SANGUI BIOTECH INTERNATIONAL INC - Quarter Report: 2011 December (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: December 31, 2011

     

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  [X]            No  ☐ 

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                                                                   Yes  [X]           No  ☐ 

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. (Check one):

 

Large Accelerated Filer   ☐	Accelerated Filer   ☐
Non-Accelerated Filer   ☐	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 February 2, 2012 there were 118,742,657shares 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 December 31, 2011

 

 

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 ................	11
Item 3.	Quantitative and Qualitative Disclosure About Market Risk ................................................................	14
Item 4.	Controls and Procedures ........................................................................................................................	14
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings .................................................................................................................................	16
Item 1A.	Risk Factors ...........................................................................................................................................	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds ..............................................................	16
Item 3.	Defaults Upon Senior Securities ...........................................................................................................	16
Item 5.	Other Information ..................................................................................................................................	17
Item 6.	Exhibits..................................................................................................................................................	17

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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 December 31, 2011 and our unaudited consolidated statements of operations for the six month periods ended December 31, 2011 and 2010, are attached hereto and incorporated herein by this reference.

1

SANGUI BIOTECH INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
ASSETS
				December 31,			June 30,
				2011			2011
CURRENT ASSETS				(unaudited)
	Cash			$	133,882		$	122,619
	Accounts receivable, net				470			459
	Inventory				1,363			2,836
	Prepaid expenses and other current assets				6,536			19,263
		Total Current Assets			142,251			145,177
PROPERTY AND EQUIPMENT, Net					1,642			2,197
OTHER ASSETS
	Note receivable				647,501			-
	Tax refunds receivable				21,705			22,024
	Other non-current assets				19,108			21,517
		Total Other Assets			688,314			43,541
		TOTAL ASSETS		$	832,207		$	190,915

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

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SANGUI BIOTECH INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
				December 31,			June 30,
				2011			2011
				(unaudited)
CURRENT LIABILITIES
	Accounts payable and accrued expenses			$	170,161		$	231,822
		Total Current Liabilities			170,161			231,822
		TOTAL LIABILITIES			170,161			231,822
STOCKHOLDERS' EQUITY (DEFICIT)
	Preferred stock, no par value; 10,000,000 shares
	authorized, -0- shares issued and outstanding				-			-
	Common stock, no par value; 250,000,000 shares
	authorized, 118,642,657 and 109,804,855 shares issued
	and outstanding, respectively				25,202,938			24,007,655
	Additional paid-in capital				4,621,430			4,621,430
	Stock subscriptions payable				18,255			-
	Accumulated other comprehensive income				(37,342)			(84,473)
	Accumulated deficit				(28,962,045)			(28,440,006)
	Noncontrolling interest				(181,190)			(145,513)
		Total Stockholders' Equity (Deficit)			662,046			(40,907)
		TOTAL LIABILITIES AND STOCKHOLDERS'
		EQUITY (DEFICIT)		$	832,207		$	190,915

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

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

4

5

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

December 31, 2011 and June 30, 2011

(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, 2011. 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 months periods ended December 31, 2011 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2012.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Sangui Biotech International, Inc. was incorporated in Colorado in 1995. Sangui Biotech International, Inc.’s 90% owned subsidiary, Sangui GmbH, is headquartered in Witten, Germany and 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.

Consolidation

The consolidated financial statements include the accounts of Sangui BioTech International, Inc. and its 90% owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

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.

Exchanges rates used for the preparation of the consolidated balance sheet as of December 31, 2011 and our unaudited consolidated statements of operations for the three month and six month periods ended December 31, 2011 and 2010, were calculated as follows:

as of December 31, 2011	USD 1 : EUR 0.7722
as of June 30, 2011	USD 1 : EUR 0.6949
July 1 through December 31, 2011	USD 1 : EUR 0.7240
July 1 through December 31, 2010	USD 1 : EUR 0.7348

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SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

December 31, 2011 and June 30, 2011

(Unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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, by the regulations of state agencies, and various foreign government agencies. The pharmaceutical, 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 $28,962,045 as of December 31, 2011 and has been significantly reducing its working capital since June 30, 2004. The Company incurred a net loss applicable to common stockholders of $522,039 during the six months ended December 31, 2011 and used cash in operating activities of $425,436 for the six months ended December 31, 2011. 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 December 31, 2011 the Company had no cash equivalents.

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.

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SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

December 31, 2011 and June 30, 2011

(Unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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, 2011, 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.  

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 operation.

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.

8

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

December 31, 2011 and June 30, 2011

(Unaudited)

NOTE 4 – CAPITAL STOCK

Preferred Stock – The Company is authorized to issue 10,000,000 shares of preferred stock.  No preferred stock has been issued so far.  The authorized preferred shares are non-voting and the Board of Directors has not designated any liquidation value or dividend rates.

Common Stock – The Company is authorized to issue 250,000,000 shares of no par value common stock. The holders of the Company's common stock are entitled to one vote for each share held of record on all matters to be voted on by those stockholders.

Common Stock Issuances – During the year ended June 30, 2011, the Company issued 12,714,540 shares of common stock for services at an average of $0.055 per share for a total expense of $704,827.  In addition, the Company issued 17,433,167 shares of common stock for cash at an average of $0.05 per share, yielding total cash proceeds of $909,951.

During the six month period ended December 31, 2011, the Company issued 50,000 shares of its Common Stock, at $0.10 per share from the Long-Term Incentive Equity Plan. In addition, the Company issued 837,802 shares to one (1) individual and one (1) entity at an average of $0.20 per share for services and as a bonus

valued at $158,904.  

The Company also issued 7,950,000 shares to thirteen (13) individuals and one (1) entity at an average of $0.14 per share in exchange for cash proceeds totaling $1,031,379.  During the six month period ended December 31, 2011, the Company received $18,255 for stock subscriptions payable.  Subsequent to the period end, the Company issued 100,000 shares of common stock at $0.18 per share in full satisfaction of the subscription payable.

NOTE 5 – SUBSEQUENT EVENTS

Subsequent to the period end, the Company issued 100,000 shares of common stock at $0.18 per share in full satisfaction of $18,255 of stock subscriptions payable which were received prior to period end.

In accordance with ASC 855-10, the Company’s management has reviewed all material events and there are no additional material subsequent events to report.

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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 ninety percent owned German subsidiary SanguiBioTech GmbH. The Company is seeking to market and sell some or all of their products through partnerships with industry partners.

The focus of SanguiBioTech 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.  SanguiBioTech 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.  SanguiBioTech 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.

SanguiBioTech 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

SanguiBioTech 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.

During the second quarter of our 2012 financial year the European Patent Office has officially expressed its intention to grant a patent based on Sangui’s application (01 945 245) “Mammalian hemoglobin compatible with blood plasma, cross-linked and conjugated with polyalkylene oxides as artificial medical oxygen carriers, production and use thereof”.

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.

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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 SanguiBioTech 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. It has not been determined, however, as to when production of the wound pads will be resumed.

During the second quarter of our 2012 financial year the European Patent Office officially expressed its intention to grant a patent based on Sangui’s application.

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 treatment tests were successfully concluded in 2009. They 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.

During December 2010, SanguiBioTech GmbH established a joint venture company with SanderStrothmann GmbH of Georgsmarienhuette, Germany, under the name of SastoMed GmbH.  This new enterprise is charged with obtaining the CE mark certification authorizing the distribution of the Hemospray wound spray in the member states of the European Union.  SanguiBioTech GmbH has granted SastoMed GmbH global distribution rights for this product and will receive royalties on sales in return.

In September 2011, the Mexican Commission for the Authorization of Pharmaceuticals and Medical Devices officially registered the entire current range of Sangui developed wound management products as medical devices and granted permission to use this treatment on a nationwide basis. In the same month the Secretaria de Salud (Secretary of Health) of the Mexican State of Tamaulipas indicated in an official letter that it has the firm intention to actually apply the Sangui developed wound therapy in the 22 hospitals under its direction.

In December, 2011, the Mexican State of Tamaulipas issued an initial order of Hemo2Spray. The medical product will initially be used in three state owned hospitals. While it will serve to treat patients suffering from chronic wounds its use in actual treatments will particularly be part of a comprehensive training program for doctors from other locations in Tamaulipas.

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The tests which were prerequisite for the registration were initiated and accompanied by the legally independent Mexican company Sanguis Latin America. In the second quarter of our 2012 financial year, the company extended a loan in the amount of EUR500,000 to Sanguis Latin America..

Product registration procedures in Europe are currently being continued. The comprehensive clinical assessment documentation was updated and submitted to the Notified Body in the course of our 2012 financial year.  A Notified Body, in the European Union, is an organization that has been accredited by a Member State to assess whether a product meets certain preordained standards.  Assessment can include inspection and examination of a product, its design and manufacture.  For example, a Notified Body may designate that a medical device conforms to the EU Medical Devices Directive, which defines the standards for medical devices.  With this Declaration of Conformity, the manufacturer can label the product with the CE Mark, which is required for distribution and sale in the EU.

FINANCIAL POSITION

Our current assets decreased approximately $2,926 from June 30, 2011 to approximately $142,251 at December 31, 2011.   This is attributed to a decrease in prepaid expenses.

Our net property and equipment decreased approximately $555, or approximately 25% from June 30, 2011 to approximately $1,642 at December 31, 2011.  The decrease is primarily attributable to the depreciation for the period.

We funded our operations primarily through our existing cash reserves and cash received from the issuance of share of common stock.  Our stockholders’ equity (defecit) increased by $702,953 from ($40,907) at June 30, 2011 to $662,046 at December 31, 2011.  The primary factor behind this was our issuance of common stock for cash and services.

RESULTS OF OPERATIONS

Three months ended December 31, 2011 and 2010:

REVENUES - Revenues during the three months ended December 31, 2011 amounted to $1,043. In the comparable period of 2010 we had revenues of $2,761.  We incurred cost of sales of $233 in the second quarter of the 2012 financial year compared to $4,517 in 2011.

RESEARCH AND DEVELOPMENT - Research and development expenses increased $641 to approximately $30,643 in the second quarter of our 2012 financial year from approximately $30,002 in the comparable period of the previous year.  This is mainly attributed to activities carried out in the process of obtaining authorizations for our wound management products.

GENERAL AND ADMINISTRATIVE - General and administrative expenses decreased 46% to approximately $273,772 in the quarter ended December 31, 2011, from approximately $505,754 in the respective quarter of the previous year. This decrease is due to a decrease in common shares issued for services.

DEPRECIATION AND AMORTIZATION - Depreciation decreased $185 to approximately $174 in the quarter from approximately $359. 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 $284,445, or approximately $(0.00) per common share, for the three months ended December 31, 2011, compared to approximately $518,808, or $(0.01) per common share, during the comparable period in our 2011 financial year.

Six months ended December 31, 2011 and 2010:

REVENUES - Revenues during the six months ended December 31, 2012 amounted to $2,224. In the comparable period of 2010 we had revenues of $3,723.  We incurred cost of sales of $1,692 in the first half of the 2012 financial year compared to $5,213 in 2011.

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RESEARCH AND DEVELOPMENT - Research and development expenses increased $9,770 to approximately $48,360 in the first half of our 2012 financial year from approximately $38,590 in the comparable period of the previous year.  The increase is mainly attributed to activities carried out in the process of obtaining authorizations for our wound management products.

GENERAL AND ADMINISTRATIVE - General and administrative expenses decreased approximately 32% to approximately $512,451 in the six months ended December 31, 2011, from approximately $754,315 in the respective quarter of the previous year. This decrease is due to a decrease in common shares issued for services.

DEPRECIATION AND AMORTIZATION - Depreciation decreased $292 to approximately $358 in the quarter from approximately $650. 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 $522,039, or approximately $(0.00) per common share, for the six months ended December 31, 2011, compared to approximately $762,168, or $(0.01) per common share, during the comparable period in our 2011 financial year.

LIQUIDITY AND CAPITAL RESOURCES

 

For the six months ended December 31, 2011, net cash used in operating activities increased to approximately $425,436, from approximately $417,518 in the corresponding period of the previous year.

For the six months ended December we invested $680,457 in a loan in anticipation of developing sales of our products in Mexico.

We had a working capital deficit of approximately $27,910 at December 31, 2011, a decrease of approximately $58,735 from June 30, 2011 due primarily to our issuance of common stock for services and cash.  At December 31, 2011, we had cash of approximately $133,882.  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.

Item 4 - 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.

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Management’s 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, 2011, 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, 2011, 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.

 

This Quarterly 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  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:

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(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.  By order of the Court dated November 3, 2011, the proceedings were suspended following motions by both parties to this effect.

 

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 1a - Risk Factors

 

We are a smaller reporting company and are not required to provide the information under this item.

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

 

In October 2011 the Company issued 4,990,00 shares to one (1) entity and four (4) individuals at $0.14 per share in exchange for cash proceeds totaling $680,981. No underwriters were used.  The securities were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933.  The individuals receiving the common stock were intimately acquainted with the Company’s business plan and proposed activities at the time of issuance, and possessed information on the Company necessary to make an informed investment decision.

In November 2011, the Company issued 50,000 shares to one (1) individual at $0.16 for cash proceeds totaling $8,180. No underwriters were used.  The securities were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933.  The individuals receiving the common stock were intimately acquainted with the Company’s business plan and proposed activities at the time of issuance, and possessed information on the Company necessary to make an informed investment decision.

In December 2011 the Company issued 1,010,000 shares to one (1) individual at $0.08 for cash proceeds totaling $80,230. In addition the Company issued 100,000 shares to one (1) individual at $0.18 for cash proceeds totaling $18,255 and 567,802 shares to one (1) entity for services valued at $102,204. No underwriters were used.

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The securities were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933.  The individuals receiving the common stock were intimately acquainted with the Company’s business plan and proposed activities at the time of issuance, and possessed information on the Company necessary to make an informed investment decision.

Item 3 - Defaults Upon Senior Securities

 

None.

  

Item 5 - Other Information

 

None. 

Item 6 – Exhibits

 1.

 Financial Statements.  The unaudited Consolidated Balance Sheet of Sangui Biotech International, Inc. as of  December 31, 2011 and the audited balance sheet as of  June 30, 2011,  the unaudited Consolidated Statements of Operations for the six month periods ended December 31, 2011 and 2010, the unaudited Consolidated Statements of Stockholders’ Equity (Deficit) from June 30, 2011 to December 31, 2011, and the unaudited Consolidated Statements of Cash Flows for the six-month periods ended December, 2011 and 2010, and together with the notes thereto, are included in this Quarterly Report on Form 10-Q.

3.

 Exhibits. The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K.

Exhibit

Number

Description of Exhibit

31.01	Certification of CEO Pursuant to Rule 13a-14(a) and 15d-14(a), filed herewith
31.02	Certification of CFO Pursuant to Rule 13a-14(a) and 15d-14(a), filed herewith
32.01	Certification Pursuant to Section 1350 of Title 18 of the United States Code, filed herewith

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: February 14, 2012

/s/ Thomas Striepe                                              

By: Thomas Striepe

Chief Executive Officer

Dated: February 14, 2012

/s/ Joachim Fleing                                        

By: Joachim Fleing

Chief Financial Officer

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