UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly period Ended: December 31, 2004; or
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period __________ to __________
Commission File Number: 0-21271
___________________________
SANGUI BIOTECH INTERNATIONAL, INC.
---------------------------------
(Exact name of 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)
011-49-2302-915-204
-------------------
(Registrant's telephone number, including area code)
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 a
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
The number of shares outstanding of the registrant's common stock, $0.001
par value, as of January 31, 2005, was 43,655,363.
Transitional Small Business Disclosure Format. Yes ___ No _X_
SANGUI BIOTECH INTERNATIONAL, INC.
Report on Form 10-QSB
For the Quarter Ended December 31, 2004
INDEX
-----
Page
Part I. Financial Information
Item 1. Financial Statements (unaudited)........................... 2
Consolidated Balance Sheet ................................ 3
Consolidated Statements of Operations and Comprehensive Loss 4
Consolidated Statements of Cash Flows...................... 5
Notes to the Financial Statements ......................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation . 10
Item 3. Controls and Procedures ................................... 13
Part II. Other Information
Item 1. Legal Proceedings ......................................... 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities ........................... 14
Item 4. Submission of Matters to a Vote of Security Holders ....... 14
Item 5. Other Information ......................................... 14
Item 6. Exhibits .................................................. 14
1
PART I - FINANCIAL INFORMATION
------------------------------
Item 1 - Financial Statements
-----------------------------
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation of
our financial position, results of operations, cash flows, and stockholders'
deficit in conformity with generally accepted accounting principles in the
United States of America. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature.
Our unaudited balance sheet as of December 31, 2004 and our unaudited
statements of operations for the three and six month periods ended December 31,
2004 and 2003, and the unaudited statement of cash flows for the six month
periods ended December 31, 2004 and 2003, are attached hereto and incorporated
herein by this reference.
2
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
------
December 31,
2004
(Unaudited)
---------------------
Current assets
Cash and cash equivalents $ 38,399
Taxes receivable 17,639
Prepaid expenses and other assets 29,549
---------------------
Total current assets 85,587
Property and equipment-net 81,790
Patents and licenses-net 7,871
Deposits 32,338
---------------------
Total assets $ 207,586
=====================
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current liabilities
Accounts payable and accrued expenses $ 108,723
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, 43,655,363 shares issued and outstanding 18,445,491
Additional paid-in capital 2,082,625
Treasury stock (155,014)
Accumulated other comprehensive income 635,634
Accumulated deficit (20,909,873)
---------------------
Total stockholders' equity 98,863
---------------------
Total liabilities and stockholders' equity $ 207,586
=====================
See accompanying notes to these consolidated financial statements
3
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the three months ended For the six months ended
December 31, December 31,
(Unaudited) (Unaudited)
---------------- ---------------- ---------------- ----------------
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
Revenues $ 5,177 $ - $ 10,749 $ -
Cost of goods sold 3,726 - 7,628 -
---------------- ---------------- ---------------- ----------------
Gross profit 1,451 - 3,121 -
Operating expenses
Research and development 138,549 232,332 323,957 416,439
General and administrative 147,412 157,839 282,994 369,057
Depreciation and amortization 16,133 26,024 33,205 56,994
---------------- ---------------- ---------------- ----------------
Total operating expenses 302,094 416,195 640,156 842,490
Loss before other income (300,643) (416,195) (637,035) (842,490)
Other income
Interest income - 6,744 1,545 14,660
Other income 56,498 17,316 54,391 21,640
---------------- ---------------- ---------------- ----------------
Total other income 56,498 24,060 55,936 36,300
Net Loss (244,145) (392,135) (581,099) (806,190)
Other comprehensive income
Foreign currency translation adjustments 100,117 52,233 106,965 51,572
Unrealized gain on marketable securities - 67,447 - 79,556
---------------- ---------------- ---------------- ----------------
Comprehensive loss $ (144,028) $ (272,455) $ (474,134) $ (675,062)
================ ================ ================ ================
Net loss available to common
shareholder per common share: $ (0.01) $ (0.01) $ (0.01) $ (0.02)
================ ================ ================ ================
Basic and diluted weighted average
number of common shares outstanding 43,191,613 40,655,363 42,014,113 40,655,363
================ ================ ================ ================
See accompanying notes to these consolidated financial statements
4
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended
December 31,
(Unaudited)
----------------------------- ----------------------------
2004 2003
----------------------------- ----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (581,099) $ (806,190)
Adjustments to reconcile net loss
to cash used in operating activities
Depreciation and amortization 33,205 56,994
Stock compensation 82,625 -
Changes in operating asset and liabilities:
Accounts receivable 27,346 -
Taxes receivable 87,601 (8,219)
Prepaid expenses and other assets 13,388 19,762
Deposits (17,338) -
Accounts payable and accrued expenses 23,000 (47,054)
----------------------------- ----------------------------
Net cash used in operating activities (331,272) (784,707)
----------------------------- ----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection on notes receivable - 20,000
Purchase of property and equipment - (7,995)
----------------------------- ----------------------------
Net cash provided by investing activities - 12,005
----------------------------- ----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 100,000 -
Purchase of treasury stock (126,916) -
----------------------------- ----------------------------
Net cash used in financing activities (26,916) -
----------------------------- ----------------------------
Effect of exchange rate changes 85,628 39,835
----------------------------- ----------------------------
Net decrease in cash and cash equivalents (272,560) (732,867)
Cash and cash equivalents, beginning of period 310,959 956,531
----------------------------- ----------------------------
Cash and cash equivalents, ending of period $ 38,399 $ 223,664
============================ ============================
Supplemental disclosures:
Cash paid during the period for:
Interest $ - $ -
============================ ============================
Income taxes $ - $ -
============================ ============================
See accompanying notes to these 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, 2004. In the opinion of
management, all adjustments (consisting of normal and recurring adjustments)
considered necessary for a fair presentation, have been included. The results of
operations for the three and six-month periods ended December 31, 2004 are not
indicative of the results that may be expected for the full fiscal year ending
June 30, 2005.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Nature of Business
------------------
Sangui BioTech International, Inc., incorporated in Colorado in 1995, and its
subsidiary (collectively, the "Company") have been engaged in the research,
development, manufacture, and sales of medical products.
Prior to June 30, 2003, the company had two German subsidiaries, SanguiBioTech
AG and GlukoMediTech AG. On June 30,2003, GlukoMediTech AG was merged into
Sangui BioTech AG. Effective November 4, 2003, Sangui AG was converted into
SanguiBioTech GmbH (Sangui GmbH). After completion of the restructuring, Sangui
GmbH, which is headquartered in Witten, Germany, is engaged in the development
of artificial oxygen carriers (external applications of haemoglobin, blood
substitutes and blood additives), the development of wound care products as well
as in the development of glucose implant sensors. Sangui GmbH is a wholly-owned
subsidiary of Sangui BioTech International, Inc..
The operations of Sangui BioTech, Inc. and Sangui BioTech PTE Ltd Singapore, two
former wholly-owned subsidiaries, were discontinued and dissolved during 2002.
Consolidation
-------------
The consolidated financial statements include the accounts of Sangui BioTech
International, Inc. and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts in the three and six months ended December 31, 2003 have been
reclassified to conform to the three and six months ended December 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 accumulated deficit of $20,909,873 as of
December 31, 2004 and has been significantly reducing its working capital since
June 30, 2004. The Company incurred a net loss applicable to common stockholders
of $581,099 and used cash in operating activities of $331,272 for the six months
ended December 31, 2004. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The Company expects to
continue to incur significant capital expenses in pursuing its business plan to
market its products and expand its product line, while obtaining additional
financing through stock offerings or other feasible financing alternatives. In
order for the Company to continue its operations at its existing levels, the
Company will require significant additional funds over the next twelve months.
Therefore, the Company is dependent on funds raised through equity or debt
offerings. Additional financing may not be available on terms favorable to the
Company, or at all. If these funds are not available the Company may not be able
to execute its business plan or take advantage of business opportunities. The
ability of the Company to obtain such additional financing and to achieve its
operating goals is uncertain. In the event that the Company does not obtain
additional capital or is not able to increase cash flow through the increase of
sales, there is a substantial doubt of its being able to continue as a going
concern. The accompanying condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
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. 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 loss and are reported as a separate component of
other comprehensive 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.
Revenue Recognition
-------------------
Revenues from product sales are recognized at the time of shipment.
7
Research and Development
------------------------
Research and development costs are charged to operations as they are incurred.
Legal fees and other direct costs incurred in obtaining and protecting patents
are expensed as incurred.
Basic and Diluted Earnings (Loss) Per Common Share
--------------------------------------------------
Basic earnings (loss) per common share is computed by dividing income (loss)
available to common stockholders by the weighted average number of common shares
outstanding during the period of computation. Diluted earnings (loss) per share
gives effect to all potential dilutive common shares outstanding during the
period of compensation. The computation of diluted earnings (loss) per share
does not assume conversion, exercise or contingent exercise of securities that
would have an antidilutive effect on earnings. As of December 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.
NOTE 3 - STOCKHOLDERS' EQUITY
-----------------------------
As of December 31, 2004, the Company held shares of its common stock valued at
historical cost of approximately $155,000, which is reflected in the
stockholders' equity as treasury stock in the accompanying consolidated balance
sheet. Included in this are 620,000 shares of common stock transferred to Sangui
GmbH in November, 2004 as a result of an out of court settlement. This
transaction is being accounted for as a purchase of treasury stock, valued at a
total cost of approximately $127,000. The Company's management intends to sell
these shares in the near future.
In July 2004, the Company issued 217,500 shares of common stock under the 2004
Employee Stock Incentive Plan (the Plan) to Sangui GmbH employees. In connection
with this transaction, the Company recorded $43,500 as compensation expense and
additional paid-in capital in the stockholders' equity (deficiency) section of
accompanying financial statements
In October 2004, the Company issued 782,500 shares of common stock under the
2004 Employee Stock Incentive Plan (the Plan) to a Sangui GmbH employee. In
connection with this transaction, the Company recorded $39,125 as compensation
expense and additional paid-in capital in the stockholders' equity (deficiency)
section of accompanying financial statements
In November and December 2004, the company issued 2,000,000 shares of common
stock to two German investors for $100,000.
8
NOTE 4 - 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.
NOTE 5 - BUSINESS SEGMENTS
--------------------------
The Company reports it business segments based on geographic regions, which are
as follows:
For the three months ended For the six months ended
December 31, December 31,
(Unaudited) (Unaudited)
2004 2003 2004 2003
---------------- ---------------- ---------------- ---------------
Net sales:
Sangui GmbH $ 5,177 $ - $ 10,749 $ -
Sangui Biotech International, Inc. - - - -
---------------- ---------------- ---------------- ---------------
$ 5,177 $ - $ 10,749 $ -
================ ================ ================ ================
Net income (loss):
Sangui GmbH $ (204,813) $ (320,785) $ (498,474) $ (684,958)
Sangui Biotech International, Inc. (39,332) (71,350) (82,625) (121,232)
---------------- ---------------- ---------------- ---------------
$ (244,145) $ (392,135) $ (581,099) $ (806,190)
================ ================ ================ ===============
Depreciation and amortization
Sangui GmbH $ 16,133 $ 26,024 $ 33,205 $ 56,994
Sangui Biotech International, Inc. - - - -
---------------- ---------------- ---------------- ---------------
$ 16,133 $ 26,024 $ 33,205 $ 56,994
================ ================ ================ ===============
Identifiable assets
Sangui GmbH $ 187,586
Sangui Biotech International, Inc. 20,000
----------------
$ 207,586
================
9
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, skin care and wound management products 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 fiscal year
2002/2003, 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.
By the end of the 2004 fiscal year, the company had agreed to enter into an
Agreement with a medium sized German pharmaceuticals company, regarding the
authorization and subsequent distribution of its Hemospray product. The contract
included a significant upfront payment. A letter of intent to this effect had
been signed by both parties, the contracts had been negotiated. As of August 24,
2004, said pharmaceuticals company cancelled the letter of intent and any
further cooperation without giving any valid reasons for this act.
Contacts to new potential marketing and distribution partners regarding the
Hemospray product have been established in Germany and abroad. Talks have been
facilitated by the results of an official meeting with the German Drug
Registration Authority (BfArM) on November 16, 2004. BfArM declared that it will
regard Hemospray as a medical product and not as a pharmaceutical. This means
that the authorization process will be easier and less time consuming. Among the
companies interested in marketing the product is Karl Beese GmbH.
10
In July, 2004, Sangui GmbH signed a marketing and distribution contract
with cosmetics vendor Mercatura Biocosmetics AG, Achim, Germany ("Mercatura").
Under the terms of the contract, Mercatura has obtained from Sangui the
exclusive right to manufacture, market und distribute the Sangui formulation for
skin regeneration and anti-aging. The company has sold to Mercatura a quantity
of 60 kg of the preparation to be used in test sales, which started in September
2004. Mercatura will pay Sangui per unit licensing fees for each product package
sold. The licensing fees refer to the ex-works price for the product and will be
between 5.5 % and 8 %, depending on the total revenue amount.
Initially, the contract covers the German speaking areas only. Mercatura is
obliged to submit on completion of its quarterly accounting its sales reports
for the preceding quarter confirmed by an independent auditor. These reports
will be the basis for the calculation of the royalties due to Sangui. The
parties have agreed to extend the reach of this agreement to target markets
world wide, if Sangui's formulation will be included in the proposed cooperation
between Mercatura and Wolfgang Joop GmbH. Mercatura is contractually obliged to
confirm by February 28, 2005, whether or not Wolfgang Joop GmbH is willing to
include the Anti-Aging formulation in their "Wunderkind" marketing program.
Global distribution rights outside the German speaking countries will be
returned to Sangui if Wolfgang Joop GmbH refrains from using the product.
The company is currently in the final phase of the CE certification of
"Chitoskin" wound pads authorizing the distribution of these medical products in
the European markets. It is expected that the CE certification will be granted
in the course of the third quarter of Sangui's fiscal year 2004/2005. The
"CHITOSKIN" trademark has been granted to the company for the European countries
effective November 1, 2004. In the German market the wound pads will be
distributed by Karl Beese GmbH, Norderstedt, Germany, a leading medical products
distributor. A contract to this effect is currently being negotiated and will be
entered into after the CE certification. Joint pre-marketing activities have
started. Negotiations with distributors in other regions including Spain,
Turkey, the Arab countries and China are under way.
Cost Savings
------------
As of August 31, 2004, contracts with most employees were cancelled. As of
December 1, 2004, the company employs 2 fulltime employees and has consulting
arrangements with 5 persons.
In total, management has been able to reduce the Company's operating
expenses by 25% to approximately $640,000 in the first six months of fiscal
2005, compared to approximately $842,000 in the respective period of last fiscal
year. General and administrative expenses have been reduced by 23% in the first
six months of fiscal 2005 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 52% to approximately $331,000 compared to approximately $785,000
net cash used in operating activities in the respective period of last fiscal
year.
FINANCIAL POSITION
------------------
The company resolved to use the existing authorized capital to offer shares
to certain investors. In November and December 2004, the company sold 2,000,000
shares of common stock to two German investors yielding cash proceeds of
$100,000.
In the course of the third quarter of its fiscal year 2005 the company sold
4,500,000 shares to six investors yielding a cash contribution of $275,000. The
Directors and Management believe that this will be viable as a bridge financing
until the company will be in the position to generate sufficient sales to
maintain a basic level of activities.
The Company's current assets decreased approximately $400,000, or 82%, from
June 30, 2004 to approximately $86,000 at December 31, 2004. The decrease is
primarily attributable to a decrease in cash and cash equivalents of
approximately $273,000 and decrease in taxes receivable of approximately
$87,000. The decrease in cash and cash equivalents results primarily from
funding the current year's operations of the Company with minimal revenues in
the three- and six-month periods ended December 31, 2004.
11
The Company's net property and equipment decreased approximately $19,000,
or 19% from June 30, 2004 to approximately $82,000 at December 31, 2004. The
decrease is primarily attributable to current year depreciation of approximately
$33,000.
The Company funded its operations primarily through its existing cash
reserves and the issuance of shares to certain investors. The Company's
stockholders' equity decreased approximately $418,000. The decrease is primarily
caused by the Company's current period net loss of approximately $581,000, an
increase in accumulated other comprehensive income of approximately $107,000 due
to foreign currency translation adjustments, and an increase in common stock of
$100,000 from the proceeds of stock issue in the current year.
RESULTS OF OPERATIONS
---------------------
Three months ended December 31, 2004 and 2003:
Sangui GmbH
-----------
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 40%
to approximately $139,000 in 2004 from approximately $232,000 in 2003. The
decrease is mainly attributed to the ongoing refocusing program.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
24% to approximately $108,000 in 2004 from approximately $87,000 in 2003. This
increase is mainly attributed to expanded marketing and restructuring program.
DEPRECIATION. Depreciation decreased 38% to approximately $16,000 in 2004
from approximately $26,000 in 2003. This decrease is mainly attributed to the
restructuring of Sangui GmbH.
Sangui BioTech International, Inc.
---------------------------------
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
95% to approximately $39,000 in 2004 from approximately $20,000 in 2003. The
increase is due to increased stock compensation expense.
Consolidated
------------
NET LOSS. As a result of the above factors, the Company's consolidated net
loss was approximately $244,000, or $0.01 per common share, in 2004, compared to
approximately $392,000, or $0.01 per common share, in 2003.
Three and six months ended December 31, 2004 and 2003:
Sangui GmbH
-----------
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 22%
to approximately $324,000 in 2004 from approximately $416,000 in 2003. The
decrease is mainly attributed to the ongoing refocusing program.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
19% to approximately $201,000 in 2004 from approximately $248,000 in 2003. This
decrease is mainly attributed to the ongoing refocusing program.
DEPRECIATION. Depreciation decreased 42% to approximately $33,000 in 2004
from approximately $57,000 in 2003. This decrease is mainly attributed to the
restructuring of Sangui GmbH.
Sangui BioTech International, Inc.
---------------------------------
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
31% to approximately $83,000 in 2004 from approximately $121,000 in 2003. The
decrease is due to decreased consulting and legal fees and an increase in stock
compensation expense.
12
Consolidated
------------
NET LOSS. As a result of the above factors, the Company's consolidated net
loss was approximately $581,000, or $0.01 per common share, in 2004, compared to
approximately $806,000, or $0.02 per common share, in 2003.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
For the six months ended December 31, 2004, net cash used in operating
activities decreased to approximately $332,000 from approximately $785,000 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 six months ended December 31, 2004, net cash provided by investing
activities decreased to zero from approximately $12,000 net cash provided by
investing activities in the corresponding period in 2003. The decrease is due to
the decrease in collections on notes receivable and decrease in purchases of
property and equipment during the six months ended December 31, 2004, compared
to the corresponding period in 2003.
For the six months ended December 31, 2004, net cash provided by financing
activities decreased approximately $27,000 compared to the corresponding period
in 2003. The decrease is due to the purchase of treasury stock of approximately
$127,000 combined with proceeds received from the issuance of common stock of
$100,000.
Working capital deficit was approximately ($23,000) at December 31, 2004, a
decrease of approximately $424,000 from June 30, 2004 due primarily to the
Company's net loss for the six-month period.
At December 31, 2004, the Company had cash of approximately $38,000. 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
--------------------------------
(a) Evaluation of disclosure controls and procedures. Our principal
executive officer and principal financial officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Exchange Act), as of a date within 90 days of
the filing date of this Quarterly Report on Form 10-QSB. Based on such
evaluation, they have concluded that as of such date, our disclosure controls
and procedures are effective and designed to ensure that information required to
be disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable SEC rules and forms.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of evaluation by our principal executive officer
and principal financial officer.
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
--------------------------
On August 4, 2003, SanguiBioTech AG filed a lawsuit against a former
director of SGBI, 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 denied that the claim was justified and brought forward
the opinion that he can claim additional fees. The plaintiff has rejected the
defendant's opinion. The litigation was still pending as of December 31, 2004.
Subsequent to the period covered by this report, by order of the Court, on
February 10, 2005, the lawsuit was settled. All claims and counterclaims between
the parties were irrevocably dismissed.
13
The Company is not aware of pending claims or assessments, other than as
described above, which may have a material adverse impact on the Company's
financial position or results of operations.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
--------------------------------------------------------------------
On April 28, 2004, the Company adopted the 2004 Employee Stock Incentive
Plan (the Plan). Under the terms of the plan the Board was authorized to issue
up to 1,000,000 shares of common stock to certain eligible employees of the
company or its subsidiaries. In July, 2004, the Company issued 1,000,000 shares
to Sangui GmbH employees. Sangui GmbH is a subsidiary of the Company. No
underwriters were used. The securities were registered under Securities Act of
1933 on Form S-8, which became effective on May 24, 2004
Subsequent to the period covered by this report, in November and December
2004, the company sold 2,000,000 shares of its common stock to two German
investors at a price of $.0.05 per share, for a total cash contribution of US
$100,000. No underwriters were used. The offer and sale of the shares occurred
outside the United States and the shares were sold to two individuals who reside
outside the United States, pursuant to an exemption from registration under Rule
901, Regulation S of the Securities Act of 1933, as amended.
Subsequent to the period covered by this report, in February 2005, the
company sold 4,500,000 shares of common stock to six German and Suisse investors
yielding a cash contribution of US $275,000. No underwriters were used. The
offer and sale of the shares occurred outside the United States and the shares
were sold to six individuals who reside outside the United States, pursuant to
an exemption from registration under Section 4(2)of the Securities Act of 1933.
Subsequent to the period covered by this report, in February 2005, the
Company issued 200,000 restricted shares in consideration of consulting services
valued at $17,500 to Joachim Fleing, a Director of the Company. No underwriters
were used. The shares were issued to this individual, who resides outside the
United States, pursuant to an exemption from registration under Section 4(2)of
the Securities Act of 1933.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
--------------------------------------------------------------
None.
ITEM 5 - OTHER INFORMATION
--------------------------
None.
ITEM 6 - EXHIBITS
-----------------
31.1 Certification Pursuant to Rule 13a-14(a) and 15d-14(a), filed
herewith.
32. Certification Pursuant to Section 1350 of Title 18 of the United
States Code, filed herewith.
14
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SANGUI BIOTECH INTERNATIONAL, INC.
Date: March 7 , 2005 /s/ Wolfgang Barnikol
--------------------------------------
Wolfgang Barnikol
President, Chief Executive Officer and
Chief Financial Officer
Date: March 7 , 2005 /s/ Joachim Fleing
--------------------------------------
Joachim Fleing
Chief Accounting Officer
15