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 former joint venture
company in which we held a share of 25%, as global licensee under the Granulox
brand name. Effective end of second quarter of our fiscal year 2016 we sold this
stake to SanderStrohmann GmbH.
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.
9
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 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 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 of our financial year 2015 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.
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.
The blood additives project was halted in the second quarter of our financial
year 2016 due to the lack of financing the further authorization.
10
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. 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.
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.
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 and thus well above the average licensing rate of 7.5% of
sales revenues as calculated by market analysts. 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 September 2011, the Mexican Health Authorities registered the entire current
range of Sangui developed 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 SanguiBioTech 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. According to SastoMed GmbH, sales of the product under the brand
name "Granulox" started in Germany on April 16, 2012, other markets will be
addressed in due course.
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.
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 nine month
report on form 10-QSB that according to information provided by SastoMed GmbH
it now expects the Granulox market entry phase to last longer than initially
expected. No assurance can be given that based on royalty revenues the Company
may reach break-even in the course of its current financial year.
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, 2015Sangui BioTech GmbH sold its stake in Sastomed GmbH
of 25% to SanderStrohmann GmbH . Also effective December 31, 2015SanderStrohmann GmbH increased the nominal capital of Sastomed GmbH for an
amount of Euro 500,000 to strengthen the capital base of Sastomed GmbH.
It has to be noted, however, that Granulox sales by our distribution partner
SastoMed GmbH have become more volatile and declining from time to time. 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
During the nine months ended March 31, 2017, our total assets decreased $17,785
from $110,419 at June 30, 2016 to $92,634 at March 31, 2017. A decrease in the
cash on hand from June 30 2016, to March 31, 2017, of $18,765 was 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 of shares of common stock. Our stockholders' equity
(deficit) increased by $45,176 from ($247,566) at June 30, 2016 to ($292,742) at
March 31, 2017. The primary factor behind this was due to the issuance of stock
for cash and services for $243,570, and an increase to accumulated deficit of
$282,143 as well as an increase in accumulated other comprehensive income due to
movements in the foreign exchange rate.
RESULTS OF OPERATIONS
For the three-month and nine-month period ended March 31, 2017 and 2016:
REVENUES - Revenues reported were $11,678 and $10,149 for the three months ended
March 31, 2017 and 2016 respectively. For the nine months ended March 31, 2017
and 2016 revenues were $47,186 and $37,005. Revenues increased by $1,529 and
$10,181 for the three and for the nine months ended March 31, 2017. The increase
of $10,181 from the revenues in the comparable period of our 2016 financial year
can be traced back to a increase in royalties from the licensing agreement with
SastoMed GmbH. Cost of sales in the third quarter were $5 and $43 for the three
months ended March 31, 2017 and 2016 respectively. Cost of sales for the first
nine months amounted to $663 compared to $272 in 2017 and 2016, respectively.
RESEARCH AND DEVELOPMENT - Research and development expenses increased by $1,708
to $3,409 from $1,701 for the three-month periods ending March 31, 2017 and
2016. Research and development expenses decreased $25,471 to approximately
$11,737 in the first nine months of our 2017 financial year from approximately
$37,208 in the comparable period of the previous year. This decrease is mainly
attributed to lower R&D expenses after the conclusion of the animal tests of our
hemoglobin hyperpolymers. The company has no plans to start activities in this
area within the near future again.
GENERAL AND ADMINISTRATIVE and PROFESSIONAL FEES - For the three months ended
March 31, 2017 and 2016 the combined general and administrative expenses and
professional fees increased by $3,993 from $79,925. Accumulated general and
administrative expenses and professional fees increased $8,420 to approximately
$329,055 in the nine months ended March 31, 2017, from approximately $320,635 in
the respective period of the previous year, mainly due to costs for legal advice
occurred during the nine month period.
INTEREST EXPENSE - interest expenses for the three-month period ended March 31,
2017 and 2016 were $4,974 and $13,098, a decrease of $8,124. For the nine months
ended March 31, 2017 and 2016, interest expense decreased by $21,616 to $7,809
from $29,425. The decrease relates to the Company having an additional
convertible note accruing interest, in the prior period.
NET LOSS - As a result of the above factors, the net loss attributed to common
shareholders increased to a loss of $(73,026) compared to a loss of $(103,268)
for the three months ended March 31, 2017 and 2016 respectively and a loss of
$(282,143) compared to a loss of $(343,454) for the nine month ended March 31,
2017 and 2016 respectively . The loss per share for both periods was $(0.00).
Our consolidated net loss before non-controlling interest was $(76,264), or
$(0.00) per common share, for the three months ended March 31, 2017, compared to
$(106,795) or $(0.00) per common share, during the comparable period in our 2016
financial year. Our consolidated net loss before non-controlling interest was
$(297,714), or $(0.00) per common share, for the nine months ended March 31,
2017, compared to $(365,387) or $(0.00) per common share, during the comparable
period in our 2016 financial year.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 2017, net cash used in operating activities
decreased $104,587 to $250,283, compared to $354,870 in the corresponding period
of the previous year mainly due to the decrease of the operating loss of
approximately $37,673 from a loss of $(365,387) in 2016 to a loss of $(297,714)
in 2017; refunds and receivables which decreased from 2017 to 2016 yielding a
reduction in cash flow of approximately $20,000 and a net decrease in accounts
payable and related party obligations of approximately $(95,000).
We had a working capital deficit of approximately $292,742 at March 31, 2017, a
decrease of approximately $45,176 from June 30, 2016.
At March 31, 2017 compared to June 30, 2016, we had cash of $51,309 compared to
$70,074, prepaid expenses of $32,371 compared to $30,292 and accounts receivable
of $565 compared $504. 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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