CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act
relating to future events or our future performance. The following discussion
should be read in conjunction with our consolidated financial statements and
notes to our financial statements included elsewhere in this report. This
discussion contains forward-looking statements that relate to future events or
our future performance. Although management believes that the assumptions made
and expectations reflected in the forward-looking statements are reasonable, we
cannot assure that the underlying assumptions will, in fact, prove to be correct
or that actual results will not be different from expectations expressed in this
report.
CRITICAL ACCOUNTING POLICIES: Our significant accounting policies are described
in Note 1 to the consolidated financial statements for the year ended June 30,
2022. 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.
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
During the period and in previous year the Company derives revenue only from
licensing fees on sales of its wound spray product from one licensee.
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
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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 $8,565 and
$8,266 during the fiscal years ended June 30, 2022 and 2021, 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, 2022 and 2021,
the Company recognized foreign currency translation gain of $6,930 and loss of
$2,237.
The exchange rates used to calculate values and results for the years ended June
30, 2022 and 2021 were as follows (USD):
Year-end Rates Average Period Rates
June 30, 2022 0.953800 0.888231
June 30, 2021 0.843845 0.838478
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 Mölnlycke Health Care 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 $59,310
and used cash in operating activities of $140,456 for the year ended June 30,
2022. 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
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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 increased by $1,043 or 2%, from $66,666 on June 30, 2021 to $
67,709 on June 30, 2022. The increase is primarily attributable to increases in
notes receivable, related party and cash in the year ended June 30, 2022.
Our net property and equipment are $358 on June 30, 2022 and $1,215 on June 30,
2021, a decrease of $857.
We funded our operations primarily through our existing cash reserves and cash
received from the issuance of shares of common stock and notes payables from
related parties. The Company's stockholders' deficit was increased from $875,325
on June 30, 2021 to $894,957 as of June 30, 2022. The primary reason for the
increase in the deficit was the net loss of $59,310 offset by issuance of common
stock totalling approximately $36,780.
REVENUES. Revenues increased 5% to $69,190 during the year ended June 30, 2022
from $65,585 in the previous fiscal year. This increase is due to increase in
income from royalties due from sales of the wound spray product due to
restructuring of sales and warehousing at the licensee which effected the
previous fiscal year.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to $8,565
during the year ended June 30, 2022 from $8,266 during the 2021 fiscal year. The
increase is mainly attributed to lower fees for patents.
OTHER OPERATING EXPENSES. Professional fees for 2022 decreased to $146,096 from
$158,962 in 2021 due to lower expenses for accounting and tax advice and lower
costs for patent filing. General and administrative expenses increased by
$4,526, due lower costs for rent and vehicles. Overall Total Operating Expenses
decreased by $8,087 or 4%.
OTHER INCOME (EXPENSE). - The period ended June 30, 2022 expenses of $76,104
compared to an income of $52,572 during the respective period of the previous
year, hence a change of $128,676. The changes relate to Gains on foreign
currency exchange of $99,722 in 2022 compared to losses of $34,585 in 2021, an
increase of interest expenses of $1,377 and an increase of loss on settlement on
accounts payable of $4,254.
NET LOSS. As a result of the above and other factors, the Company's consolidated
net loss attributable to common stockholders was $ 59,310 or ($0.00) per common
share in 2022, as compared to $198,890 or ($0.00) per common share in 2021.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 30, 2022, net cash used in operating activities
decreased to $140,456 from $145,847 for the year ended June 30, 2021 due to
contrary developments that almost canceled
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each other out: essentially a decrease of net loss, offset by an increase of
Foreign currency exchange transactions.
For the year ended June 30, 2022, net cash provided by financing activities
decreased from $162,015 received during the fiscal year 2021 to net proceeds of
$142,340 received in fiscal year 2022. The decrease came about due to decreases
of proceeds from common stock issued for cash and related party note payables
offset by an increase of proceeds from note payable.
We had net working capital deficit of $867,910 on June 30, 2022, compared to a
deficit of $888,041 at June 30, 2021, primarily attributed to an increase of
notes payables and accrued expenses. The Company had increases in cash, accounts
receivable and prepaid expenses, and decreases in tax funds receivables and note
receivables, related parties.
The Company incurred a net loss applicable to common stockholders of $59,310 and
used cash in operating activities of $140,456 for the year ended June 30, 2022.
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,
Mölnlycke Health Care GmbH, has convinced management to believe that income from
these agreements can reasonably be anticipated to begin during the 2023 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.
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SANGUI BIOTECH INTERNATIONAL, INC. 
