SANGUI BIOTECH INTERNATIONAL INC - Quarter Report: 2015 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, 2015

     

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.

 

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 18, 2016, there were 157,221,503 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 December 31, 2015

 

 

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 ................................................................	15
Item 4.	Controls and Procedures ........................................................................................................................	15
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..................................................................................................................................	16
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 condensed consolidated balance sheet as of December 31, 2015 and the audited balance sheet as of June 30, 2015, our unaudited condensed consolidated statements of operations for the three and six month periods ended December 31, 2015, and 2014, and our unaudited condensed consolidated statements of cash flows for the six month periods ended December 31, 2015, and 2014 are attached hereto and incorporated herein by this reference.

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2

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SANGUI BIOTECH INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(unaudited)
				For the Six Months Ended
				December 31,
				2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss			$	(453,057)		$	(383,558)
	Adjustments to reconcile net loss to net cash
	used by operating activities:
		Gain on change in derivative liability			(2,940)			-
		Amortization of deferred finance fees			10,685			-
		Common stock issued for services			-			24,192
		Common stock issued for accrued interest			2,973			-
		Amortization of debt discount			2,706			-
		Loss on sale of interest in joint venture			188,027			-
	Changes in operating assets and liabilities
		Trade accounts receivable			(16,860)			(37,055)
		Prepaid expenses and other current assets			(120)			27,627
		Tax refunds receivable			12,329			25,533
		Accounts payable and accrued expenses			152,165			3,225
		Related parties accounts payable			(92,128)			21,296
			Net Cash Used in Operating Activities		(178,143)			(318,740)
CASH FLOWS FROM INVESTING ACTIVITIES
		Collection of notes receivable, related parties			-			32,196
		Proceeds from sale of interest in joint venture			6,977			-
			Net Cash Used in Investing Activities		6,977			32,196
CASH FLOWS FROM FINANCING ACTIVITIES
		Common stock issued for cash			232,698			280,942
		Proceeds from notes payable-  related party			77			-
			Net Cash Provided by Financing Activities		232,775			280,942
EFFECTS OF EXCHANGE RATES					8,869			460
	NET INCREASE (DECREASE) IN CASH				70,401			(5,142)
	CASH AT BEGINNING OF PERIOD				17,672			98,148
	CASH AT END OF PERIOD			$	88,073		$	93,006
SUPPLEMENTAL DISCLOSURES OF
	CASH FLOW INFORMATION
	CASH PAID FOR:
		Interest		$	-		$	1,811
		Income Taxes		$	-		$	-
	NON CASH INVESTING AND FINANCING ACTIVITIES
		Debt Discount on convertible note and related derivative		$	50,000		$	-
The accompanying notes are an integral part of these consolidated financial statements.

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SANGUI BIOTECH INTERNATIONAL, INC.

Notes to the Condensed Consolidated Financial Statements

December 31, 2015 and June 30, 2015

(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, 2015. 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 ended December 31, 2015 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2016.

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, are 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.

Exchanges rates used for the preparation of the consolidated balance sheet as of December 31, 2015 and June 30, 2015 and our unaudited consolidated statements of operations for the six month periods ended December 31, 2015 and 2014, were calculated as follows:

as of December 31, 2015	USD 1 : EUR 0.9152
as of June 30, 2015	USD 1 : EUR 0.9014
July 1 through December 31, 2015	USD 1 : EUR 0.932
July 1 through December 31, 2014	USD 1 : EUR 0.7765

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 and 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 $36,614,356 as of December 31, 2015. The Company incurred a net loss applicable to common stockholders of $435,057 during the six months ended December 31, 2015 and used cash in operating activities of $178,143 during the three months ended December 31, 2015. 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, is not able to collect its outstanding receivables 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, 2015 the Company had no cash equivalents.

Derivative Liabilities

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

 

The Company assessed the classification of its derivative financial instruments as of December 31, 2015, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

 

 

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption.

 

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, 2015 and June 30, 2015

(Unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition

Product sales 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.  Product royalty revenue is recognized when the licensee has reported the product sales to the Company. Product royalty revenue is calculated based upon the contractual percentage of reported sales.

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, 2015, 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.

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.

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NOTE 4 – NOTE PAYABLE, RELATED PARTIES

On March 6, 2015, the Company entered into a note payable with a shareholder for $110,940. The note payable accrues interest at 5 percent per annum, is due on December 31, 2015 and is unsecured.

NOTE 5 – CONVERTIBLE NOTE PAYABLE

On May 11, 2015, the Company entered into an unsecured note payable for $50,000 (related to the Equity Purchase Agreement or “EPA” disclosed in Note 6) due on November 30, 2015 with interest accruing at 10% annually. The note payable was entered into as consideration to the investor for execution of the EPA. Accordingly, the Company recorded $50,000 to Deferred financing costs which will be amortized ratably over the period ending December 31, 2016. During the period ended December 31, 2015, the Company amortized 10,685 of the deferred financing costs.

On December 9, 2015, the Company agreed to change the terms of the note representing the deferred financing costs, making the note convertible and extending the repayment of the note as due on or before December 31, 2016. The repayment is subject to the convertible features of the note. The creditor has a conversion option allowing it to choose to receive repayment of the stated principal and interest (10% per annum) either in cash or, at the creditor’s option, in the Company’s restricted common stock. If paid in cash the principal repayment is $50,000.

The change in the status of the note from a note payable of $50,000 to a convertible note payable of $50,000, results in an extinguishment of debt wherein a debt discount of $50,000 was recorded. At December 31, 2015, the Company had recognized amortization of debt discount of $2,706, resulting in a debt discount balance of $47,294.

In connection with the change in the status of the note, it was treated as a convertible note. The Company identified embedded derivatives related to the Convertible Promissory Note entered into as of December 9, 2015 and December 31, 2015. These embedded derivatives included certain conversion features, including a variable exercise price calculated by taking 60% the average of the 5 lowest days’ trading prices in the 20 days leading up to conversion. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note provisions and to adjust the fair value as of each subsequent balance sheet date. The fair value of the embedded derivative was determined using the Black-Scholes Model based on the following assumptions:

Dividend yield:			0	%
Volatility			157.93	%
Risk free rate:			0.49	%

The initial fair value of the derivative liability was $74,650, of which $50,000 was recorded as a debt discount against the $50,000 Convertible Promissory Note. At December 31, 2015 the Company determined a fair value of $47,060 of the embedded derivative resulting in a net gain derivative liability of $2,940.

On December 14, 2015, the Company issued 165,144 shares of common stock valued at $2,973 to pay the accrued interest on the note as interest expense. The change to a convertible note was treated as effective on December 9, 2015 and the value of the stock to be issued was included as accrued expense and interest was charged $4,954 during the quarter, based upon the trading value of the common stock at the date issued.

NOTE 6 – 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.

On May 11, 2015, the Company entered into an equity purchase agreement (the “EPA”) with an unrelated investor (“the Investor”). The EPA is a put option contract wherein, at the Company’s sole discretion, up to $5,000,000 of common stock may be sold to the Investor for a period of 3 years ending May 2018. Under the terms of the EPA, the Company issued 208,333 shares pursuant to a put notice for $10,000 during the period ending September 30, 2015 (no shares during the year ended June 30, 2015). The put notice yielded $1,500 in cash against 37,037 of the 208,333 shares. In addition to these 37,037 shares, concurrent with the extension of the related $50,000 Convertible Promissory Note (see Note 5), the investor converted $2,973 in accrued interest into 165,144 shares leaving 6,152 shares held by the investor that are receivable by the Company.

During the six months ended December 31, 2015, the Company sold 3,500,000 shares of its common stock for $232,698 in cash proceeds to three individuals at an average price of $0.047 per share.

NOTE 7– INVESTMENT IN JOINT VENTURE AND NOTE PAYABLE

During the six months ended December 31, 2015, the Company sold its interest in the Sastomed joint venture, for $6,977, resulting in a loss of $188,027. The sale of the joint venture terminated the relationship with Sastomed. Accordingly, the note payable of $36,823, which was previously recorded as a related party note payable, is now classified as non-related party note payable. The note payable accrues interest at 4% annum and is due June 8, 2016.

 

NOTE 8 – SUBSEQUENT EVENTS

On February 4, 2016, the Company issued 670,000 shares for cash of $9,990. On January 28, 2016, the Company issued 1,700,000 shares of common stock, for $25,347. On February 4, 2016, the company issued 1,040,000 shares of common stock for $15,500.

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

Our mission is the development of novel and proprietary pharmaceutical, medical and cosmetic products. We develop our products through our German subsidiary, Sangui GmbH. Currently, we are seeking to market and sell our products through partnerships with industry partners worldwide.

Our focus 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, as well as in the case of chronic wounds.  We have thus far focused our development and commercialization efforts on such artificial oxygen carriers by reproducing and synthesizing polymers out of native hemoglobin of defined molecular sizes.  In addition, we have developed external applications of oxygen transporters in the medical and cosmetic fields in the form of sprays for the healing of chronic wounds and of gels and emulsions for the regeneration of the skin. A wound dressing that shows outstanding properties in the support of wound healing, is distributed by SastoMed GmbH, a former joint venture company in which we held a share of 25%, as global licensee under the Granulox brand name. Effective as of the end of the second quarter of our fiscal year 2016 we sold this stake to SanderStrohmann GmbH, the co-shareholder.

SanguiBioTech GmbH holds distribution rights for our Chitoskin wound pads for the European Union and various other countries. A European patent has been granted for the production and use of improved Chitoskin wound pads.

Our current key business focuses are: (a) selling our existing cosmetics and wound management products by way of licensing through distribution partners, or by way of direct sale, to end users; (b) identifying additional industrial and distribution partners for our patents, production techniques, and products; and, (c) obtaining the additional certifications on our products in development.

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.

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”.

During the third quarter of our 2013 financial year the company had a feasibility study prepared by external experts inquiring into market potentials and further preclinical and clinical development requirements. The study came to the conclusion that an approval of Sangui's hemoglobin hyperpolymers as a blood additive appears possible, expedient and promising.

During the fourth quarter of our 2014 financial year the company filed a patent application aimed at significantly expanding the protection of our hemoglobin formulations. It will encompass a greater array of ischemic conditions of the human body, for instance in the case of severe dysfunctions of the lung.

During the first quarter of our 2015 financial year, we begun together with Excellence Cluster Cardio-Pulmonary System (ECCPS) and TransMIT Gesellschaft für Technologietransfer mbH (TransMIT) to investigate therapeutic approaches to treating septic shock and acute respiratory distress syndrome (ARDS). The approach adopted here by Sangui, ECCPS and TransMIT presupposes that self-perpetuating septic shock, that has so far been highly resistant to treatment, can be interrupted by Sangui's artificial haemoglobin-based oxygen carrier, which would ultimately lower mortality rates. The preclinical trials commenced at ECCPS investigate the effect of various haemoglobin preparations on the oxygen supply of a number of organs in septic shock models and ARDS.

Also during the first quarter we were notified that the period for objection against European Patent EP 2550973, „Wound Spray“) elapsed without any objection being raised. The patent, therefore, has become effective and legally binding.

During the second quarter of our 2015 financial year the first phase of preclinical trials was concluded successfully. It could be demonstrated that applying an oxygen-carrying liquid (the hemoglobin hyperpolymer formulation SBT102) in the abdomen did significantly improve the oxygen supply to the intestines. The restoration of intestinal oxygenation will have an impact on tissue integrity and ultimately on patient survival.

During the third quarter of our 2015 financial year the preclinical trials were concluded successfully, the final results did fully confirm the interim results obtained in the second quarter.

After the end of the first quarter of our 2016 financial year the Company decided to reduce research and development activities for this product range as one element of a comprehensive cost containment program.

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.

Sales of this series have remained at a low level throughout the first six months of our 2016 fiscal year. During the first quarter of the 2016 fiscal year we decided to discontinue our operations in this particular segment and to abandon the patent protection for this range of products..

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.

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.

Since December 2013, international distribution outside Germany was initiated in collaboration with local partners in more than 40 countries in Europe and Latin American.

SastoMed GmbH at the end of the first quarter of fiscal 2016 informed the Company and its shareholders that the market entry phase for the product will last longer than expected and could extend into the Company's 2018 fiscal year.

FINANCIAL POSITION

During the six months ended December 31, 2015, our total assets increased $63,602 from $122,099 at June 30, 2015 to $185,701 at December 31, 2015.  An increase in the cash on hand from June 30 to December 31, 2015, of $70,401 was primarily responsible for the increase in the total assets.

We funded our operations primarily through our existing cash reserves and cash received from the issuance of shares of common stock. Our stockholders’ equity decreased by $6,620 from ($339,834) at June 30, 2015 to ($333,214) at December 31, 2015. The primary factor behind this was the net loss for the period increasing the accumulated deficit.

RESULTS OF OPERATIONS

For the three-month and the six- month periods ended December 31, 2015 and 2014:

REVENUES – Revenues reported were $15,385 and $31,166 for the three months ended December 31, 2015 and 2014 respectively. For the six months ended December 31, 2015 and 2014 revenues were $28,856 and $104,906. Revenues decreased by $15,781 and $78,050 for the three and six months ended December 31, 2015. The decrease by $78,050 from the revenues in the comparable period of our 2015 financial year can be traced back to a decrease in royalties from the licensing agreement with SastoMed GmbH. Included in the revenues of the first six months of our 2015 financial year were license fees on one single large order. Cost of sales in the first quarter were $144 and $158 for the years ended 2015 and 2014 respectively.  Cost of sales for the first six months (first and second quarters of the 2016 financial year) amounted to $229 compared to $398 for the years ended 2015 and 2014.

RESEARCH AND DEVELOPMENT – Research and development expenses decreased by $40,419 to $1,455 from $41,874 for the three-month periods ending December 31, 2015 and 2014.  Research and development expenses decreased $99,470 to approximately $35,507 in the first half-year of our 2016 financial year from approximately $134,977 in the comparable period of the previous year.  This decrease is mainly attributed to lower R&D expenses after the conclusion of the animal tests of our hemoglobin hyperpolymers.

GENERAL AND ADMINISTRATIVE and PROFESSIONAL FEES – For the three months ended December 31, 2015 and 2014 the combined general and administrative expenses and professional fees decreased by $60,886 to $101,950 from $162,836. Accumulated general and administrative expenses and professional fees decreased $110,568 to approximately $240,740 in the half-year ended December 31, 2015, from approximately $351,278 in the respective period of the previous year. The change is primarily due to the separation of professional fees, from the general and administrative expenses line.

DEPRECIATION AND AMORTIZATION – No deferred financing costs were amortized during the three and six months ended December 31, 2014.  There was no deferred financing costs amortized during the first three months of the fiscal 2016 year; however, $2,706 of deferred financing costs were amortized during the second quarter.  For the three- and six-month periods ended December 31, 2015 the total amortization of deferred financing costs was $2,706..

INTEREST EXPENSE - interest expenses for the three-month period ended December 31, 2015 and 2014 were $14,926 and $902, an increase of $14,024.  For the six months ended December 31, 2015 and 2014r 31, 2015 and 2014, interest expense increased by $14,516 to $16327 from $1,811.

LOSS ON SALE OF INTEREST IN JOINT VENTURE – During the second quarter ending December 31, 2015, the Company recorded a loss of $188,027 from the sale of a joint venture interest.  

NET LOSS - As a result of the above factors, $290,719 compared to $174,604 for the three months ended December 31, 2015 and 2014 respectively  The loss per share for both periods was $(0.00).  Our consolidated net loss before non-controlling interest was $453,710, or $(0.00) per common share, for the six months ended December 31, 2015, compared to $383,558, or $(0.00) per common share, during the comparable period in our 2014 financial year.

LIQUIDITY AND CAPITAL RESOURCES

 

For the six months ended December 31, 2015, net cash used in operating activities decreased $144,597 to $174,143, compared to $318,740 used in the previous year.  Major components of the decrease in the cash used included an increase in the net loss from $(383,558) to $(460,553) from 2014 to 2015, which was offset by non-cash loss on the sale of a joint venture interest of $188,027 during 2015.

We had a working capital deficit of approximately $333,214 at December 31, 2015, a decrease of approximately $56,620 from June 30, 2015.

At December 31, 2015, a significant part of our current assets consist of unamortized deferred finance costs of $39,315.  Included within the current liabilities is a derivative liability of $47,060.  At December 31, 2015 compared to (June 30, 2015), we had cash of $88,073 compared to $17,672, prepaid expenses of $36,948 compared to $37,325 and accounts receivable of $17,272 compared $455. 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.

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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.

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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

 

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

 

On December 14, 2015, the Company issued 165,144 shares of common stock valued at $2,973 to pay the accrued interest due on the unsecured note payable for $50,000 dated May 11, 2015 made in favor of Tarpon Bay Partners, LLC. 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.

During the three months ended December 31, 2015, the Company sold 1,500,000 shares of its common stock for cash to SanderStrohmann GmbH an average price of $0.03 per share for a total cash raise of $162,915. 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, the Company issued 2,000,114 shares of its common stock in consideration of the conversion of $24,001 of principal and interest on the unsecured note payable for $50,000 dated May 11, 2015, as amended on December 9, 2015,  made in favor of Tarpon Bay Partners, LLC. 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, the Company sold 3,410,000 shares of its common stock for cash to three individuals at an average price of $0.015 per share for a total cash raise of $55,104. 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

 

On May 11, 2015, the Company entered into an unsecured note payable for $50,000 due on November 30, 2015 with interest accruing at 10% annually. On December 9, 2015, the Company agreed to change the terms of the note representing the deferred financing costs, making the note convertible.  The repayment of the new note is due on or before December 31, 2016. The creditor has a conversion option allowing it to choose to receive repayment of the stated principal and interest (10% per annum) either in cash or, at the creditor’s option, in the Company’s restricted common stock. If paid in cash the principal repayment is $50,000. Subsequent to the period covered by this report, the Company issued 2,000,114 shares of its common stock in consideration of the conversion of $24,001 of principal and interest on the unsecured note payable.

On December 17, 2015 the Company’s subsidiary, Sangui GmbH, sold its 25% holding in SastoMed GmbH to its joint venture partner SanderStrohmann GmbH for the amount of $6,977, which transaction would become effective as of December 31, 2015.

Item 6 – Exhibits

 1.           Financial Statements.  The unaudited condensed consolidated Balance Sheet of Sangui Biotech International, Inc. as of December 31, 2015 and the audited balance sheet as of June 30, 2015, the unaudited condensed consolidated Statements of Operations for the three and six month periods ended December 31, 2015 and 2014, and the unaudited condensed consolidated Statements of Cash Flows for the three and six month periods ended December 31, 2015 and 2014, together with the notes thereto, are included in this Quarterly Report on Form 10-Q.

2.           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 principal financial officer 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 22, 2016

/s/ Thomas Striepe                                              

By: Thomas Striepe

Chief Executive Officer

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