UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2005

          [ ] 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. Employer
     incorporation or organization)                        Identification No.)

     14221 DALLAS PARKWAY SUITE 1400
              DALLAS, TEXAS                                       75254
 (Address of principal executive offices)                      (Zip Code)

       (Registrant's telephone number, including area code: (214) 540-8411

    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

Check whether the issuer is not required to file reports  pursuant to Section 13
or 15(d) of the Exhange Act. [ ]

Check  whether  the issuer:  (1) has filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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. [X] Yes [ ]
No

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB. [ ]

Indicate by check mark whether the  Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

The issuer's revenues for the fiscal year ended December 31, 2005, were $0.

As of March 28, 2006,  13,515,996  shares of the Registrant's  common stock, par
value $.001 per share, were outstanding.

On that date, the aggregate market value of voting stock (based upon the closing
price of the Registrant's  common stock on March 28, 2006) held by nonaffiliates
of the Registrant was $7,813,718 (3,600,792 shares at $2.17 per share).


<PAGE>


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  HemoBioTech,  Inc.'s  prospectus  dated May 13, 2005,  as
supplemented,  and  HemoBioTech,  Inc.'s other reports filed with the Securities
and Exchange Commission.





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<PAGE>


                                     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 14221 Dallas
Parkway,  Suite 1400,  Dallas,  Texas 75254,  and our telephone  number is (214)
540-8411.

We are the exclusive  licensee of what we believe is an  innovative  human blood
substitute product,  which we call "HemoTech(TM)".  HemoTech(TM) is comprised of
hemoglobin that has been isolated from bovine blood and then chemically  altered
to make the resulting product non-toxic. It is the combination of these elements
that we believe makes HemoTech(TM) a novel product.  HemoTech(TM) is intended to
address an increasing,  yet unmet,  demand for safe and inexpensive blood in the
United States and around the world.  We believe  HemoTech(TM) is non-toxic based
on initial foreign clinical studies.

Dr. Mario Feola and Dr. Jan Simoni,  Texas Tech University Health Science Center
School of Medicine  ("Texas Tech")  researchers and recognized  blood substitute
authorities,  developed HemoTech(TM) over 20 years of research. HemoTech(TM) has
been  tested  in a  European  pre-clinical  regulatory  study  conducted  at the
Research  Toxicology  Centre S.p.A. in Rome, Italy, in 1990-1992 and preclinical
studies at ISI St. Antimo in Naples, Italy from 1989 to 1991 and a limited human
clinical trial in Africa in 1990, with what we believe to be favorable  results.
These  initial  studies  suggest,  although no FDA  approved  studies  have been
undertaken  and there can be no  assurance  that later stage trials will confirm
these findings, that this novel red blood cell substitute:

     o   can act as a carrier of oxygen;
     o   produces no adverse toxicity of the kidneys, or the nervous system;
     o   produces no adverse inflammatory reactions;
     o   can dilate the blood vessels  (which is called  vasodilatory  activity)
         and can reduce narrowing of blood vessels (or  vasoconstriction)  that
         follows hemorrhage;
     o   has erythropoietic activity (which is the production of red blood cells
         in the body);
     o   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;
     o   has the  ability  to  remain in the blood  vessels;  and can  sustain a
         close-to-normal amount of plasma in the blood.

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 Texas
Tech that allows us to utilize research and production  facilities at Texas Tech
and Texas Tech scientists,  surgeons and medical staff.  Our  relationship  with
Texas Tech is governed  by license and  research  agreements  that,  among other
things,  grant us the exclusive  worldwide  intellectual  property rights to the
HemoTech(TM) technology in exchange for equity ownership and payment of the fees
associated with our use of Texas Tech 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 commercializing of HemoTech(TM).

BACKGROUND

The development of HemoTech(TM) 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(TM)  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).

                                                                               4
<PAGE>

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.

     o   minimize the risk of infections by infectious  agents such as hepatitis
         and HIV (which causes AIDS) and adverse reactions in patients;
     o   be compatible with all blood types,  allowing  earlier  administration,
         increasing  survivability  for trauma  patients and  preventing  supply
         shortages related to specific blood types;
     o   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
     o   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(TM)'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(TM),  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).

OUR PRODUCT

Our product, HemoTech(TM), 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(TM) 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(TM)  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(TM)  also relaxes  hemorrhage-induced
narrowing of the blood vessels. GSH permits the alteration of the surface charge
of  HemoTech(TM),  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(TM)
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(TM)'s  primary
benefits include:

     o   non-toxicity:
     o   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;


                                                                               5
<PAGE>

     o   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;
     o   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;
     o   high  purification,  which  may  eliminate  the risk of  infection  and
         adverse immune reactions in patients;
     o   the ability to be stored at 4(degree)C  (39(degree)F) for six months or
         more and for an extended  period when frozen  (compared  to 42 days for
         banked blood), and the ability to be stockpiled easily;
     o   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
     o   the potential to be produced at a price competitive with current banked
         blood and other blood substitute products.

CLINICAL STATUS

HemoTech(TM)  underwent  foreign  pre-clinical and human clinical testing in the
late 1980's and early 1990's.  Pre-clinical  testing included research performed
by Texas Tech 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:

     o   in vivo animal studies; and
     o   in vitro testing using various human cell lines.

     These tests focused on:

     o   toxicity;
     o   the way in which the product affects blood vessels;
     o   immunological  and inflammatory  activity,  as well as the way in which
         HemoTech(TM)   interacts   with  oxygen  (which  is  called   oxidative
         activity);
     o   stability; and
     o   therapeutic potential.

We  believe  the  results of these  pre-clinical  tests  support  HemoTech(TM)'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.

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(TM) 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 dilation 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(TM):

     o   produces no adverse kidney,  nervous system,  oxidative or inflammatory
         reactions in humans;
     o   can reduce the narrowing of blood vessels that follows hemorrhage;
     o   has low oxygen affinity and can work as a physiological oxygen carrier;
     o   induces  red  blood  cells  production  in the  body;
     o   has prolonged intravascular persistence; and
     o   can sustain a close-to-normal level of plasma in the blood.


                                                                               6
<PAGE>

The results of the  HemoTech(TM)  clinical  studies  have not  demonstrated  any
negative side effects.  Since the results of the  HemoTech(TM)  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(TM)  program and therefore was unable to
continue to sponsor the program.  Accordingly,  the HemoTech(TM)  technology was
returned to Texas Tech in 1995. Texas Tech subsequently constructed a production
facility for  HemoTech(TM) and attempted to raise money to support the research,
development, testing and commercialization of HemoTech(TM), but these activities
were outside the scope of Texas Tech's expertise,  so the university then sought
to license the  HemoTech(TM)  technology.  In 2001,  we entered into our license
agreement with Texas Tech.

We believe  the  results of the  HemoTech(TM)  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(TM).  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:

     o   trauma and blood disorders;
     o   cardiopulmonary bypass surgery including angioplasty;
     o   organ and tissue transplantation; and
     o   oncology (the treatment of cancer).

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

RESEARCH AND DEVELOPMENT ACTIVITIES

During the years ended  December 31, 2005,  and 2004,  the  Company's  financial
statements reflect,  $289,000 and $259,000 respectively,  charged to expense for
research and development activities.

In July 2002, the Company entered into a sponsored  research  agreement with TTU
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 August 31, 2006.  The  agreement  may be  terminated  by
either party on 90 days written notice.  In November 2004, the Company agreed to
fund the next  phase of its  research  under the  sponsored  research  agreement
through November 30, 2005 for a fixed fee of approximately  $231,000,  which was
paid in December 2004.

In January  2006,  the Company  entered  into a Stage Three  Sponsored  Research
Agreement with Texas Tech University for the period January 1, 2006, to December
31,  2006.  In  connection  therewith,  the Company  made an initial  payment of
approximately $287,000.  Additional payments, if any, will be made to Texas Tech
University  pursuant  to  the  Plan  of  Operations  described  in  management's
discussion and analysis.

INTELLECTUAL PROPERTY

We have  licensed from Texas Tech  exclusive  worldwide  rights to  HemoTech(TM)
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 the U.S. patent expires on or after August 8, 2012.

Under the terms of the license agreement, we issued to Texas Tech 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 Texas Tech. 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(TM).  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,  Texas Tech 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
Texas Tech) in exchange for removing the  anti-dilution  provision.  We have not
made any other payments to Texas Tech under the license agreement and we are not
required to make any payments under the license agreement except as follows:

     o   to reimburse  Texas Tech for certain  patent  maintenance  costs of the
         HemoTech(TM)  patent and any other patent that  becomes  covered by the
         license  agreement,  within 30 days of receiving notice from Texas Tech
         that such amounts are due;


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<PAGE>

     o   to pay prosecution costs and costs of foreign counterpart  applications
         on  all  future  "designated  inventions,"  which  includes  patentable
         inventions  created  by Texas  Tech's  employees  under  the  sponsored
         research agreement; and

     o   Cost to maintain our patent position in 21 foreign countries.

We have also entered into an additional  letter  agreement with Texas Tech under
which Texas Tech agreed to file 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(TM). There can be no assurance that Texas Tech will
be able to file an application for the new patent or that the new patent will be
granted  before August 2012 or at all. If issued,  this new patent,  exclusively
owned by Texas Tech,  will become  subject to our license  agreement  with Texas
Tech  and  could  give  us  additional  protection  for  the  commercial  use of
HemoTech(TM). Under the terms of our license agreement with Texas Tech, title to
inventions  made solely by  inventive  contributions  of employees of Texas Tech
shall be owned by Texas  Tech,  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
Texas Tech and HemoBioTech shall be jointly owned by Texas Tech and HemoBioTech.
In addition to the proposed  erythropoiesis  patent,  the Company,  working with
Texas Tech, are developing a broad patent  strategy that focuses on improvements
in  production  and   purification   methods  used  in  the   manufacturing   of
HemoTech(TM),   use  of  HemoTech(TM)   and  other   potential   future  product
formulations  for  specific  medical  indications,  formulaic  modifications  of
HemoTech(TM)'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(TM) may, although there can be no assurance, result in refinements that
are patentable, thereby extending patent protection for forthcoming HemoTech(TM)
derivatives.

MARKET OPPORTUNITY

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's  targeted  markets of acute anemia,  cancer and ischemia
(the inadequate flow of oxygenated blood due to insufficient blood supply).

In addition to peacetime need, emergencies typically add to the demand for blood
substitutes.  For many years, the U.S. Army has been a leading  proponent for an
effective blood substitute.

THE NEED FOR BLOOD SUBSTITUTES

There are several critical factors shaping the U.S. 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.  We believe  that,  among other  qualities,  an
effective blood substitute would:

     o   minimize the risk of infections by infectious  agents such as Hepatitis
         and HIV (which causes AIDS) and adverse reactions in patients;
     o   be compatible with all blood types,  allowing  earlier  administration,
         increasing  survivability  for trauma  patients and  preventing  supply
         shortages related to specific blood types;
     o   possess a  significantly  longer shelf life (6 months or greater)  than
         that of donated  red blood  cells (42 days),  allowing a wider range of
         administration and increased stockpiling; and
     o   derived  from a  potentially  large  supply,  countering  the  critical
         shortage of banked human blood worldwide.

SUPPLY AND DEMAND

According to the Foundation for American Blood Centers,  the United States faced
an estimated  shortfall of more than one million units of safe blood in 2003. In
the face of this  deficit,  many  cities are looking  overseas to address  their
blood shortages.  For example,  according to Crain's New York Business News, New
York City has imported more than 25% of its blood supply from Europe.

According to BLOOD TRANSFUSIONS: KNOWING YOUR OPTIONS, a publication of the Pall
Corporation,  more than 43% of all  blood  products  are used for  people 65 and
older.  This older segment of the population is expected to grow 14% in the next


                                                                               8
<PAGE>

10 years, almost twice as fast as the rest of the population. Thus, the shortage
of red blood cells is expected to increase dramatically as more baby boomers age
and  the  number  of  cardiac  surgeries,   cancer  treatments,   hip  and  knee
replacements, head injury treatments, organ transplants and other surgeries also
increase.  While blood donations have generally increased by 1-2% annually,  the
American  Red  Cross  estimates  that  blood  transfusion  demand  is on pace to
increase by 6-8% annually.  Worldwide,  the shortage is even greater.  The World
Health Organization  estimated a worldwide shortage of 25 million units of blood
in 2002.

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.  Based on a 2001 report of the American Association of Blood
Banks,  the risk of  infection  from,  or adverse  reaction  to, a single  blood
transfusion is:

     o   1:100 for minor allergic reactions
     o   1:2,500 for bacterial infections
     o   1:50,000 for human T cell Leukemia virus
     o   1:250,000 for Hepatitis B
     o   1:543,000 for Hepatitis C
     o   1:600,000 for fatal hemolytic reaction
     o   1:1,930,000 for HIV

These probabilities  compound quickly,  however,  for major procedures,  such as
organ transplants and trauma,  which require 50 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.

We believe that our product's  initial foreign  clinical  testing  produced data
that supported  HemoTech(TM)'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 New Drug Application supporting the preclinical non-toxicity results in
cell  and  animal  studies.   Subsequent  to  HemoTech(TM)'s  clinical  studies,
HemoBioTech's  researchers  delineated the molecular mechanisms of HemoTech(TM).
These data confirm the  properties  of  HemoTech(TM)  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 Texas Tech  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(TM) is taken only from healthy cows, from a
controlled herd.



                                                                               9
<PAGE>

HemoBioTech  has the  exclusive  worldwide  license from Texas Tech covering all
intellectual  property  associated  with  HemoTech(TM).  The Company further has
access to Texas Tech staff and equipment necessary to produce, test, and certify
HemoTech(TM),  with  access  to  University  laboratory  facilities  and a blood
substitute  production  facility  Texas  Tech  has  constructed  on  its  campus
specifically  for the production of  HemoTech(TM).  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.

HemoBioTech  reimburses  Texas  Tech  for any  operational  and  overhead  costs
associated  with  researching,   developing,   producing,   and  commercializing
HemoTech(TM)  and any other  technologies  that may be  developed  by Texas Tech
during the term of the agreement.  The initial term of this agreement expires on
August 31, 2006, but by mutual agreement, the parties may extend this period for
up to two additional years or more depending on need as negotiated.

BUSINESS STRATEGIES

We believe the most likely path to  commercialization  of HemoTech(TM),  if ever
developed  and  approved  for  sale,  will  involve a  partnership  with a major
pharmaceutical  company.  Because  commercialization  of a major  pharmaceutical
requires a significant amount of capital,  HemoBioTech will seek to identify and
enter into partnership agreements,  as opposed to a license agreement,  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(TM) is dependent upon its collaborative  relationships  with Texas Tech
as  well  as  Regulus  Pharmaceutical   Consulting,  LLC  (Regulus)  and  Origin
Pharmaceutical Services Ltd. (Origin), a regulatory consulting firm and clinical
research organization (CRO), respectively.

Regulus  and  Origin  will   collaborate  on  key  projects  and  are  assisting
HemoBioTech in their creation and submission of the U.S. IND (Investigation of a
New Drug)  application.  BioLink Life  Services,  Inc. also provides  consulting
services for the U.S. IND.

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

     o   Upgrade its Current Production Facilities.  To produce HemoTech(TM) for
         Phase I U. S. clinical trials,  HemoBioTech  must complete  upgrades to
         its current  production  facilities at Texas Tech. The initial phase of
         this plan was completed at the end of the second  quarter of 2005, at a
         cost of  approximately  $25,000.  The second  phase is  expected  to be
         completed  by mid 2006.  Financing  the initial  phase was  included in
         HemoBioTech's  Stage 2 sponsored  research  agreement  payment to Texas
         Tech in December 2004 and the additional upgrade is part of the Stage 3
         sponsor agreement signed in 2006 as well as additional  expenditures if
         necessary.  In addition to the amount paid to Texas Tech  University as
         part of the Stage 3 agreement,  we estimate  that  additional  upgrades
         will be necessary.

     o   Preparation  and  Submission  of U.S. IND  Application.  Under terms of
         their  Stage  2  sponsored  research  agreement,  Texas  Tech  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. The Company expects to complete preparation of its U.S. IND
         application and submit it to the FDA by mid 2006. The estimated cost of
         submitting the application is approximately $500,000 or greater.

     o   Clinical Trials. Pending FDA acceptance of HemoBioTech's application in
         early  2006,  the  Company  believes  that it could begin Phase I U. S.
         clinical trials in the second half of 2006, and if successful, commence
         Phase II U. S. in 2007, although there can be no assurances that any of
         these goals will be achieved.

COMPETITION

If approved for commercial  manufacture and marketing,  we believe  HemoTech(TM)
will have a unique  competitive  advantage  over other products under testing or
under  development  since  we  believe  HemoTech(TM)  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(TM)  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.



                                                                              10
<PAGE>

Our key competitors include:

     o   Northfield Laboratories has been developing PolyHeme(R), 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  was  rejected  by the FDA  for  use in  elective
         surgery due to results  concerning  safety and efficacy.  Northfield is
         continuing to test  PolyHeme(R) in Phase III U. S. clinical  trials for
         use in ambulatory trauma cases. Since Northfield's  product is in Phase
         III U. S. clinical trials,  it could be deemed to be at a more advanced
         trial stage than  HemoBioTech,  although  their product was  previously
         rejected by the FDA for use in elective surgery.

     o   Biopure   Corporation  has  been  developing   Hemopure(R),   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.

     o   Sangart,   Inc.  has  created  a  hemoglobin-based   blood  substitute,
         Hemospan.  The product is in Phase I clinical testing in Europe.

     o   SynZyme  is  developing  HemoZyme,  a  hemoglobin-based   blood.  Since
         HemoZyme  has only been tested in animals,  the Company  believes it is
         not at a more advanced trial stage than HemoBioTech.

     o   Alliance  Pharmaceutical has been developing OxygentTM,  which is based
         on   flurocarbon-based   blood  substitute.   Alliance   Pharmaceutical
         discontinued its U. S. clinical trials.

     o   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.

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(TM) in the United States,
but  anticipates  submitting its IND in the first half of 2006. The Company will
include  in its IND  application  for  HemoTech(TM)  the  results  of the use of
HemoTech(TM)  in other  countries.  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 of the FDA has expressed concern about
the proposed study.

                                                                              11
<PAGE>

The FDA  recognizes  three clinical trial phases and there is usually a separate
IND and  separate  IND  approval  for each phase.  A Phase 1 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 2  study.  Usually,  a Phase 1  study  involves  between  20 and 80
subjects or patients, as the case may be.

Phase  2  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 2 studies are well
controlled,  closely  monitored,  and  conducted  on a  relatively  small cohort
usually involving no more than several hundred patients.

Phase 3 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 3 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(TM),  even if it is approved to enter Phase 1 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 3 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.

                                                                              12
<PAGE>

FDA GOOD  MANUFACTURING  PRACTICES  AND  REPORTING.  The FDA  requires  drug and
biologics manufacturers to comply with Good Manufacturing Practices 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.

EMPLOYEES

As of December  31,  2005,  the Company has four  full-time  employees  and four
employees through a contract with Texas Tech.  Outside  consultants are employed
as needed to provide various services.  We rely heavily on personnel employed by
Texas Tech 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.

THE EXECUTIVE OFFICERS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
       NAME                   AGE              POSITION WITH COMPANY
<S>                           <C>     <C>
Arthur Bollon, Ph.D.          63      Chairman of the Board of Directors, President and Chief
                                      Executive Officer
Mark J. Rosenblum, CPA        52      Chief Financial Officer and Secretary
Jan Simoni, Ph.D., DVM        55      Acting Vice President and Principal Investigator of Research
                                      and Development and Advisor

Mario Feola, M.D.             79      Chief Medical Officer
</TABLE>
ARTHUR BOLLON,  PH.D., Since April 8, 2003, Dr. Bollon has served on a full-time
basis as our  Chairman,  President and Chief  Executive  Officer.  In 1991,  Dr.
Bollon was a founder  of  Cytoclonal  Pharmaceutics,  Inc.,  a  publicly  traded
biopharmaceutical company, and served as Chairman, President and Chief Executive
between 1991 and 2002.

MARK J. ROSENBLUM,  CPA., Mr. Rosenblum joined us as our Chief Financial Officer
on April 1, 2005.  Between 1996 and 2003, Mr. Rosenblum was the Chief Accounting
Officer,  Vice  President  and  Controller at Wellman,  Inc., a public  chemical
manufacturer. Mr. Rosenblum is a certified public accountant.

JAN SIMONI,  Ph.D., DVM  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 University,  where he is employed.
Dr.  Simoni has also served as 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(TM).

MARIO FEOLA,  M.D., Dr. Feola 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.  Dr. Feola has served
as  a  Professor  of  Surgery  at  Texas  Tech,  where  Dr.  Feola   co-invented
HemoTech(TM).

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.

WE ARE A DEVELOPMENT STAGE COMPANY WITH NO REVENUES OR PROFITS

We are in the development  stage and,  through December 31, 2005, 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

                                                                              13
<PAGE>

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.

WE HAVE A HISTORY OF LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN

We have earned no revenue  since our  inception  and have incurred a net loss of
$5,565,000  from inception  through  December 31, 2005. We expect to continue to
incur substantial losses and may not generate  significant  revenue, if any, for
the  foreseeable  future.  Our  ability  to  generate  revenue is  dependent  on
obtaining additional financing for our planned operations. Our immediate planned
operations  for the next eight to ten 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(TM)  production  facility,  to begin the production of
HemoTech(TM),  including preparation of our U.S. IND application. We believe our
available  cash of  approximately  $2,693,000  at  February  28,  2006,  will be
sufficient to complete our immediate planned operations (including the repayment
in full of our remaining  outstanding 10% convertible unsecured promissory notes
($337,500)  through the next twelve  months,  and  possibly  longer,  based on a
current monthly normalized cash burn rate of approximately $100,000).

Following completion of our U.S. IND application,  the next stage of our planned
operations  will  include  submission  of our U.S. IND  application  to the FDA,
commencement  and  completion  of our  Phase  I U.S.  clinical  trials,  further
research  and  development  of  HemoTech(TM)  during our Phase I U. S.  clinical
trials,  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  an
additional $10 to 15 million within the next eight to ten months, although there
can be no  assurance  that we can meet this  timeframe.  If we fail to  generate
enough cash  resources,  either from future equity or debt sales or revenue from
operations,  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.

WE ARE RELIANT ON THE SUCCESS OF A SINGLE PRODUCT, WHICH IS IN AN EARLY STAGE OF
PRODUCT DEVELOPMENT AND MAY NEVER BE SUCCESSFULLY  DEVELOPED OR, IF SUCCESSFULLY
DEVELOPED, MAY NEVER BECOME A VIABLE MARKETABLE PRODUCT.

We are a one  product  company,  and if we fail  to  successfully  develop  this
product 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 human blood substitute  product.  The development of our
blood substitute product 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. Our human blood substitute product
currently under  development will require  significant  additional  research and
development and pre-clinical testing and clinical testing prior to submission of
any regulatory  application  for commercial  use. There can be no assurance that
our research or product development efforts will be successfully completed, that
our  human  blood  substitute   product  currently  under  development  will  be
successfully  transformed into a marketable  product,  that required  regulatory
approvals can be obtained,  that the product can be  manufactured  at acceptable
cost in accordance  with regulatory  requirements or that any approved  products
can be successfully  marketed or achieve customer  acceptance.  Additional risks
include the possibility that:

     o   our proposed product will be found to be ineffective or toxic, or that,
         if safe and  effective,  will be  difficult to  manufacture  on a large
         scale or uneconomical to market;  that the proprietary  rights of third
         parties  will  preclude  our  marketing  of our  proposed  human  blood
         substitute product; and

     o   third parties will market superior or equivalent products.

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  Chairman,  President  and Chief
Executive  Officer,  Dr. Mario Feola,  our Chief  Medical  Officer,  and Dr. Jan
Simoni,  our Acting Vice  President and Principal  Investigator  or Research and
Development and Advisor.  Drs. Feola and Simoni are the two principal Texas Tech
researchers who developed HemoTech. Drs. Feola and Simoni continue to be the two
main  developers  of HemoTech.  Dr.  Simoni is an employee of Texas Tech and his
services are made  available to us under our sponsored  research  agreement with
Texas  Tech.  Dr.  Simoni's  activities  related to  research  and  development,
production,  regulatory  and clinical  testing of HemoTech are covered under the
sponsored  research  agreement  with Texas Tech,  which may be terminated at any
time by either party on 90 days' prior written notice.

We currently have five full-time  employees  including Drs. Bollon and Feola and
Mr.  Mark  Rosenblum,  our Chief  Financial  Officer.  We have  entered  into an
employment  agreement with Dr. Bollon which expires in October 2008, and we have
entered into an employment  agreement with Dr. Feola,  in which Dr. Feola agreed
to serve as our Chief Medical Officer until such time as either party terminates
Dr.  Feola's  employment  agreement.  We have also  entered  into an  employment
agreement  with Mr.  Rosenblum,  which expires in April 2008. 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.  During our
limited operating history,  many of our key responsibilities  have been assigned
to a relatively  small number of  individuals.  The  competition  for  qualified
personnel is intense,  and the loss of services of certain key  personnel  could
adversely  affect  our  business,  although  we have  not  experienced  problems
attracting or retaining key personnel to date.

IF OUR HUMAN BLOOD SUBSTITUTE PRODUCT OFFERINGS ARE NOT COMMERCIALLY SUCCESSFUL,
WE WILL BE UNABLE TO SUCCESSFULLY GENERATE REVENUE.

We expect a significant  amount of our revenue to come from the  production  and
distribution of human blood substitute 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  a  medical  product  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 human blood substitute  products with broad medical industry appeal,  we
will be unable to successfully generate revenue.

                                                                              14
<PAGE>

THE MARKET FOR HUMAN BLOOD SUBSTITUTE  PRODUCTS IS COMPETITIVE AND WE MAY NOT BE
ABLE TO COMPETE  SUCCESSFULLY  AGAINST  COMPETITORS THAT MAY HAVE  SUBSTANTIALLY
MORE DEVELOPMENT, MARKETING AND SALES RESOURCES THAN WE DO.

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

Although the proposed products of our main competitors have been rejected by the
FDA, have been abandoned and 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 may be approved by the FDA before HemoTech(TM),  to
the extent HemoTech(TM) 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 regulatory  requirements.  These
competitors may also:

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

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 SUCH COLLABORATIONS OR
LICENSES,  OR IF THESE COLLABORATIONS OR LICENSES EXPIRE,  TERMINATE OR FAIL, WE
MAY NOT BE ABLE TO FURTHER  DEVELOP  HEMOTECH OR  IMPLEMENT  OUR  BUSINESS  PLAN
WITHOUT SUBSTANTIAL ADDITIONAL EXPENDITURES AND DELAYS, IF AT ALL.

In addition to maintaining our  collaborative  relationship with Texas Tech, our
strategy   for   the   development,    clinical   testing,   manufacturing   and
commercialization  of our  proposed  human  blood  substitute  product  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 a human
blood  substitute  product 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  HemoTech(TM)  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.

THE FDA REGULATORY PROCESS IS COSTLY,  LENGTHY AND REQUIRES SPECIFIC  EXPERTISE,
AND EVEN IF WE INVEST THE TIME,  MONEY AND OTHER  RESOURCES  REQUIRED TO ADVANCE
THROUGH THE FDA APPROVAL PROCESS,  WE MAY NEVER RECEIVE FDA APPROVAL OF OUR ONLY
PRODUCT, HemoTech(TM).

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 an IND  application to the FDA. 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

                                                                              15
<PAGE>

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.

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 MAY IN THE FUTURE NEED TO RAISE ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS.

The  Company  estimates  that it has  sufficient  funds to meet the costs of its
immediate planned operations, including preparation of its U.S. IND application,
upgrading the HemoTech(TM)  production  facility,  covering expected general and
administrative  costs, and repaying the remaining $337,500 unsecured  promissory
notes. To meet the costs of the next stage of its planned operations,  including
the  cost  of  submitting  its  IND  application,   upgrading  the  HemoTech(TM)
production  facility,  commencing and completing  Phase I U.S.  clinical trials,
conducting  additional research and development of HemoTech(TM) as Phase I U. S.
clinical  trials  progress,  and paying for  operational and overhead costs that
will be incurred during Phase I U. S. trials,  the Company will need to raise an
additional  $10 to $15  million  within  the next  eight to ten  months,  if not
sooner.  It is  likely  that  the  Company  will  seek to meet  these  liquidity
requirements  through  public or private  equity  offerings or debt  financings.
There can be no  assurance  that the Company  will be able to secure  additional
financing or obtain favorable terms on such financing if it is available.

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 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.

                                                                              16
<PAGE>

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(TM) 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,  but will,  however,  attempt to
obtain such  insurance  prior to  commencement  of such  trials,  if any. We are
required by our  license  agreement  with Texas Tech 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 LOCATED AT TEXAS TECH, 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 Texas Tech for the  production  of  HemoTech(TM)  under our sponsored
research  agreement.  After the completion of Phase II U. S. clinical trials for
HemoTech(TM),   if  any,  our  sponsored  research  agreement  with  Texas  Tech
contemplates that we may establish independent  manufacturing  facilities either
alone 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(TM) 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.


                                                                              17
<PAGE>

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
December   31,   2005,   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 our 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:

     o   cease testing, developing, using and commercializing HemoTech(TM);
     o   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
     o   reformulate HemoTech(TM), which may be impossible or too costly

THE PATENTS  UNDERLYING  OUR SOLE  PRODUCT,  HEMOTECH,  MAY EXPIRE  PRIOR TO OUR
RECEIPT,  IF EVER,  OF FDA OR FOREIGN  APPROVAL,  TO THE EXTENT SUCH APPROVAL IS
GRANTED AT ALL.

We have  obtained from Texas Tech  exclusive  worldwide  rights to  HemoTech(TM)
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 or after August 8, 2012,  which may
coincide  with or even precede our receipt of FDA approval of  HemoTech(TM);  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(TM)
product,  then we will utilize new patents related to HemoTech(TM),  such as the
proposed  erythropoesis  patent, seek commercial  exclusivity for a defined time
with  the FDA  and  utilize  our  trade  secrets  for  manufacturing  and use of
HemoTech(TM).  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(TM) would
be materially and adversely affected.

RISKS RELATED TO OUR COMMON STOCK

The market price of our common stock has shown  significant  fluctuations  which
are attributed to a number of factors including:

     o   variations in our quarterly operating results;
     o   changes in general economic conditions and in the healthcare industry;
     o   changes in market valuations of similar companies;
     o   announcements  by us or our  competitors of significant  new contracts,
         acquisitions,  strategic  partnerships  or joint  ventures,  or capital
         commitments;

                                                                              18
<PAGE>

     o   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.

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:

     o   diluting  the  voting  or other  rights  of the  proposed  acquirer  or
         insurgent stockholder group,
     o   putting a substantial voting block in institutional or other hands that
         might undertake to support the incumbent Board of Directors, or
     o   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  By-laws.  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:

     o   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;

     o   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

     o   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.

                                                                              19
<PAGE>

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.

We have a six month lease, which is renewable on June 30, 2006 for approximately
1,300  square  feet  of  office  space  in  Dallas,  Texas  at the  J.P.  Morgan
International  Plaza,  14221 Dallas Parkway,  Suite 1400,  Dallas,  Texas 75254,
which we use as our corporate headquarters.

ITEM 3. LEGAL PROCEEDINGS

As of March 20, 2006, we are not a party to any litigation.

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

None.









                                                                              20
<PAGE>

                                    PART II.

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.


MARKET INFORMATION

Our common  stock is quoted on the  Over-The  Counter  Bulletin  Board under the
symbol of "HMBT.OB."

The  range of high and low bid  quotations  for our  common  stock  during  each
quarter of the fiscal year ended  December 31, 2005, is shown below.  Prices are
inter-dealer  quotations as reported by the NASD and do not necessarily  reflect
transactions, retail markups, mark downs, or commissions.

QUARTER ENDED                                         HIGH                LOW
----------------------------                          ----                ----
March 31, 2005                                        N/A                 N/A
June 30, 2005                                         N/A                 N/A
September 30, 2005                                    N/A                 N/A
December 31, 2005                                     $ 2.25              $ 1.22

HOLDERS OF RECORD

As of March 20,  2006,  there  were  approximately  77  holders of record of our
common stock.

DIVIDENDS

We have  never  declared  or paid  dividends  on our  capital  stock  and do not
anticipate declaring or paying any dividends in the foreseeable future.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS


<TABLE>
<CAPTION>
                                                                                   Number of securities
                                                                                     remaining available
                                                                                    for future issuance
                                      Number of securities                              under equity
                                        to be issued upon     Weighted-average       compensation plans
                                           exercise of         exercise price      (excluding securities
                                        outstanding stock      of outstanding       reflected in column
                                             options            stock options              (c)
                                               (a)                   (b)                   (a))
<S>                                       <C>                       <C>                   <C>
Equity compensation plans                 1,535,915                 $0.29                 93,253
   approved by security holders


Equity compensation plans
   not approved by security holders             ___                   ___                    ___
                                          ---------                 -----                 ------
Total                                     1,535,915                 $0.29                 93,253
                                          =========                 =====                 ======
</TABLE>


<PAGE>


RECENT SALES OF UNREGISTERED SECURITIES

     CONVERTIBLE NOTES

Under the terms of the Notes,  the  maturity  date of the Notes was  October 27,
2005.  As of October 27, 2005, an aggregate of  $1,540,000  principal  amount of
Notes and $97,159  accrued but unpaid  interest  thereon was  converted  into an
aggregate of 1,544,490  shares of the Company's  common  stock,  at a negotiated
conversion  price of $1.06 per  share,  in  accordance  with  amendments  to the
original terms of the Notes permitting such conversion.  As of October 27, 2005,
$710,000  aggregate  principal amount of Notes remained  outstanding.  Effective
October 27, 2005, holders of $337,500 aggregate principal amount of Notes agreed
to extend the  maturity  date of such Notes from  October  27, 2005 to April 27,
2006.  Accordingly,  the  Company  paid  the  outstanding  balance  of  $372,500
aggregate  principal  amount of Notes,  together with  approximately  $97,250 of
accrued interest thereon, to holders of Notes that had not converted their Notes
into shares of Company  common stock on or prior to October 27,  2005,  and have
not agreed to extend the maturity date of the Notes to April 27, 2006.

     STOCK OPTION GRANTS

The Company  granted  416,528 stock options for the year ended December 31, 2005
under its Stock  Option/Stock  Issuance  Plan.  Infomation  pertaining  to these
options is as follows (see also G[6] to the accompanying financial statements):

                            OPTIONS GRANTED IN 2005

                                          OPTION          TERM
                    MONTH     AMOUNT    PRICE/RANGE    (IN YEARS)
                    -----     ------    -----------    ----------
                    JAN           --             --            --
                    FEB           --             --            --
                    MAR       10,000      $.85-$.94          5-10
                    APR       90,000           $.85            10
                    MAY           --             --            --
                    JUN       12,500      $.85-$.94          5-10
                    JUL      271,528           $.18            10
                    AUG           --             --            --
                    SEP       12,500    $1.06-$1.17          5-10
                    OCT        7,500          $1.06            10
                    NOV           --             --            --
                    DEC       12,500    $2.15-$2.37          5-10
                              ------    -----------          ----
                    TOTAL    416,528
                             =======

The sales of the above  securities  were deemed to be exempt  from  registration
under the Securities  Act in reliance on Section 4(2) of the Securities  Act, or
Regulation  D  promulgated  thereunder,   or  Rule  701  promulgated  under  the
Securities  Act, as transactions by an issuer not involving a public offering or
transactions  pursuant to compensatory  benefit plans and contracts  relating to
compensation as provided under Rule 701. The recipients of securities in each of
these  transactions  represented  their  intention to acquire the securities for
investment  only  and not  with  view  to or for  sale in  connection  with  any
distribution   thereof  and  appropriate  legends  were  affixed  to  the  share
certificates  and instruments  issued in such  transactions.  All recipients had
adequate access, through their relationship with the registrant,  to information
about the registrant.

No underwriters were involved in the foregoing sales of securities.


                                                                              21
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

PLAN OF OPERATIONS

We were incorporated in Texas in December 2001 as HemoBioTech,  Inc. In 2003, we
incorporated  a sister  corporation  named  "HemoBioTech,  Inc." in the State of
Delaware.  On  December  1, 2003,  HemoBioTech,  Inc.  was merged  with and into
HemoBioTech,  Inc.,  with  HemoBioTech,  Inc. as the  surviving  entity.  We are
primarily  engaged in the research  and  development  of human blood  substitute
technology  exclusively  licensed  from Texas Tech.  After  reviewing  the blood
substitute technology developed by researchers at Texas Tech, in January 2002 we
licensed the exclusive  rights from Texas Tech to its U.S. Patent No.  5,439,882
and foreign counterparts,  which patent claims various alternative  compositions
of a novel blood  substitute based on hemoglobin of both cow and human origin as
well as methods for its production and use. In addition, Texas Tech is preparing
a patent  application to cover the induction of erythropoiesis  (the increase of
red blood cell  production).  In addition to our license with Texas Tech,  Texas
Tech agreed that any patent issuing from such  application will be covered under
our exclusive license with Texas Tech. In addition to the license agreement,  we
entered into a sponsored  research  agreement with Texas Tech in July 2002 under
which we are entitled to use certain  production  and  research and  development
facilities in Lubbock,  Texas.  On December 13, 2004, we established  Stage 2 of
our  sponsored   research  program  which  will  focus  on  further   developing
HemoTech(TM),  upgrading  the existing  HemoTech(TM)  production  facility,  and
preparing our U.S. IND application. On January 12, 2006, we entered into Stage 3
of the sponsored research agreement.

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 by exploiting
our licensed technology.  We believe that certain initial non-U.S.  pre-clinical
and early stage human  trials  undertaken  by prior  holders of this  technology
suggest that our licensed technology may possess pharmacological properties that
diminish the intrinsic  toxic effects of hemoglobin and help reduce or eliminate
the  abnormal  reaction  associated  with blood loss,  although  there can be no
assurance that later stage trials will confirm these findings.

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(TM),  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 to GMP grade 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.  Our
cash available at February 28, 2006, is $2,693,000.

We believe our  available  cash noted above will be  sufficient  to complete our
immediate planned  operations  (including the repayment in full of our remaining
outstanding 10% convertible  unsecured promissory Notes) through the next twelve
months,  and possibly  longer,  based on a current monthly  normalized cash burn
rate of approximately $100,000.

In  order  to  complete  the  planned  Phase I U. S.  clinical  trial as well as
preparation for Phase II clinical trials, we estimate that we will need to raise
an  additional  $10 to 15 million  within the next eight to ten months  although
there  can be no  assurance  that  we can  meet  this  timeframe.  If we fail to
generate enough cash resources,  either from future equity or debt sales or from
the exercise of our warrants,  there can be no assurance that we will be able to
implement our business plan, complete these planned operations,  or continue our
operations beyond the next twelve months.

As  discussed  in our risk  factors,  we are  engaged  in a  highly  competitive
environment.  A continued  slowness  in the  economy,  as a result of  terrorist
attacks,  market decline,  the war in Iraq, or a combination  thereof appears to
have  resulted  in  a  general   reduction  in  capital  available  to  emerging
biotechnology  companies. In addition, new technologies could be developed which
could compete with our technology.  This may significantly and negatively affect
our revenue stream.

RECENT DEVELOPMENTS

In October  2004,  we  completed a private  placement  of units,  with each unit
consisting of one 10%  convertible  unsecured  promissory  note in the principal
amount of $50,000,  58,824 shares of our common stock and a five-year warrant to
purchase  117,648  shares of our common stock at an exercise  price of $1.06 per
share.  We sold 45 units in the private  placement  at a price of  $100,000  per
unit, and we received gross cash proceeds of $4.5 million. Our net proceeds were
$3.43  million,  which  includes  the  aggregate  principal  amount  of our  10%
unsecured convertible promissory Notes ("Notes") outstanding.

On May 13, 2005,  we completed  the  registration  of  11,382,431  shares of our
common stock under the Securities  Act of 1933, as amended.  Such shares include
2,647,080 presently outstanding shares of

                                                                              22
<PAGE>

our  common  stock,  3,441,191  shares of our common  stock  (valued at $.85 per
share)  issuable on conversion of $2.25  million  principal  amount of our Notes
and, in our sole  discretion,  in payment of accrued interest on such Notes, and
5,294,160  shares of common  stock  (valued at $.85 per share)  issuable  on the
exercise of outstanding warrants to purchase our common stock. All of the shares
are to be sold by existing security holders of the Company.  We will not receive
any of the proceeds from the sale of these shares,  but will,  however,  receive
proceeds in connection with any exercise of the warrants referred to above.

Under the terms of the Notes,  the  maturity  date of the Notes was  October 27,
2005.  As of October 27, 2005, an aggregate of  $1,540,000  principal  amount of
Notes and $ 97,159  accrued but unpaid  interest  thereon was converted  into an
aggregate of 1,544,490  shares of the Company's  common  stock,  at a negotiated
conversion  price of $1.06 per  share,  in  accordance  with  amendments  to the
original terms of the Notes permitting such conversion.  As of October 27, 2005,
$710,000  aggregate  principal amount of Notes remained  outstanding.  Effective
October 27, 2005, holders of $337,500 aggregate principal amount of Notes agreed
to extend the  maturity  date of such Notes from  October  27, 2005 to April 27,
2006.  Accordingly,  the  Company  paid  the  outstanding  balance  of  $372,500
aggregate  principal  amount of Notes,  together with  approximately  $97,250 of
accrued interest thereon, to holders of Notes that had not converted their Notes
into shares of Company  common stock on or prior to October 27,  2005,  and have
not agreed to extend the maturity date of the Notes to April 27, 2006.

During  January and February  2006,  holders of the  Company's  Class A Warrants
exercised  1,877,956  Warrants held by them for an aggregate  consideration of $
1,990,633 and in connection  therewith  they were issued an aggregate  1,877,956
shares of HemoBioTech  common stock.  The warrants were  originally  received as
part of an October 2004 private  placement by HemoBioTech.  HemoBioTech  filed a
registration  statement with the SEC covering the resale of the shares of common
stock issued, which was declared effective by the SEC on May 13, 2005.

RESEARCH AND DEVELOPMENT

HemoTech(TM)  is  currently  our only  potential  product.  We  expect  that the
remaining production,  development, testing and FDA approval of HemoTech(TM), if
ever,  will occur over a period of  approximately  four to five years.  In other
words,  assuming we are able to progress  through each phase of clinical  trials
efficiently  and  without  significant  delay,  we believe  we could  obtain FDA
approval of HemoTech(TM) by mid-2011, and possibly even earlier.

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

     o   PRODUCTION OF HemoTech(TM).  In order to produce HemoTech(TM) for Phase
         I U. S.  clinical  trials,  we must  complete  certain  upgrades of the
         current HemoTech(TM)  production  facilities located at Texas Tech. The
         initial stage of these upgrades was completed during the second quarter
         of 2005.  Additional  necessary  upgrades are planned for 2006. Some of
         these  upgrades and initiation of production  are  contemplated  by our
         Stage 3 sponsored  research agreement with Texas Tech. We paid to Texas
         Tech  $287,000 on January 12,  2006,  when we entered  into our Stage 3
         sponsored  research  agreement.  We  anticipate  that these  additional
         upgrades  will  be  finished  by mid  2006,  although  there  can be no
         assurance that this will be the case, depending on, among other things,
         worker schedules, available materials, unexpected costs associated with
         construction  and our ability to raise  sufficient  capital in order to
         complete such upgrades.

     o   PREPARATION  AND  SUBMISSION  OF  U.S.  IND  APPLICATION.   We  started
         preparing  our U.S.  IND  application  on December  13,  2004,  when we
         entered into our Stage 2 sponsored  research agreement with Texas Tech.
         Under our Stage 2 sponsored  research  agreement,  Texas Tech agreed to
         assist us in preparing our U.S. IND  application  by providing  certain
         services,   including  converting  the  information  contained  in  the
         European IND application into digital format and analyzing our proposed
         Phase I U.S. clinical trial testing procedures,  to be set forth in our
         U.S. IND application. We expect to complete the preparation of our U.S.
         IND  application  and to be in a position to submit our  application to
         the FDA by mid 2006,  at a cost of  approximately  $500,000 or greater,
         although  there can be no  assurance  that we will be able to meet this
         deadline or budgeted amount.

     o   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(TM).  Depending  on whether the FDA
         accepts our U.S. IND  application in mid 2006, we believe that we could
         begin Phase I U.S.  clinical  trials the second  half of 2006  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(TM)  during  our Phase I U. S.
         clinical  trials and the  operational  and overhead  costs that we will
         incur during our Phase I U. S.

                                                                              23
<PAGE>

         clinical trials) could cost approximately  $10.0 million,  although the
         final cost could be more or less than this estimate, which includes the
         following:

     o   approximately $1.4 million for the production of HemoTech(TM);

     o   approximately $1.6 million for the testing of HemoTech(TM) on humans;

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

     o   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;

     o   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, among other things,
the rate of production of  HemoTech(TM)  and the  availability  of patients.  We
estimate that we will be required to raise  approximately $10 to 15 million over
the next eight to ten months  (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. If we are able to commence our Phase I U.
S.  clinical  trials in 2006,  we believe  that we could begin our Phase II U.S.
clinical  trials in 2007. We estimate  that our Phase II U. S.  clinical  trials
(including  the  costs  of  doing   additional   research  and   development  of
HemoTech(TM)  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:

     o   further production of HemoTech(TM);

     o   further testing of HemoTech(TM) and related activities;

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

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

     o   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 Texas Tech.

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(TM)  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.

     o   PHASE III OF OUR U.S.  CLINICAL TRIALS.  If we are able to complete our
         Phase II U. S. clinical  trials in early 2008, we  anticipated  that we
         could start our Phase III U. S. clinical trials in second half of 2008.
         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(TM),  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.

                                                                              24
<PAGE>

         If we are not able to enter into a partnership  or find a  manufacturer
         that is willing to manufacture  HemoTech(TM) 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(TM)  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:

             o  approximately  $100.0 million to build a production facility for
                HemoTech(TM) that is suitable for such advanced testing and that
                meets the standards of the FDA as a product testing facility;
             o  approximately   $70.0  million  for  the  further   testing  and
                production of HemoTech(TM);
             o  approximately $10.0 million for personnel,  administrative,  and
                operational  expenses  that we expect to incur  during our Phase
                III U. S. clinical trials;
             o  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
             o  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
15-18 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(TM)  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.  We would seek to raise this amount after we have  commenced our Phase II
U. S.  clinical  trials.  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
mid-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(TM)  has received FDA
approval, if ever.

RESULTS OF OPERATIONS

We are a  development  stage  company and have not  generated  any revenue  from
inception  through December 31, 2005. To date, our efforts have been principally
devoted to evaluating the HemoTech(TM) technology, negotiating and entering into
our license agreement and sponsored research  agreements with Texas Tech, hiring
employees  and  consultants,  establishing  our Board of Advisors,  developing a
business  plan,  raising  capital,  and  engaging  in other  organizational  and
infrastructure  development.  In addition,  during 2005 the Company upgraded the
production  facility at Texas Tech  University  and  established an animal donor
facility.  Until the consummation of our October 2004 private placement,  we did
not have the  financial  resources  to engage in any  significant  research  and
development  activities.  However,  we used part of the  proceeds of our October
2004 private placement to fund Stage 2 of our sponsored  research agreement with
Texas Tech,  representing our first significant  expenditure of resources on the
research and development of HemoTech(TM).

Total  expenses,  and thus our losses,  totaled  $5,565,000 from October 3, 2001
(inception)  through December 31, 2005. Such losses included $1,259,000 in 2004,
and $3,454,000 in 2005.

                                                                              25
<PAGE>

FOR THE YEAR ENDED  DECEMBER  31, 2005  COMPARED TO THE YEAR ENDED  DECEMBER 31,
2004

Total  expenses,  and thus our loss for the year  ended  December  31,  2005 was
$3,454,000 compared to $1,259,000 for the same period in 2004.

Total research and development costs increased to $289,000 in 2005 from $259,000
in 2004,  an increase of $30,000.  During 2004 Texas Tech  University  agreed to
waive the  antidilution  provision  of our  licensing  agreement in exchange for
135,765 shares of common stock,  valued at $115,000.  During November,  2004 the
Company paid  approximately  $231,000 to Texas Tech University to fund Stage Two
of our sponsored research agreement.  Of this amount approximately  $139,000 was
charged to  operations  during  2004 and the  remaining  $92,000  was charged to
operations during 2005. In addition,  during 2005, the Company granted our Board
of Advisors and the Acting Vice  President/  Principal  Investigator of Research
and  Development  and Advisor stock  options with a fair value of  approximately
$134,000.

Total general and administrative  costs increased $988,000 from $598,000 for the
year ended December 31, 2004 compared to $1,586,000 in 2005 resulting  primarily
from additional professional fees and costs associated with the Company's filing
of  a  registration  statement  with  the  Securities  and  Exchange  Commission
effective May 13, 2005, additional  administrative and office rental and related
expenses, and increased salary costs and the accrual of liquidating damages.

Total net interest  charges were $1,579,000 for the year ended December 31, 2005
compared with $402,000 for the full year 2004, an increase of  $1,177,000.  This
significant  increase  resulted  primarily from the  amortizations of debt issue
costs  ($830,000  in 2005  versus  $194,000  in 2004)  and debt  discount  costs
($637,000 in 2005 versus $152,000 in 2004).  Interest costs  associated with the
Company's 10%  Convertible  Notes increased from $65,000 during 2004 to $168,000
for  2005.  This  increase  is  partially  due to the full  year  effect  of the
outstanding notes during 2005, compared to the partial year in 2004. During 2005
approximately  $97,000 of accrued but unpaid  interest  was  converted in to the
Company's common stock. (See also Liquidity and Capital Resources).

LIQUIDITY AND CAPITAL RESOURCES

In October  2004,  we  completed a private  placement  of units,  with each unit
consisting of one 10%  convertible  unsecured  promissory  note in the principal
amount of $50,000; 58,824 shares of our common stock; and a five-year warrant to
purchase  117,648  shares of our common stock at an exercise  price of $1.06 per
share.  We sold 45 units in the private  placement  at a price of  $100,000  per
unit,  and we received  gross  proceeds of $4.5  million.  Our net proceeds were
$3.43  million,  which  includes  the  aggregate  principal  amount  of our  10%
unsecured convertible promissory notes outstanding.

Under the terms of the Notes,  the  maturity  date of the Notes was  October 27,
2005.  As of October 27, 2005, an aggregate of  $1,540,000  principal  amount of
Notes and $97,159  accrued but unpaid  interest  thereon was  converted  into an
aggregate of 1,544,490  shares of the Company's  common  stock,  at a negotiated
conversion  price of $1.06 per  share,  in  accordance  with  amendments  to the
original terms of the Notes permitting such conversion.  As of October 27, 2005,
$710,000  aggregate  principal amount of Notes remained  outstanding.  Effective
October 27, 2005, holders of $337,500 aggregate principal amount of Notes agreed
to extend the  maturity  date of such Notes from  October  27, 2005 to April 27,
2006.  Accordingly,  the Company will repay the outstanding  balance of $372,500
aggregate  principal  amount of Notes,  together with  approximately  $97,250 of
accrued  interest  thereon,  to holders of Notes that have not  converted  their
Notes into shares of Company  common stock on or prior to October 27, 2005,  and
have not agreed to extend the maturity date of the Notes to April 27, 2006.

During  January and February,  2006,  certain  holders of the company's  Class A
Warrants  exercised  1,877,956  Class A Warrants  held by them for an  aggregate
consideration of $1,990,633 and in connection therewith were issued an aggregate
1,877,956 shares of HemoBioTech common stock. As of February 28, 2006, 3,416,204
Class A Warrants remain outstanding. The exercise price is $ 1.06.

We intend to use our available cash (of which there is approximately  $2,693,000
remaining as of February 28,  2006,) over the next twelve  months to pay for the
following costs and expenditures:

     o   The  principal  and related  interest on our 10%  unsecured  promissory
         notes for holders that did not either  convert or extend the  principal
         and related interest, or $337,500 and $20,544 respectively.


                                                                              26
<PAGE>

     o   our general  administrative  expenses  (including  salaries,  legal and
         other professional  fees,  consulting and advisory fees, and to pay for
         the costs associated with raising additional capital);
     o   preparation of our U.S. IND  application and submission to the FDA; and
     o   additional upgrades to HemoTech(TM)  production facility and initiation
         of production of HemoTech(TM) for clinical trials.

We believe our cash available will be sufficient to repay our convertible  notes
and related interest due in April,  2006 and fund operations for the next twelve
months. If our selling  stockholders  convert/exercise any additional portion of
our 10%  convertible  unsecured  notes or class A  warrants,  into shares of our
common stock (of which there can be no guarantee),  however,  we will apply such
unused funds to make up a portion of any  shortfall we may have in the foregoing
operating costs and to further develop HemoTech(TM).

In order to complete our planned  operations and clinical trials we will need to
raise an  additional  $10 to 15 million  within  the next  eight to ten  months,
although there can be no assurance that we can meet this  timeframe.  If we fail
to generate enough working capital, either from future equity or debt sales, the
conversion  of  outstanding  Notes,  the  exercise  of our Class A  Warrants  or
Placement  Agent  Warrants,  or  revenue,  we will have to curtail  our  planned
operations.

OFF BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL 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-7.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURES.

None.

ITEM 8A. 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  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.

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,  2005  that has  materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.

ITEM 8B. OTHER INFORMATION

None.


                                                                              27
<PAGE>


                                    PART III

ITEM 9.  DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS AND CONTROL  PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The information  called for by this item is incorporated by reference  herein to
the definitive Proxy Statement to be filed by the Company pursuant to Regulation
14A for the 2006 annual meeting of stockholders. Certain information with regard
to the  executive  officers of the Company is  contained in Item 1 hereof and is
incorporated by reference in this Part III.

ITEM 10.  EXECUTIVE COMPENSATION.

The information  called for by this item is incorporated  herein by reference to
the definitive Proxy Statement to be filed by the Company pursuant to Regulation
14A for the 2006 annual meeting of stockholders.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The information  called for by this item is incorporated  herein by reference to
the definitive Proxy Statement to be filed by the Company pursuant to Regulation
14A for the 2006 annual meeting of stockholders.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information  called for by this item is incorporated  herein by reference to
the definitive Proxy Statement to be filed by the Company pursuant to Regulation
14A for the 2006 annual meeting of stockholders.

ITEM 13. EXHIBITS

EXHIBIT NO.      DESCRIPTION OF EXHIBIT
-----------      ----------------------

3.1              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)

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)

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)

10.5             Employment  Separation and Release Agreement,  dated as of July
                 15, 2004, by and between


                                                                              28
<PAGE>

EXHIBIT NO.      DESCRIPTION OF EXHIBIT
-----------      ----------------------

                 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, Bernard 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 2 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 3 Sponsored Research  Agreement,  effective as of January
                 1,  2006,  by and  between  HemoBioTech,  Inc.  and Texas  Tech
                 University Health Sciences Center. (4)

10.17            Advisory   agreement,  dated  July  13,  2005  by  and  between
                 HemoBioTech and Dr. Jan Simoni.

21.1             Subsidiaries of HemoBioTech, Inc. (1)

23.1             Consent of Eisner LLP

31.1             Certification of Principal Executive Officer

31.2             Certification of Principal Financial Officer

32.1             Section 1350  Certification of Principal  Executive Officer and
                 Principal Financial Officer

--------------
+   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  Current  Report on Form 8-K
    filed with the Commission on January 20, 2006.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information  called for by this item is incorporated  herein by reference to
the definitive Proxy Statement to be filed by the Company pursuant to Regulation
14A for the 2006 annual meeting of stockholders.



                                                                              29
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1943,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                                        HemoBioTech, Inc.
                                                        (Registrant)

By:

/s/ MARK J. ROSENBLUM, CPA                     /s/ ARTHUR P. BOLLON, PH.D.
--------------------------                     ---------------------------------
Mark J. Rosenblum, CPA                         Arthur P. Bollon, Ph.D.
Chief Financial Officer                        Chairman of the Board
and Secretary                                  President, and Chief Executive
Principal Financial Officer                    Officer
                                               Principal Executive Officer

Dated: March 30, 2006

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.
<TABLE>
<CAPTION>
                 Signatures                               Title                              Date
<S>                                         <C>                                         <C>
/s/ ARTHUR P. BOLLON, PH.D.                 Chairman of the Board, President            March 30, 2006
----------------------------------------    and Chief Executive Officer
 Arthur P. Bollon, Ph.D.

/s/ MARK J. ROSENBLUM, CPA                  Chief Financial Officer and                 March 30, 2006
----------------------------------------    Secretary
Mark J. Rosenblum

/s/ MARIO FEOLA, M.D.                       Chief Medical Officer                       March 30, 2006
----------------------------------------
Mario Feola M.D.

/s/ JAN SIMONI, Ph.D., D.V.M.               Acting Vice President and                   March 30, 2006
----------------------------------------    Principal Investigator of Research
Jan Simoni, Ph.D., D.V.M                    and Development and Advisor

/s/ ROBERT BARON                            Director                                    March 30, 2006
----------------------------------------
Robert Baron

/s/ ROBERT COMER                            Director                                    March 30, 2006
----------------------------------------
Robert Comer

/s/ WALTER HAEUSSLER, ESQ.                  Director                                    March 30, 2006
----------------------------------------
Walter Haussler, Esq.

/s/ LT. GEN. BERNHARD MITTEMEYER, M.D.      Director                                    March 30, 2006
--------------------------------------
Lt. Gen. Bernhard Mittemeyer, M.D.

/s/ GHASSAN NINO, CPA, CMA                  Director                                    March 30, 2006
----------------------------------------
Ghassan Nino, CPA, CMA
</TABLE>


                                                                              30
<PAGE>


                                HEMOBIOTECH, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                ITEM                                               PAGE
<S>                                                                        <C>
Report of Independent Registered Public Accounting Firm                    ...................  F-2

Balance Sheet December 31, 2005                                            ...................  F-3

Statements of Operations, for the Years ended December 31, 2005 and
    2004, and the cumulative period from October 3, 2001
    (inception) through December 31, 2005                                  ...................  F-4

Statements of changes in Shareholders' Equity (Capital Deficiency),
    for the period from October 3, 2001 (inception), through
    December 31, 2002 and for each of the years in the three-year period
    ended December 31, 2005                                                ...................  F-5

Statements of Cash Flows, for the Years ended December 31, 2005
    and 2004, and the cumulative period from October 3,
    2001 (inception) through December 31, 2005                             ...................  F-7

Notes to Financial Statements                                              ...................  F-8
</TABLE>






                                                                             F-1
<PAGE>



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders HemoBioTech, Inc.:

We  have  audited  the  accompanying  balance  sheet  of  HemoBioTech,  Inc.  (a
development  stage company) as of December 31, 2005, and the related  statements
of operations,  changes in  stockholders'  equity (capital  deficiency) and cash
flows for each of the years in the two-year  period ended  December 31, 2005 and
for the period from October 3, 2001 (inception) through December 31, 2005. 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 the 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.  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 enumerated above present fairly, in all
material respects,  the financial  position of HemoBioTech,  Inc. as of December
31, 2005,  and the results of its  operations and its cash flows for each of the
years in the two-year  period ended  December 31, 2005,  and for the period from
October 3, 2001  (inception)  through  December 31, 2005 in conformity with U.S.
generally accepted accounting principles.

/s/ Eisner LLP
New York, New York
February 17, 2006

With respect to last paragraph of Note K
March 28, 2006





                                                                             F-2
<PAGE>


                                HEMOBIOTECH, INC.

                          (A DEVELOPMENT STAGE COMPANY)

                                  BALANCE SHEET

                                DECEMBER 31, 2005

ASSETS
Current assets :
    Cash                                                        $ 1,259,000
     Prepaid Expenses                                                42,000
                                                                -----------
          Total current assets                                  $ 1,301,000
 Equipment, net                                                      11,000
                                                                -----------

                                                                $ 1,312,000
                                                                ===========

LIABILITIES
 Current liabilities
     Accounts payable and accrued expenses                      $   360,000
     Accrued interest payable                                        20,000
     Convertible notes payable                                      337,000
                                                                -----------
          Total current liabilities                                 717,000
                                                                -----------
Commitments and other matters

STOCKHOLDERS' EQUITY
Common stock  ----- $ .001 par value 55,000,000 shares
      authorized;
      11,638,040 shares issued and outstanding                       12,000
Additional paid-in capital                                        6,155,000
Unearned compensation                                               (7,000)
Deficit accumulated during the development stage                (5,565,000)
                                                                -----------
                                                                    595,000

                                                                -----------
                                                                $ 1,312,000
                                                                ===========

           [See accompanying notes to financial statements]


                                                                             F-3
<PAGE>


                                HEMOBIOTECH, INC.

                          (A DEVELOPMENT STAGE COMPANY)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                    CUMULATIVE
                                                                                       FROM
                                                                                  OCTOBER 3, 2001
                                                 YEARS ENDED DECEMBER 31,            THROUGH
                                                                                    DECEMBER 31,
                                                   2005              2004               2005
                                               ------------       ------------      ------------
<S>                                            <C>                <C>                <C>
                                              $ -                 $ -               $ -
Revenue
Operating expenses :
   Research and development                         289,000            259,000           549,000
   General and administrative                     1,586,000            598,000         3,026,000
Other (income) expenses:
   Interest expense                               1,636,000            411,000         2,056,000
   Interest income                                  (57,000)            (9,000)          (66,000)
                                               ------------       ------------      ------------
NET LOSS                                       $ (3,454,000)      $ (1,259,000)     $ (5,565,000)
                                               ============       ============      ============

BASIC AND DILUTED LOSS PER COMMON SHARE        $       (.33)      $      (0.17)
                                               ============       ============
Weighed average number of shares
   outstanding---  basic and diluted             10,544,000          7,352,000
                                               ============       ============
</TABLE>






           [See accompanying notes to financial statements]






                                                                             F-4
<PAGE>


                                HEMOBIOTECH, INC.
                          (A DEVELOPMENT STAGE COMPANY)
  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) (NOTE G)

<TABLE>
<CAPTION>
                                                                                                            DEFICIT
                                                                           NOTE                           ACCUMULATED
                                                       ADDITIONAL       RECEIVABLE                        DURING THE
                              COMMON                    PAID-IN          PLACEMENT         UNEARNED       DEVELOPMENT
                              SHARES     AMOUNT         CAPITAL          AGREEMENT       COMPENSATION         STAGE          TOTAL
                              ------     ------         -------          ---------       ------------     -----------        -----
<S>                         <C>           <C>            <C>            <C>                                    <C>         <C>
Issuance of shares to
     Texas Tech
     University Health
     Service Center
     (January 22, 2002)
          ($ .001)            678,820  $  1,000                                                                             $ 1,000

Issuance of shares to
     Ghassan Nino
     (January 30, 2002)
          ($.001)           1,086,113     1,000        $  1,000                                                               2,000

Estimated fair value
     of stock granted
     for services
     (January 30, 2002)
          ($ .001)            217,223                     1,000                                                               1,000

Issuance of shares to
     Ghassan Nino
     (January 31, 2002)
          ($.001)           2,715,280     3,000           2,000                                                               5,000

Issuance of shares to
     Marlin and
     Evilene Nino
     (February 07, 2002)
          ($.001)             678,820     1,000                                                                               1,000

Net loss for the year                                                                                        (235,000)     (235,000)
                           ----------  --------     -----------        ---------        ---------          ----------    ----------

BALANCE -
DECEMBER 31, 2002           5,376,256     6,000           4,000                                              (235,000)     (225,000)

Estimated fair value
     of options
     granted to Board
     of Advisors                                              0                                                                   0

Issuance of shares to
        Munir Nino
     (January 20,2003)
          ($ .001)            217,224

Estimated fair value
     of stock
granted for compensation
     (April 8, 2003)
          ( $ .001)           977,502     1,000           1,000                                                               2,000

Estimated fair value
     of stock granted
     for services
     (April 14, 2003)
          ($.001)             217,223                     1,000                                                               1,000

Issuance of shares to
      Evline Nino
     (October 31, 2003)
          ($ .001)            108,613

Expenses paid by                                         10,000                                                              10,000
stockholder

Net 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                                                             155,000

Contribution of
deferred salary
     (July 15, 2004)                                    564,000                                                             564,000


Expenses paid by
stockholder                                               4,000                                                               4,000

Estimated fair value
     of shares to
     Texas Tech
     University Health
     Service Center
     (May 22, 2004)
          ($.85)              135,765                   115,000                                                             115,000

Return of shares
(July 15,2004)
  (Note G[2])              (1,086,113)   (1,000)          1,000                                                                   0
</TABLE>

                                                                             F-5
<PAGE>

<TABLE>
<CAPTION>
                                                                                                            DEFICIT
                                                                           NOTE                           ACCUMULATED
                                                       ADDITIONAL       RECEIVABLE                        DURING THE
                              COMMON                    PAID-IN          PLACEMENT         UNEARNED       DEVELOPMENT
                              SHARES     AMOUNT         CAPITAL          AGREEMENT       COMPENSATION         STAGE          TOTAL
                              ------     ------         -------          ---------       ------------     -----------        -----
<S>                         <C>           <C>            <C>            <C>                                    <C>         <C>
Shares issued to
placement agent
(August 19, 2004)
(Note E*)                   1,500,000     2,000          13,000         $(15,000)                                                 0

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                                                           2,577,000

Contribution of Salary
     (October 13, 2004)                                  11,000                                                              11,000

Contribution of notes
     and related interest                               125,000                                                             125,000
     (October 13, 2004)

Unearned compensation                                    13,000                         $ (13,000)                                0

Estimated fair value
     of vested options
     granted to Board                                    22,000                                                              22,000
     of Advisors

Collection of note
     (October 13, 2004)                                                   15,000                                             15,000

Valuation of placement
     agent's warrants
     and shares
     attributable to
     debt                                               803,000                                                             803,000
(see * above)
Net loss for the Year                                                                                      (1,259,000)   (1,259,000)
                           ----------  --------     -----------        ---------        ---------          ----------    ----------
BALANCE -                  10,093,550  $ 10,000     $ 4,417,000        $       0        $ (13,000)         (2,111,000)    2,303,000
DECEMBER 31, 2004

Amortization                                                                                6,000                             6,000

Estimated fair value
of vested options
issued to Board of
Advisors                                                 25,000                                                              25,000

Estimated fair value
of options issued to
Advisor - July 13,
2005                                                    109,000                                                             109,000

Estimated fair value
of warrants issued to
consultant - July 28,
2005                                                     27,000                                                              27,000

Estimated fair value
of warrants issued to
consultant - September
13, 2005                                                  7,000                                                               7,000

Conversion 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                                                             753,000

Conversion 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         0         211,000                                                             211,000

Conversion 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         0          69,000                                                              69,000

Conversion of
promissory notes into
Common Stock (at a
conversion price of
$1.06 per share) -
October 27, 2005              507,785     1,000         538,000                                                             539,000

Net Loss for the Year                                                                                      (3,454,000)   (3,454,000)
                           ----------  --------     -----------        ---------        ---------          ----------    ----------

BALANCE -
DECEMBER 31, 2005          11,638,040  $ 12,000     $ 6,155,000        $       0        $  (7,000)         (5,565,000)   $  595,000
</TABLE>

                [SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS]
                                                                             F-6
<PAGE>


                                HEMOBIOTECH, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                               OCTOBER 3, 2001
                                                                        YEARS ENDED             (INCEPTION)
                                                                         DECEMBER 31               THROUGH
                                                                                              DECEMBER 31, 2005

                                                                   2005             2004
                                                               -------------    ------------  -----------------
<S>                                                            <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss                                                       $  (3,454,000)   $ (1,259,000)   $  (5,565,000)


     Adjustments to reconcile net loss to net cash used in
          operating activities :
               Estimated fair value of options and
                 compensatory stock                                  206,000         137,000          356,000
               Notes issued for services - related party                   -          51,000          354,000
               Expenses paid by stockholder                                -           4,000           14,000
               Amortization of deferred financing costs              830,000         193,000        1,023,000
               Amortization of debt discount                         637,000         152,000          789,000
               Depreciation                                            2,000                            2,000
               Contribution of salary                                                 11,000           11,000
               Changes in:
                   Accounts payable and accrued expenses             196,000         329,000        1,042,000
                   Accrued interest                                   70,000          63,000          142,000
                   Prepaid expenses                                   68,000        (110,000)         (42,000)
                                                               -------------    ------------    -------------
       Net cash used in operating activities                      (1,445,000)       (429,000)      (1,874,000)
                                                               -------------    ------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                               (10,000)         (3,000)         (13,000)
                                                               -------------    ------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceed from issuance of common stock and debt                       -       3,767,000        3,767,000
  Payment of Notes                                                  (372,000)       (249,000)        (621,000)
                                                               -------------    ------------    -------------
    Net cash (used in)/provided by financing activities             (372,000)      3,518,000        3,146,000
                                                               -------------    ------------    -------------
INCREASE (DECREASE) IN CASH                                       (1,827,000)      3,086,000        1,259,000
Cash - beginning of period                                         3,086,000               0                0
                                                               -------------    ------------    -------------
CASH - END OF PERIOD                                           $   1,259,000    $  3,086,000    $   1,259,000
                                                               =============    ============    =============
SUPPLEMENTARY CASHFLOW INFORMATION:
Interest paid                                                  $      97,000    $     97,000
SUPPLEMENTARY NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Accrued salary exchanged for Note                                                             $     150,000
  Employees/stockholders contribution of salary                                 $    564,000    $     564,000
  Stockholders contribution of convertible note payable
          and related interest                                                  $    280,000    $     280,000
Conversion of carrying value of convertible notes payable
  and accrued interest of $97,000 into common stock             $   1,572,000                    $   1,572,000

</TABLE>



           [See accompanying notes to financial statements]



                                                                             F-7
<PAGE>

                                HEMOBIOTECH, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004

NOTE A - THE COMPANY

HemoBioTech, Inc. (the "Company"), a development stage company, was incorporated
on October 13, 2003 under the laws of Delaware.  In December 2003,  HemoBioTech,
Inc.,  a  Texas  corporation,   was  merged  with  and  into  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 HemoTech(TM), a
human blood substitute product using patented  technology  licensed  exclusively
from Texas Tech  University  Health Service Center ("TTU") (Note C). The Company
is in the  development  stage and its efforts have been  principally  devoted to
capital  raising,   organizational  infrastructure  development,   research  and
development and upgrading its production facility.

NOTE B  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     1)  RESEARCH AND DEVELOPMENT:

         Research and development costs are charged to expense as incurred.

     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  outstanding  potential  common shares such as options,
warrants and convertible  instruments in the diluted computation as their effect
would be antidilutive.



                                          2005                 2004
                                      ------------         ------------
           Options.........              1,535,915            1,119,387
           Convertible notes               156,976            2,647,080
           Warrants                      7,736,532            7,676,532
                                      ------------         ------------
                                         9,429,423           11,442,999
                                      ------------         ------------


* In 2005, the company  converted  $1,638,000 of Convertible  Notes (face value)
and accrued  interest  payable of $97,000 into 1,544,490 shares of Common Stock.
At December 31, 2005,  the closing  price of the  company's  stock was $2.15 per
share.

     3)    STOCK-BASED COMPENSATION:

During  2005,  as  permitted  under SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  --  Transition  and  Disclosure,"  which  amended  SFAS  No.  123,
"Accounting for Stock-Based  Compensation,"  the Company has elected to continue
to follow the intrinsic  value method in  accounting  for  stock-based  employee
compensation  arrangements as defined by Accounting Principles Board Opinion No.
25,  "Accounting  for Stock  Issued to  Employees"  ("APB No.  25") and  related
interpretations. Under the provisions of APB No. 25, compensation cost for stock
options is measured as the  excess,  if any, of the fair price of


                                                                             F-8
<PAGE>

the Company's  common stock at the date of the grant over the amount an employee
must pay to  acquire  the  stock.  If the  Company  had  applied  the fair value
recognition provision of SFAS No. 123 to stock-based employee compensation,  the
effect on net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
                                                                     2005            2004
                                                                     ----            ----
<S>                                                             <C>             <C>
Net loss                                                        $  (3,454,000)  $  (1,259,000)

Total stock-based employee compensation expense
   Determined under fair value based method
   for all awards, net of related tax effects                         (67,000)        (28,000)
                                                                -------------   -------------
Pro forma net loss attributable to common Stockholders          $  (3,521,000)  $  (1,287,000)
Net loss per common share (basic and diluted):
             As reported                                        $        (.33)           (.17)
                                                                -------------   -------------
             Pro forma                                          $        (.33)  $        (.18)
                                                                -------------   -------------
</TABLE>

The weighted-average fair values at date of grant for options granted during the
years ended  December 30, 2005 and 2004 were $0.80 and $0.27  respectively.  The
value of the options was estimated using the Black-Scholes  option pricing model
with the following weighted-average assumptions:

                                           2005                      2004
                                      --------------             ------------
Expected life in years                     5-10                      5-10
Interest rate                         3.72% - 4.58%              4.16% - 4.33%
Volatility                                  80%                      80%
Dividend yield                              0%                        0%

     (4) FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying value of cash equivalents,  accounts payable,  accrued expenses and
convertible notes payable  approximates their fair value due to the short period
to maturity of these instruments.

     (5) 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.

     (6) DEFERRED FINANCING COSTS:

Deferred financing costs include costs attributable to issuing convertible notes
in the amount of $1,023,000  which were  amortized to interest  expense over the
original term of convertible notes.

     (7) RECENT ACCOUNTING PRONOUNCEMENTS:

In December  2004,  the FASB  issued  FASB  Statement  No. 123  (revised  2004),
"Share-Based  Payment" which amends FASB Statement Nos. 123 and 95 ("FAS 123R").
FAS 123R is  applicable  for all  interim  and fiscal  periods  beginning  after
December


                                                                             F-9
<PAGE>

15, 2005.  Therefore,  the Company  expects to adopt it during fiscal 2006.  FAS
123R sets accounting  requirements for  "share-based"  compensation to employees
and  requires  companies  to  recognize  in the  statements  of  operations  the
grant-date  fair  value of stock  options  and other  equity-based  compensation
issued to employees for share-based  compensation.

     (8) 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.

NOTE C  -  AGREEMENTS WITH TEXAS TECH UNIVERSITY HEALTH SERVICE CENTER ("TTU")

On January 22, 2002,  the Company  entered into an exclusive  license  agreement
with TTU 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 TTU  (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 TTU  technologies.
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.  The  funding of the $1.2  million is subject to the
Company obtaining FDA approval of a blood substitute product. As of December 31,
2005, such approval had not been obtained.  In addition,  the Company has agreed
to  reimburse  TTU for all  intellectual  property  protection  costs and patent
maintenance  fees.  On May 20,  2004,  TTU  agreed  to waive  its  anti-dilution
protection  in exchange  for 135,765  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  with TTU 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 August 31, 2006.  The agreement may be
terminated  by either party on 90 days written  notice.  In November  2004,  the
Company  agreed  to fund the next  phase of its  research  under  the  sponsored
research  agreement  through  November 30, 2005 for a fixed fee of approximately
$231,000, which was paid in December 2004.

In January  2006,  the Company  entered  into a Stage Three  Sponsored  Research
Agreement with Texas Tech University for the period January 1, 2006, to December
31,  2006.  In  connection  therewith,  the Company  made an initial  payment of
approximately  $287,000.  Additional  payments,  may be  made to TTU  under  the
agreement based on mutually agreed upon budgets.

NOTE D  -  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consist of the following


                                                           2005
                                                           ----

Professional fees                                   $   288,000
Liquidating Damages  (See Note G[2])                     40,000
Other                                                    32,000
                                                         ------
                                                    $   360,000
                                                    ===========

On July 15,  2004,  two  employees/stockholders  agreed to waive  payment of all
deferred  salary due them through  October 13, 2004. For the year ended December
31, 2004,  such waivers  amounted to $575,000 and have been treated as a capital
contribution.

NOTE E  -  NOTE RECEIVABLE FROM PLACEMENT AGENT

The Company  received a non-recourse  promissory  note dated August 20, 2004 for
$30,000 from a placement agent in  consideration  for 3,000,000 shares of common
stock (Note G[2]).  The  promissory  note bears  interest at 4% per annum and is
receivable  with the vesting of the 3,000,000  shares of common stock as follows
but no later than August 20, 2005:


                                                                            F-10
<PAGE>

     o   on  the  acceptance  of  subscriptions   in  a  private   placement  of
         $2,500,000, then 1,000,000 shares of common stock will vest and $10,000
         will become due under the note (vested October 13, 2004).

     o   on the acceptance of additional subscriptions in a private placement of
         $1,000,000,  then  500,000  shares of common stock will vest and $5,000
         will become due under the note (vested October 13, 2004).

     o   on the  consummation  of a financing  having gross proceeds of not less
         than  $2,000,000  within  twelve  months after  registration  statement
         becomes  effective,  then 500,000  shares of common stock will vest and
         $5,000 will become due under the note.

     o   on the  consummation  of a financing  having gross proceeds of not less
         than  $6,000,000  within  twelve  months after  registration  statement
         becomes effective,  then 1,000,000 shares of common stock will vest and
         $10,000 will become due under the note.

     In  connection  with the private  placement  referred to in Note G[2],  the
     Company  granted the placement agent the right of first refusal to serve as
     placement  agent  in one or more  follow-  on  offerings  having  aggregate
     proceeds of $8,000,000. If the Company fails to provide the placement agent
     the  opportunity to exercise its right of first refusal with respect to any
     of these follow-on  offerings,  then the portion of the 1,500,000 shares of
     common  stock  referred  to above that would  otherwise  have  vested  with
     respect to such follow-on offering will vest immediately.

     In  August  2004,  1,500,000  shares  of common  stock  were  issued to the
     placement agent subject to vesting.  On October 13, 2004 such shares vested
     and $15,000 under the note was paid.

NOTE F - CONVERTIBLE NOTES PAYABLE

On July 15, 2004, a note with principal of $174,000  bearing  interest at 5% per
annum,  due on December 31, 2003 and convertible  into shares of common stock at
$2.21 per share was  extended  to the  consummation  of a private  placement  of
$2,500,000  (Note G[2]).  On October 13, 2004,  such note plus $1,000 of accrued
interest  was paid and the  balance  of  accrued  interest  was  forgiven.  Such
forgiveness was treated as a capital contribution.

On October  13,  2004,  $75,000 of a note with a principal  of $180,000  bearing
interest  at 5% per annum,  due on May 1, 2004 and  convertible  into  shares of
common stock at $2.21 per share was paid.  The balance of principal  and accrued
interest was forgiven and was treated as a capital contribution.

See Note G[2] for  convertible  notes issued in connection  with the October 27,
2004, private placement.

NOTE G - STOCKHOLDER'S EQUITY

     1)  STOCK SPLIT:

     On August 16, 2004,  the Board of Directors  approved a reverse stock split
     of one share of common stock for .543056 shares of common stock. All common
     stock and common  stock  equivalent  shares in the  accompanying  financial
     statements  have been  adjusted to give  retroactive  effect to the reverse
     stock split.

     2)  PRIVATE PLACEMENT:

     On October 27, 2004, the Company  completed a private placement of 45 units
     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 $.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.



                                                                            F-11
<PAGE>

     The gross  proceeds from the sale of each unit was  allocated  based on the
relative fair values to each of the components.

                  Convertible notes payable         $    31,000
                  Common stock                           31,000
                  Warrants                               38,000
                                                        -------
                           Total                     $  100,000


Based on the  allocation  of the relative  fair values to the  components of the
private  placement  offering,  the debt discount was  calculated to be $855,000,
which is being  amortized  as expense to interest  expense  over the term of the
notes.

At the time of the Company's  next  financing,  the Company will  determine if a
beneficial  conversion feature exists. The beneficial conversion feature will be
determined by the Company  comparing the number of shares that would be received
pursuant to the conversion price at the time of the next financing compared with
the number  that would  have been  received  based on the then fair value of the
shares. No beneficial conversion feature existed at the date of conversion since
the  conversion  price was  greater  than the then  share  value of the stock at
issuance date of Note.

Through October 27, 2005, an aggregate of $1,540,000  principal  amount of Notes
and approximately $97,000 accrued but unpaid interest thereon was converted into
an aggregate of 1,544,490  shares of the Company's common stock, at a negotiated
conversion  price of $1.06 per  share,  in  accordance  with  amendments  to the
original terms of the Notes  permitting such conversion.  Effective  October 27,
2005, holders of $337,500  aggregate  principal amount of Notes agreed to extend
the  maturity  date of such  Notes  from  October  27,  2005 to April 27,  2006.
Accordingly,  the Company  paid the  remaining  outstanding  balance of $372,500
aggregate  principal  amount of Notes,  together with  approximately  $97,000 of
accrued interest thereon, to holders of Notes that had not converted their Notes
into shares of Company common stock on or prior to October 27, 2005.

The  Company  agreed to file a  registration  statement  within 60 days of final
closing of the 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 (pro  rated  daily)  based on the  subscription  amount  of each
purchaser in the Company October 2004 private placement.

The Company received waivers from selling stockholders aggregating subscriptions
equal to $4,280,000.  Such waivers enable the Company to forego an obligation of
approximately  $205,000 of  liquidated  damages  through  April 15,  2005,  with
respect to its non-compliance.  In addition, certain selling stockholders agreed
to extend the date after which liquidated damages will begin to accrue to May 2,
2005.  Such  registration  statement was declared  effective on May 13, 2005. In
connection  therewith,  the Company  incurred  liquidating  damages  aggregating
approximately $48,000.

(3) STOCK WARRANTS

In connection  with the private  placement  (see Note G[2]),  the Company issued
5,294,160  Class A warrants  exercisable  at $1.06 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  $2.12 for a period of at least 20  consecutive
trading days at a redemption price of $.001 per warrant.

In connection  with the private  placement (see Note G[2]),  the placement agent
was  granted a  warrant  to  purchase  2,382,372  shares  of common  stock at an
exercise price of $.90 per share,  exercisable for five years from the effective
date of a  registration  statement  to be filed on  behalf of  investors  in the
offering.  The placement agent was granted "piggyback"  registration rights with
respect to the shares  underlying  this  warrant.  The  warrants  are subject to
redemption,  at the  Company's  sole  option,  after  one year  from the date of
effectiveness  of the  registration  statement  covering the resale of shares of
common stock underlying the warrants if the common stock price equals or exceeds
$2.12 for a period of at least 20  consecutive  trading  days,  at a


                                                                            F-12
<PAGE>

redemption price of $.001 per warrant. In addition, the placement agent issued a
$30,000  promissory note for 3,000,000 shares of common stock subject to vesting
(Note E).

On July 28, 2005, and September 13, 2005, the Company  granted 50,000 and 10,000
warrants,  respectively  to service  providers.  In  connection  therewith,  the
Company  valued  the  warrants  using  Black-Scholes  option  pricing  model and
recorded a charge of $34,000.

At December 31, 2005, the Company had the following warrants outstanding:

<TABLE>
<CAPTION>
                              EXERCISE PRICE                EXPIRATION DATE           NUMBER OF SHARES
                                                                                         RESERVED
<S>                                            <C>          <C>                            <C>
Class A                                        $1.06               May 13, 2010                 5,294,160
Placement Agent                                  .90               May 13, 2010                 2,382,372
Other                                           1.00              July 28, 2009                    50,000
                                                1.06         September 13, 2009                    10,000
                                                                                                ---------
                                                                                                7,736,532
                                                                                                =========
</TABLE>

[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 a proposed  private  placement (Note H[2]).
The return of such shares was treated as a capital contribution.

See also Note [F] - Convertible Notes Payable

[5] VOTING AND STOCKHOLDERS AGREEMENTS:

On October 31,  2003,  certain  stockholders  (aggregating  6,896,818  shares of
common  stock) each entered  into a stock  purchase  agreement  with the Company
whereby each  stockholder  granted to the Company the right of first  refusal to
purchase shares proposed to be sold or transferred by such stockholder(s) at the
same  consideration  to be paid by a third  party.  Such right of first  refusal
terminates  on the  effective  date of the  first  sale of  common  stock of the
Company to the general public under an effective registration statement.

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.

On July 15, 2004, certain stockholders  (aggregating  4,154,383 shares of common
stock) entered into a voting agreement  whereby they agreed to vote all of their
respective shares together with the majority-in-interest of stockholders who are
also the Company's  executive officers on all matters submitted to a vote of the
stockholders. The voting agreement expires on October 27, 2006.

[6] STOCK OPTION/STOCK ISSUANCE PLAN:

During 2003, the Board of Directors of the Company approved a Stock Option/Stock
Issuance Plan (the "Plan")  which  provides for the granting of options or stock
to purchase up to 3,000,000 shares of common stock (on a pre-reverse stock split
basis),  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 Plan in August 2004.



                                                                            F-13
<PAGE>

On August 16,  2004,  the Board of  Directors  and  stockholders  of the Company
approved the  reduction  in the number of shares  reserved for under the Plan to
1,629,168 shares  reflecting the effect of the .543056 reverse split effected by
the Company.  Options  granted under the Plan are exercisable for a period of up
to 10 years from date of grant at an  exercise  price which is not less than the
fair value of the common stock on date of grant, except that the exercise period
of options  granted to a  stockholder  owning  more than 10% of the  outstanding
capital stock may not exceed five years and their exercise price may not be less
than 110% of the fair value of the common stock at date of grant.  Options under
the Plan generally vest 25% on the first anniversary date of the grant and then,
thereafter, equally over thirty-six months.

During the year ended December 31, 2004, in connection with the change in status
of an option  holder  from a member of the Board of Advisors  to  Director,  the
Company  recorded  deferred  stock  compensation  of $13,000,  representing  the
difference  between the  exercise  price and the market  value of the  Company's
common stock on the date such stock option holder's status was changed. Deferred
compensation  is  included  as a  component  of  stockholders'  equity  (capital
deficiency) and is being amortized to expense over the remaining  vesting period
of the stock options.  Such amortization expenses were $6,000 for the year ended
December 31, 2005.

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(TM). 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
certain  vesting  timetables.  In connection  therewith  the Company  recorded a
charge of $141,000 in 2005.  The Company will record  additional  charges as and
when the options vest at the then face value.

During the year ended December 31, 2004, in connection with the change in status
of an option  holder  from a member of the Board of Advisors  to  Director,  the
Company  recorded  deferred  stock  compensation  of $13,000,  representing  the
difference  between the  exercise  price and the market  value of the  Company's
common stock on the date such stock option holder's status was changed. Deferred
compensation  is  included  as a  component  of  stockholders'  equity  (capital
deficiency) and is being amortized to expense over the remaining  vesting period
of the stock options.

During the years ended December 31, 2005,  2004 and 2003, the Company granted 0,
25,860   (including  15,000  shares  -  see  Note  J[3])  and  103,179  options,
respectively,  to purchase  common  stock to members of the  Company's  Board of
Advisors.  Accordingly the Company recorded a charge of $25,000,  $22,000 and $0
for the years ended December 31, 2005, 2004 and 2003, respectively.

During the years ended December 31, 2005,  2004,  and 2003, the Company  granted
employees and directors of the company 145,000, 40,000, and 27,152 options at an
exercise  price  of $.85 - $2.37,  $.85,  and $.18  per  share of  common  stock
respectively.

Additional information on shares subject to options is as follows:

At December 31, 2005, 93,253 options were available for grant under the Plan.
The following table presents  information  relating to stock options outstanding
under the Plan as of December 31, 2005.

<TABLE>
<CAPTION>
                                                               2005                     2004

                                                             WEIGHTED                 WEIGHTED
                                                              AVERAGE                  AVERAGE
                                                             EXERCISE                 EXERCISE
                                                               PRICE                    PRICE
                                                 Shares                    Shares
<S>                                            <C>            <C>          <C>          <C>
Options outstanding at beginning of period     1,119,387      $ 0.23       1,053,527    $0.19
Granted                                          416,528        0.47          65,860     0.85
                                               ---------                  ----------
Options outstanding at end of period           1,535,915        0.29       1,119,387     0.23
                                               ---------                  ----------
Options exercisable at end of period           1,026,198        0.28         664,140     0.23
                                               ---------                  ----------
</TABLE>

<TABLE>
<CAPTION>
                                           OPTIONS OUTSTANDING                               OPTIONS EXCERCISABLE
                                           -------------------                               --------------------
       RANGE OF        SHARES          WEIGHTED AVERAGE     WEIGHTED AVERAGE           SHARES          WEIGHTED AVERAGE
    EXERCISE PRICE     ------              EXERCISE        REMAINING LIFE IN           ------              EXERCISE
                                             PRICE                YEARS                                     PRICE
                                             -----                -----                                     -----
<S>                        <C>               <C>                   <C>                  <C>                 <C>
@$0.18 - 0.20              1,325,055           .19                5.75                   916,379             0.19
@$0.85 -  0.94               178,360           .85                8.93                    84,819             0.86
@$1.06 - 1.17                 20,000          1.07                9.14                    12,500             1.08
@$2.15 - 2.37                 12,500          2.19                 9.0                    12,500             2.19
                              ------                                                      ------
                           1,535,915         $0.29                 6.2                  1,026,198           $0.28
                           =========                                                    =========
</TABLE>



                                                                            F-14
<PAGE>

The  weighted-average  fair  values  at date of grant  for  options  granted  to
non-employees and the Board of Advisors during the years ended December 30, 2005
and 2004 were  $0.80  and  $0.27  respectively.  The  value of the  options  was
estimated  using the  Black-Scholes  option  pricing  model  with the  following
weighted-average assumptions:

                                           2005                      2004
                                      --------------             ------------
Expected life in years                      10                      5-10
Interest rate                           4.2%-4.58%              4.16% - 4.33%
Volatility                                  80%                      80%
Dividend yield                              0%                        0%



















                                                                            F-15
<PAGE>



NOTE H  -  INCOME TAXES

At December 31, 2005, the Company had approximately  $4,278,000 of net operating
loss carryforwards for federal income tax purposes which expire as follows:

Year
                                 Net Operating Year Losses
2022                                       $      1, 000
2023                                             134,000
2024                                             980,000
2025                                           3,163,000
                                           -------------
                                           $   4,278,000
                                           -------------


At December  31,  2005,  the Company had a deferred  tax asset of  approximately
$1,566,000,  representing  the  benefits of its net  operating  loss and certain
expenses not currently  deductible for tax purposes.  The Company's deferred tax
asset has been fully reserved by a valuation  allowance since realization of its
benefit is uncertain.

The difference between the statutory tax rate of 34% and the Company's effective
tax rate is due to the increase in the valuation  allowance of $1,152,000 (2005)
and $286,000  (2004) and certain  expenses not deductible for tax purposes.  The
Company's  ability  to  utilize  its  carryforwards  may be subject to an annual
limitation in future  periods under Section 382 of the Internal  Revenue Code of
1986, as amended due to changes in ownership.

NOTE I  -  RELATED PARTY TRANSACTIONS

On  January  30,  2002,  the  Company  entered  into a one-year  master  service
agreement with an affiliate of a  stockholder/director  of the Company,  whereby
the Company will receive  management,  technology,  organization,  financial and
strategic  growth  consulting  services  for a $150,000  fee and the issuance of
217,223 shares of common stock. Such shares were valued at approximately $1,000.
The stockholder/director's affiliate is obligated to sell to the Company 108,611
of such shares at $2.21 per share when the Company completes an equity financing
having gross  proceeds to the Company of at least $8 million.  On July 15, 2004,
the  Company  agreed  to  waive  irrevocably  its  right to call  these  shares.
Effective  April 8, 2003, the agreement was amended to provide  certain  website
development,  hosting,  e-mail  maintenance and technical support for $2,000 per
month for an initial period of one year. In connection  with this  agreement,  a
convertible  note was issued in exchange for services under the agreement  (Note
F). On July 15, 2004, the master service agreement was terminated.

On April 14, 2003, the Company  entered into a master service  agreement with an
affiliate   of   the   Chairman/President/Chief    Executive   Officer   and   a
stockholder/director   of  the   Company,   whereby  the  Company  will  receive
management,  technology,  and  organization,   financial  and  strategic  growth
consulting  services for a fee of $20,000 per month. In addition,  the agreement
provides for the issuance of 217,223  shares of common  stock.  Such shares were
valued at $1,000. The Company has the right to purchase such shares at $2.21 per
share through  December 31, 2004.  Effective  October 1, 2003, the agreement was
amended  into a two-year  agreement  to  provide  certain  website  development,
hosting,  e-mail maintenance and technical support in exchange for an annual fee
of $60,000 and the previous  services under the original  agreement  ceased.  In
connection  with this agreement,  a convertible  note was issued in exchange for
services  rendered  under the agreement  (Note F). On July 15, 2004,  the master
service agreement was terminated.

Certain expenses were paid by the Chairman/President/Chief  Executive Officer on
behalf of the Company.  Such expenditures amounted to $10,000 for the year ended
December 31, 2003.

NOTE J  -  COMMITMENTS AND OTHER MATTERS

[1] LEASES:

The Company occupied office space on a  month-to-month  basis for $450 per month
during 2004. For the first nine months of 2004, the Chief Executive Officer paid
for the monthly  rent on behalf of the Company  which  amounted to $4,000.  Such
expense was treated as a capital  contribution.  The Company has entered  into a
service  agreement for office space for a monthly fee of  approximately  $5,460.
Such



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<PAGE>

arrangement  is  renewable  every six months.  Rent  expense  was  approximately
$64,000 and $16,000 for the year ended December 31, 2005 and 2004, respectively.

[2] EMPLOYMENT AGREEMENTS:

On April 8, 2003, the Company entered into an employment  agreement,  as amended
on October 6, 2003,  with its  Chairman/President/Chief  Executive  Officer  and
provides  for an annual  base  salary of  $265,000  (plus  annual cost of living
increases  and  bonuses  at the  discretion  of the  Board  of  Directors).  The
agreement is for three years  commencing  October 6, 2003,  and will be extended
for  successive  twelve-month  periods  unless  terminated by either party.  The
agreement  also  provides  that the payment of the base salary would be deferred
until the Company raised at least $4.0 million.  The agreement also provides for
the granting of an option to purchase  651,668  shares of the  Company's  common
stock at an exercise  price of $.20 per share and the purchase of 977,502 shares
of common  stock at $.001.  Such  shares  were  valued at $2,000 and  charged to
operations.  Under a letter agreement dated July 15, 2004,  salary due under the
agreement  from  April 8,  2003  through  October  13,  2004 was  forgiven  and,
thereafter,  currently  paid the salary was  reduced to $150,000  per annum.  On
January 3, 2005, the initial term of such  employment  agreement was extended to
October 6, 2007. On April 6, 2005, the Company amended the employment agreement,
subject to the  consummation  of a financing,  as defined,  as not less than $10
million, to provide for a base salary of $210,000, a lump-sum payment of $52,000
and an annual bonus equal to 25% of salary.  Effective  November  18, 2005,  the
agreement  was further  amended to provide a current base salary of $185,000 and
extension of the employment agreement to October 6, 2008.

On October 31, 2003, the Company  entered into an employment  agreement with its
Chief  Medical  Officer  at an  annual  salary  of  $180,000  effective  on  the
consummation of a $12.0 million equity  financing.  In the interim,  the Company
granted the Chief Medical  Officer  271,528 options at an exercise price of $.18
per share for  services  as  part-time  Chief  Medical  Officer.  Under a letter
agreement  dated July 15, 2004,  the Chief Medical  Officer agreed to serve on a
full-time basis,  effective October 27, 2004, for a salary of $60,000 per annum,
until such time as the parties terminate this agreement.  Effective  February 7,
2006,  the  agreement  was further  amended to provide a current  base salary of
$80,000.

Effective  April 1,  2005  the  Company  entered  into a three  year  employment
agreement  with its Chief  Financial  Officer and  provides for a base salary of
$120,000 per annum,  plus annual cost of living  increases.  Effective the first
calendar month following the Company's consummation of a financing as defined of
not less than $10  million,  the base  salary  will  increase  to  $165,000.  In
addition,  the agreement  provides for annual  bonuses and the granting of stock
options.  Effective  November 1, 2005,  the  agreement  was  further  amended to
provide a current base salary of $145,000.

[3] 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.

On August 22, 2005, the Company entered into an advisory  agreement with Regulus
Pharmaceutical  Consulting,  formerly Origin USA, LLC to assist the company with
general  regulatory,  quality  assurance  and  product  development  consultancy
services. Also on August 22, 2005, we entered in to a project-specific agreement
with the same  group.  The Company  will  compensate  Regulus  for  satisfactory
performance  of  services  at an hourly  rate plus  out-of-pocket  expenses,  as
agreed, on a project-by-project basis.

NOTE K  -  SUBSEQUENT EVENT

During  January and February  2006,  holders of 1,877,956  Class A Warrants were
exercised and the Company received proceeds of approximately  $1,888,000 (net of
placement agent fee of approximately $101,000.)

During  March 21 through  March 28,  2006,  holders  of  aggregate  of  $200,000
principal  amount of our Notes and  approximately  $16,000  accrued  but  unpaid
interest requested the conversion of their Notes and interest into common shares
in accordance with amendments to the original terms of the Notes permitting such
conversion.  The  conversion  prices  ranged  from  $1.53 per share to $1.96 per
share,  aggregating  to  approximately  129,000  shares of the Company's  common
stock. In connection  herewith the Company will record a charge representing the
difference between the conversion price and the market price at conversion.



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