OXYGEN BIOTHERAPEUTICS, INC. (Form: 10-K, Received: 07/15/2011 06:03:25)

ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		40
Balance Sheets		41
Statements of Operations		42
Statements of Stockholders’ Equity (Deficit)		43
Statements of Cash Flows		44
Notes to Financial Statements		46

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Oxygen Biotherapeutics, Inc.

We have audited the accompanying balance sheets of Oxygen Biotherapeutics, Inc., formerly, Synthetic Blood International, Inc. (a development-stage enterprise) (the “Company”) as of April 30, 2011 and 2010, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and for the period from inception, May 26, 1967, through April 30, 2011. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oxygen Biotherapeutics, Inc., formerly Synthetic Blood International, Inc. as of April 30, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, and from the period from inception, May 26, 1967, through April 30, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is a development stage enterprise presently generating insufficient operating revenues, has a significant deficit accumulated during the development stage, and requires substantial additional funds to complete clinical trials and pursue regulatory approvals. In view of these matters, recoverability of a major portion of the recorded asset amounts shown in the accompanying April 30, 2011 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 raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

CHERRY, BEKAERT & HOLLAND, L.L.P.

/s/ Cherry, Bekaert & Holland, L.L.P.

Raleigh, North Carolina

July 14, 2011

OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

BALANCE SHEETS

	April 30, 2011			April 30, 2010
ASSETS
Current assets
Cash and cash equivalents	$	951,944		$	632,706
Accounts receivable		138,867			72,055
Inventory		257,382			535,090
Prepaid expenses		275,876			249,780
Other current assets		8,142			695,195
Total current assets		1,632,211			2,184,826
Property and equipment, net		442,586			383,959
Intangible assets, net		699,951			907,710
Other assets		147,608			52,651
Total assets	$	2,922,356		$	3,529,146
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	889,376		$	499,044
Accrued liabilities		1,250,573			843,903
Notes payable		43,295			56,394
Total current liabilities		2,183,244			1,399,341
Long-term notes payable, net		4,463,635			-
Long-term portion of convertible debt, net		-			2,767
Total liabilities		6,646,879			1,402,108



Stockholders' equity
Preferred stock, undesignated, authorized 10,000,000 shares; none issued or outstanding		-			-
Common stock, par value $.0001 per share; authorized 400,000,000 shares; issued and outstanding 23,393,307 and 21,457,265, respectively		2,339			2,146
Stock subscripton receivable		-			500,000
Additional paid-in capital		88,189,012			83,092,470
Deficit accumulated during the development stage		(91,915,874	)		(81,467,578	)
Total stockholders’ (deficit) equity		(3,724,523	)		2,127,038
Total liabilities and stockholders' equity	$	2,922,356		$	3,529,146

The accompanying notes are an integral part of these Financial Statements.

OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

STATEMENTS OF OPERATIONS

	Period from May 26, 1967 (Inception) to April 30, 2011			Year ended April 30,
	Period from May 26, 1967 (Inception) to April 30, 2011			2011			2010

Revenue	$	369,735		$	322,349		$	47,386
Cost of sales		258,215			219,182			39,033
Net revenue		111,520			103,167			8,353

Operating expenses
Selling, general, and administrative		40,817,261			7,682,087			7,235,140
Research and development		19,612,674			2,681,713			2,974,709
Loss on impairment of long-lived assets		334,157			302,044			-
Total operating expenses		60,764,092			10,665,844			10,209,849

Net operating loss		60,652,572			10,562,677			10,201,496

Interest expense		32,311,509			171,563			154,998
Loss on extinguishment of debt		250,097			-			-
Other income		(1,298,304	)		(285,944	)		150,882
Net loss	$	91,915,874		$	10,448,296		$	10,507,376

Net loss per share, basic and diluted				$	(0.45	)	$	(0.54	)

Weighted average number of common shares outstanding, basic and diluted					23,346,496			19,485,065

The accompanying notes are an integral part of these Financial Statements.

OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the two years ended April 30, 2011 and for the cumulative period from

May 26, 1967 (date of inception) to April 30, 2009

	Common Stock					Additional paid-in capital			Stock subscription receivable			Deficit accumulated during the development stage			Total stockholders' equity (deficit)
	Number of Shares		Amount			Additional paid-in capital			Stock subscription receivable			Deficit accumulated during the development stage			Total stockholders' equity (deficit)
Balance at April 30, 2009		15,735,013	$	23,621		$	74,037,950		$	-		$	(70,960,202	)	$	3,101,369
Common stock sold, net of offering costs		3,146,667		2,406			10,165,095									10,167,501
Common stock issued for convertible debt		90,682		126			335,851									335,977
Common stock subscription receivable										500,000						500,000
Issuance of common stock to employees		21,294		10			109,589									109,599
Issuance of common stock for services rendered		66,667		100												100
Compensation on options issued							853,570									853,570
Issuance of warrants							89,013									89,013
Exchange of warrants		2,363,767		3,544			(2,583,884	)								(2,580,340	)
Exercise of warrants and options		29,000		20			57,605									57,625
Fractional shares of common stock due to reverse stock split		4,175		(27,681	)		27,681									-
Net loss													(10,507,376	)		(10,507,376	)
Balance at April 30, 2010		21,457,265	$	2,146		$	83,092,470		$	500,000		$	(81,467,578	)	$	2,127,038
Common stock sold, net of offering costs		1,910,806		191			4,901,208									4,901,399
Common stock issued for convertible debt		2,350		-			8,707									8,707
Common stock subscription receivable										(500,000	)					(500,000	)
Issuance of common stock to employees		20,868		2			59,407									59,409
Issuance of common stock for services rendered																-
Compensation on options issued							127,220									127,220
Issuance of warrants																-
Exchange of warrants																-
Exercise of warrants and options		2,018		-			-									-
Fractional shares of common stock due to reverse stock split																-
Net loss													(10,448,296	)		(10,448,296	)
Balance at April 30, 2011		23,393,307	$	2,339		$	88,189,012		$	-		$	(91,915,874	)	$	(3,724,523	)

	Common Stock					Additional paid-in capital		Stock subscription receivable		Defecit accumulated during the development stage			Total stockholders' equity (deficit)
	Number of Shares		Amount			Additional paid-in capital		Stock subscription receivable		Defecit accumulated during the development stage			Total stockholders' equity (deficit)
Balance at May 26, 1967		-	$	-		$	-	$	-	$	-		$	-
Common stock sold, net of offering costs		7,040,217		1,056,032			16,683,920							17,739,952
Common stock issued for convertible debt		7,017,486		213,495			23,058,631							23,272,126
Issuance of common stock to employees as compensation		24,940		2,756			1,848,420							1,851,176
Compensation on options issued		-		-			8,162,642							8,162,642
Issuance of common stock for services rendered		251,235		33,614			1,328,309							1,361,923
Issuance of common stock to officers to retire shareholder loans		69,630		10,444			177,556							188,000
Common stock issued in conjunction with funding agreements and services rendered		358,425		53,764			883,160							936,924
Contributions of capital by shareholders		-		-			581,818							581,818
Contributions of capital for services rendered		-		-			65,700							65,700
Beneficial conversion on convertible debt		-		-			3,292,648							3,292,648
Warrants issued with debt instruments		-		-			8,619,525							8,619,525
Exercise of warrants and options		773,080		164,630			2,839,000							3,003,630
Issuance of common stock for promissory notes		200,000		30,000			370,000							400,000
Issuance of warrants for services rendered		-		-			4,585,507							4,585,507
Common stock par value change				(1,541,114	)		1,541,114							-
Net loss											(70,960,202	)		(70,960,202	)
Balance at April 30, 2009		15,735,013	$	23,621		$	74,037,950	$	-	$	(70,960,202	)	$	3,101,369

The accompanying notes are an integral part of these Financial Statements.

OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

STATEMENTS OF CASH FLOWS

	Period from May 26, 1967 (Inception) to April 30, 2011			Year ended April 30,
	Period from May 26, 1967 (Inception) to April 30, 2011			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(91,915,874	)	$	(10,448,296	)	$	(10,507,376	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		1,864,131			311,026			110,631
Amortization of deferred compensation		336,750			-			-
Interest on debt instruments		31,918,637			171,563			152,220
Loss (gain) on debt settlement and extinguishment		163,097			-			-
Loss on impairment, disposal and write down of long-lived assets		667,655			302,044			114,193
Issuance and vesting of compensatory stock options and warrants		8,225,288			127,220			1,198,764
Issuance of common stock below market value		695,248			-			-
Issuance of common stock as compensation		555,001			59,409			109,599
Issuance of common stock for services rendered		1,265,279			-			-
Issuance of note payable for services rendered		120,000			-			-
Contributions of capital through services rendered by stockholders		216,851			-			-
Changes in operating assets and liabilities
Accounts receivable, prepaid expenses and other assets		(718,777	)		38,870			(671,165	)
Inventory		238,026			238,026			-
Accounts payable and accrued liabilities		2,346,502			796,996			905,862
Net cash used in operating activities		(44,022,186	)		(8,403,142	)		(8,587,272	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(1,744,091	)		(240,824	)		(235,727	)
Capitalization of patent costs and license rights		(1,514,339	)		(223,115	)		(305,995	)
Net cash used in investing activities		(3,258,430	)		(463,939	)		(541,722	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock and exercise of stock options and warrants, net of related expenses and payments		35,744,664			4,901,400			10,030,030
Repurchase of outstanding warrants		(2,836,520	)		-			(2,836,520	)
Proceeds from stockholder notes payable		977,692			-			-
Proceeds from issuance of notes payable, net of issuance costs		6,680,829			4,389,701			96,563
Proceeds from convertible notes, net of issuance costs		8,807,285			-			-
Payments on notes - short-term		(1,141,390	)		(104,782	)		(84,245	)
Net cash provided by financing activities		48,232,560			9,186,319			7,205,828

Net change in cash and cash equivalents		951,944			319,238			(1,923,166	)
Cash and cash equivalents, beginning of period		-			632,706			2,555,872
Cash and cash equivalents, end of period	$	951,944		$	951,944		$	632,706

Cash paid for:
Interest	$	250,606		$	3,203		$	2,779
Income taxes	$	27,528		$	-		$	-

The accompanying notes are an integral part of these Financial Statements.

OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

STATEMENTS OF CASH FLOWS, Continued

Non-cash financing activities during the year ended April 30, 2011:

(1)

The Company issued 2,350 shares of common stock for the conversion of notes payable with a gross carrying value of $8,707 at a conversion price of $3.705 per share. The notes included a discount totaling $5,206 that was recognized as interest expense upon conversion.

Non-cash financing activities during the year ended April 30, 2010:

(1)

The Company issued 90,682 shares of common stock for the conversion of notes payable with a gross carrying value of $335,977, at a conversion price of $3.705 per share. These notes included a discount totaling $118,437, and thus had a net carrying value of $217,540. The unamortized discount of $118,437 was recognized as interest expense upon conversion.

The accompanying notes are an integral part of these Financial Statements.

OXYGEN BIOTHERAPEUTICS, INC.

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

As of April 30, 2011 and 2010, and for the years then ended.

NOTE A—DESCRIPTION OF BUSINESS AND GOING CONCERN

Description of Business —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. 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, Oxygen Biotherapeutics is the surviving corporation and each share of Synthetic Blood International common stock outstanding on June 30, 2008 was converted to one share of Oxygen Biotherapeutics common stock.

The Company was inactive through September 1990, when it began conducting operations for the purpose of developing a synthetic blood emulsion to act as a human blood substitute, and a method of using a PFC compound to facilitate oxygen exchange for individuals with respiratory distress syndrome. The Company submitted an Investigational New Drug Application (“IND”) for Oxycyte, the Company’s alternative to transfused blood for use in surgical and similar medical situations, to the Food and Drug Administration (“FDA”) in 2003 and successfully conducted a Phase I safety clinical study in the fourth quarter of 2003. The results of the Phase I study were consistent with the results of preclinical animal safety studies, and showed a good safety profile for Oxycyte. The Company started Phase II clinical trials of Oxycyte in surgical patients in the fourth quarter of 2004. The protocol was successfully completed in 2006 and filed in April 2008. This protocol was put on clinical hold due to safety concerns raised by the regulatory agency. In April 2009, the Company filed an application with the FDA to obtain orphan drug designation for Oxycyte for the treatment of patients with severe, closed-head Traumatic Brain Injury (“TBI”). The Company filed a Cosmetic Product Ingredient Statement (“CPIS”) with the FDA for Dermacyte Gel, its new Oxycyte-based cosmetic product. The gel is an oxygen-rich formulation of Oxycyte which OBI believes will promote skin health and other desirable cosmetic benefits when applied to the skin. A CPIS is a voluntary registration with the FDA recommended for a cosmetic product’s commercial introduction. Vitavent (previously Fluorovent), an oxygen exchange device, for facilitating the treatment of lung conditions is at the preclinical development stage and is currently inactive. The Company has not generated significant revenues since inception.

The accompanying consolidated financial statements include the accounts and transactions of Oxygen Biotherapeutics, Inc. and Synthetic Blood International, Inc. All material intercompany transactions and balances have been eliminated in consolidation.

Reverse Stock Split —The Company initiated a 1-for-15 reverse stock split effective November 19, 2009. All shares and per share amounts in these consolidated financial statements and notes thereto have been retroactively adjusted to give effect to the reverse stock split.

Going Concern —Management believes the accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has an accumulated deficit during the development stage of $91,915,874 and $81,467,578 at April 30, 2011 and 2010, respectively, and used cash in operations of $8,403,142 and $8,587,272 during the years ended April 30, 2011 and 2010, respectively. The Company requires substantial additional funds to complete clinical trials and pursue regulatory approvals. 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 April 30, 2011 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.

NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development Stage— The Company has not commenced its planned principal operations, and has not earned significant revenues; therefore it is considered a “Development Stage Enterprise.”

Use of Estimates —The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Reclassification— For comparability purposes, certain figures for prior periods have been reclassified, where appropriate, to conform to the financial statement presentation used in 2011. These reclassifications had no effect on the reported net loss.

Preclinical Study and Clinical Accruals —The Company estimates its preclinical study and clinical trial expenses based on the services received pursuant to contracts with several research institutions and contract research organizations (“CROs”) that conduct and manage preclinical and clinical trials on its behalf. The financial terms of the agreements vary from contract to contract and may result in uneven expenses and payment flows. Preclinical study and clinical trial expenses include the following:

●

fees paid to contract research organizations in connection with clinical trials,

●

fees paid to research institutions in conjunction with preclinical research studies, and

●

fees paid to contract manufacturers and service providers in connection with the production and testing of active pharmaceutical ingredients and drug materials for use in preclinical studies and clinical trials.

Cash and Cash Equivalents— The Company considers all highly liquid instruments with a maturity date of three months or less, when acquired, to be cash equivalents.

Cash Concentration Risk and Other Risks and Uncertainties —During 2008, the Federal Deposit Insurance Corporation ("FDIC") temporarily increased the coverage on substantially all depository accounts to $250,000 and for certain qualifying and participating non-interest bearing transaction accounts the coverage is unlimited. The increase in coverage was scheduled to expire on December 13, 2013. With the passage of the Wall Street Reform and Consumer Protection Act on July 21, 2010, the FDIC insurance limits of $250,000 per depositor per insured bank was made permanent. At April 30, 2011, the Company did not have any cash and cash equivalents balances uninsured by the FDIC.

Property and Equipment, Net —Property and equipment are stated at cost, subject to adjustments for impairment, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives:

Laboratory equipment	3-5 years
Office furniture and fixtures	7 years
Computer equipment and software	3 years
Leasehold improvements	Shorter of useful life or remaining lease term

Maintenance and repairs are charged to expense as incurred, improvements to leased facilities and equipment are capitalized.

Impairment of Long-Lived Assets —The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Revenue Recognition —Revenues from merchandise sales are recognized upon transfer of ownership, including passage of title to the customer and transfer of the risk of loss related to those goods. Revenues are reported on a net sales basis, which is computed by deducting from gross sales the amount of actual product returns received, discounts, incentive arrangements with retailers and an amount established for anticipated product returns. The Company's practice is to accept product returns from retailers only if properly requested, authorized and approved. As a percentage of gross sales, returns were less than 1% in fiscal years 2011 and 2010.

Research and Development Costs —Research and development costs include, but are not limited to, (i) expenses incurred under agreements with contract research organizations and investigative sites, which conduct our clinical trials and a substantial portion of our preclinical studies; (ii) the cost of manufacturing and supplying clinical trial materials; (iii) payments to contract service organizations, as well as consultants; (iv) employee-related expenses, which include salaries and benefits; (v) facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, depreciation of leasehold improvements and equipment and laboratory and other supplies; and (vi) stock-based compensation expense. All research and development expenses are expensed as incurred.

Income Taxes —Deferred tax assets and liabilities are recorded for differences between the financial statement and tax bases of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.

Stock-Based Compensation— We account for stock based compensation in accordance with ASC 718 Compensation — Stock Compensation, using the prospective transition method, which requires the measurement and recognition of compensation expense for all stock-based payment awards granted, modified and settled to our employees and directors after May 1, 2005. Our financial statements reflect the impact of ASC 718. We chose the “straight-line” attribution method for allocating compensation costs and recognized the fair value of each stock option on a straight-line basis over the requisite service period.

We account for equity instruments issued to non-employees in accordance with ASC 505-50 Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services . Equity instruments issued to non-employees are recorded at their fair value on the measurement date and are subject to periodic adjustment as the underlying equity instruments vest.

Loss Per Share —Basic loss per share, which excludes antidilutive securities, is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding for that particular period. In contrast, diluted loss per share considers the potential dilution that could occur from other equity instruments that would increase the total number of outstanding shares of common stock. Such amounts include shares potentially issuable under outstanding options, warrants and convertible debentures. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows.

	Year ended April 30,
	2011			2010
Historical net loss per share:
Numerator
Net loss, as reported	$	(10,448,296	)	$	(10,507,376	)
Less: Effect of amortization of interest expense on convertible notes		-			-

Net loss attributed to common stockholders (diluted)		(10,448,296	)		(10,507,376	)
Denominator
Weighted-average common shares outstanding		23,346,496			19,485,065
Effect of dilutive securities		-			-

Denominator for diluted net loss per share		23,346,496			19,485,065
Basic and diluted net loss per share	$	(0.45	)	$	(0.54	)

The following outstanding options, convertible note shares and warrants were excluded from the computation of basic and diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect.

	Year ended April 30,
	2011		2010
Options to purchase common stock		781,738		981,839
Convertible note shares outstanding		1,942		4,292
Warrants to purchase common stock		3,581,347		3,322,154

Operating Leases— The Company maintains operating leases for its office and laboratory facilities. The lease agreements may include rent escalation clauses and tenant improvement allowances. We recognize scheduled rent increases on a straight-line basis over the lease term beginning with the date we take possession of the leased space. Differences between rental expense and actual rental payments are recorded as deferred rent liabilities and are included in “Other liabilities” on the consolidated balance sheets.

Fair Value— On May 1, 2008, the Company adopted ASC 820 Fair Value Measurements, as it relates to financial assets and financial liabilities. The Company's balance sheet includes the following financial instruments: cash and cash equivalents, short-term notes payable and convertible debentures. The Company considers the carrying amount of its cash and cash equivalents and short-term notes payable to approximate fair value due to the short-term nature of these instruments. It is not practical for the Company to estimate the fair value of its convertible debentures as such estimates cannot be made without incurring excessive costs, but management believes the difference between fair value and carrying value is not material. The significant terms of the Company's convertible debentures are described in Note D. At April 30, 2011 the debentures had a carrying value of $7,195.

Recent Accounting Pronouncements

In September 2009, the Financial Accounting Standards Board, or FASB ratified Revenue Arrangements with Multiple Deliverables issued as Accounting Standards Update, or ASU, 2009-13. ASU 2009-13 updates the existing multiple-element arrangements guidance currently included in ASC 605-25, Revenue Recognition — Multiple-Element Arrangements. The revised guidance provides for two significant changes to the existing multiple-element arrangements guidance. The first relates to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. This change is significant as it will likely result in the requirement to separate more deliverables within an arrangement, ultimately leading to less revenue deferral. The second change modifies the manner in which the transaction consideration is allocated across the separately identifiable deliverables. These changes are likely to result in earlier recognition of revenue for multiple-element arrangements than under previous guidance. ASU 2009-13 also significantly expands the disclosures required for multiple-element revenue arrangements. The revised multiple-element arrangements guidance will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or modified after the adoption date. Early adoption is permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. If the guidance is adopted prospectively, certain transitional disclosures are required for each reporting period in the initial year of adoption. As a result, it is effective for us in the first quarter of fiscal year 2011. The Company does not believe that the adoption of ASU 2009-13 will have a material impact on its consolidated financial statements.

In January 2010, the FASB issued guidance to amend the disclosure requirements related to fair value measurements as ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) . The guidance requires the disclosure of roll forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for us with the reporting period beginning May 1, 2011. Other than requiring additional disclosures, the Company does not believe that the adoption of ASU 2010-06 will have a material impact on its financial statements.

In April 2010, the FASB issued ASU 2010-12, Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts . The standard amends ASC Topic 740, Income Taxes . The guidance addresses the effect that the different signing dates might have on the accounting for the Health Care and Education Reconciliation Act of 2010 and the Patient Protection and Affordable Care Act. The Company’s adoption of the guidance did not have a material impact on its results of operations, financial position, or cash flows.

On April 29, 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), No. 2010-17, Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition (a consensus of the FASB Emerging Issues Task Force). It establishes a revenue recognition model for contingent consideration that is payable upon the achievement of an uncertain future event, referred to as a milestone. The scope of the ASU is limited to research or development arrangements and requires an entity to record the milestone payment in its entirety in the period received if the milestone meets all the necessary criteria to be considered substantive. The ASU is effective for fiscal years (and interim periods within those fiscal years) beginning on or after June 15, 2010. Early application is permitted. Entities can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. As a result, it is effective for the Company in the first quarter of fiscal year 2012. The Company does not believe that the adoption of ASU 2010-17 will have a material impact on its financial statements.

In February 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under the amendments to Topic 220, Comprehensive Income, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This guidance will become effective for the Company with the reporting period beginning May 1, 2012. The Company does not believe that the adoption of ASU 2011-05 will have a material impact on its financial statements.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this update result in common fair value measurement and disclosure requirements in accounting principles generally accepted in the United States of America and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in accounting principles generally accepted in the United States of America for measuring fair value and for disclosing information about fair value measurements. The amendments in this update will not result in a change in the application of the requirements in Topic 820. This guidance will become effective for us with the reporting period beginning May 1, 2012. The Company does not believe that the adoption of ASU 2011-05 will have a material impact on its financial statements.

NOTE C—BALANCE SHEET COMPONENTS

Inventory

The Company operates in an industry characterized by rapid improvements and changes to its technology and products. The introduction of new products by the Company or its competitors can result in its inventory being rendered obsolete or requiring it to sell items at a discount. The Company evaluates the recoverability of its inventory by reference to its internal estimates of future demands and product life cycles. If the Company incorrectly forecasts demand for its products or inadequately manages the introduction of new product lines, this could materially impact its financial statements by having excess inventory on hand. The Company's future estimates are subjective and actual results may vary. Management evaluated the Company's inventory and determined that, due to the results of on-going stability testing, the value of the clinical grade Oxycyte® is permanently impaired. The Company recorded $162,326 as a charge to Oxycyte development costs which is reflected in Research and Development costs for the year ended April 30, 2011.

Inventories are recorded at cost using the First-In-First-Out (“FIFO”) method. Ending inventories are comprised of raw materials and direct costs of manufacturing and valued at the lower of cost or market. Inventories consisted of the following as of April 30, 2011 and 2010:

	April 30, 2011		April 30, 2011
Raw materials	$	107,271	$	310,315
Work in process		124,308		-
Finished goods		25,803		224,775
	$	257,382		535,090

Property and equipment, net —Property and equipment consist of the following:

	April 30, 2011			April 30, 2010
Laboratory equipment	$	970,463		$	980,025
Office furniture and fixtures		140,255			32,900
Computer equipment and software		153,234			53,921
Leasehold improvements		4,810			4,810
		1,268,762			1,071,656
Less: Accumulated depreciation and amortization		(826,176	)		(687,697	)
	$	442,586		$	383,959

Depreciation and amortization expense was approximately $182,197 and $59,403 for the years ended April 30, 2011 and 2010, respectively.

Other assets —Other assets consist of the following:

	April 30, 2011		April 30, 2010
Reimbursable patent expenses- Glucometrics	$	82,522	$	-
Prepaid royalty fee		50,000		50,000
Other		15,086		2,651
	$	147,608	$	52,651

Investment in Glucometrics —In September 2008, the Company assigned all of its patent rights related to glucose monitoring technology to Glucometrics, Inc. (“Glucometrics”). Pursuant to the terms of the agreement, Glucometrics has exclusive rights to this technology for the remaining life of the patents. In exchange for these rights, we received a ten percent interest in Glucometrics and acquired the right to receive royalty payments on revenues generated by any product developed by Glucometrics that uses the glucose monitoring technology.

In accordance with the Glucometrics, Inc. (“Glucometrics”) license agreements, Glucometrics is required to reimburse the Company for all of the legal and filing costs associated with prosecuting and maintaining the licensed patents. Payment of the accumulated patent costs is due following a financing transaction in excess of $500,000. As of April 30, 2011, Glucometrics had not achieved such a transaction. This balance was reclassed out of accounts receivable pending management’s evaluation of Glucometrics’ compliance with the license agreement and efforts to raise capital. On January 14, 2011, the Company notified the management of Glucometrics of its intent to terminate the license agreement for their failure to cure their material breach of the licensing contract. Glucometrics is currently involved in a corporate restructuring in order to receive external funding for continued development of their glucose monitoring technology. As a condition of entering into a new license agreement with the newly formed corporation, all patent costs paid to date must be reimbursed with the funds invested. As of April 30, 2011 the Company has accrued $82,522 in reimbursable patent costs, up from the $65,895 balance in Accounts receivable as of April 30, 2010.

The Company recognizes an impairment charge when the decline in the estimated fair value of an asset below the amortized cost is determined to be other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including the duration of time and the severity to which the fair value has been less than our amortized cost and any adverse changes in the investees’ financial condition. Management reviewed the financial condition of Glucometrics as of April 30, 2010 and evaluated the company’s business plan for the next fiscal year and determined the decline in the estimated fair value of our investment in Glucometrics is impaired and the impairment is not temporary. Due to the tightening of the credit markets and Glucometrics’ inability to raise sufficient cash for operations in the capital markets, we concluded the company’s ability to continue as a going concern was a significant risk. In the fourth quarter of 2010, we recorded an impairment charge of $114,193, which reduced its carrying value to $0, as a non-operating Other Loss .

Accrued liabilities —Accrued liabilities consist of the following:

	April 30, 2011		April 30, 2010
409A tax liability	$	532,350	$	-
Employee related		493,640		254,485
Clinical trial related		150,000		135,276
Other		74,583		62,932
Professional services		-		391,210
	$	1,250,573	$	843,903

NOTE D—NOTES PAYABLE

The following table summarizes our outstanding notes payable as of April 30:

	April 30, 2011			April 30, 2010
Note payable	$	6,917,700		$	48,983
Convertible notes payable		7,195			15,903
		6,924,895			64,886
Less: Unaccreted premium		(2,417,965	)		(5,725	)
	$	4,506,930		$	59,161

On October 12, 2010 the Company entered into a Note Purchase Agreement, as amended on December 29, 2010, with JP SPC 1 Vatea Segregated Portfolio ("Vatea Fund") whereby it agreed to issue and sell to Vatea Fund an aggregate of $5,000,000 of senior unsecured promissory notes (the "Notes"), on or before April 30, 2011. The Notes will mature on October 31, 2013, unless the holders of a majority of the Notes consent in writing to a later maturity date. Interest does not accrue on the outstanding principal balance of the Notes (other than following the maturity date or earlier acceleration). Instead, on the maturity date, the Company must pay the holders of the Notes a final payment premium aggregating $3,000,000, in addition to the principal balance then otherwise outstanding under the Notes. The Notes provide that the Company has the option, at its sole discretion and without penalty, to prepay the outstanding balance under the Notes plus the amount of the final payment premium prior to the maturity date. In addition, the holders of majority of the Notes may request that the Company prepay the Notes in an amount equal to the proceeds of any subsequent closings under the Securities Purchase Agreement, as further described in Note G.

Promissory notes issued under the Note Purchase Agreement as of April 30, 2011 are summarized in the table below:

Date issued	Note principal		Final payment premium		Effective interest rate
November 10, 2010	$	600,000	$	360,000		15.68	%
December 20, 2010		1,000,000		600,000		16.29	%
January 26, 2011		400,000		240,000		16.89	%
March 2, 2011		100,000		60,000		17.50	%
March 4, 2011		650,000		390,000		17.54	%
March 11, 2011		111,000		66,600		17.66	%
March 18, 2011		430,000		258,000		17.79	%
March 29, 2011		210,000		126,000		18.00	%
April 5, 2011		100,000		60,000		18.14	%
April 29, 2011		700,000		420,000		18.62	%

	$	4,301,000	$	2,580,600

Interest accreted on these notes was $162,635 for the year ended April 30, 2011.

In November 2010, the Company financed its annual commercial, product liability, and Director and Officer insurance policy through the issuance of a short-term note payable. The note was in the amount of $88,700 with a ten-month term and 6.99% interest. Interest expense was $2,340 for the year ended April 30, 2011.

In November 2009, the Company financed its annual commercial, product liability, and Director and Officer insurance policy through the issuance of a short-term note payable. The note was in the amount of $96,563 with a ten-month term and 6.99% interest. Interest expense was $859 for the year ended April 30, 2011.

In 2008 the Company issued $20,282,532 five-year convertible debentures. These notes were issued at a 55% discount and were convertible into common shares at $3.705 per share. As part of the financing agreement, the Company also issued five-year warrants with an exercise price of $3.705. In accordance with ASC815-40-05, the Company valued the embedded conversion feature and warrants utilizing the Black-Scholes valuation model. As of April 30, 2011 and April 30, 2010, the outstanding notes had a principal balance of $7,195 and $15,903 and unamortized discounts of $0 and $5,725, respectively.

NOTE E—INTANGIBLE ASSETS

The following table summarizes our intangible assets as of April 30, 2011:

			Weighted							Carrying Value
			Average							(Net of
			Amortization							Impairments and
			Period (in				Accumulated			Accumulated
Asset Category	Value Assigned		Years)	Impairments			Amortization			Amortization)

Patents	$	566,564	10.1	$	(202,934	)	$	(214,840	)	$	148,790
License Rights		558,532	17.6		(68,602	)		(63,395	)		426,535
Trademarks		155,134	N/A		(30,508	)		-			124,626
Total	$	1,280,230		$	(302,044	)	$	(278,235	)	$	699,951

The following table summarizes our intangible assets as of April 30, 2010:

Asset Category	Value Assigned		Weighted Average Amortization Period (in Years)		Impairments		Accumulated Amortization			Carrying Value (Net of Impairments and Accumulated Amortization)

Patents	$	434,612		12.6	$	-	$	(111,363	)	$	323,249
License Rights		519,353		18.6		-		(38,042	)		481,311
Trademarks		103,150		N/A		-		-			103,150

Total	$	1,057,115			$	-	$	(149,405	)	$	907,710

For the years ended April 30, 2011 and 2010, the aggregate amortization expense on the above intangibles was approximately $128,829 and $48,265, respectively. The following table summarizes the aggregate amortization expense over the remaining life of the patents and license rights as of April 30, 2011:

Year ending April 30,	Amount
2012	$	38,023
2013		38,023
2014		36,394
2015		37,117
2016		33,845
Therafter		391,924
	$	575,325

Patents and License Rights— The Company currently holds, has filed for, or owns exclusive rights to, US and worldwide patents covering 13 various methods and uses of our PFC technology. We capitalize amounts paid to third parties for legal fees, application fees and other direct costs incurred in the filing and prosecution of our patent applications. These capitalized costs are amortized on a straight-line method over their useful life or legal life, whichever is shorter.

During the fourth quarter of fiscal 2011, the Company recorded a non-cash impairment charge of approximately $59,000, the net carrying value of certain patent assets to their estimated fair value, which was determined based on the Company’s development strategy for fiscal years 2012 and 2013. These asset impairment charges primarily related to the Company's wound device product candidates which were determined not to be a core component of the Company’s development strategy. The Company will continue to seek a partner to utilize this technology and develop a commercial product candidate under a license agreement, joint venture, or other arrangement whereby the costs and risks of development will be transferred to a third party. Additionally, during the fourth quarter of fiscal 2011, the Company performed a comprehensive review of its patent portfolio and identified multiple instances in which the technology covered in a patent application was adequately protected under an existing patent application. As of April 30, 2011, the Company recorded an impairment charge of approximately $212,000 for these withdrawn or abandoned patent applications.

Trademarks —The Company currently holds, or has filed for, trademarks to protect the use of names and descriptions of our products and technology. We capitalize amounts paid to third parties for legal fees, application fees and other direct costs incurred in the filing and prosecution of our trademark applications. These trademarks are evaluated annually in accordance with ASC 350, Intangibles – Goodwill and other . We evaluate (i) our expected use of the underlying asset, (ii) any laws, regulations, or contracts that may limit the useful life, (iii) the effects of obsolescence, demand, competition, and stability of the industry, and (iv) the level of costs to be incurred to commercialize the underlying asset.

The Company completed its annual impairment test of indefinite-lived intangible assets during the fourth quarter of fiscal 2011. Due to changes in the Company’s product development strategy and revised expectations regarding future net sales generated from the use of certain trademarks, the Company determined that their carrying values exceeded the estimated fair value by approximately $18,000, predominantly in the wound device product category. Additionally, during the fourth quarter of fiscal 2011, the Company wrote-off approximately $13,000 of capitalized costs for trademark applications that were withdrawn or abandoned during the year.

NOTE F—SEGMENT REPORTING

In the Company’s operation of its business, management, including its chief operating decision maker, the Company’s Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with GAAP.

The Company operates in a single market consisting of the design, development, marketing, sales and support of its Dermacyte® cosmetic segment. The Company's commercial revenues are derived from sales of the Dermacyte line of topical cosmetic products in the United States and Europe. The Company does not engage in intercompany revenue transfers between segments.

The Company's management evaluates performance based primarily on revenues in the geographic locations in which the Company operates. Segment profit or loss for each segment includes certain sales and marketing expenses directly attributable to the segment and excludes certain expenses that are managed outside the reportable segments.

Costs that are identifiable are allocated to the segments that benefit. Allocated costs may include those relating to development and marketing of products and services from which multiple segments benefit, or those costs relating to services performed by one segment on behalf of other segments. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Certain other corporate-level activity is not allocated to the Company’s segments, including costs of: human resources; legal; finance; information technology; corporate development and procurement activities; research and development; and employee severance.

The company has recast certain prior period amounts within this note to conform to the way it internally managed and monitored segment performance during the current fiscal year.

Net revenues and segment profit, classified by the Company's reportable segments are as follows:

	Year ended April 30,
	2011			2010
Product revenue
Europe	$	220,767		$	-
United States		101,582			47,386
Total product revenue	$	322,349		$	47,386


Segment loss (income)
Europe	$	(17,406	)	$	-
United States		831,529			274,751
Unallocated expenses
General and administrative		7,066,841			6,952,036
Research and development		2,681,713			2,974,709
Net interest and other expense (income)		(114,381	)		305,880
Net loss	$	10,448,296		$	10,507,376

Assets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation may be included with various other costs in an overhead allocation to each segment and it is impracticable for the Company to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss.

NOTE G—STOCKHOLDERS’ EQUITY

Preferred Stock

Our Certificate of Incorporation authorizes us to issue 400,000,000 shares of $0.0001 par value common stock and 10,000,000 shares of undesignated par value preferred stock. As of April 30, 2011 and 2010, there were no shares of preferred stock issued or outstanding.

Common Stock

During the year ended April 30, 2011:

(1)

The Company received $4,401,400 (net of closing costs) from the issuance of 1,724,138 shares of common stock as part of the registered direct offering (the "Offering") described below.

(2)

The Company received $500,000 (net of closing costs), from the issuance of 133,334 shares of restricted common stock in accordance with the Securities Purchase Agreement with Vatea Fund described below. An additional 53,334 shares of common stock were issued as compensation for services provided in closing the Securities Purchase Agreement.

(3)

The Company issued 2,018 shares of common stock from the cashless exercise of 6,333 stock options.

(4)

The Company issued 2,350 shares of common stock for the conversion of notes payable with a gross carrying value of $8,707, at a conversion price of $3.705 per share. These notes included a discount totaling $868, and thus had a net carrying value of $7,839. The unamortized discount of $868 was recognized as interest expense upon conversion.

(5)

The Company issued 20,868 shares of its common stock as compensation to its officers. These shares had a fair value at the grant date of $59,409.

(6)

As further discussed below, the Company recorded $127,220 for the computed fair value of options issued to employees, nonemployee directors, and consultants.

During the year ended April 30, 2010:

(1)

The Company received $10,167,000 (net of closing costs) from the issuance of 3,066,667 shares of common stock as part of the Securities Purchase Agreement with Vatea Fund. An additional 146,667 shares of common stock were issued as compensation for services provided in closing the Securities Purchase Agreement.

(2)

The Company received $57,625 from the exercise of 29,001 option shares of common stock.

(3)

The Company issued 90,682 shares of common stock for the conversion of notes payable with a gross carrying value of $335,977, at a conversion price of $3.705 per share. These notes included a discount totaling $152,220, and thus had a net carrying value of $183,757. The unamortized discount of $152,220 was recognized as interest expense upon conversion.

(4)

The Company issued 19,858 shares of its common stock as compensation to its Chief Executive Officer. These shares had a fair value at grant date of $102,843.

(5)

The Company issued shares of common stock to its employees as bonus compensation. The Company recognized $5,135 in additional compensation expense for the fair value of the issued shares.

(6)

The company recorded $853,570 for the computed fair value of options issued to employees, nonemployee directors, and consultants.

(7)

The company recorded $89,013 for the computed fair value of 37,538 warrants issued to a consultant.

(8)

The Company extended the term for 151,111 outstanding warrants. The Company recorded $256,181 as additional compensation cost for the computed fair value of the modification.

(9)

The Company issued 2,363,767 shares of restricted common stock and paid $2,836,520 in cash to warrant holders in exchange for 4,727,564 outstanding warrants. The warrants were returned to the Company and cancelled.

Securities Purchase Agreement —On June 8, 2009, the Company entered into a Securities Purchase Agreement with Vatea Fund. The Securities Purchase Agreement establishes milestones for the achievement of product development and regulatory targets and other objectives, after which Vatea Fund is required to purchase up to 4 million additional shares of common stock at a price of $3.75 per share. On April 23, 2010, the Company and Vatea Fund entered into a second amendment to the Securities Purchase Agreement. Under the second amendment, the parties agreed to modify two provisions of the Securities Purchase Agreement. The first modification was a change to the form of fees paid to the facilitating agent, Melixia SA. For all closings under the Securities Purchase Agreement occurring on or after April 23, 2010, cash fees will no longer be paid. Fees will be paid in the form of restricted shares of common stock, issued in an amount equal to 20% of the shares issued at each closing. The second modification changed the schedule of milestones. The new schedule includes a closing of $500,000 on or before April 30, 2010, another closing in the same amount on or before May 30, 2010, and a closing in the amount of $3,500,000 on the earlier of (1) closing of a license or sales agreement with an aggregate value in excess of $500,000 or (2) December 31, 2011. The remaining balance of $4,500,000 under the Securities Purchase Agreement shall be paid upon achievement of the amended product development and regulatory milestones.

●

On April 26, 2010, in accordance with the second amendment of the agreement, the Company received $500,000 and issued 133,334 shares to Vatea Fund.

●

On May 27, 2010, in accordance with the second amendment of the agreement, the Company received $500,000 and issued 133,334 shares to Vatea Fund.

In connection with the two closings, the Company issued 53,334 shares of restricted common stock valued at $160,002 to Melixia SA for their services provided as facilitating agent. The Company also paid $67,500 in fees to another consultant who assisted with the Securities Purchase Agreement.

On May 4, 2010, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with Roth Capital Partners, LLC (the “Placement Agent”) relating to the sale by the Company of 1,724,138 units to certain institutional investors pursuant to a registered direct offering at a purchase price of $2.90 per unit (each, a “Unit” and collectively, the “Units”). Each Unit consisted of one share of the Company's common stock and a warrant to purchase 0.425 shares of common stock. The warrants have a five-year term from the date of issuance, are exercisable on or after the date of issuance, and are exercisable at an exercise price of $5.32 per share of Common Stock.

The sale of the Units was made pursuant to subscription agreements, dated May 4, 2010 (the “Subscription Agreements”), with each of the investors. The Offering was completed on May 7, 2010.

The aggregate net proceeds to the Company, after deducting placement agent fees and other estimated offering expenses payable by the Company, were approximately $4.4 million. The Placement Agent received a placement fee equal to 6.5% of the gross proceedings of the Offering. The Company also reimbursed the Placement Agent $75,000 for expenses incurred in connection with the Offering. The Placement Agency Agreement contained customary representations, warranties, and covenants by the Company. It also provided for customary indemnification by the Company and the Placement Agent for losses or damages arising out of or in connection with the sale of the securities offered.

Warrants

During the year ended April 30, 2011, the Company issued 732,758 warrants as part of the Offering. The following table summarizes the Company’s warrant activity for the year ended April 30, 2011:

	Warrants			Weighted Average Exercise Price
Outstanding at April 30, 2009		8,067,514		$	3.75
Granted		57,539			5.72
Exercised		-			-
Cancelled		(4,727,564	)		3.70
Forfeited		(75,335	)		6.02
Outstanding at April 30, 2010		3,322,154		$	3.89
Granted		732,758			5.32
Exercised		-			-
Cancelled		-			-
Forfeited		(618,119	)		4.62
Other		144,554	(1)		2.90	(1)
Outstanding at April 30, 2011		3,581,347		$	3.90

(1)

Pursant to the provisions of Subsequent Equity Sales anti dilution clause, the exercise price has been reduced to the base share price of the registered direct offereing on May 7, 2010. The number of warrant shares associated with these warrants have been increased so that the aggregate price of the outstanding warrants stay the same.

Stock Options

1999 Amended Stock Plan

In October 2000, we adopted the 1999 Stock Plan (the “Plan”), as amended and restated on June 17, 2008. Under the Plan, with the approval of the Compensation Committee of the Board of Directors, we may grant stock options, restricted stock, stock appreciation rights and new shares of common stock upon exercise of stock options. Stock options granted under the Plan may be either incentive stock options (“ISOs”), or nonqualified stock options (“NSOs”). ISOs may be granted only to employees. NSOs may be granted to employees, consultants and directors. Stock options under the Plan may be granted with a term of up to ten years and at prices no less than fair market value for ISOs and no less than 85% of the fair market value for NSOs. To date, stock options granted generally vest over one to three years and vest at a rate of 34% upon the first anniversary of the vesting commencement date and 33% on each anniversary thereafter. As of April 30, 2011 we had 243,832 shares of common stock available for grant under the Plan.

Option activity under the Plan is as follows:

				Outstanding Options
	Shares Available for Grant			Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Shares reserved at inception		266,667
Options granted		(447,007	)		447,007		$	3.25
Options exercised					(3,667	)	$	2.22	$	23,607	(1)
Options cancelled		97,055			(87,671	)	$	2.48

Balances, at April 30, 2008		(83,285	)		355,669
Additional shares reserved		533,333
Options granted		(104,000	)		104,000		$	5.30
Options exercised		-			(9,121	)	$	1.80	$	15,141	(1)
Options cancelled		5,212			(5,212	)	$	1.80

Balances, at April 30, 2009		351,260			445,336
Options granted		(252,170	)		252,170		$	5.61
Options exercised		-			(29,000	)	$	1.99	$	115,370	(1)
Options cancelled		83,334			(83,334	)	$	3.35

Balances, at April 30, 2010		182,424			585,172
Options granted		(60,345	)		60,345		$	2.49
Restricted stock granted		(7,500	)
Options exercised					(1,193	)	$	1.69	$	1,436	(1)
Options cancelled		129,253			(129,253	)	$	4.22

Balances, at April 30, 2011		243,832			515,071		$	4.54	$	2,660	(2)

(1)	Amounts represent the difference between the exercise price and fair value of Oxygen Biotherapeutics’ stock at the time of exercise.
(2)	Amount represents the difference between the exercise price and $ 1.77 , the closing price of Oxygen Biotherapeutics’ stock on April 30, 2011, as reported on The NASDAQ Capital Market, for all in-the-money options outstanding.

Other Stock Options

In the past, the Company issued options outside the 1999 Amended Stock Plan. These options were granted to outside consultants and directors and had exercise prices ranging between $3.68 and $4.50 with 3 to 10 year terms. During the year ended April 30, 2011, a holder of 3,333 non-qualified options exercised the option using the cashless exercise provision in the option contract. The Company issued 825 shares of common stock and cancelled the remaining 2,508 option shares. As of April 30, 2011, there were 266,667 non-qualified options outstanding.

The following table summarizes all options outstanding at April 30, 2011:

	Options Outstanding at April 30, 2011				Options Exercisable and Vested at April 30, 2011
Exercise Price	Number of Options		Weighted Average Remaining Contractual Life (Years)		Number of Options		Weighted Average Exercise Price
$1.35 to $3.53		144,345		4.6		127,844	$	2.75
$3.60 to $3.68		340,001		7.2		340,001	$	3.68
$3.78 to $5.18		147,835		2.6		145,502	$	4.62
$5.58 to $10.80		149,557		2.7		145,110	$	6.63

		781,738		5.0		758,457	$	4.27

The following table summarizes options outstanding that have vested and are expected to vest based on options outstanding as of April 30, 2011:

	Number of Option Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value (1)		Weighted Average Remaining Contractual Life (Years)
Vested		758,457	$	4.27	$	2,660		4.9
Vested and expected to vest		776,361	$	4.25	$	2,660		5.0

(1)	Amount represents the difference between the exercise price and $ 1.77 , the closing price of Oxygen Biotherapeutics’ stock on April 30, 2011, as reported on The NASDAQ Capital Market, for all in-the-money options outstanding.

The weighted-average grant-date fair value of options granted was $2.49 in 2011 and $3.67 in 2010.

The total fair value of options that vested during the years ended April 30, 2011 and 2010 was approximately $123,000 and $913,000, respectively.

As of April 30, 2011, there were unrecognized compensation costs of approximately $24,000 related to non-vested stock option awards granted after May 1, 2004 that will be recognized on a straight-line basis over the weighted average remaining vesting period of 1.2 years.

Other Information Related to Stock Options and Warrants

We received $0 and $57,625 in cash from sales of shares through our equity plan for the years ended April 30, 2011 and 2010, respectively.

NOTE H—STOCK-BASED COMPENSATION FOR EMPLOYEES

The following table summarizes the stock-based compensation expense for stock options and our employee stock purchase plan that we recorded in the condensed statements of operations in accordance with ASC 718 for the years ended April 30, 2011 and 2010, respectively:

	For the year ended April 30,
	2011		2010

General and administrative	$	89,429	$	812,996
Research and development		19,428		40,574
	$	108,857	$	853,570

We used the following assumptions to estimate the fair value of options granted under our stock option plans for the years ended December 31, 2011and 2010:

	For the year ended April 30,
	2011			2010

Risk-free interest rate (weighted average)		2.08	%		1.71	%
Expected volatility (weighted average)		83.89	%		98.11	%
Expected term (in years)		7			7
Expected dividend yield		0.00	%		0.00	%

Risk-Free Interest Rate	The risk-free interest rate assumption was based on U.S. Treasury instruments with a term that is consistent with the expected term of our stock options.
Expected Volatility	The expected stock price volatility for our common stock was determined by examining the historical volatility and trading history for our common stock over a term consistent with the expected term of our options.
Expected Term	The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. It was calculated based on the historical experience that we have had with our stock option grants.
Expected Dividend Yield	The expected dividend yield of 0% is based on our history and expectation of dividend payouts. We have not paid and do not anticipate paying any dividends in the near future.
Forfeitures	As stock-based compensation expense recognized in the condensed consolidated statement of operations for the years ended 2011 and 2010 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on our historical experience.

NOTE I—COMMITMENTS AND CONTINGENCIES

Operating Leases— The Company leases its laboratory space under an operating lease that includes fixed annual increases and expires in July 2015. The Company leases its office space under an operating lease that includes fixed annual increases and expires in February 2016. Total rent expense for the two leases was $343,129 and $249,240 for the year ended April 30, 2011 and 2010, respectively.

The future minimum payments for the long-term, non-cancelable lease are as follows:

Year ending April 30,
2012	$	273,852
2013		276,909
2014		280,074
2015		283,299
2016		137,949

	$	1,252,083

The Company sublets a portion of its lab facility in California to an unrelated third party. In November 2010, the tenant notified the Company of their intent to terminate their sublease, effective January 1, 2011. For the years ended April 30, 2011 and 2010, the Company recorded $54,953 and $77,435, respectively, as other income for the rents received under the sublease agreement.

Agreement with Virginia Commonwealth University —In May 2008 the Company entered into a license agreement with Virginia Commonwealth University ("Licensor", "VCU") whereby it 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 unless we elect to terminate the agreement prior to patent expiration. Under the agreement the Company has an obligation to diligently pursue product development and pursue, at our own expense, prosecution of the patent applications covered by the agreement. As part of the agreement, the Company is required to pay to VCU nonrefundable payments upon achieving development and regulatory milestones. As of April 30, 2011, the Company has not met any of the developmental milestones.

The agreement with VCU also requires the Company to pay royalties to VCU at specified rates based on annual net sales derived from the licensed technology. Pursuant to the agreement, we must make minimum annual royalty payments to VCU totaling $70,000 as long as the agreement is in force. These payments are fully creditable against royalty payments due for sales and sublicense revenue earned during the fiscal year as described above. We have paid $70,000 in royalty fees for each of the years ended April 30, 2011 and 2010.

Exfluor Manufacturing Agreement — The Company entered into a Supply Agreement with Exfluor for the manufacturing and supply of FtBu. Under the terms of the Agreement, Exfluor is to supply FtBu exclusively to the Company, and no other party. The fee for this exclusivity is a non-refundable, non-creditable fee of $25,000 each quarter for the term of the Agreement. The term of the Agreement is three years, beginning from January 1, 2010. The process of manufacturing FtBu is a trade secret owned by Exfluor. Therefore, the Agreement also contains a provision requirement Exfluor to maintain documentation of the entire manufacturing process in an Escrow Account, to be released to the Company only upon the occurrence of a triggering event, which includes dissolution, acquisition by another company who is not a successor, bankruptcy or creditors take action to secure rights against the manufacturing technology to satisfy a financial obligation.

Litigation —The Company is subject to litigation in the normal course of business, none of which management believes will have a material adverse effect on the Company’s financial statements. At April 30, 2011 the Company is not a party to any litigation matters.

Registration Requirement - As further described in Note D, warrants and convertible notes 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. In the event that the Company does not have an effective registration statement as of that date, or if at some future date the registration ceases to be effective, then the Company is obligated to pay liquidated damages to each holder in the amount of 1% of the aggregate market value of the stock, as measured on January 9, 2009 or at the date the registration statement ceases to be effective. As an additional remedy for non-registration of the shares, the holders would also receive the option of a cashless exercise of their warrant or conversion shares. As of April 30, 2011, approximately 57,069 of these warrants are subject to the registration requirement. ASC 825-20, Financial Instruments, Registration Payment Arrangements , provides guidance to proper recognition, measurement, and classification of certain freestanding financial instruments that are indexed to, and potentially settled in, any entity's own stock. If an issuer does not control the form of settlement, an instrument is classified as an asset or liability. An issuer is deemed to "control the settlement" if it has both the contractual right to settle in equity shares and the ability to deliver equity shares. ASC 825-20-25 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with ASC 450, Accounting for Contingencies .

The Company has accounted for the warrants as equity instruments in the accompanying financial statements. The Company does not believe the registration payments are probable, and as such, has not recorded any amounts with respect to the separately measured registration rights agreement.

Contingent Liabilities Related to Internal Revenue Code Section 409A- In November, 2010, management conducted an independent review of certain option grants made by the Company between February 1998 and April 2009. This voluntary review was not in response to any governmental investigation. During the course of the Company’s review, management identified certain options granted in prior years that may have been non-compliant with Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “IRC”), including options granted with an exercise price below fair market value on the date of grant and options that were modified such that they may have become non-compliant with Section 409A.

In February 2011, after management conducted a preliminary, limited scope review of certain of the Company’s stock option granting practices, the Audit Committee commenced a voluntary, independent investigation of the Company’s historical stock option granting practices and related accounting during the period from February 1998 through April 2009. The Company’s outside legal counsel assisted the Audit Committee in this investigation. As of April 30, 2011, none of the Company’s current officers or directors have exercised any of the potentially non-compliant options.

The primary adverse tax consequence of Section 409A non-compliance is that the holders of non-compliant options are taxed on the value of such options as they vest, and annually thereafter until they are exercised. In addition to ordinary income taxes, holders of non-compliant options are subject to a 20% penalty tax under Section 409A (and, as applicable, similar excise taxes under state laws). Because virtually all holders of stock options granted by the Company were not involved in or aware that the pricing and/or modification of their options raised these issues, the Company intends to take actions to address certain of the adverse tax consequences that may apply to these holders. In addition, on March 17, 2011 the Company entered into indemnification agreements with its executive officers that indemnify those officers from potential Section 409A tax liabilities arising from their prior option awards,

In addition to adverse consequences for option holders, the Company has determined that certain payroll taxes, interest and penalties may apply to the Company under various sections of the IRC (and, as applicable similar state and foreign tax statutes) related to the potential Section 409A non-compliance. As of April 30, 2011, the Company has accrued approximately $550,000, which represents the Company’s best estimate of the potential liability, in other current liabilities for the contingent liability. The Company’s investigation of the matter is still on-going and there exists the possibility of adverse outcomes that the Company estimates could reach approximately $500,000 beyond our recorded amount.

NOTE J—401(k) BENEFIT PLAN

The Company sponsors a 401(k) Retirement Savings Plan (the Plan) for all eligible employees. Full-time employees over the age of 18 are eligible to participate in the Plan after 90 days of continuous employment. Participants may elect to defer earnings into the Plan up to the annual IRS limits and the Company provides a matching contribution up to 5% of the participants’ annual salary in accordance with the Plan documents. The Plan is managed by a third-party trustee. For the period ended April 30, 2011 and 2010, the Company recorded $71,517 and $32,471 respectively, for matching contributions expense.

NOTE K—INCOME TAXES

The Company has not recorded any income tax expense for the periods ended April 30, 2011 and 2010 due to our history of operating losses.

The reconciliation of income tax expenses (benefit) at the statutory federal income tax rate of 34% to net income tax expenses (benefit) for the years ended April 30, 2011 and 2010 is as follows:

	April 30,
	2011			2010
U.S. federal taxes (benefit) at statutory rate	$	(3,552,421	)	$	(3,572,505	)
Interest expense		-			(1,077,865	)
Stock compensation expense		43,255			290,214
Others		270,400			189,213
Change in valuation allowance		3,238,766			4,170,943
	$	-		$	-

The tax effects of temporary differences and carry forwards that give rise to significant portions of the deferred tax assets are as follows:

	April 30,
Deferred tax assets	2011			2010
Net operating loss carryforwards	$	21,101,227		$	19,401,438
Interest		-			6,173,791
Accruals and others		298,026			223,841
Depreciation and amortization		(15,773	)		(23,599	)
Total deferred tax assets		21,383,480			25,775,471
Less: Valuation allowance		(21,383,480	)		(25,775,471	)
Net deferred tax assets	$	-		$	-

At April 30, 2011 and 2010 the Company had net operating loss carry forwards of approximately $62.1 million and $52.5 million available to reduce future taxable income, if any, for Federal and California state income tax purposes, respectively. The net operating loss carry forwards expire between 2011 and 2026, and valuation allowances have been provided.

Utilization of the net operating loss carry forward may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of the net operating loss before utilization.

The Company adopted ASC 740-10 on May 1, 2007. As of April 30, 2011, it had no unrecognized tax benefits and does not expect any material change during the next year. As of April 30, 2011, the Company has not recorded any interest or penalties under this pronouncement.

Management has evaluated all other tax positions that could have a significant effect on the financial statements and determined the Company had no uncertain income tax positions at April 30, 2011.

The Company files U.S. and state income tax returns with varying statutes of limitations. The tax years 1996 forward remain open to examination due to the carryover of unused net operating losses or tax credits.

NOTE L—SUBSEQUENT EVENTS

Transactions with Vatea Fund

On October 12, 2010 the Company entered into a Note Purchase Agreement, as amended on December 29, 2010, with Vatea Fund whereby it agreed to issue and sell to Vatea Fund an aggregate of $5,000,000 of senior unsecured promissory notes (the “Notes”) on or before April 30, 2011. The Notes will mature on October 31, 2013, unless the holders of a majority of the Notes consent in writing to a later maturity date. Interest does not accrue on the outstanding principal balance of the Notes (other than following the maturity date or earlier acceleration). Instead, on the maturity date, the Company must pay the holders of the Notes a final payment premium aggregating $3,000,000, in addition to the principal balance then otherwise outstanding under the Notes. The Notes provide that the Company has the option, at its sole discretion and without penalty, to prepay the outstanding balance under the Notes plus the amount of the final payment premium prior to the maturity date. In addition, the holders of majority of the Notes may request that the Company prepay the Notes in an amount equal to the proceeds of any subsequent closings under the Securities Purchase Agreement. The following table summarizes additional promissory notes issued under the Note Purchase Agreement after April 30, 2011:

Date issued	Note principal		Final payment premium		Effective interest rate
May 9, 2011		400,000		240,000		18.83	%
May 20, 2011		100,000		60,000		19.06	%
May 23, 2011		200,000		120,000		19.12	%

	$	700,000	$	420,000

Convertible Note Offering

On June 29, 2011 and July 1, 2011 the Company closed a convertible note offering pursuant to which it sold to certain investors, including OXBT Fund, notes convertible into 2,172,949 shares of common stock at $2.255 per share and warrants to purchase 724,317 shares of common stock with an exercise price of $2.15 per share, warrants to purchase 724,316 shares of common stock with an exercise price of $2.60 per share, and warrants to purchase 724,316 shares of common stock with an exercise price of $2.85 per share. Mr. Gregory Pepin, a member of the Company's Board of Directors, currently acts as an investment manager for the newly created OXBT Fund. The financing provided approximately $4.5 million in net proceeds to us after deducting the placement agent fee and offering expenses.

ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A—CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or 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, or 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.

Management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of April 30, 2011, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls over Financial Reporting

From time to time, we may review and make changes to our internal control over financial reporting that are intended to enhance the effectiveness of our internal control over financial reporting and which do not have a material effect on our overall internal control over financial reporting. During the three months ended April 30, 2011, we made no changes to our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that we believe materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:

●

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

●

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and

●

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Our management assessed the effectiveness of our internal control over financial reporting as of April 30, 2011. In making its assessment, management used the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on its assessment, management has concluded that our internal control over financial reporting was effective as of April 30, 2011.

ITEM 9B—OTHER INFORMATION

There is no information to report under this item for the quarter ended April 30, 2011.

PART III

ITEM 10—DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to our Proxy Statement for our 2011 Annual Meeting of Stockholders.

ITEM 11—EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to our Proxy Statement for our 2011 Annual Meeting of Stockholders.

ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to our Proxy Statement for our 2011 Annual Meeting of Stockholders.

ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to our Proxy Statement for our 2011 Annual Meeting of Stockholders.

ITEM 14—PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to our Proxy Statement for our 2011 Annual Meeting of Stockholders.

PART IV

ITEM 15—EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)(1) The financial statements and information listed below are included in this report in Part II, Item 8.

●

Reports of Independent Registered Public Accounting Firm.

●

Balance Sheets as of April 30, 2011 and 2010.

●

Statements of Operations for each of the two years ended April 30, 2011 and April 30, 2010 and for the period May 26, 1967 (Date of Inception) to April 30, 2011.

●

Statements of Stockholders’ Equity (Deficit) for each of the two years ended April 30, 2011 and April 30, 2010 and for the period May 26, 1967 (Date of Inception) to April 30, 2009.

●

Statements of Cash Flows for each of the two years ended April 30, 2011 and April 30, 2010 and for the period May 26, 1967 (Date of Inception) to April 30, 2011.

●

Notes to the Financial Statements.

(A)(2) No schedules have been included because they are not applicable or the required information is shown in our consolidated financial statements or our notes thereto.

(A)(3) The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index immediately following the signature pages to this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	OXYGEN BIOTHERAPEUTICS, INC.

Date: July 14, 2011	By:	/s/Chris J. Stern
		Chris J. Stern
		Chairman and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Chris J. Stern and Michael B. Jebsen and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date

/s/ Chris J. Stern	Chairman and Chief Executive Officer	July 14, 2011
Chris J. Stern	(Principal Executive Officer)

/s/ Michael B. Jebsen	Chief Financial Officer	July 14, 2011
Michael B. Jebsen	(Principal Financial Officer and Principal Accounting Officer)

/s/ J. Melville Engle	Director	July 14, 2011
J. Melville Engle

/s/ Richard Kiral	Director	July 14, 2011
Richard Kiral

/s/ Gregory Pepin	Director	July 14, 2011
Gregory Pepin

/s/ Rene A. Eckert	Director	July 14, 2011
Rene A. Eckert

/s/ William A. Chatfield	Director	July 14, 2011
William A. Chatfield

/s/ Ronald R. Blanck	Director	July 14, 2011
Ronald R. Blanck, DO

EXHIBIT INDEX

Exhibit No.		Exhibits Required by Item 601 of Regulation S-K
2.1		Agreement and Plan of Merger dated April 28, 2008 (1)

3.1		Certificate of Incorporation (1)

3.2		Certificate of Amendment of the Certificate of Incorporation (14)

3.3		Bylaws (1)

4.1		Specimen Stock Certificate (19)

10.1		Agreement with Leland C. Clark, Jr., Ph.D. dated November 20, 1992 with amendments, Assignment of Intellectual Property/ Employment (2)

10.2		Agreement between the Registrant and Keith R. Watson, Ph.D. Assignment of Invention (2)

10.3		Children’s Hospital Research Foundation License Agreement dated February 28, 2001 (2)

10.4		Exclusive License Agreement with Virginia Commonwealth University dated May 22, 2008 (9)

10.5		Amendment no. 1 to the Exclusive License Agreement with Virginia Commonwealth University Intellectual Property Foundation (10)

10.6		Amendment no. 2 to the Exclusive License Agreement with Virginia Commonwealth University Intellectual Property Foundation (10)

10.7		Agreement with Hospira to manufacture Oxycyte (8)

10.8		Exclusive Supply Agreement with Exfluor dated November 12, 2009 (10)

10.9		Master Agreement with Dermacyte Switzerland (18)

10.10		Amendment no. 1 to Master Agreement with Dermacyte Switzerland (18)

10.11		Form of Option issued to Executive Officers and Directors (2)

10.12		Form of Option issued to Employees (2)

10.13		Form of Warrant issued to Unsecured Note Holders 2006-2007 (3)

10.14		Form of Convertible Note – 2008 (4)

10.15		Form of Warrant issued to Convertible Note Holders (4)

10.16		Form of Purchase Agreement – US Purchase (without exhibits, which are included as exhibits 10.14 and 10.15, above) (4)

10.17		Form of Purchase Agreement – Non-US Purchase (without exhibits, which are included as exhibits 10.14 and 10.15, above) (4)

10.18		Form of Purchase Agreement – US Note Exchange (without exhibits, which are included as exhibits 10.14 and 10.15, above) (4)

10.19		Form of Purchase Agreement – Non-US Note Exchange (without exhibits, which are included as exhibits 10.14 and 10.15, above) (4)

10.20		Form of Warrant issued to Financing Consultants (5)

10.21		1999 Amended Stock Plan (amended 2008) (5)

10.22		Employment Agreement with Chris J. Stern dated February 1, 2009 (12)

10.23		Amended and Restated Employment Agreement with Chris J. Stern dated May 13, 2011*

10.24		Business Consultant Agreement with Institute for Efficient Management, Inc., as amended March 26, 2008 (5)

10.25		Engagement and Consulting Agreement with Bruce Spiess (5)

10.26		Engagement and Consulting Agreement with Gerald L. Klein (5)

10.27		Employment Agreement with Gerald L. Klein dated May 13, 2011*

10.28		Business Consultant Agreement with Edward Sitnik (8)

10.29		Business Consultant Agreement with J. Melville Engle (8)

10.30		Employment Agreement with Kirk Harrington (8)

10.31		Severance Agreement with Kirk Harrington (16)

10.32		Employment Agreement with Richard Kiral, restated February 1, 2009 (8)

10.33		Resignation of Employment and Consulting Agreement with Richard Kiral*

10.34		Employment Agreement with Michael B. Jebsen dated December 1, 2010 (16)

10.35		Amended and Restated Employment Agreement with Michael B. Jebsen dated May 19, 2011*

10.36		Form of Indemnification Agreement*

10.37		Description of Non-Employee Director Compensation (19)

10.38		Securities Purchase Agreement (including exhibits) between Oxygen Biotherapeutics and Vatea Fund, Segregated Portfolio dated June 8, 2009 (6)

10.39		Amendment no. 1 to the Securities Purchase Agreement between Oxygen Biotherapeutics and Vatea Fund, Segregated Portfolio (11)

10.40		Amendment no. 2 to the Securities Purchase Agreement between Oxygen Biotherapeutics and Vatea Fund, Segregated Portfolio (12)

10.41		Form of Exchange Agreement dated July 20, 2009 (7)

10.42		Waiver—Convertible Note (10)

10.43		Amendment—Common Stock Purchase Warrant (10)

10.44		Form of Warrant for May 2010 Offering (13)

10.45		Form of Subscription Agreement for May 2010 Offering (13)

10.46		Warrant issued to Blaise Group International, Inc. (14)

10.47		Note Purchase Agreement between Oxygen Biotherapeutics and JP SPC 1 Vatea, Segregated Portfolio (15)

10.48		Form of Promissory Note under Note Purchase Agreement between Oxygen Biotherapeutics and JP SPC 1 Vatea, Segregated Portfolio (15)

10.49		First Amendment to Note Purchase Agreement between Oxygen Biotherapeutics and JP SPC 1 Vatea, Segregated Portfolio (17)

10.50		Form of Convertible Note and Warrant Purchase Agreement (19)

10.51		Lease Agreement for North Carolina corporate office (18)

10.52		Standard Industrial Lease relating to OBI’s California facility (12)

23.1		Consent of Independent Registered Accounting Firm*

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350*

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350*

(1)	These documents were filed as exhibits to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on June 30, 2008, and are incorporated herein by this reference.
(2)	These documents were filed as exhibits to the annual report on Form 10-K filed by Oxygen Biotherapeutics with the SEC on August 13, 2004, and are incorporated herein by this reference.
(3)	These documents were filed as exhibits to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on September 6, 2006, and are incorporated herein by this reference.
(4)	These documents were filed as exhibits to the quarterly report on Form 10-Q filed by Oxygen Biotherapeutics with the SEC on March 21, 2008, and are incorporated herein by this reference.
(5)	These documents were filed as exhibits to the annual report on Form 10-K filed by Oxygen Biotherapeutics with the SEC on August 13, 2008, and are incorporated herein by this reference.
(6)	This document was filed as an exhibit to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on June 8, 2009, and is incorporated herein by this reference.
(7)	This document was filed as an exhibit to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on July 21, 2009, and is incorporated herein by this reference.
(8)	These documents were filed as exhibits to the annual report on Form 10-K filed by Oxygen Biotherapeutics with the SEC on August 12, 2009, and are incorporated herein by this reference.
(9)	This document was filed as an exhibit to the quarterly report on Form 10-Q filed by Oxygen Biotherapeutics with the SEC on September 22, 2008, and is incorporated herein by this reference.
(10)	These documents were filed as exhibits to the quarterly report on Form 10-Q filed by Oxygen Biotherapeutics with the SEC on March 19, 2010, and are incorporated herein by this reference.
(11)	This document was filed as an exhibit to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on September 2, 2009, and is incorporated herein by this reference.
(12)	These documents were filed as exhibits to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on April 28, 2010, and are incorporated herein by this reference.
(13)	These documents were filed as exhibits to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on May 4, 2010, and are incorporated herein by this reference.
(14)	These documents were filed as exhibits to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on November 13, 2009, and are incorporated herein by reference.
(15)	These documents were filed as exhibits to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on October 13, 2010, and are incorporated herein by this reference.
(16)	These documents were filed as exhibits to the quarterly report on Form 10-Q filed by Oxygen Biotherapeutics with the SEC on December 9, 2010, and are incorporated herein by this reference.
(17)	This document was filed as an exhibit to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on December 30, 2010, and is incorporated herein by this reference.
(18)	These documents were filed as exhibits to the quarterly report on Form 10-Q filed by Oxygen Biotherapeutics with the SEC on March 21, 2011, and are incorporated herein by this reference.
(19)	These documents were filed as exhibits to the annual report on Form 10-K filed by Oxygen Biotherapeutics with the SEC on July 23, 2010, and are incorporated herein by this reference.
*	Filed herewith.

RESIGNATION OF EMPLOYMENT AND CONSULTING AGREEMENT

THIS RESIGNATION OF EMPLOYMENT AND CONSULTING AGREEMENT (“Agreement”) is made and entered into by Richard M. Kiral (“Kiral”) and Oxygen Biotherapeutics Inc. (the “Corporation”). Throughout this Agreement, the Corporation and Kiral may be collectively referred to as “the parties.”

Whereas , the Corporation currently employs Kiral as President and Chief Operating Officer pursuant to an Employment Agreement dated February 1, 2009 (the “Employment Agreement”);

Whereas , Kiral desires to resign from his position as President and Chief Operating Officer with the Corporation and simultaneously enter into this Agreement with the Corporation effective April 1, 2011 (the “Effective Date”);

Whereas , the Corporation desires to obtain from Kiral and Kiral desires to provide to the Corporation twenty-four (24) months of consulting services beginning on the Effective Date; and

Whereas , the Corporation and Kiral mutually desire to: establish the terms and conditions of Kiral’s post-termination consultancy; terminate their employment relationship on mutually agreeable terms; and avoid all litigation relating to the employment relationship and its termination.

Now Therefore , in consideration of the above and the mutual promises set forth below, Kiral and the Corporation agree as follows:

1. RESIGNATION . As of the Effective Date, Kiral hereby resigns from his position as President and Chief Operating Officer of the Corporation and the Corporation accepts such resignation.

2. CONSULTANCY .

a. Consulting Services . For the period of time commencing on the Effective Date and ending at the end of the twenty fourth month thereafter (the “Consulting Period”), Kiral shall provide such consulting services as may be reasonably requested by the Corporation upon reasonable notice to Kiral and shall report directly to the Corporation’s Chief Executive Officer. Provided however, no such consulting services shall be provided during the seven (7) day revocation period described in Paragraph 12 below. In performing the consulting services, Kiral agrees to be available for meetings from time to time at the principal executive offices of the Corporation and elsewhere at such times as may be mutually agreed upon by the parties and agrees to be available for up to ten (10) hours per month. The Corporation agrees to use Kiral’s consulting services for at least eight (8) hours per month during the Consulting Period.

b. Consulting Fees . The Corporation shall pay Kiral consulting fees in the amount of One Hundred and Eighty Five Dollars ($185.00) per hour for consulting services rendered during the Consulting Period. Such consulting fees shall be paid on the last day of the month following the month in which the services were performed. In addition, the Corporation shall also pay expenses reasonably incurred by Kiral in rendering consulting services hereunder. Kiral shall submit monthly invoices for his expenses incurred and the Corporation shall pay such expenses within thirty (30) days of receipt of the same. Notwithstanding the above, any consulting services performed by Kiral during the month of April, 2011 shall be at no charge to the Corporation. Time spent for travel will not be billable time, except for up to one hour travel time for meeting with local vendors in the State of California.

c. Confirmation of Treatment of Stock Options . The Corporation hereby confirms that all stock options issued pursuant to the 1999 Amended Stock Plan of the Corporation (the “Plan”) that are currently held by Kiral (the “Kiral Stock Options”) shall be unaffected by this Agreement and Kiral shall retain all rights related to the Kiral Stock Options pursuant to the terms and conditions of the Plan. The Corporation further confirms that for purposes of the Kiral Stock Options, the consulting services provided by Kiral pursuant to this Agreement qualify him for treatment as a “Consultant” under the Plan.

3. INDEPENDENT CONTRACTOR STATUS . The parties hereby acknowledge and agree that Kiral’s consulting services for the Corporation shall be provided strictly as an independent contractor. Nothing in this Agreement shall be construed to render him an employee, co-venturer, agent, or other representative of the Corporation. Kiral understands that he must comply with all tax laws applicable to a self-employed individual, including the filing of any necessary tax returns and the payment of all income and self-employment taxes. The Corporation shall not be required to withhold from payment of the consulting fee any state or federal income taxes or to make payments for Social Security (FICA) tax, unemployment insurance, or any other payroll taxes. The Corporation shall not be responsible for, and shall not obtain, worker’s compensation insurance, disability benefits insurance, or unemployment security insurance coverage for Kiral. Consistent with his duties and obligations under this Agreement, Kiral shall, at all times, maintain sole and exclusive control over the manner and method by which he performs his services.

4. SEVERANCE BENEFITS .

a. Severance Pay . In addition to the consulting fees paid hereunder, the Corporation shall pay Kiral severance pay in an amount equal to his current annual salary (less applicable taxes and withholdings), payable in substantially equal installments in accordance with the Corporation’s payroll schedule applicable to Kiral immediately prior to the Effective Date and commencing on the first such payroll date following the tenth (10 th ) day after this Agreement becomes effective as set forth in Paragraph 12 below (”Severance Pay”).

b. Accrued Vacation . The Corporation shall pay Kiral for any accrued, unused leave that he may have as of the Effective Date.

c. COBRA Reimbursement . In addition, after the revocation period set forth in Paragraph 12 below expires, the Corporation shall reimburse Kiral for premium payments he makes under the Consolidated Budget Reconciliation Act (“COBRA”) to continue his and his family’s health and dental insurance coverage through and including the first anniversary of the Effective Date. All reimbursements for COBRA payments shall be made as soon as practicable following Kiral’s submission of proof of timely payments to the Corporation; provided, however, that all such claims for reimbursement shall be submitted by Kiral and paid by the Corporation no later than thirteen months following the Effective Date. Any obligation for the Corporation to make payments for COBRA reimbursement under this Paragraph 4(c) shall immediately cease when Kiral is employed by an entity providing health insurance coverage, and Kiral shall promptly inform the Corporation of any such employment.

5. RESIGNATION FROM BOARD OF DIRECTORS AND ADDITIONAL SEVERANCE PAY . Kiral agrees to not stand for re-election to the Corporation’s Board of Directors (“Board) at the Corporation’s Annual Meeting of Stockholders in 2011. Upon his ceasing to serve on the Board, the Corporation shall pay Kiral Two Hundred Thousand and 00/100 Dollars ($200,000.00). Said payment, the “Additional Severance Pay” shall be paid in four equal quarterly installments (less applicable taxes and withholdings) with the first such payment being made on the day following such cessation of service.

The parties agree that for the remainder of Kiral’s current term as Director he shall not qualify as a Non-Employee Director under the Board of Director’s Compensation Plan currently in effect. Attendance at the June 2011 Board of Directors Meeting shall be compensated for under the rates set forth in section 2(b) above in the amount of twelve (12) billable hours.

Except as set forth in this Agreement, it is agreed and understood that the Corporation shall not have any obligation to provide Kiral at any time in the future with any payments, benefits, or considerations other than those recited in this Agreement, or those required by law, other than under the terms of any benefit plan which provides benefits or payments to former employees according to their terms. Kiral further agrees and acknowledges that he is owed no additional payments from the Corporation beyond what may be due to him under this Agreement and specifically acknowledges that he has no further entitlements under any Stock Plan.

6. CHANGE IN CONTROL . In the event that the Corporation undergoes a Change in Control prior to the Corporation’s Annual Meeting of Stockholders in 2011, Kiral shall resign from the Board effective as of the effective date of the Change in Control and all of the then outstanding Severance Pay and Additional Severance Pay shall be made in a lump sum (less applicable taxes and withholdings) within ten (10) days following the effective date of such Change in Control.

For purposes of this Agreement, “Change in Control” shall mean a merger or consolidation of the Corporation in which the Corporation is not the surviving entity or a sale of all or substantially all of the assets of the Corporation .

7. RELEASE . In consideration of the benefits conferred by this Agreement, KIRAL (ON BEHALF OF HIMSELF AND HIS ASSIGNS, HEIRS AND OTHER REPRESENTATIVES) RELEASES CORPORATION AND ITS RELATED PARTIES (DEFINED BELOW) ("RELEASEES") FROM ALL CLAIMS AND WAIVES ALL RIGHTS KNOWN OR UNKNOWN, HE MAY HAVE OR CLAIM TO HAVE RELATING TO HIS EMPLOYMENT WITH CORPORATION, ITS PREDECESSORS, SUBSIDIARIES OR AFFILIATES OR HIS SEPARATION THEREFROM arising before the execution of this Agreement, including but not limited to claims:

(i) for discrimination, harassment or retaliation arising under federal, state or local laws prohibiting age (including but not limited to claims under the Age Discrimination in Employment Act of 1967 (ADEA), as amended), sex, national origin, race, religion, disability, veteran status or other protected class discrimination, harassment or retaliation for protected activity;

(ii) for compensation and benefits (including but not limited to claims under the Employee Retirement Income Security Act of 1974 (ERISA), Fair Labor Standards Act of 1934 (FLSA), Family and Medical Leave Act of 1993 (FMLA), all as amended, and similar federal, state, and local laws);

(iii) under federal, state or local law of any nature whatsoever (including but not limited to constitutional, statutory, tort, express or implied contract or other common law); and

(iv) for attorneys’ fees.

The release of claims set forth in this Paragraph 7 does not apply to claims for workers’ compensation benefits or unemployment benefits filed with the applicable state agencies, vested retirement benefits or claims described in Paragraphs 8 and 9 below.

For purposes of this Agreement, “Related Parties” means the Corporation’s predecessors, successors, and assigns and its and/or their past, present and future owners, parents, subsidiaries, affiliates, predecessors, successors, assigns, officers, directors, employees, employee benefit plans (together with all plan administrators, trustees, fiduciaries and insurers) and agents.

8. AGENCY CHARGES/INVESTIGATIONS . Nothing in this Agreement shall prohibit Kiral from filing a charge or participating in an investigation or proceeding conducted by the U.S. Equal Employment Opportunity Commission or other governmental agency with jurisdiction concerning the terms, conditions and privileges of his employment; provided, however, that by signing this Agreement, Kiral waives his right to, and shall not seek or accept,

any monetary or other relief of any nature whatsoever in connection with any such charges, investigations or proceedings.

9. COVENANT NOT TO SUE . Kiral will not sue Releasees on any matters relating to his employment arising before the execution of this Agreement, including but not limited to claims under the ADEA, or join as a party with others who may sue Releasees on any such claims; provided, however, this paragraph will not bar a challenge under the Older Workers Benefit Protection Act of 1990 (OWBPA) to the enforceability of the waiver and release of ADEA claims set forth in this Agreement, claims for workers’ compensation, unemployment or vested retirement benefits referenced in Paragraph 7 above, or where otherwise prohibited by law. If Kiral does not abide by this paragraph, then he will (i) return all monies received under this Agreement and Releasees will be relieved of their obligations hereunder, except to the extent that such return and relief would result in invalidation of the release set forth above, and (ii) indemnify Releasees for all expenses they incur in defending the action.

10. CORPORATION INFORMATION AND PROPERTY AND CONTINUING OBLIGATIONS . Kiral shall not at any time after his employment terminates or at any time during the Consulting Period disclose, use or aid third parties in obtaining or using any confidential or proprietary information of the Corporation’s nor access or attempt to access any Corporation computer systems, networks or any resources or data that resides thereon except as may be necessary to perform his consulting services hereunder. Confidential or proprietary information is information relating to the Corporation or any aspect of its business which is not generally available to the public, the Corporation’s competitors, or other third parties, or ascertainable through common sense or general business or technical knowledge. Nothing in this Agreement shall relieve him from any obligations under any previously executed confidentiality, proprietary information, non-competition, or secrecy agreements, including, but not limited to, his obligations under Section 8, “Covenant Not to Compete” and Section 9, “Confidentiality Provision” of the Employment Agreement.

All records, files or other materials maintained by or under the control, custody or possession of the Corporation or its agents in their capacity as such shall be and remain the Corporation’s property. Except as may be necessary to perform his consulting services hereunder and as agreed to by the parties, Kiral shall: (i) return all of the Corporation’s property including, but not limited to, credit cards; keys; cell phone; access cards; thumb drive(s), laptop(s), mobile communications devices and all other computer hardware and software; records, files, documents, manuals, and other documents in whatever form they exist, whether electronic, hard copy or otherwise and all copies, notes or summaries thereof which he created, received or otherwise obtained in connection with his employment; (ii) permanently delete any Corporation information that may reside on his personal computer(s) or other devices; and (iii) fully cooperate with the Corporation in winding up his work and transferring that work to those individuals designated by the Corporation.

11. COOPERATION . Kiral shall cooperate fully with the Corporation in the defense or prosecution of any claims or in connection with any governmental inquiry related to events or occurrences that existed during the term of his employment, which shall include making himself

available to meet with counsel to prepare for discovery or trial and be available as a witness on behalf of the Corporation, at the Corporation’s expense, at mutually agreed times.

12. RIGHT TO REVIEW AND REVOKE . The Corporation delivered this Agreement to Kiral on March 17, 2011 by hand delivery. The Corporation desires that Kiral have adequate time and opportunity to review and understand the consequences of entering into this Agreement. Accordingly, the Corporation advises him:

●	to consult with his attorney prior to executing it; and,

●	that he has at least 21 days within which to consider it.

In the event that Kiral does not return an executed copy of this Agreement to Nancy Hecox at One Copley Parkway, Suite 490, Morrisville, NC 27560 by the 22 nd day after he received this Agreement, this Agreement and the obligations of the Corporation herein shall become null and void. Kiral may revoke this Agreement during the seven (7) day period immediately following his execution of it. The Agreement will not become effective or enforceable until the revocation period has expired. To revoke the Agreement, a written notice of revocation must be delivered to Nancy Hecox at the above address.

13. CONFIDENTIALITY AND NONDISPARAGEMENT . Until this Agreement is publicly disclosed by the Corporation, Kiral shall keep the terms and provisions of this Agreement confidential, and Kiral represents and warrants that since receiving this Agreement he has not disclosed, and going forward will not disclose, the terms and conditions of this Agreement to third parties, except as follows: (i) he may reveal the terms and provisions of this Agreement to members of his immediate family or to an attorney whom he may consult for legal advice, provided that such persons agree to maintain the confidentiality of the Agreement and (ii) he may disclose the terms and provisions of this Agreement to the extent such disclosure is required by law.

Kiral represents and warrants that since receiving this Agreement, he (i) has not made, and going forward will not make, disparaging, defaming or derogatory remarks about the Corporation or its products, services, business practices, directors, officers, managers or employees to anyone; nor (ii) taken, and going forward will not take, any action that may impair the relations between the Corporation and its employees, shareholders, or similar agents or that would be detrimental to or interfere with, the Corporation or its business.

14. RELEASE OF CONSULTANCY CLAIMS . Kiral and the Corporation covenant and agree that within ten (10) days following the conclusion of the Consulting Period, Kiral shall execute and not revoke a second release agreement releasing the Releasees from any and all claims which he has, or may have against the Releasees from the beginning of Kiral’s consultancy with the Corporation through the date of the release on a form prescribed by the Corporation, which shall be substantially similar to the release contained in this Agreement, except to account for any changes in any of the applicable laws governing these releases.

15. SECTION 409A OF THE INTERNAL REVENUE CODE .

A. Parties’ Intent . The parties intend that the provisions of this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended and the regulations thereunder (collectively, “Section 409A”) and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A. If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause Kiral to incur any additional tax or interest under Section 409A, the Corporation shall, upon the specific request of Kiral, use its reasonable business efforts to in good faith reform such provision to comply with Section 409A; provided , that to the maximum extent practicable, the original intent and economic benefit to Kiral and the Corporation of the applicable provision shall be maintained, and the Corporation shall have no obligation to make any changes that could create any additional economic cost or loss of benefit to the Corporation. The Corporation shall timely use its reasonable business efforts to amend any plan or program in which Kiral participates to bring it in compliance with Section 409A. Notwithstanding the foregoing, the Corporation shall have no liability with regard to any failure to comply with Section 409A so long as it has acted in good faith with regard to compliance therewith.

B. Separation from Service . A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination also constitutes a “Separation from Service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment,” “separation from service” or like terms shall mean Separation from Service.

C. Separate Payments . Each installment payment required under this Agreement shall be considered a separate payment for purposes of Section 409A.

D. Delayed Distribution to Key Employees . If the Corporation determines, in accordance with Section 409A(a)(2)B)(i) and the regulations promulgated thereunder, in the Corporation’s sole discretion, that Kiral is a specified employee of the Corporation on the date of his separation from service with the Corporation and that a delay in severance pay and benefits provided under this Agreement is necessary for compliance with Section 409A(a)(2)(B)(i), then any payments and any continuation of benefits or reimbursement of benefit costs provided under this Agreement pursuant to such separation from service and not otherwise exempt from Section 409A (including Treasury Regulations Section 1.409A-1(b)(9)(iii)) shall be delayed for a period of six (6) months from the date of such separation from service (the “409A Delay Period”). In such event, any such payments and the cost of any such continuation of benefits provided under this Agreement that would otherwise be due and payable to Kiral during the 409A Delay Period shall be paid to Kiral in a lump sum cash amount in the month following the end of the 409A Delay Period. For purposes of this Agreement, “separation from service” and “specified employee” shall have the meaning set forth in Treasury Regulations Section 1.409A-1(h) and (i), respectively, and, for such purpose the “identification date” shall mean December 31.

16. Indemnification for 409A Tax Liability Related to Equity Awards . If Kiral should be assessed any tax liability by any domestic or foreign taxing authority as a result of the non-compliance with Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”, and the tax liabilities, interest, and other related costs and expenses incurred thereunder or in connection therewith, the “ 409A Liabilities ”), of any the Kiral Stock Options and/or amendments thereto made by the Corporation to Kiral prior to the date hereof, then the Corporation shall indemnify Kiral to the full extent of such 409A Liabilities; provided, however, that the Corporation shall not indemnify Kiral for any portion of the 409A Liabilities to which the Kiral would otherwise have been subject had the Kiral Stock Options been compliant with Section 409A (the “ Non-Covered Liabilities ”). If the Corporation’s indemnification obligation under this Section 16 is satisfied by the Corporation’s reimbursement to Kiral in an amount equal to the 409A Liabilities (or the then applicable portion thereof), such reimbursement shall be paid by the Corporation to the Kiral no later than ten business days after Kiral pays such 409A Liabilities (or the applicable portion thereof). If, subsequent to the Corporation’s payment or reimbursement of the 409A Liabilities, any portion of such liabilities shall become Non-Covered Liabilities, the Kiral shall immediately reimburse the Corporation for such Non-Covered Liabilities. For the avoidance of doubt, the 409A Liabilities shall be deemed to include, but are not limited to, any interest and penalties to which the Kiral may be subject as a result of the 409A Liabilities, the reasonable fees and expenses of any accountants and/or attorneys engaged to assess any potential 409A Liabilities, negotiate the settlement thereof with applicable taxing authorities, assist in the preparation of Kiral’s income tax returns or any amendments thereto which include any 409A Liabilities and/or assist Kiral with his response to any income tax audit that relates, in whole or in part, to any tax year that includes and 409A Liabilities, and any additional income tax resulting from the Corporation’s indemnification of Kiral relating to the 409A Liabilities.

17. OTHER . Except as expressly provided in this Agreement, this Agreement supersedes all other understandings and agreements, oral or written, between the parties and constitutes the sole agreement between the parties with respect to its subject matter. Each party acknowledges that no representations, inducements, promises or agreements, oral or written, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement and no agreement, statement or promise not contained in the Agreement shall be valid. No change or modification of this Agreement shall be valid or binding on the parties unless such change or modification is in writing and is signed by the parties. Kiral’s or the Corporation’s waiver of any breach of a provision of this Agreement shall not waive any subsequent breach by the other party. If a court of competent jurisdiction holds that any provision or sub-part thereof contained in this Agreement is invalid, illegal or unenforceable, that invalidity, illegality or unenforceability shall not affect any other provision in this Agreement.

This Agreement is intended in part, to avoid all litigation relating to Kiral’s employment with the Corporation and his resignation therefrom; therefore, it is not to be construed as the Corporation’s admission of any liability to him - liability which the Corporation denies.

This Agreement shall apply to, be binding upon and inure to the benefit of the parties’ successors, assigns, heirs and other representatives and be governed by North Carolina law and the applicable provisions of federal law, including but not limited to ADEA.

IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year written below.

KIRAL REPRESENTS THAT HE HAS CAREFULLY READ THE ENTIRE AGREEMENT, UNDERSTANDS ITS CONSEQUENCES, AND VOLUNTARILY ENTERS INTO IT.

		/s/ RICHARD M KIRAL		03/28/2011
		Richard M. Kiral		Date


		OXYGEN BIOTHERAPEUTICS, INC.

		/s/ CHRIS J STERN		03/28/2011
		By: Chris Stern		Date
		Title: Chief Executive Officer

Delaware		26-2593535
(State of Incorporation)		(IRS Employer I.D. Number)

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share		The NASDAQ Stock Market LLC

Large Accelerated Filer	o	Accelerated Filer	o
Non-Accelerated Filer	o	Smaller Reporting Company	þ

Year-Ended April 30, 2010	High		Low
First Quarter	$	7.50	$	3.00
Second Quarter	$	8.25	$	4.80
Third Quarter	$	7.74	$	4.50
Fourth Quarter	$	7.50	$	4.54

Year-Ended April 30, 2011	High		Low
First Quarter	$	5.01	$	2.39
Second Quarter	$	3.33	$	1.88
Third Quarter	$	2.75	$	1.87
Fourth Quarter	$	2.22	$	1.70

	Year ended April 30,				Increase/ (Decrease)		% Increase/ (Decrease)
	2011		2010
Marketing and sales expense	$	875,634	$	283,104	$	592,530		209	%

ITEM NUMBER AND CAPTION			Page

Part I

	1.	Business		3

	1A.	Risk Factors		9

	1B.	Unresolved Staff Comments		26

	2.	Properties		26

	3.	Legal Proceedings		26

	4.	(Removed and Reserved)		26

Part II

	5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		27

	6.	Selected Financial Data		28

	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28

	7A.	Quantitative and Qualitative Disclosures About Market Risk		38

	8.	Financial Statements and Supplementary Data		39

	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		63

	9A.	Controls and Procedures		63

	9B.	Other Information		64

Part III

	10.	Directors, Executive Officers, and Corporate Governance		65

	11.	Executive Compensation		65

	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		65

	13.	Certain Relationships and Related Transactions, and Director Independence		65

	14.	Principal Accountant Fees and Services		65

Part IV

	15.	Exhibits and Financial Statement Schedules		66

Name of Recipient:
Number of shares of restricted common stock awarded:
Grant Date:

	Oxygen Biotherapeutics, Inc.

	By:	/s/ Christian J. Stern
		Christian J. Stern
		Chief Executive Officer

		Gerald L. Klein

		/s/ Gerald L. Klein

	OXYGEN BIOTHERAPEUTICS, INC.

	By:	/s/
		Name :
		Title :

		INDEMNITEE

		Name :

	OXYGEN BIOTHERAPEUTICS, INC.

Date: July 14, 2011	By:	/s/Michael B. Jebsen
		Michael B. Jebsen
		Chief Financial Officer