Synthetic Blood International, Inc. 3189 Airway Avenue, Building C Costa Mesa, California 92626 Phone: (714) 427-6363 Fax: (714) 427-6361 www.sybd.com

Biomedical Product Development Opportunity

Snapshot September 22, 2005

Synthetic Blood International, Inc. (“Synthetic Blood” or “the Company”) is a biomedical product development company specializing in creating innovative pharmaceuticals and medical devices in the fields of oxygen therapeutics and continuous biosensor monitors. The Company is developing a blood substitute and a liquid ventilation product as well as an implantable glucose monitor. These products are based on core technologies that include biomedical applications for perfluorocarbons (PFCs)† and medical and industrial applications for biosensors. PFCs are inert, organic compounds that have attracted interest in medicine primarily as vehicles for respiratory gas transport and as contrast media in tissue imaging studies. PFC emulsions have been used for tissue oxygenation and thus have been referred to frequently as “blood substitutes” and “therapeutic oxygen carriers.” Synthetic Blood’s lead candidate, Oxycyte™, is being developed as an alternative to transfused blood for use in surgical and similar medical situations. Oxycyte™ is an oxygen-carrying intravenous emulsion that can carry three to four times more oxygen than hemoglobin (a red respiratory protein of red blood cells that transports oxygen as oxyhemoglobin from the lungs to the tissues). A substitute for blood is vitally important when there is no blood available, there is a limited blood supply, or there is insufficient time or resources to determine the blood type, or to test the blood to determine that it is free of infectious agents. Therapeutic oxygen carriers have shown promise in the treatment of such ischemic conditions as heart disease, cancer, stroke, traumatic brain injury, sickle cell anemia, decompression sickness (“the bends”), and carbon monoxide poisoning. Earlier stage candidates in the pipeline include Fluorovent™, a liquid ventilator providing oxygen exchange fluid for facilitating the treatment of lung conditions in adults and children, and a biosensor implant product that uses an enzyme process for measuring the glucose level in the bloodstream of diabetics.

Recent Financial Data

Ticker (Exchange) SYBD.OB (OTC.BB) Recent Price (09/22/05) $0.19 52-Week Range $0.19-0.41 Shares Outstanding 126.3 million Market Cap. $24.0 million Average 3-month volume 299,608 Insider Owners 31.5% Institutional Owners <1.0% EPS (qtr. ended 07/31/05) ($0.005) Employees 6

Key Points

In January 2005, Synthetic Blood opened patient enrollment in a Phase II study of Oxycyte™ to evaluate its safety and efficacy in preventing tissue hypoxia in orthopedic surgical patients. Ultimately, the Company has a goal of filing a New Drug Application (NDA) to launch Oxycyte™ in 2008. PFC oxygen transport agents have a variety of potential medical applications, including use during surgery, for treating trauma and respiratory distress patients, after stroke and heart attack, and for organ preservation. Critical shortages of donor blood, which could reach four million units in the U.S. by 2030, combined with the increased risk of disease transmission (such as HIV and hepatitis), has created a global need for suitable blood replacement fluids. The current worldwide market for blood substitutes is estimated at EXECUTIVE INFORMATIONAL OVERVIEW $2 billion and could reach $10 billion in the next 10 years if all applications are commercialized. The Company has four U.S. patents and six non-U.S. patents covering the use and application of PFCs, and benefits from eight manufacturing process patents through an exclusive supply agreement. Synthetic Blood recently completed a private placement in July 2005, securing $1.15 million in immediate funds to support further clinical development of Oxycyte™. †BOLD WORDS ARE REFERENCED IN GLOSSARY ON PAGES 34-37.

Contents

Snapshot ...... 1

Recent Financial Data...... 1

Key Points ...... 1

Executive Overview...... 3

Growth Strategy ...... 5

Intellectual Property ...... 6

Management and Board Members ...... 7

Core Story ...... 9

Blood Products and Technologies ...... 9

Oxycyte™...... 14

Fluorovent™...... 22

Glucose Sensor...... 23

Key Points to Consider...... 24

Historical Financial Results...... 25

Risks...... 28

Recent Events...... 33

Glossary of Lesser-Known Terms...... 34

Executive Informational Overview Page 2

Executive Overview

Synthetic Blood International, Inc. (“Synthetic Blood” or “the Company”) is a biomedical product development company specializing in creating innovative pharmaceuticals and medical devices in the fields of oxygen therapeutics and continuous biosensor monitors. The Company is developing a blood substitute and a liquid ventilation product as well as an implantable glucose monitor. These products are based on core technologies that include biomedical applications for perfluorocarbons (PFCs) and medical and industrial applications for biosensors. PFCs are inert, organic compounds that have attracted interest in medicine primarily as vehicles for respiratory gas transport and as contrast media in tissue imaging studies. PFC emulsions have been used for tissue oxygenation and thus have been referred to frequently as “blood substitutes” and “therapeutic oxygen carriers.”

Synthetic Blood’s lead candidate, Oxycyte™, is being developed as an alternative to transfused blood for use in surgical and similar medical situations. Oxycyte™ is an oxygen-carrying intravenous emulsion that can carry three to four times more oxygen than hemoglobin. A substitute for blood is vitally important when there is no blood available, there is a limited blood supply, or there is insufficient time or resources to determine the blood type or to test the blood to determine that it is free of infectious agents.

Therapeutic oxygen carriers have shown promise in the treatment of such ischemic conditions as heart disease, cancer, stroke, traumatic brain injury, sickle cell anemia, decompression sickness (“the bends”), and carbon monoxide poisoning.

Earlier stage candidates in the pipeline include Fluorovent™, a liquid ventilator providing oxygen exchange fluid for facilitating the treatment of lung conditions in adults and children, and a biosensor implant product that uses an enzyme process for measuring the glucose level in the bloodstream of diabetics.

Principal Product

Oxycyte™

Oxycyte™, the Company’s most advanced candidate, is a PFC-based emulsion that has been demonstrated to be superior to other PFCs in animal screening tests. The product has successfully completed a Phase I clinical trial. In January 2005, Synthetic Blood opened patient enrollment in a Phase II study to evaluate the safety and efficacy of Oxycyte™ in preventing tissue hypoxia in orthopedic surgical patients, a procedure in which there is typically a moderate amount of blood loss but transfusions are not given. Oxycyte™ could have potential use in a variety of medical applications, including use as a blood substitute for trauma and surgical patients, for victims of stroke and heart attack, and in organ preservation.

The potential market for a safe and effective blood substitute is significant, estimated to exceed $2 billion (Source: U.S. Blood Products Markets: Blood Substitutes and Expanders. Medical Data International (MDI), 1997). Many of the earlier contenders in the blood substitute area, including hemoglobin-based products, have abandoned the market due to the formidable technical challenges. The search for blood substitutes nonetheless continues to be of growing importance to the healthcare industry due to the threat of disease transmission, most notably hepatitis B and C (HBV and HCV) viruses and the human immunodeficiency virus (HIV).

A diminishing supply of donated blood also spurs this research. In the U.S., the number of blood donors continues to decline, while the elderly population, the group that needs blood the most, is increasing. The American Red Cross (www.redcross.org) reports an increase in blood use of more than 4% annually, with a forecasted shortfall in the U.S. blood supply expected to exceed four million units by 2030.

Synthetic Blood is currently committing its resources to the development of Oxycyte™.

Executive Informational Overview Page 3

Other Candidates

Synthetic Blood has conducted animal trials with Fluorovent™, a PFC for use in the treatment of lung conditions in adults and children, such as respiratory distress syndrome, and preclinical tests with its implanted glucose sensor for use by diabetics.

Headquarters and Employees

Founded in 1990, Synthetic Blood is located in Costa Mesa, California, and employs six individuals.

Executive Informational Overview Page 4

Growth Strategy

Synthetic Blood is currently developing Oxycyte™, a product it believes to be a safe and effective alternative to transfused blood, for use in surgical and similar medical situations and as a therapeutic oxygen carrier for various ischemic conditions. Also in development are Fluorovent™, an oxygen exchange fluid for facilitating the treatment of lung conditions, and a biosensor implant product that uses an enzyme process for measuring the glucose level in the bloodstream.

The Company received approval from the U.S. Food and Drug Administration (FDA) of its Investigational New Drug (IND) application for Oxycyte™ and in October 2003 began Phase I clinical studies, which were completed in December 2003. In January 2005, Synthetic Blood opened patient enrollment in a Phase II Oxycyte™ study to evaluate its safety and efficacy in preventing tissue hypoxia in orthopedic surgical patients. The Company has stated that it expects to commit a substantial portion of its financial and business resources over the next three years to testing Oxycyte™ and advancing this product to commercial distribution.

Synthetic Blood intends to fully exploit its technology platforms for additional product opportunities in the biomedical, commercial, and industrial markets. The Company also seeks to form partnerships as early as possible with global and/or regional pharmaceutical and medical device companies for product development funding, commercial-scale manufacturing, and global market penetration for its products.

Executive Informational Overview Page 5

Intellectual Property

The Company’s ability to compete commercially with other companies depends, in part, on its ability to protect and maintain the proprietary nature of its technology. Synthetic Blood has assembled these four issued U.S. patents related to PFCs:

No. 5,674,913 (October 7, 1997)—Method for Assisting Normal Breathing in a Mammal Having a Lung Disorder

No. 5,840,767 (November 24, 1998)—Perfluorocarbons for Biological Gas Exchange and Method

No. 5,824,703 (October 20, 1998)—Method of Assisting Normal Breathing in a Mammal Having a Lung Disorder

No. 6,167,887 (January 2, 2001)—Selected C-10 Perfluorinated Hydrocarbons for Liquid Ventilation and Artificial Blood

The Company holds two Australian patents (Nos. 722,417 and 690,277) and one Canadian patent (No. 2,239,170). These patents protect the use of PFCs of interest to the Company as gas transport agents in blood substitutes and for liquid ventilation. In addition, Synthetic Blood holds exclusive rights to eight PFC manufacturing process patents that further protect the PFCs with which it is working.

Synthetic Blood has three issued U.S. patents related to a glucose biosensor:

No. 5,914,026 (June 22, 1999)—Implantable Sensor Employing an Auxiliary Electrode

No. 5,964,993 (October 12, 1999)—Glucose Sensor

No. 6,343,225 (January 29, 2002)—Implantable Glucose Sensor

The Company also holds two Australian patents (Nos. 734,003 and 720,712) that protect important features of its implanted glucose biosensor and other biosensor applications, both medical and industrial. Synthetic Blood has exclusively licensed three fundamental biosensor patents issued to the Children’s Hospital in Cincinnati, Ohio. Additionally, the Company submits applications and pursues patents in Europe, Canada, and Japan, and has a number of foreign PFC and biosensor applications that are pending.

Executive Informational Overview Page 6

Management and Board Members

Synthetic Blood’s management team is comprised of individuals with biomedical industry experience in product development, regulatory clearance, clinical affairs, good manufacturing practices (GMP)- compliant manufacturing, and marketing. The Company supplements in-house expertise with consultants, contract product development, and manufacturing as needed to minimize fixed expenses. Tables 1 and 2 highlight Synthetic Blood’s management team and Board of Directors, respectively, followed by biographies.

Management

Table 1 Synthetic Blood International, Inc. MANAGEMENT Robert W. Nicora President, Chief Executive Officer, and Director David H. Johnson, C.P.A. Chief Financial Officer Richard Kiral, Ph.D. Vice President, Product Development Douglas Kornbrust, Ph.D. Consultant, Preclinical Toxicology and Pharmacology Anthony Fox, M.D., Ph.D. Consultant, Clinical Pharmacologist

Source: Synthetic Blood International, Inc.

Robert W. Nicora, President, Chief Executive Officer, and Director

Mr. Nicora became the president, chief executive officer (CEO), and director on March 1, 1998. Mr. Nicora holds a B.S. in chemistry, with five years of graduate study in biochemistry and medical sciences and more than 30 years of experience in various laboratory, management, and regulatory positions with pharmaceutical and medical device companies. While at McGaw Laboratories, Mr. Nicora was responsible for the development and FDA approval of hetastarch, a synthetic blood expander, now marketed by DuPont Pharma (DD-NYSE). He led the team that evaluated a joint partnership with Green Cross, Japan’s largest pharmaceutical company, to develop that company’s PFC blood substitute, Fluosol (pages 13 and 18). From 1994 through March 1998, he was director of scientific and regulatory services with Quintiles, the world’s largest global contract pharmaceutical company. Mr. Nicora has provided preclinical and clinical drug and device consulting services to a number of startup biomedical companies.

David H. Johnson, C.P.A., Chief Financial Officer

Mr. Johnson has more than 25 years of financial and administrative management experience in a diverse range of industries, including high technology. He served for 18 years as a partner in a major public accounting firm. Mr. Johnson’s most recent position prior to joining Synthetic Blood was chief financial officer (CFO) of Center Court Concierge, an information services startup company. Previous positions include vice president, finance and administration, Vista Paint Corporation, and partner and regional coordinator of audit and accounting services at McGladrey and Pullen, a major public accounting firm. Mr. Johnson holds a B.A. in accounting and is a certified public accountant.

Richard Kiral, Ph.D., Vice President, Research and Development

Dr. Kiral, vice president of research and development, holds a Ph.D. in analytical chemistry. He has more than 20 years of experience in the pharmaceutical and medical device industries. He has held vice president positions in research and development at Anthony Products, Ioptex Research, Allergan Inc. (AGN-NYSE), and McGaw Laboratories, where he was responsible for development of a nutritional fat emulsion.

Executive Informational Overview Page 7

Douglas Kornbrust, Ph.D., Consultant, Preclinical Toxicology and Pharmacology

Dr. Kornbrust has more than 20 years of experience in research and technical management in developing and implementing preclinical toxicology and pharmacology programs for numerous biomedical products, including PFC liquid ventilation and blood substitute products.

Anthony Fox, M.D., Ph.D., Consultant, Clinical Pharmacologist

Dr. Fox is president of the consulting firm EBD Group. Previous senior positions were with Cypros Pharmaceuticals (now Questcor Pharmaceuticals [QSC-AMEX]), Glaxo Inc. (now GlaxoSmithKline PLC [GSK-NYSE]), and Procter & Gamble Pharmaceuticals (PG-NYSE).

Board of Directors

Table 2 Synthetic Blood International, Inc. BOARD OF DIRECTORS Howard Jones, Ph.D. Chairman of the Board Roger A. Ekbom Vice Chairman of the Board Jonathan Spees Director

Source: Synthetic Blood International, Inc.

Howard Jones, Ph.D., Chairman of the Board

Dr. Jones’ most recent position prior to joining the Board was president of the biopharmaceutical business unit of Curative Health Services (CURE-NASDAQ), where he was responsible for research and development, licensing, and manufacturing of wound healing technology that incorporates growth factors from a patient’s blood. He has more than 30 years of experience in directing research and development at Revlon Inc. (REV-NYSE), Bristol-Myers Squibb Company (BMY-NYSE), Amylin Pharmaceuticals Inc., (AMLN-NASDAQ), and Cypros Pharmaceuticals, a company he co-founded. Dr. Jones began his career at Merck & Company (MRK-NYSE), where he discovered Clinoril, a drug for treating rheumatoid arthritis, which has annual sales of $400 million. He has more than 84 issued patents covering his biopharmaceutical developments.

Roger A. Ekbom, Vice Chairman of the Board

Mr. Ekbom’s entrepreneurial experience with medical device companies includes managing companies from startup through full development and sale. He is the founder and former president of Cardio Vista Systems, Inc., and the founder and chairman of Tronomed, Inc. From 1978 until 1988, Mr. Ekbom was vice president of, and a major shareholder in, Respiratory Support Products, Inc. and Tronomed International, Inc. Mr. Ekbom was formerly a divisional general manager with Becton Dickinson (BDX- NYSE) and with Marion Scientific, a subsidiary of Marion Laboratories (now Sanofi Aventis [AVE-NYSE]). Mr. Ekbom graduated from the University of Minnesota.

Jonathan Spees, Director

Mr. Spees has held principal or senior management positions with Duff and Phelps, LLC, Shamrock Investments, American Medical International, and Deloitte, Haskins and Sells. He is a Certified Public Accountant (CPA).

Executive Informational Overview Page 8

Core Story

BLOOD PRODUCTS AND TECHNOLOGIES

Synthetic Blood creates and develops innovative pharmaceuticals and medical devices in the field of oxygen therapeutics and continuous biosensor monitoring. The Company currently has under development a blood substitute and a liquid ventilation product, as well as an implantable glucose monitor. These products are described briefly below, with their specific benefits outlined in Table 3. More extensive details on these products, along with competitive products and the markets in which the products participate, are provided in subsequent sections.

Oxycyte™ is an oxygen-carrying intravenous emulsion that can provide three to four times more oxygen than hemoglobin, making it an effective means of transporting oxygen to tissues and carbon dioxide to the lungs for disposal. New applications of oxygen therapeutic agents include use for stroke, myocardial infarction, and certain malignant diseases.

Fluorovent™, a proprietary oxygen-carrying fluorocarbon, is a highly effective medium for gas exchange. It is effective at increasing pulmonary function and the diffusion of oxygen and carbon dioxide in cases of respiratory distress.

The implanted glucose biosensor continuously monitors blood glucose without the need for repeated self-testing through finger sticks. The Company’s implanted biosensor can be programmed to monitor blood glucose according to a predetermined schedule, with the goal of attempting to eliminate problems of patient compliance. The sensor provides alarms for dangerous, life-threatening conditions, such as hypoglycemia.

Table 3 Synthetic Blood International, Inc. ADVANTAGES OF PRODUCTS IN DEVELOPMENT Oxycyte™ Slower exhalation rate results in longer effective blood circulation half-life Environmentally safe — no bromine or chlorine No potential for hyperinflated, non-collapsible lung syndrome

Fluorovent™ Longer pulmonary retention, reducing need for replacing exhaled fluid Potentially less costly, less labor intensive Environmentally safe — no bromine or chlorine Does not cause hyperinflated, non-collapsible lung syndrome

Implanted Glucose Biosensor Significantly more accurate in glucose range of 30–500 mg/dl Accurate to an oxygen saturation as low as 2% Extended implant life with stable, linear response Fully implanted; completely non-invasive after implant; eliminates patient compliance factor in achieving tight glucose control

Source: Synthetic Blood International, Inc.

Executive Informational Overview Page 9

Composition of Blood

Blood transports oxygen from the lungs to body tissue and carbon dioxide from body tissue back to the lungs for removal. It transports nourishment from digestion and hormones throughout the body; disease- fighting substances to body tissue; and waste to the kidneys.

Blood is composed of straw-colored liquid called plasma, which is approximately 90% water, but also contains suspended cells. These cells include red blood cells (erythrocytes) that are the carriers of the red colored hemoglobin; white blood cells (leukocytes), which fight infection; and platelets, which clot to stop bleeding. An illustrated summary of blood components and their specific functions are provided in Figure 1, with descriptions below, as a reference to the accompanying sections.

Figure 1 SUMMARY OF BLOOD COMPONENTS Platelets

PLASMA - 55% of Total Blood Volume Help control bleeding 91% Water Form clusters to plug small holes 7% Blood Proteins (fibrinogen, albumin, globulin) in blood vessels and help clotting process 2% Nutrients (amino acids, sugars, lipids) Hormones (erythropoietin, insulin, etc.) Electrolytes (sodium, potassium, calcium, etc.) White Cells (Leukocytes) Defend the body against infection CELLULAR COMPONENTS - 45% of Total Blood Volume Can move out of bloodstream and reach Buffy Coat tissues where infection threatens White Blood Cells (7,000-9,000 per mm3 of blood) Platelets (250,000 per mm3 of blood) Red Cells (Erythrocytes)

Red Blood Cells (RBCs) Disc shaped About 5 million per mm3 of blood Contain hemoglobin Pick up and deliver oxygen throughout the body

Source: National Space Biomedical Research Institute and Michigan Community Blood Centers.

Platelets

The human body cannot tolerate excessive blood loss, and so self-preserving reactions have developed for the body to protect itself. If sudden blood loss occurs as a result of injury or trauma, blood platelets quickly move into action. Platelets are irregularly shaped, colorless bodies that are present in blood. Their sticky surface enables them, along with other substances, to form clots to stop bleeding. When bleeding from a wound occurs, the platelets gather at the wound and attempt to block the bloodflow. The mineral calcium, vitamin K, and a protein called fibrinogen assist the platelets in the clotting process.

Calcium and vitamin K must be present in blood to support the formation of clots. If the blood lacks these nutrients, it will take longer than normal for blood to clot. In more severe cases, if these components are absent, death by hemorrhage could result. A healthy and balanced diet provides most people with enough vitamins and minerals, although dietary supplements may be needed in certain circumstances.

A clot begins to form when blood is exposed to air. The platelets sense the presence of air and begin to break apart. They react with the fibrinogen to begin to form fibrin, which resembles tiny threads. The fibrin threads then form a web-like mesh that traps the blood cells within it. This mesh of blood cells hardens as it dries, forming a clot or scab.

A scab is an external blood clot that can be easily seen, but there are also internal blood clots. Contusions (bruises, or “black-and-blue” marks), for example, result from internal blood clots. Both scabs and bruises are clots that lead to healing, although some clots can be extremely dangerous. A blood clot that forms inside a blood vessel can be deadly because it blocks the flow of blood, thereby cutting off the oxygen supply.

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A stroke is an example of the result of a clot forming in an artery of the brain. Without a steady supply of oxygen, the brain cannot function normally. If the oxygen flow is interrupted, paralysis, brain damage, loss of sensory perceptions, or even death may occur.

White Blood Cells

When a germ or infection enters the body, the white blood cells are activated and move rapidly toward the invader. White blood cells are continually alert for signs of disease or infection. When a germ appears, the white blood cells have a variety of ways in which they can respond. Some produce protective antibodies to overpower the germ, while others surround and devour the bacteria.

White blood cells have a rather short life cycle, ranging from a few days to a few weeks. A drop of blood can contain anywhere from 7,000 to 25,000 white blood cells. If an invading infection resists, that number will increase significantly. A consistently high number of white blood cells are a symptom of leukemia, a cancer of the blood. A leukemia patient may have as many as 50,000 white blood cells in a single drop of blood.

Red Blood Cells

Red blood cells are perhaps the most recognizable component of whole blood. Red blood cells contain hemoglobin, a complex iron-containing protein that carries oxygen from the lungs to body tissue and removes carbon dioxide. The percentage of blood volume composed of red blood cells is called the hematocrit. The average hematocrit in an adult male is 47%.

There are about 1 billion red blood cells in two to three drops of blood, and, for every 600 red blood cells, there are about 40 platelets and one white blood cell. Manufactured in the bone marrow, red blood cells are continuously being produced and broken down. They live for approximately 120 days in the circulatory system and are eventually removed by the spleen. Red blood cells are prepared from whole blood by removing the plasma, or the liquid portion of the blood. They can raise the patient’s hematocrit and hemoglobin levels while minimizing an increase in volume.

Blood Loss

A loss of only 30% of blood volume can lead to irreversible shock if not treated quickly. Various fluids, such as Ringer’s lactate or saline, have been found appropriate for increasing the blood volume, as well as colloidal solutions, including albumin, as a plasma expander. These fluids have proven to be valuable as blood substitutes on the basis of volume replacement.

A vital function of blood is the oxygen-carrying capacity of the hemoglobin in its red cells. It is critical that the body’s organs remain supplied with oxygen. Oxygen deprivation, even for only several minutes, can result in cell damage, organ dysfunction, and death. Medical conditions such as anemia or ischemia can disrupt the delivery of oxygen to the body’s tissues. Anemia is the shortage of red blood cells that is caused by blood loss from injury, during surgery, or other medical disorders. Ischemia is caused by an inadequate flow of red blood cells to an organ or body part due to obstructed or narrowed blood vessels, as occurs in a heart attack or stroke.

Patients who benefit most from transfusions of red blood cells include those with chronic anemia resulting from disorders such as kidney failure, malignancy, or gastrointestinal bleeding, and those with acute blood loss resulting from trauma or surgery. Because red blood cells have reduced amounts of plasma, they are well suited for treating anemia patients who suffer congestive heart failure, or who are elderly or debilitated. These patients might not tolerate the increased volume of whole blood.

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Blood Transfusions

A typical adult has 10 units of blood (a unit is 450 milliliters, or just under a pint). Each unit of donated blood (referred to as whole blood), is usually separated into multiple components, such as red blood cells, plasma, platelets, and cryoprecipitated AHF (antihemophilic factor). Each component generally is transfused to a different individual to address different needs.

Blood may be transfused as whole blood or as one of its components. To obtain platelets, the platelet-rich plasma is centrifuged, causing the platelets to settle at the bottom of the collecting bag. Plasma and platelets are then separated and made available for transfusion. The plasma may also be pooled with plasma from other donors and further processed, or fractionated, to provide purified plasma proteins such as albumin, immunoglobulin (IVIG), and clotting factors. As individual patients seldom require all of the components of whole blood, it is prudent to transfuse only that portion needed by the patient for a specific condition or disease.

Ways in which blood can be used are described below:

Whole blood. Rarely used today (only in instances of severe blood loss), whole blood is almost always separated into its individual components;

Red cells. Red cells are used in the treatment of all forms of anemia, which cannot be medically corrected. This may occur when rheumatoid arthritis or cancer is involved, when red cells break down in a newborn, and in sickle cell disease. It is also essential to replace lost red blood cells after accidents, surgery, and childbirth, as well as for pre-operative “top-ups” for existing anemic patients and burn victims;

Platelets. Platelets are used in cases of bone marrow failure, post-transplant, chemotherapy treatments, and leukemia; and,

Plasma. Plasma is used after obstetric loss of blood (usually during childbirth), during cardiac surgery, and to reverse any anti-coagulant treatment. It is also used to replace clotting factors after massive transfusions or when it is not being sufficiently produced, such as with liver disease.

Additional components include:

Factor VIII (processed plasma). Factor VIII is used for treating hemophilia;

Factor IX (processed plasma). Factor IX is used for treating sufferers of Christmas disease, a type of hemophilia caused by a deficiency of factor IX; and,

Processed plasma. Processed plasma is used to help produce stronger antibodies against diseases such as tetanus, hepatitis, chickenpox, and rabies. It also helps generate anti-D, which is used for Rh-negative pregnant women carrying an Rh-positive fetus.

Limitations of Transfused Blood

The use of donated blood in transfusion therapy, while effective in elevating hematocrit in the blood of the recipient, has several limitations. Although testing procedures exist to detect the presence of certain diseases in blood, these procedures cannot completely eliminate the risk of blood-borne disease. Transfused blood can also be used only in recipients having a blood type compatible with that of the donor. Delays in treatment, resulting from the necessity of blood-typing prior to transfusion, together with the limited shelf life of blood and the restricted availability of certain blood types, impose constraints on the immediate availability of compatible blood for transfusion. There is no commercially available blood substitute on the market in this country that addresses all of these issues. Additionally, data has shown that red cells deteriorate during storage, making them inefficient oxygen carriers. Other data has shown that large transfusions in surgery increase the risk of major organ failure and death.

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Shortage of Blood Supply

The blood supply level available to the medical community fluctuates throughout the year. During holidays and in the summer, levels tend to fall as donations decline, although demand remains stable or even increases. Policies recommended by the FDA can disqualify or defer donors who may be at risk for variant Cruetzfeldt-Jacob disease (vCJD), the human variety of the disease that is commonly known as “mad-cow” disease. The FDA can also recommend that a potential donor who may be at risk for a transfusion-transmissible disease, such as West Nile virus, be deferred. These policies reduce the number of people who are eligible to donate.

Currently, approximately 15 million units of human donor blood are collected in the U.S. each year. Experts predict an annual shortfall in the U.S. blood supply of 4 million units by 2030. The shortfall will likely be greater in other countries where cultural and logistical issues further constrain blood collection. This creates a potentially large market for blood substitutes, examined in Table 4.

Table 4 Synthetic Blood International, Inc. BLOOD SUBSTITUTE MARKET Indication U.S. Market Replace blood loss in surgery/trauma $2-5 billion Therapeutic oxygen sensitized tumors $7 billion Ischemic: stroke, heart attack, angioplasty TBD Organ preservation TBD

Source: Synthetic Blood International, Inc.

According to the American Association of Blood Banks (AABB), more than 26.5 million units of blood components are transfused every year. The cost of transfusion therapy in the U.S. is estimated to be between $5 billion and $7 billion, annually. Regulatory issues will undoubtedly play a large role in determining the eventual outcome of the efforts to develop a blood substitute.

Blood Replacements/Substitutes

Although the term “blood substitute” is widely used, it is really a misnomer; a more accurate description is “therapeutic oxygen carrier.” These substances are not replacements for whole blood, but rather they possess the oxygen carrier properties of red blood cells, although they lack other vital ingredients found in blood.

Since the early 1970s, medical researchers have been searching for innovative and improved oxygen- carrying blood substitutes because they represent a multibillion-dollar market with potential applications for patients suffering from stroke, heart attack, trauma, coronary blockage, and malignant disease, as well as for organ preservation following transplantation.

After three decades of research and effort, however, the only commercially available blood substitute in the U.S. was Fluosol (perfluorodecalin), a PFC that was approved by the FDA in 1989 and marketed by Alpha Therapeutics Corp. for use only in balloon angioplasty. Fluosol had a very short shelf-life, which required that it be stored frozen, then thawed and mixed with other solutions immediately prior to use. Fluosol never achieved widespread acceptance in the medical community since it was difficult to use and had a very limited application. It was taken off the market in 1994.

Development Efforts

The quest for blood replacement fluids remains active. This search has been given new impetus by the threat of disease transmission through blood transfusions, most notably, hepatitis and HIV. Another major force behind this goal is the military’s need for a blood substitute that can be stockpiled and used immediately when needed in combat situations without special storage and matching, as is required of human donor blood. Generally, the appeal of blood substitutes is their universal compatibility for use in

Executive Informational Overview Page 13

emergency situations when it is not possible to screen and type-match the patient’s blood. Table 5 summarizes the advantages of blood substitutes over whole blood.

Table 5 ADVANTAGES OF BLOOD SUBSTITUTES OVER WHOLE BLOOD Compatible with all blood types; does not require blood typing or cross matching No risk of transmitting infectious disease (e.g. hepatitis and HIV) Can be stored at room temperature with a shelf life of up to two years vs. 40 days for human blood under refrigeration Helps alleviate a shortage of stored blood Eliminates the need to screen for infectious agents

Source: Crystal Research Associates, LLC.

Blood substitutes that are being developed for transporting oxygen to tissues fall into two principal categories:

(1) Hemoglobin-based products derived from human or bovine blood; and,

(2) Fluorochemicals, such as perfluorocarbons (PFCs).

The primary differences between the two approaches include the ways in which oxygen is carried by the substitute and strategic issues related to the source of starting material. Hemoglobin chemically binds oxygen molecules, releasing it only under certain physiologic conditions, whereas oxygen simply dissolves in PFC liquids. Outdated human blood is in very short supply, and the use of bovine blood may result in resistance to use.

OXYCYTE™

Synthetic Blood is developing Oxycyte™ as an all-purpose synthetic blood PFC that is able to transport oxygen throughout the body. The product is administered intravenously and can carry at least three to four times more oxygen compared with hemoglobin, the component of blood that binds with and transports oxygen. PFCs have demonstrated the ability to be more effective than hemoglobin in unloading oxygen at the tissue level. This could make Oxycyte™ an effective means of transporting oxygen from the lungs to tissue throughout the body, and returning carbon dioxide to the lungs to be removed from the body through respiration.

Oxycyte™ contains a PFC that is a chemically inert synthetic molecule—fully fluorinated t- butylcyclohexane (C10F20). This clear and colorless liquid can be sterilized and stored at room temperature. Because the PFC alone is immiscible with water, it is made into an emulsion (60% PFC by weight) using a phospholipid surfactant obtained from egg yolks to coat PFC microbubbles, having particle sizes in the range of 0.15 to 0.20 µm. These microdroplets are one-seventieth (1/70) the size of red blood cells. They can therefore reach many areas of the body that cannot be reached by red blood cells. Texas-based Exfluor Research Corporation (www.exfluor.com) supplies the purified PFC.

Significantly, Oxycyte™ replaces the liquid volume of lost blood but is not meant for long-term use because it lacks red blood cells and remains in the body for only a few days. As is the case with blood substitutes under development by other companies, Oxycyte™ cannot replace the clotting and infection- fighting functions of whole blood.

Article

An article in the February 2003 issue of Current Opinions in Anesthesiology entitled “Oxygen Therapeutics (Blood Substitutes) in Cardiac Surgery,” stated that Oxycyte™ and two other new PFC blood substitutes are “the promise for the future” as effective blood substitutes for cardiac surgery patients. The article describes the growing demand for a safe and effective oxygen therapeutic agent for surgical procedures, noting that of the cited companies and PFC products, only Oxycyte™ is currently

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viable and moving forward. Both PFC and hemoglobin-based blood substitutes were reviewed. The author identified significant disadvantages with hemoglobin-based blood substitutes, including a limited supply of outdated human blood as a starting raw material, and concern about disease transmission with the use of bovine blood as the starting material.

Potential Applications

Potential uses for Oxycyte™ include use for surgery, trauma, stroke, heart attack, organ preservation, and oxygenation of cancerous tumors during radiation or chemotherapy, noting that oxygen makes cancer cells more susceptible to radiation therapy and chemotherapy.

Synthetic Blood believes that there may be a benefit to using Oxycyte™ in coronary artery bypass surgery and heart valve replacement. Approximately 50% of coronary artery bypass surgery patients require transfusions. Some patients undergoing these procedures experience adverse post-operative neurological effects that include cognitive impairment and stroke. A contributing factor is thought to be the gaseous micro-bubbles produced by the membrane oxygenator used during surgery. Oxycyte’s™ ability to absorb gases may be useful in preventing these neurological side effects. Supporting this belief are preliminary results in a decompression sickness (“the bends”) model in pigs, in which Oxycyte™ infusion significantly reduced the number and size of nitrogen bubbles in the bloodstream.

Treatment of decompression sickness is another clinical development strategy the Company is considering, and one which would potentially be of interest to the U.S. Navy for stocking aboard ships in case of emergency. Typically, a diver with the bends is sent to a hospital equipped with a hyperbaric chamber to alleviate the problem. Few hospitals, however, have hyperbaric chambers and the administration of Oxycyte™ could alleviate the pain until the patient can be transported to an adequately equipped facility.

Advantages

Table 6 summarizes the key advantages of Oxycyte™.

Table 6 Synthetic Blood International, Inc. ADVANTAGES OF OXYCYTE™ Does not require typing and cross matching prior to use (specifically advantageous for trauma and emergency room patients) Can be used with any blood type Effectively serves as a universal O-type blood Has two year shelf life Can be used on the battlefield, at the scene of an accident, and stored in vehicles and emergency departments

Source: Synthetic Blood International, Inc.

Oxycyte™ Clinical Trials

Preclinical Studies

A study with Oxycyte™ in laboratory rats was conducted by Enrico Camporesi, M.D., (at the time, chairman of the anesthesiology department at the State University of New York (SUNY) Upstate Medical Center in Syracuse; he is now chair of the Department of Anesthesiology and associate dean for Clinical Practice at the University of South Florida College of Medicine). Results of the study were reported at the annual meeting of the American Society of Anesthesiology in October 2004. Dr. Camporesi examined how cerebral (brain) flow in rats was affected by replacing lost blood with either albumin or Oxycyte™.

This type of study is important in determining whether Oxycyte™ administration to cardiopulmonary bypass patients increased cerebral blood flow (CBF), which would increase the risk of stroke. The study involved male rats undergoing stepwise bleeding under anesthesia. CBF increased significantly in the

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rats that received albumin. With the subject rats that received Oxycyte™, CBF initially increased slightly, but thereafter remained stable, and then decreased as the levels of red blood cells and oxygen in the cerebral blood reached very low levels.

Phase I

In June 2004, Synthetic Blood reported the results of a Phase I safety study of Oxycyte™ that were in agreement with previously reported results of preclinical safety studies. The principal side effects seen with Oxycyte™ were flu-like symptoms such as nausea, vomiting, minor fever, back pain, headache, and flushing. These ranged in incidence from 16.7% (one subject) to 33.3% (two subjects). Oxycyte™ showed a better safety profile in this study than the results of a Phase I safety study of another PFC blood substitute published in 1996.

Phase II Clinical Trial

Enrollment has commenced for a Phase II trial of Oxycyte™ in orthopedic surgery patients who lose modest amounts of blood during surgery. Half of the patients will serve as the control and half will receive Oxycyte™. Five clinical test sites have been opened for enrollment in this study, including Virginia Commonwealth University, Tampa General Hospital (University of South Florida), a State University of New York Medical Center, and two sites in Durham, North Carolina, all of which have previously served as clinical test sites for blood substitutes.

Patients enrolled in this study will have hemoglobin levels of 10-12 mg/dl (a normal level is 14-16 mg/dl, which could drop to less than 9 mg/dl before consideration for a transfusion). These patients are at risk for tissue hypoxia and severely diminished bowel function for several days without blood transfusions. The blood substitute is intended to prevent the complication of tissue hypoxia.

Additional Planned Phase II Trials

Synthetic Blood plans to initiate a Phase II pilot study to evaluate the safety and biological effects of Oxycyte™ in patients with traumatic brain injury. In this proof-of-concept study, Oxycyte™ will be administered to patients with severe traumatic brain injury, who register a Glasgow Coma Scale score of 3-9 within 24 hours of the injury’s occurrence. The primary purpose of this study will be to demonstrate Oxycyte’s™ ability to increase brain oxygen tension and favorably affect other brain chemistries that impact clinical outcome in patients suffering severe head injury. The study will further assess the safety of Oxycyte™ delivered by intravenous infusion.

In another Phase II study, Oxycyte™ will be given to patients undergoing coronary bypass or heart valve replacement surgery on a heart-lung machine. Adverse neurologic effects, including stroke and cognitive impairment, occur post-operatively in approximately 30% to 40% of these patients, caused in part by gaseous micro-bubbles produced by the heart-lung machine. This study will use Oxycyte™ to reduce the amount of micro-bubbles.

Synthetic Blood also plans to conduct a Phase II study in surgical patients who lose sufficient blood during surgery to require a blood or red cell transfusion. Studies have shown that as the amount of blood or red cells transfused in these patients increases, the rate of post-operative infection, major organ failure, and mortality increases. Additionally, the average age of transfused red cells used in elective surgery is three weeks, by which time oxygen delivery to tissues is seriously impaired. This study will attempt to show that Oxycyte™ is a safer and more effective way to restore oxygen delivery in these patients.

FDA Recommends Preclinical and Clinical Trials of Oxygen Therapeutics

In October 2004, the U.S. Department of Health and Human Services of the FDA’s Center for Biologics Evaluation and Research (CBER) issued a draft document entitled “Guidance for Industry: Criteria for Safety and Efficacy Evaluation of Oxygen Therapeutics as Red Blood Cell Substitutes.” This document provides recommendations applicable to the development and preclinical or clinical evaluation of oxygen therapeutics as red blood cell substitutes. When finalized, the document will supersede the “Guidance for

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Industry: Efficacy Evaluation of Oxygen Therapeutics as Red Cell Substitutes,” dated September 1997. (Further details are available on the CBER Web page at www.fda.gov/cber/minutes/workshop-min.htm.)

The Guidance for Industry draft document cited above makes the following observations regarding efficacy considerations for oxygen therapeutic products:

Efficacy endpoints may be direct measures of clinical benefit (improved survival, activation of symptoms) or they may be laboratory measurements or physical signs expected to correlate meaningfully with clinical benefit. The latter are referred to as surrogate endpoints and, once validated, are especially important in the case of oxygen therapeutics since direct demonstration of efficacy is likely to be very difficult (as it has been for red blood cells, per se). Validation of a surrogate endpoint for a therapy includes generation of clinical data demonstrating that effects of the therapy on the surrogate endpoint are reasonably likely to predict clinical benefit. Factors of importance when considering acceptability of surrogate endpoints include feasibility of using direct clinical measurements, risk/benefit assessments, and perhaps most importantly, knowledge and understanding of the disease and of the agent.

There has been extensive clinical experience with red cell transfusion, resulting in a practical appreciation of relevant indications, benefits and risks. There is also an extensive collection of data on red blood cells, the anemic state, and the interaction, resulting from years of basic and applied research. Thus, although it is not possible to document the clinical benefit of all red cell transfusions with specific endpoints, the available knowledge relevant to such transfusions support use of surrogate endpoints such as the P50, the oxygen content and the hematocrit as suitable endpoints to demonstrate efficacy of red cell transfusions in clinical practice and in some clinical trials. Currently, we do not consider these surrogate endpoints to be acceptable as measures of the effects of hemoglobin- and perfluorochemical-based red cell substitutes, because knowledge of the effects of hemoglobin- and perfluorochemical-based red cell substitutes and of the interaction of these agents with various clinical states is rudimentary. Further, no oxygen carrier presently approved by the FDA has all the properties of the human red cell, nor are any two products identical. We recommend that the endpoints used in clinical studies of these agents be selected with these caveats in mind.

Manufacture

In July 2003, Synthetic Blood selected PrimaPharma Inc. to manufacture Oxycyte™ for use in its clinical trials. PrimaPharm is a specialty contract manufacturer of pharmaceutical products (liquid, lyophilized powders, gels, ointments, creams, radiopharmaceuticals, and suspensions). Its clients include international pharmaceutical companies as well as startup companies. PrimaPharm was selected because of its successful record with the FDA. Synthetic Blood has supervised the set-up of pilot plant equipment and production of test batches of Oxycyte™ at the PrimaPharm facility in Sorrento Valley, California.

Competition

Perfluorocarbons (PFCs)

Several companies have sought to develop PFC-based blood substitutes, though to date none have been successful. They include:

Oxygent™, from Alliance Pharmaceuticals of San Diego, California;

PHER-O2 from Sanguine Corporation (SGNC-OTC.BB) of Pasadena, California; and,

HemoTech from Hemobiotech Inc., of Dallas, Texas, a newly formed company.

Synthetic Blood is the only company with a PFC-based blood substitute/therapeutic oxygen carrier in active clinical trials. As PFCs can offload more oxygen at the tissue level than artificially derived hemoglobin, the Company believes that it could have a competitive advantage in therapeutic oxygen markets for treating cancer, stroke, and heart attacks.

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Alliance Pharmaceuticals

Although Alliance Pharmaceuticals has been developing Oxygent™, a PFC blood substitute, for the past 15 years, the company will be required to repeat its clinical trials in order to obtain regulatory approval. Oxygent™, a perfluorooxybromine (perflubrom) blood substitute, is an emulsion of tiny particles, about 0.2 µm in diameter, suspended in a water-based solution.

The blood substitute suffers from the following drawbacks: (1) it can cause pulmonary hyperinflation and (2) the particle size has a tendency to grow due to its slight water solubility (known as the Oswald ripening effect). Alliance’s earlier Phase III trial using Oxygent™ on coronary artery bypass surgery patients was terminated due to the incidence of stroke.

Previously, Baxter (BAX-NYSE) had entered into a joint venture with Alliance, but rights to Oxygent™ were subsequently reacquired by Alliance with Baxter to receive royalties on any future sales. Later, Alliance entered into a relationship with Nycomed-Amersham in Europe that was also discontinued when Oxygent™ was found to be not as safe as blood.

Sanguine Corporation

Sanguine Corporation’s primary focus is the development of PHER-O2, a PFC emulsion with oxygen- carrying properties that has immediate applications as an intravenous supplement to red blood cell function. PHER O2 is a second-generation formulation of the PFC emulsion, Fluosol, a product developed, FDA approved, and marketed under the direction of Dr. Thomas Drees, current chairman and CEO of Sanguine. As a second generation PFC, PHER O2 was designed to overcome some of the deficiencies of the original Fluosol product, i.e., need for frozen storage, low (20%) PFC content, and short intravascular residency time.

While refuted by the FDA as a blood substitute, Fluosol remains the first and only product approved to date by the FDA for medical use in connection with blood supplementation. The FDA and eight other countries approved Fluosol for use in cardiac angioplasty to “reduce the amount of allogeneic blood units transfused.”

Hemobiotech

Hemobiotech, a newly formed, private company, is developing HemoTech, which employs a purification and modification of hemoglobin that ensures a lack of intrinsic toxicity. HemoTech has pharmacological activity that is claimed to be able to eliminate blood vessel constriction, improve the release of oxygen into the body, and produce an antioxidant and anti-inflammatory effect. Hemobiotech has established a strategic partnership with the Texas Tech University Health Science Center.

Hemoglobin-Based Blood Substitutes

Hemoglobin is a protein contained within red blood cells and is responsible for carrying and releasing oxygen to the body’s tissues. There are approximately 300 million hemoglobin molecules inside each red blood cell. Human hemoglobin is comprised of two α- and two β-polypeptide chains, each approximately 140 amino acids long. The α and β chains are bound together mostly by salt bridges and hydrogen bonds to form dimers. The two dimers form a tetramer. Each polypeptide chain has a heme unit—an iron porphyrin—which is the binding site for an oxygen molecule. In effect, each red cell can conceivably harness 1.3 billion oxygen molecules. Heme also binds carbon monoxide and nitric oxide in the blood. Carbon dioxide binds to other sites on the hemoglobin molecule.

A problem to be addressed in working with hemoglobin is that its behavior changes upon its separation from red blood cells. Once separated, it divides into halves that are no longer capable of oxygenating tissue. These halves are filtered out of the body by the renal system and can cause kidney damage (nephrotoxic).

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Researchers have partially succeeded in overcoming this problem by chemically cross-linking the subunits to form hemoglobin polymers, or by attaching soluble polymer molecules to the surfaces of hemoglobin molecules. These modifications are needed to hold the hemoglobin dimers together. One of the benefits of extracting hemoglobin is that the antigens that reside on the surfaces of red blood cells are removed, rendering it “typeless” and making it suitable for any patient, regardless of blood type.

In most situations, patients who require blood replacement due to blood loss only need a short-term replenishment of the oxygen-carrying capacity of hemoglobin until their own bodies produce replacement red blood cells. Hemoglobin requires refrigeration, has a relatively short shelf-life, and must be matched for correct blood type and other factors.

Efforts to develop a hemoglobin-based blood substitute have focused on creating a hemoglobin alternative that can be stored for a long period of time at room temperature and can be transfused to restore the oxygen-carrying function of hemoglobin without the need for type matching.

A side effect of hemoglobin-based blood substitutes is constriction of the peripheral vessels, which causes an increase in blood pressure of up to 20%. Part of this increase is due to a change in the amount of fluid in the blood vessels resulting from the intravenous solutions used to deliver the substitute.

Hemoglobin-based blood substitutes are cleared from the body through the reticular endothelial system. The starting material for hemoglobin-based oxygen carriers may be a stroma-reduced hemoglobin, chromatographically purified hemoglobin obtained from outdated human or bovine blood obtained from cattle in controlled herds, or it may be genetically engineered by using recombinant DNA technology. Stable and functional oxygen therapeutics are produced from these starting materials by various chemical and/or genetic manipulations.

The following list of toxicities and laboratory findings is thought to be associated with the use of hemoglobin-based oxygen therapeutics:

vasoactivity;

cardiac toxicity;

gastrointestinal toxicity;

pro-inflammatory activity;

oxidative stress;

endotoxin synergy with hemoglobin; and,

neurotoxicity.

Several companies have sought, without success, to develop hemoglobin-based blood substitutes. Products that are currently under development and have advanced further than Synthetic Blood in their clinical trials are:

® PolyHeme from Evanston, Illinois-based Northfield Laboratories Inc. (NFLD-NASDAQ);

® Hemopure from Cambridge, Massachusetts-based Biopure Corporation (BPUR-NASDAQ): and,

® Hemospan from San Diego, California-based Sangart, Inc.

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Northfield Laboratories

PolyHeme® from Northfield Laboratories is a solution of chemically-modified hemoglobin that requires no cross matching and is therefore compatible with all blood types. It has a shelf life in excess of 12 months. Enrollment is currently under way for a pivotal, 720-patient, multi-center Phase III trial of PolyHeme® in the U.S. for use in situations where there is life-threatening blood loss and blood is not available. Northfield Laboratories has concluded agreements with trauma centers and ambulance crews to test its product on patients who are losing blood or other resuscitating fluids in such amounts as to be fatal before reaching the hospital. Under federal rules (code 21CFR50.24), ambulance crews (first responders) do not need consent to administer PolyHeme® to patients who might die without it. However, community awareness programs must first be conducted.

PolyHeme® is derived from outdated human blood (more than 42 days since donation) that is purchased from the American Red Cross and Blood Centers of America. Out of the 14 to 15 million units of blood available each year from donors, approximately 1.5 to 2 million units are discarded. Some estimates of discarded human blood are much lower. It takes 1.8 units of red blood cells to produce one unit of PolyHeme®.

Biopure Corporation

Hemopure® from Biopure Corporation consists of hemoglobin that is extracted from bovine (cow) red blood cells, purified, and chemically cross-linked for storage without refrigeration for three years. It is formulated in a balanced salt solution and does not require typing. It is therefore compatible with all blood types. When infused, Hemopure® carries oxygen in plasma (the fluid portion of blood). It has been shown to enhance the release of oxygen from circulating red blood cells and to increase the diffusion of oxygen to tissues. This stabilized hemoglobin is smaller, less viscous, and more readily releases oxygen to tissues than human red blood cells.

Preclinical animal studies have shown that Hemopure® can carry oxygen at low pressure and through constricted or partially blocked blood vessels to areas of the body that red blood cells cannot reach due to their large size.

Biopure filed a Biologic License Application (BLA) in July 2002 for treating acutely anemic patients undergoing orthopedic surgery with Hemopure® to eliminate or reduce the need for red blood cell transfusions. The FDA responded to the BLA in July 2003 and made new requests for patient information. A subsequent meeting with the FDA in January 2004 resulted in requests for additional information from Biopure, further delaying its approval. This setback led to Biopure’s decision in June 2004 to pursue higher-value and better risk-benefit applications for Hemopure®. The company has refocused its strategy on the use of Hemopure® as a therapeutic oxygen-carrying agent (and not as a red blood cell replacement) for cardiovascular ischemia. A Phase II, 45-patient safety and feasibility study is under way at six sites in Europe in coronary artery disease patients undergoing angioplasty in which Hemopure® is being tested as a cardioprotective agent to deliver oxygen to tissues to prevent infarcts.

Biopure has been notified of a confidential investigation by the SEC staff indicating a preliminary determination to recommend that the SEC bring a civil injunctive proceeding against Biopure and several of its former officers and directors. Additionally, the FDA has requested additional animal and safety studies before considering if clinical trials in the U.S. may resume.

Hemopure® is approved in South Africa for treating adult surgical patients who are acutely anemic and for eliminating, reducing, or delaying the need for allogenic red blood cell transfusion in these patients. The product is not yet being sold there. Hemopure® is also being developed in a Cooperative Research and Development Program (CRADA) with the U.S. Naval Medical Research Center (Bethesda, Maryland) for use in patients with acute anemia resulting from traumatic injury, and as an early intervention to provide immediate oxygen-carrying support in the out-of-hospital setting. Biopure met with the FDA in April 2005 to review the protocol for its clinical trial. Because it is derived from bovine blood, the principal concern that has been expressed about Hemopure® is that it has the potential to transmit diseases not found in human blood. This may result in some resistance to use.

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Sangart

Sangart is developing two general classes of hemoglobin-based oxygen carriers, Hemospan® and Hemospan PS™. Hemospan® combines low hemoglobin concentration with high oxygen transport capability. Hemoglobin is harvested from outdated human blood and combined with polyethylene glycol (PEG) to eliminate the toxicity of free hemoglobin. It has been shown in laboratory testing that pegylation of the hemoglobin is an effective shield against immunologic reactions. PEG is used in several pharmaceutical formulations and has extensive safety documentation. Hemospan PS™ combines Hemospan® with a volume expander, pentastarch. Hemospan PS™ maintains the potent volume expansion and capillary flow properties of Hemospan® but requires less hemoglobin for efficacy. Thus its cost will likely be low, and it may find wider application in markets where cost is a limiting factor. Pentastarch is approved for human use in certain countries throughout the world and has extensive safety documentation.

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FLUOROVENT™

Thousands of premature infants are born each year with underdeveloped lungs and a condition of impaired pulmonary function known as acute respiratory distress syndrome (ARDS). This syndrome has multiple causes and also occurs in children and adults. Although many of these patients are treated with mechanical ventilation, this treatment can add further injury to the lungs and the mortality rate is high. This has prompted research into a safer, more effective treatment. While more research is still needed, current studies with partial liquid ventilation in animals and patients, both infants and adults, suggest that liquid ventilation may be a safe and effective treatment of ARDS.

Fluorovent™, a proprietary oxygen-carrying fluorocarbon, has demonstrated to be a highly effective medium for gas exchange, and as such, is being developed for increasing pulmonary function and the diffusion of oxygen and carbon dioxide in cases of respiratory distress. Acting as a surfactant and lubricating the surface of the lungs, Fluorovent™ has shown to improve the passage of gases through the alveoli and increase pulmonary function. As such, Fluorovent™ may present a potential treatment for ARDS.

Based on laboratory and animal studies performed by Synthetic Blood, Fluorovent™ has demonstrated significant benefits as a liquid ventilation treatment. Its boiling point and vapor pressure afford long pulmonary retention without the need for continuous replacement of evaporated fluid, thereby having the potential for less costly and less time-intensive procedures. In contrast to similar materials that have been tested by other companies, Fluorovent™ does not contain bromine or chorine and thus does not represent an environmental hazard. Also, it has been shown in studies on rabbits not to produce a hyperinflated, non-collapsible lung condition.

The incidence of ARDS in the U.S. is approximately 250,000 cases annually. While ARDS is the primary target for Synthetic Blood’s Fluorovent™, the Company believes that it may also be beneficial in chronic obstructive pulmonary disease (COPD), a condition that occurs in 10 million Americans. The number of ARDS and COPD cases in the rest of the world is estimated to be at least twice that of the U.S.

Investigators for the children’s hospitals in Boston and Toronto have met with the FDA to set protocols and submit a research IND application for Fluorovent™. The Company plans to undertake human trials of Fluorovent™ on ARDS patients in the future upon receipt of funding.

Competition

Alliance Pharmaceuticals’ LiquiVent® is a PFC that was evaluated in a pivotal Phase III trial on adults with ARDS, but showed no difference compared to the control. The clinical investigators in this study questioned the protocol and the selection of endpoints.

Executive Informational Overview Page 22

GLUCOSE SENSOR

Diabetes and its related complications are among the most prevalent and costly diseases worldwide. The incidence is increasing at an alarming rate. The disease does not discriminate among men and women, and it occurs most frequently in the elderly. Direct costs are estimated at approximately $50 billion, or almost 6% of total personal healthcare expenditures annually in the U.S.

People with diabetes measure their blood glucose levels by sticking a finger with a needle to obtain a blood drop that is placed on a test strip and analyzed by a portable instrument. This procedure, performed with a needle prick several times per day, can lead to non-compliance, and calls into question the accuracy of certain blood glucose analyses that may not be precise.

According to the Centers for Disease Control and Prevention (CDC), diabetes is the fifth-leading cause of death in the U.S., and the incidence of diabetes has jumped nearly 50% in the past 10 years. There are presently 16 million Type 2 diabetics and 16 million pre-diabetics in the U.S. Approximately 650,000 new cases are diagnosed each year. An estimated 800,000 diabetics in the U.S. are insulin dependent. The American Diabetes Association (ADA) has recommended tight control as an important way to delay the onset and dramatically slow the progression of the complications of diabetes, which include such debilitating conditions as blindness and amputation. The development of a glucose monitor/insulin pump system has been sought for many years by various companies, so far without success.

Implantable Glucose Biosensor Monitor

Synthetic Blood is developing a plastic-encased implantable glucose biosensor to monitor blood glucose without the need for finger sticks. It employs an enzyme that is specific for glucose and could provide more accurate measurements of blood glucose than can be achieved with the widely used portable glucose monitoring devices. After implantation in subcutaneous tissue by a simple outpatient procedure, the biosensor may be able to provide continuous and accurate monitoring of blood glucose, displayed as a digital readout in a wearable pager-sized device.

Synthetic Blood estimates the global market for an implanted glucose sensor could exceed $1 billion. Ultimately, the biosensor could be linked to an implanted insulin pump, creating a closed-loop biofeedback system that functions as a mechanical pancreas. It is anticipated that implant life of the biosensor could exceed one year.

Preclinical trials of the glucose sensor were conducted on dogs and pigs. A fibrous capsule was found to form around the implant. When a small, plastic-encased implant was encapsulated by a porous membrane, neovascularization occurred.

Executive Informational Overview Page 23

Key Points to Consider

Synthetic Blood is developing Oxycyte™ as an all-purpose synthetic blood PFC that is able to transport oxygen throughout the body. The product is administered intravenously and can carry three to four times more oxygen compared with hemoglobin, the component of blood that binds with and transports oxygen. PFCs have the demonstrated ability to be more effective than hemoglobin in unloading oxygen at the tissue level. This could make Oxycyte™ an effective means of transporting oxygen from the lungs to tissue throughout the body, and returning carbon dioxide to the lungs to be removed from the body through respiration. Oxycyte™ has been demonstrated to be superior to other PFCs in animal screening tests.

Synthetic Blood has successfully completed a Phase I clinical trial for Oxycyte™, and in January 2005, opened patient enrollment in a Phase II study to evaluate the safety and efficacy of Oxycyte™ in preventing tissue hypoxia in orthopedic surgical patients. Ultimately, the Company has a goal of filing a Biologics License Application (BLA) in 2008 for approval to commercially launch Oxycyte™.

PFC oxygen transport agents, such as Oxycyte™, could have a variety of potential medical applications, including use during surgery, for treating trauma and respiratory distress patients, after stroke and heart attack, and for organ preservation.

Critical shortages of donor blood, which could reach the level of four million units in the U.S. by 2030, combined with the increased risk of disease transmission (such as HIV and hepatitis), has created a pressing global need for suitable blood replacement fluids. Many of the earlier contenders in the blood substitute area, including hemoglobin-based products, have abandoned the market due to the formidable technical challenges. The current worldwide market for blood substitutes is estimated at $2 billion.

Synthetic Blood has stated that it intends to fully exploit its technology platforms for additional product opportunities in the biomedical, commercial, and industrial markets. The Company also seeks to form partnerships as early as possible with global and/or regional pharmaceutical and medical device companies for product development funding, commercial-scale manufacturing, and global market penetration for its products.

The Company has four U.S. patents and six non-U.S. patents covering the use and application for PFCs, and benefits from eight manufacturing process patents through an exclusive supply agreement.

Synthetic Blood’s management team is comprised of individuals with biomedical industry experience in product development, regulatory clearance, clinical affairs, good manufacturing practices (GMP)- compliant manufacturing, and marketing. The Company supplements in-house expertise with consultants, contract product development, and manufacturing as needed to minimize fixed expenses.

Synthetic Blood recently completed a private placement, securing $1.15 million in immediate funds with which to support further clinical development of Oxycyte™.

Executive Informational Overview Page 24

Historical Financial Results

Tables 7, 8, and 9 provide a snapshot of Synthetic Blood International’s Statement of Operations, Balance Sheet, and Statements of Cash Flows for the years 2003–2005.

Table 7 SYNTHETIC BLOOD INTERNATIONAL, INC. STATEMENTS OF OPERATIONS For the Three Years Ended April 30, 2005 and for the Period May 26, 1967 (Date of Inception) to April 30, 2005 Period from May 2005 2004 2003 26, 1967 (inception) to April 30, 2005 EXPENSES Research and development $ 9,460,256 $ 1,277,125 $ 1,276,223 $ 1,433,040 General and administrative 14,611,018 1,407,487 990,982 840,352 Interest 182,643 — — 2,503

Total expenses 24,253,917 2,684,612 2,267,205 2,275,895

OTHER INCOME (primarily interest) (631,186) (11,814) (18,002) (48,558)

NET LOSS $ (23,622,731) $ (2,672,798) $ (2,249,203) $ (2,227,337)

NET LOSS PER SHARE - Basic and diluted $ (0.02) $ (0.02) $ (0.03)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - Basic and diluted 118,841,402 95,327,891 88,651,158

Source: Synthetic Blood International, Inc.

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Table 8 SYNTHETIC BLOOD INTERNATIONAL, INC. BALANCE SHEETS April 30, 2005 2004

ASSETS CURRENT ASSETS: Cash and cash equivalents $ 588,763 $ 302,310 Prepaid expenses and other current assets 77,686 118,980

Total current assets 666,449 421,290 PROPERTY AND EQUIPMENT Laboratory equipment 730,811 661,101 Furniture and fixtures 31,696 31,731 Leasehold improvements 4,810 4,810 767,317 697,642

Less accumulated depreciation (383,039) (290,448) Property and equipment, net 384,278 407,194 PATENTS, net 211,618 219,495 $ 1,262,345 $ 1,047,979

LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 269,975 $ 237,249 Accrued expenses 43,969 56,449 Total current liabilities 313,944 293,698 COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY: Preferred stock, undesignated; authorized 10,000,000 shares; none issued or outstanding at April — — 30, 2005 and 2004, respectively Common stock, par value $0.01 per share; authorized 200,000,000 shares; 125,659,918 and 1,256,599 1,138,089 113,808,876 shares issued and outstanding at April 30, 2005 and 2004, respectively

Additional paid-in capital 23,283,449 20,708,959 Deposits on common stock 140,833 — Deferred compensation (109,749) (142,834) Deficit accumulated during the development stage (23,622,731) (20,949,933) Total stockholders’ equity 948,401 754,281 $ 1,262,345 $ 1,047,979 Source: Synthetic Blood International, Inc.

Executive Informational Overview Page 26

Table 9 SYNTHETIC BLOOD INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS For the Three Years Ended April 30, 2005 and for the Period May 26, 1967 (Date of Inception) to April 30, 2005 Period from May 2005 2004 2003 26, 1967 (inception) to April 30, 2005 Cash flows from operating activities: Net loss $ (23,622,731) $ (2,672,798) $ (2,249,203) $ (2,227,337) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,013,918 137,717 141,712 137,049 Amortization of deferred compensation 227,001 128,085 98,916 — Loss on disposal and write-down of property, equipment and other assets 150,409 — — 8,325 Issuance of compensatory stock options and warrants 2,229,263 311,000 — — Issuance of stock below fair market value 695,248 — — — Issuance of stock for services rendered 1,265,279 42,500 1,970 30,600 Contribution of capital through services rendered by stockholders 216,851 — — — Changes in operating assets and liabilities: Prepaid expenses and other current assets (77,686) 41,294 (46,020) 16,577 Accounts payable and accrued expenses 490,536 20,246 279,165 (58,976)

Net cash used in operating activities (17,411,912) (1,991,956) (1,773,460) (2,093,762)

Cash flows from investing activities: Purchase of property and equipment (1,077,573) (69,675) (80,417) (37,872) Proceeds from sale of property and equipment 15,458 — — — Purchase of other assets (645,765) (37,249) (24,481) (26,737)

Net cash used in investing activities (1,707,880) (106,924) (104,898) (64,609)

Cash flows from financing activities: Proceeds from stockholder debt $ 977,692 — — — Repayments of amounts due to stockholders (121,517) — — — Proceeds from issuance of notes payable 465,065 — — — Proceeds from issuance of convertible debentures 811,000 — — — Payments on short-term notes payable (425,991) — — (105,569) Payments on long-term debt (238,971) — — — Payments on capital lease obligation (52,338) — — — Proceeds from exercise of stock options and warrants 512,026 — 625 367 Deposits on common stock 140,833 140,833 — — Contribution of capital from stockholders 40,700 — — — Net proceeds from issuance of common stock 17,602,056 2,244,500 2,001,601 —

Net cash provided by (used in) financing activities 19,710,555 2,385,333 2,002,226 (105,202)

Net increase (decrease) in cash and cash equivalents 588,763 286,453 123,868 (2,263,573)

Cash and cash equivalents, beginning of period — 302,310 178,442 2,442,015

Cash and cash equivalents, end of period $ 588,763 $ 588,763 $ 302,310 $ 178,442

Cash paid for: Interest $ 143,129 — — $ 2,503

Income taxes $ 17,000 $ 1,550 $ 1,340 $ 4,570

Source: Synthetic Blood International, Inc.

Executive Informational Overview Page 27

Risks

Some information in this report relates to future events or future business and financial performance. Such statements can be only predictions and the actual events or results may differ from those discussed due to, among other things, the risks described in Synthetic Blood’s reports on Forms 10-K, 10-Q, 8-K, and other forms filed with the Securities and Exchange Commission (“SEC”) from time to time. The content of this report with respect to Synthetic Blood has been compiled primarily from information available to the public and released by Synthetic Blood through news releases and SEC filings. Synthetic Blood is solely responsible for the accuracy of that information. Information about other companies has been prepared from publicly available documents and has not been independently verified by Synthetic Blood. For more complete information about Synthetic Blood, refer to the Company’s website at www.sybd.com.

Competition

If approved for commercial sale, Oxycyte™ will compete directly with established therapies for acute blood loss and may compete with other technologies currently under development. It cannot be assured that Oxycyte™ will have advantages that will be significant enough to cause medical professionals to adopt it rather than continue to use established therapies or to adopt other new technologies or products. Also, it cannot be assured that the cost of Oxycyte™ will be competitive with the cost of established therapies or other new technologies or products. The development of blood substitute products is a rapidly evolving field. There is currently no blood substitute product on the market and competition to develop an efficacious and accepted product is intense.

Several companies have developed or are in the process of developing technologies that are, or in the future may be, the basis for products that will compete with Oxycyte™. Certain of these companies are pursuing different approaches or means of accomplishing the therapeutic effects sought to be achieved through the use of Oxycyte™. These companies and others, as described earlier in this report, have substantially greater financial resources, larger research and development staffs, more extensive facilities, and more experience than Synthetic Blood in testing, manufacturing, marketing, and distributing medical products. It cannot be assured that one or more other companies will not succeed in developing technologies or products that will become available for commercial use prior to Oxycyte™, which could be more effective or less costly than Oxycyte™ or would render Oxycyte™ obsolete or noncompetitive.

Uncertainty of Clinical Trials

A Phase I clinical trial on Oxycyte™ was completed in December 2003. A Phase II clinical trial commenced in the fourth quarter of 2004. If the current and other Phase II trials are successful—of which there is no assurance—Synthetic Blood will need to conduct further Phase III trials. All of these clinical trials and testing will be costly and time consuming, and the timing of the FDA review process is uncertain. The FDA, or Synthetic Blood, may in the future suspend clinical trials at any time if it is believed that the subjects participating in such trials are being exposed to unacceptable health risks.

This is no assurance that Synthetic Blood will be able to complete its clinical trials successfully, or obtain FDA approval of Oxycyte™, or that FDA approval, if obtained, will not include limitations on the indicated uses for which Oxycyte™ may be marketed. The Company’s business, financial condition, and results of operations are critically dependent on receiving FDA approval of Oxycyte™. A significant delay in the planned clinical trials or a failure to achieve FDA approval of commercial sales of Oxycyte™ would have a material adverse effect on Synthetic Blood and could result in the cessation of its business.

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Government Regulation

The Company’s development, testing, manufacturing, marketing, and distribution of Oxycyte™ are, and will continue to be, subject to extensive regulation, monitoring, and approval by the FDA. There are significant risks at each stage of the regulatory process.

Product Approval Stage

During the product approval stage, Synthetic Blood will attempt to prove the safety and efficacy of Oxycyte™ for its indicated uses. There are numerous problems that could arise during this stage, including the following:

The data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit, or prevent FDA regulatory approval.

The lack of established criteria for evaluating the effectiveness of blood substitute products could delay or prevent FDA regulatory approval.

At any time, the FDA could change policies and regulations that could result in delay and perhaps rejection of the Company’s product. Even after extensive clinical trials, there is no assurance that regulatory approval will ever be obtained for Oxycyte™.

Commercialization Approval Stage

Synthetic Blood will be required to file a BLA with the FDA in order to obtain regulatory approval for the commercial production and sale of Oxycyte™ in the U.S. Under FDA guidelines, the FDA may comment upon the acceptability of a BLA following its submission. After a BLA is submitted there is an initial review by the FDA to be sure that all of the required elements are included in the submission. There can be no assurance that the submission will be accepted for filing or that the FDA may not issue a refusal to file, or RTF. If an RTF is issued, there is opportunity for dialogue between the sponsor and the FDA in an effort to resolve all concerns. There can be no assurance that such a dialogue will be successful in leading to the filing of the BLA. If the submission is filed, there can be no assurance that the full review will result in product approval.

Post-Commercialization Stage

Discovery of previously unknown problems with Oxycyte™ or unanticipated problems with Synthetic Blood’s manufacturing arrangements, even after FDA approval of Oxycyte™ for commercial sale, may result in the imposition of significant restrictions, including withdrawal of Oxycyte™ from the market.

Additional laws and regulations may also be enacted, which could prevent or delay regulatory approval of Oxycyte™, including laws or regulations relating to the price or cost-effectiveness of medical products. Any delay or failure to achieve regulatory approval of commercial sales of Oxycyte™ is likely to have a material adverse effect on the Company’s financial condition.

The FDA continues to review products even after they receive agency approval. If and when the FDA approves Oxycyte™, its manufacture and marketing will be subject to ongoing regulation, including compliance with current good manufacturing practices (cGMPs), adverse event reporting requirements, and the FDA’s general prohibitions against promoting products for unapproved or “off-label” uses. Synthetic Blood will be subject to inspection and market surveillance by the FDA for compliance with these and other requirements. Any enforcement action resulting from failure, even by inadvertence, to comply with these requirements, could affect the manufacture and marketing of Oxycyte™. In addition, the FDA could withdraw a previously approved product from the market upon receipt of newly discovered information. The FDA could also require the Company to conduct additional, and potentially costly, studies in areas outside of the approved indicated uses.

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Dependence on Patents and Other Proprietary Rights to Protect Its Technology

Synthetic Blood’s ability to compete effectively with other companies will depend, in part, on its ability to protect and maintain the proprietary nature of its technology. The Company cannot be certain as to the degree of protection offered by its patents or as to the likelihood that additional patents in the U.S. and other countries will be issued based upon pending patent applications. Synthetic Blood cannot be certain that it was the first creator of the inventions covered by its patents or pending patent applications or that it was the first to file patent applications for its inventions. The high costs of enforcing patent and other proprietary rights may also limit the degree of protection. Synthetic Blood also relies on unpatented proprietary technology, and cannot be assured that others may not independently develop the same or similar technology or otherwise obtain access to Synthetic Blood’s proprietary technology. Synthetic Blood cannot be sure that its patents or other proprietary rights will be determined to be valid or enforceable if challenged in court or administrative proceedings or that it will not become involved in disputes with respect to the patents or proprietary rights of third parties. An adverse outcome from these proceedings could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require Synthetic Blood to stop using this technology—any of which would result in a material adverse effect on its operations.

One Product Company

Due to its limited financial resources, Synthetic Blood is only developing its Oxycyte™ blood substitute product. Development on Fluorovent™, its oxygen-carrying liquid, and its implantable glucose biosensor have been stopped until additional financing is obtained. Consequently, all efforts are focused on advancing Oxycyte™ to commercialization, and if this effort is unsuccessful, Synthetic Blood may not have resources to pursue development of its other products and its business would terminate. Furthermore, by delaying development of Fluorovent™ and its implantable glucose biosensor, these technologies may become obsolete by the time there is sufficient capital to resume development and testing of these products, so the funds expended on these products to date would be lost, as well as the Company’s opportunity to benefit if the products could be successfully developed.

Lack of Revenues

Synthetic Blood began research and development activities in 1990. It is a development stage company that has been engaged for the past 13 years in the development and testing of Oxycyte™, Fluorovent™, and a glucose biosensor. No revenues have been generated to date from commercial sales of any of its products. Revenues to date have consisted solely of interest earned on funds being held for use in developing its products. At April 30, 2005, the Company’s accumulated deficit during the development stage is $23,622,731. Substantial amounts of outside financing will be needed to fund future testing and development of its products.

Need to Raise Additional Capital

Synthetic Blood will need to raise substantial amounts of additional capital to complete the clinical testing of Oxycyte™ and, if approved for commercial use, establish commercial production of Oxycyte™. In addition, funding is required to pursue development of Fluorovent™ and Synthetic Blood’s glucose biosensor, and to cover the ongoing administrative and corporate obligations. Future capital requirements will depend on many factors, including the scope and results of clinical trials, the timing and outcome of regulatory reviews, administrative and legal expenses, the status of competitive products, the establishment of manufacturing capacity, and the establishment of collaborative relationships. There is no assurance that additional funding will be available or, if it is available, that it can be obtained on terms and conditions deemed acceptable. As a result of these circumstances, the Company’s independent registered public accounting firm has included, and is likely in the future to include, an explanatory paragraph in its audit opinions based on uncertainty regarding Synthetic Blood’s ability to continue as a going concern. An audit opinion of this type may interfere with the Company’s ability to sell its securities in public or private transactions. Any additional funding derived from the sale of equity securities may result in significant dilution to the existing stockholders.

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High Level of Technological Risk in Developing Oxycyte™

Phase I clinical trials of Oxycyte™ were completed in December 2003, and the Company anticipates a substantial portion of Synthetic Blood’s financial and managerial resources will be devoted to pursuing Phase II and Phase III clinical trials on this product over the next three years. Since the Company’s other products are not as far along as Oxycyte™ in their development and approval process, the opportunity to generate product revenues within the next four to five years is most likely dependent on successful testing and commercialization of Oxycyte™ for use in surgical and similar acute blood replacement situations. The biomedical field has undergone rapid and significant technological changes. Technological developments may result in Oxycyte™ becoming obsolete or non-competitive before Synthetic Blood is able to recover any portion of the research and development and other expenses it has incurred for developing and clinically testing Oxycyte™. Any such occurrence would have a material adverse effect on the Company’s operations and could result in the cessation of its business.

Uncertain about Ability to Manufacture Oxycyte™ Commercially

Commercial-scale manufacturing of Oxycyte™ will require development of manufacturing capability that is significantly larger than the capacity currently in place to produce Oxycyte™ for clinical trials. Synthetic Blood does not intend to build its own production facility, but instead will rely on third-party manufacturers to produce its product. Arrangements have not yet been established with any manufacturer for the commercial production of Oxycyte™, and there can be no assurance that Synthetic Blood will be able to establish such an arrangement on acceptable terms. Moreover, in order to seek FDA approval for the sale of Oxycyte™ produced at a third-party manufacturing facility, it may be required to conduct a portion of the clinical trials with product manufactured at that facility. Accordingly, a delay in achieving scale-up of commercial manufacturing capabilities as and when needed will have a material adverse effect on sales of Oxycyte™. In addition, the manufacture of Oxycyte™ will be subject to extensive government regulation. Among the conditions for marketing approval is that the quality control and manufacturing procedures conform to the FDA’s good manufacturing practice regulations. Synthetic Blood cannot ensure that it will be able to obtain the necessary regulatory clearances or approvals to manufacture Oxycyte™ on a timely basis or at all.

Lack of Experience in the Sale and Marketing of Medical Products

If approved for commercial sale, Synthetic Blood intends to market Oxycyte™ in the U.S. using its own sales force. The Company has no experience in the sale or marketing of medical products. Its ability to implement a sales and marketing strategy for the U.S. will depend on its ability to recruit, train, and retain a marketing staff and sales force with sufficient technical expertise. It is not known whether Synthetic Blood can establish a marketing program at a cost that is acceptable in relation to revenue or whether it can be successful in marketing its product. Failure to successfully market Oxycyte™ or to do so on a cost-effective basis would likely result in failure of its business.

A History of Financial Losses and Uncertain Future Profitability

During the fiscal year ended April 30, 2005, Synthetic Blood incurred a net loss of $2.7 million. It incurred net losses of $2.2 million in fiscal year 2004 and $2.2 million in fiscal year 2003. The Company will not generate operating revenue unless and until one of its products is approved for commercial sale and sales activity begins. Substantial additional funds will be required to complete clinical trials, pursue regulatory approval for its products, establish commercial scale manufacturing capabilities, and establish marketing, sales, and administrative capabilities. Expenditures for these purposes will result in substantial losses for at least the next several years. The expense and the time required to realize any product revenues or profitability are highly uncertain. It cannot be assured that Synthetic Blood will be able to achieve product revenues or profitability on a sustained basis, or at all, and it may be unable to ever establish the Company as a going concern.

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Uncertainty over Market Acceptance of Oxycyte™

Human blood collection, distribution, and medical application are well established and accepted. Competitors may develop new technologies or products, which are effective, competitively priced, and accepted for various medical uses. It cannot be assured that the efficacy and pricing of Oxycyte™, as relates to Oxycyte™’s expected benefits, will be perceived by healthcare providers and third-party payers as cost-effective, or that the price of Oxycyte™ will be competitive with transfused blood or with other new technologies or products. Synthetic Blood’s results of operations may be adversely affected if the price of Oxycyte™ is not considered cost-effective or if Oxycyte™ does not otherwise achieve market acceptance.

Dependence on the Services of a Limited Number of Key Personnel

Synthetic Blood’s success is highly dependent on the continued services of a limited number of skilled managers and scientists. The loss of any of these individuals could have a material adverse effect on the Company. In addition, its success will depend, among other factors, on the recruitment and retention of additional highly skilled and experienced management and technical personnel. Synthetic Blood cannot be assured that it will be able to retain existing employees or to attract and retain additional skilled personnel on acceptable terms, given the competition for such personnel among numerous large and well-funded pharmaceutical and healthcare companies, universities, and nonprofit research institutions.

Impact of Health Care Reforms on Pricing

The federal government and private insurers have considered ways to change, and have changed, the manner in which healthcare services are provided in the U.S. Potential approaches and changes in recent years include controls on healthcare spending and the creation of large purchasing groups. In the future, it is possible that the government may institute price controls and limits on Medicare and Medicaid spending. These controls and limits might affect the payments that Synthetic Blood can collect from sales of its product. Assuming that the Company succeeds in bringing Oxycyte™ to market, uncertainties regarding future healthcare reform and private market practices could affect Synthetic Blood’s ability to sell Oxycyte™ in large quantities at profitable pricing.

Uncertainty over Third-Party Reimbursement

Sales of medical products largely depend on the reimbursement of patients’ medical expenses by governmental healthcare programs and private health insurers. There is no guarantee that governmental healthcare programs or private health insurers will provide reimbursement for Oxycyte™, or permit Synthetic Blood to sell its product at sufficiently high prices to generate a profit.

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Recent Events

08/22/2005—Announced the submission of an amendment to Synthetic Blood’s Oxycyte™ IND application to initiate a Phase II proof-of-concept study to evaluate the safety and biological effects of Oxycyte™ in patients with traumatic brain injury. The Company expects to report results from this study before the end of 2005.

07/25/2005—Announced that the University of South Florida’s Tampa General Hospital is the fifth clinical site to receive Investigational Review Board (IRB) approval to enroll patients in Synthetic Blood’s 60- patient Phase II Oxycyte™ trial. The Company expects to complete enrollment and to present preliminary trial data by the end of 2005.

07/13/2005—Announced the sales of original issue, discount, unsecured convertible debentures in the aggregate principal amount of $1.85 million, securing proceeds of approximately $1.15 million. The transaction was arranged by HPC Capital Management LLC of Atlanta and New York, and the investment group participating in the transaction was led by private equity firm Palisades Master Fund.

04/18/2005—Announced enrollment of its first two patients in its 60-patient Phase II Oxycyte™ trial to prevent tissue hypoxia in hip revision surgery. The first patient was expected to receive Oxycyte™ on April 18, 2005 and a second patient was scheduled to be treated the following week. The Company further announced that two hospitals in Durham, North Carolina, had received Investigational Review Board (IRB) approval and would open for patient enrollment for this trial later in May 2005.

04/07/2005—Announced Richmond-based Virginia Commonwealth University Medical Center (VCU), received approval from its IRB to open patient enrollment for Synthetic Blood’s Phase II Oxycyte™ trial.

01/06/2005—Announced the opening of patient enrolment in its first Phase II Oxycyte™ clinical trial.

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Glossary of Lesser-Known Terms

Acute respiratory distress syndrome (ARDS)—A serious reaction to various forms of injuries to the lung, leading to impaired gas exchange and inflammation. It requires mechanical ventilation and intensive care admission.

Albumin—A class of simple, water-soluble proteins that can be coagulated by heat and are found in egg white, blood serum, milk, and many other animal and plant tissues.

Alveoli—A tiny, thin-walled, capillary-rich sac in the lungs where the exchange of oxygen and carbon dioxide takes place. Also called air sac.

Anemia—A condition in which there is reduced oxygen delivery to the tissues due to a reduction in the oxygen-carrying capacity of circulating red cells. It may result from increased destruction of red cells, excessive blood loss, or decreased production of red cells.

Antigen—A substance that is recognized by the body as being foreign, and as such, can trigger an immune response. In blood, antigens are usually, but not exclusively, found on the blood cell surface.

Biologic License Application (BLA)—A request to the FDA to authorize a company to market a biological product in interstate commerce.

Biosensor—A device that detects, records, and transmits information regarding a physiological change or process; or, a device that uses biological materials to monitor the presence of various chemicals in a substance.

Cancer—Any malignant growth or tumor caused by abnormal and uncontrolled cell division.

Centrifuge—An apparatus consisting essentially of a compartment spun about a central axis to separate contained materials of different specific gravities, or to separate colloidal particles suspended in a liquid.

Chickenpox—An acute contagious disease, primarily of children, that is caused by the varicella-zoster virus and characterized by skin eruptions, slight fever, and malaise.

Christmas disease—A type of hemophilia that is caused by a deficiency of factor IX.

Chronic obstructive pulmonary disease (COPD)—A chronic lung disease, such as asthma or emphysema, in which breathing becomes slowed or forced.

Clotting factors—Any of various plasma components involved in the clotting of blood, including fibrinogen, prothrombin, thromboplastin, and calcium ion.

Cryoprecipitated AHF—Concentrated form of fibrinogen, one of the clotting proteins.

Decompression sickness (“the bends”)—A disorder, seen especially in deep-sea divers, caused by the formation of nitrogen bubbles in the blood and tissues following a sudden drop in the surrounding pressure, as when ascending rapidly from a dive, and characterized by severe pains in the joints and chest, skin irritation, cramps, and paralysis.

Emulsion—A suspension of small globules of one liquid in a second liquid with which the first will not mix.

Erythrocytes—A mature blood cell that contains hemoglobin to carry oxygen to the bodily tissues.

Factor VIII—The clotting factor protein absent or decreased in patients with Hemophilia A. Also called anti-hemophilic factor.

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Fibrin—An elastic, insoluble, whitish protein produced by the action of thrombin on fibrinogen and forming an interlacing fibrous network in the coagulation of blood.

Fibrinogen—A protein in the blood plasma that is essential for the coagulation of blood and is converted to fibrin by the action of thrombin in the presence of ionized calcium.

Glasgow Coma Scale—A scale that is used to assess the severity of a brain injury, that consists of values from 3 to 15 obtained by summing the ratings assigned to three variables depending on whether and how the patient responds to certain standard stimuli by opening the eyes, giving a verbal response, and giving a motor response, and that for a low score (as 3 to 5) indicates a poor chance of recovery and for a high score (as 8 to 15) indicates a good chance of recovery

Hematocrit/Hct—A test measuring the percent of red cells in a sample of whole blood; used to test for anemia.

Hemoglobin/Hgb—A protein in red blood cells containing iron. It is essential for carrying oxygen, gives the red color to healthy blood, and is used to test for anemia. Blood donors must meet an established level of hemoglobin before they can donate blood.

Hemophilia—A hereditary bleeding disorder, in which blood does not clot normally. People with the disorder bleed for longer periods of time, which is of greatest concern when bleeding occurs internally—in the joints, tissues, muscles, and especially the vital organs, such as the brain. Many hemophiliacs rely on regular transfusions of the clotting factor in plasma.

Hepatitis—An inflammation of the liver.

Hepatitis B (HBV)—A virus transmitted through blood and other body fluids that causes hepatitis. All blood donations are tested for hepatitis B. Those that test positive are destroyed and the blood donor is permanently disqualified.

Hepatitis C (HCV)—A virus that causes hepatitis. All blood donations are tested for the hepatitis C virus. Blood from donors who test positive for HCV antibodies is destroyed.

Human Immunodeficiency Virus (HIV)—Human immunodeficiency virus. A cytopathic retrovirus that is the cause of AIDS.

Hyperbaric chamber—A compartment capable of high-pressure oxygenation, used to treat decompression sickness and anaerobic infections.

Hypoxia—Deficiency in the amount of oxygen reaching body tissues.

Immunoglobulin (IVIG)—Any of a group of large glycoproteins that are secreted by plasma cells and that function as antibodies in the immune response by binding with specific antigens. There are five classes of immunoglobulins: IgA, IgD, IgE, IgG, and IgM.

Immiscible—Is not able to undergo mixing or blending.

Investigational New Drug (IND)—Refers to the Food and Drug Administration's (FDA) program by which a pharmaceutical company obtains permission to ship an experimental drug across state lines (usually to clinical investigators) before a marketing application for the drug has been approved. The FDA reviews the IND for safety to assure that research subjects will not be subjected to unreasonable risk. The application has three main sub-sections: Animal Pharmacology and Toxicology Studies; Manufacturing Information; and Clinical Protocols and Investigator Information.

Ischemia—A decrease in the blood supply to a bodily organ, tissue, or part caused by constriction or obstruction of the blood vessels.

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Leukemia—Any of various acute or chronic neoplastic diseases of the bone marrow in which unrestrained proliferation of white blood cells occurs, usually accompanied by anemia, impaired blood clotting, and enlargement of the lymph nodes, liver, and spleen.

Leukocyte—A general term for white blood cells, including granulocyte, lymphocyte, and monocyte. Among the functions of the leukocyte is the engulfment of bacteria, fungi, and viruses.

Nephrotoxic—Poisonous to the kidney.

New Drug Application (NDA)—The vehicle through which drug sponsors formally propose that the Food and Drug Administration approve a new pharmaceutical for sale and marketing in the U.S. The data gathered during the animal studies and human clinical trials of an IND become part of the NDA.

Perfluorocarbon (PFC)—A powerful greenhouse gas emitted during the production of aluminium.

Plasma—The liquid portion of the blood. It contains coagulation factors and is used to treat patients who develop bleeding problems during major surgery or massive trauma. Because some of the factors lose effectiveness quickly, plasma must be frozen in order to preserve its functions.

Platelets—Cellular fragments. Their primary function is to prevent bleeding. They play a part in the body’s clotting mechanism.

Rabies—An acute, infectious, often fatal viral disease of most warm-blooded animals, especially wolves, cats, and dogs, which attacks the central nervous system and is transmitted by the bite of infected animals.

Red blood cells—Blood cells that carry oxygen throughout the body and give blood its red color. They are transfused to people who fail to produce their own, have severe bleeding, or a low blood count.

Respiratory distress syndrome—A respiratory disease of newborn babies, especially premature babies, characterized by distressful breathing, cyanosis, and the formation of a glassy membrane over the alveoli of the lungs.

Rh/Rhesus factor—A specific protein on the surface of red blood cells. The Rh factor can be “+” (present) or “–” (absent) and is usually indicated after the major blood group A, B, AB, or O. Approximately 85% of people are Rh-positive.

Rheumatoid arthritis—A chronic disease marked by stiffness and inflammation of the joints, weakness, loss of mobility, and deformity.

Ringer’s lactate—A commonly used intravenous crystalloid fluid for replacing lost blood.

Saline—Isotonic solution of sodium chloride and distilled water.

Sickle cell anemia—A chronic, usually fatal anemia marked by sickle-shaped red blood cells, occurring almost exclusively in Blacks from Africa or of African descent, and characterized by episodic pain in the joints, fever, leg ulcers, and jaundice. The disease occurs in individuals who are homozygous for a mutant hemoglobin gene.

Stroke—A sudden loss of brain function caused by a blockage or rupture of a blood vessel to the brain, characterized by loss of muscular control, diminution or loss of sensation or consciousness, dizziness, slurred speech, or other symptoms that vary with the extent and severity of the damage to the brain.

Tetanus—An acute, often fatal disease characterized by spasmodic contraction of voluntary muscles, especially those of the neck and jaw, and caused by the toxin of the bacillus Clostridium tetani, which typically infects the body through a deep wound. variant Creutzfeldt-Jakob Disease (vCJD)—The human form of “mad cow disease.”

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West Nile virus—A viral disease of varying severity, occurring in Africa, Asia, the Mediterranean, and parts of North America, that is transmitted by a culex mosquito.

White blood cells (leukocytes)—Any of various blood cells that have a nucleus and cytoplasm, separate into a thin white layer when whole blood is centrifuged, and help protect the body from infection and disease. White blood cells include neutrophils, eosinophils, basophils, lymphocytes, and monocytes.

Whole blood—The blood in veins and arteries. Blood is made up of several elements, each of which performs a special function in the body. The transfusable parts of whole blood are red blood cells, white blood cells, plasma, and platelets.

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Jeffrey J. Kraws and Karen B. Goldfarb Phone: 609-306-2274 Fax: 609-395-9339 Email: [email protected] Web: www.crystalra.com

Legal Notes and Disclosures: This report has been prepared by Synthetic Blood International, Inc. (“the Company”) with the assistance of Crystal Research Associates, LLC (“CRA”) based upon information provided by the Company. CRA has not independently verified such information. In addition, CRA has been compensated by the Company in cash of $35,000 for its services in creating this report, for updates, and for printing costs.

Some of the information in this report relates to future events or future business and financial performance. Such statements constitute forward-looking information within the meaning of the Private Securities Litigation Act of 1995. Such statements can be only predictions and the actual events or results may differ from those discussed due to, among other things, the risks described in Synthetic Blood International, Inc.’s reports on forms 10-K, 10- Q 8-K, and other forms filed from time to time. The content of this report with respect to Synthetic Blood International, Inc. has been compiled primarily from information available to the public released by Synthetic Blood International, Inc. Synthetic Blood International, Inc. is solely responsible for the accuracy of that information. Information as to other companies has been prepared from publicly available information and has not been independently verified by Synthetic Blood International, Inc. or CRA. [Certain summaries of scientific activities and outcomes have been condensed to aid the reader in gaining a general understanding.] For more complete information about Synthetic Blood International, Inc., the reader is directed to the Company’s website at www.sybd.com. This report is published solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state. Past performance does not guarantee future performance. Free additional information about Synthetic Blood International, Inc. and its public filings, as well as free copies of this report, can be obtained in either a paper or electronic format by calling (714) 427-6363.

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