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2
Table of Contents
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PART I
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Page
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ITEM 1
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Business
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5
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ITEM 1A
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Risk Factors
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12
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ITEM 2
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Properties
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25
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ITEM 3
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Legal Proceedings
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26
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PART II
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ITEM 5
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Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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26
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ITEM 6
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Selected Financial
Data
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28
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ITEM 7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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28
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ITEM 7A
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Quantitative and
Qualitative Disclosures About Market Risk
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31
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ITEM 8
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Financial Statements
and Supplementary Data
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32
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Report of Independent
Registered Public Accounting Firm
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F-1
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Consolidated Balance
Sheet
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F-2
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Consolidated
Statements of Operations
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F-3
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Consolidated
Statements of Stockholders’ Equity
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F-4
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Consolidated
Statements of Cash Flows
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F-5
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Notes to Consolidated
Financial Statements
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F-6
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ITEM 9
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Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
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33
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ITEM 9A
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Controls and
Procedures
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33
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ITEM 9B
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Other Information
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34
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PART III
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ITEM 10
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Directors, Executive
Officers, and Corporate Governance
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35
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ITEM 11
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Executive
Compensation
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38
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ITEM 12
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Security Ownership of
Certain Beneficial Owners and Management and Related Stockholders
Matters
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39
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ITEM 13
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Certain Relationships
and Related Transactions, and Director Independence
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41
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ITEM 14
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Principal Accountant
Fees and Services
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42
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PART IV
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ITEM 15
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Exhibits and
Financial Statement Schedules
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43
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3
CAUTIONARY STATEMENT
Some
of the statements contained in this Form 10-K for Sangui Biotech
International, Inc. (the “Company” or “SGBI”) discuss future
expectations, contain projections of results of operations or
financial condition or state other “forward-looking” information.
These statements are subject to known and unknown risks,
uncertainties, and other factors that could cause the actual
results to differ materially from those contemplated by the
statements. The forward-looking information is based on various
factors and is derived using numerous assumptions. Important
factors that may cause actual results to differ from projections
include, for example:
·the success or failure of
management's efforts to implement their business
strategy;
·the ability of the Company to
raise sufficient capital to meet operating requirements;
·the uncertainty of consumer
demand for our products;
·the ability of the Company to
protect its intellectual property rights;
·the ability of the Company to
compete with major established companies;
·the effect of changing economic
conditions;
·the ability of the Company to
attract and retain quality employees; and,
·other risks which may be
described in future filings with the SEC.
Words such as “anticipates,” “expects,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” and variations of such words and
similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual
results and outcomes may differ materially from what is expressed
or forecasted in any such forward-looking statements. Such risks
and uncertainties include those set forth herein under “Risk
Factors” as well as those noted in the documents incorporated
herein by reference. Unless required by law, the Company undertakes
no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or
otherwise.
4
PART
I
ITEM
1. BUSINESS
General
Development of Business
Sangui BioTech, Inc. (“SBT”) was incorporated in Delaware on August
2, 1996, and began operations in October 1996. Shortly after the
formation of SBT, the shareholders of SanguiBioTech AG (“Sangui
GmbH”) and GlukoMediTech AG (“Gluko AG”) agreed to a share swap in
which all of the outstanding shares held by the shareholders would
be exchanged for shares of SBT, thereby making Sangui GmbH and
Gluko AG wholly owned subsidiaries of SBT. In August 1997, a
publicly held company, Citadel Investment System, Inc., a Colorado
corporation (“Citadel”), acquired one hundred percent (100%) of the
outstanding common shares of Sangui BioTech, Inc., and as a result,
Sangui BioTech, Inc. became a wholly owned subsidiary of Citadel.
Thereafter, Citadel changed its name to Sangui BioTech
International, Inc. (the “Company” or “SGBI”).
Until the end of its fiscal year 2003, SGBI's business operations
were conducted through the wholly owned subsidiaries. During the
first quarter of the 2003 fiscal year, SBT sold its assets, and
commenced a wind-down of its U.S. business operations. SBT was
merged with and into SGBI effective December 31, 2002. Gluko AG was
merged with Sangui GmbH effective June 30, 2003.
Sangui BioTech GmbH, (“Sangui GmbH”) develops hemoglobin-based
artificial oxygen carriers for use as blood additives, blood volume
substitutes and variant products thereof. Sangui GmbH has also
developed an anti-aging cosmetic line and a number of related
products aimed at improving oxygen supply to the skin. Enhanced
oxygen supply is the key to improved wound healing; therefore, the
Company has extended its product portfolio to contain wound pads
and other wound management products. The facilities of Sangui GmbH
were located on the premises of the Forschungs- und
Entwicklungszentrum of the University of Witten/Herdecke, Witten,
Germany. With Evective June 30, 2019 Sangui GmbH has closed the
site in Witten and relocated its headquarters to Hamburg,
Germany.
In December 2010, Sangui GmbH established a joint venture company
with SanderStrothmann GmbH of Georgsmarienhuette, Germany, under
the name of SastoMed GmbH. This enterprise was in charge of
obtaining the CE mark certification authorizing the distribution of
one of SGBI’s products in the member states of the European Union.
Effective December 31, 2015, Sangui GmbH sold its stake in Sastomed
GmbH to SanderStrohmann GmbH.
On
or about June 18, 2018, Sangui GmbH together with Sastomed GmbH
founded Sangui Know-how- und Patentverwertungsgesellschaft mbH
& Co. KG (“Sangui KG”). Sangui KG is a limited partnership. On
June 22, 2018, Sangui KG acquired all the rights in the license
agreement made on December 17, 2010 between Sastomed GmbH and
Sangui GmbH.
Given the Company’s business strength is primarily in research and
product development, we have decided to partner with established
distribution entities who license our marketable products, or those
products that are close to market entry, for sale to end users. In
pursuit of this strategy we have licensed the most promising
product, a hemoglobin based wound spray technology to Sastomed
GmbH, a former joint venture of SGBI, for distribution in several
European, Latin American and Asian countries. In addition, we are
entering the preclinical testing of hemoglobin based artificial
oxygen carriers aiming at the remediation of ischemic conditions in
human patients.
To
date, neither SGBI nor its subsidiaries has had profitable
operations. The Company has never been profitable, and through June
30, 2019, SGBI's accumulated deficit has exceeded $37.5 million.
The Company may continue to incur substantial losses over the next
several years as it pursues its development, marketing and market
entry efforts, testing activities and other growth operations. No
assurance can be given that our programs will be successful.
5
Business of the
Company
Our
mission is the development of novel and proprietary pharmaceutical,
medical and cosmetic products. We develop our products through our
German subsidiaries, Sangui GmbH and our limited partnership Sangui
KG. Currently, we are seeking to market and sell our products
through partnerships with industry partners worldwide.
Our
focus has been the development of oxygen carriers capable of
providing oxygen transport in humans in the event of acute and/or
chronic lack of oxygen due to arterial occlusion, anemia or blood
loss whether due to surgery, trauma, or other causes, as well as in
the case of chronic wounds.
We
have thus far focused our development and commercialization efforts
on such artificial oxygen carriers by reproducing and synthesizing
polymers out of native hemoglobin of defined molecular sizes.
In
addition, we have developed external applications of oxygen
transporters, in the medical and cosmetic fields, in the form of
sprays for the healing of chronic wounds and of gels and emulsions
for the regeneration of the skin.
A
wound dressing spray we developed that shows outstanding properties
in the support of wound healing is being distributed by SastoMed
GmbH, under the Granulox brand name. Sastomed GmbH was initially a
joint venture company in which SGBI held 25% ownership. We sold our
25% stake to our partner in the joint venture effective as of
December 31, 2015.
We
also market a wound dressing that shows outstanding wound healing
support properties, which we call Chitoskin. Sangui GmbH holds
distribution rights for these Chitoskin wound pads for the European
Union and various other countries. A European patent has been
granted for the production and use of Chitoskin wound pads.
Our
current key business focuses are: (a) selling our existing wound
management products through distribution partners, or by way of
direct sale, to end users; (b) identifying additional industrial
and distribution partners for our patents, production techniques,
and products; and, (c) obtaining the additional certifications on
our products in development.
Sangui GmbH is ISO 9001:2000 (General Quality Management System)
and ISO 13485:2003 (Quality Management System Medical Products)
certified and is subject to audits on a regular basis.
Products of the
Company
Artificial Oxygen
Carriers
We developed several products based on polymers of purified natural
porcine hemoglobin with oxygen carrying abilities that are similar
to those of native hemoglobin. These are (1) oxygen carrying blood
additives, and (2) oxygen carrying blood volume substitutes.
In December 1997, we decided that porcine hemoglobin should be used
as the basic material for artificial oxygen carriers. In March
1999, we decided which hemoglobin hyperpolymer would go into
preclinical investigation, that glutaraldehyde would be utilized as
a cross linker, and further that the polymer hemoglobin be
chemically masked to prevent protein interaction in blood plasma.
The fine adjustment of the molecular formula of the artificial
oxygen carriers - optimized for laboratory scale production - was
finalized in the summer of 2000.
6
The experiments completed in our laboratories demonstrated that it
is possible to polymerize hemoglobins isolated from porcine blood
resulting in huge soluble molecules, so-called hyperpolymers. In
August 2000, we finalized our work on the pharmaceutical
formulation of the oxygen carrier for laboratory scale. In February
2001, a pilot production in a laboratory scale was carried out in
our clean room. The resulting product was successfully applied in
animal tests, moreover, single volunteers underwent pilot
self-experiments.
The blood additives and blood substitute projects were halted in
2003 due to the lack of financing for the pre-clinical test
phase.
During the first quarter of our 2013 financial year the European
Patent Office granted a patent based on Sangui’s application
(1299457) “Mammalian hemoglobin compatible with blood plasma,
cross-linked and conjugated with polyalkylene oxides as artificial
medical oxygen carriers, production and use thereof.”
During the third quarter of our 2013 financial year, the company
had a feasibility study prepared by external experts inquiring into
market potentials and further preclinical and clinical development
requirements. The study came to the conclusion that an approval of
Sangui's hemoglobin hyperpolymers as a blood additive appears
possible, expedient, and promising.
During the fourth quarter of our 2014 financial year, the company
filed a patent application aimed at significantly expanding the
protection of our hemoglobin formulations. It encompassed a greater
array of ischemic conditions of the human body, an example of which
would be the case of severe dysfunctions of the lung.
During the first quarter of our 2015 financial year, we began,
together with Excellence Cluster Cardio-Pulmonary System (ECCPS)
and TransMIT Gesellschaft für Technologietransfer mbH (TransMIT),
to investigate therapeutic approaches to treating septic shock and
acute respiratory distress syndrome (ARDS). The approach adopted by
Sangui, ECCPS and TransMIT presupposes that self-perpetuating
septic shock, that has so far been highly resistant to treatment,
can be interrupted by Sangui's artificial hemoglobin-based oxygen
carrier, which would ultimately lower mortality rates. The
preclinical trials commenced at ECCPS were investigating the effect
of various hemoglobin preparations on the oxygen supply of a number
of organs in septic shock models and ARDS.
Also, during the first quarter of our 2015 financial year, we were
notified that the period for objection against European Patent EP
2550973 (“Wound Spray”) elapsed without any objection being raised.
The patent, therefore, has become effective and legally
binding.
During the second quarter of our 2015 financial year, the first
phase of preclinical trials was concluded successfully. It was
successfully demonstrated that applying an oxygen-carrying liquid
(the hemoglobin hyperpolymer formulation SBT102) in the abdomen did
significantly improve the oxygen supply to the intestines. The
restoration of intestinal oxygenation will have an impact on tissue
integrity and ultimately on patient survival.
During the third quarter of our 2015 financial year, the
preclinical trials were concluded successfully, and the final
results did fully confirm the interim results obtained in the
second quarter.
According to regulatory requirements, all drugs must complete
preclinical and clinical trials before approval (Government
Regulation; No Assurance of Product Approval, see Certain Business
Risks below) and market launch. Our management believes that the
European and United States FDA approval process will take at a
minimum several years to complete.
Our most promising potential product in the area of artificial
oxygen carriers, the blood additive is still in an early
development stage. In the pursuit of these projects we will need to
obtain substantial additional capital to continue their
development.
7
The blood additives project was halted in the second quarter of our
financial year 2016 due to the lack of financing the further
authorization.
Nano Formulations for the
Regeneration of the Skin
Healthy skin is supplied with oxygen both from the inside, by way
of the blood circulation, as well as through diffusion from
the outside. A lack of oxygen will cause degenerative alterations,
ranging from premature aging, to surface damage, and even as
extensive as causing open wounds. The cause for the lack of oxygen
may be a part of the normal aging process, but it may also be
caused by burns, radiation, trauma, or a medical condition.
Impairment of the blood flow, for example caused by diabetes
mellitus or by chronic venous insufficiency, can also lead to
insufficient oxygen supply and the resulting skin damage.
Our nano-emulsion-based preparations have been designed to support
the regeneration of the skin by improving its oxygen supply. The
products were thoroughly tested by an independent research
institute and received top marks for skin moisturizing, and
enhanced skin elasticity.
Sales of these preparations had remained at a low levels for years;
after the end of the 2015 fiscal year we decided to discontinue our
operations in this particular segment and to abandon the patent
protection for this range of products.
Chitoskin Wound Pads
Usually, normal (“primary”) wounds tend to heal over a couple of
days without leaving scars following a certain sequence of phases.
Burns and certain diseases impede the normal wound healing process,
resulting in large, hardly healing (“secondary”) wounds which only
close by growing new tissue from the bottom. Wound dressings serve
to safeguard the wound with its highly sensitive new granulation
tissue from mechanical damage as well as from infection. Using the
natural polymer chitosan, our Chitoskin wound dressings show
outstanding properties in supporting wound healing.
It is our strategy to find industry partners ready to acquire or
license this product range as a whole.
Hemoglobin Based Wound Spray
Technology
Sangui GmbH has developed a novel medical product aimed at the
healing of chronic wounds. Chronic wounds are a medical problem of
increasing importance as they originate from widespread and
increasingly common risk factors such as diabetes and obesity, as
well as other personal lifestyle choices like smoking. A lack of
oxygen supply to the cells in the wound ground is the main reason
why these wounds lose their ability to self- heal. Based on our
concept of artificial oxygen carriers, our Hemospray wound spray
product bridges the watery wound surface and permits an enhanced
afflux of oxygen to the wound ground.
In December 2010, Sangui GmbH established a joint venture company
with SanderStrothmann GmbH of Georgsmarienhuette, Germany. Under
the name of SastoMed GmbH this enterprise was in charge of
obtaining the CE mark certification authorizing the distribution of
the Hemospray wound spray in the member states of the European
Union. Sangui GmbH has granted SastoMed GmbH global distribution
rights for its Hemospray product.
The basic terms of the licensing contract agreement are that Sangui
GmbH is awarded a fixed licensing fee as a percentage of the
external revenues received from sales of the Granulox product
(based on SastoMed selling prices). The percentage ranges in the
uppermost zone of what is usually granted in the pharmaceutical and
medical products industries and thus well above the average
licensing rate of 7.5% of sales revenues as calculated by market
analysts. In addition, the percentage
8
will be permanently increased by one fourth of the
current rate as soon as cumulated sales revenues at SastoMed have
exceeded €50,000,000.
In September 2011, the Mexican Health Authorities registered the
entire current range of Sangui wound management products and thus
granted the authorization to apply and sell these products on a
nationwide level.
On April 5, 2012, SastoMed GmbH notified Sangui GmbH that the wound
spray product was granted a certification as class III medical
product. The CE mark according to sections 6 and 7 of the German
Medical Devices Act authorizes production, distribution and sales
of the product in all member countries of the European Union. Sales
of the product by SastoMed GmbH are being made under the brand name
“Granulox”, and started in Germany on April 16, 2012.
In December 2012, actual distribution of the product was initiated
in Mexico under the management of SastoMed GmbH and their local
distribution partner Bio-Mac Pharma. International distribution has
been expanded since then through cooperation agreements with local
distribution partners in the Benelux countries and South Eastern
Europe.
In
May 2013, the Company declared in the course of the filing of its
third quarter report on form 10-QSB that it now expects the
Granulox market entry phase to last longer than initially
expected.
Since December 2013, international distribution outside Germany was
initiated in collaboration with local partners in more than 40
countries in Europe and Latin American.
Effective December 31, 2015, Sangui GmbH sold its 25 % stake in
Sastomed GmbH to SanderStrohmann GmbH. Also effective December 31,
2015, SanderStrohmann GmbH increased the capital of Sastomed GmbH
by €500,000 to strengthen the capital base of Sastomed GmbH.
Effective June 18, 2018 Sangui GmbH together with Sastomed GmbH
founded Sangui Know-How- und Patentverwertungsgesellschaft mbH
& Co. KG (“Sangui KG”). Sangui KG is a limited partnership with
Sangui GmbH being the general partner with 99.8% ownership, and
Sastomed GmbH as the limited partner with 0.2% ownership. On June
22, 2018, Sangui KG has acquired all rights in the license
agreement concluded on December 17, 2010 with Sastomed GmbH from
Sangui GmbH. Nevertheless, all
material content of the existing license agreement remains
unchanged even after the transition from Sangui GmbH to Sangui KG.
This also applies to the pledge of the European patent, EP 1485120
concerning the Hemo2 spray, to the Sastomed GmbH.
Granulox sales by our distribution partner SastoMed GmbH have
become more volatile and declining. We remain confident, however,
that SastoMed will be able to considerably increase its sales along
with more international markets entering actual distribution of the
product.
Patents and
Proprietary Rights
The
Company seeks patent protection for all of its research and
development projects, and all the most important modifications and
improvements thereto. As of June 30, 2019 SanguiBioTech GmbH had
been granted patents in three patent families, and additionally, it
has applied for additional patents. Two of the patents have been
filed in the United States of America (US), and three as
international patent applications with the European Patent Office
(EP). Validation of granted EP patents in all cases includes
Germany, France, Great Britain, Italy, and Spain. Below are listed
the most important of the rights held by the Company.
9
1.
Hemoglobin-Hyperpolymers
|
US
7,005,414
EP 1
294 386
|
“Synthetic oxygen transport made from cross-linked modified human
or porcine hemoglobin with improved properties, method for a
preparation thereof from purified material and use thereof”
(patents granted, end of duration 2020)
|
|
|
|
|
|
|
|
DE 10 2013 014
651
EP 14758344
EP 3 041 495 B1
US SN 14 569,846
|
“Compositions for Improved Tissue Oxygenation by Peritoneal
Ventilation” (Patent granted, but only after the expiry of the
opposition period (December 2019) legally valid)
|
2. Wound
Management
|
|
|
|
EP 1
485 120
|
“Use
of one or more natural or modified oxygen carriers, devoid of
plasma and cellular membrane constituents, for externally treating
open, in particular chronic wounds” (patent granted, end of
duration 2022)
|
|
|
|
Manufacturing,
Marketing and Distribution
Manufacturing, marketing and distribution are not core competencies
of the company. It is our strategy, therefore to outsource such
business processes to external partners. In selecting and mandating
them, special attention is being paid to their experience,
reputation and standing including the required quality management
systems and certifications.
Research and
Development
Research and development are charged to operations as they are
incurred. Legal fees and other direct costs incurred in obtaining
and protecting patents are expensed as incurred. Research and
development costs totaled $27,226 and $23,003 during the fiscal
years ended June 30, 2019 and 2018, respectively.
Government
Regulation
Sangui BioTech International, Inc. and its former United States
subsidiaries are and were subject to governmental regulation under
the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, and other similar
laws of general application, as to all of which we believe we and
our subsidiaries were in material compliance.
Although it is believed that we, and our former United States
subsidiaries have been in material compliance with all applicable
governmental and environmental laws, rules, regulations and
policies, and although no government concerns were put forward
during the operation of or after the closing of the US operations,
there can be no assurance that the business, financial condition,
and our results of operations of and those of our subsidiaries will
not be materially adversely affected by future government claims
with regard to unlikely, but not impossible, infringements on these
or other laws resulting from our former United States
operations.
Additionally, the clinical testing, manufacture, promotion and sale
of a significant majority of the products and technologies, if
those products and technologies are to be offered and sold in the
United States, are subject to extensive regulation by numerous
governmental authorities in the United
10
States, principally the Federal Drug
Administration (“FDA”), and corresponding state regulatory
agencies. To the extent those products and technologies are to be
offered and sold in markets other than the United States, the
clinical testing, manufacture, promotion and sale of those products
and technologies will be subject to similar regulation by
corresponding foreign regulatory agencies. In general, the
regulatory framework for biological health care products is more
rigorous than for non-biological health care products. Generally,
biological health care products must be shown to be safe, pure,
potent and effective. There are numerous state and federal, foreign
and international statutes and regulations that govern or influence
the testing, manufacture, safety, effectiveness, labeling, storage,
record keeping, approval, advertising, distribution and promotion
of biological health care products. Non-compliance with applicable
requirements can result in, among other things, fines, injunctions,
seizures of products, total or partial suspension of product
marketing, and failure of the government to grant pre-market
approval, withdrawal of marketing approvals, product recall and
criminal prosecution.
Competition
The
market for our products and technologies is highly competitive, and
we expect competition to increase. Experiments and clinical testing
in the field of artificial oxygen carriers are being carried out by
Alliance Pharmaceutical Corp. of San Diego, California. In the
fields of anti-aging and anti-cellulite cosmetics, all major
cosmetic vendors are actively marketing proprietary formulations.
Leading wound management product providers include Johnson &
Johnson, Bristol-Myers Squibb, Coloplast A/S of Denmark as well as
BSNmedical, a former part of Beiersdorf AG.
Dependence on
Major Customers
As
of June 30, 2019 and June 30, 2018, all of revenues and trade
receivables were generated by SastoMed GmbH, the licensee of the
global distribution rights of the Sangui developed wound spray
technology known as Granulox.
Human
Resources
We
consider our relations with our employees to be favorable. As of
June 30, 2019 the Company, and our subsidiaries, had one
fulltime employee, who was not involved in research and
development. For management, research and development purposes, the
Company has consulting arrangements with five individuals and
one related entity.
Dividends
We
anticipate that we will use any funds available to finance our
growth and that we will not pay cash dividends to stockholders in
the foreseeable future.
Reports to
Security Holders
Copies of our reports, as filed with the Securities and Exchange
Commission, are available and may be viewed as filed at the SEC’s
Public Reference Room at 450 Fifth Street, N.W., Washington D.C.
20549 or by calling 1-800-SEC-0330. Additionally, they can be
accessed and downloaded via the internet at
http://www.sec.gov/cgi-bin/srch-edgar by simply typing in “Sangui
Biotech International” or via the web links at the corporate
website http://www.sanguibiotech.com.
11
ITEM
1A. RISK FACTORS
Investment in our common stock involves significant risk. You
should carefully consider the information described in the
following risk factors, together with the other information
appearing elsewhere in this report, before making an investment
decision regarding our common stock. If any of the events or
circumstances described in these risks actually occur, our
business, financial conditions, results of operations and future
growth prospects would likely be materially and adversely affected.
In these circumstances, the market price of our common stock could
decline, and you may lose all or a part of your investment in our
common stock.
The
risks and uncertainties described below are not the only ones
facing the company, and there may be additional risks that are not
presently known or are currently deemed immaterial. All of these
risks may impair business operations.
The
Company's present and proposed business operations will be highly
speculative and subject to the same types of risks inherent in any
new or unproven venture, as well as risk factors particular to the
industries in which it will operate, as well as other significant
risks not normally associated with investing in equity securities
of United States companies, among other things, those types of risk
factors outlined below.
Risks Related to Our
Business
Global economic
crisis could result in decreases in customer spending
We
operate in competitive and evolving markets locally, nationally and
globally. These markets are subject to rapid technological change
and changes in demand. In seeking market acceptance, we will
encounter competition from many sources, including other
well-established and dominant larger providers. Many of these
competitors have substantially greater financial, marketing and
other resources than does Sangui. Our revenue could be materially
adversely affected if we are unable to compete successfully with
these other providers. The current economic climate has resulted in
a decrease in customer spending.
There is
uncertainty relating to the ability of the Company to enforce its
rights under agreements
Many
of our agreements are with foreign entities and are governed by the
laws of foreign jurisdictions. If a partner breaches an agreement,
then we will incur the additional costs of determining our rights
and obligations under the agreement, under applicable foreign laws,
and enforcing the agreement in a foreign jurisdiction. We also may
face practical difficulties in enforcing any of our rights in such
jurisdictions. We may not be able to enforce such rights or in the
alternative may determine that it would be too costly to enforce
such rights.
The Company may be
subject to other third-party intellectual property rights
claims
Companies in our industry often own large numbers of patents,
copyrights, trademarks and trade secrets and frequently enter into
litigation based on allegations of infringement or other violations
of intellectual property rights. As we face increasing competition,
the possibility of intellectual property rights claims against us
grows. Our technologies may not be able to withstand third-party
claims or rights against their use. Intellectual property claims,
whether having merit or otherwise, could be time consuming and
expensive to litigate or settle and could divert management
resources and attention. If litigation is successfully brought by a
third party against the Company in respect of intellectual
property, we may be required to cease distributing or marketing
certain products or obtain licenses from the holders of the
intellectual property at material cost, redesign affected products
in such a way as to avoid infringing intellectual property rights,
any or all of which could materially adversely affect our business,
financial condition and results of operations. If those
12
intellectual property
rights are held by a competitor, we may be unable to obtain the
intellectual property at any price, which could also adversely
affect our competitive position. An adverse determination could
also prevent us from offering its products. Any of these results
could harm the Company’s business, financial condition and results
of operations.
Licenses and
Consents
The
utilization or other exploitation of the products and services
developed by our Company or its subsidiaries may require us to
obtain licenses or consents from the producers or other holders of
patents, trademarks, copyrights or other similar rights. In the
event we are unable, if so required, to obtain any necessary
license or consent on terms, which we consider to be reasonable, we
may be required to cease developing, utilizing, or exploiting
products or technologies affected by those Intellectual Property
rights. In the event the holders of such Intellectual Property
rights challenge us, there can be no assurance that we will have
the financial or other resources to defend any resulting legal
action, which could be significant.
Technological
Factors
The
market for our products and technology is characterized by rapidly
changing technology, which could result in product obsolescence or
short product life cycles. Similarly, the industry is characterized
by continuous development and introduction of new products and
technology to replace outdated products and technology.
Accordingly, the ability of us to compete will be dependent upon
the ability to provide new and innovative products and technology.
There can be no assurance that competitors will not develop
technologies or products that render the proposed products and
technology obsolete or less marketable. We will be required to
adapt to technological changes in the industry and develop products
and technology to satisfy evolving industry or customer
requirements, any of which could require the expenditure of
significant funds and resources, and we do not have a source or
commitment for any such funds and resources. Development efforts
relating to the technological aspects of the various products and
technologies to be developed are not substantially completed.
Accordingly, we will continue to refine and improve those products
and technologies. Continued refinement and improvement efforts
remain subject to the risks inherent in new product development,
including unanticipated technical or other problems, which could
result in material delays in product commercialization or
significantly increased costs. In addition, there can be no
assurance that those products and technologies will prove to be
sufficiently reliable or durable in wide spread commercial
application. The products or technologies to be developed will be
the result of significant efforts, which may result in errors that
become apparent subsequent to widespread commercial utilization. In
such event, we would be required to modify such products or
technologies and continue with additional research and development,
which could delay our plans and cause us to incur additional
cost.
The Company is
subject to foreign business, political and economic disruption
risks
We
contract with various entities around the world. As a result, we
are exposed to foreign business, political and economic risks,
which could adversely affect our financial position and results of
operations, including:
·difficulties in managing
relationships from abroad;
·political and economic
instability;
·less developed infrastructures
in some emerging economies and countries;
·susceptibility to business
interruption in foreign areas due to war, terrorist attacks,
medical epidemics, changes in political regimes, and general
interest rate and currency instability;
·
13
·exposure to possible litigation
or claims in foreign jurisdictions; and,
·competition from foreign-based
providers and the existence of protectionist laws and business
practices that favor such providers.
Early stage of the
Company and its products
We
have generated limited revenue from operations and may not generate
any significant or sufficient revenue from its current operations
to continue future operations. A very limited number of our
products are currently in the marketplace. However, to achieve
profitable operations, either alone or with others, we must
successfully initiate and maintain sales and distribution of our
products. The time frame necessary to achieve market success for
any individual product is uncertain. There can be no assurance that
our efforts will be successful, or that any of our products will
prove to meet the anticipated levels of approval or effectiveness,
or that we will be able to obtain and sustain customer, as well as
distribution approval.
Our
results can also be affected by the ability of competition to
introduce new products that have advantages over our own, or the
competition's ability to adjust its pricing to reduce any
competitive advantage we may have. Results will also be affected by
strategic decisions made by the management regarding product
volume, mix, and timing of orders received during operations. See
“Description of Business.”
Uncertainty of
future profitability
We
will require the commitment of substantial resources to increase
our advertising, marketing and distribution of our existing
products. While we believe that the additional advertising,
marketing and distribution will further enhance our profitability,
there can be no assurance our products will meet the expectations
and effectiveness required to be competitive in the market place,
and that we will enter into arrangements for commercialization,
market our products successfully, or achieve customer
acceptance.
Future capital
requirements; uncertainty of future funding
Substantial expenditures will be required to enable us to conduct
existing product research, manufacturing, marketing and
distribution of our products and Intellectual Property. We may need
to raise additional capital to facilitate growth and support its
long-term manufacturing, and marketing programs. We have no
established bank-financing arrangements and until we have
sufficient assets, capital, and inventory or accounts receivable,
it is not anticipated that we will secure any bank financing in the
near future. Therefore, it is likely that we may need to seek
additional financing through subsequent future public or private
sales of its securities, including equity securities. We may also
seek funding for the manufacturing, and marketing of its products
through strategic partnerships and other arrangements with
corporate partners. There can be no assurance, however, that such
collaborative arrangements or additional funds will be available
when needed, or on terms acceptable to the Company, if at all. Any
such additional financing may result in significant dilution to
existing stockholders. If adequate funds are not available, we may
be required to curtail one or more of our programs. Our future cash
requirements will be affected by the revenue generated from the
sale of our products, the costs of production and marketing, as
well as relationships with corporate partners, changes in the focus
and direction of our programs, competitive and technological
advances, and other factors.
Substantial Doubt
that the Company Can Continue as a Going Concern
We
expect to continue to incur significant capital expenses in
pursuing our business plan to market our products and expand our
product line, while obtaining additional financing through stock
offerings or other feasible financing alternatives. In order for us
to continue its operations at its existing levels, we will require
significant additional funds over the next twelve months.
Therefore,
14
we are dependent on
funds raised through equity or debt offerings. Additional financing
may not be available on terms favorable to the Company, or at all.
If these funds are not available, we may not be able to execute our
business plan or take advantage of business opportunities. The
ability to obtain such additional financing and to achieve our
operating goals is uncertain. In the event that we cannot obtain
additional capital or are not able to increase cash flow through
the increase of sales, there is a substantial doubt of our being
able to continue as a going concern.
Future Capital
Needs and Uncertainty of Additional Funding
We
believe that our cash position is insufficient to cover its
financing requirements for the current fiscal year and anticipate
that substantial funds will be required in order to enact our
development plans. We will require additional cash for: (i) payment
of increased operating expenses; (ii) payment of development
expenses; and (iii) further implementation of its business
strategies. Such additional capital may be raised by additional
public or private financing, as well as borrowings and other
resources. To the extent that additional capital is received by the
sale of equity or equity-related securities, the issuance of such
securities will result in dilution to our shareholders. There can
be no assurance that additional funding will be available on
favorable terms, if at all. We may also seek arrangements with
collaborative partners in order to gain additional funding,
marketing assistance or other contributions. However, such
arrangements may require us to relinquish rights or reduce our
interests in certain of our technologies or product candidates. The
inability to access the capital markets or obtain acceptable
financing could have a material adverse effect on the results of
operations and financial condition of the Company. Moreover, if
funds are not available from any sources, we may not be able to
continue to operate.
Dependence on
others; manufacturing capabilities and limited distribution
capabilities
An
important element of our strategy for the marketing and release of
its products is to enter into various arrangements with
distribution and retail partners. The success and commercialization
of our products will be dependent, in part, upon our ability to
enter into such arrangements and upon the ability of these third
parties to perform their responsibilities. Although we believe that
parties to any such arrangements would have an economic motivation
to succeed in performing their contractual responsibilities, the
amount and timing of resources to be devoted to these activities
may not be within the control of the Company. There can be no
assurance that any such arrangements will be available on terms
acceptable to us, if any at all, and that such parties will perform
their obligations as expected, or that any revenue will be derived
from such arrangements. If we are not able to enter into such
arrangements, we could encounter delays in introducing our products
into the market. See “Business.”
We
may be dependent on other manufacturers for the production and
manufacturing of certain products. In the event that we are unable
to obtain or retain the necessary manufacturer’s products on
acceptable terms, we may not be able to continue to commercialize
and market our products as planned. The manufacture of our products
will be subject to current good manufacturing practices (“GMP”)
requirements prescribed by the Company in order to meet the
specifications and other standards prescribed by us to satisfy the
anticipated and appropriate levels of effectiveness when in use.
There can be no assurance that we will be able to i) obtain
adequate supplies of our products in a timely fashion at acceptable
quality and prices, ii) enter into arrangements for the manufacture
of its products with manufacturers whose facilities and procedures
comply with our GMP or other regulatory requirements, iii) or that
manufacturers will continue to comply with such standards, or iv)
that such manufacturers will be able to adequately supply us with
our product needs. Our dependence upon others for the manufacture
of proposed products may adversely affect the Company's ability to
develop and deliver products on a timely and competitive basis.
In
addition, we do not now have, nor do we have current plans to
acquire or obtain, the facilities, or personnel necessary to
conduct our own full-scale distribution of our products.
Consequently, we will have to rely on existing commercial
distribution channels for the sale of our
15
products. There can
be no assurance that we will be able to secure sufficient
distribution of any of our products on acceptable terms.
Changes of prices
for products
While the prices of our products are projected to be in line with
those from market competitors, there can be no assurance that they
will not decrease in the future. Competition may cause us to lower
prices in the future. Moreover, it is difficult to raise prices
even if internal costs increase.
Creditworthiness
of distributors is an ongoing concern
We
may not always be able to collect all of the funds owed to us by
our distributors. Some distributors may experience financial
difficulties, which may adversely impact our collection of accounts
receivable.
C Corporation tax
status
We
are presently a C Corporation under the Internal Revenue Code of
1986. All items of income and loss of the Company are taxed first
at the corporate level and any dividends distributed to
shareholders are taxed at the shareholder level as well.
Limited current
sales and marketing capability
Though we have key personnel with experience in sales, marketing
and distribution, to market our products, we must either retain and
hire the necessary personnel to distribute and market our products
or enter into collaborative arrangements or distribution agreements
with third parties who will market such products or develop their
own marketing and sales force with technical expertise and
supporting distribution capability. There can be no assurance that
we will be able to retain or hire the personnel with sufficient
experience and knowledge to distribute and market our products or
be able to enter into collaborative or distribution arrangements or
develop our own sales force, or that such sales and marketing
efforts, including the efforts of the companies with which we have
entered into collaborative agreements, will be successful.
We incur
significant costs as a result of our operating as a public company
and our management is required to devote substantial time to new
compliance initiatives.
As a
public company with substantial operations, we incur increased
legal, accounting and other expenses. The costs of preparing and
filing annual, quarterly and current reports, proxy statements and
other information with the SEC and furnishing audited reports to
shareholders is time-consuming and costly.
It
will also be time-consuming, difficult and costly for us to develop
and implement the internal controls and reporting procedures
required by the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley
Act. Certain members of our management have limited or no
experience operating a company whose securities are listed on a
national securities exchange or with the rules and reporting
practices required by the federal securities laws and applicable to
a publicly traded company. We will need to recruit, hire, train and
retain additional financial reporting, internal control and other
personnel in order to develop and implement appropriate internal
controls and reporting procedures at such time as it becomes
fiscally possible. If we are unable to comply with the internal
controls requirements of the Sarbanes-Oxley Act, we may not be able
to obtain the independent accountant certifications required by the
Sarbanes-Oxley Act.
16
If we fail to
establish and maintain an effective system of internal controls, we
may not be able to report our financial results accurately; any
inability to report and file our financial results accurately and
timely could harm our business and adversely affect the trading
price of our common stock
We
are required to establish and maintain internal controls over
financial reporting and disclosure controls and procedures and to
comply with other requirements of the Sarbanes-Oxley Act and the
rules promulgated by the SEC. At present, we have instituted some
internal controls, but it may take time to implement them fully as
a public company. Our management, including our Chief Executive
Officer and Chief Financial Officer, cannot guarantee that our
internal controls and disclosure controls and procedures will
prevent all possible errors. Because of the inherent limitations in
all control systems, no system of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within the company have been detected. These inherent limitations
include the possibility that judgments in decision -making can be
faulty and subject to simple error or mistake. Furthermore,
controls can be circumvented by individual acts of some persons, by
collusion of two or more persons, or by management override of the
controls. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time,
a control may become inadequate because of changes in conditions or
the degree of compliance with policies or procedures may
deteriorate. Because of inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and
may not be detected.
Dependence on Key
Personnel
Our
future success will depend on the service of our key scientific
personnel and, additionally, our ability to identify, hire and
retain additional qualified personnel. There is intense competition
for qualified personnel in this industry and there can be no
assurance that we will be able to attract and retain personnel
necessary for the development of the business. Because of the
intense competition, there can be no assurance that we will be
successful in adding technical personnel if needed to satisfy our
staffing requirements. Failure to attract and retain key personnel
could have a material adverse effect on the Company.
The
Company and its subsidiaries are dependent on the efforts and
abilities of their senior management. The loss of various members
from management could have a material adverse effect on the
business and our prospects. There can be no assurance that upon the
departure of key personnel from our business, or that of our
subsidiaries, that a suitable replacement will be available.
Conflicts of
Interest; Related Party Transactions
The
possibility exists that we may acquire, or merge, with a business
or company in which the Company's executive officers, directors,
beneficial owners or their affiliates may have an ownership
interest. Although there is no formal bylaw, stockholder resolution
or agreement authorizing any such transaction, corporate policy
does not forbid it and such a transaction may occur if management
deems it to be in the best interests of the Company and its
stockholders, after consideration of all factors. A transaction of
this nature would present a conflict of interest to those parties
with a managerial position and/or an ownership interest in both the
Company and the acquired entity, and may compromise management's
fiduciary duties to the Company's stockholders. An independent
appraisal of the acquired company may or may not be obtained in the
event a related party transaction is contemplated. Furthermore,
because management and/or beneficial owners of the Company's common
stock may be eligible for finder's fees or other compensation
related to potential acquisitions by the Company, such compensation
may become a factor in negotiations regarding such potential
acquisitions. It is the Company's intention that all future
transactions be entered into on such terms as if negotiated at
arm’s length, unless the Company is able to receive more favorable
terms from a related party.
17
Market
Acceptance
There can be no assurance that our products and technologies will
achieve a significant degree of market acceptance, and that
acceptance, if achieved, will be sustained for any significant
period or that product life cycles will be sufficient (or
substitute products developed) to permit us to achieve or sustain
market acceptance which could have a material adverse effect on the
business, financial condition, and results of operations.
Government
Regulation; No Assurance of Product Approval
The
clinical testing, manufacture, promotion, and sale of biotechnology
and pharmaceutical products are subject to extensive regulation by
numerous governmental authorities in the United States, principally
the Federal Drug Administration (“FDA”), and corresponding state
and foreign regulatory agencies prior to the introduction of those
products. Management believes that many of the potential products
will be regulated by the FDA, subject to the then current
regulations of the FDA. Other federal and state statutes and
regulations may govern or influence the testing, manufacture,
safety, effectiveness, labeling, storage, record-keeping, approval,
advertising, distribution and promotion of certain products
developed. Non-compliance with applicable requirements can result
in, among other things, fines, injunctions, seizure of products,
suspensions of regulatory approvals, product recalls, operating
restrictions, re-labeling costs, delays in sales, cessation of
manufacture of products, the imposition of civil or criminal
sanctions, total or partial suspension of product marketing,
failure of the government to grant pre-market approval, withdrawal
of marketing approvals and criminal prosecution.
The
FDA's requirements include lengthy and detailed laboratory and
clinical testing procedures, sampling activities and other costly
and time-consuming procedures. In particular, human therapeutic
products are subject to rigorous pre-clinical and clinical testing
and other approval requirements by the FDA, and corresponding
agencies in other countries. Although the time required for
completing such testing and obtaining such approvals is uncertain,
satisfaction of these requirements typically takes a number of
years and varies substantially based on the type, complexity and
novelty of each product. Neither us nor our subsidiaries can
accurately predict when product applications or submissions for FDA
or other regulatory review may be submitted. Management has no
experience in obtaining regulatory clearance on these types of
products. The lengthy process of obtaining regulatory approval and
ensuring compliance with applicable law requires the expenditure of
substantial resources. Any delays or failure by us or our
subsidiaries to obtain regulatory approval and ensure compliance
with appropriate standards could adversely affect the
commercialization of such products, the ability of us to earn
product or royalty revenue, and our results of operations,
liquidity and capital resources.
Pre-clinical testing is generally conducted in laboratory animals
to evaluate the potential safety and effectiveness of a drug. The
results of these studies are submitted to the FDA, which must be
approved before clinical trials can begin. Typically, clinical
evaluation involves a time consuming and costly three-phase
process. In Phase I, clinical trials are conducted with a small
number of subjects to determine the early safety profile, the
pattern of drug distribution and metabolism. In Phase II, clinical
trials are conducted with groups of patients afflicted with a
specific disease in order to determine preliminary efficacy,
optimal dosages and expanded evidence of safety. In Phase III,
large-scale, multi-center, comparative trials are conducted with
patients afflicted with a target disease in order to provide enough
data to demonstrate the efficacy and safety required by the FDA.
The FDA closely monitors the progress of each of the three phases
of clinical trials and may, at its discretion, re-evaluate, alter,
suspend or terminate the testing based upon the data which have
been accumulated to that point and its assessment of the
risk/benefit ratio to the patient.
Clinical trials and the marketing and manufacturing of products are
subject to the rigorous testing and approval processes of the FDA
and foreign regulatory authorities. The process of obtaining FDA
and other required regulatory approvals is lengthy and expensive.
There can be no
18
assurance we will be
able to obtain the necessary approvals to conduct clinical trials
for the manufacturing and marketing of products, that all necessary
clearances will be granted to us or one of our licensors for future
products on a timely basis, or at all, or that FDA review or other
actions will not involve delays adversely affecting the marketing
and sale of the products. In addition, the testing and approval
process with respect to certain new products which we may seek to
introduce is likely to take a substantial number of years and
involve the expenditure of substantial resources. There can be no
assurance that pharmaceutical products currently in development
will be cleared for marketing by the FDA. Failure to obtain any
necessary approvals or failure to comply with applicable regulatory
requirements could have a material adverse effect on the business,
financial condition or results of operations. Further, future
government regulation could prevent or delay regulatory approval of
the products.
There can be no assurance as to the length of the clinical trial
period or the number of patients the FDA will require to be
enrolled in the clinical trials in order to establish the safety
and effectiveness of the products. We may encounter significant
delays or excessive costs in our efforts to secure necessary
approvals, and regulatory requirements are evolving and uncertain.
Future United States or foreign legislative or administrative acts
could also prevent or delay regulatory approval of the products. If
commercial regulatory approvals are obtained, they may include
significant limitations on the indicated uses for which a product
may be marketed. In addition, a marketed product is subject to
continual FDA review. Later discovery of previously unknown
problems or the failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a
product, or even the removal of the product from the market, as
well as possible civil or criminal sanctions. Failure to obtain
marketing approval for any of our products under development on a
timely basis, or FDA withdrawal of marketing approval once
obtained, could have a material adverse effect on the business,
financial condition and results of operations.
Any
party that manufactures therapeutic or pharmaceutical products is
required to adhere to applicable standards for manufacturing
practices and to engage in extensive record keeping and reporting.
Any of the manufacturing facilities are subject to periodic
inspection by state and federal agencies, including the FDA and
comparable agencies in foreign countries.
The
effect of governmental regulation may be to delay the marketing of
new products for a considerable period of time, to impose costly
requirements on the activities or to provide a competitive
advantage to other companies that compete with us. There can be no
assurance that FDA or other regulatory approval for any products
developed by us will be granted on a timely basis, if at all or, if
granted, that compliance with regulatory standards will be
maintained. Adverse clinical results by our products could have a
negative impact on the regulatory process and timing. A delay in
obtaining, or failure to obtain, regulatory approvals could
preclude or adversely affect the marketing of products and the
liquidity and capital resources. The extent of potentially adverse
governmental regulation that might result from future legislation
or administrative action cannot be predicted.
Additionally, we will be subject to regulatory authorities in
Germany and other countries governing clinical trials and product
sales. Even if FDA approval is obtained, approval of a product by
the comparable regulatory authorities of other countries must be
obtained prior to the commencement of marketing the product in
those countries. The approval process varies from country to
country and the time required may be longer or shorter than that
required for FDA approval. The foreign regulatory approval process
includes all of the risks associated with obtaining FDA approval
set forth above, and approval by the FDA does not ensure approval
by the health authorities of any other country. There can be no
assurance that any foreign regulatory agency will approve any
product submitted for review.
We
are subject to various federal, state and local laws, regulations
and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and
the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease
agents, used in connection with its research work. The
19
extent and character
of governmental regulation that might result from future
legislation or administrative action cannot be accurately
predicted.
Intense
Competition
Competition in the biotechnology, pharmaceutical, and cosmetic
industries is intense and is expected to increase. In the field of
medical and cosmetic products we, and our subsidiaries, compete
directly with the research departments of biotechnology and
pharmaceutical companies, chemical companies and, possibly, joint
collaborations between chemical companies and research and academic
institutions. Management is aware that other companies and
businesses have developed and are in the process of developing
technologies and products, which may be competitive with the
products and technologies developed and offered by us. Eventually,
this might include the field of blood additives where there is no
known direct competition at present. The biotechnology and
pharmaceutical industries continue to undergo rapid change. There
can be no assurance that competitors have not or will not succeed
in developing technologies and products that are more effective
than any which have been or are being developed by us or which
would render our technology and products obsolete. Many of our
competitors have substantially greater experience, financial and
technical resources and production, marketing and development
capabilities than us. Accordingly, certain of those competitors may
succeed in obtaining regulatory approval for products more rapidly
or effectively.
Uncertainties
Associated with Patents and Proprietary Rights
Our
success may depend in part on the ability to obtain patents for our
technologies and products, if any, resulting from the application
of such technologies, to defend patents once obtained and to
maintain trade secrets, both in the United States and in foreign
countries.
Our
success will also depend on avoiding the infringement of patents
issued to competitors. There can be no assurance that we will be
able to obtain patent protection for products based upon the
technology. Moreover, there can be no assurance that any patents
issued will not be challenged, invalidated or circumvented or that
the rights granted there under would provide competitive advantages
to us. Litigation, which could result in substantial cost may be
necessary to enforce the patent and license rights or to determine
the scope and validity of our and others' proprietary rights.
Due
to the length of time and expense associated with bringing new
products through development and the length of time required for
the governmental approval process, the biotechnology and
pharmaceutical industries have traditionally placed considerable
importance on obtaining and maintaining patent and trade secret
protection for significant new technologies, products and
processes. The enforceability of patents issued to biotechnology
and pharmaceutical firms can be highly uncertain. U.S. Federal
court decisions establishing legal standards for determining the
validity and scope of patents in the field are in transition. In
addition, there can be no assurance that patents will be issued or,
if issued, any such patents will afford us protection from
infringing patents granted to others.
A
number of biotechnology and pharmaceutical companies, and research
and academic institutions, have developed technologies, filed
patent applications or received patents on various technologies
that may be related to our business. Some of these technologies,
applications or patents may conflict with our technologies. Such
conflicts could also limit the scope of the patents, if any, that
we may be able to obtain or result in the denial of our patent
applications.
Many
of our competitors are, have, or are affiliated with companies
having, substantially greater resources than us, and such
competitors may be able to sustain the costs of complex patent
litigation to a greater degree and for longer periods of time than
us. Uncertainties resulting from the initiation and continuation of
any patent or related litigation could have a material adverse
effect on the ability of us to compete in the marketplace pending
resolution of the disputed matters. Moreover, an adverse outcome
could subject us to significant liabilities to third parties and
require us to license
20
disputed rights from
third parties or cease using the technology. In the event that
third parties have or obtain rights to intellectual property or
technology used or needed by us, there can be no assurance that any
licenses would be available or would be available on terms
reasonably acceptable to us.
We
may rely on certain proprietary technologies, trade secrets, and
know-how that are not patentable. Although we have taken steps to
protect unpatented trade secrets and technology, in part through
the use of confidentiality agreements with employees, consultants
and certain of its contractors, there can be no assurance that: (i)
these agreements will not be breached; (ii) we would have adequate
remedies for any breach; or (iii) our proprietary trade secrets and
know-how will not otherwise become known or be independently
developed or discovered by competitors.
Risk of Product
Liability; Potential Unavailability of Insurance
Our
business will expose it to potential product liability risks that
are inherent in the testing, manufacturing and marketing of human
pharmaceutical and therapeutic products. We do not currently have
product liability insurance, and there can be no assurance that we
will be able to obtain or maintain such insurance on acceptable
terms or, if obtained, that such insurance will be adequate to
cover potential product liability claims or that a loss of
insurance coverage or the assertion of a product liability claim or
claims would not materially adversely affect the business,
financial condition and results of operations. We face an inherent
business risk of exposure to product liability and other claims in
the event that the development or use of its technology or products
is alleged to have resulted in adverse effects. Such risk exists
even with respect to those products that are manufactured in
licensed and regulated facilities or that otherwise possess
regulatory approval for commercial sale. There can be no assurance
that we will avoid significant product liability exposure.
While we have taken, and will continue to take, what we believes
are appropriate precautions, there can be no assurance that it will
avoid significant liability exposure. An inability to obtain
product liability insurance at acceptable cost or to otherwise
protect against potential product liability claims could prevent or
inhibit the commercialization of products developed. A product
liability claim could have a material adverse effect on the
business, financial condition and results of operations.
Uncertainties
Relating to Pricing and Third-Party Reimbursement
Our
operating results may depend in part on the availability of
adequate reimbursement for our products from third-party payers,
such as government entities, private health insurers and managed
care organizations. Third-party payers are increasingly seeking to
negotiate the pricing of medical services and products. In some
cases, third-party payers will pay or reimburse a user or supplier
of a product for only a portion of the purchase price of the
product. In the case of the products, payment or reimbursement by
third-party payers of only a portion of the cost of such products
could make such products less attractive, from a cost perspective,
to users, suppliers and physicians. There can be no assurance that
reimbursement, if available, will be adequate. Moreover, certain of
the products may not be of the type generally eligible for
third-party reimbursement. If adequate reimbursement levels are not
provided by government entities or other third-party payers for the
products, the business, financial condition and results of
operations would be materially adversely affected. A number of
legislative and regulatory proposals aimed at changing the United
States’ health care system have been proposed in recent years.
While we cannot predict whether any such proposals will be adopted,
or the effect that any such proposal may have on its business, such
proposals, if enacted, could have a material adverse effect on the
business, financial condition or results of operations.
Risk of Product
Recall; Product Returns
Product recalls may be issued at our discretion, the FDA or other
government agencies having regulatory authority for product sales
and may occur due to disputed labeling claims, manufacturing
issues, quality defects or other reasons. No assurance can be given
that product recalls will not occur
21
in the future. Any
product recall could materially adversely affect the business,
financial condition or results of operations. There can be no
assurance that future recalls or returns would not have a material
adverse effect upon the business, financial condition and results
of operations.
Risks of
International Sales and Operations
Our
results of operations are subject to fluctuations in the value of
the Euro against the U.S. Dollar due to our German subsidiaries.
Although management will monitor exposure to currency fluctuations,
there can be no assurance that exchange rate fluctuations will not
have a material adverse effect on the results of operations or
financial condition. In the future, we could be required to sell
its products in other currencies, which would make the management
of currency fluctuations more difficult and expose us to greater
risks in this regard.
Our
products will be subject to numerous foreign government standards
and regulations that are continually being amended. Although we
will endeavor to satisfy foreign technical and regulatory
standards, there can be no assurance that our products will comply
with foreign government standards and regulations, or changes
thereto, or that it will be cost effective for us to redesign its
products to comply with such standards or regulations. The
inability of us to design or redesign products to comply with
foreign standards could have a material adverse effect on our
business, financial condition and results of operations.
Lack of Commercial
Manufacturing and Marketing Experience
The
Company and its manufacturing contractors and partners will be
engaged in manufacturing pharmaceutical products which will be
subject to stringent regulatory requirements. No assurance can be
given that we, on a timely basis, will be able to make the
transition from manufacturing clinical trial quantities to
commercial production quantities successfully or be able to arrange
for contract manufacturing. The Company and our subsidiaries have
limited experience in the sales, marketing and distribution of
products. There can be no assurance that we will be able to
establish sales, marketing and distribution capabilities or make
arrangements with collaborators, licensees or others to perform
such activities or that such effort will be successful.
The
manufacture of the products involves a number of steps and requires
compliance with stringent quality control specifications imposed by
us and by the FDA or similar regulatory bodies under the law of the
respective countries. Typically, our products can only be
manufactured in a facility that has undergone a satisfactory
inspection by the FDA or similar regulatory bodies under the law of
the respective countries. For these reasons, we would not be able
to quickly replace its manufacturing capacity if one of our
manufacturing contractors or partners were unable to use their
manufacturing facilities as a result of a fire, natural disaster,
equipment failure or other difficulty, or if such facilities are
deemed not in compliance with the FDA's Good Manufacturing Practice
(“GMP”) requirements and the non-compliance could not be rapidly
rectified. The inability or reduced capacity to manufacture their
products would have a material adverse effect on our business and
results of operations.
We
have entered and may enter into arrangements with contract
manufacturing companies to expand its production capacities in
order to satisfy requirements for its products, or to attempt to
improve manufacturing efficiency. If we choose to contract for
manufacturing services and encounters delays or difficulties in
establishing relationships with manufacturers to produce, package
and distribute its finished products, clinical trials, market
introduction and subsequent sales of such products would be
adversely affected. Further, contract manufacturers must also
operate in compliance with the FDA's GMP requirements; failure to
do so could result in, among other things, the disruption of
product supplies.
Currently, we have our products manufactured by contract
manufacturers in Germany. No assurance can be given, that the
vendors will be willing or able to produce the products in the
required
22
quality or quantities or at prices which will
enable us to sell the end products as requested by its
customers.
Risks resulting
from investing and financing activities
We
may from time to time in the ordinary course of business carry out
certain investing or financing transactions including extending
loans to non-related third parties or the purchase of treasury
stocks. Such transactions are subject to certain risks including
but not limited to the inability of borrowers to redeem interest
and principal of such loans, the inability of the company to
capitalize on collaterals provided by the borrowers if any, or the
devaluation of the treasury stock. In the event that one or more of
these risks actually occur, the company may be confronted with the
situation that it in turn may not be able to refinance its ongoing
operations.
Hazardous
Materials and Environmental Matters.
Our
research and development processes may involve the controlled
storage, use and disposal of hazardous materials. We are subject to
federal, state and local laws and regulations governing the use,
generation, manufacturing, storage, handling, and disposal of such
materials and certain waste products. Although we do not currently
manufacture commercial quantities of product candidates, we produce
limited quantities of such products for clinical or preclinical
trials or comparable laboratory testing necessary for research or
product development and we may eventually intend to manufacture
commercial quantities of our products. Although we believe that our
safety procedures for handling and disposing of such materials
comply with the standards prescribed by the ISO 9001:2000 (General
Quality Management System) and ISO 13485:2003 (Medical Products
Quality Management System), the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the
event of such an accident, we could be held liable for any damages
that result, and any such liability could exceed our resources.
There can be no assurance that we will not be required to incur
significant costs to comply with current or future environmental
laws and regulations nor that the operations, business or assets
will not be materially or adversely affected by current or future
environmental laws or regulations.
Fluctuations in
Foreign Currency Exchange Rates could have an Adverse
Impact.
Because a portion of our total income is derived from international
operations that are conducted in foreign currencies, changes in
value of these foreign currencies relative to the US dollar may
affect our results of operation and financial position. If for any
reason exchange or price controls or other restriction on the
conversion of foreign currencies were imposed, our business could
be adversely affected.
Risks Related to
Our Securities
Trading and
limited market
At
the present time, the Company’s common stock is traded on the OTCQB
under the symbol SGBI. There is currently a limited public market
for the Common Stock and there can be no assurance that an active
trading market will develop or, if one does develop, that it will
be maintained. If such a market arises, the possibility or actual
sale into the market of shares of the Company's Common Stock may
adversely affect prevailing market prices for the Company's Common
Stock and could impair the Company's ability to raise capital
through the sale of its equity securities. In order to qualify for
resale of our Common Stock under Rule 144, certain criteria must be
met. There is no assurance that investors will be able to rely on
its provisions of Rule 144 now or in the future.
23
No
dividends
No
cash dividends have been paid. Payment of dividends on the Common
Stock is within the discretion of the Board of Directors, is
subject to state law, and will depend upon the Company's earnings,
if any, its capital requirements, financial condition and other
relevant factors.
Possible
volatility of stock price
The
market price of the Company’s securities is likely to be highly
volatile. Factors such as the market acceptance of the Company's
products, success of distribution channels or its competitors,
announcements of technological innovations or new commercial
products by the Company or its competitors, developments in
trademark, patent or other proprietary rights of the Company or its
competitors, and fluctuations in the Company's operating results
may have a significant effect on the market price of the Common
Stock. In addition, the stock market has experienced and continues
to experience extreme price and volume fluctuations which have
affected the market price of many companies and which have often
been unrelated to the operating performance of these companies.
These broad market fluctuations, as well as general economic and
political conditions, may adversely affect the market price, if a
market develops, of the Common Stock. See “Description of Capital
Stock”.
We are subject to
the periodic reporting requirements of the Securities Exchange Act
of 1934, which require us to incur audit fees and legal fees in
connection with the preparation of such reports; these additional
costs could reduce or eliminate our ability to earn a
profit.
We
are required to file periodic reports with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder. In order to
comply with these requirements, our independent registered public
accounting firm has to review our financial statements on a
quarterly basis and audit our financial statements on an annual
basis. Moreover, our legal counsel will have to review and assist
in the preparation of such reports. The costs charged by these
professionals for such services cannot be accurately predicted at
this time because factors such as the number and type of
transactions that we engage in and the complexity of our reports
cannot be determined at this time and will have a major effect on
the amount of time to be spent by our auditors and attorneys.
However, the incurrence of such costs will obviously be an expense
to our operations and thus have a negative effect on our ability to
meet our overhead requirements and earn a profit. We may be exposed
to potential risks resulting from requirements under
Section 404 of the Sarbanes-Oxley Act of 2002. If we cannot
provide reliable financial reports or prevent fraud, our business
and operating results could be harmed, investors could lose
confidence in our reported financial information, and the trading
price of our common stock, if a market ever develops, could drop
significantly.
We
do not have a sufficient number of employees to segregate
responsibilities and may be unable to afford increasing our staff
or engaging outside consultants or professionals to overcome our
lack of employees. During the course of our testing, we may
identify other deficiencies that we may not be able to remediate in
time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404. In addition, if we
fail to achieve and maintain the adequacy of our internal controls,
as such standards are modified, supplemented or amended from time
to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act. Moreover, effective internal controls,
particularly those related to revenue recognition, are necessary
for us to produce reliable financial reports and are important to
help prevent financial fraud. If we cannot provide reliable
financial reports or prevent fraud, our business and operating
results
24
could be harmed,
investors could lose confidence in our reported financial
information, and the trading price of our common stock, if a market
ever develops, could drop significantly.
Management believes that these reporting obligations will increase
the Company’s annual legal and accounting costs by an estimated
$25,000 and $30,000, respectively.
Penny stock
regulations
If
the Company's stock is below $5.00 per share, or the Company does
not have $2,000,000 in net tangible assets, or is not listed on an
exchange or on the NASDAQ National Market System, among other
conditions, the Company's shares may be subject to a rule
promulgated by the Securities and Exchange Commission (the “SEC”)
that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than
established customers and institutional accredited investors. For
transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the
purchaser's written consent to the transaction prior to the sale.
Furthermore, if the price of the Company's stock is below $5.00,
and does not meet the conditions set forth above, sales of the
Company's stock in the secondary market will be subject to certain
additional new rules promulgated by the SEC. These rules generally
require, among other things, that brokers engaged in secondary
trading of stock provide customers with written disclosure
documents, monthly statements of the market value of penny stocks,
disclosure of the bid and asked prices, and disclosure of the
compensation to the broker-dealer and disclosure of the sales
person working for the broker-dealer. These rules and regulations
may affect the ability of broker-dealers to sell the Company's
securities, thereby limiting the liquidity of the Company's
securities. They may also affect the ability of shareholders to
resell their securities in the secondary market.
Future sales of
shares of our common stock by our shareholders could cause our
stock price to decline
Future sales of shares of our common stock could adversely affect
the prevailing market price of our stock. If our significant
shareholders sell a large number of shares, or if we issue a large
number of shares, the market price of our stock could decline.
Moreover, the perception in the public market that shareholders
might sell shares of our stock could depress the market for our
shares. If such shareholders sell substantial amounts of our common
stock in the public market, such sales could create a circumstance
commonly referred to as “an overhang” in anticipation of
which the market price of our common stock could fall. The
existence of an overhang, whether or not sales have occurred or are
occurring, also could make it more difficult for us to raise
additional financing through the sale of equity or equity-related
securities in the future at a time and price we deem reasonable or
appropriate.
We may issue
additional shares of our common stock or debt securities to raise
capital or complete acquisitions, which would reduce the equity
interest of our shareholders.
Although we have no commitments as of the date of this prospectus
to issue our securities, we may issue a substantial number of
additional shares of our common stock or debt securities to
complete a business combination or to raise capital. The issuance
of additional shares of our common stock may significantly reduce
the equity interest of our existing shareholders and adversely
affect prevailing market prices for our common stock.
ITEM
2. PROPERTIES
The
Company leased its office and laboratory facilities on a
month-to-month basis and was housed in approximately 3,050 square
feet based in the Forschungs und Entwicklungszentrum of the
University Witten/Herdecke, Germany. Additionally, the Company
leases office facilities in
25
Hamburg/Germany. Effective June 30, 2019 the Company has closed the
site in Witten and relocated its headquarters to
Hamburg.
Rent
expense was approximately $37,800 and $32,018 during the years
ended June 30, 2019 and 2018, respectively.
ITEM
3. LEGAL PROCEEDINGS
We
are not a party to any pending legal proceeding. No federal, state
or local governmental agency is presently contemplating any
proceeding against the Company. No director, executive officer or
affiliate of the Company or owner of record or beneficiary of more
than five percent of the Company's common stock is a party adverse
to the Company or has a material interest adverse to the Company in
any proceeding.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
As
of June 30, 2019, our common stock was traded on the OTCQB Venture
Marketplace under the symbol SGBI as well as on the OTC markets of
the Berlin and Hamburg-Hannover stock exchanges in Germany.
The
following table sets forth the high and low closing prices for
shares of SGBI common stock for the fiscal periods noted, as
reported by OTCQB. Quotations reflect inter-dealer prices, without
retail mark-up, markdown or commissions and may not represent
actual transactions.
|
|
|
Common Stock
Closing Prices (US$)
|
|
|
|
High
|
|
Low
|
|
2019
|
|
$
|
|
$
|
|
Quarter ended September 2018
|
|
0.050
|
|
0.015
|
|
Quarter ended December 2018
|
|
0.022
|
|
0.021
|
|
Quarter ended March 2019
|
|
0.038
|
|
0.021
|
|
Quarter ended June 2019
|
|
0.026
|
|
0.013
|
|
2018
|
|
$
|
|
$
|
|
Quarter ended September 2017
|
|
|
0.040
|
|
|
0.022
|
|
Quarter ended December 2017
|
|
0.080
|
|
0.019
|
|
Quarter ended March 2018
|
|
0.065
|
|
0.020
|
|
Quarter ended June 2018
|
|
0.040
|
|
0.015
|
In
addition to freely tradable shares, SGBI has numerous shares of
common stock outstanding that could be sold pursuant to Rule 144.
In general, under Rule 144, subject to the satisfaction of certain
other conditions, a person, including one of our affiliates, who
has beneficially owned restricted shares of common stock for at
least one year is entitled to sell, in certain brokerage
transactions, within any three-month period, a number of shares
that does not exceed the greater of 1% of the total number of
outstanding shares of the same class, or the average weekly trading
volume during the four calendar weeks immediately preceding the
sale. A person who presently is not and who has not been an
affiliate for at least three months immediately preceding the sale
and who has beneficially owned the shares of common stock for at
least six months is entitled to sell such shares under Rule 144
without regard to any of the volume limitations described
above.
26
Holders
On June 30, 2019, the number of record holders of the
Company's common stock was approximately 867.
Dividends
The
company did not pay any cash dividends during the past two fiscal
years and does not contemplate paying dividends in the foreseeable
future.
Securities
Authorized For Issuance Under Equity Compensation Plans
The
following table sets forth information as of June 30, 2019, with
respect to our equity compensation plans previously approved by
stockholders and equity compensation plans not previously approved
by stockholders.
|
|
|
Equity Compensation Plan Information
|
|
Plan Category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
|
Weighted average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity compensation plans approved by stockholders
|
|
-
|
|
$
|
0.00
|
|
-
|
|
Equity compensation plans not approved by stockholders
|
|
-
|
|
|
0.00
|
|
-
|
|
Total
|
|
-
|
|
$
|
0.00
|
|
-
|
[1] On October 22, 2008
the Company adopted the 2008 Amended and Restated Long-Term Equity
Incentive Plan, whereby the Board was authorized to issue up to
10,000,000 shares of common stock (including incentive stock
options) to certain eligible employees, directors, and consultants
of the Company or its subsidiaries.
By
the end of our 2013 financial year all shares available under the
Plan had been issued.
Issuer Purchases
of Equity Securities
The Company holds 53,756 shares of its common stock. The treasury
stock is valued using the Treasury Stock Method at $19,387.
Recent Sales of
Unregistered Securities
In
July, October and November, 2018, the Company issued 6,500,000
restricted shares of its common stock upon receipt of a capital
contribution of approximately $ 84,491 in cash to three
individuals. No underwriters were used. The securities were sold
pursuant to an exemption from registration provided by Regulation S
and Section 4(2) of the Securities Act of 1933. The certificate
representing the shares contained a restricted legend.
27
In
November, 2018, the Company issued 844,000 shares of its common
stock for services valued at $18,652 to one individual. No
underwriters were used. The securities were sold pursuant to an
exemption from registration provided by Regulation S and Section
4(2) of the Securities Act of 1933. The certificate representing
the shares contained a restricted legend.
Sales of
Unregistered Securities Subsequent to the Period Covered by this
Report
Subsequent to the year ended June 30, 2019, the Company issued
2,238,095 shares of its common stock for obtaining an out-of-court
settlement in a patent matter to one individual at a stock price of
$0.02. No underwriters were used. The securities were sold pursuant
to an exemption from registration provided by Regulation S and
Section 4(2) of the Securities Act of 1933. The certificate
representing the shares contained a restricted legend.
ITEM
6. SELECTED FINANCIAL DATA
As a
“smaller reporting company” (as defined by §229.10(f)(1)), we are
not required to provide the information required by this
Item.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue, expenses, and
related disclosure of contingent assets and liabilities. We believe
the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
consolidated financial statements. Actual results may differ from
these estimates under different assumptions or conditions.
CRITICAL ACCOUNTING
POLICIES: Our significant accounting policies are described in Note
1 to the consolidated financial statements for the year ended June
30, 2019. The following are our critical accounting policies:
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from
Contracts with Customers (Topic 606). The new revenue recognition
standard provides a five-step analysis of transactions to determine
when and how revenue is recognized. The core principle is that a
company should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services.
Adoption of New
Accounting Guidance on Revenue Recognition
The Company recognizes revenue based on the five criteria for
revenue recognition established under Topic 606: 1) identify the
contract, 2) identify separate performance obligations, 3)
determine the transaction price, 4) allocate the transaction price
among the performance obligations, and 5) recognize revenue as the
performance obligations are satisfied.
Type of
Revenue
The Company derives revenue primarily from licensing fees on sales
of its wound spray product.
28
The Company recognizes revenue based on the five criteria for
revenue recognition established under Topic ASC 606 as set forth
below.
The Company’s licenses provide a right to use and create
performance obligations satisfied at a point in time. The Company
recognizes revenue from the license when the performance obligation
is satisfied through the transfer of the license. The Company will
recognize royalty revenue a) when the licensee makes the subsequent
sales or use that trigger the royalty, or (b) the performance
obligation to which some or all of the sales-based or usage- based
royalties has been allocated has been satisfied.
Research and
Development
Research and development costs are charged to operations as they
are incurred. Legal fees and other direct costs incurred in
obtaining and protecting patents are expensed as incurred. Research
and development costs totaled $27,226 and $23,003 during the fiscal
years ended June 30, 2019 and 2018, respectively.
Foreign Currency
Translation
The
functional currency of the Company’s Sangui GmbH and Sangui KG
subsidiaries is the local currency, the Euro. Accordingly, assets
and liabilities of the subsidiary are translated into U.S. dollars
at period-end exchange rates. Sales and expenses are translated at
the average exchange rates in effect for the period. The resulting
translation gains or losses are recorded as a component of
accumulated other comprehensive income in the consolidated
statement of stockholders’ equity (deficit). For the periods
ending June 30, 2019 and 2018, the Company recognized foreign
currency translation loss of $1,474 and loss of $29,306.
The
exchange rates used to calculate values and results for the years
ended June 30, 2019 and 2018 were as follows (USD):
|
|
Year-end Rates
|
|
Average Period Rates
|
|
June 30, 2019
|
0.878005
|
|
0.876498
|
|
June 30, 2018
|
0.856494
|
|
0.838296
|
Use of estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the respective reporting period. As future events
and their effects cannot be determined with precision, actual
results could differ from those estimates. Significant estimates
made by management are, among others, the realization of
receivables, inventories, long-lived assets, and valuation
allowance on deferred tax assets. Due to the current dependence of
Sangui on the revenue from the license agreement with Sastomed
GmbH, the management places the highest priority on the sales
development in this area in order to be able to recognize potential
risks in good time and to take appropriate measures if necessary.
These measures include regular and ad hoc discussions with the
licensee about its planned business development.
Going concern
The
Company incurred a net loss attributable to common stockholders of
$ 323,576 and used cash in operating activities of $316,918 for the
year ended June 30, 2019. These and other conditions raise
substantial doubt about the Company's ability to continue as a
going concern for a period of one
29
year from the issuance of these financial
statements. The Company expects to continue to incur significant
capital expenses in pursuing its business plan to market its
products and expand its product line; however, obtaining additional
financing through stock offerings or other feasible financing
alternatives may be difficult or even impossible. In order for the
Company to continue operating at its existing levels, it will
require significant additional funds over the next twelve months.
Therefore, the Company is dependent on funds raised through equity
or debt offerings. The Company plans to continue to raise necessary
capital through both notes payable, as well as stock
sales.
Additional financing may not be available on terms favorable to the
Company or at all. If these funds are not available, the Company
may not be able to execute its business plan or take advantage of
business opportunities. The Company’s ability to obtain such
additional financing and to achieve its operating goals is
uncertain. In the event that the Company does not obtain additional
capital or is not able to increase cash flow through the increase
of sales, there is a substantial doubt of its being able to
continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
FINANCIAL POSITION
Our
current assets decreased by $23,058 or 23%, from $102,029 at June
30, 2018 to $78,971 at June 30, 2019. The decrease is
primarily attributable to decreases in accounts receivables and
prepaid expenses and other assets.
Our
net property and equipment $-0- at June 30, 2019 and at June 30,
2018. There were no investments in net property and equipment
during the 2019 fiscal year.
We funded our operations primarily
through sales of unregistered securities. The Company’s
stockholders’ deficit was increased from $351,144 at June 30, 2018
to $591,989 as of June 30, 2019. The primary reason for the
increase in the deficit was the net loss of $323,576 and the loss
on foreign currency translation of $1,474 offset by issuance of
common stock totalling approximately $103,143.
REVENUES. Revenues increased 14% to $88,001 during the year ended
June 30, 2019 from $77,152 in the previous fiscal year. This
increase is due to an increase in income from royalties due from
sales of the wound spray product. We incurred Cost of Sales
totaling $0 during the 2019 fiscal year, a decrease of $62 from the
prior year.
RESEARCH AND DEVELOPMENT. Research and development expenses
increased to $27,226 during the year ended June 30, 2019 from
$23,003 during the 2018 fiscal year. This increase is mainly
attributed to higher fees for patents and costs for the transfer of
a patent from Sangui GmbH to Sangui KG in the first quarter of the
financial year.
OTHER OPERATING EXPENSES. Professional fees for 2019 increased to
$209,516 from $121,478 in 2018 due to increased fees for
consulting, accounting and auditing as
well as one-time costs incurred in 2019 to obtain an out-of-court
settlement in a patent matter. General and administrative
expenses increased by $48,240, due to
costs associated with the closure of the Witten site.
Overall Total Operating Expenses increased by $140,501 or 9%.
OTHER INCOME (EXPENSE). Total other expenses Income (expense)
decreased $2,879 from $7,758 in 2018 to $4,879 in 2019. The
decrease relates to an increase on gains on foreign currency
exchange of $6,258 partially compensated by an increase of interest
expenses of $3,379.
NET
LOSS. As a result of the above and other factors, the Company's
consolidated net loss attributable to common stockholders was
$323,576 or ($0.00) per common share in 2019, as compared to
$201,810 or ($0.00) per common share in 2018.
30
LIQUIDITY AND CAPITAL
RESOURCES
For
the year ended June 30, 2019, net cash used in operating activities
increased to $316,918 from $253,761 for the year ended June 30,
2018, due to an increase in net loss, a decrease in accounts
payable and accrued expenses, and an increase in tax refunds
receivable, offset by an increase in stock issued for services, a
decrease in trade accounts receivable, a decrease in prepaid
expenses, and an increase in accrued interest payable on notes
payable to a related party.
For
the year ended June 30, 2019, net cash provided by financing
activities increased from $244,602 received during the fiscal year
2018 to net proceeds of $326,515 received in fiscal year 2019.
The increase came about due to an increase of related party
note payables offset by a reduction of proceeds arising common
stock issued and repayments of note payables.
We
had net working capital deficit of $591,989 at June 30, 2019,
compared to a deficit of $351,144 at June 30, 2018. The
Company had a decrease in prepaid expenses and accounts receivable
when compared to prior year. While cash and Tax refunds
increased from prior year, there was an overall increase in accrued
expenses, in related party payables, note payables and notes
payables related parties when compared to prior year.
The
Company incurred a net loss applicable to common stockholders of
$323,576 and used cash in operating activities of $316,918 for the
year ended June 30, 2019. These and other conditions raise
substantial doubt about the Company's ability to continue as a
going concern. The Company expects to continue to incur significant
capital expenses in pursuing its business plan to market its
products and expand its product line, while obtaining additional
financing through stock offerings or other feasible financing
alternatives. In order for the Company to continue its operations
at its existing levels, the Company will require significant
additional funds over the next twelve months. Therefore, the
Company is dependent on funds raised through equity or debt
offerings. Additional financing may not be available, on terms
favorable to the Company, or at all. If these funds are not
available the Company may not be able to execute its business plan
or take advantage of business opportunities. The ability of the
Company to obtain such additional financing and to achieve its
operating goals is uncertain. In the event that the Company does
not obtain additional capital or is not able to increase cash flow
through the increase of sales, there is a substantial doubt of its
being able to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Currently, it is the core strategy of the Company to license its
technologies to industry partners. The current state of the
sales efforts, in particular with regard to the Granulox product,
distributed by our former joint venture partner, SastoMed, GmbH,
has induced management to believe that income from these agreements
can reasonably be anticipated to begin during the 2020 fiscal year.
The Company will need substantial additional funding to fulfill its
business plan. The Company intends to explore financing sources for
its future development activities. No assurance can be given that
these efforts will be successful.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
As a
“smaller reporting company” (as defined by §229.10(f)(1)), we are
not required to provide the information required by this item.
31
ITEM
8.FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
SANGUI BIOTECH INTERNATIONAL, INC.
AUDIT REPORT OF INDEPENDENT ACCOUNTANTS
AND
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019 and 2018
32
SANGUI BIOTECH INTERNATIONAL, INC.
Table of Contents
Page
Report
of Independent Registered Public Accounting FirmF-1
Consolidated
Balance Sheets – June 30, 2019 and 2018F-2
Consolidated
Statements of Operations and Comprehensive Loss for the years
ended
June
30, 2019 and 2018F-3
Consolidated
Statements of Stockholders’ Equity (Deficit) for the years
ended
June
30, 2019 and 2018F-4
Consolidated
Statements of Cash Flows for the years ended June 30, 2019 and
2018F-5
Notes
to Consolidated Financial StatementsF-6
_______________________________________
33
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
NOTE 1
– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization and
Nature of Business
Sangui Biotech International, Inc. (“the Company”) was incorporated
in Colorado in 1995. Since 2003 when a comprehensive restructuring
of the group was completed, all operations have been carried out by
Sangui BioTech GmbH, its 90% owned subsidiary which is
headquartered in Witten, Germany. Sangui Biotech International,
Inc., (“the Parent Company”) acts as a holding company whose
purpose it is to secure financing and access to the capital
markets. Effective from June 18, 2018 Sangui BioTech GmbH together
with Sastomed GmbH founded Sangui Know-How- und
Patentverwertungsgesellschaft mbH & Co. KG (“Sangui KG”).
Sangui KG is a limited partnership, with Sangui BioTech GmbH as the
general partner (owing 99.8%) and Sastomed GmbH as a limited
partner (owning 0.2%).
Sangui BioTech GmbH is engaged in the development of technologies
aimed at improved supply of oxygen to the human body such as wound
management products in particular a wound spray based on natural
hemoglobin, wound dressings based on Chitosan (a natural polymer),
artificial oxygen carriers (external applications of hemoglobin,
blood substitutes and blood additives) and cosmetics. The cosmetics
products are currently being sold via the Company’s internet shop,
yielding a small amount of revenues. Otherwise, the Company does
not produce nor market its products. It has adopted the strategy to
license its technologies to industry partners in exchange for
royalties. In the pursuit of this strategy, the Company established
a joint venture company in December 2010 for the purposes of
marketing and selling the wound spray product in Germany and of
preparing its market entry in several other European countries and
Mexico. As consideration for the license, the Company is paid
royalties on all sales of this product and is entitled to a 25
percent share of all future profits of the joint venture. Effective
December 31, 2017 the Company sold its 25% share of the joint
venture to its co-partner. On June 22, 2018, Sangui KG has
acquired all rights in the license agreement concluded on December
17, 2010 with Sastomed GmbH from Sangui BioTec GmbH.
Going
Concern
The Company incurred
a net loss attributable to common stockholders of $ 323,576 and
used cash in operating activities of $316,918 for the year ended
June 30, 2019. These and other conditions raise substantial doubt
about the Company's ability to continue as a going concern for a
period of one year from the issuance of these financial statements.
The Company expects to continue to incur significant capital
expenses in pursuing its business plan to market its products and
expand its product line; however, obtaining additional financing
through stock offerings or other feasible financing alternatives
may be difficult or even impossible. In order for the Company to
continue operating at its existing levels, it will require
significant additional funds over the next twelve months.
Therefore, the Company is dependent on funds raised through equity
or debt offerings. Management plans to continue to raise necessary
capital through both notes payable, as well as stock sales.
Additional financing may not be available on terms favorable to the
Company or at all. If these funds are not available, the Company
may not be able to execute its business plan or take advantage of
business opportunities. The Company’s ability to obtain such
additional financing and to achieve its operating goals is
uncertain. In the event that the Company does not obtain additional
capital or is not able to increase cash flow through the increase
of sales, there is a substantial doubt of its being able to
continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
F-6
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
NOTE 1
– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Principles of
Consolidation
The consolidated financial statements include the accounts of
Sangui BioTech International, Inc., its 90% owned foreign
subsidiary, Sangui BioTech GmbH and its 99.8% owned foreign
subsidiary, Sangui KG. All intercompany accounts and
transactions have been eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the respective reporting period. As future events
and their effects cannot be determined with precision, actual
results could differ from those estimates. Significant estimates
made by management are, among others, the realization of
receivables, inventories, long-lived assets, and valuation
allowance on deferred tax assets. Due to the current dependence of
Sangui on the revenue from the license agreement with Sastomed
GmbH, the management places the highest priority on the sales
development in this area in order to be able to recognize potential
risks in good time and to take appropriate measures if necessary.
These measures include regular and ad hoc discussions with the
licensee about its planned business development.
Risks and
Uncertainties
The Company's line of future pharmaceutical and cosmetic products
(artificial oxygen carriers or blood substitute and additives) as
well as other medical products being developed by Sangui BioTech
GmbH, are deemed as medical devices or biologics, and as such are
governed by the Federal Food and Drug and Cosmetics Act and by the
regulations of state agencies and various foreign government
agencies. The pharmaceutical products will be subject to stringent
regulatory requirements because they are in vivo products for
humans. The Company and its subsidiaries have limited experience in
obtaining regulatory clearance on these types of products.
Therefore, the Company could be subject to risks of delays in
obtaining or failing to obtain regulatory clearance.
Financial
Instruments
Pursuant to ASC 820, Fair Value Measurements and
Disclosures, an entity is required to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. ASC 820 establishes a fair value hierarchy
based on the level of independent, objective evidence surrounding
the inputs used to measure fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement. ASC 820 prioritizes the inputs into three levels that
may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted
prices in active markets for identical assets or liabilities.
F-7
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
NOTE 1
– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Level 2
Level 2 applies to assets or liabilities for which there are inputs
other than quoted prices that are observable for the asset or
liability such as quoted prices for similar assets or liabilities
in active markets; quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in
which significant inputs are observable or can be derived
principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are
unobservable inputs to the valuation methodology that are
significant to the measurement of the fair value of the assets or
liabilities. The Company’s financial instruments consist
principally of cash, accounts and notes receivable, accounts
payable and accrued liabilities, notes payable and amounts due to
related parties. We believe that the recorded values of all
of our financial instruments approximate their current fair values
because of their nature and respective maturity dates or
durations.
Foreign Currency
Translation
The functional currency of the Company’s Sangui GmbH and Sangui KG
subsidiaries is the local currency, the Euro. Accordingly, assets
and liabilities of the subsidiary are translated into U.S. dollars
at period-end exchange rates. All equity account balances have been
translated at the historical rates. Revenues and expenses are
translated at the average exchange rates in effect for the period.
The resulting translation gains or losses are recorded as a
component of accumulated other comprehensive income in the
consolidated statement of stockholders’ equity. For the years ended
June 30, 2019 and 2018, the Company recognized a loss on
translation adjustment in the amount of $1,474 and of $29,306,
respectively. Gains of $6,807 respectively, $549 resulting from foreign
currency transactions as of June 30, 2019 and 2018.
The exchange rates
used to calculate values and results of operations for the years
ended June 30, 2019 and 2018, were as follows:
|
|
Year-end Rates
|
|
Average Period Rates
|
|
June 30, 2019
|
0.878005
|
|
0.876498
|
|
June 30, 2018
|
0.856494
|
|
0.838296
|
Pursuant to ASC 830-20-35, Foreign Currency Matters, the
Company accounts for the translation of transactions denominated in
foreign currencies in the Parent Company’s books as transaction
gains (losses) recognized in General & Administrative
expenses.
Cash and Cash
Equivalents
The Company considers highly liquid
investments with insignificant interest rate risk and original
maturities to the Company of three months or less to be cash
equivalents. The Company maintains its cash in uninsured bank
accounts in Germany. Cash and cash equivalents include time
deposits for which
F-8
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
the Company has no requirements for
compensating balances. The Company has not experienced any losses
in its uninsured bank accounts. The Company had no cash equivalents
outstanding as of June 30, 2019 and 2018.
NOTE 1
– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Property and
Equipment
Property and equipment are recorded at cost and are depreciated or
amortized using the straight-line method over the expected useful
lives, which range from three to five years. Leasehold improvements
are amortized using the straight-line method over the lesser of the
estimated useful lives of the assets or the related lease terms.
Depreciation expense for the years ended June 30, 2019 and 2018 was
$0 and $0, respectively. Expenditures for normal maintenance and
routine repairs are charged to expense, and significant
improvements are capitalized. The cost and related accumulated
depreciation of assets are removed from
the accounts upon retirement or other disposition; any resulting
gain or loss is reflected in the statement of operations.
Impairment of
Long-Lived Assets
Long-lived assets, including property and equipment and certain
identifiable intangibles to be held and used are reviewed by the
management of the Company for impairment whenever events or changes
in circumstances indicate that the carrying value of an asset or
asset group may not be recoverable. On a regular basis and at least
annually, the Company evaluates whether events and circumstances
have occurred that indicate possible impairment and relies on a
number of factors, including business plans, economic projections,
and anticipated future cash flows. Measurement of the amount of
impairment, if any, is based upon the difference between the
asset’s carrying value and estimated fair value. As of June 30,
2019 and 2018, no impairment was considered necessary.
Revenue
Recognition
The Company derives revenue primarily from licensing fees on sales
of its wound spray product as well as from the sale of its
cosmetics products.
The wound spray technology is licensed to an entity, in which the
Company held a 25 % equity interest, as a Joint Venture (See Note
2). Effective December 31, 2015 the Company sold its 25 %
share of the joint venture to its co-partner. The Company presently
is entitled to royalties on net sales of the wound spray product.
Licensing fees are invoiced on a quarterly basis and are recognized
as revenue during the quarter that the sales were reported by the
licensee.
The Company’s product sales (amounting to less than 1% of total
revenues in the current year) are generated via online orders, with
credit card payment.
In May
2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606). The new revenue recognition standard
provides a five-step analysis of transactions to determine when and
how revenue is recognized. The core principle is that a company
should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services.
F-9
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
The
licensing fees are invoiced on a quarterly basis and are recognized
as revenues during the quarter for which the sales were reported by
the licensee.
NOTE 1
– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The
conditions of ASC 606 are met and the Company records revenues
when: (i) a valid license arrangement exists, (ii) the license
terms are fixed and determinable, (iii) the later of (a) when the
licensee makes the subsequent sales or use that trigger the
royalty, or (b) the performance obligation to which some or all of
the sales-based or usage- based royalties has been allocated has
been satisfied and (iv) collectability is probable.
Trade Accounts
Receivable
Accounts receivable are reflected at estimated net realizable
value. The Company maintains an allowance for doubtful accounts
based upon a variety of factors. The Company reviews all open
accounts and provides specific reserves for customer collection
issues when it believes a loss is probable. The reserve
estimate includes consideration of such factors as the length of
time receivables are past due, the financial condition of the
customer, and historical experience. The Company also records a
reserve for all customers, excluding those that have been
specifically reserved for, based upon evaluation of historical
losses which exceeded the specific reserves the Company had
established. For the years ended June 30, 2019 and 2018, the
Company recognized bad debt expense in the amounts of $0 and $0,
respectively.
Inventory
Inventory is stated at the lower of cost (computed on a first-in,
first-out basis) or market value. Provisions to value the inventory
at the lower of the actual cost to purchase or manufacture the
inventory, or the current estimated market value of the inventory,
are based upon assumptions about future demand and market
conditions. The Company also performs evaluations of inventory and
records a provision or impairment for estimated excess and obsolete
items based upon demand, and any other known factors at the time.
As of June 30, 2019 and 2018, all inventory balances had been
reserved against in full.
Concentration of
Credit Risk
Financial instruments that potentially subject us to concentrations
of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains allowances for potential
credit losses. Sales to the Company's largest customer represents
over 99% of the Company's revenues.
Sales Tax Collected
from Customers
As
a part of the Company’s normal course of business, sales taxes are
collected from customers. Sales taxes collected are remitted, in a
timely manner, to the appropriate governmental tax authority on
behalf of the customer. The Company’s policy is to present revenue
and costs net of sales taxes.
F-10
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
NOTE 1
– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income
Taxes
The Company accounts for income taxes in accordance with ASC 740.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be realized or settled. The effect on deferred income
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. Deferred
income tax assets are reviewed for recoverability and the Company
records a valuation allowance to reduce deferred income tax assets
when it is more likely than not that such deferred tax assets will
not be realized.
The Company has foreign subsidiaries formed or acquired to conduct
or support its business outside the United States. The Company
provides for income taxes, net of applicable foreign tax credits,
on temporary differences in its investment in foreign subsidiaries
which are not considered to be permanently invested outside of the
United States.
ASC 740 defines the threshold for recognizing the benefits of
tax return positions in the financial statements as
“more-likely-than-not” to be sustained by the taxing authority. A
tax position that meets the “more-likely-than-not” criterion shall
be measured at the largest amount of benefit that is more than 50
percent likely of being realized upon ultimate settlement. ASC 740
also provides guidance on derecognition, classification, interest
and penalties on income taxes, accounting in interim periods and
requires increased disclosures. ASC 740 applies to all tax
positions accounted for under ASC 740. Estimated interest and
penalties related to the underpayment of income taxes are recorded
as a component of provision for income taxes in the consolidated
statements of operations. For the years ended
June 30, 2019 and 2018, the Company did not recognize any such
interest or penalties, nor were any interest fees or penalties
accrued as of June 30, 2019 and 2018.
Research and
Development
Research and development costs are charged to operations as they
are incurred. Legal fees and other direct costs incurred in
obtaining and protecting patents are also expensed as incurred, due
to the uncertainty with
respect to future cash flows resulting from the patents. Research
and development costs totaled $27,226 and $23,003 during the fiscal
years ended June 30, 2019 and 2018, respectively.
Basic and Diluted
Loss per Common Share
Basic loss per common share excludes dilution and is computed by
dividing loss available to common stockholders by the weighted
average number of common shares outstanding during the period of
computation. Diluted loss per share gives effect to all potential
dilutive common shares outstanding during the period of
compensation. The computation of diluted loss per share does not
assume conversion, exercise or contingent exercise of securities
that would have an antidilutive effect on earnings. As of June 30,
2019 and 2018, the Company had no potentially dilutive securities
that would affect the loss per share if they were to be included in
the loss per share.
F-11
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
NOTE 1
– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Comprehensive
Loss
Total comprehensive loss represents the net change in stockholders'
equity during a period from sources other than transactions with
stockholders and as such, includes net loss. For the Company, the
components of other comprehensive loss are the changes in the
cumulative foreign currency translation adjustments.
Segments of an
Enterprise and Related Information
ASC 280, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way public companies
report information about segments of their business in their annual
financial statements and requires them to report selected segment
information in their quarterly reports issued to stockholders. It
also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it
holds assets and reports revenues and its major customers, if any.
As of June 30, 2019 and 2018, the Company has one business segment,
which is includes the manufacturing and sales of its wound
treatment and cosmetic products as well as the licensing of
business partners to do the same.
Non-controlling
Interests
On
June 11, 2008, the Company’s wholly-owned German subsidiary, Sangui
Biotech GmbH (“GmbH”) issued 11,400 shares of its previously
unissued common stock for cash proceeds of $1,140,759. These shares
amount to 10 percent of the GmbH’s total outstanding common stock,
which totaled 113,800 shares of as June 30, 2019 and 2018,
respectively. The Company accounts for these non-controlling
interests pursuant to ASC 810 whereby gains or losses in a
subsidiary with a non-controlling interest are allocated to the
non-controlling interest based on the ownership percentage of the
non-controlling interest, even if that allocation results in a
deficit non-controlling interest balance.
As stated above,
effective June 18, 2018 GmbH founded Sangui KG as a limited
partnership. As a result, the business activity and operations of
Sangui KG are included in those of GmbH and are therefore subject
to the same non-controlling interests accounting guidance as that
of GmbH, adjusted for GmbH's 0.2% non-controlling interest in
Sangui KG.
Recent Accounting
Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606) (“ASU 2014-09”), which amends the
existing accounting standards for revenue recognition. ASU 2014-09
is based on principles that govern the recognition of revenue at an
amount an entity expects to be entitled when products are
transferred to customers.
Subsequently, the FASB has issued the following standards related
to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with
Customers (Topic 606): Principal versus Agent Considerations (“ASU
2016-08”); ASU No. 2016-10, Revenue from Contracts with Customers
(Topic 606): Identifying Performance Obligations and Licensing
(“ASU 2016-10”); ASU No. 2016-12, Revenue from Contracts with
Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients (“ASU 2016-12”); and ASU No. 2016-20, Technical
Corrections and Improvements to Topic 606, Revenue from
Contracts
F-12
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
with Customers (“ASU 2016-20”). The
Company must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU
2016-20 with ASU 2014-09 (collectively, the “new revenue
standards”).
NOTE 1
– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The new revenue standards may be applied retrospectively to each
prior period presented or retrospectively with the cumulative
effect recognized as of the date of adoption. The Company has
adopted the new revenue standards during the first quarter of
fiscal year 2019. The new revenue standard did not materially
impact the amount and timing of revenue recognized in the Company’s
consolidated financial statements.
Financial Statement
Reclassifications
The Company has reclassified certain prior-year account balances in
order to comply with current-period classifications and increase
comparability.
NOTE 2
– LICENSE AGREEMENT & INVESTMENT IN JOINT VENTURE
Investment in joint
venture
During December 2010, the Company’s subsidiary Sangui BioTech GmbH
established a joint venture company with SanderStrothmann GmbH,
under the name of SastoMed GmbH (“the Joint Venture”). The Company
owned 25 percent of the Joint Venture and accounted for its
interest in the Joint Venture using the equity method of
accounting. The Company invested $8,508 in the Joint Venture during
the year ended June 30, 2011. The Company has written the
investment down to $0 for its share of the Joint Venture’s losses,
amounting to $112,819 during the calendar year ending December 31,
2014.
The Company entered into an agreement which is cancellable by
either party, with 14 days written notice. The agreement
includes payments to its joint venture partner (SastoMed GmbH) by
the Company of $7,760 per month for research and development
consulting services. The agreement was terminated September 30,
2017.
On June 9, 2015, the
Company entered into a note payable with the Joint Venture for
32,863 Euros. The note payable accrues interest at 4% annum and is
due June 30, 2019.
Effective December
31, 2015 the company sold its interest in the SastoMed joint
venture. The sale of the joint venture terminated the relationship
with SastoMed however, the licensing agreement is still in effect.
Accordingly, the note payable of 34,282 Euros, which was previously
recorded as a related party note payable, is now reclassified as
non-related party note payable. The Company fully repaid
principle and accrued interest on July 12, 2018. As of June 30,
2019 and 2018, the principle and accrued interest of the note was
$0 and $40,025, respectively.
License Agreement
In December 2010,
Sangui GmbH established a joint venture company with
SanderStrothmann GmbH of Georgsmarienhuette, Germany. Under the
name of SastoMed GmbH this enterprise was in charge of obtaining
the CE mark certification authorizing the distribution of the
Hemospray wound spray in the member states of the European Union.
Sangui GmbH has granted SastoMed GmbH global distribution rights
for its Hemospray product.
F-13
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
NOTE 2
– LICENSE AGREEMENT & INVESTMENT IN JOINT VENTURE
(CONTINUED)
The basic terms of
the licensing contract agreement are that Sangui GmbH is awarded a
fixed licensing fee as a percentage of the external revenues
received from sales of the Granulox product (based on SastoMed
selling prices). The percentage ranges in the uppermost zone of
what is usually granted in the pharmaceutical and medical products
industries and thus well above the average licensing rate of 7.5%
of sales revenues as calculated by market analysts. In addition,
the percentage will be permanently increased by one fourth of the
current rate as soon as cumulated sales revenues at SastoMed have
exceeded €50,000,000.
Effective June 18, 2018 Sangui GmbH together with
Sastomed GmbH founded Sangui Know-How- und
Patentverwertungsgesellschaft mbH & Co. KG (“Sangui KG”).
Sangui KG is a limited partnership with Sangui GmbH being the
general partner with 99.8% ownership, and Sastomed GmbH as the
limited partner with 0.2% ownership. On June 22, 2018, Sangui KG
has acquired all rights in the license agreement concluded on
December 17, 2010 with Sastomed GmbH from Sangui GmbH.
Nevertheless, all material content of
the existing license agreement remains unchanged even after the
transition from Sangui GmbH to Sangui KG. This also applies to the
pledge of the European patent, EP 1485120 concerning the Hemo2
spray, to the Sastomed GmbH.
Pursuant to the
contracts dated May 2, 2018 and November 11, 2018 between Sangui
GmbH respectively Sangui KG and a former contractor Sangui KG
grants that contractor a license fee on the license income received
by Sangui for his previous services as a co-inventor. The license fee is 10% analogously to the remuneration
regulation of the German Law on Employee Inventions (ArbnErfG).
NOTE 3
– PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 2019
and 2018:
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
Technical and laboratory equipment
|
$
|
-
|
|
$
|
641,326
|
|
Leasehold improvements
|
|
-
|
|
|
285,189
|
|
Office equipment and furniture
|
|
-
|
|
|
311,371
|
|
Total property and equipment
|
|
-
|
|
|
1,237,886
|
|
Less accumulated depreciation and amortization
|
|
-
|
|
|
(1,237,886)
|
|
Total property and equipment, net
|
$
|
-
|
|
$
|
-
|
In
connection with the closure of the business premises of Sangui GmbH
in Witten, all fixed assets were scrapped or sold for proceeds of
$1,108.
NOTE 4 – RELATED PARTY TRANSACTIONS
As
of June 30, 2019 and 2018, the Company has recorded $28,458 and
$19,088, respectively, in accounts payable to related parties for
accrued interest from the related party loans payable below.
Related Party Loans
Payable
Prior
to 2016, the Company entered into a note payable with a Company
Director for 100,000 Euros ($113,895 as of June 30, 2019). The note
payable accrues interest at 5 percent per annum, is due on June 30,
2019 and is unsecured. As of June 30, 2019, the note has an
accrued interest balance of $23,584.
F-14
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
On
December 12, 2017 a Company Director advanced an amount of 25,000
Euros ($28,474 as of June 30, 2019) to the Company. The loan is due
on demand, accrues interest annually at 2% and is unsecured.
As of June 30, 2019, the note has an accrued interest balance
of $882.
On
January 19, 2018 a Company Director advanced an amount of 25,000
Euros ($28,474 as of June 30, 2019) to the Company. The loan is due
on demand, accrues interest annually at 2% and is unsecured.
As of June 30, 2019, the note has an accrued interest balance
of $822.
On
March 13, 2018 a Company Director advanced an amount of 25,000
Euros ($28,474 as of June 30, 2019) to the Company. The loan is due
on demand, accrues interest annually at 2% and is unsecured.
As of June 30, 2019, the note has an accrued interest balance
of $740.
On July
16, 2018 a Company Director advanced an amount of 25,000 Euros
($28,474 as of June 30, 2019) to the Company. The loan is due on
demand, accrues interest annually at 2% and is unsecured. As
of June 30, 2019, the note has an accrued interest balance of
$545.
On
September 10, 2018 a Company Director advanced an amount of 25,000
Euros ($28,474 as of June 30, 2019) to the Company. The loan is due
on demand, accrues interest annually at 2% and is unsecured.
As of June 30, 2019, the note has an accrued interest balance
of $457.
On
September 28, 2018 a Company Director advanced an amount of 25,000
Euros ($29,054). The loan is due on demand, accrues no interest and
is unsecured. The Company has fully repaid the loan on
October 1, 2018.
On
October 4, 2018 a Company Director advanced an amount of 25,000
Euros ($28,474 as of June 30, 2019) to the Company. The loan is due
on demand, accrues interest annually at 2% and is unsecured.
As of June 30, 2019, the note has an accrued interest balance
of $420.
On
December 27, 2018 a Company Director advanced an amount of 25,000
Euros ($28,474 as of June 30, 2019) to the Company. The loan is due
on demand, accrues interest annually at 2% and is unsecured.
As of June 30, 2019, the note has an accrued interest balance
of $289.
On
January 21, 2019 a Company Director advanced an amount of 15,000
Euros ($17,084 as of June 30, 2019) to the Company. The loan is due
on demand, accrues interest annually at 2% and is unsecured.
As of June 30, 2019, the note has an accrued interest balance
of $150.
On
February 26, 2019 a Company Director advanced an amount of 25,000
Euros ($28,474as of June 30, 2019) to the Company. The loan is due
on demand, accrues interest annually at 2% and is unsecured.
As of June 30, 2019, the note has an accrued interest balance
of $193.
NOTE 4 – RELATED PARTY TRANSACTIONS (CONTINUED)
On
March 20, 2019 a Company Director advanced an amount of 25,000
Euros ($28,474 as of June 30, 2019) to the Company. The loan is due
on demand, accrues interest annually at 2% and is unsecured.
As of June 30, 2019, the note has an accrued interest balance
of $159.
On
April 8, 2019 a Company Director advanced an amount of 20,000 Euros
($22,779 as of June 30, 2019) to the Company. The loan is due on
demand, accrues interest annually at 2% and is unsecured. As
of June 30, 2019, the note has an accrued interest balance of
$104.
F-15
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
On May
9, 2019 a Company Director advanced an amount of 30,000 Euros
($34,168 as of June 30, 2019) to the Company. The loan is due on
demand, accrues interest annually at 2% and is unsecured. As
of June 30, 2019, the note has an accrued interest balance of
$97.
On June
21, 2019 a Company Director advanced an amount of 30,000 Euros
($34,168 as of June 30, 2019)
to the Company. The loan is due on demand, accrues interest
annually at 2% and is unsecured. As of June 30, 2019, the
note has an accrued interest balance of $17.
NOTE 5
– STOCKHOLDERS' EQUITY
Preferred
Stock
The Company is authorized to issue 10,000,000 shares of preferred
stock. The authorized preferred shares are non-voting and the Board
of Directors has not designated any liquidation value or dividend
rates. During the financial years ended June 30, 2019 and 2018 no
shares of preferred stock were issued or outstanding.
Common
Stock
The Company is authorized to issue 250,000,000 shares of common
stock with no par value. The holders of the Company's common stock
are entitled to one vote for each share held of record on all
matters to be voted on by those stockholders.
Common Stock
Issuances
During the year ended June 30, 2019 the Company issued 6,500,000
shares of common stock for cash at an average of $0.013 per share,
yielding total cash proceeds of $84,491. In addition, the
Company issued 844,000 shares of common stock for services valued
at $18,652, for an average of $0.0221 per share. The shares issued
for services were valued at the trading price of the common stock
on the date the shares were issued.
During the year ended June 30, 2018 the Company issued 7,070,000
shares of common stock for cash at an average of $0.0219 per share,
yielding total cash proceeds of $154,488.
Stock
Options
From time to time, the Company may issue stock options pursuant to
various agreements and other contemporary agreements. At June 30,
2019 and 2018, and during the years ended June 30, 2019 and 2018,
no options were issued or outstanding.
NOTE 5
– STOCKHOLDERS' EQUITY (CONTINUED)
Treasury
Shares
The Company holds 53,756 of its common stock as treasury stock,
which is valued at cost of $19,387, at June 30, 2019 and 2018.
NOTE 6 - INCOME TAX PROVISION
The Company’s provision for income taxes was $-0- and $-0- for the
years ended June 30, 2019 and 2018 respectively, since the Company
incurred net operating losses through June 30, 2019.
F-16
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
Income tax expense for the years ended June 30, 2019 and 2018
differed from the amounts computed by applying the U.S. federal
income tax rate of 21 percent as follows:
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2019
|
|
2018
|
|
Income tax benefit at
U.S. federal statutory rates
|
$
|
(67,951)
|
$
|
(42,380)
|
|
Effect of:
|
|
|
|
|
|
Change in valuation
allowance
|
|
67,951
|
|
42,380
|
|
Provision for income
taxes
|
$
|
-
|
$
|
-
|
The tax effects of temporary
differences that give rise to significant portions of the deferred
tax assets at June 30, 2019 and 2018 are presented
below:
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2019
|
|
2018
|
|
Deferred tax
assets
|
|
|
|
|
|
Net operating
losses
|
$
|
(7,851,921)
|
|
(7,789,678)
|
|
Common stock issued
for services
|
|
130,273
|
|
130,273
|
|
Debt issued for
financing costs
|
|
10,500
|
|
10,500
|
|
Impairment of related
parties receivables
|
|
269,541
|
|
269,541
|
|
Change in derivative
liabilities
|
|
5,892
|
|
5,892
|
|
Gain on sale of
assets
|
|
1,456
|
|
1,456
|
|
Increase (decrease)
in valuation allowances
|
|
7,434,259
|
|
7,372,016
|
|
Net deferred
taxes
|
$
|
-
|
$
|
-
|
As
of June 30, 2019, the Company had net operating loss carryforwards
of approximately $35.4 million which is available to offset future
taxable federal, state and foreign income. The federal and state
carryforward amounts expire in varying amounts between 2019 and
2030. The foreign net operating loss carryforwards do not have an
expiration period.
The Company has evaluated its uncertain tax positions and
determined that any required adjustments for unrecognized tax
benefits would not have a material impact on the Company’s balance
sheet, income statement, or statement of cash flows.
NOTE 6 - INCOME TAX PROVISION (CONTINUED)
The Company’s tax filings for 2012 through 2017 remain subject to
examination by tax authorities for federal income tax purposes and
by other major taxing jurisdictions to which we are subject. The
Company has identified potential penalties for the late filing of
reports to taxing authorities. The Company believes that it is more
likely than not the penalties will be waived and accordingly has
not accrued the penalties in the financial statements.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Indemnities and
Guarantees
F-17
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
During the normal course of business, the Company has made certain
indemnities and guarantees under which it may be required to make
payments in relation to certain transactions. These indemnities
include certain agreements with the Company's officers, under which
the Company may be required to indemnify such person for
liabilities arising out of their employment relationship. The
duration of these indemnities and guarantees varies and, in certain
cases, is indefinite. The majority of these indemnities and
guarantees do not provide for any limitation of the maximum
potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated to make
significant payments for these obligations. The Company has
recorded a reserve for indemnities and guarantees of $-0- as of
June 30, 2019 and 2018.
Leases
Effective from June 30, 2019 the Company has closed the site in
Witten and relocated its headquarters to Hamburg.The Company leases
office facilities from an unrelated third party at Euro 685 per
month. The office lease contract is maintained on a month-to-month
basis.
The Company also leases an automobile under an operating lease. The
lease provides for a lease payment of 538 Euros per month beginning
June 2018 expiring May 2020.
License
Agreement
As part of an
out-of-court settlement of a lawsuit between Sastomed GmbH and a
former employee of Sangui regarding the recognition of the
inventor's property, Sangui also granted a issuing of 2,238,095 of
its shares to the employee in addition to a license fee on the
revenues generated by the license agreement with Sastomed (see Note
2), The subject of the settlement was also the assumption of all
legal costs by this employee. Under the agreement between Sangui
and Sastomed, Sangui is entitled to half of this reimbursement. The
net burden of the shares issued ($ 38,048) and Sangui's portion in
the process cost reimbursement ($10,868) amounts to USD 27,180 and
was reported under accrued payables as of June 30, 2019.
NOTE 8 – STOCK-BASED COMPENSATION
The Company has applied the disclosure provisions of ASC 718 for
the years ended June 30, 2019 and 2018. There were no common shares
or stock options outstanding, issued or granted to employees during
these reporting periods.
On
April 28, 2004, the Company adopted the 2004 Employee Stock
Incentive Plan (“the Plan”). Under the terms of this plan the Board
was authorized to issue up to 1,000,000 shares of common stock to
certain eligible employees of the Company or its subsidiaries. All
of these shares were issued pursuant to the plan prior to June 30,
2007. On September 22, 2008 the Company adopted the 2008 Amended
and Restated Long-Term Equity Incentive Plan, whereby the Board was
authorized to issue up to 10,000,000 shares of common stock
(including incentive stock options) to certain eligible employees,
directors, and/or consultants of the Company or its subsidiaries.
During the years ended June 30, 2019 and 2018, respectively, the
Company issued no shares pursuant to this Plan. All shares
available under the 2008 Long-Term Equity Incentive Plan had been
issued as of June 30, 2019.
NOTE 9 – NOTE PAYABLE
On June 9, 2015, the
Company entered into a note payable with the Joint Venture for
32,863 Euros (see note 2). The note payable accrues interest
at 4% annum and is due June 30, 2019. Accordingly, the note payable
and accrued interest of 34,282 Euros, which was previously recorded
as a related party note
F-18
SANGUI BIOTECH INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
payable, is now reclassified as non-related party
note payable. The Company fully repaid principle and accrued
interest on July 12, 2018. The principal and accrued interest of
the note at June 30, 2019 and 2018 was $0 and $40,025,
respectively. The Company fully repaid principle and accrued
interest on July 17, 2018.
NOTE 10
– SUBSEQUENT EVENTS
Subsequent to the year ended June 30,
2019, the Company issued 2,238,095 shares of common stock for
service at $38,048, for an average of $0.017 per share.
On September 17, 2019
a Company Director advanced an amount of 20,000 Euros ($22,779;
converted with exchange rate of June 30, 2019) to the Company. The
loan is due on demand, accrues interest annually at 2% and is
unsecured.
On October 4, 2019 a
Company Director advanced an amount of 20,000 Euros ($22,779;
converted with exchange rate of June 30, 2019) to the Company. The
loan is due on demand, accrues interest annually at 2% and is
unsecured.
F-19
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
As
of the date of the end of the period covered by this report, our
Chief Executive Officer and Chief Financial Officer conducted an
evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as required by Exchange Act
Rule 13a-15. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls
and procedures were not effective as of the end of the period
covered by this report to ensure that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within
the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to
be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be
disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief
Executive Officer and our Chief Financial Officer, to allow timely
decisions regarding required disclosure.
Management’s
Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Exchange
Act Rule 13a-15(f). Management conducted an evaluation of the
effectiveness of the internal control over financial reporting as
of June 30, 2019, using the criteria established in Internal
Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A
material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Based on the
evaluation of the effectiveness of the internal controls over
financial reporting as of June 30, 2019, management has concluded
that our internal controls over financial reporting were not
effective as of the end of the period covered by this report.
As a
result of management’s assessment, management has determined that
there is a material weakness due to the lack of segregation of
duties. In order to address and resolve this weakness we will
endeavor to locate and appoint additional qualified personnel to
the board of directors and pertinent officer positions as our
financial means allow. To date, our limited financial resources
have not allowed us to hire the additional personnel necessary to
address this material weakness.
Additionally, as a result of management’s assessment, management
has determined that there is a significant deficiency with regard
to the lack of a backup process for electronic financial
information. There is no stored backup offsite or in a media safe,
and as such, there are no regularly run test restorations of said
financial information. In order to address and resolve this
deficiency we are currently
33
researching the
options available given our financial means to have a regularly
scheduled and dependable offsite backup of our Company records.
Lastly, the Company has not instituted specific anti-fraud
controls. While management found no evidence of fraudulent
activity, the chief accounting officer has access to both
accounting records and corporate assets, principally the operating
bank account. Management believes this exposure to potential
fraudulent activity is not significant either to the operations of
the company or to the financial reporting; however, management is
in the process of instituting controls specifically designed to
address this material weakness, so as to prevent and detect—on a
timely basis—any potential loss due to fraudulent activity.
This
Annual Report does not include an attestation report of the
company's registered public accounting firm regarding internal
control over financial reporting. Management's report was not
subject to attestation by the company's registered public
accounting firm pursuant to rules of the Securities and Exchange
Commission that permit the company to provide only management's
report in this annual report.
Changes in Internal Control Over Financial
Reporting
There has been no change in our internal control over financial
reporting that occurred during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
The
term “internal control over financial reporting” is defined as a
process designed by, or under the supervision of, the registrant’s
principal executive and principal financial officers, or persons
performing similar functions, and effected by the registrant’s
board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
(a)
Pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the registrant;
(b)
Provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
registrant are being made only in accordance with authorizations of
management and directors of the registrant; and
(c)
Provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the registrant’s assets that
could have a material effect on the financial statements.
ITEM
9B. OTHER INFORMATION
None.
34
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Identity of
directors and executive officers
The following table sets forth the names and ages of the current
directors and executive officers of Sangui BioTech International,
Inc., their principal offices and positions and the date each such
person became a director or executive officer. Our executive
officers are elected annually by the Board of Directors. Our
directors serve one-year terms or until their successors are
elected. The executive officers serve terms of one year or until
their death, resignation or removal by the Board of Directors.
There are no family relationships between any of the directors and
executive officers. In addition, there was no arrangement or
understanding between any executive officer and any other person
pursuant to which any person was selected as an executive
officer.
The directors as of
June 30, 2019 were as follows
|
Name
|
Age
|
Position with the Company
|
Director Since
|
|
Hubertus Schmelz
|
63
|
Non-Executive Director
|
Dec
18, 2008
|
|
|
|
|
|
|
Thomas Striepe
|
57
|
CEO, CFO & Director
|
Feb
7, 2005
|
None
of the Directors are related to one another. None of the
independent Directors has a business or professional relationship
with SGBI and/or the other Directors and substantial shareholders
of SGBI, except as follows:
Since January 2004, the SanguiBio Tech GmbH,a subsidiary of the
Company has an agreement with Hubertus Schmelz under which the
latter serves as a Managing Director on an hourly basis.
The
day-to-day operations of SGBI are entrusted to the Executive
Directors of SGBI.
The
business and working experience of the Directors and key Executive
Officers of SGBI as of June 30, 2019, are set out below:
THOMAS STRIEPE, is Vice President Accounting and Controlling at
Treukonzept Finance GmbH, Hamburg, Germany, a financial
services company. Prior to joining Treukonzept Finance GmbH in
2004, he held management positions in the accounting departments of
several German and international corporations. He holds an MBA from
Hamburg University.
HUBERTUS SCHMELZ, is the General Manager of SanguiBioTech GmbH. He
was appointed to this position effective December 16, 2003. Prior
to joining Sangui he acted as a legal and business consultant.
During the last decade prior to 2000 he was entrusted with numerous
business development projects by the German Treuhandanstalt in
restructuring the economy of Eastern Germany. After having studied
law he acted as legal counsel in several positions.
There are no arrangements or understandings between any of the
directors or executive officers, or any other person or person
pursuant to which they were selected as directors and/or
officers.
Significant
Employees
All
but one individual serving as scientific or administrative staff
have been engaged on the basis of consulting agreements. They
include non-disclosure and exclusivity sections and secure the
ongoing
35
cooperation. Key personnel the expertise and
abilities of which would be difficult to replace, includes Dr.
Harald Poetzschke.
Directorships
No
Director of the Company or person nominated or chosen to become a
Director holds any other directorship in any company with a class
of securities registered pursuant to section 12 of the Exchange Act
or subject to the requirements of section 15(d) of such Act or any
other company registered as an investment company under the
Investment Company Act of 1940.
Family
Relationships
There are no family relationships between any of the directors,
officers or employees of the Company.
Involvement in
Certain Legal Proceedings
During the past ten years, no present director, executive officer
or person nominated to become a director or an executive officer of
the Company has been or filed:
1.A
petition under the Federal bankruptcy laws or any state insolvency
law was filed by or against, or a receiver, fiscal agent or similar
officer was 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.Such
person was convicted in a criminal proceeding or is a named subject
of a pending criminal proceeding (excluding traffic violations and
other minor offenses);
3.Such
person 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
from, or otherwise limiting, the following activities:
i.Acting
as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
ii.Engaging
in any type of business practice; or
iii.Engaging
in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of
Federal or State securities laws or Federal commodities
laws;
4.Such
person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or
State authority barring, suspending or otherwise limiting for more
than 60 days the right of such person to engage in any activity
described in
36
paragraph (f)(3)(i) of this section,
or to be associated with persons engaged in any such
activity;
5.Such
person was found by a court of competent jurisdiction in a civil
action or by the Commission to have violated any Federal or State
securities law, and the judgment in such civil action or finding by
the Commission has not been subsequently reversed, suspended, or
vacated;
6.Such
person was found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any Federal commodities law, and the judgment in such
civil action or finding by the Commodity Futures Trading Commission
has not been subsequently reversed, suspended or vacated;
7.Such
person was the subject of, or a party to, any Federal or State
judicial or administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of:
i.Any
Federal or State securities or commodities law or regulation;
or
ii.Any
law or regulation respecting financial institutions or insurance
companies including, but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money
penalty or temporary or permanent cease-and-desist order, or
removal or prohibition order; or
iii.Any
law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or
8.Such
person was the subject of, or a party to, any sanction or order,
not subsequently reversed, suspended or vacated, of any
self-regulatory organization (as defined in Section 3(a)(26) of the
Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as
defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C.
1(a)(29))), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or
persons associated with a member.
Promoters and
Control Persons
None.
37
Audit Committee
and Audit Committee Financial Expert
The
Company has no separately designated standing audit committee or
another committee performing similar functions. The Board of
Directors acts as the audit committee. None of the directors
qualifies as an Audit Committee Financial Expert.
Material Changes
to the Method by Which the Shareholders May Recommend Nominees to
the Board of Directors
None.
Section 16 (a)
Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more
than ten percent of the Company's Common Stock, to file initial
reports of beneficial ownership on Form 3, changes in beneficial
ownership on Form 4 and an annual statement of beneficial ownership
on Form 5, with the SEC. Such executive officers, directors and
greater than ten percent shareholders are required by SEC rules to
furnish the Company with copies of all such forms that they have
filed.
Based solely upon a review of copies of the reports filed, we
believe that during the year ended June 30, 2019, all executive
officers, directors and persons who own more than ten percent of
the Company's Common Stock are in compliance with such
regulations.
Code of
Ethics
As
of the date of this report the Company has not adopted a code of
ethics.
Audit Committee
and Audit Committee Financial Expert
Our
board of directors is comprised of two directors, none of which is
an outside independent director, and as of the date hereof we have
not established an audit committee. Accordingly, our board of
directors presently performs the functions that would customarily
be undertaken by an audit committee.
ITEM
11.EXECUTIVE COMPENSATION AND OTHER
INFORMATION
Summary
Compensation Table
The
table below summarizes all compensation awarded to, earned by, or
paid to our Officers for all services rendered in all capacities to
us for the fiscal periods indicated.
|
Name and Principal
Position
|
Year
|
Salary
($) (1)
|
Bonus
($)
|
Stock Awards
($)
|
Option Awards
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
Thomas Striepe
|
2019
|
68,454 (3)
|
-
|
-
|
-
|
68,454
|
|
-Chief
Executive Officer
|
2018
|
19,253
|
-
|
-
|
-
|
19,253
|
|
-Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hubertus Schmelz
(2)
|
2019
|
-
|
-
|
-
|
-
|
-
|
|
|
2018
|
-
|
-
|
-
|
-
|
-
|
38
(1) All figures are
expressed in United States Dollars (“USD”); for the German
management personnel, the EURO or DM was converted to USD using the
average exchange rate of the period July 1 through June 30 for each
year.
(2) Hubertus Schmelz
serves as the General Manager of the Company’s 90% owned
subsidiary, Sangui Biotech, GMBH.
(3) See Item 13 below,
Certain Relationships and Related Transactions, and Director
Independence.
Narrative
Disclosure to Summary Compensation Table
There are no other employment contracts, compensatory plans or
arrangements, including payments to be received from the Company
with respect to any executive officer, that would result in
payments to such person because of his or her resignation,
retirement or other termination of employment with the Company, or
its subsidiaries, any change in control, or a change in the
person’s responsibilities following a change in control of the
Company.
There are no agreements or understandings for any executive officer
to resign at the request of another person. None of our executive
officers acts or will act on behalf of or at the direction of any
other person.
Outstanding Equity
Awards at Fiscal Year-End Table and Narrative
The
Company had no outstanding equity awards at fiscal year-end.
Compensation of
Directors
There was no compensation paid to any director who was a Named
Executive Officer during the fiscal year ended June 30, 2019.
Other
Contracts
None.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities
Authorized for Issuance under Equity Compensation Plans
No securities have been authorized for issuance as part of any
Equity Compensation Plan.
39
Security Ownership
of Certain Beneficial Owners
The
following table sets forth, as of June 30, 2019, certain
information concerning ownership of shares of Common Stock by any
person who is the beneficial owner of more than 5% of the
issued and outstanding Common Stock of the Company.
|
|
|
|
|
|
Title of
Class
|
Name and
Address of
Beneficial
Owner
|
Amount and
Nature of
Beneficial
Owner
|
Percent of
Class
|
|
|
|
|
|
|
Common Stock
|
Wolfgang Jensen
Am Berge 9
21376 Eyendorf
Germany
|
19,454,000
|
9.8%
|
|
|
|
|
|
|
Common Stock
|
Hubertus Schmelz
Neuer Wall 54
20354 Hamburg
Germany
|
18,806,481
|
9.4%
|
|
|
|
|
|
|
Common Stock
|
SastoMed GmbH
Brüsseler Straße
2
49124
Georgsmarienhütte
Germany
|
8,406,837
|
4.2%
|
Security Ownership
of Management
The
following table sets forth, as of June 30, 2019, certain
information concerning ownership of shares of Common Stock by each
director of the Company and by all executive officers and directors
of the Company as a group:
|
|
|
|
|
|
Title of
Class
|
Name and
Address of
Beneficial
Owner
|
Amount and
Nature of
Beneficial
Owner(1)
|
Percent of
Class
|
|
|
|
|
|
|
Common Stock
|
Thomas Striepe
Neuer Wall 54
20354 Hamburg
Germany
|
1,350,000
|
0.7%
|
|
|
|
|
|
|
Common Stock
|
Hubertus Schmelz
Neuer Wall 54
20354 Hamburg
Germany
|
18,806,481
|
9.4%
|
|
|
|
|
|
|
Common Stock
|
All Officers and
Directors as a Group (2 persons)
|
20,156,481
|
10.1%
|
Percentages are
calculated on the basis of 199,295,503 shares issued on June 30,
2019.
40
Changes in
Control
To
the best of the Company’s knowledge there are no present
arrangements or pledges of the Company's securities, which may
result in a change in control of the Company.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Transactions with
related persons
Except as otherwise disclosed below, no Director, substantial
shareholder or Executive Officer of SGBI was or is an interested
party in any transaction undertaken by SGBI or its subsidiary
within the last two years.
The Company has an agreement with the Company's former President
and CEO, pursuant to which he is entitled to three percent
royalties of gross revenues earned with any product based on his
inventions. No royalties were outstanding, paid or earned in fiscal
years 2019 and 2018.
As of June 30, 2019 and 2018, the Company has recorded $2,715 and
$2,779, respectively, in accounts payable to related parties for
services performed by Company officers and directors.
Related Party Loans
Payable
On March 6, 2015, the Company entered into a note payable with a
family member of a Company Director for 100,000 Euros. The note is
adapted period to period. On May 31, 2016 the note payable and
accrued interest were transferred to a Company Director. The
note payable accrues interest at 5 percent per annum, is due on
June 30, 2019 and is unsecured. On December 12, 2017, January 19,
2018, March 13, 2018, July 16 ,2018, September 10, 2018, October 4,
2018, December 27, 2018, January 21, 2019, February 26, 2019, March
20, 2019, April 8, 2019, May 9, 2019 and June 21, 2019 the Director
granted thirteen additional loans totaling 320,000 Euros to the
Company. The interest rate is uniformly 2.0% per annum. They are
unsecured. The balance of both note and loan principal and interest
is $ 506,815 at June 30, 2019.
Consulting Contract with Thomas
Striepe.
The
Company signed a consulting contract with Thomas Striepe, covering
certain administrations services on April 01, 2018.
Parents
Not
applicable.
Promoters and
Control Persons
Not
applicable.
41
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
Independent
Registered Public Accountants
The
Company’s independent accountants for the fiscal year ended June
30, 2019 and 2018 were Sadler, Gibb & Associates, LLC.
(a)Audit
Fees. For the fiscal
year ended 2019, the aggregate fees billed by Sadler, Gibb
& Associates for services rendered for the audits of the annual
financial statements and the review of the financial statements
included in the quarterly reports on Form 10-Q or services provided
in connection with the statutory and regulatory filings or
engagements for those fiscal years were $25,500 as summarized
below:
|
(in $)
|
2019
|
2018
|
|
Audit Fees
|
25,500
|
25,500
|
|
Audit related
fees
|
-0-
|
-0-
|
|
Tax fees
|
-0-
|
-0-
|
|
Other fees
|
-0-
|
-0-
|
(b)Audit-Related
Fees. For the fiscal
year ended 2019 and 2018fees billed by Sadler, Gibb &
Associates were an aggregate $0 for any audit-related services
other than as set forth in paragraph (a) above.
(c)Tax
Fees. For the fiscal years ended 2019 and 2018 Sadler, Gibb & Associates did
not bill any fees for tax compliance services. The auditors did not
provide tax-planning advice for the fiscal years ended 2019 and
2018.
(d)All
Other Fees. None.
42
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) Index to
Exhibits
|
|
|
|
3.1
|
Articles of
Incorporation of the Company (1)
|
|
3.2
|
Bylaws of the Company
(1)
|
|
3.3
|
Amended and Restated
Articles of Incorporation of the Company(2)
|
|
3.4
|
Amended and Restated
Bylaws of the Company(2)
|
|
21.1
|
Subsidiaries of the
Company, file herewith
|
|
31.01
|
Certification of CEO
Pursuant to Rule 13a-14(a) and 15d-14(a), filed herewith
|
|
31.02
|
Certification of
CFO Pursuant to Rule 13a-14(a) and 15d-14(a), filed
herewith
|
|
32.01
|
Certification
Pursuant to Section 1350 of Title 18 of the United States Code,
filed herewith
|
Notes:
(1) Previously filed as
an exhibit to the report on Form 8-K, filed on or about April 4,
2000, and incorporated herein by reference
(2) Previously filed as
an exhibit to the report on Form 10-Q, filed on February 25, 2009,
and incorporated herein by reference
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SANGUI BIOTECH
INTERNATIONAL, INC.
|
/s/ Thomas Striepe
Thomas
Striepe
Chief Executive
Officer
Principal
Executive Officer
Chief Financial
Officer
Principal
Financial Officer
|
October 8, 2019
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
Signatures
|
Title
|
Date
|
|
/s/ Thomas Striepe
Thomas Striepe
|
Director
|
October 8, 2019
|
|
|
|
|
|
/s/ Hubertus Schmelz
Hubertus Schmelz
|
Director
|
October 8, 2019
|
44
