**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, 2006




** ̈** **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** **SECURITIES
      EXCHANGE ACT OF 1934**




For
      the
      transition period from __________ to __________




**Commission
      file number: 0-24050**




**HEMOBIOTECH,
      INC.**


(Exact
      name of Registrant as Specified in Its Charter)


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


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




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




**SECURITIES
      REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
      CO** **MMON
      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 Exchange 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, 2006 were
      $0.




As
      of
      March 16, 2007, 18,436,887 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 21, 2007) held by nonaffiliates of
      the
      Registrant was $13,374,409 (7,039,163 shares at  $1.90
      per
      share).




**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of the Issuer’s definitive Proxy Statement for the 2007 Annual Meeting of
      Stockholders, to be filed within 120 days after the end of the fiscal year
      covered by this Form 10-KSB, are incorporated by reference into Part III of
      this
      Form 10-KSB.





Transitional
      Small Business Disclosure Format (check one): Yes  ̈ No x








1
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING INFORMATION**




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







2
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**PART
      I**




**ITEM
      1. BUSINESS**




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




We
      are
      the exclusive licensee of what we believe is an innovative human blood
      substitute product, which we call "HemoTech". HemoTech 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 a novel product. HemoTech 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 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 ("TTUHSC") researchers and recognized blood substitute authorities,
      developed HemoTech over 20 years of research. HemoTech has been tested in a
      European pre-clinical regulatory study conducted at the Research
      Toxicology Centre S.p.A. in Rome, Italy, in 1990
      to 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:





·
            can
                act as a carrier of oxygen;


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


·
            produces
                no adverse inflammatory reactions;


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


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


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


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




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




We
      believe the structure of these license and research agreements could be
      attractive to potential pharmaceutical company partners and could be positive
      factors for the commercializing of HemoTech.




**Background**




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




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




3
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


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




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





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


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


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


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





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




**Our
      Product**




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




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




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




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




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





·
            non-toxicity:


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


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


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


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


4
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




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


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


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


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





**Clinical
      Status**





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





·
            in
                vivo animal studies; and


·
            in
                vitro testing using various human cell
                lines.





These
      tests focused on:





·
            toxicity;


·
            the
                way in which the product affects blood
                vessels;


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


·
            stability;
                and


·
            therapeutic
                potential.




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





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





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


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


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


·
            induces
                red blood cells production in the
                body;


·
            has
                prolonged intravascular persistence;
                and


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


5
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


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




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





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





·
            trauma
                and blood disorders;


·
            cardiopulmonary
                bypass surgery including
                angioplasty;


·
            organ
                and tissue transplantation; and


·
            oncology
                (the treatment of cancer).





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




**Research
      and Development Activities**





During
      the years ended December 31, 2006, and 2005, the Company's financial statements
      reflect, $638,000 and $346,000 respectively, charged to expense for research
      and
      development activities.





On
      January 22, 2002, the Company entered into an exclusive license agreement with
      TTUHSC with respect to receiving certain patented rights. The Company is
      committed to the exploitation of such patented rights. In consideration for
      entering into the agreement, the Company issued 678,820 shares of common stock
      to TTUHSC (subject to anti-dilution protection). In addition, the Company has
      agreed to fund, over a four-year period, $1.2 million to support efforts in
      incubating and commercializing other TTUHSC technologies. The funding of the
      $1.2 million is subject to the Company obtaining FDA approval of a blood
      substitute product. Under the agreement, the Company reserves the right of
      first
      refusal on licensing and commercializing other technology developed from such
      funding. The shares issued were valued at approximately $1,000, their estimated
      fair value, and charged to operations. As of December 31, 2006, such approval
      had not been obtained. In addition, the Company reimburses TTUHSC for all
      intellectual property protection costs and patent maintenance fees related
      to
      HemoTech. On May 20, 2004, TTUHSC agreed to waive its anti-dilution protection
      in exchange for 135,765 additional shares of common stock. Such shares were
      valued at approximately $115,000, their estimated fair value, and charged to
      operations.





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







6
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


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





**Intellectual
      Property******




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





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





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


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


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




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




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


7
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**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:





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


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


·
            possess
                a significantly longer shelf life (6 months or greater) than that
                of
                donated red blood cells (42 days at 4oC), allowing a wider range of
                administration and increased stockpiling;
                and


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





**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 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.


8
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**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:





·
            1:100
                for minor allergic reactions


·
            1:2,500
                for bacterial infections


·
            1:50,000
                for human T cell Leukemia virus


·
            1:250,000
                for Hepatitis B


·
            1:543,000
                for Hepatitis C


·
            1:600,000
                for fatal hemolytic reaction


·
            1:1,930,000
                for HIV





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





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




**Production
      and Material Supply**




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




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




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




**Business
      Strategies**




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




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




9
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




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




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




·
            Preparation
                and Submission of U.S. IND Application. Under terms of their Stage
                II
                sponsored research agreement, TTUHSC provided HemoBioTech support
                services
                for preparation of its U.S. IND application. This included conversion
                of
                data from European IND application into electronic format, summarization
                and analysis of its pre-clinical CMC ("Chemistry Manufacturing and
                Controls") data and analysis of its proposed Phase I U.S. clinical
                trial
                testing procedures. The Company expects to complete preparation of
                its
                U.S. IND application and submit it to the FDA during 2007. The estimated
                cost of submitting the application is approximately $2,000,000 or
                greater.




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




**Competition**




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




Our
      key
      competitors include:




·
            Northfield
                Laboratories has been developing PolyHeme®, which is based on hemoglobin
                from what we believe to be outdated human blood. Although Northfield
                completed its Phase III U.S. clinical trials, in 2002 Northfield's
                product
                was rejected by the FDA for use in elective surgery due to results
                concerning safety and efficacy. Northfield has completed the PolyHeme(R)
                Phase III U.S. clinical trial for use in ambulatory trauma cases.
                Since
                Northfield's product has completed the Phase III U.S. clinical trial,
                it
                could be deemed to be at a more advanced trial stage than HemoTech,
                although their product was previously rejected by the FDA for use
                in
                elective surgery.




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




·
            Sangart,
                Inc. has created a hemoglobin-based blood substitute, Hemospan. The
                product is in clinical testing in both the U.S. and Europe.




·
            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 HemoTech.




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




10
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




·
            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 in the United States, but anticipates
      submitting its IND during 2007. The Company will include in its IND application
      for HemoTech the results of the use of HemoTech 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 if the FDA
      has
      expressed concern about the proposed study.




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




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




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




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




FDA
      REGULATION. The FDA closely regulates companies that sponsor clinical trials,
      that manufacture drugs or biologics that are being clinically tested or that
      manufacture approved products. The FDA may conduct an inspection of any Company
      facility and may take regulatory action if it believes that Company has violated
      the FD&C Act or PHS Act, including by way of example, issuing observational
      findings (FDA 483), issuing a Warning Letter, seizing products, placing a "hold"
      on an IND, revoking INDs, revoking approved NDAs or BLAs,




11
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




or
      criminally prosecuting the Company or its employees. During clinical testing
      phases, FDA may inspect to ensure, among other things, that the health and
      welfare of the patients enrolled in clinical studies are being appropriately
      protected, that all subjects have executed informed consent forms approved
      by an
      Institutional Review Board, and that the product is being manufactured in a
      way
      that ensures that it is not adulterated. Post approval surveillance by the
      FDA
      is equally rigorous.




FDA
      GOOD
      MANUFACTURING PRACTICES AND REPORTING. The FDA requires drug and biologics
      manufacturers to comply with Good Manufacturing Practices 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, 2006, the Company has five full-time employees and four employees
      through a contract with TTUHSC. Outside consultants are employed as needed
      to
      provide various services. We rely heavily on personnel employed by TTUHSC who
      provide services to us under the Sponsored Research Agreement. In addition,
      we
      also employ outside consultants from time to time to provide various services.
      We have experienced good employee relations and are not and never have been
      a
      party to a collective bargaining agreement.





**The
      Company’s Executive Officers are as follows:**





**NAME**
            **AGE**
            **POSITION
                WITH COMPANY**Arthur
                P. Bollon, Ph.D.
            64
            Chairman
                of the Board of Directors, President and Chief Executive
                OfficerMark
                J. Rosenblum, C.P.A.
            53
            Chief
                Financial Officer and SecretaryJan
                Simoni, Ph.D., D.V.M.
            56
            Acting
                Vice President and Principal Investigator of Research and Development
                and
                AdvisorMario
                Feola, M.D.
            80
            Chief
                Medical Officer





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. In
      1987
      Dr. Bollon was a founder of Wadley Biosciences Inc. / LPL, a joint venture
      between Wadley Institute and Phillips Petroleum, and served as Chairman,
      President and Chief Executive Officer from 1987 to 1991.




MARK
      J.
      ROSENBLUM, C.P.A., Mr. Rosenblum joined us as our Chief Financial Officer on
      April 1, 2005. From August 1985 through June 2003, Mr. Rosenblum was employed
      by
      Wellman, Inc., a public chemical manufacturer. Between 1996 and 2003, Mr.
      Rosenblum was the Chief Accounting Officer, Vice President and Controller at
      Wellman, Inc.   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 TTUHSC and is an
      Associate Professor of Research in the Department of Surgery at TTUHSC, where
      Dr. Simoni co-invented HemoTech.




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 TTUHSC, where Dr. Feola co-invented
      HemoTech.


12
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**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, 2006, have generated no sales
      revenue and have no prospects for revenue in the foreseeable future. We
      currently have no source of operating revenue and there can be no assurance
      that
      we will be able to develop any revenue source or that our operations will become
      profitable, even if we are able to commercialize any products. Further, as
      a
      development stage company, we have a limited relevant operating history on
      which
      an evaluation of our prospects can be made. Such prospects must be considered
      in
      light of the risks, expenses and difficulties frequently encountered in
      establishing a new business in the evolving, heavily regulated biotechnology industry,
      which is characterized by an increasing number of market entrants, intense
      competition and a high failure rate. In addition, significant challenges are
      often encountered by businesses shifting from developmental to commercial
      activities.




**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 $8,136,000
      from inception through December 31, 2006. 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 production facility, to begin the production of
      HemoTech, including preparation of our U.S. IND application. We believe our
      available cash, cash equivalents and short-term investments of approximately
      $4,193,000 at December 31, 2006, will be sufficient to complete our immediate
      planned operations through the next twelve months, and possibly longer, based
      on
      a current monthly normalized cash burn rate of approximately
      $150,000).





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




**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:




13
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




·
            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




·
            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 TTUHSC
      researchers who developed HemoTech. Drs. Feola and Simoni continue to be the
      two
      main developers of HemoTech. Dr. Simoni is an employee of TTUHSC and his
      services are made available to us under our Sponsored Research Agreement with
      TTUHSC. Dr. Simoni's activities related to research and development, production,
      regulatory and clinical testing of HemoTech are covered under the Sponsored
      Research Agreement with TTUHSC, which may be terminated at any time by either
      party on 90 days' prior written notice.





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 2009, 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.




**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, to the
      extent HemoTech ever receives FDA approval.





14
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


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:





·
            benefit
                from greater economies of scale;


·
            offer
                more aggressive pricing;


·
            devote
                greater resources to the promotion of their products;
                and


·
            be
                better positioned to develop future
                technologies.




**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 TTUHSC, 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 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.**




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 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




15
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




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 and submission of its U.S.
      IND application, upgrades to the HemoTech production facility and covering
      expected general and administrative costs. To meet the costs of the next stage
      of its planned operations, including the cost of additional upgrades to the
      HemoTech production facility, commencing and completing Phase I U.S. clinical
      trials, conducting additional research and development of HemoTech 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
      additional capital. 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.




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




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


16
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


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




We
      do not
      currently own, lease or operate any laboratory, research and development or
      manufacturing facilities. Our current plans include using labs, equipment,
      personnel and an upgraded blood substitute production facility located at TTUHSC
      for the production of HemoTech under our Sponsored Research Sgreement. After
      the
      completion of Phase II U.S. clinical trials for HemoTech, if any, our Sponsored
      Research Agreement with TTUHSC 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 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.





**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, 2006, 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:


17
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




·
            cease
                testing, developing, using and commercializing
                HemoTech;


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


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




**The
      patents underlying our 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 TTUHSC exclusive worldwide rights to HemoTech under a U.S. patent
      issued in August 1995 as well as various foreign patents. The patent, U.S.
      Patent No. 5,439,882, entitled "Blood Substitute" and its foregoing counterparts
      claims various alternative compositions of the novel blood substitute based
      on
      hemoglobin of both bovine and human origin as well as methods for its production
      and use.




Protection
      under the U.S. patent expires on August 8, 2012, which may coincide with or
      even
      precede our receipt of FDA approval of HemoTech; to the extent FDA approval
      is
      granted at all. The Japanese patent and certain of the European patents may
      also
      expire on or after August 8, 2012. If the U.S. patent expires before we are
      able
      to commercialize our proposed HemoTech product, then we could utilize new
      potential patents related to HemoTech, such as the proposed pending
      erythropoiesis patent, seek commercial exclusivity for a defined time with
      the
      FDA and utilize our trade secrets for manufacturing and use of HemoTech. If
      we
      are unable to obtain additional patent coverage in advance of the time the
      existing patent expires or at all, and we fail to receive additional patents,
      then our competitive position and our ability to successfully commercialize
      or
      generate revenues from sales of HemoTech would be materially and adversely
      affected.





**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:





·
            variations
                in our quarterly operating results;


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


·
            changes
                in market valuations of similar companies;
                and


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





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:





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


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


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




18
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




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:




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




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




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




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







19
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**ITEM
      2. PROPERTIES**




We
      currently do not own any property. Our research and production facilities
      currently operate out of an approximately 5,000 square foot facility provided
      to
      us by TTUHSC under the Sponsored Research Agreement. This facility is located
      in
      Lubbock, Texas.




From
      November 2004 through January 2007, we occupied 1,300 square feet of office
      space at the J. P. Morgan International Plaza located at 14221 Dallas Parkway,
      Suite 1400 in Dallas, Texas.On
      February 23, 2007 we entered into a lease for approximately 2,600 square feet
      at
      the Arch building located at 5001 Spring Valley Road, Suite 1040 - West in
      Dallas, Texas, which we use as our corporate headquarters.




**ITEM
      3. LEGAL PROCEEDINGS**




As
      of
      March 16, 2007, we are not a party to any litigation.




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




None.







20
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


**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 years ended December 31, 2005 and December 31, 2006, 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.





Years
                ended December 31,2005
            
            2006QUARTER
                ENDED
            
            HIGH
            
            LOW
            
            HIGH
            
            LOWMarch
                31
            
            
            n/a
            
            
            n/a
            
            $
            4.50
            
            $
            1.38June
                30
            
            
            n/a
            
            
            n/a
            
            $
            2.40
            
            $
            1.40September
                30
            
            
            n/a
            
            
            n/a
            
            $
            1.55
            
            $
            1.15December
                31
            
            $
            2.25
            
            $
            1.22
            
            $
            2.17
            
            $
            1.20





**HOLDERS
      OF RECORD**




As
      of
      March 16, 2007, 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**





Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
              (a)
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
              (b)
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))
              (c)Equity
                compensation plans approved by security holders
            
            
            1,669,275
            
            $
            0.41
            
            
            1,459,893Equity
                compensation plans not approved by security holders
            
            
            -----
            
            
            -----
            
            
            -----Total
            
            
            1,669,275
            
            $
            0.41
            
            
            1,459,893





21
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**RECENT
      SALES OF UNREGISTERED SECURITIES**




**CONVERTIBLE
      NOTES**




Under
      the
      terms of the Notes, the maturity date was October 27, 2005. Through October
      27,
      2005, an aggregate of $1,540,000 principal amount of Notes and approximately
      $97,000 accrued but unpaid interest thereon were 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
      $337,000 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 $372,000 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 or did not agree for extension
      of maturity date, on or prior to October 27, 2005.





For
      the
      period January 1, 2006 through April 27, 2006, an aggregate of $225,000
      principal amount of Notes and approximately $18,000 accrued but unpaid interest
      thereon were converted into an aggregate of 142,812 shares of the Company’s
      common stock, at conversion prices ranging from $1.53 to $1.96 per share, in
      accordance with amendments to the original terms of the Notes permitting such
      conversion. In connection therewith, the Company recorded a charge of
      approximately $43,000 as interest expense representing the difference between
      the conversion price and the market price at date of conversion.





On
      April
      27, 2006, the Company paid the remaining outstanding Notes in an aggregate
      of
      $113,000 principal amount and accrued but unpaid interest thereon of
      approximately $13,000.




**STOCK
      OPTION GRANTS**




The
      Company granted 122,930 stock options for the year ended December 31, 2006
      under
      its Stock Option/Stock Issuance Plan. Information pertaining to these options
      is
      as follows (see also F[6] to the accompanying financial
      statements):





OPTIONS
                GRANTED IN 2006MONTH
            
            AMOUNT
            
            OPTION
              PRICE
                / RANGE
            
            TERM
              (IN
                YEARS)JAN
            
            
            ----
            
            
            ----
            
            
            ----FEB
            
            
            ----
            
            
            ----
            
            
            ----MAR
            
            
            37,500
            
            $
            2.20
                - $2.42
            
            
            5
                - 10APR
            
            
            ----
            
            
            ----
            
            
            ----MAY
            
            
            ----
            
            
            ----
            
            
            ----JUN
            
            
            25,000
            
            $
            1.45
                - $1.60
            
            
            5
                - 10JUL
            
            
            ----
            
            
            ----
            
            
            ----AUG
            
            
            ----
            
            
            ----
            
            
            ----SEP
            
            
            25,000
            
            $
            1.40
                - $1.54
            
            
            5
                - 10OCT
            
            
            5,000
            
            $
            1.30
            
            
            10NOV
            
            
            2,715
            
            $
            1.40
            
            
            10DEC
            
            
            27,715
            
            $
            1.85
                - $2.26
            
            
            5
                - 10TOTAL
            
            
            122,930





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.




22
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**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 TTUHSC. After reviewing the blood
      substitute technology developed by researchers at TTUHSC, in January 2002 we
      licensed the exclusive rights from TTUHSC 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, TTUHSC is preparing a patent
      application to cover the induction of erythropoiesis (the increase of red blood
      cell production). In addition to our license with TTUHSC, TTUHSC agreed that
      any
      patent issuing from such application will be covered under our exclusive license
      with TTUHSC. In addition to the license agreement, we entered into a Sponsored
      Research Agreement (“SRA”) with TTUHSC 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 II of our SRA which will
      focus
      on further developing HemoTech, upgrading the existing HemoTech production
      facility, and preparing our U.S. IND application. On January 12, 2006, we
      entered into Stage III of the SRA, and on January, 2007 we entered into Stage
      IV
      of the SRA.




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,
      for
      use in Phase I U.S. clinical trials, filing of an IND with the FDA, continuing
      and enlarging the animal facility at Texas Tech University, upgrading our
      existing production facility based on FDA recommendations and furthering our
      intellectual property position through the introduction of additional patents
      and initiation of Phase I U.S. clinical studies if the IND is accepted. Our
      cash
      available at February 28, 2007, is $3,391,000.




We
      believe our available cash noted above will be sufficient to complete our
      immediate planned operations through the next twelve months, and possibly
      longer, based on a current monthly normalized cash burn rate of approximately
      $150,000.




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 additional
      capital. If we fail to generate enough cash resources, either from future equity
      or debt sales, 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.


23
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**RECENT
      DEVELOPMENTS**




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





During
      February 2007, the Company moved into larger office space and entered in to
      a
      sixty-six month office lease (see Notes to Financial Statements; Note I(1)
      -
      Commitments and Other Matters).





**RESEARCH
      AND DEVELOPMENT**




HemoTech
      is currently our only potential product. We expect that the remaining
      production, development, testing and FDA approval of HemoTech, 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 by mid-2011, and possibly even earlier.




HemoTech
      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:




·
            PRODUCTION
                OFHEMOTECH.
                In order to produce HemoTech for Phase I U.S. clinical trials, we
                must
                complete certain upgrades of the current HemoTech production facilities
                located at TTUHSC. A portion of these upgrades have been completed
                during
                2006. Additional necessary upgrades are planned for 2007 and will
                be based
                on recommendations from the FDA. We anticipate that these additional
                upgrades will be finished by mid 2007, 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.




·
            PREPARATION
                AND SUBMISSION OF U.S. IND APPLICATION. We started preparing material
                for
                our U.S. IND application on December 13, 2004, when we entered into
                our
                Stage II Sponsored Research Agreement with TTUHSC. We expect to complete
                the preparation of our U.S. IND application and to be in a position
                to
                submit our application to the FDA in late 2007, at a cost of approximately
                $2,000,000 or greater, although there can be no assurance that we
                will be
                able to meet this deadline or budgeted
                amount.




·
            PHASE
                I OF OUR U.S. CLINICAL TRIALS. Once our U.S. IND application has
                been
                accepted by the FDA, we expect to be able to commence our Phase I
                U.S.
                clinical trials of HemoTech. Depending on whether the FDA accepts
                our U.S.
                IND application in late 2007, we believe that we could begin Phase
                I U.S.
                clinical trials during 2008 although there is no guarantee that we
                can
                meet this goal. We estimate that our Phase I U. S. clinical trials
                (including the costs of doing additional research and development
                of
                HemoTech during our Phase I U.S. clinical trials and the operational
                and
                overhead costs that we will incur during our Phase I U. S.clinical
                trials) could cost approximately $10.0 million, although the final
                cost
                could be more or less than this estimate, which includes the
                following:




·
            approximately
                $1.4 million for the production of
                HemoTech;




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




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




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




·
            approximately
                $1.6 million for research and development costs that we expect to
                incur
                during our Phase I U. S. clinical trials; and approximately $2.0
                million
                for preparation of Phase II clinical
                trials.




24
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




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 and the availability of patients. We estimate
      that we will be required to raise additional capital (although there can be
      no
      assurance that we can meet this timeframe) in order to fund our Phase I U.S.
      clinical trials, as well as preparation for Phase II clinical trials from start
      to finish and to cover the related expenses described above. If submission
      or
      acceptance of our U.S. IND application is delayed for any reason and if we
      are
      unable to raise such additional capital in a timely manner, commencement of
      our
      Phase I U. S. clinical trials would also be delayed.




·
            PHASE
                II OF OUR U.S. CLINICAL TRIALS. A Phase II clinical trial could commence
                subsequent to a successful Phase I trial. We estimate that our Phase
                II
                U.S. clinical trials (including the costs of doing additional research
                and
                development of HemoTech during our Phase II U.S. clinical trials
                and the
                operational and overhead costs that we will incur during our Phase
                II U.S.
                clinical trials) will cost approximately $20.0 million, which includes
                the
                following:




·
            further
                production of HemoTech;




·
            further
                testing of HemoTech and related
                activities;




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




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




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




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




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




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




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




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




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





·
            approximately
                $100.0 million to build a production facility for HemoTech that is
                suitable for such advanced testing and that meets the standards of
                the FDA
                as a product testing facility;





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





25
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006





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





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





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




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




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




If
      our
      clinical trials are successful and we are able to meet the timelines set forth
      above, it is possible that an NDA could be approved by the FDA as early as
      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 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, 2006. To date, our efforts have been principally devoted
      to
      evaluating the HemoTech technology, negotiating and entering into our license
      agreement and Sponsored Research Agreements with TTUHSC, hiring employees and
      consultants, establishing our Board of Advisors, developing a business plan,
      raising capital, and engaging in other organizational and infrastructure
      development. In addition, during 2006 the Company upgraded the production
      facility at Texas Tech University and maintained an animal donor facility.




Total
      expenses, and thus our losses, totaled $8,136,000 from October 3, 2001
      (inception) through December 31, 2006. Such losses included $3,454,000 in 2005
      and $2,571,000 in 2006.




**FOR
      THE YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31,** **2005**





Total
      expenses, and thus our loss for the year ended December 31, 2006 was $2,571,000
      compared to $3,454,000 for the same period in 2005.





Total
      research and development costs increased to $638,000 in 2006 from $349,000
      in
      2005, an increase of $289,000. During 2006 the company charged to operations
      the
      full amount of its payment for the Stage III SRA, $287,000, compared to
      amortization expense of approximately $96,000 for the prior year. In addition
      the company paid significantly larger amounts to outside consultants to conduct
      regulatory and research activities. 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. The agreement provides for
      non-qualified




26
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




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 through July 13, 2009.
      In
      connection therewith, the Company recorded a charge of $37,000 and $141,000
      for
      the years ended December 31, 2006 and 2005 respectively. The Company will record
      additional charges as and when the options vest at the then fair value.





Total
      general and administrative costs increased $494,000 from $1,526,000 for the
      year
      ended December 31, 2005 compared to $2,020,000 in 2006 resulting primarily
      from
      additional non cash charges of approximately $299,000 related to a financing
      services agreement with an outside consultant signed in September 2006 and
      stock
      based compensation expense of approximately $171,000 for the companies directors
      and employees resulting from the January 2006 implementation of SFAS 123-R.
      Salary and related costs were approximately $204,000 higher for the current
      period compared to 2005 resulting from wage increases and additional personnel.
      These higher costs in the current period were offset by lower legal fees of
      approximately $234,000 during the 2006 period resulting from the completion
      of
      the Company’s filing of a registration statement and related documents with the
      Securities and Exchange Commission in during 2005.





Net
      interest costs were approximately $1,666,000 lower in the current period due
      to
      amortizations of debt issue and debt discount ($830,000 and $637,000
      respectively) costs incurred during 2005 that did not repeat in the 2006 period.
      Total amortization of these costs was completed during 2005 and relate to our
      Private Placement in October 2004. Interest costs relating to our 10%
      Convertible Promissory Notes was approximately $159,000 lower for the 2006
      period as all notes were either converted to common stock or paid by April
      2006.
      (See Liquidity and Capital Resources below). Interest cost for the 2006 period
      includes an inducement feature of $43,000 related to $225,000 principal value
      of
      those notes converted during the first four months of 2006, which represents
      the
      difference between the conversion price and the market price at the date of
      conversion.





Interest
      income was $141,000 for the 2006 period compared with $57,000 for the same
      period last year due to increased cash, cash equivalents and short term
      investments resulting from cash generated by warrant exercises during 2006.
      See
      also Liquidity and Capital Resources below.





**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.




During
      the period of August 2005 through April 2006, an aggregate of $1,765,000
      principal amount of our notes and $115,000 of accrued but unpaid interest was
      converted into an aggregate of 1,687,301 shares of our common stock at
      negotiated conversion prices ranging from $1.06 to $1.96 per share. The
      inducement feature corresponding with the conversion of the $225,000 principal
      value was $43,000.




On
      June
      12, 2006, the Company’s stock price had been at least $2.12 for 20 consecutive
      trading days. On that date, the Company provided notice of its redemption of
      the
      Class A Warrant, effective July 14, 2006, in accordance with the terms of the
      Class A Warrant. Through July 14, 2006, 5,156,035 Class A Warrants were
      exercised at an exercise price of $1.06 per share, and the Company received
      net
      proceeds from such exercises of approximately $5,190,000. The remaining 138,127
      Warrants were redeemed by the Company during July 2006 at a minimal cost.





We
      intend
      to use our available cash, cash equivalents and short term investments (of
      which
      there is approximately $4,193,000 remaining as of December 31, 2006), over
      the
      next twelve months to pay for the following costs and expenditures:





·
            preparation
                of our U.S. IND application, related laboratory testing, and submission
                to
                the FDA;




·
            additional
                upgrades to HemoTech production facility and initiation of production
                of
                HemoTech for clinical trials and




·
            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).




We
      believe the cash, cash equivalents and short term investments available to
      us at
      December 31, 2006 will be sufficient to conduct the activities described above
      through the next twelve months. In order to complete our planned operations
      and
      clinical trials we will need to raise an additional approximately $6 to $10
      million within the next ten to twelve months, although there can be no assurance
      that we can meet this timeframe.




27
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




**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-17.




**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, 2006 that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.




**ITEM
      8B. OTHER INFORMATION**




None.







28
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**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 2007 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 2007 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 2007 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 2007 annual meeting of stockholders.




**ITEM
      13. EXHIBITS**




EXHIBIT
                NO.
            
            DESCRIPTION
                OF EXHIBIT3.1
            
            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 July15, 2004, by and
                between
                HemoBioTech, Inc. and Ghassan Nino. (1)






29
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




EXHIBIT
                NO.
            
            DESCRIPTION
                OF EXHIBIT10.6
            
            Form
                of Director and Officer Indemnification Agreements with each of Arthur
                Bollon, Ghassan Nino, Walter Haeussler, Robert Baron, Bernhard Mittemeyer,
                Mark Rosenblum and Robert Comer. (1)10.7
            
            Stockholders
                Agreement, dated as of October 31, 2003, by and among HemoBioTech,
                Inc.,
                Arthur Bollon, Ghassan Nino, Nino Partners, LLC and the other stockholders
                named therein. (1)10.8
            
            Service
                Agreements, dated November 23, 2004, by and between HemoBioTech,
                Inc. and
                JPM-CEO Partners, Ltd. (1)10.9
            
            Sponsored
                Research Agreement, dated July 18, 2002, by and between HemoBioTech,
                Inc.
                and Texas Tech University Health Sciences Center. (3)+10.10
            
            Stage
                II Sponsored Research Agreement, dated December 13, 2004, by and
                between
                HemoBioTech, Inc. and Texas Tech University Health Sciences Center.
                (3)10.11
            
            License
                Agreement, dated January 22, 2002, by and between HemoBioTech, Inc.
                and
                Texas Tech University System. (3)+10.12
            
            Letter
                Agreement, dated May 14, 2004, by and between HemoBioTech, Inc. and
                Texas
                Tech University Health Sciences Center. (3)10.13
            
            Consulting
                Agreement, dated October 14, 2004, by and between HemoBioTech, Inc.
                and
                Larry Helson. (1)10.14
            
            Service
                Agreement, dated as of May 25, 2004, by and between HemoBioTech,
                Inc. and
                BioLink Life Sciences, Inc. (1)10.15
            
            Employment
                Agreement, dated April 1, 2005, by and between HemoBioTech, Inc.
                and Mark
                J. Rosenblum. (2)++10.16
            
            Stage
                III Sponsored Research Agreement, effective as of January 1, 2006,
                by and
                between HemoBioTech, Inc. and Texas Tech University Health Sciences
                Center. (5)++10.17
            
            Advisory
                agreement dated July 13, 2005 by and between HemoBioTech and Dr.
                Jan
                Simoni. (4)++10.18
            
            Stage
                IV Sponsored Research Agreement, effective as of January 1,
                2007,****by
                and between HemoBioTech, Inc. and Texas Tech University Health Sciences
                Center.21.1
            
            Subsidiaries
                of HemoBioTech, Inc. (1)31.1
            
            Certification
                of Principal Executive Officer31.2
            
            Certification
                of Principal Financial Officer32.1
            
            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.




30
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006




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




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




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




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




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


31
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          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 2007 annual meeting of stockholders.


32
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**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
            
            /s/
                ARTHUR P. BOLLON, PH.D.Mark
                J. Rosenblum
            
            Arthur
                P. Bollon, Ph.D.Chief
                Financial Officer and Secretary
            
            Chairman
                of the Board, President and Chief Executive OfficerPrincipal
                Financial Officer
            
            Principal
                Executive OfficerDated:
                March 27, 2007







In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





Signatures
            
            Title
            
            Date/s/
                ARTHUR P. BOLLON, PH.D.
            
            Chairman
                of the Board, President and
            
            March
                27, 2007Arthur
                P. Bollon, Ph.D.
            
            Chief
                Executive Officer/s/
                MARK J. ROSENBLUM
            
            Chief
                Financial Officer and Secretary
            
            March
                27, 2007Mark
                J. Rosenblum/s/
                ROBERT BARON
            
            Director
            
            March
                27, 2007Robert
                Baron/s/
                ROBERT COMER
            
            Director
            
            March
                27, 2007Robert
                Comer/s/
                WALTER HAEUSSLER, ESQ.
            
            Director
            
            March
                27, 2007Walter
                Haussler, Esq./s/
                BERNHARD MITTEMEYER, M.D.
            
            Director
            
            March
                27, 2007Bernhard
                Mittemeyer, M.D./s/
                GHASSAN NINO, C.P.A, CMA
            
            Director
            
            March
                27, 2007Ghassan
                Nino, C.P.A, CMA





33
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**HEMOBIOTECH,
      INC.**


(A
      DEVELOPMENT STAGE COMPANY)


**TABLE
      OF CONTENTS**





ITEM
            
            PAGEReport
                of Independent Registered Public Accounting Firm
            
            F-2Balance
                Sheet December 31, 2006
            
            F-3Statements
                of Operations, for the Years ended December 31, 2006 and 2005, and
                the
                cumulative period from October 3, 2001 (inception) through December
                31,
                2006
            
            F-4Statements
                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 four-year period ended December 31,
                2006
            
            F-5Statements
                of Cash Flows, for the Years ended December 31, 2006 and 2005, and
                the
                cumulative period from October 3, 2001 (inception) through December
                31,
                2006
            
            F-6Notes
                to Financial Statements
            
            F-7








F-1
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**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, 2006, 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, 2006 and for the period
      from
      October 3, 2001 (inception) through December 31, 2006. 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, 2006, and the results of its operations and its cash flows for each of
      the
      years in the two-year period ended December 31, 2006, and for the period from
      October 3, 2001 (inception) through December 31, 2006 in conformity with U.S.
      generally accepted accounting principles.




As
      discussed in Note C to the financial statements, effective January 1, 2006,
      the
      Company changed its method of accounting for stock-based compensation in
      accordance with the Statement of Financial Accounting Standards No. 123 (Revised
      2004), “Share-Based Payment.”






/s/
                Eisner LLPNew
                York, New YorkMarch
                27, 2007








F-2
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**HEMOBIOTECH,
      INC.**




(A
      DEVELOPMENT STAGE COMPANY)




**BALANCE
      SHEET**




DECEMBER
      31, 2006







**ASSETS**
            
            **2006**Current
                assets:Cash
                and cash equivalents
            
            $
            3,193,000Short-Term
                Investments
            
            
            1,000,000Prepaid
                Expenses
            
            
            54,000Total current assets
            
            $
            4,247,000Equipment,
                net
            
            
            12,000$
            4,259,000**LIABILITIES**Current
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            171,000Total current liabilities
            
            $
            171,000**STOCKHOLDERS’
                EQUITY**Common
                  stock ----- $.001 par value 55,000,000 sharesauthorized;
                18,436,887
                  (includes 1,500,000 shares subject to forfeiture) shares issued
                  and
                  outstanding
            
            $
            19,000Additional
                paid-in capital
            
            
            12,205,000Deficit
                accumulated during the development stage
            
            
            (8,136,000
            )$
            4,088,000$
            4,259,000








[See
      accompanying notes to financial statements]


F-3
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**HEMOBIOTECH,
      INC.**




(A
      DEVELOPMENT STAGE COMPANY)




**STATEMENTS
      OF OPERATIONS**





**YEARS
                ENDED DECEMBER 31,**
            
            **CUMULATIVE
                FROM**
              **OCTOBER
                3, 2001 THROUGH DECEMBER 31,****2006**
            
            **2005**
            
            **2006**Revenue
            
            $
                -
            
            $
                -
            
            $
                -Operating
                expenses:Research
                and development
            
            
            638,000
            
            
            349,000
            
            
            1,247,000General
                and administrative
            
            
            2,020,000
            
            
            1,526,000
            
            
            4.986,000Other
                (income) expenses:Interest
                expense
            
            
            54,000
            
            
            1,636,000
            
            
            2,110,000Interest
                income
            
            
            (141,000
            )
            
            (57,000
            )
            
            (207,000
            )**Net
                loss**
            
            $
            (2,571,000
            )
            $
            (3,454,000
            )
            $
            (8,136,000
            )**Basic
                and diluted loss per common share**
            
            $
            (.17
            )
            $
            (.33
            )Weighed
                average number of shares outstanding --- basic and diluted
            
            
            15,196,000
            
            
            10,544,000








[See
      accompanying notes to financial statements]










F-4
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**HEMOBIOTECH,
      INC.**





(A
      DEVELOPMENT STAGE COMPANY)





**STATEMENTS
      OF CHANGES IN STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY) - NOTE
      F**





**Statements
                of Changes in Stockholders’ Equity (Capital Deficiency)**
            
            **Common
                Shares**
            
            **Amount**
            
            **Additional
                Paid-In Capital**
            
            **Note
                Receivable Placement Agreement**
            
            **Unearned
                Compensation**
            
            **Deficit
                Accumulated During the Development Stage**
            
            **Total**Issuance
                of shares to Texas Tech University Health Service Center (January
                22,
                2002) ($.001)
            
            
            678,820
            
            $
            1,000
            
            
            --
            
            
            --
            
            
            --
            
            
            
            
            $
            1,000Issuance
                of shares to Ghassan Nino (January 30, 2002 ($.001)
            
            
            1,086,113
            
            
            1,000
            
            
            1,000
            
            
            
            
            
            
            
            
            
            
            
            2,000Estimated
                fair value of stock granted for services (January 30, 2002)
                ($.001)
            
            
            217,223
            
            
            
            
            
            1,000
            
            
            
            
            
            
            
            
            
            
            
            1,000Issuance
                of shares to Ghassan Nino (January 31, 2002) ($.001)
            
            
            2,715,280
            
            
            3,000
            
            
            2,000
            
            
            
            
            
            
            
            
            
            
            
            5,000Issuance
                of shares to Marlin and Evilene Nino (February 07, 2002)
                ($.001)
            
            
            678,820
            
            
            1,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,000Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (235,000
            )
            
            (235,000
            )**Balance
                -****December
                31, 2002**
            
            
            5,376,256
            
            $
            6,000
            
            $
            4,000
            
            
            
            
            
            
            
            
            (235,000
            )
            $
            (225,000
            )Estimated
                fair value of options granted to Board of Advisors
            
            
            
            
            
            
            
            
            0
            
            
            
            
            
            
            
            
            
            
            
            0Issuance
                of shares to Munir Nino (January 20, 2003) ($.001)
            
            
            217,224Estimated
                fair value of stock granted for compensation (April 8, 2003)
                ($.001)
            
            
            977,502
            
            
            1,000
            
            
            1,000
            
            
            
            
            
            
            
            
            
            
            
            2,000Estimated
                fair value of stock granted for services (April 14, 2003)
                ($.001)
            
            
            217,223
            
            
            
            
            
            1,000
            
            
            
            
            
            
            
            
            
            
            
            1,000Issuance
                of shares to Evilene Nino (October 31, 2003) ($.001)
            
            
            108,613Expenses
                paid by stockholder
            
            
            
            
            
            
            
            
            10,000
            
            
            
            
            
            
            
            
            
            
            
            10,000Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (617,000
            )
            
            (617,000
            )**Balance
                -****December
                31, 2003**
            
            
            6,896,818
            
            $
            7,000
            
            $
            16,000
            
            
            
            
            
            
            
            
            (852,000
            )
            $
            (829,000
            )Contribution
                of note and related interest (July 15, 2004)
            
            
            
            
            
            
            
            
            155,000
            
            
            
            
            
            
            
            
            
            
            
            155,000Contribution
                of deferred salary (July 15, 2004)
            
            
            
            
            
            
            
            
            564,000
            
            
            
            
            
            
            
            
            
            
            
            564,000Expenses
                paid by stockholder
            
            
            
            
            
            
            
            
            4,000
            
            
            
            
            
            
            
            
            
            
            
            4,000Estimated
                fair value of shares to Texas Tech University Health Service Center
                (May
                22, 2004) ($.85)
            
            
            135,765
            
            
            
            
            
            115,000
            
            
            
            
            
            
            
            
            
            
            
            115,000Return
                of shares (July 15, 2004) Note F[4]
            
            
            (1,086,113
            )
            
            (1,000
            )
            
            1,000
            
            
            
            
            
            
            
            
            
            
            
            0Shares
                issued to placement agent (August 19, 2004) (Note H)
            
            
            1,500,000
            
            
            2,000
            
            
            13,000
            
            $
            (15,000
            )
            
            
            
            
            
            
            
            0Issuance
                of shares and warrants in private placement net of expenses of $528,000
                (October 13, 2004 and October 27, 2004)
            
            
            2,647,080
            
            
            2,000
            
            
            2,575,000
            
            
            
            
            
            
            
            
            
            
            
            2,577,000Contribution
                of Salary (October 13, 2004)
            
            
            
            
            
            
            
            
            11,000
            
            
            
            
            
            
            
            
            
            
            
            11,000Contribution
                of notes and related interest (October 13, 2004)
            
            
            
            
            
            
            
            
            125,000
            
            
            
            
            
            
            
            
            
            
            
            125,000Unearned
                compensation
            
            
            
            
            
            
            
            
            13,000
            
            
            
            
            $
            (13,000
            )
            
            
            
            
            0Estimated
                fair value of vested options granted to Board of Advisors
            
            
            
            
            
            
            
            
            22,000
            
            
            
            
            
            
            
            
            
            
            
            22,000Collection
                of note (October 13, 2004)
            
            
            
            
            
            
            
            
            
            
            
            15,000
            
            
            
            
            
            
            
            
            15,000Valuation
                of placement agent’s warrants and shares attributable to debt (see
                F[3])
            
            
            
            
            
            
            
            
            803,000
            
            
            
            
            
            
            
            
            
            
            
            803,000Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,259,000
            )
            
            (1,259,000
            )**Balance
                -****December
                31, 2004**
            
            
            10,093,550
            
            $
            10,000
            
            $
            4,417,000
            
            $
            0
            
            $
            (13,000
            )
            
            (2,111,000
            )
            $
            2,303,000Amortization
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            6,000
            
            
            -
            
            
            6,000Estimated
                fair value of options vested issued to Board of Advisors
            
            
            
            
            
            
            
            
            25,000
            
            
            
            
            
            
            
            
            
            
            
            25,000Estimated
                fair value of options issued to Advisor - July 13, 2005
            
            
            
            
            
            
            
            
            109,000
            
            
            
            
            
            
            
            
            
            
            
            109,000Estimated
                fair value of warrants issued to consultant - July 28,
                2005
            
            
            
            
            
            
            
            
            27,000
            
            
            
            
            
            
            
            
            
            
            
            27,000Estimated
                fair value of warrants issued to consultant - September 13,
                2005
            
            
            
            
            
            
            
            
            7,000
            
            
            
            
            
            
            
            
            
            
            
            7,000Conversion
                of promissory notes into Common Stock net of unamortized discount
                of
                $58,000 (at a conversion price of $1.06 per share) - August 17,
                2005
            
            
            765,132
            
            
            1,000
            
            
            752,000
            
            
            
            
            
            
            
            
            
            
            
            753,000Conversion
                of promissory notes into Common Stock net of unamortized discount
                of
                $7,000 (at a conversion price of $1.06 per share) - September 16,
                2005
            
            
            205,451
            
            
            0
            
            
            211,000
            
            
            
            
            
            
            
            
            
            
            
            211,000Conversion
                of promissory notes into Common Stock net of unamortized discount
                of
                $1,000 (at a conversion price of $1.06 per share) - October 21,
                2005
            
            
            66,122
            
            
            0
            
            
            69,000
            
            
            
            
            
            
            
            
            
            
            
            69,000Conversion
                of promissory notes into Common Stock (at a conversion price of $1.06
                per
                share) - October 27, 2005
            
            
            507,785
            
            
            1,000
            
            
            538,000
            
            
            
            
            
            
            
            
            
            
            
            539,000Net
                Loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,454,000
            )
            
            (3,454,000
            )**Balance
                -****December
                31, 2005**
            
            
            11,638,040
            
            $
            12,000
            
            $
            6,155,000
            
            $
            0
            
            $
            (7,000
            )
            
            (5,565,000
            )
            $
            595,000Elimination
                of unvested compensation
            
            
            
            
            
            
            
            
            (7,000
            )
            
            
            
            
            7,000Stock
                based compensation - board of advisors and consultant
            
            
            
            
            
            
            
            
            110,000
            
            
            
            
            
            
            
            
            
            
            
            110,000Stock
                based compensation - employees and directors
            
            
            
            
            
            
            
            
            178,000
            
            
            
            
            
            
            
            
            
            
            
            178,000Conversion
                of promissory notes into Common Stock -March, 2006
            
            
            128,264
            
            
            
            
            
            251,000
            
            
            
            
            
            
            
            
            
            
            
            251,000Conversion
                of promissory notes into Common Stock - April, 2006
            
            
            14,548
            
            
            
            
            
            35,000
            
            
            
            
            
            
            
            
            
            
            
            35,000Exercise
                of warrants, net of expenses of $99,000 - January, 2006
            
            
            1,868,544
            
            
            2,000
            
            
            1,880,000
            
            
            
            
            
            
            
            
            
            
            
            1,882,000Exercise
                of warrants, net of expenses of $1,000 - February, 2006
            
            
            9,412
            
            
            
            
            
            8,000
            
            
            
            
            
            
            
            
            
            
            
            8,000Exercise
                of warrants, net of expenses of $19,000 - April, 2006
            
            
            355,885
            
            
            
            
            
            358,000
            
            
            
            
            
            
            
            
            
            
            
            358,000Exercise
                of warrants, net of expenses of $5,000 - May, 2006
            
            
            97,118
            
            
            
            
            
            98,000
            
            
            
            
            
            
            
            
            
            
            
            98,000Exercise
                of warrants, net of expenses of $28,000 - June, 2006
            
            
            534,652
            
            
            1,000
            
            
            537,000
            
            
            
            
            
            
            
            
            
            
            
            538,000Exercise
                of warrants, net of expenses of $121,000 - July, 2006
            
            
            2,290,424
            
            
            2,000
            
            
            2,304,000
            
            
            
            
            
            
            
            
            
            
            
            2,306,000Shares
                issued to financial advisor (September 12, 2006) See Note
                I[3]
            
            
            1,500,000
            
            
            2,000
            
            
            298,000
            
            
            
            
            
            
            
            
            
            
            
            300,000Net
                Loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,571,000
            )
            
            (2,571,000
            )**Balance
                -****December
                31, 2006**
            
            
            18,436,887
            
            $
            19,000
            
            $
            12,205,000
            
            
            
            
            
            --
            
            
            (8,136,000
            )
            $
            4,088,000





**** [See
      accompanying notes to financial statements]




****





F-5
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


**HEMOBIOTECH,
      INC.**





(A
      DEVELOPMENT STAGE COMPANY)





**STATEMENTS
      OF CASH FLOWS**





**YEARS
                ENDED**
            
            **OCTOBER
                31, 2001**
              **(INCEPTION)**
              **THROUGH****2006**
            
            **2005**
            
            **DECEMBER
                31, 2006****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                Loss
            
            $
            (2,571,000
            )
            $
            (3,454,000
            )
            $
            (8,136,000
            )Adjustments
                to reconcile net loss to net cash used inoperating
                activities:Estimated fair value of options andcompensatory
                stock
            
            
            558,000
            
            
            206,000
            
            
            914,000Conversion charge - interest expense
            
            
            43,000
            
            
            -
            
            
            43,000Notes issued for services - related party
            
            
            -
            
            
            -
            
            
            354,000Expenses paid by stockholder
            
            
            -
            
            
            -
            
            
            14,000Amortization of deferred financing costs
            
            
            -
            
            
            830,000
            
            
            1,023,000Amortization of debt discount
            
            
            -
            
            
            637,000
            
            
            789,000Depreciation
            
            
            3,000
            
            
            2,000
            
            
            5,000Contribution of salary
            
            
            -
            
            
            -
            
            
            11,000Changes in:Accounts
                payable and accrued expenses
            
            
            (159,000
            )
            
            196,000
            
            
            883,000Accrued
                interest
            
            
            (3,000
            )
            
            70,000
            
            
            139,000Prepaid
                expenses
            
            
            (11,000
            )
            
            68,000
            
            
            (53,000
            )Net
                cash used in operating activities
            
            $
            (2,140,000
            )
            $
            (1,445,000
            )
            $
            (4,014,000
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Purchase
                of Short-Term Investments
            
            $
            (1,000,000
            )
            
            
            
            $
            (1,000,000
            )Purchase
                of property and equipment
            
            $
            (3,000
            )
            $
            (10,000
            )
            $
            (16,000
            )Net
                cash used in investing activities
            
            $
            (1,003,000
            )
            $
            (10,000
            )
            $
            (1,016,000
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Net
                proceed from issuance of common stock and debt
            
            
            -
            
            
            -
            
            
            3,767,000Payment
                of Notes
            
            
            (113,000
            )
            
            (372,000
            )
            
            (734,000
            )Exercise
                of warrants, net
            
            
            5,190,000
            
            
            -
            
            
            5,190,000Net
                cash (used in) / provided by financing activities
            
            
            5,077,000
            
            
            (372,000
            )
            
            8,223,000**INCREASE
                (DECREASE) IN CASH AND****CASH
                EQUIVALENTS**
            
            
            1,934,000
            
            
            (1,827,000
            )
            
            3,193,000Cash
                and cash equivalents - beginning of period
            
            
            1,259,000
            
            
            3,086,000**CASH
                AND CASH EQUIVALENTS - END OF PERIOD**
            
            $
            3,193,000
            
            $
            1,259,000
            
            $
            3,193,000**SUPPLEMENTARY
                CASH FLOW INFORMATION:**Interest
                Paid
            
            $
            12,000
            
            $
            97,000
            
            $
            110,000**SUPPLEMENTARY
                NON-CASH INVESTING AND FINANCING ACTIVITIES:**Accrued
                salary exchanged for Note
            
            
            -
            
            
            -
            
            $
            150,000Employees
                / stockholders contribution of salary
            
            
            -
            
            
            -
            
            $
            564,000Stockholders
                contribution of convertible note payableand
                related interest
            
            
            -
            
            
            -
            
            $
            280,000Conversion
                of carrying value of convertible notespayable
                and accrued interest of $18,000 (2006) and    $97,000
                (2005) into common stock
            
            $
            243,000
            
            $
            1,572,000
            
            $
            1,815,000





[See
      accompanying notes to financial statements]


F-6
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31,
          2006


**HEMOBIOTECH,
      INC.**





(A
      DEVELOPMENT STAGE COMPANY)





**NOTES
      TO FINANCIAL STATEMENTS**





DECEMBER
      31, 2006 AND 2005




**NOTE
      A - THE COMPANY**





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. This entity is referred to herein as the
“Company”.





The
      accompanying financial statements include the predecessor operations of the
      Texas corporation from its inception on October 3, 2001. The historical basis
      of
      accounting was carried over in the merger, including the deficit accumulated
      in
      the development stage. The Company is researching and developing human blood
      substitute patented technology licensed exclusively from Texas Tech University
      Health Service Center ("TTUHSC") (See Note D). The Company is in the development
      stage and its efforts have been principally devoted to capital raising,
      organizational infrastructure development and research and development.





**NOTE
      B -- BASIS OF PRESENTATION**





The
      Company has incurred cumulative losses of $8,136,000 through the year ended
      December 31, 2006, and has been dependent on funding operations through the
      private sale of convertible debt and equity securities. At December 31, 2006,
      the Company had $4,193,000 in cash, cash equivalents and short term investments.
      Management believes that current cash resources will be sufficient to fund
      operations for the next twelve months. Management's plans include continuing
      to
      finance operations through one or more private or public offerings of equity
      securities and monitoring and reducing expenditures. See also Footnote
      I(3).




**NOTE
      C - 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 the following outstanding potential common shares such as options, warrants,
      convertible instruments and outstanding shares subject to forfeiture issued
      to a
      financial services consultant during September 2006, as described in Note I(3)
      in the diluted computation as their effect would be antidilutive:








**2006**
            
            **2005**Stock
                Options
            1,669,275
            
            1,546,345Convertible
                notes
            -
            
            156,976Warrants
            2,442,372
            
            7,736,532Common
                shares subject to forfeiture
            1,500,000
            
            -Total
            5,611,647
            
            9,439,853










F-7
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


3)
      STOCK-BASED COMPENSATION:





Effective
      January 1, 2006, the Company has adopted SFAS No. 123 (Revised 2004), Share
      Based Payment, (“SFAS No. 123(R)”) which requires a public entity to measure the
      cost of employee, officer and director services received in exchange for an
      award of equity instruments based on the grant-date fair value of the award.
      SFAS No. 123(R) supersedes the Company’s previous accounting under SFAS No. 123,
      Accounting for Stock Based Compensation (“SFAS No. 123”), which permitted the
      Company to account for such compensation under Accounting Principles Board
      Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”).
      Pursuant to APB No. 25, and related interpretations, no compensation cost had
      been recognized in connection with the issuance of stock options, as all options
      granted under the Company’s 2003 Stock Option/Stock Issuance Plan (the “Option
      Plan”) and all options granted outside the Option Plan had an exercise price
      equal to or greater than the market value of the underlying common stock on
      the
      date of grant. The Company adopted SFAS No. 123(R) using the modified
      prospective transition method, which requires that compensation cost be recorded
      as earned for all unvested stock options outstanding at the beginning of the
      first fiscal year of adoption of SFAS No. 123(R) based upon the grant date
      fair
      value estimated in accordance with the original provisions of SFAS No. 123
      and
      for compensation cost for all share-based payments granted subsequent to the
      adoption, based on the grant date fair value estimated in accordance with the
      provisions of SFAS No. 123(R). The Company’s financial statements reflect the
      impact of SFAS No. 123(R). In accordance with the modified prospective
      transition method, the Company’s financial statements for prior periods have not
      been restated to reflect, and do not include the impact of SFAS No.
      123(R).





As
      a
      result of adopting SFAS 123(R) on January 1, 2006, the Company’s net loss for
      2006 is $174,000, higher than if it had continued to account for share-based
      compensation under APB No. 25.





The
      following table illustrates the effect on net loss and loss per share if the
      Company had applied the fair value recognition provisions of SFAS 123(R) to
      options granted under the Company’s stock option plans for the year ended
      December 31, 2005. For purposes of this pro forma disclosure, the value of
      the
      options is estimated using a Black-Scholes option-pricing formula and amortized
      to expense over the options’ vesting periods:




2005Net
                loss
            
            $
            (3,454,000
            )Total
                stock-based employee compensation expenseDetermined
                under fair value based method for all awards, net of related tax
                effects
            
            
            (67,000
            )Pro
                forma net loss attributable to common Stockholders
            
            $
            (3,521,000
            )Net
                loss per common share (basic and diluted):As
                reported
            
            $
            (.33
            )Pro
                forma
            
            $
            (.33
            )





The
      weighted-average fair values at date of grant for options granted during the
      year ended December 31, 2005 was $0.80. The value of the options was estimated
      using the Black-Scholes option pricing model with the following weighted-average
      assumptions:





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





(4)
      FAIR
      VALUE OF FINANCIAL INSTRUMENTS:




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







F-8
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


(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, October 27, 2005.




(7)
      RECENT ACCOUNTING PRONOUNCEMENTS:





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain
      Hybrid Financial Instruments” (“SFAS No. 155”). SFAS No. 155 amends
      SFAS No. 133, “Accounting for Derivative Instruments and Hedging
      Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities,” and addresses the
      application SFAS No. 133 to beneficial interests in securitized financial
      assets. SFAS No. 155 establishes a requirement to evaluate interests in
      securitized financial assets to identify interests that are freestanding
      derivatives or that are hybrid financial instruments that contain an embedded
      derivative requiring bifurcation. Additionally, SFAS No. 155 permits fair
      value measurement for any hybrid financial instrument that contains an embedded
      derivative that otherwise would require bifurcation. SFAS No. 155 is effective
      for all financial instruments acquired or issued after fiscal years beginning
      September 15, 2006. We do not expect that the adoption of SFAS No. 155
      will have a material impact on our consolidated financial condition or results
      of operations.





In
      March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of
      Financial Assets,” (“SFAS No. 156”) which also amends SFAS No. 140.
      SFAS No. 156 provides guidance on the accounting for servicing assets and
      servicing liabilities when an entity undertakes an obligation to service a
      financial asset by entering into a servicing contract. This statement is
      effective for all transactions in fiscal years beginning after
      September 15, 2006. We do not expect that the adoption of SFAS No. 156
      will have a material impact on our consolidated financial condition or results
      of operations.





In
      June 2006, the FASB issued Financial Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes - an interpretation of SFAS
      No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and
      measurement attribute, as well as criteria for subsequently recognizing,
      derecognizing and measuring uncertain tax positions for financial statement
      purposes. This interpretation also requires expanded disclosure with respect to
      the uncertainty in income taxes. FIN 48 is effective for us beginning
      January 1, 2007. We do not anticipate that the adoption of FIN 48 will have
      a material impact on our financial position, results of operations or cash
      flows.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements.” (“SFAS No. 157”) Among other requirements, SFAS No. 157
      defines fair value and establishes a framework for measuring fair value and
      also
      expands disclosure about the use of fair value to measure assets and
      liabilities. SFAS No. 157 is effective the first fiscal year that begins
      after November 15, 2007. We are evaluating the impact of SFAS No. 157 on
      our financial position and results of operations.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting
      for Defined Benefit Pension and Other Postretirement Plans — An Amendment of
      FASB Statements No. 87, 88, 106 and 132 (R)” (“SFAS No. 158”). SFAS
      No. 158 requires the recognition of an asset for a plan’s overfunded status
      or a liability for a plan’s underfunded status in the statement of financial
      position, measurement of the funded status of a plan as of the date of its
      year-end statement of financial position and recognition for changes in the
      funded status of a defined benefit postretirement plan in the year in which
      the
      changes occur as a component of other comprehensive income. The provisions
      of
      SFAS No. 158 will be effective for the Company beginning with its fiscal year
      2007. Since the Company does not have a benefit plan, the adoption of SFAS
      No. 158 will not have an impact on our financial position, results of
      operations or cashflows.








F-9
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (“SAB 108”). SAB 108 requires registrants to use both a balance
      sheet approach and an income statement approach when evaluating and quantifying
      the materiality of a misstatement. SAB 108 provides guidance on correcting
      errors under the dual approach as well as providing transition guidance for
      correcting errors. The Company adopted the provisions of SAB 108 as of December
      31, 2006. The adoption of SAB 108 did not have an effect on our results of
      financial operations or financial position.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many
      financial instruments and certain other items at fair value that are not
      currently required to be measured at fair value. SFAS 159 also establishes
      presentation and disclosure requirements designed to facilitate comparisons
      between entities that chose different measurement attributes for similar assets
      and liabilities. SFAS No. 159 is effective for financial statements issued
      for
      fiscal years beginning after November 15, 2007. We have not yet determined
      the
      impact, if any, that the implementation of SFAS No. 159 will have on our results
      of operations or financial condition.





(8)
      CASH,
      CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:





The
      Company considered all highly liquid short-term investments purchased with
      an
      original maturity of three months or less to be cash equivalents. Short-term
      investments consist of a treasury bill which is carried at cost which
      approximates market value.




(9)
      INCOME TAXES:




The
      Company accounts for income taxes using the asset and liability method described
      in SFAS No. 109, "Accounting For Income Taxes," the objective of which is to
      establish deferred tax assets and liabilities for the temporary differences
      between the financial reporting and the tax bases of the Company's assets and
      liabilities at enacted tax rates expected to be in effect when such amounts
      are
      realized or settled. A valuation allowance related to deferred tax assets is
      recorded when it is more likely than not that some portion or all of the
      deferred tax assets will not be realized.




(10)
      RECLASSIFICATION:




Certain
      amounts from prior year have been reclassified to conform with current year
      presentation.





**NOTE
      D - AGREEMENTS WITH TEXAS TECH UNIVERSITY HEALTH SERVICE CENTER
      ("TTUHSC")**





On
      January 22, 2002, the Company entered into an exclusive license agreement with
      TTUHSC with respect to receiving certain patented rights. The Company is
      committed to the exploitation of such patented rights.




In
      consideration for entering into the agreement, the Company issued 678,820 shares
      of common stock to TTUHSC (subject to anti-dilution protection). As of December
      31, 2006, such approval had not been obtained. In addition, the Company has
      agreed to reimburse TTUHSC for all intellectual property protection costs and
      patent maintenance fees. On May 20, 2004, TTUHSC agreed to waive its
      anti-dilution protection in exchange for 135,765 additional shares of common
      stock. Such shares were valued at approximately $115,000, their estimated fair
      value, and charged to operations. In addition, the Company has agreed to fund,
      over a four-year period, $1.2 million to support efforts in incubating and
      commercializing other TTUHSC 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. In addition, in July 2002, the Company entered
      into
      a Sponsored Research Agreement (“SRA”) with TTUHSC for the period September 1,
      2002 through August 31, 2006, subject to a two-year extension to be mutually
      agreed on by the parties in the second year of the agreement and prior to
      December 31, 2006. The agreement may be terminated by either party on 90 days
      written notice. In December 2004, the Company paid a fee of approximately
      $231,000 to fund the next phase of its research under the SRA through December
      31, 2005. ****




In
      January 2006, the Company entered into a Stage III SRA with TTUHSC for the
      period January 1, 2006, to December 31, 2006. In connection therewith, the
      Company made an initial payment of approximately $287,000 which was amortized
      over the period of the research.








F-10
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


In
      January 2007, the Company entered into a Stage IV SRA with TTUHSC for the period
      beginning January 1, 2007. In connection therewith, the Company made an initial
      payment of approximately $780,000. This amount will be charged to operations
      over the period of the research. Additional payments may be made to TTUHSC
      under
      the agreement based on mutually agreed upon budgets.





**NOTE
      E - ACCOUNTS PAYABLE AND ACCRUED EXPENSES**




Accounts
      payable and accrued expenses consist of the following:




**December
                31, 2006**Professional
                fees
            
            $
            88,000Liquidated
                damages (see Note F(1))
            
            
            38,000Insurance
            
            
            20,000Other
            
            
            25,000Total
            
            $
            171,000




**NOTE
      F - STOCKHOLDER'S EQUITY**




(1)
      PRIVATE PLACEMENT:




On
      October 27, 2004, the Company completed a private placement of 45 units, priced
      at $100,000 per unit, and raised gross proceeds of $4,500,000. Each unit
      consists of a $50,000 unsecured convertible promissory note, 58,824 shares
      of
      common stock and 117,648 warrants. The notes bear interest at 10% per annum
      (an
      effective rate of 77%) and are convertible at the option of the holder into
      common stock or convertible securities to be sold by the Company in its next
      financing, as defined, at a conversion price equal to the per share offering
      price of such financing.




Based
      on
      negotiations with the placement agent, the Company agreed to a fair value for
      the common stock of $.85 per share and calculated the fair value of each warrant
      to be $.53 using the Black-Scholes option pricing model. Prior to the revision
      in the method of valuing the common stock, the Company used Black-Scholes to
      value both common stock and warrants. The
      gross
      proceeds from the sale of each unit were allocated based on the relative fair
      values to each of the components.





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





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




The
      Company agreed to file a registration statement within 60 days of final closing
      of the private placement and to use commercially reasonable efforts to cause
      the
      registration statement to be effective within 120 days of final closing. In
      the
      event the registration statement was not filed and declared effective within
      the
      required time, the Company would incur liquidated damages of 2% per month based
      on the subscription amount of each purchaser in the Company October 2004 private
      placement. In connection therewith, during 2005, the Company incurred
      liquidating damages aggregating approximately $48,000. As of December 31, 2006,
      the Company owes $38,000 of such damages.




(2)
      CONVERTIBLE NOTES PAYABLE:




Through
      October 27, 2005, an aggregate of $1,540,000 principal amount of Notes and
      approximately $97,000 accrued but unpaid interest thereon were 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 $337,000 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 $372,000 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 or did not agree for extension
      of maturity date, on or prior to October 27, 2005.




F-11
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


For
      the
      period January 1, 2006 through April 27, 2006, an aggregate of $225,000
      principal amount of Notes and approximately $18,000 accrued but unpaid interest
      thereon were converted into an aggregate of 142,812 shares of the Company’s
      common stock, at conversion prices ranging from $1.53 to $1.96 per share, in
      accordance with amendments to the original terms of the Notes permitting such
      conversion. In connection therewith, the Company recorded a charge of
      approximately $43,000 as interest expense representing the difference between
      the conversion price and the market price at date of conversion.





On
      April
      27, 2006, the Company paid the remaining outstanding Notes in an aggregate
      of
      $113,000 principal amount and accrued but unpaid interest thereon of
      approximately $13,000.





(3)
      STOCK
      WARRANTS




In
      connection with the private placement, the Company issued 5,294,162 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 were subject to redemption, at the Company’s sole option, after one
      year from the date of effectiveness of the registration statement of common
      stock underlying the warrants if the common stock price equaled or exceeded
      $2.12 for a period of at least 20 consecutive trading days at a redemption
      price
      of $.001 per warrant.




On
      June
      12, 2006, the Company’s stock price had been at least $2.12 for 20 consecutive
      trading days. On that date, the Company provided notice of its redemption of
      the
      Class A Warrant, effective July 14, 2006, in accordance with the terms of the
      Class A Warrant.




Through
      July 14, 2006, 5,156,035 Class A Warrants were exercised at an exercise price
      of
      $1.06 per share, and the Company received net proceeds from such exercises
      of
      approximately $5,190,000. The remaining 138,127 Warrants were redeemed by the
      Company during July 2006 at a minimal cost.




In
      connection with the private placement, the placement agent was granted a warrant
      to purchase 2,382,372 shares of common stock at an exercise price of $.90 per
      share (“Placement Agent Warrants”), exercisable for five years from the
      effective date of a registration statement to be filed on behalf of investors
      in
      the offering but no later than March 13, 2010. 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 these 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.




During
      the third quarter of 2005, the Company granted 50,000 and 10,000 warrants,
      respectively to two 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, 2006, the Company had the following warrants
      outstanding:





**Exercise
                Price**
            
            **Expiration
                Date**
            
            **Number
                of Shares Reserved**Placement
                Agent
            
            
            .90
            
            
            May
                13, 2010
            
            
            2,382,372Other
            
            
            1.00
            
            
            July
                28, 2009
            
            
            50,000Other
            
            
            1.06
            
            
            September
                13, 2009
            
            
            10,000Total
            
            
            
            
            
            
            
            
            2,442,372





(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.








F-12
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


Under
      an
      agreement dated July 15, 2004, a principal stockholder agreed to return
      1,086,113 shares of common stock to the Company as an inducement to the
      placement agent to serve as agent in the proposed private placement (Note F(1)).
      The return of such shares was treated as a capital contribution.




(5)
      VOTING AND STOCKHOLDERS AGREEMENTS





On
      October 31, 2003, the Company entered into a stockholders agreement with certain
      stockholders (aggregating 6,217,996 shares of common stock) under whom the
      Company granted such stockholders a right of first offer with respect to future
      sales of common stock or convertible securities by the Company. In addition,
      the
      Company granted each of the stockholders “piggyback registration rights”. Each
      of these stockholders waived their right of first refusal in connection with
      the
      October 2004 private placement. In addition, each of these stockholders waived
      their piggyback registration rights in connection with the registration of
      the
      shares underlying the October 2004 private placement.





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 expired 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 "Old Plan") which provides for the granting of options or
      stock to purchase up to 1,629,168 shares of common stock, under which directors,
      employees and independent contractors are eligible to receive incentive and
      non-statutory stock options and common shares (employees). The Company's
      stockholders approved the Old Plan in August 2004.




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. Such amount is being
      amortized to expense over the remaining vested period of the stock options.
      Such
      amortization expenses were $4,000 for the year ended December 31,
      2006.




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. 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 through July 13, 2009. In connection
      therewith, the Company recorded a charge of $37,000 and $141,000 for the years
      ended December 31, 2006 and 2005 respectively. The Company will record
      additional charges as and when the options vest at the then fair
      value.




During
      the years ended December 31, 2006, 2005, 2004 and 2003, the Company granted
      10,430, 10,430, 25,860, 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 $43,000 and $25,000 for the years ended December 31, 2006
      and 2005.




On
      June
      9, 2006, the Company’s stockholders approved an increase of 1,500,000 shares of
      common stock from the 1,629,168 shares of common stock available to be granted
      under the Plan increasing the number of shares to 3,129,168.




Additional
      information on shares subject to options is as follows:




At
      December 31, 2006, 1,459,893 options were available for grant under the Plan.
      The following tables present information relating to stock options under the
      Plan as of December 31, 2006 and are adjusted to reflect 10,430 options
      previously omitted.




F-13
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


**2006**
            
            **2005**Shares
            
            Aggregate
                Intrinsic Value
            
            Weighted
                Average Exercise Price
            
            Shares
            
            Aggregate
                Intrinsic Value
            
            Weighted
                Average
              Exercise
                PriceOptions
                outstanding at beginning of period
            
            
            1,546,345
            
            
            2,707,375
            
            $
            0.30
            
            
            1,119,387
            
            
            2,147,808
            
            $
            0.23Granted
            
            
            122,930
            
            
            35,858
            
            $
            1.81
            
            
            426,958
            
            
            712,952
            
            $
            0.48Options
                outstanding at end of period
            
            
            1,669,275
            
            
            2,743,233
            
            $
            0.41
            
            
            1,546,345
            
            
            2,860,760
            
            $
            0.30Options
                exercisable at end of period
            
            
            1,395,312
            
            
            2,311,833
            
            $
            0.40
            
            
            1,026,198
            
            
            1,918,070
            
            $
            0.28Options
                not vested at end of period
            
            
            273,963
            
            
            431,400
            
            $
            0.75
            
            
            520,147
            
            
            942,690
            
            $
            0.54Options
                vested or expected to vest
            
            
            1,669,275
            
            
            2,743,233
            
            $
            0.41
            
            
            1,546,345
            
            
            2,860,760
            
            $
            0.30







**2006****OPTIONS
                OUTSTANDING**
            
            **OPTIONS
                EXERCISABLE****Range
                of Exercise Price**
            
            **Shares**
            
            **Weighted
                Average Exercise Price**
            
            **Weighted
                Average Remaining Life in Years**
            
            **Shares**
            
            **Weighted
                Average Price**$0.18
                - 0.20
            
            
            1,325,055
            
            $
            0.19
            
            
            4.8
            
            
            1,139,576
            
            $
            0.19$0.85
                - 0.94
            
            
            178,360
            
            $
            0.85
            
            
            7.9
            
            
            122,553
            
            $
            0.86$1.06
                - 1.60
            
            
            88,145
            
            $
            1.32
            
            
            8.7
            
            
            67,560
            
            $
            1.36$1.85
                - 2.42
            
            
            77,715
            
            $
            2.16
            
            
            8.8
            
            
            65,623
            
            $
            2.171,669,275
            
            $
            0.41
            
            
            5.5
            
            
            1,395,312
            
            $
            0.40Aggregate
                intrinsic value
            
            $
            2,743,233
            
            
            
            
            
            
            
            $
            2,311,833





At
      December 31, 2006, 1,395,312 options were fully vested. A summary of the status
      of the Company’s nonvested options as of December 31, 2006 and changes during
      the twelve months ended December 31, 2006, is presented below.




Stock
                Options
            
            Weighted
                Average
              Grant-
                Date
              Fair
                ValueNonvested
                at January 1, 2006
            
            
            520,147
            
            $
            0.54Options
                granted during 2006
            
            
            122,930
            
            $
            1.45Options
                vesting during 2006
            
            
            369,114
            
            $
            0.70Nonvested
                at December 31, 2006
            
            
            273,963
            
            $
            0.75











F-14
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


As
      of
      December 31, 2006, there was $60,000 of total unrecognized compensation cost
      related to non-vested employee and director share-based compensation
      arrangements granted under the Plan. That cost is expected to be recognized
      over
      a weighted-average period of 1.41 years.





The
      weighted-average fair values at date of grant for options granted during the
      year ended December 31, 2006 and 2005 were $1.45 and $0.80 respectively. The
      value of the options was estimated using the Black-Scholes option pricing model
      with the following weighted average assumptions:





**2006**
            **2005**Expected
                life in years
            5-10
            5-10Interest
                rate
            4.16%
                - 5.15%
            3.72%
                - 4.58%Volatility
            80%
            80%Dividend
                yield
            0%
            0%





**NOTE
      G - INCOME TAXES**





The
      net
      deferred tax asset in the accompanying balance sheet includes the following
      amounts of deferred tax assets and liabilities.




**2006**
                
                **2005**Net
                    operating loss
                
                $
                2,270,000
                
                $
                1,454,000Stock
                    based compensation
                
                
                241,000
                
                
                64,000Other
                
                
                106,000
                
                
                48,000Research
                    & development credit
                
                
                43,000
                
                
                --$
                2,660,000
                
                $
                1,566,000Valuation
                    Allowance
                
                $
                (2,660,000
                )
                $
                (1,566,000
                )Net
                    deferred tax asset
                
                
                (--
                )
                
                (--
                )





The
      deferred tax assets represents 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 to reduce
      the deferred tax asset to the amount that more likely than not to be realized.
      This reduction is necessary due to the uncertainty of the Company's ability
      to
      utilize all of the net operating loss carryforwards before they
      expire.




At
      December 31, 2006 the Company had approximately $6,677,000 and $43,000 in net
      operating loss and research & development credit carryforwards for federal
      income tax purposes which expire as follows:








**Year**
            
            **Net
                Operating**
              **Year
                Losses**
            
            **Research
                & Development Credit**2023
            
            $
            134,000
            
            $
            -2024
            
            
            928,000
            
            
            11,0002025
            
            
            3,453,000
            
            
            12,0002026
            
            
            2,162,000
            
            
            20,000$
            6,677,000
            
            $
            43,000





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 $1,094,000 (2006)
      and
      $1,152,000 (2005) and certain expenses not deductible for tax purposes. The
      Company's ability to utilize its carryforwards may be subject to an annual
      limitation under Section 382 of the Internal Revenue Code of 1986, as amended
      due to changes in ownership.





F-15
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


**NOTE
      H - NOTE RECEIVABLE FROM PLACEMENT AGENT**




The
      Company received a non-recourse promissory note dated August 20, 2004 for
      $30,000 from a placement agent and financial advisor in consideration for
      3,000,000 shares of common stock (Note F(4)). 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:




·
            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).




·
            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).




·
            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.




·
            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 F(1), 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.




On
      October 13, 2004 such 1,500,000 shares vested and $15,000 under the note was
      paid.




The
      registration statement became effective on May 13, 2005. By May 13, 2006, the
      placement agent had not conducted a follow-on offering having aggregate proceeds
      of $8,000,000 and the remaining 500,000 shares and 1,000,000 shares did not
      vest
      to the placement agent and were forfeited. See also Note I(3).





**NOTE
      I - COMMITMENTS AND OTHER MATTERS**





(1)
      LEASES:




During
      the period November 2004 through January 2007, the Company leased office space
      for a monthly fee of approximately $5,000. Rent
      expense was approximately $67,000 and $64,000 for the years ended December
      31,
      2006 and 2005, respectively. During February 2007 the Company moved into new
      office space and agreed to a sixty-six month office lease. The lease agreement
      includes rent abatement for approximately eight months during 2007. Provisions
      of the lease include a security deposit of approximately $5,800 and a thirty
      six
      month letter of credit in the amount of approximately $55,000. In addition,
      if
      the Company cancels this lease after the forty-second month, and prior to its
      full sixty-six month term, the Company will be obligated to pay a cancellation
      charge of approximately $46,000. The estimated minimum lease payments for the
      next five years are: In 2007 - $11,000; in 2008 - $65,000; in 2009 - $66,000;
      in
      2010 - $67,000; in 2011 - $69,000; and $58,000 thereafter.





(2)
      CONSULTING AGREEMENTS




On
      October 14, 2004, the Company entered into an advisory agreement with a member
      of our scientific advisory board to receive technical advisory services. The
      agreement can be terminated by either party on 30 days' written notice. The
      agreement provides for $1,500 per month and the issuance of an option under
      the
      Plan to purchase 15,000 shares of common stock of the Company at an exercise
      price of $0.85 per share. In addition, at the end of each year of service on
      the
      advisory board, the company will grant an additional non-qualified stock option
      to purchase 5,000 shares of Common Stock at an exercise price equal to the
      then
      fair market value of the Common Stock. Such options vest 25% on the first
      anniversary and then monthly thereafter over a period of thirty six
      months.







F-16
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006


On
      July
      13, 2005, the Company entered into an advisory agreement with its Acting Vice
      President and Principal Investigator of Research and Development to receive
      advisory services on technical, medical and market issues related to
      HemoBioTech, including its second generation blood substitute, HemoTech. The
      agreement provides for non-qualified stock options to purchase 271,528 shares
      of
      Common Stock of HemoBioTech at an exercise price per share of $0.18, subject
      to
      vesting through July 13, 2009. In connection therewith, the Company recorded
      a
      charge of $37,000 and $141,000 for the years ended December 31, 2006 and 2005
      respectively. As of December 31, 2006, 183,845 options had vested. The Company
      will record additional charges as and when the options vest at the then fair
      value.





(3)
      FINANCIAL ADVISOR AGREEMENT





On
      September 12, 2006, the Company entered into a three year agreement with its
      placement agent and financial advisor for consulting services related to
      corporate finance and other financial services. The services shall include
      assisting the Company in evaluating and negotiating particular contracts or
      transactions, if requested to do so by the Company and to raise for the Company
      its next financing of up to $10 million with a minimum of $6 million in the
      next
      18 months from the date of the agreement. As compensation for such services,
      the
      Company agreed to issue 1,500,000 shares of its common stock. The shares are
      subject to forfeiture in the event that the consultant fails to achieve certain
      performance criteria set forth in the agreement. In addition, the agreement
      provides for a fee if the financial advisor acts as a finder or financial
      consultant in various business transactions in which the Company may be involved
      such as mergers, acquisitions or joint ventures during the term of the
      agreement. The forfeiture does not apply to 500,000 shares after one year unless
      the agreement is cancelled by the Company for non-performance. Accordingly,
      the
      Company recorded a $300,000 charge for the year ended December 31, 2006 for
      the
      estimated cost of those financial services. The Company will record an
      additional expense related to this stock issuance as and when the performance
      criteria are met at the then market price of the stock.







F-17
 HemoBioTech,
          Inc. Form 10-KSB for the Year Ended December 31, 2006