TENAX THERAPEUTICS, INC. - Quarter Report: 2009 January (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended January 31, 2009

For the transition period from              to                 

Commission File Number: 002-31909

OXYGEN BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

2530 Meridian Parkway, Suite 3005, Durham, North Carolina 27713

(Address of Principal Executive Office)

714-427-6363

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  x         NO  ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ¨         NO  x

The number of shares outstanding of each of the issuer’s classes of common stock as of March 12, 2009: 227,746,391 shares of common stock, par value $0.0001.

FORM 10-Q

OXYGEN BIOTHERAPEUTICS, INC.

INDEX

* Item 3 of Part I and Item 1A of Part II are not included in this filing as they are not required for Smaller Reporting Companies as defined in Rule 12b-2 of the Exchange Act.

Part I-Financial Information

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED BALANCE SHEETS

See accompanying notes to consolidated condensed financial statements.

1

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated condensed financial statements.

2

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated condensed financial statements.

3

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS—CONTINUED

See accompanying notes to consolidated condensed financial statements.

4

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS—CONTINUED

Non-cash financing activities during the nine months ended January 31, 2009:

Non-cash financing activities during the nine months ended January 31, 2008:

See accompanying notes to consolidated condensed financial statements.

5

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

Oxygen Biotherapeutics (the Company) was originally formed as a New Jersey corporation in 1967 under the name Rudmer, David & Associates, Inc., and subsequently changed its name to Synthetic Blood International, Inc. On June 17, 2008, the stockholders of Synthetic Blood International approved the Agreement and Plan of Merger dated April 28, 2008, between Synthetic Blood International and Oxygen Biotherapeutics, Inc., a Delaware corporation.

The accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of January 31, 2009, and the results of its operations for the three months and nine months ended January 31, 2009 and 2008, and for the period from May 26, 1967 (inception) to January 31, 2009, and its cash flows for the nine months ended January 31, 2009 and 2008, and for the period from May 26, 1967 (inception) to January 31, 2009. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the financial statements are adequate to make the information presented not misleading. However, the financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2008 filed with the Commission on August 13, 2008.

The accompanying consolidated condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company is in the development stage and, at January 31, 2009, has an accumulated deficit of $54,258,174, continues to sustain operating losses on a monthly basis, and expects to incur operating losses for the foreseeable future. The Company requires substantial additional funds to complete clinical trials and pursue regulatory approvals. Although management believes that the Company has necessary working capital to fund operations through calendar year 2009, management is actively seeking additional sources of equity and/or debt financing; however, there is no assurance that any additional funding will be available.

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying January 31, 2009 balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, to maintain present financing, and to generate cash from future operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” (SFAS 141R) effective for fiscal years beginning after December 15, 2008. The new standard is based on a fair value model and requires an acquirer to measure all assets acquired and liabilities assumed at their respective fair values at the date of acquisition. This includes measuring non controlling (minority) interests at fair value. SFAS 141R establishes principles and requirements for recognizing and measuring goodwill arising from a business combination, and any gain from a bargain purchase. SFAS 141R establishes new disclosure standards and significantly alters the accounting for contingent consideration, pre-acquisition contingencies, in-process research and development and restructuring costs. It requires expensing of acquisition-related costs as incurred. Transactions consummated after the effective date of SFAS 141R apply the new standard prospectively. Existing guidance in SFAS 141 applies to business combinations consummated prior to the effective date of SFAS 141R. The Company does not anticipate the adoption of SFAS 141R to have a material impact on its results of operations, financial position, or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” (SFAS 160) which amends Accounting Research Bulletin No. 51 and provides accounting and reporting standards for noncontrolling (minority) interests in a subsidiary and deconsolidation of a subsidiary. SFAS 160 requires noncontrolling interests to be presented separately within equity in the consolidated statement of financial position. Consolidated net income attributable to the parent and noncontrolling interests are to be separately presented on the face of the statement of operations. A change in ownership that does not affect control of a subsidiary is to be accounted for as an equity transaction. A change in ownership that affects control results in recognition of a gain or loss and remeasurement at fair value of any remaining noncontrolling interest. Because SFAS 160 requires that a noncontrolling interest continue to be attributed its share of losses, a noncontrolling interest could have a negative carrying balance. SFAS 160 is effective for fiscal years beginning after December 15, 2008. In the year of adoption, presentation and disclosure requirements will apply retrospectively to all periods presented. The Company does not expect adopting SFAS 160 will materially affect its consolidated financial statements or results of operations.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS 162 will become effective 60 days following Securities and Exchange Commission (“SEC”) approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not anticipate the adoption of SFAS 162 to have a material impact on its results of operations, financial position, or cash flows.

In June 2008, the FASB issued EITF 07-05, “Determining whether an instrument (or Embedded Feature) is indexed to an Entity’s Own Stock”, (“EITF 07-05”). EITF 07-05 provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in paragraph 11(a) of FAS 133. EITF 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and early application is not permitted. Management is evaluating what effect EITF 07-05 will have on Oxygen Biotherapeutics, Inc financial position and operating results.

6

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—CONTINUED

(UNAUDITED)

2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In June 2008, the FASB issued Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore, need to be included in the earnings allocation in calculating earnings per share under the two-class method described in FASB Statement of Financial Accounting Standards No. 128, “Earnings Per Share.” FSP EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per shared. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. FSP EITF 03-6-1 is effective for the Company in the quarter ending July 31, 2009. The Company is currently assessing the impact of FSP EITF 03-6-1, but does not expect that such adoption will have a material effect on its results of operations, financial position, or cash flows.

In October 2008, the FASB issued Staff Position No EITF. 08-9, “Milestones Method of Revenue Recognition” (“EITF 08-9”). EITF 08-9 addresses the accounting when entities enter into revenue arrangements with multiple payment streams for a single deliverable or a single unit of accounting. The FASB staff could not reach agreement on transition of EITF 08-9. The Company does not anticipate the adoption of Staff Position No EITF 08-9 to have a material impact on its results of operations, financial position, or cash flows.

3. STOCK-BASED COMPENSATION

The fair value of the Company’s stock options is determined using a Black-Scholes option pricing model, consistent with the provisions of SFAS No. 123R (“Share-Based Payment”) and Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”). The fair value of stock options granted is recognized as compensation expense over the requisite service period. Compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Effective May 1, 2006, the Company adopted SFAS No 123R, using a modified prospective application. Prior to May 1, 2006, the Company measured employee and board member compensation cost under the intrinsic method provided by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) whereby compensation expense is recognized for the excess, if any, of the fair value of the Company’s common stock over the option price on the date the option is granted.

The Company uses the historical stock price volatility to value stock options within the Black-Scholes option pricing model. The expected term of stock options represents the period of time options are expected to be outstanding and is based on observed historical exercise patterns for the Company, which management believes are indicative of future exercise behavior. For the risk free interest rate, the Company uses the observed interest rates appropriate for the term that the options are expected to be outstanding.

The Company’s net loss for the nine months ended January 31, 2009 and 2008 includes approximately $1,577,679 and $24,093 of non-cash stock-based compensation costs. As of January 31, 2009, there was approximately $127,363 of total unrecognized compensation cost related to non-vested share-based compensation arrangements.

The fair value of each option grant during the nine months ended January 31, 2009 was estimated at the grant date using the Black-Scholes option pricing model using the following assumptions: an average risk-free interest rate of 3.95%; average volatility of 105.34%; zero dividend yield for all years, expected life of either 3 years or 10 years depending on the option agreement, and an estimated forfeiture rate of 25.6%. There were 4,570,000 options to purchase shares of the Company’s common stock during the nine months period ending January 31, 2009.

4. LICENSING RIGHTS AND PATENTS

In May 2008, the Company entered into a license agreement with Virginia Commonwealth University (“Licensor”) whereby Oxygen Biotherapeutics obtained a worldwide, exclusive license to valid claims under three of the Licensor’s patent applications that relate to methods for non-pulmonary delivery of oxygen to tissue and the products based on those valid claims used or useful for therapeutic and diagnostic applications in humans and animals. The license includes the right to sub-license to third parties. The term of the agreement is the life of the patents covered by the patent applications, except that the Company can terminate the agreement at any time on not less than 90 days advance notice.

7

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—CONTINUED

(UNAUDITED)

4. LICENSING RIGHTS AND PATENTS (CONTINUED)

The Company has an obligation to diligently pursue product development and also pursue new patent applications covered by this agreement; both at its own cost. The Company paid an initial fee of $50,000 in cash and paid an additional $16,228 to the Licensor as reimbursement of costs paid by the Licensor on patent applications and related work. The Company also issued to the licensor a warrant for the purchase of 500,000 shares of common stock at an exercise price of $0.42 per share that expires May 22, 2013. These warrants were valued at $353,500.

The $50,000 initial fee is fully credited towards future royalty or sublicensing revenue payments to the Licensor. This fee has been accounted for as a deposit and is included in other assets at January 31, 2009.

The $16,228 reimbursement costs and the $353,500 value of the 500,000 warrants discussed above were capitalized as licensing rights and are being amortized over a period of ten years. Accumulated amortization on the licensing rights at January 31, 2009 totaled $28,340. The Company agreed to pay to the Licensor a royalty on net sales of licensed products as follows:

The Company also agrees to pay to the Licensor a percentage of sublicensing revenue received from sub-licensees or other third parties in regards to the licensed patents, equal to 33% of any such third party payments, which may be reduced to 25% if the Company completes pre-clinical studies on a licensed product, reduced further to 20% if the Company completes Phase I clinical studies, reduced further to 17% if the Company completes Phase II clinical studies, and reduced further to 10% if the Company completes Phase III clinical studies on a licensed product.

The Company agreed to pay a $20,000 annual maintenance fee to the Licensor, starting in May 2009 and payable in each following May as long as the agreement is in force. The maintenance fee payments will be fully credited towards future royalty or sublicensing revenue payments to the Licensor.

The Company agreed to pay a $50,000 annual minimum royalty to the Licensor, starting in May 2009 and payable in each following May as long as the agreement is in force. The minimum royalty fee payments will be fully credited towards future royalty or sublicensing revenue payments to the Licensor.

Lastly, the agreement provides that the Company will make the following minimum milestone payments to the Licensor, with respect to the first licensed product to achieve each milestone. However, if new licensed products are separately patentable, the same milestone payments shall apply to them.

As of January 31, 2009, the Company has not met any of the milestones identified above and therefore has not incurred any liabilities related to this licensing agreement. The Company expects to have to pay $25,000 under this agreement at the completion of the Traumatic Brain Injury/ Spinal cord trial and we expect this to be completed sometime in the first quarter of fiscal 2012. The Company expects to pay an additional $50,000 during the second quarter of calendar 2009 under this agreement because of the development of a wound product (medical device) and a dermatology product (wound device).

In September 2008, the Company assigned all of its patent rights on glucose monitoring technology to Glucometrics, Inc. The agreement calls for Glucometrics, Inc to have exclusive rights to this technology for the entire life of the patent. In exchange for the use of these patent rights the Company acquired a ten percent interest in Glucometrics, Inc and acquired the right to receive royalty payments on revenues generated by any product developed by Glucometrics that uses our glucose monitoring technology. The patents assigned to Glucometrics. Inc had a cost of $180,751 and had accumulated amortization of $107,373. The Company valued the entire investment in Glucometrics, Inc at $100,000, The Company believes that $100,000 represents the fair value of assets received from Glucometrics in an arms-length- agreement. The Company has recognized a gain on the assignment of patent rights in the amount of $26,622. In the future, the Company will recognize in revenue any royalty payments received as part of this agreement. The Company records all such equity acquisitions using the cost method.

One of the officers of Glucometrics, Inc is a former employee of Synthetic Blood International and did extensive research work under the guidance of Dr. Leland Clark, Founder of Synthetic Blood International. Both he and Dr. Richard Kiral, President and Chief Operating Officer of Oxygen Biotherapeutics, Inc worked on Dr. Clark’s team during the same period of time.

The Glucometrics, Inc agreement calls for royalties to be paid to Oxygen Biotherapeutics, Inc as follows:

Net sales related to the marketing of an implantable licensed product:

Net sales related to the marketing of a non-implantable licensed product:

8

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—CONTINUED

(UNAUDITED)

5. STOCKHOLDERS’ EQUITY

During the nine months ended January 31, 2009:

On June 17, 2008, the stockholders of the Company approved the amendment of the Company’s 1999 Stock Plan to increase the number of shares of common stock available for awards under the plan from 4,000,000 to 12,000,000, increase the maximum number of shares covered by awards granted under the plan to an eligible participant from 4,000,000 shares to 5,000,000 shares, and make additional technical changes to update the plan. Persons eligible to receive grants under the Plan consist of all of the Company’s employees (including executive officers and employee directors), non-employee directors, and consultants and advisors who perform services for the Company.

The following table summarizes the Company’s stock warrant information during the nine month period ended January 31, 2009:

As of January 31, 2009, potentially issuable shares of common stock included 13,305,000 options and 121,014,419 warrants.

6. RELATED PARTY TRANSACTIONS

During the nine months ended January 31, 2009, the Company paid $ 88,238 in severance payments to Robert Nicora, a former President and Chief Executive Officer of the Company.

9

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—CONTINUED

(UNAUDITED)

7. INCOME TAXES

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109.” Interpretation No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with Interpretation No. 48 involves determining whether it is more likely than not that a tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. If a tax position does not meet the more-likely-than-not recognition threshold, the financial statements do not recognize a benefit for that position.

As required, the Company adopted Interpretation No. 48 during the quarter ended July 31, 2007. The adoption did not result in a material impact to the Company’s results of operations or its financial condition.

The Company is subject to taxation in the U.S. and a small number of state jurisdictions. The material jurisdictions subject to potential examination by taxing authorities include the U.S. and California.

From time to time, the Company may be assessed interest or penalties by its tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company’s financial results. In the event the Company has received an assessment for interest and/or penalties, it has been classified in the financial statements as general and administrative expense.

The utilization of net operating loss carry forwards will likely be limited based on past and future issuances of common and preferred stock due to the ownership change provisions of Internal Revenue Code Section 382.

8. COMMITMENTS AND CONTINGENCIES

Employment Agreements — Effective March 25, 2008, Dr. Chris J. Stern, the Company’s Chairman of the Board, was appointed to the office of Chief Executive Officer and will retained his position as Chairman. At the time Dr. Stern was elected to the Board in November 2007 and appointed Chairman, the Company agreed to pay to Dr. Stern’s consulting firm a monthly fee of $15,000 for consulting services that Dr. Stern provides to the Company, issued to him options to purchase 1,000,000 common shares at an exercise price of $0.245 per share that expire three years from the grant date, and subsequently issued to him in September 2008 under his agreement with the Company options to purchase an additional 4,000,000 common shares at an exercise price of $0.245 per share that expire three years from the grant date. As a result of Dr. Stern’s appointment as Chief Executive Officer, the Board has agreed to pay Dr. Stern’s consulting company an additional $5,000 per month by way of consulting fees and also to pay the consulting company $2,500 per month for additional secretarial and administration expenses. Furthermore, the Board also agreed (i) to issue to Dr. Stern an aggregate of 14,000 shares of the Company’s common stock on the 1st of every month, commencing with April 1, 2008, for so long as Dr. Stern serves on the Board, and (ii) to issue and pay to Dr. Stern, upon his termination as a board member by the Company for whatever reason, with or without cause, an aggregate of 100,000 shares of the Company’s common stock and the sum of $200,000, payable upon such termination.

10

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—CONTINUED

(UNAUDITED)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

On February 1, 2000 the Board of Directors approved a two-year employment contract with Dr. Richard Kiral, as Vice President of Product Development. Dr. Kiral’s current base annual salary is $247,000 for the year ending April 2009 and includes an automobile allowance, medical and dental coverage, participation in the Executive Bonus Plan, $200,000 life insurance payable by the corporation and payable to a beneficiary named by the insured, and options granted for 75,000 shares annually. The contract will renew automatically annually unless terminated by either party. Dr. Kiral’s employment agreement provides that he is to receive a minimum severance payment equal to 9 months of his annual salary period in the event of a change in control as defined. Effective March 25, 2008, the Board appointed Dr. Kiral to serve as President and Chief Operating Officer of the Company. Pursuant to an agreement executed on March 26, 2008, Dr. Kiral’s employment agreement with the Company has been amended to provide for payment of a sum equal to Dr. Kiral’s annual base salary in the event of Dr. Kiral’s termination without cause, as that term is defined in the employment agreement. Furthermore, the Board has increased Dr. Kiral’s monthly compensation by $6,000 and has agreed to (i) to issue to Dr. Kiral an aggregate of 20,000 options to purchase shares of the Company’s common stock, at a price to be determined, on the 1st of every month, commencing with April 1, 2008, for so long as Dr. Kiral serves on the Board, and (ii) to issue and pay to Dr. Kiral, upon his termination as a board member by the Company for whatever reason, with or without cause, an aggregate of 100,000 shares of the Company’s common stock and the sum of $200,000, payable upon such termination.

Effective November 20, 2007, Robert W. Nicora, the Company’s President, Chief Executive Officer and Chief Financial Officer resigned from all officer positions and from his directorship. In accordance with his employment agreement, Mr. Nicora is entitled to receive a total amount of $378,233 which includes accrued salaries, repayment of advances and severance payments. A total of $88,238 was paid on this obligation during the current nine month period and the Company has a $15,000 obligation on this agreement as of January 31, 2009.

Effective September 26,2008, The Board of Directors approved the appointment of Charles H. Seeman to the position of Chief Financial Officer and Executive Vice President, Finance and Administration. In accordance with his employment agreement, Mr. Seeman is entitled to receive a base salary of $100,000, a $800 a month car allowance and upon approval of the Chief Executive Officer a grant to purchase 50,000 shares of the Company stock at a price of $.460 per share and additional grants of 50,000 shares each at each successful completion of each year of service. Mr. Seeman is also entitled to receive a bonus equal to 10 percent of his base salary for each year of service upon the approval of the Chief Executive Officer.

Consulting Agreement—On May 5, 2008 the Company entered into a consulting agreement with Fiona International SA for the provision of consulting services concerning licensing of the Company’s Oxycyte product and other corporate matters. The agreement was effective through August 4, 2008, and involved the following remuneration: (a) Cash payments during the current quarter totaling $87,500; (b) the issuance of 3,032,000 five year common stock purchase warrants with an exercise price of $0.247 during the current quarter; (c) and the issuance of 411,250 shares of common stock on August 1, 2008. At January 31,2009, the Company did not have any obligation under this agreement.

Other Agreements—The Company has entered into agreements with two of its Board members and a consultant whereby it will grant 3-year options for a total of 1,800,000 shares at an exercise of price of $0.30 per share in the event the Company enters into a license agreement, undergoes a change of control, or is sold.

As a result of the Glucometrics, Inc licensing agreement; Dr. Bruce Spies (board member), Dr. Gerry Klein (board member) and Dr. Ross Bullock (consultant) received these options. Each board member received his shares in two installments: 300,000 shares dated March 26, 2008 and an additional 300,000 shares each dated September 24, 2009. All of these options carry a 3 year expiration date.

Registration Requirement—Warrants totaling 49,410,844 and convertible notes with a face amount of $20,256,472 and conversion shares totaling 82,010,008 issued during the year ended April 30, 2008 are subject to a requirement that the Company file a registration statement with the SEC to register the underlying shares, and that it be declared effective on or before January 9, 2009. As of March 12, 2009, the Company has received signed waivers from all but four of these warrant holders and the company believes it does not have any obligation under this agreement.

The agreement underlying the issue of the above warrants (“Warrant Agreement”) asserts that, prior to September 30, 2008, the Company is required to take action to submit to the shareholders of the Company a proposal to amend the Company’s articles of incorporation to increase the number of authorized shares of common stock by such amount as is necessary to reserve for issuance the maximum aggregate number of warrant shares then issued or potentially issuable in the future upon exercise of the Warrant Agreement. As a result of the June 30, 2008 merger (further described in Note 9), this action was completed and the number of authorized common shares was increased from 200 million common shares, par value $0.01, to 400 million common shares, par value $0.0001. The Company has withdrawn the registration statement and is currently in the process of resolving the registration requirement issue with the holders of the notes and warrants.

11

OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—CONTINUED

(UNAUDITED)

9. MERGER

On June 17, 2008, the stockholders of Synthetic Blood International, Inc. approved the Agreement and Plan of Merger dated April 28, 2008 (“Plan of Merger”), between Synthetic Blood International and Oxygen Biotherapeutics, Inc., a Delaware corporation. Oxygen Biotherapeutics was formed on April 17, 2008, by Synthetic Blood International to participate in the merger for the purpose of changing the state of domicile of Synthetic Blood International from New Jersey to Delaware. Certificates of Merger were filed with the states of New Jersey and Delaware, and the merger was effective June 30, 2008. Under the Plan of Merger, Synthetic Blood International has been merged with and into Oxygen Biotherapeutics, which is the surviving corporation. As a result of the merger: (a) each share of Synthetic Blood International common stock outstanding on June 30, 2008, has been converted to one share of Oxygen Biotherapeutics common stock; (b) the name of the corporation is changed to Oxygen Biotherapeutics, Inc.; (c) the number of authorized common shares changed from 200,000,000 common shares, par value $0.01, to 400,000,000, par value $0.0001; (d) the Certificate of Incorporation and Bylaws of Oxygen Biotherapeutics are now the charter documents for the corporation; and (e) the General Corporation Law of the State of Delaware now applies to the corporation, rather than the New Jersey Business Corporation Act.

10. SUBSEQUENT EVENTS

On January 23, 2009 the company received a letter from the United States Food and Drug Administration (FDA) claiming two deficiencies still pending in our Traumatic Brain Injury indication proposal. The Company disagrees with the FDA’s interpretation of data and on February 4, 2009 submitted rebuttal to the FDA’s claim. On February 10, 2009 the Company asked the FDA CBER Ombudsman to mediate in the process.

The Board of Directors approved a new employment agreement with Mr. Stern effective February 1, 2009, that supercedes all prior compensatory arrangements with Mr. Stern and his associates. The agreement is effective for a one-year term commencing February 1, 2009, and automatically renews for additional one-year terms, unless Mr. Stern terminates the agreement in advance of renewal or the Company gives Mr. Stern at least 120 days advance notice that it elects not to renew at the end of the then current term. Under the agreement Mr. Stern will receive as compensation:

If Mr. Stern ceases to be a director of the Company for any reason, he is entitled to receive $200,000 in cash and 100,000 restricted common shares. Furthermore, if Mr. Stern is terminated without cause or Mr. Stern terminates the agreement for good reason, then he is entitled to receive one-year of base salary, all bonuses then payable, and the economic value of the replacement cost for one-year of the other benefits under the agreement, and he has the right to exercise immediately all outstanding options, vested and unvested, on the terms set forth in the options he holds, including “cashless exercise” through conversion of the options to common shares based on the difference between market price and exercise price. In connection with the adoption of this agreement, the Company agreed that options previously issued to Mr. Stern to purchase 1,000,000 common shares at an exercise price of $0.245 per share that originally expired in November 2010 are extended to November 2017, options to purchase 4,000,000 common shares at an exercise price of $0.245 per share that originally expired in September 2011 are extended to September 2018, and all of the options are amended to allow for “cashless exercise” through conversion of the options to common shares based on the difference between market price and exercise price.

On February 22, 2009 the Company signed a memorandum of understanding (MOU) with Virginia Commonwealth University to jointly establish the Purple Heart Injury Lab (PHIL) to focus on development of battlefield injury treatment and then translate such treatments for civil commercial use. The MOU requires that the two organizations develop a business plan for the operation of PHIL within ninety (90) days of the signing of this MOU. To fund the PHIL initiative, on February 22, 2009 the Company filed a Senate Defense Appropriation request for $15 million in federal funding for the PHIL initiative.

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Overview

Since 1990, Oxygen Biotherapeutics has pursued the development of medical products based on perfluorocarbon technology. These products include Oxycyte™, a synthetic oxygen carrier substance, and Fluorovent™, an oxygen exchange fluid for facilitating the treatment of lung conditions. Since 1993 Oxygen Biotherapeutics has also pursued development of a glucose biosensor implant, which we recently licensed to a third party for development. In September 2008 we engaged a researcher to pursue application of the same perfluorocarbon oxygen carrier technology to development of topical wound healing therapies.

The nature of our business is to spend years in development and testing of pharmaceutical and medical device products, take products through to the stage of 2-B trials with the United States Food and Drug Administration (FDA) and after 2B trials have been completed we then contract with a major pharmaceutical manufacturer to market and distribute the product under royalty contract. During the periods of development and regulatory review we have no product to sell and no revenue. Nevertheless, we incur substantial costs pursuing this process, which requires cash that comes from outside sources. We rely on outside financing to fund our operations, and will for the foreseeable future. That means we must continue to show progress with our products and be able to locate investors willing to commit their funds to a speculative venture that will ultimately be successful only if we can actually bring a product to market and gain a meaningful level of market acceptance and penetration. Because of these factors a larger number of biotechnology products under development fail, and there is no assurance that the products we have under development will not suffer the same fate.

We received approval of the Investigational New Drug application we filed with the FDA on Oxycyte and began Phase I clinical tests in October 2003. We completed the clinical tests in December 2003. The results of the Phase I tests were in line with our safety and efficacy expectations for the performance of Oxycyte. We started Phase II testing in 2004.

Five clinical sites received local Institutional Review Board approval to participate in the first Phase II trial with Oxycyte in hip surgery patients. In this first Phase II trial we were evaluating both efficacy and safety in the prevention of tissue hypoxia (the effects of reduced oxygen levels) in hip surgery patients who experience mild to moderate blood loss during surgery. We closed this study in 2006 due to a lack of enrollment.

A Phase II-A trial in severe brain injury patients was started in 2006 and has been completed with good results. The Phase II-B trial protocol was filed in April 2008. In October 2008, we met with the FDA regarding the trial protocol. The FDA requested additional information on the patient experience of the participants in the Phase II-A trial for purposes of evaluating potential side-effects associated with the use of Oxycyte, including thrombocytopenia, which is a deficiency of platelets in the blood that could then cause bleeding into the tissues, bruising and or slow blood clotting after injury. We collected the information and submitted a response to the FDA; which we believe addressed all of their concerns and included an additional proposal for conducting a dosing study. The FDA responded that they felt that there were still two deficiencies outstanding and we have engaged the FDA Ombudsman to review our documentation and mediate the process on our behalf. In conjunction with the application to conduct trials in the United States, we have initiated the process to conduct the same study in Switzerland. We believe that even though the process is different in Switzerland; the information obtained in the Swiss study can be used in the United States as well. The goal of Swiss dosing study is to show that lower doses of Oxycyte can achieve acceptable therapeutic results. Our objective is to file a Phase II-B type study with Swiss-med during the second quarter of calendar year 2009, and simultaneously work on resolving the issues with the U.S. FDA. We have also been working on a Phase II protocol for a study in patients with sickle cell pain crisis to be filed with the FDA, but we do not plan on pursuing that filing until our other Phase II-B protocol is approved by the FDA. Our future plans include testing Oxycyte in stroke, myocardial infarction, malignant tumors, trauma, coronary bypass surgery and decompression sickness. We expect Phase II studies will continue through the end of 2011, at a minimum, after which Phase III studies may be able to commence depending on results of Phase II trials. The business model of the Company is to develop indications and then out-license them to a partner once they are ready to begin Phase III trials.

While pursuing Oxycyte, we are increasing our focus on a new application of perfluorocarbon oxygen carrier technology to therapies applied to the skin, rather than infused, for treating wounds and abrasions. To that end we recently licensed certain technology related to that application from Virginia Commonwealth University and engaged the services of an independent consultant to pursue research and development of the therapies. Also the Company has developed a wound dressing in gel form and is currently in the FDA filing process for this topical wound dressing; which we believe will qualify as a non-prescription drug.

Fluorovent is still at the animal testing stage and we have not filed any applications with the FDA for human testing of this product. Since we will likely devote less of our time and resources to advancing this product because of the priority placed on Oxycyte and topical therapies, we do not expect we will be in a position to file any application for this product with the FDA in the near future. Since our priority for the foreseeable future is Oxycyte and topical wound therapy, the following discussion of our business focuses primarily on those products.

Our biosensor implant is still at the animal testing stage of development and we have not filed any applications with the FDA for human testing. Since we do not expect to commit significant resources to development of this technology in the foreseeable future, we recently licensed the technology to an unrelated party who is more focused on research and development in the area of glucose testing and related technologies.

Results of operations – Quarter ended January 31, 2009 compared to quarter ended January 31, 2008

Research and Development expenses for the three months ended January 31, 2009 were $440,077 as compared to $222,142 for the same period in the prior year. The bulk of this increase, $133,511, was due to costs associated with Oxycete development and the additional costs related to conducting the Phase II-A and Phase II-B study in Traumatic Brain Injury (TBI) . General and Administration expenses for the three month period ended January 31, 2009 were $523,463 as compared to $635,915 for the same period in the prior year. The bulk of this decrease was due to a decrease in the value of stock options issued. Finally the company recorded an additional $6,183,013 in interest cost in the quarter-ended January 31, 2009 as compared to the quarter-ended January 31, 2008. The reason for this $6,183,013 increase in interest cost was due to the Company exchanging its convertible debt instruments into common stock and the related recording of unamortized discounts on these notes as interest expense when converted. Overall the Company reported a net loss of $8,356,519 during the quarter-ending January 31, 2009 as compared with net loss of $2,325,379 for the same period in the prior year.

Results of operations – nine month period ended January 31, 2009 compared to nine month period ended January 31, 2008

Research and development expenses for the nine month period ending January 31, 2009 were $972,534 as compared to $492,505 for the same period in the prior year. Approximately one-half of this increase was again due to costs associated with Oxycete development and the additional costs related to conducting the Phase II-A and Phase II-B study in Traumatic Brain Injury (TBI) General and Administrative expenses for the nine-month period ending January 31, 2009 were $5,462,636 as compared to $1,028,029 for the same period in the prior year. $1,416,105 of this increase was due to the issuance of stock options to key employees. The Company also incurred additional costs of $2,298,930 related to the use of professional consultants to help resolve regulatory issues and an additional $332,902 to help manage the FDA trials . Finally the Company recorded an additional $7,668,229 in interest cost during the nine month period ending January 31, 2009 as compared to the same period ending January 31, 2008. The reason for this $7,668,229 increase in interest cost was due to the Company exchanging its convertible debt instruments into common stock and the related recording of unamortized discounts on these notes as interest expense when converted. Overall the Company reported a net loss of $16,516,812 during the nine-month period ending January 31, 2009 as compared with net loss of $4,284,545 for the same period in fiscal year 2008. Because of the nature of our ongoing research and development activities and depending on our cash flow levels, accounting periods may reflect significant changes in expenses resulting from the timing of research related to our developmental products.

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Liquidity, capital resources and plan of operation

We have financed our operations since September 1990 through the issuance of debt and equity securities and loans from stockholders. As of January 31, 2009 we had $4,279,572 of total current assets and working capital of $3,679,163. Our practice is to invest excess cash, where available, in short-term money market investment instruments.

During the third quarter of fiscal year 2008, the Company exchanged its outstanding short term loans for five-year convertible notes with a face amount of $6,204,767. The notes are unsecured, convertible into shares of common stock at $0.247 per share, and were issued with a 55% original issue discount totaling $3,412,622. In addition, the Company issued five-year warrants to purchase 12,560,257 shares of common stock at $0.247 per share to investors. Additional discounts of $1,739,499 and $1,052,646 were recorded for the relative fair values of the warrants and beneficial conversion feature, respectively. Pursuant to this exchange transaction, the Company recorded a debt extinguishment loss of $250,097.

During the third and fourth quarters of fiscal year 2008, the Company received a total of $6,335,000 in cash from the sale of convertible notes, with a total face amount of $14,077,778. The notes are convertible at any time prior to maturity into a total of 56,995,053 shares of common stock, or at a conversion rate of $0.247 per share. In connection with the issuance of these obligations, the Company recorded a 55% original issue discount of $7,742,778, and additional discounts of $4,864,998 related to the relative fair value of the 28,497,501 five-year warrants to purchase common stock at $0.247 per share that were issued in the transaction, and $1,470,002 for the relative fair value of the embedded beneficial conversion feature. The Company also incurred total costs of $5,510,562 for capital raising services on these transactions. The costs of the capital raising services include a $369,215 cash fee, plus $768,337 for the fair value of 2,088,272 restricted shares of common stock, plus $4,373,010 for the fair value of warrants to purchase 21,853,086 common shares at prices ranging from $0.20 to $0.28.

During the nine month period ended January 31, 2009, the Company issued 27,343,205 shares of common stock for the conversion of notes payable with a gross carrying value of $7,093,526, at a conversion price of $0.247 per share. These notes included discounts totaling $6,334,234, and thus had a net carrying value of $759,292. The unamortized discounts of $6,334,234 was recognized as interest expense upon conversion.

During the nine months ended January 31, 2009, net cash provided by financing activities was $2,245,624, which included $2,225,625 proceeds from the exercise of warrants, plus an additional $19,999 in financing from a short term note. Of the $ 2,225,624 proceeds received from warrant exercises, we returned $140,000 due to a pricing error in the exercise. Net cash of $ 2,720,324 was used to fund operating activities and $ 260,182 was used for investing activities, which included $11,466 in lab equipment expenditures, $ 70, 028 for the purchase of licensing rights on three patents and other patent additions, and the remaining $12,165 on other equipment. Consequently, our cash and cash equivalents increased from $4,880,633 at April 30, 2008 to $4,146,010 at January 31, 2009. We do not have any lines of credit or other borrowing arrangements with lenders.

We are in the pre-clinical and clinical trial stages in the development of our products. Under an Investigational New Drug application filed with the FDA, we completed Phase I clinical studies on Oxycyte in December 2003. The results of the Phase I study were in line with our expectations for the performance of Oxycyte. We submitted a report to the FDA along with a Phase II protocol, received FDA approval, and started Phase II testing in the fourth quarter of 2004, which is expected to continue through 2009 for Phase II-b studies in severe traumatic brain injury. Even if we are successful with our Phase II study, we must then conduct a Phase III clinical study and, if that is successful, file with the FDA and obtain approval of a Biologics License Application to begin commercial distribution, all of which will take more time and funding to complete. Our other products, Fluorovent and the glucose biosensor, must undergo further development and testing prior to submission to the FDA for approval to initiate clinical trials, which also requires additional funding. Management is actively pursuing private and institutional financing, as well as strategic alliances and/or joint venture agreements to obtain the necessary additional financing and reduce the cost burden related to the development and commercialization of our products. We expect our primary focus will be on funding the continued testing of Oxycyte, since this product is the furthest along in the regulatory review process. Our ability to continue to pursue testing and development of our products beyond 2009 depends on achieving license income, or obtaining outside financial resources. There is no assurance that needed license agreement, or financing will occur or that we will succeed in obtaining the necessary resources.

We are entirely dependent on outside financing to continue our operations. We will not generate operating revenue unless and until one of our products is approved for commercial sale and sales activity begins. We will require substantial additional funds to complete clinical trials, pursue regulatory approval for our products, establish commercial scale manufacturing capabilities, and establish marketing, sales, and administrative capabilities. Expenditures for these purposes will result in substantial losses for at least the next several years. The expense and the time required to realize any product revenues or profitability are highly uncertain. We cannot ensure that we will be able to achieve product revenues or profitability on a sustained basis, or at all. The foregoing factors highlight that the Company must achieve license agreements, or additional financing by end of 2009.

        We do have the working capital necessary to fund our operations through the first quarter of calendar year 2010. We believe that as early as July 31, 2009, latest end of 2009 we will need additional financing to cover administrative expenses and on-going expenses of testing Oxycyte. Management is actively seeking additional sources of equity and/or debt financing; however there is no assurance that any additional funding will be available in time. Furthermore, management is hoping to generate income in 2009. Should we be unable to obtain additional financing, or income, to meet mid-term needs, we may be forced to cease operations. Our ability to continue as a going concern depends on success of these activities.

Critical accounting policies

Our discussion and analysis of our financial condition and results of operations is based upon the financial statements presented in this report, which have been prepared in accordance with Accounting Principles Generally Accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate our estimates, including those related to stock-based compensation and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Stock-Based Compensation—We account for stock-based compensation as prescribed by of SFAS No. 123R, which requires stock options and warrants issued to employees and nonemployees to be valued using the fair value method. Under the fair value based method, compensation cost is recorded based on the value of the award at the grant date and is recognized over the service period.

The fair value of each option and warrant grant was estimated at the grant date using the Black-Scholes option-pricing model. The Black–Scholes option valuation model was developed for use in estimating the fair value of traded options and warrants that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and expected term.

Convertible Notes—If the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to EITF Issue No. 98-5 (“EITF 98-05”), Accounting for Convertible Securities with Beneficial Conversion Features or Contingency Adjustable Conversion Ratio, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5 to Certain Convertible Instruments. In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

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Registration Payment Arrangements—In connection with prior private placements of our common stock and warrants to purchase shares of our common stock, we entered into agreements that committed us to timely register the shares of common stock purchased as well as the shares underlying the issued warrants. Those registration agreements specified potential cash penalties if we did not timely register the related shares with the SEC. In accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company’s Own Stock,” when the potential cash penalties were included in registration payment arrangements, the estimated fair value of the warrants would be recorded as a liability, with an offsetting reduction to additional paid-in capital received from the private placement. The fair value of the warrants would be estimated using the Black-Scholes option pricing model. EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that we enter into or modify after the date of issuance of this FSP. For our registration payment arrangements and financial instruments subject to those arrangements that were entered prior to the issuance of this FSP, the guidance was effective beginning January 1, 2007.

Long-Lived Assets – Our intangible assets consist of patents related to our various technologies. These assets are amortized on a straight-line method over their estimated useful life, which ranges from eight to ten years. We review these intangible assets for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”).

FORWARD LOOKING STATEMENTS

Except for the historical information contained herein, the discussion and information presented in this report contain forward-looking statements that involve risks and uncertainties. Oxygen Biotherapeutics’ actual results could differ materially from those presented in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section and those discussed in the Oxygen Biotherapeutics’ Annual Report on Form 10-K for the year ended April 30, 2008 and subsequent filings made with the Securities and Exchange Commission.

Although Oxygen Biotherapeutics believes that the expectations reflected in the forward-looking statements are reasonable, Oxygen Biotherapeutics cannot guarantee future results, levels of performance or achievements. Moreover, neither Oxygen Biotherapeutics nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Oxygen Biotherapeutics is under no obligation to update any of the forward-looking statements after the filing of this report to conform such statements to actual results or changes in expectations.

This Report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4T includes information concerning the controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission (“SEC”), and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this report, Oxygen Biotherapeutics’ management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2009. Because of the material weaknesses in our internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer conclude that our disclosure controls and procedures were not effective as of January 31, 2009.

Material Weaknesses

In our annual report on Form 10-K for the year ended April 30, 2008, we reported that our disclosure controls and procedures were not effective as of April 30, 2008, because of material weaknesses in our internal control over financial reporting. A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls. As a result of management’s review and evaluations that were completed after the end of fiscal year 2008 related to the preparation of management’s report on internal controls over financial reporting required for this annual report on Form 10-K, management concluded that we had material weaknesses in our control environment and financial reporting process consisting of the following:

Changes in Internal Controls

The changes in Oxygen Biotherapeutics’ internal control over financial reporting during the three-month period ended January 31, 2009, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Management’s conclusions regarding material weaknesses disclosed in our Form 10-K for the year ended April 30, 2008, were reached at the end of the first quarter of fiscal year 2009. Following the end of the first quarter, our management has pursued, and will continue to pursue, implementation of corrective measures to address the material weaknesses described above. These measures, outlined below, are intended both to address the identified material weaknesses and to enhance our overall financial control environment.

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We believe the remediation measures described above will, if we can effectively implement the measures, remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.

Part II-Other Information

Oxygen Biotherapeutics is not presently involved in any legal proceedings and was not involved in any such proceedings during the nine-month period ended January 31, 2009.

None.

None.

None.

None.

SIGNATURES

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

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