists and
research staff. Our relationship with TTUHSC is governed by license agreements
that, among other things, grant us the exclusive worldwide intellectual property
rights to the ORTH technology in exchange for equity ownership and payment of
the fees associated with our use of TTUHSC facilities and
personnel.





We
believe the structure of these license agreements will assist us in obtaining
sublicensing contracts with potential pharmaceutical, biotechnology and cosmetic
companies and could be positive factors for the commercialization of the ORTH
technology.  In connection with our licensing agreement, a patent was
filed for the ORTH technology in December 2007 covering the ORTH technology. If
issued, this new patent, exclusively owned by TTUHSC could give us protection
for the commercial use of the ORTH technology.





Supply
and Demand





According
to a 2008 World Health Organization (WHO) report, the shortage of safe blood is
compounded by the shortage of donors in developing countries where blood is
needed the most. Of the estimated 81 million units of blood donated every year
around the world, only 39% comes from developing countries, contributing to a
global blood shortfall of around 40 million units a year. Despite efforts to
rectify this imbalance, the average number of blood donations has not improved
significantly in developing countries — it remains around 12 times higher in
industrialized countries than in developed countries.





Experts
predict hospitals will see a 4 million unit-a-year blood shortage by 2030.
Without an ample supply, doctors face tragedy in the operating room and soldiers
face death on the battlefield. According to the New York Blood Center, 600,000
pints of blood are used each year in the metropolitan area for one million
transfusions. Every day, 1,500 pints of blood must be collected to keep pace
with demand. During a blood shortage, deliveries of blood are cut back to local
hospitals; a hospital may ask for 100 pints of blood and only receive 75
pints.





Increasing
Cost





According
to Tissue Link Medical, Technical Brief No. 305, the actual cost of a red blood
cell transfusion has increased dramatically in recent years and currently ranges
between $500-1,000 per unit of blood. The major factors contributing to this
increase include additional costs related to testing, screening, processing,
type matching and overhead. In light of recent stricter guidelines to ensure the
safety of blood, such as more stringent screening for transmittable diseases and
standard leukoreduction (eliminating the white blood cells that can carry
infections), the cost of blood is expected to continue to rise.





Blood
Supply Safety





Sensitive
screening tests in the United States have greatly reduced the risk of infectious
disease transmission in the domestic population, but unacceptable risks still
remain. According to the American Red Cross, the risk of infection from, or
adverse reaction to, a single blood transfusion is:





·
            1:1,000
      – 3,000 for bacterial infections





·
            1:205,000
      for Hepatitis B





·
            1:935,000
      for Hepatitis C





·
            1:2,135,000
      for HIV





These
probabilities compound quickly, however, for major procedures, such as organ
transplants and trauma, which require fifty units of blood on average. Even in
minor surgeries, which require six to eight units of blood, the probabilities of
contracting infections or experiencing adverse reactions are not
insignificant.





11





We
believe that our product's initial foreign clinical testing produced data that
supported HemoTech's biological activity and non-toxicity in humans.
Additionally, the product demonstrated anti-inflammatory and vasodilatory
activity, as well as erythropoietic activity. No negative side effects have been
seen to date, prompting more than 80 abstracts and papers, and an official
European Investigational New Drug Application supporting the preclinical
non-toxicity results in cell and animal studies. Subsequent to HemoTech's
clinical studies, HemoBioTech's researchers delineated the molecular mechanisms
of HemoTech. These data confirm the properties of HemoTech observed during
clinical studies and constitute positive support for potential future FDA
regulatory filings by HemoBioTech as well as valuable information for future
product research and development.





Production
and Material Supply





The
Company's proprietary production method consists of reacting pure bovine
hemoglobin with three chemicals—o-adenosine 5'-triphosphate (o-ATP),
o-adenosine, and reduced glutathione (GSH)—chemically modifying the hemoglobin
to create beneficial activities and effect changes that control oxygen affinity
and other biological activities. A benefit of o-adenosine is that it counteracts
the hemoglobin properties that cause the narrowing of blood vessels. It also
reduces the potential of hemoglobin to cause inflammation.





The
preference for bovine hemoglobin as an erythrocyte substitute, first proposed by
the TTUHSC researchers, was based on indications that bovine hemoglobin was more
effective than isolated human hemoglobin at transporting oxygen; that bovine
erythrocytes were widely available; and that human and bovine diseases
transmissible by blood could be avoided by collecting erythrocytes exclusively
from select healthy cattle. Bovine blood isolated and utilized for production of
HemoTech is taken only from healthy cows, from a controlled herd.





HemoBioTech
has the exclusive worldwide license from TTUHSC covering all intellectual
property associated with HemoTech. The Company further has access to TTUHSC
staff and equipment necessary to produce, test, and certify HemoTech, with
access to University laboratory facilities and a blood substitute production
facility TTUHSC has constructed on its campus specifically for the production of
HemoTech. HemoBioTech has the right to assist in recruiting personnel, including
student interns, and obtaining state and federal grants for its research,
development, and manufacturing programs.





Business
Strategies





We
believe the most likely path to commercialization of HemoTech, if ever developed
and approved for sale, will involve a partnership with a major pharmaceutical
company. Because commercialization of a major pharmaceutical product requires a
significant amount of capital, HemoBioTech will seek to identify and enter into
partnership agreements with one or more pharmaceutical companies to partner in
the late stages of clinical trials.





HemoBioTech's
ability to research, develop, and successfully commercialize HemoTech is
dependent upon its collaborative relationships with TTUHSC as well as outside
consultants. Our outside consultants will collaborate on key projects and are
assisting HemoBioTech in their creation and submission of the U.S. IND
(Investigational New Drug) application, clinical trials and conducting
additional research activities.





In order
to achieve its goal, HemoBioTech has determined that it must meet the following
objectives:





·
            Upgrade
      its Current Production Facilities. To produce HemoTech for Phase I U. S.
      clinical trials, HemoBioTech must complete upgrades to its current
      production facilities at TTUHSC. The initial phase of this plan was
      completed at the end of the second quarter of 2005. The second phase was
      completed during 2006. Financing the initial phase was included in
      HemoBioTech's Stage II Sponsored Research Agreement payment to TTUHSC in
      December 2004 and the additional upgrade is part of the Stage III sponsor
      agreement signed in 2006, as well as additional expenditures if necessary.
      Our Stage IV SRA includes upgrades to our production facilities based on
      FDA recommendations.





Preparation
and Submission of U.S. IND Application. Under the terms of their Stage II
sponsored research agreement, TTUHSC provided HemoBioTech support services for
preparation of its U.S. IND application. This included conversion of data from
European IND application into electronic format, summarization and analysis of
its pre-clinical CMC ("Chemistry Manufacturing and Controls") data and analysis
of its proposed Phase I U.S. clinical trial testing procedures and implementing
FDA recommendations. The Company expects to complete preparation of its U.S. IND
application and is targeting to submit it to the FDA in the first half of 2011.
The estimated cost of submitting the application as well as the production of
HemoTech is approximately $7,000,000 or greater.





12





·
            Phase
      I of our U.S. Clinical Trials. A Phase I U.S. clinical trial for HemoTech
      will commence subsequent to the acceptance of the IND
      application.  We estimate that our Phase I clinical trials
      (including costs of doing additional research and development of HemoTech
      during our Phase I U.S. clinical trials and the operational and overhead
      costs that we will incur during our Phase I U.S. clinical trials) could
      cost approximately $10.0 million, although the final cost could be more or
      less than this estimate.





During
June 2007 we engaged a U.S. based Clinical Research Organization to assist the
Company in submitting technical information to the Drug Controller General of
India (DCGI) for the purpose of obtaining regulatory authority to conduct
clinical trials in India. A goal is to establish clinical trials in India and if
successful commercialize HemoTech in India.





Competition





If
approved for commercial manufacture and marketing, we believe HemoTech will have
a unique competitive advantage over other products under testing or under
development since we believe HemoTech is the only product that addresses all
aspects of the intrinsic toxicity (vasoconstriction, oxidative stress and
inflammatory reactions) of hemoglobin. We believe the lack of toxicity in
HemoTech, based on studies to date, is due to the chemical modification of the
hemoglobin in our product. Furthermore, we believe our bovine-derived red blood
cell product provides HemoTech with an additional competitive edge over products
developed from outdated human red blood cells or from perfluorochemicals (which
are synthetic chemical blood substitutes), because bovine blood is safer, more
readily available, more convenient and more cost effective.





Our key
competitors include:





·
            Northfield
      Laboratories has been developing PolyHeme®, which is based on hemoglobin
      from what we believe to be outdated human blood. Although Northfield
      completed its Phase III U.S. clinical trials, in 2002 Northfield's product
      did not receive approval by the FDA for use in elective surgery due to
      results concerning safety and efficacy. Northfield has completed the
      PolyHeme(R) Phase III U.S. clinical trial for use in ambulatory trauma
      cases.  Northfield’s application for approval based on the
      ambulatory trauma trial was turned down by the
  FDA.





·
            Biopure
      Corporation has been developing Hemopure®, a bovine hemoglobin-based blood
      substitute. Although Biopure completed its Phase III U. S. clinical
      trials, Biopure's product failed to receive a biologic license application
      clearance from the FDA in 2003. The FDA has asked Biopure to perform
      additional safety testing on its
product.





·
            Sangart,
      Inc. has created a hemoglobin-based blood substitute, Hemospan. The
      product is in clinical testing for toxicity and effectiveness in
      Europe.





·
            Synthetic
      Blood International, Inc. is a development stage company, developing
      biotechnology products. It specializes in creating pharmaceuticals and
      medical devices in the fields of liquid ventilation, oxygen therapeutics,
      implanted glucose sensing, and blood substitutes using flurocarbon-based
      technology. Prior flurocarbon-based technologies have suffered from
      toxicity.





Government
Regulation





HemoBioTech,
Inc.'s product, manufacturing activities, and proposed clinical trial of that
product are subject to regulation by the United States Food and Drug
Administration ("FDA") and by other federal, state, local and foreign
authorities. Pursuant to the Food, Drug, and Cosmetic Act of 1938, as amended
("FD&C Act"), the Public Health Service Act ("PHS Act"), and the regulations
promulgated thereunder, the FDA regulates the development, clinical testing,
manufacture, packaging, labeling, storage, distribution and promotion of drugs
and biologics, including blood and blood substitutes.





The FDA
has expansive regulatory authority which may be enforced through product
recalls, seizures and other civil and criminal sanctions. The FDA is considering
changes to its approach to "follow-on biological" products (which are the
biological product equivalent to generic pharmaceutical products). Changes that
would facilitate the approval of such products could have an adverse impact on
the Company's long term strategy to the extent that its product is deemed to be
a biological product.





13





FDA
APPROVAL PROCESS—PRECLINICAL AND CLINICAL TRIALS. A new drug or biologic cannot
be distributed in the United States unless approved by the FDA; FDA approval of
new drugs and biologics comes at end of a lengthy process and only after the FDA
determines that the article at issue is safe and effective for its intended use
or uses. Whether FDA approves a product is a function of the agency's
discretion.





In order
to gather sufficient data to demonstrate the safety and efficacy of a new drug
or biologic, the manufacturer is usually required to sponsor clinical trials,
i.e., trials in humans, under the jurisdiction of the FDA. In order to conduct
or sponsor a clinical trial of a new drug or biologic, the manufacturer must
submit an Investigational New Drug ("IND") application. The IND application must
contain sufficient and specific animal test data, toxicological, pharmacological
and other data to assure FDA that the initial clinical trial will not endanger
the health of the patients or subjects involved. The Company has not submitted
an IND to clinically test HemoTech but is targeting submitting its IND during
the first half of 2011.  A Company may not begin clinically testing
until its IND has been approved by the FDA or 30 days have elapsed since the
filing and the FDA has not objected. However, as a practical matter, few
manufacturers will begin clinical testing if the FDA has expressed concern about
the proposed study.





During
June 2007 we engaged a U.S. based Clinical Research Organization to assist the
Company in submitting technical information to the Drug Controller General of
India (DCGI) for the purpose of obtaining regulatory authority to conduct
clinical trials in India.





The FDA
recognizes three clinical trial phases. A Phase I study is typically closely
monitored and may be conducted in patients or volunteer subjects. These studies
are designed, in part, to determine the metabolic and pharmacologic actions of
the drug or biologic, the side effects associated with increasing doses, to gain
early evidence, if possible, of its effectiveness, and gather sufficient
information to permit the design of well-controlled, scientifically valid Phase
II study. Usually, a Phase I study involves between 20 and 80 subjects or
patients, as the case may be.





Phase II
studies include controlled clinical studies to evaluate the effectiveness of the
drug or biologic for a particular indication in patients with a given condition
under study to determine the common short-term side effects and risks associated
with the drug or biologic. Phase II studies are well controlled, closely
monitored, and conducted on a relatively small cohort usually involving no more
than several hundred patients.





Phase III
studies are expanded, well controlled and closely monitored studies designed to
provide sufficient data so that FDA can determine the product's effectiveness
and safety and to provide adequate basis for physician labeling. Phase III
studies usually include from several hundred to several thousand
patients.





Research
and development activities are costly, time-consuming, and may not be
successful, and there can be no assurance that our product candidate, HemoTech,
even if it is approved to enter Phase I clinical trials, will be approved to
enter subsequent phases or will be approved for marketing by the FDA. Moreover,
even after completion of a Phase III study, FDA may decline to approve the New
Drug Application or Biologics License Application, as the case may
be.





FDA REGULATION. The FDA
closely regulates companies that sponsor clinical trials, that manufacture drugs
or biologics that are being clinically tested or that manufacture approved
products. The FDA may conduct an inspection of any Company facility and may take
regulatory action if it believes that Company has violated the FD&C Act or
PHS Act, including by way of example, issuing observational findings (FDA 483),
issuing a Warning Letter, seizing products, placing a "hold" on an IND, revoking
INDs, revoking approved NDAs or BLAs, or criminally prosecuting the Company or
its employees. During clinical testing phases, FDA may inspect to ensure, among
other things, that the health and welfare of the patients enrolled in clinical
studies are being appropriately protected, that all subjects have executed
informed consent forms approved by an Institutional Review Board, and that the
product is being manufactured in a way that ensures that it is not adulterated.
Post approval surveillance by the FDA is equally rigorous.





FDA GOOD MANUFACTURING PRACTICES AND
REPORTING. The FDA requires drug and biologics manufacturers to comply
with Good Manufacturing Practices (“GMP”) regulations. The regulations require
that manufacturers comply with various quality control requirements pertaining
to design controls, purchasing contracts, organization and personnel, including
manufacturing process design, buildings, environmental control, cleaning and
sanitation; equipment and calibration of equipment; drug or biologics components
or raw materials; manufacturing specifications and processes; labeling and
packaging; in-process and finished product inspection and acceptance; and record
keeping requirements. Generally, GMP status is necessary to manufacture products
for human use.





14





Employees





As of May
20, 2010, the Company has one full-time employee, its Chief Executive Officer,
and five employees through a contract with TTUHSC. In addition, Dr. Mario Feola,
the Company’s Chief Medical Officer, is working for the Company without
salary.  Outside consultants are employed as needed to provide various
services. We rely heavily on personnel employed by TTUHSC who provide services
to us under the Sponsored Research Agreement. In addition, we also employ
outside consultants from time to time to provide various services. We have
experienced good employee relations and are not and never have been a party to a
collective bargaining agreement.





ITEM
1A. RISK FACTORS





You
should consider the following matters when reviewing the information contained
in this document. You also should consider the other information incorporated by
reference in this document.





Risks
Related to Our Business




We
have a history of losses and our future profitability is uncertain.




Our
financial statements have been prepared assuming that the Company will continue
as a going concern which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business.  The Company has
incurred cumulative losses of approximately $18,032,000 from inception through
December 31, 2009, and has not generated any revenue, and has been dependent on
funding operations through the private sale of convertible debt and equity
securities.  These conditions indicate that there is substantial doubt
that the Company will be able to continue as a going concern.  The
auditors have issued a “Going Concern” opinion for our 2009 financial statements
contained in this report.




We expect
to continue to incur substantial losses and we do not except to generate
significant revenue, if any, in the foreseeable future.  Our ability
to generate revenue is dependent on obtaining additional financing, including,
but not limited to, our current financing, for our future
operations.  We need to raise at least $3 to $4 million in order to
complete our planned operations which include implementing certain FDA
recommendations.  Our immediate planned operations for the next twelve
months include the payment of our general and administrative expenses (including
salaries, legal and other professional fees, consulting and advisory fees), the
costs associated with making certain upgrades to the HemoTech production
facility, to begin the production of HemoTech, conduct animal studies, including
preparation of our U.S. IND application.  At December 31, 2009, we had
only $55,000 in unrestricted cash and cash equivalents.  The Company
significantly reduced its actual and projected expenses and plans to
aggressively manage costs which can be reduced at management’s discretion based
on the Company’s available cash.




We
are a development stage company with no revenues or profits.




We are in
the development stage and, through December 31, 2009, have generated no sales
revenue and have no prospects for revenue in the foreseeable
future.  We currently have no source of operating revenue and there
can be no assurance that we will be able to develop any revenue source or that
our operations will become profitable, even if we are able to commercialize any
products.  Further, as a development stage company, we have a limited
relevant operating history on which an evaluation of our prospects can be
made.  Such prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in establishing a new business
in the evolving, heavily regulated biotechnology industry, which is
characterized by an increasing number of market entrants, intense competition
and a high failure rate.  In addition, significant challenges are
often encountered by businesses shifting from developmental to commercial
activities.




The next
stage of our planned operations includes completion of and submission of our
U.S. IND application to the FDA, commencement and completion of our Phase I,
U.S. clinical trials if and when our application is
approved.  Additional operations will include further research and
development of HemoTech and payment of operational and overhead expenses that we
will incur during our Phase I U.S. clinical trials, as well as preparation for
Phase II clinical trials, assuming Phase I clinical trials are
successful.  In order to complete these additional planned operations,
we will need to raise additional capital.  If we fail to generate
enough cash resources, either from future equity or operating debt sales,
exercise of our outstanding warrants or from operating revenue, our ability to
implement our business plan and complete these planned operations will be
materially affected, and you may lose all or substantially all of your
investment.





15





We
are reliant on the success of our two products which are in an early stage of
product development and may not be successfully developed or, if successfully
developed, may never become viable marketable products.




Our
products are in early stage development and if we fail to successfully develop
these products, we have no other products on which our business can be
developed.  There can be no assurance that our research and
development activities will result in any commercially viable
products.  The development of our products will be subject to the
risks of failure inherent in the development of products based on innovative
technologies and the expense and difficulty of obtaining regulatory
approvals.  One of our products is a human blood substitute which is
currently under development and will require significant additional research and
development and pre-clinical testing and clinical testing prior to submission of
any regulatory application for commercial use.The development of our
ORTH Technology will require, among other things, a comprehensive marketing
strategy.  There can be no assurance that our product development
efforts will be successfully completed, that our products currently under
development will be successfully transformed into marketable products, that
required regulatory approvals can be obtained, that the products can be
manufactured at acceptable cost in accordance with regulatory requirements or
that any of the approved products can be successfully marketed or achieve
customer acceptance.




We
depend on key personnel, and the loss of such personnel could significantly
impair our ability to further develop HemoTech, implement our business plan or
continue operations.




Our
success depends on the continued contributions of our executive officers and
scientific and technical personnel and consultants.  We are
particularly dependent on Arthur P. Bollon, Ph.D., our President and Chief
Executive Officer, Dr. Mario Feola, our Chief Medical Officer, and Dr. Jan
Simoni, our Acting Vice President and Principal Investigator of Research and
Development and Advisor. Drs. Feola and Simoni are the two principal TTUHSC
researchers who developed HemoTech. Drs. Feola and Simoni continue to be the two
main developers of HemoTech. Dr. Simoni is an employee of TTUHSC and his
services have been made available to us under our Sponsored Research Agreement
with TTUHSC.  Dr. Simoni’s activities related to research and
development, production, regulatory and clinical testing of HemoTech are covered
under the Sponsored Research Agreement with TTUHSC, which may be terminated at
any time by either party on 90 days’ prior written notice and is currently
subject to ongoing negotiations.




We
currently have one full-time employee, our Chief Executive Officer, Dr.
Bollon.  Although we have entered into employment agreements with both
Dr. Bollon and Dr. Feola, the loss of services of either of these key employees
could adversely affect our business.  We do not maintain “key person”
life insurance on the lives of any executive officer and their death or
incapacity would have a material adverse effect on us.  The
competition for qualified personnel is intense, and the loss of services of
certain key personnel would be expected to adversely affect our
business.  See “Management.”




Some
provisions of our CEO’s employment agreement contains obligations of the Company
to make salary payments.




Certain
provisions contained in the employment agreement with Dr. Bollon, our Chairman,
President and Chief Executive Officer, obligates us to make certain salary
payments including if his employment is terminated without just cause or due to
a disability.  If Dr. Bollon’s employment is terminated without just
cause or as a result of Dr. Bollon’s disability (which means Dr. Bollon’s
inability to perform his duties under the agreement for three consecutive months
due to injury, illness or disability (mental or physical), as determined by an
independent physician selected by Dr. Bollon with our approval), we will be
required to pay Dr. Bollon a severance payment equal to his base salary
then in effect, payable in monthly installments until the expiration of the
remainder of the term of his employment agreement or the expiration of 23
months, whichever is less. Dr. Bollon will be entitled to receive severance
payments totaling not less than six months’ of his base salary.  Dr.
Bollon has agreed to reduce his base salary in an effort to reduce cash
expenditures of the Company.  The foregoing factors, together with the
effective control of our outstanding Common Stock by our officers, directors and
principal stockholders, may serve as an incentive for our officers and directors
to discourage certain takeover transactions, possibly resulting in the
entrenchment of management and consequently reducing the value of our Common
Stock.




If
our product offerings are not commercially successful, we will be unable to
successfully generate revenue.




We expect
a significant portion of our revenues will come from the production and
distribution of our products. The success of these offerings depends primarily
on their acceptance by the public, the medical community, and other third-party
consumers and payers, which is difficult to predict. The commercial success of
our products depends on the availability of alternative forms of technology and
general economic conditions and other tangible and intangible factors, all of
which can change quickly. If we fail to produce these products with broad
industry appeal, we will be unable to successfully generate
revenue.





16





The
market for our products is competitive and we may not be able to compete
successfully against competitors that may be having substantially more
development, marketing and sales resources than we do.




The
market for our products is competitive and there can be no assurance that we
will be able to compete successfully in these markets. We cannot be assured that
some other competitive technologies have not been, or will not be, developed by
either government, academic or private entities. Any competing technologies
could make our technologies either obsolete or of lesser value. Many of our
competitors have greater financial and other resources than we have, which may
limit our ability to compete effectively.




Although
the proposed products of our main competitors in the human blood substitute
market have either been rejected by the FDA, have been abandoned or are not yet
ready to submit their applications to the FDA for approval of their products,
many of these competitors are continuing to develop and test their respective
products. There can be no assurance that one or all of these products will not
be approved by the FDA before our blood substitute product, HemoTech, ever
receives FDA approval.




In-addition,
our competitors also may generally be able to respond more quickly to new or
emerging technologies or changes in the regulatory requirements. These
competitors may also:




•
              benefit
      from greater economies of scale;
 •
              offer
      more aggressive pricing;
 •
              devote
      greater resources to the promotion of their products;
  and
 •
              be
      better positioned to develop future
  technologies.





Our
failure to complete the current financing may result in a change of our
management and defaults under our license agreements with TTUHSC




Pursuant
to a letter agreement dated October 26, 2009, by and between the Company and
TTUHSC, the Company is required to raise a minimum of $3 million prior to
February 19, 2010 which did not occur.  If the Company is unable to
raise $3 million, unless such deadline is extended, of which there can be no
assurance, the Company agreed that its Board of Directors “in cooperation with
TTUHSC will replace the management team at HemoBioTech within 30 days and TTUS
could decide on other causes of action related to the license agreements” with
TTUS.”  As of the date of this report, TTUHSC has not taken any action
to enforce its rights.  In addition, if we do not fund a $1.5 million
major primate study out of the $3 million capital raised, or otherwise, the
management team will be replaced under such terms described above and TTUS may
pursue all rights and remedies under the 2002 and 2008 license
agreements.




In either
event described above the Company could be forced to cease or substantially
curtail its operations which would be expected to result in a loss of your
investment.




We
depend on, and will continue to depend on, collaboration with and licenses from
third parties, and if we are not able to enter into and/or continue such
collaborations or licenses, we may not be able to further develop our products
without substantial additional expenditures and delays, if at all.




In
addition to maintaining our collaborative relationship with TTUHSC, our strategy
for the development, clinical testing, manufacturing and commercialization of
our proposed products includes entering into various collaborations with
corporate partners, licensors, licensees and other third parties in the future,
and is dependent on the subsequent success of these third parties in performing
their responsibilities. We intend to seek to enter into additional arrangements
with other collaborators, although there can be no assurance that we will be
able to enter into such collaborations and licenses, or, to the extent that we
do, that such collaborations will be successful. Further, there can be no
assurance that any future arrangements we may enter into will lead to the
development of our products with commercial potential, that we will be able to
obtain proprietary rights or licenses for proprietary rights with respect to any
technology developed in connection with these arrangements or that we will be
able to insure the confidentiality of any proprietary rights and information
developed in such collaborative arrangements or prevent the public disclosure
thereof.




In
general, collaborative agreements provide that they may be terminated under
certain circumstances. There can be no assurance that we will be able to extend
any of our product collaborative agreements on their termination or expiration,
or that we will be able to enter into new collaborative agreements with existing
or new partners in the future. To the extent we choose not to or are unable to
establish any additional collaborative arrangements, it would require
substantially greater capital to undertake research, development and marketing
of our proposed products into certain markets or find that the development,
manufacture or sale of our proposed products in such markets is adversely
affected by the absence of such collaborative agreements.





17





The
FDA regulatory process is costly, lengthy and requires specific expertise, and
even if we invest the time and money and other resources required to advance
through the FDA approval process, we may never receive FDA approval for our
products.




We will
rely initially on consultants with prior experience working with the FDA. We
expect to hire experienced employees and consultants to analyze, prepare and
present and IND application to the FDA for our blood substitute product. The
process of obtaining regulatory approvals can be extremely costly and time
consuming and there is no guarantee of success. If we do not receive approval of
our IND application, we will not be able to proceed with Phase I U.S. clinical
testing. In addition, clinical testing is not predictable. Even if the FDA
approves the IND application, we cannot guarantee that the FDA will approve our
Phase I U.S. clinical results. Our failure to obtain required regulatory
approvals would have a material adverse effect on our business, financial
condition and results of operations and could require us to curtail or cease our
operations.




Our
licensed technology from TTUHSC titled Orthogonal Method for the Removal of
Transmissible Spongiform Encephalopathy Agents from Biological Fluids (“ORTH
Technology”) helps in the clearance and inactivation of infectious agents such
as prions (which can cause Mad Cow Disease) and viruses. Such removal and
inactivation is critical in the purification of animal products for human use.
It can be used not only for HemoTech production, but also has the potential for
generating sublicensing revenue from pharmaceutical, biotechnology and the
cosmetic industries. We will rely on internal personnel and external consultants
to analyze and present this product for appropriate approval in order to market
this product. There can be no assurance that regulatory approval for this
product will be obtained on a timely basis. In addition, our competitors also
may generally be able to respond more quickly to similar and new or emerging
technologies or changes in the regulatory requirements and get an approval
before us.




The FDA
and comparable agencies in foreign countries impose substantial requirements on
the introduction of therapeutic and diagnostic pharmaceutical and biological
products through lengthy and detailed laboratory and clinical testing
procedures, sampling activities and other costly and time-consuming procedures.
Satisfaction of these requirements typically takes several years or more and
varies substantially based on the type, complexity and novelty of the product.
The regulatory review may result in extensive delay in the regulatory approval
process. Regulatory requirements ultimately imposed could adversely affect our
ability to clinically test, manufacture or market potential products. Government
regulation also applies to the manufacture and marketing of pharmaceutical and
biological products. The effect of government regulation may be to delay
marketing of new products for a considerable period of time, to impose costly
procedures on our activities and to furnish a competitive advantage to larger
companies that compete with us.




There can
be no assurance that FDA or other regulatory approval for any products developed
by us will be granted on a timely basis or at all. Any such delay in obtaining,
or failure to obtain, such approvals would adversely affect the marketing of any
contemplated products and the ability to earn product revenue. Further,
regulation of manufacturing facilities by state, local and other authorities is
subject to change. Any additional regulation could result in limitations or
restrictions on our ability to utilize any of our technologies, thereby
adversely affecting our operations.




We
have no marketing experience, are dependent on third parties for marketing
services, and we may never be able to successfully market HemoTech, even if it
receives FDA approval.




We have
no marketing and sales personnel and no experience with respect to marketing
biochemical or pharmaceutical products. Significant additional expenditures and
management resources would be required to develop an internal sales force, and
there can be no assurance that such funds would be available. Further, there can
be no assurance that, with such a sales force, we would be successful in
penetrating the markets for any products developed. We will seek to enter a
partnership to develop and market our product. Under certain of these
agreements, our marketing partner may have the responsibility for all or a
significant portion of the development and regulatory approval. In the event
that the marketing and development partner fails to develop a marketable product
or fails to market a product successfully, our business may be adversely
affected. The sale of certain products outside the United States will also be
dependent on the successful completion of arrangements with future partners,
licensees or distributors in each territory. There can be no assurance that we
will be successful in establishing any additional collaborative arrangements, or
that, if established, such future partners will be successful in commercializing
products.





18





We
may be sued for product liability in the future, and since we currently maintain
no product liability insurance, in the event of a successful suit against us, we
may not be able to pay any awarded damages or, if we are able to do so, payment
of any such awarded damages could significantly deplete our financial
resources.




The use
of our proposed HemoTech blood substitute product in clinical trials and the
marketing of any product may expose us to product liability claims. We currently
have no product liability insurance, however, will attempt to obtain such
insurance prior to commencement of such trials, if any. We are required by our
license agreement with TTUHSC to obtain such insurance. There can be no
assurance that we will be able to obtain such insurance or, if obtainable, that
such insurance can be acquired at a reasonable cost or will be sufficient to
cover all possible liabilities. In the event of a successful suit against us,
lack or insufficiency of insurance coverage could have a material adverse effect
on us. Furthermore, certain distributors of pharmaceutical and biological
products require minimum product liability insurance coverage as a condition
precedent to purchasing or accepting products for distribution. Failure to
satisfy such insurance requirements could impede our ability to achieve broad
distribution of our proposed product, which would have a material adverse effect
on our business and financial condition.




We
currently use labs, equipment, personnel, research and development facilities
and production facilities at TTUHSC, and if we ever seek to or need to find or
build alternate facilities, we may not be able to do so at all or, if we are, it
will be costly and may cause significant delays in the development and
commercialization of HemoTech, which could materially impair our
operations.




We do not
currently own, lease or operate any laboratory, research and development or
manufacturing facilities. Our current plans include using labs, equipment,
personnel and an upgraded blood substitute production facility located at TTUHSC
for the production of HemoTech under our Sponsored Research Agreement. After the
completion of Phase I or Phase II U.S. clinical trials for HemoTech, the Company
will consider establishing independent manufacturing facilities either alone,
with TTUHSC, or through partnering. Establishing our own facilities would result
in significant additional expenses and may result in potential delays in testing
and production. Building and operating our own production facilities would
require substantial additional funds and other resources of which there can be
no assurance that we will be able to secure nor can there be any assurance that
we would be able to enter into any arrangement with third parties to manufacture
our product, if any, on acceptable terms or at all. Certain products outside the
United States will also be dependent on the successful completion of
arrangements with future partners, licensees or distributors in each territory.
There can be no assurance that we will be successful in establishing any
additional collaborative arrangements, or that, if established, such future
partners will be successful in commercializing products.




Uncertainty
over proposed health care reforms and whether the costs of using our proposed
product will be reimbursed to consumer health insurance companies could cause
our product to become unmarketable, which would result in our inability to
generate revenue.




Our
success in generating revenue from sales of our proposed HemoTech blood
substitute product may depend, in part, on the extent to which reimbursements
for the costs of such a product and related treatments will be available from
government health administration authorities, private health insurers and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly-approved health care products. There can be no assurance that adequate
third-party insurance coverage will be available for us to establish and
maintain price levels sufficient for realization of an appropriate return on our
investment in developing new products. Government and other third-party payors
are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement of new therapeutic and diagnostic
products approved for marketing by the FDA and by refusing, in some cases, to
provide any coverage of uses of approved products for disease indications for
which the FDA has not granted marketing approval. If adequate coverage and
reimbursement levels are not provided by government and third-party payors for
uses of our product, then market acceptance of these products would be adversely
affected.




Current
worldwide economic conditions could materially adversely affect the
Company.




The
Company’s operations and performance depend on worldwide economic
conditions.  Uncertainty about current global economic conditions
poses a risk as businesses have postponed spending in response to tighter
credit, negative financial news and/or declines in income or asset values, which
could have a material negative effect on the demand for the Company’s products
and services.  Demand could also differ materially from the
Company’s  expectations.  These and other economic factors
could have a material adverse effect on demand for the Company’s products and
services and on the Company’s financial condition and operating
results.




The
current financial turmoil affecting the banking system and financial markets and
the possibility that financial institutions may consolidate and more may go out
of business have resulted in a tightening in the credit markets, a low level of
liquidity in many financial markets, and extreme volatility in fixed income,
credit, currency and equity markets.  There could be a number of
follow-on effects from the credit crises on the Company’s business, including
insolvency of clients and/or their inability to obtain credit to finance
purchases of the Company’s products.





19





Risks
Related to Our Intellectual Property




Our
success depends on our ability to protect our intellectual
property.




We intend
to protect our intellectual property through patents and trademarks. The patent
positions of biotechnology companies generally are highly uncertain and involve
complex legal and factual questions that will determine who has the right to
develop a particular product or process. As a result, we cannot predict which of
our patent applications will result in the granting of patents or the timing of
the granting of the patents. Additionally, many of our competitors have
significantly greater capital with which to pursue patent litigation. As of the
date of this report, we have no threatened or pending intellectual
property-related litigations, legal actions, investigations, court challenges,
negotiations or similar activities. There can be no assurance that we would have
the resources to defend any potential patents in the face of a lawsuit. Further,
we rely on trade secrets, know-how and other proprietary information. We seek to
protect this information, in part, through the use of confidentiality agreements
with employees, consultants, advisors and others. Nonetheless, there can be no
assurance that those agreements will provide adequate protection for our trade
secrets, know-how or other proprietary information and prevent their
unauthorized use or disclosure. There is also the risk that our employees,
consultants, advisors or others will not maintain confidentiality of our trade
secrets or proprietary information, or that this information may become known in
some other way or be independently developed by our competitors. We may also be
exposed to future litigation by third parties based on claims that our patents,
products or activities infringe on the intellectual property rights of others or
that we have misappropriated the trade secrets of others. Any litigation or
claims against us, whether or not valid, could result in substantial costs,
could place a significant strain on our financial and managerial resources, and
could harm our reputation. In addition, intellectual property litigation or
claims could force us to do one or more of the following, any of which could
have a material adverse effect on us or cause us to curtail or cease our
operations:




•
            cease
      testing, developing, using and commercializing
  HemoTech;


•
            obtain
      a license from the holder of the infringed intellectual property right,
      which could also be costly or may not be available on reasonable terms;
      or


•
            reformulate
      HemoTech, which may be impossible or too
costly.





The
patents underlying our products, may expire prior to our receipt, if ever, of
FDA or foreign approval.




We have
obtained from TTUHSC exclusive worldwide rights to HemoTech under a U.S. patent
issued in August 1995, as well as various foreign patents. The patent, U.S.
Patent No. 5,439,882, entitled “Blood Substitute” and its foregoing counterparts
claims various alternative compositions of the novel blood substitute based on
hemoglobin of both bovine and human origin, as well as methods for its
production and use. Protection under the U.S. patent expires on August 8, 2012,
which may precede our receipt of FDA approval of HemoTech, to the extent FDA
approval is granted at all. The Japanese patent and certain of the European
patents may also expire on or after August 8, 2012. If the U.S. patent expires
before we are able to commercialize our proposed HemoTech product, we may be
able to utilize new potential patents related to HemoTech, such as the pending
erythropoiesis (production of red blood cells) patent (US 2007/0270333A1) which
was filed in 2006 and is actively being pursued, seek commercial exclusivity for
a defined time with the FDA and utilize our trade secrets for manufacturing and
use of HemoTech. If we are unable to obtain additional patent coverage in
advance of the time the existing patent expires or at all, and we fail to
receive additional patents, then our competitive position and our ability to
successfully commercialize or generate revenues from sales of HemoTech would be
materially and adversely affected.  A favorable response from the U.S.
Patent Office for the pending erythropoiesis 2006 pending patent has been
received.




We have
filed for a patent for our newly licensed ORTH Technology from TTUHSC, although
there can be no assurance that the patent will be obtained. Our failure to
obtain the patent would adversely affect the marketing of any contemplated
products and the ability to earn product revenue. In addition, our competitors
also may generally be able to get a patent approval before us for comparable
technologies.




Risks
Related to Our Common Stock




The
public market for our Common Stock is thin and subject to
manipulation.




The
market price of our Common Stock, which is traded on the OTC Bulletin Board, may
fluctuate significantly in response to the following factors, most of which are
beyond our control:





20





•
            variations
      in our quarterly operating results;


•
            changes
      in general economic conditions and in the healthcare
    industry;


•
            changes
      in market valuations of similar
companies;


•
            announcements
      by us or our competitors of significant new contracts, acquisitions,
      strategic partnerships or joint ventures, or capital
      commitments;


•
            loss
      of a major customer, partner or joint venture participant;
    and


•
            the
      addition or loss of key managerial and collaborative
      personnel.





The
equity markets have, on occasion, experienced significant price and volume
fluctuations that have affected the market prices for many companies’ securities
and that have often been unrelated to the operating performance of these
companies. Any such fluctuations may adversely affect the market price of our
Common Stock, regardless of our actual operating performance. As a result,
stockholders may be unable to sell their shares, or may be forced to sell them
at a loss.





Obtaining
additional capital through the future sale of Common Stock and derivative
securities will result in dilution of stockholder interests.




We plan
to raise additional funds in the future by issuing additional shares of Common
Stock or securities such as convertible notes, options, warrants or preferred
stock that are convertible into Common Stock. Any such sale of Common Stock or
other securities will lead to further dilution of the equity ownership of
existing holders of our Common Stock.




We
do not intend to pay cash dividends to our stockholders, so you will not receive
any return on your investment in our Company prior to selling your interest in
HemoBioTech.




We have
never paid any dividends to our stockholders. We currently intend to retain any
future earnings for funding growth and, therefore, do not expect to pay any cash
dividends in the foreseeable future.  As a result, you will not
receive any return on your investment prior to selling your shares in our
Company and, for the other reasons discussed in this “Risk Factors” section, you
may not receive any return on your investment even when you sell your shares in
our Company.




We
have agreed to indemnify our officers and directors and, if an indemnification
claim is successfully made, we may be forced to use our working capital to pay
our indemnification obligations, which could result in our inability to use such
working capital for our operations.




Our
certificate of incorporation includes certain provisions permitted under
Delaware law allowing our officers and directors to be indemnified against
certain liabilities. Our certificate of incorporation also limits, to the
fullest extent permitted by Delaware law, a director’s liability for monetary
damages for breach of fiduciary duty, including gross negligence, except
liability for the following:




•
            breach
      of the director’s duty of loyalty;


•
            acts
      or omissions not in good faith or which involve intentional misconduct or
      a knowing violation of the law;


•
            the
      unlawful payment of a dividend or unlawful stock purchase or redemption;
      and


•
            any
      transaction from which the director derives an improper personal
      benefit.





Delaware
law does not eliminate a director’s duty of care and this provision has no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director’s breach of the duty of care. In December 2004,
we purchased a $5.0 million insurance policy providing coverage for certain
liabilities of our officers and directors. In addition, we have entered into
separate director and officer indemnification agreements with each of Arthur
Bollon, Ghassan Nino, Robert Baron, Bernhard Mittemeyer, Mark Rosenblum (our
former CFO) and Robert Comer, under which we agreed to indemnify and advance
expenses to each of these directors and officers, as the case may be, against
any losses arising out of or relating to any actual, alleged or suspected act or
failure to act by such person in his capacity as a director, officer, employee
or agent of HemoBioTech or any affiliated company, trust, joint venture,
corporation, limited liability company or partnership for which such person was
acting or had acted as a director, officer, employee or agent at HemoBioTech’s
request. Further, in connection with Ghassan Nino’s resignation as an officer of
HemoBioTech under an employment separation and release agreement dated as of
July 15, 2004, we agreed to indemnify Mr. Nino and his heirs, executors,
administrators and assigns, against all losses arising out of any claim made by
a third party against Mr. Nino or HemoBioTech as a result of an action taken or
not taken by Mr. Nino as an officer of HemoBioTech, so long as such actions or
inactions were taken or not taken by Mr. Nino in good faith within the scope of
his employment.





21





Our
Common Stock is considered a “penny stock” and is subject to regulations that
limit or restrict the potential market for our stock.




Our
Common Stock is deemed to be “penny stock” (as that term is defined under the
Securities Exchange Act of 1934, as amended) resulting in increased risk to our
investors and certain requirements being imposed on some brokers who execute
transactions in our Common Stock. In general, a penny stock is an equity
security that:




•
            is
      priced under $5.00;


•
            is
      not traded on a national securities
exchange;


•
            may
      be listed in the “Pink Sheets” or the OTC Bulletin
  Board;


•
            is
      issued by a company that has less than $5.0 million in net tangible assets
      (if it has been in business less than three years) or has less than $2.0
      million in net tangible assets (if it has been in business at least three
      years); and


•
            is
      issued by a company that has average revenues of less than $6.0 million
      for the past three years.





At any
time the Common Stock qualifies as a penny stock, the following requirements,
among others, will generally apply:





•
            certain
      broker-dealers who recommend penny stock to persons other than established
      customers and accredited investors must make a special written suitability
      determination for the purchaser and receive the purchaser’s written
      agreement to a transaction prior to
sale.


•
            Prior
      to executing any transaction involving a penny stock, certain
      broker-dealers must deliver to certain purchasers a disclosure schedule
      explaining the risks involved in owning penny stock, the broker-dealer’s
      duties to the customer, a toll-free telephone number for inquiries about
      the broker-dealer’s disciplinary history and the customer’s rights and
      remedies in case of fraud or abuse in the
sale.


•
            In
      connection with the execution of any transaction involving a penny stock,
      certain broker-dealers must deliver to certain purchasers the
      following:


•
            bid
      and offer price quotes and volume
information;


•
            the
      broker-dealer’s compensation for the
trade;


•
            the
      compensation received by certain salespersons for the
    trade;


•
            monthly
      accounts statements; and


•
            a
      written statement of the customer’s financial situation and investment
      goals.





Should a
broker-dealer required to provide the above disclosure or fail to deliver such
disclosure on the execution of any transaction involving a penny stock in
violation of federal or state securities laws, you may be able to cancel your
purchase and get your money back. In addition, if the stocks are sold in a
fraudulent manner, you may be able to sue the persons and firms that caused the
fraud for damages. If you have signed an arbitration agreement, however, you may
have to pursue your claim through arbitration. These requirements significantly
add to the burden of the broker-dealer and limit the market for penny stocks.
These regulatory burdens may severely affect our ability to create a market for
our stock and the liquidity and market price for our Common Stock.




A
significant number of our shares will be eligible for sale and their sale or
potential sale may depress the market price of our Common Stock.




Sales of
a significant number of shares of our Common Stock in the public market could
harm the market price of our Common Stock. As of May 26, 2010, 23,693,434 shares
of our Common Stock were issued and outstanding. In addition, as of the date of
this report, an aggregate of 4,833,589 shares of our Common Stock may be issued
in the future upon exercise of currently outstanding warrants, and
2,223,115  shares of our Common Stock may be issued in the future upon
exercise of stock options or other awards granted under our 2003 Stock
Option/Stock Issuance Plan and an additional 120,916 shares were available for
grant under such plan.  As additional shares of our Common Stock
become available for resale in the public market, the supply of our Common Stock
will increase, which could decrease its price. Some or all of the shares of
Common Stock may be offered from time to time in the open market under Rule 144,
and these sales may have a depressive effect on the market for our shares of
Common Stock. In general, a non-affiliates who have held restricted shares for a
period of six months may sell our Common Stock into the market.




Our
management and principal stockholders own a substantial amount of our Common
Stock and have effective control of HemoBioTech, which may not always be in the
best interests of all of our stockholders.




Our
officers, directors and principal stockholders control approximately 59% of our
outstanding Common Stock as of December 31, 2009.  If these
stockholders act together, they will be capable of controlling our management
and affairs requiring stockholder approval, including approval of significant
corporate transactions. This concentration of ownership may have the effect of
delaying or preventing a change in control and might adversely affect the market
price of our Common Stock. This concentration of ownership may not be in the
best interests of all our stockholders.





22





Anti-Takeover,
Limited Liability and Indemnification Provisions




Certificate
of Incorporation and By-laws.




Under our
certificate of incorporation, our Board of Directors may issue additional shares
of common or preferred stock. Any additional issuance of Common Stock could have
the effect of impeding or discouraging the acquisition of control of us by means
of a merger, tender offer, proxy contest or otherwise, including a transaction
in which our stockholders would receive a premium over the market price for
their shares, and thereby protects the continuity of our management.
Specifically, if in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal was not in our best
interest, shares could be issued by our Board of Directors without stockholder
approval in one or more transactions that might prevent or render more difficult
or costly the completion of the takeover by:




•
            diluting
      the voting or other rights of the proposed acquirer or insurgent
      stockholder group,


•
            putting
      a substantial voting block in institutional or other hands that might
      undertake to support the incumbent Board of Directors,
  or


•
            effecting
      an acquisition that might complicate or preclude the
    takeover.





Our
certificate of incorporation also allows our Board of Directors to fix the
number of directors in the bylaws. Cumulative voting in the election of
directors is specifically denied in our certificate of incorporation. The effect
of these provisions may be to delay or prevent a tender offer or takeover
attempt that a stockholder may determine to be in his or its best interest,
including attempts that might result in a premium over the market price for the
shares held by the stockholders.




Delaware
Anti- Takeover Law.




We are
subject to the provisions of Section 203 of the Delaware General Corporation Law
concerning corporate takeovers. This section prevents many Delaware corporations
from engaging in a business combination with any interested stockholder, under
specified circumstances. For these purposes, a business combination includes a
merger or sale of more than 10% of our assets, and an interested stockholder
includes a stockholder who owns 15% or more of our outstanding voting stock, as
well as affiliates and associates of these persons. Under these provisions, this
type of business combination is prohibited for three years following the date
that the stockholder became an interested stockholder unless:




•
            the
      transaction in which the stockholder became an interested stockholder is
      approved by the Board of directors prior to the date the interested
      stockholder attained that status;


•
            on
      consummation of the transaction that resulted in the stockholder’s
      becoming an interested stockholder, the interested stockholder owned at
      least 85% of the voting stock of the corporation outstanding at the time
      the transaction was commenced, excluding those shares owned by persons who
      are directors and also officers; or


•
            on
      or subsequent to that date, the business combination is approved by the
      Board of Directors and authorized at an annual or special meeting of
      stockholders by the affirmative vote of at least two-thirds of the
      outstanding voting stock that is not owned by the interested
      stockholder.





This
statute could prohibit or delay mergers or other takeover or change in control
attempts and, accordingly, may discourage attempts to acquire us.





ITEM
2.  PROPERTIES





We
currently do not own any property. We currently operate out of an approximately
4,000 square foot facility provided to us by Texas Tech under the sponsored
research agreement. This facility is located in Lubbock, Texas. In June 2007, we
signed a five year lease, which is renewable for approximately 2,000 square feet
of office space in Dallas, Texas at the Providence Towers, 5001 Spring Valley
Road, Suite 1040 West, Dallas, Texas 75244, which we use as our corporate
headquarters.





23





ITEM
3.  LEGAL PROCEEDINGS





As
of  May 20, 2010, we are not a party to any material litigation or
threatened litigation.




ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.




PART
II




ITEM 5.
              PRICE
      RANGE OF COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
      EQUITY SECURITIES





Our
common stock is quoted on the OTC Bulletin Board under the symbol
“HMBT.OB.”




The range
is high and low bid quotations for our common stock during each quarter of the
fiscal years ended December 31, 2009 and 2008 is shown below.  Prices
are inter-dealer quotations as reported by the FINRA and do not necessarily
reflect transactions, retail markups, mark downs, or commissions.  The
closing price of our Common Stock on April 30, 2010 was $0.70 per
share.




Years
      Ended December 31,2009
                  
                  
                  2008High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  LowFirst
                  
                  $
                  1.00
                  
                  
                  $
                  0.24
                  
                  
                  $
                  1.40
                  
                  
                  $
                  0.85Second
                  
                  $
                  0.70
                  
                  
                  $
                  0.30
                  
                  
                  $
                  1.40
                  
                  
                  $
                  1.00Third
                  
                  $
                  1.01
                  
                  
                  $
                  0.15
                  
                  
                  $
                  1.00
                  
                  
                  $
                  0.70Fourth
                  
                  $
                  0.75
                  
                  
                  $
                  0.18
                  
                  
                  $
                  1.03
                  
                  
                  $
                  0.21




HOLDERS
OF RECORD




As of
April 23, 2010, there were approximately 100 holders of record of our common
stock.




DIVIDEND
POLICY




We have
never declared or paid dividends on our shares of common stock.  We
currently intend to retain future earnings for use in our business and,
therefore, do not anticipate paying any cash dividends on our shares of common
stock in the foreseeable future.  Any future determination as to the
payment of cash dividends on our common stock will be at the discretion of our
Board of Directors and will depend on our earnings, operating and financial
condition, capital requirements and other factors deemed relevant by our Board
of Directors including the General Corporation Law of the State of Delaware,
which provides that cash dividends are only payable out of retained earnings or
if certain minimum rations of assets to liabilities are
satisfied.  The declaration of cash dividends on our common stock also
may be restricted by the provisions of credit agreements that we may enter into
from time to time.





24





SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS





EQUITY
COMPENSATION PLAN INFORMATION





The
following table provides information regarding the status of our existing equity
compensation plans at December 31, 2009.





Plan
      category
                        
                        Number
      of shares of common
                          stock
      to be issued on exercise of
                          outstanding
      options, warrants
                          and
      rights
                        
                        
                        Weighted-average
      exercise
                          price
      of outstanding
                          options,
      warrants and
                          rights
                        
                        
                        Number of securities remainingavailable for future issuanceunder equity compensation plans(excluding securities reflected inthe previous columns)Equity
      compensation plans approved by security
      holders  (1)
                        
                        
                        2,344,031
                        
                        
                        $
                        0.74
                        
                        
                        
                        120,916Equity
      compensation plans not approved by security holders
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Total
                        
                        
                        2,344,031
                        
                        
                        $
                        0.74
                        
                        
                        
                        120,916








(1)
Consists of our 2003 Stock Option/Stock Issuance Plan.


RECENT
SALES OF UNREGISTERED SECURITIES





Bridge
Financing




Between
October 28 and November 25, 2009, the Company completed a bridge financing (the
“Bridge Offering”) of $385,000 of Bridge Offering units (the “Bridge
Unit”).  The Bridge Units consist of $385,000 principal amount of 10%
Promissory Notes (“Bridge Notes”), and 1,540,000 shares of Common Stock, which
were offered on a “best efforts” basis.  Meyers Associates, the
Placement agent of this Offering and a principal stockholder of the Company,
received approximately $55,000 in fees and expenses coincident with the Bridge
Notes and Warrants to purchase an aggregate of 539,000 Shares of Common Stock
from the Offering.  The Company received net proceeds of approximately
$305,000 which are being used for working capital, including expenses of this
Offering.  The Bridge Notes (but not the shares of Common Stock
included in the Bridge Units) mature in one year from their dates of issuance,
however, upon the sale of at least the minimum $1,500,000 in the Company’s
current offering, the Bridge Notes shall be converted by the Company into Units
at the Purchase Price.





The net
proceeds from the Bridge Offering are being used by the Company for working
capital purposes.





The
Bridge Units were offered and sold in reliance upon an exemption from
registration pursuant to Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder, based on information provided in the
investors’ subscription agreements.





STOCK
OPTION GRANTS





The
Company granted 676,000 stock options for the year ended December 31, 2009 under
its Stock Option/Stock Issuance Plan at a weighted average exercise price of
$0.40 per share. Information pertaining to these options is set forth in Note
F(6) to the accompanying financial statements.





OPTIONS
      GRANTED IN 2009MONTH
                      SHARES
                      
                      OPTION
                        PRICE
      / RANGE
                      TERM
                        (IN
      YEARS)JAN
                      15,000
                      
                      $0.73
                      5
      TO 10 YEARSFEB
                      -
                      
                      -
                      -MAR
                      135,000
                      
                      $0.30
      - $0.51
                      5
      TO 10 YEARSAPR
                      -
                      
                      -
                      -MAY
                      -
                      
                      -
                      -JUN
                      35,000
                      
                      $0.55
                      5
      TO 10 YEARSJUL
                      -
                      
                      -
                      -AUG
                      -
                      
                      -
                      -SEP
                      -
                      
                      -
                      -OCT
                      280,000
                      
                      $0.25
                      5
      TO 10 YEARSNOV
                      80,000
                      
                      $0.40
      - $0.44
                      5
      TO 10 YEARSDEC
                      131,000
                      
                      $0.50
      - $0.55
                      5
      TO 10 YEARSTOTAL
                      676,000





25





ITEM 6.
SELECTED FINANCIAL DATA.





Not
required.





ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS




PLAN
OF OPERATIONS





We are
primarily engaged in the research and development of human blood substitute
technology exclusively licensed from Texas Tech University Health Sciences
Center (“TTUHSC”). Since October 27, 2004 most of our working capital was used
to pay for general and administrative costs, salaries, legal and accounting fees
and the cost of raising money. After reviewing the blood substitute technology
developed by researchers at Texas Tech, in January 2002 we licensed from Texas
Tech the exclusive rights to various alternative compositions of HemoTech, a
novel blood substitute that is based on hemoglobin (which is the key protein in
red blood cells that carries oxygen) of both bovine (cow) and human origin, as
well as methods for its production and use. What makes HemoTech a novel
potential blood substitute product is the fact that it is comprised of
hemoglobin that has been isolated from bovine blood and then chemically modified
to make the product non-toxic. For HemoTech production, hemoglobin is modified
with ATP. Adenosine and Glutathione(GSH).We also have an agreement with Texas
Tech that any patent issued from its patent application relating to the
induction of erythropoiesis (which is the production of red blood cells by the
body) will be included under our exclusive license with Texas Tech. In addition
to our license and patent agreement with Texas Tech, beginning in July 2002, we
have entered into a series of Sponsored Research Agreements (“SRA”) with TTUHSC
under which we are entitled to use certain of Texas Tech's production and
research and development facilities in Lubbock, Texas.




In
January 2007, the Company entered into a Stage IV SRA with TTUHSC for the period
beginning January 1, 2007. In connection therewith, the Company made an initial
payment of approximately $780,000. This amount will be charged to operations
over the period of the research (see Note D to the Condensed Financial
Statements). Additional payments may be made to TTUHSC under the agreement based
on mutually agreed upon budgets. The SRA IV activities include maintaining the
animal facility which houses a controlled herd of Hereford cows needed for the
production of HemoTech and assistance in the implementation of FDA
recommendations received at a Pre-IND meeting with the FDA in April
2006.  The SRA IV activities also include the manufacture of HemoTech.
The product will be made at the production facility at TTUHSC and will be used
for pre-clinical and clinical studies upon acceptance of the IND.  The
agreement will also involve further research and development with a focus on
additional uses of HemoTech and expanded patent protection.





At
December 31, 2009, approximately $15,000 remained as available funds at TTUHSC
and are included in the Company’s prepaid assets.




Our goal
is to address an increasing demand for a safe and inexpensive human blood
substitute product in the United States and around the world through our
licensed technology. We believe that certain initial pre-clinical and early
stage human trials undertaken outside the U.S. by prior holders of this
technology suggest that our licensed technology may possess properties that
diminish the intrinsic toxic effects of hemoglobin and help reduce or eliminate
the abnormal reaction associated with hemorrhagic shock (which is the loss of
blood pressure and the lowering of vital signs resulting from the loss of
blood).




The FDA
has cited the Adenosine/GSH modified hemoglobin strategy used in HemoTech as a
viable strategy for a needed new generation red blood cell substitute. The FDA
indicated at a meeting on April 29, 2008 the toxicity of previous first
generation substitutes and the need for a new generation substitute. Our
Adenosine/GSH modified hemoglobin, HemoTech, is protected by issued patents in
21 countries.





We have a
limited operating history, no customer base and no revenues to date. Our plan of
operations for the next twelve months is focused primarily on the development of
our licensed technology and business, production of our product, HemoTech, for
use in Phase I U.S. clinical trials, filing of an IND with the FDA, continuing
and enlarging the animal facility at Texas Tech University, upgrading our
existing production facility based on FDA recommendations and furthering our
intellectual property position through the introduction of additional patents
and initiation of Phase I U.S. clinical studies if the IND is
accepted.





26





Management
believes our cash available of $55,000 at December 31, 2009, will not be
sufficient to fund our immediate current operations.  In April 2010,
the Company completed a $50,000 bridge loan with one investor on the same terms
as the Bridge Offering described above in Item 6, except there is no mandatory
conversion of the notes.  This cash position will not be sufficient to
carry on current operations beyond the immediate future.





The
Company recently significantly reduced its actual and projected expenses and
plans to aggressively manage cash costs. Management's plans include continuing
to finance operations through one or more private or public offerings of equity
or debt securities and monitoring and reducing discretionary expenditures. In
order to complete our planned operations which includes implementing certain FDA
recommendations including upgrading the production facility, and performing
complementary toxicology studies; collectively at a cost ranging from $3,000,000
to $4,000,000, we will need to raise at least $3 million in the near term,
although there can be no assurance that we can raise these funds. If we fail to
generate enough working capital, either from future debt or equity offerings, we
will have to further curtail our planned operations.




The
financial statements have been prepared assuming that the Company will continue
as a going concern which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company has incurred
cumulative losses of $18,032,000 from inception through December 31, 2009, has
not generated any revenue, and has been dependent on funding operations through
the private sale of convertible debt and equity securities. These conditions
indicate that there is substantial doubt upon the company’s ability to continue
as a going concern. Management’s plans include continuing to fund operations
through one or more public or private offerings of equity securities, although
there is no assurance they will be able to do so in the future, and monitoring
and reducing discretionary expenses.





RESEARCH
AND DEVELOPMENT




We
currently have two licensed technologies, “HemoTech” and “ORTH”. We expect that
the remaining production, development, testing and FDA approval of HemoTech,
could occur over a period of approximately four years. Our ORTH technology is
essentially ready for commercialization during 2009 and requires minimal
additional research and development.




HemoTech
must undergo several major stages of production, development, and clinical
testing before being in a position to submit its New Drug Application (“NDA”) to
the FDA, as follows:




·
            PRODUCTION
      OF HEMOTECH. In order to produce HemoTech for Phase I U.S. clinical
      trials, we must complete certain upgrades of the current HemoTech
      production facilities located at TTUHSC. A portion of these upgrades have
      been completed during 2006 and through 2007 and were based on
      recommendations from the FDA.




·
            PREPARATION
      AND SUBMISSION OF U.S. IND APPLICATION. We started preparing material for
      our U.S. IND application on December 13, 2004, when we entered into our
      Stage II Sponsored Research Agreement with TTUHSC. We
  are





·
            actively
      planning and implementing the FDA recommendations including upgrading the
      production facility, preparing for clinical trials and the production of
      HemoTech, collectively at a cost estimated to range from $5,000,000 to
      $8,000,000, which are necessary for submission of our U.S. IND application
      and production of the product, although there can be no assurance that we
      will be able to meet a specified timetable or budgeted amount. We
      currently do not have sufficient funds available to pay this
      amount.  We will need to raise at least $7,000,000 in order to
      complete the above mentioned
activities.




·
            INDIA
      STRATEGY. During June 2007 we engaged a U.S. based clinical research
      organization to assist the Company in submitting technical information to
      the Drug Controller General of India (DCGI) for the purpose of obtaining
      regulatory authority to conduct clinical trials in India. A goal is to
      establish clinical trials in India and if successful commercialize
      HemoTech in India.




·
            PHASE
      I OF OUR U.S. CLINICAL TRIALS. Once our U.S. IND application has been
      accepted by the FDA, we expect to be able to commence our Phase I U.S.
      clinical trials of HemoTech. Depending on whether the FDA accepts our U.S.
      IND application, we believe that we could begin Phase I U.S. clinical
      trials soon thereafter although there is no guarantee that we can meet
      this goal. We estimate that our Phase I U. S. clinical trials (including
      the costs of doing additional research and development of HemoTech during
      our Phase I U.S. clinical trials and the operational and overhead costs
      that we will incur during our Phase I U. S. clinical trials) could cost
      approximately $10.0 million, although the final cost could be more or less
      than this estimate, which includes the
  following:





27





·
            approximately
      $1.4 million for the production of
HemoTech;




·
            approximately
      $1.6 million for the testing of HemoTech on
  humans;




·
            approximately
      $1.9 million for personnel, administrative, and operational expenses that
      we expect to incur during our Phase I U. S. clinical
    trials;




·
            approximately
      $1.7 million for legal, accounting, consulting, technical and other
      professional fees that we expect to incur during our Phase I U. S.
      clinical trials;




·
            approximately
      $1.6 million for research and development costs that we expect to incur
      during our Phase I U. S. clinical trials;
and




·
            approximately
      $2.0 million for preparation of Phase II clinical
  trials.




We expect
that our Phase I U. S. clinical trials would take approximately six to nine
months to complete from the date we start such trials, though such trials could
take significantly longer to complete, depending on, and among other things, the
rate of production of HemoTech and the availability of patients. We estimate
that we will be required to raise additional capital (although there can be no
assurance that we can meet this timeframe) in order to fund our Phase I U.S.
clinical trials, as well as preparation for Phase II clinical trials from start
to finish and to cover the related expenses described above. If submission or
acceptance of our U.S. IND application is delayed for any reason and if we are
unable to raise such additional capital in a timely manner, commencement of our
Phase I U. S. clinical trials would also be delayed.




·
            PHASE
      II OF OUR U.S. CLINICAL TRIALS. A Phase II clinical trial could commence
      subsequent to a successful Phase I trial.  We estimate that our
      Phase II





·
            U.S.
      clinical trials (including the costs of doing additional research and
      development of HemoTech during our Phase II U.S. clinical trials and the
      operational and overhead costs that we will incur during our Phase II U.S.
      clinical trials) will cost approximately $20.0 million, which includes the
      following:




·
            further
      production of HemoTech;




·
            further
      testing of HemoTech and related
activities;




·
            personnel,
      administrative, and operational expenses that we expect to incur during
      our Phase II U. S. clinical trials;




·
            legal,
      accounting, consulting, technical and other professional fees that we
      expect to incur during our Phase II U. S. clinical trials;
    and




·
            research
      and development costs that we expect to incur during our Phase II U. S.
      clinical trials.




The exact
cost of each step will be determined in the future and will depend on various
factors including FDA regulatory guidance and the availability of resources of
TTUHSC.




We expect
that our Phase II U.S. clinical trials could be completed within approximately
one year from the date we start such trials, though such trials could take
significantly longer to finish, depending on, among other things, the timely
completion of necessary upgrades to the HemoTech production facility and the
availability of patients. If commencement or completion of our Phase I U.S.
clinical trials are delayed for any reason, or if we are unable to raise
sufficient funds to begin our Phase II U.S. clinical trials immediately
following completion of our Phase I U.S. clinical trials, our Phase II U.S.
clinical trials will be delayed.




·
              PHASE
      III OF OUR U.S. CLINICAL TRIALS. If we are able to complete our Phase II
      U.S. clinical trials, we will seek approval from the FDA for our Phase III
      U. S. clinical trials soon
thereafter.





28





At such
time, and in order to cut the costs of conducting and completing our Phase III
U.S. clinical trials, we anticipate that we will seek to enter into a
partnership with a biopharmaceutical company that has expertise in the
production and marketing of biological products, although there can be no
assurance that we will be able to do so.




Alternatively,
if we are not able to enter into such a partnership, we may seek to enter into a
manufacturing arrangement with an experienced pharmaceutical manufacturer, under
which such manufacturer would produce HemoTech, which would significantly reduce
the costs of our Phase III U.S. clinical trials by eliminating the need to build
a production facility that meets the FDA's standards for Phase III U.S. clinical
trials.




If we are
not able to enter into a partnership or find a manufacturer that is willing to
manufacture HemoTech for us, we may be required to perform all aspects of the
Phase III U. S. clinical trials independently. In this case, we estimate that
our Phase III U.S. clinical trials (including the costs of doing additional
research and development of HemoTech during our Phase III U.S. clinical trials
and the operational and overhead costs that we will incur during our Phase III
U.S. clinical trials) could cost approximately $195.0 million, which includes
the following: approximately $100.0 million to build a production facility
for HemoTech that is suitable for such advanced testing and that meets the
standards of the FDA as a product testing facility;




·
            approximately
      $70.0 million for the further testing and production of
      HemoTech;





·
            approximately
      $10.0 million for personnel, administrative, and operational expenses that
      we expect to incur during our Phase III U.S. clinical
    trials;




·
            approximately
      $5.0 million for legal, accounting, consulting , technical and other
      professional fees that we expect to incur during our Phase III U.S.
      clinical trials; and





·
            approximately
      $5.0 million for research and development costs that we expect to incur
      during our Phase III U.S. clinical
trials.




We expect
that our Phase III U.S. clinical trials could be finished within fifteen to
eighteen months from the date we start such trials, though such trials could
take significantly longer to complete, depending on, among other things, the
timely completion of a suitable production facility for HemoTech and the
availability of patients. If we are unable to partner with a pharmaceutical
company, we estimate that we will be required to raise the approximately $200
million (or such lesser amount as may be required if we are successfully able to
enter into a partnership) that we will need in order to fund our Phase III U.S.
clinical trials from start to finish and to cover the related expenses described
above. If commencement or completion of our Phase II U.S. clinical trials are
delayed for any reason, or if we are unable to raise sufficient funds to begin
our Phase III U.S. clinical trials immediately following completion of our Phase
II U.S. clinical trials, our Phase III U.S. clinical trials will be
delayed.




The
estimated costs of each of the phases of our clinical trials set forth above
represent our best estimate of such expenses based on, among other things,
current economic conditions and availability of materials and personnel. Since
many of these phases will not even be commenced by us for another two to three
years, we cannot offer any assurance that such estimates will reflect the actual
amounts that we may be required to incur during each phase of our clinical
trials based on, among other things, then-current economic conditions,
availability of materials and personnel, and other factors that may be relevant
at the time. The amounts we may actually be required to expend during any phase
of our clinical trials may be significantly more than the amounts estimated by
us above.




If our
clinical trials are successful and we are able to meet the timelines set forth
above, it is possible that an NDA could be approved by the FDA as early as
late-2010, although there can be no assurance that an NDA would be approved by
such time, if ever. There can also be no assurance that we will be able to
complete our clinical trials under the schedule described above, or ever, or
that we will be able to develop a viable and marketable human blood substitute,
even if we are able to complete our clinical trials.





Further,
we do not expect to generate any revenues until after such time as HemoTech has
received FDA approval, if ever.




Our ORTH
technology can be used not only for HemoTech production but also has the
potential for generating sublicensing revenue from pharmaceutical, biotechnology
and the cosmetic industries. There can be no assurance that regulatory approval,
if required, for this product will be obtained on a timely basis.





29





RESULTS
OF OPERATIONS




We are a
development stage company and have not generated any revenue from inception
through December 31, 2009. To date, our efforts have been principally devoted to
evaluating the HemoTech technology, negotiating and entering into our license
agreement and Sponsored Research Agreements with TTUHSC, hiring employees and
consultants, establishing our Board of Advisors, raising capital, and engaging
in other organizational and infrastructure development. In addition, during 2007
the Company upgraded the production facility at Texas Tech University and
maintained an animal donor facility.




Total
expenses, and thus our losses, totaled $18,032,000 from October 3, 2001
(inception) through December 31, 2009.




YEAR
ENDED DECEMBER 31, 2009 COMPARED TO YEAR ENDED DECEMBER 31, 2008





Total
expenses, and thus our losses, for the year ended December 31, 2009 were
$2,329,000 compared with $3,832,000 for the same period a year ago resulting
from both significantly lower research and development costs and general
and administrative expenses.




Research
and Development expenses were $442,000 for the 2009 period, decreasing
$1,098,000, or 71.3% from the $1,540,000 in the same period in 2008 resulting
from the acquisition of a new TSE technology that removes and inactivates
infectious agents (which can cause Mad Cow disease) and viruses valued at
$655,000 (See also Note D of the Company’s Notes to Condensed Financial
Statements) in 2008; and from significantly lower cash spending
to  outside laboratories and consultants and lower costs related to
our Stage IV Sponsored Research Agreement with Texas Tech Health Sciences
Center. However, during December 2009, the Company issued 600,000 shares valued
at $174,000 to Texas Tech.  Charges related to the Sponsored Research
Agreement with TTUHSC were approximately $180,000 lower resulting from increased
spending on laboratory upgrades in 2008 which did not repeat in the current
period. Additionally, approximately $400,000 of costs associated with outside
laboratories incurred in 2008 did not repeat in the current period due somewhat
to the Company’s weakened cash position.





General
and Administrative costs were $1,855,000 for the year ended December 31, 2009, a
decrease of $472,000, or 20.2% from the prior year amount of $2,327,000
resulting from  significantly lower compensation costs of approximately
$295,000 and lower professional fees of approximately $46,000. Lower
compensation costs included both non cash stock-based compensation of $115,000
and reduced salary spending of $180,000.





Interest
expense was $47,000 during 2009 compared to zero in 2008 based on the issuance
of new debt during 2009.





Interest
income decreased to $5,000 in the 2009 period compared to $35,000 in the prior
period due to lower cash balances in the current year.





Liquidity
and Capital Resources




During
the year ended December 31, 2009, net cash used in operating activities was
$1,028,000 compared to $1,984,000 in the same period during 2008. This 48%
reduction in operating cash spending resulted primarily from lower cash spending
related to outside research laboratories, cash compensation costs and reduced
professional fees.   During May 2008, the Company purchased the
TSE technology from TTUHSC at a cost of 500,000 shares of the Company’s common
stock valued at $1.29 per share and a $10,000 cash cost, a total of
$655,000.  At December 31, 2009 and 2008, approximately $15,000 and
$214,000 of the TTUHSC 2007 Payment is included in prepaid expenses and
reflected on our balance sheet.  On December 31, 2009, the Company had
approximately $55,000 in unrestricted cash and cash equivalents. This cash
position will not be sufficient to carry on current operations beyond two to
three months.





During
2009, the Company had net cash provided by financing activities of $640,000 from
the issuance of common stock and debt as compared with $412,000 provided in
2008.





As a
result of the foregoing, the Company’s cash position decreased by $388,000
during 2009.





During
October and through November 30, 2009, the Company received $385,000 in gross
proceeds, coincident with a short term bridge financing (“Bridge Notes”). In
exchange for this amount, the Company issued 10% Promissory Notes that may
convert into shares of the Company’s common stock at the earlier of one year
from the date of issue or upon the Company’s issuance of at least $1,500,000 in
a Private Placement financing. The Bridge Notes are payable in either cash or
the Company’s common stock, at the Company’s discretion. Additionally the Bridge
Note investors received four shares of the Company’s common stock for each $1.00
invested in the Bridge Notes or an aggregate of 1,540,000 shares of common
stock. The net proceeds from the Bridge Notes was approximately $305,000. The
value associated with the 1,540,000 common shares was approximately $447,000 and
was charged to operations during 2009.


30





The
Placement Agent in the Bridge Notes is also a financial advisor to the Company
and a significant shareholder of the Company (Note F(2). The Placement Agent
received approximately $48,000 in fees and expenses coincident with the Bridge
Notes and warrants to purchase an aggregate of 539,000 shares of Common
Stock.





The
Bridge Notes will convert to common stock at a price determined by a
contemplated $3,000,000 Private Placement financing.  The Private
Placement terms include a conversion price of the Bridge Notes to the
company’s common stock at the lower of $.25 or a 25% discount to the 10 day
trading weighted average of the closing price of the Company’s common stock
prior to the first closing.





In April
2010, the Company received $50,000 in gross proceeds in exchange for 10%
promissory notes issued on the same term as the Bridge Note described
above.  This one investor received 200,000 shares of Common Stock in
consideration of his investment.  The placement agent received $8,500
in fees and expenses and warrants to purchase 70,000 shares of Common
Stock.





The
Company recently significantly reduced its actual and projected expenses and
plans to aggressively manage cash costs. While the Company has been able to
obtain funding in the past, there can be no assurance that they will be able to
do so in the future. Management's plans include continuing to finance operations
through one or more private or public offerings of equity securities and
monitoring and reducing discretionary expenditures. In order to complete our
planned operations which includes implementing FDA recommendations necessary for
submitting our IND to the FDA, upgrading the production facility, preparing for
a toxicology study on primates, the production of HemoTech; collectively at a
cost ranging from $2,000,000 to $4,000,000, we will need to raise at least $3
million in the near term, although there can be no assurance that we
can raise these funds. If we fail to generate enough working capital,
either from future debt or equity offerings, we will have to further curtail our
planned operations.




The
financial statements have been prepared assuming that the Company will continue
as a going concern which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company has incurred
cumulative losses of $18,032,000 from inception through December 31, 2009, has
not generated any revenue, and has been dependent on funding operations through
the private sale of convertible debt and equity securities. These conditions
indicate that the Company may not be able to continue as a going concern.
Management’s plans include continuing to fund operations through one or more
public or private offerings of equity securities, although there is no assurance
they will be able to do so in the future, and monitoring and reducing
discretionary expenses.  See Note B of Notes to Financial
Statements.





OFF-BALANCE SHEET ARRANGEMENTS




We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.





ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk





In the
normal course of business, our financial position is routinely subject to a
variety of risks, including market risk associated with interest rate movement.
We regularly assess these risks and have established policies and business
practices intended to protect against these and other exposures. As a result, we
do not anticipate material potential losses in these areas.





As of
December 31, 2009, we had cash and cash equivalents of $55,000. Declines of
interest rates over time will, however, reduce our interest income.





ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The Index
to Financial Statements appears on page F-1, the Report of the Independent
Registered Public Accounting Firm appears on page F-2, and the Financial
Statements and Notes to Financial Statements appear on pages F-3 to F-22.


31





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





The
disclosures concerning the Company’s change in accountants were reported on a
Form 8-K filed on April 13, 2010.  There were no disagreements or
reportable events reported.





ITEM
9A(T). CONTROLS AND PROCEDURES





The chief
executive officer and the chief financial officer, after evaluating the
effectiveness of the Company's "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e);
collectively, "Disclosure Controls") as of the end of the period covered by this
annual report (the "Evaluation Date") have concluded that as of the Evaluation
Date, our Disclosure Controls were not effective to provide reasonable assurance
that information required to be disclosed in our reports filed or submitted
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified by the SEC, and that material
information relating to our company and any consolidated subsidiaries is made
known to management, including the chief executive officer and chief financial
officer, particularly during the period when our periodic reports are being
prepared to allow timely decisions regarding required disclosure.





Management
assessed the effectiveness of our internal control over financial reporting as
of the Evaluation Date based on criteria for effective internal control over
financial reporting described in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission.  Based on this evaluation, management has determined that
as of the Evaluation Date, there were material weaknesses in our internal
control over financial reporting.  The material weaknesses identified
during management’s assessment were (i) a lack of sufficient internal accounting
resources; and (ii) a lack of segregation of duties to ensure adequate review of
financial statement preparation. In light of these material weaknesses,
management has concluded that we did not maintain effective internal control
over financial reporting at the Evaluation Date.




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company.  As defined by the Public Company
Accounting Oversight Board Auditing Standard No. 5, a material weakness is a
deficiency or a combination of deficiencies, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected. A clear and concise segregation of
duties is important to maximize checks and balances so that no single individual
has control over two or more phases of a transaction or operation. A strong
segregation of duty also is critical to reduce effectively the risk of mistakes
and inappropriate actions preventing fraud and discourages collusion. It can be
difficult for small businesses to always have a clear separation of duties
because there simply are not enough personnel to cover each and every process
and procedure. Ultimately, checks and balances need to be in place as a
supportive measure to the business operations, but also as a fraud prevention
measure as well. Because we have limited financial personnel, and limited
resources, compliance with segregation of duties and proper oversight of control
requirements is extremely difficult  In connection with the evaluation
referred to in the foregoing paragraph, we have identified no change in our
internal control of financial reporting that occurred during the quarter ended
December 31, 2009, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





We are a
non-accelerated filer and are required to comply with the internal control
reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act
for fiscal years ending December 31, 2009. Although we are working to comply
with these requirements, we have limited financial personnel, making compliance
with Section 404 – especially with segregation of duty control requirements –
very difficult and cost ineffective, if not impossible. This annual report does
not include an attestation report of the Company’s registered public accounting
firm regarding internal control over financial reporting. Management's report
was not subject to attestation by the Company’s registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that
permit the company to provide only management's report in this annual
report.





ITEM
9B. OTHER INFORMATION





During October and through November 30,
2009, the Company received $385,000 in gross proceeds, coincident with a short
term bridge financing (“Bridge Notes”). In exchange for this amount, the Company
issued 10% Promissory Notes that may convert into shares of the Company’s common
stock at the earlier of one year from the date of issue or upon the Company’s
issuance of at least $1,500,000 in a Private Placement financing. The Bridge
Notes are payable in either cash or the Company’s common stock, at the Company’s
discretion. Additionally the Bridge Note investors will receive four shares of
the Company’s common stock for each $1.00 invested in the Bridge Notes.
Accordingly, during the fourth quarter, the Company will issue 1,540,000 shares
of common stock. The net proceeds from the Bridge Notes was approximately
$305,000. The value associated with the 1,540,000 common shares was
approximately $447,000 and was charged to operations during
2009.


32





The
Placement Agent in the Bridge Notes is also a financial advisor to the Company
and a significant shareholder of the Company (Note G(2). The Placement Agent
received approximately $48,000 in fees and expenses coincident with the Bridge
Notes.





The
Bridge Notes will convert to common stock at a price determined by a
contemplated $3,000,000 Private Placement financing.  The Private
Placement terms include a conversion price of the Bridge Notes to the
company’s common stock at the lower of $.25 or a 25% discount to the 10 day
trading weighted average of the closing price of the Company’s common stock
prior to the first closing.





The
beneficial conversion feature from the conversion of the Bridge Notes to common
stock and the debt discount, which is valued at $132,000 based on the effective
conversion price and the market price on the date of issuance, will be amortized
to interest expense using the effective interest method over the life of the
Bridge Notes.


Effective
as of April 9, 2010, upon the authorization and approval of the Audit Committee
of its Board of Directors, the Registrant engaged M&K CPAs, PLLC as its
independent registered public accounting firm. M&K CPAs, PLLC was engaged to
also re-audit the Registrant’s financial statements for the year ended December
31, 2008.


PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.




Directors
and Executive Officers





The
following descriptions provide information covering each executive officer and
director of the Company as of the date of this Report.





Name
            
            Age
            
            PositionRobert
      Baron
            
            70
            
            Chairman
      of the BoardArthur
      P. Bollon, Ph.D.
            
            67
            
            President,
      CEO and DirectorRobert
      Comer, CPA, MBA
            
            77
            
            Interim
      Chief Financial Officer and Secretary and DirectorMario
      Feola, M.D.
            
            83
            
            Chief
      Medical OfficerJan
      Simoni, Ph.D., DVM
            
            59
            
            Acting
      Vice President and Principal Investigator of Research and Development and
      AdvisorGhassan
      Nino, CPA, CMA
            
            42
            
            DirectorRobert
      E. Dragoo, Jr.
            
            70
            
            DirectorLt.
      General Bernhard Mittemeyer, M.D. (U.S. Army, retired)
            
            79
            
            Director





Robert Baronhas served on the
board of directors of the Company since November 2004, and as Chairman of the
board since October 26, 2009.  Currently, Mr. Baron is a director of
Opko Health, Inc., a publicly traded clinical stage biopharmaceutical company,
Andover Medical, Inc., a publicly traded durable medical equipment distributor.
Previously, Mr. Baron served as the President of Cash City, Inc. from 1999 to
2003. Cash City is a payday advance and check cashing business. From 1997 to
1999 Mr. Baron was the President of East Coast Operations for CSS/TSC, Inc., a
distributor of blank t-shirts and fleece and accessories and a subsidiary of
Tultex, Inc., a publicly held company. From 1986 to 1997, Mr. Baron was the
chairman of T Shirt City, Inc., a privately held company.





Arthur P. Bollonhas served on
a full-time basis as our President and Chief Executive Officer since April 8,
2003.  Until October 2009, he also served as Chairman of the
Board.  Dr. Bollon has over 25 years of experience in biotechnology as
an executive, scientist and entrepreneur. In 2003 he co-founded Biogress, LLC, a
biotechnology service company. Between 1991 and 2002, Dr. Bollon was Chairman,
President and Chief Executive Officer of Cytoclonal Pharmaceutics, a publicly
traded biotechnology company which he co-founded in 1991. Cytoclonal
Pharmaceutics completed an initial public offering in 1995. In 1987, Dr. Bollon
was a founder of Wadley Biosciences Inc./Lymphokine Partners, a partnership
between Wadley Cancer Center and Philips Petroleum. Between 1987 and 1990, Dr.
Bollon was Chairman and CEO of the Wadley Biosciences Inc. Between 1979 and
1987, Dr. Bollon served as Chairman of the Department of Molecular Genetics and
Director of Genetic Engineering at the Wadley Cancer Center. Between 1972 and
1979, Dr. Bollon served as an Assistant Professor at the University of Texas
Health Science Center in Dallas. He has also served as Adjunct Professor at the
University of Texas at Dallas. He received his Ph.D. in Molecular Genetics from
Rutgers University and was a Post Doctorate Fellow at Yale
University.


33





Robert Comerhas served as
Interim Chief Financial Officer and Secretary since January 1, 2010 and as a
director since April 6, 2005. Mr. Comer served as Chairman of the Audit
Committee and is a member of the Nominating and Corporate Governance Committee.
From 1994 to the present, Mr. Comer has been involved in contract consulting and
served as our Acting Chief Financial Officer between November 18, 2004 and April
1, 2005. From 1991 to 1994, he served as Chief Financial Officer of Banc One
Management and Consulting Corporation. From 1987 to 1991, Mr. Comer was Managing
Partner of Robert W. Comer & Associates. From 1985 to 1987, Mr. Comer was a
Director of Financial Management Services of InterFirst Corporation. From 1969
to 1981, Mr. Comer was an audit partner with Arthur Andersen & Co. Mr. Comer
received his B.S. and M.B.A. degrees from Indiana University.





Mario Feola is a co-inventor
of HemoTech and has been our full-time Chief Medical Officer since November
1,2004. From December 14, 2003 through October 31,2004, Dr. Feola served as our
Chief Medical Officer on a part-time basis. Between 1994 and 2004, Dr. Feola
served as the Chief of Surgery at the Veteran's Affairs Hospital in Amarillo,
Texas and since 1977, Dr. Feola has served as a Professor of Surgery at Texas
Tech. Dr. Feola has authored or co-authored more than 100 papers, book chapters
and research abstracts. Dr. Feola has been a speaker at many national and
international blood substitute conferences and is a member of numerous
scientific and professional organizations. He received his M.D. degree from the
University of Naples, Italy.





Jan Simoni is a co-inventor of
HemoTech and has served as our Acting Vice President and Principal Investigator
of Research and Development since 2002. On July 13, 2005, the Company entered
into an advisory agreement with Dr. Simoni to receive advisory services on
technical, medical and market issues related to HemoBioTech, including its
second-generation blood substitute, HemoTech. Since 1993, Dr. Simoni has also
served as the Blood Substitute Group Leader and now as Research Professor in the
Department of Surgery at Texas Tech, where he co-invented HemoTech. Since 2004,
he holds a joint appointment as Research Associate Professor in the Department
of Internal Medicine, being involved in the cardiology and nephrology fellows
education process. Between 1990 and 2002, Dr. Simoni served as Assistant
Research Professor and from 2002 to 2007 as Associate Research Professor of
Surgery at Texas Tech. Between 1985 and 1990, Dr. Simoni was a Research
Instructor in the Department of Surgery at Texas Tech. Previously, Dr. Simoni
served as a Research Scientist and Senior Lecturer in the Department of
Pathophysiology at Wroclaw University of Environmental and Life Sciences. Dr.
Simoni is the author or co-author of more than 250 scientific publications
including 86 papers and book chapters, 156 abstracts and several patents. He was
an invited speaker at many national and international blood substitute
conferences and has organized and chaired many blood substitute sessions. Dr.
Simoni is a member of a number of scientific and professional organizations,
including the National Research Honor Society, the American Society for
Artificial Internal Organs (ASAIO), the International Society for Artificial
Cells, Blood Substitutes and Immobilization Biotechnology and the American
Veterinary Medical Association. Dr. Simoni is an Editorial Board member of the
ASAIO Journal and a reviewer for the Journal of Pharmacology and Experimental
Therapeutics, Pharmacological Biochemistry, ASAIO Journal, Artificial Organs,
Nature Biotechnology, Medicinal Research Reviews and Oncogene. Dr. Simoni
received his veterinary medical degree (D.V.M.) and doctoral degree (Ph.D.) from
Wroclaw University of Environmental and Life Sciences. Dr. Simoni is compensated
directly by Texas Tech in accordance with the terms of our sponsored research
agreement with Texas Tech, for which the Company reimburses Texas
Tech.





Ghassan Ninohas served as our
Vice Chairman of the Board since October 6, 2003. Mr. Nino founded our
predecessor-in-interest, HemoBioTech, Inc., a Texas corporation, in December
2001. Between October 6, 2003 and July 15, 2004, Mr. Nino served as our Vice
Chairman and Acting Chief Financial Officer. Mr. Nino resigned as an employee
and officer of the Company, effective as of July 15, 2004, and continues to
serve as our non-executive Vice Chairman of the Board. In April 2003, Mr. Nino
co-founded Biogress LLC, a biotech service company, and has served as its
managing director since that time. In April 2002, Mr. Nino founded Pave Systems
Inc., a technology software company, and has served as its managing director
since that time. In August 1998, Mr. Nino founded Ascend Mobility, Inc., a
business and technology advisory company, and served as a director of Ascend
until March 2004. Mr. Nino expects to continue devoting time to these and other
ventures during his tenure with us. Between 1997 and 1998, Mr. Nino was a
Practice Development Director at Deloitte Touche Tohmatsu.  Mr. Nino
received his M.B.A. degree from California State, Fullerton.





Robert E. Dragoo, Jr.has
served as a director since January 28, 2009. Mr. Dragoo currently serves as the
Chief Operating Officer and Senior Vice President for Administration and Finance
at Texas Tech University which is a significant shareholder of the Company.
Prior to Texas Tech, Mr. Dragoo was a Senior Vice President for Temple Inland
Corporation and is a former Senior Partner of Ernst and Young’s Center for
Business Innovation located in Cambridge Mass. Mr. Dragoo has over 35 years
experience in business management and business performance improvement. He holds
a B.S. in Mechanical Engineering from Texas Tech University, and completed an
Executive MBA program at Harvard University.


34





Lt. General Bernhard Mittemeyer, M.D.
(U.S. Army, retired)has served as a member of our Board of Directors
since December 10, 2004, and currently serves on each of the Audit Committee,
the Compensation Committee and the Nominating and Corporate Governance
Committee. Dr. Mittemeyer served as our Advisory Board Chairman from November 5,
2003 to December 9, 2004. Dr. Bernhard T. Mittemeyer currently serves as
Professor of Urological Surgery in the Department of Urology of the School of
Medicine at the Texas Tech University Health Sciences Center. During his 21
years at Texas Tech, Dr. Mittemeyer served the institution in several positions;
most recently as Interim President of the Health Sciences Center, Interim Dean
of the School of Medicine and as Chief of the Division of Urology. Before
joining Texas Tech in 1986, Dr. Mittemeyer served 28 years in the Army, rising
to the rank of Lieutenant General and retiring in 1985 as Army Surgeon General,
the highest position open to Army physicians. As Surgeon General of the Army
from 1981 to 1985, he was Chief Executive Officer of the Army Medical Department
and Senior Medical Staff Advisor to the Chief of Staff of the Army and the
Secretary of the Army. Prior to his assignment as the Army Surgeon General, Dr.
Mittemeyer served as Commander and Chief Executive Officer of Walter Reed Army
Medical Center, the military’s largest tertiary care, research and teaching
hospital. Other key Army assignments have included: Chief of the Army Medical
Corps and Chief of Professional Services; Commander of the U.S. Army Medical
Command in Korea; Army Division Surgeon and Medical Battalion Commander of the
101st Airborne Division in Vietnam. Dr. Mittemeyer holds numerous military
decorations and citations, including the Distinguished Service Medal, the Army’s
highest peacetime award, as well as the Distinguished Flying Cross and Bronze
Star Medal for valor in combat. Non-military honors include an honorary Doctor
of Law from Movarian College, an honorary Doctor of Science from William Jewell
College and the Alumni Achievement Award in Health Policy from Temple University
School of Medicine. Dr. Mittemeyer received his Doctor of Medicine Degree from
the Temple University School of Medicine in Philadelphia. He has authored or
co-authored more than 40 publications and has made numerous presentations in the
areas of Urology, Surgery, Health Care Administration and Leadership over his
more than 50 year career in medicine.





All
directors hold office until the next annual meeting of stockholders or until
their successors have been elected and qualified.  There are no family
relationships among our directors or executive officers. No director has been a
general partner or executive officer of any business which has filed a
bankruptcy petition or had a bankruptcy petition filed against it. No director
has been convicted of a criminal offense or is the subject of a pending criminal
proceeding. No director has been the subject of any order, judgment, or decree
of any court permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities. No director has been found by a court to have violated a
federal or state securities or commodities law.





Under the
terms of the Company’s Sponsored Research Agreement, dated July 18, 2002, with
Texas Tech University Health Sciences Center, pursuant to which Texas Tech
agreed to assist the Company in continuing to develop the Company’s HemoTech
product as a potential viable human blood substitute, Texas Tech has the right
to designate to our Nominating and Corporate and Governance Committee one person
for consideration by the committee for nomination as a director of our Board.
Dr. Mittemeyer is Texas Tech’s Board designee. Texas Tech’s right to designate a
Board nominee candidate terminated on October 13, 2006.





Under the
terms of our October 2004 private placement, Meyers Associates, L.P. has the
right to designate to our Nominating and Corporate and Governance Committee one
person for consideration by the committee for nomination as a director of our
Board or alternatively, at its option, to designate one person to attend all
meetings of the Board. Robert Baron is Meyers Associates, L.P.’s Board designee.
Meyers Associates’, L.P. right to designate a Board nominee candidate was to
terminate when Meyers Associates, L.P. no longer owned at least 10% of our
outstanding capital stock, however, that right will continue upon completion of
the pending Offering.





Board
Committees




The
Company has a standing Audit Committee, which was formed in April, 2005, a
standing Compensation Committee, which was formed in April, 2005, and a standing
Nominating and Corporate Governance Committee, which was formed in May
2006.





The Audit
Committee currently consists of Bernhard Mittemeyer, Robert Baron and Robert E.
Dragoo, Jr. (Chairman) who joined the committee on January 28, 2009. The Audit
Committee has adopted a formal written charter, which is available on the
Company’s website at www.hemobiotech.com.  Each of Messrs. Mittemeyer,
Baron and Dragoo is “independent” under Rule 10A-3(b)(1)(ii) under the Exchange
Act, and Messrs. Mittemeyer, Baron and Dragoo are “independent” under Rule
4200(a)(15) of the Financial Industry Regulating Authority
(“FINRA”).  In addition, the Board of Directors has determined that
Mr. Dragoo qualifies as an “audit committee financial expert” within the meaning
of the SEC rules.





The
Compensation Committee currently consists of Bernhard Mittemeyer, Robert Baron
(Chairman) and [Robert Comer]. The Compensation Committee has adopted a formal
written charter, a copy of which is available on the Company’s website at
www.hemobiotech.com.  Dr. Mittemeyer is independent under Rule
4200(a)(15) of the FINRA.





The
Nominating and Corporate Governance Committee consists of Bernhard Mittemeyer,
Robert Baron (Chairman), Robert Comer and Robert E. Dragoo, Jr. who joined the
committee on January 28, 2009.  The Nominating and Corporate
Governance Committee has adopted a formal written charter, a copy of which is
available on the Company’s website at www.hemobiotech.com.  Dr.
Mittemeyer is independent under Rule 4200(a)(15) of the FINRA.


35





The
membership of and information about each of our Board committees is shown
below.





Committee/Current
Members




Audit
Committee


Dr.
Mittemeyer


Mr.
Baron


Mr.
Dragoo (Chairman)





Committee
Functions




·
            Oversees
      financial and operational matters involving accounting, corporate finance,
      internal and independent auditing, internal control over financial
      reporting, compliance, and business
ethics.





·
            Oversees
      other financial audit and compliance functions as assigned by the
      Board.





·
            Reviews
      areas of potential significant financial risk to the
    Company.





·
            Has
      the sole authority to select, evaluate, replace and oversee the Company’s
      independent registered public accounting
  firm.





·
            Has
      the sole authority to approve non-audit services to be performed by the
      independent registered public accounting
  firm.





·
            Monitors
      the independence and performance of the independent registered
      public accounting firm.





·
            Provides
      an avenue of communications among the independent registered
      public accounting firm, management and the Board of
      Directors.





·
            Determines
      whether “related party transactions” are
  permissible.





Compensation
Committee


Mr. Baron
(Chairman)


Dr.
Mittemeyer


Robert
Comer





Committee
Functions





·
            Reviews
      the performance of Company officers and establishes overall
      executive compensation policies and
  programs.





·
            Reviews
      and approves compensation elements such as base salary, bonus awards,
      stock option grants and other forms of long–term incentives for
      Company officers (no member of the committee may be a member of
      management or eligible for compensation other than as a
      director).





·
            Reviews
      succession plans for Company
officers.





·
            Reviews
      Board compensation and stock ownership
matters.




Nominating
and Corporate Governance Committee


Mr. Baron
(Chairman)


Dr.
Mittemeyer


Mr.
Comer


Mr.
Dragoo


36





Committee
Functions




·
            Develops
      criteria to determine the qualifications and appropriate tenure of
      directors.





·
            Reviews
      such qualifications and makes recommendations to the Board regarding
      the nomination of current directors for re-election to the Board as
      well as new nominees to fill vacancies on the
  Board.





·
            Considers
      stockholder recommendations for Board nominees, as described
      below.





·
            Recommends
      to the Board the chairmanship and membership of each Board
      committee.





·
            Considers
      applicable social and ethical issues and other matters of significance in
      areas related to corporate public
affairs.




Nominating
and Corporate Governance Committee Matters




The
Nominating and Corporate Governance Committee expects, as minimum
qualifications, that nominees to the Board (including incumbent directors) will
enhance the Board’s management, finance and/or scientific expertise, will not
have a conflict of interest and will have a high ethical standard and, with
respect to new members of the Board, a willingness to serve at least an initial
three-year term for the committee to recommend them to the Board of Directors. A
director nominee’s knowledge and/or experience in areas such as, but not limited
to, the medical, pharmaceutical, biotechnology, biopharmaceutical or life
sciences industry, equity and debt capital markets and financial accounting are
likely to be considered both in relation to the individual’s qualification to
serve on our Board of Directors and the needs of the Board as a whole. Other
characteristics, including, but not limited to, the director nominee’s material
relationships with the Company, time availability, service on other boards of
directors and their committees, or any other characteristics which may prove
relevant at any given time as determined by the Nominating and Corporate
Governance Committee shall be reviewed for purposes of determining a director
nominee’s qualification.




Candidates
for director nominees are evaluated by the Nominating and Corporate Governance
Committee in the context of the current composition of the Board, the operating
requirements of the Company and the long-term interests of the Company’s
stockholders. In the case of new director candidates, the Nominating and
Corporate Governance Committee also determines whether the nominee would be
considered “independent” under Rule 4200(a)(15) of the NASD, applicable SEC
rules and regulations and the advice of counsel, if necessary. The Nominating
and Corporate Governance Committee then uses its network of contacts to compile
a list of potential candidates, but may also engage, if it deems appropriate, a
professional search firm. The Nominating and Corporate Governance Committee
conducts any appropriate and necessary inquiries into the backgrounds and
qualifications of possible candidates after considering the function and needs
of the Board. In the case of incumbent directors whose terms of office are set
to expire, the Nominating and Corporate Governance Committee reviews such
directors’ overall service to the Company during their term, including the
number of meetings attended, level of participation, quality of performance, and
any other relationships and transactions that might impair such directors’
independence. The Nominating and Corporate Governance Committee meets to discuss
and consider such candidates’ qualifications and then selects a nominee for
recommendation to the Board by majority vote. The Nominating and Corporate
Governance Committee does not intend to alter the manner in which it evaluates
candidates, including the minimum criteria set forth above, based on whether the
candidate was recommended by a stockholder or not. To date, the Nominating and
Corporate Governance Committee has not paid a fee to any third party to assist
in the process of identifying or evaluating director candidates.




The
Nominating and Corporate Governance Committee will evaluate and recommend each
of the directors currently standing for re-election at the next Annual
Meeting.




The Board
of Directors does not impose term limits or a mandatory retirement age for
directors. While it is believed that a director’s knowledge and/or experience
can continue to provide benefit to the Board of Directors following a director’s
retirement from his or her primary work affiliation, it is recognized that a
director’s knowledge of and involvement in ever changing business
environments can weaken, and therefore his or her ability to continue to be an
active contributor to the Board of Directors shall be reviewed. Upon a
director’s change in employment status, he or she is required to notify the
Chairman of the Board of Directors and the Chair of the Nominating and Corporate
Governance Committee of such change and to offer his or her resignation for
review.


37





Stockholder
Nomination Policy




It is our
policy to review and consider all candidates for nomination and election as
directors who may be suggested by any director or executive officer of the
Company. Our policy is also to refer to the Nominating and Corporate Governance
Committee for consideration any director candidate recommended by any
stockholder if made in accordance with the Company’s charter, bylaws and
applicable law. To be considered, a recommendation for director nomination
should be submitted in writing to: HemoBioTech, Inc., Nominating and Corporate
Governance Committee, Attention: Chief Financial Officer, 5001 Spring Valley
Road, Suite 1040 - West, Dallas, Texas 75244.




Code
of Business Conduct and Ethics and Guidelines on Governance Issues




Our Board
has adopted a Code of Business Conduct and Ethics applicable to all officers,
directors and employees, a copy of which is available on the Company’s website
at www.hemobiotech.com. The Company will provide a copy of this code to any
person, without charge, upon request, by writing to the Company at HemoBioTech,
Inc., Attention: Chief Financial Officer, 5001 Spring Valley Road, Suite 1040 -
West, Dallas, Texas 75244. We intend to satisfy the disclosure requirement under
Item 5.05 of
Form 8-K regarding an amendment to, or waiver from, a provision of the Code of
Business Conduct and Ethics by posting such information on our website at the
address specified above.




Communications
with the Board




Stockholders
may communicate in writing with our Board of Directors, any of its committees,
or with any of its non-management directors by sending written communications
addressed to: HemoBioTech, Inc., Attention: Chief Financial Officer, 5001 Spring
Valley Road, Suite 1040 - West, Dallas, Texas 75244. Our Chief Financial Officer
will review each communication and will forward such communication to the Board
or to any individual director to whom the communication is addressed unless the
communication is unduly hostile, threatening or similarly inappropriate, in
which case, the Chief Financial Officer shall discard the
communication.




Policies
on Reporting Certain Concerns Regarding Accounting and Other
Matters




We have
adopted policies on the reporting of concerns regarding accounting, internal
accounting controls or auditing matters to the Audit Committee. Any person who
has a concern regarding accounting, internal accounting controls and auditing
controls and auditing matters may submit that concern to: HemoBioTech, Inc.,
Attention: Chief Financial Officer, 5001 Spring Valley Road, Suite 1040 - West,
Dallas, Texas 75244. Employees may communicate all concerns regarding
accounting, internal accounting controls and auditing matters to the Audit
Committee on a confidential and anonymous basis through the Company’s compliance
officer: complianceofficer@hemobiotech.com. This e-mail address is checked
routinely and any information is recorded and reported to the Audit Committee
Chairman.




Board
Compensation and Benefits




Retainer, Fees
and Expenses.Non-employee directors
are entitled to receive retainers in quarterly increments based on an annualized
rate of $15,000 a year.  Cash compensation of $7,500 was
paid during the year ended December 31, 2009 to each non-employee
director.




Further,
we will reimburse our directors for reasonable accommodations, coach travel and
other miscellaneous and customary expenses relating to such director’s
attendance of Board meetings, payable promptly on submission of actual receipts
for such expenses.




No
directors currently receive consulting fees from the Company. Directors who are
also employees of the Company (currently, only Dr. Bollon and Mr. Comer) receive
no additional compensation for service on the Board.




Stock
Options. On
joining the Board, each non-employee director receives an option to purchase
15,000 shares of common stock, which will vest immediately, and will become
eligible to receive, at the end of each calendar quarter, an additional option
to purchase 7,000 shares of common stock, all of which will vest
immediately.  The exercise price of these options for our directors
owning less than 5% of our common stock will be the fair market value of our
common stock as of the last Friday of each quarter and have a term of ten
years.  For all directors with a 5% or greater ownership in our common
stock, the exercise price shall be 110% of the fair market value at the date of
grant and the option term will be five years.


38





Director
Compensation Table





During
the year ended December 31, 2009, our Directors each received $7,500 cash
compensation.  Our non-employee directors earned option grants to purchase
28,000 shares of common stock and options granted at fair market value to
purchase $15,000 of Common Stock.  The financial statement
compensation cost for stock option awards granted to five non-employee directors
during 2009 was $110,685 and was recognized in our statement of operations for
the year 2009.  The compensation cost is based on the fair value of
the stock option grants as estimated using the Black-Scholes option pricing
model.  The assumptions used to estimate fair value are discussed in
Note F(6) to our consolidated financial statements included in our Annual Report
on Form 10-K for the year ended December 31, 2009.





As of
December 31, 2009, the non-employee Directors held (or were entitled to receive)
options to purchase the following numbers of shares of our common stock: Mr.
Baron: 154,000; Mr. Comer: 149,000; Dr. Mittemeyer: 186,582; Mr. Nino: 136,000
and Mr. Dragoo: 78,000.





ITEM
11.  EXECUTIVE COMPENSATION




Summary
Compensation Table




The
following table sets forth certain summary information for the two
years ended December 31, 2009, indicated with respect to the compensation
awarded to, earned by, or paid to our Chief Executive Officer and each of the
other most highly compensated executive officers of HemoBioTech whose total
annual salary and bonus exceeded $100,000. We refer to these executive officers
in this proxy statement as the “Named Executive Officers.”




Name and Principal
                                                          Position
                                                        
                                                        Year
                                                        
                                                        Salary ($)
                                                        
                                                        Bonus
                                                          ($)
                                                        
                                                        Option
                                                          Awards ($)
                                                          (1)
                                                        
                                                        
                                                        Non-Equity
                                                          Incentive Plan
                                                          Compensation ($)(2)
                                                        
                                                        
                                                        All
                                                          Other
                                                          Compensation ($)
                                                        
                                                        
                                                        Total ($)Arthur
      P. Bollon, Ph.D.,Chairman
      of the Board, Chief Executive Officer & President
                                                        
                                                        2009
                                                        
                                                        $
                                                        136,241
                                                        
                                                        
                                                        
                                                        
                                                        23,751
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        159,9922008
                                                        
                                                        
                                                        230,957
                                                        
                                                        
                                                        
                                                        
                                                        54,707
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        285,664Mark
      J. Rosenblum, C.P.A.,Chief
      Financial Officer & Secretary
                                                        
                                                        2009
                                                        
                                                        $
                                                        101,104
                                                        
                                                        
                                                        
                                                        
                                                        47,305
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        148,4092008
                                                        
                                                        
                                                        161,360
                                                        
                                                        
                                                        
                                                        
                                                        97,929
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        259,289Mario
      Feola, M.D.,Chief
      Medical Officer
                                                        
                                                        2009
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        -0-2008
                                                        
                                                        
                                                        58,461
                                                        
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        58,461Jan
      Simoni, Ph.D., DVM,Acting
      Vice President and Principal Investigator of Research and
      Development
                                                        
                                                        2009
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        
                                                        
                                                        39,787
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        39,7872008
                                                        
                                                        
                                                        54,575
                                                        
                                                        
                                                        
                                                        
                                                        71,443
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        126,018





Footnotes





(1)
            The
      amounts in this column equal the financial statement compensation cost for
      stock option awards as recognized in our statement of operations for the
      year 2008 and 2009.  The compensation cost is based on the fair
      value of the stock option grants as estimated using the Black-Scholes
      option pricing model.  The assumptions used to estimate fair
      value are discussed in Note F(6) to our consolidated financial statements
      included in our Annual Report on Form 10-K for the years ended December
      31, 2009 and 2008.




39




(2)
            We
      awarded bonuses to the Named Executive Officers based on our achievement
      of certain performance targets and the Executive Officers’ employment
      agreements. Accordingly, bonus amounts are reported in the Non-Equity
      Incentive Plan Compensation column.





Stock
Option Grants and Exercises




The
Company may grant options to its executive officers under the Amended and
Restated 2003 Stock Option/Stock Issuance Plan (the “Plan”). As of December 31,
2009, options to purchase a total of 2,223,115 shares were outstanding under the
Plan and options to purchase 120,916 shares remained available for grant under
the Plan. Generally, the exercise price per share for the options granted under
the Plan will not be less than the fair market value of the stock on the date of
grant.




Our
Compensation Committee administers the Plan. Subject to the terms of the Plan,
the Compensation Committee determines the recipients, the number and type of
stock options to be granted, the exercise price and the terms and conditions of
the stock options.




Outstanding
Equity Awards at Fiscal Year End




The
following table shows information regarding grants of stock options held by our
Named Executive Officers at December 31, 2009.  We have never granted
any stock appreciation rights.





Option AwardsName
                    
                    Number
                      of
                      Securities
                      Underlying
                      Unexercised
                      Options
                      (#)
                      Exercisable
                    
                    
                    Number
                      of
                      Securities
                      Underlying
                      Unexercised
                      Options
                      (#)
                      Unexercisable
                    
                    
                    Option
                      Exercise
                      Price
                      ($)
                    
                    Option
                      Expiration
                      DateArthur
      P. Bollon, Ph.D.
                    
                    
                    80,558
                    
                    
                    
                    30,554
                    
                    
                    
                    1.25
                    
                    April 24, 2013Mario
      Feola, M.D.
                    
                    
                    271,528
                    
                    
                    
                    0
                    
                    
                    
                    .18
                    
                    December 15, 2013Jan
      Simoni, Ph.D., DVM
                    
                    
                    271,528
                    
                    
                    
                    0
                    
                    
                    
                    .18
                    
                    July 13, 2015





Other
Benefits




We offer
medical insurance for all of our employees. The cost to the Company for
providing these benefits in 2009 for our Named Executive Officers was
approximately $42,202.





The
Company does not presently sponsor a defined contribution 401(k) savings plan
for its employees and does not maintain any other retirement or pension plan for
its employees.





Change
in Control Arrangements




Our 2003
Plan provides that each grant may provide for the earlier exercise of an option
right in the event of a "Change-in-Control" or similar event. For this purpose,
a "Change-in-Control" includes (1) a stockholder-approved merger, consolidation
or other reorganization in which securities representing more than 50% of the
total combined voting power of the Company's outstanding securities are
beneficially owned, directly or indirectly, by a person or persons different
from the person or persons who beneficially owned those securities immediately
prior to such transaction; (2) a stockholder-approved sale, transfer or other
disposition of all or substantially all of the Company's assets; or (3) the
acquisition, directly or indirectly, by any person or related group of persons
(other than the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company), of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities
possessing more than 50% of the total combined voting power of the Company's
outstanding securities from a person or persons other than the Company.
Following specified Change-in-Control transactions, the vesting and exercise of
specified equity awards generally will be accelerated only if the awardee's
award agreement so specifies. The standard form of stock option agreement
provides for the option to become fully vested and exercisable immediately prior
to the effective date of a Change-in-Control; provided that the option will not
become exercisable on an accelerated basis if and to the extent: (i) the option
is to be assumed by the successor corporation (or parent thereof) or is
otherwise to be continued in full force and effect pursuant to the terms of the
Change-in-Control transaction or (ii) the option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the option shares covered by the option at the time of the
Change-in-Control and provides for the subsequent payout of that spread no later
than the time the option shares would have otherwise become
exercisable.


40


Our
employment agreements with our Named Executive Officers contain provisions
triggered by a change in control. See "Employment Agreements and Other
Arrangements" below.





Employment
Agreements and Other Arrangements




Employment
Agreement with Arthur P. Bollon. On October 6, 2003, we entered into an
amended employment agreement with Dr. Bollon, under which Dr. Bollon agreed to
serve as our Chairman of the Board, President and Chief Executive Officer for an
initial term of three years, automatically renewable for one-year periods unless
otherwise terminated by either party on at least 90 days' prior written notice.
In exchange for his services, we agreed to pay Dr. Bollon an annual base salary
of $265,000 plus annual cost-of-living increases and health benefits. The
parties agreed that payment of Dr. Bollon's base salary and benefits would be
deferred until such time as the Company raised at least $4.0 million. On July
15, 2004, Dr. Bollon agreed to forgive all deferred compensation and benefits
accrued and owing as of October 13, 2004, the date of the closing of the minimum
offering of our private placement financing. Commencing as of October 13, 2004
and through such time as we complete a subsequent financing of $10.0 million,
Dr. Bollon has agreed to an adjusted base salary at the rate of $150,000 per
annum, payable in accordance with his employment agreement. In addition to Dr.
Bollon's base salary and benefits package agreed to in October 2003, we granted
to Dr. Bollon an option to purchase 651,668 shares of our common stock at an
exercise price of $.20, all of which were fully vested and exercisable as of
April 23, 2007.





On
January 3, 2005, the Company and Dr. Bollon agreed to extend the term of his
employment to October 6, 2007. Under an amendment to Dr. Bollon's employment
agreement, dated April 6, 2005, we agreed that following our consummation of
equity and bank financings having gross proceeds to us of at least $10.0
million, Dr. Bollon's base salary will be increased and Dr. Bollon will be
entitled to receive an annual bonus equal to 25% of his then-effective base
salary. In the event Dr. Bollon's employment with us is terminated other than
voluntarily by Dr. Bollon or for "just cause", Dr. Bollon will be entitled to
receive a pro rated portion of the bonus that would otherwise have been due.
Further, we agreed that, on the consummation of such a $10.0 million financing,
Dr. Bollon will be entitled to receive a onetime bonus in the amount of $52,500
and the term of his employment will be extended to the three-year anniversary of
the closing date of such $10.0 million financing. Effective November 17, 2005,
the agreement was further amended to provide an increased current base salary
and extension of the employment agreement to October 6, 2008. On April 23, 2008,
Dr. Bollon’s employment agreement was extended through October 31,
2010.





Dr.
Bollon's employment agreement will terminate on the earlier of (1) its
expiration, (2) the mutual agreement of the parties, (3) the voluntary
termination of Dr. Bollon other than as a result of a Constructive Termination
Event (as defined below), (4) Dr. Bollon's death or disability, and (5)
termination of Dr. Bollon for cause. In the event of Dr. Bollon's voluntary
termination or on termination for cause, Dr. Bollon will not be entitled to
receive any Severance Payment (as defined in the employment agreement) and will
be entitled to receive only his base salary through the effective date of
termination. In the event of Dr. Bollon's termination without cause (i.e.,
following a Constructive Termination Event, as defined in the employment
agreement, or on Dr. Bollon's death) or as a result of a disability, Dr. Bollon
will be entitled to receive severance payments of equal monthly installments of
his then base salary for a minimum of six and a maximum of twelve months
salary.





As
partial consideration for his base salary, Dr. Bollon agreed that he would not,
during the term of his employment agreement, directly or indirectly invest or
engage in any business that competes with our business or accept any employment
or render services to any business that competes with our business, except that
Dr. Bollon would be permitted to own up to 5% of any outstanding class of
securities of any public company. In addition, Dr. Bollon agreed that, for a
period of one year following termination of his employment agreement, he would
not engage, hire, employ orsolicit the employment
of any employee of ours. Further, under the terms of Dr. Bollon's employment
agreement and a Technology Assignment Agreement dated October 31, 2003, Dr.
Bollon agreed to assign to us all of his right, title and interest in and to any
and all inventions, discoveries, developments, improvements, techniques, designs
and data related to blood substitutes. Finally, under the terms of Dr. Bollon's
employment agreement and a confidentiality, proprietary information and
inventions agreement, dated October 31, 2003, Dr. Bollon agreed not to use or
disclose any of our confidential information or trade secrets at any
time.


41


During
April 2008, we granted Dr. Bollon 100,000 stock options and in October 2008, Dr.
Bollon exercised 651,668 options and received a like amount of our common
stock.





Employment
Agreement with Mario Feola. On December 14, 2003, we entered into an
employment agreement, under which Dr. Feola agreed to serve as our Chief Medical
Officer. Dr. Feola is a co-inventor of our product, HemoTech. The agreement
called for an initial base salary and included an option grant in the amount of
271,528 options.  The agreement was amended on July 15, 2004 to state
that Dr. Feola would act as a part-time Chief Medical Officer until such time as
the private placement was consummated.  Dr. Feola has been our
full-time Chief Medical Officer since October 27, 2004. Dr. Feola or the Company
may terminate the employment relationship with or without cause at any
time.




Arrangement with
Dr. Jan Simoni. Dr. Simoni has served as our Acting Vice President and
Principal Investigator of Research and development since 2002, through a
Sponsored Research Agreement with Texas Tech Health Sciences Center, where he is
employed, and an Advisor since July, 2005. Since 1993, Dr. Simoni has served as
the Blood Substitute Group Leader at Texas Tech and is an Associate Professor of
Research in the Department of Surgery at Texas Tech, where Dr. Simoni
co-invented HemoTech. Dr. Simoni’s advisory agreement may be terminated by
himself or the Company upon sixty days written notice.





On July
13, 2005, the Company entered into an advisory agreement with Dr. Simoni to
receive advisory services on technical, medical and market issues related to
HemoBioTech, including its second generation blood substitute, HemoTech. The
agreement provides for 271,528 non-qualified stock options to purchase shares of
our common stock.





Confidentiality
and Indemnification Agreements





In
connection with their respective employment, consulting and advisory agreements,
each of the foregoing individuals have either entered into separate
confidentiality, proprietary information and inventions agreements or else such
confidentiality provisions were contained in each individual's employment,
consulting or advisory agreement. In addition, we have entered into
indemnification agreements with each of Mr. Nino, Dr. Bollon, Mr. Baron, Dr.
Mittemeyer and Mr. Comer under which we have agreed to indemnify each of such
individuals from and against all claims that may be brought against them as a
result of their position as an executive officer or member of our Board of
Directors.





Limitation
of Liability and Indemnification Matters





Our
certificate of incorporation eliminates the personal liability of our directors
for monetary damages arising from a breach of their fiduciary duty as directors
to the fullest extent permitted by Delaware law. This limitation does not affect
the availability of equitable remedies, such as injunctive relief or rescission
damages. Our certificate of incorporation requires us to indemnify and advance
expenses to our directors to the fullest extent permitted by Delaware law,
including in circumstances in which indemnification is otherwise discretionary
under Delaware law. Our certificate of incorporation provides that we may
indemnify and advance expenses to any officer, employee or agent of the Company
or any other person that we are permitted to indemnify under Delaware
law.




Under
Delaware law, we may indemnify our directors or officers or other persons who
were, are or are threatened to be made a named defendant or respondent in a
proceeding because the person is or was our director, officer, employee or
agent, if we determine that the person:




·
            conducted
      himself or herself in good faith, reasonably believed, in the case of
      conduct in his or her official capacity as our director or officer, that
      his or her conduct was in our best interests, and, in all other cases,
      that his or her conduct was at least not opposed to our best interests;
      and





·
            in
      the case of any criminal proceeding, had no reasonable cause to believe
      that his or her conduct was
unlawful.




These
persons may be indemnified against expenses, including attorneys fees,
judgments, fines, including excise taxes, and amounts paid in settlement,
actually and reasonably incurred, by the person in connection with the
proceeding. If the person is found liable to the corporation, no indemnification
will be made unless the court in which the action was brought determines that
the person is fairly and reasonably entitled to indemnity in an amount that the
court will establish.


42





Insofar
as indemnification for liabilities under the Securities Act may be permitted to
directors, officers or persons controlling us under the above provisions, we
have been informed that, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.





ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS





The
following table sets forth information as of December 31, 2009 (except as noted)
regarding the beneficial ownership of our Common Stock by:




·
            each
      person, or group of affiliated persons, who is known by us to own
      beneficially 5% or more of our Common
Stock;




·
            each
      of our directors and Named Executive Officers;
  and




·
            all
      our directors and executive officers as a
group.




The
number of shares owned and percentage ownership in the following table is based
on 23,493,434 shares of Common Stock outstanding on December 31,
2009.  Except as otherwise indicated below, the address of each
officer; director and 5% stockholder listed below is c/o HemoBioTech, Inc., 5001
Spring Valley Road, Suite 1040 - West, Dallas, Texas 75244.




We have
determined beneficial ownership in accordance with the rules of the SEC. These
rules generally attribute beneficial ownership of securities to per ns who
possess sole shared voting power or investment power with respect to those
securities. In addition, the rules include issues of Common Stock issuable
pursuant to the exercise of stock options that are either immediately
exercisable or exercisable within 60 days of December 31, 2009. These shares are
deemed to be outstanding and beneficially owned by the person holding those
options for the purpose of computing the percentage ownership of that person,
but they are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise indicated, we believe
that the persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially owned by
them.




Name and Address of Beneficial
      Owner
                
                Number of Shares
                
                
                Percentage of Shares Beneficially
                    Owned5%
      Stockholders:Nino
      Partners, LLC
                
                
                1,851,047
                (1)
                
                
                7.8
                %15889
      Preston Road, Ste. 2006
                  Dallas,
      Texas 75248Russell
      Cleveland
                
                
                2,955,999
                (2)
                
                
                12.6
                %c/o
      Renn Capital Group, Inc.
                  8080
      N. Central Expressway, Suite 210, LB-59
                  Dallas,
      TX 75206Renn
      Capital Group, Inc.
                
                
                2,955,999
                (2)
                
                
                12.6
                %8080
      N. Central Expressway, Suite 210, LB-59
                  Dallas,
      TX 75206Renaissance
      US Growth Investment Trust PLC
                
                
                1,710,000
                (2)
                
                
                7.3
                %c/o
      Renn Capital Group, Inc.
                  8080
      N. Central Expressway, Suite 210, LB-59
                  Dallas,
      TX 75206US
      Special Opportunities Trust PLC
                
                
                1,245,999
                (2)
                
                
                5.3
                %c/o
      Renn Capital Group, Inc.
                  8080
      N. Central Expressway, Suite 210, LB-59
                  Dallas,
      TX 75206Renaissance
      Capital Growth & Income Fund III, Inc.
                
                
                1,200,000
                (3)
                
                
                5.1
                %8080
      N. Central Expressway, Suite 210, LB-59
                  Dallas,
      TX 75206Texas
      Tech University System
                
                
                1,914,585
                (4)
                
                
                8.1
                %3601
      4th
      Street, BA 112
                  Lubbock,
      TX 79430-6206Meyers
      Associates, L.P.
                
                
                1,683,500
                (5)
                
                
                7.2
                %45
      Broadway, 2nd
      Floor
                  New
      York, NY 10006Bruce
      Meyers
                
                
                1,683,500
                (6)
                
                
                7.2
                %45
      Broadway, 2nd
      Floor
                  New
      York, NY 10006Management:Robert
      Baron
                
                
                243,254
                (7)
                
                
                1.0
                %Arthur
      P. Bollon, Ph.D.
                
                
                1,822,617
                (8)
                
                
                7.7
                %Robert
      Comer, CPA, MBA
                
                
                149,000
                (9)
                
                
                *Mario
      Feola, M.D.
                
                
                271,528
                (10)
                
                
                1.1
                %Jan
      Simoni, Ph.D., DVM
                
                
                271,528
                (11)
                
                
                1.1
                %Ghassan
      Nino, CPA, CMA
                
                
                3,293,387
                (12)
                
                
                13.9
                %Robert
      E. Dragoo, Jr.
                
                
                78,000
                (13)
                
                
                *Bernhard
      Mittemeyer, M.D.
                
                
                186,582
                (14)
                
                
                *All
      Directors and Executive Officers as a group
                  (8
      persons)
                
                
                6,315,896
                (15)
                
                
                25.6
                %


*
Represents less than 1 % of the outstanding shares of our Common
Stock.


43


(1)
            The
      indicated ownership is based solely on a Schedule 13G/A filed with the SEC
      by the beneficial owners on February 14, 2009. The Schedule 13G/A was
      filed on behalf of Ghassan Nino, the Vice Chairman of our Board of
      Directors, Nino Partners, LLC, a Texas limited liability company (“Nino
      Partners”). Mr. Nino is the Managing Member of Nino Partners and, as such,
      has sole voting and dispositive power with respect to the 1,851,047 shares
      of Common Stock owned of record by Nino
  Partners.




(2)
            The
      indicated ownership is based solely on a Schedule 13G filed with the SEC
      by the beneficial owners on February 14, 2008.  The Schedule 13G
      was filed on behalf of US Special Opportunities Trust PLC (“BFS”),
      Renaissance US Growth Investment Trust PLC (“R US”), RENN Capital Group,
      Inc. (“Renn”) and Russell Cleveland. Renn is the investment adviser to BFS
      and the investment manager to R US. Mr. Cleveland is the President and
      Chief Executive Officer of Renn. As of February 14, 2008, each of BFS and
      R US was the owner of record and beneficial owner of 1,245,999 and
      1,710,000 shares of Common Stock, respectively. Each of BFS and R US share
      voting and dispositive power over their respective shares with Renn. Mr.
      Cleveland may be deemed to be the beneficial owner of the shares of Common
      Stock beneficially owned by Renn.




(3)
            The
      indicated ownership is based solely on a Schedule 13G filed with the SEC
      by Renaissance Capital Growth & Income Fund III, Inc. (“RCG”) on
      February 14, 2007. RCG has sole voting and dispositive power over
      1,200,000 shares of Common Stock.




(4)
            Under
      the terms of the license agreement with Texas Tech, in lieu of receiving
      royalty payments under the license agreement, we agreed to issue to Texas
      Tech a payment equal to 5% of our then-authorized capital stock (678,820
      shares), subject to anti-dilution protection. In May 2004, TTU agreed to
      waive its anti-dilution protection in exchange of 135,765 shares of Common
      Stock. The Chancellor of Texas Tech University System has sole voting and
      dispositive power with respect to the shares of our Common Stock owned by
      Texas Tech. On May 5, 2008, the Company agreed to license certain
      technology from TTUHSC titled Orthogonal Method for the Removal of
      Transmissible Spongiform Encephalopathy Agents from Biological Fluids
      (“ORTH Technology”). Under the terms of this new license agreement, we
      issued Texas Tech 500,000 shares of the Company’s Common
      Stock.  In December 2009, the Company issued 600,000 additional
      shares of the Company’s Common Stock for past services conducted by
      TTU.




(5)
            The
      indicated ownership is based solely on a Schedule 13G filed with the SEC
      by Bruce Meyers on September 2, 2009.  The number of shares of
      Common Stock that Meyers Associates, L.P. could be deemed to beneficially
      own includes: (a) 1,158,500 shares of our Common Stock, issued to Meyers
      Associates, L.P. including 437,500 shares in connection with our October
      2004 private placement and 721,000 shares pursuant to the financial
      consulting services agreement dated September 12, 2006 and (b) 525,000
      shares issued to Bruce Meyers as president of Meyers Associates,
      L.P.  There are 779,000 restricted shares issued and outstanding
      under the 2006 financial consulting services agreement which are subject
      to forfeiture upon the failure of the consultant to achieve certain
      performance criteria, including assisting the Company in raising
      additional capital, as set forth in the
  agreement.


44


The
foregoing does not include the following warrants beneficially owned by Meyers
Associates, L.P. because of an agreement by the holders of such warrants to not
exercise such warrants until six months after the effectiveness of a
registration statement registering the shares underlying such warrants: (i) a
warrant to purchase 787,960 shares of our Common Stock; (ii) a warrant to
purchase 690,888 shares of our Common Stock issued to Bruce Meyers, the
President of Meyers Associates, L.P., which were issued to Mr. Meyers on the
consummation of our October 2004 private placement; (iii) warrants to purchase
an aggregate of 539,000 shares of Common Stock issued to Meyers Associates upon
completion of our 2009 Bridge Offering; (iv) warrants to purchase 70,000
shares of Common Stock issued to Meyers Associates upon completion of our 2010
Bridge Offering, and (v) a warrant to purchase 441,180 shares to Imtiaz Khan,
Meyers Associates’, L.P. Managing Partner.  In accordance with the
terms of our December 2007 Private Placement Offering, Meyers Associates, L.P.
received 30% of all warrants issued to investors. Accordingly, Meyers
Associates, L.P. was issued a warrant to purchase 212,136 shares of our Common
Stock on December 31, 2008, a warrant to purchase 90,535 shares of our Common
Stock in March, 2008 and a warrant to purchase 52,500 shares of our Common Stock
in June, 2008.




(6)
            The
      number of shares of Common Stock that Meyers Associates, L.P. could be
      deemed to beneficially own includes: (a) 1,158,500 shares of our Common
      Stock, issued to Meyers Associates, L.P. including 437,500 shares in
      connection with our October 2004 private placement and 721,000 shares
      pursuant to the financial consulting services agreement dated September
      12, 2006 and (b) 525,000 shares issued to Bruce Meyers as president of
      Meyers Associates, L.P.  There are 779,000 restricted shares
      issued and outstanding under the 2006 financial consulting services
      agreement which are subject to forfeiture upon the failure of the
      consultant to achieve certain performance criteria, including assisting
      the Company in raising additional capital, as set forth in the
      agreement.




The
foregoing does not include the following warrants beneficially owned by Bruce
Meyers because of an agreement by the holders of such warrants to not exercise
such warrants until six months after the effectiveness of a registration
statement registering the shares underlying such warrants: (i) a warrant to
purchase an aggregate of 690,888 shares of our Common Stock allocated to Mr.
Meyers by Meyers Associates, L.P. out of the 2,382,372 warrants that we issued
to Meyers Associates, L.P. in connection with our October 2004 private
placement; (ii) warrants to purchase 787,960 shares of our Common Stock issued
to Meyers Associates, L.P. in connection with our October, 2004 private
placement; (iii) warrants to purchase an aggregate of 539,000 shares of Common
Stock issued to Meyers Associates upon completion of our 2009 Bridge Offering,
and (iv) warrants to purchase 70,000 shares of Common Stock issued to Meyers
Associates upon completion of our 2010 Bridge Offering.  In accordance
with the terms of our December 2007 Private Placement Offering, Meyers
Associates, L.P. received 30% of all warrants issued to investors. Accordingly,
Meyers Associates, L.P. was issued a warrant to purchase 212,136 shares of our
Common Stock on December 31, 2008, a warrant to purchase 90,535 shares of our
Common Stock in March, 2008 and a warrant to purchase 52,500 shares of our
Common Stock in June, 2008.




(7)
            Mr.
      Baron is our Chairman of the Board.  The number of shares of
      Common Stock Mr. Baron may be deemed to beneficially own includes: (a)
      89,254 shares of Common Stock; (b) options to purchase 154,000 shares of
      Common Stock granted to Mr. Baron between November 11, 2004 and December
      31, 2009, all of which vested immediately upon issuance. All option grants
      to Mr. Baron have a ten-year term.




(8)
            Dr.
      Bollon is our President and Chief Executive Officer. The number of shares
      of Common Stock that Dr. Bollon may be deemed to beneficially own
      includes: (a)1,381,836 shares of Common Stock owned of record by Dr.
      Bollon; (b) 217,223 shares of Common Stock owned of record by Biogress
      LLC, of which Dr. Bollon is a principal member and founding partner and
      has 50% voting and dispositive power; (c) options to purchase 80,558
      shares of Common Stock granted to Dr. Bollon on April 23, 2008. The number
      of shares of Common Stock that Dr. Bollon may be deemed to beneficially
      own does not include unvested options to purchase 79,442 shares of Common
      Stock granted in 2008. All option grants to Dr. Bollon have a five-year
      term.




(9)
            Mr.
      Comer is Interim Chief Financial Officer and Secretary and a director. The
      number of shares of Common Stock that Mr. Comer may be deemed to
      beneficially own includes: (a) options to purchase 149,000 shares of
      Common Stock granted to Mr. Comer between April 6, 2005 through December
      31, 2009 (which were fully vested and immediately exercisable on
      issuance). All option grants to Mr. Comer have a ten-year
      term.


45


(10)
            Dr.
      Feola is a co-inventor of HemoTech and is our Chief Medical Officer. The
      number of shares of Common Stock that Dr. Feola may be deemed to
      beneficially own includes options to purchase 271,528 shares of Common
      Stock granted to Dr. Feola on December 15, 2003, all of which are fully
      vested and immediately exercisable. The options will expire on December
      14, 2013.




(11)
            Dr.
      Simoni is a co-inventor of HemoTech and is our Acting Vice President and
      Principal Investigator of Research and Development since November, 2002.
      On July 13, 2005, the Company entered into an Advisory agreement with Dr.
      Simoni. The agreement provides for non-qualified stock options to purchase
      271,528 shares of Common Stock, all of which are fully vested and
      exercisable.  The option grant to Dr. Simoni has a ten year
      term.




(12)
            Ghassan
      Nino is the founder and Vice-Chairman of the Board. The number of shares
      of Common Stock that Mr. Nino may be deemed to beneficially owned
      includes: (a) 217,223 shares of Common Stock owned of record by Biogress,
      of which Mr. Nino is a principal member and founding partner and has 50%
      voting and dispositive power; (b) 1,851,047 shares of Common Stock owned
      of record by Nino Partners, of which Mr. Nino is Managing Member; (c)
      1,086,113 shares of Common Stock owned of record by Mr. Nino; and (d)
      options to purchase 139,000 shares of Common Stock, granted to Mr. Nino
      between December 29, 2004 and December 31, 2009 (all of which vested
      immediately on issuance). Mr. Nino’s options have a five-year term and
      were issued at a price 110% above the fair market value of the share price
      on the date of grant.




(13)
            Mr.
      Dragoo is a director. The number of shares of Common Stock that Mr. Comer
      may be deemed to beneficially own includes: (a) options to purchase 78,000
      shares of Common Stock granted to Mr. Dragoo between January 28, 2009
      through December 31, 2009 (which were fully vested and immediately
      exercisable on issuance). All option grants to Mr. Dragoo have a ten-year
      term.




(14)
            Dr.
      Mittemeyer is a Director of the Company. The number of shares of Common
      Stock Dr. Mittemeyer may be deemed to beneficially own includes: (a)
      options to purchase 27,152 shares of Common Stock granted to Dr.
      Mittemeyer on October 31, 2003; (b) options to purchase 5,430 shares of
      Common Stock, granted to Dr. Mittemeyer on November 4, 2004; (c) options
      to purchase 154,000 shares of Common Stock, granted to Dr. Mittemeyer
      between December 29, 2004 through December 31, 2009.  All option
      grants to Dr. Mittemeyer are fully vested and immediately exercisable and
      have a ten-year term.




(15)
            For
      purposes of determining the number of shares beneficially owned by
      directors and executive officers as a group, any shares beneficially owned
      by more than one director or officer are counted only
  once.




Section
16(a) Beneficial Ownership Reporting Compliance




Section
16(a) of the Exchange Act requires our executive officers and directors and the
holders of greater than 10% of our Common Stock to file initial reports of
ownership and reports of changes in ownership with the SEC. Executive officers
and directors are required by SEC regulations to furnish us with copies of these
reports. Based solely on a review of the copies of these reports furnished to us
and written representations from such executive officers, directors and
stockholders with respect to the period from January 1, 2008 through December
31, 2008, we are not aware of any required Section 16(a) reports that were not
filed on a timely basis.




Robert
Baron, Chairman of the Board and then a director, filed a Form 5 reporting one
late filing for the issuance of 40,000 shares of Common Stock on October 26,
2009.





ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





Stockholders
Agreement




On
October 31, 2003, we entered into a stockholders’ agreement with each of Texas
Tech, Dr. Bollon, Mr. Nino, Biogress and Nino Partners, under which we granted
to each of such stockholders a right of first offer with respect to all future
sales of any shares of our common stock or our convertible
securities.  Each of these stockholders waived their right of first
offer with respect to our October 2004 private placement.  In
addition, we granted each such stockholder “piggyback registration rights” in
connection with any proposed registration of shares of our common stock (other
than in an initial public offering).


46


2009
Bridge Offering





On
November 30, 2009,  the Company completed the 2009 Bridge Financing
consisting of gross proceeds of $385,000. As a result of this closing $385,000
of 10% promissory notes that may convert into common stock at the earlier of one
year from the date of issuance, or the Company’s completion of at least a
$1,500,000 equity financing.  The bridge investors received four (4)
shares of our common stock for each $1.00 of bridge notes purchased, or a total
of 1,540,000 shares of common stock. In addition, 539,000 warrants were issued
to our placement agent with essentially the same terms as our investor warrants;
however, these warrants are only callable when the Company provides a notice of
redemption and a registration statement for the underlying shares is
effective.  Our placement agent, who is also a principal shareholder
of the Company also received approximately $48,000 in fees and
expenses.





Other
Transactions





On
October 31, 2008, Dr. Arthur Bollon, the Company’s Chief Executive Officer,
exercised his options to acquire 651,668 shares of the Company’s common stock at
an exercise price of $0.20 per share or $130,334.  In lieu
of cash payment, the chief executive officer returned 130,334 shares of
common stock to the Company for the exercise price of the options. The shares
were valued at $130,334 based on the closing price per share on the date of
issuance. No compensation expense was recorded as a result of this cashless
transaction.





Robert
Baron, Chairman of the Board, loaned the Company $10,000 during 2009 for which
he received 40,000 shares of common stock.  The loan was due on
October 31, 2009 and has been paid back with ten (10%) percent
interest.





Audit
Committee Related Party Transaction Policy




Our Audit
Committee adopted a Related Party Transactions Policy on May 3,
2006.  Under such policy, any proposed transaction between the Company
and (i) any person who is an officer or director of the Company or (ii) any
person or entity that is a “Related Party” to a person who is an officer or
director of the Company shall be prohibited, unless the Audit Committee shall
determine in advance of the Company entering into any such transaction that
there is a compelling business reason to enter into such a transaction, in
accordance with the guidance set forth in the policy.




For these
purposes, a “Related Party” is (i) a person who is an immediate family member of
an officer or director or a spouse of an officer or director or someone else who
is related by blood to either an officer or director or spouse of an officer or
director; or (ii) an entity which is owned or controlled by an officer or
director or a spouse or other immediate family member of an officer or director
or an entity in which an officer or director, any spouse of an officer or
director or any other immediate family of an officer or director or spouse of an
officer or director is deemed to have a substantial ownership interest or
control of such entity by virtue of such person owning more than 20% of such
entity. Additionally, a “Related Party” may be a person or entity that proposes
to enter into a transaction with the Company if the Audit Committee finds that
such transaction would violate Item 404 of Regulation S-K.





ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES





The
following table shows the fees paid or accrued by the Company for audit and
other services provided by M&K CPAs, PLLC, the Company’s independent
registered public accounting firm, for the years ended December 31, 2009 and
2008 and by Eisner LLP, the Company’s independent registered public accounting
firm for the year ended December 31, 2008. All of the services listed below were
approved by the Audit Committee.




Year
                      
                      Audit Fees (1)
                      
                      
                      Audit–Related Fees(2)
                      
                      
                      Tax Fees
                      
                      
                      All Other Fees
                      
                      
                      Total Fees2009
                      
                      $
                      25,000
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      25,0002008
                      
                      $
                      85,000
                      
                      
                      $
                      17,500
                      
                      
                      $
                      0
                      
                      
                      $
                      2,500
                      
                      
                      $
                      105,000
                      (3)





(1)
            “Audit
      Fees” consist of fees for professional services provided in connection
      with the audit of our financial statements and review of our quarterly
      financial statements.  The audit fees paid and/or accrued by the
      Company to M&K CPAs, were combined for both the year ended December
      31, 2009 and to re-audit the year ended December 31,
  2008.


47





(2)
            Audit
      services provided in connection with other statutory or regulatory
      filings.





(3)
            Of
      this amount $94,000 was paid in 2009 towards payment of 2008 fees to
      Eisner LLP.  No fees have been paid or accrued to Eisner for
      services rendered in 2009.




Pre–Approval
Policies and Procedures




Applicable
SEC rules require the Audit Committee to pre-approve audit and non-audit
services provided by our independent registered public accounting
firm.




The Audit
Committee pre-approves all audit and non-audit services to be performed for the
Company by its independent registered public accounting firm. The Audit
Committee does not delegate the Audit Committee’s responsibilities under the
Exchange Act to the Company’s management. The Audit Committee has delegated to
the Chairman of the Audit Committee the authority to grant pre-approvals of
audit services of up to $25,000; provided that any such pre–approvals are
required to be presented to the full Audit Committee for ratification at its
next scheduled meeting. The Audit Committee has determined that the rendering of
the services other than audit services by Eisner LLP is compatible with
maintaining Eisner’s independence.





PART
IV





ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES




EXHIBIT
              NO.
            
            DESCRIPTIONOFEXHIBIT3.1
            
            Certificate of Incorporation of
      HemoBioTech, Inc. (1)3.2
            
            Certificate of Amendment of the
      Certificate of Incorporation of HemoBioTech, Inc. (1)3.3
            
            By-Laws of HemoBioTech, Inc.
      (1)4.1
            
            Form of Warrant to Purchase
      Common Stock. (1)4.2
            
            Form of 10% Convertible Unsecured
      Promissory Note. (1)*4.3
            
            Form
      of 10% Bridge Note.9.1
            
            Voting  Agreement,  dated
      as of July  15,  2004,  by
      and  among
      Ghassan  Nino,   Nino  Partners,   LLC  and  Biogress  LLC,  as
      acknowledged by HemoBioTech, Inc. and Arthur Bollon. (1)10.1
            
            2003 Stock Option/Stock Issuance
      Plan. (1)10.2
            
            Registration Rights Agreement,
      dated as of October 27, 2004, between HemoBioTech, Inc. and Meyers
      Associates, L.P., as agent for the purchasers named therein.
      (1) 
 * Filed
with this report.
  10.3
                      
                      Employment  Agreement,  dated
      as of  October  6,  2003,  by and
      between  Arthur  Bollon
      and  HemoBioTech,  Inc.,  as amended by
      Letter Agreements,  dated as of July 15, 2004, January 3, 2005,
      and  April  6,  2005,   by  and  between   Arthur
      Bollon and HemoBioTech, Inc. (2)10.4
                      
                      Employment  Agreement,  dated
      as of December 14,  2003,  by and
      between  Mario Feola
      and  HemoBioTech,  Inc.,  as amended by a
      Letter  Agreement,  dated as of July
      15,  2004,  by and between Mario Feola and
      HemoBioTech, Inc. (1)




48




EXHIBIT
                                            NO.
                                          
                                          DESCRIPTION OF EXHIBIT10.5
                                          
                                          Employment Separation and Release
      Agreement, dated as of July 15, 2004, by and between HemoBioTech, Inc. and
      Ghassan Nino. (1)10.6
                                          
                                          Form
      of Director and
      Officer  Indemnification  Agreements  with
      each of Arthur Bollon,  Ghassan Nino, Walter
      Haeussler,  Robert Baron, Bernhard Mittemeyer, Mark Rosenblum
      and Robert Comer. (1)10.7
                                          
                                          Stockholders
      Agreement, dated as of October 31, 2003, by and among HemoBioTech, Inc.,
      Arthur Bollon, Ghassan Nino, Nino Partners, LLC and the other stockholders
      named therein. (1)10.8
                                          
                                          Service  Agreements,  dated  November
      23, 2004,  by and between HemoBioTech, Inc. and JPM-CEO
      Partners, Ltd. (1)10.9
                                          
                                          Sponsored
      Research Agreement, dated July 18, 2002, by and between HemoBioTech, Inc.
      and Texas Tech University Health Sciences Center. (3)+10.10
                                          
                                          Stage
      II Sponsored Research Agreement, dated December 13, 2004, by and between
      HemoBioTech, Inc. and Texas Tech University Health Sciences Center.
      (3)10.11
                                          
                                          License
      Agreement, dated January 22, 2002, by and between HemoBioTech, Inc. and
      Texas Tech University System. (3)+10.12
                                          
                                          Letter   Agreement,   dated
      May 14, 2004,   by and between HemoBioTech, Inc. and Texas
      Tech University Health Sciences Center. (3)10.13
                                          
                                          Consulting
      Agreement, dated October 14, 2004, by and between HemoBioTech, Inc. and
      Larry Helson. (1)10.14
                                          
                                          Service  Agreement,  dated
      as of May 25,  2004,  by and between HemoBioTech, Inc.
      and BioLink Life Sciences, Inc. (1)10.15
                                          
                                          Employment
      Agreement, dated April 1, 2005, by and between HemoBioTech, Inc. and Mark
      J. Rosenblum. (2)++10.16
                                          
                                          Stage
      III Sponsored Research Agreement, effective as of January 1, 2006, by and
      between HemoBioTech, Inc.  and Texas  Tech University
      Health Sciences Center. (5)++10.17
                                          
                                          Advisory
      agreement dated July 13, 2005 by and between HemoBioTech and Dr. Jan
      Simoni. (4)++10.18
                                          
                                          Stage
      IV Sponsored Research Agreement, effective as of January 1, 2007,by and between
      HemoBioTech, Inc. and Texas Tech University Health Sciences
      Center.10.19
                                          
                                          Form
      of Subscription Agreement (7)10.20
                                          
                                          Form
      of Registration Rights Agreement (7)10.21
                                          
                                          Modification,
      Settlement and Release Agreement dated March 4, 2009 by and between Mark
      J. Rosenblum and HemoBioTech,
  Inc.(6)




49




EXHIBIT
              NO.
            
            DESCRIPTION OF EXHIBIT


*10.22
            
            Form
      of January 2010 Stock and Note Purchase Agreement10.23
            
            Modification,
      Settlement and Release Agreement, dated March 4, 2009, by and between Mark
      J. Rosenblum and HemoBioTech, Inc.(6)21.1
            
            Subsidiaries
      of HemoBioTech, Inc. (1)*31.1
            
            Certification
      of Principal Executive Officer*31.2
            
            Certification
      of Principal Financial Officer*32.1
            
            Section
      1350  Certification of Principal Executive
    Officer*32.2
            
            Section
      1350  Certification of Principal Financial
    Officer


__________________________


*filed
with this report





+
Portions of this document have been omitted pursuant to an order granting
confidential treatment issued by the Commission on May 11, 2005, under Rule 406
of the Securities Act of 1933, as amended.




++
Portions of this document have been omitted pursuant to a request for
confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act
of 1934, as amended.




(1)
Incorporated by reference to the Registrant's Registration Statement on Form
SB-2 (Commission File No. 333-122097) filed with the Commission on January 18,
2005.




(2)
Incorporated by reference to Amendment No. 1 to the Registrant's Registration
Statement on Form SB-2 (Commission File No. 333-122097) filed with the
Commission on April 15, 2005.




(3)
Incorporated by reference to Amendment No. 2 to the Registrant's Registration
Statement on Form SB-2 (Commission File No. 333-122097) filed with the
Commission on May 13, 2005.




(4)
Incorporated by reference to the Registrant’s Form 10-KSB for the year ended
December 31, 2005.




(5)
Incorporated by reference to the Registrant's Current Report on Form 8-K filed
with the Commission on January 20, 2006.





(6)
Incorporated by reference to the Registrant's Current Report on Form 8-K filed
with the Commission on March 9, 2009.





(7)
Incorporated by reference to the Registrant’s Form 10-K for the year ended
December 31, 2008.


50





ITEM
8. FINANCIAL STATEMENTS




The
following financial statements and schedules that constitute Item 8 are filed as
a part of this annual report.





Report
      of Independent Registered Public Accounting Firm
              F-2Balance
      Sheets as of December 31, 2009 and 2008 (restated)
              F-3Statements
      of Operations for the years ended December 31, 2009 and 2008 (restated),
      and the cumulativeperiod
      from October 3, 2001 (inception) through December 31, 2009
              F-4Statements
      of Stockholders' Equity for the years ended December 31, 2009 and 2008
      (restated)
              F-5Statements of Cash Flows for the years ended December 31,
      2009 and 2008 (restated), andthe
      cumulative period from October 3, 2001 (inception) through December 31,
      2009
              F-7Notes
      to Financial Statements
              F-8


F-1


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors


HemoBioTech,
Inc.


Dallas,
Texas




We have
audited the accompanying balance sheets of HemoBioTech, Inc. as of December 31,
2009 and 2008, and the related statements of operations,
stockholders' deficiency and cash flows for the years then ended.
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.





We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. 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 provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of HemoBioTech, Inc. as of
December 31, 2009 and 2008, and the results of its operations and cash
flows for the periods described above in conformity with accounting
principles generally accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has suffered recurring losses from
operations which raises substantial doubt about its ability to continue as
a going concern. Management's plans regarding those matters also are
described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.














/s/M&K
CPAS, PLLC





www.mkacpas.com


Houston,
Texas


May 26,
2010


F-2


HemoBioTech.
Inc.


(A Development Stage
Company)


Balance
Sheets


(Rounded to the nearest
thousand)





December
      31,2009
                                                
                                                
                                                2008(Restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                
                                                $
                                                55,000
                                                
                                                
                                                $
                                                443,000Prepaid
      and other assets
                                                
                                                
                                                83,000
                                                
                                                
                                                
                                                269,000Total
      current assets
                                                
                                                
                                                138,000
                                                
                                                
                                                
                                                712,000Equipment,
      net
                                                
                                                
                                                25,000
                                                
                                                
                                                
                                                41,000Restricted
      cash
                                                
                                                
                                                55,000
                                                
                                                
                                                
                                                55,000Total
      Assets
                                                
                                                $
                                                218,000
                                                
                                                
                                                $
                                                808,000LIABILITIESCurrent
      LiabilitiesAccounts
      payable and accrued expenses
                                                
                                                $
                                                529,000
                                                
                                                
                                                $
                                                538,000Notes
      Payable
                                                
                                                
                                                270,000
                                                
                                                
                                                
                                                -Total
      current liabilities
                                                
                                                
                                                799,000
                                                
                                                
                                                
                                                538,000Deferred
      rent
                                                
                                                
                                                37,000
                                                
                                                
                                                
                                                38,000Total
      Liabilities
                                                
                                                
                                                836,000
                                                
                                                
                                                
                                                576,000STOCKHOLDERS'
      EQUITYCommon
      Stock —— $.001 par value23,493,434
      in 2009 and 20,642,125 in 2008 shares issued and
    outstanding
                                                
                                                
                                                24,000
                                                
                                                
                                                
                                                21,000Additional
      paid-in capital
                                                
                                                
                                                17,169,000
                                                
                                                
                                                
                                                15,683,000Deficit
      accumulated during the development stage
                                                
                                                
                                                (18,032,000
                                                )
                                                
                                                
                                                (15,693,000
                                                )Common
      stock payable
                                                
                                                
                                                221,000
                                                
                                                
                                                
                                                221,000(618,000
                                                )
                                                
                                                
                                                232,000Total
      Equity
                                                
                                                $
                                                218,000
                                                
                                                
                                                $
                                                808,000


F-3





HemoBioTech.
Inc.


(A Development Stage
Company)


Statements of
Operations


(Rounded to the nearest
thousand)




Years ended December 31,
                            
                            
                            (Unaudited)Cumulative
                              fromOctober3,2001
                              ThroughDecember31,2009
                            
                            
                            2008
                            
                            
                            2009(Restated)Revenue
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -Operating
      expenses:Research
      and development
                            
                            
                            442,000
                            
                            
                            
                            1,540,000
                            
                            
                            
                            4,053,000General
      and administrative
                            
                            
                            1,855,000
                            
                            
                            
                            2,327,000
                            
                            
                            
                            12,184,000Other
      (income) expenses:Interest
      expense
                            
                            
                            47,000
                            
                            
                            
                            -
                            
                            
                            
                            2,158,000Interest
      income
                            
                            
                            (5,000
                            )
                            
                            
                            (35,000
                            )
                            
                            
                            (363,000
                            )Net
      Loss
                            
                            $
                            (2,339,000
                            )
                            
                            $
                            (3,832,000
                            )
                            
                            $
                            (18,032,000
                            )Basic
      and diluted loss per share common share
                            
                            $
                            (0.11
                            )
                            
                            $
                            (0.19
                            )Shares
      outstanding — basic and diluted
                            
                            
                            21,441,059
                            
                            
                            
                            19,953,543
  F-4




HemoBioTech.
Inc.


(A
Development Stage Company)


Statements
of Changes in Stockholders' Equity (Capital Deficiency)


(Rounded
to the nearest thousand)


(Unaudited)





DeficitNote
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    AccumulatedAdditional
                                                                                                                    
                                                                                                                    
                                                                                                                    Receivable
                                                                                                                    
                                                                                                                    
                                                                                                                    Common
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    During
      theCommon
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    Paid-In
                                                                                                                    
                                                                                                                    
                                                                                                                    Placement
                                                                                                                    
                                                                                                                    
                                                                                                                    Stock
                                                                                                                    
                                                                                                                    
                                                                                                                    Unearned
                                                                                                                    
                                                                                                                    
                                                                                                                    DevelopmentShares
                                                                                                                    
                                                                                                                    
                                                                                                                    Amount
                                                                                                                    
                                                                                                                    
                                                                                                                    Capital
                                                                                                                    
                                                                                                                    
                                                                                                                    Agreement
                                                                                                                    
                                                                                                                    
                                                                                                                    Payable
                                                                                                                    
                                                                                                                    
                                                                                                                    Compensation
                                                                                                                    
                                                                                                                    
                                                                                                                    Stage
                                                                                                                    
                                                                                                                    
                                                                                                                    TotalIssuance
      of shares to Texas Tech University Health Service Center (January 22,
      2002) ($.001)
                                                                                                                    
                                                                                                                    
                                                                                                                    678,820
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    1,000Issuance
      of shares to Ghassan Nino (January 30, 2002 ($.001)
                                                                                                                    
                                                                                                                    
                                                                                                                    1,086,113
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,000Estimated
      fair value of stock granted for services (January 30, 2002)
      ($.001)
                                                                                                                    
                                                                                                                    
                                                                                                                    217,223
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000Issuance
      of shares to Ghassan Nino (January 31, 2002) ($.001)
                                                                                                                    
                                                                                                                    
                                                                                                                    2,715,280
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    3,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    5,000Issuance
      of shares to Marlin and Evilene Nino (February 07, 2002)
      ($.001)
                                                                                                                    
                                                                                                                    
                                                                                                                    678,820
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000Net
      loss for the year
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (235,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (235,000
                                                                                                                    )Balance-
      December 31, 2002
                                                                                                                    
                                                                                                                    
                                                                                                                    5,376,256
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    6,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    4,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (235,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (225,000
                                                                                                                    )Issuance
      of shares to Munir Nino (January 20, 2003) ($.001)
                                                                                                                    
                                                                                                                    
                                                                                                                    217,224Estimated
      fair value of stock granted for compensation (April 8, 2003)
      ($.001)
                                                                                                                    
                                                                                                                    
                                                                                                                    977,502
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,000Estimated
      fair value of stock granted for services (April 14, 2003)
      ($.001)
                                                                                                                    
                                                                                                                    
                                                                                                                    217,223
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000Issuance
      of shares to Evilene Nino (October 31, 2003) ($.001)
                                                                                                                    
                                                                                                                    
                                                                                                                    108,613Expenses
      paid by stockholder
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    10,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    10,000Net
      loss for the year
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (617,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (617,000
                                                                                                                    )Balance
      – December 31, 2003
                                                                                                                    
                                                                                                                    
                                                                                                                    6,896,818
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    7,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    16,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (852,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (829,000
                                                                                                                    )Contribution
      of note and related interest (July 15, 2004)
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    155,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    155,000Contribution
      of deferred salary (July 15, 2004)
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    564,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    564,000Expenses
      paid by stockholder
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    4,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    4,000Estimated
      fair value of shares to Texas Tech University Health Service Center (May
      22, 2004) ($.85)
                                                                                                                    
                                                                                                                    
                                                                                                                    135,765
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    115,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    115,000Return
      of shares (July 15, 2004) Note F[4]
                                                                                                                    
                                                                                                                    
                                                                                                                    (1,086,113
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (1,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000Shares
      issued to placement agent (August 19, 2004) (Note H)
                                                                                                                    
                                                                                                                    
                                                                                                                    1,500,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    13,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (15,000
                                                                                                                    )Issuance
      of shares and warrants in Private Placement net of expenses of $528,000
      (October 13, 2004 and October 27, 2004)
                                                                                                                    
                                                                                                                    
                                                                                                                    2,647,080
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,575,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,577,000Contribution
      of Salary (October 13, 2004)
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    11,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    11,000Contribution
      of notes and related interest (October 13, 2004)
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    125,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    125,000Unearned
      compensation
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    13,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (13,000
                                                                                                                    )Estimated
      fair value of vested options granted to Board of Advisors
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    22,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    22,000Collection
      of note (October 13, 2004)
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    15,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    15,000Valuation
      of placement agent’s warrants and shares attributable to debt (see
      F[3])
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    803,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    803,000Net
      loss for the year
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (1,259,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (1,259,000
                                                                                                                    )Balance
      – December 31, 2004
                                                                                                                    
                                                                                                                    
                                                                                                                    10,093,550
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    10,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    4,417,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (13,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (2,111,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    2,303,000Amortization
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    6,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    6,000Estimated
      fair value of options vested issued to Board of Advisors
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    25,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    25,000Estimated
      fair value of options issued to Advisor – July 13, 2005
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    109,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    109,000Estimated
      fair value of warrants issued to consultant – July 28,
2005
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    27,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    27,000Estimated
      fair value of warrants issued to consultant – September 13,
      2005
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    7,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    7,000Conversion
      of promissory notes into Common Stock net of unamortized discount of
      $58,000 (at a conversion price of $1.06 per share) – August 17,
      2005
                                                                                                                    
                                                                                                                    
                                                                                                                    765,132
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    752,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    753,000Conversion
      of promissory notes into Common Stock net of unamortized discount of
      $7,000 (at a conversion price of $1.06 per share) – September 16,
      2005
                                                                                                                    
                                                                                                                    
                                                                                                                    205,451
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    211,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    211,000Conversion
      of promissory notes into Common Stock net of unamortized discount of
      $1,000 (at a conversion price of $1.06 per share) – October 21,
      2005
                                                                                                                    
                                                                                                                    
                                                                                                                    66,122
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    69,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    69,000Conversion
      of promissory notes into Common Stock (at a conversion price of $1.06 per
      share) – October 27, 2005
                                                                                                                    
                                                                                                                    
                                                                                                                    507,785
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    538,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    539,000Net
      loss for the year
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (3,454,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (3,454,000
                                                                                                                    )Balance
      – December 31, 2005
                                                                                                                    
                                                                                                                    
                                                                                                                    11,638,040
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    12,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    6,155,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (7,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (5,565,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    595,000Elimination
      of unvested compensation
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (7,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    7,000Stock
      based compensation – board of advisors and consultant
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    110,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    110,000Stock
      based compensation – employees and directors
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    178,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    178,000Conversion
      of promissory notes into Common Stock -March, 2006
                                                                                                                    
                                                                                                                    
                                                                                                                    128,264
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    251,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    251,000Conversion
      of promissory notes into Common Stock -April, 2006
                                                                                                                    
                                                                                                                    
                                                                                                                    14,548
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    35,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    35,000Exercise
      of warrants, net of expenses of $99,000 – January, 2006
                                                                                                                    
                                                                                                                    
                                                                                                                    1,868,544
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,880,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,882,000Exercise
      of warrants, net of expenses of $1,000 – February, 2006
                                                                                                                    
                                                                                                                    
                                                                                                                    9,412
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    8,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    8,000Exercise
      of warrants, net of expenses of $19,000 – April, 2006
                                                                                                                    
                                                                                                                    
                                                                                                                    355,885
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    358,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    358,000Exercise
      of warrants, net of expenses of $5,000 - May, 2006
                                                                                                                    
                                                                                                                    
                                                                                                                    97,118
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    98,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    98,000Exercise
      of warrants, net of expenses of $28,000 – June, 2006
                                                                                                                    
                                                                                                                    
                                                                                                                    534,652
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    537,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    538,000Exercise
      of warrants, net of expenses of $121,000 – July, 2006
                                                                                                                    
                                                                                                                    
                                                                                                                    2,290,424
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,304,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,306,000Shares
      issued to financial advisor (September 12, 2006) See Note
    I[3]
                                                                                                                    
                                                                                                                    
                                                                                                                    1,500,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    298,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    300,000Net
      Loss for the year
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (2,571,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (2,571,000
                                                                                                                    )Balance
      – December 31, 2006
                                                                                                                    
                                                                                                                    
                                                                                                                    18,436,887
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    19,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    12,205,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (8,136,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    4,088,000Net
      Loss for the period
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    (3,725,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (3,725,000
                                                                                                                    )Stock
      based compensation – board of advisors and consultant
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    107,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    107,000Stock
      based compensation – employees and directors
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    276,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    276,000Stock
      based compensation relating to shares issued to financial
      advisor
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    855,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    855,000Estimated
      fair value of warrants issued to consultant – October 1,
    2007
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    57,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    57,000Issuance
      of shares and warrants in Private Placement net of expenses of $106,000
      (December 31, 2007)
                                                                                                                    
                                                                                                                    
                                                                                                                    707,120
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    686,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    686,000Balance
      – December 31, 2007
                                                                                                                    
                                                                                                                    
                                                                                                                    19,144,007
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    19,000
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    14,186,000
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    (11,861,000
                                                                                                                    )
                                                                                                                    
                                                                                                                    $
                                                                                                                    2,344,000


F-5


HemoBioTech.
Inc.
 (A
Development Stage Company)
 Statements
of Changes in Stockholders' Equity (Capital Deficiency)
 (Rounded
to the nearest thousand)
 (Audited)
 
 DeficitAccumulatedAdditional
                                                          
                                                          
                                                          Common
                                                          
                                                          
                                                          During
      theCommon
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          Paid-In
                                                          
                                                          
                                                          Stock
                                                          
                                                          
                                                          DevelopmentShares
                                                          
                                                          
                                                          Amount
                                                          
                                                          
                                                          Capital
                                                          
                                                          
                                                          Payable
                                                          
                                                          
                                                          Stage
                                                          
                                                          
                                                          TotalBalance
      – December 31, 2007
                                                          
                                                          
                                                          19,144,007
                                                          
                                                          
                                                          $
                                                          19,000
                                                          
                                                          
                                                          $
                                                          14,186,000
                                                          
                                                          
                                                          $
                                                          
                                                          
                                                          
                                                          $
                                                          (11,861,000
                                                          )
                                                          
                                                          $
                                                          2,344,000Net
      Loss for the period
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (3,832,000
                                                          )
                                                          
                                                          
                                                          (3,832,000
                                                          )Stock
      based compensation-board of advisors and consultants
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          92,000
                                                          
                                                          
                                                          
                                                          221,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          313,000Stock
      based compensation -employees and directors
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          349,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          349,000Issuance
      of shares and warrants in Private Placement net of expenses of
      approximately $122,000 (approximately $147,000 to a shareholder of the
      Company)
                                                          
                                                          
                                                          476,784
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          412,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          412,000Shares
      Issued to Texas Tech University at a market price of $1.29 per share (May
      1, 2008)
                                                          
                                                          
                                                          500,000
                                                          
                                                          
                                                          
                                                          1,000
                                                          
                                                          
                                                          
                                                          644,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          645,000Shares
      returned to treasury by officer
                                                          
                                                          
                                                          (130,334
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (130,000
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (130,000
                                                          )Exercise
      of stock options
                                                          
                                                          
                                                          651,668
                                                          
                                                          
                                                          
                                                          1,000
                                                          
                                                          
                                                          
                                                          130,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          131,000Balance-
      December 31, 2008 (Restated)
                                                          
                                                          
                                                          20,642,125
                                                          
                                                          
                                                          
                                                          21,000
                                                          
                                                          
                                                          
                                                          15,683,000
                                                          
                                                          
                                                          
                                                          221,000
                                                          
                                                          
                                                          
                                                          (15,693,000
                                                          )
                                                          
                                                          
                                                          232,000Net
      loss for the period
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (2,339,000
                                                          )
                                                          
                                                          
                                                          (2,339,000
                                                          )Stock
      based compensation relating to shares issued to
consultants
                                                          
                                                          
                                                          28,333
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          19,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          19,000Stock
      based compensation relating to warrants issued to
    consultant
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          81,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          81,000Stock
      based compensation relating to shares issued to executive of the
      Company
                                                          
                                                          
                                                          65,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          46,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          46,000Stock
      based compensation board of advisors and consultants
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          48,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          48,000Stock
      based compensation employees and directors
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          212,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          212,000Issuance
      of shares and warrants in private placement to shareholders of the Company
      ($.56 per share)
                                                          
                                                          
                                                          457,142
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          256,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          256,000Stock
      based compensation related to note payable issued
                                                          
                                                          
                                                          40,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          11,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          11,000Issuance
      to Noteholders
                                                          
                                                          
                                                          1,540,000
                                                          
                                                          
                                                          
                                                          2,000
                                                          
                                                          
                                                          
                                                          445,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          447,000Convertible
      note payable beneficial conversion feature
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          132,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          132,000Issuance
      of shares to consultants
                                                          
                                                          
                                                          120,834
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          63,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          63,000Issuance
      of shares to Texas Tech
                                                          
                                                          
                                                          600,000
                                                          
                                                          
                                                          
                                                          1,000
                                                          
                                                          
                                                          
                                                          173,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          174,000Balance
      - December 31, 2009
                                                          
                                                          
                                                          23,493,434
                                                          
                                                          
                                                          $
                                                          24,000
                                                          
                                                          
                                                          $
                                                          17,169,000
                                                          
                                                          
                                                          $
                                                          221,000
                                                          
                                                          
                                                          $
                                                          (18,032,000
                                                          )
                                                          
                                                          $
                                                          (618,000
                                                          )
  F-6
 
 HemoBioTech.
Inc.
 (A Development Stage
Company)
 Statements of Cash
Flows
 For the Years Ended December
31, 2009 and 2008
 and from October 3, 2001
through December 31, 2009
 (Rounded to the nearest
thousand)
 
 Years
      Ended
                    
                    
                    (Unaudited)
                      October 3, 2001
                      (Inception)
                      Through
                      December 31,2009
                    
                    
                    2008
                    
                    
                    2009(Restated)Cash
      flows from operating activitiesNet
      income (loss)
                    
                    $
                    (2,339,000
                    )
                    
                    $
                    (3,832,000
                    )
                    
                    $
                    (18,032,000
                    )Adjustments
      to reconcile net income (loss) to net cash (used) in operating
      activities:Estimated
      fair value of options, warrants and compensatory stock
                    
                    
                    1,102,000
                    
                    
                    
                    663,000
                    
                    
                    
                    3,974,000Conversion
      charge - interest expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    43,000Notes
      issued for services - related party
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    354,000Expenses
      paid by stockholder
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    14,000Amortization
      of deferred financing costs
                    
                    
                    (68,000
                    )
                    
                    
                    -
                    
                    
                    
                    955,000Amortization
      of debt discount
                    
                    
                    17,000
                    
                    
                    
                    -
                    
                    
                    
                    806,000Depreciation
                    
                    
                    16,000
                    
                    
                    
                    9,000
                    
                    
                    
                    35,000Deferred
      Rent
                    
                    
                    (1,000
                    )
                    
                    
                    (5,000
                    )
                    
                    
                    37,000Contribution
      of salary
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    11,000Research
      and Development-Purchase of a new technology
                    
                    
                    -
                    
                    
                    
                    645,000
                    
                    
                    
                    645,000Changes
      in:Accounts
      payable and accrued expenses
                    
                    
                    (9,000
                    )
                    
                    
                    285,000
                    
                    
                    
                    1,241,000Accrued
      interest
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    139,000Prepaid
      expenses
                    
                    
                    254,000
                    
                    
                    
                    251,000
                    
                    
                    
                    (14,000
                    )Net
      cash provided (used) in operating activities
                    
                    
                    (1,028,000
                    )
                    
                    
                    (1,984,000
                    )
                    
                    
                    (9,792,000
                    )Cash
      flows from investing activitiesSale/(Purchase)
      of Short-Term Investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (55,000
                    )Purchase
      of property and equipment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (59,000
                    )Net
      cash provided (used) in investing activities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (114,000
                    )Cash
      flows from financing activitiesNet
      proceeds from issuance of common stock and debt
                    
                    
                    640,000
                    
                    
                    
                    412,000
                    
                    
                    
                    5,505,000Payment
      of notes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (734,000
                    )Exercise
      of warrants, net
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,190,000Net
      cash provided (used) by financing activities
                    
                    
                    640,000
                    
                    
                    
                    412,000
                    
                    
                    
                    9,961,000Increase
      (Decrease) in cash and cash equivalents
                    
                    
                    (388,000
                    )
                    
                    
                    (1,572,000
                    )
                    
                    
                    55,000Cash
      and cash equivalents - beginning of period
                    
                    
                    443,000
                    
                    
                    
                    2,015,000
                    
                    
                    
                    -Cash
      and cash equivalents - end of period
                    
                    $
                    55,000
                    
                    
                    $
                    443,000
                    
                    
                    $
                    55,000Supplemental
      disclosure of cash flow informationCash
      paid during the year for:Interest
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    112,000Supplemental
      non-cash investing and financing activitiesAccrued
      salary exchanged for Note
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    150,000Employees
      / stockholders contribution to salary
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    564,000Stockholders
      contribution of convertible note payable and related
    interest
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    280,000Conversion
      of carrying value of convertible notes payable and accrued interest of
      $18,000 (2006) and $97,000 (2005) into common stock and non-cash
      concessions
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    1,815,000Cashless
      exercise of stock options
                    
                    
                    -
                    
                    
                    $
                    130,000
                    
                    
                    $
                    130,000
  F-7
 
 HEMOBIOTECH,
INC.
 
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO FINANCIAL STATEMENTS
 
 DECEMBER
31, 2009 AND 2008
 
 NOTE
A - THE COMPANY
 
 HemoBioTech,
Inc., a Texas corporation was founded in 2001.  In 2003, a sister
corporation named “HemoBioTech, Inc.,” was incorporated in the state of
Delaware.  On December 1, 2003, HemoBioTech, Inc. (Texas) was merged
with and into HemoBioTech, Inc., (Delaware), with HemoBioTech, Inc. (Delaware)
as the surviving entity.  This entity is referred to herein as the
“Company”.
 
 The
accompanying financial statements include the predecessor operations of the
Texas corporation from its inception on October 3, 2001. The historical basis of
accounting was carried over in the merger, including the deficit accumulated in
the development stage. The Company is researching and developing human blood
substitute patented technology licensed exclusively from Texas Tech University
Health Services Center ("TTUHSC") (See Note D). The Company is in the
development stage and its efforts have been principally devoted to capital
raising, organizational infrastructure development and research and
development.
 
 NOTE
B - BASIS OF PRESENTATION
 
 The
Company has incurred cumulative losses of $18,032,000 through the year ended
December 31, 2009, has not generated any revenue, and has been dependent on
funding operations through the private sale of convertible debt and equity
securities. At December 31, 2009, the Company had $55,000 in cash and cash
equivalents. Management believes that current cash resources and cash received
subsequent to the balance sheet date will not be sufficient to fund operations
for the next twelve months. Management's plans include continuing to finance
operations through one or more private or public offerings of equity
securities.
 
 The
financial statements have been prepared assuming that the Company will continue
as a going concern which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company’s financial
conditions indicate that there is substantial doubt upon the company’s ability
to continue as a going concern.  The accompanying financial statements
do not include any adjustment that might be necessary if sufficient additional
funding is not received so that the Company can continue its
operations.  While the Company has been able to obtain such funding in
the past, there can be no assurance that they will be able to do so in the
future.
 
 All
amounts, except earnings per share information, have been rounded to the nearest
thousand.
  F-8
  NOTE
C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 (1)
RESEARCH AND DEVELOPMENT:
 
 Research
and development costs are charged to expense as incurred. Costs include the
amortization of payments made to TTUHSC for the Sponsored Research Agreement,
spending with outside laboratories and consultants, and purchase of equipment
related to our research and development efforts and the purchase of certain
technology from TTUHSC titled Orthogonal Method for the Removal of Transmissible
Spongiform Encephalopathy Agents from Biological Fluids (“ORTH Technology”), See
also Note D – “Agreements with TTUHSC”
 
 (2) LOSS
PER COMMON SHARE:
 
 Basic and
diluted loss per common share is based on the net loss divided by the
weighted average number of common shares outstanding during the period. No
effect has been given to the following outstanding potential common shares such
as options, warrants and outstanding shares subject to forfeiture issued to a
financial services consultant during September 2006 in the diluted computation
as their effect would be anti-dilutive:
 
 2009
                  
                  
                  2008Stock
      Options
                  
                  
                  2,344,031
                  
                  
                  
                  1,668,031Warrants
                  
                  
                  4,833,589
                  
                  
                  
                  4,236,447Total
                  
                  
                  7,177,620
                  
                  
                  
                  5,904,478
 
 (3) FAIR
VALUE OF FINANCIAL INSTRUMENTS:
 
 On
January 1, 2008, the Company adopted guidance which defines fair value,
establishes a framework for using fair value to measure financial assets and
liabilities on a recurring basis, and expands disclosures about fair value
measurements. The guidance establishes a hierarchy for inputs used in measuring
fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when
available. Observable inputs are inputs that market participants would use in
pricing the asset or liability developed based on market data obtained from
sources independent of the Company. Unobservable inputs are inputs that reflect
the Company’s assumptions of what market participants would use in pricing the
asset or liability developed based on the best information available in the
circumstances. The hierarchy is broken down into three levels based on the
reliability of the inputs as follows:
 
 Level 1 -
Valuation is based upon unadjusted quoted market prices for identical assets or
liabilities in active markets that the Company has the ability to
access.
 
 Level 2
-Valuation is based upon quoted prices for similar assets or liabilities in
active markets; quoted prices for identical or similar assets or liabilities in
inactive markets; or valuations based on models where the significant inputs are
observable in the market.
 
 Level 3 -
Valuation is based on models where significant inputs are not observable. The
unobservable inputs reflect the Company's own assumptions about the inputs that
market participants would use.
 
 The
carrying value of cash equivalents, accounts payable and accrued expenses
approximates their fair value due to the short period to maturity of these
instruments.
 
 (4) USE
OF ESTIMATES:
 
 The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Such
estimates include the selection of assumptions underlying the calculation of the
fair value of options. Actual results could differ from those
estimates.
  F-9
 
 (5)
RECENT ACCOUNTING PRONOUNCEMENTS:
 
 In June
2009, FASB released the Codification which became the source of authoritative
GAAP recognized by FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the SEC under authority
of federal securities laws are also sources of authoritative GAAP for SEC
registrants.  For all financial statements issued after September 15,
2009, the Codification superseded all then-existing non-SEC accounting and
reporting standards.  All other non-grandfathered non-SEC accounting
literature not included in the Codification has become
non-authoritative.  The codification does not change how we account
for our transactions or the nature of related disclosures
made.  However, when referring to guidance issued by the FASB, we will
refer to topics in the Codification rather than the superseded
standards.  The adoption of the Codification did not have an impact on
the condensed financial position, results of operations, cash flows or financial
statement disclosures.
 
 In April
2009, the FASB issued additional guidance for estimating fair value in
accordance with ASC Topic 820.  The additional guidance addresses
determining fair value when the volume and level of activity for an asset or
liability have significantly decreased and identifying transactions that are not
orderly.  The Company adopted the provisions of this guidance for the
quarter ended September 30, 2009.  The adoption of these standards did
not have a material impact on the financial position, results of operations or
cash flows.
 
 In April
2009, the FASB issued FASB Staff Position (FSP) No. FAS 107-1 and Accounting
Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial
Instruments (ASC 825-10-65) to change the reporting requirements on certain fair
value disclosures of financial instruments to include interim reporting
periods.  The Company adopted ASC 825-10-65 in the second quarter of
2009.  The adoption of these standards did not have a material impact
on the financial position, results of operations or cash flows.
 
 During
the first quarter of 2009, the Company adopted FASB ASC 825, Financial
Instruments (formerly referenced as SAFS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115), which allows companies to choose to measure eligible
financial instruments and certain other items at fair value that are not
required to be measured at fair value.  The Company has not elected
the fair value option for any eligible financial instruments and; therefore,
there was no impact on the Company’s financial position, results of operations
or cash flows.
 
 In June
2008, FASB established that an entity should use a two step approach to evaluate
whether an equity-linked financial instruments (or embedded feature) is indexed
to its own stock, including evaluating the instrument’s contingent exercise and
settlement provisions.  It also clarified the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation.  The standard was effective
as of January 1, 2009.  The adoption of these standards did not have a
material impact on the financial position, results of operations or cash
flows.
 
 In
December 2007, the FASB issued guidance which is included in the Codification in
ASC 808, “Collaborative Arrangements” (ASC 808), which is effective for
calendar-year companies beginning January 1 2009.  ASC 808 clarified
the manner in which costs, revenues and sharing payments made to, or received
by, a partner in a collaborative arrangement should be presented in the income
statement and set forth certain disclosures that should be required in the
partners’ financial statements.  The adoption of these standards did
not have a material impact on the financial position, results of operations or
cash flows.
  (6)
STOCK-BASED COMPENSATION
 
 The
Company estimates the fair value of share-based payment awards made to employees
and directors, including stock options, restricted stock and employee stock
purchases related to employee stock purchase plans, on the date of grant using
an option-pricing model.  The value of the portion of the award that is
ultimately expected to vest is recognized as an expense ratably over the
requisite service periods.  We estimate the fair value of each share-based
award using the Black-Sholes option pricing model. The Black-Scholes model is
highly complex and dependent on key estimates by management. The estimates with
the greatest degree of subjective judgment are the estimated lives of the
stock-based awards and the estimated volatility of our stock price. The
Black-Sholes model is also used for our valuation of warrants.
  F-10
  (7)
IMPAIRMENT OF LONG-LIVED ASSETS
 
 The
Company has adopted Accounting Standards Codification subtopic 360-10, Property,
Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets
and certain identifiable intangibles held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company evaluates its
long-lived assets for impairment annually or more often if events and
circumstances warrant. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses or a forecasted
inability to achieve break-even operating results over an extended period. The
Company evaluates the recoverability of long-lived assets based upon forecasted
undiscounted cash flows. Should impairment in value be indicated, the carrying
value of intangible assets will be adjusted, based on estimates of future
discounted cash flows resulting from the use and ultimate disposition of the
asset. ASC 360-10 also requires assets to be disposed of be reported at the
lower of the carrying amount or the fair value less costs to sell.
 
 (8) CASH,
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
 
 The
Company considered all highly liquid short-term investments purchased with an
original maturity of three months or less to be cash
equivalents.  Restricted cash at December 31, 2009 and 2008 represents
$55,000 of cash invested in a certificate of deposit which the Company is
obligated to hold under the terms of their lease agreement.
 
 (9)
INCOME TAXES:
 
 The
Company accounts for income taxes using the asset and liability method described
in SFAS No. 109, "Accounting For Income Taxes," the objective of which is to
establish deferred tax assets and liabilities for the temporary differences
between the financial reporting and the tax bases of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
realized or settled. A valuation allowance related to deferred tax assets is
recorded when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
 
 The
Company adopted the provisions of Financial Accounting Standards Board
interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an
interpretation of FASB Statement No. 109 (“SFAS 109”) on January 1,
2007.  FIN 48 has been incorporated into FASB ASC 740.  As a
result of the implementation of FIN 48, we recognized no adjustment for
uncertain tax provisions.  At the adoption date of January 1, 2007, we
had a deferred tax asset which was fully reserved by a valuation allowance to
reduce the deferred tax asset to the amount that more likely than not to be
realized.
 
 The
Company recognizes interest and penalties related to uncertain tax positions in
general and administrative expense.  As of December 31, 2009, the
Company had not recorded any provisions for accrued interest and penalties
related to uncertain tax positions. At December 31, 2009, we had a deferred tax
asset which was fully reserved by a valuation allowance to reduce the deferred
tax asset to the amount that more likely than not to be realized
 
 The tax
years 2005 through 2009 remain open to examination by the major tax
jurisdictions to which we are subject.
 
 NOTE
D - AGREEMENTS WITH TEXAS TECH UNIVERSITY HEALTH SCIENCES CENTER
("TTUHSC")
 
 On
January 22, 2002, the Company entered into an exclusive license agreement with
TTUHSC with respect to receiving certain patented rights.  The Company
is committed to the exploitation of such patented rights.
 
 In
consideration for entering into the agreement, the Company issued 678,820 shares
of common stock to TTUHSC (subject to anti-dilution
protection).  These shares issued were valued at approximately $1,000,
their estimated fair value, and charged to operations.  The Company
has agreed to reimburse TTUHSC for all intellectual property protection costs
and patent maintenance fees.  On May 20, 2004, TTUHSC agreed to waive
its anti-dilution protection in exchange for 135,765 additional shares of common
stock.  Such shares were valued at approximately $115,000, their
estimated fair value, and charged to operations. In addition, subject to
obtaining FDA approval of a blood substitute product, the Company has agreed to
fund, over a four-year period, $1.2 million to support efforts in incubating and
commercializing other TTUHSC technologies.  As of December 31, 2009,
such approval had not been obtained.  Under the agreement, the Company
reserves the right of first refusal on licensing and commercializing other
technology developed from such funding. In addition, in July 2002, the Company
entered into a Sponsored Research Agreement (“SRA”) with TTUHSC for the
period September 1, 2002 through August 31, 2006.  In December 2004,
the Company paid a fee of approximately $231,000 to fund the next phase of its
research under the SRA through December 31, 2005.
  F-11
  In
January 2006, the Company entered into a Stage III SRA with TTUHSC for the
period January 1, 2006, to December 31, 2006.  In connection
therewith, the Company made an initial payment of approximately $287,000 which
was amortized during 2006.
 
 In
January 2007, the Company entered into a Stage IV SRA with TTUHSC for the period
beginning January 1, 2007. In connection therewith, the Company made an initial
payment of approximately $780,000. This amount will be charged to operations as
incurred based on monthly reporting to the Company by TTUHSC.  As of
December 31, 2009, approximately $15,000 is included in prepaid expenses on the
accompanying balance sheet. Additional payments may be made to TTUHSC under the
agreement based on mutually agreed upon budgets.
 
 On May 5,
2008 the Company agreed to license certain technology from TTUHSC titled
Orthogonal Method for the Removal of Transmissible Spongiform Encephalopathy
Agents from Biological Fluids (“ORTH Technology”). This is a technology that
results in the removal and inactivation of infectious agents such as prions
(which can cause Mad Cow Disease) and viruses.  Such removal and
inactivation is critical in the purification of animal products for human
use.  It can be used not only for HemoTech production but also has the
potential for generating sublicensing revenue from pharmaceutical, biotechnology
and the cosmetic industries.
 
 The term
of the agreement extends to the full end of the term or terms for which patent
rights have not expired or, if only technology rights are licensed and no patent
rights are applicable, for a term of 15 years. The license agreement calls for a
nonrefundable license documentation fee of $10,000 and 500,000 shares of the
Company’s common stock.  The price per share of the Company’s common
stock on May 5, 2008 was $1.29 per share.  Accordingly, the Company
recorded a charge to research and development expense for $655,000. The
agreement also contains an annual renewal fee of $10,000 per year and a royalty
based on net sales of Licensed Products (as defined by the agreement) sold by
the Company that contain the patented ORTH Technology.  The royalty
percentage will be lower if Licensed Products are not protected by a valid
patent. The agreement calls for a minimum royalty beginning six months after
approval of a Licensed Product by the FDA. No royalty applies to the embedded
ORTH Technology in the sale of our HemoTech product. The Company is permitted to
sublicense the ORTH Technology and TTUHSC will receive a portion of both cash
and non cash remuneration received by the Company for a
sublicense.  Additionally, the Company will pay TTUHSC a portion of
any royalty received by Company from a sublicense.
 
 The
Company has also agreed to issue up to 275,000 additional shares of the
Company’s common stock in the event TTUHSC purchases certain equipment used in
the HemoTech process. The equipment will be owned by TTUHSC, will be used to
further the development of HemoTech, and will be charged to research and
development expense when purchased.  As of December 31, 2009, no such
equipment has been purchased by TTUHSC.
 
 Pursuant
to a letter agreement dated October 26, 2009, by and between the Company and
TTUHSC, the Company is required to raise a minimum of $3 million prior to
February 19, 2010, which did not occur.  If the Company is unable to
raise $3 million, unless such deadline is extended, of which there can be no
assurance, the Company agreed that its Board of Directors “in cooperation with
TTUHSC will replace the management team at HemoBioTech within 30 days and TTUS
could decide on other causes of action related to the license agreements” with
TTUS.”  As of the date of this report, TTUHSC has not taken any action
to enforce its rights.  In addition, if we do not fund a $1.5 million
major primate study out of the $3 million capital raised, or otherwise, the
management team will be replaced under such terms described above and TTUS may
pursue all rights and remedies under the 2002 and 2008 license
agreements.
  Also
pursuant to the letter agreement dated October 26, 2009, by and between the
Company and TTUS, the Company issued 600,000 common shares to TTUS for past
scientist services and use of TTUS facilities for development of HemoTech and
the ORTH technologies valued at $174,000 based on the share price on the
date of issuance.
 
 The
agreement may be terminated by either party by mutual written agreement upon 180
days notice, or by TTUHSC based on certain provisions relating to defaults
according to the agreement.
 
 The
Sponsored Research Agreements may be terminated by either party on 90 days
written notice.
  F-12
  
 NOTE
E - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
 Accounts
payable and accrued expenses consist of the following:
 
 December
      31,2009
                                
                                
                                2008Professional
      Fees
                                
                                $
                                428,000
                                
                                
                                $
                                409,000Liquidated
      Damages
                                
                                
                                38,000
                                
                                
                                
                                38,000Other
                                
                                
                                63,000
                                
                                
                                
                                91,000Total
                                
                                $
                                529,000
                                
                                
                                $
                                538,000
 
 NOTE
F – CONVERTIBLE DEBT AND STOCKHOLDERS' EQUITY
 
 (1)
PRIVATE PLACEMENTS:
 
 During
December 2007, the Company circulated a Private Placement Term Sheet and
Exhibits (“the 2007 Private Placement”) for the purpose of raising additional
capital. Our Private Placement offering of units consists of one share of
HemoBioTech, Inc. common stock (“Share”) and one warrant (Warrant”) to purchase
one share of common stock (collectively, the “Unit”) may  result in up
to $6,000,000 in gross proceeds, subject to an over-allotment
option  for up to an additional $1,000,000 in gross
proceeds.  The purchase price per Unit is based on the average of the
closing price of the Company’s common stock on the OTC bulletin Board for the
ten trading days immediately preceding the date of the initial closing of the
2007 Private Placement, discounted by 20%. Each Warrant is exercisable for the
purchase of one share of our common stock at 150% ($1.68) of the per Unit price
for a period of five years from the effective registration date of the shares
underlying the Warrants. The warrants may be redeemed in whole or in part by the
Company, upon 30 day’s written notice, at price of $0.01 share, provided the
weighted average closing price of the Common Stock exceeds 185% of the per-Unit
purchase price for a period of 20 consecutive trading days ending within 15 days
prior to the date on which the notice of redemption is given and the
registration statement for underlying shares is effective.
 
 In
addition, the Company is obligated to issue warrants to its placement agent in
the amount of 30% of the total warrants issued to investors on essentially the
same terms; however, these warrants are only callable when the Company provides
a notice of redemption and a registration statement for the underlying shares is
effective. This offering closed on October 31, 2008.
 
 On
December 31, 2007, the Company completed an initial close of the 2007 Private
Placement consisting of gross proceeds of approximately $792,000 at the per Unit
price of $1.12. As a result of this closing, 707,120 shares of the Company’s
common stock was issued along with warrant agreements for the issuance of
707,120 additional shares upon exercise of the warrants at an exercise price of
$1.68. Net of expenses, primarily to our financial advisor, the Company received
net proceeds of $686,000. In addition, 212,136 warrants were issued to our
placement agent with essentially the same terms as our investor warrants;
however, these warrants are only callable when the Company provides a notice of
redemption and a registration statement for the underlying shares is effective.
The warrants were valued at December 31, 2007 using the Black-Scholes stock
option valuation model and totaled $621,000 and $186,000 for the investors and
placement agents respectively.
 
 For the
twelve months ended December 31, 2008, the Company raised additional funds
associated with its December 2007 Private Placement consisting of gross proceeds
of $534,000 at the per unit selling price of $1.12.  As a result,
476,784 shares of our common stock were issued along with warrant agreements for
the issuance of 476,784 additional shares upon exercise of the warrants at an
exercise price of $1.68.  Net of expenses, including $72,000 to a
significant shareholder, the Company received net proceeds of
$412,000.  The relative fair value of the common stock was $229,000
and relative fair value of the warrants were $184,000.  In addition,
143,035 warrants were issued to our placement agent, who is also a shareholder
of the Company. The warrants were valued using the Black-Scholes stock option
valuation model and totaled $91,000.
  F-13
  (1)
PRIVATE PLACEMENTS, continued:
 
 On
October 27, 2004, the Company completed a Private Placement (“the 2004 Private
Placement”) of 45 units, priced at $100,000 per unit, and raised gross proceeds
of $4,500,000. Each unit consists of a $50,000 unsecured convertible promissory
note, 58,824 shares of common stock and 117,648 warrants. The notes bear
interest at 10% per annum (an effective rate of 77%) and are convertible at the
option of the holder into common stock or convertible securities to be sold by
the Company in its next financing, as defined, at a conversion price equal to
the per share offering price of such financing.
 
 Based on
negotiations with the placement agent, the Company agreed to a fair value for
the common stock of $.85 per share and calculated the fair value of each warrant
to be $0.53 using the Black-Scholes option pricing model.  Prior to
the revision in the method of valuing the common stock, the Company used
Black-Scholes to value both common stock and warrants. The gross proceeds from
the sale of each unit were allocated based on the relative fair values to each
of the components.
 
 Convertible
      notes payable
                    
                    $
                    31,000Common
      stock
                    
                    $
                    31,000Stock
      Warrants
                    
                    $
                    38,000Total
                    
                    $
                    100,000
 
 Based on
the allocation of the relative fair values to the components of the 2004 Private
Placement offering, the debt discount was calculated to be $855,000, which was
amortized as expense to interest expense over the term of the
notes.
 
 The
Company agreed to file a registration statement within 60 days of final closing
of the 2004 Private Placement and to use commercially reasonable efforts to
cause the registration statement to be effective within 120 days of final
closing.  In the event the registration statement was not filed and
declared effective within the required time, the Company would incur liquidated
damages of 2% per month based on the subscription amount of each purchaser in
the Company October 2004 Private Placement. In connection therewith, during
2005, the Company incurred liquidating damages aggregating approximately
$48,000. As of December 31, 2009 and 2008, the Company owes $38,000 of such
damages.
 
 During
2009, the Company received $256,000 from two shareholders of the Company in
exchange for 457,142 shares and warrants representing an equal number of
shares.  These warrants are exercisable at $0.84 per share through the
fifth anniversary of the effectiveness of a registration statement of shares
underlying the warrants.  The warrants are subject to redemption, at
the Company’s sole option, after one year from the date of effectiveness of the
registration statement of common stock underlying the warrants if the common
stock price equals or exceeds $1.04 for a period of at least 20 consecutive
trading days at a redemption price of $0.1 per warrant.  The relative
fair value of the common stock was $124,000 and the relative fair value of the
warrants were $132,000, using the Black-Scholes warrant valuation
model.
 
 (2)
CONVERTIBLE NOTES PAYABLE:
 
 During
October and through November 30, 2009, the Company received $385,000 in gross
proceeds, coincident with a short-term bridge financing (“Bridge Notes”). In
exchange for this amount, the Company issued 10% Promissory Notes that may
convert into shares of the Company’s common stock at the earlier of one year
from the date of issue or upon the Company’s issuance of at least $1,500,000 in
a Private Placement financing. The Bridge Notes are payable in either cash or
the Company’s common stock, at the Company’s discretion. Additionally the Bridge
Note investors received four shares of the Company’s common stock for each $1.00
invested in the Bridge Notes or an aggregate of 1,540,000 shares of common
stock. The net proceeds from the Bridge Notes was approximately $305,000. The
value associated with the 1,540,000 common shares is $447,000 and was charged to
operations during 2009.
  F-14
 
 (2)
CONVERTIBLE NOTES PAYABLE, continued:
 
 The
placement agent in the Bridge Notes is also a financial advisor to the Company
and a significant shareholder of the Company. For fees and expenses coincident
with the Bridge Notes, the placement agent received warrants to purchase an
aggregate of 539,000 shares of Common Stock valued at approximately
$48,000.
 
 The
Bridge Notes will convert to common stock at a price determined by a
contemplated $3,000,000 Private Placement financing.  The Private
Placement terms include a conversion price of the Bridge Notes to the company’s
common stock at the lower of $0.25 or a 25% discount to the 10-day trading
weighted average of the closing price of the Company’s common stock prior to the
first closing.  The Company has reserved 1,540,000 common shares for
this conversion.
 
 The
beneficial conversion feature from the conversion of the Bridge Notes to common
stock and the debt discount, which is valued at $132,000 based on the effective
conversion price and the market price on the date of issuance, will be amortized
to interest expense using the effective interest method over the life of the
Bridge Notes.
 
 (3) STOCK
WARRANTS:
 
 In
connection with the 2007 Private Placement, through December 31, 2009 the
Company issued 1,183,904 Class A warrants to investors exercisable at $1.68 per
share through the fifth anniversary of the effectiveness of a registration
statement of shares underlying the warrants. The warrants are subject to
redemption, at the Company’s sole option, after one year from the date of
effectiveness of the registration statement of common stock underlying the
warrants if the common stock price equaled or exceeded $2.07 for a period of at
least 20 consecutive trading days at a redemption price of $0.01 per
warrant.
 
 In
addition, the Company issued to its placement agent warrants totaling 30% of the
total warrants issued to investors. Accordingly, the Company issued 355,171
warrants to the placement agent through December 31, 2009.
 
 In
connection with the 2007 Private Placement, through the closing, the Company
issued 1,183,904 Class A warrants to investors exercisable at $1.68 per share
through the fifth anniversary of the effectiveness of a registration statement
of shares underlying the warrants.  The warrants are subject to
redemption, at the Company’s sole option, after one year from the date of
effectiveness of the registration statement of common stock underlying the
warrants if the common stock price equaled or exceeded $2.07 for a period of at
least 20 consecutive trading days at a redemption price of $0.01 per
warrant.
 
 During
2007, the Company granted 120,000 warrants to a service provider as
compensation.  The warrants vest over a nine month
period.  In connection therewith, the Company valued 90,000 vested
warrants using the Black-Scholes option pricing model and recorded a
compensation charge of $57,000.
 
 In May
2008, the Company granted 135,000 warrants at prices ranging from $1.60 to $2.50
to two service providers as compensation.  These warrants vested over
nine months beginning in November 2008. General and administrative expenses were
charged $18,000 during 2008.
 
 The
following assumptions were used for all compensatory warrants issued to service
providers:
 
 December
      31,2009
                
                2008Range
      of Exercise Price
                $0.50
      $2.50
                
                $1.00-$2.50Maturity
                5
      Years
                
                5
      YearsRisk
      Free Interest Rate
                1.67%-4.0%
                
                3.22%-4.0%Volatility
                80%-88%
                
                80%
  F-15
 
 (3) STOCK
WARRANTS, continued:
 
 At
December 31, 2009, the Company had the following warrants
outstanding:
 
 Exercise Price
                              
                              Expiration Date
                              
                              Number of
                                Shares
                                ReservedPlacement Agent – 2004
                              
                              $
                              0.90
                              
                              May 13, 2010
                              
                              
                              2,382,372Other
                              
                              $
                              1.00
                              
                              July 28, 2009
                              
                              
                              50,000Other
                              
                              $
                              1.06
                              
                              September 13, 2009
                              
                              
                              10,000Other
                              
                              $
                              1.90
                              
                              September 28, 2011
                              
                              
                              120,000
                              (1)Class A- 2007
                              
                              $
                              1.68
                              
                              December 30, 2013
                              
                              
                              1,183,904
                              (2)Placement Agent – 2007
                              
                              $
                              1.68
                              
                              December 30, 2013
                              
                              
                              355,171Other
                              
                              $
                              1.50-$2.25
                              
                              March 6,2014
                              
                              
                              200,000Other
                              
                              $
                              1.60-$2.50
                              
                              May, 2013
                              
                              
                              135,000Class A-2009
                              
                              $
                              0.84
                              
                              May,2010
                              
                              
                              457,142Total
                              
                              
                              
                              
                              
                              
                              
                              4,893,589
 
 (1)
              Subject
      to vesting.
 (2)
              Subject
      to redemption (see Note F(1)).
 
 (4)
COMMON STOCK
 
 In
connection with the initial capitalization of the Texas Corporation,
HemoBioTech, Inc. agreed to issue 1,982,157 Class A shares and 2,715,280 Class B
shares between January 30, 2002 and January 20, 2003, and was valued at an
aggregate of approximately $8,000. On October 31, 2003, the Texas Corporation
issued 108,613 Class A shares as an anti-dilutive issuance.  On
October 31, 2003, all the stockholders exchanged their Class A and B shares for
6,896,818 shares of common stock of the Company.  The accompanying
financial statements reflect the shares as outstanding from their dates of
original issuance. Under an agreement dated July 15, 2004, a principal
stockholder agreed to return 1,086,113 shares of common stock to the Company as
an inducement to the placement agent to serve as agent in the proposed Private
Placement (Note F(1)).  The return of such shares was treated as a
capital contribution.
 
 (5)
VOTING AND STOCKHOLDERS AGREEMENTS
 
 On
October 31, 2003, the Company entered into a stockholders agreement with certain
stockholders (aggregating 6,217,996 shares of common stock) under whom the
Company granted such stockholders a right of first offer with respect to future
sales of common stock or convertible securities by the Company.  In
addition, the Company granted each of the stockholders “piggyback registration
rights”.  Each of these stockholders waived their right of first
refusal in connection with the October 2004 Private Placement.  In
addition, each of these stockholders waived their piggyback registration rights
in connection with the registration of the shares underlying the October 2004
Private Placement.
  F-16
 
 6) STOCK
OPTION/STOCK ISSUANCE PLAN:
 
 During
2003, the Board of Directors of the Company approved a Stock Option/Stock
Issuance Plan (the "Old Plan") which provides for the granting of options or
stock to purchase up to 1,629,168 shares of common stock, under which directors,
employees and independent contractors are eligible to receive incentive and
non-statutory stock options and common shares (employees). The Company's
stockholders approved the Old Plan in August 2004. On June 9, 2006, the
Company’s stockholders approved an increase of 1,500,000 shares of common stock
from the 1,629,168 shares of common stock available to be granted under the
Plan, increasing the number of shares to 3,129,168.
 
 Additional
information on shares subject to options is as follows:
 
 At
December 31, 2009, 139,463 options were available for grant under the Plan. The
following tables present information relating to stock options under the Plan as
of December 31, 2009.
 
 2009
                      
                      
                      2008Shares
                      
                      
                      Aggregate
                        IntrinsicValue
                      
                      
                      Weighted
                        Average
                        ExercisePrice
                      
                      
                      Shares
                      
                      
                      Aggregate
                        IntrinsicValue
                      
                      
                      Weighted
                        Average
                        ExercisePriceOptions
      outstanding at beginning of period
                      
                      
                      1,668,031
                      
                      
                      
                      
                      
                      
                      0.88
                      
                      
                      
                      1,886,990
                      
                      
                      
                      —
                      
                      
                      $
                      0.88Granted
      during the period
                      
                      
                      676,000
                      
                      
                      
                      
                      
                      
                      0.40
                      
                      
                      
                      461,715
                      
                      
                      
                      —
                      
                      
                      $
                      1.18Options
      Exercised during the period
                      
                      
                      —
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      651,668
                      
                      
                      
                      
                      
                      
                      $
                      .20Options
      Cancelled during the period
                      
                      
                      —
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      29,006
                      
                      
                      
                      
                      
                      
                      $
                      1.06Options
      outstanding at end of period
                      
                      
                      2,344,031
                      
                      
                      
                      295,885
                      
                      
                      
                      0.74
                      
                      
                      
                      1,668,031
                      
                      
                      $
                      364,389
                      
                      
                      $
                      0.88Options
      exercisable at end of period
                      
                      
                      2,223,115
                      
                      
                      
                      83,880
                      
                      
                      
                      0.72
                      
                      
                      
                      1,444,165
                      
                      
                      
                      353,493
                      
                      
                      $
                      0.84Options
      Not Vested at end of period
                      
                      
                      120,916
                      
                      
                      
                      212,005
                      
                      
                      
                      0.91
                      
                      
                      
                      223,866
                      
                      
                      $
                      10,896
                      
                      
                      $
                      1.20Options
      vested or expected to vest
                      
                      
                      2,344,031
                      
                      
                      
                      295,885
                      
                      
                      
                      0.74
                      
                      
                      
                      1,668,031
                      
                      
                      $
                      364,389
                      
                      
                      $
                      0.88
 
 December 31, 2009OptionsOutstanding
                                                                                
                                                                                
                                                                                OptionsExercisableRangeof
                                                                                  Exercise Price
                                                                                
                                                                                
                                                                                Shares
                                                                                
                                                                                
                                                                                Weighted
                                                                                  Average
                                                                                  ExercisePrice
                                                                                
                                                                                
                                                                                Weighted
                                                                                  Average
                                                                                  Remaining
                                                                                  LifeinYrs
                                                                                
                                                                                
                                                                                Shares
                                                                                
                                                                                
                                                                                Weighted
                                                                                  Average
                                                                                  ExercisePrice$
                                                                                0.18-$0.50
                                                                                
                                                                                
                                                                                
                                                                                1,170,526
                                                                                
                                                                                
                                                                                $
                                                                                0.25
                                                                                
                                                                                
                                                                                
                                                                                5.9
                                                                                
                                                                                
                                                                                
                                                                                1,170,526
                                                                                
                                                                                
                                                                                $
                                                                                0.25$
                                                                                0.51-$.94
                                                                                
                                                                                
                                                                                
                                                                                371,645
                                                                                
                                                                                
                                                                                $
                                                                                0.69
                                                                                
                                                                                
                                                                                
                                                                                6.8
                                                                                
                                                                                
                                                                                
                                                                                352895
                                                                                
                                                                                
                                                                                $
                                                                                0.70$
                                                                                1.00-$1.65
                                                                                
                                                                                
                                                                                
                                                                                566,860
                                                                                
                                                                                
                                                                                $
                                                                                1.25
                                                                                
                                                                                
                                                                                
                                                                                6.8
                                                                                
                                                                                
                                                                                
                                                                                471,151
                                                                                
                                                                                
                                                                                $
                                                                                1.26$
                                                                                1.75-2.42
                                                                                
                                                                                
                                                                                
                                                                                235,000
                                                                                
                                                                                
                                                                                $
                                                                                2.03
                                                                                
                                                                                
                                                                                
                                                                                7.0
                                                                                
                                                                                
                                                                                
                                                                                228,543
                                                                                
                                                                                
                                                                                $
                                                                                2.042,344,031
                                                                                
                                                                                
                                                                                $
                                                                                0.74
                                                                                
                                                                                
                                                                                
                                                                                6.4
                                                                                
                                                                                
                                                                                
                                                                                2,223,115
                                                                                
                                                                                
                                                                                $
                                                                                0.72
  F-17
 
 (6) STOCK
OPTION/STOCK ISSUANCE PLAN, continued:
 
 As of
December 31, 2009, 2,223,115 options were fully vested. A summary of the status
of the Company’s non-vested options as of December 31, 2009 and changes during
the years ended December 31, 2009 and 2008, are presented below.
 
 2009
                                    
                                    
                                    2008StockOptions
                                    
                                    
                                    Weighted
                                      Average
                                      Grant Date
                                      Fair Value
                                    
                                    
                                    StockOptions
                                    
                                    
                                    Weighted
                                      Average
                                      Grant Date
                                      Fair ValueNonvested
      at January 1,
                                    
                                    
                                    232,866
                                    
                                    
                                    $
                                    1.02
                                    
                                    
                                    
                                    160,684
                                    
                                    
                                    $
                                    1.12Granted
      through 4th Quarter
                                    
                                    
                                    676,000
                                    
                                    
                                    $
                                    0.41
                                    
                                    
                                    
                                    461,715
                                    
                                    
                                    $
                                    0.92Options
      vested through  4th Qtr
                                    
                                    
                                    (787,950
                                    )
                                    
                                    $
                                    0.49
                                    
                                    
                                    
                                    (384,517
                                    )
                                    
                                    $
                                    0.92Options
      cancelled during 4th Qtr
                                    
                                    
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    
                                    (14,016
                                    
                                    
                                    $
                                    —Nonvested
      at December 31,
                                    
                                    
                                    120,916
                                    
                                    
                                    $
                                    1.14
                                    
                                    
                                    
                                    223,866
                                    
                                    
                                    $
                                    1.02
 
 The
unrecognized compensation cost related to non vested employee and director
share-based compensation granted under the Plan for the years ended December 31,
2009 and 2008 were $96,000 and $217,000 respectively. The cost expected to be
recognized over a weighted –average period for the years ended December 31, 2009
and 2008 were 2.15 years and 1.95 years, respectively.
 
 The
weighted-average fair values at date of grant for options granted during the
years ended December 31, 2009 and 2008 were $0.34 and $0.92 respectively. The
value of the options was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions:
 
 December
      31,2009
                  
                  2008Expected
      life in years
                  5-10
                  
                  5-10Interest
      rate
                  .95%
      - 4.5%
                  
                  .95%
      - 4.5%Volatility
                  88%
      - 95%
                  
                  88%
      - 95%Dividend
      yield
                  165%
                  
                  0%
 
 On October
31, 2008, the Company’s chief executive officer exercised
his options to acquire 651,668 shares of the Company's common stock at an
exercise price of $0.20 per share or $130,334. In lieu of cash payment, the
chief executive officer returned 130,334 shares of common stock to the Company
for the exercise price of the options. The shares were valued at $130,334 based
on the closing price per share on the date of issuance. No compensation expense
was recorded as a result of this cashless transaction.
 
 NOTE
G – INCOME TAXES
 
 The net
deferred tax asset in the accompanying balance sheet includes the following
amounts of deferred tax assets and liabilities.
 2009
                      
                      
                      2008Deferred
      Tax AssetNet
      operating loss
                      
                      $
                      5,132,000
                      
                      
                      $
                      4,256,000Stock
      based compensation
                      
                      
                      498,000
                      
                      
                      
                      393,000Other
                      
                      
                      297,000
                      
                      
                      
                      297,000Research
      & development credit
                      
                      
                      156,000
                      
                      
                      
                      126,000$
                      6,083,000
                      
                      
                      $
                      5,072,000Valuation
      Allowance
                      
                      $
                      (6,083,000
                      )
                      
                      $
                      (5,072,000
                      )Net
      deferred tax asset
                      
                      $
                      (—
                      )
                      
                      $
                      (—
                      )
  F-18
 
 The
deferred tax assets represent the benefits of its net operating loss and certain
expenses not currently deductible for tax purposes.  The Company has
provided a full valuation allowance for such deferred tax assets due to
uncertainty to realize such benefits in the future.
 
 At
December 31, 2009 the Company had approximately $15,094,000 and $156,000 in net
operating loss and research and development credit carry-forwards for federal
income tax purposes which expire as follows:
 
 Year
                    
                    Net Operating
                      Year Losses
                    
                    
                    Research &
                      Development
                      Credit2023
                    
                    $
                    134,000
                    
                    
                    $
                    02024
                    
                    
                    928,000
                    
                    
                    
                    11,0002025
                    
                    
                    3,424,000
                    
                    
                    
                    12,0002026
                    
                    
                    2,162,000
                    
                    
                    
                    27,0002027
                    
                    
                    3,435,000
                    
                    
                    
                    41,0002028
                    
                    
                    2,434,000
                    
                    
                    
                    35,0002029
                    
                    
                    2,577,000
                    
                    
                    
                    30,000$
                    15,094,000
                    
                    
                    $
                    156,000
 
 The
difference between the statutory tax rate of 34% and the company's effective tax
rate is primarily due to the increase in the valuation allowance of $1,011,000
(2009) and $1,257,000 (2008) and certain expenses not deductible for tax
purposes.
 
 NOTE
H – COMMITMENTS AND OTHER MATTERS
 
 (1)
LEASES:
 
 During
February 2007 the Company moved into new office space and agreed to a sixty-six
month office lease.  The lease agreement includes rent abatement for
approximately ten months during 2007 and 2008.  Provisions of the
lease include a security deposit of approximately $5,800 and a thirty six month
letter of credit in the amount of approximately $55,000.  In addition,
if the Company cancels this lease after December, 2010, and prior to its full
sixty-six month term, the Company will be obligated to pay a cancellation charge
of approximately $46,000. The estimated minimum lease payments for the next five
years are:  In 2010 - $67,000; in 2011 - $68,000; in 2012 - $70,000
and none thereafter.
  (2)
CONSULTING AGREEMENTS:
 
 On
October 14, 2004, the Company entered into an advisory agreement with a member
of our scientific advisory board to receive technical advisory services. The
agreement can be terminated by either party on 30 days' written notice. The
agreement provides for $1,500 per month and the issuance of an option under the
Plan to purchase 15,000 shares of common stock of the Company at an exercise
price of $0.85 per share. In addition, at the end of each year of service on the
advisory board, the Company will grant an additional non-qualified stock option
to purchase 5,000 shares of Common Stock at an exercise price equal to the then
fair market value of the Common Stock. Such options vest 25% on the first
anniversary and then monthly thereafter over a period of thirty six months.
During the twelve months ended December 31, 2009 and 2008, $1,000 and $5,000
were charged to operations as stock based compensation
respectively.
 
 On July
13, 2005, the Company entered into an advisory agreement with its Acting Vice
President and Principal Investigator of Research and Development to receive
advisory services on technical, medical and market issues related to
HemoBioTech, including its second generation blood substitute, HemoTech. The
agreement provides for non-qualified stock options to purchase 271,528 shares of
Common Stock of HemoBioTech at an exercise price per share of $0.18, subject to
vesting through July 13, 2009. In connection therewith, the Company recorded a
charge of $24,000 and $41,000 for the years ended December 31, 2009 and 2008,
respectively. As of December 31, 2009, 271,528 options had
vested.  The Company will record additional charges as and when the
options vest at the then fair value.
  F-19
 
 On
January 16, 2008, the Company granted stock options to two scientific
consultants employed by TTUSHC.  Each grant provides for 75,000
non-qualified stock options to purchase shares of the Company’s stock at an
exercise price of $1.19 which was the fair market value of the Company’s shares
on the grant date.  The options vest 25% immediately and the remaining
75% vest monthly over the next 36 months.  Accordingly, the Company
recorded a charge of $32,000 and $62,000 to stock based compensation during the
twelve months ended December 31, 2009 and 2008, respectively.
 
 During
January, 2009 the Company engaged the advisory services of a consultant for the
purpose of assisting with press releases or announcements related to the
Company, assist with telephone conferences with investor groups, and provide
information in the industry in which the Company conducts business. The
agreement does not have a termination date and maybe terminated by either party
with 30 days written notice.  The consultant was required to sign a
confidentiality agreement and was paid 20,000 shares of the Company’s
unregistered common stock.  The per share price of the Company’s
common stock on the date of the agreement approximated $0.70 per
share.  Accordingly, the Company recorded a charge of $14,000 to stock
based compensation.
 
 During
February, 2009, the Company granted options to a new member of its Board of
Directors who received 15,000 stock options vest immediately.  Stock
based compensation expense will be recorded in the company’s financial Statement
beginning March, 2009 using the Black Scholes option pricing
model.  The stock based compensation was $8,000 during
2009.
 
 During
February, 2009 the Company engaged the advisory services of a consultant for the
purpose of assisting with short and long term strategic needs of the Company,
assist in the development of a business plan, provide general advice and assist
in providing the capital structure of the Company, assist with staffing and
recruiting.  The consultant will assist the Company in its effort to
obtain equity investment and related financing including potential federal
funding.  The consultant will also identify and help negotiate with
potential strategic and joint venture partners, identify and assist in
negotiations with potential acquisition and merger candidates and assist in
addressing the HIV/AIDS community and potential benefits of
HemoTech.  The agreement was for one year and was subject to
termination for cause by either party on 60 days written notice.  The
Company agreed to pay the consultant 100,000 shares of the Company’s common
stock and agreed to register these shares with the next registration statement
of the Company.  The stock was to be earned in twelve equal monthly
installments of 8,333 shares per month.  The Company issued 91,667
shares in 2009.  The Company recorded a charge of $43,000 to stock
based compensation for 2009.  Additionally the Company provide to the
consultant warrants to purchase up to 100,000 shares of the Company’s common
stock at $1.50 per share and 100,000 shares of the Company’s common stock at
$2.25 per share exercisable for five years.  The warrants vested 100%
on the grant date and were valued using Black Scholes pricing
model.  Accordingly, the Company charged operations $81,000 during
2009.  The Company has also agreed to reimburse the consultant on a
monthly basis for its reasonable out of pocket expenses not to exceed $4,000 per
month.
 
 During
March, 2009 the Company added a new member to its Scientific Advisory
Board.  The terms of the  agreement call for at least one
year of service and may be terminated by either party at any time with 45 days
notice.  The advisor will provide the Company services on technical
and medical issues related to the development and use of HemoTech for prevention
of HIV and company matters.  Upon signing the agreement the Company
granted 100,000 shares of qualified stock options at an exercise price per share
of $0.51.  The options will vest 25% immediately and the balance over
twelve months.  Stock based compensation expense for the year ended
December 31, 2009 using the Black Scholes option pricing model was
$32,000.
 
 During
April, 2009, the Company entered into an advisory agreement whereby the Company
was to receive financial and political assistance. Pursuant to this agreement,
the consultant received 25,000 common shares valued at $18,000.
 
 During
May, 2009, the Company entered into an advisory agreement which terminated in
August, 2009. During 2009, the Company issued 12,500 common shares valued
at $8,750 as a portion of this consideration paid under the
agreement.
  F-20
 
 (3)
FINANCIAL ADVISOR AGREEMENT:
 
 On
September 12, 2006, the Company entered into a three-year agreement with its
placement agent and financial advisor for consulting services related to
corporate finance and other financial services. The financial advisor is also a
significant shareholder in the Company. The services shall include assisting the
Company in evaluating and negotiating particular contracts or transactions, if
requested to do so by the Company and to raise for the Company its next
financing of up to $10 million with a minimum of $6 million in the next 18
months from the date of the agreement.   As compensation for such
services, the Company agreed to issue 1,500,000 shares of its common stock. The
agreement states that 500,000 shares would vest to the consultant on the one
year anniversary of the agreement.  Accordingly, on September 12,
2007, 500,000 shares vested to the financial consultant. The remaining 1,000,000
shares are subject to forfeiture in the event that the consultant fails to
achieve certain performance criteria, including assisting the Company in raising
additional capital, set forth in the agreement. The December 2007 Private
Placement closed on October 31, 2008. As of December 31, 2008, the financial
advisor had helped the Company raise approximately $1,326,000.
 
 During
2008, the Company has agreed to award the financial advisor approximately
221,000 of the 1,000,000 shares and 143,000 warrants to purchase stock, that
were subject to forfeiture. In addition, the agreement provides for a fee, paid
in shares of the Company's stock, if the financial advisor acts as a finder or
financial consultant in various business transactions in which the Company may
be involved such as mergers, acquisitions or joint ventures during the term of
the agreement. Accordingly, the Company has recorded $221,000 and $91,000 for
the value of the stock and warrants, respectively, for the twelve months ended
December 31, 2008. $1,215,000 has been charged to operations since the inception
of the agreement. The Company will record an additional expense over the service
period related to this stock issuance as and when the performance criteria are
met at the then market price of the stock. There are currently no contractual
amounts due to the financial advisor.
 
 (4) OTHER
ARGEEMENTS:
 
 During
March, 2009 the Company signed a Modification Settlement and Release Agreement
to amend the employment agreement of its Chief Financial Officer and Secretary
(the “Executive”).  The agreement calls for a lump sum payment to the
Executive of $25,000 and 65,000 shares of the Company’s common stock on the
exchange for a reduction to the Executive’s salary.  The per share
price of the Company’s common stock on the date the agreement approximated $0.70
per share (aggregate of $46,000).  The Company charged $71,000 to
operations in 2009 related to this agreement.
 
 During
December, 2009, the company issued 40,000 common shares valued at $12,000 in
return for a $10,000 short-term loan made to the Company during October,
2009.
 
 NOTE
I – SUBSEQUENT EVENTS
 
 The
Company has evaluated events after the date of these financial statements,
December 31, 2009 through the time of filing with the Securities and Exchange
Commission, the following are the subsequent events noted:
 
 In April,
2010, the Company received $50,000 in gross proceeds in exchange for two 10%
promissory notes issued on the same term as the Bridge Note described above,
except there is no mandatory conversion of the notes. The investor received
200,000 shares of Common Stock in consideration of his investment. The placement
agent, who is also a financial advisor and significant stockholder of the
company, received $8,500 in fees and expenses and warrants to purchase 70,000
shares of common stock at the lower of $0.25 or the next offering
price.
  F-21
  NOTE
J – RESTATEMENT
 
 The
Company has restated its annual financial statements from amounts previously
reported for periods ended December 31, 2008. The Company has determined that
there were certain errors in the amounts as reported previously. Accordingly,
the 2008 financial statements have been restated to reflect the correction of
these errors.
 
 The
following line items in the 2008 financial statements were
affected:
 
 2008
      asOriginally
      Reported
                        
                        
                        2008
      as Restated
                        
                        
                        Effect
      of ChangeBalance
      Sheet:Prepaid
      expenses
                        
                        A
                        
                        
                        
                        294,000
                        
                        
                        
                        269,000
                        
                        
                        
                        (25,000
                        )Accrued
      expenses
                        
                        A
                        
                        
                        
                        (389,000
                        )
                        
                        
                        (538,000
                        )
                        
                        
                        (149,000
                        )Retained
      Earnings
                        
                        
                        A,
      B
                        
                        
                        
                        15,323,000
                        
                        
                        
                        15,693,000
                        
                        
                        
                        370,000Statement
      of Operations:General
      and administrative
                        
                        
                        A,
      B
                        
                        
                        
                        1,957,000
                        
                        
                        
                        2,327,000
                        
                        
                        
                        370,000Total
      Expenses
                        
                        
                        A,
      B
                        
                        
                        
                        3,497,000
                        
                        
                        
                        3,867,000
                        
                        
                        
                        370,000Net
      Income (Loss)
                        
                        
                        A,
      B
                        
                        
                        $
                        (3,462,000
                        )
                        
                        $
                        (3,832,000
                        )
                        
                        $
                        (370,000
                        )Basic
      and Diluted Earnings Per Share
                        
                        
                        
                        
                        
                        $
                        0.018
                        
                        
                        $
                        0.019
                        
                        
                        $
                        0.001Statement
      of Shareholders’ Equity:Additional
      Paid-in Capital
                        
                        
                        B
                        
                        
                        
                        (15,838,000
                        )
                        
                        
                        (15,813,000
                        )
                        
                        
                        25,000Retained
      Earnings
                        
                        
                        A,
      B
                        
                        
                        
                        15,323,000
                        
                        
                        
                        15,693,000
                        
                        
                        
                        370,000
 
 Legend:
 A –
Amounts adjusted due to services being provided during the year.
 B –
Amounts adjusted for value of warrants and options issued during
year.
 F-22




SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 HemoBioTech,
      Inc.(Registrant)By:
      /s/ Robert Comer
              
              By:
      /s/ Arthur P. BollonRobert
      Comer
              
              Arthur
      P. Bollon, Ph.D.Interim
      Chief Financial Officer and Secretary
              
              Chairman
      of the Board, President and Chief Executive Officer(Principal
      Financial Officer)
              
              (Principal
      Executive Officer)Dated:
      May 26, 2010
  In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
 
 Signatures
                
                Title
                
                Date/s/
      Robert Baron
                
                Chairman
      of the Board
                
                May
      26, 2010Robert
      Baron/s/
      Arthur P. Bollon
                
                Chairman
      of the Board, President
                
                May
      26, 2010Arthur
      P. Bollon, Ph.D.
                
                and
      Chief Executive Officer/s/
      Robert Comer
                
                Interim
      Chief Financial Officer,
                
                May
      26, 2010Robert
      Comer
                
                Secretary
      and Director/s/
      Bernhard Mittemeyer
                
                Director
                
                May
      26, 2010Bernhard
      Mittemeyer, M.D./s/
      Ghassan Nino
                
                Director
                
                May
      26, 2010Ghassan
      Nino, C.P.A, CMA/s/
      Robert E. Dragoo, Jr.
                
                Director
                
                May
      26, 2010Robert
      E. Dragoo, Jr.
 51