SANGUI BIOTECH INTERNATIONAL INC - Quarter Report: 2012 December (Form 10-Q)

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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, 2012

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 13, 2013 there were 129,449,957 shares of the issuer's Common Stock, no par value, outstanding.

SANGUI BIOTECH INTERNATIONAL, INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended December 31, 2012

INDEX


PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements.........................................................................................................	3
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

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, 2012 and our unaudited consolidated statements of operations for the six month periods ended December 31, 2012 and 2011, are attached hereto and incorporated herein by this reference.


SANGUI BIOTECH INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets

ASSETS
			December 31,		June 30,
			2012		2012
CURRENT ASSETS			(unaudited)

	Cash		$	154,538	$	238,639
	Accounts receivable, net			-		-
	Inventory			-		-
	Prepaid expenses and other assets			30,970		15,621
	Tax refunds receivable			16,002		19,487
	Related party receivables			663,306		160,509
	Note receivable, related party			68,576		63,347
	Notes receivable			660,939		628,852

		Total Current Assets		1,594,331		1,126,455

PROPERTY AND EQUIPMENT, Net				973		1,270

		TOTAL ASSETS	$	1,595,304	$	1,127,725

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

	Accounts payable and accrued expenses		$	132,936	$	135,445
	Related party payables			101,575		14,041
	Note payable - related party			18,865		18,865

		TOTAL CURRENT LIABILITIES		253,376		168,351

STOCKHOLDERS' EQUITY

	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, 129,082,657 and 125,605,957 shares issued and
	129,028,901 and 125,552,201 shares outstanding, respectively			29,586,509		28,589,773
	Additional paid-in capital			4,621,430		4,621,430
	Treasury stock			(19,387)		(19,387)
	Stock subscription payable			46,431		-
	Accumulated other comprehensive loss			(66,366)		(102,053)
	Accumulated deficit			(32,597,264)		(31,931,685)
	Noncontrolling interest			(229,425)		(198,704)

		Total Stockholders' Equity		1,341,928		959,374

		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,595,304	$	1,127,725

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


SANGUI BIOTECH INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
(unaudited)

			For the Three Months Ended				For the Six Months Ended
			December 31,				December 31,
			2012		2011		2012		2011
REVENUES			$	46,249	$	1,043	$	48,043	$	2,224
COST OF SALES				-		233		-		1,692
GROSS MARGIN				46,249		810		48,043		532

OPERATING EXPENSES
	Research and development			15,506		30,643		23,950		48,360
	Depreciation and amortization			185		174		364		358
	Bad debt expense			-		-		-		203
	General and administrative			536,309		273,772		725,138		512,451
		Total Operating Expenses		552,000		304,589		749,452		561,372
		OPERATING LOSS		(505,751)		(303,779)		(701,409)		(560,840)

OTHER INCOME (EXPENSE)
	Interest expense			(238)		-		(476)		-
	Other income			5,585		917		5,585		3,124
		Total Other Income (Expense)		5,347		917		5,109		3,124
		Loss before income taxes and noncontrolling interest		(500,404)		(302,862)		(696,300)		(557,716)
		Provision for income taxes		-		-		-		-

NET LOSS				(500,404)		(302,862)		(696,300)		(557,716)
	Less: Net loss attributable to noncontrolling interest			(15,030)		(18,417)		(30,721)		(35,677)

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS			$	(485,374)	$	(284,445)	$	(665,579)	$	(522,039)

OTHER COMPREHENSIVE INCOME
	Foreign currency translation adjustments			32,899		40,114		35,687		47,131
		Total Other Comprehensive Income (Loss)		32,899		40,114		35,687		47,131
		COMPREHENSIVE LOSS	$	(467,505)	$	(262,748)	$	(660,613)	$	(510,585)
		BASIC AND DILUTED LOSS PER SHARE	$	(0.00)	$	(0.00)	$	(0.01)	$	(0.00)
		BASIC AND DILUTED WEIGHTED AVERAGE
		NUMBER OF SHARES OUTSTANDING		126,832,058		116,647,807		126,219,007		113,885,135

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


SANGUI BIOTECH INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows

				For the Six Months Ended
				December 31,
				2012		2011
				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss			$	(696,300)	$	(557,716)
	Adjustments to reconcile net loss to net cash
	used by operating activities:
		Depreciation			362		358
		Common stock issued for services			358,867		163,904
		Bad debt expense			-		203
	Changes in operating assets and liabilities
		Accounts receivable			-		(260)
		Inventory			-		1,190
		Prepaid expenses and other assets			(6,302)		9,857
		Related party receivables			(2,240)		-
		Accounts payable and accrued expenses			62,344		(42,972)
		Related parties accounts payable			16,762		-

			Net Cash Used in Operating Activities		(266,507)		(425,436)

CASH FLOWS FROM INVESTING ACTIVITIES
		Notes receivable			(494,607)		(680,457)

			Net Cash Used in Investing Activities		(494,607)		(680,457)

CASH FLOWS FROM FINANCING ACTIVITIES
		Common stock issued for cash			637,869		1,031,379
		Proceeds from stock subscriptions payable			46,431		18,255

			Net Cash Provided by Financing Activities		684,300		1,049,634

EFFECTS OF EXCHANGE RATES					(7,287)		67,522

	NET INCREASE (DECREASE) IN CASH				(84,101)		11,263
	CASH AT BEGINNING OF PERIOD				238,639		122,619

	CASH AT END OF PERIOD			$	154,538	$	133,882

SUPPLEMENTAL DISCLOSURES OF
	CASH FLOW INFORMATION

	CASH PAID FOR:
		Interest		$	476	$	-
		Income Taxes		$	-	$	-

	NON CASH INVESTING AND FINANCING ACTIVITIES			$	-	$	-

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

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

December 31, 2012 and June 30, 2012

(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, 2012. 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, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2013.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Sangui Biotech International, Inc., incorporated in Colorado in 1995, and its subsidiary, Sangui BioTech GmbH (Sangui GmbH). 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.

Consolidation

The consolidated financial statements include the accounts of Sangui BioTech International, Inc. and its ninety percent 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.

Exchange rates used for the preparation of the unaudited consolidated balance sheet as of December 31, 2012 and our unaudited consolidated statements of operations for the six month periods ended December 31, 2012 and 2011, were calculated as follows:


as of December 31, 2012	USD 1 : EUR 0.7565
as of June 30, 2012	USD 1 : EUR 0.6949
July 1 through December 31, 2012	USD 1 : EUR 0.7853
July 1 through December 31, 2011	USD 1 : EUR 0.7240

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

December 31, 2012 and June 30, 2012

(Unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 $32,597,264 as of December 31, 2012 and has been significantly reducing its working capital since June 30, 2004. The Company incurred a net loss applicable to common stockholders of $665,579 during the six months ended December 31, 2012 and used cash in operating activities of $266,507 for the six months ended December 31, 2012. 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, 2012 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.

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 antidilutive effect on earnings. As of December 31, 2012, the Company had no potentially dilutive securities that would affect the loss per share if they were to be dilutive.

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

December 31, 2012 and June 30, 2012

(Unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 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.

SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

December 31, 2012 and June 30, 2012

(Unaudited)

NOTE 4 – NOTES RECEIVABLE

During the year ended June 30, 2012, the Company invested $666,933 in a loan with an unrelated third party entity with whom the Company has signed a licensing agreement in anticipation of developing sales of the Company’s products in Mexico. The note is personally secured by a shareholder of the borrower, bears no interest, and was due one year after receipt of the loan by the borrower. As the stated maturity date of the note has passed, the loan is currently in default and a resolution is being negotiated between the Company and the debtor. Subsequent to the close of the period, as a partial payment against the outstanding note the debtor has transferred 1,000,000 shares of the Company’s common stock to the Company to be held as treasury stock.

During the three months ended December 31, 2012, the Company issued a note receivable for $462,675 to a related entity with which the Company has signed a licensing agreement. The unsecured note receivable bears interest of 4 percent per annum and is due on December 31, 2013. Also included in the related party receivables are approximately $200,931 of accrued receivables from the licensing agreement.

NOTE 5 – 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.

NOTE 5 – CAPITAL STOCK (CONTINUED)

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.

During the three month period ended December 31, 2012, the Company issued 2,357,600 shares of its common stock for cash at an average stock price of $0.27 per share. The Company also issued 1,119,100 shares of its common stock for services at an average stock price of $0.32 per share. The Company also received $46,431 for stock subscriptions payable. The Company fully satisfied its obligations with respect to stock subscriptions payable by issuing 122,400 shares of common stock at $0.38 per share on January 4, 2013.

NOTE 6 – SUBSEQUENT EVENTS

Subsequent to December 31, 2012, the Company issued 122,400 shares of common stock at an average of approximately $0.38 per share in full satisfaction of stock subscriptions payable. Additionally, the Company issued 224,900 shares of its common stock for cash proceeds of $81,987 at an average stock price of $0.34 per share.

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 first quarter of our 2013 financial year the European Patent Office granted 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.

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.

Sales of this series have remained at a low level throughout the first and second quarter of our 2013 fiscal year. It is the strategy of the company to find industry partners ready to acquire or license this product range as a whole.

Chitoskin Wound Pads

Usually, normal (“primary”) wounds tend to heal over a couple of days without leaving scars following a certain sequence of phases. Burns and certain diseases impede the normal wound healing process, resulting in large, hardly healing (“secondary”) wounds which only close by growing new tissue from the bottom. Wound dressings serve to safeguard the wound with its highly sensitive new granulation tissue from mechanical damage as well as from infection. Using the natural polymer chitosan, Sangui’s Chitoskin wound dressings show outstanding properties in supporting wound healing.

It is the strategy of the company to find industry partners ready to acquire or license this product range as a whole.

Hemospray Wound Spray

SanguiBioTech GmbH has developed a novel medical technology supporting the healing of chronic wounds. Lack of oxygen supply to the cells in the wound ground is the main reason why those wounds lose their genuine healing power. Based on its concept of artificial oxygen carriers, our wound spray product bridges the watery wound surface and permits an enhanced afflux of oxygen to the wound ground.

In December 2010, SanguiBioTech GmbH established SastoMed GmbH, a joint venture company with SanderStrothmann GmbH of Georgsmarienhütte, Germany. SanguiBioTech GmbH has granted SastoMed GmbH global distribution rights. SastoMed GmbH started to distribute the product in Germany after having obtained the CE mark authorizing the distribution of the wound spray in the countries of the European Union in April 2012.

On August 13, 2012, SastoMed GmbH publicized a statement indicating that it expects to reach break-even and pay back points by 2014. The expectations are based on the response from wound management experts and patients.

In August, 2012, Sangui BioTech GmbH and SastoMed GmbH cordially adjusted the existing sales strategy. In consideration of corresponding contributions the existing licensing contract was partially complemented resulting in the following conditions: As licensor SanguiBioTech GmbH is awarded a fixed licensing fee as a percentage of each and every external revenues incurred by SastoMed from sales of the Granulox product (based on SastoMed selling prices). The percentage ranges in the uppermost zone of what is usually granted in the pharmaceutical and medical products industries. In addition and complementing this basic agreement the percentage will be permanently increased by one fourth of the current rate as soon as cumulated sales revenues at SastoMed will have exceeded the total of €50,000,000.

In December, 2012, actual distribution of the product was initiated in Mexico under the management of SastMed GmbH and their local distribution partner Bio-Mac Pharma.

FINANCIAL POSITION

Our current assets increased approximately $467,876 from June 30, 2012 to approximately $1,594,331 at December 31, 2012. This is mainly attributed to an increase in related party receivables.

Our net property and equipment decreased approximately $297 from June 30, 2012 to approximately $973 at December 31, 2012. 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 increased by $382,554 from $959,374 at June 30, 2012 to $1,341,928 at December 31, 2012. The primary factor behind this was our issuance of common stock for cash and services.

RESULTS OF OPERATIONS

Three months ended December 31, 2012 and 2011:

REVENUES - Revenues during the three months ended December 31, 2012 amounted to $46,249. In the comparable period of 2011 we had revenues of $1,043. Revenues as of the period covered by this report include accrued receivables from the licensing agreement with SastoMed GmbH. Due to the nature of our current cosmetics and wound management business model we incurred no cost of sales in the second quarter of the 2012 financial year compared to $233 in 2011.

RESEARCH AND DEVELOPMENT - Research and development expenses decreased $15,137 to approximately $15,506 in the second quarter of our 2013 financial year from approximately $30,643 in the comparable period of the previous year. This is mainly attributed to reduced R&D activities after having obtained the CE mark for the wound management product and prior to resuming activities in the pursuit of our blood additive project.

GENERAL AND ADMINISTRATIVE - General and administrative expenses increased 96% to approximately $536,309 in the quarter ended December 31, 2012, from approximately $273,772 in the respective quarter of the previous year. This increase is due to an increase in common shares issued for services.

DEPRECIATION AND AMORTIZATION - Depreciation increased $11 to approximately $185 in the quarter from approximately $174. This increase is mainly attributed to the increased depreciation of office equipment.

NET LOSS - As a result of the above factors, our consolidated net loss attributable to common stockholders was $485,374, or $(0.00) per common share, for the three months ended December 31, 2012, compared to $284,445, or $(0.00) per common share, during the comparable period in our 2012 financial year.

Six months ended December 31, 2012 and 2011:

REVENUES - Revenues during the six months ended December 31, 2012 amounted to $48,043. In the comparable period of 2011 we had revenues of $2,224. Due to the nature of our current cosmetics and wound management business model we incurred no cost of sales in the first half of the 2013 financial year compared to $1,692 in 2011.

RESEARCH AND DEVELOPMENT - Research and development expenses decreased $24,410 to approximately $23,950 in the first half of our 2012 financial year from approximately $48,360 in the comparable period of the previous year. This is mainly attributed to reduced R&D activities after having obtained the CE mark for the wound management product and prior to resuming activities in the pursuit of our blood additive project..

GENERAL AND ADMINISTRATIVE - General and administrative expenses increased approximately 42% to approximately $725,138 in the six months ended December 31, 2012, from approximately $512,451 in the

respective period of the previous year. This increase is due to an increase in common shares issued for services in the second quarter of our 2013 financial year.

DEPRECIATION AND AMORTIZATION - Depreciation increased $6 to approximately $364 in the six months period from approximately $358. This increase is mainly attributed to the increased depreciation of office equipment.

NET LOSS - As a result of the above factors, our consolidated net loss attributable to common stockholders was $665,579, or $(0.01) per common share, for the six months ended December 31, 2012, compared to $522,039, or $(0.00) per common share, during the comparable period in our 2012 financial year.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended December 31, 2012, net cash used in operating activities decreased to approximately $266,507, from approximately $425,436 in the corresponding period of the previous year.

During the six months ended December 31, 2012, we invested approximately $494,607 in notes receivable with related parties.

We had a working capital of approximately $1,340,955 at December 31, 2012, an increase of approximately $382,851 from June 30, 2012 due primarily to our issuance of common stock for services and cash. A significant part of our current assets consists of receivables from related and unrelated parties while the company has no financial liabilities. At December 31, 2012, we had cash of approximately $154,538. 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 this 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 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 December 31, 2012, 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 December 31, 2012, 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:

(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

The Company is not aware of pending claims or assessments 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 2012, the Company issued 300,000 shares of its common stock for services to an unrelated party at $0.31 per share. Additionally the Company sold 140,800 shares of its common stock for cash to three (3) individuals at an average price of $0.37 per share. 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 2012, the Company issued 750,000 shares of its common stock to one (1) individual pursuant to its long term incentive plan at $0.32 per share. Additionally, the Company sold 194,300 shares of its common stock for cash to three (3) individuals at an average price of $0.30 per share. 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 2012, the Company sold 2,022,500 shares of its common stock for cash to one (1) entity and five (5) individuals at an average stock price of $0.33 per share. 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.

Also in December 2012, the Company received $46,431 for stock subscriptions payable.

Subsequent to December 31, 2012, the Company issued 122,400 shares of common stock at an average of approximately $0.378 per share in full satisfaction of the subscription payable. Additionally, the Company issued 69,100 shares of its common stock for services to an unrelated party at a stock price of $0.37 per share. 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.

Item 3 - Defaults Upon Senior Securities

None.

Item 5 - Other Information

None.

Item 6 – Exhibits

Financial Statements. The unaudited Consolidated Balance Sheet of Sangui Biotech International, Inc. as of December 31, 2012 and the audited balance sheet as of June 30, 2012, the unaudited Consolidated Statements of Operations for the six month periods ended December 31, 2012 and 2011, and the unaudited Consolidated Statements of Cash Flows for the six-month periods ended December, 2012 and 2011, and together with the notes thereto, are included in this Quarterly Report on Form 10-Q.

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, 2013

/s/ Thomas Striepe

By: Thomas Striepe

Chief Executive Officer

Dated: February 14, 2013

/s/ Joachim Fleing

By: Joachim Fleing

Chief Financial Officer