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. 2001
[ ] 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 14, 2001
----------------------------------------- -----------------------------
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, 2001 (Unaudited)
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three months and Nine months ended March 31, 2001 and 2000.
Consolidated Statements of Cash Flows (Unaudited) Nine months ended
March 31, 2001 and 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
------
MARCH 31,
2001
(UNAUDITED)
-------------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . $ 6,214,401
Accounts receivable . . . . . . . . . . . . . . . . . 106,074
Inventories . . . . . . . . . . . . . . . . . . . . . 80,559
Prepaid expenses and other assets . . . . . . . . . . 426,266
-------------
Total Current Assets. . . . . . . . . . . . . . . . . 6,827,300
PROPERTY AND EQUIPMENT - NET. . . . . . . . . . . . . . 558,124
PATENTS . . . . . . . . . . . . . . . . . . . . . . . . 38,109
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . $ 7,423,533
=============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . $ 191,674
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. 18,530,881
Additional paid-in capital. . . . . . . . . . . . . . 750,000
Stock subscriptions receivable. . . . . . . . . . . . (225,000)
Prepaid consulting fees . . . . . . . . . . . . . . . (771,169)
Accumulated other comprehensive loss. . . . . . . . . (393,535)
Accumulated deficit . . . . . . . . . . . . . . . . . (10,659,318)
-------------
Total stockholders' equity. . . . . . . . . . . . . . 7,231,859
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . $ 7,423,533
=============
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)
-------------------- -------------------
2001 2000 2001 2000
-------------------- ------------------- ------------ ------------
SALES. . . . . . . . . . . . . . . . . . . . . $ 151,680 $ 115,329 $ 414,662 $ 330,786
COST OF SALES. . . . . . . . . . . . . . . . . 92,411 68,753 266,786 206,645
-------------------- ------------------- ------------ ------------
GROSS PROFIT . . . . . . . . . . . . . . . . . 59,269 46,576 147,876 124,141
OPERATING EXPENSES
Research and development . . . . . . . . . . . 232,879 219,273 722,866 595,657
General and administrative . . . . . . . . . . 191,073 338,596 1,092,857 675,152
Compensation expense related to stock options. 250,000 - 750,000 -
Depreciation and amortization. . . . . . . . . 37,312 35,507 102,013 97,507
Amortization of prepaid consulting fees. . . . 110,000 393,125 333,831 1,179,375
-------------------- ------------------- ------------ ------------
Total Operating Expenses . . . . . . . . . . . 821,264 986,501 3,001,567 2,547,691
LOSS FROM OPERATIONS . . . . . . . . . . . . . (761,995) (939,925) (2,853,691) (2,423,550)
OTHER INCOME
Interest income. . . . . . . . . . . . . . . . 67,178 14,155 212,638 49,916
-------------------- ------------------- ------------ ------------
Net loss . . . . . . . . . . . . . . . . . . . (694,817) (925,770) (2,641,053) (2,373,634)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments . . . (261,687) (16,523) (282,721) (43,932)
-------------------- ------------------- ------------ ------------
COMPREHENSIVE LOSS . . . . . . . . . . . . . . $ (956,504) $ (942,293) $(2,923,774) $(2,417,566)
==================== =================== ============ ============
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS PER COMMON SHARE
Net loss . . . . . . . . . . . . . . . . . . . ($0.02) ($0.03) ($0.07) ($0.07)
==================== =================== ============ ============
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING. . . . . . . . . . . . . . . . . . 40,514,303 32,879,796 40,514,303 32,848,690
==================== =================== ============ ============
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE
NINE MONTHS ENDED
MARCH 31
(UNAUDITED)
-------------------
2001 2000
------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,641,053) $(2,373,634)
Adjustments to reconcile net loss to cash used by operating activities
Compensation expense related to vesting of previously issued stock options 750,000 -
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . 102,013 97,507
Amortization of prepaid consulting fees. . . . . . . . . . . . . . . . . . 333,831 1,179,375
Changes in operating asset and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,356) 28,576
Grant receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,844 -
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (869) 24,403
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . (210,756) 188,883
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . (38,531) (10,795)
Net cash used in operating activities. . . . . . . . . . . . . . . . . . . . (1,578,877) (865,685)
------------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities. . . . . . . . . . . . . . . . - 293,130
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . (234,626) (141,472)
Net cash (used in) provided by investing activities. . . . . . . . . . . . . (234,626) 151,658
------------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . - 6,538,015
Collection of stock subscription receivable. . . . . . . . . . . . . . . . 321,367 -
------------------- ------------
Net cash provided by investing activities. . . . . . . . . . . . . . . . . . 321,367 6,538,015
------------------- ------------
Effect of exchange rate changes. . . . . . . . . . . . . . . . . . . . . . . (282,721) (43,932)
------------------- ------------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . (1,774,857) 5,780,056
-
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . 7,989,258 305,501
------------------- ------------
Cash and cash equivalents, ending of period. . . . . . . . . . . . . . . . . $ 6,214,401 $ 6,085,557
=================== ============
Supplemental disclosures:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,049 $ 1,008
=================== ============
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 800 $ -
=================== ============
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to 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 ("GAAP") for interim information and with the instructions to
Form 10-QSB and Item 301 of Regulation S-B. Accordingly, the accompanying
consolidated financial statements do not include all the information and
footnotes required by GAAP for complete financial statements. The unaudited
consolidated financial statements and notes should, therefore, be read in
conjunction with the financial statements and notes thereto in Form 10-KSB for
the year ended June 30, 2000. 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
and nine-month periods ended March 31, 2001 are not necessarily indicative of
the results that may be expected for the entire fiscal year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------
Nature of Business
--------------------
Sangui BioTech International, Inc. (the "Company") ("SGBI") was incorporated in
Colorado on July 14, 1995. Since inception, the Company has primarily been
engaged in the commercial development and manufacturing of immunodiagnostic
kits, which are sold by the Company in niche markets in the United States and
Europe, by of the Company's wholly owned subsidiary Sangui BioTech, Inc.
("Sangui USA"). Sangui USA's laboratory and headquarters are located in Santa
Ana, California, and this facility is devoted to immunodiagnostic research,
development, manufacturing and distributing, marketing, and administrative
functions for the Company. Sangui USA was incorporated in Delaware on August 2,
1996. Sangui USA is the parent company to two wholly owned subsidiaries,
SanguiBioTech AG ("Sangui AG") and GlukoMediTech, AG ("Gluko"). Sangui AG and
Gluko were incorporated in Mainz, Germany on November 25, 1995 and July 15,
1996, respectively. Sangui AG and Gluko are engaged in the development of
artificial oxygen carriers and glucose implant sensors, respectively.
On May 15, 1999, Sangui BioTech PTE Ltd. ("Sangui Singapore") was incorporated
in Singapore. SBTS is expected to become a regional office for the Company and
its subsidiaries and to be engaged in the business of carrying out research and
development projects in conjunction with the German subsidiaries.
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.
Risk and Uncertainties
------------------------
Both the Company's small 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
its German subsidiaries, 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 and Singapore (in the future), will be subject to
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 failure in obtaining regulatory clearance as well as the timely
receipt of the clearances, if obtained.
The Company's revenues from product sales derived from its immunodiagnostic
operations in the U.S. are small. However, management believes its current cash
position is sufficient to fund the Company's operations and working capital
requirements through June 30, 2001.
Revenue Recognition
--------------------
Revenues from product sales are recognized at the time of shipment.
Research and Development
--------------------------
Research and development 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
---------------------------------------------------------
The Company has adopted Statement of Financial Accounting Standards No. 128
(SFAS No. 128) "Earnings Per Share." SFAS No. 128 changes the methodology of
calculating earnings per common share. The adoption of SFAS No. 128 has not
materially impacted the Company's financial position or results of operations.
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.
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 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. The Company had foreign exchange transaction losses of
$(261,687) and $(16,523) for the three months ended March 31, 2001 and 2000, and
$(282,721) and $(43,932) for the nine months ended March 31, 2001 and 2000,
respectively.
Comprehensive Income
---------------------
The Company has adopted 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 marketable securities recorded as
components of stockholders' equity.
Segments of an Enterprise and Related Information
-------------------------------------------------------
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 changes 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 6).
Web Site Development Costs
-----------------------------
The Company has adopted the Emerging Issues Task Force Issue No. 00-2,
"Accounting for Web Site Development Costs", ("EITF 00-2"). The consensus
states that for specific web site development costs, the accounting for such
costs should be accounted for under Statement on Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The adoption of EITF 00-2 did not have a material effect on its
financial statements.
Stock Compensation
-------------------
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.
Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------------
The Company has adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities on the balance
sheet at their fair value. The adoption of this standard did not have a
material impact on the Company's results of operations, financial position or
cash flows as it currently does not engage in any derivative or hedging
activities.
New Accounting Pronouncements
-------------------------------
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 ("SAB 101"), "Revenue Recognition," which outlines the basic
criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission. The effective date of this pronouncement is the fourth quarter of
the fiscal year beginning after December 15, 1999. The Company believes that
adopting SAB 101 will not have a material impact on its financial position and
results of operations.
Reclassifications
-----------------
Certain prior period amounts have been reclassified to conform to the current
period presentation.
NOTE 3 - RETIREMENT OF PREFERRED STOCK
--------------------------------------------
During the nine months ended March 31, 2001, the Company retired all the
outstanding shares of its preferred stock. As a result, preferred stock
decreased by $5,050 and common stock increased by $5,050.
NOTE 4 - PATENT RELATED LITIGATION SETTLEMENT
---------------------------------------------------
On December 20, 2000, Axis/Shields ASA, a Norway Corporation (Axis), filed a
lawsuit in the United States District Court in the Southern California District,
alleging that the manufacture or sale by Sangui USA of its
Carbohydrate-Deficient Transferring ("CDT") test kit, which is used to detect
chronic alcohol abuse, constituted an infringement of patent rights owned by
Axis. On March 26, 2001, an agreement was reached with Axis to resolve this
lawsuit. Sangui USA agreed to cease the manufacture or sale of its ChronAlco
CDT test kit by June 26, 2001. Sangui USA has redesigned a new CDT kit and
plans to introduce the new kit to current and potential new customers by May 31,
2001.
NOTE 5 - COMPENSATION EXPENSE RELATED TO STOCK OPTIONS
Per Accounting Principles Board Opinion 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, 2001,
respectively.
NOTE 6 - BUSINESS SEGMENTS
The Company reports it business segments based on geographic regions, which are
as follows:
Three months ended Nine months ended
March 31, March 31,
2001 2000 2001 2000
---------- -------- ---------- ----------
Net sales:
---------------------------------
Sangui USA. . . . . . . . . . . . $ 151,680 $115,329 $ 414,662 $ 330,786
Sangui BioTech AG . . . . . . . . - - - -
GlukoMediTech,AG. . . . . . . . . - - - -
Sangui BioTech PTE Ltd, Singapore - - - -
---------- -------- ---------- ----------
$ 151,680 $115,329 $ 414,662 $ 330,786
========== ======== ========== ==========
Net loss:
---------------------------------
Sangui USA. . . . . . . . . . . . $ 344,975 $638,052 $1,475,895 $1,478,691
Sangui BioTech AG . . . . . . . . 215,826 174,848 778,946 595,025
GlukoMediTech,AG. . . . . . . . . 97,305 112,870 299,642 299,918
Sangui BioTech Singapore PTE Ltd. 36,711 - 86,570 -
---------- -------- ---------- ----------
$ 694,817 $925,770 $2,641,053 $2,373,634
========== ======== ========== ==========
Depreciation and amortization
---------------------------------
Sangui USA. . . . . . . . . . . . $ 117,019 $402,946 $ 344,985 $1,200,310
Sangui BioTech AG . . . . . . . . 21,410 20,233 65,703 62,313
GlukoMediTech,AG. . . . . . . . . 8,883 5,453 25,156 14,259
Sangui BioTech Singapore PTE Ltd. - - - -
---------- -------- ---------- ----------
$ 147,312 $428,632 $ 435,844 $1,276,882
========== ======== ========== ==========
Identifiable assets
-------------------
Sangui USA. . . . . . . . . . . . $1,129,168
Sangui BioTech AG . . . . . . . . 2,846,320
GlukoMediTech,AG. . . . . . . . . 3,031,661
Sangui BioTech Singapore PTE Ltd. 416,384
----------
$7,423,533
==========
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.
In 1999, the Company established a subsidiary in Singapore. This subsidiary is
expected to become the Company's Pacific Rim headquarters. In the near term,
the Company expects to perform research and development activities in this
facility. Future activities at this location are expected to include clinical
trials as well as being the center of the Pacific Rim sales, marketing and
distribution divisions.
The Company is actively building its management and support team. The Company
has recently retained a chief scientific officer and biomedical scientist for
its Singapore operation and a biomedical scientist and project coordinator for
its German operations. The Company is currently looking to attract several key
positions in its German, Singapore and United States operations. Management
plans to fill these positions as qualified personnel are identified and
retained.
The Company's research and development projects are primarily in the preliminary
stages. The Company is diligently developing several applications for its
primary research and development projects, but does not anticipate beginning any
government protocols or clinical trials in the near term.
Efforts to expand the distribution channels for the Company's diagnostic
products have attracted interest both domestically and internationally. The
Company has recently engaged an European consultant, who has over a decade of
successful experience in marketing and distribution management with her former
employer.
FINANCIAL POSITION
-------------------
The current assets of the Company decreased approximately $1,690,000, or 20%,
from June 30, 2000 to approximately $6,827,000 as of March 31, 2001. The
decrease is primarily attributable to a decrease in cash of approximately
$1,775,000, a decrease in grants receivable of approximately $177,000, an
increase in accounts receivable of approximately $51,000, and an increase in
prepaid and other assets of approximately $211,000. The decrease in cash and
increase in accounts receivable and prepaid and other assets was caused by the
normal day to day operations of the Company. The change in grants receivable
was a result of the Company receiving a lower amount of grant payments from
sponsoring governmental agencies.
The Company's property and equipment increased approximately $141,000, to
approximately $558,000 as of March 31, 2001. Property and equipment increased
approximately $235,000 from the purchase of certain property and equipment and
decreased approximately $94,000 due to depreciation.
The Company funded its operations primarily through its existing cash reserves.
The decrease in stockholders' equity and liabilities of approximately $1,557,000
is primarily caused by the Company's current period comprehensive loss of
approximately $2,924,000, a reduction in stock subscription receivable of
approximately $321,000 due to cash collected, a reduction in prepaid consulting
fees of approximately $334,000 due to amortization of the prepaid, an increase
in additional paid-in capital of $750,000 due to the value of options, and a
decrease in accounts payable of approximately $38,000.
RESULTS OF OPERATIONS
-----------------------
Three Months Ended March 31, 2001 and 2000:
Sales for the three-months ended March 31, 2001 were approximately $152,000,
compared to approximately $115,000 for the same period in the prior year. This
is an increase of $37,000, or 32%. The increase is primarily attributable to
increased marketing efforts of the Company's immunodiagnostic kits.
Cost of sales for the three-months ended March 31, 2001 were approximately
$92,000, compared to approximately $69,000 for the same period in the prior
year. This is an increase of $23,000, or 33%, and is directly related to the
increase in the sales of the Company's immunodiagnostic test kits.
Research and development expenses for the three-months ended March 31, 2001 were
approximately $233,000, compared to approximately $219,000 in the same period in
the prior year. This increase of $14,000, or 6% is attributed to the Company
maintaining both the number of developmental projects in process and the number
of employees in the research and development area. The Company anticipates that
the research and development costs of the Company will increase in the near
term.
General and administrative expenses for the three-months ended March 31, 2001
were approximately $191,000, compared to approximately $339,000 for the same
period in the prior year. This decrease of $148,000, or 44%, is attributed to a
decrease in professional and consulting fees.
Compensation expense related to stock options for the three-months ended March
31, 2001 was $250,000, which represents the amortization of the fair value of
stock options previously issued to the chairman of the Company. There was no
compensation expense related to stock options for the same period in the prior
year.
Amortization of prepaid consulting fee for the three-months ended March 31, 2001
was $110,000, compared to $393,125 in the same period in the prior year. The
decrease of $283,125, or 72%, results from an extension in the consulting
agreement for an additional 24 months effective at the beginning of July 2000.
Interest income for the three-months ended March 31, 2001 was approximately
$67,000, compared to approximately $14,000 in the same period in the prior year.
The increase in interest income of $53,000, or 379%, is caused by the Company
investing the unused portion of the cash raised during previous fund raisings.
As a result, net loss for the three-months ended March 31, 2001 was $(694,817),
or $(0.02) per share, compared to $(925,770), or $(0.03) per share for the
three-months ended March 31, 2000.
Nine Months Ended March 31, 2001 and 2000:
Sales for the nine-months ended March 31, 2001 were approximately $415,000,
compared to approximately $331,000 for the same period in the prior year. This
is an increase of $84,000, or 25%. The increase is primarily attributable to
increased marketing efforts of the Company's immunodiagnostic kits.
Cost of sales for the nine-months ended March 31, 2001 were approximately
$267,000, compared to approximately $207,000 for the same period in the prior
year. This is an increase of $60,000, or 29%, and is directly related to the
increase in the sales of the Company's immunodiagnostic test kits.
Research and development expenses for the nine-months ended March 31, 2001 were
approximately $723,000, compared to approximately $596,000 in the same period in
the prior year. This increase of $127,000, or 21% is attributed to the Company
maintaining both the number of developmental projects in process and the number
of employees in the research and development area and a decrease of government
grants to offset research and development expenses from approximately $177,000
in the prior year to no subsidies received in the current period. The Company
anticipates that the research and development costs of the Company will increase
in the near term.
General and administrative expenses for the nine-months ended March 31, 2001
were approximately $1,093,000, compared to approximately $675,000 for the same
period in the prior year. This increase of $418,000, or 62%, is attributed to
the expansion of the management team and an increase in professional and
consulting fees.
Compensation expense related to stock options for the nine-months ended December
31, 2001 was $750,000, which represents the amortization of the fair value of
stock options previously issued to the chairman of the Company. There was no
compensation expense related to stock options for the same period in the prior
year.
Amortization of prepaid consulting fee for the nine-months ended March 31, 2001
was $333,831, compared to $1,179,375 in the same period in the prior year.
The decrease of $845,544, or 72%, results from an extension in the consulting
agreement for an additional 24 months effective at the beginning of July 2000.
Interest income for the nine-months ended March 31, 2001 was approximately
$213,000, compared to approximately $50,000 in the same period in the prior
year. The increase in interest income of $163,000, or 326%, is caused by the
Company investing the unused portion of the cash raised during previous fund
raisings.
As a result, net loss for the nine-months ended March 31, 2001 was $(2,641,053),
or $(0.07) per share, compared to $(2,373,634), or $(0.07) per share for the
nine-months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
As of March 31, 2001, the Company had total stockholders' equity of
approximately $7,232,000 as compared to approximately $8,750,000 at June 30,
2000. The decrease in stockholders equity in the nine months ended March 31,
2001 is primarily caused by the Company's comprehensive loss of approximately
$2,924,000, offset by an increase in additional paid in capital of $750,000
related to the amortization of the fair value of stock options previously issued
to the chairman of the Company, and a decrease in prepaid consulting fees due to
amortization of the prepaid of approximately $334,000, and a decrease in stock
subscriptions receivable due to cash collections of approximately $321,000.
For the nine-month period ended March 31, 2001, cash and cash equivalents
declined approximately $1,775,000, or 22%, to approximately $6,214,000 at March
31, 2001 from approximately $7,989,000 at June 30, 2000. Cash flows used in
operating activities were approximately $1,579,000. The principal source of
cash flow from operating activities was approximately $177,000 from the Company
receiving grant payments from sponsoring governmental agencies. The principal
uses of cash flow from operating activities was a net loss before depreciation,
amortization, and compensation related to stock options, of approximately
$1,455,000 primarily due to the Company financing all research and development
projects through existing cash reserves and government grants, an increase in
accounts receivable of approximately $51,000, an increase in prepaid expenses
and other assets of approximately $211,000, and a decrease in accounts payable
and accrued expenses of approximately $38,000. Cash flows used in investing
activities totaled approximately $235,000, for the purchase of property and
equipment. Cash flows provided by financing activities totaled approximately
$321,000, from the receipt of stock subscriptions receivable.
The Company intends to intensify its development efforts during the remaining
quarter of the current fiscal year ending June 30, 2001. The Company believes
that its available cash will be sufficient to satisfy its requirements through
June 30, 2001. However, the Company will need substantial additional funding to
fulfill its business plan and the Company intends to explore financing sources
for its future development activities during the current year. No assurance can
be given that these efforts will be successful.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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The Company has no derivative financial instruments and no exposure to foreign
currency exchange rates or interest rate risk.
PART II - OTHER INFORMATION
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ITEM 1 - LEGAL PROCEEDINGS
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On December 20, 2000, Axis/Shields ASA, a Norway Corporation (Axis), filed a
lawsuit in the United States District Court in the Southern California District,
alleging that the manufacture or sale by the Company's subsidiary, Sangui USA,
of its Carbohydrate-Deficient Transferring ("CDT") test kit, which is used to
detect chronic alcohol abuse, constituted an infringement of patent rights owned
by Axis. On March 26, 2001, an agreement was reached with Axis to resolve this
lawsuit. Sangui USA agreed to cease the manufacture or sale of l its ChronAlco
CDT test kit by June 26, 2001. Sangui USA has redesigned a new CDT kit and
plans to introduce the new kit to current and potential new customers by May 31,
2001.
ITEM 2 - CHANGE IN SECURITIES AND USE OF PROCEEDS
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None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
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Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
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Not applicable
ITEM 5 - OTHER INFORMATION
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Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
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None
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
----------------------------------
Wolfgang Barnikol
President & CEO
Dated: May 16 ,2001