SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21271
SANGUI BIOTECH INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-1330732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1508 BROOKHOLLOW DRIVE, SUITE 354
SANTA ANA, CALIFORNIA 92705
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (714) 429-7807
N/A
(Former name, former address and former fiscal year, if changed since last
report)
___________
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 the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date:
Title of each class of Common Stock Outstanding at March 31, 2000
- ----------------------------------------- -----------------------------
Common Stock, no par value 40,514,363
Transitional Small Business Disclosure Format
(Check one);
Yes [ ] No [ X ]
<PAGE>
INDEX
SANGUI BIOTECH INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2000 (Unaudited) and June 30,
1999
Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three months ended March 31, 2000 and 1999, Nine months ended March 31, 2000 and
1999 and from inception on August 2, 1996 to March 31, 2000
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows (Unaudited) Nine months ended
March 31, 2000 and 1999 and from inception of August 2, 1996 to March 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
SANGUI BIOTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, June 30,
2000 1999
---------- ----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $6,085,557 $ 305,501
Accounts receivable 70,998 99,574
Inventories 87,633 112,036
Marketable securities 995,490 1,288,620
Prepaid assets 1,346,922 1,703,099
---------- ----------
Total Current Assets 8,586,600 3,508,830
---------- ----------
PROPERTY AND EQUIPMENT - NET 451,566 407,601
---------- ----------
OTHER ASSETS
Patents and licenses 50,363 66,185
Other assets 178,443 1,174,701
---------- ----------
TOTAL ASSETS $9,266,972 $5,157,317
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, June 30,
2000 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 141,626 $ 102,420
Stock subscriptions - 50,000
------------ ------------
Total Current Liabilities 141,626 152,420
------------ ------------
COMMITMENTS AND CONTINGENCIES 25,000 25,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock: no par value; 5,000,000 shares
authorized, 505,000 shares issued and outstanding 5,050 5,050
Common stock: no par value; 50,000,000 shares
authorized, 40,514,363 and 31,867,878 issued
and outstanding, respectively 18,705,831 10,277,373
Stock subscriptions receivable (2,231,515) (341,072)
Currency translation adjustment (107,000) (63,068)
Deficit accumulated during the development stage (7,272,020) (4,898,386)
------------ ------------
Total Stockholders' Equity 9,100,346 4,979,897
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,266,972 $ 5,157,317
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Income and Comprehensive Income
<TABLE>
<CAPTION>
For The For The From Inception on
Three Months Ended Nine Months Ended August 2, 1996 to
Narch 31, March 31, March 31,
2000 1999 2000 1999 2000
_________________________ ____________________ __________
<S> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited ) (Unaudited ) (Unaudited ) (Unaudited )
SALES $ 115,329 $ 80,681 $ 330,786 $ 151,402 $ 620,062
COST OF SALES 68,753 54,056 206,645 102,038 393,412
__________ __________ __________ __________ __________
GROSS MARGIN 46,576 26,625 124,141 49,364 226,650
__________ __________ __________ __________ __________
COST AND EXPENSES
Research and development 225,116 201,414 774,902 681,687 2,768,893
General and administrative 731,721 96,320 1,859,527 310,453 4,157,823
Depreciation 35,507 31,513 97,507 61,561 211,882
__________ __________ __________ __________ __________
Total Costs and Expenses 992,344 329,247 2,726,936 1,053,701 7,138,598
__________ __________ __________ __________ __________
NET LOSS FROM OPERATIONS (945,768) (302,622) (2,602,795) (1,004,337) (6,911,948)
__________ __________ __________ __________ __________
OTHER INCOME (EXPENSE)
Interest income 14,155 3,706 49,916 29,815 123,716
Interest expense (2,486) (3,442) (2,486) (3,484) (18,050)
Other income 8,329 - 181,731 20,978 440,131
Loss on marketable securities - (880,138) - (905,869) (905,869)
__________ __________ __________ __________ __________
Total Other Income (Expense) 19,998 (879,874) 229,161 (858,560) (360,072)
------ -------- ------- --------- ---------
BASIC LOSS (925,770) (1,182,496) (2,373,634) (1,862,897) (7,272,020)
OTHER COMPREHENSIVE
LOSS
Foreign currency adjustments (16,523) (79,841) (43,932) (106,589) (107,000)
__________ __________ __________ __________ _________
COMPREHENSIVE LOSS $ (942,293) $ (1,262,337) $ (2,417,566) $ (1,969,486) $ (7,379,020)
============ ============= ============== =============== ===============
BASIC LOSS PER SHARE $ (0.03) $ (0.04) $ (0.07) $ (0.08)
____________ __________ __________ __________
WEIGHTED AVERAGE NUMBER 32,879,796 28,151,393 32,848,690 $ 24,319,421
============ =========== =========== =============
OF SHARES OUTSTANDING
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Other During the
Preferred Stock Common Stock Stock Comprehensive Development Total
Shares Amount Shares Amount Subscriptions Income (Loss) Stage Equity
---------- ------- --------- ------- ------------- ------------- ------------ -------
Balance at inception August 2,
- - 3,400,000 98,465 - - - 98,465
Issuance of common stock
for cash at $0.001 per share - - 1,600,000 1,600 (1,600) - - -
Currency translation adjustment - - - - - 29,457 - 29,457
Net loss for the period ended
December 31, 1996 - - - - - - (539,853) (539,853)
--------- ------- --------- ------- ----------- --------- ----------- ------------
Balance, December 31, 1996 5,000,000 $100,065 $ (1,600) $29,457 $(539,853) $(411,931)
========= ======= =========== ======== =========== ========= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Other During the
Preferred Stock Common Stock Stock Comprehensive Development Total
Shares Amount Shares Amount Subscriptions Income (Loss) Stage Equity
-------- --------- --------- ------------- ------------ ----------- ----------- --------
Balance, December 31, 1996 - - 5,000,000 $ 100,065 $ (1,600) $ 29,457 $(539,853) $(411,931)
Stock issued for the
acquisition of Sangui BioTech 505,000 5,050 1,800,000 900 - - - 5,950
recorded at predecessor cost
Common stock issued for
note payable at $0.10 per share - - 6.000,000 600,000 - - - 600,000
Common stock issued for cash
at $0.10 per share - - 4,000,000 400,000 - - - 400,000
Receipt of stock
subscription receivable - - - - 1,600 - - 1,600
Issuance of common stock
for cash at $0.40 per share - - 250,000 100,000 - - - 100,000
Issuance of common stock
for cash at $0.235 per share - - 2,744,681 645,000 (25,000) - - 620,000
Currency translation adjustment - - - - - 126,924 - 126,924
Net loss for the year ended
December 31, 1997 - - - - - - (1,181,272) (1,181,272)
---------- ---------- ---------- ---------- --------- --------- ----------- -----------
Balance at December 31, 1997 505,000 $ 5,050 19,794,681 $1,845,965 $(25,000) $ 156,381 $(1,721,125) $ 261,271
========== ========== ========== =========== ========= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Other During the
Preferred Stock Common Stock Stock Comprehensive Development Total
Shares Amount Shares Amount Subscriptions Income (Loss) Stage Equity
---------- -------- --------- ----------- ------------- -------------- ----------- ---------
Balance, December 31, 1997 505,000 $ 5,050 19,794,681 $ 1,845,965 $ (25,000) $ 156,381 $(1,721,125) $ 261,271
Issuance of common stock
for cash at $.235 per share - - 755,320 177,500 25,000 - - 202,500
Issuance of common stock
for subscriptions receivable at
$0.50 per share - - 1,062,394 531,197 (531,197) - - -
Issuance of common stock
for marketable securities at
$0.50 per share - - 1,928,995 964,498 - - - 964,498
Issuance of common stock
for cash at $0.50 per share - - 4,600,000 2,300,000 - - - 2,300,000
Issuance of stock options for
services valued at $1.375 per
share - - - 13,650 - - - 13,650
Exercise of stock options at
0.01 per share - - 10,000 100 - - - 100
Accrued interest contributed
to capital - - - 15,505 - - - 15,505
Receipt of stock subscriptions - - - - 63,223 - - 63,223
------- ------ ---------- ---------- ---------- ----------- ------------ -----------
Balance Forward 505,000 $5,050 28,151,390 $5,848,415 $(467,974) $ 156,381 $(1,721,125) $ 3,820,747
======= ====== ========== ========== ========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Other During the
Preferred Stock Common Stock Stock Comprehensive Development Total
Shares Amount Shares Amount Subscriptions Income (Loss) Stage Equity
---------- -------- --------- ----------- ------------- -------------- ----------- ---------
Balance Forward 505,000 $ 5,050 28,151,390 $ 5,848,415 $ (467,974) $ 156,381 $ (1,721,125) $3,820,747
Unrealized loss in AMDD
investment - - - - - (814,413) - (814,413)
Currency translation adjustment - - - - - (59,767) - (59,767)
Net loss for the year ended
December 31, 1998 - - - - - - (1,357,825) (1,357,825)
--------------- ------------- ---------- -------------- ------------- ----------- -----------
Balance at December 31, 1998 505,000 5,050 28,151,390 5,848,415 (467,974) (717,799) (3,078,950) 1,588,742
Issuance of common stock
for cash at $1.15 per share - - 650,000 747,500 - - - 747,500
Issuance of common stock
for services received - - 2,600,000 3,145,000 - - - 3,145,000
Issuance of common stock
for cash at $1.15 per share - - 466,488 536,458 - - - 536,458
Receipt of stock subscriptions - - - - 126,902 - - 126,902
Recognition of loss on
investments - - - - - 814,413 - 814,413
Balance Forward 505,000 $ 5,050 31,867,878 $10,277,373 $ (341,072) $ 96,614 $(3,078,950) $6,959,015
--------------- ------------- ---------- -------------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Other During the
Preferred Stock Common Stock Stock Comprehensive Development Total
Shares Amount Shares Amount Subscriptions Income (Loss) Stage Equity
---------- -------- --------- ----------- ------------- -------------- ----------- ---------
Balance Forward 505,000 $ 5,050 31,867,878 $ 10,277,373 $ (341,072) $ 96,614 $ (3,078,950) $6,959,015
Currency translation
adjustment - - - - - (159,682) - (159,682)
Net loss for the six months
and year ended
June 30, 1999 - - - - - - (1,819,436) (1,819,436)
-------- ------- ----------- ----------- --------- ----------- ------------- ----------
Balance at June 30, 1999 505,000 5,050 31,867,878 10,277,373 (341,072) (63,068) (4,898,386) 4,979,897
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Other During the
Preferred Stock Common Stock Stock Comprehensive Development Total
Shares Amount Shares Amount Subscriptions Income (Loss) Stage Equity
---------- -------- --------- ----------- ------------- -------------- ----------- ---------
Balance at June 30, 1999 505,000 $5,050 31,867,878 $10,277,373 $ (341,072) $ (63,068) $(4,898,386) $ 4,979,897
Common stock issued for
cash at $1.15 per share - - 466,485 536,458 - - - 536,458
Common Stock issued for
Cash and subscriptions receivable
at $0.964 per share - - 8,000,000 7,712,000 (1,976,200) - - 5,735,800
Common Stock issued for
Services valued at $1.00
per share - - 80,000 80,000 - - - 80,000
Common Stock issued for the
acquisition of Felnam
valued at $1.00 per share - - 100,000 100,000 - - - 100,000
Subscriptions received - - - - 85,757 - - 85.757
Currency translation
adjustment - - - - - (43,932) - (43,932)
Net loss for the nine months
ended March 31, 2000 - - - - - - (2,373,634) (2,373,634)
------- ------ ---------- ----------- ------------ ---------- ------------ ------------
Balance at March 31, 2000 505,000 $5,050 40,514,463 $18,705,831 $(2,231,515) $(107,000) $(7,272,020) $ 9,100,346
======= ====== ========== =========== ============ ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the nine For the nine From Inception of
months ended months ended August 2, 1996
March 31, 2000 March 31, 2000 through
March 31, 2000
----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (2,373,634) $(1,862,897) $(7,272,020)
Adjustments to reconcile net loss to
cash used by operating activities
Depreciation expense 97,507 51,143 211,882
Amortization of service contract 1,179,375 247,400 1,660,525
Loss on sale of securities - 905,869 905,869
Changes in operating asset and liabilities:
Accounts receivable 28,576 (43,698) (70,995)
Inventories 24,403 (42,929) (87,633)
Prepaid assets 309,304 (71,720) 151,205
Other assets (120,421) (10,812) (199,917)
Accounts payable and accrued expenses (10,795) 52,355 132,136
------------- ------------ ------------
Net cash used in operating activities (865,685) (775,289) (4,568,958)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 293,130 50,620 351,758
Purchases of marketable securities - (1,288,620) (1,288,620)
Grants for property and equipment - 185,000 185,000
Purchases of property and equipment (141,472) (479,224) (854,113)
________ __________ __________
Net cash provided by (used in) investing activities 151,658 (1,532,224) (1,605,975)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 8,428,458 2,199,000 12,661,616
Reverse acquisition - - 5,950
Change of stock subscription receivable (1,890,443) - (1,038,541)
Proceeds from issuance of note payable - 72,801 640,000
Currency translation adjustment (43,932) - (107,000)
_________ ___________ __________
Net cash provided by financing activities 6,494,083 2,271,801 12,162,025
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Unaudited) - Continued
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the nine For the nine From Inception of
months ended months ended August 2, 1996
March 31,2000 March 31, 2000 through
March 31, 2000
__________________________________________________
Net increase in cash and cash equivalents 5,780,056 (35,712) 5,987,092
Cash and cash equivalents, Beginning of period 305,501 483,756 98,465
---------- --------- ----------
Cash and cash equivalents, End of period 6,085,557 448,044 6,085,557
========== ========= ==========
CASH PAID FOR:
Interest $ - $ - $ -
Income tax $ - $ - $ -
</TABLE>
Schedule 1: Noncash Investing and Financing Activities
Common stock valued at $100,000 issued for acquisition
Common stock valued at $80,000 issued for professional services rendered
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Activities
Sangui BioTech International, Inc. (a development stage company) (the "Company")
was incorporated in Colorado on July 14, 1995. The Company is engaged in the
development of immunodiagnostic tests. On May 15, 1997, the Company issued
common stock for all the outstanding common stock of Sangui BioTech, Inc.
("Sangui USA"). Sangui USA is located in Santa Ana, California, and is devoted
to immunodiagnostic research, development, manufacturing and distributing,
marketing, and administrative functions. Sangui USA is the parent company of
two wholly owned subsidiaries SanguiBioTech AG ("Sangui AG"), and GlukoMediTech,
AG ("Gluko"). Sangui AG and Gluko were incorporated in Mainz, Germany on
November 25, 1995 and July 15, 1996, respectively, and are engaged in the
development of artificial oxygen carriers and glucose sensors in Germany.
Consolidation
The accompanying financial statements present the historical consolidated
financial statements of Sangui USA from August 2, 1996 (date of inception),
through of May 15, 1997 and the consolidated financial statements of the Company
and Sangui USA since that date. All significant intercompany accounts and
transactions have been eliminated upon consolidation.
Cash and Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Inventories
Inventories consist of immunodiagnostic products and related materials, and are
stated at the lower of cost or market. The cost of inventories is determined
using the first-in, first-out (FIFO) method.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements -Continued
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Marketable Securities
The Company invests in various short-term debt securities with maturity dates
less than one year. These securities are classified as held-to-maturity
securities and are valued at amortized cost which approximates fair market
value.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over expected useful lives of three to five years.
Expenditures for normal maintenance and repairs are charged to income, and
significant improvements are capitalized.
Patents
Patents and licenses are recorded at cost and are depreciated using the
straight-line method over expected useful lives of 3 to 11 years.
Revenue Recognition
Revenues are recognized when products are shipped to the customers.
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.
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated into
U.S. dollars at period-end exchange rates. Translation adjustments are recorded
as a separate component of stockholders' equity. Income and expense accounts are
translated at weighted average exchange rates for the period.
On March 29, 2000, the Company entered into a foreign exchange contract. This
contract allows the Company to manage financial exposure on fluctuations of
foreign currency rates relating to cash and cash equivalents maintained by
Sangui AG and Gluko.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements - Continued
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Grants
The Company receives grants from the German government which are used to fund
research and development activities and the acquisition of equipment. Revenue
from grants for the reimbursement of research and development expenses are
recorded as other income when the related expenses are incurred. Grants related
to the acquisition of property are recorded as a reduction of the properties'
historical cost.
Earnings per Share
Basic earnings per share are computed on the basis of the weighted average
number of common shares outstanding each period. Fully diluted loss per share
is not presented because any common stock equivalents are anti-dilutive in
nature.
Major Customers and Concentration of Credit Risk
The Company's six largest customers accounted for approximately 80% of sales for
the three months and nine months ended March 31, 2000. The loss of one of these
customers could have a significant negative effect on future sales.
The Company maintains its cash balances in various financial institutions in
accounts that are not insured by the Federal Deposit Insurance Corporation. The
Company has not experienced any losses in such accounts. The Company also
maintains bank accounts in Germany.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Unaudited Financial Statements
The accompanying unaudited interim financial statements include all of the
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim period presented. Such adjustments are
of a normal recurring nature.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been omitted. The results for the three month and nine month period ended
March 31, 2000 are not necessarily indicative of the results to be obtained for
the full year.
NOTE 2 - BUSINESS ACQUISITION
On March 30, 2000, the Company acquired all the outstanding common stock of
Felnam Investments, Inc. ("Felnam"). The transaction was funded through the
issuance of 100,000 shares of the Company's stock valued at $1.00 per share. The
transaction was accounted for using the purchase method. The excess of the
purchase price 0f $100,000 over the relative fair value of zero for the net
assets of Felnam has been capitalized and is being amortized over five years.
The net assets and results of operations of Felnam were not material to the
Company's consolidated financial statements. Accordingly, pro forma financial
information has not been disclosed. In conjunction with the transaction, the
Company incurred approximately $ 180,000 of transaction costs which are charged
to operations.
NOTE 3 - PRIVATE PLACEMENTS
On July 6, 1999, the Company sold 466,485 shares of common stock for $1.15 per
share to EURO-AMERICAN GmbH. Proceeds from the offering amounted to $536,458.
The co-owners of EURO-AMERICAN GmbH also serve as directors of the Company.
On March 29, 2000, the Company sold 8,000,000 shares of common stock for $0.964
per share to EURO-AMERICAN GmbH. Proceeds from the offering amounted to
$5,735,800 and subscription receivable of $1,976,200. The co-owners of
EURO-AMERICAN GmbH also serve as directors of the Company.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company leases its office and laboratory facilities under three operating
leases which expire through March 31, 2003.
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements - Continued
NOTE 4 - COMMITMENTS AND CONTINGENCIES - Continued
Future minimum lease payments under these leases at March 31, 2000 are:
2000 $ 106,390
2001 147,278
2002 145,094
2003 189,217
2004 1,782
-----
Total minimum lease payments $ 625,224
=============
Rent expense for the three months ended March 31, 1999 and 2000 was $26,332 and
$35,463 respectively. Rent expense for the nine months ended March 31, 1999 and
2000 was $88,740 and $101,882, respectively.
Patent Issues
The Company's lead product in its immunodiagnostic business is a blood test kit.
A competitor was granted a patent in the U.S. in August 1998 for a similar
competing product. The Company has reserved $25,000 for the potential costs
associated with
defending its product against potential patent infringement claims.
SEC Investigation
Certain officers and directors of the Company have been investigated by the U.S.
Securities and Exchange Commission related to the timing and nature of certain
common stock transactions. Although these officers and directors may be exposed
to potential fines and penalties stemming from the SEC's investigation,
management of the Company believes that the Company has no contingency.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, future product development efforts,
which are made pursuant to the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that forward-looking
statements involve risks and uncertainties which may affect our business and
prospects, including but not limited to, changes in economic and market
conditions, acceptance of our products by the health care and reimbursement
communities, health care legislation and regulation, new development of
competitive products and treatments, administrative and regulatory approval and
related considerations, and other factors discussed in our filings with the
Securities and Exchange Commission.
GENERAL
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999:
Sales for the three month period ended March 31, 2000 were $115,329, compared to
$80,681 for the same period in the prior year. This increase is attributed to
an increase in sales of the Company's CDT test kit. One of the Company's German
distributors, DPC Biermann, discontinued its sale of the Company's CDT test kit
in January, 2000. Management does not believe this will have a material effect
on overall sales of the Company.
Cost of sales for the three month period ended March 31, 2000 were $68,753,
compared to $54,056 for the same period in the prior year. This increase is
attributed to an increase in sales of the Company's CDT test kit.
Research and development expenses for the three month period ended March 31,
2000 were $225,116, compared to $201,414 for the same period in the prior year.
This increase is attributed to an increase in research and development projects
conducted by the German subsidiaries at Witten, Germany.
General and administrative for the three month period ended March 31, 2000 were
$731,721, compared to $96,320 for the same period in the prior year. This
increase is attributed to the amortization of a prepaid service contract of
$393,125 and an increase in consulting fees of $180,000 related to the Company's
issuance of common stock.
Loss on marketable securities for the three months ended March 31, 2000 was
zero, compared to $880,138 for the same period in the prior year. The decrease
is attributed to the Company's sale of securities in the prior year at a loss
with no such sale in the current year.
The basic loss for the three month ended March 31, 2000 was $925,770, compared
to $1,182,496 for the same period in the prior year. The decrease is a result
of increased sales, increased general and administrative expenses, and the
decreased loss on marketable securities described above.
Nine Months Ended March 31, 2000 and 1999:
Sales for the nine month period ended March 31, 2000 were $330,786, compared to
$151,402 for the same period in the prior year. This increase is attributed to
an increase in sales of the Company's CDT test kit. One of the Company's German
distributors, DPC Biermann, discontinued its sale of the Company's CDT test kit
in January, 2000. Management does not believe this will have a material effect
on overall sales of the Company.
Cost of sales for the nine month period ended March 31, 2000 were $206,645,
compared to $102,038 for the same period in the prior year. This increase is
attributed to an increase in sales of the Company's CDT test kit.
Research and development expenses for the nine month period ended March 31, 2000
were $774,902, compared to $681,687 for the same period in the prior year. This
increase is attributed to an increase in research and development projects
conducted by the German subsidiaries at Witten, Germany.
General and administrative expenses for the nine month period ended March 31,
2000 were $1,859,527, compared to $310,453 for the same period in the prior
year. This increase is primarily attributed to the amortization of a prepaid
service contract of $1,179,375 and an increase in consulting fees of $180,000
related to the Company's issuance of common stock.
Loss on marketable securities for the nine month ended March 31, 2000 was zero,
compared to $905,869 for the same period in the prior year. The decrease is
attributed to the Company's sale of securities in the prior year at a loss with
no such sale in the current year.
The basic loss for the nine months ended March 31, 2000 was $2,373,634, compared
to $1,862,897 for the same period in the prior year. The increase is a result
of increased sales, increased general and administrative expenses, and the
decreased loss on marketable securities described above.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended March 31, 2000, the Company generated cash
primarily by issuance of stock and sales of its diagnostic products.
The Company's principal sources of capital have been as follows:
(i) On July 6, 1999, the Company issued 466,485 shares of common stock for
$536,458 at $1.15 per share.
(ii) On March 24, 2000, the Company issued 8,000,000 shares of common stock
for $5,735,800 and subscriptions receivable of $1,926,200 at $0.964 per share.
The Company had cash and cash equivalents of $6,085,557 and $305,501 at March
31, 2000 and June 30, 1999, respectively. The increase of $5,780,056 primarily
reflects the issuance of common stock, offset by the funding of operating
activities.
The Company's continuing losses from operations could impact the Company's
capital resources. Management believes that based on funds at March 31, 2000,
operations can continue at least through December 2001.
NEW ACCOUNTING PRONOUNCEMENT
The Company will implement the provisions of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by Statement of Financial Accounting Standards No. 137,
in fiscal year 2001, for which the Company is presently assessing its impact on
the consolidated financial statements, if any.
YEAR 2000 COMPLIANCE
To date, the Company has not encountered any significant effects of the Year
2000 problem, either internally or with third parties. This does not guarantee
that problems will not occur in the future or have not yet been detected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no derivative financial instruments and no exposure to foreign
currency exchange rates or interest rate risk
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) On March 24, 2000 the Company accepted subscription for 8,000,000
shares of its common stock at U.S. $ 0.964 per share by Euro-American
Beteiligungsvermittlungsges. mbH, a German brokerage company. On March 30, 2000
the Company issued the 8,000,000 shares to Euro-American. On March 29, 2000, the
Company received U.S. $ 5,735,800 in exchange for the issued stock. Such
proceeds are used and will be used (i) to enable the Company's subsidiary
GlukoMediTech AG to prove its ability to cover 60% of the projected costs of the
research and development of the Company's long-term implantable glucose sensor,
so that the subsidiary qualifies for reimbursement out of the grant of the
German state North-Rhine-Westphalia according to the terms and conditions of the
grant as notified to the subsidiary in September 1999; (ii) to partially fund
the research and development of the Company's artificial oxygen carrier and
other projects of the Company's subsidiary Sangui BioTech AG; (iii) to cover
near-term general and administrative expenses of the Company and its
subsidiaries.
On March 29, 2000 the Company entered into an exchange agreement with the
shareholders of Felnam Investment, Inc. ("Felnam") to acquire 100% of the
outstanding shares of Felnam. In exchange the Company issued the aggregate
amount of 100,000 shares of its common stock to the shareholders of Felnam on
March 31, 2000.
On March 31, 2000 the Company issued 80,000 shares of its common stock to
Cales Investments, Inc. to compensate for services rendered in connection with
the acquisition of Felnam.
(d) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders for a vote during the
period covered by this report.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None
(B) REPORTS ON FROM 8-K
The registrant filed a Form 8-K for the acquisition by the registrant of
Felnam Investments, Inc. in accordance with Items 1, 2, 7 and 8 of Form 8-K.
The registrant filed Consolidated Financial Statements for Sangui Biotech
International, Inc. for the fiscal years ended December 31, 1998 and 1997,
Consolidated Financial Statements for Sangui Biotech International, Inc. for the
six months ended June 30, 1999, Consolidated Financial Statements for Sangui
Biotech International, Inc. for the six months ended December 31, 1999
(unaudited) and Consolidated Pro Forma Financial Statements for Sangui Biotech
International, Inc. combined with Felnam Investments, Inc. at December 31, 1999
(unaudited).
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.
By /s/ Wolfgang Barnikol
----------------------------------
Wolfgang Barnikol
President & CEO
Dated: May 11, 1999
