SANGUI BIOTECH INTERNATIONAL INC - Quarter Report: 2010 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:  March 31, 2010

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 Incorporation or Organization)	(I.R.S. Employer Identification No.)

              

Alfred-Herrhausen-Str. 44, 58455 Witten, Germany

(Address of Principal Executive Offices)

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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      . No  X .

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.   See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	Smaller reporting company	X .

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      . No   X .

 

As of April 20, 2011, there were 100,742,340 shares of the issuer's Common Stock, no par value, issued and outstanding.

---

SANGUI BIOTECH INTERNATIONAL, INC.

 

Quarterly Report on Form 10-Q

 

For the Quarterly Period Ended March 31, 2010

 

 

INDEX

 

PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	15
Item 4T.	Controls and Procedures	16
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	19
Item 5.	Other Information	19
Item 6.	Exhibits	20

 

ii

---

PART I - FINANCIAL INFORMATION

 

Item 1 - Consolidated Financial Statements

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnotes necessary for a complete presentation of our financial position, results of operations, cash flows, and stockholders' deficit in conformity with generally accepted accounting principles in the United States of America.  In the opinion of management, all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position have been included and all such adjustments are of a normal recurring nature.

 

Our unaudited consolidated balance sheet as of March 31, 2010 and our unaudited consolidated statements of operations for the three month periods ended March 31, 2010 and 2009, and the unaudited consolidated statements of cash flows for the nine month periods ended March 31, 2010 and 2009, are attached hereto and incorporated herein by this reference.

1

---

SANGUI BIOTECH INTERNATIONAL, INC.
Consolidated Balance Sheets
ASSETS
				March 31,			June 30,
				2010			2009
CURRENT ASSETS				(Unaudited)
	Cash			$	12,718		$	12,353
	Accounts receivable, net				6,905			5,150
	Inventory				12,782			29,818
	Prepaid expenses and other assets				12,157			3,717
		Total Current Assets			44,562			51,038
PROPERTY AND EQUIPMENT, Net					1,577			3,184
OTHER ASSETS
	Tax refunds receivable				36,097			24,755
	Other non-current assets				18,828			20,574
		Total Other Assets			54,925			45,329
		TOTAL ASSETS		$	101,064		$	99,551

The accompanying notes are an integral part of these consolidated financial statements.

2

---

SANGUI BIOTECH INTERNATIONAL, INC.
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
				March 31,			June 30,
				2010			2009
CURRENT LIABILITIES				(Unaudited)
	Accounts payable and accrued expenses			$	362,233		$	283,181
	Accounts payable - related parties				35,164			117,375
		Total Current Liabilities			397,397			400,556
		TOTAL LIABILITIES			397,397			400,556
STOCKHOLDERS' EQUITY (DEFICIT)
	Preferred stock, no par value; 5,000,000 shares
	authorized, -0- shares issued and outstanding				-			-
	Common stock, no par value; 250,000,000 shares
	authorized, 78,310,085 and 69,438,500 shares issued
	and outstanding, respectively				22,297,135			21,409,838
	Additional paid-in capital				4,621,430			4,621,430
	Stock subscriptions payable				13,457			167,179
	Accumulated other comprehensive income				(414,978)			(559,751)
	Accumulated deficit				(26,813,377)			(25,939,701)
		Total Stockholders' Equity (Deficit)			(296,333)			(301,005)
		TOTAL LIABILITIES AND STOCKHOLDERS'
		EQUITY (DEFICIT)		$	101,064		$	99,551

The accompanying notes are an integral part of these consolidated financial statements.

3

---

SANGUI BIOTECH INTERNATIONAL, INC.
Consolidated Statements of Operations
(Unaudited)
			For the Three Months Ended						For the Nine Months Ended
			March 31,						March 31,
			2010			2009			2010			2009
REVENUES			$	4,213		$	23,504		$	12,809		$	34,621
COST OF SALES				993			6,380			10,447			18,619
		GROSS PROFIT (LOSS)		3,220			17,124			2,362			16,002
OPERATING EXPENSES
	Research and development			16,788			56,181			98,221			171,485
	Depreciation and amortization			482			631			1,565			2,837
	General and administrative			145,517			130,952			776,952			478,296
		Total Operating Expenses		162,787			187,764			876,738			652,618
		OPERATING LOSS		(159,567)			(170,640)			(874,376)			(636,616)
OTHER INCOME (EXPENSE)
	Interest expense			-			(19,780)			-			(63,353)
	Other income			90			375			699			13,006
		Total Other Income (Expense)		90			(19,405)			699			(50,347)
		Loss before income taxes and
		non-controlling interest		(159,477)			(190,045)			(873,677)			(686,963)
Provision for income taxes				-			-			-			-
		NET LOSS	$	(159,477)		$	(190,045)		$	(873,677)		$	(686,963)
OTHER COMPREHENSIVE INCOME
	Foreign currency translation adjustments			21,519			(3,509)			144,773			(489,082)
		Total Other Comprehensive Income (Loss)		21,519			(3,509)			144,773			(489,082)
		COMPREHENSIVE INCOME (LOSS)	$	(137,958)		$	(193,554)		$	(728,904)		$	(1,176,045)
		BASIC AND DILUTED
		LOSS PER SHARE	$	(0.00)		$	(0.00)		$	(0.01)		$	(0.01)
		WEIGHTED AVERAGE
		NUMBER OF SHARES
		OUTSTANDING		77,883,098			68,048,600			74,997,304			59,024,300

The accompanying notes are an integral part of these consolidated financial statements.

4

---

SANGUI BIOTECH INTERNATIONAL, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
(unaudited)
								Accumulated
				Additional		Stock		Other
	Common Stock			Paid-In		Subscriptions		Comprehensive		Accumulated
	Shares	Amount		Capital		Payable		Income		Deficit		Total
Balance, June 30, 2008	50,000,000	$	18,969,358	$	3,099,135	$	167,179	$	(592,006)	$	(23,623,769)	$	(1,980,103)
Currency translation adjustment	-		-		-		-		32,255		-		32,255
Amortization of beneficial
conversion feature on
promissory notes converted	-		-		1,522,295		-		-		-		1,522,295
Common shares issued in
conversion of promissory
notes at prices from $0.06
to $0.24 per share	18,163,500		2,367,958		-		-		-		-		2,367,958
Common shares issued for
cash at $0.057 per share	1,275,000		72,522		-		-		-		-		72,522
Net loss for the year ended
June 30, 2009	-		-		-		-		-		(2,315,932)		(2,315,932)
Balance, June 30, 2009	69,438,500		21,409,838		4,621,430		167,179		(559,751)		(25,939,701)		(301,005)
Common shares issued for
services at $0.174 per share	1,792,626		311,584		-		-		-		-		311,584
Common shares issued for
cash at $0.081 per share	7,078,959		575,713		-		(167,179)		-		-		408,534
Cash received for stock
subscriptions payable at
$0.01 per share (unaudited)	-		-		-		13,457		-		-		13,457
Net loss for the nine months
ended March 31, 2010	-		-		-		-		144,773		(873,677)		(728,904)
Balance, March 31, 2010	78,310,085	$	22,297,135	$	4,621,430	$	13,457	$	(414,978)	$	(26,813,378)	$	(296,334)

The accompanying notes are an integral part of these consolidated financial statements.

5

---

SANGUI BIOTECH INTERNATIONAL, INC.
Statements of Cash Flows
(Unaudited)
				For the Nine Months Ended
				March 31,
				2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss			$	(873,677)		$	(686,963)
	Adjustments to reconcile net loss to net cash
	used by operating activities:
		Depreciation			1,569			2,837
		Common stock issued for services			311,584			-
	Changes in operating assets and liabilities
		Accounts receivable			(2,101)			(13,771)
		Inventory			16,808			7,618
		Prepaid expenses and other assets			(21,311)			18,311
		Accounts payable and accrued expenses			195,843			45,179
			Net Cash Used in Operating Activities		(371,285)			(626,789)
CASH FLOWS FROM INVESTING ACTIVITIES
		Sale of fixed assets			-			(2,921)
		Purchases of fixed assets			-			3,535
			Net Cash Provided by Investing Activities		-			614
CASH FLOWS FROM FINANCING ACTIVITIES
		Common stock sold for cash			421,991			-
		Cash received on notes receivable			-			533,059
		Proceeds from in notes payable - related			49,714			374,891
			Net Cash Provided by Financing Activities		471,705			907,950
EFFECTS OF EXCHANGE RATES					(100,055)			(489,082)
		NET INCREASE (DECREASE) IN CASH			365			(207,307)
		CASH AT BEGINNING OF PERIOD			12,353			229,717
		CASH AT END OF PERIOD		$	12,718		$	22,410
SUPPLEMENTAL DISCLOSURES OF
	CASH FLOW INFORMATION
	CASH PAID FOR:
		Interest		$	-		$	-
		Income Taxes		$	-		$	-
	NON CASH FINANCING ACTIVITIES:
		Common stock issued for debt		$	-		$	2,187,233

The accompanying notes are an integral part of these consolidated financial statements.

6

---

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

March 31, 2010 and June 30, 2009

(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. 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-K for the year ended June 30, 2009. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair presentation, have been included. The results of operations for the three-month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2010.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Sangui Biotech International, Inc., incorporated in Colorado in 1995, and its wholly owned subsidiaries, Sangui Biotech, Inc., Sangui BioTech AG, GlukoMediTech AG, and Sangui BioTech PTE Ltd., (collectively, the "Company") have been engaged in the research, development, manufacture, and sales of medical and cosmetic products.

On June 30, 2003, GlukoMediTech AG ("Gluko AG") was merged into Sangui BioTech AG ("Sangui AG"). Effective November 4, 2003, Sangui AG was converted into Sangui BioTech GmbH (Sangui GmbH). After completion of the restructuring, Sangui GmbH, which is headquartered in Witten, Germany, is engaged in the development of artificial oxygen carriers (external applications of hemoglobin, blood substitutes and blood additives) as well as in the development, marketing and sales of cosmetics and wound management products.

The operations of Sangui BioTech, Inc. and Sangui BioTech PTE Ltd Singapore, two former wholly-owned subsidiaries, were discontinued and dissolved during 2002.

The operations of Sangui BioTech, Inc. ("Sangui USA") were discontinued during 2002 upon the sale of its in vitro immunodiagnostics business and the subsequent merger of Sangui USA with and into the parent company, Sangui BioTech International, Inc., effective December 31, 2002. Sangui BioTech PTE Ltd ("Sangui Singapore") was a regional office for the Company that carried out research and development projects in conjunction with Sangui GmbH and Sangui Singapore. The Company discontinued the operations of Sangui Singapore in August 2002. The Singapore office was closed effective December 31, 2002.

Consolidation

The consolidated financial statements include the accounts of Sangui BioTech International, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

7

---

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

March 31, 2010 and June 30, 2009

(Unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign Currency Translation

Assets and liabilities of the Company's foreign operations are translated into U.S. dollars at period-end exchange rates. Net exchange gains or losses resulting from such translation are excluded from net loss but are included in comprehensive income (loss) and accumulated in a separate component of stockholders' equity. Income and expenses are translated at weighted average exchange rates for the period.

Risk and Uncertainties

The Company's line of future pharmaceutical products (artificial oxygen carriers or blood substitute and additives) and medical products (wound dressings and other wound management products) 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 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.

Going Concern

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 $26,813,378 as of March 31, 2010 and has been significantly reducing its working capital since June 30, 2004. The Company incurred a net loss applicable to common stockholders of $873,677 during the nine months ended March 31, 2010 and used cash in operating activities of $371,285 for the nine months ended March 31, 2010. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company expects to continue to incur significant capital expenses in pursuing its business plan to market its products and expand its product line, while obtaining additional financing through stock offerings or other feasible financing alternatives. In order for the Company to continue its operations at its existing levels, the Company will require significant additional funds over the next twelve months. Therefore, the Company is dependent on funds raised through equity or debt offerings. Additional financing may not be available on terms favorable to the Company, or at all. If these funds are not available the Company may not be able to execute its business plan or take advantage of business opportunities. The ability of the Company to obtain such additional financing and to achieve its operating goals is uncertain. In the event that the Company does not obtain additional capital or is not able to increase cash flow through the increase of sales, there is a substantial doubt of its being able to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Cash and Cash Equivalents

The Company maintains its cash in bank accounts in Germany. Cash and cash equivalents include time deposits for which the Company has no requirements for compensating balances. The Company has not experienced any losses in its uninsured bank accounts.  At March 31, 2010 the Company had no cash equivalents.

8

---

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

March 31, 2010 and June 30, 2009

(Unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition

Revenue is recognized when the sales amount is determined, shipment of goods to the customer has occurred and collection is reasonably assured. Product is shipped FOB origination.

Research and Development

Research and development costs are charged to operations as they are incurred.  Legal fees and other direct costs incurred in obtaining and protecting patents are expensed as incurred.

Basic and Diluted Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period of computation. Diluted earnings (loss) per share give 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 anti-dilutive effect on earnings. As of March 31, 2010, the Company had no potentially dilutive securities that would affect the loss per share if they were to be dilutive.

Comprehensive Income (Loss)

Total comprehensive income (loss) represents the net change in stockholders' equity during a period from sources other than transactions with stockholders and as such, includes net earnings (loss). For the Company, the components of other comprehensive income (loss) are the changes in the cumulative foreign currency translation adjustments and unrealized gains (losses) on marketable securities and are recorded as components of stockholders' equity.

Inventory

Inventory consists of various raw materials, supplies, and both semi-processed and fully-processed cosmetics products.  The Company values its inventory at the lower of cost or market.  The cost is determined by the specific identification method.  Cost includes purchase price, freight, insurance, duties and other incidental expenses incurred in bringing inventories to their present location and condition. The Company records a reserve if the fair value of inventory is determined to be less than the cost. At March 31, 2010, a reserve of $106,723 for impaired inventory has been recorded.

9

---

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

March 31, 2010 and June 30, 2009

(Unaudited)

NOTE 3 - COMMITMENTS AND CONTINGENCIES

Litigation

The Company may, from time to time, be involved in various legal disputes resulting from the ordinary course of operating its business. Management is currently not able to predict the outcome of any such cases. However, management believes that the amount of ultimate liability, if any, with respect to such actions will not have a material effect on the Company's financial position or results of operations.

  

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 4 – COMMON STOCK

In January 2010 the Company issued an aggregate of 875,000 shares of its Common Stock to two (2) individuals and/or entities, at approximately $0.10 per share, in exchange for cash proceeds of $84,953.

In March 2010 the Company issued an aggregate of 166,670 shares of its Common Stock to one (1) individual and/or entity, at approximately $0.08 per share, in exchange for cash proceeds of $13,628. The Company also issued an aggregate of 144,150 shares of its Common Stock to one (1) individual and/or entity, at approximately $0.11 per share, in exchange for services valued at $15,568.

NOTE 5 – SUBSEQUENT EVENTS

   

In May 2010 the Company issued an aggregate of 127,083 shares of its Common Stock to one (1) individual and/or entity, at approximately $0.11 per share, in exchange for services valued at $13,725. The Company also issued an aggregate of 200,000 shares of its Common Stock to one (1) individual and/or entities, at approximately $0.064 per share, in exchange for cash proceeds of $12,732.

In June 2010 the Company issued an aggregate of 345,000 shares of its Common Stock to various individuals and/or entities, at approximately $0.083 per share, in exchange for services valued at of $28,635. The Company also issued an aggregate of 620,000 shares of its Common Stock to two (2) individual and/or entities, at approximately $0.076 per share, in exchange for cash proceeds of $47,528.

In July 2010 the Company issued an aggregate of 355,115 shares of its Common Stock to one (1) individual, at approximately $0.078 per share, in exchange for services valued at $27,634. The Company also issued an aggregate of 1,000,000 shares of its Common Stock to two (2) individuals and/or entities, at approximately $0.061 per share, in exchange for cash proceeds of $60,910.

In August 2010 the Company issued an aggregate of 1,200,000 shares of its Common Stock to two (2) individuals, at approximately $0.015 per share, from the long-term incentive plan, totaling an expense of $18,000.

In September 2010 the Company issued an aggregate of 2,134,000 shares of its Common Stock to various individuals and/or entities, at approximately $0.013 per share, in exchange for cash totaling $28,141. The Company also issued an aggregate of 240,000 shares of its Common Stock to one (1) individual, at approximately $0.07 per share, in exchange for services valued at $16,800.

10

---

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

March 31, 2010 and June 30, 2009

(Unaudited)

NOTE 5 – SUBSEQUENT EVENTS (Continued)

In October 2010 the Company issued an aggregate of 606,163 shares of its Common Stock to one (1) individual, at approximately $0.073 per share, in exchange for services totaling $44,498. The Company also issued an aggregate of 1,500,000 shares of its Common Stock to one (1) individual and/or entities, at approximately $0.099 per share, in exchange for cash proceeds of $149,031.

In November 2010 the Company issued 100,000 shares of its Common Stock to one (1) individual, at $0.072 per share, in exchange for services valued at approximately $7,200.

In December 2010 the Company issued an aggregate of 5,450,313 shares of its Common Stock to various individuals, at approximately $0.051 per share, in exchange for services valued at approximately $275,004. The Company also issued an aggregate of 1,186,667 shares of its Common Stock to two (2) individuals and/or entities, at approximately $0.105 per share, in exchange for cash proceeds of $124,297.

In January 2011 the Company made use of its Long Term Incentive Program as resolved upon by the Shareholders’ Meeting of December 2008 and issued an aggregate of 3,300,00 shares to fourteen (14) individuals, at approximately $0.051.

In February 2011 the Company issued an aggregate of 307,914 to one (1) individual, at approximately $0.060 per share, in exchange for services totaling $18,475.

In March 2011 the Company issued an aggregate of 3,200,000 shares to various individuals, at approximately $0.0552 in exchange for cash proceeds of $176,640. The company also issued an aggregate of 500,000 shares to one (1) individual, at approximately$0.0552 in exchange for services totaling $27,600.

11

---

Item 2 - Management's Discussion And Analysis Of Financial Condition And Results Of Operations

 

Forward-looking Statements

 

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this quarterly report.  Some of the information in this quarterly report contains forward-looking statements, including statements related to anticipated operating results, margins, growth, financial resources, capital requirements, adequacy of the Company's financial resources, trends in spending on research and development, the development of new markets, the development, regulatory approval, manufacture, distribution, and commercial acceptance of new products, and future product development efforts.  Investors are cautioned that forward-looking statements involve risks and uncertainties, which may affect our business and prospects, including but not limited to, the Company's expected need for additional funding and the uncertainty of receiving the additional funding, changes in economic and market conditions, acceptance of our products by the health care and reimbursement communities, new development of competitive products and treatments, administrative and regulatory approval and related considerations, health care legislation and regulation, and other factors discussed in our filings with the Securities and Exchange Commission.

 

GENERAL

 

The Company's mission is the development of novel and proprietary pharmaceutical, medical and cosmetic products.  The Company develops its products through its wholly owned German subsidiary Sangui GmbH.  The Company is seeking to market and sell some or all of their products through partnerships with industry partners.

 

The focus of Sangui GmbH has been the development of oxygen carriers capable of providing oxygen transport in humans in the event of acute and/or chronic lack of oxygen due to arterial occlusion, anemia or blood loss whether due to surgery, trauma, or other causes.  Sangui GmbH has thus far focused its development and commercialization efforts of such artificial oxygen carriers by reproducing and synthesizing polymers out of native hemoglobin of defined molecular sizes.  Sangui GmbH, has in addition developed external applications of oxygen transporters in the medical and cosmetic fields in the form of gels and emulsions for the regeneration of the skin as well as in the form of a hemoglobin-based wound spray.

 

Sangui GmbH holds the exclusive distribution rights for Chitoskin wound pads in the European Union and various other countries.  Sangui GmbH has filed a patent cooperation treatment applications (“PCT”) for the production and use of improved Chitoskin wound pads using gelatin instead of collagen as the carrier substance.

 

Artificial Oxygen Carriers

    

Sangui GmbH develops several products based on polymers of purified natural porcine hemoglobin with oxygen carrying abilities that are similar to native hemoglobin.  These are (1) oxygen carrying blood additives and (2) oxygen carrying blood volume substitutes.

The blood additives and blood substitute projects were halted in 2003 due to the lack of financing for the pre-clinical test phase of the blood additives.

 

According to regulatory requirements, all drugs must complete preclinical and clinical trials before approval (e.g. Federal Drug Administration approval) and market launch.  The Company’s management believes that the European and FDA approval process will take at a minimum several years to complete.

12

---

Nano Formulations for the Regeneration of the Skin

 

Healthy skin is supplied with oxygen both from the inside as well as through diffusion from the outside.  A lack of oxygen will cause degenerative alterations, ranging from premature aging, to surface damage, and even as extensive as causing open wounds.  The cause for the lack of oxygen may be a part of the normal aging process, but it may also be caused by burns, radiation, trauma, or a medical condition.  Impairment of the blood flow, for example caused by diabetes mellitus or by chronic venous insufficiency, can also lead to insufficient oxygen supply and the resulting skin damage.

 

The nano-emulsion-based preparations now being sold by Sangui GmbH have been designed to supporting the regeneration of the skin by improving its oxygen supply.  The products Sangui GmbH are currently focusing on are an anti-aging formulation and treatment and an anti-cellulite formulation for the cosmetics market.  The products were thoroughly tested by an independent research institute and received top marks for skin moisturization, and enhanced skin elasticity, respectively.

 

Sangui’s cosmetic business model is reliant upon cooperation with its manufacturing and distribution partners.  Sangui has its various formulations produced by a contract manufacturer and sells quantities of the products either in bulk or in customized private label packaging, as requested.  In addition, Sangui started to sell its cosmetic products under its own brand “Pure MO2isture” via an internet shop as of mid September 2006 which generates consistent sales, albeit at a low level.

     

Chitoskin Wound Pads

 

In September, 2009, it was decided to terminate the cooperation with the former contract manufacturer of the wound pads. Distribution and sales of the product were stopped due to a less than satisfactory profitability. In the subsequent quarters, the management of SanguiBioTech GmbH identified another contract manufacturer in Germany who ran production tests in the course of calendar year 2010. In April, 2011, this facility is in the process of obtaining certification according to CE standards. It has not been determined, however, as to when production of the wound pads will be resumed.

Hemospray Wound Spray

SanguiBioTech GmbH has developed a novel medical product aimed at the healing of chronic wounds. The Hemospray wound spray is based on porcine hemoglobin.  A series of wound treatments experiments ended in 2009 using our products and the test’s, which were concluded successfully at a hospital in Mexico, results were presented at an international convention in Mexico City. The test treatments were part of an effort to achieve a registration of Hemospray for the Latin American markets and to obtain a CE-mark certification for the European markets. As of April 2011 neither registration has been attained.

Subsequent to the period covered by this report, in December 2010, the company established a joint venture company under the name of sastOmed GmbH with SanderStrothmann GmbH headquartered in Georgsmarienhuette, Germany. It is the purpose of the new company to obtain the CE mark certification of the Hemospray wound spray and to start producing, marketing and distributing the product on a global scale. To this effect, Sangui has granted sastOmed GmbH comprehensive and exclusive licenses on a global scale. Project management, financing and execution of the projected activities will be taken care of by the joint venture which will be headed by Michael Sander and Rene Strothmann, Managing Directors of SanderStrothmann GmbH, who in addition will contribute their experience in product development and their proven industry contacts and cooperations.

Under the terms of the contracts sastOmed will pay milestone-based downpayments as compensation for the licenses and has granted Sangui royalties on all future sales of the product.

13

---

FINANCIAL POSITION

 

Our current assets decreased approximately $6,476 from June 30, 2009 to approximately $44,562 at March 31, 2010.  The decrease is primarily attributable to an impairment of inventory held in the second quarter of our 2010 financial year.

 

Our net property and equipment decreased approximately $1,607, or approximately 50% from June 30, 2009 to approximately $1,577 at March 31, 2010.  The decrease is primarily attributable to current period depreciation.

 

We funded our operations primarily through our existing cash reserves and cash received from the issuance of share of common stock.  Our stockholders’ deficit decreased by approximately $4,672 to approximately $296,333.  The primary factor behind this decrease was our issuance of common stock for cash and services which offset the increase of accumulated deficit.

 

RESULTS OF OPERATIONS

 

Three months ended March 31, 2010 and 2009:

 

REVENUES - Revenues during the three months ended March 31, 2010 amounted to $4,213. In the comparable period of 2009 we had revenues of $23,504.  We incurred cost of sales of $993 in the third quarter of the 2010 financial year compared to $6,380 in 2009.

 

RESEARCH AND DEVELOPMENT - Research and development expenses decreased $39,393 to approximately $16,788 in 2010 from approximately $56,181 in 2009.  The decrease is mainly attributed to the conclusion of several development initiatives in our pursuit to obtain the CE-mark certification for our Hemospray wound spray.

 

GENERAL AND ADMINISTRATIVE - General and administrative expenses increased 11% to approximately $145,517 in 2010 from approximately $130,952 in 2009.  This increase is mainly attributed to additional activities to obtain the CE-mark certification for our Hemospray wound spray.

 

DEPRECIATION AND AMORTIZATION - Depreciation decreased $149 to approximately $482 in 2010 from approximately $631 in 2009.  This decrease is mainly attributed to the ongoing restructuring of Sangui GmbH.

 

NET LOSS - As a result of the above factors, our consolidated net loss was approximately $159,477, or approximately $(0.00) per common share, for the three months ended March 31, 2010, compared to approximately $190,045, or $(0.00) per common share, during the comparable period in 2009.

Nine months ended March 31, 2010 and 2009:

 

REVENUES - Revenues during the nine months ended March 31, 2010 came in to the amount of $12,809. In the comparable period of the previous year we had revenues of $34,621.  Cost of sales decreased to $10,447 in the first nine months of the 2010 financial year from $18,619 in the comparable period of the previous year.

 

RESEARCH AND DEVELOPMENT - Research and development expenses decreased $73,264 to approximately $98,221 in 2010 from approximately $171,485 in 2009.  The decrease is mainly attributed to our conclusion of several development initiatives in our pursuit to obtain the CE-mark certification for our Hemospray wound spray which occurred in the second quarter of our 2010 financial year.

14

---

GENERAL AND ADMINISTRATIVE - General and administrative expenses increased by $298,656 to approximately $776,952 in 2010 from approximately $478,296 in 2009.  This increase is partly attributed to spending in the second quarter of our 2010 financial year related to the audit and re-audit of our financial statements of the 2008 and 2009 financial years as well as to an increase of legal expenses.

 

DEPRECIATION AND AMORTIZATION - Depreciation decreased $1,272 to approximately $1,565 in 2010 from approximately $2,837 in 2009.  This decrease is mainly attributed to the ongoing restructuring of Sangui GmbH.

 

NET LOSS - As a result of the above factors, our consolidated net loss was approximately $873,677, or approximately $(0.01) per common share, for the nine months ended March 31, 2010, compared to approximately $686,963, or $(0.01) per common share, during the comparable period in 2009.

LIQUIDITY AND CAPITAL RESOURCES

 

For the nine months ended March 31, 2010, net cash used in operating activities decreased to approximately $371,285, from approximately $626,789 in the corresponding period in 2009. The higher net loss for the period was more than compensated for by the issuance of shares for services as well as by an increase in accounts payable and accrued expenses.

We had a working capital deficit of approximately $352,835 at March 31, 2010, an increase of approximately $3,317 from June 30, 2009 due primarily to our conversion of outstanding notes payable into commons stock.  At March 31, 2010, we had cash of approximately $12,718.  We will need substantial additional funding to fulfill our business plan and we intend to explore financing sources for our future development activities.  No assurance can be given that these efforts will be successful.

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company as defined by § 229.10(f)(1) and are not required to provide the information under this item.

 

15

---

Item 4T - Controls and Procedures

 

Disclosure Controls and Procedures

As of the date of the end of the period covered by report, our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

  

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f).  Management conducted an evaluation of the effectiveness of the internal control over financial reporting as of June 30, 2009, using the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  Based on the evaluation of the effectiveness of the internal controls over financial reporting as of June 30, 2009, management has concluded that our internal controls over financial reporting were not effective as of the end of the period covered by this report.

As a result of management’s assessment, management has determined that there is a material weakness due to the lack of segregation of duties.  In order to address and resolve this weakness we will endeavor to locate and appoint additional qualified personnel to the board of directors and pertinent officer positions as our financial means allow.  To date, our limited financial resources have not allowed us to hire the additional personnel necessary to address this material weakness.

 

Additionally, as a result of management’s assessment, management has determined that there is a significant deficiency with regard to the lack of a backup process for electronic financial information.  There is no stored backup offsite or in a media safe, and as such, there are no regularly run test restorations of said financial information.  In order to address and resolve this deficiency we are currently researching the options available given our financial means to have a regularly scheduled and dependable offsite backup of our Company records.

Lastly, the Company has not instituted specific anti-fraud controls.  While management found no evidence of fraudulent activity, the chief accounting officer has access to both accounting records and corporate assets, principally the operating bank account.  Management believes this exposure to potential fraudulent activity is not significant either to the operations of the company or to the financial reporting; however, management is in the process of instituting controls specifically designed to address this material weakness, so as to prevent and detect—on a timely basis—any potential loss due to fraudulent activity.

16

---

This Annual Report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter (our fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

(a) 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;

(b)  

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and

(c)  

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

 

On February 14, 2007, Dr. Rainer Felfe, filed a claim (4 Ca 431/07) against the Company and its subsidiary, SanguiBioTech GmbH, with the Industrial Relations Court in Bochum, Germany (Arbeitsgericht Bochum). The plaintiff’s claim states that he is entitled to receive outstanding wages and salaries owed to Prof. Dr. Dr. Wolfgang Barnikol by the Company, or its subsidiary, in the amount of approximately EUR370,000 (approximately US $503,200) as partial relief of a judgment rendered in a civil case against Dr. Barnikol (Oberlandesgericht Düsseldorf I 6 U 96/06). Dr. Barnikol has never made a claim against the Company, or its subsidiary, for outstanding wages with any governmental agency and acknowledges there are no outstanding wages due to him by either the Company or its subsidiary. We believe the claim lacks merit and plan to vigorously defend our position.  No briefs were exchanged nor hearings called for by the Court during our fiscal year ended June 30, 2009 nor in the fiscal year ended June 30, 2010.

 

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.

 

17

---

Item 1a - Risk Factors

 

We are a smaller reporting company as defined by § 229.10(f)(1) and are not required to provide the information under this item.

Item 2 - Unregistered Sales of Equity Securities and Use Of Proceeds

In January 2010 the Company issued an aggregate of 875,000 shares of its Common Stock to two (2) individuals and/or entities, at approximately $0.10 per share, in exchange for cash proceeds of $84,953. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In March 2010 the Company issued an aggregate of 166,670 shares of its Common Stock to one (1) individual and/or entity, at approximately $0.08 per share, in exchange for cash proceeds of $13,628. The Company also issued an aggregate of 144,150 shares of its Common Stock to one (1) individual and/or entity, at approximately $0.11 per share, in exchange for services valued at $15,568. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

Subsequent to the period covered by this report

   

In May 2010 the Company issued an aggregate of 127,083 shares of its Common Stock to one (1) individual and/or entity, at approximately $0.108 per share, in exchange for services valued at $13,725. The Company also issued an aggregate of 200,000 shares of its Common Stock to one (1) individual and/or entities, at approximately $0.064 per share, in exchange for cash proceeds of $12,732. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In June 2010 the Company issued an aggregate of 345,000 shares of its Common Stock to various individuals and/or entities, at approximately $0.083 per share, in exchange for services valued at of $28,635. The Company also issued an aggregate of 620,000 shares of its Common Stock to two (2) individual and/or entities, at approximately $0.076 per share, in exchange for cash proceeds of $47,528. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In July 2010 the Company issued an aggregate of 355,115 shares of its Common Stock to one (1) individual, at approximately $0.078 per share, in exchange for services valued at $27,634. The Company also issued an aggregate of 1,000,000 shares of its Common Stock to two (2) individuals and/or entities, at approximately $0.061 per share, in exchange for cash proceeds of $60,910. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In August 2010 the Company issued an aggregate of 1,200,000 shares of its Common Stock to two (2) individuals, at approximately $0.015 per share, from the long-term incentive plan, totaling an expense of $18,000. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In September 2010 the Company issued an aggregate of 2,134,000 shares of its Common Stock to various individuals and/or entities, at approximately $0.013 per share, in exchange for cash totaling $28,141. The Company also issued an aggregate of 240,000 shares of its Common Stock to one (1) individual, at approximately $0.07 per share, in exchange for services valued at $16,800. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

18

---

In October 2010 the Company issued an aggregate of 606,163 shares of its Common Stock to one (1) individual, at approximately $0.073 per share, in exchange for services totaling $44,498. The Company also issued an aggregate of 1,500,000 shares of its Common Stock to one (1) individual and/or entities, at approximately $0.099 per share, in exchange for cash proceeds of $149,031. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In November 2010 the Company issued 100,000 shares of its Common Stock to one (1) individual, at $0.072 per share, in exchange for services valued at approximately $7,200. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In December 2010 the Company issued an aggregate of 5,450,313 shares of its Common Stock to various individuals, at approximately $0.051 per share, in exchange for services valued at approximately $275,004. The Company also issued an aggregate of 1,186,667 shares of its Common Stock to two (2) individual and/or entities, at approximately $0.105 per share, in exchange for cash proceeds of $124,297. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In January 2011 the Company made use of its Long Term Incentive Program as resolved upon by the Shareholders’ Meeting of December 2008 and issued an aggregate of 3,300,00 shares to fourteen (14) individuals, at approximately $0.051. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In February 2011 the Company issued an aggregate of 307,914 to one (1) individual, at approximately $0.060 per share, in exchange for services totaling $18,475. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

In March 2011 the Company issued an aggregate of 3,200,000 shares to various individuals, at approximately $0.0552 in exchange for cash proceeds of $176,640. The company also issued an aggregate of 500,000 shares to one (1) individual, at approximately$0.0552 in exchange for services totaling $27,600. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933. The certificate representing the shares contained a restricted legend.

Item 3 - Defaults Upon Senior Securities

 

None.

 

Item 5 - Other Information

 

None. 

19

---

Item 6 - Exhibits

 

_____________________________________________________________________________________

⁽¹⁾ Filed as an exhibit to the report on Form 8-K, filed on or about April 4, 2000     

⁽²⁾ Filed as an exhibit to the report on Form 10-KSB for period ended June 30, 2000, filed on October 13, 2000

⁽³⁾ Filed as an exhibit to the amended report on Form 10-KSB/A for the period ended June 30, 2000, filed on November 20, 2000

⁽⁴⁾ Filed as an exhibit to the report on Form 10-KSB for the period ended June 30, 2001, filed on September 28, 2001

⁽⁵⁾ Filed as an exhibit to the report on Form 8-K/A filed on October 9, 2007

⁽⁶⁾ Filed as an exhibit to the report on Form 10-QSB for the period ended December 31, 2006, filed on June 10, 2008

⁽⁷⁾ Filed as an exhibit to the report on Form 10-Q for the period ended December 31, 2008, filed on February 24, 2009

  

20

---

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.

 

  

Dated: May 2, 2011

/s/ Thomas Striepe                     

By: Thomas Striepe

Chief Executive Officer

Dated: May 2, 2011

/s/ Joachim Fleing                     

By: Joachim Fleing

Chief Financial Officer

21