UNITED
STATES




SECURITIES
AND EXCHANGE COMMISSION




WASHINGTON, D.C.
20549




FORM
10-Q




xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES




EXCHANGE
ACT OF 1934




For the
quarterly period ended March 31, 2009




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




EXCHANGE
ACT OF 1934




For the
transition period from __________ to __________




COMMISSION
FILE NUMBER 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)




Identify
by check mark whether the registrant (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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes o   No o




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




Large
accelerated filer    ̈
                                                                                                                         Accelerated
Filer    ̈




Non-accelerated
filer  ̈                                                                (Do
not check if a smaller reporting company.)   Smaller reporting
company   x




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 May
7, 2009, the registrant had outstanding 20,735,458 shares of common stock,
$0.001 par value per share.
















HEMOBIOTECH,
INC.


(a
development stage company)





TABLE
OF CONTENTS





ITEM
              
              PAGEPART
      I – FINANCIAL INFORMATION
              
              4Item
      1. Financial Statements (unaudited)
              
              3Condensed
      Balance Sheets
              
              4Condensed
      Statements of Operations
              
              5Condensed
      Statements of Changes In Stockholders’ Equity
              
              6Condensed
      Statements of Cash Flows
              
              8Notes
      to Condensed Financial Statements
              
              8Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
              
              22
                29Item
      4T. Controls and Procedures
              
              30PART
      II – OTHER INFORMATION
              
              32Item
      2. Unregistered Sale of Equity Securities and Use of
    Proceeds
              
              32Item
      6. Exhibits
              
              32SIGNATURES
              
              33





1


CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS




In
addition to historical information, this Quarterly Report on Form 10-Q 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-K, filed with the SEC on April 15, 2009, 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.


2


PART I -- FINANCIAL INFORMATION




ITEM
1. FINANCIAL STATEMENTS




HEMOBIOTECH,
INC.




(a
development stage company)




CONDENSED
BALANCE SHEETS







March 31
                
                
                December
      31,2009
                  (unaudited)
                
                
                2008
                  (Derived
      from audited financial statements)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                135,000
                
                
                $
                443,000Prepaid
      expenses
                
                
                216,000
                
                
                
                294,000Total
      current assets
                
                $
                351,000
                
                
                $
                737,000Equipment,
      net
                
                
                39,000
                
                
                
                41,000Restricted
      cash
                
                
                55,000
                
                
                
                55,000Total
      Assets
                
                $
                445,000
                
                
                $
                833,000LIABILITIESCurrent
      liabilitiesAccounts
      payable and accrued expenses
                
                $
                259,000
                
                
                $
                389,000Total
      current liabilities
                
                $
                259,000
                
                
                $
                389,000Deferred
      Rent
                
                $
                43,000
                
                
                $
                38,000Total
      Liabilities
                
                $
                302,000
                
                
                $
                427,000STOCKHOLDERS’
      EQUITY
                  Common
      stock ----- $.001 par value 55,000,000 sharesauthorized; 20,735,458
      as of March 31, 2009 and 20,642,125 at  December 31, 2008
      (includes 779,000 shares subject to forfeiture) shares issued and
      outstanding
                
                $
                21,000
                
                
                $
                21,000Additional
      paid-in capital
                
                
                16,037,000
                
                
                
                15,838,000Treasury
      stock, at (130,334 shares at March 31, 2009 and December 31,
      2008)
                
                
                (130,000
                )
                
                
                (130,000
                )Deficit
      accumulated during the development stage
                
                
                (15,785,000
                )
                
                
                (15,323,000
                )Total
      Equity
                
                $
                143,000
                
                
                $
                406,000$
                445,000
                
                
                $
                833,000







See
Notes to Condensed Financial Statements.


3


HEMOBIOTECH, INC.


(a
development stage company)




CONDENSED
STATEMENTS OF OPERATIONS




(UNAUDITED)





THREE
      MONTHS ENDED
                  
                  
                  October
      3, 2001(INCEPTION)March
      31
                  
                  
                  THROUGHMarch
      312009
                  
                  
                  
                  
                  
                  2008
                  
                  
                  2009Revenue
                  
                  
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  $
                  -Operating
      expense
                  
                  
                  
                  
                  $
                  
                  
                  
                  
                  
                  
                  $
                  
                  
                  
                  $Research
      and development
                  
                  
                  
                  
                  
                  77,000
                  
                  
                  
                  
                  
                  
                  232,000
                  
                  
                  
                  3,862,000General
      and administrative
                  
                  
                  
                  
                  
                  388,000
                  
                  
                  
                  
                  
                  
                  523,000
                  
                  
                  
                  10,174,000Other
      (income) expenseInterest
      expense
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  2,111,000Interest
      income
                  
                  
                  
                  
                  
                  (3,000
                  )
                  
                  
                  
                  
                  
                  (18,000
                  )
                  
                  
                  (362,000
                  )Net
      loss
                  
                  
                  
                  
                  $
                  (462,000
                  )
                  
                  
                  
                  
                  $
                  (737,000
                  )
                  
                  $
                  (15,785,000
                  )Basic
      and diluted loss per common share
                  
                  
                  
                  
                  
                  $
                  (0.02
                  )
                  
                  
                  
                  
                  
                  $
                  (0.04
                  )Weighed
      average number of shares outstanding -- basic and diluted
                  
                  
                  
                  
                  
                  
                  19,906,754
                  
                  
                  
                  
                  
                  
                  
                  18,197,068







See
Notes to Condensed Financial Statements.


4


HEMOBIOTECH, INC.


(a
development stage company)





CONDENSED
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY





Common
      Shares
            
            Amount
            
            Additional
      Paid-In Capital
            
            
            
            Deficit
      Accumulated During the Development Stage
            
            TotalTreasury
      StockBalance
      –
            20,642,125
            
            21,000
            
            15,838,000
            
            
            
            (15,323,000)
            
            406,000December
      31, 2008
            $
            $
            
            (130,000)
            $
            $Net
      Loss for the period
            
            
            
            
            
            
            
            
            (462,000)
            
            (462,000)Stock
      based compensation relating to shares issued to consultants , See Note
      G[2]
            28,333
            
            
            $
            20,000
            
            
            
            
            $
            20,000Stock
      based compensation relating to warrants issued to
      consultant  See Note G[2]
            
            
            
            $
            73,000
            
            
            
            
            $
            73,000Stock
      based compensation relating to shares issued to executive of the
      Company
            65,000
            
            
            $
            46,000
            
            
            
            
            $
            46,000Stock
      based compensation – board of advisors and consultants
            
            
            
            $
            23,000
            
            
            
            
            $
            23,000Stock
      based compensation – employees and directors
            
            
            
            $
            37,000
            
            
            
            
            $
            37,000Balance
      –
            20,735,458
            
            
            
            16,037,000
            
            
            
            (15,785,000)
            
            143,000March
      31, 2009(unaudited)
            $
            21,000
            
            
            (130,000)
            $
            $







See
Notes to Condensed Financial Statements.











5


HEMOBIOTECH,
INC.


(a
development stage company)





CONDENSED
STATEMENTS OF CASH FLOWS


(UNAUDITED)


October
      3, 2001(INCEPTION)THROUGH
                                              
                                              
                                              THREE
      MONTHS ENDED2009
                                              
                                              
                                              
                                              
                                              
                                              2008
                                              
                                              
                                              
                                              
                                              
                                              March
      31, 2009CASH
      FLOWS FROM OPERATING ACTIVITIES:(462,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              (737,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              (15,785,000
                                              )Net
      Loss
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Fair
      value of options, compensatory stockand
      warrants
                                              
                                              
                                              
                                              
                                              
                                              
                                              153,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              183,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              2,828,000Conversion
      charge – interest expense
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              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
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              2,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              21,000Deferred
      Rent
                                              
                                              
                                              
                                              
                                              
                                              
                                              5,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (6,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              43,000Contribution
      of salary
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              11,000Research
      and Development - Purchase of new technology
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              645,000Changes
      in:Accounts
      payable and accrued expenses
                                              
                                              
                                              
                                              
                                              
                                              
                                              (84,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (58,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              1,018,000Accrued
      interest
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              139,000Prepaid
      expenses
                                              
                                              
                                              
                                              
                                              
                                              
                                              78,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              140,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (215,000
                                              )Net
      cash used in operating activities
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (308,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (476,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (9,072,000
                                              )$CASH
      FLOWS FROM INVESTING ACTIVITIES:Sale/(Purchase)
      of Short-Term Investments
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (55,000
                                              )$Purchase
      of property and equipment
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (59,000
                                              )$Net
      cash used in investing activities
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (114,000
                                              )$CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of common stock and debt, net of
      expenses
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              265,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              4,865,000Payment
      of Notes
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (734,000
                                              )Exercise
      of warrants, net
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              5,190,000Net
      cash provided by financing activities
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              265,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              9,321,000(DECREASE)
      / INCREASE IN CASH ANDCASH
      EQUIVALENTS
                                              
                                              
                                              
                                              
                                              
                                              
                                              (308,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (211,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              135,000Cash
      and cash equivalents – beginning of period
                                              
                                              
                                              
                                              
                                              
                                              
                                              443,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              2,015,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -CASH
      AND CASH EQUIVALENTS – END OF PERIOD
                                              
                                              
                                              
                                              
                                              
                                              $
                                              135,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              1,804,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              135,000$
                                              
                                              
                                              
                                              $SUPPLEMENTARY
      CASH FLOW INFORMATION:


6





Interest
      Paid
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  $
                  112,000SUPPLEMENTARY
      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
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  1,815,000$Issuance
      of shares for acquisition of new technology
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  $
                  645,000Shares
      Returned to Treasury by Officer
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  $
                  130,000Cashless
      exercise of stock options
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  $
                  131,000Shares
      issued in settlement of liability
                  
                  $
                  46,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  46,000








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







NOTE
B - BASIS OF PRESENTATION AND SUBSTANTIAL DOUBT ON GOING CONCERN





The
accompanying condensed financial statements as of March 31, 2009 and for the
three months ended March 31, 2009 and 2008 have not been audited, but have been
prepared in conformity with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X.  The condensed balance
sheet at December 31, 2008 has been derived from audited financial
statements.  These financial statements should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 2008 as presented in our Annual Report on Form 10-K.  In
the opinion of management, this interim information includes all material
adjustments which are of a normal and recurring nature, necessary for a fair
presentation.  The results for the 2009 interim period are not
necessarily indicative of results to be expected for the entire
year.





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 $15,785,000 from inception through March 31, 2009, has not
generated any revenue, and has been dependent on funding operations through the
private sale of convertible debt and equity securities. These conditions
indicate that there is substantial doubt upon the company’s ability to continue
as a going concern. At March 31, 2009, the Company had $135,000 in cash and cash
equivalents. Management believes that current cash resources and cash received
subsequent to the balance sheet date will not be sufficient to fund operations
for the next twelve months. Management’s plans include continuing to fund
operations through one or more public or private offerings of equity securities,
although there is no assurance they will be able to do so in the future, and
monitoring and reducing discretionary expenses.


8


All
amounts have been rounded to the nearest thousand.







NOTE
C –  SUMMARY OF SIGNIFICANT  ACCOUNTING
POLICIES





(1)
RESEARCH AND DEVELOPMENT:





Research
and development costs are charged to expense as incurred. Costs include the
amortization of payments made to TTUHSC for the Sponsored Research Agreement,
spending with outside laboratories and consultants.





(2) LOSS
PER COMMON SHARE:





Basic and
diluted loss per common share is based on the net loss divided by the
weighted average number of common shares outstanding during the period. No
effect has been given to the following outstanding potential common shares such
as options, warrants and outstanding shares subject to forfeiture issued to a
financial services consultant during September 2006, as described in Note G(3)
in the diluted computation as their effect would be antidilutive:





THREE
      MONTHS ENDED
                MARCH
      312009
              
              2008Stock
      Options
              
              1,818,031
              
              2,056,990Warrants
              
              4,436,447
              
              3,873,947Common
      shares subject to forfeiture(1)
              
              779,000
              
              1,000,000Total
              
              7,033,478
              
              6,930,937




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




(3) FAIR
VALUE OF FINANCIAL INSTRUMENTS:




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




(4) USE
OF ESTIMATES:




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




(5)
RECENT ACCOUNTING PRONOUNCEMENTS:




In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles ("SFAS No. 162"). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the


9


preparation
of financial statements of nongovernmental entities that are presented in
conformity with GAAP (the "GAAP hierarchy"). SFAS No. 162 makes the GAAP
hierarchy explicitly and directly applicable to preparers of financial
statements, a step that recognizes preparers' responsibilities for selecting the
accounting principles for their financial statements, and sets the stage for
making the framework of the FASB Concept Statements fully authoritative. The
effective date for SFAS No. 162 is 60 days following the Security and
Exchange Commission's approval of the Public Company Accounting Oversight
Board's  amendments to AU 411 “The meaning of present fairly in
conformity with generally accepted accounting principles”. The adoption of SFAS
No. 162 did not have a material impact on our financial statements and
results of operations.





In
December 2007, the EITF reached a consensus on EITF No. 07-1, Accounting for
Collaborative Arrangements Related to the Development and Commercialization of
Intellectual Property, or EITF 07-1. EITF 07-1 discusses the appropriate income
statement presentation and classification for the activities and payments
between the participants in arrangements related to the development and
commercialization of intellectual property. The sufficiency of disclosure
related to these arrangements is also specified. EITF 07-1 is effective for
fiscal years beginning after December 15, 2008. As a result, EITF 07-1 is
effective for us in the first quarter of fiscal 2009. The adoption of EITF 07-1
did not have a material impact on either our financial position or results of
operations.





In
February 2008, the FASB issued Staff Position 157-2 (“FSP
157-2”).  FASB 157-2 permits delayed adoption of SFAS 157 for certain
non-financial assets and liabilities, which are not recognized at fair value on
a recurring basis, until fiscal years and interim periods beginning after
November 15, 2008. The implementation of this standard did not have an
impact on our financial position or results of operation.





In
October 2008, the FASB issued FASB Staff Position FAS 157-3, “Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active” (“FSP 157-3”). FSP 157-3 clarified the application of
FAS 157. FSP 157-3 demonstrated how the fair value of a financial
asset is determined when the market for that financial asset is inactive.
FSP 157-3 was effective upon issuance, including prior periods for which
financial statements had not been issued. The implementation of this standard
did not have an impact on our financial statements.





In
February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115.”  SFAS No. 159 permits an entity to elect fair value as the
initial and subsequent measurement attribute for many financial assets and
liabilities.  Entities electing the fair value option would be
required to recognize changes in fair value in earnings.  Entities
electing the fair value option are required to distinguish, on the face of the
statement of financial position, the fair value of assets and liabilities for
which the fair value option has been elected and similar assets and liabilities
measured using another measurement attribute.  SFAS No. 159 became
effective beginning January 1, 2008.  The Company elected not to
measure any eligible items using the fair value option in accordance with SFAS
No. 159 and therefore, SFAS No. 159 did not have an impact on the Company’s
financial position, results of operations or cash flows.


10


In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141R”).  SFAS No. 141R provides revised
guidance on how acquirers recognize and measure the consideration transferred,
identifiable assets required, liabilities assumed, noncontrolling interests, and
goodwill acquired in a business combination.  SFAS No. 141R also
expands required disclosures surrounding the nature and financial effects of
business combinations.  SFAS No. 141R is effective, on a prospective
basis, for us in the fiscal year beginning January 1, 2009.  This
statement did not have a material effect on our financial position or results of
operations, although it may have a material impact on accounting for business
combinations in the future which cannot currently be determined.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements.”  SFAS No. 160 establishes
requirements for ownership interests in subsidiaries held by parties other than
the Company (sometimes called “minority interests” be clearly identified,
presented and disclosed in the consolidated statement of financial position
within equity, but separate from the parent’s equity.  All changes in
the parent’s ownership interests are required to be accounted for consistently
as equity transactions and any noncontrolling equity investments in
deconsolidated subsidiaries must be measured initially at fair
value.  SFAS No. 160 is effective, on a prospective basis, for us in
the fiscal year beginning January 1, 2009.  However, presentation and
disclosure requirements must be retrospectively applied to comparative financial
statements.  This statement did not have a material effect on our
financial position or results of operations.







In June
2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock" (EITF 07-5).
 EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument's contingent
exercise and settlement provisions.  It also clarifies on the impact of
foreign currency denominated strike prices and market-based employee stock
option valuation instruments on the evaluation.  EITF 07-5 is effective for
fiscal years beginning after December 15, 2008. The adoption of EITF 07-5 did
not have a material effect on our financial position or results of
operations.




In April
2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1”) and
(“APB 28-1”).  FSP FAS 107-1 amends FASB Statement No. 107,
“Disclosures about Fair Value of Financial Instruments”, to require disclosures
about fair value of financial instruments in interim as well as in annual
financial statements and amends APB Opinion No. 28 “Interim Financial
Reporting”, to require those disclosures in interim financial statements. FSP
FAS 107-1 and APB 28-1 are required to be adopted no later than the periods
ending after June 15, 2009.





In
April 2009, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position (FSP) Financial Accounting Standard (FAS) 157-4 “Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”.
Based on the guidance, if an entity determines that the level of activity for an
asset or liability has significantly decreased and that a transaction is not
orderly, further analysis of transactions or quoted


11


prices is
needed, and a significant adjustment to the transaction or quoted prices may be
necessary to estimate fair value in accordance with Statement of Financial
Accounting Standards (SFAS) No. 157 “Fair Value Measurements”. This FSP is
to be applied prospectively and is effective for interim and annual periods
ending after June 15, 2009 with early adoption permitted for periods ending
after March 15, 2009. The Company will adopt this FSP for its quarter ended
June 30, 2009.  There is no expected impact on the Consolidated Financial
Statements.







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





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




In
consideration for entering into the agreement, the Company issued 678,820 shares
of common stock to TTUHSC (subject to anti-dilution
protection).  These shares issued were valued at approximately $1,000,
their estimated fair value, and charged to operations.  The Company
has agreed to reimburse TTUHSC for all intellectual property protection costs
and patent maintenance fees.  On May 20, 2004, TTUHSC agreed to waive
its anti-dilution protection in exchange for 135,765 additional shares of common
stock.  Such shares were valued at approximately $115,000, their
estimated fair value, and charged to operations. In addition, subject to
obtaining FDA approval of a blood substitute product, the Company has agreed to
fund, over a four-year period, $1.2 million to support efforts in incubating and
commercializing other TTUHSC technologies.  As of March 31, 2009, such
approval had not been obtained.  Under the agreement, the Company
reserves the right of first refusal on licensing and commercializing other
technology developed from such funding. In addition, in July 2002, the Company
entered into a Sponsored Research Agreement (“SRA”) with TTUHSC for the period
September 1, 2002 through August 31, 2006.  In December 2004, the
Company paid a fee of approximately $231,000 to fund the next phase of its
research under the SRA through December 31, 2005.





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





In
January 2007, the Company entered into a Stage IV SRA with TTUHSC for the period
beginning January 1, 2007. In connection therewith, the Company made an initial
payment of approximately $780,000. This amount will be charged to operations as
incurred based on monthly reporting to the Company by TTUHSC.  As of
March 31, 2009, approximately $163,000 is included in prepaid expenses on the
accompanying balance sheet. Additional payments may be made to TTUHSC under the
agreement based on mutually agreed upon budgets.





On May 5,
2008 the Company agreed to license certain technology from TTUHSC titled
Orthogonal Method for the Removal of Transmissible Spongiform Encephalopathy
Agents from Biological Fluids (“ORTH Technology”). This is a technology that
results in the removal and inactivation of infectious agents such as prions
(which can cause Mad Cow Disease) and viruses.  Such removal and
inactivation is critical in the purification of


12


animal
products for human use.  It can be used not only for HemoTech
production but also has the potential for generating sublicensing revenue from
pharmaceutical, biotechnology and the cosmetic industries.





The term
of the agreement extends to the full end of the term or terms for which patent
rights have not expired or, if only technology rights are licensed and no patent
rights are applicable, for a term of 15 years. The license agreement calls for a
nonrefundable license documentation fee of $10,000 and 500,000 shares of the
Company’s common stock.  The price per share of the Company’s common
stock on May 5, 2008 was $1.29 per share.  Accordingly, the Company
recorded a charge to research and development expense for $655,000. The
agreement also contains an annual renewal fee of $10,000 per year and a royalty
based on net sales of Licensed Products (as defined by the agreement) sold by
the Company that contain the patented ORTH Technology.  The royalty
percentage will be lower if Licensed Products are not protected by a valid
patent. The agreement calls for a minimum royalty beginning six months after
approval of a Licensed Product by the FDA. No royalty applies to the embedded
ORTH Technology in the sale of our HemoTech product. The Company is permitted to
sublicense the ORTH Technology and TTUHSC will receive a portion of both cash
and non cash remuneration received by the Company for a
sublicense.  Additionally, the Company will pay a portion of any
royalty received to TTUHSC.





The
Company has also agreed to issue up to 275,000 additional shares of the
Company’s common stock in the event TTUHSC purchases certain equipment used in
the HemoTech process. The equipment will be owned by TTUHSC, will be used to
further the development of HemoTech, and will be charged to research and
development expense when purchased.  As of March 31, 2009, no such
equipment has been purchased by TTUHSC.





The
agreement may be terminated by either party by mutual written agreement upon 180
days notice, or by TTUHSC based on certain provisions relating to defaults
according to the agreement.





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





13




NOTE
E - ACCOUNTS PAYABLE AND ACCRUED EXPENSES




Accounts
payable and accrued expenses consist of the following:





March
      31, 2009
                
                
                December
      31, 2008Professional
      Fees
                
                $
                168,000
                
                
                $
                265,000Liquidated
      Damages
                
                
                38,000
                
                
                
                38,000Other
                
                $
                53,000
                
                
                $
                86,000Total
                
                $
                259,000
                
                
                $
                389,000







NOTE
F - STOCKHOLDERS' EQUITY




(1)
PRIVATE PLACEMENTS:





During
December 2007 the Company circulated a Private Placement Term Sheet and Exhibits
(“the 2007 Private Placement”) for the purpose of raising additional capital.
Our Private Placement offering of units consists of one share of
HemoBioTech, Inc. common stock (“Share”) and one warrant (Warrant”) to purchase
one share of common stock (collectively, the “Unit”) may  result in up
to $6,000,000 in gross proceeds, subject to an over-allotment
option  for up to an additional $1,000,000 in gross
proceeds.  The purchase price per Unit is based on the average of the
closing price of our common stock on the OTC bulletin Board for the ten trading
days immediately preceding the date of the initial closing of the 2007 Private
Placement, discounted by 20%. Each Warrant is exercisable for the purchase of
one share of our common stock at 150% ($1.68) of the per Unit price for a period
of five years from the effective registration date of the shares underlying the
Warrants. The warrants may be redeemed in whole or in part by the Company, upon
30 day’s written notice, at price of $.01 share, provided the weighted average
closing price of the Common Stock exceeds 185% of the per-Unit purchase price
for a period of 20 consecutive trading days ending within 15 days prior to the
date on which the notice of redemption is given and the registration statement
for underlying shares is effective.





In
addition, the Company is obligated to issue warrants to its placement agent in
the amount of 30% of the total warrants issued to investors on essentially the
same terms; however, these warrants are only callable when the Company provides
a notice of redemption and a registration statement for the underlying shares is
effective. This offering closed on October 31, 2008.





On
December 31, 2007 the Company completed an initial close of the 2007 Private
Placement consisting of gross proceeds of approximately $792,000 at the per Unit
price of $1.12. As a result of this closing 707,120 shares of our common stock
was issued along with warrant agreements for the issuance of 707,120 additional
shares upon exercise of the warrants at an exercise price of $1.68. Net of
expenses, primarily to our financial advisor, the Company received net proceeds
of $686,000. In addition, 212,136 warrants were issued to our placement agent
with essentially the same terms as our investor warrants; however, these
warrants are only callable when the Company provides a notice of redemption and
a registration statement for the underlying shares is effective. The warrants
were valued at December 31, 2007 using the Black-Scholes stock
option


14


valuation
model and totaled $621,000 and $186,000 for the investors and placement agents
respectively.





For the
twelve months ended December 31, 2008, the Company raised additional funds
associated with its December 2007 Private Placement consisting of gross proceeds
of $534,000 at the per unit selling price of $1.12.  As a result,
476,784 shares of our common stock were issued along with warrant agreements for
the issuance of 476,784 additional shares upon exercise of the warrants at an
exercise price of $1.68.  Net of expenses, including $72,000 to a
significant shareholder, the Company received net proceeds of
$412,000.  In addition, 143,035 warrants were issued to our placement
agent, who is also a shareholder of the Company. The warrants were valued using
the Black-Scholes stock option valuation model and totaled $301,000 and $90,000
for the investors and placement agents respectively.




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




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











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





Based on
the allocation of the relative fair values to the components of the 2004 Private
Placement offering, the debt discount was calculated to be $855,000, which was
amortized as expense to interest expense over the term of the
notes.







The
Company agreed to file a registration statement within 60 days of final closing
of the 2004 Private Placement and to use commercially reasonable efforts to
cause the registration statement to be effective within 120 days of final
closing.  In the event the registration statement was not filed and
declared effective within the required time, the Company would incur liquidated
damages of 2% per month based on the subscription amount of each purchaser in
the Company October 2004 Private Placement. In connection therewith, during
2005, the Company incurred liquidated damages


15


aggregating
approximately $48,000. As of March 31, 2009, the Company owes $38,000 of such
damages. (See Note E).





During
February 2009 the Company engaged the advisory services of a consultant for the
purpose of assisting with short and long term strategic needs of the Company,
assisting in the development of a business plan, providing general advice and
assist in providing the capital structure of the Company and assisting with
staffing and recruiting. The consultant will assist the Company in its effort to
obtain equity investment and related financing including potential federal
funding. The consultant will also identify and help negotiate with potential
strategic and joint venture partners, identify and assist in negotiations with
potential acquisition and merger candidates and assist in addressing the
HIV/AIDS community and potential benefits of HemoTech. The agreement is for one
year and may be terminated for cause by either party on 60 days written notice.
The company has agreed to pay the consultant 100,000 shares of the Company’s
common stock and has agreed to register these shares with the next registration
statement of the Company. Additionally the Company will provide to the
consultant five year warrants which vested immediately to purchase up to 100,000
shares of the Company’s common stock at $1.50 per share and 100,000 shares of
the Company’s common stock at $2.25 per share. The Company has also agreed to
reimburse the consultant on a monthly basis for its reasonable out of pocket
expenses not to exceed $4,000 per month. The per share price of the Company’s
common stock on the date of the agreement was approximately $0.70 per
share.





(2) STOCK WARRANTS:





In
connection with the 2007 Private Placement, through the closing, the Company
issued 1,183,904 Class A warrants to investors exercisable at $1.68 per share
through the fifth anniversary of the effectiveness of a registration statement
of shares underlying the warrants. The warrants are subject to redemption, at
the Company’s sole option, after one year from the date of effectiveness of the
registration statement of common stock underlying the warrants if the common
stock price equaled or exceeded $2.07 for a period of at least 20 consecutive
trading days at a redemption price of $.01 per warrant.





In
addition, the Company issued to its placement agent warrants totaling 30% of the
total warrants issued to investors. Accordingly, the Company issued 355,171
warrants to the placement agent as of the closing date of the Private Placement,
October 31, 2008.





During
the fourth quarter 2007, the Company granted 120,000 warrants to a service
provider as compensation. These warrants became fully vested during
2008.  In connection therewith, the Company valued all 120,000 vested
warrants using the Black-Scholes option pricing model and recorded a total
compensation charge of $83,000 of which $16,000 is for the three months ended
March 31, 2008.





In May
2008, the Company granted 135,000 warrants at prices ranging from $1.60 to $2.50
to two service providers as compensation.  These warrants vest over
nine months beginning in November 2008. General and administrative expenses were
charged $21,000 and $0 for the three months ended March 31, 2009 and 2008,
respectively.





The
following assumptions were used for all compensatory warrants issued to service
providers:


16





March 31, 2009Range
      of Exercise Price
              $0.90-$2.50Maturity
              5
      YearsRisk
      Free Interest Rate
              1.67%-4.0%Volatility
              80-88%





At March
31, 2009, the Company had the following warrants outstanding:





Exercise Price
              Expiration Date
              Number of Shares
ReservedPlacement
      Agent – 2004
              $0.90
              May
      13, 2010
              2,382,372Other
              $1.00
              July
      28, 2009
              50,000Other
              $1.06
              September
      13, 2009
              10,000Other
              $1.90
              September
      28, 2011
              120,000(1)Class
      A- 2007
              $1.68
              December
      30, 2013
              1,183,904(2)Placement
      Agent – 2007
              $1.68
              December
      30, 2013
              355,171Other
              $1.50-$2.25
              March
      6, 2014
              200,000Other
              $1.60-$2.50
              May,
      2013
              135,000Total
              
              
              4,436,447








(1)
            Subject
      to vesting.(2)
            Subject
      to redemption (see Note F(1)).








(3) STOCK
OPTION/STOCK ISSUANCE PLAN:




During
2003, the Board of Directors of the Company approved a Stock Option/Stock
Issuance Plan (the "Old Plan") which provides for the granting of options or
stock to purchase up to 1,629,168 shares of common stock, under which directors,
employees and independent contractors are eligible to receive incentive and
non-statutory stock options and common shares (employees). The Company's
stockholders approved the Old Plan in August 2004. On June 9, 2006, the
Company’s stockholders approved an increase of 1,500,000 shares of common stock
from the 1,629,168 shares of common stock available to be granted under the
Plan, increasing the number of shares to 3,129,168.




Additional
information on shares subject to options is as follows:





At March
31, 2009, 630,463 options were available for grant under the Plan. The following
tables present information relating to stock options under the Plan as of March
31, 2009.


17








THREE
      MONTHS ENDEDMARCH
      31, 2009Shares
              
              Aggregate
      Intrinsic Value
              
              Weighted
      Average Exercise PriceOptions
      outstanding at beginning of period
              1,668,031
              
              -
              
              $0.88Granted
      during the period
              150,000
              
              32,790
              
              $0.49Options
      outstanding at end of period
              1,818,031
              
              377,304
              
              $0.85Options
      exercisable at end of period
              1,557,183
              
              357,163
              
              $0.82Options
      Not Vested at end of period
              260,848
              
              20,141
              
              $1.02Options
      vested or expected to vest
              1,818,031
              
              377,304
              
              $0.85








March
      31, 2009Options
      Outstanding
                
                Options  ExercisableRange
      of Exercise Price
                
                Shares
                
                Weighted
      Average Exercise Price
                
                Weighted
      Average Remaining Life in Yrs
                
                SharesWeighted
      Average Exercise Price$0.18$-0.33
                
                697,526
                
                $                     0.19
                
                5.6
                
                686,199
                
                $              0.19$
      0.51-$.94
                
                318,645
                
                $                     0.73
                
                7.4
                
                242,100
                
                $              0.80$1.00-$1.65
                
                566,860
                
                $                     1.25
                
                7.5
                
                413,778
                
                $              1.26$1.75-2.42
                
                235,000
                
                $                     2.03
                
                7.5
                
                215,106
                
                $              2.031,818,031
                
                $                     0.85
                
                6.76
                
                1,557,183
                
                $              0.82





As of
March 31, 2009, 1,557,183 options were fully vested. A summary of the status of
the Company’s nonvested options as of March 31, 2009 and changes during the
three months ended March 31, 2009 is presented below.


18








Stock
      Options
              
              Weighted
      Average Grant Date Fair ValueNonvested
      at January 1, 2009
              223,866
              
              $     1.02Options
      granted
              
              150,000
              
              $     0.41Options
      vested
              
              (113,018)
              
              $     0.59Nonvested
      at March 31, 2009
              260,848
              
              $     0.85


The
unrecognized compensation cost related to non vested employee and director
share-based compensation granted under the Plan for the three months ended March
31, 2009 and 2008 were $92,000 and $90,000 respectively. The cost expected to be
recognized over a weighted average period for the three months ended March 31,
2009 and 2008 were 1.85 and 1.79 years respectively. There have been no
material forfeitures of stock options for the three months ended March 31,
2009.





The
weighted-average fair values at date of grant for options granted during the
three months ended March 31, 2009 and 2008 were $0.41 and $0.99 respectively.
The value of the options was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions:





March
      31,2009
              
              2008Expected
      life in years
              5-10
              
              5-10Interest
      rate
              1.79%-3.02%
              
              2.51%-3.78%Volatility
              88%
              
              80%Dividend
      yield
              0%
              
              0%











NOTE
G  – COMMITMENTS AND OTHER MATTERS





(1)
LEASES:




During
February 2007 the Company moved into new office space and agreed to a sixty-six
month office lease.  The lease agreement includes rent abatement for
approximately ten months during 2007 and 2008.  Provisions of the
lease include a security deposit of approximately $5,800 and a thirty six month
letter of credit in the amount of approximately $55,000.  In addition,
if the Company cancels this lease after December, 2010, and prior to its full
sixty-six month term, the Company will be obligated to pay a cancellation charge
of approximately $46,000. The estimated minimum lease payments for the next five
years are:  In 2009 - $49,000; in 2010 - $67,000; in 2011 - $68,000;
in 2012 - $70,000 and none thereafter.








(2)
CONSULTING AGREEMENTS:




On
October 14, 2004, the Company entered into an advisory agreement with a member
of our scientific advisory board to receive technical advisory services. The
agreement can be


19


terminated
by either party on 30 days' written notice. The agreement provides for $1,500
per month and the issuance of an option under the Plan to purchase 15,000 shares
of common stock of the Company at an exercise price of $0.85 per share. In
addition, at the end of each year of service on the advisory board, the company
will grant an additional non-qualified stock option to purchase 5,000 shares of
Common Stock at an exercise price equal to the then fair market value of the
Common Stock. Such options vest 25% on the first anniversary and then monthly
thereafter over a period of thirty six months. During the three months ended
March 31, 2009 and 2008, $1,000 and $2,000 were charged to operations as stock
based compensation respectively.





On July
13, 2005, the Company entered into an advisory agreement with its Acting Vice
President and Principal Investigator of Research and Development to receive
advisory services on technical, medical and market issues related to
HemoBioTech, including its second generation blood substitute, HemoTech. The
agreement provides for non-qualified stock options to purchase 271,528 shares of
Common Stock of HemoBioTech at an exercise price per share of $0.18, subject to
vesting through July 13, 2009. In connection therewith, the Company recorded a
charge of $6,000 and $10,000 for the three months ended March 31, 2009 and 2008
respectively. As of March 31, 2009, 260,201 options had vested.  The
Company will record additional charges as and when the options vest at the then
fair value.




On
January 16, 2008, the Company granted stock options to two scientific
consultants employed by TTUSHC.  Each grant provides for 75,000
non-qualified stock options to purchase shares of the Company’s stock at an
exercise price of $1.19 which was the fair market value of the Company’s shares
on the grant date.  The options vest 25% immediately and the remaining
75% vest monthly over the next 36 months.  Accordingly, the Company
recorded a charge of $5,000 and $43,000 to stock based compensation for the
three months ended March 31, 2009 and 2008 respectively.





During
January 2009 the Company engaged the advisory services of a consultant for the
purpose of assisting with press releases or announcements related to the
Company, assist with telephone conferences with investor groups, and provide
information in the industry in which the company conducts business. The
agreement does not have a termination date and maybe terminated by either party
with 30 days written notice.  The consultant was required to sign a
confidentiality agreement and during February 2009, was paid 20,000 shares of
the Company’s unregistered common stock.  The per share price of the
Company’s common stock on the date of the agreement approximated $0.70 per
share. Accordingly, the Company recorded a charge of $14,000 to stock based
compensation for the three months ended March 31, 2009.







During
February 2009 the Company engaged the advisory services of a consultant for the
purpose of assisting with short and long term strategic needs of the Company,
assist in the development of a business plan, provide general advice and assist
in providing the capital structure of the Company, assist with staffing and
recruiting. The consultant will assist the Company in its effort to obtain
equity investment and related financing including potential federal funding. The
consultant will also identify and help negotiate with potential strategic and
joint venture partners, identify and assist in negotiations with potential
acquisition and merger candidates and assist in addressing the HIV/AIDS
community and potential benefits of HemoTech. The agreement is for one year and
may be terminated for cause by either party on 60 days written notice. The
company has


20


agreed to
pay the consultant 100,000 shares of the Company’s common stock and has agreed
to register these shares with the next registration statement of the Company.
The stock will be issued in twelve equal monthly installments of 8,333 shares
per month. The Company issued 8,333 shares in February 2009 and charged
operations $6,000 and accrued $6,000 expense for the March vesting of 8,333
shares. Accordingly the Company recorded a charge of $12,000 to stock based
compensation for the three months ended March 31, 2009. Additionally the Company
will provide to the consultant five year warrants to purchase up to 100,000
shares of the Company’s common stock at $1.50 per share and  100,000
shares of the Company’s common stock at $2.25 per share. The warrants vested
100% on the grant date and were valued using Black Scholes pricing model.
Accordingly, the company charged stock based compensation of $73,000 for the
three months ended March 31, 2009. The Company has also agreed to reimburse the
consultant on a monthly basis for its reasonable out of pocket expenses not to
exceed $4,000 per month. The per share price of the Company’s common stock on
the date of the agreement approximated $0.70 per share.





During
March, 2009 the Company agreed to add a new member to its Scientific Advisory
Board. The terms of the agreement call for at least one year of service and may
be terminated by either party at any time with 45 days notice. The advisor will
provide the company services on technical and medical issues related to the
development and use of HemoTech for prevention of HIV and company matters. Upon
signing the agreement the company granted 100,000 non qualified stock options at
an exercise price per share of $0.51. The options will vest 25% immediately and
the balance over twelve months. Stock based compensation expense for the three
months ended March 31, 2009 using the Black Scholes option pricing model was
$11,000.








(3)
FINANCIAL ADVISOR AGREEMENT:





On
September 12, 2006, the Company entered into a three year agreement with its
placement agent and financial advisor for consulting services related to
corporate finance and other financial services. The financial advisor is also a
significant shareholder in the Company. The services shall include assisting the
Company in evaluating and negotiating particular contracts or transactions, if
requested to do so by the Company and to raise for the Company its next
financing of up to $10 million with a minimum of $6 million in the next 18
months from the date of the agreement.   As compensation for such
services, the Company agreed to issue 1,500,000 shares of its common stock. The
agreement states that 500,000 shares would vest to the consultant on the one
year anniversary of the agreement.  Accordingly, on September 12,
2007, 500,000 shares vested to the financial consultant. The remaining 1,000,000
shares are subject to forfeiture in the event that the consultant fails to
achieve certain performance criteria, including assisting the Company in raising
additional capital, set forth in the agreement. The December 2007 Private
Placement closed on October 31, 2008. As of March 31, 2009, the financial
advisor had helped the Company raise approximately $1,326,000.





In August
2008, the Company had agreed to award the financial advisor approximately
221,000 of the 1,000,000 shares that were subject to forfeiture Accordingly, the
Company recorded $61,000 in charges for the full year 2008 for the cost of those
financial services. This offering closed on October 31, 2008. There are
currently no contractual amounts due to the financial advisor.


21


(4) OTHER
AGREEMENT





During
March, 2009 the Company signed a Modification, Settlement and Release Agreement
to amend the employment agreement of its Chief Financial Officer and Secretary
(the “Executive”).  The agreement calls for a lump sum payment to the
Executive of $25,000 and 65,000 shares of the Company’s common stock in exchange
for a reduction to the Executive’s salary. The per share price of the Company’s
common stock on the date of the agreement approximated $0.70 per share. The
Company charged $71,000 to operations in 2008 related to this
agreement.





NOTE
H –  SUBSEQUENT EVENT





On May 6,
2009, the Company received $200,000 from a shareholder of the Company in
exchange for 357,142 shares and warrants representing an equal number of shares.
The warrants have an exercise price of $0.84 and expire in five
years.




ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


PLAN
OF OPERATIONS




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




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




22


further
research and development with a focus on additional uses of HemoTech and
expanded patent protection.




At March
31, 2009, approximately $163,000 remained as available funds at TTUHSC and are
included in the company’s prepaid assets.




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




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.







We
believe our cash available of $135,000 at March 31, 2009 will not be sufficient
to fund our immediate current operations beyond four months. On May 6, 2009, the
Company sold 357,142 shares of the Company’s common stock and generated net
proceeds of $200,000. On May 15, 2009, the Company had approximately $240,000 in
cash and cash equivalents. This cash position will not be sufficient to carry on
current operations beyond four months. The Company recently significantly
reduced its actual and projected expenses and plans to aggressively manage cash
costs. While the Company has been able to obtain such funding in the past, there
can be no assurance that they will be able to do so in the future. Management's
plans include continuing to finance operations through one or more private or
public offerings of equity securities and monitoring and reducing discretionary
expenditures. In order to complete our planned operations which includes
implementing FDA recommendations necessary for submitting our IND to the FDA,
upgrading the production facility, preparation for clinical trials, and the
production of HemoTech; collectively at a cost ranging from $5,000,000 to
$7,000,000, we will need to raise at least $7 million in the near term, 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 exercise of our
Warrants, or revenue, we will have to curtail our planned
operations.




The
financial statements have been prepared assuming that the Company will continue
as a going concern which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company has incurred
cumulative losses of $15,785,000 from inception through March 31, 2009, has not
generated any revenue, and has been dependent on funding operations through the
private sale of convertible debt and equity securities. These conditions
indicate that there is substantial doubt upon the company’s ability to continue
as a going concern. Management’s plans include continuing to fund operations
through one or more public or private offerings of equity




23


securities,
although there is no assurance they will be able to do so in the future, and
monitoring and reducing discretionary expenses.









RECENT
DEVELOPMENTS




During
February 2009 the Company announced that R.E. “Corky” Dragoo, Jr. has joined its
Board of Directors. Mr. Dragoo is Executive Assistant to the Chancellor of Texas
Tech University and is Director of Policy for Texas Tech University. Mr. Dragoo
was formerly Ernst and Young National Director for the energy industry and was a
Senior Partner of Ernst and Young’s Center for Business Innovation located in
Cambridge, Massachusetts. Mr. Dragoo received 15,000 stock options upon joining
our board and will receive compensation of $15,000 per year plus 7,000 options
per quarter. All stock options vest immediately. Stock based compensation
expense for the three months ended March 31, 2009 using the Black Scholes option
pricing model was $11,000.




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




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




On May 6,
2009, the Company received $200,000 from a significant shareholder of the
Company in exchange for 357,142 shares and warrants representing an equal number
of shares. The warrants have an exercise price of $0.84 and expire in five
years.









RESEARCH
AND DEVELOPMENT




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




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




·
            PRODUCTION
      OF HEMOTECH. In order to produce HemoTech for Phase I U.S. clinical
      trials, we must complete certain upgrades of the current
      HemoTech




24


·
            production
      facilities located at TTUHSC. A portion of these upgrades have been
      completed during 2006 and through 2007 and were based on recommendations
      from the FDA.









·
            PREPARATION
      AND SUBMISSION OF U.S. IND APPLICATION. We started preparing material for
      our U.S. IND application on December 13, 2004, when we entered into our
      Stage II Sponsored Research Agreement with TTUHSC. We are actively
      planning and implementing the FDA recommendations including upgrading the
      production facility, preparing for clinical trials and the production of
      HemoTech, collectively at a cost estimated to range from $5,000,000 to
      $8,000,000, which are necessary for submission of our U.S. IND application
      and production of the product, although there can be no assurance that we
      will be able to meet a specified timetable or budgeted amount. We
      currently do not have sufficient funds available to pay this
      amount.  We will need to raise at least $7,000,000 in the near
      term in order to complete the above mentioned
  activities.




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




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




·
            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




25


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




26


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.




27


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.




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









RESULTS
OF OPERATIONS




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




Total
expenses, and thus our losses, totaled $15,785,000 from October 3, 2001
(inception) through March 31, 2009.









FOR
THE THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 2008




Total
expenses, and thus our losses, for the three months ended March 31, 2009, were
$462,000 compared with $737,000 for the same period a year ago resulting from
significantly lower research and development and lower general and
administrative costs.




Research
and Development expenses were $77,000 for the three months ended March 31, 2009
decreasing $155,000 from the $232,000 in the same period in 2008 resulting from
significantly lower spending at TTUHSC and lower outside laboratory and service
provider costs.




General
and Administrative costs were $388,000 for the three months ended March 31,
2009, a decrease of $135,000 from the prior year resulting from lower overall
compensation expenses, legal fees and non cash consulting services related to a
financial services agreement.









Liquidity
and Capital Resources









During
the three months ended March 31, 2009, net cash used in operating activities of
$308,000 compared to $476,000 in the same period during 2008 resulting from
lower current operating expenses more than offsetting higher cash spending from
the accounts payable and accrued expenses.




28


During
2008 the Company closed on a private placement offering that was initiated
during December, 2007 (the “2007 Private Placement”). The 2007 Private Placement
closed on October 31, 2008 and the Company received approximately $1,326,000
from the 2007 private placement. The Company received net proceeds from
investors of $265,000 during the three months ended March 31, 2008.




On May 6,
2009, the Company received $200,000 from a shareholder of the Company in
exchange for 357,142 shares and warrants representing an equal number of shares.
The warrants have an exercise price of $0.84 and expire in five
years.




On May
15, 2009, the Company had approximately $240,000 in cash and cash equivalents.
This cash position will not be sufficient to carry on current operations beyond
four months.




The
Company recently significantly reduced its actual and projected expenses and
plans to aggressively manage cash costs. While the Company has been able to
obtain such funding in the past, there can be no assurance that they will be
able to do so in the future. Management's plans include continuing to finance
operations through one or more private or public offerings of equity securities
and monitoring and reducing discretionary expenditures. In order to complete our
planned operations which includes implementing FDA recommendations necessary for
submitting our IND to the FDA, upgrading the production facility, preparation
for clinical trials, and the production of HemoTech; collectively at a cost
ranging from $5,000,000 to $8,000,000, we will need to raise at least $7 million
in the near term, 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 exercise of our Warrants, or revenue, we will have to curtail our
planned operations.




The
financial statements have been prepared assuming that the Company will continue
as a going concern which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company has incurred
cumulative losses of $15,785,000 from inception through March 31, 2009, has not
generated any revenue, and has been dependent on funding operations through the
private sale of convertible debt and equity securities. These conditions
indicate that the Company may not be able to continue as a going concern.
Management’s plans include continuing to fund operations through one or more
public or private offerings of equity securities, although there is no assurance
they will be able to do so in the future, and monitoring and reducing
discretionary expenses.









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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


29


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





As of
March 31, 2009, we had cash and cash equivalents of $135,000. Declines of
interest rates over time will, however, reduce our interest income.





ITEM 4. 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
quarterly report (the "Evaluation Date") have concluded that as of the
Evaluation Date, our Disclosure Controls were not effective to provide
reasonable assurance that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified by the SEC,
and that material information relating to our company and any consolidated
subsidiaries is made known to management, including the chief executive officer
and chief financial officer, particularly during the period when our periodic
reports are being prepared to allow timely decisions regarding required
disclosure.





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





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  March 31, 2009 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company.  As defined by the Public Company
Accounting Oversight Board Auditing Standard No. 5, a material weakness is a
deficiency or a combination of deficiencies, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected. A clear and concise segregation of
duties is important to maximize checks and balances so that no single individual
has control over two or more phases of a transaction or operation. A strong
segregation of duty also is critical to reduce effectively the risk of mistakes
and inappropriate actions preventing fraud and discourages
collusion.


30


It can be
difficult for small businesses to always have a clear separation of duties
because there simply are not enough personnel to cover each and every process
and procedure. Ultimately, checks and balances need to be in place as a
supportive measure to the business operations, but also as a fraud prevention
measure as well. Because we have limited financial personnel, and limited
resources, compliance with segregation of duties and proper oversight of control
requirements is extremely difficult.





We are a
non-accelerated filer and are required to comply with the internal control
reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act
for fiscal years ending December 31, 2009. Although we are working to comply
with these requirements, we have limited financial personnel, making compliance
with Section 404 – especially with segregation of duty control requirements –
very difficult and cost ineffective, if not impossible.





31


PART
II -- OTHER INFORMATION




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





ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.





During
the three months ended March 31, 2009, the Company sold 120,000 shares of
unregistered equity securities to two service providers.








ITEM
6. EXHIBITS





Exhibit No.
            Description31.1
            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-Q 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.







32




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:
      May 20, 2009
            By:
            /s/
      ARTHUR P. BOLLON, PH.D.Arthur
      P. Bollon, Ph.D.Chairman
      of the Board of Directors, President and Chief Executive
      OfficerDated:
      May 20, 2009
            By:
            /s/
      MARK J. ROSENBLUMMark
      J. RosenblumChief
      Financial Officer and Secretary





33