form10qsb.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_______________________
FORM
10-QSB
(Mark
One)
[ X ] QUARTERLY
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
Quarterly period Ended: March 31, 2006; or
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE
ACT OF 1934
For
the transition period __________ to __________
Commission
File Number: 0-21271
_________________________
SANGUI
BIOTECH INTERNATIONAL, INC.
________________________________________________
(Exact
name of Small Business Issuer as specified in its charter)
COLORADO
84-1330732
______________________
___________
(State
or
other Jurisdiction
of (I.R.S.
Employer
Incorporation
or
Organization) Identification
No.)
Alfred-Herrhausen-Str.
44, 58455 Witten, Germany
_____________________________
(Address
of principal executive offices)
011-49-2302-915-204
___________________________________
(Issuer's
telephone number, including area code)
Check
whether
the issuer: (1) filed all reports required to be filed by Section 13 or 15(d)
of
the Exchange Act during the past 12 months (or for such shorter period that
a
registrant was required to file such reports), and (2) has been subject to
such
filing requirements for the past 90 days. Yes o No
x
Indicate
by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No
x
The
number of
shares outstanding of the issuer's common stock, no par value, as of November
28, 2007, was 50,000,000
Transitional
Small Business Disclosure Format. Yes o No
x
SANGUI
BIOTECH INTERNATIONAL, INC.
Report
on
Form 10-QSB
For
the
Quarter Ended March 31, 2006
INDEX
Page
Part
I. Financial Information
Item
1. Consolidated Financial Statements
Consolidated
Balance Sheets
..............................................................
2
Consolidated
Statements of Operations
............................................
4
Consolidated
Statements of Cash Flows ...........................................
5
Notes
to the
Consolidated Financial Statements ............................
6
Item
2. Management's Discussion and Analysis or Plan of Operation
.........
11
Item
3. Controls and Procedures
.......................................................................... 14
Part
II.
Other Information
Item
1. Legal Proceedings
.....................................................................................
14
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
...........
14
Item
3. Defaults Upon Senior Securities
..............................................................
14
Item
4. Submission of Matters to a Vote of Security Holders
..........................
14
Item
5. Other Information
......................................................................................
14
Item
6. Exhibits
.........................................................................................................
14
ii
PART
I -
FINANCIAL INFORMATION
Item
1
– Consolidated Financial Statements
The
accompanying
unaudited consolidated financial statements have been prepared in accordance
with the instructions to Form 10-QSB pursuant to the rules and regulations
of
the Securities and Exchange Commission and, therefore, do not include all
information and footnotes necessary for a complete presentation of our financial
position, results of operations, cash flows, and stockholders' deficit in
conformity with generally accepted accounting principles in the United States
of
America. In the opinion of management, all adjustments considered necessary
for
a fair presentation of the consolidated results of operations and financial
position have been included and all such adjustments are of a normal recurring
nature.
Our
unaudited
consolidated balance sheet as of March 31, 2006 and our unaudited consolidated
statements of operations for the three month periods ended March 31, 2006 and
2005, and the unaudited consolidated statements of cash flows for the three
month periods ended March 31, 2006 and 2005, are attached hereto and
incorporated herein by this reference.
1
SANGUI
BIOTECH INTERNATIONAL, INC.
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2006
|
|
|
2005
|
|
CURRENT
ASSETS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
5,413
|
|
|
$ |
9,497
|
|
Accounts
receivable
|
|
|
7,248
|
|
|
|
4,300
|
|
Inventory
|
|
|
12,214
|
|
|
|
7,063
|
|
Prepaid
expenses and other assets
|
|
|
68,079
|
|
|
|
17,421
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
92,954
|
|
|
|
38,281
|
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
7,747
|
|
|
|
33,608
|
|
|
|
|
|
|
|
|
|
|
Total
Fixed Assets
|
|
|
7,747
|
|
|
|
33,608
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
and licenses, net
|
|
|
-
|
|
|
|
2,490
|
|
Other
miscellaneous assets
|
|
|
43,003
|
|
|
|
90,814
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
43,003
|
|
|
|
93,304
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
143,704
|
|
|
$ |
165,193
|
|
The
accompanying condensed notes are an integral part of these interim consolidated
financial statements.
2
SANGUI
BIOTECH INTERNATIONAL, INC.
|
|
Consolidated
Balance Sheets (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
238,898
|
|
|
$ |
140,899
|
|
Notes
payable
|
|
|
57,218
|
|
|
|
24,132
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
296,116
|
|
|
|
165,031
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
296,116
|
|
|
|
165,031
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, no par value; 5,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
-0- shares issued and outstanding
|
|
|
|
|
|
|
-
|
|
Common
stock, no par value; 50,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
50,000,000 and 47,503,749 shares
|
|
|
|
|
|
|
|
|
issued
and outstanding, respectively
|
|
|
18,956,571
|
|
|
|
18,746,100
|
|
Additional
paid-in capital
|
|
|
1,958,376
|
|
|
|
1,986,398
|
|
Treasury
stock
|
|
|
-
|
|
|
|
(82,357 |
) |
Accumulated
other comprehensive income
|
|
|
389,061
|
|
|
|
383,407
|
|
Accumulated
deficit
|
|
|
(21,456,420 |
) |
|
|
(21,033,386 |
) |
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
(152,412 |
) |
|
|
162
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS'
|
|
|
|
|
|
|
|
|
EQUITY
(DEFICIT)
|
|
$ |
143,704
|
|
|
$ |
165,193
|
|
The
accompanying condensed notes are an integral part of these interim consolidated
financial statements.
3
SANGUI
BIOTECH INTERNATIONAL, INC.
|
|
Consolidated
Statements of Operations
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three
|
|
|
For
the Nine
|
|
|
|
Months
Ended
|
|
|
Months
Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$ |
41,672
|
|
|
$ |
23,163
|
|
|
$ |
95,662
|
|
|
$ |
33,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
17,019
|
|
|
|
37,301
|
|
|
|
32,759
|
|
|
|
44,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
24,653
|
|
|
|
(14,138 |
) |
|
|
62,903
|
|
|
|
(11,017 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
32,960
|
|
|
|
47,165
|
|
|
|
82,870
|
|
|
|
371,122
|
|
Depreciation
and amortization
|
|
|
6,482
|
|
|
|
15,086
|
|
|
|
28,351
|
|
|
|
48,291
|
|
General
and administrative
|
|
|
129,468
|
|
|
|
163,940
|
|
|
|
375,772
|
|
|
|
446,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
168,910
|
|
|
|
226,191
|
|
|
|
486,993
|
|
|
|
866,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(144,257 |
) |
|
|
(240,329 |
) |
|
|
(424,090 |
) |
|
|
(877,364 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
94
|
|
|
|
427
|
|
|
|
94
|
|
|
|
1,972
|
|
Interest
expense
|
|
|
(3,029 |
) |
|
|
-
|
|
|
|
(8,352 |
) |
|
|
-
|
|
Other
income (loss)
|
|
|
802
|
|
|
|
86,737
|
|
|
|
9,317
|
|
|
|
141,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
(2,133 |
) |
|
|
87,164
|
|
|
|
1,059
|
|
|
|
143,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(146,390 |
) |
|
|
(153,165 |
) |
|
|
(423,031 |
) |
|
|
(734,264 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(7,236 |
) |
|
|
(102,965 |
) |
|
|
5,651
|
|
|
|
4,000
|
|
Unrealized
gain on marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Comprehensive Income
|
|
|
(7,236 |
) |
|
|
(102,965 |
) |
|
|
5,651
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
$ |
(153,626 |
) |
|
$ |
(256,130 |
) |
|
$ |
(417,380 |
) |
|
$ |
(730,264 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
SHARE
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OF
SHARES OUTSTANDING
|
|
|
48,503,749
|
|
|
|
46,475,363
|
|
|
|
48,332,216
|
|
|
|
43,417,918
|
|
The
accompanying condensed notes are an integral part of these interim consolidated
financial statements.
4
SANGUI
BIOTECH INTERNATIONAL, INC.
|
|
Statements
of Cash Flows
|
|
(Unaudited)
|
|
|
|
For
the Nine
|
|
|
|
Months
Ended
|
|
|
|
March
31,
|
|
|
|
2006
|
|
|
2005
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(423,031 |
) |
|
$ |
(734,264 |
) |
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
28,351
|
|
|
|
48,291
|
|
Common
stock issued for services
|
|
|
10,837
|
|
|
|
104,256
|
|
Gain
on sale of assets
|
|
|
-
|
|
|
|
(3,101 |
) |
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease
in accounts receivable
|
|
|
(2,948 |
) |
|
|
77,740
|
|
Decrease
(Increase) in inventory
|
|
|
(5,151 |
) |
|
|
(2,816 |
) |
Decrease
in prepaid expenses and other assets
|
|
|
51,488
|
|
|
|
8,032
|
|
Increase
in accounts payable and accrued expenses
|
|
|
97,999
|
|
|
|
2,839
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used by Operating Activities
|
|
|
(242,455 |
) |
|
|
(499,023 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of patent costs
|
|
|
-
|
|
|
|
(9,151 |
) |
Sale
of property and equipment
|
|
|
-
|
|
|
|
2,516
|
|
Purchase
of property and equipment
|
|
|
-
|
|
|
|
(6,378 |
) |
|
|
|
|
|
|
|
|
|
Net
Cash Used by Investing Activities
|
|
|
-
|
|
|
|
(13,013 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
57,218
|
|
|
|
-
|
|
Purchase
of treasury stock
|
|
|
-
|
|
|
|
(126,916 |
) |
Sales
of treasury stock
|
|
|
-
|
|
|
|
51,069
|
|
Sale
of common stock for cash
|
|
|
175,502
|
|
|
|
305,000
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
232,720
|
|
|
|
229,153
|
|
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE CHANGES
|
|
|
5,651
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH
|
|
|
(4,084 |
) |
|
|
(278,883 |
) |
|
|
|
|
|
|
|
|
|
CASH
AT BEGINNING OF PERIOD
|
|
|
9,497
|
|
|
|
310,959
|
|
|
|
|
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
|
$ |
5,413
|
|
|
$ |
32,076
|
|
|
|
|
|
|
|
|
|
|
SUPPLIMENTAL
DISCLOSURES OF
|
|
|
|
|
|
|
|
|
CASH
FLOW INFORMATION
|
|
|
|
|
|
|
|
|
CASH
PAID FOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
-
|
|
|
$ |
-
|
|
Income
Taxes
|
|
$ |
-
|
|
|
$ |
-
|
|
|
|
|
|
|
|
|
|
|
NON
CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Common
stock issued for debt
|
|
$ |
24,132
|
|
|
$ |
-
|
|
The
accompanying condensed notes are an integral part of these interim consolidated
financial statements.
5
SANGUI
BIOTECH INTERNATIONAL,
INC.
Notes
to
the Consolidated Financial
Statements
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
of America 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 financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
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 consolidated financial statements and notes thereto
in
the Company's Form 10-KSB for the year ended June 30, 2005. 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-month period ended March 31, 2006 are not necessarily
indicative of the results that may be expected for the full fiscal year ending
June 30, 2006.
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
Sangui
Biotech International, Inc., incorporated in Colorado in 1995, and its wholly
owned subsidiaries, Sangui Biotech, Inc., SanguiBioTech AG, GlukoMediTech
AG,
and Sangui BioTech PTE Ltd., (collectively, the "Company") have been engaged
in
the research, development, manufacture, and sales of medical and cosmetic
products.
On
June 30,
2003, GlukoMediTech AG ("Gluko AG") was merged into Sangui BioTech AG ("Sangui
AG"). Effective November 4, 2003, Sangui AG was converted into Sangui BioTech
GmbH (Sangui GmbH). After completion of the restructuring, Sangui GmbH, which
is
headquartered in Witten, Germany, is engaged in the development of artificial
oxygen carriers (external applications of hemoglobin, blood substitutes and
blood additives) as well as in the development of glucose implant
sensors.
The
operations of Sangui BioTech, Inc. and Sangui BioTech PTE Ltd Singapore,
two
former wholly-owned subsidiaries, were discontinued and dissolved during
2002.
The
operations of Sangui BioTech, Inc. ("Sangui USA") were discontinued during
2002
upon the sale of its in vitro immunodiagnostics business and the subsequent
merger of Sangui USA with and into the parent company, Sangui BioTech
International, Inc., effective December 31, 2002. Sangui BioTech PTE Ltd
("Sangui Singapore") was a regional office for the Company that carried out
research and development projects in conjunction with Sangui GmbH and Sangui
Singapore. The Company discontinued the operations of Sangui Singapore in
August
2002. The Singapore office was closed effective December 31, 2002.
Consolidation
The
consolidated financial statements include the accounts of Sangui BioTech
International, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts in the three and nine months ended March 31, 2004 have been
reclassified to conform to the three and nine months ended March 31, 2006
presentation. These reclassifications have no effect on previously reported
net
loss.
6
SANGUI
BIOTECH INTERNATIONAL,
INC.
Notes
to
the Consolidated Financial
Statements
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign
Currency Translation
Assets
and
liabilities of the Company's foreign 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 loss but are included in comprehensive
income
(loss) and accumulated in a separate component of stockholders' equity. Income
and expenses are translated at weighted average exchange rates for the
period.
Risk
and Uncertainties
The
Company's
line of future pharmaceutical products (artificial oxygen carriers or blood
substitute and additives) and in vivo biosensors (glucose implant sensor)
being
developed by Sangui GmbH, 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. 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
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the
normal
course of business. The Company has accumulated deficit of $21,456,420 as
of
March 31, 2006 and has been significantly reducing its working capital since
June 30, 2004. The Company incurred a net loss applicable to common stockholders
of $423,031 during the nine months ended March 31, 2006 and used cash in
operating activities of $242,455 for the nine months ended March 31, 2006.
These
conditions raise substantial doubt about the Company's ability to continue
as a
going concern. The Company expects to continue to incur significant capital
expenses in pursuing its business plan to market its products and expand
its
product line, while obtaining additional financing through stock offerings
or
other feasible financing alternatives. In order for the Company to continue
its
operations at its existing levels, the Company will require significant
additional funds over the next twelve months. Therefore, the Company is
dependent on funds raised through equity or debt offerings. Additional financing
may not be available on terms favorable to the Company, or at all. If these
funds are not available the Company may not be able to execute its business
plan
or take advantage of business opportunities. The ability of the Company to
obtain such additional financing and to achieve its operating goals is
uncertain. In the event that the Company does not obtain additional capital
or
is not able to increase cash flow through the increase of sales, there is
a
substantial doubt of its being able to continue as a going concern. The
accompanying condensed consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Cash
and Cash Equivalents
The
Company
maintains its cash in bank accounts in Germany. Cash and cash equivalents
include time deposits for which the Company has no requirements for compensating
balances. The Company has not experienced any losses in its uninsured bank
accounts. At March 31, 2006 the Company had no cash
equivalents.
7
SANGUI
BIOTECH INTERNATIONAL,
INC.
Notes
to
the Consolidated Financial
Statements
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue
Recognition
Revenue
is
recognized when the sales amount is determined, shipment of goods to the
customer has occurred and collection is reasonably assured. Product is shipped
FOB origination.
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.
Basic
and Diluted Earnings (Loss) Per Common Share
Basic
earnings (loss) per common share is computed by dividing income (loss) available
to common stockholders by the weighted average number of common shares
outstanding during the period of computation. Diluted earnings (loss) per
share
gives effect to all potential dilutive common shares outstanding during the
period of compensation. The computation of diluted earnings (loss) per share
does not assume conversion, exercise or contingent exercise of securities
that
would have an antidilutive effect on earnings. As of March 31, 2006 and 2005,
the Company had no potentially dilutive securities that would affect the
loss
per share if they were to be dilutive.
Comprehensive
Income (Loss)
Total
comprehensive income (loss) represents the net change in stockholders' equity
during a period from sources other than transactions with stockholders and
as
such, includes net earnings (loss). For the Company, the components of other
comprehensive income (loss) are the changes in the cumulative foreign currency
translation adjustments and unrealized gains (losses) on marketable securities
and are recorded as components of stockholders' equity.
New
Accounting Pronouncements
In
December
2004, the FASB issued SFAS No. 123R "Share Based Payment". This statement
is a
revision of SFAS Statement No. 123, "Accounting for Stock-Based Compensation"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and its related implementation guidance. SFAS 123R addresses all forms of
share
based payment ("SBP") awards, including shares issued under employee stock
purchase plans, stock options, restricted stock and stock appreciation rights.
Under SFAS 123R, SBP awards result in a cost that will be measured at fair
value
on the awards' grant date, based on the estimated number of awards that are
expected to vest and will be reflected as compensation cost in the historical
financial statements. This statement is effective for public entities as
of the
beginning of the first interim or annual reporting period that begins after
June
15, 2005.
In
May 2005,
the FASB issued Statement of Financial Accounting Standards No.
154“Accounting Changes and Error Corrections, an amendment of APB Opinion
20
and FASB Statement No. 3,” which changes the requirements for accounting
for and reporting on a change in accounting principle. This statement is
effective for accounting changes and corrections of errors made in fiscal
years
beginning after December 15, 2005. We believe that the adoption of SFAS No.
154
will not have a material impact on our results of operations.
8
SANGUI
BIOTECH INTERNATIONAL,
INC.
Notes
to
the Consolidated Financial
Statements
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New
Accounting Pronouncements (Continued)
In
March
2006, the FASB issued SFAS No. 156“Accounting for Servicing of Financial
Assets, an amendment of FASB No. 140,” which modifies the accounting for
and reporting of servicing asset and servicing liabilities. This statement
is
effective as of the beginning of our first fiscal year that begins after
September 15, 2006. SFAS No. 156 is not currently applicable to the company
and,
we believe that the adoption of SFAS No. 156 will not have a material impact
on
our results of operations.
In
June 2006,
the FASB issued Financial Interpretation No. (FIN) 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement 109.” FIN
48 prescribes a recognition threshold and a measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This interpretation also provides guidance
on de-recognition, classification, interest and penalties, accounting in
interim
periods, disclosure and transition. This interpretation is effective for
fiscal
years beginning after December 15, 2006. The Company is currently evaluating
the
impact of applying the various provisions of FIN 48.
In
September
2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” that
provides guidance for using fair value to measure assets and liabilities.
Under
SFAS 157, fair value refers to the price that would be received to sell an
asset
or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity transacts. SFAS
157
establishes a fair value hierarchy that prioritizes the information used
to
develop the assumptions that market participants would use when pricing the
asset or liability. The fair value hierarchy gives the highest priority to
quoted prices in active markets and the lowest priority to unobservable data.
In
addition, SFAS 157 requires that fair value measurements be separately disclosed
by level within the fair value hierarchy. This standard will be effective
for
financial statements issued for fiscal periods beginning after November 15,
2007
and interim periods within those fiscal years. SFAS 157 had no effect on
the
Company’s financial statements for the period ended March 31, 2006.
NOTE
3 -
STOCKHOLDERS' EQUITY
During
the
nine months ended March 31, 2006, the Company issued 2,495,960 restricted
shares
of its previously unissued common stock in exchange for $175,502 in cash,
$10,837 in services, and $24,132 in debts.
NOTE
4 -
COMMITMENTS AND CONTINGENCIES
Litigation
The
Company
may, from time to time, be involved in various legal disputes resulting from
the
ordinary course of operating its business. Management is currently not able
to
predict the outcome of any such cases. However, management believes that
the
amount of ultimate liability, if any, with respect to such actions will not
have
a material effect on the Company's financial position or results of
operations.
9
SANGUI
BIOTECH INTERNATIONAL,
INC.
Notes
to
the Consolidated Financial
Statements
NOTE
4 -
COMMITMENTS AND CONTINGENCIES (Continued)
Indemnities
and Guarantees
During
the
normal course of business, the Company has made certain indemnities and
guarantees under which it may be required to make payments in relation to
certain transactions. These indemnities include certain agreements with the
Company's officers, under which the Company may be required to indemnify
such
person for liabilities arising out of their employment relationship. The
duration of these indemnities and guarantees varies and, in certain cases,
is
indefinite. The majority of these indemnities and guarantees do not provide
for
any limitation of the maximum potential future payments the Company could
be
obligated to make. Historically, the Company has not been obligated to make
significant payments for these obligations and no liabilities have been recorded
for these indemnities and guarantees in the accompanying consolidated balance
sheet.
10
ITEM
2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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 research and 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's
mission is the development of novel and proprietary pharmaceutical, medical
and
cosmetic products. The Company develops its products through its
wholly owned German subsidiary Sangui GmbH. The Company is seeking to
market and sell some or all of their products through partnerships with industry
partners.
The
focus of
Sangui GmbH has been the development of oxygen carriers capable of providing
oxygen transport in humans in the event of acute and/or chronic lack of oxygen
dueto arterial occlusion, anaemia or blood loss whether due to surgery, trauma,
or other causes. Sangui GmbH has thus far focused its development and
commercialization efforts of such artificial oxygen carriers by reproducing
and
synthesizing polymers out of native hemoglobin of defined molecular
sizes. Sangui GmbH, has in addition developed external applications
of oxygen transporters in the medical and cosmetic fields in the form of gels
and emulsions for the regeneration of the skin
Sangui
GmbH
holds the exclusive distribution rights for Chitoskin wound pads for the
European Union and various other countries. Sangui GmbH has filed a
patent cooperation treatment applications (“PCT”) for the production and use of
improved Chitoskin wound pads using gelatine instead of collagen as the carrier
substance.
ARTIFICIAL
OXYGEN CARRIERS
Sangui
GmbH
develops several products based on polymers of purified natural porcine
hemoglobin with oxygen carrying abilities that are similar to native
hemoglobin. These are (1) oxygen carrying blood additives and (2)
oxygen carrying blood volume substitutes.
In
December
1997, Sangui GmbH decided that porcine hemoglobin should be used as the basic
material for its artificial oxygen carriers. In March 1999, Sangui
GmbH decided which hemoglobin hyperpolymer would go into preclinical
investigation and that glutaraldehyde would be utilized as a cross linker,
and
further that the polymer hemoglobin be chemically masked to prevent protein
interaction in blood plasma. The fine adjustment of the molecular
formula of the artificial oxygen carriers - optimized for laboratory scale
production - was finalized in the summer of 2000.
The
experiments completed in Sangui GmbH’s laboratories demonstrated that it is
possible to polymerize hemoglobins isolated from porcine blood resulting in
huge
soluble molecules, so-called hyperpolymers. In August 2000, Sangui
GmbH finalized its work on the pharmaceutical formulation of the oxygen carrier
for laboratory scale. In February 2001 a pilot production in a
laboratory scale was carried out in SGBI's clean room. The resulting
product was applied in single volunteers in pilot self-experiments.
The
blood
additives and blood substitute projects were halted in 2003 due to the lack
of
financing for the pre-clinical test phase of the blood additives. In
October, 2006, subsequent to the period covered by this report, a contract
was
entered into between Sangui GmbH and ERC Nano Med S.A. de C.V. of Monterrey,
Mexico (“ERC”), which provides that ERC will establish a production facility in
Mexico to produce sufficient quantities of the blood additive. In
cooperation with the medical faculty of Monterrey University and the Mexican
National Health Organizations, ERC will initiate all necessary steps to begin
the pre-clinical test phase for the products as soon as possible. It
is anticipated that this will lead to the FDA authorization process in due
course. The authorization process will be managed in cooperation with
Medicoforum group of Hannover, Germany, a company specializing in international
pharmaceutical and medical product authorizations,
According
to
regulatory requirements, all drugs must complete preclinical and clinical trials
before approval (e.g. Federal Drug Administration approval, see Certain Business
Risks below) and market launch. The Company’s management believes
that the European and FDA approval process will take at a minimum several years
to complete.
NANO
FORMULATIONS FOR THE REGENERATION OF THE SKIN
Healthy
skin
is supplied with oxygen both from the inside as well as through diffusion from
the outside. A lack of oxygen will cause degenerative alterations,
ranging from premature aging, to surface damage, and even as extensive as
causing open wounds. The cause for the lack of oxygen may be a part
of the normal aging process, but it may also be caused by burns, radiation,
trauma, or a medical condition. Impairment of the blood flow, for
example caused by diabetes mellitus or by chronic venous insufficiency, can
also
lead to insufficient oxygen supply and the resulting skin damage.
The
nano-emulsion-based preparations now being sold by Sangui GmbH have been
designed to supporting the regeneration of the skin by improving its oxygen
supply. The products Sangui GmbH are currently focussing on are an
anti-aging formulation and treatment and an anti-cellulite formulation for
the
cosmetics market. The products were thoroughly tested by an
independent research institute and received top marks for skin moisturization,
and enhanced skin elasticity, respectively.
Sangui’s
cosmetic business model is reliant upon cooperation with its manufacturing
and
distribution partners. Sangui has its various formulations produced
by a contract manufacturer and sells quantities of the products either in bulk
or in customized private label packaging, as requested. In addition,
Sangui started to sell its cosmetic products under its own brand “Pure
MO2isture” via an internet shop as of mid September, 2006.
Sales
of the
anti-cellulite products started subsequent to this report in August, 2005 via
two German TV shop programs. Sales figures in this distribution
channel are stable, according to information provided by our distribution
partner. Additionally, distribution partners in Argentina and Mexico
have purchased launch quantities in November, 2005, and July, 2006,
respectively.
CHITOSKIN
WOUND PADS
In
March,
2005, SanguiBioTech GmbH was awarded the CE mark for this
product. The CE mark authorizes the company to distribute and sell
this medical product in the member countries of the European
Union. At the same time Sangui GmbH successfully passed the ISO
9001:2000 (General Quality Management System) and ISO 13485:2003 (Quality
Management System Medical Products) audits, and obtained the respective
certifications. The “Chitoskin” trademark was already granted to the
company for the European countries effective November 1, 2004.
Karl
Beese
GmbH, a leading German vendor and distributor of hospital supplies began
marketing and distributing the wound pad product in August, 2005, and has placed
several subsequent orders with the company. In addition, Karl Beese
will deliver large quantities of the wound pad product to a Czech distribution
partner through summer 2006.
FINANCIAL
POSITION
The
Company's
current assets increased approximately $54,673, or 158%, from June 30, 2005
to
approximately $92,954 at March 31, 2006. The decrease is primarily attributable
to an increase in prepaid expenses and other assets of approximately
$50,658.
The
Company's
net property and equipment decreased approximately $25,861, or 77% from June
30,
2005 to approximately $7,747 at March 31, 2006. The decrease is primarily
attributable to current period depreciation.
The
Company
funded its operations primarily through its existing cash reserves and cash
received from the sale of common stock. The Company's stockholders' equity
decreased approximately $21,489. The primary decrease is caused by the Company's
current period net loss of approximately $423,031.
RESULTS
OF OPERATIONS
Three
months ended March 31, 2006 and 2005:
RESEARCH
AND
DEVELOPMENT- Research and development expenses decreased $14,205 to
approximately $32,960 in 2006 from approximately $47,165 in 2005. The decrease
is mainly attributed to the Company lacking the requisite funding and a
reduction in staff. The Company is seeking additional sources to provide
financing for additional research and development.
GENERAL
AND
ADMINISTRATIVE - General and administrative expenses decreased 18% to
approximately $129,468 in 2006 from approximately $163,940 in 2005. This
decrease is mainly attributed to the ongoing refocusing program, and a reduction
in staff.
DEPRECIATION
AND AMORTIZATION - Depreciation decreased $8,604 to approximately $6,482 in
2006
from approximately $15,086 in 2005. This decrease is mainly attributed to the
ongoing restructuring of Sangui GmbH.
NET
LOSS. As
a result of the above factors, the Company's consolidated net loss was
approximately $146,390, or approximately $(0.00) per common share, for the
three
months ended March 31, 2006, compared to approximately $153,165, or $0.00 per
common share, during the comparable period in 2005.
Nine
months ended March 31, 2006 and 2005:
RESEARCH
AND
DEVELOPMENT. Research and development expenses decreased $288,252 to
approximately $82,870 in 2006 from approximately $371,122 in 2005. The decrease
is mainly attributed to the Company lacking the requisite funding, and a
reduction in staff. The Company is seeking additional sources to
provide financing for additional research and development.
GENERAL
AND
ADMINISTRATIVE. General and administrative expenses decreased 16% to
approximately $375,772 in 2006 from approximately $446,934 in 2005. This
decrease is mainly attributed to the ongoing refocusing program, and a reduction
in staff.
DEPRECIATION
AND AMORTIZATION. Depreciation and amortization decreased $19,940 to
approximately $28,351 in 2006 from approximately $48,291 in 2005. This decrease
is mainly attributed to the ongoing restructuring of Sangui GmbH.
NET
LOSS. As
a result of the above factors, the Company's consolidated net loss was
approximately $423,031, or approximately $(0.01) per common share, for the
nine
months ended March 31, 2006, compared to approximately $734,264, or $0.01 per
common share, during the comparable period in 2005.
LIQUIDITY
AND CAPITAL RESOURCES
For
the nine
months ended March 31, 2006, net cash used in operating activities decreased
to
approximately $242,455, from approximately $499,023 in the corresponding period
in 2005, primarily related to an increase in the Company's consolidated net
loss
as a result of the ongoing refocusing program.
The
Company
had a working capital deficit of approximately $203,162 at March 31, 2006,
an
increase of approximately $70,412 from June 30, 2005 due primarily to the
Company's net loss for the nine-month period, as well as a significant increase
in notes payable. At March 31, 2006, the Company had cash of
approximately $5,413. 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. No assurance can be given that these
efforts will be successful.
13
ITEM
3
- CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures. Our principal executive
officer and principal financial officer have evaluated the effectiveness of
our
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Exchange Act), as of a date within 90 days of the filing date of
this
Quarterly Report on Form 10-QSB. Based on such evaluation, they have concluded
that as of such date, our disclosure controls and procedures are have not been
effective or designed to ensure that information required to be disclosed by
us
in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in applicable SEC
rules and forms. Our principal executive officer and principal
financial officer are currently working to streamline our disclosure controls
and procedures, so as to adequately comply with such SEC rules and
forms.
(b)
Changes
in internal controls. There were no significant changes in our internal controls
or in other factors that could significantly affect these controls subsequent
to
the date of evaluation by our principal executive officer and principal
financial officer.
PART
II - OTHER INFORMATION
ITEM
1
- LEGAL PROCEEDINGS
The
Company
is not aware of pending claims or assessments which may have a material adverse
impact on the Company’s financial position or results of
operations.
ITEM
2
- UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During
the
nine months ended March 31, 2006, the Company issued 2,495,960 restricted
shares
of its previously unissued common stock in exchange for $175,502 in cash,
$10,837 in services, and $24,132 in debts.
ITEM
3
- DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4
- SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM
5
- OTHER INFORMATION
None.
ITEM
6
- EXHIBITS
31.1
Certification Pursuant to Rule 13a-14(a) and 15d-14(a), filed
herewith.
32.1 Certification
Pursuant to Section 1350 of Title 18 of the United States Code, filed
herewith.
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.
Date:
November 30,
2007 /s/ Wolfgang
Barnikol
By:
Wolfgang Barnikol
Chief
Executive Officer and Chief Financial Officer
14