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 September 30, 2008
   ̈ 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 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
November 6, 2008, the registrant had outstanding 20,120,791 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)
                
                4Condensed
      Balance Sheets
                
                4Condensed
      Statements of Operations
                
                5Condensed
      Statements of Changes In Stockholders’ Equity
                
                6Condensed
      Statements of Cash Flows
                
                7Notes
      to Condensed Financial Statements
                
                8Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                
                16Item
      4T. Controls and Procedures
                
                23PART
      II – OTHER INFORMATION
                
                24Item
      2. Unregistered Sale of Equity Securities and Use of
    Proceeds
                
                24Item
      6. Exhibits
                
                24SIGNATURES
                
                25
  2
  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 March 28, 2008, under the caption "Risk Factors,"
all of which you should review carefully. Please consider our forward-looking
statements in light of those risks as you read this report.
 
  3
  PART
I -- FINANCIAL INFORMATION
  ITEM
1. FINANCIAL STATEMENTS
  HEMOBIOTECH,
INC.
  (a
development stage company)
  CONDENSED
BALANCE SHEETS
  
 September
      30
              
              
              December
      31,2008
                (unaudited)
              
              
              2007
                (Derived
      from audited financial statements)ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              733,000
              
              
              $
              2,015,000Prepaid
      expenses
              
              
              238,000
              
              
              
              521,000Total
      current assets
              
              $
              971,000
              
              
              $
              2,536,000Equipment,
      net
              
              
              43,000
              
              
              
              50,000Restricted
      cash
              
              
              55,000
              
              
              
              55,000Total
      Assets
              
              $
              1,069,000
              
              
              $
              2,641,000LIABILITIESCurrent
      liabilitiesAccounts
      payable and accrued expenses
              
              $
              288,000
              
              
              $
              254,000Total
      current liabilities
              
              $
              288,000
              
              
              $
              254,000Deferred
      Rent
              
              $
              34,000
              
              
              $
              43,000Total
      Liabilities
              
              $
              322,000
              
              
              $
              297,000STOCKHOLDERS’
      EQUITY
                Common
      stock ----- $.001 par value 55,000,000 sharesauthorized;
      20,120,791 as of September 30, 2008 and 19,144,007 at December 31, 2007
      (includes 779,000 shares subject to forfeiture) shares issued and
      outstanding
              
              $
              20,000
              
              
              $
              19,000Additional
      paid-in capital
              
              
              15,635,000
              
              
              
              14,186,000Deficit
      accumulated during the development stage
              
              
              (14,908,000
              )
              
              
              (11,861,000
              )Total
      Equity
              
              $
              747,000
              
              
              $
              2,344,000$
              1,069,000
              
              
              $
              2,641,000
 
  See
Notes to Condensed Financial Statements.
 
    4
  HEMOBIOTECH,
INC.
 (a
development stage company)
  CONDENSED
STATEMENTS OF OPERATIONS
  (UNAUDITED)
 
 THREE
      MONTHS ENDED
              
              
              NINE
      MONTHS ENDED
              
              
              OCTOBER
      3, 2001(INCEPTION)SEPTEMBER
      30
              
              
              SEPTEMBER
      30
              
              
              THROUGH
      SEPTEMBER 302008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008Revenue
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Operating
      expense
              
              $
              
              
              
              $
              
              
              
              $
              
              
              
              $
              
              
              
              $Research
      and development
              
              
              276,000
              
              
              
              268,000
              
              
              
              1,606,000
              
              
              
              746,000
              
              
              
              3,851,000General
      and administrative
              
              
              365,000
              
              
              
              688,000
              
              
              
              1,472,000
              
              
              
              1,987,000
              
              
              
              9,301,000Other
      (income) expenseInterest
      expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,000
              
              
              
              2,111,000Interest
      income
              
              
              (5,000
              )
              
              
              (28,000
              )
              
              
              (31,000
              )
              
              
              (96,000
              )
              
              
              (355,000
              )Net
      loss
              
              $
              (636,000
              )
              
              $
              (928,000
              )
              
              $
              (3,047,000
              )
              
              $
              (2,639,000
              )
              
              $
              (14,908,000
              )Basic
      and diluted loss per common share
              
              $
              (0.03
              )
              
              $
              (0.05
              )
              
              $
              (0.16
              )
              
              $
              (0.16
              )Weighed
      average number of shares outstanding -- basic and diluted
              
              
              19,341,791
              
              
              
              17,040,148
              
              
              
              18,716,725
              
              
              
              16,969,610
 
  See
Notes to Condensed Financial Statements.
 
   
 
  5
  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
              
              
              TotalBalance
      –
                December
      31, 2007
              
              
              19,144,007
              
              
              $
              19,000
              
              
              $
              14,186,000
              
              
              $
              (11,861,000
              )
              
              $
              2,344,000Net
      Loss for the period
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,047,000
              )
              
              
              (3,047,000
              )Stock
      based compensation – board of advisors and consultants
              
              
              
              
              
              
              
              
              
              
              120,000
              
              
              
              
              
              
              
              120,000Stock
      based compensation – employees and directors
              
              
              
              
              
              
              
              
              
              
              212,000
              
              
              
              
              
              
              
              212,000Stock
      based compensation relating to shares issued to financial advisor
      (September 12, 2006) See Note G[3]
              
              
              
              
              
              
              
              
              
              
              61,000
              
              
              
              
              
              
              
              61,000Issuance
      of shares and warrants in Private Placement net of expenses of
      approximately $122,000 (approximately $72,000 to a shareholder of the
      Company)
              
              
              476,784
              
              
              
              
              
              
              
              412,000
              
              
              
              
              
              
              
              412,000Shares
      issued to Texas Tech University at a market price of $1.29 per
      share.
                (May
      1, 2008)
              
              
              500,000
              
              
              
              1,000
              
              
              
              644,000
              
              
              
              
              
              
              
              645,000Balance
      –
                September
      30, 2008
                (unaudited)
              
              
              20,120,791
              
              
              $
              20,000
              
              
              $
              15,635,000
              
              
              $
              (14,908,000
              )
              
              $
              747,000
 
  See
Notes to Condensed Financial Statements.
 
 
   
 
  6
  HEMOBIOTECH,
INC.
  (a
development stage company)
  CONDENSED
STATEMENTS OF CASH FLOWS
   (UNAUDITED)
 
 NINE
      MONTHS ENDED
                SEPTEMBER
      30
              
              
              OCTOBER
      31, 2001
                (INCEPTION)
                THROUGH2008
              
              
              2007
              
              
              SEPTEMBER
      30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Loss
              
              $
              (3,047,000
              )
              
              $
              (2,639,000
              )
              
              $
              (14,908,000
              )Adjustments
      to reconcile net loss to net cash used in
                operating
      activities:Fair
      value of options, compensatory stock
                and
      warrants
              
              
              393,000
              
              
              
              1,002,000
              
              
              
              2,602,000Conversion
      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
              
              
              7,000
              
              
              
              5,000
              
              
              
              17,000Deferred
      Rent
              
              
              (9,000
              )
              
              
              29,000
              
              
              
              34,000Contribution
      of salary
              
              
              -
              
              
              
              
              
              
              
              11,000Research
      and Development - Purchase of new technology
              
              
              645,000
              
              
              
              -
              
              
              
              645,000Changes
      in:Accounts
      payable and accrued expenses
              
              
              34,000
              
              
              
              (36,000
              )
              
              
              1,000,000Accrued
      interest
              
              
              -
              
              
              
              -
              
              
              
              139,000Prepaid
      expenses
              
              
              283,000
              
              
              
              (544,000
              )
              
              
              (237,000
              )Net
      cash used in operating activities
              
              $
              (1,694,000
              )
              
              $
              (2,183,000
              )
              
              $
              (8,474,000
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Sale/(Purchase)
      of Short-Term Investments
              
              $
              -
              
              
              $
              945,000
              
              
              $
              (55,000
              )Purchase
      of property and equipment
              
              
              -
              
              
              
              (23,000
              )
              
              
              (59,000
              )Net
      cash provided by (used in) investing activities
              
              $
              -
              
              
              $
              922,000
              
              
              $
              (114,000
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of common stock and debt, net of
      expenses
              
              $
              412,000
              
              
              
              -
              
              
              $
              4,865,000Payment
      of Notes
              
              
              -
              
              
              
              -
              
              
              
              (734,000
              )Exercise
      of warrants, net
              
              
              -
              
              
              
              -
              
              
              
              5,190,000Net
      cash provided by financing activities
              
              $
              412,000
              
              
              
              -
              
              
              $
              9,321,000(DECREASE)
      / INCREASE IN CASH AND
                CASH
      EQUIVALENTS
              
              $
              (1,282,000
              )
              
              $
              (1,261,000
              )
              
              $
              733,000Cash
      and cash equivalents – beginning of period
              
              
              2,015,000
              
              
              
              3,193,000
              
              
              
              -CASH
      AND CASH EQUIVALENTS – END OF PERIOD
              
              $
              733,000
              
              
              $
              1,932,000
              
              
              $
              733,000SUPPLEMENTARY
      CASH FLOW INFORMATION:Interest
      Paid
              
              $
              -
              
              
              $
              2,000
              
              
              $
              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 payable
                and
      related interest
              
              
              -
              
              
              
              -
              
              
              $
              280,000Conversion
      of carrying value of convertible notes
                payable
      and accrued interest of $18,000 (2006) and $97,000 (2005) into common
      stock
              
              
              -
              
              
              
              -
              
              
              $
              1,815,000Issuance
      of shares for acquisition of new technology
              
              $
              645,000
              
              
              
              
              
              
              $
              645,000Fixed
      Assets Purchased- not yet paid
              
              
              -
              
              
              $
              22,000
              
              
              $
              -
  See
Notes to Condensed Financial Statements.
  7
  NOTES
TO CONDENSED FINANCIAL STATEMENTS
  (UNAUDITED)
  NOTE
A - THE COMPANY
 
 We were
founded in 2001 as “HemoBioTech, Inc.,” a Texas corporation.  In 2003,
we incorporated a sister corporation named “HemoBioTech, Inc.,” in the state of
Delaware.  On December 1, 2003, HemoBioTech, Inc. (Texas) was merged
with and into HemoBioTech, Inc., (Delaware), with HemoBioTech, Inc. (Delaware)
as the surviving entity.  This entity is referred to herein as the
“Company”.
 
 The
accompanying financial statements include the predecessor operations of the
Texas corporation from its inception on October 3, 2001. The historical basis of
accounting was carried over in the merger, including the deficit accumulated in
the development stage. The Company is researching and developing human blood
substitute patented technology licensed exclusively from Texas Tech University
Health Services Center ("TTUHSC") (See Note D). The Company is in the
development stage and its efforts have been principally devoted to capital
raising, organizational infrastructure development and research and
development.
  NOTE
B - BASIS OF PRESENTATION
 
 The
accompanying condensed financial statements as of September 30, 2008 and for the
nine months ended September 30, 2008 and 2007 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 as
of December 31, 2007 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, 2007 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 2008 interim period are not necessarily indicative of results to be expected
for the entire year.
 
 The
financial statementshave been preparedassuming 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
$14,908,000 from inception through September 30, 2008, 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. At September 30, 2008,
the Company had $733,000 in cash and cash equivalents. As discussed in Note F,
during the period January 1, 2008 through September 30, 2008, the Company
received net proceeds of $412,000 through the Private Placement of equity
securities. The accompanying financial statements do not include any adjustment
that might be necessary if sufficient additional funding is not received so that
the Company can continue its operations.  While the Company has been
able to obtain such funding in the past, there can be no assurance that they
will be able to do so in the future. 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. See also
Footnote G(3).
  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, and purchase of equipment
related to our research and development efforts and the purchase of certain
technology from TTUHSC titled Orthogonal Method for the Removal of Transmissible
Spongiform Encephalopathy Agents from Biological Fluids (“ORTH
Technology”) during May, 2008.
 
 (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:
 
 
 8
 
 
 
 
 NINE
      MONTHS ENDED
                SEPTEMBER
      302008
              
              2007Stock
      Options
              2,312,990
              
              1,854,275Warrants
              4,236,447
              
              2,442,372Common
      shares subject to forfeiture(1)
              779,000
              
              1,000,000Total
              7,328,437
              
              5,296,647
 
 (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 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 related amendments to remove the
GAAP hierarchy from auditing standards, where it has resided for some time. We
do not expect the adoption of SFAS No. 162 to 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. We do not expect the
adoption of EITF 07-1 to 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.  As permitted by FSP 157-2, the Company has elected
to delay the adoption of SFAS 157 for qualifying non-financial assets and
liabilities, such as fixed assets and patents.  The Company is in the
process of evaluating the impact, if any, that the application of SFAS 157-2 to
its non-financial assets will have on the Company’s consolidated results of
operations or financial position.
 
 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 consolidated 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.
 
 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 will have no material effect on our financial position or results of
operations.
  9
 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 will have no material effect on our
financial position or results of operations.
 
 We
adopted the provisions of Financial Accounting Standards Board interpretation
No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation
of FASB Statement No. 109 (“SFAS 109”) on January 1, 2007.  As a
result of the implementation of FIN 48, we recognized no adjustment for
uncertain tax provisions.  At the adoption date of January 1, 2007, we
had a deferred tax asset which was fully reserved by a valuation allowance to
reduce the deferred tax asset to the amount that more likely than not to be
realized.
 
 We
recognize interest and penalties related to uncertain tax positions in general
and administrative expense.  As of December 31, 2007, we have not
recorded any provisions for accrued interest and penalties related to uncertain
tax positions.
 
 The tax
years 2003 through 2007 remain open to examination by the major tax
jurisdictions to which we are subject.
 
 NOTE D - AGREEMENTS WITH TEXAS TECH UNIVERSITY HEALTH SCIENCES
CENTER ("TTUHSC")
 
 On
January 22, 2002, the Company entered into an exclusive license agreement with
TTUHSC with respect to receiving certain patented rights.  The Company
is committed to the exploitation of such patented rights.
  In
consideration for entering into the agreement, the Company issued 678,820 shares
of common stock to TTUHSC (subject to anti-dilution
protection).  These shares issued were valued at approximately $1,000,
their estimated fair value, and charged to operations.  The Company
has agreed to reimburse TTUHSC for all intellectual property protection costs
and patent maintenance fees.  On May 20, 2004, TTUHSC agreed to waive
its anti-dilution protection in exchange for 135,765 additional shares of common
stock.  Such shares were valued at approximately $115,000, their
estimated fair value, and charged to operations. In addition, subject to
obtaining FDA approval of a blood substitute product, the Company has agreed to
fund, over a four-year period, $1.2 million to support efforts in incubating and
commercializing other TTUHSC technologies.  As of September 30, 2008,
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
September 30, 2008, approximately $122,000 is included in prepaid expenses on
the accompanying balance sheet. Additional payments may be made to TTUHSC under
the agreement based on mutually agreed upon budgets.
 
 On May 5,
2008 the Company agreed to license certain technology from TTUHSC titled
Orthogonal Method for the Removal of Transmissible Spongiform Encephalopathy
Agents from Biological Fluids (“ORTH Technology”). This is a technology that
results in the removal and inactivation of infectious agents such as prions
(which can cause Mad Cow Disease) and viruses.  Such removal and
inactivation is critical in the purification of animal products for human
use.  It can be used not only for HemoTech production but also has the
potential for generating sublicensing revenue from pharmaceutical, biotechnology
and the cosmetic industries. The term of the agreement extends to the full end
of the term or terms for which patent rights have not expired or, if only
technology rights are licensed and no patent rights are applicable, for a term
of 15 years. The license agreement calls for a nonrefundable license
documentation fee of $10,000 and 500,000 shares of the Company’s common
stock.  The price per share of the Company’s common stock on May 5,
2008 was $1.29 per share.  Accordingly, the Company recorded a charge
to research and development expense for $655,000. The agreement also contains an
annual renewal fee of $10,000 per year and a royalty based on net sales of
Licensed Products (as defined by the agreement) sold by the Company that contain
the patented ORTH Technology.  The royalty percentage will be lower if
Licensed Products are not protected by a valid patent. The agreement calls for a
minimum royalty beginning six months after approval of a Licensed Product by the
FDA. No royalty applies to the embedded ORTH Technology in the sale of our
HemoTech product. The Company is permitted to sublicense the ORTH Technology and
TTUHSC will receive a portion of both cash and non cash remuneration received by
the Company for a sublicense.  Additionally, the Company will pay a
portion of any royalty received to TTUHSC.
  10
 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 September 30, 2008, 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.
 
 NOTE
E - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  Accounts
payable and accrued expenses consist of the following:
  
 September
      30, 2008
              
              December
      31, 2007Professional
      fees
              
              $198,000
              
              $                                188,000Liquidated
      damages
              
              38,000
              
              38,000Other
              
              52,000
              
              28,000Total
              
              $                                288,000
              
              $                                254,000
 
  NOTE
F - STOCKHOLDERS' EQUITY
  (1)
PRIVATE PLACEMENT:
 
 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 Company is
required to file a registration statement to register the Shares and the shares
of our common stock underlying the Warrants under a registration statement
within 45 business days of the closing of the offering.  The Company
will respond to all Commission comments within 30 business days of receipt of
such comments.  We will cause the registration statement to become
effective within 10 business days after receipt of a “no review” notice from the
Commission. If the registration statement is not filed as indicated above, or
declared effective within 90 business days following the filing, we will pay
investors within 30 calendar days of the end of each month we are in violation
of the forgoing liquidated damages of 2% of the dollar amount invested
(pro-rated for partial months) for a maximum of 8 months commencing on the
scheduled filing deadline.  The payments can be made in cash or shares
of our common stock at our option. The Company has amended the registration
rights agreement to reflect the liquidated damage timeframes to begin at the
final closing date of the offering. The Company is in the process of obtaining
waivers from the initial close investors to extend these above timeframes
related to the liquidated damage penalty to timeframes beginning at the final
closing date of the offering. The warrants were valued at December 31, 2007
using the Black-Scholes stock option valuation model and totaled $621,000 and
$186,000 for the investors and placement agents respectively.
  11
 For the
nine months ended September 30, 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 liquidating damages aggregating approximately
$48,000. As of September 30, 2008, the Company owes $38,000 of such damages.
(See Note E).
 
 (2) STOCK
WARRANTS:
 
 In
connection with the 2007 Private Placement, through September 30, 2008 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 through September 30, 2008.
 
 During
the fourth quarter 2007, the Company granted 120,000 warrants to a service
provider as compensation.  The warrants vest over a nine month
period.  In connection therewith, the Company valued 90,000 vested
warrants using the Black-Scholes option pricing model.
 
 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.  Accordingly, $8,000 was
charged to operations in June 30, 2008.
 
 12
  The
following assumptions were used for all compensatory warrants issued to service
providers:
 
 Range
      of Exercise Prices
              $1.00
      - $2.50Maturity
              5
      YearsRisk
      Free Interest Rate
              3.22%
      - 4.0%Volatility
              80%
 
 At
September 30, 2008, 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
              October
      12, 2012
              120,000(1)Class
      A – 2007
              $1.68
              December
      31, 2012
              707,120(2)Placement
      Agent – 2007
              $1.68
              December
      31, 2012
              212,136Placement
      Agent – March, 2008
              $1.68
              March
      11, 2013
              90,535Class
      A – 2007
              $1.68
              March
      11, 2013
              301,784(2)Class
      A – 2007
              $1.68
              June
      6, 2013
              175,000(2)Placement
      Agent – June, 2008
              $1.68
              June
      6, 2013
              52,500Other
              $2.00
      - $2.50
              Various
      or Range
              135,000Total
              
              
              4,236,447
 
 (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
September 30, 2008, 816,178 options were available for grant under the Plan. The
following tables present information relating to stock options under the Plan as
of September 30, 2008.
   13
 
 NINE
      MONTHS ENDED
                SEPTEMBER
      30, 2008Shares
              
              Aggregate
      Intrinsic Value
              
              Weighted
      Average Exercise PriceOptions
      outstanding at beginning of period
              
              1,886,990
              
              -
              
              $0.58Granted
              
              426,000
              
              -
              
              $1.21Options
      outstanding at end of period
              
              2,312,990
              
              $1,099,591
              
              $0.69Options
      exercisable at end of period
              
              2,047,159
              
              $1,074,642
              
              $0.63Options
      not vested at end of period
              
              265,831
              
              24,949
              
              $1.21Options
      vested or expected to vest
              
              2,312,990
              
              $1,099,591
              
              $0.69
 
 
 SEPTEMBER
      30, 2008OPTIONS
      OUTSTANDING
              
              OPTIONS
      EXERCISABLERange
      of Exercise Price
              
              Shares
              
              Weighted
      Average Exercise Price
              
              Weighted
      Average Remaining Life in  Years
              
              Shares
              
              Weighted
      Average Exercise Price$0.18
      -  $0.20
              
              1,325,055
              
              $0.19
              
              3.0
              
              1,296,760
              
              $0.19$0.85
      – $0.94
              
              178,360
              
              $0.85
              
              6.1
              
              166,716
              
              $0.85$1.00
      – $1.65
              
              561,860
              
              $1.25
              
              8.0
              
              376,455
              
              $1.26$1.75
      - $2.42
              
              247,715
              
              $2.02
              
              8.1
              
              207,228
              
              $2.032,312,990
              
              $0.69
              
              5.0
              
              2,047,159
              
              $0.63
 
 As of
September 30, 2008, 2,047,159 options were fully vested. A summary of the status
of the Company’s nonvested options as of September 30, 2008 and changes during
the nine months ended September 30, 2008, is presented below.
 
 Stock
      Options
              Weighted
      Average
                Exercise
      PriceNonvested
      at January 1, 2008
              160,684
              $                     1.08Options
      granted
              426,000
              $                     1.21Options
      vested
              (320,853)
              $                     1.14Nonvested
      at September 30, 2008
              265,831
              $                     1.21
  As of
September 30, 2008, there was $142,000 of total unrecognized compensation cost
related to nonvested employees and directors share-based compensation
arrangements granted under the Plan. That cost is expected to be recognized over
a weighted-average period of 2.27 years.
  14
   The
weighted-average fair values at date of grant for options granted during the
nine-month period ended September 30, 2008 and 2007 were $0.94 and $1.57
respectively. The value of the options was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions:
  
 2008Expected
      life in years
              5-10Interest
      rate
              2.51%
      – 4.03%Volatility
              80%-88%Dividend
      yield
              0%
 
 On October
31, 2008, the Company’s chief executive officer exercised
his options to acquire 651,668 shares of the Company's common stock at an
exercise price of $0.20 per share or $130,334. In lieu of  cash payment,
the chief executive officer returned 130,334 shares of common stock valued at
$130,334 to the Company for the exercise price of the options. No compensation
expense was recorded as a result of this cashless transaction.
 
 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 the forty-second month, and prior to its
full sixty-six month term, the Company will be obligated to pay a cancellation
charge of approximately $46,000. The estimated minimum lease payments for the
next five years are:  In 2008 - $16,000; in 2009 - $66,000; 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 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 nine months ended September 30, 2008 and 2007, $20,000 and $23,000
were charged to operations 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 $59,000 and $37,000 for the years ended December 31, 2007 and 2006
respectively. As of September 30, 2008, 243,233 options had vested.
Additionally, the Company recorded a charge to expenses for the nine months
ended September 30, 2008 and 2007 of $27,000 and $48,000 respectively. 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 $60,000 during the nine months ended September 30,
2008.
 
 (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 were subject to partial 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. As of October 31, 2008,
the financial advisor had helped the Company raise approximately $1,326,000. The
December 2007 private placement closed on October 31, 2008.  As of
October 31, 2008, the Company has agreed to award the financial advisor
approximately 221,000 of the 1,000,000 shares that were subject to forfeiture.
In addition, the agreement provides for a fee, paid in shares of the Company’s
stock, if the financial advisor acts as a finder or financial consultant in
various business transactions in which the Company may be involved such as
mergers, acquisitions or joint ventures during the term of the agreement.
Accordingly, the Company has recorded $61,000 in charges for the nine months
ended September 30, 2008 for the estimated cost of those financial services and
$1,215,000 has been charged to operations since the inception of the agreement.
The Company will record an additional expense over the service period related to
this stock issuance as and when the performance criteria are met at the then
market price of the stock.
 
 15
  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 Financial Statements).
Additional payments may be made to TTUHSC under the agreement based on mutually
agreed upon budgets. The SRA IV activities include maintaining the animal
facility which houses a controlled herd of Hereford cows needed for the
production of HemoTech and assistance in the implementation of FDA
recommendations received at a Pre-IND meeting with the FDA in April
2006.  The SRA IV activities also include the manufacture of HemoTech.
The product will be made at the production facility at TTUHSC and will be used
for pre-clinical and clinical studies upon acceptance of the IND.  The
agreement will also involve further research and development with a focus on
additional uses of HemoTech and expanded patent protection.
  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.  This strategy may be in
place prior to clinical trials and commercialization in the U.S.
  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 available cash and cash generated through the sale of our Private
Placement will be sufficient to complete our immediate planned operations. 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.
  16
   RECENT
DEVELOPMENTS
 
 (1) NEW
TECHNOLOGY:
 
 On May 5,
2008 the Company agreed to license certain technology from TTUHSC titled
Orthogonal Method for the Removal of Transmissible Spongiform Encephalopathy
Agents from Biological Fluids (“ORTH Technology”). This is a technology that
results in the removal and inactivation of infectious agents such as prions
(which can cause Mad Cow Disease) and viruses.  Such removal and
inactivation is critical in the purification of animal products for human
use.  It can be used not only for HemoTech production but also has the
potential for generating sublicensing revenue from pharmaceutical, biotechnology
and the cosmetic industries. The term of the agreement extends to the full end
of the term or terms for which patent rights have not expired or, if only
technology rights are licensed and no patent rights are applicable, for a term
of 15 years. The license agreement calls for a nonrefundable license
documentation fee of $10,000 and 500,000 shares of the Company’s common
stock.  The price per share of the Company’s common stock on May 5,
2008 was $1.29 per share.  Accordingly, the Company recorded a charge
to research and development expense for $655,000. The agreement also contains an
annual renewal fee of $10,000 per year and a royalty based on net sales of
Licensed Products (as defined by the agreement) sold by the Company that contain
the patented ORTH Technology.  The royalty percentage will be lower if
Licensed Products are not protected by a valid patent. The agreement calls for a
minimum royalty beginning six months after approval of a Licensed Product by the
FDA. No royalty applies to the embedded ORTH Technology in the sale of our
HemoTech product. The Company is permitted to sublicense the ORTH Technology and
TTUHSC will receive a portion of both cash and non cash remuneration received by
the Company for a sublicense.  Additionally, the Company will pay a
portion of any royalty received to TTUHSC.
 
 The
Company has also agreed to issue up to 275,000 additional shares of the
Company’s common stock in the event TTUHSC purchases certain equipment used in
the HemoTech process. The equipment will be owned by TTUHSC, which will be used
to further the development of HemoTech, among other possible research uses and
will be charged to research and development expense when purchased. As of
September 30, 2008, 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.
 
 (2)
PRIVATE PLACEMENT:
 
 Beginning
December 2007 through October 31, 2008, we completed our private placement of
1,183,904 units (the “Units”), each consisting of one share of our common stock
(our “Common Stock”) and one warrant to purchase our Common Stock (a
“Warrant”),  resulting in gross proceeds of $1,326,000 based on a
per-Unit price of $1.12.  The Warrants have an initial exercise price
of $1.68.  The Warrants may be redeemed in whole or in part by us,
upon 30 days’ written notice, at a price of $.01 per Warrant share, provided the
weighted average closing price of our 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.  Net of
expenses, primarily to our financial advisor, we received net proceeds from this
private placement of $1,098,000, which will be used for research and development
activities, licensing and other general working capital purposes. In addition,
355,171 Warrants were issued to our placement agent with essentially the same
terms as our investor Warrants; however, these Warrants are only callable when
we provide a notice of redemption and a registration statement for the
underlying shares is effective (see Note G(3) to the Condensed Financial
Statements).
 
 The Units
were offered in accordance with Regulation D (“Regulation D”) under the
Securities Act of 1933, as amended (the “Securities
Act”).  Accordingly, each investor qualified as an “accredited
investor” as defined in Regulation D in order to participate in these offerings,
as determined by representations made by such investors prior to their
participation.  Additionally, each investor’s right to transfer the
Shares and the shares of our common stock underlying the Warrants is restricted
as provided in the Securities Act and the rules and regulations adopted
thereunder, as well as pursuant to state securities laws.
  17
  RESEARCH
AND DEVELOPMENT OF HEMOTECH
  HemoTech
is currently our only potential product. We expect that the remaining
production, development, testing and FDA approval of HemoTech, if ever, could
occur over a period of approximately four years.
  HemoTech
must undergo several major stages of production, development, and clinical
testing before being in a position to submit its New Drug Application (“NDA”) to
the FDA, as follows:
  ·
              PRODUCTION
      OF HEMOTECH. In order to produce HemoTech for Phase I U.S. clinical
      trials, we must complete certain upgrades of the current HemoTech
      production facilities located at TTUHSC. A portion of these upgrades have
      been completed during 2006 and through 2007 and were based on
      recommendations from the FDA.
 
 ·
              PREPARATION
      AND SUBMISSION OF U.S. IND APPLICATION. We started preparing material for
      our U.S. IND application on December 13, 2004, when we entered into our
      Stage II Sponsored Research Agreement with TTUHSC. We are actively
      planning and implementing the FDA recommendations including upgrading the
      production facility, preparing for clinical trials and the production of
      HemoTech, collectively at a cost estimated to range from $5,000,000 to
      $8,000,000, which are necessary for submission of our U.S. IND application
      and production of the product, although there can be no assurance that we
      will be able to meet a specified timetable or budgeted amount. We
      currently do not have sufficient funds available to pay this
      amount.  We will need to raise at least $7,000,000 in 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 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.
  18
    ·
              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.
  19
  ·
              PHASE
      III OF OUR U.S. CLINICAL TRIALS. If we are able to complete our Phase II
      U.S. clinical trials, we will seek approval from the FDA for our Phase III
      U. S. clinical trials soon
thereafter.
  At such
time, and in order to cut the costs of conducting and completing our Phase III
U.S. clinical trials, we anticipate that we will seek to enter into a
partnership with a biopharmaceutical company that has expertise in the
production and marketing of biological products, although there can be no
assurance that we will be able to do so.
  Alternatively,
if we are not able to enter into such a partnership, we may seek to enter into a
manufacturing arrangement with an experienced pharmaceutical manufacturer, under
which such manufacturer would produce HemoTech, which would significantly reduce
the costs of our Phase III U.S. clinical trials by eliminating the need to build
a production facility that meets the FDA's standards for Phase III U.S. clinical
trials.
  If we are
not able to enter into a partnership or find a manufacturer that is willing to
manufacture HemoTech for us, we may be required to perform all aspects of the
Phase III U. S. clinical trials independently. In this case, we estimate that
our Phase III U.S. clinical trials (including the costs of doing additional
research and development of HemoTech during our Phase III U.S. clinical trials
and the operational and overhead costs that we will incur during our Phase III
U.S. clinical trials) could cost approximately $195.0 million, which includes
the following:
   20
 ·
              approximately
      $100.0 million to build a production facility for HemoTech that is
      suitable for such advanced testing and that meets the standards of the FDA
      as a product testing facility;
 
 ·
              approximately
      $70.0 million for the further testing and production of
      HemoTech;
 
 ·
              approximately
      $10.0 million for personnel, administrative, and operational expenses that
      we expect to incur during our Phase III U.S. clinical
    trials;
 
 ·
              approximately
      $5.0 million for legal, accounting, consulting , technical and other
      professional fees that we expect to incur during our Phase III U.S.
      clinical trials; and
 
 ·
              approximately
      $5.0 million for research and development costs that we expect to incur
      during our Phase III U.S. clinical
trials.
  We expect
that our Phase III U.S. clinical trials could be finished within fifteen to
eighteen months from the date we start such trials, though such trials could
take significantly longer to complete, depending on, among other things, the
timely completion of a suitable production facility for HemoTech and the
availability of patients. If we are unable to partner with a pharmaceutical
company, we estimate that we will be required to raise the approximately $200
million (or such lesser amount as may be required if we are successfully able to
enter into a partnership) that we will need in order to fund our Phase III U.S.
clinical trials from start to finish and to cover the related expenses described
above. If commencement or completion of our Phase II U.S. clinical trials are
delayed for any reason, or if we are unable to raise sufficient funds to begin
our Phase III U.S. clinical trials immediately following completion of our Phase
II U.S. clinical trials, our Phase III U.S. clinical trials will be
delayed.
  The
estimated costs of each of the phases of our clinical trials set forth above
represent our best estimate of such expenses based on, among other things,
current economic conditions and availability of materials and personnel. Since
many of these phases will not even be commenced by us for another two to three
years, we cannot offer any assurance that such estimates will reflect the actual
amounts that we may be required to incur during each phase of our clinical
trials based on, among other things, then-current economic conditions,
availability of materials and personnel, and other factors that may be relevant
at the time. The amounts we may actually be required to expend during any phase
of our clinical trials may be significantly more than the amounts estimated by
us above.
  If our
clinical trials are successful and we are able to meet the timelines set forth
above, it is possible that an NDA could be approved by the FDA as early as
mid-2010, although there can be no assurance that an NDA would be approved by
such time, if ever. There can also be no assurance that we will be able to
complete our clinical trials under the schedule described above, or ever, or
that we will be able to develop a viable and marketable human blood substitute,
even if we are able to complete our clinical trials. Further, we do not expect
to generate any revenues until after such time as HemoTech has received FDA
approval, if ever.
  RESULTS
OF OPERATIONS
  We are a
development stage company and have not generated any revenue from inception
through September 30, 2008. 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. During 2007 we began implementing a global
strategy to include submission of technical information to the Drug Controller
General of India (“DCGI”). We submitted this information in early April 2008 for
the purpose of obtaining regulatory authority to conduct clinical trials in
India.
  Total
expenses, and thus our losses, totaled $14,908,000 from October 3, 2001
(inception) through September 30, 2008.
  THREE
MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,
2007
  Total
expenses, and thus our losses, for the three months ended September 30, 2008,
were $636,000 compared with $928,000 for the same period a year ago resulting
from significantly lower general and administrative costs.
  Research
and Development expenses were $276,000 for the 2008 period, essentially
unchanged compared with the same period in 2007. The current period included
higher costs paid to outside laboratories and consultants compared with the
prior year and were offset by lower stock based compensation to our scientific
board of advisors.
  General
and Administrative costs were $365,000 for the three months ended September 30,
2008, significantly lower than the $688,000 for the same period in the prior
year. The 2007 period includes $271,000 of non cash charges related to our
financial services agreement compared with $0 in the current period. In
addition, stock based compensation costs and office expenses were lower in the
current period compared with prior year.
  Interest
income decreased in the 2008 period due to lower cash balances. Higher cash
balances during the 2007 period resulted from the holders of our Class A
Warrants exercising their warrants in 2006.
 
 21
  NINE
MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2007
  Total
expenses, and thus our losses, for the nine months ended September 30, 2008,
were $3,047,000 compared with $2,639,000 for the same period a year ago
resulting from higher research and development costs associated with the
acquisition of a new technology.
  Research
and Development expenses were $1,606,000 for the 2008 period, increasing
$860,000 from the $746,000 in the same period in 2007 resulting from the non
cash acquisition of a new ORTH technology that removes and inactivates
infectious agents (which can cause Mad Cow disease) and viruses valued at
$655,000 (See also Note D of the Company’s Notes to Condensed Financial
Statements); and from higher costs paid to outside laboratories and consultants.
Spending related to the Stage IV Sponsored Research Agreement with Texas Tech
Health Sciences Center was higher in the current period compared to the same
period a year ago due to increased spending related to laboratory upgrades and
costs associated with outside laboratory testing.
  General
and Administrative costs were $1,472,000 for the nine months ended September 30,
2008, a decrease of $515,000 from the prior year.  Higher professional
fees and investor relations costs were more than offset by significantly lower
non cash stock based compensation costs related to our financial services
agreement.  The costs related to our financial services agreement were
$61,000 for the current period compared to $685,000 in the prior year resulting
from both the actual number of shares issued to the financial advisor (221,000
shares as of September 30, 2008) and lower share price and price per share being
somewhat lower than the previously estimated number of shares (see Note G (3) to
the Condensed Financial Statements).
  Interest
income decreased in the 2008 period due to lower cash balances. Higher cash
balances during the 2007 period resulted from the holders of our Class A
Warrants exercising their warrants in 2006.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 During
the nine months ended September 30, 2008, net cash used in operating activities
of $1,694,000 compared to $2,183,000 in the same period during 2007. During
January, 2007 the company paid TTUHSC approximately $780,000 as an initial
payment for its Stage IV Sponsored Research Agreement.  At September
30, 2008, approximately $122,000 of the TTUHSC 2007 payment is included in
prepaid expenses on our Balance Sheet. During May 2008, the Company purchased
the ORTH technology from TTUHSC at a cost of 500,000 shares of the Company’s
common stock valued at $1.29 per share and a $10,000 cash cost, a total of
$655,000.
 
 Investing
activities during 2007 include the maturation of a $1,000,000 short-term
investment made in 2006 and the purchase of a certificate of deposit (restricted
cash) in 2007 related to our current lease agreement.
 
 During
2008 the Company closed on a portion of our Private Placement offering that was
initiated during December, 2007.  The Company received gross proceeds
from investors of $534,000 during 2008 and after financing costs the Company
received net proceeds of $412,000.
 
 We
believe our cash available of $733,000 at September 30, 2008 and the cash
generated by our Private Placement offering will be sufficient to fund our
current operations. 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, submitting
technical information to the Drug Controller General of India (“DCGI”) for the
purpose of obtaining regulatory approval to conduct clinical trials in that
country, and the production of HemoTech; collectively at a cost ranging from
$7,000,000 to $8,000,000, we will need to raise at least $6 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.
 
 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.
  22
   ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Not
applicable.
  ITEM
4T. CONTROLS AND PROCEDURES
  Disclosure
controls and procedures are designed with an objective of ensuring that
information required to be disclosed in our periodic reports filed with the SEC,
such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized
and reported within the time periods specified by the SEC.
Disclosure controls also are designed with an objective of ensuring that such
information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, in order to allow timely
consideration regarding required disclosures.
  Based on
their review and evaluation as of the end of the period covered by this Form
10-Q, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
are effective as of the end of the period covered by this report. They are not
aware of any significant changes in our disclosure controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
  The term
internal control over financial reporting is defined as a process designed by,
or under the supervision of, the registrant's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
registrant's board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
  (a)
Pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
registrant;
  (b)
Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the registrant are
being made only in accordance with authorizations of management and directors of
the registrant; and
  (c)
Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the registrant's assets that
could have a material adverse effect on the financial statements.
  During
the period covered by this Form 10-Q, there have not been any changes in our
internal control over financial reporting that have materially affected, or that
are reasonably likely to materially affect, our internal control over financial
reporting.
  23
   PART
II -- OTHER INFORMATION
  Items
1, 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 September 30, 2008, there were no unregistered sales of
equity securities.
 
  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.
   
 
  24
  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:
      November 14, 2008
              By:
              /s/
      ARTHUR P. BOLLON, PH.D.Arthur
      P. Bollon, Ph.D.Chairman
      of the Board of Directors, President and Chief Executive
      OfficerDated:
      November 14, 2008
              By:
              /s/
      MARK J. ROSENBLUMMark
      J. RosenblumChief
      Financial Officer and Secretary
  
  25