UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED June 30, 2000
FORM 10-KSB/A
Annual REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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Sangui Biotech International, Inc.
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(Exact name of registrant as specified in its charter)
Colorado
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(State or other jurisdiction of incorporation)
0-29233 84-1330732
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(Commission File Number) (IRS Employer Identification No.)
1508 Brookhollow Drive, Suite 354, Santa Ana, CA 92705
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(Address of principal executive offices) (Zip Code)
(714) 429-7807
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Registrant's telephone number, including area code:
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
As been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check whether there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B in this Form, and will not be contained, to the best of
Registrant's incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Yes [X] No [ ]
The issuer's revenue for the fiscal year ended June 30, 2000 was $429,400.
The market value of the voting stock held by non-affiliates of the issuer as of
October 9, 2000 was approximately $81.980.000.
The number of shares of the common stock outstanding as of October, 9, 2000 was
40,514,363.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [x]
<PAGE>
FORWARD LOOKING STATEMENT
This Annual Report contains forward-looking statements concerning, among other
things, the Company's prospects affecting our potential and our business
strategies.
These forward looking statements involve risks and uncertainties. Actual
results may differ materially from those predicted by the forward-looking
statements because of various factors and possible events, including those
discussed under "Risk Factors". Because these forward looking statements involve
risks and uncertainties, actual results may differ significantly from those
predicted in these forward looking statements.
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
Sangui Biotech, Inc. ("SBT") was incorporated in Delaware on August 2, 1996
and began operations in October 1996. On or around August 9, 1997, Citadel
acquired one hundred percent (100%) of the outstanding common shares of SBT, and
as a result, SBT became a wholly-owned subsidiary of Citadel. Thereafter,
Citadel Investment System Inc, a publicly held company, changed its name to
Sangui Biotech International, Inc. Sangui Biotech International Inc. is referred
in this report as the Company or SGBI. The Company also operates through three
other subsidiaries: GlukoMediTech AG ("Gluko"), SanguiBioTech AG ("Sangui AG")
and Sangui Biotech Singapore Pte Ltd. ("SBTS").
SBT is principally engaged in the development and manufacturing of
Immunodiagnostic kits, which are sold by SBT in niche markets in the United
States and Europe. SBT is located in Santa Ana, California. The California
laboratory facility, approximately 3,360 square feet, is devoted to
Immunodiagnostic research, development, manufacturing, and marketing, as well as
the Company's administrative functions.
Sangui AG was established and organized under the laws of Germany in Mainz,
Germany, on November 25, 1995. Sangui AG is in the business of developing
hemoglobin based artificial oxygen carriers as blood volume substitutes and
blood additive and by products thereof. The officers of Sangui AG are Prof.
Wolfgang Barnikol, M.D., Ph.D., Oswald Burkhard, M.D., Ph.D. and Harald
Poetzschke, M.D. The directors of Sangui AG are Axel Kutscher, Helmut Kappes,
and Doris Barnikol, Ph.D.
Gluko was established and organized under the laws of Germany in Mainz,
Germany, on July 15, 1996. Gluko is in the business of developing a long term
implantable glucose sensor, by-products thereof, three other sensors for use in
anesthesia and sleep diagnostics and a skin-oxy-meter for determination of the
oxygen supply and conductivity of the skin. The officers of Gluko are Prof.
Wolfgang Barnikol, M.D., Ph.D., Oswald Burkhard, M.D., Ph.D. and Harald
Poetzschke, M.D. The directors of GLUKO are Axel Kutscher, Helmut Kappes,
and Doris Barnikol, Ph.D.
The facilities of Sangui AG and Gluko, about 800 square meters, are located
on the premises of the Forschungs- und Entwickungszentrum of the University of
Witten/Herdecke, Witten, Germany since April 1998.
SBTS was incorporated in Singapore on May 15, 1999. The Singapore
subsidiary is expected to be the Asia regional office for the Company and is
expected to be engaged in the business of carrying out research and development
projects as well as animal experiments in conjunction with the German
subsidiaries. The Company will intensify its development work on biomedical
sensors in the Singaporean facilities. The premises of the company, about 350
square meters, are located in the Science Park II, Gemini Building, Singapore.
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 $0 per share due to
the Company treating the transaction as a recapitalization of the Company. In
conjunction with the transaction, the Company incurred approximately $ 180,000
of transaction costs which were charged to operations.
To date, neither SBGI nor any of its Subsidiaries has had profitable
operations. The Company has never been profitable and, through June 30, 2000,
the Company's accumulated deficit exceeded $7.6 million. The Company expects to
continue to incur substantial and increasing losses over at least the next
several years as it expands its research and development efforts, testing
activities and manufacturing operations. All of the Company's potential
products are in development except for the immunodiagnostik test kits. The
Company will need to obtain substantial additional capital to fulfill its
business plan.
BUSINESS OF THE COMPANY
The Company's mission is the development of novel proprietary products.
Its special focus is on providing artificial extracellular oxygen carriers
capable of human organ support in cases of acute and chronic lack of oxygen or
blood loss due to surgery, accident, arterial occlusion, anemia or other causes.
The Company seeks to develop and commercialize such artificial oxygen carriers
with blood volume substitute/blood additive technologies by reproducibly
synthesizing polymers of defined molecular sizes, in special formulations, with
different oxygen affinities (low, normal and high) and specially designed
half-lives. The products, when circulating in the blood system, are designed to
meet the varying clinical needs arising from loss of blood or chronic oxygen
deficiency. In chronic oxygen deficiency, a new or second generation oxygen
carrier with an oncotic pressure lower than that of blood plasma is needed.
SBGI believes that its technologies can meet this need. There can be no
assurance that the Company will be able to obtain these technologies to meet
this need.
The second important project pertains to a long term implantable glucose sensor
for day and night monitoring of a patient's glucose level. The project is
designed to obviate the need for persistent blood sampling and to provide
required information on a continuous basis, which could minimize the harmful
effects of peaks and troughs in the patient's blood sugar level. There can be
no assurance that the Company will be able to complete, nor provide this
implantable glucose sensor.
The development of the above mentioned products are led by Professor
Barnikol and his staff including one deputy, four postdoctoral fellows, two
engineers and several technicians. Oswald Burkhard, M.D., Ph.D., a director and
Vice President of SBGI, is in charge of the necessary clinical trials for the
glucose sensor and the artificial oxygen carrier.
SBGI has also completed the development of nine in vitro diagnostics kits.
Five products have been cleared by the United States Food and Drug
Administration ("FDA"). The other four kits were sold overseas with Certificate
of Exportability from the FDA. There can be no assurance that the Company will
be able to continue the sale of these kits overseas or within the United States.
ARTIFICIAL OXYGEN CARRIER
There are two products in development which are polymers of natural
hemoglobins with oxygen carrying abilities similar to native hemoglobin. One is
a substitute product, and the other is an additive product. The substitute
product ("blood volume substitute") is designed for use to replace red cell
transfusion in a range of applications, such as: (i) replacement of blood loss
due to trauma and surgery; (ii) perfusate for preserving organs for
transplantation; and (iii) stockpile of the product for military and other
emergencies. The cost for developing this product cannot be determined
accurately at this time but is expected to be substantial. The oxygen carrying
blood additive ("blood additive") is defined for use in chronic oxygen
deficiency like heart infarcation, stroke, peripheral perfusionary disorders or
for the supply of cancer tumors (tumor oxygenation) to enhance the efficacy of
radio- and chemo-therapy.
The Company seeks to develop and commercialize proprietary artificial blood
volume substitute/artificial oxygen carrier technologies by synthesizing
reproducible polymers of defined molecular sizes in special formulations with
different oxygen affinities (low, normal and high) and different half-lives,
when in circulation, to meet the varying clinical needs arising from loss of
blood. The Company also intends to develop a new or second generation oxygen
carrier with an oncotic pressure lower than that of blood plasma which is needed
to address a potential market in chronic oxygen deficiency. The experiments
completed in the Company's laboratories demonstrated that it is possible to
polymerize native mammalian hemoglobins from humans, pigs and cattle, resulting
in huge soluble molecules, the so-called hyperpolymers. The Company plans to
polymerize hemoglobins from pigs (porcine blood). In August 2000 the Company
finalized its work on the pharmaceutical formulation of the oxygen carrier for
laboratory scale.
Blood Volume Substitute
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The need for blood volume substitutes is growing because of: (i) reduced
willingness of the population to give blood; and (ii) rising contamination of
donors with HIV and hepatitis viruses. The worldwide market for stored blood is
estimated to total about US $ 5 billion per year.
Invasive surgery, resulting from such causes as transplantation or
accidents, can result in substantial loss of blood. In such circumstances, blood
volume has to be substituted to avoid shock. Blood substitution must be done
with an isoncotic solution which has the same colloid-osmotic pressure as blood
plasma. Such blood volume substitutes are called "plasma expanders". These
expanders use macromolecules like polysaccharides or gelatin to generate the
oncotic pressure.
Blood additive
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In cases where the native blood oxygen carrier system does not deliver
enough oxygen to tissues of the heart, brain, extremities, kidneys and other
organs or to cancer tumors, a critical clinical situation arises requiring
another oxygen carrier strategy. In these cases, the patients do not have a
blood volume deficiency, but suffer from an oxygen deficiency. To compensate
for this oxygen deficiency, an artificial oxygen carrier must be introduced
into the circulatory system and this additive must have no influence on the
oncotic pressure, i.e., it must have a negligible oncotic pressure as compared
to normal, which is about 30hPa. SBTAG has polymerized various hyperpolymers in
small quantities, as described above with characteristics such as sufficiently
low viscosity and a negligible oncotic pressure at the desired concentration and
desired hematocrit concentration. Experiments conducted in alert rats with a
magnetometric method appear to demonstrate that the hyperpolymer hemoglobins
irritate the reticulo-endothelial system of the liver far less than emulsions of
fluorocarbon or encapsulated hemoglobins solutions.
The management of SBTAG believes that the additive feature of the oxygen
carrier under development, could potentially address a market possibly equal to
or larger than that of blood volume substitutes. It has been reported that the
oxygenation of solid tumors makes them more sensitive to radio and chemo
therapy. Management believes that its blood additive technologies, for which
there are no known competitive products, could be very attractive in the medical
field. Nonetheless, there can be no assurances that such therapeutics will be
well accepted in the market, if developed. Therefore, the development of an
artificial oxygen carrier has become the primary focus of the management of
SBGI. However, such a market projection for plasma expanders and additives, as
therapeutics for oxygen deficiency disorders, cannot be ascertained, since such
products are not available in the marketplace. There also cannot be assurances
that such therapeutics, if developed, will be favorably accepted by the medical
community.
If oxygen carriers can be used successfully in the cancer field, this could
be expected to speed the approval process for the use of blood volume
substitutes based on similar technologies. However, there can be no assurances
that these applications will be approved by the various government regulatory
agencies, including but limited to the FDA in the United States and the similar
agencies in Germany and other Western European countries.
It should be noted, that, this specialized or niche application, if
successfully developed, would have a market potential substantially smaller than
the overall market of artificial blood volume substitute or the therapeutic
market (with oxygen carrier as an additive or therapeutic agent) for more
widespread oxygen deficiency disorders such as myocardial infarction and stroke.
Small animal exchange experiments with artificial oxygen carriers prepared
by the Company have demonstrated, that these carriers are very effective in
oxygen transport already in small concentrations within the blood plasma (0.5
gram per decilitre), and that they show a synergistic effect with native
transport systems. Also it was possible to synthesize hyperpolymeric oxygen
carriers which exhibit almost no immunogenicity in mice sensitized to
hemoglobin.
Sangui AG has received a grant from the government of the German state of
North-Rhine-Westphalia in an amount of more than US $ 2,000,000 which covers 40%
of the estimated costs of the research and pre-clinical development of the
Company's polymer hemoglobin based artificial oxygen carrier. SBTAG has received
installments of $962950 from the grant to reimburse 40% of its relevant expenses
in the period from April 1998 to June 30, 2000. The grant requires the Company's
economical ability to cover 60% of the project costs on its own as well as the
achievement of milestones.
GLUCOSE SENSOR AND TECHNICAL BETA-CELL
Over 5% of the inhabitants of the industrialized countries suffer from
diabetes. About one tenth of these patients are afflicted with diabetes
mellitus Type 1, which means they are dependent for life on the parenteral
application of insulin. In addition, about 10 % of the Type II diabetics also
get insulin dependent during the course of their illness.
Diabetes Type I patients suffer from the irreversible destruction of the so
called beta cells of the pancreas (absolute insulin deficiency); the beta cells
normally produce the hormone, insulin.
Diabetes Type II patients suffer from a relative insulin deficiency; the
insulin receptors are insensitive to the hormone.
The central problem of the diabetic is to properly and constantly measure
the blood glucose level, ideally 24 hours a day, and thereby to know how to
adjust, quantitatively, the glucose level in the tissues by administering
insulin, for example, in order to stabilize the blood sugar level at its normal
value of 1 g/L. Only a rough adjustment may be achieved during waking hours
when the patient is able to sample a drop of blood from the fingertips
periodically, and to determine the level of glucose with the aid of dipsticks.
Many patients have developed a sixth sense in adjusting their blood glucose
level.
Nevertheless, the permanent sampling of blood and the need to inject
insulin deteriorate the quality of life. An enormous danger for the diabetic
patient arises when he is asleep, i.e. one third of his life time, when he is
neither able to sample the glucose level in his blood system, nor to adjust it,
if necessary.
Furthermore, as shown by measurements using a short time (only 3 days)
glucose monitoring system based on the enzymatic detection of glucose, (even in
patients who seem to be well adjusted) dramatic changes of the blood sugar occur
during night and day.
Infectious diseases and vegetative disorders are also reasons for
uncontrollable disturbances and variations of the glucose level, even during
waking hours. Those are very dangerous for the patient as it is explained
below:
A glucose level which remains too low over long periods of time results in
damage to organs with high metabolism, such as the brain. Brain cells which die
cannot be replaced. If a glucose level remains too high, the typical long term
sequelae of Type I diabetes occur, such as peripheral circulatory deficiencies
resulting in the need for amputation of extremities and detachment of the retina
resulting in blindness.
For the reasons given above, it would be of enormous advantage to
constantly and automatically monitor the blood sugar level of the patient. To
do so, the glucose monitor must stay at or in the patient for a long period of
time making the procedure cost effective and efficacious. Problems of
infection, comfort, and the risk of detachment all favor a permanently
implantable sensor.
This device should communicate via radio signals with a control panel/modem
outside the body and supply the patient with the necessary information. In
combination with a dosage pump for insulin (internal or external) an artificial
beta-cell for insulin dependent diabetics could be realized.
Until now, an implantable glucose sensor has been the missing link in the
development of a beta cell for the automatic dispensation of insulin.
German insurance companies have estimated the possible savings for a
patient with Type I diabetes to range from between approximately $6,000 to
$8,000 per annum. Based on a unit price of about $7,000, the market potential
for the developed countries could amount to several billion dollars per year, if
such a sensor receives favorable market acceptance.
The following experimental results were obtained in furtherance of the
Company's objective of developing an implantable glucose sensor on the basis of
physical measurement systems:
* polarimetric, infrared and refraktrometric measurements of glucose
concentrations in the physiological range resulted in electronic
signals, sufficiently high for further processing
* glucose is responsible for at least 95% of the optical rotation of
ultrafiltered blood plasma
* the concentration of glucose in ultrafiltrated tissue fluid equals that of
blood
* the level of glucose in an implanted ultrafiltrating hollow fiber did not
drift, in the sense of decreasing, over a period of three weeks
* the adjusting time of the glucose level in the hollow fiber is about ten
minutes and is also stable over a period of three weeks
For insulin dependent diabetics, the implantable glucose sensor is planned
to be equipped with an insulin reservoir and pump which will be designed to
function as an artificial endocrine pancreas. The device will be in telemetric
contact with a matchbox-sized monitor, which must be placed close to the
patient. It will have the following functions:
* receive a signal every 5 to 10 minutes, and
* show the glucose level on a LCD display
* warn the patient:
* optically and acoustically in case of danger
* if there is no signal from the sensor
The need for a reliable, cost-effective and continuous glucose monitor for
diabetes patients is to prevent irreversible damage to the kidney and retina,
and to avoid amputations of extremities. The management of the Company believes
that such a sensor could be the missing link to construct an artificial
pancreatic beta-cell for insulin dependent diabetics. There can be no assurance
that such a sensor, if developed, will be favorably accepted by the medical
community.
Gluko presented its pre-prototype of a long-term implantable glucose sensor
at the Duesseldorf MEDICA Show in November 1998. The Company demonstrated an
improved pre-prototype comprised of a miniaturized optical system (which
includes the light source, diodes, light detectors and an integrated sensor
electronics which has not been finally miniaturized) at the Duesseldorf MEDICA
Show in November 1999. In August 2000, the Company stated a further development
of its concept for the long term implantable glucose sensor which offers the
Company an additional possibility to also develop an "insertable" sensor for the
initial clinical adjustment of diabetics. In contrast to an implanted sensor
this is completely under the skin and has no connection at all through the skin
to the outside, an inserted sensor is "pierced" through the skin. In contrast
to the implantable sensor, the functional capacity does not depend on a complete
miniaturizing of the electronic system. Gluko's engineers have advanced the
construction of the sensor in such a way that in future all moveable mechanic
parts can be completely dispensed. Since the final mechanically moveable sensor
component - a micro pump with a relatively high energy demand - has been
omitted, the sensor might become safer in operation. The change might have a
positive effect on the sensor's energy supply.
In September 1999, Gluko received a grant from the German state of
North-Rhine-Westphalia in the amount of approximately $2,000,000 for the long
term implantable glucose sensor. The grant will cover 40% of the budget project
cost from December 1998 to November 2001. Gluko has already received
installments of $279,610 from the grant to reimburse 40% of its relevant
expenses in the period from December 1998 to June 30, 2000. The grant requires
the Company's economical ability to cover 60% of the project costs on its own.
An additional condition of the grant is that product must be developed and
produced in the German state of North-Rhine-Westfalia, if developed by 2003.
DIAGNOSTICS
The Company's current strategy is to develop niche immunodiagnostic
products with only few competitors, like the CDT test kit. The Company plans to
attempt to increase the sales of its products by (1) introducing its products to
additional distributors covering geographic markets, which the Company currently
has no coverage, and (2) offering the products to established distributors and
larger companies who have established distribution and worldwide marketing
network at significant discounts. However, there can be no assurance that any
of these attempts will succeed.
SBGI has completed the research and development of certain health care
products which are intended to be produced, promoted, marketed, and used
world-wide. SBGI's products consist of: (i) a Carbohydrate-Deficient
Transferrin test kit, which is used to detect chronic alcohol abuse; (ii) a
urinary micro-albumin test, which is a diagnostic test to detect small amounts
of proteinuria in diabetes mellitus; (iii) a C-Reactive Protein, which is an
acute phase protein and sensitive indicator of inflammation; (iv) two different
kits for the measurement of Parathyroid Hormone, which is a diagnostics adjunct
to the differential diagnosis of hyper- and hypo-parathyroidism. ; (v) ACTH
(Adrenocorticotropic Hormone), a niche endocrine test for adrenal cortex
function; (vi) Calcitonin, another endocrine test for a rare disease; (viii)
Erythropoietin (EPO), a test for certain types of anemia; and (ix) TSH (Thyroid
Stimulating Hormone or Thyrotropin), a common and popular thyroid function test,
but faced with over forty (40) competitors' products on the same test.
Currently, the Company has a total of nine (9) niche immunodiagnostic
products for distribution. All the products are based on the microplate format,
except for the PTH and TSH IRMA. This microplate or microtiter platform was
chosen, because microplate readers are quite common in the clinical and hospital
medical laboratory setting. All the test kits, except TSH, are targeted at the
niche laboratory market. Nonetheless, due to the aging or maturation of the in
vitro diagnostics industry, unprecedented fierce competition coupled with
healthcare cost containment has resulted in the appearance of the previous niche
tests on the menu of proprietary instrumentation made by billion dollar
well-capitalized companies owned by the world-class pharmaceutical companies.
At present, the only product, which truly can be considered "niche" is the CDT.
CDT (Carbohydrate Deficient Transferrin). Has been reported as the most
reliable test for identification of chronic alcohol abuse. The worldwide market
potential is estimated at between US $1.5 to US $ 2 million per annum. The
market potential has been reduced, due to the discontinuation of reimbursement
in Germany. This test uses microplate format Turbidimetric Immunoassay with
prepackaged chromatography columns. The SBGI CDT test kit, trademarked as
ChronAlco I.D. in Germany, has been found to be superior to the product made by
the only other manufacturer (competitor) by two leading German scientists. Over
60% of the product sales realized by the Company were derived from this product
for the past one and one-half years (July 1,1999 to June 30, 2000).
* Intact-PTH on the ELISA Microplate format (2nd Generation). This product
has been cleared under the 510(k) regulations by the FDA in late December 1997.
It has one distinct advantage over the two other ELISA microplate PTH kits on
the market. It is faster and easier, with performance characteristics similar or
superior to the competitors. Nonetheless, the Company has derived insignificant
sales to date, despite some meaningful increases in terms of percentage
increase. The management believes that the lack of significant sales is mostly
likely due to the current market trend of complete turn-key (hands off or
complete) automation in the laboratory business, dominated by divisions of large
pharmaceutical companies.
* Intact-PTH IRMA (ImmunoRadioMetricAssay). The radioactive version will
compete mainly based on price. The worldwide market potential for all the PTH
kits, with over 12 competitors, is estimated at US $ 50 million per annum.
* CRP (C-Reactive Protein). Turbidimetric Immunoassay (TIA),
for the differential diagnosis of viral vs. bacterial infection. Valuable to
preclude overuse of antibiotic treatment in infections of viral etiology.
Recently, the CRP test has been reported to have applications in predicting the
outcome of stable angina patients. The worldwide market potential is estimated
at US $ 7 million per annum. However, the Company has derived negligible sales
since the completion of product development in early 1997. It is believed that
the technology used by the Company is obsolete, suffering from analytical
sensitivity. Due to the dismal probability of acquiring significant
market-share, the management has decided to discontinue this product.
* Microalbumin quantitative test via TIA. Highly sensitive determination of
small quantities of albumin in urine. Early detection of microalbuminuria can
prevent subsequent irreversible renal impairment in patients with Diabetics
Mellitus. The worldwide market potential is estimated at US $ 5 million per
annum. However, the Company has derived negligible sales for the last three
years (since the completion of product development on this product) due to
market dominance of large companies, such as Roche/ Boehringer Mannheim and
Beckman Instruments,Inc.
* ACTH (Adrenocorticotropic Hormone) ELISA. This product is the only 2nd
Generation ELISA Kit in the market. This test is intended for the assessment of
adrenal cortex function such as Addison Disease and the differential diagnosis
of Cushing Syndrome. The estimated market potential size is US $ 5 million per
annum.
* Calcitonin ELISA. This product is the only ELISA in the market. This is
another calcium metabolism test. The test volume has been increasing in Europe
and the US. The estimated market potential size is US $ 1 million per annum.
* Erythropoietin (EPO) ELISA. Quantitation of serum erythropoietin
concentration serves as a diagnostic adjunct in determining the cause of anemia
or erythrocytosis (an increase of red blood cell mass). Also, Amgen, Inc.
manufacturers the drug Erythropoietin, trade-name Epogen. Hence, it is believed
that there is a small market for drug monitoring as well. However, there are
several competitors including at least one competitor with fully automated
system.
* TSH IRMA. TSH (Thyrotropin) is a very useful, if not the most important,
screening test for thyroid function assessment. However, there are at least
forty kits in the market-place, so this product is not a niche product. The
Company's kit is based on the ImmunoRadioMetricAssay and was originally
developed specifically for sale to a small German distributor, who had
overestimated its ability to sell significant quantities in Germany.
The majority of the sales and repeat orders are from Germany and the United
States.
To date, the Company's efforts to sell its products to emerging markets such as
the mainland China, Hong Kong and Taiwan were unsuccessful and the sales to
date is very limited. At present, the Notified Bodies of the CE (European
Community) has not yet completed its final regulations on in vitro diagnostic
kits. The Company intends to comply with the CE Mark regulations in due course.
Although the Company has had positive experience with the US FDA regulations in
clearing five of its products filed under the 510 (k) process, there can be
no assurance that its effort in compliance with the CE Mark will be successful.
In the immunodiagnostic business, the Company continues to attempt to
expand its sales and distribution on products already developed and
continually manufactured.
OTHER BY PRODUCTS
The knowledge gained during developing the glucose sensor, has resulted in
the development of two by-products based on the measuring systems of the glucose
sensor:
* a high precision analytical micro system for monitoring and controlling of
(bio)chemical processes in biotechnology, chemistry and Pharma industry
and
* a polarimeter/spectrometer designed for laboratory work
During his work at the University in Mainz, Germany, one area of Prof.
Barnikol's research focused on respiration processes. From this research work
Gluko's projects in the field of anesthesia, intensive care and sleep
diagnostics derived. The product line comprises monitoring devices as:
* a sensor tube
* a sensor connector for new borns
* a nose sensor
* a main stream respiratory oxygen sensor
Further by products of the GMTAG are:
* an oxygen sensor device for the skin (skin-oxy-meter)
* an equipment for small animal (rats and also mice) experiments
* a respiratory microvalve
* a micro respiratory flow sensor
* Module micro controlling and heating system for setting defined levels of
temperature on basis of Peltier technique.
DEVELOPMENT PROCESS
OXYGEN CARRIER
In December 1997 the Company decided that porcine hemoglobin should be used
as basic material for its artificial oxygen carriers. In March 1999 the Company
came to the fundamental decisions as to which hemoglobin hyperpolymer will go
into preclinical investigation and that glutaraldehyde will be taken as cross
linker and pyridoxalphosphate as effector. The fine adjustment of the formula
of the artificial oxygen carriers - optimized for laboratory scale - was
finalized in Summer 2000. This fine adjustment comprises different conditions
like concentrations of glutaraldehyde and pyridoxalphoshate, incubation times,
and temperature.
In laboratory scale the manufacturing is set out as follows: First, pure
porcine blood must be obtained from slaughterhouses. The blood must not be
contaminated with endotoxins released by bacteria or other contaminating
material. Therefore, it must be guaranteed that the pigs, of which the blood is
taken, were neither ill nor had received medicine. The state of health of the
pigs has to be contractually fixed with the pig breeders. In order to determine
and prove the purity of the source material as well as that of intermediate and
final products, an analytic department has been set up.
After release of the hemoglobin molecules from erythrocytes, about fifteen
molecules are cross-linked to a hyperpolymer molecule by a chemical reaction
using glutaraldehyde as a cross-linker. This hemoglobin hyperpolymer is the
artificial oxygen carrier. An advantage of the hyperpolymer structure is that
it prevents the oxygen carrier from secreting via the kidneys which would have
harmful effects on the patients.
Pyridoxalphosphate is used as an effector by which the oxygen binding
properties of the hemoglobin hyperpolymer molecules, for instance the functional
oxygen transport capacity, are adjusted properly. During all preparation steps
defined conditions have to be chosen and maintained carefully (e.g. temperature,
pH of the solutions). After preparation of the oxygen carrying hyperpolymers,
they are separated into a high molecular fraction and a low molecular fraction
to obtain the blood additive and the blood volume substitute, respectively.
At this point in time, the Company is developing the upscaling process for
preparation of a large amount of oxygen carrier for preclinical and clinical
trials. According to regulatory requirements, all drugs have to pass through
preclinical and clinical trials before approval (e.g. FDA approval: Federal drug
administration)and launching to the market. In preclinical trials, experiments
using animal models and tissue culture models have to be carried out to evaluate
the efficacy and safety of the developed drug. Phase I of the clinical trials,
so called "human pharmacology" comprises the application of the drug in healthy
volunteers. Phase II is called "therapeutic explanatory" and comprises trials
with a small number of ill patients. Phase III is called "therapeutic
confirmation" and comprises trials with a larger number of ill patients.
Management of the Company believes that the European and FDA approval
process will take at least several years.
LONG-TERM IMPLANTABLE GLUCOSE-SENSOR AND TECHNICAL BETA-CELL
The glucose sensor under development by Gluko is based on physical methods
for the determination of the diabetic's glucose level. Three physical
measurement systems have been developed for the glucose detection system: a
polarimetric, an infrared system and a refractrometric system. These systems
have to be proved to be specific for in vitro determination of glucose levels in
the physiological range of 50 to 500 milligram glucose per decilitre. At
present, it is not settled which one of the systems will be used in the first
generation of the sensor. Gluko endeavors to install two independent measuring
systems in its sensor to increase the specificity and accuracy of the glucose
determination.
The sensor will be implanted into the subcutaneous fat tissue in the
stomach area near the belly button. The Company endeavors to develop a glucose
sensor that might be implanted for a period of three to five years. To protect
the detection system inside the measuring chamber from large compounds of the
interstitial fluid, especially from proteins, and to increase the specificity of
the system, a microdialysing exchange membrane will be part of the sensor. In
experiments done so far the membrane materials tested revealed reproducible
results over a period of about three weeks.
At present, the development of the sensor is not finalized. At the MEDICA
1998 trade fair, Duesseldorf, Germany, a presentation of a pre-prototype of the
glucose sensor demonstrated the final miniaturized optical systems of the
polarimetric and the infrared detection systems developed by Gluko's engineers.
The Company now pursues the further and consequent miniaturization of the
sensors electronics (first step: SMD technology {surface mounted device}, second
step: so called one-chip-technology), the further development of the energy
supply, the telemetric system, and the micro-dialysing exchange system.
During the day, the measuring signal will be sent telemetrically to a
glucose watch which the diabetic patient will carry at his wrist. During the
night, the telemetric signal will be sent to a receiver near the bed which will
monitor the glucose level and warn the patient of hypoglycemia and
hyperglycemia.
The latest further development in the sensor construction (spring/summer
2000) opens the enter-prise the additional possibility to develop also an
"insertable" sensor for the initial clinical adjustment of diabetics. In
contrast to an implanted sensor that is completely under the skin and has no
connection at all through the skin to the outside, an inserted sensor is so to
speak "pierced" through the skin, that means it has a connection to the outside.
The insertable sensor of the Company is being designed to allow a continuous
glucose determination over several days and will exhibit the same measuring
principles and almost the identical design as the implantable sensor. In
contrast to the implantable sensor, the functional capacity does not depend on a
complete miniaturizing of the electronic system. The analyzing unit will be
outside of the human body and connected by cable with the insertable sensor.
The construction of the glucose sensor has been changed in such a way that,
in future, all moveable mechanical parts can be completely be dispensed which
might increase the safety of the sensor and might have a positive effect on the
sensors' energy supply.
The development of an appropriate implantable insulin pump and its
combination with the glucose sensor to a closed loop will enable the company to
produce a technical beta-cell, so that the insulin dependent patient will be
automatically supplied properly with the necessary amounts of insulin.
According to regulatory requirements, all medical devices have to pass
through clinical trials before approval (e.g. FDA approval; Federal drug
administration) and launching to the market. Unlike the Companies oxygen
carriers that are classified under pharmaceutical products, glucose sensors
being medical devices have a separate approval process. The clinical trials for
the glucose sensor do not have different phases and entails doing studies
immediately with diabetic patients.
Management of the Company believes that European and FDA approval process
will take at least several years for the implantable glucose sensor.
PATENTS AND PROPRIETARY RIGHTS
The Company has the policy of seeking patens covering its research and
development and all modifications and improvements thereto. Sangui AG owns five
German and US patents relating to its artificial oxygen carrier, its uses,
application and certain steps of the manufacturing process. The Company has
several patent applications pending in the United States, Europe and Japan.
Gluko owns two German patents relating to the glucose sensor technology and six
related to the by-products. Gluko has several patent applications pending in
Germany, the United States, Europe and Japan related to the glucose sensor
technology as well patent applications for the by-products.
The Company cannot ensure that its patents or other proprietary rights will
be determined to be valid or enforceable if challenged in court or
administrative proceedings or that we will not become involved in disputes with
respect to the patents or proprietary rights of third parties. An adverse
outcome from these proceedings could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require the Company to stop using its technology, any of which would
result in a material adverse effect on the Company's results of operations.
MARKETING AND DISTRIBUTION
Other than the immunodiagnostic products, the Company has not yet
manufactured its products in commercial quantities.
SGBI markets its immunodiagnostic products through a distributor in a
particular country. The products are targeted at the smaller laboratories in
Western Europe and the United States, who may have insufficient test volume to
justify the installation of "turn-key" fully automated proprietary
instrumentation by the large competitors. It also includes end users like
independent clinical, hospital or physician operated laboratories.
The Company sells its CDT kits mainly through one German distributor,
selling directly to one customer in the US and one distributor covering
Switzerland and Austria. As of June 30, 2000, significant product sales in
terms of its diagnostic division in the US, have been realized only on the CDT
test. DPC Biermann GmbH was the Company's main distributor in Germany and
succeeded in obtaining significant market-share in the German Republic.
Unfortunately, due to pressure of the Company's competitor, DPC Biermann
discontinued its sale of the Company's CDT test kit in January, 2000 in order to
form a strategic alliance with the Company's competitor. Management does not
believe this will have a material effect on overall sales of the Company.
Nonetheless, management has concerns whether it can effectively penetrate
additional market-share in Germany with its current German distributor, who is a
much smaller company as compared to DPC Biermann.
On the four ELISA products, although comparative increases in turnover and
number of orders from various distributors have been significant, the impact on
profit and loss is not yet significant. The Company has limited experience in
sales and marketing of products. In general, the distributor is required to
commit to a minimum sales volume in order to maintain an exclusive position in a
given territory. It is not uncommon to provide a 30 to 50 % discount or even
more from the product transfer price. The distributor typically uses the margin
to pay for the shipping cost, its overhead, sales staff and keep the balance as
profit. To date, no minimum sales volume was required, because there was no
exclusive distribution agreement.
Four customers accounted for 70% and 82% of sales for the year ended June
30, 2000 and the six-month period ended June 30,1999, respectively.
To raise its profile, the Company regularly participates in various
medical and health related product exhibitions and trade fairs, for instance the
latest Medica 2000 held in Duesseldorf.
GOVERNMENT REGULATION
SGBI and its subsidiaries are, and will continue to be, subject to
governmental regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, and other
similar laws of general application, as to all of which SGBI believes it and its
subsidiaries are in material compliance. Any future of, and the cost of
compliance with, these laws and regulations could have a material adverse effect
on the business, financial condition, and results of operation of SGBI and its
subsidiaries.
Because of the nature of the operations of SGBI and its subsidiaries and
the use of hazardous substances and their ongoing research and development and
manufacturing activities, SGBI and its subsidiaries are subject to stringent
federal, state and local laws, rules, regulations and policies governing the
use, generation, manufacturing, storage, air emission, effluent discharge,
handling and disposal of certain materials and wastes. Although it is believed
that SGBI and its subsidiaries are in material compliance with all applicable
governmental and environmental laws, rules, regulations and policies, there can
be no assurance that the business, financial conditions, and results of
operations of SGBI and its subsidiaries will not be materially adversely
affected by current or future environmental laws, rules, regulations and
policies, or by liability occurring because of any past or future releases or
discharges of materials that could be hazardous.
Additionally, the clinical testing, manufacture, promotion and sale of a
significant majority of the products and technologies of the subsidiaries, and
to a much less extent to SGBI, if those products and technologies are to be
offered and sold in the United States, are subject to extensive regulation by
numerous governmental authorities in the United States, principally the FDA, and
corresponding state regulatory agencies. Additionally, to the extent those
products and technologies are to be offered and sold in markets other than the
United States, the clinical testing, manufacture, promotion and sale of those
products and technologies will be subject to similar regulation by corresponding
foreign regulatory agencies. In general, the regulatory framework for
biological health care products is more rigorous than for non-biological health
care products. Generally, biological health care products must be shown to be
safe, pure, potent and effective. There are numerous state and federal statutes
and regulations that govern or influence the testing, manufacture, safety,
effectiveness, labeling, storage, record keeping, approval, advertising,
distribution and promotion of biological health care products. Non-compliance
with applicable requirements can result in, among other things, fines,
injunctions, seizures of products, total or partial suspension of product
marketing, failure of the government to grant pre-market approval, withdrawal of
marketing approvals, product recall and criminal prosecution.
COMPETITION
IMMUNODIAGNOSTIC KITS
TYPE OF IMMUNODIAGNOSTIC KIT MAJOR COMPETITORS
Intact-PTH on the ELISA Microplate format Abbott Laboratories
Bayer
Hoffman La-Roche
DPC
Nichols Institute Diagnostics
DSL (Diagnostic Systems
Laboratories)
Bio Rad
DiaSorin
Intact-PTH IRMA Nichols
IncStar
DSL
ACTH ELISA Bayers
DPC
Nichols Institute
DSL
CIS
DiaSorin
Euro Diagnostics
Calcitonin ELISA Nichols Institute Diagnostics
DPC
Mitsubishi
DiaSorin
DSL
CDT Axis Biochemical,
ASA
Hoffman-La-Roche (Distributor of
one Version of Axis kit)
Erythropoietin ELISA R&D Laboratories
Nichols Institute
DLS
DPC
CRP BMC/ Hitachi
Beckman
Microalbumin quantitative test via TIA BMC/ Hitachi
Beckman
DPC
The market for the products and technologies of the Company is highly
competitive, and SBGI expects competition to increase. SBGI will compete with
many other health care research product suppliers, most of which will be larger
than SBGI.
Some of the competitors of SBGI offer a broad range of equipment, supplies,
products and technology, including many of the products and technologies
contemplated to be offered by SBGI. To the extent that customers exhibit
loyalty to the supplier that first supplies them with a particular product or
technology, the competitors of SBGI may have an advantage over SBGI with respect
to products and technologies first developed by such competitors. Additionally,
many of the competitors of SBGI have, and will continue to have, greater
research and development, marketing, financial and other resources than SBGI
and, therefore, represent and will continue to represent significant competition
in the anticipated markets of SBGI. As a result of their size and the breadth
of their product offerings, certain of these companies have been and will be
able to establish managed accounts by which, through a combination of direct
computer links and volume discounts, they seek to gain a disproportionate share
of orders for health care products and technologies from prospective customers.
Such managed accounts present significant competitive barriers for SBGI. It is
anticipated that SBGI will benefit from their participation in selected markets
which, as they expand, may attract the attention of the competitors of SBGI.
There can be no assurance that the Company will be able to compete successfully
in these markets.
The competition in the US $ 20 billion diagnostic business is fierce,
mainly dominated by the large pharmaceutical and larger established
biotechnology companies such as Abbott Laboratories, Hoffman La Roche etc.
For its CDT kits, the Company's only competitor is Axis Biochemicals, ASA,
in Oslo, Norway which has entered into European and distributorship arrangements
with Bio Rad Laboratories, Inc. and Roche Diagnostics, a division of
Hoffman-La-Roche. Large competitors with complete automation with proprietary
instrumentation have offered packaged reagent rental programs to potential
customers, for which the use of instrument is not paid by the customers except
for some small commitment to purchase the products. These large
companies dominate essentially over 80% of the endocrine assay markets in the
developed countries such as the United States, Western Europe and Japan with
their proprietary fully automated instruments. SBI can only attempt to increase
the sales for its endocrine products to small laboratories through its
distributors and seek to enter emerging markets in Latin America, Asia and
Eastern Europe, where the need for endocrine has been traditionally minimal, due
to the prevalent poverty and in some cases over-population. There can be no
assurance that the Company will be able to compete successfully in these
markets.
BLOOD VOLUME SUBSTITUTE
In the business of blood volume substitute, there are at least six
large companies that have obtained substantial capitalization either through
equity funding or through acquisition by large corporations, such as Baxter
International acquiring Somatogen. Other future competitors are Hemosol Inc. in
Canada, Northfield, Alliance Pharmaceutical and Enzon. Nearly all these
companies have already made strategic marketing alliances with large companies
with established marketing and distribution channels, such as Johnson and
Johnson, Eli Lilly and Company, and Pharmacia/Upjohn. Most of these companies
have already proceeded Clinical Trial Phase II with the FDA. To be competitive,
the Company is attempting to develop well-characterized and differentiated
products in unique formulations which could capture some of the market as a new
generation of oxygen carrier/additives to address the markets of artificial
blood volume substitutes as well as the potential new market of therapeutics for
oxygen deficiencies. There can be no assurances that the management's
objectives can be achieved.
BLOOD ADDITIVE
In the business of blood additive, SBTAG is not aware of any existing or
potential competitors.
GLUCOSE SENSOR
The Company is not aware of any glucose sensing implants available in the
marketplace at this juncture. However, Johnson & Johnson has a significant
market share on in vitro glucose measuring device, using a small amount of blood
from finger tips. Other large companies, such as Abbott Laboratories, Inc. also
have similar in vitro glucose measuring devices on the market. In the last
years different approaches have been chosen by companies to reduce the pain
caused by the finger pricks necessary for the determination of the blood
glucose. Cygnus Inc., Redwood City, California, USA, for example, has been
developing a device which collects interstitial fluid at the diabetic's wrist by
use of electrical energy. Cygnus applied for FDA approval and received the
instruction for further testing of the device. On devices close to an
implantable glucose sensor, MiniMed Inc. of Sylmar, CA has submitted to FDA a
Notification on a Continuous Glucose Sensor For Diabetes in December, 1997.
MiniMed Inc. announced its intention to produce and market this product. It
expects to utilize the sensor for a series of products, the first two of which
will be a physician diagnostic device and an alarm product to warn people with
diabetes of dangerously low glucose levels. However, the reagents for the
MiniMed's sensor are stable for only three days. By contrast to the objective
of an implantable long term glucose sensor by GMTAG, the MiniMed's sensor does
not solve the problem in the long term.
GMTAG is aware of three other companies also developing implantable glucose
sensors. Medical Research Group, LLC, MRG, a privately-held company has been
developing a glucose sensor and is planning to connect this sensor with an
insulin pump developed by Minimed. The sensor under development by Synthetic
Blood International, Kettering, Ohio, USA is based on an enzymatic glucose
determination. Animas, Corp., Frazer, Pennsylvania, USA has been developing an
implantable glucose sensor based on infrared spectroscopy. There can be no
assurance that the Company will be able to compete successfully in these
markets.
RISK FACTORS
An investment in SGBI involves significant risks associated with economic,
business, market and financial factors and developments which may have adverse
impacts on the Company's future performance, including significant risks not
normally associated with investing in equity securities of United States
companies including the following:
LIMITED OPERATING HISTORY OF THE COMPANY; LOSSES ARE EXPECTED TO CONTINUE
The Company is a relatively new entity and owns all of the issued and
outstanding capital stock of its subsidiaries. SGBI has limited operating
histories upon which a significant evaluation of the Company's prospects can be
made. The prospects of SGBI must be considered keeping in mind the risks,
expenses, and difficulties frequently encountered in the establishment of a new
business in an ever changing industry and the research, development,
manufacture, commercialization, distribution, and commercialization of esoteric
medical technology, procedures, and products and related technologies. There can
be no assurance that unanticipated technical or other problems will not occur
which would result in material delays in product commercialization or that the
efforts of SGBI will result in successful product commercialization. SGBI has
been operating at a loss and expects its assets to increase on its development
efforts and testing activities accelerate. It is currently unknown when
profitable operations might be achieved.
DEPENDENCE ON KEY PERSONNEL
The future success of the Company will depend on the service of
its key scientific personnel in its pharmaceutical, chemistry and biochemistry
departments and, when appropriate, computer hardware and software engineering,
electrical and mechanical engineering and management personnel and,
additionally, its ability to identify, hire and retain additional qualified
personnel. There is intense competition for qualified personnel in the areas of
the activities of SGBI and there can be no assurance that SGBI will be able to
attract and retain personnel necessary for the development of the business of
SGBI. Because of the intense competition, there can be no assurance that SGBI
will be successful in adding technical personnel if needed to satisfy its
staffing requirements. Failure to attract and retain key personnel could have a
material adverse effect on SGBI.
SGBI and its subsidiaries are dependent on the efforts and abilities of
their senior management. The loss of various members from management could have
a material adverse effect on the business and prospects of SGBI. In particular,
SGBI will depend on the service of Professor Barnikol because he is instrumental
of his expertise in the development of oxygen carrier and glucose sensor. There
can be no assurance that upon the departure of key personnel from the service of
SGBI or its subsidiaries that suitable replacement personnel will be available.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
Although the Company's cash position is strong, substantial funds will be
required to effect the Company's development plans. The Company will require
additional cash for: (i) payment of increased operating expenses;
(ii) payment of development expenses; and (iii) further
implementation of those business strategies. Such additional capital may be
raised by additional public or private financing, as well as borrowings and
other resources. To the extent that additional capital is received by SGBI by
the sale of equity or equity-related securities, the issuance of such securities
will result in dilution to the Company's shareholders. There can be no
assurance that additional funding will be available on favorable terms, if at
all. If adequate funds are not available, SGBI may be required to curtail
operations significantly or to obtain funds through entering into arrangements
with collaborative partners or others that may require SGBI to relinquish rights
to certain of the technologies or product candidates that SGBI would not
otherwise relinquish. The inability of the Company to access the capital markets
or obtain acceptable financing could have a material adverse effect on the
results of operations and financial condition of the Company. Moreover, if
funds are not available from any sources, the Company may not be able to
continue to operate.
LICENSES AND CONSENTS
The utilization or other exploitation of the products and services
developed by SGBI or its subsidiaries may require SGBI or its subsidiaries to
obtain licenses or consents from the producers or other holders of copyrights or
other similar rights relating to the products and technologies of SGBI or its
subsidiaries. In the event SGBI or its subsidiaries are unable, if so required,
to obtain any necessary license or consent on terms which the management of SGBI
or its subsidiaries consider to be reasonable, SGBI or its subsidiaries may be
required to cease developing, utilizing, or exploiting products or technologies
affected by those copyrights or similar rights. In the event SGBI or its
subsidiaries is challenged by the holders of such copyrights or other similar
rights, there can be no assurance that SGBI or its subsidiaries will have the
financial or other resources to defend any resulting legal action, which could
be significant.
TECHNOLOGICAL FACTORS
The market for the products and technology developed by SGBI is
characterized by rapidly changing technology which could result in product
obsolescence or short product life cycles. Similarly, the industry is
characterized by continuous development and introduction of new products and
technology to replace outdated products and technology. Accordingly, the
ability of SGBI to compete will be dependent upon the ability of SGBI to provide
new and innovative products and technology. There can be no assurance that
competitors will not develop technologies or products that render the proposed
products and technology of SGBI obsolete or less marketable. SGBI will be
required to adapt to technological changes in the industry and develop products
and technology to satisfy evolving industry or customer requirements, any of
which could require the expenditure of significant funds and resources, and SGBI
does not have a source or commitment for any such funds and resources.
Development efforts relating to the technological aspects of the various
products and technologies to be developed by SGBI are not substantially
completed. Accordingly, SGBI will continue to refine and improve those products
and technologies. Continued refinement and improvement efforts remain subject
to the risks inherent in new product development, including unanticipated
technical or other problems which could result in material delays in product
commercialization or significantly increased costs. In addition, there can be
no assurance that those products and technologies will prove to be sufficiently
reliable or durable in wide spread commercial application. The products or
technologies sought to be developed by SGBI will be the result of significant
efforts which may result in errors that become apparent subsequent to
widespread commercial utilization. In such event, SGBI would be required to
modify such products or technologies and continue with additional research and
development, which could delay the plans of SGBI and cause SGBI to incur
additional cost.
EARLY STAGE OF PRODUCT DEVELOPMENT; LACK OF COMMERCIAL PRODUCTS; NO ASSURANCE OF
SUCCESSFUL PRODUCT DEVELOPMENT
Although the Company is currently marketing immunodiagnotic kits, its primary
efforts are devoted on the development of proprietary products involving
artificial oxygen carriers and glucose sensors.
The potential products of SGBI will require additional pre-clinical and
clinical development, regulatory approval and additional investment prior to
commercialization, either by SGBI independently or by others through
collaborative arrangements. Potential products that appear to be promising at
early stages of development may be ineffective or be shown to cause harmful side
effects during pre-clinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture, be uneconomical to
produce, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of others. There can be no assurance
that any potential products will be successfully developed, prove to be safe and
efficacious in clinical trials, satisfy applicable regulatory standards, be
capable of being produced in commercial quantities at acceptable costs or
achieve commercial acceptance.
All products and technologies under development by SGBI will require
significant commitment of personnel and financial resources. Several products
will require extensive evaluation and pre-marketing clearance by the FDA and
comparable agencies in other countries prior to commercial sale. SGBI regularly
re-evaluates its product development efforts. On the basis of these
re-evaluations, SGBI may abandon development efforts for particular products. No
assurance can be given that any product or technology under development will
result in the successful introduction of any new product. The failure to
introduce new products into the market on a timely basis could have a material
adverse effect on the business, financial conditions or results of operation of
SGBI.
The technologies of SGBI have not yet been tested in humans and there can
be no assurance that human testing of potential products based on such
technologies will be permitted by regulatory authorities or, even if human
testing is permitted, that products based on such technologies will be shown to
be safe or efficacious. Potential products based on the technologies of SGBI
are at an early stage of testing and there can be no assurance that such
products will be shown to be safe or effective.
MARKET ACCEPTANCE
There can be no assurance that the products and technologies of SGBI will
achieve a significant degree of market acceptance, and that acceptance, if
achieved, will be sustained for any significant period or that product life
cycles will be sufficient ( or substitute products developed) to permit SGBI to
achieve or sustain market acceptance could have a material adverse effect on the
business, financial condition, and results of operations of SGBI.
GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL
The clinical testing, manufacture, promotion, and sale of biotechnology and
pharmaceutical products are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA, and
corresponding state and foreign regulatory agencies prior to the introduction of
those products. Management of SGBI believes that many of the potential products
of SGBI will be regulated by the FDA under current regulations of the FDA.
Other federal and state statutes and regulations may govern or influence the
testing, manufacture, safety, effectiveness, labeling, storage, record-keeping,
approval, advertising, distribution and promotion of certain products developed
by SGBI. Noncompliance with applicable requirements can result in, among other
things, fines, injunctions, seizure of products, suspensions of regulatory
approvals, product recalls, operating restrictions, re-labeling costs, delays in
sales, cessation of manufacture of products, the imposition of civil or criminal
sanctions, total or partial suspension of product marketing, failure of the
government to grant pre-market approval, withdrawal of marketing approvals and
criminal prosecution.
The FDA's requirements include lengthy and detailed laboratory and clinical
testing procedures, sampling activities and other costly and time-consuming
procedures. In particular, human therapeutic products are subject to rigorous
pre-clinical and clinical testing and other approval requirements by the FDA and
agencies in Germany, Singapore and other countries. Although the time required
for completing such testing and obtaining such approvals is uncertain,
satisfaction of these requirements typically takes a number of years and varies
substantially based on the type, complexity and novelty of each product.
Neither SGBI nor its subsidiaries can accurately predict when product
applications or submissions for FDA or other regulatory review may be submitted.
Management of the Company has no experience in obtaining regulatory clearance on
these types of products. The lengthy process of obtaining regulatory approval
and ensuring compliance with applicable law requires the expenditure of
substantial resources. Any delays or failure by SGBI or its subsidiaries to
obtain regulatory approval and ensure compliance with appropriate standards
could adversely affect the commercialization of such products, the ability
of SGBI to earn product or royalty revenue, and its results of operations,
liquidity and capital resources.
Pre-clinical testing is generally conducted in laboratory animals to
evaluate the potential safety and effectiveness of a drug. The results of these
studies are submitted to the FDA, which must be approved before clinical trials
can begin. Typically, clinical evaluation involves a time consuming and costly
three-phase process. In Phase I, clinical trials are conducted with a small
number of subjects to determine the early safety profile, the pattern of drug
distribution and metabolism. In Phase II, clinical trials are conducted with
groups of patients afflicted with a specific disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase
III, large-scale, multi-center, comparative trials are conducted with patients
afflicted with a target disease in order to provide enough data to demonstrate
the efficacy and safety required by the FDA. The FDA closely monitors the
progress of each of the three phases of clinical trials and may, at its
discretion, re-evaluate, alter, suspend or terminate the testing based upon the
data which have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient.
Clinical trials and the marketing and manufacturing of products are subject
to the rigorous testing and approval processes of the FDA and foreign regulatory
authorities. The process of obtaining FDA and other required regulatory
approvals is lengthy and expensive. There can be no assurance that SGBI will be
able to obtain the necessary approvals to conduct clinical trials for the
manufacturing and marketing of products, that all necessary clearances will be
granted to SGBI or their licensors for future products on a timely basis, or at
all, or that FDA review or other actions will not involve delays adversely
affecting the marketing and sale of the products or SGBI. In addition, the
testing and approval process with respect to certain new products which SGBI may
seek to introduce is likely to take a substantial number of years and involve
the expenditure of substantial resources. There can be no assurance that
pharmaceutical products currently in development will be cleared for marketing
by the FDA. Failure to obtain any necessary approvals or failure to comply with
applicable regulatory requirements could have a material adverse effect on the
business, financial condition or results of operations of SGBI. Further, future
government regulation could prevent or delay regulatory approval of the products
of SGBI.
There can be no assurance as to the length of the clinical trial period or
the number of patients the FDA will require to be enrolled in the clinical
trials in order to establish the safety and effectiveness of the products of
SGBI. SGBI may encounter significant delays or excessive costs in their efforts
to secure necessary approvals, and regulatory requirements are evolving and
uncertain. Future United States or foreign legislative or administrative acts
could also prevent or delay regulatory approval of the products of SGBI. If
commercial regulatory approvals are obtained, they may include significant
limitations on the indicated uses for which a product may be marketed. In
addition, a marketed product is subject to continual FDA review. Later
discovery of previously unknown problems or the failure to comply with the
applicable regulatory requirements may result in restrictions on the marketing
of a product, or even the removal of the product from the market, as well as
possible civil or criminal sanctions. Failure of SGBI to obtain marketing
approval for any of their products under development on a timely basis, or FDA
withdrawal of marketing approval once obtained, could have a material adverse
effect on the business, financial condition and results of operations of SGBI.
Any party that manufactures therapeutic or pharmaceutical products is
required to adhere to applicable standards for manufacturing practices and to
engage in extensive record keeping and reporting. Any manufacturing facilities
of SGBI are subject to periodic inspection by state and federal agencies,
including the FDA and comparable agencies in foreign countries.
The effect of governmental regulation may be to delay the marketing of new
products for a considerable period of time, to impose costly requirements on the
activities of SGBI or to provide a competitive advantage to other companies that
compete with SGBI. There can be no assurance that FDA or other regulatory
approval for any products developed by SGBI will be granted on a timely basis,
if at all or, if granted, that compliance with regulatory standards will be
maintained. Adverse clinical results by SGBI could have a negative impact on
the regulatory process and timing. A delay in obtaining, or failure to obtain,
regulatory approvals could preclude or adversely affect the marketing of
products and the liquidity and capital resources of SGBI. The extent of
potentially adverse governmental regulation that might result from future
legislation or administrative action cannot be predicted.
SGBI will be subject to regulatory authorities in Germany, Singapore, and
other countries governing clinical trials and product sales. Even if FDA
approval to obtained, approval of a product by the comparable regulatory
authorities of other countries must be obtained prior to the commencement of
marketing the product in those countries. The approval process varies from
country to country and the time required may be longer or shorter than that
required for FDA approval. The foreign regulatory approval process includes
all of the risks associated with obtaining FDA approval set forth above, and
approval by the FDA does not ensure approval by the health authorities of any
other country. There can be no assurance that any foreign regulatory agency
will approve any product submitted for review by SGBI.
SGBI is subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with its research
work. The extent and character of governmental regulation that might result
from future legislation or administrative action cannot be accurately predicted.
INTENSE COMPETITION
Competition in the biotechnology and pharmaceutical industries is intense
and is expected to increase. SGBI and its subsidiaries compete directly with the
research departments of biotechnology and pharmaceutical companies, chemical
companies and, possibly, joint collaborations between chemical companies and
research and academic institutions. Management of SGBI is aware that other
companies and businesses have developed and are in the process of developing
technologies and products which may be competitive with the products and
technologies developed and offered by SGBI. The biotechnology and
pharmaceutical industries continue to undergo rapid change. There can be no
assurance that competitors have not or will not succeed in developing
technologies and products that are more effective than any which have been or
are being developed by SGBI or which would render the technology and products of
SGBI obsolete. Many of the competitors of SGBI have substantially greater
experience, financial and technical resources and production, marketing and
development capabilities than SGBI. Accordingly, certain of those competitors
may succeed in obtaining regulatory approval for products more rapidly or
effectively than SGBI.
UNCERTAINTIES ASSOCIATED WITH PATENTS AND PROPRIETARY RIGHTS
The success of SGBI and its subsidiaries may depend in part on their
ability to obtain patents for their technologies and products, if any, resulting
from the application of such technologies, to defend patents once obtained and
to maintain trade secrets, both in the United States and in foreign countries.
The success of SGBI will also depend upon avoiding the infringement of patents
issued to competitors. There can be no assurance that SGBI will be able to
obtain patent protection for products based upon the technology of SGBI.
Moreover, there can be no assurance that any patents issued to SGBI or its
subsidiaries will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages to SGBI.
Litigation, which could result in substantial cost to SGBI, may be necessary to
enforce the patent and license rights of SGBI or to determine the scope and
validity of its and others' proprietary rights.
Due to the length of time and expense associated with bringing new products
through development and the length of time required for the governmental
approval process, the biotechnology and pharmaceutical industries have
traditionally placed considerable importance on obtaining and maintaining patent
and trade secret protection for significant new technologies, products and
processes. The enforceability of patents issued to biotechnology and
pharmaceutical firms can be highly uncertain. Federal court decisions
establishing legal standards for determining the validity and scope of patents
in the field are in transition. In addition, there can be no assurance that
patents will be issued or, if issued, any such patents will afford SGBI
protection from infringing patents granted to others.
A number of biotechnology and pharmaceutical companies, and research and
academic institutions, have developed technologies, filed patent applications or
received patents on various technologies that may be related to the business of
Sangui and its Subsidiaries. Some of these technologies, applications or
patents may conflict with the technologies of SGBI. Such conflicts could also
limit the scope of the patents, if any, that SGBI or its subsidiaries may be
able to obtain or result in the denial of the patent applications of SGBI.
The lead product in SGBI's immunodiagnostic business segment pertains to a
Carbohydrate-Deficient Transferrin (CDT) serum (blood) test. The Company has
been selling a CDT kit in small quantities since 1997. Later, the Company
successfully developed a second assay, which has been registered as a trademark
in Germany as ChronAlco I.D.
Pharmacia/Upjohn owns a patent on the isolation of CDT isoforms and
announced in November 1998 that it would discontinue this product for
distribution in Germany effective in 1999. A second and smaller competitor,
Axis Biochemicals, ASA ("Axis"), has a U.S. patent granted and expects a German
or European patent granted for a competing product. Pharmacia/Upjohn advised
their customers to obtain the product from Bio Rad laboratories, which
distributes one version of the Axis product on an exclusive basis.
The Company believes that this second assay should be relatively more
resistant to the current claims of the Axis patent application. The Company's
German and American patent attorneys both estimate that mostly likely the
Company should prevail if and when the ChronAlco I.D. is challenged by the
Company's competitor. However, there can be no assurance that SGBI will not
become involved in patent infringement litigation with Axis regarding the sale
of SGBI's original version of the CDT test. Despite the assurances from the
patent attorneys, the possibility that the Company may lose in a patent
law-suit, no matter how remote, can still exist. The Company has provided
$25,000 for the potential costs associated with legal fees for the exposure
resulting from the relative small volume of sales of the Company's first CDT
kit. Litigation generally and patent litigation in particular is time
consuming and costly. In the event SGBI becomes involved in litigation, unless
such litigation is resolved quickly, the resources of SGBI may be utilized to
pay the costs and fees incurred in such litigation. Thus, the resources of SGBI
to pursue research and development of the products of SGBI could be reduced by a
significant amount. The Company has ceased to sell the first version of the CDT
kit to minimize the legal exposure.
Many of the competitors of SGBI have, or are affiliated with companies
having, substantially greater resources than SGBI, and such competitors may be
able to sustain the costs of complex patent litigation to a greater degree and
for longer periods of time than SGBI. Uncertainties resulting from the
initiation and continuation of any patent or related litigation could have a
material adverse effect on the ability of SGBI to compete in the marketplace
pending resolution of the disputed matters. Moreover, an adverse outcome could
subject SGBI to significant liabilities to third parties and require SGBI to
license disputed rights from third parties or cease using the technology. In
the event that third parties have or obtain rights to intellectual property or
technology used or needed by SGBI, there can be no assurance that any licenses
would be available to SGBI or would be available on terms reasonably acceptable
to SGBI.
SGBI may rely on certain proprietary technologies, trade secrets, and
know-how that are not patentable. Although SGBI has taken steps to protect
their unpatented trade secrets and technology, in part through the use of
confidentiality agreements with their employees, consultants and certain of its
contractors, there can be no assurance that: (i) these agreements will not be
breached; (ii) SGBI would have adequate remedies for any breach; or (iii) the
proprietary trade secrets and know-how of SGBI will not otherwise become known
or be independently developed or discovered by competitors.
RISK OF PRODUCT LIABILITY; POTENTIAL UNAVAILABILITY OF INSURANCE
The business of SGBI will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of human
pharmaceutical and therapeutic products. SGBI does not currently have product
liability insurance, and there can be no assurance that SGBI will be able to
obtain or maintain such insurance on acceptable terms or, if obtained, that such
insurance will be adequate to cover potential product liability claims or that a
loss of insurance coverage or the assertion of a product liability claim or
claims would not materially adversely affect the business, financial condition
and results of operations of SGBI. SGBI face an inherent business risk of
exposure to product liability and other claims in the event that the development
or use of its technology or products is alleged to have resulted in adverse
effects. Such risk exists even with respect to those products that are
manufactured in licensed and regulated facilities or that otherwise possess
regulatory approval for commercial sale. There can be no assurance that SGBI
will avoid significant product liability exposure. While SGBI has taken, and
will continue to take, what they believe are appropriate precautions, there can
be no assurance that they will avoid significant liability exposure. An
inability to obtain product liability insurance at acceptable cost or to
otherwise protect against potential product liability claims could prevent or
inhibit the commercialization of products developed by SGBI. A product
liability claim could have a material adverse effect on the business, financial
condition and results of operations of SGBI.
UNCERTAINTIES RELATING TO PRICING AND THIRD-PARTY REIMBURSEMENT
The operating results of SGBI may depend in part on the availability of
adequate reimbursement for the products of SGBI from third-party payers, such as
government entities, private health insurers and managed care organizations.
Third-party payers are increasingly seeking to negotiate the pricing of medical
services and products. In some cases, third-party payers will pay or reimburse
a user or supplier of a product for only a portion of the purchase price of the
product. In the case of the products of SGBI, payment or reimbursement by
third-party payers of only a portion of the cost of such products could make
such products less attractive, from a cost perspective, to users, suppliers and
physicians. There can be no assurance that reimbursement, if available, will be
adequate. Moreover, certain of the products of SGBI may not be of the type
generally eligible for third-party reimbursement. If adequate reimbursement
levels are not provided by government entities or other third-party payers for
the products of SGBI, the business, financial condition and results of
operations of SGBI would be materially adversely affected. A number of
legislative and regulatory proposals aimed at changing the nation's health care
system have been proposed in recent years. While SGBI cannot predict whether
any such proposals will be adopted, or the effect that any such proposal may
have on its business, such proposals, if enacted, could have a material adverse
effect on the business, financial condition or results of operations of SGBI.
RISK OF PRODUCT RECALL; PRODUCT RETURNS
Product recalls may be issued at the discretion of SGBI, the FDA or other
government agencies having regulatory authority for product sales and may occur
due to disputed labeling claims, manufacturing issues, quality defects or other
reasons. No assurance can be given that product recalls will not occur in the
future. Any product recall could materially adversely affect the business,
financial condition or results of operations of SGBI. There can be no assurance
that future recalls or returns would not have a material adverse effect upon the
business, financial condition and results of operations of SGBI.
RISKS OF INTERNATIONAL SALES AND OPERATIONS
SGBI's results of operations are subject to fluctuations in the value of
the German Deutschmark against the U.S. Dollar due to SGBI's German
subsidiaries. Although management of SGBI will monitor exposure to currency
fluctuations, there can be no assurance that exchange rate fluctuations will not
have a material adverse effect on the results of operations or financial
condition of SGBI. In the future, SGBI could be required to sell its products
in other currencies, which would make the management of currency fluctuations
more difficult and expose SGBI to greater risks in this regard.
The products of SGBI will be subject to numerous foreign government
standards and regulations that are continually being amended. Although SGBI
will endeavor to satisfy foreign technical and regulatory standards, there can
be no assurance that the products of SGBI will comply with foreign government
standards and regulations, or changes thereto, or that it will be cost effective
for SGBI to redesign its products to comply with such standards or regulations.
The inability of SGBI to design or redesign products to comply with foreign
standards could have a material adverse effect on SGBI's business, financial
condition and results of operations.
LACK OF COMMERCIAL MANUFACTURING AND MARKETING EXPERIENCE
SGBI has not yet manufactured its products, other than its nine in vitro
immunodiagnostic products, in commercial quantities. Its subsidiaries will be
engaged in manufacturing pharmaceutical products which will be subject to much
more stringent regulatory requirements, as compared to the in vitro diagnostic
products. No assurance can be given that its subsidiaries, on a timely basis,
will be able to make the transition from manufacturing clinical trial quantities
to commercial production quantities successfully or be able to arrange for
contract manufacturing. SGBI and its subsidiaries have no experience in the
sales, marketing and distribution of products. There can be no assurance that
SGBI will be able to establish sales, marketing and distribution capabilities or
make arrangements with collaborators, licensees or others to perform such
activities or that such efforts will be successful.
The manufacture of the products of SGBI involves a number of steps and requires
compliance with stringent quality control specifications imposed by SGBI and by
the FDA. Moreover, SGBI's products can only be manufactured in a facility that
has undergone a satisfactory inspection by the FDA. For these reasons, SGBI
would not be able quickly to replace its manufacturing capacity if it were
unable to use its manufacturing facilities as a result of a fire, natural
disaster (including an earthquake), equipment failure or other difficulty, or if
such facilities are deemed not in compliance with the FDA's GMP requirements and
the non-compliance could not be rapidly rectified. The inability or reduced
capacity of SGBI to manufacture their products would have a material adverse
effect on SGBI's business and results of operations.
SGBI may enter into arrangements with contract manufacturing companies to
expand its production capacities in order to satisfy requirements for its
products, or to attempt to improve manufacturing efficiency. If SGBI chooses to
contract for manufacturing services and encounters delays or difficulties in
establishing relationships with manufacturers to produce, package and distribute
its finished products, clinical trials, market introduction and subsequent sales
of such products would be adversely affected. Further, contract manufacturers
must also operate in compliance with the FDA's GMP requirements; failure to do
so could result in, among other things, the disruption of product supplies.
HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS
The research and development processes of SGBI involves the controlled
storage, use and disposal of hazardous materials and radioactive compounds.
SGBI is subject to federal, state and local laws and regulations governing the
use, generation, manufacturing, storage, handling, and disposal of such
materials and certain waste products. Although SGBI does not currently
manufacture commercial quantities of its product candidates, it produces limited
quantities of such products for its clinical trials and SGBI intends to
manufacture commercial quantities of its products. Although SGBI believes that
its safety procedures for handling and disposing of such materials comply with
the standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, SGBI could be held liable for any damages that
result, and any such liability could exceed the resources of SGBI. There can be
no assurance that SGBI will not be required to incur significant costs to comply
with current or future environmental laws and regulations nor that the
operations, business or assets of SGBI will not be materially or adversely
affected by current or future environmental laws or regulations.
DEPENDENCE ON MAJOR CUSTOMERS
The Company has a relatively small customer base. Four customers accounted
for 62 % of accounts receivable as of June 30, 2000. Four customers accounted
for 70% and 82% of sales for the year ended June 30, 2000 and the six month
period ended June 30, 1999, respectively. Although the Company is currently the
supplier of certain immunodiagnostic kits to these customers, there is no
assurance that the Company will continue to be the supplier or the supplier of
choice. In the event that the Company loses the business from any of its major
customers, this would have a significant negative impact on the Company's
sales.
HUMAN RESOURCES
As of June 30, 2000 the Company had 22 full time employees and 8 part time. Of
the full time employees 19 were involved in research and development and 3 were
responsible for administrative matters. The Company had consulting arrangements
with 2 individuals as of that date. The Company considers its relations with
its employees to be favorable.
ITEM 2.
Properties
The Company's US laboratory facility consist of approximately 3,360 square
feet. It is located in Santa Ana, California. Rent expense for the fiscal year
ended June 30, 2000 was $37,376.88.
The German subsidiaries, approximately 800 square meter, are based in the
Forschungs- und Entwicklungszentrum of the University Witten/Herdecke, Germany.
Rent expense for the fiscal year was approximately $83,000. The Singaporean
subsidiary, approximately 350 square meters, is based in the Science Park II,
Gemini Building. There was no rent expense for the fiscal year for the
Singapore subsidiary.
ITEM 3.
Litigation
The Company is not involved in any pending legal proceeding.
ITEM 4.
Submission of matters to a vote of security holders
Not applicable
PART II
ITEM 5. MARKET FOR SGBI'S SECURITIES
SGBI's common stock is presently traded on the OTC Bulletin Board operated
by Nasdaq under the symbol SGBI.
The following table sets forth the high and low closing prices for shares
of SGBI common stock for the calendar periods noted, as reported by the
National Daily Quotation Service and the Over-The-Counter Bulletin Board.
Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
CLOSING PRICES
YEAR PERIOD HIGH LOW
----- ------ ---- ----
2000 First quarter $5.00 $2.00
Second quarter $3.31 $2.06
1999 First quarter $4.75 $2.75
Second quarter $3.06 $2.06
Third quarter $4.19 $2.00
Fourth quarter $3.63 $1.50
1998 Second quarter $1.69 $1.31
Third quarter $2.25 $1.31
Fourth quarter $13.50 $1.13
In addition to freely tradeable shares, SGBI has numerous shares of common
stock outstanding which could be sold pursuant to Rule 144. In general, under
Rule 144, subject to the satisfaction of certain other conditions, a person,
including one of our affiliates, who has beneficially owned restricted shares of
common stock for at least one year is entitled to sell, in certain brokerage
transactions, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of outstanding shares of the same
class, or the average weekly trading volume during the four calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate for at least three months immediately preceding the sale and
who has beneficially owned the shares of common stock for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the volume
limitations described above.
At October 9, 2000, the number of record holders of the Company's common
stock was 2,041. The Company did not pay any cash dividends during the past two
fiscal years and does not contemplate paying dividends in the foreseeable
future.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended, the Company sold unregistered shares of its
Common Stock pursuant to Regulation S under the Securities Act of 1933 in the
following transactions:
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 of which, $50,000 was received during the six months ended June 30,
1999. The co-owners of Euro-American GmbH also serve as directors of the
Company.
As of March 29, 2000, the Company entered into a subscription agreement and
issued 8,000,000 shares of common stock (and 80,000 shares to the finder) to
Euro-American GmbH, a venture capital firm in Germany, valued at $7,712,000, of
which the Company has received $7,282,292 in cash and recorded the remaining
$429,708 as stock subscriptions at June 30, 2000.
ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward looking statements that are
subject to business and economic risks and uncertainties, and the Company's
actual results could differ materially from these forward looking statement.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
GENERAL
Twelve Months Ended June 30, 2000 and six months ended June 30,1999:
RESULTS OF OPERATIONS
Sales for the twelve month period ended June 30, 2000 were $429,400,
compared to $178,835 for the six months ended June 30,1999. Most of this
increase is attributed to an increase in sales of the Company's CDT test kit.
Under pressure of the Company's competitor, DPC Biermann discontinued its sale
of the Company's CDT test kit in January, 2000 in order to form a strategic
alliance with the Company's competitor. Management does not believe this will
have a material effect on overall sales of the Company. Nonetheless, management
has concerns as to whether it can effectively penetrate additional market-share
in Germany with its current German distributor, who is a much smaller company as
compared to DPC Biermann.
Cost of sales for the twelve month period ended June 30, 2000 were
$282,611, compared to $117,464 for the six months ended June 30,1999. This
increase is attributed to an increase in sales of the Company's CDT test kit.
The gross margin of approximately 34% remains unchanged from June 30, 1999 to
June 30, 2000.
Research and development expenses for the twelve month period ended June
30, 2000 were $183,878, compared to $265,270 for the six months ended June 30,
1999. These figures have been reduced to reflect $736,070 for the twelve month
period ended June 30, 2000 and $240,000 for the six month ended June 30, 1999
which expenses were provided by grants from the German state of
North-Rhine/Westphalia.
General and administrative expenses for the twelve month period ended June
30, 2000 were $3,268,958, compared to $731,200 for the six months ended June
30,1999. This increase is attributed to the amortization of a prepaid service
contract of $1,572,500, an increase in consulting fees of $180,000 in relation
to the acquisition of Felnam and increase in salaries, rent and other expenses
for approximately $785,000 as compared to $467,500 classified as expense from
the same prepaid service contract and salaries, rent and other expenses of
$263.200 for the six months ended June 30,1999. Gain on marketable securities
for the twelve month period ended June 30, 2000 was $80,557, compared to a loss
of $880,138 for the six months ended June 30,1999.
The basic loss for the twelve month period ended June 30, 2000 was
$3,119,829, compared to $1,819,436 for the six months ended June 30,1999. The
increase in basic loss is a result primarily of increase in general and
administrative expenses (as noted above), depreciation, offset by other income
in the current year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000 the Company had cash of $7,989,258 received from the sale
of stock and receipt of grants and current liabilities of $230,205. The Company
intends to intensify its development efforts during the current fiscal year
ending June 30, 2001. The Company believes that its available cash will be
sufficient to satisfy its requirements for this period. However, the Company
will need substantial additional funding to fulfill its business plan and the
Company intends to explore financing sources for its future development
activities during the current year. No assurance can be given that these
efforts will be successful.
ITEM 7. FINANCIAL STATEMENTS
CONTENTS
Independent Auditors' Report
Independent Auditors' Report
Consolidated Balance Sheet
Consolidated Statements of
Operations and Comprehensive Income (Loss)
Consolidated Statements of
Stockholders' Equity
Consolidated Statements of
Cash Flows
Notes to the Consolidated
Financial Statement
<PAGE>
SANGUI BIOTECH INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
WITH
INDEPENDENT AUDITORS' REPORT THEREON
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Sangui Biotech International, Inc.
We have audited the accompanying consolidated balance sheet (as restated - see
Note 1) of Sangui Biotech International, Inc. (the "Company") as of June 30,
2000 and the related consolidated statements of operations and comprehensive
loss (as restated - see Note 1), stockholders' equity (as restated - see Note 1)
and cash flows (as restated - see Note 1) for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Sangui BioTech International, Inc. at
June 30, 2000, and the results of its operations and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.
CORBIN & WERTZ
Irvine, California, U.S.A.
August 30, 2000
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholders
Sangui BioTech International, Inc.
Santa Ana, California
We have audited the accompanying consolidated statements of operations and
comprehensive income, shareholders' equity and cash flows for the six months
ended June 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Sangui
BioTech International, In. for the six months ended June 30, 1999, in conformity
with accounting principles generally accepted in the United States of America.
Ernst & Young AG.
D sseldorf
Federal Republic of Germany
March 24, 2000
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET (As Restated - See Note 1)
<TABLE>
<CAPTION>
<S> <C>
ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . JUNE 30, 2000
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,989,258
Accounts receivable . . . . . . . . . . . . . . . . . . . . 55,718
Grant receivable. . . . . . . . . . . . . . . . . . . . . . 176,844
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 79,690
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . 74,322
Other current assets. . . . . . . . . . . . . . . . . . . . 141,188
---------------
Total current assets. . . . . . . . . . . . . . . . . . . 8,517,020
Property and equipment, net . . . . . . . . . . . . . . . . . 417,312
Patents, net. . . . . . . . . . . . . . . . . . . . . . . . . 46,308
---------------
$ 8,980,640
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . $ 230,205
---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized;
505,000 shares issued and outstanding . . . . . . . . . . 5,050
Common stock, no par value; 50,000,000 shares authorized;
40,514,363shares issued and outstanding . . . . . . . . . 18,525,831
Stock subscriptions receivable. . . . . . . . . . . . . . . (546,367)
Prepaid consulting fees . . . . . . . . . . . . . . . . . . (1,105,000)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (8,018,265)
Accumulated other comprehensive loss. . . . . . . . . . . . (110,814)
---------------
Total stockholders' equity. . . . . . . . . . . . . . . . 8,750,435
---------------
$ 8,980,640
===============
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE FOR THE SIX
YEAR ENDFED MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
(As Restated -
See Note 1)
------------- ------------
Sales. . . . . . . . . . . . . . . . . . . . $ 429,400 $ 178,835
Cost of sales. . . . . . . . . . . . . . . . 282,611 117,464
------------ ------------
Gross profit . . . . . . . . . . . . . . . . 146,789 61,371
Operating expenses:
Research and development . . . . . . . . . 183,878 265,270
General and administrative . . . . . . . . 3,268,958 731,200
Depreciation and amortization. . . . . . . 151,317 55,343
------------ ------------
Total operating expenses . . . . . . . . 3,604,153 1,051,813
------------ ------------
Loss from operations . . . . . . . . . . . . (3,457,364) (990,442)
------------ ------------
Other income (expense):
Interest income. . . . . . . . . . . . . . 154,398 33,842
Interest expense . . . . . . . . . . . . . (15,537) -
Other income . . . . . . . . . . . . . . . 118,067 17,302
Gain (loss) on marketable securities . . . 80,557 (880,138)
------------ ------------
Total other income (expense) . . . . . . 337,485 (828,994)
------------ ------------
Net loss . . . . . . . . . . . . . . . . . . (3,119,879) (1,819,436)
------------ ------------
Other comprehensive (loss) income:
Reversal of unrealized losses. . . . . . . - 814,413
Foreign currency adjustments . . . . . . . (47,746) (159,682)
------------ ------------
Total other comprehensive (loss) income. (47,746) 654,731
------------ ------------
Comprehensive loss . . . . . . . . . . . . . $(3,167,625) $(1,164,705)
============ ============
Net loss available to common stockholders'
per common share . . . . . . . . . . . . . $ (0.09) $ (0.06)
============ ============
Basic and diluted weighted average common
shares outstanding . . . . . . . . . . . . 34,476,465 29,417,956
============ ============
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Stock Prepaid
Shares Amount Shares Amount Subscriptions Consulting Fees
--------------- ------------- ---------- ----------- --------------- -----------------
Balance at January 1, 1999 . . . . 505,000 $ 5,050 28,151,390 $ 5,848,415 $ (467,974) $ -
Issuance of common stock for cash
at $1.15 per share . . . . . . . - - 650,000 747,500 - -
Issuance of common stock for
prepaid consulting fees valued at
$1.21 per share. . . . . . . . . - - 2,600,000 3,145,000 - (3,145,000)
Issuance of common stock for cash
and forgiveness of notes payable
to shareholder at $1.15 per
share. . . . . . . . . . . . . . - - 466,488 536,458 - -
Receipt of stock subscriptions . . - - - - 126,902 -
Recognition of permanent loss
on marketable securities . . . . - - - - - -
Amortization of prepaid consulting
fees . . . . . . . . . . . . . . - - - - - 467,500
Currency translation adjustment. . - - - - - -
Net loss for the six months ended
June 30, 1999. . . . . . . . . . - - - - - -
--------------- ------------- ---------- ----------- --------------- -----------------
Balance at June 30, 1999 . . . . . 505,000 5,050 31,867,878 10,277,373 (341,072) (2,677,500)
[continued]
<S> <C> <C> <C>
Accumulated
Other Total
Comprehensive Accumulated Stockholders'
Income (Loss) Deficit Equity
--------------- ------------ ------------
Balance at January 1, 1999 . . . . $ (717,799) $(3,078,950) $ 1,588,742
Issuance of common stock for cash
at $1.15 per share . . . . . . . - - 747,500
Issuance of common stock for
prepaid consulting fees valued at
$1.21 per share. . . . . . . . . - - -
Issuance of common stock for cash
and forgiveness of notes payable
to shareholder at $1.15 per
share. . . . . . . . . . . . . . - - 536,458
Receipt of stock subscriptions . . - - 126,902
Recognition of permanent loss
on marketable securities . . . . 814,413 - 814,413
Amortization of prepaid consulting
fees . . . . . . . . . . . . . . - - 467,500
Currency translation adjustment. . (159,682) - (159,682)
Net loss for the six months ended
June 30, 1999. . . . . . . . . . - (1,819,436) (1,819,436)
--------------- ------------ ------------
Balance at June 30, 1999 . . . . . (63,068) (4,898,386) 2,302,397
</TABLE>
Continued
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
FOR THE YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Stock Prepaid
Shares Amount Shares Amount Subscriptions Consulting Fees
--------------- ------------- ---------- ----------- --------------- -----------------
Issuance of common stock for cash
at $1.15 per share. . . . . . . . - - 466,485 536,458 - -
Issuance of common stock for cash
at $0.964 per share (including
80,000 shares issued for finders
fees) (As Restated - See Note 1). - - 8,080,000 7,712,000 (429,708) -
Issuance of common stock for the
recapitalization of Felnam
Investments . . . . . . . . . . . - - 100,000 - - -
Receipt of stock subscriptions. . . - - - - 224,413 -
Amortization of prepaid consulting
fees. . . . . . . . . . . . . . . - - - - - 1,572,500
Currency translation adjustment . . - - - - - -
Net loss (As Restated - See Note 1) - - - - - -
--------------- ------------- ---------- ----------- --------------- -----------------
Balance at June 30, 2000. . . . . . 505,000 $ 5,050 40,514,363 $18,525,831 $ (546,367) $ (1,105,000)
=============== ============= ========== =========== =============== =================
[continued]
<S> <C> <C> <C>
Accumulated
Other Total
Comprehensive Accumulated Stockholders'
Income (Loss) Deficit Equity
--------------- ------------ ------------
Issuance of common stock for cash
at $1.15 per share. . . . . . . . - - 536,458
Issuance of common stock for cash
at $0.964 per share (including
80,000 shares issued for finders
fees) (As Restated - See Note 1). - - 7,282,292
Issuance of common stock for the
recapitalization of Felnam
Investments . . . . . . . . . . . - - -
Receipt of stock subscriptions. . . - - 224,413
Amortization of prepaid consulting
fees. . . . . . . . . . . . . . . - - 1,572,500
Currency translation adjustment . . (47,746) - (47,746)
Net loss (As Restated - See Note 1) - (3,119,879) (3,119,879)
--------------- ------------ ------------
Balance at June 30, 2000. . . . . . $ (110,814) $(8,018,265) $ 8,750,435
=============== ============ ============
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE FOR THE SIX
YEAR ENDFED MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
(As Restated -
See Note 1)
------------- ------------
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . $(3,119,879) $(1,819,436)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . 151,317 55,343
Amortization of prepaid consulting fee. . . . . . . 1,572,500 467,500
(Gain) loss recorded on marketable securities . . . (80,557) 880,138
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . 43,856 (77,801)
Grant receivable. . . . . . . . . . . . . . . . (79,844) (97,000)
Inventory . . . . . . . . . . . . . . . . . . . 32,346 (72,150)
Prepaid expenses and other assets . . . . . . . (112,210) 30,418
Accounts payable and accrued expenses . . . . . 102,785 18,131
Accrued commitments and contingencies . . . . . - 25,000
------------ ------------
Net cash used in operating activities . . . . . . . (1,489,686) (589,857)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of marketable securities . . . . 1,369,177 50,620
Purchase of marketable securities . . . . . . . . . - (1,288,620)
Cash grants received for property and equipment . . 81,490 185,000
Purchase of property and equipment. . . . . . . . . (222,641) (79,671)
------------ ------------
Net cash provided by (used in) investing activities 1,228,026 (1,132,671)
------------ ------------
Cash flows from financing activities:
Issuance of stock for cash. . . . . . . . . . . . . 7,768,750 608,958
Proceeds from collection of stock subscription
receivable. . . . . . . . . . . . . . . . . . . . 224,413 176,902
------------ ------------
Net cash provided by financing activities . . . . . 7,993,163 785,860
------------ ------------
Effect of foreign exchange rate changes on cash . . . (47,746) (159,682)
------------ ------------
</TABLE>
Continued
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE YEAR FOR THE SIX
ENDED MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
(As Restated -
See Note 1)
------------- -------------
Net change in cash and cash equivalents. . . . . 7,683,757 (1,096,350)
Cash and cash equivalents at beginning of period 305,501 1,401,851
-------------- ------------
Cash and cash equivalents at end of period . . . $ 7,989,258 $ 305,501
============== ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest . . . $ 15,537 $ -
============== ============
Cash paid during the period for income taxes . $ - $ -
============== ============
</TABLE>
See accompanying notes to consolidated financial statements for additional
information relating to non-cash investing and financing activities during the
periods ended June 30, 2000 and 1999.
See independent auditors' report and
accompanying notes to consolidated financial statements
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------
Nature of Business
--------------------
Sangui BioTech International, Inc. (the "Company") ("SGBI") was incorporated
under the laws of the state of Colorado on July 14, 1995 to engage in any
business permitted by law. The Company, pursuant to the recapitalization of
Sangui BioTech, Inc. ("SBT"), is engaged in the development of immunodiagnostic
tests.
Since inception, the Company has primarily been engaged in the commercial
development and manufacturing of immunodiagnostic kits, which are sold by the
Company in niche markets in the United States and Europe, under the name of the
Company's wholly owned subsidiary Sangui Bio Tech, Inc. ("Sangui USA"). Sangui
USA's laboratory and headquarters are located in Santa Ana, California, and this
facility is devoted to immunodiagnostic research, development, manufacturing and
distributing, marketing, and administrative functions for the Company. Sangui
USA was incorporated in the state of Delaware on August 2, 1996. Sangui USA is
the parent company to two wholly owned subsidiaries, SanguiBioTech AG and
GlukoMediTech, AG. SanguiBioTech AG ("Sangui AG") and GlukoMediTech, AG
("Gluko") were incorporated in Mainz, Germany on November 25, 1995 and July 15,
1996, respectively. Sangui AG and Gluko are engaged in Germany in the
development of artificial oxygen carriers and glucose implant sensors,
respectively.
On May 15, 1999, Sangui Bio Tech PTE Ltd. ("SBTS") was incorporated in
Singapore. SBTS is expected to become a regional office for SGBI and its
subsidiaries and to be engaged in the business of carrying out research and
development projects in conjunction with the German subsidiaries.
Restatement of the 2000 Financial Statements
-------------------------------------------------
Subsequent to the issuance of its Financial Statements, the Company determined
that certain transactions were incorrectly recorded on those financial
statements. As a result, the following restatements were made:
The Company determined that (1) $194,708 recorded as cash for the sale of
common stock to Euro-American GmbH was not deposited; (2) $100,000 recorded as a
related party payable for monies borrowed from Euro-American GmbH was not
deposited and returned subsequent to the year ended September 30, 2000; and (3)
$370,000 of additional expenses were not recorded. As a result of these
restatements, the Company's cash balance decreased $664,708 to $7,989,258;
liabilities decreased $100,000 to $230,205; stockholders equity decreased
$564,707 to $8,750,435; stock subscription receivable increased $194,708 to
$546,367; net loss increased $370,000 to $3,119,879; and net loss per share
increased $0.01 to $0.09 for fiscal 2000.
Termination of Development Stage
-----------------------------------
As noted above, the Company was incorporated in 1995 and had been principally
engaged in raising capital, obtaining financing, advertising and promoting the
Company, development of its products and administrative function. Planned
operations, as discussed above, have commenced in relation to the Company's
business plan. Accordingly, the Company is no longer to be considered a
development stage enterprise.
Consolidation
-------------
The consolidated financial statements include the accounts of the Company and
its wholly owned domestic and foreign subsidiaries. All significant
inter-company accounts and transactions have been eliminated upon consolidation.
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------------
Risk and Uncertainties
------------------------
Both the Company's small line of in vitro immunodiagnostic products, as well as
the future pharmaceutical (artificial oxygen carriers or blood substitute and
additives) and in vivo biosensors (glucose implant sensor) being developed by
its German subsidiaries, 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.
Currently, most of the Company's immunodiagnostic tests for use with humans have
been cleared by the above regulatory agencies. There can be no assurance that
the Company will maintain the regulatory approvals required to market its
products elsewhere. The pharmaceutical and biosensor products, under
development in Germany and Singapore (in the future), will be subject to much
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 failure in obtaining regulatory clearance as well as the
timely receipt of the said clearance, if obtained.
The Company's revenues from product sales derived from its immunodiagnostic
operations in the U.S. are small. However, management believes its current cash
position of approximately $8,650,000 at June 30, 2000 is sufficient to fund the
Company's operations and working capital requirements through June 30, 2001.
Foreign Currency Translation
------------------------------
Assets and liabilities of the Company's German 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 earnings but are included
in comprehensive income and accumulated in a separate component of stockholders'
equity. Income and expense are translated at weighted average exchange rates
for the period. During fiscal 2000 and 1999, the Company had foreign exchange
transaction gains included in other income of approximately $100,000 and
$17,000, respectively.
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.
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------------
Concentration of Risk
-----------------------
Four customers accounted for 62% of accounts receivable as of June 30, 2000.
Four customers accounted for 70% and 82% of sales for the year ended June 30,
2000 and the six-month period ended June 30, 1999, respectively. The loss of
any of these customers in the future would significantly affect the Company's
operating results.
Cash and Cash Equivalents
----------------------------
The Company does not maintain its cash in bank depository accounts insured by
the Federal Deposit Insurance Corporation (FDIC). The Company has not
experienced any losses in these uninsured accounts. Cash and cash equivalents
include time deposits with maturity of three months or less, and for which the
Company has no requirements for compensating balances. The Company also
maintains bank accounts in Germany.
Inventories
-----------
Inventories, which consist primarily of finished immunodiagnostic products and
related materials, are stated at the lower of cost or market with cost
determined on a first-in, first-out (FIFO) basis. The Company regularly
monitors inventory for excess or obsolete items and makes any valuation
corrections when such adjustments are needed.
Marketable Securities
----------------------
From time to time, the Company invests in various short-term debt and equity
securities. These securities are classified as available-for-sale as defined by
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." At June 30, 2000, the
Company held no such investments in debt and equity securities.
Property and Equipment
------------------------
Property and equipment are recorded at cost and are depreciated or amortized
using the straight-line method over the expected useful lives, which range from
three to five years. Depreciation and amortization expense for the periods
ended June 30, 2000 and 1999 was $131,440 and $41,594, respectively.
Expenditures for normal maintenance and repairs are charged to income, and
significant improvements are capitalized. The cost and related accumulated
depreciation of assets are removed from the accounts upon retirement or other
disposition; any resulting gain or loss is reflected in the statement of
operations.
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------------
Patents
-------
Patents are recorded at cost and are depreciated using the straight-line method
over their estimated useful lives, which range from three to eleven years.
Amortization expense for the periods ended June 30, 2000 and 1999 was $19,877
and $13,749, respectively.
Impairment of Long-Lived Assets
----------------------------------
Management of the Company assesses the impairment of long-lived assets by
comparing the future undiscounted cash flows (without interest charges) from the
use and ultimate disposition of such assets with their carrying amounts. The
amount of impairment, if any, is measured based on fair value and is charged to
operations in the period in which such impairment is determined by management.
Based on its analysis, management of the Company believes that no impairment of
long-lived assets exist as of June 30, 2000.
Revenue Recognition
--------------------
Revenues from product sales are recognized at the time of shipment.
Research and Development
--------------------------
Research and development are charged to operations as they are incurred. Legal
fees and other direct costs incurred in obtaining and protecting patents are
expensed as incurred.
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
offset against research and development expenses when the related expenses are
incurred. Grants related to the acquisition of tangible property are recorded
as a reduction of the properties' historical cost.
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------------
Income Taxes
-------------
The Company accounts for deferred income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred income
taxes are computed based on the tax liability or benefit in future years of the
reversal of temporary differences in the recognition of income or deduction of
expenses between financial and tax reporting purposes. The net difference
between income tax expense and taxes currently payable is reflected in the
balance sheet as deferred taxes. Deferred tax assets and/or liabilities are
classified as current and non-current based on the classification of the related
asset or liability for financial reporting purposes, or based on the expected
reversal date for deferred taxes that are not related to an asset or liability.
A valuation allowance is provided for significant deferred tax assets when it is
more likely than not that such assets will not be recovered.
Accounting for Stock-Based Compensation
------------------------------------------
The Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by APB Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB 25"). Under the intrinsic value based method,
compensation is the excess, if any, of the fair value of the stock at the grant
date or other measurement date over the amount an employee must pay to acquire
the stock. Compensation, if any, is recognized over the applicable service
period, which is usually the vesting period.
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 123
"Accounting for Stock-Based Compensation." This standard, if fully adopted,
changes the method of accounting for all stock-based compensation to the fair
value based method. For stock options and warrants, fair value is determined
using an option pricing model that takes into account the stock price at the
grant date, the exercise price, the expected life of the option or warrant and
the annual rate of quarterly dividends. Compensation expense, if any, is
recognized over the applicable service period, which is usually the vesting
period.
The adoption of the accounting methodology of SFAS No. 123 for employees is
optional and the Company has elected to continue accounting for stock-based
compensation issued to employees using APB 25; however, pro forma disclosures,
as if the Company adopted the cost recognition requirements under SFAS No. 123,
are required to be presented (see Note 7).
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------------
Basic and Diluted Earnings (Loss) Per Common Share
---------------------------------------------------------
The Company has adopted SFAS No. 128 "Earnings Per Share." SFAS No. 128 changes
the methodology of calculating earnings per common share. The adoption of SFAS
No. 128 has not materially impacted the Company's financial position or results
of operations.
Basic earnings (loss) per common share is computed based on the weighted average
number of shares outstanding for the period. Diluted earnings (loss) per share
is computed by dividing net income (loss) by the weighted average shares
outstanding assuming all dilutive potential common shares were issued. Basic
and diluted loss per share are the same as the effect of stock options on loss
per share are anti-dilutive and thus not included in the diluted loss per share
calculation (see Note 9).
Fair Value of Financial Instruments
---------------------------------------
The Company has adopted SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." SFAS No. 107 requires disclosure of fair value information about
financial instruments when it is practicable to estimate that value. The
carrying amount of the Company's cash, receivables, trade payables and accrued
expenses and note payable approximate their estimated fair values due to the
short-term maturities of these financial statements.
Comprehensive Income
---------------------
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. Total
comprehensive income represents the net change in stockholders' equity during a
period from sources other than transactions with stockholders and as such,
includes net earnings. For the Company, the components of other comprehensive
income are the changes in the cumulative foreign currency translation
adjustments and unrealized gains (losses) on marketable securities recorded as
components of stockholders' equity.
Segments of an Enterprise and Related Information
-------------------------------------------------------
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 changes the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major customers
(see Note 10).
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------------
New Accounting Pronouncements
-------------------------------
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet
at their fair value. This statement is effective for financial statements for
all fiscal quarters of all fiscal years beginning after June 15, 2000 (as
amended by SFAS No. 137). The Company does not expect the adoption of this
standard to have a material impact on its results of operations, financial
position or cash flows as it currently does not engage in any derivative or
hedging activities.
In March 2000, the Emerging Issues Task Force reached a consensus on Issue No.
00-2, "Accounting for Web Site Development Costs," ("EITF 00-2") to be
applicable to all web site development costs incurred for the quarter beginning
after June 30, 2000. The consensus states that for specific web site
development costs, the accounting for such costs should be accounted for under
Statement on Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The Company does not expect
the adoption of EITF 00-2 to have a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 ("SAB 101"), "Revenue Recognition," which outlines the basic
criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission. The effective date of this pronouncement is the fourth quarter of
the fiscal year beginning after December 15, 1999. The Company believes that
adopting SAB 101 will not have a material impact on its financial position and
results of operations.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB 25."
FIN 44 clarifies the application of APB 25 for (a) the definition of employee
for purposes of applying APB 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence for various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain provisions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of certain other provisions of FIN 44 prior to June 30, 2000 did
not have a material effect on the financial statements. The Company does not
expect that the adoption of the remaining provisions will have a material effect
on the financial statements.
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------------
Reclassifications
-----------------
Certain reclassifications were made to prior period amounts, enabling them to
conform to current period presentation.
NOTE 2 - BUSINESS ACQUISITIONS
----------------------------------
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 $0 due to the
Company treating the transaction as a recapitalization of the Company. In
conjunction with the transaction, the Company incurred approximately $180,000 of
transaction costs, which are charged to operations. 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.
NOTE 3 - PROPERTY AND EQUIPMENT
------------------------------------
Property and equipment at June 30, 2000 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements . . . . . . . . . . . . $ 139,268
Technical and laboratory equipment . . . . . . 755,435
Office equipment . . . . . . . . . . . . . . . 31,170
Company car. . . . . . . . . . . . . . . . . . 8,266
----------
934,139
Less accumulated depreciation and amortization (516,827)
----------
$ 417,312
==========
</TABLE>
NOTE 4 - PATENTS
-------------------
Patents as of June 30, 2000 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Patents . . . . . . . . . . . $ 79,934
Less accumulated amortization (33,626)
---------
$ 46,308
=========
</TABLE>
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 5 - MARKETABLE SECURITIES
----------------------------------
On September 15, 1998, the Company entered into a stock purchase agreement with
Euro-American GmbH, a principal stockholder of the Company. As part of the
agreement, the Company accepted 9,644,986 freely trading shares of another
public company as payment for 1,928,995 shares of the Company's common stock.
The shares were valued at $0.50 per share of the Company's stock or $964,498.
This value approximated the trading price of the stock received. The co-owner
of Euro-American GmbH, who is a director of the Company, was also a director of
the other public company.
As of December 31, 1998, the shares were classified as securities
available-for-sale and were valued at the market price. The $814,413 unrealized
loss on the shares was classified as a separate component of equity at December
31, 1998.
During the six months ended June 30, 1999, the Company began to actively sell
these shares. As a result of the decline of shares' value, which was viewed by
the management of the Company as other than temporary, the shares were written
down to $0 and the unrealized loss of $814,413 was reclassified from unrealized
loss and charged directly to the statement of operations.
During fiscal 2000, the Company sold its remaining shares for $80,557 which is
included in gain on sale of securities in the accompanying statement of
operations.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
-------------------------------------------
Operating Lease
----------------
The Company leases its office and laboratory facilities in the United States,
Germany and Singapore under three operating leases which expire through December
2003, respectively.
Future minimum lease payments under this lease at June 30, 2000 are:
<TABLE>
<CAPTION>
<S> <C>
Years Ending
June 30,
-------------
2001. . . . . $206,000
2002. . . . . 206,000
2003. . . . . 180,000
2004. . . . . 45,000
--------
637,000
=============
</TABLE>
Rent expense for the year ended June 30, 2000 and for the six months ended June
30, 1999 was approximately $120,000 and $61,000, respectively.
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 6 - COMMITMENTS AND CONTINGENCIES, CONTINUED
-------------------------------------------------------
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 accrued $25,000 for the potential costs
associated with defending its product against potential patent infringement
claims.
Grants
------
In November 1998, the German state of North-Rhine-Westphalia granted the
Company's subsidiary, Sangui AG, German Marks (DM) 3,574,575 for the research
and development of the Company's artificial oxygen carrier. The grant covers
the period from April 1998 to March 2001. The grant covers 40% of eligible
research and development costs and capital expenditures and is subject to the
Company's ability to cover the remaining 60% of the costs. An additional
condition of the grant is that the product must be developed and produced in the
German state of North-Rhine-Westphalia, if developed by 2003.
On September 8, 1999, the German state of North-Rhine-Westphalia granted the
Company's subsidiary, Gluko, DM 4,340,764 for the research and development of
the Company's long-term implantable glucose sensor. The grant covers the period
from December 1998 to November 2001, including retroactive months. This grant
includes the same terms as the Sangui AG grant.
Based on research and development expenditures and capital expenditures through
June 30, 2000 and 1999, the Company had qualified for $817,560 and $425,000, of
the grants, respectively. Approximately $736,070 and $240,000 related to
research and development expenditures while the remaining related to capital
expenditures, respectively. The $736,070 and $240,000 related to research and
development expenditures has been recorded as a reduction of research and
development expenses, while the $81,490 and $185,000 related to capital
expenditures was recorded as a reduction to the historical costs of property and
equipment, respectively. Through June 30, 2000, $1,065,716 of the grants amount
has been received. The remaining amount of $176,844 has been booked as grant
receivable at June 30, 2000.
SEC Inquiry
------------
During the six months ended June 30, 1999, the Company and certain directors and
former officers received an inquiry from the U.S. Securities and Exchange
Commission ("SEC") related to the timing and nature of certain transactions by
these individuals in the Company's common stock. The Company is unaware of
whether the inquiry is continuing. Although these individuals may be exposed to
potential fines and penalties stemming from the SEC's inquiry, management of the
Company believes that any potential exposure to the Company is minimal.
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 7 - STOCKHOLDERS' EQUITY
---------------------------------
Common Stock
-------------
The Company is authorized to issue 50,000,000 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 September 15, 1998, the Company entered into an exchange agreement with
Euro-American GmbH to sell 1,062,394 shares of its common stock at $0.50 per
share, or $531,197. Payment was in the form of a promissory note bearing
interest at 9% with monthly payments of $24,267, maturing September 1, 2000.
Principal payments of $224,413 and $126,902 were received on the note during the
year ended June 30, 2000 and the six months ended June 30, 1999, respectively.
As of June 30, 2000, the remaining unpaid principal balance was $116,659.
Through December 31, 1998, the Company received $675,000 from Euro-American GmbH
which were recorded as non-interest bearing notes payable. During the six
months ended June 30, 1999, the Company issued 650,000 and 466,488 shares of
common stock to Euro-American GmbH in exchange for the forgiveness of these
notes and $608,958 of cash.
In April 1999, the Company issued 2,600,000 shares of its common stock to a
consultant in exchange for a public relations/promotions contract covering the
period January 1999 to December 2002, as amended in August 2000. The fair value
of the services received is estimated to be $3,145,000 and is based on the
original proposal that the promotions company submitted to the Company when
negotiating the contract. Accordingly, the common stock was valued at $3,145,000
with a corresponding prepaid asset recorded for the value of the services to be
received under the contract. The $3,145,000 is being amortized on the
straight-line basis over the contract period. For the periods ended June 30,
2000 and 1999, the Company had recognized $1,572,500 and $467,500 of expense
leaving a prepaid asset of $1,105,000 which the Company has offset against
stockholders' equity in the accompanying financial statements at June 30, 2000.
During the fiscal year ended June 30, 2000, the Company issued 466,485 shares of
common stock to Euro-American GmbH for $536,458, of which, $50,000 was received
during the six months ended June 30, 1999.
During the fiscal year ended June 30, 2000, the Company entered into a
subscription agreement and issued 8,000,000 shares of common stock (and 80,000
shares to the finder) to Euro-America GmbH, a venture capital firm in Germany,
valued at $7,712,000, of which the Company has received $7,282,292 in cash and
recorded the remaining $429,708 as stock subscriptions at June 30, 2000.
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 7 - STOCKHOLDERS' EQUITY, CONTINUED
---------------------------------------------
Preferred Stock
----------------
The Company is authorized to issue 5,000,000 shares of non-voting no par value
preferred stock. The Board of Directors is empowered to issue liquidation
privileges, dividend, conversion or other rights. No such rights or privileges
have been granted. 505,000 shares have been issued and outstanding as of June
30, 2000.
Stock Options
--------------
From time to time, the Company may issue stock options pursuant to various
agreements and other contemporary agreements.
In November 1999, pursuant to an agreement with its chairman, the Company issued
the chairman options to purchase 3,000,000 shares of common stock at an exercise
price of $0.01 valued at $10,845,000 (under APB 25), which will be recognized as
compensation expense at the time they become exercisable. The options can be
exercised at the time the Company completes the development of the artificial
oxygen carrier or the implantable sensor and receives regulatory approval from
either Germany, the United States or Singapore. The options are exercisable
through June 2009.
Option activity for the years indicated below is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Weighted
Average
Options Price
----------------------------------------------- ---------- -----
Outstanding, January 1, 1999 and June 30, 1999 - -
Granted . . . . . . . . . . . . . . . . . . . 3,000,000 $0.01
Exercised . . . . . . . . . . . . . . . . . . - -
Cancelled/forfeited . . . . . . . . . . . . . - -
---------- -----
Outstanding, June 30, 2000. . . . . . . . . . . 3,000,000 $0.01
========== =====
Exercisable, June 30, 2000. . . . . . . . . . . -
==========
Weighted average fair value of options granted. $ 3.62
==========
</TABLE>
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 7 - STOCKHOLDERS' EQUITY, CONTINUED
---------------------------------------------
3,000,000 of the options outstanding at June 30, 2000 have an exercise price of
$0.01 per share and a weighted average remaining contractual life of 9 years;
none of these options are exercisable at June 30, 2000.
SFAS 123 Pro Forma Information
----------------------------------
Pro forma information regarding net income (loss) is required by SFAS 123, and
has been determined as if the Company had accounted for its employee's stock
options under the fair value method of SFAS 123. The fair value for these
options was estimated at the date of grant using the Black Scholes option
pricing model with the following assumptions for the year ended June 30, 2000:
risk free interest rate of 6.0%; expected dividend yield of 0% for each year;
expected lives of the options of three years; and volatility factor of the
expected market price of the Company's common stock of 62.5%.
For purpose of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the option vesting period. Adjustments are made for
options forfeited prior to vesting. The effect on compensation expense and net
loss had compensation cost for the Company's stock option issuances been
determined based on fair value on the date of grant consistent with the
provisions of SFAS 123 is as follows:
<TABLE>
<CAPTION>
<S> <C>
JUNE 30,
2000
Net loss:
As reported. . . . . . . . . . . . . . . . . . $(3,119,879)
Additional compensation expense under SFAS 123 -
------------
Pro forma net loss . . . . . . . . . . . . . . $(3,119,879)
============
Loss per share:
As reported. . . . . . . . . . . . . . . . . . $ (0.09)
============
Pro forma. . . . . . . . . . . . . . . . . . . $ (0.09)
============
</TABLE>
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 8 - INCOME TAX PROVISION
----------------------------------
Income tax expense for the year ended June 30, 2000 and for the six months ended
June 30, 1999 differed from the amounts computed by applying the U.S. Federal
income tax rate of 34 percent to the loss from continuing operations before
provision for income taxes as a result of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---------- ----------
Income tax benefit at U.S. federal statutory rates$(1,010,000) $(618,608)
Net operating losses not benefited . . . . . . . . 1,011,600 618,608
State and local income taxes, net of federal
income tax effect. . . . . . . . . . . . . . . . (1,600) -
---------- ----------
$ - $ -
========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at June 30, 2000 are presented below:
Deferred tax assets:
Net operating loss carryforwards $2,242,000
Less valuation allowance (2,242,000)
----------
Net deferred tax assets -
==========
As of June 30, 2000, the Company had net operating loss carryforwards of
approximately $4,870,000, $1,300,000 and $2,200,000 available to offset future
taxable Federal, foreign and state income, respectively. The federal and state
carryforward amounts expire in varying amounts between 2001 and 2011. The
foreign net operating loss carryforwards do not have an expiration period.
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 9 - BASIC AND DILUTED LOSS PER COMMON SHARE
---------------------------------------------------------
The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per common share computations:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
------------ ------------
Numerator for basic and diluted loss earnings per
common share - net loss . . . . . . . . . . . . $(3,119,879) $(1,819,436)
============ ============
Denominator for basic and diluted earnings per
common stock - weighted average shares. . . . . 34,476,465 29,417,956
============ ============
Basic and diluted loss per common stock . . . . . $ (0.09) $ (0.06)
============ ============
</TABLE>
NOTE 10 - BUSINESS SEGMENTS
-------------------------------
The Company reports its business segments based on geographic regions which are
as follows for the period ended June 30:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---------- ----------
Net sales:
Sangui USA . . . . $ 429,400 $ 178,835
Sangui Bio Tech AG - -
GlukoMediTech, AG. - -
---------- ----------
$ 429,400 $ 178,835
========== ==========
Net loss:
Sangui USA . . . . $2,397,120 $1,494,810
Sangui Bio Tech AG 548,587 187,335
GlukoMediTech, AG. 156,460 137,291
SBTS . . . . . . . 17,712 -
---------- ----------
$3,119,879 $1,819,436
========== ==========
</TABLE>
<PAGE>
SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
NOTE 10 - BUSINESS SEGMENTS, CONTINUED
-------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---------- -------
Depreciation and amortization:
Sangui USA . . . . . . . . . $ 42,264 $ 1,101
Sangui Bio Tech AG . . . . . 91,242 45,563
GlukoMediTech, AG. . . . . . 17,811 8,679
---------- -------
$ 151,317 $55,343
========== =======
Identifiable assets:
Sangui USA . . . . . . . . . $1,606,665
Sangui Bio Tech AG . . . . . 3,635,035
GlukoMediTech, AG. . . . . . 3,710,420
SBTS . . . . . . . . . . . . 28,520
----------
$8,980,640
==========
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS
-----------------------------------------
As described in Note 5, the Company entered into a transaction with
Euro-American GmbH, a principal stockholder whose co-owner is a director of the
Company. In this transaction, the Company received shares of another public
company (one of whose directors is a director of the Company and a co-owner of
Euro-American GmbH) in exchange for shares of the Company's common stock. The
Company valued the stock at $964,498. The Company recognized cumulative losses
of approximately $825,000 on the disposition of this stock.
As described in Note 7, the Company entered into other transactions with
Euro-American GmbH. In these transactions, the Company has sold 1,116,488 and
8,000,000 shares of its common stock to Euro-American GmbH for $608,958 and
$7,282,292, in 1999 and 2000, respectively.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AN ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective July 10, 2000 the Board of Directors of the Company approved the
engagement of Corbin and Wertz as its independent auditors for the fiscal year
ended June 30, 2000 to replace Ernst & Young Deutsche Allgemeine Treuhand AG
Wirtschaftspruefungsgesellschadt ("Ernst+Young") who declined to stand for
reelection.
The report of Ernst & Young on the Company's financial statements for the
six months ended June 30, 1999 did not contain an adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audit of the Company's financial statements for the
six months ended June 30, 1999, and in the subsequent interim period preceding
the date Ernst & Young declined to stand for reelection, there were no
disagreements with Ernst & Young on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Ernst & Young would have caused
Ernst & Young to make reference to the matter in their report.
Prior to the Company's engagement of Corbin & Wertz the Company did not
consult Corbin & Wertz regarding (i) either the application of accounting
principles to a special transaction or the type of audit opinion that might be
rendered on the Company's financial statements, or (ii) any matter that was the
subject of a disagreement or was a reportable event.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current directors
and executive officers of SGBI, their principal offices and positions and
the date each such person became a director or executive officer. Our executive
officers are elected annually by the Board of Directors. Our directors serve
one year terms until their successors are elected. The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors. There are no family relationships between any of the directors and
executive officers. In addition, there was no arrangement or understanding
between any executive officer and any other person pursuant to which any person
was selected as an executive officer.
The directors are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NAME . . . . . . . . . . . AGE ADDRESS RESIDENCE CURRENT POSITION
Prof. Wolfgang Barnikol. . 65 Arndtsr 8, D-58453 Germany Chairman, Senior Vice
M.D., Ph. D. Witten, Germany President, Executive Director
Axel J. Kutscher 48 Deutschherrnufer 41, Germany Executive Director
D-60554 Frankfurt
. . . . Germany
Helmut Kappes 42 Franz- Liszt- Str. 32a Germany Non-Executive Director
D-46282 Dorsten
Germany
Oswald Burkhard 49 Martinsgasse 1, D-67547 Germany Non-Executive Director
M.D., Ph.D. Worms, Germany
</TABLE>
None of the Directors are related to one another. None of the independent
Directors has a business or professional relationship with SGBI and/or the other
Directors and substantial shareholders of the Company.
The day-to-day operations of SGBI are entrusted to the Executive Directors
of the Company who are assisted by a management team of key executive officers
("Executive Officers"). The particulars of the Executive Officers are set out
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NAME . . . . . . . . . . . AGE ADDRESS RESIDENCE CURRENT POSITION
Prof. Wolfgang Barnikol. . 65 Arndtsr 8, D-58453 Germany President and Chief
M.D., Ph. D. Witten, Germany Executive Officer
Oswald Burkhard 49 Martinsgasse 1, D-67547 Germany Vice President
M.D., Ph.D. Worms, Germany
Ohnishi, Patrick 47 2 Cambridge Irvine US Secretary
CA 92620
Borchert, Seiglinde 42 Bahnhofstr 12, D-58452 Germany Chief Operating Officer
Ph.D. Witten, Germany
</TABLE>
The business and working experience of the Directors and key Executive
Officers of the Company are set out below:
PROF. WOLFGANG K. R. BARNIKOL, M.D., Ph.D., Chairman, Vice President and
Executive Director of the Company, has studied chemistry, physics and medicine
at the Universities of Munster, Aachen and Mainz, Germany. In 1961, he received
a Diploma in chemistry from University of Mainz, Mainz, Germany. In 1964, he
obtained the doctorate in physical chemistry (Dr. rer. nat.) and in 1973 the
doctorate in medicine (Dr. med.) both from the University of Mainz, Mainz,
Germany. In that same year, he also was appointed professor in medical
physiology at University of Mainz, Mainz Germany. In 1996, Dr. Barnikol was
awarded a specialist in medical physiology by the medical association of
Rheinland-Pfalz Germany. His research interest in physical chemistry focused
on the polymerization of styrene and the determination of molecular weights of
polymers with the electron microscope. Dr. Barnikol's research areas in
medicine are: (i) respiration; and (ii) blood and circulation. In the field of
respiration, he works on the functional analysis of the bronchial system and gas
exchange. Moreover, he is engaged in the development of respiratory and skin
oxygen sensors. In the field of blood and circulation, he works on the
development of artificial oxygen carriers for medical use, which are based on
polymerised soluble hemoglobins. As a third sphere of work, Dr. Barnikol is
engaged in the development of an implantable glucose sensor for patients with
diabetes Type I. Dr. Barnikol has published more than 100 scientific articles,
a text book in physiology and a review on the situation of German universities.
OSWALD BURKHARD, M.D., PH.D., Vice President and Non-Executive Director of
the Company, has more than 16 years of clinical experience in the diagnosis and
treatment of hematological and oncological diseases. Since 1989, Dr. Burkhard
has operated his own facilities in Worms, Germany, which specialize in
hematology and oncology. His practice offers patients all diagnostic and
therapeutic possibilities, necessary for internal oncology. From 1982 to 1989,
Mr. Burkhard was trained in hematology and oncology at the University School of
Medicine at Mainz, Mainz, Germany. During this time, he cared almost daily for
patients with hematological or oncological problems. Additionally, he was
trained in transfusion medicine. He became a specialist in internal medicine
and hematology. He has significant experience in clinical trials. From 1975 to
1989, he worked at the Institute for Physiology at the University of Mainz,
Mainz, Germany where he was involved in the physical chemistry of hemoglobin
solutions and the measurement of oxygen by fluorescence quenching. In 1988, he
obtained the Doctorate in Medicine from University of Mainz, Mainz, Germany.
Dr. Burkhard received several patents for his scientific work. In 1989, he
obtained the Tancre award of the University of Mainz, Mainz, Germany. Dr.
Burkhard has studied chemistry, physics and medicine at the University of Mainz,
Mainz, Germany. He received a diploma in Chemistry in 1973 from University of
Mainz, Mainz, Germany. In 1976, he obtained the Doctorate in Physical Chemistry
from University of Mainz, Mainz, Germany. During his thesis, Dr. Burkhard
synthesized approximately 20 new compounds.
AXEL J. KUTSCHER, Non-Executive Director of the Company and director of the
Subsidiaries, SanguiBioTech AG and GlukoMediTech AG, brings to the Company
experience 14 years in sales management from a variety of industries, including
the German securities industry. From 1985 until 1987, Mr. Kutscher was a
salesman at Deutsch-Amerikanische Corporation and International Stock Broker
Corporation in Essen, Germany. From 1988 until 1991, Mr. Kutscher was an
account executive in charge of marketing and research at Hetkamp and Partner
GmbH, Gelsenkirchen, Germany. For the next two years, Mr. Kutscher was an
account manager for several private clients in Frankfurt, Germany. After one
year as the sales manager at Euro-Pacific Security Service GmbH & Co KG,
Dusseldorf, Germany, in 1995 Mr. Kutscher became the Vice President and manager
of EURO-AMERICAN GmbH, Mulheim, Germany.
HELMUT KAPPES, Director of the Company, and Director of the Subsidiaries,
Sangui AG and Gluko, brings to the Company 13 years experience in sales and
general management from a variety of industries, including the German securities
industry. In 1986, Mr. Kappes spent two years as a salesman at
Deutsch-Amerikanische Corporation and International Stock Broker Corporation in
Essen, Germany. From 1988 until 1991, Mr. Kappes was an account executive and
salesman at Hetkamp and Partner GmbH, Gelsenkirchen, Germany. For the next two
years, Mr. Kappes was a sport manager with Trotting Promotion GmbH, located in
Gelsenkirchen, Germany. After one year as the sales manager at Euro-Pacific
Security Service GmbH & Co KG, Duesseldorf, Germany, Mr. Kappes has been the
Vice President and manager of EURO-AMERICAN GmbH, Duesseldorf, Germany since
1994.
PATRICK OHNISHI, Secretary, joined SanguiBioTech, Inc. in 1997 and is
responsible for manufacturing, purchasing, packaging and shipping. He held
various key technical management positions for 14 years at the Nichols Institute
Diagnostics (now Quest Diagnostics, Inc.) such as Director of Manufacturing, and
Manager of Technical Manufacturing. He worked as a laboratory technician after
his graduation at San Diego State University in Biology.
SIEGLINDE BORCHERT, Chief Operating Officer, after an apprenticeship as a
clerk and studying biology she made her Ph.D. in biochemistry. She worked for
more than 4 years as a research scientist at the University in Goettingen,
Germany. Subsequently she participated in a further vocational training in the
field of public relation and economy studies followed by working as a free
lancer for a scientific journal, Laborjournal, Freiburg, Germany, and for the
Forum fuer Wissenschaft und Technik, Goettingen, Germany. She started her work
for SBTAG and GMTG in June 1998 as a Project Coordinator.
Section 16(a) of the U.S. Securities Exchange Act of 1934 requires the
officers and directors of the Company and those persons who beneficially own
more than 10% of the outstanding stock of the Company to file reports of
securities ownership and charges in such ownership with the SEC. Based solely
upon a review of copies of the reports filed, the Company believes that during
the year ended June 30, 2000, the filing requirements were complied with by its
officers and directors.
ITEM 10. EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following SGBI summary compensation table shows certain compensation
information for services rendered in all capacities for the three fiscal years
ended June 30, 1998, 1999 and 2000. No executive officer's salary and bonus
exceeded $100,000 in any of the applicable years. The following information
includes the dollar value of base salaries, bonus awards, the number of stock
options granted and certain other compensation, if any, whether paid or
deferred.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- -----------------------
Awards Payouts
------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Awards Options Payouts Compensation
Principal Position Year ($) ($) ($) ($) SARs (#) ($) ($)
------------------ ------ ------- ----- ------------- ---------- ---------- ------ ------------
Wolfgang Barnikol 2000 -0- -0- -0- -0- -0- -0- -0-
Chairman, CEO
and President (1)
1999 -0- -0- -0- -0- 3,000,000 -0- -0-
1998 -0- -0- -0- -0- -0- -0- -0-
Seiglinde Borhert 2000 -0- -0- -0- -0- -0- -0- -0-
COO (2)
John J. Kiang 2000 -0- -0- -0- -0- -0- -0- -0-
Former President and
Director (3)
1999 -0- -0- -0- -0- -0- -0- -0-
1998 88,000 -0- -0- -0- -0- -0- -0-
Oswald Burkhard 2000 -0- -0- -0- -0- -0- -0- -0-
Vice-President (4)
1999 -0- -0- -0- -0- -0- -0- -0-
1998 -0- -0- -0- -0- -0- -0- -0-
Patrick Onishi 2000 70,000 -0- -0- -0- -0- -0- -0-
Secretary
1999 70,000 -0- -0- -0- -0- -0- -0-
1998 70,000 -0- -0- -0- -0- -0- -0-
</TABLE>
(1) Professor Barnikol receives a yearly salary of an aggregtae $140,000 as
President of the two German subsidiaries Sangui AG and Gluko AG. Professor
Barnikol was issued 3,000,000 options to purchase common stock of the Company
for $0.01 per share exercisable until June 30, 2009 in consideration for the
transfer of all his patent rights to the Company.
(2) Sieglinde Borchert receives a monthly fee of approximately $5,500 from the
German subsidiaries Sangui AG and Gluko AG.
(3) John J. Kiang was President, Chief Executive Officer and Director until
November 1998. He currently serves as a consultant to the Company.
(4) Oswald Burkhard receives a year compensation of approximately $6,000 as
Vice-President of the two German subsidiaries.
Option / SAR Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in (Base)
Name Granted (#) Fiscal Year ($/Sh)
--------------------- ---------- -------------- ----------
Wolfgang Barnikol 3,000,000 100 % 0,01 %
Chairman, CEO
and President
Aggregated Options Exercised in Last Fiscal year and Year-End Option Values
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of
Securities
Underlying
Unexercised Value of Unexercised
Options/SARs at In-the-Money Option/SARs
FY-End(#) at FY-End($)
Acquired Value --------------- ------------------------
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexerciseable
--------------- ----------- -------- --------------- ------------------------
Wolfgang Barnikol, 0 0 0/3,000,000 $0/$6,198,750(1)
President and CEO
</TABLE>
(1) Based on a price of $2,06 per share as quoted on the June, 30, 2000.
Compensation of Directors
To date, Directors of the Company have not received any compensation for
serving in such capacity.
Employment Agreements
The Company has no existing employment agreements with its officers or key
employees. Professor Barnikol has an agreement with the Company pursuant to
which he is entitled to 3% royalties of gross revenues earned with any product
based on his inventions.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the common stock of SGBI as of June 30, 2000 by:
* each person or entity known to own beneficially more than 5%
of the common stock;
* each of SGBI's directors;
* each of SGBI's named executive officers; and
* all executive officers and directors of SGBI as a group.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner (1) Beneficial Ownership Class
------------------ ---------------------- -------------------- -----------
Common Stock Dr. Wolfgang Barnikol (2) 1,853,600 4.6%
Arndtsr, 8, D-58453 Witten
Germany
Common Stock Dr. Oswald Burkhard 794,400 2.9%
Martinsgasse 1, D-67547 Worms
Germany
Common Stock Axel J. Kutscher 1,135,384 2.8%
Deutschhermufer 41, D-60554
Germany
Common Stock Helmut Kappes 1,086,848 2.7%
Franz-Liszt Str. 32a
D-46282 Dorstein
Germany
Common Stock Sieglinde Borchert 1,000 *
Bahnhofstr. 12
D-58452 Witten
Germany
Common Stock All Officers and Directors as
a Group (5 persons) 4,871,232 12.0%
========= ======
</TABLE>
*Less than 0.1%
ITEM 12. CERTAIN TRANSACTIONS
Except as otherwise disclosed below, no Director, substantial shareholder
or Executive Officer of the Company was or is interested in any transaction
undertaken by SGBI within the last three years.
EURO-AMERICAN
Euro-American ("EA") is a venture capital investment corporation
organized and established in Germany. Axel Kutscher and Helmet Kappes, who are
Directors and substantial shareholders of the Company, are also directors and
shareholders of EA. On October 29, 1996, EA granted a loan of US$1,000,000 to
SGBI. Pursuant to a Common Stock Conversion and Subscription Agreement dated
March 24, 1997 between EA and SGBI, it was agreed that 10,000,000 shares at a
conversion price of US$0.10 per Share be issued to EA, in satisfaction and full
repayment of the loan.
During the period beginning March 24, 1997 up to June 10, 1999, the
Company had received a total funding of US $4,922,500 from EA in consideration
of the issuance of 16,750,000 shares at an average subscription price ranging
from approximately US$0.20 to US$1.15 per share.
In addition, on September 21, 1998, the Company issued 4,591,389 Shares to
EA at a subscription price of US $0.50 per share in consideration of US $800,000
cash; the issue to the Company of 9,644,986 shares at US $0.10 per share in the
capital of AMDL, Inc., a public company incorporated in the United States with
its shares traded on OTCBB under the symbol AMDD; and an amount of US $531,197
in the form of a promissory note payable by EA in monthly installments of US
$24,267 at an interest rate of 9%. As at the date of the transaction, Axel
Kutscher, one of the Executive Directors of the Company, was also a director of
AMDL Inc. He has since resigned from the board of AMDL Inc.
During the fiscal year ended June 30, 2000 the Company issued 466,485 shares
of common stock to Euro-American GmbH for $536,458, of which, $50,000 was
received during the six months ended June 30, 1999.
During the fiscal year ended June 30, 2000, the Company entered into a
subscription agreement and issued 8,000,000 shares of common stock (and 80,000
shares to the finder) to EA, valued at $7,712,000, of which the Company has
received $7,282,292 in cash and recorded the remaining $429,708 as stock
subscriptions at June 30, 2000.
Stock Options granted in favor of Professor Wolfgang Barnikol
The Company entered into a stock option agreement which took effect on
September 24, 1999, with Professor Wolfgang Barnikol, an Executive Director and
substantial shareholder of the Company. The Professor was granted a share
option of 3 million Shares at an exercise price of US$0.01 per share, in
consideration of the assignment of his patent rights to the Company. The
Professor is entitled to exercise the option at the point the Company completes
the development of the artificial oxygen carrier or the implantable sensor and
receives regulatory approval from either Germany, Singapore or the United
States. The option shall terminate and cease to be exercisable on June 30, 2009
unless terminated earlier in accordance with the stock option agreement. The
stock option agreement is governed under the laws of the State of California.
Royalty Arrangement with Professor Wolfgang Barnikol
On July 7, 1997, the Company entered into an agreement with Dr. Barnikol
pursuant to which Dr. Barnikol assigned certain patents to the Company's German
subsidiaries in exchange for a 3% royalty on products on net revenues developed
by SanguiBiotech AG or GlukoMeditech AG. The royalty expires in 20 years or
upon expiration of the patents.
Rental received from related parties
In fiscal year 1997, NOHIV, a biotechnology company of which Messrs Axel
Kutscher and Helmut Kappes were former Directors, rented some office space from
SGBI's premises in Santa Ana for approximately three quarters of a year. The
rental charge was based on prevailing market rates conducted on an arm's length
basis.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit No.
-----------
2.1 (1) Exchange Agreement between MRC Legal Services LLC and SanguiBioTech
International, Inc., dated of March 31, 2000 (1)
3.1 (1) Articles of Incorporation of the Company (1)
3.2 (1) Bylaws of the Company(1)
3.3 Articles of Association of GlukoMeditech Aktiengesellschaft (2)
3.4 Articles of Association of SanguiBiotech Aktiengesellschaft (2)
3.5 Memorandum and Articles of Association of Sangui Biotech Singapore Pte.
Ltd.
4.1 Stock Option Agreement between Professor Wolfgang Barnikol and Sangui
Biotech International, Inc. dated October 12, 2000 (2)
10.1 Office Lease between Brookhollow Office Park and Sangui Biotech
International, Inc. dated September 4, 1996 and as amended 2000
10.2 Fee Agreement between GlukoMeditech AG and Dr. Seiglinde Borchert dated
June 15, 1998 (2)
10.3 Fee Agreement between SanguiBiotech AG and Dr. Seiglinde Borchert dated
June 15, 1998 (2)
10.4 Service Contract between GlukoMeditech AG and Dr. Wolfgang Barnikol
dated June 30, 1998 (2)
10.5 Service Contract between SanguiBiotech AG and Dr. Wolfgang Barnikol
dated June 30, 1998 (2)
10.6 Service Agreement between Axel Kleinkorres Promotionsagentur and Sangui
Biotech International, Inc. dated April 26, 1999 (2)
10.7 Amendment to Service Agreement between Axel Kleinkorres
Promotionsagentur and Sangui Biotech International, Inc. dated August 18, 2000
(2)
10.8 Appropriation Notice from North-Rhine-Westphalia to GlukoMediTech AG
dated November 30, 1998 (2)
10.9 Appropriation Notice from North-Rhine-Westphalia SanguiBiotech AG dated
November 30, 1998 (2)
10.10 Lease Contract for Business Rooms between Research and Development
Centre, Witten, Germany and GlukoMeditech AG dated June 6, 2000 (2)
10.11 Additional Agreement to Lease Contract between Research and
Development Centre, Witten, Germany and GlukoMeditech AG dated June 7, 2000
(2)
10.12 Additional Agreement to Lease Contract between Research and
Development Centre, Witten, Germany and SanguiBiotech AG dated June 7, 2000
(2)
10.13 Assignment of Patents and Royalty Agreement with Dr. Wolfgang Barnikol
21.1 Subsidiaries of the Company (2)
22.1 Financial Data Schedule (2)
---------
(1) Filed as an Exhibit to the Report on Form 8-K filed on or about April 4,
2000 and incorporated herein by reference.
(2) Filed as an Exhibit to the original Report on Form 10-KSB filed on
October 13, 2000.
(b) Reports on Form 8-K
During the fourth quarter of the fiscal year covered by this report, the
Company field a Report on Form 8-K on or about April 4, 2000, reporting the
acquisition of all the common stock of Felnam Investments, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-KSB to be signed on its behalf
by the undersigned hereunto duly authorized.
SANGUI BIOTECH INTERNATIONAL, INC.
/s/ Wolfgang Barnikol
----------------------------------
Wolfgang Barnikol
President and Director
Date: November 16, 2000
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Wolfgang Barnikol, M.D., Ph.D. President and Chief November 16, 2000
------------------------------------ Executive Officer
Wolfgang Barnikol and Director, Chairman
/s/ Sieglinde Borchert PhD Chief Operating November 16, 2000
------------------------------------ Officer
Sieglinde Borchert
/s/ Oswald Burkhard, Ph.D M.D. Director November 16, 2000
------------------------------------
Oswald Burkhard
/s/ Axel Kutscher . Director November 16, 2000
------------------------------------
Axel Kutscher
/s/ Helmut Kappes Director November 16, 2000
------------------------------------
Helmut Kappes
