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 distributed by SastoMed GmbH, a joint venture company in which we hold a share of 25%, as global licensee under the Granulox brand name.
SanguiBioTech GmbH holds distribution rights for our Chitoskin wound pads for the European Union and various other countries. 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
SanguiBioTech 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.
During the first quarter of our 2013 financial year the European Patent Office granted a patent based on Sangui’s application (01 945 245) “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 will encompass a greater array of ischemic conditions of the human body, for instance in the case of severe dysfunctions of the lung.
During the first quarter of our 2015 financial year, we begun 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 here 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 haemoglobin-based oxygen carrier, which would ultimately lower mortality rates. The preclinical trials commenced at ECCPS investigate the effect of various haemoglobin preparations on the oxygen supply of a number of organs in septic shock models and ARDS.
Also during the first quarter 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 could be 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, 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 (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.
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.
Sales of this series have remained at a low level throughout the first nine months of our 2015 fiscal year. It is the strategy of the company to find industry partners ready to acquire or license this product range as a whole.
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.
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
SanguiBioTech 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, our wound spray product bridges the watery wound surface and permits an enhanced afflux of oxygen to the wound ground.
In December 2010, SanguiBioTech GmbH established SastoMed GmbH, a joint venture company with SanderStrothmann GmbH of Georgsmarienhütte, Germany. SanguiBioTech GmbH has granted SastoMed GmbH global distribution rights. SastoMed GmbH started to distribute the product in Germany after having obtained the CE mark authorizing the distribution of the wound spray in the countries of the European Union in April 2012.
In August, 2012, Sangui BioTech GmbH and SastoMed GmbH cordially adjusted the existing sales strategy. In consideration of corresponding contributions the existing licensing contract was partially complemented resulting in the following conditions: As licensor SanguiBioTech GmbH is awarded a fixed licensing fee as a percentage of each and every external revenues incurred by SastoMed 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. In addition and complementing this basic agreement the percentage will be permanently increased by one fourth of the current rate as soon as cumulated sales revenues at SastoMed will have exceeded the total of €50,000,000.
Since December 2013 international distribution outside Germany was initiated in collaboration with local partners in more than 40 countries in Europe and Latin American.
It has to be noted, however, that Granulox sales by our distribution joint venture SastoMed GmbH have become more volatile in the course of our 2015 financial year with a strong first quarter being followed by two weak quarters. 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.
FINANCIAL POSITION
Our current assets decreased approximately $81,518 from June 30, 2014 to $179,071 at March 31, 2015. This is mainly attributed to a reduction in tax receivables, prepaid expenses and the redemption of a note receivable. The decrease in these positions was partly offset by an increase in cash and accounts receivable.
We funded our operations primarily through our existing cash reserves and cash received from the issuance of shares of common stock. Our stockholders’ equity decreased by $210,634 from $7,276 at June 30, 2014 to ($203,358) at March 31, 2015. The primary factor behind this was the net loss for the period increasing the accumulated deficit.
RESULTS OF OPERATIONS
Three months ended March 31, 2015 and 2014:
REVENUES - Revenues during the three months ended March 31, 2015 amounted to $11,654. The decrease by $17,784 from the revenues in the comparable period of our 2014 financial year can be traced back to a decrease in royalties from the licensing agreement with SastoMed GmbH. Cost of sales in the second quarter of the 2015 financial year amounted to $91 compared to $124 the year before.
RESEARCH AND DEVELOPMENT - Research and development expenses increased $3,706 to approximately $36,450 in the third quarter of our 2015 financial year from approximately $32,744 in the comparable period of the previous year. This is mainly attributed to R&D expenses relating to activities in the pursuit of our artificial oxygen carriers, in particular related to the preclinical tests of our hemoglobin hyperpolymers.
GENERAL AND ADMINISTRATIVE - General and administrative expenses decreased $567,196 to approximately $169,552 in the quarter ended March 31, 2015, from approximately $736,748 in the respective period of the previous year. In 2014, this position included the loss incurred from the write down of a loan extended to an unrelated party.
DEPRECIATION AND AMORTIZATION - Depreciation decreased $118 to approximately $-0- in the quarter from approximately $118.
OTHER INCOME AND EXPENSES - Other income and expenses contains interest expenses for the quarter in the amount of $1,127. During the third quarter of our 2014 financial year the company incurred interest expenses of $1,718.
NET LOSS - As a result of the above factors, our consolidated net loss attributable to common stockholders was $181,354, or $(0.00) per common share, for the three months ended March 31, 2015, compared to $687,695, or $(0.01) per common share, during the comparable period in our 2014 financial year.
Nine months ended March 31, 2015 and 2014:
REVENUES - Revenues during the nine months ended March 31, 2015 amounted to $116,560, an increase of 29.9% over the revenues of $89,741 in the comparable period of our 2014 financial year. Revenues as of the period covered by this report include accrued receivables from the licensing agreement with SastoMed GmbH. Cost of sales in the first nine months of the 2015 financial year amounted to $489 compared to $536 the year before.
RESEARCH AND DEVELOPMENT - Research and development expenses increased $31,499 to $171,427 in the first nine months of our 2015 financial year from $139,978 in the comparable period of the previous year. This is mainly attributed to enhanced R&D activities in particular related to the preclinical tests of our hemoglobin hyperpolymers.
GENERAL AND ADMINISTRATIVE - General and administrative expenses decreased $554,562 to $520,830 in the nine months period ended March 31, 2015, from $1,075,392 in the respective period of the previous year. In 2014, this position included the loss incurred from the write down of a loan extended to an unrelated party.
DEPRECIATION AND AMORTIZATION - Depreciation decreased $350 to $-0- in the none months from approximately $350.
OTHER INCOME AND EXPENSES - Other expenses decreased to $2,902 from $252,311 in the first nine months of the 2014 financial year. In the previous year, other expenses contained an expense of $244,983 which relates to an investment of the company into its 25% owned joint venture, SastoMed GmbH, which had been impaired in full as of March 31, 2014.
NET LOSS - As a result of the above factors, our consolidated net loss attributable to common stockholders was $537,282, or $(0.00) per common share, for the nine months ended March 31, 2015, compared to $1,257,727, or $(0.01) per common share, during the comparable period in our 2014 financial year.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 2015, net cash used in operating activities decreased to $445,557, from $452,192in the corresponding period of the previous year.
We had a working capital deficit of $203,358 at March 31, 2015, a decrease of $196,082 from June 30, 2014, largely due to the note payable – related party entered into during the nine month period. At March 31, 2015, we had cash of approximately $107,798. 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.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by § 229.10(f)(1) and are not required to provide the information under this item.
Item 4 - 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.
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.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is not aware of pending claims or assessments which may have a material adverse impact on the Company’s financial position or results of operations.
Item 1a - Risk Factors
We are a smaller reporting company and are not required to provide the information under this item.
Item 2 - Unregistered Sales of Equity Securities and Use Of Proceeds
During the six months ended December 31, 2014, the Company issued 352,800 shares of its common stock for services to unrelated parties at an average price of $0.07 per share. Additionally the Company sold 4,350,000 shares of its common stock for cash at an average price of $0.06 per share 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.
During the three months ended March 31, 2015, the Company issued 200,000 shares of its common stock for services valued at $12,230, and 200,000 shares of its common stock for cash at an average price of $0.055 per share. 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.
After the period covered by this report, in April, 2015 the company issued 200,000 shares of its common stock for cash to one individual at an average price of $0.05. 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 3 - Defaults Upon Senior Securities
None.
Item 5 - Other Information
None.
Item 6 – Exhibits
1. Financial Statements. The unaudited condensed consolidated Balance Sheet of Sangui Biotech International, Inc. as of March 31, 2015 and the audited balance sheet as of June 30, 2014, the unaudited condensed consolidated Statements of Operations for the three month periods ended March 31, 2015 and 2014, and the unaudited condensed consolidated Statements of Cash Flows for the nine-month periods ended March 31, 2015 and 2014, together with the notes thereto, are included in this Quarterly Report on Form 10-Q.
2. Exhibits. The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K.
Exhibit
Number Description of Exhibit
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 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SANGUI BIOTECH INTERNATIONAL, INC.
Dated: May 15, 2015 /s/ Thomas Striepe
By: Thomas Striepe
Chief Executive Officer
Dated: May 15, 2015 /s/ Joachim Fleing
By: Joachim Fleing
Chief Financial Officer
