Our TBI trial is moving ahead as planned. This past week, the Israeli portion of the trial enrolled and treated the first patients in that country. I’ve said previously that we will not give updates every time a new patient enters the trial. However, I wanted to let you know that, while it took longer than we expected for all the details to be locked down, we have now enrolled 33% of the patients of the first cohort. We are now on schedule with the completion of the first phase of this trial. An investigator meeting has already been scheduled.

As was indicated in the 8K filing, we are reducing the size of our board from nine members to seven and doing so in two steps. The effective dates coincide with the resignation of two current board members: Dr. Bruce Spiess and Dr. Gerry Klein.

The first step, which was effective March 1, eliminated one board seat concurrent  with the resignation of Dr. Spiess. I sincerely appreciate the time and service that Dr. Spiess put in on our board. Dr. Spiess conducted research at Virginia Commonwealth University on Oxycyte and the use of perfluorocarbons.  Additional information on some of the research being conducted at VCU, through grants and cooperative agreements with the Department of Defense can be found by copying and pasting the following address into your internet browser: 

http://www.fedspending.org/faads/faads.php?recipient_name=Virginia+Commonwealth+University&fiscal_year=2007&sortby=r&datype=T&reptype=r&database=faads&detail=4&submit=GO

There you will find information about projects such as Treatment of Arterial Gas Embolism with Oxycyte, and Mechanistic and Monitoring Studies in Experimental Decompression Sickness utilizing Novel Treatments with Perfluorocarbon Emulsions.

To join the company in a new position as our Chief Medical Officer, Dr. Klein submitted his resignation from the board effective May 30, 2010, which is the same date another board seat will be eliminated. Gerry’s resignation marks the beginning of a new role within the company. As CMO, he will take a more direct role in leading our efforts to bring our products to market.

I hope you will be enjoying the first days of spring after this brutal winter. We just enjoyed a perfect weekend here in the Research Triangle. I cannot wait until everything is back in full bloom. Spring will come. Thank you for your support and God bless.

Having our shares listed on the NASDAQ will give our company visibility to a broad range of potential investors who could not or would not have considered investing in our stock when it was on the Bulletin Board. Most of the big institutional investors (mutual funds, pension funds, etc.) will not buy penny stocks (which we were pre-split) nor buy shares that are not traded on a major exchange. Likewise, many retail brokerage firms cannot recommend such stocks to their clients. Being listed on the NASDAQ could lead to greater interest in our common stock by the broader financial community and the investing public. This re-listing is an important opportunity to position our company where we believe it belongs. It will give us the potential financial strength needed to become a company with multiple products in various development stages.

Speaking of multiple products, at today’s OneMedForum conference, I mentioned our plans for new product developments. I think some of those plans are pretty exciting.

First of all, we’re adding an additional pillar to our business strategy – veterinary products. Our research has come up with an animal wound-care product line for topical application. It takes the healing ability of Oxycyte™ in a gel form and makes it available to apply to pets, farm animals, etc. Because it is a topical product line for animals, we believe we can bring it to market very quickly. If you think about how much Americans spend on their pets, you can see that the potential could be very significant. Our goal is to have these products, which we have tentatively named OxyBioPet, on the market this year.

We plan to follow that with a second veterinary product line, which we are initially calling OxyBioVet. This would be an intravenous Oxycyte emulsion veterinarians could use to carry oxygen to an animal’s heart, brain or other organs. While I am not willing, right now, to predict the timing for a market launch, the requirements for animal products are far less restrictive than for humans.

At the same investor conference, I also briefly mentioned our plans to expand our cosmetic product line this year. We are targeting this spring to roll out our Dermacyte Eye Cream. It is formulated for those fine line wrinkles around the eyes. We will also launch another formulation as a face lotion, and a repackaged version of our cosmetic concentrate gel, which we recently tested in blister packs via on-line sales. As a fourth product, we’re considering the Dermacyte Oxygenating Solution (DOS).  Think of it as a perfluorocarbon liquid in its basic, clear form – not a gel or a cream but the PFC liquid with its ability to capture oxygen from the air and carry it through the outer skin layer.

Meanwhile, our TBI clinical trials are under way. It’s not likely that we will be providing any additional information until some time after the first cohort has been treated and the results analyzed. While enrollment of the first patient was delayed for reasons previously explained, I’m confident that we’re on a time line to complete the trial in the targeted 12 to 18 months.

2010 began with a major milestone and I expect the whole year to bring others. Thank you for your support. Stay tuned; stay healthy, wealthy, and safe. God bless.
 

Switzerland’s government system played a role in that every Canton (State) has its own set of laws and structures. Two sites are now up and running: Berne and Zurich. In Geneva and St. Gallen the use of Licox probes (devices that are put on the skull with a probe placed into the brain) had to be introduced. Everyone understands that we want to be sure that drilling a hole in a head is done right. So, as you can imagine, that required specific additional logistics and training. In Aarau, our principal investigator was on an extensive sick leave. Lausanne withdrew because of resource reasons, but we are in the process of adding Lugano as a site. Basle and Geneva again had lengthy and complex contract processes, but these are now resolved and they should be up and running shortly.

In Israel three of four sites have final approval from all concerned. We had two main issues to overcome there. The first, extensive contract negotiations to allow for the ever-declining dollar exchange rate, just crawled until an agreement was reached. These contracts have now been executed. Also, three of four sites there did not have Licox probes and we had to purchase them for the sites. Again, training and logistics were the same as in Switzerland. We’re now at a point where Israel should be ready for enrollment within the next week or two. At the fourth site, there are still logistical issues and the contract is still in review by the hospital’s counsel.

In this trial, we’re dealing with peoples’ lives. Our main criterion in the trial is safety. We therefore intentionally did not rush enrollment in the early stage. We believe this caution is prudent. If you look at the history of our failed competitors, they showed us how dangerous it is to rush a trial. We will not do that.

In a related matter, we’ve been asked whatever happened to the application the company submitted for Orphan Drug designation for Oxycyte for the treatment of patients with severe, closed-head TBI. The answer is that there were too many incidences of this kind of TBI in our country to meet the Orphan Drug designation criteria of fewer than 200,000 cases. That is actually a nice official proof of market size. So rather than try to push that further, we kept the issue pending. We felt we have more important things to do right now, and that developing our pipeline is more important than following on a designation that has literally no commercial value.

As for the stock listing change, we have applied to both the NYSE AMEX and NASDAQ. Each has pros and cons. We are diligently working with both exchanges and believe we would fit either one. We hope to make an announcement very soon.

The holidays are approaching fast and we thank you for your loyal support. We extend the greetings of the season and wish you a happy, healthy, and successful new year.

The reverse split is the last critical step in our efforts to move the listing of our shares, graduating so to speak, from the Over-the-Counter Bulletin Board to one of the major stock exchanges. We filed the application package right after the shareholder meeting at which the reverse split was approved.

I’ve been asked why we have not given more details about filing the application for the listing – especially about which exchange we have applied to.  Well, the answer is that this process is highly regulated and we will be told by the regulators and the listing exchange what and when we are allowed to communicate. There may even be a “quiet period” coming up very soon, where we are not allowed to communicate at all. So, all I can say is that we are progressing on plan with our listing effort. We will make announcements as soon as we are allowed to and hope that this will be sooner rather than later. Believe me, I wish I could say more.

On the operations side, we are waiting for the first patient to be enrolled in the Phase II traumatic brain injury (TBI) trials in Switzerland and Israel. While we cannot predict exactly when, (after all, they are accident victims whose injuries must meet certain criteria, and the sites need next-of-kin consent) we expect that this should happen very soon. The drug is in place, and the sites are instructed.

Also, we are preparing all the regulatory work for the other indications in our clinical, topical and device development programs. A number of new studies are already under way.

As for Dermacyte, we now expect to make a first shipment fulfilling our pre-orders as soon as late next week and have Dermacyte regular production runs ready in early December – just in time for a holiday gift of beautiful skin. Next year, we intend to launch a number of amazing and beautiful products within this superb cosmetic line.

The transition from a research company to an operating revenue company at a major listing exchange is a lot of work and a lot of fun. Without the engagement and dedication of our wonderful staff and the support of our shareholders, this would be a very difficult undertaking. Thank you all!

Frequently Asked Questions about the Reverse Stock Split

Q. What is a reverse stock split?
A. A reverse stock split is a re-capitalization that merely reduces the total number of shares of common stock outstanding by the exchange ratio established for the reverse stock split, including shares underlying outstanding stock options and warrants. Upon completion of a reverse stock split, as a result of the reduction in the number of shares of common stock outstanding, the price per common share increases because there are fewer shares outstanding that represent the market capitalization.

However, the effect of a reverse stock split upon the market price of our common stock cannot be predicted with any certainty, and the history of similar stock splits for companies in like circumstances is varied.  It is possible that the per share price of our common stock after the reverse stock split will not rise in proportion to the reduction in the number of shares of our common stock outstanding resulting from the reverse stock split.  The market price of our common stock may also be based on other factors that may be unrelated to the number of shares outstanding, including our future performance.

Q. When was the reverse stock split approved?
A. At our Annual Meeting of Stockholders held on October 19, 2009.

Q. What is the exchange ratio for the reverse stock split?
A. The reverse stock split exchange ratio is 1-for-15. That means that for every 15 shares of common stock currently held, stockholders will receive one new share of common stock. The percentage ownership of each stockholder will remain unchanged at implementation of the reverse stock split.

Q. What if my number of shares does not divide evenly by 15?
A.  Fractional shares will be rounded up to the next whole number.

Q. When will the reverse stock split become effective?
A. The reverse stock split will become effective at the opening of trading on Monday, November 9, 2009.

Q. Do I need to surrender my existing stock certificate for a new stock certificate?
A. On November 9, 2009, shares of common stock outstanding immediately prior thereto will be combined and converted, automatically and without any action on the part of the stockholders, into new shares of common stock in accordance with the 1:15 reverse stock split ratio and rounding any fractional share up to the nearest whole share, so all pre-split stock certificates will automatically represent the post-split number of shares.  We recommend that you surrender your certificate to the transfer agent to exchange for a new certificate, but you are not required to do so. However, if you choose to do so, the transfer agent will charge you a fee. Any pre-split shares represented by a certificate submitted for transfer, whether pursuant to an exchange, sale, other disposition or otherwise, will automatically be exchanged for new post-split shares.  Stockholders of Record Should Not Destroy Any Pre-split Stock Certificate(s).

For beneficial holders of pre-reverse split shares (i.e., stockholders who hold their shares through a broker), your broker will make the appropriate adjustment to the number of shares held in your account on November 9, 2009.

Q. How does the reverse stock split affect trading of Oxygen Biotherapeutics, Inc. shares?
A. Our common stock will continue to trade on the Over the Counter Bulletin Board under the symbol OXBT.

Q. Will the CUSIP number for Oxygen Biotherapeutics, Inc. common stock change?
A. Yes. The new CUSIP number for our common stock is 69207P209.

Q. Why has Oxygen Biotherapeutics, Inc. implemented a reverse stock split of its common stock?
A. The primary purpose of the reverse stock split is to increase the per share market price of our common stock to meet the share price requirements in connection with management’s plan to move the share listing to a major stock exchange.  The reverse stock split also may enhance the acceptability and marketability of the Company’s common stock to the larger financial community and the investment public.

Q. What is the impact of the reverse stock split on the outstanding shares of common stock?
A. The immediate effect of the reverse stock split will be to reduce the number of outstanding shares of common stock from 293,767,389 to approximately 19,599,676.

Q. What is the impact of the reverse stock split on stock options and warrants?
A. A proportional 1:15 adjustment will be made to the company’s stock options and warrants. Warrant holders do not need to submit their warrants for exchange. The adjustment will be made automatically.

Q. What is the impact of the reverse stock split on the number of authorized shares of common stock?
A. The number of authorized shares of common stock will remain the same.

Q. What are the tax consequences of the reverse stock split to the company’s stockholders?
A. Generally, the reverse stock split itself will not have any tax consequences. A stockholder’s aggregate tax basis for the post-reverse stock split shares of common stock should be the same as the aggregate tax basis for the pre-reverse stock split shares of common stock. However, each stockholder should consult his or her tax advisor to determine their particular tax consequences resulting from the reverse stock split, including any application and effect of federal, state, local and/or foreign income tax and other laws.

Our upcoming shareholders meeting on Oct. 19 will be the first since the company moved its headquarters from Costa Mesa, CA to Durham. NC. While that will make attendance easier for shareholders who live in the eastern part of the country, it’s likely that many of those who attended our last meeting in Costa Mesa will not be in Durham.

However the meeting will be webcast live and we will provide a link to the webcast on our website prior to the meeting.

This year we will be making a change in how we handle the meeting’s question period which will come after the formal business portion (including counting the votes) is concluded. We want those of you who cannot attend to still be able to submit your questions. So we have set up a section in our Shareholder E-Forum where you can submit those questions. Go to the Forum’s “Ask Management” tab and you will see a special listing for our shareholders meeting. Follow the on-screen instructions to submit your question. You will have to be a registered user of the Forum and registration does require that we verify your status as a shareholder.

I cannot promise that every question that is submitted will be answered. However, we will try to answer those that are the most relevant and mix the web questions in with questions from those attending.

We have been receiving a lot of questions regarding the 1 for 15 reverse split proposed in the latest proxy. Rather than trying to answer them individually or address them in a long essay, we’ve compiled the most frequent questions below along with our response to each.

I truly believe that we need to move our stock listing to a major exchange, that a reverse split is necessary to do so, that the time is now, and that it is very much in the best interest of our shareholders. I hope that after reading the Q & A below, you will agree.

Why do we need a reverse split?
One of the company’s goals is to move its shares from the OTC Bulletin Board to a major stock exchange. This reverse split is a key step in making such a move. Listing requirements for the major exchanges include a minimum share price depending on the exchange. For NYSE AMEX for example, the minimum price is $3. So based on the present and historical trading prices for our common stock, effecting the reverse split is a prerequisite to meet the listing criteria of an exchange. Without a reverse split, we would have to wait until the stock price increased on its own to a high enough level to qualify for a move. But there is no way to know when or even if that would happen. In the meantime, our shares would continue to be subject to all of the disadvantages and negatives associated with being traded over the counter.

In addition, our current trading status significantly limits the number and type of potential investors in our shares. Most institutions will not buy penny stocks or shares that are not traded on a major exchange and priced below $5 per share. Likewise, many retail brokerage firms cannot recommend such stocks to their clients. By reducing the number of shares of common stock outstanding, the resulting share price could increase to a level where there may be greater interest in the common stock by the financial community and the investing public.

You’ve been able to raise the capital you need in the past. How does a Reverse Split benefit our ability to raise capital?

A reverse split is very important to our future ability to raise capital we might need to fund the company’s growth. In the past, our ability to raise capital has been meaningfully constrained as a result of the low market price of our common stock, the thin trading of the shares, and the absence of a listing on a major exchange. This limited the types of offerings that the company could make. The result was that when the company needed to raise money, it had to accept high borrowing costs and significant dilution. After a reverse split, the number of shares we would have to sell (additional dilution) to raise a given amount of money would be dramatically less.

Isn’t it true that a reverse split is a signal of a company in trouble?
Often when you see a company announce a reverse split, they are using it as a means of avoiding delisting from a major stock exchange due to a drop in share price below the level required for continued listing. However, that is not the case here. We are proposing the reverse split in hopes of raising the stock price to a level that will allow us to “graduate” from the penny stock stigma of the OTCBB to a listing on a major exchange.

Why a ratio of 1:15?
It’s impossible to know what our share price will be when the reverse split is effective. So, considering the recent trading range of our shares, we picked a ratio that we believe will result in a post-split price high enough to meet listing requirements of a major exchange even if the shares are trading at the low end of that range. Our calculations and decisions are based on a set of market valuations and scenarios. We worked with our advisors and came up with split numbers between 1:12 and 1:15 as ideal ratios. We decided to go the safer route and opt for the higher number.  It is our goal to relist the company at stock price comfortably north of the penny stock threshold.

Why push for a reverse split now?
The longer we wait to do the reverse split, the longer we will have to wait until our shares can trade on a major exchange. Many stocks traded over the counter are subject to manipulation that harms the average investor. We want to get away from the disadvantages of OTC trading and have access to the advantages of trading on a major exchange. We believe the time to act is now, since the capital markets appear to be very quiet which should allow our story to get the attention it deserves from analysts and institutional investors.

What is the advantage of moving our stock listing to a major exchange?
Having our shares listed on a major exchange will give our stock visibility to a broad range of potential investors who cannot or will not consider investing in a penny stock. Most of the big institutional investors (mutual funds, pension funds, etc.) will not buy penny stocks. Nor will they buy shares that are not traded on a major exchange if they are priced below $5 per share. Likewise, many retail brokerage firms cannot recommend such stocks to their clients. The higher price resulting from the reverse split and a subsequent listing on a major exchange could lead to greater interest in the common stock by the broader financial community and the investing public.

This relisting is an important opportunity to position our company where we believe it belongs. It will give us the potential financial strength needed to become a company with multiple products in various development stages.

What’s wrong with staying on the Over The Counter market until the share price is high enough to move to a major exchange?

The vast majority of OTCBB stocks trade below 50 cents and the average price for domestic stocks on the OTCBB is just six cents (source: OTCBB.com 9/16/09). You will find very few OTCBB stocks with a share price high enough to allow a move to a major exchange.

For our share price to rise to $3.00 on the OTCBB would mean a market cap of more than a billion dollars. It is unlikely that you will find any such domestic company on the OTCBB. As long as our stock is traded over the counter, it would be very unlikely for the share price to rise to the level required for listing on a major exchange without a reverse split.

We believe it is in the shareholders’ interest to move the company’s shares to a more liquid market sooner rather than later.

How confident are you that you can meet the listing requirements of a major exchange if the reverse split is approved?
Management is working to put in place the components needed to apply for listing on a major exchange once the reverse split is approved. Without a reverse split, such a move would not be possible.

Does this split reduce my holdings in the company?
No. The percentage of the issued shares that you own will not change as a result of a reverse split. If, for example, your holdings now equal one per cent of the outstanding shares, following the reverse split, your holdings will still equal one per cent of the outstanding shares.

Are the shares given to management as options, incentives, or other compensation affected by the reverse split?
The number of shares of common stock issued subject to stock options, warrants, or convertible securities will automatically be proportionately decreased by a factor of 15 and the exercise price or conversion ratio will automatically be proportionately increased by a factor of 15. For example, an option to purchase 300,000 shares at an exercise price of $0.40 per share outstanding before the reverse stock split will become, after the reverse split, an option to purchase 20,000 shares at an exercise price of $6.00.

Why won’t the number of authorized shares be reduced after the reverse split?
Having additional authorized shares gives the company a valuable tool to raise money when needed to finance the company’s growth. We are pursuing and funding TBI trials and several topical indications. However, we have many more opportunities to develop additional uses for Oxycyte. For example, funding additional Phase II clinical trials for other indications and a number of topical trials. Those are things we may want to pursue in the future to benefit the company and its shareholders.  To do so, we would need to raise additional financing and we would need the authorized shares.

How can I be sure there won’t be further dilution after the reverse split is approved?
The current management has said it is dedicated to pursuing a value growth strategy. To execute that strategy, management may, from time to time, need to sell shares to additional investors in order to raise capital needed to fund the company’s development and growth. Issuance of any additional shares is dilutive to some degree. However, if the company grows as a result, then shareholders benefit.

Who/what is Vatea Fund and why did they take such a large position in the company?
Vatea Fund is a private investment fund that manages investments for wealthy private individuals and institutions, with an investment philosophy based on long-term fundamentals. We believe that they evaluated the company and its prospects and determined that purchasing our shares would be a good investment based on the company’s products, business plan, and management.

Is this a take-over attempt by Vatea Fund?
Vatea Fund is currently the company’s largest shareholder. However they do not own a majority of the company’s shares.

Why does Gregory Pepin of Vatea Fund want to be on the board of directors?
Mr. Pepin represents the company’s largest shareholder. It is not at all unusual for very large shareholders, whether institutions or individuals, to have a representative on a company’s Board. We believe that’s a good thing as their interests tend to be aligned with those of other shareholders because their primary objective is to see the stock price improve.

What now?
If you feel confident that you understand the issues, we ask that you vote your proxy. Management suggests a “For” vote for all directors and our stock split.

You can vote online, by mail, and by telephone. You need your proxy form with the control number to vote (that is the number in the shaded box on the form).

We may use a service to make reminder calls as the proxy vote date is getting closer. Please remember, every vote counts.

If you hold your shares in a bank or brokerage account, your bank or broker will likely be the one receiving your proxy forms. So, in that case, you’ll need to instruct them how to vote (management recommends “For” for both proposals).  Also, your bank or broker may not send such forms to you right away. If you have not received your proxy form by September 28, please contact them directly or send us an email at investors@oxybiomed.com and we will try to help.

At our last general shareholders meeting, I said that one of my goals was to move our shares from the OTC Bulletin Board to a major stock exchange. This reverse split is a key step in making such a move. It also has significant potential for our future ability to raise any capital we might need.

Let’s look at capital first. In the past the Company’s ability to raise capital has been meaningfully constrained as a result of the low market price of our common stock, the thin trading of the shares, and the absence of a listing on a major exchange. The result was that when the company needed to raise money, the terms were very expensive. This has increased the cost of raising capital and limited the types of offerings that can be made.

I believe these circumstances have also significantly reduced the number of potential investors in our shares, since most institutions will not buy penny stocks or shares that are not traded on a major exchange and priced below $5 per share. Likewise, many retail brokerage firms cannot recommend such stocks to their clients.

By reducing the number of shares of common stock outstanding, the resulting share price could increase to a level where there may be greater interest in the common stock by the financial community and the investing public.

Investor interest would be further enhanced by listing the Company’s common stock on a major exchange, which we intend to purse as soon as we meet all applicable listing criteria.

Listing requirements for the major exchanges include a minimum market price depending on the exchange. For NYSE AMEX for example, the minimum price is $3. So based on the present and historical trading prices for our common stock, effecting the reverse split is really a prerequisite to meet the listing criteria of an exchange.

Without a reverse split, we would have to wait until the stock price increased on its own to a high enough level to qualify for a move. But there is no way to know when or even if that would happen. In the meantime, our shares would continue to be subject to all of the disadvantages and negatives associated with being traded over the counter.

Some people seem to fear a reverse stock split because they don’t understand what it means. Here is the way a reverse split works:

If approved by the stockholders, the principal effect will be to decrease the number of outstanding shares of common stock from 293,767,389 to approximately 19,584,492 based on share information as of September 4, 2009. Also, the number of shares of common stock issued subject to stock options, warrants, or convertible securities will automatically be proportionately decreased by a factor of 15 and the exercise price or conversion ratio will automatically be proportionately increased by a factor of 15.

For example, an option to purchase 300,000 shares at an exercise price of $0.40 per share outstanding before the reverse stock split will become, after the reverse split, an option to purchase 20,000 shares at an exercise price of $6.00.

The reverse stock split will not change the number of authorized shares of our common stock under the Certificate of Incorporation. Therefore, because the number of issued and outstanding shares of the Company’s common stock would decrease, the number of shares remaining available for issuance would increase. These additional shares of common stock would be available for issuance from time to time for corporate purposes such as acquisitions of companies or assets or sales of stock or securities convertible into common stock to raise additional capital.

The availability of the additional shares will provide us with the flexibility to meet business needs as they arise, to take advantage of favorable opportunities, and to respond to a changing corporate environment.

I cannot predict the future. But I do know this: Without the split and the option to move to a major market, our ability to attract large institutional investors will be seriously impaired. And that could limit the company’s future.

This reverse split is an important and positive step in our company’s development, and I personally believe it is a necessity for the development of our firm. So I urge you to vote  your shares in favor of this proposal.

This Blog summarizes last fiscal year’s developments in our company. It also serves as our letter to the shareholders.

We have just filed with the SEC our annual report on Form 10-K filled with extensive detail. Our finance and accounting people and auditors worked very hard in getting this document created and did a fabulous job.

A 10-K is an annual report. While our fiscal year 2009 ended in April, we had to report many subsequent events between then and now.  Let me briefly recap our year – and what a year it was.

In April 2008 the company was still very hopeful of getting a TBI trial done in the U.S.  Financing by the U.S. Army was in place and our protocols were going back and forth with the FDA.

It turned out that route was not a good one. The FDA had many questions about our regulatory position and some of these questions were justified. The company had been working on shoe-string budgets for so long in the past that FDA filings and reports had not been done as they should have been. While our work on current filings was certainly up to industry standards, all past reports were not. That put us, it seemed, in constant catch-up mode with the FDA.

So, we made a major decision and switched our planned trials to Switzerland and Israel. Both of those countries have excellent health care systems with 100% of the population insured (in the U.S. more than 35% are not insured or underinsured). Furthermore, in contrast to the U.S., almost all patients there have documented health care histories. Those factors make a trial so much safer and faster to conduct in those countries.

In April 2009 we hired a clinical director and changed our regulatory approach completely. We needed to re-write all past clinical reports and subsequently were able to file with a clean slate in Switzerland and Israel. This humongous undertaking was completed in just a couple of weeks.

All Ethic Committees where the protocol for our Phase II dose escalation study has been submitted have approved it and I am very confident that very shortly we will get the go-ahead to begin enrollment. We certainly expect that we will be able to start patient enrollment this month.  The structure of this trial should allow us to complete Phase II within 12-18 months. The results and data will be submitted in international standard and, if the results are what we expect, we intend to come back to the U.S. as part of a global Phase III trial with a license partner.

The U.S. Army has confirmed to us that we could use their $2.3 million grant until 2012. We have also filed for an Army grant for our trials abroad, but we are not dependent on such funding. In fact, we have to give serious thought whether and how to incorporate government funding into our business model. If our government funds medical trials or research, it very often gets in exchange a free license under the Bayh Dole Act and other provisions. If that were the case, we are not so sure we really would want to trade a billion dollar potential for a couple of million dollars in government grants.

Meanwhile, the Decompression Sickness (DCS) studies being conducted by the U.S. Navy are already showing very promising results. In one test of animals with severe DCS in the control arm, seven out of eleven died at one hour. But with Oxycyte, only two out of eleven died. In addition, the spinal cords in the test animals seem to be much better preserved with Oxycyte. The researchers are now conducting further studies that they hope will eventually allow them to move forward into humans.

A second major breakthrough in the 2009 fiscal year was the development of our topical product line. We started packing Oxycyte in blister packs and showed those prototypes to our shareholders at our June 2008 annual meeting. We have since developed several versions of a gel with Oxycyte and now have a full department with a clinical director working on a variety of topical indications where we think it can be effective and make a market impact. This is a real development pipeline.

In July 2009 we were finally in the position to hire a marketing and sales manager for our topical line and of course that means we are moving forward towards generating sales, both through licensing and our own distribution channels.

So, for the first time in our company’s history, you will soon be able to buy a product from us. Check our preliminary website http://www.buydermacyte.com to register for product information. And for the first time ever we are projecting revenues, which I expect to see this fiscal year. I think that is pretty cool.

We moved our headquarters from California to North Carolina for the simple reason that business with the East Coast is easier to conduct from the East Coast and that time differences to Switzerland and Israel are more favorable.  Also, the current economic crisis lets us find excellent people right here in the Research Triangle Park area.

A pivotal event happened in July 2009, after the end of the fiscal year. The $20 million milestone financing agreement with Vatea Fund is the biggest investment the company has ever had. It is also the least expensive one we have ever closed and we are glad to have them as an institutional investor. A lot has been written about our first-ever institutional financing and I refer to the news releases, prior blogs and the full financing details in the 10-K.

The effects of our previous non-institutional financings are still noticeable. Our previous financings for the last five years all have been extremely expensive, to say the least. But we were a big risk at that time, so I am not complaining or blaming –you have to pay for financiers to take risk. Here is a most recent effect: You may have seen the enormous non-cash interest charge we reported with the 10k – more than $24.8 million. Most of that charge comes from financings earlier than 2008 that had drastic warrant clauses. Because we bought back a substantial portion of these warrants, we still had to account for the interest and finance charge portions that had already been earned. Plus all the warrants that were issued with the notes, plus all the commissions that had to be paid – the true finance charges of our past financings were in fact enormous. I am glad that we are now in the favorable position to clean up our balance sheet and have a clear break with the past.

Meanwhile, our endeavors with Purple Heart Injury Laboratories (PHIL) are finally showing good progress. Several circumstances let us rethink the academic partnerships and financing concepts. While we are still pursuing our appropriation and line item funding, we decided that financing a research pool with one source and cooperating with only one academic institution carries too much of institutional risk and dependency.

In June 2009 we went ahead and established PHIL as a 501(c)(3) not for profit corporation and funded its administration. PHIL is now going to seek up to $100 million in bond financing, federal budget line items, appropriations, stimulus funds and private donations to unfold its full potential. I can imagine this being the most unusual and effective Defense Medicine™ research concept ever established. It should give us access to research capabilities normally available only to big Pharma.

Throughout the year we have worked hard on fixing historical Sarbanes-Oxley compliance issues and restructured our finance and administration to meet current and future demands. Governance of publicly listed companies is the same, small or big. For a small company like ours, this constitutes a very big burden. We have to adhere to the same rules a Fortune 500 company is bound to, and we have to maintain the same handbooks, manuals, controls and audits. That naturally leads to a disproportional workload in administration. However, these efforts are crucial in preparing ourselves for a potential change of our listing market.

Our affiliation with Glucometrics, Inc. is progressing nicely. We supported Glucometrics in taking a more pragmatic development approach than originally planned. Glucometrics has decided to pursue a build-to-license business plan that foresees a marketable prototype ready less than a year from now.

With the TBI trial in a forward motion, we were able to reinitiate development on other Oxycyte clinical indications, namely Sickle Cell Crisis. Our business development agent for India has found potential partners and we are in early exploratory stages of a cooperation agreement.

Very soon you will receive a proxy statement and see the announcement for our General Annual Meeting. It will take place October 19, 2009 at 1:30PM at the Meridian Parkway DoubleTree Hotel in Durham, North Carolina. This will be just the second GAM in twenty years of the company’s existence. The first was last year. Stay tuned for our Blogs and other communication explaining the proxy coming up.

Oh, and before I close, let me mention that we are doing all this with just twelve full-time employees. We will need to staff up later this year to cover the workload and gradually grow into what I believe will be the major player in the field of oxygen delivery. Things really have changed here and I’m excited about the company’s direction and future.

Thank you for your trust and support.

First, let me explain our silence during this period. An offer to buy back warrants is considered a private offering by securities regulators. During such an offering, companies are severely constrained on what they can communicate and to whom. Promotional or forward looking public comments can be construed as an attempt to condition the market and that can create SEC regulatory problems. Our policy is to obey all government regulations, so we went into a sort of “quiet period” which has now ended.

The strategy to buy back about 70 million out of the 120 million warrants was in conjunction with our financing. We had about 120 million warrants outstanding and they represented about $30 million in unexecuted capital. That was money we wanted to tap into to finance the further growth of the company.

However, warrant holders only execute warrants when the stock price is high or when there is another good opportunity, and of course when they have the cash available to do so. The financing created that opportunity and gave us the funds to buy back warrants. We believe it was a very good proposition for the warrant holders who got cash and shares in exchange for their warrants. The company got working capital and the security of a stronger equity base for the future.

This was made possible by the financing we negotiated with Vatea Fund. I believe they are the kind of investor that an early-stage company needs. The Fund invested $5 million and is committed to investing up to an additional $15 million, if we attain certain milestones.  This commitment indicates Vatea Fund is a long-term investor. Any additional funding the company receives will allow us to move forward with our strategy and development plans. I discuss more about the financing with Vatea Fund in a video that is available on our website. Just click the play button on the image from the video and it will play on your computer.

A big next step in our development plans would be the start of our Phase II TBI trial in Switzerland and Israel. We are making very good progress toward approval by Swissmedic and the Israel Department of Health. We will make a public announcement as soon as there is something definite.

Many people await the launch of our topical cosmetic gel and we plan to make an announcement soon on when it will be available and how. When our cosmetic gel launches, it will be the first time ever that a commercial form of Oxycyte will be made available to the public for sale.

Finally, you may have noticed that we have revised our company website with the intent of providing more information about the company and product portfolio. Among the new items on the site are a series of videos by Dr. Bruce Spiess in which he explains our technology and its potential in the indications we are exploring. Let me know what you think.