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SANGUI BIOTECH INTERNATIONAL INC - 10-Q - Management's Discussion And Analysis Of Financial Condition And Results Of Operations

February 14, 2014

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

The Company's mission is the development of novel and proprietary pharmaceutical, medical and cosmetic products. The Company develops its products through its ninety percent owned German subsidiary SanguiBioTech GmbH. The Company is seeking to market and sell some or all of their products through partnerships with industry partners.

The focus of SanguiBioTech GmbH 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. SanguiBioTech GmbH has thus far focused its development and commercialization efforts of such artificial oxygen carriers by reproducing and synthesizing polymers out of native hemoglobin of defined molecular sizes. SanguiBioTech GmbH has in addition developed external applications of oxygen transporters in the medical and cosmetic fields in the form of gels and emulsions for the regeneration of the skin as well as in the form of a hemoglobin-based wound spray.

SanguiBioTech GmbH holds distribution rights for 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.

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.

The blood additives and blood substitute projects were halted in 2003 due to the lack of financing for the pre-clinical test phase of the blood additives.

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.

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During the fourth quarter of our 2013 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 2014 financial year, the company has entered into an agreement with a German university research institution aimed at carrying out a series of animal tests as part of its preparations to enter the preclinical testing of hemoglobin based artificial oxygen carriers targeting the remediation of ischemic conditions in human patients.

The necessary applications prerequisite for carrying out those animal tests were submitted to the respective Ethics Commission during the second quarter of our 2014 financial year.

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 2013 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

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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.

In the course of the first half of our 2014 financial year SastoMed GmbH accelerated the pace of its international expansion: Along with Germany, Granulox will become available in 18 other countries in the course of the next couple of months, promoted by contracts signed with ten distributors.

FINANCIAL POSITION

Our current assets increased approximately $124,789 from June 30, 2013 to approximately $647,318 at December 31, 2013. This is mainly attributed to our issuance of common stock for cash over the period.

Our net property and equipment decreased approximately $211 from June 30, 2013 to approximately $238 at December 31, 2013. The decrease is attributable to the depreciation for the period.

We funded our operations primarily through our existing cash reserves and cash received from the issuance of shares of common stock. Our stockholders' equity increased by $87,171 from $296,342 at June 30, 2013 to $383,513 at December 31, 2013. The primary factor behind this was our issuance of common stock for cash and services.

RESULTS OF OPERATIONS



Three months ended December 31, 2013 and 2012:

REVENUES - Revenues during the three months ended December 31, 2013 amounted to $33,776. The decrease by $12,681 from the revenues in the comparable period of our 2013 financial year is due to the fact that in the three month period of the previous year six months worth of royalties from the licensing agreement with SastoMed GmbH were incurred. Cost of sales in the second quarter of the 2014 financial year amounted to $208 compared to $-0- the year before.

RESEARCH AND DEVELOPMENT - Research and development expenses increased $55,420 to approximately $70,926 in the second quarter of our 2014 financial year from approximately $15,506 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 the preparatory works for the initial animal tests.

GENERAL AND ADMINISTRATIVE - General and administrative expenses decreased $379,270 to approximately $157,039 in the quarter ended December 31, 2013, from approximately $536,309 in the respective period of the previous year. In the second quarter of our 2013 financial year the company had issued a high amount of common stock for services which was not repeated in the course of the second quarter of this year.

DEPRECIATION AND AMORTIZATION - Depreciation decreased $67 to approximately $118 in the second quarter from approximately $185.

OTHER INCOME AND EXPENSES - Other expenses contains an expense of $244,983 which relates to an investment of the company into its 25% owned joint venture, SastoMed GmbH, carried out in the course of the quarter ended December 31, 2013. This total investment of $242,216 was capitalized and then impaired in full as of December 31, 2013. It was presented as an impairment of $244,983 due to exchange rate changes.

NET LOSS - As a result of the above factors, our consolidated net loss attributable to common stockholders was $397,830, or $(0.00) per common share, for the three months ended December 31, 2013, compared to $485,374, or $(0.00) per common share, during the comparable period in our 2013 financial year.

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Six months ended December 31, 2013 and 2012:

REVENUES - Revenues during the six months ended December 31, 2013 amounted to $60,303, an increase of 25.5% over the revenues of $48,043 in the comparable period of our 2013 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 half of the 2014 financial year amounted to $412 compared to $-0- the year before.

RESEARCH AND DEVELOPMENT - Research and development expenses increased $83,284 to approximately $107,234 in the first six months of our 2014 financial year from approximately $23,950 in the comparable period of the previous year. This is mainly attributed to enhanced R&D activities in resuming activities in the pursuit of our artificial oxygen carriers, in particular the filing of new patent applications and the preparatory works for the initial animal tests.

GENERAL AND ADMINISTRATIVE - General and administrative expenses decreased $386,494 to approximately $338,644 in the half year ended December 31, 2013, from approximately $725,138 in the respective period of the previous year. In the second quarter of our 2013 financial year the company had issued a high amount of common stock for services which was not repeated in the course of the comparable period of this year.

DEPRECIATION AND AMORTIZATION - Depreciation decreased $132 to approximately $232 in the half year from approximately $364.

OTHER INCOME AND EXPENSES - Other expenses contains an expense of $244,983 which relates to an investment of the company into its 25% owned joint venture, SastoMed GmbH, carried out in the course of the quarter ended December 31, 2013. This total investment of $242,216 was capitalized and then impaired in full as of December 31, 2013. It was presented as an impairment of $244,983 due to exchange rate changes.

NET LOSS - As a result of the above factors, our consolidated net loss attributable to common stockholders was $570,032, or $(0.00) per common share, for the six months ended December 31, 2013, compared to $665,579, or $(0.00) per common share, during the comparable period in our 2013 financial year.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended December 31, 2013, net cash used in operating activities increased to approximately $337,419, from approximately $266,507 in the corresponding period of the previous year. The issuance of common stock for services had reduced the cash used in operating activities in the period ended December 31, 2012.

We had a working capital of approximately $383,275 at December 31, 2013, an increase of approximately $87,382 from June 30, 2013. A significant part of our current assets consists of receivables from related and unrelated parties while the company has no financial liabilities. At December 31, 2013, we had cash of approximately $143,259. 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.

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Source: Edgar Glimpses


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