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, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 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.)
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 May 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 March 31, 2002 (Unaudited)
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three and nine months ended March 31, 2002 and 2001.
Consolidated Statements of Cash Flows (Unaudited) Nine months ended
March 31, 2002 and 2001.
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
MARCH 31
2002
(UNAUDITED)
-------------
ASSETS
Current assets
Cash and cash equivalents $ 965,306
Available for sale securities 2,981,525
Accounts receivable 93,805
Inventories 89,088
Prepaid expenses and other assets 319,415
-------------
Total current assets 4,449,139
Property and equipment-net 422,355
Patents-net 46,793
-------------
Total assets $ 4,918,287
=============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 277,454
-------------
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 1,750,000
Prepaid consulting fees (331,169)
Accumulated other comprehensive loss (48,802)
Accumulated deficit (15,035,077)
-------------
Total stockholders' equity 4,640,833
-------------
Total liabilities and stockholders' equity $ 4,918,287
=============
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)
------------------------------ ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Sales $ 143,262 $ 151,680 $ 385,515 $ 414,662
Cost of sales 92,629 92,411 263,048 266,786
------------- ------------- ------------- -------------
Gross profit 50,633 59,269 122,467 147,876
------------- ------------- ------------- -------------
Operating expenses
Research and development 305,462 232,879 841,653 722,866
General and administrative 397,421 191,073 1,606,346 1,092,857
Compensation expense related to stock options 250,000 250,000 750,000 750,000
Depreciation and amortization 49,990 37,312 127,179 102,013
Amortization of prepaid consulting fees 110,000 110,000 330,000 333,831
------------- ------------- ------------- -------------
Total operating expenses 1,112,873 821,264 3,655,178 3,001,567
------------- ------------- ------------- -------------
Loss from operations (1,062,240) (761,995) (3,532,711) (2,853,691)
------------- ------------- ------------- -------------
Other income
Interest income 6,495 67,178 66,591 212,638
Other income 11,878 -- 77,169 --
------------- ------------- ------------- -------------
Total income 18,373 67,178 143,760 212,638
------------- ------------- ------------- -------------
Net loss (1,043,867) (694,817) (3,388,951) (2,641,053)
Other comprehensive income (loss)
Foreign currency translation adjustments (59,063) (261,687) 130,236 (282,721)
Unrealized gain on marketable securities 30,835 -- 177,332 --
------------- ------------- ------------- -------------
Comprehensive loss $ (1,072,095) $ (956,504) $ (3,081,383) $ (2,923,774)
============= ============= ============= =============
Net loss available to common
shareholders per common share $ (0.03) $ (0.02) $ (0.08) $ (0.07)
============= ============= ============= =============
Basic and diluted weighted average
number of common shares outstanding 40,514,363 40,514,303 40,514,363 40,514,303
============= ============= ============= =============
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The
NINE MONTHS ENDED
MARCH 31,
(UNAUDITED)
------------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,388,951) $ (2,641,053)
Adjustments to reconcile net loss to cash used by operating activities
Compensation expense related to stock options 750,000 750,000
Depreciation and amortization 127,179 102,013
Amortization of prepaid consulting fees 330,000 333,831
Changes in operating assets and liabilities:
Accounts receivable 35,123 (50,356)
Grants receivable -- 176,844
Inventories (19,067) (869)
Prepaid expenses and other assets 43,321 (210,756)
Accounts payable and accrued expenses (11,163) (38,531)
------------ ------------
Net cash used in operating activities (2,133,558) (1,578,877)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in marketable securities (4,485,182) --
Maturities of marketable securities 5,144,498 --
Purchase of property and equipment and patents (45,272) (234,626)
------------ ------------
Net cash provided by (used in) investing activities 614,044 (234,626)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection of stock subscription receivable -- 321,367
------------ ------------
Effect of exchange rate changes 130,236 (282,721)
------------ ------------
Net decrease in cash and cash equivalents (1,389,278) (1,774,857)
Cash and cash equivalents, beginning of period 2,354,584 7,989,258
------------ ------------
Cash and cash equivalents, ending of period $ 965,306 $ 6,214,401
============ ============
Supplemental disclosures:
Cash paid during the period for:
Interest $ -- $ 1,049
============ ============
Income taxes 800 800
============ ============
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 nine month periods ended March 31, 2002 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 research,
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: Sangui-BioTech 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 research and 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 $3.9 million at March
31, 2002, 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 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 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
March 31, 2002 and 2001. 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.
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 which is 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 March 31, 2002:
Fair Market Unrealized
Cost Value Gain
Mutual Funds $2,968,317 $2,981,525 $13,208
---------- ---------- -------
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 $750,000 in the accompanying statement of operations for the three
and nine months ended March 31, 2002, respectively.
NOTE 5 - PATENT-RELATED 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. Trial in this matter has been set
for May 6, 2003.
Since the resolution of this matter cannot be determined at this time, the
Company has not recorded any entry in the March 31, 2002 financial statements.
NOTE 6 - 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,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales:
Sangui USA $ 143,262 $ 151,680 $ 385,515 $ 414,662
Sangui AG -- -- -- --
Gluko AG -- -- -- --
Sangui Singapore -- -- -- --
------------ ------------ ------------ ------------
$ 143,262 $ 151,680 $ 385,515 $ 414,662
============ ============ ============ ============
Net loss:
Sangui USA $ 507,422 $ 344,975 $ 1,798,385 $ 1,475,895
Sangui AG 281,547 215,826 796,582 778,946
Gluko AG 209,053 97,305 620,754 299,642
Sangui Singapore 45,845 36,711 173,230 86,570
------------ ------------ ------------ ------------
$ 1,043,867 $ 694,817 $ 3,388,951 $ 2,641,053
============ ============ ============ ============
Depreciation and amortization
Sangui USA $ 3,500 $ 7,019 $ 10,690 $ 11,154
Sangui AG 28,278 21,410 78,385 65,703
Gluko AG 10,167 8,883 30,059 25,156
Sangui Singapore 8,045 -- 8,045 --
------------ ------------ ------------ ------------
$ 49,990 $ 37,312 $ 127,179 $ 102,013
============ ============ ============ ============
Identifiable assets
Sangui USA $ 782,242
Sangui AG 1,710,612
Gluko AG 2,280,772
Sangui Singapore 144,661
------------
$ 4,918,287
============
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 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, which are made pursuant to the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995. 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 $1.9 million, or 30%, from
June 30, 2001 to approximately $4.4 million at March 31, 2002. The decrease is
primarily attributable to a decrease in cash and cash equivalents of
approximately $1.4 million and a decrease in available for sale securities of
approximately $482,000. The decrease in cash and cash equivalents and available
for sale securities results primarily from funding the current year's operations
of the Company.
The Company's property and equipment decreased approximately $92,000, or 18%,
from June 30, 2001 to approximately $422,000 at March 31, 2002 due primarily to
approximately $127,000 of depreciation, offset by purchases of approximately
$35,000.
The Company funded its operations primarily through its existing cash reserves.
The Company's stockholders' equity decreased approximately $2.0 million. The
primary decrease is caused by the Company's current period net loss of
approximately $3.4 million. Increases include a reduction in prepaid consulting
fees of $330,000 due to amortization, an increase in additional paid-in capital
of $750,000 due to the amortization of the fair value of previously issued
options, and an increase in accumulated other comprehensive income of
approximately $307,000 due to foreign currency translation adjustments and
unrealized gain on marketable securities.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 and 2001:
Sangui USA
SALES. Sales decreased 6% to approximately $143,000 in 2002 from approximately
$152,000 in 2001. The decrease is attributed to a 5% price reduction to the
German distributor to offset the decrease of the German distributor's local
currency against the U.S. dollar.
COST OF SALES. Costs of sales were approximately $93,000 in 2002 and
approximately $92,000 in 2001. The Company's gross margin decreased to 35% in
2002 from 39% in 2001 primarily due to decrease in economy of scale. Management
believes that the gross margin should be improved if sales increase to previous
quarters levels.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 408%
to approximately $198,000 in 2002 from approximately $39,000 in 2001. This
increase is related to legal costs incurred by the Company in a lawsuit against
a former director of the Company and in patent related litigation.
COMPENSATION EXPENSE RELATED TO STOCK OPTIONS. Compensation expense related to
stock options was $250,000 in 2002 and 2001, 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 $110,000 in 2002 and 2001.
Sangui AG
RESEARCH AND DEVELOPMENT. Research and development expenses increased 35% to
approximately $162,000 in 2002 from approximately $120,000 in 2001, due to
increased research and development activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 12% to
approximately $103,000 in 2002 from approximately $92,000 in 2001. This increase
is attributed to increases in operating expenses.
Gluko AG
RESEARCH AND DEVELOPMENT. Research and development expenses increased 46% to
approximately $143,000 in 2002 from approximately $98,000 in 2001, due to
increased research and development activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 156%
to approximately $59,000 in 2002 from approximately $23,000 in 2001, due to
increased operating expenses.
Sangui Singapore
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 3% to
approximately $38,000 in 2002 from approximately $37,000 in 2001.
Sangui Biotech International, Inc.
NET LOSS. The Company's consolidated net loss was approximately $1.0 million, or
approximately three cents per common share, in 2002, compared to approximately
$695,000, or two cents per common share, in 2001. This increase in net loss is a
result primarily of increased expenses and increased research and development
expenses.
Nine months ended March 31, 2002 and 2001:
Sangui USA
SALES. Sales decreased 7% to approximately $386,000 in 2002 from approximately
$415,000 in 2001. This decrease is attributed to the Company's German
distributor making fewer purchases in 2002 and to a 5% price reduction to the
German distributor to offset the decrease of the German distributor's local
currency against the U.S. dollar.
COST OF SALES. Cost of sales decreased 1% to approximately $263,000 in 2002 from
approximately $267,000 in 2001. This decrease is related to reduced costs
associated with the decrease in sales. The
Company's gross margin decreased to 32% in 2002 from 36% in 2001 primarily due
to decrease in economy of scale. Management believes that the gross margin
should be improved as sales increase.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 53% to
approximately $859,000 in 2002 from approximately $560,000 in 2001. This
increase is related primarily to legal costs incurred by the Company in lawsuits
against a former director of the Company and in patent related litigation.
COMPENSATION EXPENSE RELATED TO STOCK OPTIONS. Compensation expense related to
stock options was $750,000 in 2002 and 2001, 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 $330,000 in 2002 and $334,000 in 2001.
Sangui AG
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 1% to
approximately $407,000 in 2002 from approximately $409,000 in 2001, due to the
timing of projects currently in development.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 11% to
approximately $393,000 in 2002 from approximately $353,000 in 2001. This
increase is attributed to increases in operating expenses.
Gluko AG
RESEARCH AND DEVELOPMENT. Research and development expenses increased 53% to
approximately $432,000 in 2002 from approximately $283,000 in 2001, due to
increased research and development activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 114%
to approximately $201,000 in 2002 from approximately $94,000 in 2001. This
increase is attributed to increases in operating expenses.
Sangui Singapore
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 76% to
approximately $153,000 in 2002 from approximately $87,000 in 2001 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 $3.4 million, or
approximately eight cents per common share, in 2002, compared to approximately
$2.6 million, or seven cents per common share, in 2001. This increase in net
loss is a result primarily of increased operating and legal expenses.
LIQUIDITY AND CAPITAL RESOURCES
For the nine-months ended March 31, 2002, net cash used in operating activities
increased to approximately $2.1 million from approximately $1.6 million in the
corresponding period in 2001, primarily related to an increase in the Company's
consolidated net loss.
For the nine-months ended March 31, 2002, net cash provided by investing
activities was approximately $614,000 compared to net cash used in investing
activities of approximately $235,000 in the corresponding period in 2001. The
principal increase in cash is due to the maturity of marketable securities and
decrease in purchases of property and equipment and patents.
For the nine-months ended March 31, 2002, there was no cash provided by
financing activities compared to approximately $321,000 of net cash provided by
financing activities in the corresponding period in 2001 received from the
collection of stock subscriptions receivable. There were no stock subscriptions
receivable in 2002.
Working capital was approximately $4.2 million at March 31, 2002, a decrease of
approximately $1.9 million from June 30, 2001. For the nine-month period ended
March 31, 2002, cash and cash equivalents and available for sale securities
declined approximately 33%, to approximately $3.9 million at March 31, 2002 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 March 31, 2002 include approximately $3.0 million of
investments in money market mutual funds which are convertible to cash daily.
The highly liquid nature of these assets provides the Company with flexibility
in financing and managing its business. For the three-months ended March 31,
2002, realized gains and losses on the Company's marketable securities were
negligible, and unrealized net gains were approximately $31,000.
The Company intends to intensify its development efforts during the remaining
quarter 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 is exploring financing sources for its
future development activities. 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'
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 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 has been scheduled for June 6, 2002, 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
Transferring ("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. Trial on this matter has been set
for May 6, 2003. Since the
resolution of this matter cannot be determined at this time, the Company has not
recorded any entry in the March 31, 2002 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
Not applicable
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/ Wolfgang Barnikol
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Wolfgang Barnikol
President and CEO
Date: May 10, 2002
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