**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C.
      20549







**FORM
      10-QSB**





x**QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES** **EXCHANGE
      ACT OF 1934**




**For
      the quarterly period ended June 30, 2007**




or




** ̈
      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: 000-51334**




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




Check
      whether the issuer (1) 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.




Yes
x
      No  ̈




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




As
      of
      August 3, 2007, the registrant had outstanding 18,436,887 shares of common
      stock, $0.001 par value per share.




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


















**HEMOBIOTECH,
      INC.**


(a
      development stage company)





**TABLE
      OF CONTENTS**





ITEM
            
            PAGEPART
                I – FINANCIAL INFORMATION
            
            4Item
                1. Financial Statements
            
            4Condensed
                Balance Sheets
            
            4Condensed
                Statements of Operations
            
            5Condensed
                Statements of Changes In Stockholders’ Equity
            
            6Condensed
                Statements of Cash Flows
            
            7Notes
                to Condensed Financial Statements
            
            8Item
                2. Management’s Discussion and Analysis or Plan of
                Operations
            
            15Item
                3. Controls and Procedures
            
            19PART
                II – OTHER INFORMATION
            
            21Item
                6. Exhibits
            
            21SIGNATURES
            
            22











-
            2 -





**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING
      STATEMENTS**




In
      addition to historical information, this Quarterly Report on Form 10-QSB
      contains forward-looking statements. Forward-looking statements are those that
      predict or describe future events or trends and that do not relate solely to
      historical matters. You can generally identify forward looking statements as
      statements containing the words "believe," "expect," "will," "anticipate,"
      "intend," "estimate," "project," "assume" or other similar expressions, although
      not all forward-looking statements contain these identifying words. All
      statements in this report regarding our future strategy, future operations,
      projected financial position, estimated future revenues, projected costs, future
      prospects, and results that might be obtained by pursuing management's current
      plans and objectives are forward-looking statements. You should not place undue
      reliance on our forward-looking statements because the matters they describe
      are
      subject to known and unknown risks, uncertainties and other unpredictable
      factors, many of which are beyond our control. Our forward-looking statements
      are based on the information currently available to us and speak only as of
      the
      date on which this report was filed with the Securities and Exchange Commission
      (the "SEC"). We expressly disclaim any obligation to issue any updates or
      revisions to our forward-looking statements, even if subsequent events cause
      our
      expectations to change regarding the matters discussed in those statements.
      Over
      time, our actual results, performance or achievements will likely differ from
      the anticipated results, performance or achievements that are expressed or
      implied by our forward-looking statements, and such difference might be
      significant and materially adverse to our stockholders. Many important factors
      that could cause such a difference are described in our Annual Report on Form
      10-KSB, filed with the SEC on March 27, 2007, under the caption "Risk Factors,"
      all of which you should review carefully. Please consider our forward-looking
      statements in light of those risks as you read this report.








-
            3 -





**PART
      I -- FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**




**HEMOBIOTECH,
      INC.**


(a
      development stage company)




**CONDENSED
      BALANCE SHEETS**







**June
                30,**
            
            
            **December
                31,****2007**
              **(unaudited)**
            
            
            **2006**
              **(Derived
                from audited financial statements)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            2,387,000
            
            
            $
            3,193,000Short-term
                investments
            
            
            --
            
            
            
            1,000,000Prepaid
                expenses
            
            
            723,000
            
            
            
            54,000Total
                current assets
            
            $
            3,110,000
            
            
            $
            4,247,000Equipment,
                net
            
            
            48,000
            
            
            
            12,000Restricted
                cash
            
            
            55,000
            
            
            
            --Total
                Assets
            
            $
            3,213,000
            
            
            $
            4,259,000**LIABILITIES**Current
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            178,000
            
            
            $
            171,000Total
                current liabilities
            
            $
            178,000
            
            
            $
            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
            
            $
            19,000
            
            
            $
            19,000Additional
                paid-in capital
            
            
            12,862,000
            
            
            
            12,205,000Deficit
                accumulated during the development stage
            
            
            (9,846,000
            )
            
            
            (8,136,000
            )Total
                Equity
            
            $
            3,035,000
            
            
            $
            4,088,000$
            3,213,000
            
            
            $
            4,259,000







**See
      Notes to Condensed Financial Statements.**








-
            4 -





**HEMOBIOTECH,
      INC.**


(a
      development stage company)




**CONDENSED
      STATEMENTS OF OPERATIONS**


(UNAUDITED)







**THREE
                MONTHS ENDED**
            
            
            **SIX
                MONTHS ENDED**
            
            
            **OCTOBER
                3, 2001****(INCEPTION)****JUNE
                30,**
            
            
            **JUNE
                30,**
            
            
            **THROUGH**
              **JUNE
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**
            
            
            **2007**Revenue
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Operating
                expense
            
            $
            
            
            
            $
            
            
            
            $
            
            
            
            $
            
            
            
            $Research
                and development
            
            
            311,000
            
            
            
            151,000
            
            
            
            478,000
            
            
            
            317,000
            
            
            
            1,689,000General
                and administrative
            
            
            602,000
            
            
            
            419,000
            
            
            
            1,299,000
            
            
            
            773,000
            
            
            
            6,321,000Other
                (income) expenseInterest
                expense
            
            
            1,000
            
            
            
            7,000
            
            
            
            2,000
            
            
            
            53,000
            
            
            
            2,112,000Interest
                income
            
            
            (32,000
            )
            
            
            (22,000
            )
            
            
            (69,000
            )
            
            
            (41,000
            )
            
            
            (276,000
            )**Net
                loss**
            
            $
            (882,000
            )
            
            $
            (555,000
            )
            
            $
            (1,710,000
            )
            
            $
            (1,102,000
            )
            
            $
            (9,846,000
            )**Basic
                and diluted loss per common share**
            
            $
            (0.05
            )
            
            $
            (0.04
            )
            
            $
            (0.10
            )
            
            $
            (0.08
            )Weighed
                average number of shares outstanding -- basic and diluted
            
            
            16,936,887
            
            
            
            14,052,797
            
            
            
            16,936,887
            
            
            
            13,586,472







**See
      Notes to Condensed Financial Statements.**








-
            5 -





**HEMOBIOTECH,
      INC**


(a
      development stage company)




**CONDENSED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**


(UNAUDITED)








**Common
                Shares**
            
            
            **Amount**
            
            
            **Additional**
              **Paid-In
                Capital**
            
            
            **Deficit
                Accumulated During the Development Stage**
            
            
            **Total****Balance
                –****December
                31, 2006**
            
            
            18,436,887
            
            
            $
            19,000
            
            
            $
            12,205,000
            
            
            $
            (8,136,000
            )
            
            $
            4,088,000Net
                Loss for the period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,710,000
            )
            
            
            (1,710,000
            )Stock
                based compensation – board of advisors and consultant
            
            
            
            
            
            
            
            
            
            
            60,000
            
            
            
            
            
            
            
            60,000Stock
                based compensation – employees and directors
            
            
            
            
            
            
            
            
            
            
            183,000
            
            
            
            
            
            
            
            183,000Stock
                based compensation relating to shares issued to financial
                advisor
              (See Note G[3])
            
            
            
            
            
            
            
            
            
            
            414,000
            
            
            
            
            
            
            
            414,000**Balance
                –****June
                30, 2007****(unaudited)**
            
            
            18,436,887
            
            
            $
            19,000
            
            
            $
            12,862,000
            
            
            $
            (9,846,000
            )
            
            $
            3,035,000







**See
      Notes to Condensed Financial Statements.**











-
            6 -





**HEMOBIOTECH,
      INC.**


(a
      development stage company)




**CONDENSED
      STATEMENTS OF CASH FLOWS**


(UNAUDITED)





**SIX
                MONTHS ENDED**
              **JUNE
                30,**
            
            
            **OCTOBER
                31, 2001**
              **(INCEPTION)**
              **THROUGH**
              **JUNE
                30,****2007**
            
            
            **2006**
            
            
            **2007****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                Loss
            
            $
            (1,710,000
            )
            
            $
            (1,102,000
            )
            
            $
            (9,846,000
            )Adjustments
                to reconcile net loss to net cash used inoperating
                activities:Fair
                value of options andcompensatory
                stock
            
            
            657,000
            
            
            
            129,000
            
            
            
            1,571,000Conversion
                charge – interest expense
            
            
            -
            
            
            
            43,000
            
            
            
            43,000Notes
                issued for services – related party
            
            
            -
            
            
            
            -
            
            
            
            354,000Expenses
                paid by stockholder
            
            
            -
            
            
            
            -
            
            
            
            14,000Amortization
                of deferred financing costs
            
            
            -
            
            
            
            -
            
            
            
            1,023,000Amortization
                of debt discount
            
            
            -
            
            
            
            -
            
            
            
            789,000Depreciation
            
            
            2,000
            
            
            
            1,000
            
            
            
            7,000Contribution
                of salary
            
            
            -
            
            
            
            -
            
            
            
            11,000Changes
                in:Accounts
                payable and accrued expenses
            
            
            (15,000
            )
            
            
            (61,000
            )
            
            
            890,000Accrued
                interest
            
            
            -
            
            
            
            (3,000
            )
            
            
            139,000Prepaid
                expenses
            
            
            (669,000
            )
            
            
            (215,000
            )
            
            
            (722,000
            )Net
                cash used in operating activities
            
            $
            (1,735,000
            )
            
            $
            (1,208,000
            )
            
            $
            (5,727,000
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Sale
                (Purchase) of Short-Term Investments
            
            $
            945,000
            
            
            $
            -
            
            
            $
            (55,000
            )(Purchase)
                of property and equipment
            
            
            (16,000
            )
            
            
            (3,000
            )
            
            
            (54,000
            )Net
                cash provided (used) in investing activities
            
            $
            929,000
            
            
            $
            (3,000
            )
            
            $
            (109,000
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Net
                proceeds from issuance of common stock and debt
            
            
            -
            
            
            $
            -
            
            
            $
            3,767,000Payment
                of Notes
            
            
            -
            
            
            
            (113,000
            )
            
            
            (734,000
            )Net
                proceeds from exercise of warrants
            
            
            -
            
            
            
            2,883,000
            
            
            
            5,190,000Net
                cash provided by financing activities
            
            
            -
            
            
            $
            2,770,000
            
            
            $
            8,223,000**(DECREASE)
                / INCREASE IN CASH AND****CASH
                EQUIVALENTS**
            
            $
            (806,000
            )
            
            $
            1,559,000
            
            
            $
            2,387,000Cash
                and cash equivalents – beginning of period
            
            
            3,193,000
            
            
            
            1,259,000
            
            
            
            -**CASH
                AND CASH EQUIVALENTS – END OF PERIOD**
            
            $
            2,387,000
            
            
            $
            2,818,000
            
            
            $
            2,387,000**SUPPLEMENTARY
                CASH FLOW INFORMATION:**Interest
                Paid
            
            $
            2,000
            
            
            $
            13,000
            
            
            $
            112,000**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 into common stock
            
            
            -
            
            
            $
            243,000
            
            
            $
            1,815,000Fixed
                Assets Purchased – not yet paid
            
            $
            22,000
            
            
            
            
            
            
            $
            22,000







**See
      Notes to Condensed Financial Statements.**





-
            7 -





**NOTES
      TO CONDENSED FINANCIAL
      STATEMENTS**


(UNAUDITED)




**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 Sciences Center ("TTUHSC") (See Note D). The Company is in the
      development stage and its efforts have been principally devoted to
      organizational infrastructure development, research and development and capital
      raising.




**NOTE
      B - BASIS OF PRESENTATION**




The
      interim financial statements presented are unaudited but in the opinion of
      management, have been prepared in conformity with accounting principles
      generally accepted in the United States of America applied on a basis consistent
      with those of the annual financial statements. Such interim financial statements
      reflect all adjustments (consisting of normal recurring accruals) necessary
      for
      a fair presentation of the financial position, the results of operations and
      cash flows for the interim periods presented. The results of operations for
      the
      interim periods presented are not necessarily indicative of the results to
      be
      expected for the full fiscal year. The accompanying condensed financial
      statements do not include all of the information and footnote disclosures in
      annual audited financial statements prepared in accordance with Generally
      Accepted Accounting Principles in the United States.  Accordingly, the
      interim condensed financial statements should be read in connection with the
      audited financial statements for the year ended December 31, 2006.




The
      financial statements have been prepared assuming that the Company will continue
      as a going concern which contemplates the realization of assets and satisfaction
      of liabilities in the normal course of business. The Company has incurred
      cumulative losses of $9,846,000 for the period through June 30, 2007, and has
      been dependent on funding operations through the private sale of convertible
      debt and equity securities. At June 30, 2007, the Company had $2,387,000 in
      cash. Management believes that current cash resources will be sufficient to
      fund
      its current operations through 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.




**NOTE
      C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




(1)
      RESEARCH AND DEVELOPMENT:




Research
      and development costs are charged to expense as incurred.





-
            8 -





(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
      periods. No effect has been given to the following outstanding potential common
      shares such as options, warrants and outstanding shares subject to forfeiture
      issued to a financial services consultant during September 2006, as described
      in
      Note G(3) in the diluted computation as their effect would be
      antidilutive:








**JUNE
                30,****2007**
            
            
            **2006**Stock
                Options
            
            
            1,829,275
            
            
            
            1,608,845Warrants
            
            
            2,442,372
            
            
            
            4,870,921Common
                shares subject to forfeiture(1)
            
            
            1,500,000
            
            
            
            -Total
            
            
            5,771,647
            
            
            
            6,479,766




(1)Common
      shares
      not included in basic earnings per share since subject to
      forfeiture.




(3)
      STOCK-BASED COMPENSATION:





Effective
      January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), Share Based
      Payment, (“SFAS No. 123(R)”) which requires the Company 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.




(4)
      FAIR
      VALUE OF FINANCIAL INSTRUMENTS:




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




(5)
      USE
      OF ESTIMATES:




The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Such
      estimates include the selection of assumptions underlying the calculation of
      the
      fair value of options. Actual results could differ from those
      estimates.




(6)
      RECENT ACCOUNTING PRONOUNCEMENTS:




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
      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.





-
            9 -





(7)
      CASH,
      CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND RESTRICTED CASH:





The
      Company considered all highly liquid short-term investments purchased with
      an
      original maturity of three months or less to be cash
      equivalents.  Restricted cash represents $55,000 of cash invested in a
      certificate of deposit which the Company is obligated to hold under the terms
      of
      their lease agreement. Short-term investments at December 31, 2006 consist
      of a
      treasury bill which is carried at cost which approximates market
      value.




(8)
      INCOME TAXES:




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





We
      adopted the provisions of Financial Accounting Standards Board interpretation
      No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation
      of FASB Statement No. 109 (“SFAS 109”) on January 1, 2007.  As a
      result of the implementation of FIN 48, we recognized no adjustment for
      uncertain tax provisions.  At the adoption date of January 1, 2007, we
      had a deferred tax asset which was fully reserved by a valuation allowance
      to
      reduce the deferred tax asset to the amount that more likely than not to be
      realized.





We
      recognize interest and penalties related to uncertain tax positions in general
      and administrative expense.  As of June 30, 2007, we have not recorded
      any provisions for accrued interest and penalties related to uncertain tax
      positions.





The
      tax
      years 2003 through 2006 remain open to examination by the major tax
      jurisdictions to which we are subject.




(9)
      RECLASSIFICATION:




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





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





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




In
      consideration for entering into the agreement, the Company issued 678,820 shares
      of common stock to TTUHSC (subject to anti-dilution
      protection).  These shares issued were valued at approximately $1,000,
      their estimated fair value, and charged to operations.  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 funding of the $1.2 million is subject to the Company
      obtaining FDA approval of a blood substitute product. As of June 30, 2007,
      such
      approval had not been obtained.  In addition, in July 2002, the
      Company entered into a Sponsored Research Agreement (“SRA”) with TTUHSC for the
      period September 1, 2002 through August 31, 2006.  In December 2004,
      the Company paid a fee of approximately $231,000 to fund the next phase of
      its
      research under the SRA through December 31, 2005.




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





In
      January 2007, the Company entered into a Stage IV SRA with TTUHSC for the period
      beginning January 1, 2007. In connection therewith, the Company made an initial
      payment of approximately $780,000. This amount will be charged to operations
      as
      incurred by TTUHSC based on monthly reporting to the Company.  As of
      June 30, 2007, approximately $611,000 is included in prepaid expenses on the
      accompanying balance sheet. Additional payments may be made to TTUHSC under
      the
      agreement based on mutually agreed upon budgets.





The
      Sponsored Research Agreements may be terminated by either party on 90 days
      written notice.




-
          10 -




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




Accounts
      payable and accrued expenses consist of the following:





**June
                30, 2007**
            
            
            **December
                31, 2006**Leasehold
                improvements
            
            $
            22,000
            
            
            $
            -Professional
                fees
            
            
            83,000
            
            
            
            88,000Liquidated
                damages
            
            
            38,000
            
            
            
            38,000Insurance
            
            
            -
            
            
            
            20,000Other
            
            
            35,000
            
            
            
            25,000Total
            
            $
            178,000
            
            
            $
            171,000





**NOTE
      F - STOCKHOLDERS' EQUITY**




(1)
      PRIVATE PLACEMENT:




On
      October 27, 2004, the Company completed a private placement of 45 units and
      raised gross proceeds of $4,500,000. Each unit consists of a $50,000 unsecured
      convertible promissory note (see below), 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. 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 interest expense over the term of the notes.




(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.





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.





-
            11 -





(3)
      STOCK WARRANTS:




In
      connection with the private placement in 2004,
      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 aredemption 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 and valued the warrants using
      Black-Scholes option pricing model.





(4)
      STOCK
      OPTION/STOCK ISSUANCE PLAN:




During
      2003, the Board of Directors of the Company approved a Stock Option/Stock
      Issuance Plan (the "Old Plan") which provides for the granting of options or
      stock to purchase up to 1,629,168 shares of common stock, under which directors,
      employees and independent contractors are eligible to receive incentive and
      non-statutory stock options and common shares (employees). The Company's
      stockholders approved the Old Plan in August 2004.




On
      June
      9, 2006, the Company’s stockholders approved the 2003 Amended & Restated
      Stock Option/Stock Issuance Plan (the “Plan”) and voted 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
      June
      30, 2007, 1,299,893 options were available for grant under the Plan. The
      following table presents information relating to stock options under the Plan
      as
      of June 30, 2007.








-
            12 -







**SIX
                MONTHS ENDED**
              **JUNE
                30,****2007**
            
            
            **2006**Shares
            
            
            Aggregate
                Intrinsic Value
            
            
            Weighted
                Average Exercise Price
            
            
            Shares
            
            
            Weighted
                Average
              Exercise
                PriceOptions
                outstanding at beginning of period
            
            
            1,669,275
            
            
            
            --
            
            
            $
            0.41
            
            
            
            1,546,345
            
            
            $
            0.30Granted
            
            
            160,000
            
            
            
            --
            
            
            $
            1.97
            
            
            
            62,500
            
            
            $
            1.92Options
                outstanding at end of period
            
            
            1,829,275
            
            
            $
            2,344,800
            
            
            $
            0.55
            
            
            
            1,608,845
            
            
            $
            0.36Options
                exercisable at end of period
            
            
            1,602,883
            
            
            $
            2,132,317
            
            
            $
            0.50
            
            
            
            1,189,913
            
            
            $
            0.35Options
                vested or expected to vest
            
            
            1,829,275
            
            
            $
            2,344,800
            
            
            $
            0.55
            
            
            
            1,608,845
            
            
            $
            0.36








**JUNE
                30, 2007****OPTIONS
                OUTSTANDING**
            
            
            **OPTIONS
                EXERCISABLE****Range
                of Exercise Price**
            
            
            **Shares**
            
            
            **Weighted
                Average Exercise Price**
            
            
            **Weighted
                Average Remaining Life in Years**
            
            
            **Shares**
            
            
            **Weighted
                Average Exercise Price**$
            0.18
                - $0.20
            
            
            
            1,325,055
            
            
            $
            0.19
            
            
            
            4.26
            
            
            
            1,226,036
            
            
            $
            0.19$
            0.85
                – $0.94
            
            
            
            178,360
            
            
            $
            0.85
            
            
            
            7.36
            
            
            
            135,171
            
            
            $
            0.86$
            1.06
                – $1.60
            
            
            
            88,145
            
            
            $
            1.32
            
            
            
            8.16
            
            
            
            69,804
            
            
            $
            1.35$
            1.80
                - $2.42
            
            
            
            237,715
            
            
            $
            2.03
            
            
            
            9.11
            
            
            
            171,872
            
            
            $
            2.051,829,275
            
            
            $
            0.55
            
            
            
            5.39
            
            
            
            1,602,883
            
            
            $
            0.50





As
      of
      June 30, 2007, 1,602,883 options were fully vested. A summary of the status
      of
      the Company’s nonvested options as of June 30, 2007 and changes during the six
      months ended June 30, 2007, is presented below.





**Stock
                Options**
            
            
            **Weighted
                Average**
              **Grant-Date**
              **Fair
                Value**Nonvested
                at January 1, 2007
            
            
            273,963
            
            
            $
            0.75Options
                granted
            
            
            160,000
            
            
            $
            1.62Options
                vested
            
            
            (207,571
            )
            
            $
            0.97Nonvested
                at June 30, 2007
            
            
            226,392
            
            
            $
            0.96




As
      of
      June 30, 2007, there was $135,000 of total unrecognized compensation cost
      related to nonvested share-based compensation arrangements granted under the
      Plan. That cost is expected to be recognized over a weighted-average period
      of
      2.0 years.





The
      aggregate intrinsic value for the 207,571 options that vested during the six
      months ended July 30, 2007 was $153,000.




-
          13 -




The
      weighted-average fair values at date of grant for options granted during the
      six-month period ended June 30, 2007 and 2006 were $1.62 and $1.56 respectively.
      The value of the options was estimated using the Black-Scholes option pricing
      model with the following weighted average assumptions:




**THREE
                MONTHS ENDED**
              **JUNE
                30,**
            
            **SIX
                MONTHS ENDED**
              **JUNE
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Expected
                life in years
            5-10
            
            5-10
            
            5-10
            
            5-10Interest
                rate
            4.63%  –
                5.03%
            
            5.07%
                – 5.15%
            
            4.83%
                – 5.03%
            
            4.53%
                – 5.15%Volatility
            80%
            
            80%
            
            80%
            
            80%Dividend
                yield
            0%
            
            0%
            
            0%
            
            0%





**NOTE
      G - 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. 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.





(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.





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 June 30, 2007, 200,813 options had vested. The Company
      will
      record additional charges as and when the options vest at the then fair
      value.





In
      connection with the above consulting agreements, the Company recorded
      approximately $9,000 in cash charges for the six month periods ended June 30,
      2007 and 2006.  In addition, the Company recorded stock based
      compensation expense of approximately $37,000 and $17,000 for the six month
      periods ended June 30, 2007 and 2006, respectively.  Stock based
      compensation for the three months ended June 30, 2007 related to these
      consulting agreements was $18,000.  The amount related to the three
      months ended June 30, 2006 was de minimis.





(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




-
          14 -




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
      $414,000 charge for the six months ended June 30, 2007 for the estimated cost
      of
      those financial services. The Company will record an additional expense over
      the
      service period related to this stock issuance as and when the performance
      criteria are met at the then market price of the stock.






**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS PLAN OF
      OPERATIONS**




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





In
      January 2007, the Company entered into a Stage IV SRA with TTUHSC for the period
      beginning January 1, 2007. In connection therewith, the Company made an initial
      payment of approximately $780,000. This amount will be charged to operations
      over the period of the research. 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.




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




**RESEARCH
      AND DEVELOPMENT OF HEMOTECH**




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, although there
      is
      no guarantee that we will meet this timeline.




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




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





-
            15 -




·
            PREPARATION
                AND SUBMISSION OF U.S. IND APPLICATION. We started preparing material
                for
                our U.S. IND application on December 13, 2004, when we entered into
                our
                Stage II Sponsored Research Agreement with TTUHSC. We are actively
                planning and implementing the FDA recommendations including upgrading
                the
                production facility, preparing for clinical trials and the production
                of
                HemoTech; collectively at a cost estimated to be greater than $5,000,000,
                which are necessary for submission of our U.S. IND application, although
                there can be no assurance that we will be able to meet a specified
                timetable or budgeted amount. We currently do not have sufficient
                funds
                available to pay this amount.  We will need to raise at least
                $6,000,000 by year end in order to complete the above mentioned
                activities.




·
            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.




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.




-
          16 -




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;





·
            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




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          17 -




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 June 30, 2007. To date, our efforts have been principally devoted to
      evaluating the HemoTech technology, negotiating and entering into our license
      agreement and Sponsored Research Agreements with TTUHSC, hiring employees and
      consultants, establishing our Board of Advisors, raising capital, and engaging
      in other organizational and infrastructure development. In addition, during
      2006
      the Company upgraded the production facility at Texas Tech University and
      maintained an animal donor facility.




Total
      expenses, and thus our losses, totaled $9,846,000 from October 3, 2001
      (inception) through June 30, 2007. Such losses included $1,102,000 and
      $1,710,000 for both the six months ended June 30, 2006 and 2007,
      respectively.




**THREE
      MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED JUNE 30,
      2006**




Total
      expenses, and thus our losses, for the three months ended June 30, 2007, were
      $882,000 compared with $555,000 for the same period a year ago resulting from
      significantly higher research and development and general and administrative
      costs.




Research
      and Development expenses were $311,000 for the 2007 period, an increase of
      $160,000 compared with the same period in 2006, resulting from higher costs
      paid
      to outside laboratories and consultants.  Charges related to the
      Sponsored Research Agreement with TTUHSC were essentially
      unchanged.




General
      and Administrative costs were $602,000 for the three months ended June 30,
      2007,
      an increase of $183,000 compared with the same period in the prior year. This
      increase primarily results from increases in non-cash stock based compensation
      to our financial consultant, employees and directors.  Slightly higher
      cash based compensation was offset by lower office related
      expenses.  For the 2007 period, stock based compensation includes
      charges of $172,000 related to a financing services agreement signed in
      September 2006.




Interest
      income increased in the 2007 period due to higher cash balances resulting from
      the holders of our Class A Warrants exercising their warrants in
      2006.




**SIX
      MONTHS ENDED JUNE 30, 2007 COMPARED TO SIX MONTHS ENDED JUNE 30,
      2006**




Total
      expenses, and thus our losses, for the six months ended June 30, 2007, were
      $1,710,000 compared with $1,102,000 for the same period a year ago resulting
      from significantly higher general and administrative costs and higher research
      and development costs more than offsetting lower net interest
      expense.




General
      and Administrative costs were $1,299,000 for the six months ended June 30,
      2007,
      an increase of $526,000 compared with the same period in the prior year. This
      increase primarily results from increases in non-cash stock based compensation
      to employees, directors and consultants, and increased salary and related
      costs.  For the 2007 period, stock based compensation includes charges
      of $414,000 related to a financing services agreement signed in September
      2006.




Research
      and Development expenses were $478,000 for the 2007 period, increasing $161,000
      from the $317,000 in the same period in 2006 resulting from higher costs paid
      to
      outside laboratories and consultants.  Spending related to the Stage
      IV Sponsored Research Agreement with Texas Tech Health Sciences Center were
      slightly higher in the current period compared to the same period a year
      ago.




Interest
      cost for the 2006 period includes an inducement expense of $38,000 related
      to
      $200,000 principal value of our 10% Convertible Promissory Notes converted
      to
      stock, representing the difference between the conversion price and the market
      price at the date of conversion. Interest income increased in the 2007 period
      due to higher cash balances resulting from the holders of our Class A Warrants
      exercising their warrants in 2006.




-
            18 -





**LIQUIDITY
      AND CAPITAL RESOURCES**




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




During
      the 2007 period, net cash used in operating activities of $1,735,000 includes
      approximately $780,000 paid to TTUHSC and $115,000 for insurance appropriately
      recorded as prepaid expenses during the period.  The Company also paid
      its Research and Development laboratories and consultants approximately $200,000
      during the period.




Investing
      activities during the six months ended June 30, 2007 include the maturation
      of a
      $1,000,000 short-term investment and the purchase of a certificate of deposit
      (restricted cash) related to a lease agreement.




During
        the period of January 1, 2006 through April 27, 2006, an aggregate of $225,000
        principal amount of our notes and $18,000 of accrued but unpaid interest
        was
        converted into an aggregate of 142,812 shares of our common stock at negotiated
        conversion prices ranging from $1.53 to $1.96 per share. 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. During the period 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.




During
      the first quarter of 2006, holders of our Class A Warrants exercised 1,877,956
      Warrants held by them for aggregate net consideration of $1,889,000, and in
      connection therewith they were issued an aggregate 1,877,956 shares of
      HemoBioTech common stock. The warrants were originally received as part of
      an
      October 2004 private placement by HemoBioTech. Through July 2006, 5,156,035
      warrants were exercised (including the above mentioned 1,877,956 warrants),
      providing the company net proceeds of approximately$5,190,000.




We
      believe our cash available of $2.4 million at June 30, 2007 will be sufficient
      to fund our current operations for the next twelve months. In order to complete
      our planned operations which includes implementing FDA recommendations necessary
      for submitting our IND to the FDA, upgrading the production facility,
      preparation for clinical trials, and the production of HemoTech; collectively
      at
      a cost estimated to be greater than $5,000,000, we will need to raise at least
      $6 million by year end, although there can be no assurance that we can meet
      this
      timeframe. If we fail to generate enough working capital, either from future
      equity or debt sales, or exercise of our Placement Agent Warrants, or revenue,
      we will have to curtail our planned operations.





**OFF-BALANCE
      SHEET ARRANGEMENTS**




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









**ITEM
      3. CONTROLS AND PROCEDURES**




Disclosure
      controls and procedures are designed with an objective of ensuring that
      information required to be disclosed in our periodic reports filed with the
      SEC,
      such as this Quarterly Report on Form 10-QSB, is recorded, processed, summarized
      and reported within the time periods specified by the SEC.
      Disclosure controls also are designed with an objective of ensuring that such
      information is accumulated and communicated to our management, including our
      chief executive officer and chief financial officer, in order to allow timely
      consideration regarding required disclosures.




Based
      on
      their review and evaluation as of the end of the period covered by this Form
      10-QSB, our principal executive officer and principal financial officer have
      concluded that our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
      are effective as of the end of the period covered by this report. They are
      not
      aware of any significant changes in our disclosure controls or in other factors
      that could significantly affect these controls subsequent to the date of their
      evaluation, including any corrective actions with regard to significant
      deficiencies and material weaknesses.




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          19 -




The
      term
      internal control over financial reporting is defined as a process designed
      by,
      or under the supervision of, the registrant's principal executive and principal
      financial officers, or persons performing similar functions, and effected by
      the
      registrant's board of directors, management and other personnel, to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles and includes those policies and
      procedures that:




(a)
      Pertain to the maintenance of records that in reasonable detail accurately
      and
      fairly reflect the transactions and dispositions of the assets of the
      registrant;




(b)
      Provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the registrant
      are
      being made only in accordance with authorizations of management and directors
      of
      the registrant; and




(c)
      Provide reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the registrant's assets that
      could have a material adverse effect on the financial statements.




During
      the period covered by this Form 10-QSB, there have not been any changes in
      our
      internal control over financial reporting that have materially affected, or
      that
      are reasonably likely to materially affect, our internal control over financial
      reporting.





-
            20 -




**PART
      II --OTHER INFORMATION**




Items
      1,
      2, 3, 4 and 5 are not applicable and have been omitted.





**ITEM
      6. EXHIBITS**





**Exhibit
                No.**
            **Description**31.1
            Certification
                of Principal Executive Officer required under Rule 13a-14(a) or Rule
                15d-14(a) of the Securities and Exchange Act of 1934, as
                amended.31.2
            Certification
                of Principal Financial Officer required under Rule 13a-14(a) or Rule
                15d-14(a) of the Securities and Exchange Act of 1934, as
                amended.32.1
            *Certification
                of Principal Executive Officer required under Rule 13a-14(b) or Rule
                15d-14(b) of the Securities and Exchange Act of 1934, as amended,
                and 18
                U.S.C. Section 1350.32.2
            *Certification
                of Principal Financial Officer required under Rule 13a-14(b) or Rule
                15d-14(b) of the Securities and Exchange Act of 1934, as amended,
                and 18
                U.S.C. Section 1350.*
            The
                certifications attached as Exhibits 32.1 and 32.2 accompany this
                Quarterly
                Report on Form 10-QSB pursuant to Section 906 of the Sarbanes-Oxley
                Act of
                2002 and shall not be deemed "filed" by HemoBioTech, Inc. for purposes
                of
                Section 18 of the Securities Exchange Act of 1934, as
                amended.























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            21 -





**SIGNATURES**




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




**HEMOBIOTECH,
      INC.**







Date:
                August 9, 2007
            By:
            /s/
                ARTHUR P. BOLLON, PH.D.Arthur
                P. Bollon, Ph.D.Chairman
                of the Board of Directors, President and Chief Executive
                OfficerDated:
                August 9, 2007
            By:
            /s/
                MARK J. ROSENBLUMMark
                J. RosenblumChief
                Financial Officer and Secretary


















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