TENX

Business Context and Reporting Period

Company: Oxygen Biotherapeutics, Inc. (formerly Synthetic Blood International, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: July 31, 2009
Business Stage: Development stage biotechnology company focused on oxygen delivery products (Oxycyte, Wundecyte, Dermacyte). The company has no commercial product revenue and relies on financing to fund clinical trials and regulatory approvals.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Loss Reduction: Net loss decreased by approximately $1.85 million compared to the prior year quarter, primarily due to a $1.05 million decrease in interest expense resulting from the conversion of convertible notes.
• Operating Expenses: Total operating expenses decreased by approximately $1.1 million. General and Administrative (G&A) expenses dropped significantly ($1.07 million decrease) due to the absence of $2.17 million in consulting fees incurred in the prior year. However, R&D expenses increased by $236,967 due to costs associated with the development of the Dermacyte product and continued Oxycyte trials.
• Capital Structure: The company issued 20 million shares of common stock to the Vatea Fund for $5 million and settled 70.9 million warrants by issuing 35.5 million shares and paying $2.84 million in cash.

Guidance, Outlook, and Risks

Outlook and Financing: Management believes the Securities Purchase Agreement with Vatea Fund provides sufficient working capital to fund operations through the first quarter of fiscal year 2011. The agreement allows for up to $20 million in total funding contingent on achieving specific product development and regulatory milestones. A subsequent event in August 2009 triggered a milestone requiring the Fund to purchase an additional 24 million shares ($6 million) by December 10, 2009.

Operational Progress:

• Oxycyte: Received Swissmedic approval in August 2009 to begin Phase II clinical trials in Switzerland, scheduled to start in September 2009.
• Wundecyte: Filed a 510K medical device application with the FDA in July 2009.
• Dermacyte: Production of the first commercial topical cosmetic product began in September 2009, with a market launch scheduled for Q4 2009.

Risks and Contingencies:

• Going Concern: The company has an accumulated deficit of over $73 million and sustained operating losses. Continued operations depend on the ability to generate cash from future operations or financing.
• Internal Controls: Management concluded that disclosure controls and procedures were not effective as of July 31, 2009, due to material weaknesses in the control environment and financial reporting process (e.g., lack of consistent contract maintenance, insufficient accounting knowledge, lack of formal close processes).
• Regulatory Risk: No assurance that products will gain FDA approval or achieve market acceptance.

Investor Verification Checklist

• Financing Milestones: Verify the status of the $6 million milestone payment from Vatea Fund due by December 10, 2009, and the likelihood of achieving subsequent milestones to unlock the remaining $14 million.
• Cash Burn Rate: Confirm the current monthly cash burn rate against the $2.5 million cash balance to validate the runway through Q1 FY2011.
• Internal Control Remediation: Review progress on the remediation plan for material weaknesses in internal controls, specifically the hiring and impact of the new CFO and implementation of COSO framework controls.
• Product Launch Viability: Assess the commercial viability and marketing strategy for Dermacyte, given the speculative nature of web-based cosmetic sales.
• Warrant Liability: Monitor the status of the 670,000 outstanding warrants subject to registration requirements and potential liquidated damages if registration is not effective.