SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-29233
SANGUI BIOTECH INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-1330732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1508 BROOKHOLLOW DRIVE, SUITE 354
SANTA ANA, CALIFORNIA 92705
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (714) 429-7807
N/A
(Former name, former address and former fiscal year, if changed since last
report)
___________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date:
Title of each class of Common Stock Outstanding at February 13, 2002
----------------------------------------- --------------------------------
Common Stock, no par value 40,514,363
Transitional Small Business Disclosure Format
(Check one);
Yes [ ] No [ X ]
INDEX
SANGUI BIOTECH INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 2001 (Unaudited)
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three and six months ended December 31, 2001 and 2000.
Consolidated Statements of Cash Flows (Unaudited) Six months ended
December 31, 2001 and 2000.
Item 2. Management's Discussion and Analysis of Interim Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
DECEMBER 31
2001
(UNAUDITED)
-------------
Current assets
Cash and cash equivalents $ 1,099,632
Available for sale securities 3,461,937
Accounts receivable 106,833
Inventories 102,937
Prepaid expenses and other assets 273,716
-------------
Total current assets 5,045,055
Property and equipment-net 454,829
Patents-net 36,171
-------------
Total assets $ 5,536,055
=============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 183,127
Commitments and contingencies -
Stockholders' equity
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued and outstanding -
Common stock, no par value, 50,000,000 shares
authorized, 40,514,363 shares issued and outstanding 18,305,881
Additional paid-in capital 1,500,000
Prepaid consulting fees (441,169)
Accumulated other comprehensive loss (20,574)
Accumulated deficit (13,991,210)
-------------
Total stockholders' equity 5,352,928
-------------
Total liabilities and stockholders' equity $ 5,536,055
=============
The accompanying notes are an integral part of these consolidated financial
statements
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Sales $ 141,012 $ 138,082 $ 242,253 $ 262,983
Cost of sales 89,218 83,205 170,419 173,822
------------ ------------ ------------ ------------
Gross profit 51,794 54,877 71,834 89,161
------------ ------------ ------------ ------------
Operating expenses
Research and development 244,204 345,556 536,333 494,304
General and administrative 700,265 721,871 1,218,756 897,807
Compensation expense related to stock options 250,000 500,000 500,000 500,000
Depreciation and amortization 39,062 34,390 77,187 65,052
Amortization of prepaid consulting fees 110,000 110,000 220,000 223,831
------------ ------------ ------------ ------------
Total operating expenses 1,343,531 1,711,817 2,552,276 2,180,994
------------ ------------ ------------ ------------
Loss from operations (1,291,737) (1,656,940) (2,480,442) (2,091,833)
------------ ------------ ------------ ------------
Other income
Interest income 16,104 74,734 60,174 145,597
Other income 39,572 - 68,051 -
------------ ------------ ------------ ------------
Total other income 55,676 74,734 128,225 145,597
------------ ------------ ------------ ------------
Net loss (1,236,061) (1,582,206) (2,352,217) (1,946,236)
Other comprehensive income (loss)
Foreign currency translation adjustments (20,876) 308,906 196,460 (21,034)
Unrealized gain (loss) on marketable securities (11,253) - 146,469 -
------------ ------------ ------------ ------------
Comprehensive loss $(1,268,190) $(1,273,300) $(2,009,288) $(1,967,270)
============ ============ ============ ============
Net loss available to common
shareholders per common share
Net loss $ (0.03) $ (0.04) $ (0.06) $ (0.05)
============ ============ ============ ============
Basic and diluted weighted average
number of common shares outstanding 40,514,363 40,514,303 40,514,363 40,514,303
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE
SIX MONTHS ENDED
DECEMBER 31,
(UNAUDITED)
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,352,217) $(1,946,236)
Adjustments to reconcile net loss to cash used by operating activities
Compensation expense related to stock options 500,000 500,000
Depreciation and amortization 77,187 65,052
Amortization of prepaid consulting fees 220,000 223,831
Changes in operating assets and liabilities:
Accounts receivable 22,095 (57,570)
Grants receivable - 176,844
Inventories (32,916) 12,960
Prepaid expenses and other assets 89,020 (80,380)
Accounts payable and accrued expenses (105,490) 74,301
------------ ------------
Net cash used in operating activities (1,582,321) (1,031,198)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in marketable securities (4,212,845) -
Maturities of marketable securities 4,360,886 -
Purchase of property and equipment (17,132) (228,933)
------------ ------------
Net cash (used in) provided by investing activities 130,909 (228,933)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection of stock subscription receivable - 321,367
------------ ------------
Effect of exchange rate changes 196,460 (17,859)
------------ ------------
Net decrease in cash and cash equivalents (1,254,952) (956,623)
Cash and cash equivalents, beginning of period 2,354,584 7,989,258
------------ ------------
Cash and cash equivalents, ending of period $ 1,099,632 $ 7,032,635
============ ============
Supplemental disclosures:
Cash paid during the period for:
Interest $ - $ 973
============ ============
Income taxes - -
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared without
audit in accordance with accounting principles generally accepted in the United
States for interim financial information and with the instructions to Form
10-QSB and Item 301 of Regulation S-B. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. The unaudited
consolidated financial statements and notes should, therefore, be read in
conjunction with the financial statements and notes thereto in the Company's
Form 10-KSB for the year ended June 30, 2001. In the opinion of management, all
adjustments (consisting of normal and recurring adjustments) considered
necessary for a fair presentation, have been included. The results of
operations for the three and six month periods ended December 31, 2001 are not
necessarily indicative of the results that may be expected for the full fiscal
year ending June 30, 2002.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Sangui BioTech International, Inc., incorporated in Colorado in 1995, and its
subsidiaries (collectively, the "Company") are engaged in the development,
manufacture, and sales of medical products.
The Company's wholly owned subsidiary Sangui BioTech, Inc. ("Sangui USA"),
incorporated in Delaware in 1996, is located in Santa Ana, California. Sangui
USA manufactures in vitro immunodiagnostic blood test kits that are primarily
sold in the United States and Europe. The Company has three subsidiaries located
outside the United States: SanguiBioTech AG ("Sangui AG"), GlukoMediTech, AG
("Gluko AG"), and Sangui BioTech PTE Ltd. ("Sangui Singapore").
Sangui AG, incorporated in Mainz, Germany in 1995, is engaged in the development
of artificial oxygen carriers (blood substitute and additives). Gluko AG,
incorporated in Mainz, Germany in 1996, is engaged in the development of glucose
implant sensors. Sangui Singapore, incorporated in Singapore in 1999, is a
regional office for the Company and carries out development projects in
conjunction with Sangui AG and Gluko AG.
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned domestic and foreign subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
respective reporting period. Actual results could differ from those estimates.
Risk and Uncertainties
The Company's line of in vitro immunodiagnostic products, as well as the future
pharmaceutical (artificial oxygen carriers or blood substitute and additives)
and in vivo biosensors (glucose implant sensor) being developed by Sangui AG and
Gluko AG, are deemed as medical devices or biologics, and as such are governed
by the Federal Food and Drug and Cosmetics Act and by the regulations of state
agencies and various foreign government agencies. Currently, most of the
Company's immunodiagnostic tests for use with humans have been cleared by the
above regulatory agencies. There can be no assurance that the Company will
maintain the regulatory approvals required to market its products elsewhere.
The pharmaceutical and biosensor products, under development in Germany, will be
subject to more stringent regulatory requirements, because they are in vivo
products for humans. The Company and its subsidiaries have no experience in
obtaining regulatory clearance on these types of products. Therefore, the
Company will be subject to the risks of delays in obtaining or failing to obtain
regulatory clearance.
The Company's revenues from product sales derived from its immunodiagnostic
blood test kits are small. However, management believes its current cash and
highly liquid marketable securities totaling approximately $4.6 million at
December 31, 2001, are sufficient to fund the Company's operations and working
capital requirements at least through June 30, 2002.
Cash and Cash Equivalents
The Company maintains its cash in uninsured accounts and not in bank
depository accounts insured by the Federal Deposit Insurance Corporation
(FDIC). The Company has not experienced any losses in these uninsured
accounts. Cash and cash equivalents include time deposits for which the
Company has no requirements for compensating balances. The Company also
maintains bank accounts in Germany.
Marketable Securities
Marketable securities are classified as available-for-sale, as defined by
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Unrealized gains and losses
are excluded from earnings and are reported as a separate component of other
comprehensive loss in shareholders' equity. Realized gains and losses are
included in income and are determined based on the specific identification of
the securities bought and sold (see Note 3).
Revenue Recognition
Revenues from product sales are recognized at the time of shipment.
Research and Development
Research and development costs are charged to operations as they are incurred.
Legal fees and other direct costs incurred in obtaining and protecting patents
are expensed as incurred.
Stock Compensation
The Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). Under the
intrinsic value based method, compensation is the excess, if any, of the fair
value of the stock at the grant date or other measurement date over the amount
an employee must pay to acquire the stock. Compensation, if any, is recognized
over the applicable service period, which is usually the vesting period. The
Financial Accounting Standards Board ("FASB") has issued SFAS No. 123
"Accounting for Stock-Based Compensation." This standard, if fully adopted,
changes the method of accounting for all stock-based compensation to the fair
value based method. For stock options and warrants, fair value is determined
using an option pricing model that takes into account the stock price at the
grant date, the exercise price, the expected life of the option or warrant and
the annual rate of quarterly dividends. Compensation expense, if any, is
recognized over the applicable service period, which is usually the vesting
period.
The adoption of the accounting methodology of SFAS No. 123 for employees is
optional and the Company has elected to continue accounting for stock-based
compensation issued to employees using APB 25; however, pro forma disclosures,
as if the Company adopted the cost recognition requirements under SFAS No. 123,
are required to be presented .
The Company adopted FASB Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB 25."
FIN 44 clarifies the application of Accounting Principles Board Opinion No. 25
(APB 25) for (a) the definition of employee for purposes of applying APB 25, (b)
the criteria for determining whether a plan qualifies as a non-compensatory
plan, (c) the accounting consequence for various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. The adoption of FIN 44
did not have a material effect on the financial statements.
Basic and Diluted Earnings (Loss) Per Common Share
The Company applies Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share" which requires dual presentation of net income (loss):
Basic and Diluted. Basic earnings (loss) per common share are computed based on
the weighted average number of shares outstanding for the period. Diluted
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average shares outstanding assuming all dilutive potential common
shares were issued. No shares were dilutive as of December 31, 2001 and 2000.
Basic and diluted loss per share are the same as the effect of stock options on
loss per share are anti-dilutive and thus not included in the diluted loss per
share calculation.
Foreign Currency Translation
Assets and liabilities of the Company's German and Singapore operations are
translated into U.S. dollars at period-end exchange rates. Net exchange gains
or losses resulting from such translation are excluded from net earnings but are
included in comprehensive income and accumulated in a separate component of
stockholders' equity. Income and expenses are translated at weighted average
exchange rates for the period.
Comprehensive Income
The Company applies SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Total
comprehensive income represents the net change in stockholders' equity during a
period from sources other than transactions with stockholders and as such,
includes net earnings. For the Company, the components of other comprehensive
income are the changes in the cumulative foreign currency translation
adjustments and unrealized gains (losses) on securities classified as
available-for-sale and are recorded as components of stockholders' equity.
Segments of an Enterprise and Related Information
The Company applies SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information". SFAS No. 131 requires companies to report information
about operating segments of their business in their annual financial statements
and requires them to report selected segment information in their quarterly
reports issued to shareholders. It also requires entity-wide disclosures about
the products and services an entity provides, the material countries in which it
holds assets and reports revenues and its major customers. (See Note 6.)
New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", which is
effective for business combinations initiated after June 30, 2001. SFAS No. 141
eliminates the pooling of interest method of accounting for business
combinations and requires that all business combinations occurring on or after
July 1, 2001 are accounted for under the purchase method. The adoption of SFAS
No. 141 did not have a material impact on the Company's financial statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective for fiscal years beginning after December 15, 2001.
SFAS No. 142 requires that goodwill no longer be amortized. Instead, goodwill
will be tested for impairment and written down if its fair value declines below
its carrying amount. Goodwill amortization ceases as of the date of the required
adoption of this standard that will be January 1, 2002. The Company does not
expect SFAS No. 142 to have a material effect on its financial statements.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs and is effective for fiscal years beginning
after June 15, 2002. The Company does not expect SFAS No. 143 to have a material
impact on its financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to
be disposed of. The provisions of SFAS No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within these fiscal years, with early adoption encouraged. The
Company does not expect SFAS No. 144 to have a material impact on its financial
statements.
NOTE 3 - AVAILABLE FOR SALE SECURITIES
Available for sale securities consist of the following at December 31, 2001:
Cost Fair Market Value Unrealized Gain
---------- ------------------ ----------------
Corporate bonds due
within one year $ 211,490 $ 321,779 $ 110,289
Mutual Funds $3,103,978 $ 3,140,158 $ 36,180
---------- ------------------ ----------------
$3,315,468 $ 3,461,937 $ 146,469
========== ================== ================
NOTE 4 - COMPENSATION EXPENSE RELATED TO STOCK OPTIONS
Per APB No. 25, "Accounting for Stock Issued to Employees", the Company has
recognized compensation expense for previously issued options in the amount of
$250,000 and $500,000 in the accompanying statement of operations for the three
and six months ended December 31, 2001, respectively.
NOTE 5 - PATENT LITIGATION
In December 2000, Axis/Shields ASA, a Norway corporation (Axis), filed a
lawsuit against Sangui USA alleging that Sangui USA's Carbohydrate-Deficient
Transferrin ("CDT") test kit, which is used to detect chronic alcohol abuse,
constituted an infringement of patent rights owned by Axis. In March 2001, a
settlement was reached and Sangui USA agreed to cease manufacture and sale of
the CDT test kit. Sangui USA subsequently designed a new test kit which it is
currently manufacturing and selling. Sangui USA designed its current product
specifically to avoid infringement of the Axis patent. In December 2001,
Axis filed another lawsuit in the U.S. District Court for the Central District
of California against Sangui USA alleging that the new test kit also infringed
on Axis' patent rights. Sangui USA filed an answer denying the claims of Axis
and has counterclaimed against Axis for a declaratory judgment of invalidity of
the patent of Axis and for antitrust violations. The case has not been
scheduled for trial.
Since the resolution of this matter cannot be determined at this time, the
company has not recorded any entry in the December 31, 2001 financial
statements.
NOTE 6 - BUSINESS SEGMENTS
The Company reports its business segments based on geographic regions, which are
as follows:
Three months ended December 31, Six months ended December 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net sales:
----------
Sangui USA $ 141,012 $ 138,082 $ 242,253 $ 262,983
Sangui BioTech AG - - - -
GlukoMediTech,AG - - - -
Sangui BioTech PTE Ltd, Singapore - - - -
---------- ---------- ---------- ----------
$ 141,012 $ 138,082 $ 242,253 $ 262,983
========== ========== ========== ==========
Net loss:
---------
Sangui USA $ 659,179 $ 877,156 $1,298,555 $1,119,619
Sangui BioTech AG 308,193 460,042 514,672 571,265
GlukoMediTech,AG 211,381 219,264 411,605 205,494
Sangui BioTech PTE Ltd, Singapore 57,308 25,744 127,385 49,858
---------- ---------- ---------- ----------
$1,236,061 $1,582,206 $2,352,217 $1,946,236
========== ========== ========== ==========
Depreciation and amortization
-----------------------------
Sangui USA $ 3,595 $ 4,097 $ 7,190 $ 7,056
Sangui BioTech AG 25,421 21,410 50,105 42,324
GlukoMediTech,AG 10,046 8,883 19,892 15,672
Sangui BioTech PTE Ltd, Singapore - - - -
---------- ---------- ---------- ----------
$ 39,062 $ 34,390 $ 77,187 $ 65,052
========== ========== ========== ==========
Identifiable assets
-------------------
Sangui USA $ 813,434
Sangui BioTech AG 2,024,831
GlukoMediTech,AG 2,505,168
Sangui BioTech PTE Ltd, Singapore 192,622
----------
$5,536,055
==========
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OPERATIONS
Forward-looking Statements
The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and the
related notes thereto included elsewhere in this quarterly report. Some of the
information in this quarterly report contains forward-looking statements,
including statements related to anticipated operating results, margins, growth,
financial resources, capital requirements, adequacy of the Company's financial
resources, trends in spending on development, the development of new markets,
the development, regulatory approval, manufacture, distribution, and commercial
acceptance of new products, and future product development efforts. Investors
are cautioned that forward-looking statements involve risks and uncertainties,
which may affect our business and prospects, including but not limited to, the
Company's expected need for additional funding and the uncertainty of receiving
the additional funding, changes in economic and market conditions, acceptance of
our products by the health care and reimbursement communities, new development
of competitive products and treatments, administrative and regulatory approval
and related considerations, health care legislation and regulation, and other
factors discussed in our filings with the Securities and Exchange Commission.
GENERAL
The Company is primarily involved in the development of artificial oxygen
carriers and glucose sensors, and in the manufacturing, marketing and
distribution of in vitro immunodiagnostic test kits.
The Company's development projects are primarily in the preliminary stages. The
Company is diligently developing several applications for its primary
development projects, but does not anticipate beginning any government protocols
or clinical trials in the near term.
FINANCIAL POSITION
The Company's current assets decreased approximately $1.3 million, or 21%, from
June 30, 2001 to approximately $5.0 million at December 31, 2001. The decrease
is primarily attributable to a decrease in cash and cash equivalents of
approximately $1.2 million and a decrease in prepaid and other assets of
approximately $89,000. The decrease in cash results primarily from funding the
current year's operations of the Company.
The Company's property and equipment decreased approximately $59,000, or 12%,
from June 30, 2001 to approximately $455,000 at December 31, 2001 due primarily
to $77,000 of depreciation.
The Company funded its operations primarily through its existing cash reserves.
The Company's stockholders' equity decreased approximately $1.3 million. The
primary decrease is caused by the Company's current period net loss of
approximately $2.4 million. Increases include a reduction in prepaid consulting
fees of $220,000 due to amortization, an increase in additional paid-in capital
of $500,000 due to the amortization of the fair value of previously issued
options, and an increase in accumulated other comprehensive income of
approximately $336,000 due to foreign currency translation adjustments and
unrealized gain on marketable securities.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2001 and 2000:
Sangui USA
SALES. Sales increased 2% to approximately $141,000 in 2001 from approximately
$138,000 in 2000. The increase is attributed to more orders placed in the
current quarter by the Company's German distributor.
COST OF SALES. Cost of sales increased 7% to approximately $89,000 in 2001 from
approximately $83,000 in 2000. This increase is related to increased costs
associated with the increase in sales. The Company's gross margin decreased to
37% in 2001 from 40% in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 5% to
approximately $352,000 in 2001 from approximately $335,000 in 2000. This
increase is primarily related to legal costs incurred by the Company in a
lawsuit against a former director of the Company.
COMPENSATION EXPENSE RELATED TO STOCK OPTIONS. Compensation expense related to
stock options was $250,000 in 2001 and $500,000 in 2000, which represents the
amortization of the fair value of stock options previously issued to the
chairman of the Company. The increase of $250,000 results from adjusting the
compensation expense for fiscal year 2000 in the second quarter.
AMORTIZATION OF PREPAID CONSULTING FEES. Amortization of prepaid consulting
fees was $110,000 in 2001 and 2000.
Sangui AG
RESEARCH AND DEVELOPMENT. Development expenses decreased 39% to approximately
$132,000 in 2001 from approximately $217,000 in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 21%
to approximately $193,000 in 2001 from approximately $244,000 in 2000.
Gluko AG
RESEARCH AND DEVELOPMENT. Development expenses decreased 9% to approximately
$112,000 in 2001 from approximately $122,000 in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 17%
to approximately $98,000 in 2001 from approximately $118,000 in 2000.
Sangui Singapore
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 123%
to approximately $57,000 in 2001 from approximately $26,000 in 2000 and are
attributed to full time operations beginning during the most recent fiscal year.
Sangui BioTech International, Inc.
NET LOSS. The Company's consolidated net loss was approximately $1.2 million,
or approximately three cents per common share, in 2001, compared to
approximately $1.6 million, or four cents per common share, in 2000. This
decrease in net loss is a result primarily of a decrease in compensation expense
related to stock options.
Six months Ended December 31, 2001 and 2000:
Sangui USA
SALES. Sales decreased 9% to approximately $242,000 in 2001 from approximately
$263,000 in 2000. This decrease is attributed to the Company's German
distributor making fewer purchases in 2001.
COST OF SALES. Cost of sales decreased 2% to approximately $170,000 in 2001
from approximately $174,000 in 2000. This decrease is related to reduced costs
associated with the decrease in sales. The Company's gross margin decreased to
30% in 2001 from 33% in 2000 primarily due to decrease in economy of scale.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 28% to
approximately $655,000 in 2001 from approximately $513,000 in 2000. This
increase is related primarily to legal costs incurred by the Company in lawsuits
against a former director of the Company.
COMPENSATION EXPENSE RELATED TO STOCK OPTIONS. Compensation expense related to
stock options was $500,000 in 2001 and 2000, which represents the amortization
of the fair value of stock options previously issued to the chairman of the
Company.
AMORTIZATION OF PREPAID CONSULTING FEES. Amortization of prepaid consulting
fees was approximately $220,000 in 2001 and $224,000 in 2000.
Sangui AG
RESEARCH AND DEVELOPMENT. Development expenses decreased 19% to approximately
$247,000 in 2001 from approximately $293,000 in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 9% to
approximately $291,000 in 2001 from approximately $265,000 in 2000. This
increase is attributed to increases in staffing and operating expenses.
Gluko AG
RESEARCH AND DEVELOPMENT. Development expenses increased 36% to approximately
$289,000 in 2001 from approximately $185,000 in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 48%
to approximately $141,000 in 2001 from approximately $74,000 in 2000.
Sangui Singapore
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 164%
to approximately $132,000 in 2001 from approximately $50,000 in 2000 and are
attributed to full time operations in the current fiscal year compared to start
up operations in the prior fiscal year.
Sangui Biotech International, Inc.
NET LOSS. The Company's consolidated net loss was approximately $2.4 million or
approximately six cents per common share, in 2001, compared to approximately
$2.0 million, or five cents per common share, in 2000. This increase in net
loss is a result primarily of increased operating and legal expenses.
LIQUIDITY AND CAPITAL RESOURCES
For the six-months ended December 31, 2001, net cash used in operating
activities increased to approximately $1.6 million from approximately $1.0
million in the corresponding period in 2000, primarily related to an increase in
the Company's consolidated net loss.
For the six-months ended December 31, 2001, net cash used in investing
activities was approximately $16,000 compared to net cash used in investing
activities of approximately $229,000 in the corresponding period in 2000. The
principal increase in cash is due to the decrease in purchases the current
period of property and equipment.
For the six-months ended December 31, 2001, there was no cash provided by
financing activities compared to approximately $321,000 of net cash provided by
financing activities of the corresponding period in 2000 received from the
collection of stock subscriptions receivable. There were no stock subscriptions
receivable in 2001.
Working capital was approximately $4.7 million at December 31, 2001, a decrease
of approximately $1.3 million from June 30, 2001. For the six-month period
ended December 31, 2001, cash and cash equivalents and available for sale
securities declined approximately 22%, to approximately $4.5 million at December
31, 2001 from approximately $5.8 million at June 30, 2001.
A substantial portion of the Company's total assets consists of cash and highly
liquid marketable securities classified as available for sale securities.
Marketable securities at December 31, 2001 includes approximately $322,000 in
investment grade bonds of German companies generally with original maturities
less than six months which are generally held to maturity, and approximately
$3.1 million of investments in money market mutual funds which are convertible
to cash daily. The Company's investments in bonds have generally been held
until maturity. The highly liquid nature of these assets provides the Company
with flexibility in financing and managing its business. For the six-months
ended December 31, 2001, realized gains and losses on the Company's marketable
securities were negligible, and unrealized gains were approximately $146,000.
The Company intends to intensify its development efforts during the remaining
quarters of the current fiscal year ending June 30, 2002. The Company believes
that its available cash will be sufficient to satisfy its requirements through
June 30, 2002. However, the Company will need substantial additional funding to
fulfill its business plan and the Company intends to explore financing sources
for its future development activities during the current year. No assurance can
be given that these efforts will be successful.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no derivative financial instruments and no exposure to foreign
currency exchange rates or interest rate risk.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On July 26, 2001, the Company commenced a lawsuit in the United States District
Court for the District of Colorado against Helmut Kappes. Mr. Kappes was
serving as a director of the Company when the lawsuit was filed. In the
lawsuit, the Company alleges that Mr. Kappes was engaged in conduct related to
the Company's affairs that is fraudulent, dishonest and gross abuse of his
authority or discretion as a director and that his removal and ban from
re-election from the Company's Board of Directors would be in the best interest
of the Company. Among other things, the Company alleges that Mr. Kappes caused
the Company to enter into a contract with Axel Kleinkorres without adequate
disclosure of Mr. Kappes's conflicts of interest and that the remuneration paid
to Mr. Kleinkorres was excessive. The Company also alleges that Mr. Kappes is
engaged in an improper exchange offer campaign involving the Company's shares.
The Court issued a Temporary Restraining Order suspending Mr. Kappes from the
Board of Directors of the Company and restraining Mr. Kappes from pursuing the
exchange offer. The Temporary Restraining Order has expired. The Company has
filed a Motion for Preliminary Injunction which is pending.
The Company seeks the removal and ban from re-election of Mr. Kappes from the
Company's Board of Directors, an injunction against from Mr. Kappes and his
affiliates from exchanging the shares of the Company's common stock for shares
of an entity in which Mr. Kappes has a financial interest, compensatory damages
in an amount to be determined and costs of the action. Mr. Kappes has filed a
motion to dismiss the lawsuit in which he asserts that the Court in Colorado is
an inconvenient forum for resolution of the disputes. The Company does not
agree with the position of Mr. Kappes and has filed an opposition brief with the
Court. A hearing date has not been scheduled for argument of the motion to
dismiss. In October 2001, Mr. Kappes resigned from the Company's Board of
Directors.
In December, 2000, Axis/Shields ASA, a Norway corporation (Axis), filed a
lawsuit against Sangui USA alleging that Sangui USA's Carbohydrate-Deficient
Transferrin ("CDT") test kit, which is used to detect chronic alcohol abuse,
constituted an infringement of patent rights owned by Axis. In March 2001, a
settlement was reached and Sangui USA agreed to cease manufacture and sale of
the CDT test kit. Sangui USA subsequently designed a new test kit which it is
currently manufacturing and selling. Sangui USA designed its current product
specifically to avoid infringement of the Axis patent. In December 2001,
Axis filed another lawsuit in the U.S. District Court for the Central District
of California, against Sangui USA alleging that the new test kit also infringed
on Axis' patent rights. Sangui USA filed an answer denying the claims of Axis
and has counterclaimed against Axis for a declaratory judgment of invalidity of
the patent of Axis and for antitrust violations. The case has not been
scheduled for trial. Since the resolution of this matter cannot be determined at
this time, the company has not recorded any entry in the December 31, 2001
financial statements.
ITEM 2 - CHANGE IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable
ITEM 5 - OTHER INFORMATION
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K on October 10, 2001 reporting the
resignation of Helmut Kappes as a director of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SANGUI BIOTECH INTERNATIONAL, INC.
By: _______________________________
Detlev Baron von Linsingen
Chief Financial Officer, Treasurer
Date: February 14, 2002