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 MARCH 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21271
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.)
Alfred-Herrhausen-Str. 44
58455 Witten
Germany
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 011-49-2302-915-204
-----------
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 May 14, 2004
----------------------------------- -----------------------------------
Common Stock, no par value 40,655,363
Transitional Small Business Disclosure Format
(Check one);
Yes [ ] No [X]
-1-
INDEX
SANGUI BIOTECH INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 2004 (Unaudited)..............3
Consolidated Statements of Operations and Comprehensive
Loss (Unaudited)Three and Nine Months Ended
March 31, 2004 and 2003............................................4
Consolidated Statements of Cash Flows(Unaudited)
Nine Months Ended March 31, 2004 and 2003..........................5
Notes to Consolidated Financial Statements (Unaudited)..........6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................11
Item 3. Controls and Procedures.............................................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................14
Item 2. Change in Securities and Use of Proceeds.............................14
Item 3. Defaults Upon Senior Securities......................................14
Item 4. Submission of Matters to a Vote of Securities Holders................14
Item 5. Other Information....................................................14
Item 6. Exhibits and Reports on Form 8-K.....................................14
-2-
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
March 31,
2004
(Unaudited)
-----------
Current assets
Cash and cash equivalents $ 503,919
Available for sale securities 242,035
Taxes receivable 82,830
Prepaid expenses and other assets 52,266
-----------
Total current assets 881,050
Property and equipment-net 111,322
Patents and licenses-net 13,504
-----------
Total assets $ 1,005,876
===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 64,944
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, 40,655,363 shares issued and outstanding 18,345,491
Treasury stock at cost, 100,000 shares (26,997)
Additional paid-in capital 2,000,000
Accumulated other comprehensive income 577,470
Accumulated deficit (19,955,032)
-----------
Total stockholders' equity 940,932
-----------
Total liabilities and stockholders' equity $ 1,005,876
===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements
-3-
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For The For The
Three Months Ended Nine Months Ended
March 31, March 31,
(Unaudited) (Unaudited)
------------------------------- -------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues $ -- $ -- $ -- $ --
Operating expenses:
Research and development 254,413 307,852 670,852 712,181
General and administrative 134,624 262,153 503,681 778,843
Depreciation and amortization 15,989 129,935 72,983 221,432
------------ ------------ ------------ ------------
Total operating expenses 405,026 699,940 1,247,516 1,712,456
Other income:
Interest income 4,989 14,423 19,649 53,859
Other income 5,452 23,235 27,092 99,347
------------ ------------ ------------ ------------
Total other income 10,441 37,658 46,741 153,206
Loss from continuing operations (394,585) (662,282) (1,200,775) (1,559,250)
Loss from discontinued operations -- -- -- (138,997)
------------ ------------ ------------ ------------
Net loss (394,585) (662,282) (1,200,775) (1,698,247)
Other comprehensive income (loss):
Foreign currency translation adjustments 16,510 113,370 68,082 (41,261)
Unrealized (loss) gain on marketable securities (62,874) (2,264) 16,682 (83,228)
------------ ------------ ------------ ------------
Comprehensive loss $ (440,949) $ (551,176) $ (1,116,011) $ (1,822,736)
============ ============ ============ ============
Net loss per common share - basic and diluted:
Loss from continuing operations $ (0.01) $ (0.02) $ (0.03) $ (0.04)
============ ============ ============ ============
Loss from discontinued operations $ -- $ -- $ -- $ --
============ ============ ============ ============
Net loss $ (0.01) $ (0.02) $ (0.03) $ (0.04)
============ ============ ============ ============
Basic and diluted weighted average
number of common shares outstanding 40,555,363 40,655,363 40,555,363 40,655,363
============ ============ ============ ============
The accompanying notes are an integral part of these unaudited consolidated
financial statements
-4-
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The
Nine Months Ended
March 31,
(Unaudited)
--------------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,200,775) $(1,698,247)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 72,983 221,432
Realized loss (gains) on marketable securities 290 (53,495)
Realized gain on sale of assets of discontinued operations -- (16,980)
Loss on impairment of assets -- 106,927
Changes in operating assets and liabilities:
Accounts receivable -- 84,919
Inventories -- 16,362
Grant receivable -- 214,321
Taxes receivable 99,990 --
Prepaid expenses and other assets 19,150 116,819
Accounts payable and accrued expenses (60,872) (452,341)
----------- -----------
Net cash used in operating activities (1,069,234) (1,460,283)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in marketable securities -- (1,846,531)
Maturities of marketable securities 580,400 2,660,870
Repurchase of the Company's common stock (26,997) --
Collection of note receivable 20,000 20,000
Purchase of property and equipment (9,730) (32,911)
----------- -----------
Net cash provided by investing activities 563,673 801,428
----------- -----------
Effect of exchange rate changes 52,949 (41,261)
----------- -----------
Net decrease in cash and cash equivalents (452,612) (700,116)
Cash and cash equivalents, beginning of period 956,531 832,130
----------- -----------
Cash and cash equivalents, ending of period $ 503,919 $ 132,014
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Interest $ -- $ --
=========== ===========
Income taxes $ -- $ 800
=========== ===========
During August 2002, the Company received a note receivable for $60,000 from the
sale of inventory and equipment related to its discontinued operations.
The accompanying notes are an integral part of these unaudited consolidated
financial statements
-5-
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 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, 2003. 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 nine-month periods ended March 31, 2004 are not
indicative of the results that may be expected for the full fiscal year ending
June 30, 2004.
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") have been engaged in the research,
development, manufacture, and sales of medical products.
SanguiBioTech GmbH ("Sangui GmbH"), the Company's German subsidiary, is engaged
in the development of artificial oxygen carriers (external applications of
hemoglobin, blood substitute and blood additives) as well as in the development
of glucose implant sensors. Prior to June 30, 2003, the Company had two German
subsidiaries, SanguiBioTech AG and GlukoMediTech AG. GlukoMediTech AG was merged
into SanguiBioTech AG on June 30, 2003. Effective November 4, 2003,
SanguiBioTech AG was converted into SanguiBioTech GmbH, a limited liability
company under German law.
The operations of Sangui BioTech, Inc. ("Sangui USA"), a wholly owned subsidiary
of the Company, were discontinued during 2002.
The operations of Sangui Singapore, incorporated in Singapore in 1999 as a
regional office for the Company, were discontinued during 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, 2003 have been
reclassified to conform to the three and nine months ended March 31, 2004
presentation. These reclassifications have no effect on previously reported net
loss.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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. Significant estimates made by management are, among others, the
realization of taxes receivable, long-lived assets, and valuation allowance on
deferred tax assets.
-6-
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 an accumulated deficit of $19,955,032 as of
March 31, 2004 and has been significantly reducing its working capital since
June 30, 2003. The Company's management believes, based on its current operating
plan, that its current cash and highly liquid marketable securities totaling
approximately $746,000 at March 31, 2004, are sufficient to fund the Company's
operations and working capital requirements at least through September 30, 2004.
There are no assurances, however, that the Company will generate sufficient cash
flows from operations or complete any sales or financing transactions or, even
if such transactions are completed, have sufficient funds to execute its
intended business plan over an extended period of time. The accompanying
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
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.
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.
Marketable Securities
---------------------
Marketable securities are classified as available-for-sale. Unrealized gains and
losses are excluded from net income (loss) and are reported as a separate
component of other comprehensive income (loss) in stockholders' equity. Realized
gains and losses are included in other 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.
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
-7-
does not assume conversion, exercise or contingent exercise of securities that
would have an antidilutive effect on earnings. As of March 31, 2004 and 2003,
the Company had no potentially dilutive securities that would effect 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.
Segments of an Enterprise and Related Information
-------------------------------------------------
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
No. 131 establishes standards for the way public companies report information
about 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 7).
New Accounting Pronouncements
-----------------------------
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS No. 150 is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. It is to be implemented
by reporting the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of SFAS No. 150 and still
existing at the beginning of the interim period of adoption. Restatement is not
permitted. The adoption of SFAS No. 150 did not have a material effect on the
Company's consolidated financial statements.
NOTE 3 - AVAILABLE FOR SALE SECURITIES
Available for sale securities consist of the following at March 31, 2004:
Fair market Unrealized
Cost value Gain
--------- --------- --------
Corporate bonds due within one year $ 190,359 $ 243,469 $ 53,110
========= ========= ========
NOTE 4 - STOCKHOLDERS' EQUITY
During the three months ended March 31, 2004, the Company repurchased 100,000
shares of its common stock from a third party for cash of $26,997, which is
reflected in stockholders' equity as treasury stock in the accompanying
consolidated balance sheet. The Company's management intends to sell these
shares in the near future.
NOTE 5 - DISCONTINUED OPERATIONS
Sangui USA manufactured in vitro immunodiagnostic blood test kits that were
primarily sold in the United States and Europe. The Company decided to
discontinue the in vitro immunodiagnostics business in August 2002, sold Sangui
USA's inventory and property and equipment to an unrelated party for $60,000,
and closed the facility. The sale resulted in a gain of $16,980 which is
included as part of loss from discontinued operations in the accompanying
statement of operations for the nine months ended March 31, 2003. In July 2002,
the Company received $100,000 as part of an agreement to cease manufacturing and
selling certain blood test kits which is included in loss from discontinued
operations in the
-8-
accompanying statement of operations for the nine months ended March 31, 2003.
The Company decided to discontinue the operations of Sangui Singapore in August
2002, recorded an impairment loss on property and equipment of $106,927, and
closed the facility effective December 31, 2002.
Components of amounts reflected in the accompanying consolidated statement of
operations and comprehensive loss for the nine months ended March 31, 2003 are
presented below:
Sangui Sangui
USA Singapore Total
--------- --------- ---------
Sales $ 138,542 $ -- $ 138,542
Cost of sales 94,747 -- 94,747
Operating expenses 88,564 107,644 196,208
--------- --------- ---------
Loss from operations (44,769) (107,644) (152,413)
Other income 116,980 3,363 120,343
Impairment of assets -- (106,927) (106,927)
--------- --------- ---------
Income (loss) from
discontinued
operations $ 72,211 $(211,208) $(138,997)
========= ========= =========
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Litigation
----------
The Company may, from time to time, be involved in various litigation 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.
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.
-9-
NOTE 7 - BUSINESS SEGMENTS
The Company reports it business segments based on geographic regions, which are
as follows:
Three months ended March 31, Nine months ended March 31,
----------------------------- -----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net sales:
Sangui GmbH $ -- $ -- $ -- $ --
Sangui Biotech International, Inc. -- -- -- --
Sangui USA (included in discontinued operations) -- -- -- 138,542
Sangui Singapore -- -- -- --
----------- ----------- ----------- -----------
$ -- $ -- $ -- $ 138,542
=========== =========== =========== ===========
Net income (loss):
Sangui GmbH $ (374,616) $ (654,245) $(1,059,574) $(1,441,587)
Sangui Biotech International, Inc. (19,969) (8,037) (141,201) $ (117,663)
Sangui USA -- -- -- 72,211
Sangui Singapore -- -- -- (211,208)
----------- ----------- ----------- -----------
$ (394,585) $ (662,282) $(1,200,775) $(1,698,247)
=========== =========== =========== ===========
Depreciation and amortization
Sangui GmbH $ 15,989 $ 129,935 $ 72,983 $ 221,432
Sangui Biotech International, Inc. -- -- -- --
Sangui USA -- -- -- --
Sangui Singapore -- -- -- --
----------- ----------- ----------- -----------
$ 15,989 $ 129,935 $ 72,983 $ 221,432
=========== =========== =========== ===========
Sangui GmbH $ 932,878
Sangui Biotech International, Inc. 74,432
Sangui USA --
Sangui Singapore --
-----------
$ 1,007,310
===========
-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 is primarily involved in the development of artificial oxygen
carriers and glucose sensors.
The Company's clinical development projects are primarily in the preliminary
stages. The Company is diligently developing several applications for its
clinical development projects, but does not anticipate beginning any government
protocols or clinical trials in the near term. In the course of the ongoing cost
containment efforts, these projects were halted during the last fiscal year,
after having achieved the planned milestones. The Company decided to reduce
further expenditures in the blood substitute, blood additive and glucose sensor
projects to the amount necessary to find financing, industrial or distribution
partners for further development and marketing of the resulting products. The
Company has adopted a program aimed at cost reductions and at refocusing the
Company's funds to accelerate time to market its most promising and mature
products.
The Company's development projects related to cosmetic and other external
applications of its oxygen carrier are nearing completion. In addition, the
Company holds licensing agreements with Russian manufacturers granting the
Company exclusive marketing rights for certain medical products developed or
produced in Russia. The Company has established contact with German cosmetics
vendors and other industrial partners and is planning and preparing to jointly
introduce related products in the German and other European markets in the
course of the current fiscal year.
As of May 4, 2004, Sangui GmbH and Mercatura Cosmetics Biotech AG ("Mercatura"),
a third party entity, have signed a letter of intent aiming at marketing "Pure
Moisture", an anti-aging nano-formulation developed by Sangui GmbH. Under the
proposed agreement, Sangui GmbH will license to Mercatura the exclusive right to
sell the nano-emulsion in German and international markets.
Cost Savings
------------
In total, management has been able to reduce the Company's operating expenses by
29% to approximately $1.2 million in the first nine months of fiscal 2004,
compared to approximately $1.7 million in the respective period of last fiscal
year. General and administrative expenses have been reduced by 35% in the first
nine months of fiscal 2004 as compared to the respective period of last fiscal
year. This effort is also reflected in the net cash used in operating activities
which decreased 27% to approximately $1.1 million compared to approximately $1.5
million net cash used in operating activities in the respective period of last
fiscal year. Management assumes that the current planning is realistic and that
the Company's funds and liquidity are sufficient to finance its activities at
least through the period ending September 30, 2004.
-11-
FINANCIAL POSITION
The Company's current assets decreased approximately $1.1 million, or 57%, from
June 30, 2003 to approximately $881,000 at March 31, 2004. The decrease is
primarily attributable to a decrease in cash and cash equivalents of
approximately $453,000 and a decrease in available for sale securities of
approximately $557,000. The decrease in cash and cash equivalents and available
for sale securities results primarily from funding the current year's operations
of the Company with no revenues in the three- and nine-month periods ended March
31, 2004.
The Company's net property and equipment decreased approximately $49,000, or 31%
from June 30, 2003 to approximately $111,000 at March 31, 2004. The decrease is
primarily attributable to current year depreciation of approximately $73,000,
partially offset by purchases of property and equipment of approximately
$10,000.
The Company funded its operations primarily through its existing cash reserves.
The Company's stockholders' equity decreased approximately $1.1 million. The
primary decrease is caused by the Company's current period net loss of
approximately $1.2 million, and an increase in accumulated other comprehensive
income of approximately $84,000 due to foreign currency translation adjustments
and unrealized gains on marketable securities.
RESULTS OF OPERATIONS
Three months ended March 31, 2004 and 2003:
Sangui Gmbh
-----------
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 18% to
approximately $254,000 in 2004 from approximately $308,000 in 2003. The decrease
is mainly attributed to the ongoing refocusing program.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 55% to
approximately $115,000 in 2004 from approximately $253,000 in 2003. This
decrease is mainly attributed to the ongoing refocusing program.
DEPRECIATION. Depreciation decreased 88% to approximately $16,000 in 2004 from
approximately $130,000 in 2003. This decrease is mainly attributed to the
ongoing restructuring of Sangui GmbH.
Sangui Biotech International, Inc.
---------------------------------
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 122%
to approximately $20,000 in 2004 from approximately $9,000 in 2003. The increase
is due to increased consulting and legal fees.
Consolidated
------------
NET LOSS. As a result of the above factors, the Company's consolidated net loss
was approximately $395,000, or $0.01 per common share, in 2004, compared to
approximately $662,000, or $0.02 per common share, in 2003.
Nine months ended March 31, 2004 and 2003:
Sangui Gmbh
-----------
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 6% to
approximately $671,000 in 2004 from approximately $712,000 in 2003. The decrease
is mainly attributed to the ongoing refocusing program.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 45% to
approximately $363,000 in 2004 from approximately $655,000 in 2003. This
decrease is mainly attributed to the ongoing refocusing program.
DEPRECIATION. Depreciation decreased 67% to approximately $73,000 in 2004 from
approximately $221,000 in 2003. This decrease is mainly attributed to the
ongoing restructuring of Sangui GmbH.
-12-
Sangui Biotech International, Inc.
----------------------------------
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 14% to
approximately $141,000 in 2004 from approximately $124,000 in 2003. The increase
is due to increased consulting and legal fees.
Consolidated
------------
NET LOSS. As a result of the above factors and the loss from discontinued
operations (see Note 5), the Company's consolidated net loss was approximately
$1.2 million, or $0.03 per common share, in 2004, compared to approximately $1.7
million, or $0.04 per common share, in 2003.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 2004, net cash used in operating activities
decreased to approximately $1.1 million from approximately $1.5 million in the
corresponding period in 2003, primarily related to a decrease in the Company's
consolidated net loss as a result of the ongoing refocusing program.
For the nine months ended March 31, 2004, net cash provided by investing
activities decreased to approximately $564,000 from approximately $801,000 net
cash provided by investing activities in the corresponding period in 2003. The
principal decrease is due to the maturity of marketable securities and purchases
of marketable securities in 2003. Additionally, the Company decreased purchases
of property and equipment during the nine months ended March 31, 2004, compared
to the corresponding period in 2003.
Working capital was approximately $816,000 at March 31, 2004, a decrease of
approximately $1.1 million from June 30, 2003 due primarily to the Company's net
loss for the nine-month period. A substantial portion of the Company's total
assets consists of cash and highly liquid marketable securities classified as
available for sale securities. The highly liquid nature of these assets provides
the Company with flexibility in financing and managing its business. For the
three and nine months ended March 31, 2004, the realized loss on the Company's
marketable securities were approximately $290 and $290, respectively, and
unrealized (losses) gains were approximately $(63,000) and $17,000,
respectively.
At March 31, 2004, the Company had cash and liquid marketable securities of
approximately $746,000. The Company believes that its available cash will be
sufficient to satisfy its requirements at least through the period ending
September 30, 2004. However, the Company will need substantial additional
funding to fulfil 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.
ITEM 3 - CONTROLS AND PROCEDURES
As of March 31, 2004, an evaluation was performed under the supervision and with
the participation of the Company's management, including the CEO/CFO, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's management, including
CEO/CFO, concluded that the Company's disclosure controls and procedures were
effective as of March 31, 2004. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to March 31, 2004.
ITEM 4 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no derivative financial instruments. Exposure to foreign
currency exchange rates is limited, as the Company has no operating business or
staff outside Germany since March 31, 2002.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On November 27, 2003, the Company was served with a lawsuit (Langericht Bochum
Court, Case No. 6 O 435/03). The lawsuit names among others SanguiBioTech AG as
defendant. The plaintiff alleges that SanguiBioTech AG which was converted into
Sangui GmbH in the meantime had neglected its duty in dealing with some of the
plaintiff's Sangui BioTech International, Inc. shares. The court has called for
a hearing on July 28, 2004. The plaintiff is seeking $134,000 compensation. The
claim is believed to be of no merit.
On August 4, 2003, SanguiBioTech AG filed a lawsuit against a former director of
the Company, claiming that some payments incurred by the defendant were
unjustified under German law (Landgericht Munich I Court, Case No. 34 O
14027/03). The defendant denies that the claim is justified and has brought
forward the opinion that he can claim additional fees. The plaintiff has
rejected the defendant's opinion. A hearing of the court has not been scheduled
yet. The financial risk related to this lawsuit does not exceed $1,000.
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
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
31.1 Certification Pursuant to Rule 13a-14(a) and 15d-14(a), filed herewith.
32. Certification Pursuant to Section 1350 of Title 18 of the United States
Code, filed herewith.
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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: /s/ Wolfgan Barnikol
---------------------
Wolfgang Barnikol
President, Chief Executive Officer and
Chief Financial Officer
Date: May 14, 2004
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