**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

| **(Mark                One)** |   |                                                                                                                                   |
|-------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
| **x**                         |   | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d)****OF                THE SECURITIES EXCHANGE ACT OF                1934** |

**For      the Quarterly Period Ended September 30, 2008**

**OR**

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

**Commission      File No. 0-51172**

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

|                                                                                        |   |                                                              |
|---------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|
| **Delaware**                                                                                |   | **33-0795984**                                                    |
| (State                or Other Jurisdiction ofIncorporation                or Organization) |   | (I.R.S.                EmployerIdentification                No.) |

**1635      Village Center Circle, Suite 250**

**Las      Vegas, Nevada**

**89134**

**702-839-7200**

| Large                accelerated filer                o | Accelerated                filer                o | Non-accelerated                filer                x | Smaller                Reporting Entity                o |
|---------------------------------------------------------|---------------------------------------------------|-------------------------------------------------------|----------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**FORM      10-Q**

**For      the Quarter Ended September 30, 2008**

**INDEX**

|                                                                                                                                                                                                                                                                |   |   | **Page**  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------|--------|
| **Part                I. Financial Information**                                                                                                                                                                                                                    |   |   | 1              |   |
| Item                1. Consolidated Financial Statements                                                                                                                                                                                                            |   |   | 1              |   |
| Consolidated Balance                Sheets as of December 31, 2007 and September 30, 2008                (Unaudited)                                                                                                                                           |   |   | 1              |   |
| Consolidated Statements                of Operations for the Nine Month and Three Month Periods Ended                September 30, 2007 and 2008 and for the Period From March 11, 1998                (inception) to September 30, 2008 (Unaudited) |   |   | 2              |   |
| Consolidated Statements                of Stockholders’ Deficit for the Period From December 31, 2006 to                September 30, 2008 (Unaudited)                                                                                              |   |   | 3              |   |
| Consolidated Statements                of Cash Flows for the Nine Month Periods Ended September 30, 2007 and                2008 and for the Period From March 11, 1998 (inception) to September                30,                2008 (Unaudited)       |   |   | 5              |   |
| Notes                to Consolidated Financial Statements (Unaudited)                                                                                                                                                                                          |   |   | 9              |   |
| Item                2. Management’s Discussion and Analysis of Consolidated Financial                Condition and Results of Operations                                                                                                                      |   |   | 39             |   |
| Item                3. Quantitative and Qualitative Disclosures About Market                Risk                                                                                                                                                                    |   |   | 56             |   |
| Item                4. Controls and Procedures                                                                                                                                                                                                                      |   |   | 56             |   |
|                                                                                                                                                                                                                                                                |   |   |           |   |
| **Part                II. Other Information**                                                                                                                                                                                                                       |   |   | 58             |   |
| Item                1. Legal Proceedings                                                                                                                                                                                                                            |   |   | 58             |   |
| Item                1A. Risk Factors                                                                                                                                                                                                                                |   |   | 58             |   |
| Item                2. Unregistered Sales of Equity Securities and Use of                Proceeds                                                                                                                                                                   |   |   | 62             |   |
| Item                2b. Unresolved Staff Comments                                                                                                                                                                                                                   |   |   | 63             |   |
| Item                3. Defaults Upon Senior Securities                                                                                                                                                                                                              |   |   | 63             |   |
| Item                4. Submission of Matters to a Vote of Security Holders                                                                                                                                                                                          |   |   | 63             |   |
| Item                5. Other Information                                                                                                                                                                                                                            |   |   |           |   |
| Item                6. Exhibits                                                                                                                                                                                                                                     |   |   | 64             |   |
| Signatures                                                                                                                                                                                                                                                          |   |   | 65             |   |
| Ex-31.1                                                                                                                                                                                                                                                             |   |   |           |   |
| Ex-31.2                                                                                                                                                                                                                                                             |   |   |           |   |
| Ex-32                (Certifications required under Section 906 of the Sarbanes-Oxley                Act of                2002)                                                                                                                                    |   |   |           |   |

----

**PART      I**

**FINANCIAL      INFORMATION**

**Item      1. Consolidated Financial Statements**

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Formerly      CARDIOVASCULAR GENETIC ENGINEERING, INC.)**

**(A      Development Stage Company)**

**CONSOLIDATED**
** **
**BALANCE      SHEETS**

**December      31, 2007 and September 30, 2008 (Unaudited)**

|                                                                                                                                                                                                                                            |   | **December                31,****2007**                |       | **September                30,****2008**  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|------------|------------------------------------------------|--------|
|                                                                                                                                                                                                                                            |   | *(In                thousands except for share data)*  |       |
| **ASSETS**                                                                                                                                                                                                                                      |   |                                                   |       |                                 |   |
| **Current                Assets:**                                                                                                                                                                                                              |   |                                                   |       |                                 |   |
| Cash                and cash equivalents                                                                                                                                                                                                        |   | $                                                           | 310        |                                           | $      | 17 |   |
| Restricted                cash                                                                                                                                                                                                                  |   |                                                        | 60         |                                           |   | 60 |   |
| Due                from an affiliate                                                                                                                                                                                                            |   |                                                        | 139        |                                           |   | 15 |   |
| Prepaid                and other current assets                                                                                                                                                                                                 |   |                                                        | 543        |                                           |   | 27 |   |
| **Total                current assets**                                                                                                                                                                                                         |   |                                                        | **1,052**  |                                           |   | **119** |   |
| Property                and equipment, net of accumulated depreciation ($448 and $648, as                of                December 31, 2007 and September 30, 2008)                                                                            |   |                                                        | 662        |                                           |   | 412 |   |
| Deferred                financing costs, net of amortization ($1,503 and $1,533 as of December                31,                2007 and September 30, 2008)                                                                                   |   |                                                        | 50         |                                           |   | 20 |   |
| Other                assets                                                                                                                                                                                                                     |   |                                                        | 81         |                                           |   | 23 |   |
| **Total                Assets**                                                                                                                                                                                                                 |   | $                                                           | **1,845**  |                                           | $      | **574** |   |
| **LIABILITIES                AND STOCKHOLDERS’ DEFICIT**                                                                                                                                                                                  |   |                                                        |            |                                           |   |   |   |
| **Current                Liabilities:**                                                                                                                                                                                                         |   |                                                        |            |                                           |   |   |   |
| Accrued                interest payable                                                                                                                                                                                                         |   | $                                                           | 129        |                                           | $      | 218 |   |
| Due                to affiliates                                                                                                                                                                                                                |   |                                                        | 24         |                                           |   | 107 |   |
| Accounts                payable (including $120 and $1,013 due to officers, directors and                related                parties as of December 31, 2007 and September 30, 2008)                                                         |   |                                                        | 3,625      |                                           |   | 5,216 |   |
| Demand                notes, net of debt discount of $432 and $0 as of December 31, 2007                and                September 30, 2008                                                                                                   |   |                                                        | 1,068      |                                           |   | 1,615 |   |
| Demand                notes from officers                                                                                                                                                                                                       |   |                                                        | 160        |                                           |   | 60 |   |
| Accrued                payroll and payroll taxes (including $238 and $474 due to related                parties                at December 31, 2007 and September 30, 2008)                                                                     |   |                                                        | 519        |                                           |   | 1,243 |   |
| Convertible                notes payable and embedded derivatives                                                                                                                                                                               |   |                                                        | 4,205      |                                           |   | 1,827 |   |
| Warrants                derivatives - other                                                                                                                                                                                           |   |                                                        | 4,118      |                                           |   | 1,461 |   |
| Option                derivatives - other                                                                                                                                                                                             |   |                                                        | 867        |                                           |   | 233 |   |
| Deferred                rent                                                                                                                                                                                                                    |   |                                                        | 215        |                                           |   | 66 |   |
| **Total                current liabilities**                                                                                                                                                                                                    |   |                                                        | **14,930** |                                           |   | **12,046** |   |
| Long                term notes, net of debt discount of $0 and $557 as of December 31,                2007                and September                30, 2008                                                                                 |   |                                                        | —    |                                           |   | 704 |   |
| **Total                Liabilities**                                                                                                                                                                                                            |   |                                                        | **14,930** |                                           |   | **12,750** |   |
| Non-controlling                interest in variable interest entities                                                                                                                                                                           |   |                                                        | —    |                                           |   | 1,836 |   |
| Commitments                and contingencies                                                                                                                                                                                                    |   |                                                        |            |                                           |   |   |   |
| **Stockholders’                Deficit:**                                                                                                                                                                                                 |   |                                                        |            |                                           |   |   |   |
| Common                stock, $0.001 par value, 400,000,000 shares authorized; 149,920,335                and                153,445,055 shares issued and outstanding at December 31, 2007 and                September 30, 2008, respectively. |   |                                                        | 150        |                                           |   | 153 |   |
| Additional                paid in capital                                                                                                                                                                                                       |   |                                                        | 57,499     |                                           |   | 61,252 |   |
| Deficit                accumulated during the development stage                                                                                                                                                                                 |   |                                                        | (70,734    | )                                              |   | (75,417 | ) |
| **Total                stockholders’ deficit**                                                                                                                                                                                            |   |                                                        | (13,085    | )                                              |   | (14,012 | ) |
| **Total                Liabilities and Stockholders' Deficit**                                                                                                                                                                                  |   | $                                                           | 1,845      |                                           | **$**  | 574 |   |

*The      accompanying notes are an integral part of these consolidated financial      statements*

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Formerly      CARDIOVASCULAR GENETIC ENGINEERING, INC.)**

**(A      Development Stage Company)**

**CONSOLIDATED      STATEMENTS OF OPERATIONS (Unaudited)**

**For      the Nine Month and Three Month Periods Ended September 30, 2007 and 2008      and**

**March      11, 1998 (Inception) to September 30, 2008**

|                                                                                                                     |   | **For                the Nine Month****Period                Ended****September                30,** |        | **For                the Three Month****Period                Ended****September                30,** |   | **For                the****Period                from****March                11, 1998****(Inception)                to****September                30,** |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|-------------|-------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                     |   | **2007**                                                                                             |        | **2008**                                                                                              |   | **2007**                                                                                                                                                   |   | **2008** |   | **2008** |   |
|                                                                                                                     |   | *(In                thousands)*                                                                      |        |
| **Operating                expenses**                                                                                    |   |                                                                                            |        |                                                                                                  |   |                                                                                                                                                  |   |     |   |   |   |
| Research                and development (a)                                                                              |   | $                                                                                                    | 4,743       |                                                                                                  | $      | 3,223                                                                                                                                                      |   | $ | 1,411 |   | $ | 969 |   | $ | 26,027 |   |
| Selling,                general and administrative (b)                                                                   |   |                                                                                                 | 9,524       |                                                                                                  |   | 4,463                                                                                                                                                      |   |   | 1,356 |   |   | 1,057 |   |   | 45,270 |   |
| Total                operating expenses                                                                                  |   |                                                                                                 | 14,267      |                                                                                                  |   | 7,686                                                                                                                                                      |   |   | 2,767 |   |   | 2,026 |   |   | 71,297 |   |
| **Operating                loss**                                                                                        |   |                                                                                                 | (14,267     | )                                                                                                     |   | (7,686                                                                                                                                                     | )      |   | (2,767 | ) |   | (2,026 | ) |   | (71,297 | ) |
| **Other                income (expenses)**                                                                               |   |                                                                                                 |        |                                                                                                  |   |                                                                                                                                                       |   |   |   |   |   |  |   |   |  |   |
| Interest                income                                                                                           |   |                                                                                                 | 140         |                                                                                                  |   | —                                                                                                                                                    |   |   | 13 |   |   | — |   |   | 1,196 |   |
| Interest                expense                                                                                          |   |                                                                                                 | (7,658      | )                                                                                                     |   | (2,173                                                                                                                                                     | )      |   | (1,467 | ) |   | (535 | ) |   | (21,825 | ) |
| Other                expenses                                                                                            |   |                                                                                                 | —     |                                                                                                  |   | —                                                                                                                                                    |   |   | — |   |   | — |   |   | (5 | ) |
| Adjustments                to fair value of derivatives                                                                  |   |                                                                                                 | (5,365      | )                                                                                                     |   | 579                                                                                                                                                        |   |   | 4,719 |   |   | 1,423 |   |   | 744 |   |
| Adjustments                to fair value of derivatives - other option & warrant                derivative |   |                                                                                                 | 1,954       |                                                                                                  |   | 4,485                                                                                                                                                      |   |   | 554 |   |   | 3,400 |   |   | 15,673 |   |
| Gain                on lease termination                                                                                 |   |                                                                                                 | —     |                                                                                                  |   | 112                                                                                                                                                        |   |   | — |   |   | — |   |   | 112 |   |
| Equity                in loss of unconsolidated investee                                                                 |   |                                                                                                 | —     |                                                                                                  |   | —                                                                                                                                                    |   |   | — |   |   | — |   |   | (15 | ) |
| Net                other expenses                                                                                        |   |                                                                                                 | (10,929     | )                                                                                                     |   | 3,003                                                                                                                                                      |   |   | 3,819 |   |   | 4,288 |   |   | (4,120 | ) |
| **Net                income (loss) before provision for income taxes**                                                   |   |                                                                                                 | (25,196     | )                                                                                                     |   | (4,683                                                                                                                                                     | )      |   | **1,052** |   |   | **2,262** |   |   | **(75,417** | **)** |
| Provision                for income taxes                                                                                |   |                                                                                                 | —     |                                                                                                  |   | —                                                                                                                                                    |   |   | — |   |   | — |   |   | — |   |
| **Net                income (loss)**                                                                                     |   | $                                                                                                    | (25,196     | )                                                                                                     | **$**  | (4,683                                                                                                                                                     | )      | $ | 1,052 |   | **$** | **2,262** |   | **$** | **(75,417** | **)** |
| **Income                (loss) per share**                                                                               |   |                                                                                                 |        |                                                                                                  |   |                                                                                                                                                            |   |   |   |   |   |  |   |   |  |   |
| **Basic                income (loss) per share**                                                                         |   | $                                                                                                    | (0.19       | )                                                                                                     | $      | (0.03                                                                                                                                                      | )      | $ | 0.01 |   | $ | 0.01 |   |   |  |   |
| **Diluted                income (loss) per share**                                                                       |   | $                                                                                                    | (0.19       | )                                                                                                     | $      | (0.03                                                                                                                                                      | )      | $ | 0.01 |   | $ | 0.01 |   |   |  |   |
| **Shares                used to calculate earnings (loss) per share**                                                    |   |                                                                                                      |        |                                                                                                  |   |                                                                                                                                                       |   |   |   |   |  |   |
| **Basic**                                                                                                                |   |                                                                                                 | 131,767,297 |                                                                                                  |   | 136,327,773                                                                                                                                                |   |   | 136,707,336 |   |   | 152,988,218 |   |   |  |   |
| **Diluted**                                                                                                              |   |                                                                                                 | 131,767,297 |                                                                                                  |   | 136,327,773                                                                                                                                                |   |   | 142,633,845 |   |   | 155,588,690 |   |   |  |   |
| (a)                Research and development with related parties                                                         |   | $                                                                                                    | 1,216       |                                                                                                  | $      | 797                                                                                                                                                        |   | $ | 289 |   | $ | 121 |   | $ | 6,304 |   |
| (b)                General and administrative with related parties                                                       |   | $                                                                                                    | 29          |                                                                                                  | $      | 8                                                                                                                                                          |   | $ | 3 |   | $ | 1 |   | $ | 1,205 |   |

*The      accompanying notes are an integral part of these consolidated financial      statements*

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Formerly      CARDIOVASCULAR GENETIC ENGINEERING, INC.)**

**(A      Development Stage Company)**

**CONSOLIDATED      STATEMENTS OF STOCKHOLDERS’ DEFICIT (Unaudited)**

**For      the Period from December 31, 2006 to September 30, 2008**

|                                                                                                               |   |   |                                                                             |   |   | **Preferred                Stock****Series                A, Convertible** |   |   | **Common                Stock** |   |   | **Committed** |   |   | **Addt’l****Paid-In** |   |   | **Accum.** |   |   |        |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------|--------|--------|---------------------------------|--------|--------|---------------|--------|--------|-----------------------------|--------|--------|------------|--------|--------|-------------|--------|
|                                                                                                               |   |   | **Date**                                                                         |   |   | **Shares**                                                                 |   |   | **Amt**                         |   |   | **Shares**    |   |   | **Amt**                     |   |   | **Stock**  |   |   | **Capital** |   |   | **Deficit** |   |   | **Total** |   |
|                                                                                                               |   |   | *(In                thousands Except Price per Equity Unit                Data)* |   |
| **Balance,                December 31, 2006**                                                                      |   |   |                                                                                  |   |   | —                                                                    |   | $      | —                         |   |   | **125,458**   |   | **$**  | **125**                     |   | $      | —    |   | **$**  | **31,713**  |   | **$** | **(34,728** | **)** | **$** | **(2,890** | **)** |
| Exercise                of options                                                                                 |   |   | (1                                                                               | )      |   | —                                                                    |   |   | **—**                     |   |   | 440           |   |   | 1                           |   |   | —    |   |   | 131         |   |   | — |   |   | 132 |   |
| Issuance                of stock for services as independent directors                                             |   |   | (7                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | 48            |   |   | —                     |   |   | —    |   |   | 48          |   |   | — |   |   | 48 |   |
| Option                and Warrant Derivatives                                                                      |   |   | (3                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | (279        | )      |   | — |   |   | (279 | ) |
| Conversion                of convertible notes                                                                     |   |   | (4                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | 19,151        |   |   | 19                          |   |   | —    |   |   | 14,203      |   |   | — |   |   | 14,222 |   |
| Reclassification                of conversion and interest conversion derivative on note                conversion |   |   | (6                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | 6,455       |   |   | — |   |   | 6,455 |   |
| Reclassification                of interest conversion derivative on actual interest paid                          |   |   | (5                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | 585         |   |   | — |   |   | 585 |   |
| Sale                of common shares                                                                               |   |   | (8                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | 3,650         |   |   | 4                           |   |   | —    |   |   | 3,256       |   |   | — |   |   | 3,260 |   |
| Stock                based compensation                                                                            |   |   | (2                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | 574         |   |   | — |   |   | 574 |   |
| Issuance                of common stock for interest payments                                                      |   |   | (9                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | 973           |   |   | 1                           |   |   | —    |   |   | 607         |   |   | — |   |   | 608 |   |
| Issuance                of warrant for cash                                                                        |   |   | (10                                                                              | )      |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | 6           |   |   | — |   |   | 6 |   |
| Issuance                of common shares for services                                                              |   |   | (11                                                                              | )      |   | —                                                                    |   |   | —                         |   |   | 200           |   |   | —                     |   |   | —    |   |   | 200         |   |   | — |   |   | 200 |   |
| Net                loss (unaudited)                                                                                |   |   |                                                                                  |   |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | —     |   |   | (36,006 | ) |   | (36,006 | ) |
| **Balance,                December 31, 2007**                                                                      |   |   |                                                                                  |   |   | **—**                                                                |   | $      | —                         |   |   | **149,920**   |   | **$**  | **150**                     |   | $      | —    |   | **$**  | **57,499**  |   | **$** | **(70,734** | **)** | **$** | **(13,085** | **)** |
| Issuance                of common stock for:                                                                       |   |   |                                                                             |   |   |                                                                       |   |   |                            |   |   |          |   |   |                        |   |   |       |   |   |        |   |   |   |   |   |   |   |
| exercise                of options                                                                                 |   |   | (1                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | 130           |   |   | —                     |   |   | —    |   |   | 39          |   |   | — |   |   | 39 |   |
| conversion                of convertible notes                                                                     |   |   | (4                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | 2,186         |   |   | 2                           |   |   | —    |   |   | 1,598       |   |   | — |   |   | 1,600 |   |
| Stock                based compensation                                                                            |   |   | (2                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | 216         |   |   | — |   |   | 216 |   |
| Option                and Warrant Derivative                                                                       |   |   | (3                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | 40          |   |   | — |   |   | 40 |   |
| Reclassification                of conversion and interest conversion derivative on note                conversion |   |   | (6                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | 833         |   |   | — |   |   | 833 |   |
| Sale                of common shares                                                                               |   |   | (8                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | 825           |   |   | 1                           |   |   | —    |   |   | 742         |   |   | — |   |   | 743 |   |
| Issuance                of common stock for interest payments                                                      |   |   | (9                                                                               | )      |   | —                                                                    |   |   | —                         |   |   | 384           |   |   | —                     |   |   | —    |   |   | 285         |   |   | — |   |   | 285 |   |
| Net                loss (unaudited)                                                                                |   |   |                                                                                  |   |   | —                                                                    |   |   | —                         |   |   | —       |   |   | —                     |   |   | —    |   |   | —     |   |   | (4,683 | ) |   | (4,683 | ) |
| **Balance,                September 30, 2008**                                                                     |   |   |                                                                                  |   |   | **—**                                                                |   | $      | —                         |   |   | **153,445**   |   | $      | **153**                     |   | $      | —    |   | **$**  | **61,252**  |   | **$** | **(75,417** | **)** | **$** | **(14,012** | **)** |

*The      accompanying notes are an integral part of these consolidated financial      statements*

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Formerly      CARDIOVASCULAR GENETIC ENGINEERING, INC.)**

**(A      Development Stage Company)  **

**CONSOLIDATED      STATEMENTS OF STOCKHOLDERS’ DEFICIT      (Unaudited) - continued**

**For      the Period from September 30, 2007 to September 30, 2008**

|   | (1) | Multiple                employee option exercises (exercise price range                $0.30-$2.00). |
|--------|-----|------------------------------------------------------------------------------------------------------|

|   | (2) | Stock                options and warrants issued for                services. |
|--------|-----|-------------------------------------------------------------------------------|

|   | (3) | Reclassification                of option and warrant derivatives from equity to liability in accordance                with EITF 00-19. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Conversion                of senior secured convertible notes and interest related to those                notes at                various prices. During the year ended December 31, 2007 and the nine                month                period ended September 30, 2008, in addition to the period from                March                11, 1998 (inception) to September 30, 2008, $14,222,486, $1,600,000,                and                $17,720,000 of senior secured convertible notes payable were converted                into 19,150,903, 2,185,979 and 22,324,101 shares of uncommitted common                stock, respectively.                During the year ended December 31, 2007 and the nine month period                ended                September 30, 2008, $607,811 and $284,634 of interest on senior secured                convertible notes were paid with common                stock. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Reclassification                of interest conversion derivative from liability to equity on interest                paid in cash. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | Reclassification                of adjustment to embedded derivatives, conversion and interest conversion                feature, from liability to equity for conversion of notes and interest                related to those notes to common                stock. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7) | Issuance                of stock for services as independent                directors. |
|--------|-----|----------------------------------------------------------------------------------------|

|   | (8) | Sale                of common stock at $1.00 each. |
|--------|-----|----------------------------------------------------|

|   | (9) | Issuance                of common stock for interest payments on senior secured                notes. |
|--------|-----|-------------------------------------------------------------------------------------------------------|

|   | (10)   | Issuance                of warrants for cash.                                                                             |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                      |
|   | (11)   | Issuance                of shares to a vendor as per contract terms in lieu of cash for services                rendered. |

*The      accompanying notes are an integral part of these consolidated financial      statements*

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Formerly      CARDIOVASCULAR GENETIC ENGINEERING, INC.)**

**(A      Development Stage Company)**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

**For      the Nine Month Period Ended September 30, 2007 and 2008, and      For**

**The      Period from March 11, 1998 (Inception) to September 30,      2008 — (Unaudited)**

|                                                                                                               |   |    **Nine                Month Period Ended****September                30,** |    | **For                the****Period                from****March                11,****1998****(Inception)                to****September                30,** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **  **                                                                                                   |   | **2007**                                                                                     |    | **2008**                                                                                                                                                      |   | **2008** |   |
| **  **                                                                                                   |   | *(Dollars                in thousands)*                                                      |    |
| **Cash                flows from operating activities:**                                                           |   |                                                                               |    |                                                                                                                                                |   |     |   |
| Net                loss                                                                                            |   | $                                                                                            | (25,196 | )                                                                                                                                                             | $      | (4,683 | ) | $ | (75,417 | ) |
| Adjustments                to reconcile net loss to net cash used in operating                activities:          |
| Depreciation                                                                                                       |   |                                                                                         | 213     |                                                                                                                                                          |   | 210 |   |   | 664 |   |
| Gain                on lease termination                                                                           |   |                                                                                         | — |                                                                                                                                                          |   | 40 |   |   | 40 |   |
| Termination                of financing cost(1)                                                                    |   |                                                                                         | 466     |                                                                                                                                                          |   | — |   |   | 466 |   |
| Amortization                of beneficial conversion feature                                                       |   |                                                                                         | — |                                                                                                                                                          |   | — |   |   | 2,050 |   |
| Amortization                of deferred financing costs                                                            |   |                                                                                         | 915     |                                                                                                                                                          |   | 30 |   |   | 3,498 |   |
| Interest                paid in common stock                                                                       |   |                                                                                         | 327     |                                                                                                                                                          |   | 285 |   |   | 926 |   |
| Issue                of stock options in kind                                                                      |   |                                                                                         | — |                                                                                                                                                          |   | — |   |   | 200 |   |
| Stock                based compensation and other stock based payments                                             |   |                                                                                         | 162     |                                                                                                                                                          |   | 216 |   |   | 3,363 |   |
| Stock                issued for services rendered                                                                  |   |                                                                                         | 48      |                                                                                                                                                          |   | — |   |   | 48 |   |
| Warrants                issued for services rendered                                                               |   |                                                                                         | 401     |                                                                                                                                                          |   | — |   |   | 4,547 |   |
| Amortization                of discount related to warrants derivatives                                            |   |                                                                                         | 596     |                                                                                                                                                          |   | 596 |   |   | 2,008 |   |
| Amortization                of discount related to conversion feature                                              |   |                                                                                         | 2,758   |                                                                                                                                                          |   | 88 |   |   | 4,510 |   |
| Amortization                of discount related to interest on conversion feature                                  |   |                                                                                         | 2,190   |                                                                                                                                                          |   | 70 |   |   | 3,581 |   |
| Amortization                of discount related to demand notes                                                    |   |                                                                                         | — |                                                                                                                                                          |   | 989 |   |   | 1,064 |   |
| Adjustments                to fair value of derivatives                                                            |   |                                                                                         | 5,365   |                                                                                                                                                          |   | (579 | ) |   | (744 | ) |
| Adjustments                to fair value of derivatives - options and warrant                derivatives |   |                                                                                         | (1,954  | )                                                                                                                                                             |   | (4,485 | ) |   | (15,673 | ) |
| Equity                in loss of unconsolidated investee                                                           |   |                                                                                         | — |                                                                                                                                                          |   | — |   |   | 15 |   |
| (Increase)                decrease in:                                                                             |   |                                                                                         |         |                                                                                                                                                          |   |  |   |   |  |   |
| Due                from affiliate                                                                                  |   |                                                                                         | 16      |                                                                                                                                                          |   | 124 |   |   | (15 | ) |
| Prepaid                and other current assets                                                                    |   |                                                                                         | 524     |                                                                                                                                                          |   | 516 |   |   | (27 | ) |
| Other                assets(1)                                                                                     |   |                                                                                         | — |                                                                                                                                                          |   | 58 |   |   | (38 | ) |
| Increase                (decrease) in:                                                                             |   |                                                                                         |         |                                                                                                                                                          |   |  |   |   |  |   |
| Due                to affiliate                                                                                    |   |                                                                                         | 17      |                                                                                                                                                          |   | 83 |   |   | 107 |   |
| Accounts                payable(1)                                                                                 |   |                                                                                         | 1,666   |                                                                                                                                                          |   | 1,591 |   |   | 5,216 |   |
| Accrued                payroll and payroll taxes                                                                   |   |                                                                                         | 23      |                                                                                                                                                          |   | 724 |   |   | 1,243 |   |
| Accrued                interest                                                                                    |   |                                                                                         | (300    | )                                                                                                                                                             |   | 89 |   |   | 218 |   |
| Deferred                rent(1)                                                                                    |   |                                                                                         | 24      |                                                                                                                                                          |   | (149 | ) |   | 66 |   |
| Net                cash used in operating activities (a)                                                           |   | $                                                                                            | (11,739 | )                                                                                                                                                             | $      | (4,187 | ) | $ | (58,084 | ) |

*The      accompanying notes are an integral part of these consolidated financial      statements*

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Formerly      CARDIOVASCULAR GENETIC ENGINEERING, INC.)**

**(A      Development Stage Company)**

**CONSOLIDATED STATEMENTS      OF CASH FLOWS - continued**

**For      the Nine Month Period Ended September 30, 2007 and 2008, and      For**

**The      Period from March 11, 1998 (Inception) to September 30,      2008 — (Unaudited)**

|                                                                                                  |   | **Nine                Month Period Ended****September                30,**         |        | **For                the****Period                from****March                11,****1998****(Inception)                to****September                30,**  |   |
|------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                       |   | **2007**                                                                           |        | **2008**                                                                                                                                                       |   | **2008**  |   |
| **Cash                flows from investing activities:**                                                   |   |    *(Dollars                in thousands)*      |        |
| Purchase                of restricted cash                                                                 |   | $                                                                                       | 112         |                                                                                                                                                                | $      | — |   | $ | (60 | ) |
| Purchase                of property and equipment                                                          |   |                                                                                    | (60         | )                                                                                                                                                                   |   | — |   |   | (1,116 | ) |
| Net                cash used in investing activities (b)                                                   |   |                                                                                    | 52          |                                                                                                                                                                |   | — |   |   | (1,176 | ) |
| **Cash                flows from financing activities:**                                                   |   |                                                                                    |             |                                                                                                                                                                |   |  |   |   |  |   |
| Proceeds                from sale of preferred stock - Pre IPO                                   |   |                                                                                    | —     |                                                                                                                                                                |   | — |   |   | 520 |   |
| Proceeds                from sale of common stock - Pre IPO                                      |   |                                                                                    | —     |                                                                                                                                                                |   | — |   |   | 3,904 |   |
| Proceeds                from issuance of notes payables - Pre IPO                                |   |                                                                                    | —     |                                                                                                                                                                |   | — |   |   | 14,092 |   |
| Proceeds                from notes payable issued under Reg D - Pre IPO                          |   |                                                                                    | —     |                                                                                                                                                                |   | — |   |   | 800 |   |
| Payment                of financing cost - private placements - Pre                IPO |   |                                                                                    | (180        | )                                                                                                                                                                   |   | — |   |   | (4,199 | ) |
| Proceeds                from sale of common stock - IPO                                          |   |                                                                                    | —     |                                                                                                                                                                |   | — |   |   | 15,548 |   |
| Proceeds                from notes payable issued under Reg D - Post IPO                         |   |                                                                                    | —     |                                                                                                                                                                |   | — |   |   | 20,000 |   |
| Net                proceeds from sale of common shares under Reg S                                         |   |                                                                                    | 3,474       |                                                                                                                                                                |   | 743 |   |   | 4,393 |   |
| Financing                cost for Reg S paid in cash                                                       |   |                                                                                    | —     |                                                                                                                                                                |   | — |   |   | (176 | ) |
| Proceeds                from the issuance of warrants                                                      |   |                                                                                    | —     |                                                                                                                                                                |   | — |   |   | 6 |   |
| Proceeds                from exercise of options and warrants                                              |   |                                                                                    | 132         |                                                                                                                                                                |   | 39 |   |   | 483 |   |
| Proceeds                from issuance of demand notes                                                      |   |                                                                                    | —     |                                                                                                                                                                |   | 300 |   |   | 2,185 |   |
| Payment                of demand notes                                                                     |   |                                                                                    | —     |                                                                                                                                                                |   | (285 | ) |   | (510 | ) |
| Proceeds                from issuance of long term notes payable                                           |   |                                                                                    | —     |                                                                                                                                                                |   | 1,261 |   |   | 1,261 |   |
| Cash                paid for deferred offering costs                                                       |   |                                                                                    | —     |                                                                                                                                                                |   | — |   |   | (866 | ) |
| Non-controlling                interest in variable interest entities                                      |   |                                                                                    | —     |                                                                                                                                                                |   | 1,836 |   |   | 1,836 |   |
| Net                cash provided by financing activities (c)                                               |   |                                                                                    | 3,426       |                                                                                                                                                                |   | 3,894 |   |   | 59,277 |   |
| Increase                (decrease) in cash and cash equivalents                                            |   |                                                                                    | (8,261      | )                                                                                                                                                                   |   | (293 | ) |   | 17 |   |
| **Cash                and cash equivalents at beginning of period**                                        |   |                                                                                    | 8,503       |                                                                                                                                                                |   | 310 |   |   | — |   |
| **Cash                and cash equivalents at end of period**                                              |   | **$**                                                                                   | **242**     |                                                                                                                                                                | **$**  | 17 |   | $ | 17 |   |
| **Supplemental                disclosure of cash flow information**                                        |   |                                                                                    |             |                                                                                                                                                                |   |  |   |   |  |   |
| Interest                paid                                                                               |   | **$**                                                                                   | **1,185**   |                                                                                                                                                                | **$**  | **25** |   | $ | **3,878** |   |
| California                Franchise Tax paid                                                               |   | **$**                                                                                   | **—** |                                                                                                                                                                | $      | **1** |   | $ | **7** |   |

| (a) |   | Including                amount with related parties of $2,162,143, $1,683,145 and $17,899,413,                respectively. |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------|
| (b) |   | Including                amount with related parties of $0, $0 and $0,                respectively.                          |
| (c) |   | Including                amount with related parties of $62,421, $333,302 and $(3,652,850),                respectively.     |

*The      accompanying notes are an integral part of these consolidated financial      statements*

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Formerly      CARDIOVASCULAR GENETIC ENGINEERING, INC.)**

**(A      Development Stage Company)**

**CONSOLIDATED STATEMENTS      OF CASH FLOWS - continued**

**For      the Nine Month Period Ended September 30, 2007 and 2008**

**Supplemental      Disclosure of Non-Cash Financing Activities**

|   | (1) | On                March 11, 2008, the company terminated the lease in San Diego resulting                in                non cash “Gain on Lease Termination” of $112,046, in our Statement of                Operations; which consists of a charge off for “Abandonment of Leasehold                Improvements” of $39,919 in the “Statement of Cash Flows.” The other                non-cash components of the “Gain on Lease Termination” include $141,137 of                deferred rent, and forgiveness of $68,633 in accounts payable in                exchange                for the deposit amount of $57,805. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | In                2008, the amount of converted notes was valued using the Black-Scholes                Model resulting in $841,686 of the embedded derivatives being reclassified                from liability to paid in capital. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | In                December 2007, 200,000 shares of common stock at $1.00 per share                were                issued to a vendor as per the agreement for consulting                fees. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | In                February 2007, 48,000 shares were issued to the independent directors                for                their services. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | In                2007, the Company paid the interest on the convertible note in cash.                The                cash payment was valued using the Black-Scholes Model, resulting                in a                reclassification of $531,923 from liability to                paid-in-capital. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*The      accompanying notes are an integral part of these consolidated financial      statements*

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Formerly      CARDIOVASCULAR GENETIC ENGINEERING, INC.)**

**(A      Development Stage Company)**

**CONSOLIDATED STATEMENTS      OF CASH FLOWS - continued**

**For      the Nine Month Period Ended September 30, 2007 and 2008, and      For**

**The      Period from March 11, 1998 (Inception) to September 30,      2008 — (Unaudited)**

|  **Supplemental                Disclosure of Non-Cash Financing Activities**                                                                                        |   | **Nine                Month Period Ended**  |    | **For                the Period from March 11, 1998 to** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|---------|----------------------------------------------------------|--------|
|                                                                                                                                                                     |   | **September                30,****2007**    |    | **September                30,****2008**            |   | **September                30,****2008** |   |
|                                                                                                                                                                     |   | *(In                thousands)*                  |    |
| ·                 Amount                of senior secured convertible notes payable converted to uncommitted                common stock                       |   | $                                                | 10,598  |                                                     | $      | 1,600 |   | $ | 17,752 |   |
| ·                 Senior                secured convertible notes payable converted to uncommitted common                stock -See                line 1 |   |                                             | 11,835  |                                                     |   | 2,186 |   |   | 22,622 |   |
| ·                 Amount                of senior secured convertible notes payable converted to committed                common                stock          |   |                                             | 211     |                                                     |   | — |   |   | — |   |
| ·                 Senior                secured convertible notes payable converted to committed                common stock- See line 3             |   |                                             | 389     |                                                     |   | — |   |   | — |   |
| ·                 Interest                on senior secured notes paid in common stock                                                                         |   |                                             | — |                                                     |   | 285 |   |   | 925 |   |
| ·                 Fair                Market Value of warrants issued in connection with demand                notes                                           |   | $                                                | — |                                                     | $      | 411 |   | $ | 411 |   |

*The      accompanying notes are an integral part of these consolidated financial      statements*

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)**

**  NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      1. Description of Business**

**Note      2. Management’s Plan**

|                                  |   | **As                of**                |    |
|--------------------------------------------|--------|-----------------------------------------|---------|
| **  **                           |   | **December                31,****2007** |    | **September                30, 2008** |   |
| **  **                           |   | *(In                thousands)*         |    |
| Cash                and cash equivalent    |   |                                    | 310     |   |   | 17 |   |
| Restricted                cash             |   |                                    | 60      |   |   | 60 |   |
| Current                liabilities         |   |                                    | 5,740   |   |   | 8,525 |   |
| Stockholders’                deficit |   |                                    | (13,085 | ) |   | (14,012 | ) |
| Net                Loss                    |   |                                    | (36,006 | ) |   | (4,683 | ) |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      2. Management’s Plan - continued**

|   | **·** | On                June 3, 2008 the Company entered into a clinical development agreement                with Derma Life Clinical Partners LP (“Derma Life”) to fund a minimum of                $1 million and up to $3 million of the clinical development for the                Company’s wound healing drug candidate. (See footnote #5 for more                detail.)                                                                                                                                                                             |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | **·** | On                July 8, 2008 the Company entered into a clinical development agreement                with ProDerm Limited Partnership (“PDLP”) to fund a minimum of $1 million                and up to $10 million of the clinical development for the Company’s wound                healing drug candidate. (See footnote #5 for more                detail.)                                                                                                                                                                                      |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | **·** | On                July 10, 2008 the Company entered into an agreement with Cardio Derma                Clinical Partners (“CDCP”), to fund a minimum of $1,000,000 and up to                $5,000,000 of the clinical development of the Company’s wound healing drug                candidate. The Company is exploring other similar opportunities for                development agreements as well as partnerships and joint ventures                for                co-development, clinical trials, marketing and                distribution. |

|   | **·** | On                March 18, 2008, the Company began a Private Placement of debt and                warrants                in an effort to raise up to $15,000,000 in promissory notes. During                the nine month period ended September 30, 2008 the Company sold                $1,260,800 of long term notes that have an 18 month term (one note                for                $80,000 has a 5 year term). The notes are unsecured. These notes                were                issued with 1,178,300 warrants which have a five year term and an                exercise                price of $1.00. These notes have an interest rate of 10% and 20%.                Commissions earned by GHL, a related party, for the sale of these                notes were $105,000. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **·** | In                late 2007 and the first quarter of 2008, the Company placed                $2,370,000 in demand notes of which $1,600,000 was outstanding at                September 30, 2008. These notes have an interest rate of                10%. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **·** | On                May 21, 2007, the Company entered into an agreement to place                15,000,000 of the Company’s common stock at a purchase price of $1.00 per                share in connection with a Private Placement to the investor and                certain                other subscribers pursuant to a subscription agreement. As of December                31,                2007, the Company had issued 3,650,000 shares and received gross                proceeds                in the amount of $3,650,000. The agreement, as amended, provides                for                commissions of 10% of the amount placed in addition to warrants to                purchase 3,700,000 shares of the Company’s common stock at an exercise                price of $1.00 per share. The investor paid $3,700 for the warrants.                The                agreement, as amended, expired November 9, 2007. The Company extended                this                agreement to January 31, 2008. The Company has received an additional                $825,000 for 825,000 shares of common stock during the nine month                period ended September 30, 2008. This agreement expired and the offering                is terminated. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      2. Management’s Plan - continued**

|   | **·** | Developing                additional sources of debt and equity financing to satisfy the Company’s                current and future operating                requirements. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **·** | Pursuing                opportunities for licensing of drug indications for co-development,                clinical trials, marketing and                distribution. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Note      3. Transactions and Contractual Relationships with Affiliated      Entities**

***Joint      Patent Agreement***

|                                               |   | **Nine                Month Period****Ended                September 30,**  |   | **For                the Period from March 11, 1998 Inception) to September                30,**  |   |
|---------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|
|                                                    |   | **2007**                                                                    |   | **2008**                                                                                          |   | **2008**  |   |
|                                                    |   | *(In                thousands)*                                                  |   |
| Technical                development services           |   | $                                                                                | 1,217  |                                                                                                   |   | 797 |   |   | 6,304 |   |
| Administrative                support provided by Phage |   | $                                                                                | 29     |                                                                                                   |   | 8 |   |   | 1,205 |   |

***Royalty      Agreement***

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      3. Transactions and Contractual Relationships with Affiliated      Entities - (continued)**

***Guaranty      from Daniel C. Montano***

***Related      Party Transactions***

|                                                                                                                             |   |  **  ****  ****Nine                Month Period****Ended                September 30,** |    | **For                the****Period                from****March                11, 1998****(Inception)                to****September                30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **Fees                Paid to:**                                                                                                 |   | **2007**                                                                                                         |    | **2008**                                                                                                                                                   |   | **2008** |   |
| **  **                                                                                                                 |   | *(In                thousands)*                                                                                  |    | **  **                                                                                                                                           |   |
| Daniel                C. Montano (Chairman of the Board, President and Chief Executive                Office)                (a) |   | $                                                                                                                | — |                                                                                                                                                       | $      | — |   | $ | 200 |   |
| Daniel                C. Montano (Chairman of the Board, President and Chief Executive                Office)                (b) |   |                                                                                                             | 363     |                                                                                                                                                       |   | 371 |   |   | 2,670 |   |
| Vizier                Management Company (c)                                                                                     |   |                                                                                                             | — |                                                                                                                                                       |   | — |   |   | 116 |   |
| GHL                Financial Services Ltd. (“GHL”) (d)                                                               |   |                                                                                                             | 133     |                                                                                                                                                       |   | 223 |   |   | 2,613 |   |
| Dr.                Thomas Stegmann M.D. (the Company’s Co-founder) (f)                                                     |   |                                                                                                             | 360     |                                                                                                                                                       |   | 335 |   |   | 2,325 |   |
| C.K.                Capital International and C&K Capital Corporation (e)                                                    |   |                                                                                                             | — |                                                                                                                                                       |   | — |   |   | 1,763 |   |
| Dr.              Wolfgang Premier (Company Founder)                                                                              |   |                                                                                                             | 60      |                                                                                                                                                       |   | 30 |   |   | 392 |   |
| Total                                                                                                                            |   | $                                                                                                                | 916     |                                                                                                                                                       | $      | 959 |   | $ | 10,079 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      3. Transactions and Contractual Relationships with Affiliated      Entities - (continued)**

|   | a) | Consulting                fees prior to becoming an employee of the                Company. |
|--------|----|---------------------------------------------------------------------------------------------|

|   | b) | Employment                Services. |
|--------|----|-------------------------------------|

|   | c) | Vizier                Management Company is controlled by Daniel C. Montano. The Company                paid                Vizier for consulting prior to his becoming an employee of the                Company. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d) | A                director owning 4.12% of the Company’s common stock and is a principal of                an investment firm that has sold various Company securities to                international investors. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e) | C.K.                Capital International and C&K Capital Corporation are controlled by                Alex Montano, son of Daniel C.                Montano. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    | f) | Dr.                Thomas Stegmann, pursuant to his consulting agreement with the                Company. |
|--------------|----|-----------------------------------------------------------------------------------------------------------|

**Note      4. Summary of Significant Accounting Policies Adopted in      2008**

***Research      and Development Costs Funded by Other Entities***

The      transactions are accounted for as a contract to perform research and development      for others.  The funded amount of the development contracts will be      allocated between the fair value of the warrants issued in conjunction with      the      development agreement and the remaining amount which will be accounted for      as a      deferred charge, deferred revenue. Deferred revenue will be recognized as      revenue as research and development costs are incurred.  Research and      development costs incurred for this project will be accounted for as R&D, as      incurred.

***Loss      per Share***

|                                     |   | **As                of**               |    |
|------------------------------------------|--------|----------------------------------------|---------|
|                                     |   | **September 30,****2007**         |    | **September                30,****2008** |   |
|                                     |   | *(Shares                in thousands)* |    |
| Stock                options             |   |                                   | 1,023   |   |   | — |   |
| Warrants                                 |   |                                   | — |   |   | — |   |
| Convertible                notes payable |   |                                   | 4,903   |   |   | 2,600 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      4. Summary of Significant Accounting Policies Adopted in      2008  - (continued)**

*      Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB      Statement No. 60*

*The      Hierarchy of Generally Accepted Accounting Principles*

*The      Meaning of Present Fairly in Conformity with Generally Accepted Accounting      Principles*

*Disclosures      about Derivative Instruments and Hedging Activities—an amendment of FASB      Statement No. 133 *

*The      Fair Value Option for Financial Assets and Financial Liabilities Including      an      Amendment of FASB Statement No. 115 *

***Valuation        of Derivative Instruments***

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      5. Research and Development Costs Funded by Other Entities/Variable      Interest Entities**

| Deferred                Expense for Development Agreements |   | $ | 1,800,000 |   |
|------------------------------------------------------------|--------|---|-----------|--------|
| Net                Assets                                  |   | $ | 1,800,000 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      5. Research and Development Costs Funded by Other Entities/Variable      Interest Entities - continued**

***Variable      Interest Entities—Company Is the Primary Beneficiary***

*Consolidation      of Variable Interest Entities*

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      6. Notes Payable**

|  **Demand                Notes**               |   |  **Demand                Notes****Issued**  |      |  **Warrants****Issued**  |   |  **Fees                Paid**  |   | **Interest****%**  |    |  **Repayment                of****the                Demand****Notes**  |   |  **Demand                Notes****Outstanding****as                of****December                31,****2007**  |   |  **Demand                Notes****Outstanding****as                of****September                30,****2008**  |    |
|-----------------------------------------------------|--------|-------------------------------------------------------|-----------|------------------------------------|--------|------------------------------------------|--------|-------------------------|---------|-----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------|---------|
| Note                issued without warrants in 2007 |   |                                                  | 175,000   |                               |   | —                                  |   |                    | 7,000   |                                                                              |   | 10                - 81                                                                                                    | %      |                                                                                                                       | 75,000  |   | $ | 100,000 |   | $ | 100,000 |   |
| Note                issued without warrants in 2008 |   |                                                  | 70,000    |                               |   | —                                  |   |                    | — |                                                                              |   | 29                                                                                                                        | %      |                                                                                                                       | 70,000  |   |   | — |   |   | — |   |
| Notes                issued with warrants in 2007   |   |                                                  | 1,400,000 |                               |   | 1,400,000                                |   |                    | 35,000  |                                                                              |   | 10                - 16                                                                                                    | %      |                                                                                                                       | 700,000 |   |   | 1,400,000 |   |   | 700,000 |   |
| Notes                issued with warrants in 2008   |   |                                                  | 800,000   |                               |   | 500,000                                  |   |                    | — |                                                                              |   | 10                - 16                                                                                                    | %      |                                                                                                                       | — |   |   | — |   |   | 800,000 |   |
| Note                issued to vendor in 2008        |   |                                                  | 30,416    |                               |   | —                                  |   |                    | — |                                                                              |   | 10                                                                                                                        | %      |                                                                                                                       | 15,000  |   |   | — |   |   | 15,416 |   |
| Total                                               |   |                                                  | 2,475,416 |                               |   | 1,900,000                                |   |                    | 42,000  |                                                                              |   |                                                                                                                           |   |                                                                                                                       | 860,000 |   | $ | 1,500,000 |   | $ | 1,615,416 |   |
| Accrued                interest                     |   |                                                  |           |                               |   |                                          |   |                    |         |                                                                              |   |                                                                                                                           |   |                                                                                                                       |         |   | $ | 57,315 |   | $ | 126,222 |   |

|                                 |   |                                 |    |              |   |        |   |               |    |                                                                                      |   |                                                                                                     |   |                                                                                                      |    |
|--------------------------------------|--------|-------------------------------------------|---------|------------------------|--------|------------------|--------|-------------------------|---------|-------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|---------|
| **Officer                Notes**     |   | **Demand                Notes****Issued** |    | **Warrants****Issued** |   | **Fees****Paid** |   | **Interest****%**  |    |                **Repayment                of****the                Demand****Notes** |   | **Demand                Notes****Outstanding****as                of****December                31,****2007** |   | **Demand                Notes****Outstanding****as                of****September                30,****2008** |    |
| Notes                due to Officers |   | $                                         | 310,000 |                   |   | —          |   |                    | — |                                                                                      |   | 6                                                                                                             | %      | $                                                                                                              | 250,000 |   | $ | 160,000 |   | $ | 60,000 |   |
| Accrued                Interest      |   |                                      |         |                   |   |                  |   |                    |         |                                                                                      |   |                                                                                                               |   |                                                                                                           |         |   |   | 2,980 |   |   | 9,479 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      6. Notes Payable - continued**

| **Long                Term Notes** |   | **Notes****Issued**  |      | **Warrants****Issued** |   | **Fees                Paid** |   | **Interest****%**  |    | **Repayment                of****the                Notes** |   | **Long                Term Notes****Outstanding****as                of****December                31,****2007** |   | **Long                Term Notes****Outstanding****as                of****September                30,****2008** |    |
|------------------------------------|--------|---------------------------|-----------|------------------------|--------|------------------------------|--------|-------------------------|---------|-------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|---------|
| Long                term notes     |   | $                         | 1,260,800 |                   |   | 1,340,800                    |   |                    | 126,800 |                                                        |   | 10                - 20                                                                                           | %      |                                                                                                              | — |   | $ | — |   | $ | 1,260,800 |   |
| Accrued                Interest    |   |                      |           |                   |   |                              |   |                    |         |                                                        |   |                                                                                                                  |   |                                                                                                              |         |   |   | — |   | $ | 49,193 |   |

*Debt      Discount on Demand Notes Payable*

*Derivative      information for the Demand Notes:*

|                **Year**          |   | **Warrants****Issued                for****Purchase                of****Common                Stock** |   | **Estimated                Fair****Market****Value                at Issuance** |   | **Exercise                Price****per                Share****($)** |   | **Expected****Life                (Years)** |   | **Risk                Free****Interest****%** |   | **Approximate****Volatility****%** |   | **Initial****Term****Days** |                       |
|---------------------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------------------|--------|------------------------------------|--------|-----------------------------|----------------------------|
|  *(In                thousands)* |
| 2007                                  |   |                                                                                                   | 1,400  |                                                                            | $      | 507                                                                  |   |                                        | 1      |                                          |   | 5                                  |   |                        | 3.28                - 3.99 | % |   | 63.34                - 64.12 | % |   | 42                - 91 |   |
| 2008                                  |   |                                                                                                   | 500    |                                                                            |   | 325                                                                  |   |                                        | 1      |                                          |   | 5                                  |   |                        | 2.80                - 3.18 | % |   | 96.16 | % |   | 42                - 91 |   |
| Total                                 |   |                                                                                                   | 1,900  |                                                                            | $      | 832                                                                  |   |                                        |        |                                          |   |                                    |   |                        |                            |   |   |  |   |   |  |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      6. Notes Payable - continued**

|                                                         |   | **December                31,****2007** |   | **September                30,****2008** |   | **For                the****Period                from****March                11, 1998****(Inception)                to****September                30,****2008** |   |
|--------------------------------------------------------------|--------|-----------------------------------------|--------|------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                         |   | *(In                thousands)*         |   |
| Amortization                of debt discount on demand notes |   | $                                       | 75     |                                     | $      | 757                                                                                                                                                                |   | $ | 832 |   |

| **Change                Period**                                     |   | **Fair                Valued****at                Issuance to****December                31, 2007**  |   | **Fair                Valued****from                Issuance to****September                30, 2008** |   | **Net                Change in****Fair                Value for the Nine Month Period****September                30, 2008** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                 |   |  *(In                thousands)*                                                           |   |
| Total                fair value of derivatives at respective periods |   | $                                                                                                         | 658    |                                                                                                   | $      | 250                                                                                                                          |   | $ | (408 | ) |

**The      following table summarizes the assumptions used to measure the fair value of      derivatives for the demand notes:**

|  **Derivatives**                   |   | **Dividend****Yield****%**   |    | **Expected****Volatility****%**   |   | **Risk-Free****Interest****%**   |   | **Expected                Life****(Years)**   |                       | **CVBT                Stock****Price**   |   |
|-----------------------------------------|--------|----------------------------------------|---------|---------------------------------------------|--------|--------------------------------------------|--------|---------------------------------------------------------|----------------------------|----------------------------------------------------|--------|
| Warrant                derivative:      |   |                                   |    |                                        |   |                                       |   |                                                    |                       |                                               |   |
| At                Issuance              |   |                                   | — |                                        |   | 63.34                - 64.12               |   |                                                    | 3.28                - 3.99 |                                               |   | 4.85                - 5.00 |   | $ | 0.53                - 0.88 |   |
| As                of December 31, 2007  |   |                                   | — |                                        |   | 64.12                                      |   |                                                    | 3.45                       |                                               |   | 4.95 |   | $ | 0.88 |   |
| As                of March 31, 2008     |   |                                   | — |                                        |   | 96.16                                      |   |                                                    | 2.46                - 3.18 |                                               |   | 4.60                - 4.75 |   | $ | 0.92 |   |
| As                of June 30, 2008      |   |                                   | — |                                        |   | 95.94                                      |   |                                                    | 2.57                - 3.73 |                                               |   | 4.50                - 5.00 |   | $ | 0.63 |   |
| As                of September 30, 2008 |   |                                   | — |                                        |   | 99.99                                      |   |                                                    | 2.52                - 3.51 |                                               |   | 2.94                - 4.75 |   | $ | 0.27 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      6. Notes Payable - continued**

| **Year** |   | **Warrants****Issued                for****Purchase                of****Common                Stock** |      | **Estimated                Fair  Value at issuance** |   | **Exercise                Price****per                Share****($)** |   | **Expected****Life                at Issuance****(Years)** |   | **Risk                Free****Interest                at Issuance****%** |   | **Approximate****Volatility                at Issuance****%** |   | **Initial****Term****Months** |                      | **Amortization                for the****Nine                Month Ended September 30, 2008** |                               |
|----------|--------|--------------------------------------------------------------------------------------------------------|-----------|----------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|-------------------------------|---------------------------|-----------------------------------------------------------------------------------------------|------------------------------------|
| 2008     |   |                                                                                                   | 1,340,800 |                                                           | $      | 774,870                                                              |   |                                                       | 1      |                                                                     |   | 3                - 5                                          |   |                          | 2.65-                3.57 | %                                                                                             |  95.65                - 96.51 | % |   | 18 |   | $ | 202,886 |   |

|                                                                 |   | **December                31,****2007** |    | **September                30,****2008** |   | **For                the****Period                from****March                11, 1998****(Inception)                to****September                30,****2008** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------|---------|------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                 |   | *(In                thousands)*         |    |
| Amortization                of debt discount on long term notes |   | $                                       | — |                                     | $      | 203                                                                                                                                                                |   | $ | 203 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      6. Notes Payable - continued**

| **Long                Term Notes**                                   |   | **Fair                Valued at****Issuance                to****December                31,****2007** |    |  **Fair                Valued from Issuance to September 30, 2008** |   | **Net                Change in****Fair                Value****from                issuance to****September                30, 2008** |   |
|----------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|---------|--------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                 |   | *(In                thousands)*                                                                        |    |
| Total                fair value of derivatives at respective periods |   | $                                                                                                      | — |                                                                     | $      | 411                                                                                                                                   |   | $ | (364 | ) |

**The      following table summarizes the assumptions used to measure the fair value of      derivatives:**

| **Derivatives**                         |   | **Dividend****Yield****%** |    | **Expected****Volatility****%** |   | **Risk-Free****Interest****%** |   | **Expected                Life****(Years)** |                       | **CVBT                Stock****Price** |   |
|-----------------------------------------|--------|----------------------------|---------|---------------------------------|--------|--------------------------------|--------|---------------------------------------------|----------------------------|----------------------------------------|--------|
| Warrant                derivative:      |   |                       |    |                            |   |                           |   |                                        |                       |                                   |   |
| At                Issuance              |   |                       | — |                            |   | 95.65                - 96.51   |   |                                        | 2.65                - 3.57 |                                   |   | 5.00 |   | $ | 0.60                - 1.01 |   |
| As                of September 30, 2008 |   |                       | — |                            |   | 99.99                          |   |                                        | 2.52                - 3.51 |                                   |   | 3.00 |   |   | 27 |   |

** **

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      7. Convertible Notes Payable **

***Convertible      Senior Secured Notes***

**The      following table summarizes convertible notes discounts and derivative values      outstanding at September 30, 2008:**

|                                                                                                                    |   | ***(In                thousands)*** |    |
|-------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|
| Convertible                notes at face value at March 20, 2006                                                        |   | $                                   | 20,000  |   |
| Notes                converted into common stock                                                                        |   |                                | (17,720 | ) |
| Convertible                notes at face value at September 30, 2008                                                    |   |                                | 2,280   |   |
| Discount                on notes:                                                                                       |   |                                |         |   |
| Embedded                derivatives                                                                                     |   |                                | (8,196  | ) |
| Warrant                derivatives                                                                                      |   |                                | (2,383  | ) |
| Net                convertible notes on September 30, 2008                                                              |   |                                | (8,299  | ) |
| Amortization                of discount from derivatives                                                                |   |                                | 10,099  |   |
| Convertible                notes at September 30, 2008                                                                  |   |                                | 1,800   |   |
| Embedded                derivatives at fair value at September 30, 2008                                                 |   |                                | 20      |   |
| Warrant                derivatives at fair value at September 30, 2008                                                  |   |                                | 7       |   |
| Net                convertible notes, embedded derivatives and warrant derivatives at                September 30, 2008 |   | $                                   | 1,827   |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      7. Convertible Notes Payable - continued**

| **Fair                Value**                                        |   | **Fair                Valued****at****September                30,****2007** |   | **Fair                Valued****at****December                31,****2007** |   | **Fair                Valued****at****September                30,****2008** |   |
|----------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
| **Period**                                                           |   | *(In                thousands)*                                              |   |
| Warrants                                                             |   | $                                                                            | 132    |                                                                        | $      | 881                                                                          |   | $ | 7 |   |
| Convertibility                Feature                                |   |                                                                         | 293    |                                                                        |   | 631                                                                          |   |   | 10 |   |
| Interest                Convertibility Feature                       |   |                                                                         | 35     |                                                                        |   | 47                                                                           |   |   | 10 |   |
| Total                fair value of derivatives at respective periods |   | $                                                                            | 460    |                                                                        | $      | 1,559                                                                        |   | $ | 27 |   |

| **Net                Decrease (Increase) Recorded as Adjustment to Fair                Value**            |   | **For                the Year****Ended****December                31,****2007** |   | **For                the Period****Ended****September                30,****2008** |   |
|-----------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|
|                                                                                                      |   | *(In                thousands)*                                            |   |
| Change                between reporting periods                                                           |   | $                                                                               | (968   | )                                                                                  | $      | 1,421 |   |
| Reclass                of derivatives from liability to equity due to actual interest                paid |   |                                                                            | (586   | )                                                                                  |   | — |   |
| Reclass                of derivatives from liability to equity due to conversion                          |   |                                                                            | (6,455 | )                                                                                  |   | (842 | ) |
| Total                                                                                                     |   | $                                                                               | (8,009 | )                                                                                  | $      | 579 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      7. Convertible Notes Payable - continued**

***Conversion      of Senior Secured Notes:***

| **Period**                                  |   | **Amount                of****Senior                Secured****Notes                Converted** |       | **Converted                to****Number                of****Shares** |   | **Average****Share                Price** |   | **Interest                Paid****During                the****Period                with****Common                Stock** |   |
|---------------------------------------------|--------|-------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|--------|-------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------|--------|
| Total - 2006                      |   | $                                                                                               | 1,897,514  |                                                                  |   | 987,219                                   |   | $                                                                                                                          | 2.28   |   | $ | 33,028 |   |
| Total - 2007                      |   |                                                                                            | 14,222,486 |                                                                  |   | 19,150,903                                |   |                                                                                                                       | 0.80   |   |   | 607,811 |   |
| 1st                quarter - 2008 |   |                                                                                            | 800,000    |                                                                  |   | 800,000                                   |   |                                                                                                                       | 1.00   |   |   | 124,890 |   |
| 2nd                quarter - 2008 |   |                                                                                            | 600,000    |                                                                  |   | 801,354                                   |   |                                                                                                                       | 0.75   |   |   | 96,170 |   |
| 3rd                quarter - 2008           |   |                                                                                            | 200,000    |                                                                  |   | 584,625                                   |   |                                                                                                                       | 0.34   |   |   | 63,575 |   |
| Total                                       |   | $                                                                                               | 17,720,000 |                                                                  |   | 22,324,101                                |   |                                                                                                                       |        |   | $ | 925,474 |   |

**The      following table summarizes the assumptions used to measure the fair value of      our      derivatives related to the convertible note:**

|                                      |   |                  |    |                       |   |                           |   |                       |   |                              |   |
|-------------------------------------------|--------|----------------------------|---------|---------------------------------|--------|--------------------------------|--------|---------------------------------|--------|----------------------------------------|--------|
| **Derivative                Assumptions** |   | **Dividend****Yield****%** |    | **Expected****Volatility****%** |   | **Risk-Free****Interest****%** |   | **Expected****Life****(years)** |        | **CVBT                Stock****Price** |   |
| As                of December 31, 2007    |   |                       | — |                            |   | 45.35                          |   |                            | 3.34   |                                   |   | 1.25 |   | $ | 1.00 |   |
| As                of September 30, 2008   |   |                       | — |                            |   | 81.31                          |   |                            | 1.60   |                                   |   | 0.50 |   | $ | 0.27 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      7. Convertible Notes Payable - continued**

**The      following table summarizes the “Adjustments to Fair Value of Derivatives” for      all derivatives:**

| **Adjustments                to Fair Value of****Derivatives**    |   |    |                            | **Balance                as of****December                31,****2007** |         | **YTD                  Adjustment to Fair Value of Derivative** |   | **Net****Additions/****Deletions                for****New                Issuance****Exercise** |   | **Adjustment****to                Paid in****Capital                for****Conversion** |   | **Balance                as of****September                30,****2008** |   |
|-------------------------------------------------------------------|--------|--------------|---------------------------------|-------------------------------------------------------------------------|--------------|-----------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
|                                                              |   |              | *(In                thousands)* |                                                                    |    |                                                            |
| Embedded                derivatives                               |   |         | (A)                             |                                                                    | $            | 677                                                             |   | $                                                                                                | 184    |                                                                                    | $      | —                                                                  |   | $ | (841 | ) | $ | 20 |   |
| Warrant                derivative - convertible note    |   |         | (B)                             |                                                                    |         | 882                                                             |   |                                                                                             | (763   | )                                                                                       |   | —                                                                  |   | a) | (112 | ) |   | 7 |   |
| Change                in fair value                               |   |         | (C)                = A+B)       |                                                                    |         | 1,559                                                           |   |                                                                                             | (579   | )                                                                                       |   | —                                                                  |   |   | (953 | ) |   | 27 |   |
| Option                derivative - non-employees        |   |         |                                 |                                                                    |         | 867                                                             |   |                                                                                             | (585   | )                                                                                       |   | —                                                                  |   |   | (49 | ) |   | 233 |   |
| Warrant                derivative - non-employees       |   |         |                                 |                                                                    |         | 4,118                                                           |   |                                                                                             | (3,900 | )                                                                                       |   | 1,565                                                                    |   | a) | (322 | ) |   | 1,461 |   |
| Change                in fair value                               |   |         | (D)                             |                                                                    |         | 4,985                                                           |   |                                                                                             | (4,485 | )                                                                                       |   | 1,565                                                                    |   |   | (371 | ) |   | 1,694 |   |
| Total                warrant and options derivative non-employees |   |         | E                = (C+D)        |                                                                    |         | 6,544                                                           |   |                                                                                             | (5,064 | )                                                                                       |   | 1,565                                                                    |   |   | (1,324 | ) |   | 1,721 |   |

| a) | Consists                of an adjustment to the discount for warrants issued with long term                debt and an elimination in consolidating the clinical partnerships                (see                footnote #5). |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      7. Convertible Notes Payable - continued**

| **Years**                      |   | **Interest                Paid****in                Cash** |    | **Interest                Paid****with                Stock** |   | **Total                Interest** |   | **Shares                Issued****in                Lieu of****Cash                Payment** |   |
|--------------------------------|--------|------------------------------------------------------------|---------|---------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------------------------------------------------------------------|--------|
| 2006                           |   | $                                                          | 1,863   |                                                          | $      | 33                                |   | $                                                                                            | 1,896  |   |   | 18 |   |
| 2007                           |   |                                                       | 628     |                                                          |   | 608                               |   |                                                                                         | 1,236  |   |   | 973 |   |
| 2008                through Q3 |   |                                                       | — |                                                          |   | 285                               |   |                                                                                         | 285    |   |   | 384 |   |

***Interest      Expense:***

|                                                         |   |   | **September                30, 2007** |   |   | **September                30, 2008** |   |
|--------------------------------------------------------------|--------|--------|---------------------------------------|--------|--------|---------------------------------------|--------|
|                                                         |   |   | *(In                thousands)*       |   |
| Interest                expense                              |   | $      | 1,199                                 |   | $      | 399                                   |   |
| Amortization                of derivatives                   |   |   | 5,544                                 |   |   | 755                                   |   |
| Amortization                of deferred financing cost       |   |   | 915                                   |   |   | 30                                    |   |
| Amortization                of debt discount on demand notes |   |   | —                               |   |   | 989                                   |   |
| Total                                                        |   | $      | 7,658                                 |   | $      | 2,173                                 |   |

**Note      8. Other Derivatives Related to Options and Warrants Issued to      Non-Employees**

**The      following table summarizes the assumptions used to measure the fair value of      derivatives:**

| **Derivative                Information**                  |   | **Dividend****Yield                %** |    | **Expected****Volatility                %** |   | **Risk-Free****Interest                %** |   | **Expected****Life                (Years)** |                       | **CVBT****Stock****Price** |   |
|------------------------------------------------------------|--------|----------------------------------------|---------|---------------------------------------------|--------|--------------------------------------------|--------|---------------------------------------------|----------------------------|----------------------------|--------|
| Options                issued to non-employees derivative  |   |                                   |    |                                        |   |                                       |   |                                        |                       |                       |   |
| As                of December 31, 2007                     |   |                                   | — |                                        |   | 47.61                - 67.22               |   |                                        | 3.05                - 4.04 |                       |   | 1.58                - 9.90 |   | $ | 0.88 |   |
| As                of September 30, 2008                    |   |                                   | — |                                        |   | 93.93                - 153.11              |   |                                        | 1.78                - 4.43 |                       |   | 0.82                - 9.15 |   |   | 0.27 |   |
| Warrants                issued to non-employees derivative |   |                                   |         |                                        |   |                                            |   |                                        |                            |                       |   |  |   |   |  |   |
| As                of December 31, 2007                     |   |                                   | — |                                        |   | 64.12                                      |   |                                        | 3.45                       |                       |   | 5 |   |   | 0.88 |   |
| As                of September 30, 2008                    |   |                                   | — |                                        |   | 93.93                - 153.11              |   |                                        | 1.55                - 3.99 |                       |   | 0.38                - 9.72 |   | $ | 0.27 |   |

| (a) |   | The                range of the expected life and exercise prices are consistent with                each                individual instrument. |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      8. Other Derivatives Related to Options and Warrants Issued to Non-Employees       - (continued)**

**The      following table summarizes the “Adjustments to Fair Value of Derivatives” for      all derivatives:**

| **Adjustments                to Fair Value of Derivatives** |   | **Balance                as of****December                31,****2007**   |   | **Adjustment****to                Fair Value****of                Derivative**   |   | **Net****Additions/****Deletions                for****New                Issuance****Exercise**  |   | **Adjustment****to                Paid in****Capital                for****Conversion**  |    | **Balance                as of****September                30,****2008**   |   |
|-------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|---------|--------------------------------------------------------------------------------------|--------|
|                                                        |   |  (*In                thousands*)                                          |   |
| Option                derivative - non-employees  |   | $                                                                                   | 867    |                                                                                       | $      | (585                                                                                                   | )      |                                                                                          | — |                                                                                 | $      | (49 | ) | $ | 233 |   |
| Warrant                derivative - non-employees |   |                                                                                | 4,118  |                                                                                       |   | (3,883                                                                                                 | )      | $                                                                                             | 1,565   |                                                                                 |   | (339 | )a) |   | 1,461 |   |
| Change                in fair value                         |   | $                                                                                   | 4,985  |                                                                                       | $      | (4,468                                                                                                 | )      | $                                                                                             | 1,565   |                                                                                 | $      | (388 | ) | $ | 1,694 |   |

**Options      derivative transactions — Non-employees for options granted and      transferred:**

| **Period**                                                                           |   | **Options****Granted**   |    | **Exercise****Price - Non-****Employees**   |   | **Estimated****Fair                Value on****the                Date****Options****Granted                or****Transferred**   |   | **Option****Derivatives****as                of****September                30,****2007**   |    | **Transfer                of****Fully                Vested****Employee****Stocks                to****Non-Employee**   |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------|---------|-----------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------------------------------|--------|
| For                the year ended December 31, 2007 (a)(b)                           |   |                               | 310,000 |                                                            | $      | 0.30                - 1.00                                                                                                                  |   | $                                                                                                     | 560,840 |                                                                                                                              | $      | 3,702 |   |   | — |   |
| For                the nine month period ended September 30, 2008                (b) |   |                               | — |                                                            |   | —                                                                                                                                     |   |                                                                                                  | — |                                                                                                                              |   | — |   |   | — |   |

|   | (a) | Expected                life of 10 years, volatility ranging from 67.22% to 71.22%, and risk                free                rate of interest ranging from 4.04% of 4.85% and an expected dividend                yield of zero. Transaction is done as a function of                law. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | No                new stock options were granted to non-employees during the nine month                period ended September 30, 2008. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      8. Other Derivatives Related to Options and Warrants Issued to Non-Employees       - (continued)**

**Change      in the fair value of options and warrant derivatives:**

|  **Adjustments                to Fair Value of Derivatives - Options and                Warrants** |   | **Total                at****December                31,****2007**  |   | **At                September 30,****2008**  |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                                                              |   | *(In                thousands)*                                     |   |
| Adjustment                to the fair value of option derivatives                                                 |   | $                                                                        | (818   | )                                                 | $      | (585 | ) |
| Adjustment                to the fair value of warrant derivatives                                                |   |                                                                     | 20     |                                              |   | (3,883 | ) |
| Total                adjustments to fair value                                                                    |   | $                                                                        | (798   | )                                                 | $      | (4,468 | ) |

|  **Stock                Option****Transactions - ****Non-Employees** |   | **Number                of****Option****Exercised**   |    | **Dividend****Yield                %**   |   | **Expected****Volatility                %**   |   | **Risk                Free****Interest                Rate****%**   |                         | **Expected****Remaining****Life                (Years)**   |   | **Decrease                In****the                Fair****Value****of                Option****Derivatives**   |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|---------|----------------------------------------------------|--------|---------------------------------------------------------|--------|-------------------------------------------------------------------------------|------------------------------|----------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|
| Total - 2007                                                              |   |                                                            | 440,000 |                                               |   | —                                                 |   |                                                                          | 69.58                - 73.36 |                                                                 |   | 4.45                - 4.98                                                                                                |   |   | 2.25                - 2.75 |   | $ | 310,738 |   |
| 1st                Quarter - 2008                                         |   |                                                            | 60,000  |                                               |   | —                                                 |   |                                                                          | 104.48                       |                                                                 |   | 1.47                - 1.61                                                                                                |   |   | 1.75 |   |   | 56,400 |   |
| 2nd                Quarter - 2008                                                   |   |                                                            | 70,000  |                                               |   | —                                                 |   |                                                                          | 107.35                       |                                                                 |   | 2.58                                                                                                                      |   |   | 1.08 |   |   | 30,021 |   |
| 3rd                Quarter - 2008                                                   |   |                                                            | — |                                               |   | —                                                 |   |                                                                          | —                      |                                                                 |   | —                                                                                                                   |   |   | — |   |   | — |   |
| Total                                                                               |   |                                                            | 570,000 |                                               |   |                                                         |   |                                                                          |                              |                                                                 |   |                                                                                                                           |   |   |  |   | $ | 397,159 |   |

| **Warrant****Transactions - ****Non                Employee** |   | **Warrant****Issued**   |       | **Dividend****Yield                %**  |   | **Expected****Volatility****%**  |   | **Risk                Free****interest                %**  |                   | **Expected****Life                (Years)**  |   | **Fair                Value****on                the****Date                of****Warrants****Granted**  |   | **Exercise****Price**   |                  |
|-------------------------------------------------------------------------|--------|-----------------------------------|------------|----------------------------------------------|--------|---------------------------------------|--------|-----------------------------------------------------------------|------------------------|---------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------------------|
| a                                                                       |   |                              | 250,000    |                                         |   | 0                                     |   |                                                            | 79                     |                                              |   | 5.125                                                                                                         |   |                              | 10                    |   |   | 1,602,500 |   | $ | 10.00 |   |
| b                                                                       |   |                              | 550,000    |                                         |   | 0                                     |   |                                                            | 67                     |                                              |   | 3.83                                                                                                          |   |                              | 10                    |   |   | 223,987 |   |   | 1.00 |   |
| c                & c(i)                                             |   |                              | 5,900,000  |                                         |   | 0                                     |   |                                                            | 63                - 67 |                                              |   | 3.52                - 4.42                                                                                    |   |                              | 5                - 10 |   |   | 2,600,259 |   |   | 1.00 |   |
| d                                                                       |   |                              | 1,400,000  |                                         |   | 0                                     |   |                                                            | 63                - 64 |                                              |   | 3.28                - 3.99                                                                                    |   |                              | 5                     |   |   | 509,804 |   |   | 1.00 |   |
| Total                at December 31, 2007                               |   |                              | 8,100,000  |                                         |   | 0                                     |   |                                                            | 63                - 79 |                                              |   | 3.28                - 5.125                                                                                   |   |                              | 5                - 10 |   |   | 4,936,550 |   | $ | 1.00                - 10.00 |   |
| (e)1st                Quarter 2008                                      |   |                              | 500,000    |                                         |   | 0                                     |   |                                                            | 96.16                  |                                              |   | 2.46                                                                                                          |   |                              | 5                     |   |   | 335,000 |   |   | 1.00 |   |
| (e)                2nd                Quarter 2008                      |   |                              | 1,178,300  |                                         |   | 0                                     |   |                                                            | 96.36                  |                                              |   | 3.34                                                                                                          |   |                              | 5                     |   |   | 755,870 |   |   | 1.00 |   |
| (f)                2nd                Quarter 2008                      |   |                              | 350,000    |                                         |   | 0                                     |   |                                                            | 96.36                  |                                              |   | 3.34                                                                                                          |   |                              | 5                     |   |   | 122,500 |   |   | 1.00 |   |
| (g)                3rd                Quarter 2008                      |   |                              | 200,000    |                                         |   | 0                                     |   |                                                            | 96.06                  |                                              |   | 2.49                                                                                                          |   |                              | 3                     |   |   | 34,000 |   | $ | 1.00 |   |
| Total                                                                   |   |                              | 10,328,300 |                                         |   |                                       |   |                                                            |                        |                                              |   |                                                                                                               |   |                              |                       |   |   |  |   |   |  |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      8. Other Derivatives Related to Options and Warrants Issued to Non-Employees       - (continued)**

|   | (a) | These                warrants were issued for past services and were expensed over a one-year                vesting period. The fair Value of the vested portion of these warrants                for                the three months ended March 31, 2007 was $400,643 and $1,602,500                in                aggregate was reclassified as part of the warrant                derivative. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | These                warrants were issued in connection with consulting services rendered.                These warrants were fully vested on the date of the grant and have                a ten                year term. These warrants will expire in November 2012. The vested                fair                value of these warrants for the year ended December 31, 2007 was                $223,987                and was reclassified as part of the warrant                derivative. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | These                warrants were for future services. These warrants were fully vested                on the                date of grant have a five year term and expired in December 2012                and                2017. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c)(i) | These                warrants were for future services.  These warrants were fully vested                on the date of the grant and have a ten year term.  These warrants                will expire in December 2017. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | These                warrants were issued in conjunction with the issuance of demand notes.                These warrants were fully vested and $658,000 was recorded as warrant                derivative at December 31, 2007. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | These                warrants were issued in conjunction with the issuance of demand and                long                term notes. These warrants were fully vested and $228,062 was recorded                as                warrant derivatives at September 30, 2008. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | These                warrants were issued in conjunction with the formation of a Clinical                Trial                Partnership. These warrants were fully vested and $49,000 was recorded                as                warrant derivatives at September 30,                2008. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g) | These                warrants were issued in conjunction with the issuance of Long Term                Notes.                These warrants were fully vested and $1,000 was recorded as warrant                derivatives at September 30, 2008. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  **Transactions                from March 20, 2006 Through****September                30, 2008**                                                      |   | **Deferred****Finance****Costs**           |   | **Discount                for****Warrant****Derivative**  |   | **Discount                for****Embedded****Derivatives**  |   | **Addition                to****Interest****Expense**  |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|----------------------------------------------------------------|--------|------------------------------------------------------------------|--------|-------------------------------------------------------------|---------|
|                                                                                                                                                        |   |  ***(In                thousands)***  |   |
| Balance                March 20, 2006 (close date)                                                                                                          |   | $                                               | 1,553  |                                                           | $      | 2,383                                                            |   | $                                                           | 8,196   |   | $ | — |   |
| Proration                of derivatives at September 30, 2008 (a)                                                                                           |   |                                            | (948   | )                                                              |   | —                                                          |   |                                                        | — |   |   | (948 | ) |
| Amortization                for the period March 20, 2006 (close date) through September 30,                2008                charged to interest expense |   |                                            | (585   | )                                                              |   | (2,008                                                           | )      |                                                        | (8,091  | ) |   | (10,684 | ) |
| Remaining                deferred costs and discount to be amortized                                                                                        |   | $                                               | 20     |                                                           | $      | 375                                                              |   | $                                                           | 105     |   | $ | (11,632 | ) |

|   | (a) | The                proration of derivatives is a reduction in the deferred financing                cost due                to the conversion of the convertible notes into common                stock. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      9. Stockholders’ Deficit**

***Common      Stock***

***Conversion      of Senior Secured Notes***

***Stock      Option Transactions***

| **Date**                                    |   | **Number                of****Option                or****Warrant****Holders** |                     | **Number                of****Options****Exercised** |   | **Number****of                Warrants****Exercised** |   | **Exchange****for                Shares****of                Common****Stock** |                     |
|---------------------------------------------|--------|--------------------------------------------------------------------------------|--------------------------|------------------------------------------------------|--------|-------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------------------------|
| 2007                                        |   |                                                                           | 1                        |                                                 |   | 440,000                                               |   |                                                                           | —                  |   |   | 440,000 |   |
| 1st                Quarter - 2008 |   |                                                                           | 1                        |                                                 |   | 60,000                                                |   |                                                                           | —                  |   |   | 60,000 |   |
| 2nd                Quarter - 2008           |   |                                                                           | 1                        |                                                 |   | 70,000                                                |   |                                                                           | —                  |   |   | 70,000 |   |
| 3rd                Quarter - 2008           |   |                                                                           | —                  |                                                 |   | —                                               |   |                                                                           | —                  |   |   | — |   |
| Total                                       |   |                                                                           |      |                                                 |   | 570,000                                               |   |                                                                           |      |   |   | 570,000 |   |

**Stock      option granted for 2007 through to the first nine month period ending September      30, 2008:**

| **Stock                Option Transactions** |   | **Options****Granted** |    | **Exercise                Price** |   | **Estimated****Fair                Value** |   | **Weighted****Average****Expected                Life****(years)** |    | **Approximate****Volatility                (%)** |   |
|----------------------------------------------|--------|------------------------|---------|-----------------------------------|--------|--------------------------------------------|--------|--------------------------------------------------------------------|---------|--------------------------------------------------|--------|
| Total - 2007                (a)    |   |                   | 686,050 |                              |   | 1.00                -10.00                 |   |                                                               | 278,014 |                                             |   | 10 |   |   | 67                - 69 |   |
| 1st                Quarter - 2008  |   |                   | — |                              |   | —                                    |   |                                                               | — |                                             |   | — |   |   | — |   |
| 2nd                Quarter - 2008            |   |                   | — |                              |   | —                                    |   |                                                               | — |                                             |   | — |   |   | — |   |
| 3rd                Quarter - 2008            |   |                   | 10,000  |                              |   | 1.00                                       |   |                                                               | 4,289   |                                             |   | 10 |   |   | 98.59 |   |

|   | (a) | These                options were issued for future services and will be expense over                the                vesting life of the options. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      9. Stockholders’ Deficit  - (continued)**

**The      following table summarizes the assumptions used to measure the change in fair      value of derivatives associated with non-employee option      exercises:**

| **Stock                Option****Transactions****Non-Employees** |   | **Number                of****Options****Exercised** |    | **Dividend****Yield                %** |   | **Expected****Volatility                %**  |   | **Risk                Free****Interest****Rate** |                         | **Expected****Remaining****Life** |   | **Decrease                in****the                FV of****Option****Derivatives** |   |
|------------------------------------------------------------------|--------|------------------------------------------------------|---------|----------------------------------------|--------|---------------------------------------------------|--------|--------------------------------------------------|------------------------------|-----------------------------------|--------|-------------------------------------------------------------------------------------|--------|
| Total - 2007                                           |   |                                                 | 440,000 |                                   |   | —                                           |   |                                             | 69.58                - 73.36 |                              |   | 4.55                - 4.98                                                          |   |   | 2.25                - 2.75 |   | $ | 310,738 |   |
| 1st                Quarter - 2008                      |   |                                                 | 60,000  |                                   |   | —                                           |   |                                             | 104.48                       |                              |   | 1.47                - 1.61                                                          |   |   | 1.75 |   |   | 56,400 |   |
| 2nd                Quarter - 2008                                |   |                                                 | 70,000  |                                   |   | —                                           |   |                                             | 107.35                       |                              |   | 2.58                                                                                |   |   | 1.08 |   |   | 30,021 |   |
| 3rd                Quarter - 2008                                |   |                                                 | — |                                   |   | —                                           |   |                                             | —                      |                              |   | —                                                                             |   |   | — |   |   | — |   |
| Total                                                            |   |                                                 | 570,000 |                                   |   |                                    |   |                                             |               |                              |   |                                                                      |   |   |     |   |   |     |   |

|                                                 |   | **Employees** |      | **Non-Employees**                 |   | **Total**                   |   |
|------------------------------------------------------|--------|---------------|-----------|-----------------------------------|--------|-----------------------------|--------|
|                                                 |   | **Shares**    |      | **Exercise                Price** |   | **Shares**                  |   | **Exercise                Price** |   | **Shares** |   | **Exercise                Price** |   |
| **Outstanding                at December 31, 2006**  |   |          | 1,185,550 |                              | $      | 0.30                - 10.00 |   |   | 1,725,500 |   | $ | 0.30                - 10.00 |   |   | 2,911,050 |   | $ | 0.30                - 10.00 |   |
| Granted                                              |   |          | 376,050   |                              |   | 1.00                - 10.00 |   |   | 310,000 |   |   | 1.00 |   |   | 686,050 |   |   | 1.00                - 10.00 |   |
| Terminated                                           |   |          | (2,000    | )                                 |   | 10.00                       |   |   | — |   |   | — |   |   | (2,000 | ) |   | 10.00 |   |
| Reclassified                                         |   |          | (440,000  | )                                 |   | 0.30                        |   |   | 440,000 |   |   | 0.30                - 0.50 |   |   | — |   |   | 0.30 |   |
| Exercised                                            |   |          | (60,000   | )                                 |   | 0.30                        |   |   | (380,000 | ) |   | 0.30 |   |   | (440,000 | ) |   | 0.30                - 0.50 |   |
| Cancelled                                            |   |          | (2,090    | )                                 |   | 10.00                       |   |   | (150,000 | ) |   | 10.00 |   |   | (152,090 | ) |   | 10.00 |   |
| **Outstanding                at December 31, 2007**  |   |          | 1,057,510 |                              | $      | 0.30                - 10.00 |   |   | 1,945,500 |   | $ | 0.30                - 10.00 |   |   | 3,003,010 |   | $ | 0.30                - 10.00 |   |
| Granted                                              |   |          | 10,000    |                              |   | 1.00                        |   |   | — |   |   | — |   |   | 10,000 |   |   | 1.00 |   |
| Exercised                                            |   |          | —   |                              |   | —                     |   |   | (130,000 | ) |   | 0.30 |   |   | (130,000 | ) |   | 0.30 |   |
| Cancelled                                            |   |          | (28,210   | )                                 | $      | 1.00                - 10.00 |   |   | — |   |   | — |   |   | (28,210 | ) |   | 1.00                - 10.00 |   |
| **Outstanding                at September 30, 2008** |   |          | 1,039,300 |                              | $      | 0.30-10.00                  |   |   | 1,815,500 |   | $ | 0.30-10.00 |   |   | 2,854,800 |   | $ | 0.30-10.00 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      9. Stockholders’ Deficit  - (continued)**

|                                                        |   | **Number                  of****Shares** |      | **Weighted****Average****Exercise****Price** |   | **Weighted****Average****Remaining****Contractual****Life                  Years** |   | **Intrinsic                  Value** |   |
|-------------------------------------------------------------|--------|------------------------------------------|-----------|----------------------------------------------|--------|------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
| **As                  of December 31, 2007**                |   |                           |      |                               |   |                                                                     |   |                       |   |
| Employees - Outstanding                           |   |                                     | 1,057,510 |                                         |   | 2.23                                                                               |   |                                 | 5.83   |   |   | 290,000 |   |
| Employees - Expected                  to Vest     |   |                                     | 285,078   |                                         |   | 1.02                                                                               |   |                                 | 9.57   |   |   | — |   |
| Employees - Exercisable                           |   |                                     | 772,432   |                                         |   | 2.13                                                                               |   |                                 | 5.83   |   |   | 290,000 |   |
| Non-Employees - Outstanding                       |   |                                     | 1,945,500 |                                         |   | 2.60                                                                               |   |                                 | 5.77   |   |   | 635,100 |   |
| Non-Employees - Expected                  to Vest |   |                                     | 145,291   |                                         |   | 4.37                                                                               |   |                                 | 9.41   |   |   | — |   |
| Non                  Employees - Exercisable      |   |                                     | 1,800,209 |                                         |   | 2.53                                                                               |   |                                 | 5.77   |   |   | 635,100 |   |
| **As                  of September 30, 2008**               |   |                                     |           |                                         |   |                                                                                    |   |                                 |        |   |   |  |   |
| Employees - Outstanding                           |   |                                     | 1,039,300 |                                         |   | 2.42                                                                               |   |                                 | 4.95   |   |   | — |   |
| Employees - Expected                  to Vest     |   |                                     | 164,711   |                                         |   | —                                                                            |   |                                 | 8.99   |   |   | — |   |
| Employees - Exercisable                           |   |                                     | 874,589   |                                         |   | 2.23                                                                               |   |                                 | 4.95   |   |   | — |   |
| Non-Employees - Outstanding                       |   |                                     | 1,815,500 |                                         |   | 4.03                                                                               |   |                                 | 4.13   |   |   | — |   |
| Non-Employees - Expected                  to Vest |   |                                     | 89,689    |                                         |   | —                                                                            |   |                                 | 8.65   |   |   | — |   |
| Non                  Employees - Exercisable      |   |                                     | 1,725,811 |                                         |   | 2.79                                                                               |   |                                 | 4.13   |   |   | — |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      9. Stockholders’ Deficit  - (continued)**

***Warrants***

| **Warrants                  Granted**                                |   | **Warrants****Issued                  for****Purchase****of****Common****Stock** |       | **Estimated****Fair****Market****Value                  ($) at September 30, 2008** |   | **Exercise****Price                  Per****Share                  ($)** |   | **Expected****Life****(Years)** |       | **Risk                  Free****Interest                  %** |   | **Approximate****Volatility****%** |        | **Expected****Dividend****Yield                  %** |                         |
|----------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|---------------------------------|------------|---------------------------------------------------------------|--------|------------------------------------|--------|------------------------------------------------------|------------------------------|
| 2000                  (a)                                            |   |                                                                             | 933,330    |                                                                                |   | —                                                                  |   |                            | 4.00       |                                                          |   | 5                                  |   |                                                 | 5.02                         | % |   | — |   |   | — |   |
| 2001                  (b)                                            |   |                                                                             | 100,000    |                                                                                |   | —                                                                  |   |                            | 8.00       |                                                          |   | 5                                  |   |                                                 | 4.89                         | % |   | — |   |   | — |   |
| 2003                  (c)                                            |   |                                                                             | 200,000    |                                                                                |   | 20,000                                                                   |   |                            | 20.00      |                                                          |   | 10                                 |   |                                                 | 2.98                         | % |   | 95.48 | % |   | — |   |
| 2005                  (d)                                            |   |                                                                             | 75,000     |                                                                                |   | —                                                                  |   |                            | —    |                                                          |   | —                            |   |                                                 | —                      |   |   | — |   |   | — |   |
| 2006                  (e)(f)(g)(i)                                   |   |                                                                             | 6,249,997  |                                                                                |   | 32,031                                                                   |   |                            | 1.00-10.00 |                                                          |   | 3                  - 10            |   |                                                 | 1.60                  - 4.14 | % |   | 81.31                  - 93.93 | % |   | — |   |
| 2007                  (g)                  (iii), (g) (ii), (h), (i) |   |                                                                             | 8,350,000  |                                                                                |   | 1,317,125                                                                |   |                            | 1.00       |                                                          |   | 5                                  |   |                                                 | 2.98                  - 4.43 | % |   | 95.48                  - 99.99 | % |   | — |   |
| 2008                  (g)(ii)                                        |   |                                                                             | 2,190,800  |                                                                                |   | 278,062                                                                  |   |                            | 1.00       |                                                          |   | 3                  - 5             |   |                                                 | 2.98                         | % |   | 95.48                  -99.99 | % |   | — |   |
| Total                                                                |   |                                                                             | 18,099,127 |                                                                                |   |                                                                          |   |                            |            |                                                          |   |                                    |   |                                                 |                              |   |   |  |   |   |  |   |

|   | (a) | The                warrants fully vested in December 2001 and were to expire in December                2005. However, prior to the expiration date in December 2005 the                holder of                the warrants elected to exercise 933,330 warrants in exchange for                848,482                shares of common stock. The exercise of these warrants was                cashless. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | The                warrant was fully vested on the date of grant and was exercised in                March                2006. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------|

|   | (c)    | The                warrant issued to an individual in connection with consulting services                rendered. The warrant fully vested on the date of grant and expires                in                June 2013.                                                                                                                                   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                       |
|   | (d)    | The                Company sold warrants for 75,000 shares of common stock at 125% of                the IPO                price for $75.00 to the underwriter pursuant to the underwriting                agreement. The warrants had a term of six months commencing on the                effective date of the IPO, February 11,                2005. |

|   | (e) | These                warrants were issued for past services and will be expensed over                a one                year vesting period. The fair value of the portion of these warrants                that                vested during 2007 of $400,643 and in aggregate $1,602,500 has been                reclassified as part of the warrant                derivative. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | Warrants                issued for past services and are expensed over a one year vesting                period.                The fair value of the portion of these warrants that vested during                2007 of                $400,643 and in aggregate $1,602,500 has been reclassified as part                of the                warrant derivative. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g)(i) | The                warrants issued for future services. These warrants are fully vested                on                the date of the grant, have a five year term and expire in December                2012. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g)(ii) | These                warrants were issued along with demand notes; they are detachable,                are                fully vested on the date of the grant and have a five year term.                The fair                value of the vested warrants during the year ended December 31, 2007                of                $507,000 was recorded as additional paid-in capital and the discount                on                debt is being amortized to interest expense over the term of the                notes. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      9. Stockholders’ Deficit  - (continued)**

|   | (g)(iii) | The                warrants issued for future services. These warrants are fully vested                on                the date of the grant and have a ten (10) year term. The warrants                will                expire in December 2017. |
|--------|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (h) | These                warrants were issued in connection with consulting services rendered.                These warrants are fully vested on the date of the grant and have                a ten                year term. The warrants will expire in November 2017. The fair value                of                the fully vested warrants during the year ended December 31, 2007                of                $223,987 has been reclassified as part of the warrant                derivative. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (i) | The                warrants were issued to an employee in connection with the research                and                development services rendered. The warrants are fully vested on the                date                of the grant, have a ten year term and expire in November                2017. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Warrant      activity for the years 2007 through the nine month period September 30, 2008      is      as follows:**

|                                                        |   | **Warrants****Outstanding** |       | **Weighted****Average****Exercise****Price** |   |
|-------------------------------------------------------------|--------|-----------------------------|------------|----------------------------------------------|--------|
| Outstanding                  at December 31, 2006           |   |                        | 1,230,882  |                                         | $      | 7.88 |   |
| Granted                                                     |   |                        | 8,350,000  |                                         |   | 1.00 |   |
| Sold(a)                                                     |   |                        | 5,999,997  |                                         |   | 1.00 |   |
| Exercised                                                   |   |                        | —    |                                         |   | — |   |
| Forfeited                                                   |   |                        | (705,882   | )                                            |   | 8.50 |   |
| Outstanding                  at December 31, 2007           |   |                        | 14,874,997 |                                         |   | 1.22 |   |
| Granted                                                     |   |                        | 2,190,800  |                                         |   | 1.00 |   |
| Sold/Reissued                                               |   |                        | —    |                                         |   | — |   |
| Exercised                                                   |   |                        | —    |                                         |   | — |   |
| Forfeited/Cancelled                                         |   |                        | —    |                                         |   | — |   |
| Outstanding                  at September 30, 2008          |   |                        | 17,065,797 |                                         |   | 1.19 |   |
| Warrants                  exercisable at December 31, 2006  |   |                        | 1,168,382  |                                         |   | 7.88 |   |
| Warrants                  exercisable at December 31, 2007  |   |                        | 14,874,997 |                                         |   | 1.22 |   |
| Warrants                  exercisable at September 30, 2008 |   |                        | 17,065,797 |                                         | $      | 1.19 |   |

|   | (a) | In                connection with the Securities Purchase Agreement, the Company issued                warrants to purchase an aggregate of 705,882 shares of its common                stock.                On May 21, 2007, the aggregate number of shares acquirable upon exercise                of such warrants increased to 5,999,997. The term of the warrants                is three                years and they may be exercised at any time up to March 2009. The                warrant                exercise price was $8.50 per share, until the price was re-set as                of May                21, 2007 at $1.00 per share. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      9. Stockholders’ Deficit  - (continued)**

**The      following table summarizes information about warrants outstanding at September      30, 2008 (unaudited):**

| **Exercise****Prices**  |   | **Warrants****Outstanding** |       | **Weighted****Average****Remaining****Life****(Years)** |   | **Weighted****Average****Exercise****Price** |   | **Warrants****Exercisable** |               | **Weighted****Average****Exercise****Price** |   |
|-------------------------|--------|-----------------------------|------------|---------------------------------------------------------|--------|----------------------------------------------|--------|-----------------------------|--------------------|----------------------------------------------|--------|
| $                  1.00 |   |                        | 5,999,997  |                                                    |   | 0.47                                         |   | $                           | 1.00               |                                         |   | 5,999,997 |   | $ | 1.00 |   |
| 1.00                    |   |                        | 8,350,000  |                                                    |   | 4.19                                         |   |                        | 1.00               |                                         |   | 8,350,000 |   |   | 1.00 |   |
| 1.00                    |   |                        | 2,190,800  |                                                    |   | 4.48                                         |   |                        | 1.00               |                                         |   | 2,190,800 |   |   | 1.00 |   |
| 2.00                    |   |                        | 200,000    |                                                    |   | 4.73                                         |   |                        | 2.00               |                                         |   | 200,000 |   |   | 2.00 |   |
| 10.00                   |   |                        | 250,000    |                                                    |   | 7.54                                         |   |                        | 10.00              |                                         |   | 250,000 |   |   | 10.00 |   |
| 12.50                   |   |                        | 75,000     |                                                    |   | 0.38                                         |   |                        | 12.50              |                                         |   | 75,000 |   |   | 12.50 |   |
| Total                   |   |                        | 17,065,797 |                                                    |   |                               |   |                        |     |                                         |   | 17,065,797 |   |   |      |   |

***Stock-Based      Compensation — Options and Warrants:***

|                                                              |   | **Nine                  Month Period****Ended                  September 30,** |   |
|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|
|                                                              |   | **2007**                                                             |   | **2008** |   |
|                                                              |   | *(In                  thousands)*                                              |   |
| Research                  and development                         |   | $                                                                              | 102    |   | $ | 115 |   |
| General                  and administration                       |   |                                                                           | 60     |   |   | 101 |   |
| Total                  Stock-based compensation expense (options) |   |                                                                           | 162    |   |   | 216 |   |
| Stock-based                  compensation (warrants)              |   |                                                                           | 401    |   |   | — |   |
| Stock-based                  compensation expense                 |   | $                                                                              | 563    |   | $ | 216 |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      10. Commitments and Contingencies**

***Leases***

| **Paid                Rent:**  |   |   | **December                31,****2007** |   |   | **September                30,****2008** |   |
|--------------------------------|--------|--------|-----------------------------------------|--------|--------|------------------------------------------|--------|
|                           |   |   | *(In                thousands)*    |   |
| Total                rent paid |   | $      | 465                                     |   | $      | 252                                      |   |

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      10. Commitments and Contingencies**

**Service      Agreements**

**The      major outstanding contractual obligations are as follows:**

| **Item                #** |   | **Contract**                                                                            |   | **Agreement                Name**                                    |   | **Start**                                                     |   | **End                Date**                                                                                    |
|---------------------------|--------|-----------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|
|                      |   |                                                                                    |   |                                                                 |   |                                                          |   |                                                                                                           |
| 1                         |   | Co-founder                of the Company                                                |   | Royalty                agreement - Amendment #2                      |   | Aug.                16, 2004                                  |   | Upon                payment of the agreed amount                                                               |
| 2                         |   | The                Bruckner GroupAmendment                #4Amendment                #5 |   |  Objectives                1 - 3Objectives                4 - 6 |   |  Dec.                20, 2007Jan.                2, 2008 |   |  January                2008May                31, 2008After                start of Phase II Heart Trial |
| 3                         |   | Staccato                Faces Inc.                                                      |   | Development                Agmt                                      |   | Nov.                23, 2007                                  |   | Ongoing                                                                                                        |
| 4                         |   | Derma                Life Clinical Partners LP                                          |   | Development                Agreement                                 |   | June                3, 2008                                   |   | Ongoing                                                                                                        |
| 5                         |   | Derma                Life Clinical Partners LP                                          |   | Technology                License Agreement                          |   | June                3, 2008                                   |   | Ongoing                                                                                                        |
| 6                         |   | ProDerm,                LP                                                              |   | Development                Agreement                                 |   | July                8, 2008                                   |   | Ongoing                                                                                                        |
| 7                         |   | ProDerm,                LP                                                              |   | Technology                License Agreement                          |   | July                8, 2008                                   |   | Ongoing                                                                                                        |
| 8                         |   | Cardio                Derma Clinical Partners, LP                                       |   | Development                Agreement                                 |   | July                10, 2008                                  |   | Ongoing                                                                                                        |
| 9                         |   | Cardio                Derma Clinical Partners, LP                                       |   | Technology                License Agreement                          |   | July                10, 2008                                  |   | Ongoing                                                                                                        |

| Item |  **ITEM                DESCRIPTION**                                                                                                                                                                                                                                                                            |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)  | The                Company’s royalty agreement with its Founder will provide him with a one                percent royalty on net revenue from the sale of the Company’s drug                candidates, if any, measured quarterly and payable 90 days after                quarter                end. |

| (2) | The                Bruckner Group Incorporated has been assisting the Company in exploring                the potential economic consequences of applying FGF-1141                to                a variety of clinical scenarios and patent types. There are three                distinct                components in this project that will be performed simultaneously                by the                Bruckner Group. This project has an approximate total cost of                $450,000. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)    | Staccato                Faces Inc. (“SFI”), will provide supporting advice to Company at the                Company’s request.  They will also participate in discussions and/or                negotiations with Commercialization Partners.  The Company may engage                SFI to provide due diligence services  on any issues related to                potential business arrangements with commercialization                partners. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (4)    | The                agreement is between the Company and Derma Life Clinical Partners LP                for further development of the Wound Healing IP and advancing a potential                wound healing drug in the FDA                process.                                                                                                                                                                                                                           |

| (5) | The                purpose of this agreement is for the Company to license to Derma                Life                Clinical Partners the Wound Healing IP for advancing a potential                wound                healing drug in the FDA process. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CARDIOVASCULAR      BIOTHERAPEUTICS, INC.**

**(Unaudited)  **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**September      30, 2008**

**Note      10. Commitments and Contingencies - continued**

**Service      Agreements**

| (6) | The                agreement is between the Company and ProDerm, LP for further                development of the Wound Healing IP and advancing a potential wound                healing drug in the FDA process. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | The                purpose of this agreement is for the Company to license to ProDerm,                LP the                Wound Healing IP for advancing a potential wound healing drug in                the FDA                process. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8) | The                agreement is between the Company and Cardio Derma Clinical                Partners, LP for further development of the Wound Healing IP and                advancing                a potential wound healing drug in the FDA                process. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | The                purpose of this agreement is for the Company to license to Cardio                Derma                Clinical Partners, LP the Wound Healing IP for advancing a potential                wound                healing drug in the FDA process. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Litigation**

**Note      11. Subsequent Event**

**Phage      Biotechnology      Corporation**

**Cardio        Neo-Genesis**

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations**

**FORWARD      LOOKING STATEMENTS**

*This      Form 10-Q, including but not limited to this section, may contain      forward-looking statements. These statements relate to future events or the      Company’s future financial performance and involve known and unknown risks,      uncertainties and other factors that may cause the Company or it’s industry’s      actual results, levels of activity, performance or achievements to be materially      different from any future results, levels of activity, performance or      achievements expressed or implied by the forward-looking statements. These      risks      and other factors include those listed under “Risk Factors” and elsewhere in      this Form 10-Q. The Company believes that the section entitled “Risk Factors”includes all material risks that could harm its business. In some cases, you      can      identify forward-looking statements by terminology such as “may,” “will,”“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”“predicts,” “intends,” “potential,” “continue” or the negative of these terms or      other comparable terminology. These statements are only predictions. Actual      events or results may differ materially.*

*The      Company believes it is important to communicate its future expectations to      the      Company’s investors. However, there may be events in the future that the Company      may not able to accurately predict or control and that may cause the Company’s      actual results to differ materially from the expectations it describes in the      forward-looking statements. Stockholders are cautioned that all forward-looking      statements involve risks and uncertainties, and actual results may differ      materially from those discussed as a result of various factors, including those      factors described in the “Risk Factors” section of this Form 10-Q. Stockholders      should not place undue reliance on the Company’s forward-looking      statements.*

*Although      the Company believes that the expectations reflected in the forward-looking      statements are reasonable, the Company cannot guarantee future results, levels      of activity, performance or achievements. You should read the following      discussion and analysis of the Company’s financial condition and results of      operations together with the financial statements and the related notes      appearing in Item 1. of this Form 10-Q. Some of the information contained in      this discussion and analysis or set forth elsewhere in this Form 10-Q, including      information with respect to the plans and strategy for the Company’s business      and related financing, includes forward-looking statements that involve risks      and uncertainties. You should review the “Risk Factors” set forth below in this      section of this Form 10-Q for a discussion of important factors that could      cause      actual results to differ materially from the results described in or implied      by      the forward-looking statements contained in the following discussion and      analysis.*

**BUSINESS**

**1.      Overview**

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**1.      Overview - continued**

**2.      Results of Operations**

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**2.      Results of Operations - continued**

|                                                         |   | For                  the Nine Month Period Ended September 30, |   |
|--------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                                         |   |                                                           |   |    |   | $ |   | % |   |
|                                                         |   | 2007                                                           |   | 2008 |   | Change |   | Change |   |
| Clinical                  Trials                             |   | $                                                              | 1,965  |   | $ | 973 |   | $ | (992 | ) |   | 50.48 | % |
| Phage                  Biotechnology Corporation (affiliate) |   |                                                           | 1,216  |   |   | 953 |   |   | (263 | ) |   | 21.63 | % |
| R&D                  salaries and expenses               |   |                                                           | 1,562  |   |   | 1,454 |   |   | (108 | ) |   | 6.91 | % |
|                                                         |   |                                                           |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Research and Development              |   | $                                                              | 4,743  |   | $ | 3,380 |   | $ | (1,363 | ) |   | 28.74 | % |

**General      and Administrative**

|                                                       |   | **For                the Nine Month Period Ended September 30,** |   |
|------------------------------------------------------------|--------|------------------------------------------------------------------|--------|
|                                                       |   | **2007**                                                         |   | **2008** |   | **$****Change** |   | **%****Change** |   |
|                                                       |   | *(Dollars                in thousands)*                |   |
| General                and administrative                  |   | $                                                                | 9,524  |   | $ | 4,463 |   | $ | (5,061 | ) |   | (53 | )% |
| Phage                Biotechnology Corporation (affiliate) |   | $                                                                | 26     |   | $ | 8 |   | $ | (18 | ) |   | (69 | )% |

|                                                                                                                                                                                                                                                              |   | **$                  Amount****in                  thousands** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
| **These                  are our primary reductions in expenses:**                                                                                                                                                                                                |   |                                                 |   |
| Write-off                  of deferred costs related to abandoned listing on the Alternative                  Investment Market of the London Stock Exchange.                                                                                                     |   | $                                                              | 1,716  |   |
| Professional                  expenses related to listing on the Alternative Investment Market                  of the                  London Stock Exchange, SOX Audit and Restatement of a full year                  of                  financial statements |   |                                                           | 1,242  |   |
| Officer                  compensation, related to the issuance of warrants in April                  2005                                                                                                                                                         |   |                                                           | 444    |   |
| Computer                  expenses reflecting the reduction in new project                  initiatives                                                                                                                                                           |   |                                                           | 394    |   |
| Travel                  expenses                                                                                                                                                                                                                                  |   |                                                           | 261    |   |
| Investor                  relations                                                                                                                                                                                                                               |   |                                                           | 219    |   |
| Outside                  services primarily related to printing and distribution of financial                  reports                                                                                                                                            |   |                                                           | 166    |   |
| Marketing                                                                                                                                                                                                                                                         |   |                                                           | 155    |   |
| D&O                  Insurance                                                                                                                                                                                                                                |   |                                                           | 152    |   |
| Reduction                  in payroll and other human resources costs                                                                                                                                                                                             |   |                                                           | 151    |   |
| Net                  decrease in all other expenses                                                                                                                                                                                                               |   |                                                           | 161    |   |
| Total                  decrease in expenses                                                                                                                                                                                                                       |   | $                                                              | 5,061  |   |

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**2.      Results of Operations - continued**

**Interest      Income**

|                           |   | **For                the Nine Month Period Ended September 30,** |   |
|--------------------------------|--------|------------------------------------------------------------------|--------|
|                           |   | **2007**                                                         |   | **2008** |   | **$****Change** |   | **%****Change** |   |
|                           |   | *(Dollars                in thousands)*                |   |
| Interest                income |   | $                                                                | 140    |   | $ | — |   | $ | (140 | ) |   | (100 | )% |

**Interest      Expense**

|                            |   | **For                the Nine Month Period Ended September 30,** |   |
|---------------------------------|--------|------------------------------------------------------------------|--------|
|                            |   | **2007**                                                         |   | **2008** |   | **$****Change** |   | **%****Change** |   |
|                            |   | *(Dollars                in thousands)*                |   |
| Interest                expense |   | $                                                                | 7,658  |   | $ | 2,173 |   | $ | (5,485 | ) |   | (72 | )% |

|                                                         |   |   | **For                  the Nine Month Period Ended September 30,** |   |
|--------------------------------------------------------------|--------|--------|--------------------------------------------------------------------|--------|
| **Components                  of Interest Expense:**         |   |   | **2007**                                                           |   |   | **2008** |   |
| Interest                  from senior notes and demand notes |   | $      | 1,036                                                              |   | $ | 381 |   |
| Cashless                  interest from senior notes         |   |   | 163                                                                |   |   | 18 |   |
| Amortization                  of deferred financing cost     |   |   | 915                                                                |   |   | 30 |   |
| Amortization                  of derivatives                 |   |   | 5,544                                                              |   |   | 755 |   |
| Amortization                  of debt discount               |   |   | —                                                            |   |   | 989 |   |
| Total                  interest expense                      |   | $      | 7,658                                                              |   | $ | 2,173 |   |

|                                                                       |   |   | **For                  the Nine Month****Period                  Ended September 30,** |   |
|----------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------|--------|
|                                                                       |   |   | **2007**                                                                               |   |   | **2008** |   |
|                                                                       |   |   | *(Dollars                  in thousands)*                                              |   |
| Adjustment                  to fair value of derivatives                   |   | $      | (5,365                                                                                 | )      | $ | 690 |   |
| Adjustment                  to fair value of derivatives - other |   |   | 1,954                                                                                  |   |   | 4,485 |   |

**Three      Months Ended September 30, 2007 and 2008**

|                                                           |   | For                    the Nine Month Period Ended September 30, |   |
|----------------------------------------------------------------|--------|------------------------------------------------------------------|--------|
|                                                           |   |                                                             |   |    |   | $ |   | % |   |
|                                                           |   | 2007                                                             |   | 2008 |   | Change |   | Change |   |
| Clinical                    Trials                             |   | $                                                                | 480    |   | $ | 476 |   | $ | (4 | ) |   | (0.01) |  % |
| Phage                    Biotechnology Corporation (affiliate) |   |                                                             | 289    |   |   | 120 |   |   | (169 | ) |   | (0.58) |  % |
| R&D                    salaries and expenses               |   |                                                             | 641    |   |   | 530 |   |   | (111 | ) |   | (0.17) |  % |
|                                                           |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Total                    Research and Development              |   | $                                                                | 1,410  |   | $ | 1,126 |   | $ | (284 | ) |   | (0.20) |  % |

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**2.      Results of Operations - continued**

**General      and Administrative**

|                                                       |   |   | **For                the Three Month Period Ended September 30,** |   |
|------------------------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|
|                                                       |   |   | **2007**                                                          |   |   | **2008** |   |   | **$****Change** |   |   | **%****Change** |   |
|                                                       |   |   | *(Dollars                in thousands)*                           |   |
| General                and administrative                  |   | $      | 1,356                                                             |   | $ | 1,057 |   | $ | (299 | ) |   | (22 | )% |
| Phage                Biotechnology Corporation (affiliate) |   | $      | —                                                           |   | $ | 1 |   | $ | 1 |   |   | 100 | % |

|                                                                  |   | **$                  Amount****in                  Thousands** |   |
|-----------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
| **These                  are our primary reductions in expenses:**    |   |                                                 |   |
| Investor                  relations                                   |   |                                                           | 149    |   |
| D&O                  Insurance                                    |   |                                                           | 80     |   |
| Reduction                  in payroll and other human resources costs |   |                                                           | 72     |   |
| Net decrease                  in all other expenses              |   |                                                           | (2     | ) |
| Total                  decrease in expenses                           |   | $                                                              | 299    |   |

**Interest      Income**

|                           |   | **For                the Three Month Period Ended September                30,**   |   |
|--------------------------------|--------|----------------------------------------------------------------------------------------------|--------|
|                           |   | **2007**                                                                                     |   | **2008** |   | **$****Change** |   | **%****Change** |   |
|                           |   | *(Dollars                in thousands)*                                                 |   |
| Interest                income |   | $                                                                                            | 13     |   | $ | — |   | $ | (13 | ) |   | (100 | %) |

|                            |   | **For                the Three Month Period Ended September 30,**  |   |
|---------------------------------|--------|-------------------------------------------------------------------------|--------|
|                            |   | **2007**                                                                |   | **2008** |   | **$****Change** |   | **%****Change** |   |
|                            |   | *(Dollars                in thousands)*                       |   |
| Interest                expense |   | $                                                                       | (1,467 | ) | $ | (535 | ) | $ | (932 | ) |   | (63 | %) |

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**2.      Results of Operations - continued**

|                                                         |   | **For                  the Three Month Period Ended September 30,** |    |
|--------------------------------------------------------------|--------|---------------------------------------------------------------------|---------|
| **Components                  of Interest Expense:**         |   | **2007**                                                            |    | **2008** |   |
| Interest                  from senior notes and demand notes |   | $                                                                   | 242     |   | $ | 121 |   |
| Cashless                  interest from senior notes         |   |                                                                | 58      |   |   | 4 |   |
| Amortization                  of deferred financing cost     |   |                                                                | 150     |   |   | 10 |   |
| Amortization                  of derivatives                 |   |                                                                | 1,017   |   |   | 251 |   |
| Amortization                  of debt discount               |   |                                                                | — |   |   | 149 |   |
| Total                  interest expense                      |   | $                                                                   | 1,467   |   | $ | 535 |   |

|                                                                       |   | **For                  the Three Month****Period                  Ended September 30,** |   |
|----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|
|                                                                       |   | **2007**                                                                                |   | **2008** |   |
|                                                                       |   | *(Dollars                  in thousands)*                                |   |
| Adjustment                  to fair value of derivatives                   |   | $                                                                                       | 4,719  |   | $ | 1,423 |   |
| Adjustment                  to fair value of derivatives - other |   |                                                                                    | 554    |   |   | 3,400 |   |

***FDA      Authorized Clinical Trials:***

| **Drug                Candidate** |   | **Indication**                                                                                                                |
|-----------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------|
| •  CVBT-141A      |   | Severe                Coronary Heart Disease (“CHD”) — surgical                delivery           |
| •  CVBT-141B      |   | Dermal                Ulcers (Wound Healing)                                                                                  |
| •  CVBT-141C      |   | Peripheral                Arterial Disease (“PAD”)                                                                |
| •  CVBT-141H      |   | Severe                Coronary Heart Disease (“CHD”) — injection catheter                delivery |

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**2.      Results of Operations - continued**

***Proof      of Concept Clinical Trials:***

| **Drug                Candidate** |   | **Indication**                                                                 |
|-----------------------------------|--------|--------------------------------------------------------------------------------|
| •  CVBT-141D      |   | Disc                Ischemia — proof of                concept |

***Pre-Clinical      Research and Development:***

| **Drug                Candidate** |   | **Indication**             |
|-----------------------------------|--------|----------------------------|
| •  CVBT-141E      |   | Stroke                     |
| •  CVBT-141F      |   | Bone                Repair |

**Clinical      Development**

***Clinical      Development***

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**2.      Results of Operations - continued**

***Pre-Clinical      Development***

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**2.      Results of Operations - continued**

**Patents**

| **Holder**                                                                          | **Patent**                                                                                                                                                       | **Patent                Number** | **Issue                Date**     | **Expiration**                  |
|-------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|-----------------------------------|---------------------------------|
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides                                                       | 6,268,178                        | July                31, 2001      | May                25, 2019     |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides                                                       | 6,794,162                        | September                21, 2004 | May                17, 2021     |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides                                                       | 6,773,899                        | August                10, 2004    | August                15, 2021  |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Method                of Producing Biologically Active Human Acidic Fibroblast Growth Factor                and                its Use in Promoting Angiogenesis | 6,642,026                        | November                4, 2003   | August                15, 2021  |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Method                of Producing Biologically Active Human Acidic Fibroblast Growth Factor                and                its Use in Promoting Angiogenesis | 7,252,818                        | August                7, 2007     | August                27, 2023  |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Kluyveromyces                Strains Metabolizing Cellulosic and Hemicellulosis                Materials                                                         | 7,344,876                        | March                18, 2008     | January                16, 2024 |

**Foreign      Patents**

| **Holder**                                                                          | **Country** | **Patent**                                                                                                                                                       | **Patent                Number** | **Issue                Date** | **Expiration**                 |
|-------------------------------------------------------------------------------------|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|-------------------------------|--------------------------------|
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Australia   | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides                                                       | 2001284914                       | May                26, 2006   | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Australia   | Method                of Producing Biologically Active Human Acidic Fibroblast Growth Factor                and                its Use in Promoting Angiogenesis | 2001288256                       | July                13, 2006  | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Austria     | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides                                                       | 1180153                          | April                13, 2005 | May                24, 2020    |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Austria     | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides                                                       | E358135                          | March                28, 2007 | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Belgium     | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides                                                       | 1180153                          | April                13, 2005 | May                24, 2020    |

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**2.      Results of Operations - continued**

**Patents**

**Foreign      Patents**

| **Holder**                                                                          | **Country**                   | **Patent**                                                                                                 | **Patent                Number** | **Issue                Date**     | **Expiration**                 |
|-------------------------------------------------------------------------------------|-------------------------------|------------------------------------------------------------------------------------------------------------|----------------------------------|-----------------------------------|--------------------------------|
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Belgium                       | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1309604                          | March                28, 2007     | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Switzerland                   | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1180153                          | April                13, 2005     | May                24, 2020    |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Germany                       | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1180153                          | April                13, 2005     | May                24, 2020    |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Germany                       | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 60127561.6                       | March                28, 2007     | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Europe                        | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1180153                          | March                28, 2007     | May                24, 2020    |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Europe                        | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1309604                          | March                28, 2007     | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | France                        | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1180153                          | April                13, 2005     | May                24, 2020    |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | France                        | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1309604                          | March                28, 2007     | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | United                Kingdom | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1180153                          | April                13, 2005     | May                24, 2020    |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | United                Kingdom | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1309604                          | March                28, 2007     | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Ireland                       | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1180153                          | April                13, 2005     | May                24, 2020    |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Ireland                       | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1309604                          | March                28, 2007     | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Italy                         | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1309604                          | March                28, 2007     | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Korea                         | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 10-0761486                       | September                18, 2007 | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corporation | Liechtenstein                 | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1180153                          | April                13, 2005     | May                24, 2020    |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corpora     | Netherlands                   | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1309604                          | March                28, 2007     | August                15, 2021 |

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**2.      Results of Operations - continued**

**Patents**

**Foreign      Patents**

| **Holder**                                                                      | **Country** | **Patent**                                                                                                 | **Patent                Number** | **Issue                Date** | **Expiration**                 |
|---------------------------------------------------------------------------------|-------------|------------------------------------------------------------------------------------------------------------|----------------------------------|-------------------------------|--------------------------------|
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corpora | Spain       | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1309604                          | March                28, 2007 | August                15, 2021 |
| CardioVascular                BioTherapeutics, Inc./Phage Biotechnology Corpora | Switzerland | Phage-Dependent                Super-Production Of Biologically Active Protein And                Peptides | 1309604                          | March                28, 2007 | August                15, 2021 |

**3.      Liquidity and Capital Resources**

***Sources      of Liquidity***

| **Source                  of Funds**                                                                                                                            |   | **Net                  Proceeds**          |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                                                                                            |   | *(Dollars**in                  thousands)* |   |
| Pre                  IPO                                                                                                                                        |   |                                       |        |   |
| Convertible                  preferred stock converts to common stock at 100/1, non-voting,                  no                  dividend                       |   | $                                          | 520    |   |
| Common                  stock                                                                                                                                   |   |                                       | 3,904  |   |
| Total                  net proceeds for issuance of our pre-IPO convertible notes                  payable                                                      |   |                                       | 14,892 |   |
| Post                  IPO                                                                                                                                       |   |                                       |        |   |
| Proceeds                  from the IPO, 1,725,000 shares of common stock sold at $1.00 per                  share net                  of the options exercised |   |                                       | 15,548 |   |
| Exercise                  of 2,026,064 stock option and warrants                                                                                                |   |                                       | 483    |   |
| Non-controlling                  interest in variable interest entities                                                                                         |   |                                       | 1,836  |   |
| Proceeds                  from private placement of senior secured convertible notes together                  with                  warrants.                  |   |                                       | 20,000 |   |
| Proceeds                  from private placement under Reg S                                                                                                    |   |                                       | 4,217  |   |
| Proceeds                  from the issuance of demand notes                                                                                                     |   |                                       | 1,675  |   |
| Proceeds                  from the issuance of Long Term Notes                                                                                                  |   |                                       | 1,261  |   |
| Proceeds                  from issuance of warrants at $0.001 par value                                                                                         |   |                                       | 6      |   |
| Total                  proceeds from financing through September 30, 2008                                                                                       |   | $                                          | 64,342 |   |
| Financing                  costs                                                                                                                                |   |                                       | (5,065 | ) |
| Net                  proceeds per statement of cash flow                                                                                                        |   | $                                          | 59,277 |   |

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**3.      Liquidity and Capital Resources - continued**

|   | **·** | On                  June 3, 2008 the Company entered into a clinical development agreement                  with Derma Life Clinical Partners LP (“Derma Life”) to fund a minimum of                  $1 million and up to $3 million of the clinical development for                  the                  Company’s wound healing drug candidate. (See footnote #5 for more                  detail.)                                                                                                                                                                                                    |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | **·** | On                  July 8, 2008 the Company entered into a clinical development agreement                  with ProDerm Limited Partnership (“PDLP”) to fund a minimum of $1 million                  and up to $10 million of the clinical development for the Company’s wound                  healing drug candidate. (See footnote #5 for more                  detail.)                                                                                                                                                                                                                              |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | **·** | On                  July 10, 2008 the Company entered into an agreement with Cardio                  Derma                  Clinical Partners (“CDCP”), to fund a minimum of $1,000,000 and up to                  $5,000,000 of the clinical development of the Company’s wound healing drug                  candidate. The Company is exploring other similar opportunities                  for                  development agreements as well as partnerships and joint ventures                  for                  co-development, clinical trials, marketing and                  distribution. |

|   | **·** | On                  March 18, 2008, the Company began a Private Placement of debt and                  warrants                  in an effort to raise up to $15,000,000 in promissory notes. During                  the nine month period ended September 30, 2008 the Company sold                  $1,260,800 of long term notes that have an 18 month term (one note                  for                  $80,000 has a 5 year term). The notes are unsecured. These notes                  were                  issued with 1,178,300 warrants which have a five year term and                  an exercise                  price of $1.00. These notes have an interest rate of 10% and 20%.                  Commissions earned by GHL, a related party, for the sale of these                  notes were $105,000. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **·** | In                  late 2007 and the first quarter of 2008, the Company placed                  $2,370,000 in demand notes of which $1,600,000 was outstanding                  at                  September 30, 2008. These notes have an interest rate of                  10%. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **·** | On                  May 21, 2007, the Company entered into an agreement to place                  15,000,000 of the Company’s common stock at a purchase price of $1.00 per                  share in connection with a Private Placement to the investor and                  certain                  other subscribers pursuant to a subscription agreement. As of December                  31,                  2007, the Company had issued 3,650,000 shares and received gross                  proceeds                  in the amount of $3,650,000. The agreement, as amended, provides                  for                  commissions of 10% of the amount placed in addition to warrants                  to                  purchase 3,700,000 shares of the Company’s common stock at an exercise                  price of $1.00 per share. The investor paid $3,700 for the warrants.                  The                  agreement, as amended, expired November 9, 2007. The Company extended                  this                  agreement to January 31, 2008. The Company has received an additional                  $825,000 for 825,000 shares of common stock during the nine month                  period ended September 30, 2008. This agreement expired and the                  offering                  is terminated. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **·** | Developing                  additional sources of debt and equity financing to satisfy the                  Company’s                  current and future operating                  requirements. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **·** | Pursuing                  opportunities for licensing of drug indications for co-development,                  clinical trials, marketing and                  distribution. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**4.      Cash Flow**

***Nine      Month Ended September 30, 2007 and 2008***

|                                                            |   | **Nine                  Month Period Ended September 30,** |    |
|-----------------------------------------------------------------|--------|------------------------------------------------------------|---------|
|                                                            |   | **2007**                                                   |    | **2008** |   | **$****Change** |   | **%****Change** |   |
|                                                            |   | *(Dollars                  in thousands)*                  |    |
| Cash                  flow used in operating activities         |   | $                                                          | (11,739 | ) | $ | (4,187 | ) | $ | 7,552 |   |   | 64 | % |
| Cash                  flow provided by investing activities     |   |                                                       | 52      |   |   | — |   |   | (52 | ) |   | (100 | )% |
| Cash                  flow provided by financing activities (a) |   |                                                       | 3,426   |   |   | 3,894 |   |   | 468 |   |   | 14 | % |

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**4.      Cash Flow - continued**

| (a)    | On                May 21, 2007, we entered into an agreement to sell 15,000,000 of                common                stock at a purchase price of $1.00 per share in connection with Private                Placement to the investor and certain other subscribers pursuant                to a                subscription agreement. During the nine month period ended September                30,                2008, we issued 825,000 shares in exchange for gross proceeds of                $825,000                and net proceeds of $742,000 towards completion of the Private                Placement.            |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | In                the period ended September 30, 2008, we sold $1,260,800 of long term                notes                that have an 18 month term (one note for $80,000 has a 5 year term).                These                notes were issued with 1,340,500 warrants, which have a five year                term and                an exercise price of $1.00. These notes have an interest rate of                10%.                Commissions earned for the sale of these notes was                $126,800.                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | In                late 2007 and the first quarter of 2008, we sold $2,370,000 in demand                notes of which $1,600,000 was outstanding at September 30, 2008.                Starting                in the third quarter and for the period ended September 30, 2008                the                Company sold $1,260,800 of long term notes that have an 18-month                term.                These notes were issued with 1,340,800 detachable warrants, which                have a                five-year term and an exercise price of $1.00. These notes have an                interest rate of 10%. |

**5.      Funding Requirements**

|   | · | our                ability to successfully obtain marketing approval for and to commercially                launch one of our new drug candidates;                and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the                success of our other pre-clinical and clinical development programs;                and, |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | the                receptivity of the capital markets to financing by biotechnology                companies; and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | · | our                revenues, if any, from successful development and commercialization                of our                potential products. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**6.      Contractual Obligations and Commercial Commitments**

|                                                                 |   | **Total**                         |   | **Less                  than****1                  Year** |   | **1 - 3****Years** |   | **3 - 5****Years** |   | **More                  than****5                  Years** |   |
|----------------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------------------------------|--------|------------------------------|--------|------------------------------|--------|------------------------------------------------------------|--------|
|                                                                 |   | *(In                  thousands)* |   |
| Long-term                  debt obligations                  (a)(b)  |   | $                                 | 3,541  |                                                      | $      | 2,280                        |   | $                            | 1,261  |                                                       | $      | — |   | $ | — |   |
| Operating                  lease obligations                  (c)(d) |   |                              | 854    |                                                      |   | 345                          |   |                         | 509    |                                                       |   | — |   |   | — |   |
| Total                                                                |   | $                                 | 4,395  |                                                      | $      | 2,625                        |   | $                            | 1,770  |                                                       | $      | — |   | $ | — |   |

|   | (a) | We                sold $20,000,000 of notes that have a floating interest rate of 3                month                LIBOR plus 7%. We have the option to pay the interest with registered                common stock. During the nine months ended September 30, 2007, note                holders converted $10,597,710 of the convertible senior secured notes                to                11,835,421 shares of common stock for an average price of $0.96.                During                the nine month ended September 30, 2008, convertible note holders                elected                to convert $1,600,000 of their notes receivable to 2,185,979 shares                of                common stock for an average price of $0.73. Should interest rates                remain                constant and the lenders do not convert anymore debt into common                stock,                and if we choose to make payments in cash, we would have a liability                of                approximately $360,360. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | In                  the nine month period ended September 30, 2008 the Company placed                  $1,260,800 of 18 month notes. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | In                November 2005, we entered into an operating lease agreement for office                space in Las Vegas, Nevada, which requires monthly payments of                approximately $17,900. We have one five-year option to renew the                lease.                Building operating expenses are reconciled annually, and any increase                over                the base year is billed pro rata among the building’s tenants. We occupied                this property in March 2006. We entered into a second amendment on                September 8, 2006, for the expansion space use of administrative                offices                in Las Vegas, which requires monthly payments of approximately $9,751                per                month for the remaining term of the                lease. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | We                entered into a Lease Agreement dated August 7, 2006 with Nancy Ridge                LLC,                a Delaware limited liability company, for the use of general office                and                laboratory space in San Diego, CA. The lease was terminated on March                14,                2008 in exchange for the amount of security deposit of $57,805. There                is                no future liability after this                date. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations **

**6.      Contractual Obligations and Commercial Commitments -      continued**

**The      major outstanding contractual obligations are as follows:**

| **Item                #** |   | **Contract**                                                                            |   | **Agreement                Name**                                    |   | **Start**                                                     |   | **End                Date**                                                                                    |
|---------------------------|--------|-----------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|
|                      |   |                                                                                    |   |                                                                 |   |                                                          |   |                                                                                                           |
| 1                         |   | Co-founder                of the Company                                                |   | Royalty                agreement - Amendment #2                      |   | Aug.                16, 2004                                  |   | Upon                payment of the agreed amount                                                               |
| 2                         |   | The                Bruckner GroupAmendment                #4Amendment                #5 |   |  Objectives                1 - 3Objectives                4 - 6 |   |  Dec.                20, 2007Jan.                2, 2008 |   |  January                2008May                31, 2008After                start of Phase II Heart Trial |
| 3                         |   | Staccato                Faces Inc.                                                      |   | Development                Agmt                                      |   | Nov.                23, 2007                                  |   | Ongoing                                                                                                        |
| 4                         |   | Derma                Life Clinical Partners LP                                          |   | Development                Agreement                                 |   | June                3, 2008                                   |   | Ongoing                                                                                                        |
| 5                         |   | Derma                Life Clinical Partners LP                                          |   | Technology                License Agreement                          |   | June                3, 2008                                   |   | Ongoing                                                                                                        |
| 6                         |   | ProDerm,                LP                                                              |   | Development                Agreement                                 |   | July                8, 2008                                   |   | Ongoing                                                                                                        |
| 7                         |   | ProDerm,                LP                                                              |   | Technology                License Agreement                          |   | July                8, 2008                                   |   | Ongoing                                                                                                        |
| 8                         |   | Cardio                Derma Clinical Partners, LP                                       |   | Development                Agreement                                 |   | July                10, 2008                                  |   | Ongoing                                                                                                        |
| 9                         |   | Cardio                Derma Clinical Partners, LP                                       |   | Technology                License Agreement                          |   | July                10, 2008                                  |   | Ongoing                                                                                                        |

| Item |  **ITEM                DESCRIPTION**                                                                                                                                                                                                                                                                            |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)  | The                Company’s royalty agreement with its Founder will provide him with a one                percent royalty on net revenue from the sale of the Company’s drug                candidates, if any, measured quarterly and payable 90 days after                quarter                end. |

| (2) | The                Bruckner Group Incorporated has been assisting the Company in exploring                the potential economic consequences of applying FGF-1141                to                a variety of clinical scenarios and patent types. There are three                distinct                components in this project that will be performed simultaneously                by the                Bruckner Group. This project has an approximate total cost of                $450,000. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)    | Staccato                Faces Inc. (“SFI”), will provide supporting advice to Company at the                Company’s request.  They will also participate in discussions and/or                negotiations with Commercialization Partners.  The Company may engage                SFI to provide due diligence services  on any issues related to                potential business arrangements with commercialization                partners. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (4)    | The                agreement is between the Company and Derma Life Clinical Partners LP                for further development of the Wound Healing IP and advancing a potential                wound healing drug in the FDA                process.                                                                                                                                                                                                                           |

| (5) | The                purpose of this agreement is for the Company to license to Derma                Life                Clinical Partners the Wound Healing IP for advancing a potential                wound                healing drug in the FDA process. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The                agreement is between the Company and ProDerm, LP for further                development of the Wound Healing IP and advancing a potential wound                healing drug in the FDA process. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations**

**6.      Contractual Obligations and Commercial Commitments -      continued**

| Item |  **ITEM                DESCRIPTION**                                                                                                                                                                                                   |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (7)  | The                purpose of this agreement is for the Company to license to ProDerm,                LP the                Wound Healing IP for advancing a potential wound healing drug in                the FDA                process. |

| (8) | The                agreement is between the Company and Cardio Derma Clinical Partners,                LP for further development of the Wound Healing IP and advancing                a                potential wound healing drug in the FDA                process. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | The                purpose of this agreement is for the Company to license to Cardio                Derma                Clinical Partners, LP the Wound Healing IP for advancing a potential                wound                healing drug in the FDA process. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**7.      Off-Balance Sheet Transactions**

**8.      Recently Issued Accounting Pronouncements**

*      Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB      Statement No. 60*

*      The      Hierarchy of Generally Accepted Accounting Principles*
*      The      Meaning of Present Fairly in Conformity With Generally Accepted Accounting      Principles*

*      Disclosures about Derivative Instruments and Hedging Activities, an amendment      of      FASB Statement No. 133*
*      Accounting for Derivative Instruments and Hedging Activities*

----

**Item      2. Management’s Discussion and Analysis of Consolidated Financial Condition and      Results of Operations**

**8.      Recently Issued Accounting Pronouncements - continued**

*      purchase method*

***Valuation        of Derivative Instruments***

----

**Item      3. Quantitative and Qualitative Disclosures About Market      Risk**

**Interest      Rate Risk**

**Foreign      Currency Risk**

**Derivative      Securities Risk**

**Item      4. Controls and Procedures**

**Evaluation      of Disclosure Controls and Procedures**

----

**Item      4. Controls and Procedures**

**Evaluation      of Disclosure Controls and Procedures - continued**

**Plan      for Remediation of Material Weaknesses**

|   | • | Re-evaluate                the qualifications of the third party                expert; |
|--------|---------|-----------------------------------------------------------------------------------------|

|   | • | Re-evaluate                the processes surrounding the utilization of the third party expert,                including; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------|

|   | • | Identification                of how the error in identification of derivatives                occurred; |
|--------|---------|----------------------------------------------------------------------------------------------------------|

|   | • | Identification                of how once the error occurred that review procedures did not disclose                the                error; and |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Re-designing                the process surrounding the utilization of the third party expert                based on                what we learn in the re-evaluation of the processes discussed immediately                above in order to provide reasonable assurance that a material error                cannot go undetected by the                Company. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Changes      in Internal Control over Financial Reporting**

**Limitations      on Effectiveness of Control**

----

**PART      II**

**OTHER      INFORMATION**

**Item      1. Legal Proceedings**

**Item      1A. Risk Factors**

**Risks      Related to the Company**

***The      Company has a history of losses and expects to incur substantial losses and      negative operating cash flows for the foreseeable future, and the company may      never achieve or maintain profitability.***

|   | • | seeks                regulatory approvals for its new drug candidates.                                             |
|--------|---------|--------------------------------------------------------------------------------------------------------------------|
|   | • | develop,                formulate, manufacture and commercialize its new drug                candidates.           |
|   | • | implement                additional internal systems and infrastructure.                                           |
|   | • | hire                additional clinical, scientific, administrative, sales and marketing                personnel. |

----

**Item      1A. Risk Factors **

**Risks      Related to the Company - continued**

***Exercise      of the Warrants that the Company is Issuing in Conjunction With Its Private      Placement of Promissory Notes Could also Cause Substantial Dilution.***

***The      Company’s Chairman, President and CEO is a Guarantor of its Obligation Under the      Company’s Senior Secured Notes and Warrants and Private Placement of Notes and      Warrants.***

----

**Item      1A. Risk Factors **

**Risks      Related to the Company - continued**

***Failure      to Retain and Recruit Qualified Scientists will Delay the Company’s Development      Efforts.***

***If      Any of the Company’s Key Executives Discontinue Their Employment with the      Company, Its Efforts to Develop the Business May be Delayed.***

***Prior      Activities of the Company’s Chief Executive Officer, as Well as Certain      Conflicts of Interest that he has, May Increase the Risks of an Investment      in      the Company.***

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**Item      1A. Risk Factors **

**Risks      Related to the Company - continued**

***The      Company’s Key Executives Devote Less Than all of Their Business Time to the      Company.***

***The      Company’s Relationship with Phage Biotechnology Corporation, and the      Relationship of Its Key Executives to Phage, Creates Potential for Conflicts      of      Interest.***

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**Item      1A. Risk Factors **

**Risks      Related to the Company - continued**

***The      Company Does Not Have Manufacturing Capability. The Company Relies on only      one      Supplier, which is an Affiliate for the Company’s Bulk Drug Product. Any      Problems Experienced by Such Supplier could Negatively Affect the Company’s      Operations.***

**Item      2. Unregistered Sales of Equity Securities and Use of Proceeds**

|                                                                                                |   | **As                  of****September                  30,****2008** |   |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                |   | *(In                  thousands)*                                    |        |
| Use                  of proceeds from IPO in pre-clinical and clinical trials                       |   | $                                                                    | 5,460  |   |
| Use                  of proceeds from IPO in general and administrative                  activities |   |                                                                 | 10,141 |   |
| Interest                  on senior secured notes                                                   |   |                                                                 | 92     |   |
| Total                                                                                               |   | $                                                                    | 15,693 |   |

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**Item      2. Unregistered Sales of Equity Securities and Use of Proceeds-      continued**

|                                                                                                              |   | **As                of****September                30,****2008** |   |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|
|                                                                                                         |   | (In                Thousands)                          |   |
| Use                of proceeds from Promethean notes in pre-clinical and clinical                trials      |   | $                                                                | 4,739  |   |
| Use                of proceeds from Promethean notes in general and administrative                activities |   |                                                             | 11,651 |   |
| Interest                on senior secured notes                                                              |   |                                                             | 2,207  |   |
| Total                                                                                                        |   | $                                                                | 18,597 |   |

|                                                                    |   | **As                of****September                30,****2008** |   |
|-------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|
|                                                                    |   | *(In                thousands)*                                  |   |
| Use                of proceeds in pre-clinical and clinical trials      |   | $                                                                | 1,138  |   |
| Use                of proceeds in general and administrative activities |   |                                                             | 3,073  |   |
| Interest                on senior secured notes                         |   |                                                             | 331    |   |
| Total                                                                   |   | $                                                                | 4,542  |   |

**Item**
** 2b. Unresolved      Staff Comments**

**Item      3. Defaults Upon Senior Securities**

**Item      4. Submission of Matters to a Vote of Security Holders**

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**Item      6. Exhibits**

| **Exhibit                No.**   |   | **Description**                                                                                                                                                                                                                                                                                        |
|----------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.1                             |   | FirmInvest,                AG Private Placement offer dated May 20, 2007 (incorporated by reference                to Exhibit 10.1 to the form 8-K filed on May 24, 2007).                                                                                                                             |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.2                             |   | Amendment                to FirmInvest, AG Commitment Letter, dated August 17, 2007 (incorporated                by reference to Exhibit 10.2 to the Form 8-K filed on August 17,                2007).                                                                                                |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.3                             |   | Amendment                II to FirmInvest, AG Commitment Letter, dated October 12, 2007                (incorporated by reference to Exhibit 10.38 on Form 10-Q 3rd Quarter                2007                filed with the Securities and Exchange Commission on November 29,                2007). |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.4                             |   | Amendment                III to FirmInvest, AG Commitment Letter, dated January 15,                2008.                                                                                                                                                                                               |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.5                             |   | ProDerm                Development Agreement, dated July 8, 2008 (incorporated by reference                to                Exhibit 10.1 to the Form 8-K filed on July 18, 2008).                                                                                                                     |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.6                             |   | ProDerm                Technology Agreement, dated July 8, 2008 (incorporated by reference                to                Exhibit 10.2 to the Form 8-K filed on July 18, 2008).                                                                                                                      |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.7                             |   | ProDerm                Sponsor Agreement, dated April 22, 2008 (incorporated by reference                to                Exhibit 10.3 to the Form 8-K filed on July 18, 2008).                                                                                                                       |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.8                             |   | Cardio                Derma Development Agreement, dated July 10, 2008 (incorporated by                reference to Exhibit 10.4 to the Form 8-K filed on July 18,                2008).                                                                                                               |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.9                             |   | Cardio                Derma Technology Agreement, dated July 10, 2008 (incorporated by                reference                to Exhibit 10.5 to the Form 8-K filed on July 18,                2008).                                                                                                 |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.10                            |   | Cardio                Derma Sponsor Agreement, dated July 10, 2008 (incorporated by reference                to                Exhibit 10.6 to the Form 8-K filed on July 18, 2008).                                                                                                                   |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.11                            |   | Focus                Diagnostics, Inc. Master Independent Contractor Agreement, dated                September                4, 2008.                                                                                                                                                                 |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.12                            |   | Uppsala                Monitoring Centre License Agreement, dated September 22,                2008.                                                                                                                                                                                                   |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 10.12                            |   | Amendment                II to Thomas J. Stegmann Consulting Agreement, dated November 1,                2008.                                                                                                                                                                                         |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 31.1              |   | Certification                of Principal Executive Officer                                                                                                                                                                                                                                            |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 31.2              |   | Certification                of Principal Financial Officer                                                                                                                                                                                                                                            |
|                             |   |                                                                                                                                                                                                                                                                                                   |
| 32      |   | Certifications                of Chief Executive Officer and Chief Financial Officer pursuant to                18                U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes Oxley Act of                2002                                                               |

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**SIGNATURES**

|                           |                                                                                     |                               |
|--------------------------------|------------------------------------------------------------------------------------------|------------------------------------|
|                           | **CARDIOVASCULAR                BIOTHERAPEUTICS, INC.**                                  |
|                      |                                                                                |                          |
| November              19, 2008 | By:                                                                            | /s/                Mickael A. Flaa |
|                           |  Mickael                A. FlaaChief                Financial Officer and Treasurer |

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