<PAGE>
U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 0-24480
SANGUINE CORPORATION
(Name of Small Business Issuer in its Charter)
NEVADA 95-4347608
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
101 East Green Street, #11
Pasadena, California 91105
(Address of Principal Executive Offices)
Issuer's Telephone Number: (626) 405-0079
N/A
(Former Name or Former Address, if changed since last Report)
Securities Registered under Section 12(b) of the Exchange Act: None
Name of Each Exchange on Which Registered: None
Securities Registered under Section 12(g) of the Exchange Act:
$0.001 par value common stock
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
Check if there is no disclosure of delinquent files in response to Item
405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of Company's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: December 31, 1999 -
$0
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of a specified
date within the past 60 days.
April 6, 1999 - $11,748,781. There are approximately 9,893,711 shares of
common voting stock of the Registrant held by non-affiliates. This valuation
is based upon the average bid prices on April 6, 2000, for the common stock of
the Registrant on the OTC Bulletin Board of the NASD.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Not Applicable.
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
April 6, 1999
23,162,994
DOCUMENTS INCORPORATED BY REFERENCE
A description of "Documents Incorporated by Reference" is contained
in Part III, Item 13.
Transitional Small Business Issuer Format Yes X No ___
<PAGE>
PART I
Item 1. Description of Business.
------------------------
Business Development.
- ---------------------
For a discussion of the business development of Sanguine Corporation
("Sanguine" or the "Company") from inception to the end of the calendar year
ended December 31, 1998, see its Annual Report on Form 10-KSB for the calendar
year ended December 31, 1998, which has been previously filed with the
Securities and Exchange Commission and is incorporated herein by this
reference. See Part III, Item 13.
There were no material developments during the year ended December
31, 1999. The Company's only operations were the continuation of research and
development of PHER-O2, its only product, as outlined below under the heading
"Business." The Company had no revenues.
Business.
- ---------
The Company, through its majority-owned subsidiary, Sanguine
Corporation, a California corporation ("Sanguine California"), is engaged in
the development of a synthetic red blood cell product called "PHER-O2."
PHER-O2 is a second generation version of Fluosol, the only FDA-approved
synthetic blood product to date. The development of this product presently
comprises its sole business operations. PHER-O2 is composed of perfluoro-
decalin molecules (i.e., synthetic red blood cells), purified water and a
proprietary, synthetic, fluorinated surfactant to hold the emulsion together.
Perfluoro-decalin has great oxygen-carrying capacity, yet its particle can be
as much as 900 times smaller than a red blood cell. Management believes that
PHER-O2 may carry three to four times the oxygen of human blood per unit
volume. This increased oxygen-carrying capacity may make PHER-O2 useful in the
treatment of heart attacks, strokes, cancer and other diseases for which
increased oxygenation is beneficial. Furthermore, the Company believes that
perfluoro-decalin may be effective as an imaging agent in X-ray imaging,
nuclear magnetic resonance (NMR) imaging and CAT scans, without side effects.
Management also believes that PHER-O2 has several other advantages over human
blood: it may be sterilized to be free of disease; is believed to have the
quality of a universal match for all blood types; may be mass-produced; and
may be stored much longer than human blood.
Battelle Memorial Institute has been retained to assist the Company
in completing the emulsion of perfluoro-decalin and the synthetic surfactants
that make up PHER-O2. The Company needs to obtain substantial additional
funding for its intended business operations, as to which no assurance can be
given. If the Company obtains such funding, it is anticipated that on
completion of the compounding of PHER-O2, Battelle Memorial Institute will
perform initial gross animal tests, which do not require regulatory approval
prior to commencement; however, the data gathered from any such tests will be
subject to regulatory review in the future. The Company anticipates that it
will manufacture the experimental doses of PHER-O2 required to conduct gross
animal testing.
In its second phase of operations, management intends to continue
developing the perfluorocarbon compounds in PHER-O2 in order to optimize its
quality, and expects to begin animal safety and efficacy trials in accordance
with guidelines of the United States Food and Drug Administration ("FDA") and
comparable foreign regulatory requirements.
In the final phase of the Company's proposed business operations, it
intends to complete its United States testing of PHER-O2, receive all
necessary FDA approvals and begin American and Canadian sales for cancer
treatment and angioplasty; and complete overseas testing, begin overseas sales
and begin the construction of manufacturing facilities. Sanguine California
has previously licensed BioLogix to manufacture and market PHER-O2 in Canada,
including any future Canadian patent rights, and the exclusive right to market
PHER-O2 in U.S. military pre-hospital markets. In this final phase, the
Company also intends to continue trials to test PHER-O2 for other
applications, including transplant organ preservation and the treatment of
carbon monoxide poisoning, sickle cell anemia, heart attack, stroke and
transfusions. The Company will be required to conduct similar rigorous
testing and clinical trials of PHER-O2 for each desired application for which
it is sought to be used.
PHER-O2 is still in the research and development stage. It has not
been tested on animals or humans; nor has any application been submitted to
any federal, state or foreign agency to seek authority for such testing. This
development process will be time consuming, costly, subject to extreme
governmental regulation and must prove that this product is safe and
efficacious for human use. Until then, the Company will have no potential for
revenues from operations. No assurance can be given that the Company will be
able to raise the capital it will need to develop PHER-O2, or that if
sufficient funds are raised, that the Company will ever receive requisite
federal, state or foreign agency approval to manufacture or market this
product. See the captions "Principal Products or Services and their Markets,"
"Competition," "Patents, Trademarks, Licenses, Franchises, Concessions,
Royalty Agreements or Labor Contracts" and "Governmental Approval of Principal
Products or Services" of this Item.
Principal Products or Services and their Markets.
- -------------------------------------------------
The Company has only one product, PHER-O2, which is still in the
research and development stage. The Company's success hinges solely on the
success of this product, as to which no assurance can be given. PHER-O2 is
made up of perfluoro-decalin (a type of perfluorocarbon that is harmless to
humans and the atmosphere), purified water and a proprietary surfactant to
hold the emulsion together. Perfluoro-decalin gives the product its oxygen
carrying ability. The surfactant is non-toxic and, being fluorinated, helps
increase PHER-O2's oxygen carrying capacity and emulsion stability. Sanguine
believes that the unique chemical nature of PHER-O2 will make it ideal for
many medical applications; each such application will be subject to the same
types of rigorous testing, clinical trials and regulatory approval process.
PHER-O2 is believed to have the following advantages over human
blood:
1. May carry three to four times the oxygen of human blood per
unit/volume;
2. Free of HIV, hepatitis and other blood-borne disease;
3. Universal match for all blood types;
4. May be mass-produced;
5. May have a three-year shelf life;
6. May be stored at room temperature;
7. Has controllable circulatory half-life; and
8. May be 1/900th the size of a red blood cell.
9. PHER-O2 is a second generation drug from Fluosol-DA, the only
synthetic red blood cell approved by the Food and Drug Administration, which
was completed under the management of Thomas C. Drees, Ph.D., the President of
Sanguine.
The Company believes that these unique qualities may make PHER-O2
ideal for blood transfusions and numerous other medical applications,
including nuclear magnetic resonance imaging, CAT scans, cardioplegia (i.e.,
the priming of heart-lung machines in open heart surgery) and treatment of
heart attacks, strokes, head and neck tumors and hemorrhagic shock. The
Company intends to fully exploit the immense worldwide market for these
applications.
Blood transfusion represents a vast market for synthetic blood. The
limited supply of safe donated blood is the largest constraint on the number
of transfusions given annually. If a safe blood substitute were widely
available, more transfusions could be given to those who desperately need
them.
The Company hopes to fill this need with PHER-O2. The key
ingredients in PHER-O2 are readily available in the U.S. from many
manufacturers. When combined in the Company's proposed factory, using the
Company's proprietary emulsion process, the result will be a plentiful
alternative to donated human blood.
Another disadvantage to the use of human blood in transfusions is
the waiting period while the donor's blood is being matched to the
recipient's. Because it is believed PHER-O2 does not need to be matched to
the recipient's blood type, the use of PHER-O2 would eliminate this
potentially fatal wait, and increase its use in ambulances.
As HIV, hepatitis and other diseases have infected the world's blood
supply, the need for an absolutely sterile blood product has become
increasingly apparent. There is currently no 100 percent effective method for
detecting blood-borne disease and sterilization of donated blood is not
possible. In light of these facts, PHER-O2's potential sterility makes it
especially attractive in comparison to donated blood.
PHER-O2's anticipated ability to carry up to four times the oxygen
of human blood makes it promising for many medical applications in which
increased oxygenation is vital. PHER-O2 molecules are up to 900 times smaller
than human red blood cells. The Company believes that this fact will make
PHER-O2 particularly useful for oxygenating organs through blocked arteries,
which are the primary cause of heart attack and stroke.
One of the Company's competitors has obtained FDA approval
for the use of a similar product in angioplasty, the treatment of blocked
arteries with small inflated balloons. This application involves the
injection of the blood substitute into the artery past the inflated balloon.
As a result, the heart receives more oxygen, the treating physician can keep
the balloon inflated longer and the angioplasty is more effective than it
would otherwise be. This competitor has announced that it will no
longer manufacture its product, leaving Sanguine well-positioned in this
market segment. See the caption "Competition" of this Item.
Management also believes that PHER-O2 will be ideal for use in
open-heart surgery. Cardiac surgeons need an oxygen-carrying fluid that can
be used to prime the heart-lung bypass machines that are used to mechanically
pump and oxygenate heart patients' blood. This procedure is known as
"cardioplegia." Surgeons currently use saline, dextrose or hydroxyethyl
starch solutions for this purpose, but these fluids can dilute the red blood
cells in the body, and thus decrease the ability of the blood to carry oxygen.
Moreover, the risk of infection from whole blood or its derivatives makes them
undesirable for use as priming fluids. PHER-O2's significant oxygen-carrying
ability and its sterility address both of these concerns.
The treatment of head and neck tumors is another promising
application for PHER-O2. Increased oxygenation of these tumors makes them
more susceptible to the effects of radiation and chemotherapeutic drugs.
Another potential benefit of PHER-O2, though little understood, is
the ability of oxygen-rich blood to cause a tumor to produce hydrogen
peroxide, which in turn tends to shrink the tumor.
Finally, the perfluoro-decalin molecule in PHER-O2 works as a
radiopaque agent in X-ray imaging and as a contrast agent in nuclear magnetic
resonance (NMR) imaging and CAT scans. However, unlike many
currently-available imaging agents, PHER-O2 has no known side effects.
Competition.
- ------------
Several other companies, both domestic and foreign, are working to
develop alternatives to human blood. They include: Alliance Pharmaceutical
Corporation (San Diego, California); Biopure Corporation (Boston,
Massachusetts); and Northfield Labs (Chicago, Illinois). These competitors
are involved in the development of a wide variety of human blood substitutes,
including synthetic compounds, recycled human blood and recombinant
hemoglobin. Neither the list of competitors nor the list of human blood
substitutes is exhaustive. Furthermore, some of the Company's existing or
potential competitors have significantly greater technical and financial
resources than the Company and may be better able to develop, test, produce
and market products. These competitors may develop products that are
competitive with or better than the Company's product and that may render the
Company's product obsolete. The Company can provide no assurance that it will
be able to compete successfully.
Sources and Availability of Raw Materials.
- ------------------------------------------
The Company plans to purchase medical-grade perfluorocarbons and
surfactants from reliable vendors and to emulsify these ingredients in its own
facilities, depending upon funding. Air Products and Chemicals, Inc., DuPont,
PCR, Inc. and BNFL Fluorochemicals, Ltd. are qualified medical grade
perfluorocarbon vendors. Surfactants are available through numerous vendors.
Because intravenous solutions plants are very expensive and FDA approval of
such plants is a lengthy process, the Company intends to hire a third party to
package the product in sterile plastic bags with intravenous sets attached.
Abbott Laboratories, Baxter, McGaw, Fresenius and Kabi are a few of the
companies with the qualifications and capacity to perform this function;
however, the Company can provide no assurances that any of these ingredients
or services will be available or that they will be available at prices that
are low enough to make the Company's operations profitable.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or
Labor Contracts.
- ----------------
Assuming the Company's product is proven efficacious for one or more
applications and receives requisite regulatory approval, the Company's success
will depend in part on its ability to obtain patents, protect trade secrets
and avoid infringing the proprietary rights of others. On September 28, 1992,
Sanguine California filed a patent application for the PHER-O2 surfactant and
micro-emulsion technology with the U.S. Patent Office and received patent
pending status on the same date. The Company and Battelle Memorial Research
Institute have developed eight other proprietary synthetic blood compounds
using newly developed surfactants, for which the Company intends to file the
necessary patent applications. However, the patent position of biotechnology
companies in general is highly uncertain and involves complicated factual and
legal questions. The Company can provide no assurance that it will receive a
patent for PHER-O2 or any other property for which a patent is sought. Nor can
the Company provide any assurance that any issued patents will give it any
competitive advantage, that competitors' patents will not adversely affect the
Company's business, or that competitors will not develop similar products that
are beyond the scope of the Company's patents.
On March 28, 1991, Sanguine California and BioLogix, entered into a
10-year License Agreement whereby Sanguine California granted to BioLogix
certain license rights to manufacture and market PHER-O2 (the "License
Agreement"). Under the License Agreement, as amended on September 28, 1991,
Sanguine California granted to BioLogix the exclusive right to manufacture and
market PHER-O2 in Canada, including any future Canadian patent rights, and the
exclusive right to market PHER-O2 in U.S. military pre-hospital markets (i.e.,
non-hospital emergency markets such as ambulances, fire and rescue vehicles
and out-patient clinics). The consideration for these rights was the payment
by BioLogix to Sanguine California of $100,000. Since Sanguine California
will not have FDA approval until at the least 2002, this License Agreement
will lapse.
The amended License Agreement also granted BioLogix the right to
purchase for $200,000 a "co-exclusive license" with Sanguine California to
market PHER-O2 in all American pre-hospital markets. Only $50,000 of this
amount was paid and the right to purchase the co-exclusive license expired on
March 31, 1992. Finally, the License Agreement, as amended, provided for the
payment of royalties equal to 10 percent of gross sales revenues for PHER-O2
by the party selling PHER-O2 pursuant to the License Agreement to the
non-selling party.
Copies of the License Agreement and the Amended License Agreement
were previously filed with the Securities and Exchange Commission as exhibits
to the Company's Form 10-SB Registration Statement and is incorporated herein
by reference. See Part III, Item 13.
On December 9, 1993, the Company entered into an Agreement with
Battelle Memorial Institute, through its Battelle Columbus Operations (the
"Battelle Agreement"), for research and development of the use of surfactants
to form a stable microemulsion using the Company's perfluorocarbon for use as
a blood substitute. Terms under the initial Battelle Agreement provided for
the payment of $62,500 by the Company for these services, and an additional
$162,500 under an extension dated April 7, 1994 (the "Battelle Extension").
The Company entered into an agreement with Battelle in June, 1998 (the
Battelle 1998 Agreement"), for further research on PHER-02 for $300,000 of
additional development. The Company retains all rights to any inventions
discovered; Battelle is required to provide periodic reports to the Company
and keep all information confidential; either party may terminate the Battelle
Agreement on fifteen days' written notice; and Battelle may terminate on ten
days' written notice of default in any payment due from the Company, unless
payment is received. In the event of termination, Battelle is required to
provide the Company with all reports, materials or other deliverable items
available as of such date.
The Battelle Agreement and the Battelle Extension were previously
filed with the Securities and Exchange Commission as exhibits to the Company's
Form 10-SB Registration Statement and is incorporated herein by reference.
See Part III, Item 13. A copy of the Battelle 1998 Agreement is attached
hereto and incorporated herein by reference. See Part III, Item 13.
Continued research and development of PHER-O2 will depend upon the
Company's receipt of substantial additional debt or equity funding, as to
which no assurance can be given.
Governmental Approval of Principal Products or Services.
- --------------------------------------------------------
FDA and comparable foreign agencies require laboratory testing,
clinical testing and other costly and time-consuming procedures before
biomedical products such as PHER-O2 can be marketed. To date, the Company has
not begun any of these procedures. The Company's plan for obtaining FDA and
overseas approval of PHER-O2 is set forth under the heading "Plan of
Operation" of Part II, Item 6.
The Company can provide no assurance that these testing procedures
will be successfully completed, that if completed, they will show PHER-O2 to
be safe and efficacious or that any required governmental approvals will be
obtained. Accordingly, there can be no assurance that the Company will ever
be permitted to market PHER-O2 in the United States or most foreign countries.
The same holds true for any other products that the Company may develop. See
the caption "Effects of Existing or Probable Governmental Regulations" of this
Item.
Effects of Existing or Probable Governmental Regulations.
- ---------------------------------------------------------
Regulation by governmental authorities in the United States and
foreign countries will significantly affect the Company's ability to
manufacture and market its product and to conduct its ongoing research and
product development activities. The Company's only product, PHER-O2, will
require regulatory approval by appropriate governmental agencies before it can
be commercialized. Human therapeutic products are subject to rigorous pre-
clinical and clinical testing and other approval procedures by the FDA and
similar health authorities in foreign countries. Various federal, state and
foreign statutes also govern or influence the manufacturing, safety, labeling,
storage, record-keeping and marketing of such products. The process of
obtaining these approvals is costly and time consuming. Further, ongoing
compliance with these requirements can require the expenditure of substantial
resources. Any failure by the Company or its collaborators or licensees to
obtain, or delay in obtaining, required regulatory approvals would adversely
affect the marketing of the Company's product and its ability to derive
product or royalty revenue.
Pre-clinical testing is generally conducted in animal or in vitro
models to evaluate the potential efficacy and safety of a compound before it
is administered to humans. The results of these studies are submitted to the
FDA as part of an Investigational New Drug application ("IND"), which must be
approved before human clinical testing can begin. No tests of any nature
whatsoever have yet been run on PHER-O2.
Clinical trials involve the administration of the investigational
new drug to healthy volunteers or to patients, under the supervision of a
qualified principal investigator. Clinical trials are conducted in accordance
with certain standards under protocols that detail the objectives of the
study, the parameters to be used to monitor safety and the efficacy criteria
to be evaluated. Each protocol must be submitted to the FDA as part of the
IND. Further, each clinical study must be conducted under the auspices of an
independent IRB at the institution at which the study will be conducted. The
IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution.
Clinical trials are typically conducted in three sequential phases,
but the phases may overlap. In the first phase, the product is usually
infused into a limited number of human subjects and will be tested for safety
or adverse effects, dosage tolerance and pharmacokinetics (clinical
pharmacology). The second phase involves studies in a somewhat larger patient
population to identify possible adverse effects and safety risks and to begin
gathering preliminary efficacy data. The third phase of trials will be
undertaken to further evaluate clinical efficacy and to further test for
safety within an expanded patient population at geographically dispersed
clinical study sites. Although the Company believes its product is
substantially different from other synthetic blood products, there can be no
assurance that the Company will not encounter problems in clinical trials
which will cause the Company to delay or suspend clinical trials.
In the case of biologic products such as PHER-O2, the results of
pharmaceutical development and the pre-clinical and clinical testing are
submitted to the FDA in the form of a Product License Application ("PLA"),
which must be approved before commercial sales may begin. The Company must
also file an Establishment License Application ("ELA") which describes the
manufacturing process for the product and the facility at which the product
will be produced. The FDA may respond to the PLA and the ELA by granting a
license for the manufacture of the product from a designated facility and
the commercial sale of the product or by denying the application if it finds
that the application does not meet the criteria for regulatory approval,
requires additional testing or information or requires post-marketing testing
and surveillance to monitor the safety of the Company's product if they do not
view the PLA as containing adequate evidence of the safety and efficacy of the
drug. Notwithstanding the submission of such data, the FDA may ultimately
decide that the application does not satisfy its regulatory criteria for
approval. The testing and approval process is likely to require substantial
time and effort. There can be no assurance that approval will be granted for
the Company's product or its proposed facilities on a timely basis, if at all.
In addition to regulations enforced by the FDA, the Company may also
be subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the National Environmental Policy Act, the
Clean Air Act, the Medical Waste Tracking Act, the federal Water Pollution
Control Act and other present and potential future federal, state and local
regulations.
Cost and Effect of Compliance with Environmental Laws.
- ------------------------------------------------------
Management believes all of the substances making up PHER-O2 are
inert and non-toxic and that no toxic or hazardous materials will be
byproducts of the manufacturing process of PHER-O2. PHER-O2 is totally inert.
Accordingly, management does not believe the Company will have any material
expenditures related to the cost of compliance with applicable environmental
laws, rules or regulations.
Research and Development Expenses.
- ----------------------------------
In calendar years ended 1998 and 1999, the Company, through its
wholly-owned subsidiary, Sanguine California, expended a total of
approximately $276,000 on research and development, $78,000 in 1999 and
$198,000 in 1998. As neither the Company nor Sanguine California presently
has any customers, none of the cost of these activities was borne directly by
customers.
Number of Employees.
- --------------------
The Company presently has three employees, Thomas C. Drees, Ph.D.,
David E. Nelson and Anthony G. Hargreaves. Dr. Drees and Mr. Hargreaves are
employed full time. Once the development of PHER-O2 is completed and the
Company commences initial animal testing and manufacturing of this product for
these tests, additional employees will be required; the Company is unable to
presently estimate the exact number of employees it may need for these
services; however, see the heading "Plan of Operation" of Part II, Item 6.
Item 2. Description of Property.
------------------------
The Company leases approximately 970 square feet of office space
located at 101 East Green Street, Suite 11, Pasadena California, 91105, at a
base rent of $1,647 per month.
Item 3. Legal Proceedings.
------------------
Neither the Company nor any member of management is party to any
material legal proceeding that, if the subject of an adverse ruling, would
have any material effect on the Company or its financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None; not applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------
Market Information.
- -------------------
Until the quarter ended June 30, 1994, and for at least five years
previously, there had been no "public market" for the shares of common stock
of the Company. The Company's common stock commenced to trade on the "OTC
Bulletin Board" of the National Association of Securities Dealers, Inc.
("NASD") in the second quarter of 1994; however, there has been no
"established trading market" in these shares of common stock.
The range of high and low bid quotations for the Company's
common stock during the each quarter of the year ended December 31, 1998 and
each quarter of the calendar year ended December 31, 1999, is shown below.
Prices are inter-dealer quotations as reported by the NASD and do not
necessarily reflect transactions, retail markups, mark downs or commissions.
<TABLE>
<CAPTION>
STOCK QUOTATIONS*
BID
Quarter ended: High Low
- -------------- ---- ---
<S> <C> <C>
March 31, 1999 $.16 $.10
June 30, 1999 $.11 $.08
September 30, 1999 $.09 $.07
December 31, 1999 $.50 $.09
March 31, 1998 $.5312 $.125
June 30, 1998 $1.0937 $.25
September 30, 1998 $.75 $.1562
December 31, 1998 $.3437 $.1562
</TABLE>
* The future sale of presently outstanding "unregistered" and
"restricted" common stock of the Company by present members of
management and others may have an adverse effect on any market
that may develop in the shares of common stock of the Company.
See the heading " Recent Sales of Unregistered Securities,"
below.
Recent Sales of Unregistered Securities.
- ----------------------------------------
The following "restricted securities" of the Company were sold
during the past two calendar years:
Number of Shares Date Consideration
- ---------------- ------ -------------
66,494 08/98 $ *
240,000 08/98 $ 53,127
1,216,000 09/98 $124,000
600,000 10/98 $ 60,000
18,000 11/98 $ 3,240
52,777 04/99 $ 9,499
* Various prices from $0.10 to $0.25 per share in cash and/or
services (See the Statements of Stockholders' Equity in the
financial statements of the Company accompanying this
Report, Part II, Item 7).
All of these securities were issued to persons who were either
"accredited investors," or "sophisticated investors," who, by reason of
education, business acumen, experience or other factors, were fully capable of
evaluating the risks and merits of an investment in the Company; and each had
prior access to all material information regarding the Company. The offer and
sale of these securities was believed to be exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Sections
4(2) and 4(6) thereof, and Regulation D of the Securities and Exchange
Commission; and from various similar state exemptions.
Sales of "restricted securities" by members of management and others
could have an adverse effect on any public market for the common stock of the
Company. With the exception of the shares of "restricted securities" issued
as outlined above in 1999, all of the remaining 14,500,010 outstanding shares
of the Company's common stock that are designated as "restricted securities"
have been held for a sufficient period of time for resale under Rule 144 of
the Securities and Exchange Commission, subject to volume limitations of
subparagraph (e) of this Rule.
Holders.
- --------
The number of record holders of the Company's common stock as of
April 6, 2000, was approximately 469.
Dividends.
- ----------
The Company has not declared any cash dividends with respect to its
common stock, and does not intend to declare dividends in the foreseeable
future. The present intention of management is to utilize all available funds
for the development of the Company's business. There are no material
restrictions limiting, or that are likely to limit, the Company's ability to
pay dividends on its common stock.
Item 6. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
Plan of Operation.
- ------------------
The Company has not commenced planned principal operations, and has
made little progress since the end of fiscal 1998.
The Company's proposed Plan of Operation is composed of three
"phases," each of which coincides with a specific milestone in the process of
developing PHER-O2. These phases (which will begin subject to available
funding), and the projected cost of each phase, are as follows:
Phase I (approximately one year): In the first six months, the
Company plans to complete the development of perfluoro-decalin and
the synthetic surfactants that make up PHER-O2, manufacture
experimental doses and perform preliminary animal tests in
accordance with FDA and overseas regulations. In the second six
months, the Company intends to continue developing the
perfluorocarbon compounds in PHER-O2 in order to produce optimal
qualities and to conduct animal safety and efficacy trials in
accordance with FDA and overseas requirements. During the course of
Phase I, the Company estimates that its increased technical,
administrative, sales/marketing and manufacturing requirements will
necessitate the hiring of a few additional employees. Estimated
cost is $1,500,000.
Phase II (approximately one year): In the third year, the Company
intends to prepare Investigational New Drug applications for FDA and
European approval, conduct trials for cardioplegia, cancer treatment
and cardiology treatment in the United States and conduct
transfusion trials offshore. During this period, the Company also
plans to submit license applications for transfusion with overseas
authorities, begin production of PHER-O2 itself or with its
subcontractors and submit a New Drug Application for PHER-O2 in the
United States. During the course of Phase II, the Company estimates
that it will need to hire a few additional employees. Estimated
cost is $3,500,000.
Phase III (approximately one year): In the third year, the
Company plans to complete overseas testing of PHER-O2, begin sales
in Europe and other overseas areas that may have approved PHER-O2 by
this time and may begin construction of its facility for
manufacturing, storing, inspecting and shipping PHER-O2. During the
course of Phase III, the Company estimates that it will need to hire
additional employees. During the third year, the Company plans to
complete testing of PHER-O2 in the United States and receive all
necessary FDA approvals and begin American and Canadian sales for
cancer treatment and angioplasty. During this period, the Company
also plans to complete construction of its manufacturing facility
and continue trials of other PHER-O2 applications, including
transplant organ preservation and treatment of carbon monoxide
poisoning, sickle cell anemia, stroke and heart attack. During the
course of the third year, Phase III, the Company estimates that it
will need to hire additional employees. Estimated cost is
$15,000,000.
The foregoing cost estimates are based on the prior experiences of
Dr. Thomas C. Drees, the Company's CEO, President and Chairman of the Board of
Directors. Dr. Drees has more than 25 years' experience in the blood
industry. See the caption "Business Experience" of Part III, Item 9.
The Company's Plan of Operation for the next twelve months is to
begin Phase I of its business plan; i.e., to complete the synthesis of the
PHER-O2 surfactant and its emulsion with perfluoro-decalin, to manufacture
experimental doses of PHER-O2 and to perform preliminary animal tests in
accordance with FDA and comparable foreign overseas regulations. The ability
to commence and to carry out this plan is dependent upon the Company's ability
to obtain substantial equity or debt financing, as to which no assurance can
be given.
Results of Operations.
- ----------------------
Revenues for the calendar years ending December 31, 1999 and 1998
were $0 and $0, respectively. The Company had no material operations, except
the limited research and development activities related to its Battelle 1998
Agreement.
The Company realized a net loss from operations of $(217,864), a
loss of $(0.01) per share during the calendar year ended December 31, 1999,
and a net loss from operations of $(366,439), a loss of $(0.02) per share for
the year ending December 31, 1998.
Research and development expenses were $78,000 in 1999, compared to
$198,000 in 1998; the difference between these expenditures is the primary
difference in expenses between 1999 and 1998.
Liquidity.
- ----------
During the calendar year ended December 31, 1999, the Company had
expenses of $217,864, while receiving $0 in revenues; the Company received
no revenues, and had total expenses of $366,439 during the calendar year ended
December 31, 1998. The amount of research and development in 1998 exceeded
these expenses in 1999 by $120,000.
Cash resources at December 31, 1999 and 1998 were $1,062 and $499,
respectively. The Company issued approximately 52,777 shares of its
"restricted" common stock in consideration of cash in the amount of $9,500;
and 100,000 shares of its "restricted" common stock in consideration of
services valued at $10,000.
The commencement of the Company's proposed business operations are
subject to the ability of the Company to raise substantial additional funding,
as to which no assurance can be given.
Item 7. Financial Statements.
---------------------
Financial Statements for the years ended
December 31, 1999, and December 31, 1998
Independent Auditors Report
Balance Sheet - December 31, 1999 and 1998
Statements of Operations Accumulated for the
Period January 18, 1989 to December 31, 1999
and the Years ended December 31, 1999, 1998
and 1997
Statements of Stockholders' Equity January 1,
1990 to December 31, 1999
Statements of Cash Flows Accumulated for the
Period January 18, 1989 to December 31, 1999
and the Years Ended December 31, 1999, 1998
and 1997
Notes to Financial Statements
SANGUINE CORPORATION
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1999
&
December 31, 1998
<PAGE>
/Letterhead/
Schvaneveldt & Company
Certified Public Accountant
275 East South Temple, Suite #300
Salt Lake City, Utah 84111
(801) 521-2392
Darrell T. Schvaneveldt, C.P.A.
Independent Auditors Report
Board of Directors
Sanguine Corporation
(A Development Stage Company)
I have audited the accompanying balance sheets of Sanguine Corporation, as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the accumulated period of January 18,
1989 to December 31, 1999, and the years ended December 31, 1999, 1998, and
1997. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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 the significant
estimates made by management, as well as evaluating the overall financial
statements presentation. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Sanguine Corporation, as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for the accumulated period of January 18, 1989 to December 31, 1999, and
the years ended December 31, 1999, 1998, and 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note #9 to the financial
statements, the Company has an accumulated deficit and a negative net worth at
December 31, 1999. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also discussed in Note #9. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/S/ Schvaneveldt & Company
Salt Lake City, Utah
April 11, 2000
<PAGE>
<TABLE>
SANGUINE CORPORATION
(A Development Stage Company)
Balance Sheet
December 31, 1999 and 1998
<CAPTION>
1999
1998
Assets
<S> <C> <C>
Current Assets
Cash $ 1,062 $ 499
Property & Equipment
Furniture -0- 84
Total Assets $ 1,062 $ 583
Liabilities & Stockholders' Equity
Current Liabilities
Accounts Payable $ 78,680 $ 14,154
Accrued Salaries 524,000 428,000
Accrued Interest Payable 38,880 33,420
Notes Payable 168,306 135,450
Total Current Liabilities 809,866 611,024
Stockholders' Equity
Common Stock, Authorized:
100,000,000 Shares at $0.001 Par Value:
23,162,994 & 23,010,217 Shares
Issued & Outstanding Respectively 23,163 23,010
Paid In Capital (Quasi-Reorganized
March 20, 1994 Deficit Retained
Earnings of $2,423,964 Eliminated) 877,444 858,096
Retained Earnings Deficit (1,709,411) (1,491,547)
Total Stockholders' Equity (808,804) (610,441)
Total Liabilities &
Stockholders' Equity $ 1,062 $ 583
</TABLE>
<TABLE>
SANGUINE CORPORATION
(A Development Stage Company)
Statements of Operations
Accumulated for the Period January 18, 1989 to December 31, 1999
and the Years Ended December 31, 1999, 1998 and 1997
<CAPTION>
Accumulated
January
18, 1989 to
December December December December
31, 1999 31, 1999 31, 1998 31, 1997
<S> <C> <C> <C> <C>
Revenues
Interest Income $ 4,842 $ -0- $ -0- $ -0-
Sales Market Rights 150,000 -0- -0- -0-
Total Revenues 154,842 -0- -0- -0-
Expenses
Depreciation $ 4,609 $ 84 $ 920 $ 920
Research & Development 865,805 78,000 198,000 79,000
Insurance 22,023 23,794 467 672
Office Expenses 93,253 12,627 9,585 8,987
Auto Expenses 26,919 9,922 990 1,170
Legal & Professional
Fees 141,231 19,067 30,550 9,773
Rent 98,791 12,564 17,596 16,000
Interest Expenses 69,827 16,746 16,732 10,255
Bad Debts 10,000 -0- -0- 10,000
Travel 20,725 7,570 136 -0-
Stock Transfer 4,829 300 1,770 618
Consultant Fees 297,520 -0- 63,710 9,633
Salaries & Wages 112,108 18,000 18,000 18,000
Taxes & Licenses 25,295 1,999 1,167 1,184
Finders Fees 7,825 -0- -0- -0-
Promotions 52,094 17,191 6,816 -0-
Total Expenses 1,852,854 217,864 366,439 166,212
Net Profit (Loss)
From Operations ($1,698,012) ($217,864) ($366,439) ($166,212)
Profit (Loss) Per Share ($.01) ($.02) ($.01)
Weighted Average Shares
Outstanding 23,078,735 21,943,900 20,877,723
</TABLE>
<TABLE>
SANGUINE CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity
January 1, 1990 to December 31, 1999
<CAPTION>
Common Shares Paid In Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance, January 1, 1990
Retroactively Restated 1,428,364 $ 1,428 $2,423,214 ($2,464,642)
Balance, December 31, 1990 1,428,364 1,428 2,423,214 ( 2,464,642)
Net Profit Year Ended
December 31, 1991 73,917
Balance, December 31, 1991 1,428,364 1,428 2,423,214 ( 2,390,725)
Shares Issued for Services
$0.001 Per Share 2,720 2
Contributed Capital by Officer 750
Net Loss Year Ended
December 31, 1992 ( 77,011)
Balance, December 31, 1992 1,431,084 1,430 2,423,964 ( 2,467,736)
Shares Issued to Acquire 94%
of Outstanding Shares of
Sanguine Corporation
(A California Corporation)14,589,775 14,590 (14,590)
Shares Issued for Cash
$.20 Per Share 500,000 500 99,500
Shares Issued for Cash
$1.00 Per Shares 10,000 10 9,990
Net Loss Year Ended
December 31, 1993 ( 92,895)
Balance, December 31,
1993 16,530,859 16,530 2,533,454 ( 2,575,221)
<PAGE>
SANGUINE CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity -Continued-
January 1, 1990 to December 31, 1999
<CAPTION>
Common Shares Paid In Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Quasi-Reorganization Restated
of Equity Accounts (2,423,964) 2,423,964
Cash Received of Exercise of
Option to Purchase Shares at
$.36 Per Share 175,000 175 62,825
Cash Received from Sale of
Stock at $.75 Per Share 16,000 16 11,984
Net Loss Year Ended
December 31, 1994 (230,779)
Balance, December 31,
1994 16,721,859 16,721 184,299 (382,036)
Shares Issued in Satisfaction
of Accounts Payable at
$0.17 Per Share 500,000 500 83,585
Shares Issued in Satisfaction
of Accounts Payable at
$.05 Per Shares 700,000 700 31,238
Shares Issued for Services
at $.125 Per Share 1,625,000 1,625 201,500
Shares Issued in
Satisfaction Notes Payable
at $.75 Per Share 16,000 16 13,225
Net Loss Year Ended
December 31, 1995 (366,843)
Balance, December 31,
1995 19,562,859 19,562 513,847 (748,879)
Shares Issued for Cash
$0.25 Per Share 10,000 10 2,490
<PAGE>
SANGUINE CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity -Continued-
January 1, 1990 to December 31, 1999
<CAPTION>
Common Shares Paid In Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Shares Issue for Services
$0.001 Per Share 450,000 450
Shares issued in Satisfaction
of Accrued Expenses
$0.25 Per Share 125,506 126 31,251
Shares Issued In Satisfaction
of Services Rendered $0.001
Per Share 529,358 529
Shares Issued in Satisfaction
of Accounts Payable $0.247
Per Share 200,000 200 49,354
Rounding ( 1)
Net Loss for Year Ended
December 31, 1996 (210,016)
Balance, December 31,
1996 20,877,723 20,877 596,942 (958,896)
Shares Issued for Services 100,000 100 9,234
Net Loss for Year Ended
December 31, 1997 (166,212)
Balance, December 31,
1997 20,977,723 20,977 606,176 (1,125,108)
Shares Issued for Services
$.025 Per Share 32,281 32 8,038
Shares Issued for Services
$0.25 Per Share 31,183 31 7,766
Shares Issued for Services
$0.25 Per Share 11,030 11 2,747
Shares Issued in Satisfaction
of Accounts Payable $0.21
Per Share 240,000 240 52,887
<PAGE>
SANGUINE CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity -Continued-
January 1, 1990 to December 31, 1999
<CAPTION>
Common Shares Paid In Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Shares Issued for Cash $0.13
Per Share 8,000 8 1,192
Shares Canceled ( 100,000) ( 100) 100
Share Issued for Services at
$0.10 Per Share 600,000 600 59,400
Shares Issued for Cash at
$0.10 Per Share 10,000 10 990
Shares Issued for Cash at
$0.10 Per Share 1,200,000 1,200 118,800
Rounding Adjustment 1
Net Loss for Year Ended
December 31, 1998 ( 366,439)
Balance, December 31,
1998 23,010,217 23,010 858,096 (1,491,547)
Shares Issued for Cash at
$0.19 Per Share 52,777 53 9,447
Shares Issued for Legal
Services at $0.10 Per Share 100,000 100 9,900
Net Loss for Year Ended
December 31, 1999 ( 217,864)
Balance, December 31,
1999 23,162,994 $23,163 $ 877,443 ($1,709,411)
</TABLE>
<TABLE>
SANGUINE CORPORATION
(A Development Stage Company)
Statements of Cash Flows
Accumulated for the Period January 18, 1989 to December 31, 1999
and the Years Ended December 31, 1999, 1998 and 1997
<CAPTION>
Accumulated
January
18, 1989 to
December December December December
31, 1999 31, 1999 31, 1998 31, 1997
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net (Loss) ($1,491,547) ($217,864) ($366,439) ($166,212)
Adjustments to Reconcile
Net (Loss) to Net Cash:
Rounding -0- 1 (2) -0-
Depreciation 4,525 84 920 920
Non Cash Expense 427,801 10,000 78,625 19,334
Changes in Operating Assets & Liabilities:
Increase (Decrease)
Accounts Payable 14,154 64,526 31,722 10,189
Increase in Interest
Payable 33,420 5,460 5,460 5,460
Increase in Accrued
Salaries 428,000 96,000 96,000 96,000
Net Cash Flows from
Operating Activities (583,647) ( 41,793) ( 153,714) ( 34,309)
Cash Flows from Investing Activities
Purchase of Equipment (4,609) -0- -0- -0-
Cash Flows from Financing Activities
(Decrease) Increase in
Notes Payable 135,450 32,856 31,750 33,900
Sale of Common Stock 452,555 9,500 122,200 -0-
Contributed Capital 750 -0- -0- -0-
Net Cash Flows from
Financing Activities 588,755 42,356 153,950 33,900
Increase (Decrease) in Cash 499 563 236 ( 409)
Cash at Beginning of Period -0- 499 263 672
Cash at End of Period $ 499 $1,062 $ 499 $ 263
Disclosure for Cash Flows from
Interest $ 69,827 $16,746 $16,732 $ 10,255
Taxes -0- -0- -0- -0-
Disclosures from Non Cash Transactions
Operating Activities
Payment of Accounts Payable $ -0- $ -0- $49,930 $ -0-
Issued Shares for Services -0- 10,000 78,625 9,333
</TABLE>
SANGUINE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE #1 - Corporate History
The Company was incorporated January 27, 1974, in the State of Utah, using the
name Sight and Sound Systems, Inc. On July 8, 1974, the Company changed its
name to International Health Resorts, Inc., and on June 25, 1993, the Company
filed a Certificate of Amendment changing the name to Sanguine Corporation.
In May of 1992, the Company changed its domicile to the State of Nevada.
The stated purpose of the Company is to engage without qualification, in any
lawful acts, or activity for which a corporation may be organized under the
laws of the state of Nevada. Currently, the Company is engaged in developing
artificial blood to be used by the medical profession. The Company is
conducting research and development leading to F.D.A. clinical trials.
The Company forward split its outstanding shares 1.5 shares for 1 on July 14,
1993. As a consequence of this action, the Company had 1,431,000 shares
issued and outstanding prior to the Agreement and Plan of Reorganization in
which Sanguine Corporation (a California Corporation) was acquired.
On June 14, 1993, the Company entered into an Agreement and Plan of
Reorganization, wherein it was agreed that Sanguine Corporation (a Nevada
Corporation) would issue 14,589,775 shares of its common stock to acquire 94%
of the issued and outstanding shares of stock of Sanguine Corporation (a
California Corporation).
From 1974 to 1989, the Company engaged in several business ventures. These
business activities resulted in the loss of all Company assets. Because of
the search for a new business venture, the Company has entered into the
"development stage company" status again. Sanguine Corporation (California)
is a development stage company and these financial statements are presented as
those of a development stage company effective January 18, 1989, coinciding
with the incorporation date of Sanguine Corporation (California).
NOTE #2 - Significant Accounting Policies
A. The Company uses the accrual method of accounting.
B. Revenues and directly related expenses are recognized in the period when
the goods are shipped to the customer.
C. The Company considers all short term, highly liquid investments that are
readily convertible, within three months, to known amounts as cash
equivalents. The Company currently has no cash equivalents.
D. Primary Earnings Per Share amounts are based on the weighted average
number of shares outstanding at the dates of the financial statements.
Fully Diluted Earnings Per Shares shall be shown on stock options and
other convertible issues that may be exercised within ten years of the
financial statement dates.
E. Inventories: Inventories are stated at the lower of cost, determined
by the FIFO method or market.
<PAGE>
SANGUINE CORPORATION
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #2 - Significant Accounting Policies -Continued-
F. Depreciation: The cost of property and equipment is depreciated over
the estimated useful lives of the related assets. The cost of leasehold
improvements is depreciated (amortized) over the lesser of the length of
the related assets or the estimated lives of the assets. Depreciation
is computed on the straight line method for reporting purposes and for
tax purposes.
G. Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
NOTE #3 - Common Stock Public Offering
In June of 1974, the Company completed a public offering of 3,000,000 shares
of its common stock at $0.02 per share.
NOTE #4 - Net Operating Losses for Tax Carryforward
The Company had net operating losses to carryforward to years expiring in
1985. Sanguine Corporation (California) has had operating losses to
carryforward as scheduled below.
Year of Expiration
Loss Amount Date
1992 $ 3,094 2007
1993 149,162 2008
1995 186,779 2009
1995 165,343 2010
1996 209,488 2016
1997 156,878 2017
1998 366,439 2018
1999 217,864 2019
The Company has adopted FASB 109 to account for income taxes. The Company
currently has no issues that create timing differences that would mandate
deferred tax expenses. Net operating losses would create possible tax assets
in future years. Due to the uncertainty as to the utilization of net
operating loss carryforwards an evaluation allowance has been made to the
extent of any tax benefit that net operating losses may generate.
1999 1998 1997
Current Tax Asset Value of Net Operating Loss
Carryforwards at Current Prevailing Federal
Tax Rate $ 494,717 $ 420,643 $ 296,053
Evaluation Allowance (494,717) (420,643) (296,053)
Net Tax Assets $ -0- $ -0- $ -0-
Current Income Tax Expense -0- -0- -0-
Deferred Income Tax Expense -0- -0- -0-
<PAGE>
SANGUINE CORPORATION
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #5- Notes Payable - Short Term
The Company has three notes payable to three entities.
Amounts
1999 1998
Note #1 to an individual, due on demand, interest
at 10% per annum, with option to the holder to
convert to 35,277 shares of common stock to $0.4252
per share. $ 15,000 $ 15,000
Note #2 to a partnership, due on demand, but not
later than August 10, 1994, at 12% per annum interest. 25,000 25,000
Note #3 to an individual, (related party) due on
demand, interest at 12% per annum. 128,306 95,450
Total Current Notes Payable $168,306 $135,450
NOTE #6 - Property & Equipment
The Company capitalized the purchase of equipment and fixtures for major
purchases in excess of $1,000 per item. Capitalized amounts are depreciated
over the useful life of the assets using the straight-line method of
depreciation.
Scheduled below are the assets, costs, lives, and accumulated depreciation at
December 31, 1999 and 1998.
December 31, Depreciation Accumulated
1999 1998 Expense Depreciation
Assets Cost Cost Life 1999 1998 1999 1998
Furniture $ 4,609 $ 4,609 5 $ 84 $ 920 $4,609 $4,525
NOTE #7 - Stock Option
The Company has set aside 1,500,000 shares of its common stock options at a
price not to exceed $5.00 per share. The Corporation has issued 893,449
warrants as follows:
587,715 at $0.8504 per share.
305,734 at $0.4252 per share.
The exercise period of warrants issued expired in August 1998 with no warrants
being exercised.
Pursuant to the Agreement and Plan of Reorganization dated June 14, 1993, the
Company issued an option to purchase 470,642 shares of its common stock at
$0.1275 per share. The option has been extended by the Company and expires on
September 22, 2001. The option issued by Sanguine Corporation (Nevada
Corporation) replaced options issued by the California Corporation to an
officer
<PAGE>
SANGUINE CORPORATION
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #7 - Stock Option -Continued-
as part of his compensation for services. When the option was issued by the
Company the shares of the Company had no market value.
On November 10, 1995, the Company issued an option to its legal counsel for
200,000 shares at $.25 per share for a period of five years. In 1996 and 1998
counsel exercised its option to purchase the 200,000 shares at $0.25 per
share.
On September 23, 1998, the Company issued an option to its legal counsel for
100,000 shares at $0.10 per share for a period of three years from the date of
the grant. The Company's counsel exercised the option for the 100,000 shares
at $10,000 for services.
NOTE #8 - Lease Commitment
The Company rents office space on a month to month arrangement for $1.647.
The total annual cost of the space is $19,764. At the present time the
Company's President reimburses the Company $596 each month for space he
utilizes for non company purposes.
NOTE #9 - Going Concern
The Company had an accumulated deficit of $1,709,411 at December 31, 1999 and
negative cash flows for the year and the proceeding year. Until the Company
commences business operations, management anticipates that negative cash flows
will continue. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The Company seeks to find a business
opportunity to acquire or merge with that will provide operating capital.
NOTE #10 - Minority Interest
Sanguine Corporation (California) had a total of 6,586,800 shares of its
common stock issued and outstanding. Pursuant to the Agreement and Plan of
Reorganization, Sanguine Corporation (Nevada) acquired 6,200,000 of the issued
and outstanding shares. The resulting 386,800 shares of minority interest in
the California Corporation represents approximately six percent (6%) of the
Company's outstanding stock. No provision for minority interest has been made
on the financial statements because of the losses incurred in the presented
periods and the deficit stockholder's equity.
NOTE #11 - Employment Agreement
The Company has employment agreements with Dr. Thomas Drees and Anthony G.
Hargreaves dated January 22, 1990. The agreements call for a base salary of
$120,000 to Dr. Drees and $72,000 to Mr. Hargreaves annually. Insurance
benefits, home office reimbursement, and an automobile are to be provided by
the Company and reimbursement for out of pocket expenses will be paid to Dr.
Drees and Anthony G. Hargreaves. Subject to an agreement of June 2, 1994, Dr.
Drees and Mr. Hargreaves agreed to cancel all outstanding accruals for
expenses under the provision of the Agreements and to accept as full
satisfaction of all of their claims against Sanguine Corporation the
<PAGE>
SANGUINE CORPORATION
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #11 - Employment Agreement -Continued-
payments they received in November 1993. In addition the Agreements were
modified to provide that for June, July, and August of 1994, salary shall be
paid at one fourth the amount specified by the Agreements. Commencing
September 1, 1994, Dr. Drees and Mr. Hargreaves will be entitled to receive
one half the salary specified until such time as Sanguine Corporation shall
have raised $1,500,000 in debt or equity funding. All funds raised since the
completion of the Agreement and Plan of Reorganization between Sanguine
Corporation (California), and Sanguine Corporation (Nevada), are being counted
in arriving at this sum.
NOTE #12 - Non Cash Investing & Financing Activities
In 1993, the Company issued 14,589,775 shares of its common stock to finance
the acquisition of Sanguine Corporation (a California Corporation).
In 1995, the Company issued 1,625,000 shares of its common stock at par value
in payment of services received from several vendors.
In 1996, the Company issued 450,000 shares of stock for services valued at
$450 and 854,864 shares for settlement of accounts payable and accrued
expenses.
In 1997, the Company issued 100,000 shares of its common stock for services
rendered to the Company valued at $9,334.00.
In 1998, the Company issued 674,494 shares of its common stock for services
valued at $78,625. The Company issued 240,000 shares of its common stock for
satisfaction of accounts payable valued at $49,930.
In 1999, the Company issued 100,000 shares of its common stock for legal
services valued at $10,000.
NOTE #13 - Subsequent Events
In March of 2000, the Company agreed to grant options to purchase shares of
common stock to the following; to the Company's Legal Counsel the option to
purchase 300,000 shares, an Officer of the Company the option to purchase
100,000 shares and an unrelated party the option to purchase 700,000 shares
of common stock. The Option price of the shares is $0.25 per share and may be
exercised for 180 days from the grant date.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ---------------------
None; not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
- --------------------------------------------------
Identification of Directors and Executive Officers.
- ---------------------------------------------------
The following table sets forth the names of all current directors and
executive officers of the Company. These persons will serve until the next
annual meeting of stockholders (held in June of each year) or until their
successors are elected or appointed and qualified, or their prior resignation
or termination.
<TABLE>
<CAPTION>
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
---- ---- ----------- --------------
<S> <C> <C> <C>
Thomas C. Drees, CEO 6/93 *
Ph.D., MBA President 1/98 *
Chairman 11/95 *
Director 6/93 *
Anthony G. Hargreaves Vice President 6/93 *
Secretary/ 6/93 *
Treasurer 6/93 *
Director 6/93 *
Chief Financial 6/94 3/96
Officer
David E. Nelson, CPA Director 3/96 *
Chief Financial 3/96 *
Officer
Edward L. Kunkel, Esq. Director 4/94 *
</TABLE>
* These persons presently serve in the capacities indicated opposite
their respective names.
Term of Office.
- ---------------
The terms of office of the current directors shall continue until
the annual meeting of stockholders, which has been scheduled by the Board of
Directors to be held in June of each year. The annual meeting of the Board of
Directors immediately follows the annual meeting of stockholders, at which
executive officers for the coming year are elected.
Business Experience.
- --------------------
Thomas C. Drees, Ph.D., MBA, CEO, President and Chairman of the
Board of Directors. Dr. Drees, age 71, is the founder of Sanguine California.
Dr. Drees was Vice President and General Manager of Abbott Scientific Products
Division, collector of blood plasma derivatives and manufacturer of human
blood derivatives from 1973 to 1978 From 1978 to 1984, he was the President
and CEO of Alpha Therapeutics Corporation, a subsidiary of Green Cross
Corporation of Japan and the developer of Fluosol DA 20, the only FDA-approved
synthetic blood product. For 26 years, Dr. Drees has been involved at top
management levels with the collection, manufacture and marketing of human
blood plasma derivatives. He has written many publications on the subject,
including the widely-acclaimed book Blood Plasma: The Promise and the
Politics, Ashley Books, New York, 1983.
Anthony G. Hargreaves, Vice President, Secretary/Treasurer, and
Director. Mr. Hargreaves is 72 years old. He is a former Royal Marine
Officer with long experience in marketing, trust department banking (with Bank
of America) and group insurance sales management (with the Connecticut General
Life Insurance Company). His medical background includes service as General
Manager of VK Limited in Pasadena, California, where Mr. Hargreaves helped
secure funding for a wearable, continuously-operating artificial kidney
machine. In the early 1980's, Mr. Hargreaves organized and scripted
telemarketing sales of various products to retail stores throughout the United
States.
David E. Nelson, CPA, Chief Financial Officer and Director. Mr.
Nelson, age 57, received a B.S. degree in accounting from the University of
Utah in 1966. He has over 20 years' experience in operations, finance and
regulatory compliance of stock brokerage firms. He is the past President of
Covey & Company, Inc. Mr. Nelson has been a member of the NASD Board of
Arbitrators, the American Institute of Certified Public Accountants and
the Utah Association of Certified Public Accountants.
Edward L. Kunkel, Esq., Director. Mr. Kunkel is 53 years of age.
He graduated with a Juris Doctor degree from the University of Southern
California in 1973. From 1973 to 1978, he practiced law with the firm of
Karns & Karabian in Los Angeles. From 1978 to the present, he has practiced
educational law, real estate law and general business law in his own firm.
Mr. Kunkel is a member of the State Bar of California, the Los Angeles County
Bar Association and the National School Board Attorneys Association; he has
been a licensed real estate broker since 1979.
Family Relationships.
- ---------------------
There are no family relationships between any directors or executive
officers of the Company, either by blood or by marriage.
Involvement in Certain Legal Proceedings.
- -----------------------------------------
Except as indicated below, to the knowledge of management, during
the past five years, no present or former director, executive officer, or
person nominated to become a director or an executive officer of the Company:
(1) Filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed
by a court for the business or property of such person, or any partnership in
which he was a general partner at or within two years before the time of such
filing, or any corporation or business association of which he was an
executive officer at or within two years before the time of such filing;
(2) Was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him or her from or
otherwise limiting his involvement in any type of business, securities or
banking activities;
(4) Was found by a court of competent jurisdiction in a civil
action, by the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated any federal or state securities law, and
the judgment in such civil action or finding by the Securities and Exchange
Commission has not been subsequently reversed, suspended, or vacated.
Item 10. Executive Compensation.
-----------------------
Cash Compensation.
- ------------------
The following table sets forth the aggregate compensation paid by
the Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Year or Other Restricted Option\LTIP All
Principal Period $ $ Annual Stock SAR's Payouts Other
Position Ended Salary Bonus Compen- Awards ($) (#) ($) Compensa-
December sation($) tion ($)
31
Thomas C. 1998 * -0- -0- -0- -0- -0- -0-
Drees, Ph.D. 1999 * -0- -0- -0- -0- -0- -0-
MBA
CEO, President
and Chairman
of the Board
of Directors
Anthony G. 1998 * -0- -0- -0- -0- -0- -0-
Hargreaves, 1999 * -0- -0- -0- -0- -0- -0-
Vice Pres.,
Sec./Treas.
and Director
David E. 1998 -0- -0- -0- -0- -0- -0- -0-
Nelson, CPA 1999 -0- -0- -0- -0- -0- -0- -0-
CFO and
Director
Edward L. 1998 -0- -0- -0- -0- -0- -0- -0-
Kunkel, Esq. 1999 -0- -0- -0- -0- -0- -0- -0-
Director
</TABLE>
* See the heading "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements" of this Item.
Bonuses and Deferred Compensation.
- ----------------------------------
See the heading "Employment Contracts and Termination of Employment
and Change-in-Control Arrangements" of this Item.
Compensation Pursuant to Plans.
- -------------------------------
None.
Pension Table.
- --------------
None; not applicable.
Other Compensation.
- -------------------
None.
Compensation of Directors.
- --------------------------
Effective June 15, 1994, the Board of Directors, by unanimous
written consent pursuant to Section 78-315 of the Nevada Revised Statutes,
adopted, ratified and approved resolutions providing for payment of the sum of
$500 per month for service as a director of the Company. This fee, at the
option of each director, may be paid in "unregistered" and "restricted" shares
of common stock of the Company. Directors shall also be reimbursed for direct
out-of-pocket expenses for attendance at meetings of the Board of Directors
and for expenses incurred for and on behalf of the Company.
Due to lack of funding, the Company has not made any payments
pursuant to the above referenced resolutions. No such payments will be made
until the Company has received substantial additional funding, as to which no
assurance can be given.
Employment Contracts.
- ---------------------
On January 22, 1990, Sanguine California entered into two Employment
Agreements, one with Dr. Thomas C. Drees for services as President, Chief
Executive Officer and Chairman of the Board of Directors, and one with
Anthony G. Hargreaves for services as Vice President, Secretary/Treasurer and
Director (collectively, the "Employees"). The Employment Agreements provided
for the employment of the Employees for seven years, commencing on January 22,
1990 (the "Employment Term").
In consideration of his exclusive service to Sanguine California,
each Employee was to receive the following: (1) an adjustable base salary
(starting at $120,000 for Dr. Drees and $72,000 for Mr. Hargreaves);
(2) inclusion in all incentive, stock option, 401(k) and similar plans,
including one percent of Sanguine California's pre-tax profit;
(3) entitlement to all perquisites that are available to employees of
similar station, including financial consulting, legal assistance
and security; (4) payment of all costs incurred in connection with the
Employees' maintenance of home offices, including qualified entertainment
expenses, business telephone charges and home security devices;
(5) payment of initiation fees, regular dues and expenses relating
to membership in a business, social or country club; (6)use of a
new automobile of the Employee's choice, payment of all operating
expenses and automobile liability insurance; (7) reimbursement of
reasonable business expenses, including travel and entertainment;
(8) group life insurance equal to six times annual compensation and
accidental death and dismemberment equal to ten times annual
compensation; and (9) disability insurance providing for payments, in the
event of disability, until the Employee reaches age 70 (for Dr. Drees) or age
71 (for Mr. Hargreaves). In addition, in the event of an Employee's death
during the Employment Term, Sanguine California agreed to pay to each
Employee's widow, designee or estate the Employee's base salary for the
remainder of the Employment Term.
Neither of the Employment Agreements was enforced, and both
Employment Agreements were canceled by the Company's Board of Directors on
May 31, 1993. On September 23, 1993, the Board of Directors reinstated both
Employment Agreements for a seven-year period commencing on August 1, 1993.
On June 2, 1994, pursuant to a Letter Agreement addressed to the
Company and accepted by the Company on June 3, 1994, and adopted, ratified and
approved by written consent by persons owning a majority of the outstanding
voting securities of the Company pursuant to Section 78-320 of the Nevada
Revised Statutes (Dr. Drees, Mr. Hargreaves and A. Smith Associates were the
persons or entities signing the written consent), it was agreed that the
salaries provided in these Employment Agreements would not commence until June
1, 1994, and that no salaries had accrued or were payable under these
Employment Agreements prior to such date; that for the months of June, July
and August, 1994, the salaries payable under these Employment Agreements would
be one-fourth of the amounts provided therein; and that commencing September
1, 1994, the salaries payable under these Employment Agreements would be
one-half of the amounts provided therein, and would continue at such rate
until the Company shall have raised not less than the sum of $1,500,000 in
debt or equity financing, with all funds raised since the completion of the
Sanguine Plan being computed in arriving at the sum of $1,500,000 required to
be raised.
On September 24, 1996, the Board of Directors of the Company
resolved to issue to Mr. Hargreaves 529,358 "unregistered" and "restricted"
shares in consideration of services rendered over the previous six years. As
of December 31, 1998, a total of $428,000 in salaries had accrued to Messrs.
Drees and Hargreaves pursuant to the above referenced Letter Agreement; and as
of December 31, 1999, a total of $524,000 in salaries had accrued to Messrs.
Drees and Hargreaves pursuant to the above referenced Letter Agreement.
The Company and Edward L. Kunkel, who is a director of the Company,
executed an Employment Agreement on June 1, 1994 (the "Kunkel Agreement").
The Kunkel Agreement provided for Mr. Kunkel to receive compensation equal to
$500 per month or $500 worth of the Company's "unregistered" and "restricted"
common stock, provided that no compensation was to be payable until such time
as the Company had received operating funds totaling at least $1,000,000
cash. No such compensation has yet been paid due to the Company's inability
to obtain such funding. The term of the Kunkel Agreement was one year from
the date of its execution, subject to renewal by the parties. As of the date
of this Report, the Kunkel Agreement has not been renewed.
The Kunkel Agreement further irrevocably granted to Mr. Kunkel the
option to purchase 10,000 "unregistered" and "restricted" shares of the
Company's common stock, exercisable in whole or in part until May 31, 1997,
which date has been extended to May 31, 2002. The price per share of these
shares equals the average low bid price per share as quoted on the OTC
Bulletin Board of the NASD on June 1, 1994. As of the date of this Report,
the option has not been exercised in whole or in part.
Termination of Employment and Change of Control Arrangements.
- -------------------------------------------------------------
None.
Compliance with Section 16(a) of the Exchange Act.
- --------------------------------------------------
To the knowledge of management, all filings required to be made by
members of management or others pursuant to Section 16(a) of the Securities
Exchange Act of 1934, as amended, have been duly filed.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The following tables set forth the share holdings of the Company's
directors and executive officers and those persons who own more than five
percent of the Company's common stock as of April 6, 2000, with the
computations being based upon 23,162,994 shares of common stock being
outstanding. This figure takes into account the 23,162,994 presently
outstanding shares of common stock; the 470,642 shares subject to an existing
option held by Anthony G. Hargreaves (see footnote 2 below); and the 10,000
shares subject to an existing option held by Edward L. Kunkel, Esq. (see
footnote 3 below).
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C>
Thomas C. Drees, Ph.D., MBA (1) 12,219,133 51.7%
101 East Green Street, #11
Pasadena, California 91105
Anthony G. Hargreaves (1) 1,000,000(2) 4.2%
101 East Green Street, #11
Pasadena, California 91105
David E. Nelson, CPA(1) 150 .0006%
528 14th Avenue
Salt Lake City, Utah 84103
Edward L. Kunkel, Esq. (1) 50,000 (3) 0.021%
16 N. Marengo Ave, #517
Pasadena, California 91103 __________ ______
Total: 13,269,283 55.92%
</TABLE>
All directors and officers as a group 13,269,283 55.92%
(4 persons)
(1) See Part III, Item 11, below, for information concerning the
offices or other capacities in which the foregoing persons
serve with the Company.
(2) Includes an option to acquire 470,642 shares of "unregistered"
and "restricted" common stock of the Company at a price of
$0.1275 per share, exercisable until September 22, 2001.
(3) Includes an option to acquire 10,000 shares of "unregistered"
and "restricted" common stock of the Company at a price equal
to the average low bid price per share of the Company's common
stock as quoted on the OTC Bulletin Board of the NASD on June
1, 1994, the date of the Employment Agreement granting such
option. This option was exercisable in whole or in part until
May 31, 2002. See the heading "Employment Contracts" of Part
III, Item 10.
FIVE PERCENT STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C>
Thomas C. Drees, Ph.D., MBA 12,219,133 51.7%
101 East Green Street, #11
Pasadena, California 91105
Changes in Control.
- -------------------
To the knowledge of the Company's management, there are no present
arrangements or pledges of the Company's securities which may result in a
change in control of the Company.
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
Transactions with Management and Others.
- ----------------------------------------
During the past two years, there have been no material transactions,
series of similar transactions or currently proposed transactions, to which
the Company or any of its subsidiaries was or is to be a party, in which the
amount involved exceeds $60,000 and in which any director or executive
officer, or any security holder who is known to the Company to own of record
or beneficially more than five percent of the Company's common stock, or any
member of the immediate family of any of the foregoing persons, had a material
interest.
Certain Business Relationships.
- -------------------------------
During the past two years, there have been no material transactions,
series of similar transactions or currently proposed transactions, to which
the Company or any of its subsidiaries was or is to be a party, in which the
amount involved exceeds $60,000 and in which any director or executive
officer, or any security holder who is known to the Company to own of record
or beneficially more than five percent of the Company's common stock, or any
member of the immediate family of any of the foregoing persons, had a material
interest.
Indebtedness of Management.
- ---------------------------
During the past two years, there have been no material transactions,
series of similar transactions or currently proposed transactions, to which
the Company or any of its subsidiaries was or is to be a party, in which the
amount involved exceeds $60,000 and in which any director or executive
officer, or any security holder who is known to the Company to own of record
or beneficially more than five percent of the Company's common stock, or any
member of the immediate family of any of the foregoing persons, had a material
interest.
Parents of the Issuer.
- ----------------------
Except and to the extent that Dr. Drees may be deemed to be a parent
of the Company by virtue of his substantial stock ownership, the Company has
no parents.
Transactions with Promoters.
- ----------------------------
During the past two years, there have been no material transactions,
series of similar transactions, currently proposed transactions, or series of
similar transactions, to which the Company or any of its subsidiaries was or
is to be a party, in which the amount involved exceeds $60,000 and in which
any promoter or founder, or any member of the immediate family of any of the
foregoing persons, had a material interest.
Item 13. Exhibits and Reports on Form 8-K.
---------------------------------
Reports on Form 8-K
None.
Exhibits*
(i)
Where Incorporated
in this Report
--------------
Annual Report on Form 10-KSB for the Part I
calendar year ended December 31, 1998**
Registration Statement on Form 10-SB, as
amended**
(ii)
Exhibit
Number Description
- ------ -----------
10 Battelle 1998 Agreement
21 Subsidiaries of the Company
27 Financial Data Schedule
* Summaries of all exhibits contained within this
Report are modified in their entirety by reference
to these Exhibits.
** These documents and related exhibits have been
previously filed with the Securities and Exchange
Commission and are incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this Report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated:
SANGUINE CORPORATION
Date: April 12, 2000 By /s/ Thomas C. Drees
-------------- -------------------------------------
Thomas C. Drees, Ph.D., MBA
CEO, President and Chairman of the
Board of Directors
Date: April 12, 2000 By /s/ Anthony G. Hargreaves
-------------- -------------------------------------
Anthony G. Hargreaves, Vice
President, Secretary/Treasurer and
Director
Date: April 13, 2000 By /s/ David E. Nelson
-------------- -------------------------------------
David E. Nelson, CPA
CFO and Director
</TABLE>
RESEARCH AND DEVELOPMENT SERVICES AGREEMENT
AGREEMENT NUMBER CP036763
LABOR AND MATERIALS TYPE
Battelle Memorial Institute, through its Columbus Operations (BATTELLE) agrees
to provide to Sanguine Corporation (CLIENT) technical/research services
substantially in accordance with BATTELLE's Proposal No. CP036763, (the
Project) incorporated herein by reference, under the following terms and
conditions:
1. ACCEPTANCE AND COMMENCEMENT
BATTELLE's Proposal may be accepted within sixty (60) days from the date of
BATTELLE's signature below. BATTELLE will begin work within thirty (30) days
of receipt of this Agreement executed by CLIENT. The Project period is
estimated as six (6) months from commencement
2. PAYMENT
CLIENT agrees to pay BATTELLE's charges for labor services and for other
expenses for performance of the Project, estimated at Three Hundred Thousand
Dollars and No Cents ($300,000.00), without set-off, payable in advance as
follows:
A.
Initial payment of Sixty Thousand Dollars and No Cents ($60,000.00), due
prior to commencement of Project activities.
B.
Thereafter in Four (4 ) payments of Sixty Thousand Dollars and No Cents
($60,000.00), due within thirty (30) days of presentation of invoice.
CLIENT will not be required to reimburse, and BATTELLE shall not be required
to incur, any charges for performance in excess of the estimate stated above,
unless mutually agreed upon in writing. The balance of the advance payment, if
in excess of One Thousand Dollars and No Cents ($1000.00), shall be refunded
to CLIENT upon termination of the Project. Invoices not paid within thirty
(30) days of the date of invoice shall accrue interest at the rate of two (2)
percent per month, compounded daily.
3. INTELLECTUAL PROPERTY
The terms of ownership of Intellectual Property are provided in the separate
Option Agreement between Client and Battelle.
4. NO ENDORSEMENT/LITIGATION
BATTELLE does not endorse products or services. Therefore, CLIENT agrees that
it will not use or imply BATTELLE's name, or use BATTELLE's reports, for
advertising, promotional purposes, raising of capital, recommending
investments, or any way that implies endorsement by BATTELLE, except with
prior written approval of an officer of BATTELLE.
BATTELLE does not undertake Projects for the purposes of litigation or to
assign fault or blame and does not provide expert witness services. Therefore,
CLIENT agrees not to use any Project results in any dispute, litigation, or
other legal action.
In any event, if, at any time, BATTELLE or its employees are required to
respond to any subpoenas, orders for attendance at depositions, hearings or
trials, document requests, or other legal proceedings as a result of or
relating to BATTELLE's work on the Project, CLIENT agrees to reimburse
BATTELLE, in addition to any other amounts payable under this Agreement,
BATTELLE's labor charges, attorney time and/or fees, travel, photocopying and
other miscellaneous expenses.
5. LIMITATION OF LIABILITY
BATTELLE will provide a high standard of professional service on a best
efforts basis. However, BATTELLE, as a provider of such services, cannot
guarantee success, thus BATTELLE NUKES NO WARRANTY OR GUARANTEE, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR
PURPOSE OR MERCHANTABILITY, FOR ANY REPORT, DESIGN, ITEM, SERVICE OR OTHER
RESULT TO BE DELIVERED UNDER TIHS AGREEMENT.
CLIENT assumes responsibility for its use, misuse, or inability to use the
Project results and in no event shall BATTELLE have any liability for damages,
including but not limited to any indirect, incidental, or consequential
damages, arising from or in connection with this Agreement.
CLIENT agrees to indemnify and hold BATTELLE harmless from any and all
liabilities, suits, claims, demands, and damages, and all costs and expenses
in connection therewith, in any manner relating to this Agreement or its
performance, asserted by third parties from any cause whatsoever, except for
injury or damage occurring during performance of a Task under this Agreement
on BATTELLE-owned premises where fault of CLIENT is not a contributing cause.
6. NATURE OF SERVICES
CLIENT agrees that BATTELLE is an independent contractor and specifically
acknowledges that BATTELLE is a service provider, not a manufacturer or
supplier. CLIENT retains all final decision making authority and all
responsibility for the formulation, design, manufacture, assembly, packaging,
marketing and sale of CLIENT's products, including, without limitation,
product labeling, warnings, instructions to users, and for obtaining any
governmental or other pre- or postmarket approvals, certifications,
registrations, licenses, or permits.
7. PRODUCT LIABILITY INSURANCE
CLIENT shall maintain adequate product liability insurance coverage in amounts
customary and prudent for a responsible entity in its industry in light of the
nature of its product(s). Such insurance shall specifically cover any CLIENT
products that may be developed in whole or in part based on BATTELLE's work
under this Agreement, and CLIENT shall provide evidence of such insurance upon
request.
8. FORCE MAJEURE
Neither CLIENT nor BATTELLE shall be liable in any way for failure to perform
any provision of this Agreement (except payment of monetary obligations) if
such failure is caused by any law, rule, or regulation, or any cause beyond
the control of the party in default.
9. EARLY TERMINATION
Either party shall have the right to terminate this Agreement upon thirty (30)
days' written notice for any good-faith basis. In the event of early
termination, BATTELLE agrees to provide CLIENT with all reports, materials, or
other deliverable items available as of the date of the termination, provided
that CLIENT is not in default of its obligations under this Agreement. In any
event, CLIENT agrees to pay all charges incurred or committed by BATTELLE,
including costs of termination, within thirty (30) days of receipt of a final
invoice.
10. ENTIRE AGREEMENT
This Agreement, including the Proposal incorporated herein, represents the
entire Agreement of the parties and supersedes any prior discussions or
understandings, whether written or oral, relating to the subject matter
hereof. This Agreement may be modified or amended only by mutual agreement in
writing. No course of dealing, usage of trade, waiver, or non-enforcement
shall be construed to modify or otherwise alter the terms and conditions of
this Agreement. In the event of any conflict or inconsistency between these
terms and conditions and the Proposal, these terms and conditions shall
control.
11. APPLICABLE LAW
This Agreement shall be governed and construed in accordance with the laws of
and enforced within the jurisdiction of the State of Ohio.
12. MISCELLANEOUS
This Agreement may not be assigned in whole or in part without the prior
written approval of both parties. In any event, however, this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by and against
the successors, assigns and transferees of the parties. If any part of this
Agreement shall be held invalid or unenforceable, such invalidity and
unenforceability shall not affect any other part of this Agreement. Captions
used as headings in this Agreement are for convenience only and are not to be
construed as a substantive part of this Agreement.
Sanguine Corporation BATTELLE MEMORIAL INSTITUTE
Columbus Operations
By/s/Thomas C. Drees By/s/Christina L. Rotunda
Christina L. Rotunda
Title Chairman/CEO Title Contracting Officer
Date June 17, 1998 Date May 21, 1998
<PAGE>
<PAGE>
Prepared for
Dr. Thomas Dress
Chairman
Sanguine Corporation
Preparation and Evaluation of
Fluorocarbon- Emulsion for Use as
Oxygen-Carrying Blood Substitutes
Proposal/Agreement No. CP030763
Battelle Polymer Center
February 27,1998
For more Information regarding this proposal,
please contact:
Dr. Herman P. Benecke
Senior Research Scientist
Telephone (614) 424-4457; Facsimile (614) 424-7479
<PAGE>
Proprietary Statement
The Information contained In this proposal is proprietary. Please do not
circulate to other's not directly responsible for making a decision regarding
this proposal.
<PAGE>
Overview
Our Proposal 2
Introduction 2
Background 2
The Objective 3
Approach 4
Figure 1. Project Schedule 5
Description of Work 4
Task 1: Develop Product Criteria 4
Task 2: Concept Evaluation and Selection 6
Task 3: Synthesis of Candidate Surfactants 7
Task 4: Emulsion Development and Testing 8
Task 5: Toxicological and Biological Testing 8
Task 6: Program Reporting 9
Program Management 9
Benefits 9
Intellectual Property Statement 10
Risk 11
Schedule and Cost 11
<PAGE>
OUR PROPOSAL
Preparation and Evaluation of
Fluorocarbon Emulsions for Use as
Oxygen-Carrying Blood Substitutes
(Proposal/Agreement No. CP03673)
Introduction
A market opportunity exists for a blood substitute that is safe and
efficacious since the world blood transfusion market is expected to rise and
concerns about AIDS have contributed to a rising demand for blood substitutes.
Sanguine has estimated that the blood substitute market will reach $1 billion
in five years and this market will grow $20-$30 billion in 10-15 years.
Blood substitutes are currently categorized as (a) oxygen-carrying emulsified
fluorocarbons, or (b) hemoglobin based; The former approach based on the
fact that fluorocarbons have a very high solubility for oxygen and carbon
dioxide but fluorocarbons must be emulsified since they have negligible
solubility in water or blood. With respect to the letter approach, concerns
have been raised recently regarding the safety, high-manufacturing costs, and
availability of hemoglobin derived products. Thus oxygen-carrying emulsified
fluorocarbon products may represent the preferred approach.
Background
The present day interest in liquid fluorocarbon emulsions as human blood
stream oxygen carriers dates from the discovery in 1965 by Dr. Leland Clark
that rodents could "breathe" for hours submerged in an oxygen-saturated
fluorocarbon liquid. This startling discovery was based on the chemical and
physiological inertness of fluorocarbon liquids as wall as the extremely high
solubility and diffusibility of oxygen and carbon~dioxide in these materials.
This class of liquids is unique among chemicals due to the fact that they can
rapidly dissolve about fifty volume percent of oxygen and carbon dioxide and
quickly release these gases on demand due to the extremely high gaseous
diffusion rates.
Even though fluorocarbons are very insoluble in water (or blood), it was
quickly recognized that these materials could be used to aid mammalian
breathing if they could be safely dispersed in the bloodstream as emulsions.
Emulsions are stabilized dispersions of water insoluble materials in which the
particle size is 0.1-1.0 microns. Emulsion particles are maintained as stable
dispersions by the presence of small amounts of surfactants. Surfactants are
molecules with at least two discrete and unlike components, one of which is
very soluble in aqueous phase compositions while the other component is
insoluble in aqueous phases but is soluble in non-polar materials such as fats
or fluorocarbons. Surfactant molecules will align themselves at the interface
between two insoluble materials such as water and a fluorocarbon
<PAGE>
liquid. If such mixtures are mechanically broken into small droplets (with a
high shear mixture) in the presence of an appropriate surfactant, the
surfactant molecules will become distributed over the surface of the droplet
with the fluorocarbon soluble end dissolved in the surface of the fluorocarbon
droplet, while the water soluble ends are dissolved in the continuous water
phase to form a dispersed emulsion. This surface layer of oriented surfactants
molecules can also help keep separate emulsion particles from fusing
(coalescing) into larger particles.
Fluosol-DA (developed by Alpha Therapeutics, which later became Green Cross
Corporation of Japan) is an emulsion of perfluorodecalin and is the only blood
substitute, which has been approved by the FDA (on a limited basis). This
product has been used successfully in human blood transfusions. Oxygent is
another emulsified fluorocarbon blood substitute candidate, which is being
developed by Alliance Pharmaceutical and is currently undergoing clinical
trials. However, serious deficiencies exist in both of these products, both of
which employ lecithin as their primary surfactant. Fluosol-DA has a very short
shelf-life which requires that this material be stored frozen, which is a
serious disadvantage of this material. A major cause of this short shelf-life
is the fact that the non-polar hydrocarbon tails of lecithin have a relatively
low solubility in the perfluorodecalin comprising Fluosol-DA.
In addition, both Fluosol and Oxygent have half-lives in the bloodstream of
only about 4-8 hours which is caused primarily by phagocytosis (engulfing) of
the emulsified fluorocarbon particles by macrophage cells of the Immune
system. These limited half-lives significantly restrict the type surgical
procedures for which these products can be used.
The Objective
The overall~objective of Battelle's involvement in the blood substitute arena
is to develop a technically advanced oxygen-carrying fluorocarbon emulsion
which overcomes the problems associated with the above emulsified blood
fluorocarbon systems.
The recent scientific literature indicates that efficient emulsification of
fluorocarbons requires that the surfactant contain appropriate fluorocarbon
containing functionality. Whereas the surfactants used in either Fluosol-DA
or Oxygent do not incorporate fluorinated surfactants, Battelle chemists have
developed specialty surfactant concepts which are based on positioning
fluorinated functionality within the surfactant to enhance the attractive
interaction between that component of the suractant and the emulsified
fluorocarbon droplets, potentially allow use of a one package emulsification
system, significantly increase the storage stability of concentrated
emulsified fluorocarbons, and increase the emulsion lifetimes when dispersed
in aqueous media or blood.
Another very important feature of specific Battelle surfactant candidates is
they will contain specific functionality expected to camouflage emulsified
fluorocarbon droplets from the immune system (impart "stealth"
characteristics) and slow the phagocytosis process. This feature is expected
<PAGE>
to provide increased lifetimes of the emulsified fluorocarbon in the
bloodstream to allow the obvious benefit of prolonged oxygen delivery to the
patient.
The specific objective of this program is to synthesize and purify at least
two and potentially three fluorocarbon surfactants on a relatively fast track
schedule. These surfactant candidates will undergo appropriate preliminary
physical and toxicological testing to evaluate their potential to prepare
fluorocarbon emulsions as blood substitutes. With this data in hand, U.S.
Patent applications will be filed for all appropriate surfactant candidates to
establish dates of invention and provide intellectual property protection
provided by patent law. It is anticipated that filing these patent
applications will be an important factor in focusing Sanguine's efforts in
pursuing a follow-on development program. (Filing patent applications related
to the performance of this program is considered outside of the scope of this
proposal and will be funded separately.)
It is important to stress that this important program represents the
initiation of the overall process of delivering an FDA approved blood
substitute to the market. Follow-on work includes continued preparation and
testing of surfactant candidates, pharmacology and exploratory toxicology,
preparation of the "winning" candidate surfactant as well as preparation of
fluorocarbon emulsions with this surfactant under Good Manufacturing Practices
(GMP) regulations, preclinical trials, and clinical trials. Battelle
previously provided a prospectus to Sanguine (January 17, 1996) in which the
estimated cost at the time to complete the program through preclinical trials
(not including clinical trials) was $5 million.
Approach
The components of the proposed research for this start-up program are
described below. The time intervals required for each activity are shown in a
Gantt chart shown in Figure 1 (see page 5).
Description of Work
Task 1: Develop Product Criteria
The initial task in this program will be to specify the product criteria which
reflect the specific intended medical uses and required use criteria.
Sanguine and Battelle staff will jointly determine these product criteria to
utilize the significant experience of Sanguine management concerning the
technical and business issues concerning artificial blood.
Following are product criteria which are envisioned to be of prime importance:
thermal stability (including sterilization requirements), Oxygen carrying
capacity, in-vivo half-life, and production costs. In addition, the identity
of the fluorocarbon to be used as the oxygen carrier needs to be specified.
Other product criteria may be specified during joint Battelle and Sanguine
discussions are also possible. These issues can be mainly resolved during a
planned program kick-off meeting at Battelle.
<PAGE>
<EXIBIT>
<PAGE>
Task 2: Concept Evaluation and Selection
Under an earlier contract which started in early 1994, Battelle scientists
generated and delivered to Sanguine specific intellectual property concerning
new and improved surfactant concepts for fluorocarbon emulsification. In late
1995, long after completion of this original program with Sanguine, Battelle
information retrieval specialists (at Battelle's expense) performed up-to-date
computerized literature reviews on this topic. Based on this input and
Battelle chemists' personal review of the literature at that time, new classes
of surfactant candidates were conceived for the emulsification of
fluorocarbons as oxygen-carrying blood substitutes. Battelle surfactant
concepts which embody these concepts are described in detail "Intellectual
Property Disclosure Records" (IPDRs) on file in Battelle's legal department.
Even though an extensive literature review and intensive surfactant concept
generation was performed in late 1995, an up-to-date extensive review of the
literature on this topic must be performed at the start of this project. This
information will allow Battelle to determine if the concepts already described
in IPDRs infringe on previously published work or whether we can cleanly
proceed to develop previously described concepts. If necessary, a Battelle
patent lawyer will be retained to provide internal legal opinions on earlier
published work, which presents infringement questions. Of course, we cannot
guarantee that the surfactant concepts will be patentable or will not infringe
on earlier work, but we intend to use our best professional judgement to focus
on approaches that are unencumbered. Sanguine should retain their own legal
advice to determine the probability that the individual concepts represent
unencumbered inventions and takes full responsibility for these decisions.
The literature review may also uncover information, which triggers further
concept generation. We believe that a prior art review phase is one of the
most important activities in this program since we wish to develop surfactant
concepts that do not infringe upon the prior art and thus enhance the
probability of patenting these developments.
Battelle chemists will apply their considerable experience in emulsion
technology to the evaluation and preliminary rank ordering of all classes of
surfactants, which are described in Battelle IPDRs and are not encumbered by
the prior art. To the extent possible, surfactant structures will incorporate
the substantive improvements, which are described in Battelle IPDRs. These
anticipated structural features include use of strategically located fluorine
functionality to impart "stealth" properties to these candidates.
We wish to mention that many flurosurfactants are toxic and (or) cause
hemolysis, or rupture of red blood cells, whereas other flurosurfactants are
essentially non-toxic and non-hemolytic. Tactics to avid these undesirable
properties have been and will continue to be incorporated in the design of
Battelle's fluorosurfactants. In general it has been shown that incorporating
fragments of naturally occurring materials (such as sugars) in
fluorosurfactants result in relatively non-toxic fluorosurfactants. Another
approach to minimize or avoid toxicity is to use molecular components in
candidate fluorosurfactants (when possible) which have been previously shown
<PAGE>
to be non-toxic and non-hemolytic in the vascular system in other
applications. Those surfactant concepts, which re currently the highest
ranked, employ at least one of these principles described above to minimize or
avoid vascular toxicity. Task 5 (described below)will provide preliminary
toxicology data for fluorosurfactants prepared on this program.
To the extent possible, the structural design of Battelle's surfactant
candidates as fluorocarbon emulsifiers will be aided by using appropriate
molecular modeling methodologies. Currently, a molecular modeling program
titled CODESSA is available which predicts the critical micelle concentration
(cmc) of surfactants, which is an indicator of the inherent ability of a
surfactant to participate in the necessary self-assembly effect to form
micelles. Thus, before we initiated the synthesis of any surfactant, we would
first determine the predicted cmc of that surfactant and related surfactants
to determine that we were preparing the better candidate. Battelle also has a
high-end molecular modeling system by Molecular Simulations, Inc. which may
also be used to help rank the surfactant concepts and evaluate potential
structural improvements before such improvements are implemented in the
laboratory.
Task 3: Synthesis of Candidate Surfactants
Battelle organic and polymer chemists have extensive experience in using new
synthetic methods to prepare a wide range of monomeric, oligomeric and
polymeric compounds for a variety of uses and have received many patents
related to these developments. The lead surfactant candidates form the
<PAGE>
highest ranked classes of surfactants will be synthesized first in a
controlled and documented manner in anticipation of potentially preparing this
compound under the auspices of Good Manufacturing Practices. As soon as these
surfactant candidates are purified and characterized, they will be submitted
for emulsion, pharmacology and toxicology testing.
Battelle's extensive synthesis and analytical facilities within Battelle's
Polymer Product Group will be used to prepare and fully characterize the
physical and chemical properties of each surfactant candidate as well as
precursor compounds. This analytical equipment includes proton and carbon
nuclear magnetic resonance (NMR) spectroscopy, infrared (IR) spectroscopy, in
high performance liquid chromatography (HPLC), gas chromatography (GC) and
potentially mass spectroscopy. It is anticipated that preparative scales HPLC
will also be used for purification purposes.
Task 4: Emulsion Development and Testing
Emulsion preparation using synthesized surfactants and the selected
fluorocarbon oxygen carrier will be performed using laboratory ultrasonic
dispersion techniques to prepare small quantities (10-100 ml) for preliminary
physical testing. A few of the parameters that will be tested or evaluated
are particle size and distribution, surface and interfacial tension, flow and
rheology characteristics, stability to accelerated test conditions such as
heating, cooling, and centrifugation, and methods to sterilize these
emulsions. Battelle has the equipment required to prepare candidate emulsions
at a wide range of scales for emulsion testing. Those surfactant candidates
which pass the Emulsion Development and Testing stage will be further tested
in toxicological and biological testing.
Task 5: Toxicological and Biological Testing
Toxicological and biological testing will be an integrated part of emulsion
development, characterization and evaluation of emulsions prepared from
synthesized surfactants and the selected fluorocarbon. These studies will be
non-GLP model designs. The following tests will be performed:
Effect on Cell Cultures. A Namalva lyphoblastoid strain with stable and
reproducible growth parameters will be chosen to assess direct cell
toxicities. Cells will be counted after four day exposures to determine their
viability and potential inhibition of cell growth.
Hemolysis. The hemolytic effect of surfactant dispersions will be
assayed using human red blood cells and will be expressed as the percentage of
cells undergoing hemolysis.
Acute Toxicology. An indication of the acute toxicology of emulsion
particles will be obtained by injection of these materials into the tail veins
of mice. Their symptoms, behavior, mortality will be observed throughout 15
day studies and complete gross necropsies will also be performed on euthanized
animals to determine potential changes in organ weights.
Depending on the timing of these studies relative to synthesis tasks, it is
possible that some toxicological results will be available during the course
of the surfactant synthesis program, which may be used as feedback in
suggesting specific structural modifications of candidates undergoing
synthesis.
Task 6: Program Reporting
We recommend that bymonthly reports be prepared at months 2 and 4 of this
program and a comprehensive Final Report be prepared at the end of this 6-
month program. As needed, telephone calls will be used to transmit
information we believe should be conveyed to Sanguine before the next
scheduled reporting period.
Program Management
Responsibility for this program will be centered in Battelle's Polymer Center.
Consistent with Battelle's normal mode of operation, the program will be
managed to assure that it proceeds along a predesigned schedule toward meeting
the defined deliverables. Any problems encountered will be quickly reported
to Sanguine. Dr. Benjamin Maiden, Vice President of the Chemical Market
Sector, will provide executive management overview. Line management for
conducting the program will reside with the Manager of the Polymer Center, Mr.
Joseph A. Jacomet. Dr. Herman Benecke, a synthetic organic chemist, will
serve as Program Manager and will also serve as Principal Investigator in
directing surfactant synthesis, and emulsion preparation and evaluation. Dr.
Benecke has previously directed a large government GMP program for the
production of the pharmaceutical material. Mr. Richard Markie, Polymer
Specialist and Principal Investigator on the prior Sanguine program, will
participate in concept generation and surfactant synthesis, and will codirect
the emulsion preparation and testing. Dr. Bhima Vijayendran, an industrial
chemist well versed in emulsion technology, will codirect the emulsion
preparation and testing task. Dr. Joyce Durnford will oversee the cell
toxicology studies and Dr. Merrill Osheroff will oversee the hemolysis and
acute toxicology studies.
Benefits
Interest in synthetic blood substitutes, based on fluorocarbons, has increased
significantly as concerns have been raised over the safety and high
manufacturing costs for hemoglobin-based products. A huge market opportunity
appears to exist for a synthetic blood product that is safe and efficacious
for human use. Sanguine has estimated the market for blood substitutes to be
in the $1 billion range. Further, opportunities for product differentiation
exist through improvement of shelf-life, development of user friendly systems
(e.g. products that do not have to be mixed or frozen), and development of
products which can be manufactured at a reasonable cost in order to meet
required pharmaceutical margins.
Companies offering products that meet these criteria and who are first to
reach the market may realize enormous gains. However, we believe that second
generation blood substitute products which reach the market after initial
market entry can still capture a significant or major portion of the market if
their product is technologically advanced over the initial entry. We believe
>PAGE>
that the surfactant features, which we have generally described, offer
potential advantages over the emulsified fluorocarbon systems currently
undergoing clinical trials.
Intellectual Property Statement
Three groups of inventions have been or will be created by Battelle which
relate to Sanguine's Field of interest (the Field being "oxygen-carrying
fluorocarbon emulsions for use as blood substitutes") which can be categorized
as follows:
Group 1 - Inventions created on Sanguine's earlier project.
These inventions were documented in Intellectual Property Disclosure Records
(IPDRs listed below)
a) Flourosurfactants Based on Phosphatidyl Choline or Glycerophosphorylcholine
(GPC), Accession No. 94012
b) Stable Amide Bond-Linked Perfluoro Phosphatidyl Choline Surfactants,
Accession No. 94013
c) New Polyvinylpyrrolidone Oligomer-Based Flurosurfactants, Accesssion No.
94014
Group 2 - Proprietary, inventive surfactant materials created by Battelle on
its own internally funded projects.
All rights to these inventions are currently owned by Battelle. The
inventions have been documented in IPDRs which will be delivered to Sanguine
under terms of confidentiality. Titles of these IPDRs are:
a) Self-Aggregating Extended Lifetime Hydrophilic Fluorocarbon Ampiphiles for
Blood Oxygen or Drug Delivery.
b) Perfluorosurfactants with Enhanced Prevention of Volatile Fluorocarbon
Diffusion for Preparation of Fluorocarbon Emulsions with Improved Stability
c) Highly Branched (e.g. Dendritic) Hydrophilic Oligomers/Polymers with
Covalently Attached Fluorocarbon-philic or Lipophilic Components for
Preparation of Human Blood Circulatory System Extended Lifetime
Perfluorocarbon Emulsions, or Very Small Particle Lipid Dispersions, for
Prolonged (>1 week) Oxygen or Drug Delivery
d) Method to Prepare Branched Water and Blood Soluble Oligomers with
Monoprimary End Groups and their Use to Prepare New Perfluoro or Fatty Group-
Based Surfactants.
Group 3 - Inventions.
These inventions will be those conceived and developed while performing the
program described in this proposal.
<PAGE>
An Option Agreement will be provided within one to two weeks, which is to be
entered between Sanguine and Battelle simultaneously with the acceptance of
the Proposal by Sanguine. The Option Agreement provides the terms for
ownership of the inventions of Groups 1, 2 and 3 and includes the terms under
which the parties will cooperate in commercialization of the inventions.
Risk
Battelle believes that this program is likely to result in an improved
fluorocarbon emulsion. This belief is based on prior work for Sanguine and
internally-funded work at Battelle. However, this is a research and
development program with a need to engage in "discovery" of an adequate
surfactant and emulsification approach to arrive at a product suitable for use
in humans. Therefor, Battelle is unable to make any guarantees regarding the
ultimate outcome of the program or the ultimate safety or usefulness of the
research results. We believe that a well-managed research approach will allow
Sanguine to minimize the ultimate financial risk and maximize the probability
of success.
Schedule and Cost
This program is expected to require 6 months to synthesize up to three target
surfactants, produce and test emulsions containing a chosen fluorocarbon
oxygen carrier, and perform preliminary biological and acute toxicology
testing of the emulsions employing these materials. The estimated cost to
complete this program is $300,000. All work conducted on this program will be
on a cost-plus-fee, best efforts arrangement. Invoicing will be on a partial
advanced-pay basis in accordance with the terms of the Research Agreement.
<PAGE>
Sanguine Corporation, a California corporation
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