Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this quarterly report. Some of the information in this quarterly report contains forward-looking statements, including statements related to anticipated operating results, margins, growth, financial resources, capital requirements, adequacy of the Company's financial resources, trends in spending on research and development, the development of new markets, the development, regulatory approval, manufacture, distribution, and commercial acceptance of new products, and future product development efforts. Investors are cautioned that forward-looking statements involve risks and uncertainties, which may affect our business and prospects, including but not limited to, the Company's expected need for additional funding and the uncertainty of receiving the additional funding, changes in economic and market conditions, acceptance of our products by the health care and reimbursement communities, new development of competitive products and treatments, administrative and regulatory approval and related considerations, health care legislation and regulation, and other factors discussed in our filings with the Securities and Exchange Commission.
GENERAL
Our mission is the development of novel and proprietary pharmaceutical, medical and cosmetic products. We develop our products through our German subsidiary, Sangui GmbH. Currently, we are seeking to market and sell our products through partnerships with industry partners worldwide.
Our focus has been the development of oxygen carriers capable of providing oxygen transport in humans in the event of acute and/or chronic lack of oxygen due to arterial occlusion, anemia or blood loss whether due to surgery, trauma, or other causes, as well as in the case of chronic wounds. We have thus far focused our development and commercialization efforts on such artificial oxygen carriers by reproducing and synthesizing polymers out of native hemoglobin of defined molecular sizes. In addition, we have developed external applications of oxygen transporters in the medical and cosmetic fields in the form of sprays for the healing of chronic wounds and of gels and emulsions for the regeneration of the skin. A wound dressing that shows outstanding properties in the support of wound healing, is being distributed by SastoMed GmbH (Sastomed), a former joint venture company in which we had held a share of 25%, as global licensee under the Granulox brand name. Effective as of the end of the second quarter of our fiscal year 2016 we sold this stake to SanderStrohmann GmbH.
Sangui GmbH holds distribution rights for our Chitoskin wound pads for the European Union and various other countries. Additionally, a European patent has been granted for the production and use of improved Chitoskin wound pads.
Our current key business focuses are: (a) selling our existing cosmetics and wound management products by way of licensing through distribution partners, or by way of direct sale, to end users; (b) identifying additional industrial and distribution partners for our patents, production techniques, and products; and (c) obtaining the additional certifications on our products in development.
Artificial Oxygen Carriers
Sangui GmbH develops several products based on polymers of purified natural porcine hemoglobin with oxygen carrying abilities that are similar to native hemoglobin. These are (1) oxygen carrying blood additives and (2) oxygen carrying blood volume substitutes.
According to regulatory requirements, all drugs must complete preclinical and clinical trials before approval (e.g. Federal Drug Administration approval) and market launch. The Company’s management believes that the European and FDA approval process will take at a minimum several years to complete.
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. As the Company has limited financial resources, we have suspended this project
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temporarily in order to focus our attention on our chronic wound research and the products developed in conjunction with their treatment.
Nano Formulations for the Regeneration of the Skin
Healthy skin is supplied with oxygen both from the inside as well as through diffusion from the outside. A lack of oxygen will cause degenerative alterations, ranging from premature aging to surface damage, and even as extensive as causing open wounds. The cause for the lack of oxygen may be a part of the normal aging process, but it may also be caused by burns, radiation, trauma, or a medical condition. Impairment of the blood flow, for example caused by diabetes mellitus or by chronic venous insufficiency, can also lead to insufficient oxygen supply and the resulting skin damage.
In response, we developed nano-emulsion based cosmetic preparations that in their design are able to help support regeneration of the skin by improving its oxygen supply. Our line of cosmetic products was thoroughly tested by an independent research institute and received top marks for skin moisturizing, and enhanced skin elasticity, respectively. However, sales of this series remained at low levels and during the first quarter of the 2016 financial year we decided to decrease our operations in this particular segment and to abandon the patent protection for this range of products.
Chitoskin Wound Pads
Usually, normal (“primary”) wounds tend to heal over a couple of days without leaving scars following a certain sequence of phases. Burns and certain diseases impede the normal wound healing process, resulting in large, hardly healing (“secondary”) wounds which only close by growing new tissue from the bottom. Wound dressings serve to safeguard the wound with its highly sensitive new granulation tissue from mechanical damage as well as from infection. Using the natural polymer chitosan, Sangui’s Chitoskin wound dressings show outstanding properties in supporting wound healing. Sangui GmbH holds various distribution rights for our Chitoskin wound pads, and it is the strategy of the company to find industry partners ready to acquire or license this product range as a whole.
Hemospray Wound Spray
Sangui GmbH has developed a novel medical technology supporting the healing of chronic wounds. Lack of oxygen supply to the cells in the wound ground is the main reason why those wounds lose their genuine healing power. Based on its concept of artificial oxygen carriers, the wound spray product we developed bridges the watery wound surface and permits an enhanced afflux of oxygen to the wound ground.
Sangui GmbH has granted SastoMed global distribution rights to this product. Distribution of the wound spray began in the European Union in April 2012 under the brand name “Granulox.”
In December 2012, product distribution was initiated in Mexico by Sastomed 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 Southeastern Europe.
Since December 2013, international distribution outside Germany in collaboration with local partners has occurred in more than 40 countries in Europe and Latin American.
On November 13, 2017, the Company announced that Infirst Healthcare Ltd reported that the United States Food and Drug Administration had granted Fast Track designation to Granulox for the treatment of diabetic foot ulcers. It is the first and only hemoglobin spray to receive the Fast-Track designation - a process designed to facilitate the development, and expedite the review of, new therapies to treat serious conditions and fill an unmet medical need.
Despite the positive reviews of our product, Granulox sales have become more volatile. We remain confident, however, that SastoMed will be able to considerably increase its sales in conjunction with increased distribution of the product into more international markets.
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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 the Company’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.
Pursuant to the contracts dated May 2, 2018 and November 11, 2018, between Sangui GmbH and Sangui KG, respectively, 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% similar to the remuneration regulation of the German Law on Employee Inventions (ArbnErfG).
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.
Effective July 27, 2020, Sastomed GmbH was merged with its parent company Mölnlycke Health Care GmbH, Düsseldorf. As a result of the merger, the license agreement between Sastomed GmbH and Sangui Know-How und Patentverwertungsgesellschaft mbH & Co. KG was transferred with all rights and obligations to the Mölnlycke Health Care GmbH.
FINANCIAL POSITION
During the six-months ended December 31, 2022, our total assets decreased $31,732 from $130,788 on June 30, 2022 to $99,056 on December 31, 2022. An increase in note receivables, related party of $5,791 compensated by a decrease in operating lease right-of-use assets of $ 8,134, a decrease of prepaid expenses and other assets of $7,467 and a decrease of cash of $ 21,154 from June 30, 2022 to December 31, 2022 were primarily responsible for the decrease in the total assets.
We funded our operations primarily through our existing cash reserves and cash received from the issuance notes payables from related parties and third parties. Our stockholders’ deficit increased by $75,153 from ($894,957) on June 30, 2022 to ($970,110) on December 31, 2022. The primary factor behind this was net loss attributable to common stockholders of $79,057.
RESULTS OF OPERATIONS
For the three-month and six-month periods December 31, 2022, and 2021:
REVENUES – Revenues reported were $10,627 and $22,172 for the three-months ended December 31, 2022 and 2021 respectively. For the six-months ended December 31, 2022, and 2021 revenues reported were $51,656 and $40,732. The decrease of $11,545 and the increase of $10,924 can be traced back to the development in royalties from the licensing agreement with Mölnlycke Heath Care GmbH.
RESEARCH AND DEVELOPMENT– Research and development expenses decreased by $16 to $1,656 from $1,672 for the three-month periods ending December 31, 2022, and 2021. Research and development expenses decreased $500 to $3,999 in the first six-months of our 2022 financial year from $4,499 in the comparable period of the previous year. The development is mainly attributed to fees for patents.
GENERAL AND ADMINISTRATIVE AND PROFESSIONAL FEES – The combined accumulated general and administrative expenses and professional fees decreased $3,722 to $36,285 during the three-months
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ended December 31, 2022, from $40,007 in the respective period of the previous year mainly due to lower of costs for cars. Accumulated general and administrative expenses and professional fees decreased $8,079 to $91,002 in the six-month period ended December 31, 2022, from $99,081 in the respective period of the previous year mainly due to lower of costs for cars.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization were $ $344 and $397 for the six-months ended December 31, 2022 and 2021 respectively.
GAIN/LOSS ON FOREIGN EXCHANGE - The three-month period ended December 31, 2022 shows losses on foreign exchange of $ -70,766 compared to gains of $ 14,253 during the respective period of the previous year, hence a change of $85,019. The six-month period ended December 31, 2022, shows losses on foreign exchange of $24,570 compared to gains of $34,586 during the respective period of the previous year, hence a change of $59,156. The change is mainly due to the revaluation of notes payables denominated in Euros at the end of each period.
INTEREST EXPENSE - Interest expenses for the three-month period ended December 31, 2022 and 2021 increased by $374 to $5,086 from $4,712. For the six-months ended December 31, 2022 and 2021, interest expense increased by $727 to $10,146 from $9,419. The increases relate to the increases of interest-bearing debt financing.
NET LOSS - As a result of the above factors, the net loss attributed to common shareholders increased to $102,289 compared to a loss of $,10,085 for the three-months ended December 31, 2022 and 2021 and increased to loss of $79,057 compared to a loss of $36,994 for the six-months ended December 31, 2022 and 2021 respectively. The loss per share for both periods was $(0.00).
Our consolidated net loss before non-controlling interest was $103,339 or $(0.00) per common share, for the three-months ended December 31, 2022, compared to $10,161 or $(0.00) per common share, during the comparable period in our 2021 financial year. Our consolidated net loss before non-controlling interest was $78,405 or $(0.00) per common share, for the six-months ended December 31, 2022, compared to a net loss of $38,078 or $(0.00) per common share, during the comparable period in our 2022 financial year.
LIQUIDITY AND CAPITAL RESOURCES
For the six-months ended December 31, 2022, net cash used in operating activities decreased $57,555 to ($20,789), compared to ($78,344) in the corresponding period of the previous year. This is mainly due effects of foreign currency exchange transactions and trade accounts receivable partially compensated by
to an increase net loss in the reporting period.
We had a working capital deficit of approximately $946,297 on December 31, 2022, an increase of approximately $78,387 from June 30, 2022.
On December 31, 2022, compared to June 30, 2022, we had cash of $9,315 compared to $30,469, prepaid expenses and other assets of $4,355 compared to $11,822 and accounts receivable of $13,521 compared $13,312. We will need substantial additional funding to fulfill our business plan and we intend to explore financing sources for our future development activities. No assurance can be given that these efforts will be successful.