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 (Sastomed), 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. 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
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.
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
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 have remained at a low level 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. SanguiBioTech 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
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, the wound spray product we developed bridges the watery wound surface and permits an enhanced afflux of oxygen to the wound ground.
SanguiBioTech 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 GmbH and their local distribution partner Bio-Mac Pharma and international distribution has been expanded since then through cooperation agreements with local distribution partners in the Benelux countries and South Eastern 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 has announced that the United States (US) Food and Drug Administration
ha
d
granted Fast Track designation to
Granulox
for
the tr
eatment of diabetic foot ulcers.
It is the first and only hemoglobin spray to receive 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 along with more international markets entering actual distribution of the product.
FINANCIAL POSITION
During the nine months ended March 31, 2018, our total assets decreased $31,613 from $93,773 at June 30, 2017 to $62,160 at March 31, 2018. A decrease in the cash on hand from June 30, 2017 to March 31, 2018, of $32,839 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 $143,948 from ($260,523) at June 30, 2017 to ($404,471) at March 31, 2018. The primary factor behind this was due to the issuance of stock for cash in the amount of $88,927, off-set by an increase to accumulated deficit of $184,768 as well as an decrease 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, 2018 and 2017:
REVENUES
–
Revenues reported were $10,191 and $11,678 for the three months ended March 31, 2018 and 2017 respectively. For the nine months ended March 31, 2018 and 2017 revenues were $65,273 and $47,186. Revenues decreased by $1,487 for the three months ended March 31, 2018 and increased by $18,087 for the nine months ended March 31, 2018. The decrease of $1,487 and the increase of $18,087 from the revenues in the comparable period of our 2017 financial year can be traced back the in royalties from the licensing agreement with SastoMed. Cost of sales were $44 and $663 for the nine months ended March 31, 2018 and 2017 respectively.
RESEARCH AND DEVELOPMENT
–
Research and development expenses increased by $6,574 to $9,983 from $3,409 for the three-month periods ending March 31, 2018 and 2017. Research and development expenses increased $6,051 to $17,788 in the first nine month of our 2018 financial year from $11,737 in the comparable period of the previous year. This increase is mainly attributed to higher fees for patents.
GENERAL AND ADMINISTRATIVE and PROFESSIONAL FEES
–
For the three months ended March 31, 2018 and 2017 the combined general and administrative expenses and professional fees decreased by $14,912 from $83,918 to $69,006. Accumulated general and administrative expenses and professional fees decreased $103,691 to approximately $225,364 in the first nine month ended March 31, 2018, from approximately $329,055 in the respective period of the previous year mainly due lower costs for legal advice.
INTEREST EXPENSE - interest expenses for the three-month period ended March 31, 2018 and 2017 were $2,205 and $4,974, a decrease of $2,769
. For the
nine
months ended
March 31, 2018
and
2017
, interest expense
decreased
by $
1,828
to $
5,981
from $
7,809
.
The increase relates to effects of exchange rates.
NET LOSS - As a result of the above factors, the net loss attributed to common shareholders decreased to a loss of $71,886 compared to a loss of $73,026 for the three months ended March 31, 2018 and 2017 respectively and a loss of $184,768 compared to a loss of $282,143 for the nine month ended March 31, 2018 and 2017 respectively The loss per share for both periods was $(0.00).
Our consolidated net loss before non-controlling interest was $76,925, or $(0.00) per common share, for the three months ended March 31, 2018, compared to $76,264 or $(0.00) per common share, during the comparable period in our 2017 financial year. Our consolidated net loss before non-controlling interest was $195,764 or $(0.00) per common share, for the nine months ended March 31, 2018, compared to $297,714 or $(0.00) per common share, during the comparable period in our 2017 financial year.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 2018, net cash used in operating activities increased $66,274 to $(184,009), compared to $(250,283) in the corresponding period of the previous year mainly due to the decrease of the operating loss of approximately $101,950 from a loss of $(297,714) in 2017 to a loss of $(195,764) in 2018.
The Company funded its business in the first nine months ended March 31, 2018 by raising notes payables totaling 75,000 Euros ($ 92,457 as of March 31, 2018).
We had a working capital deficit of approximately $404,472 at March 31, 2018, a increase of approximately $143,948 from June 30, 2017.
At March 31, 2018 compared to June 30, 2017, we had cash of $24,151 compared to $56,990, prepaid expenses of $24,363 compared to $26,662 and accounts receivable of $505 compared $468. 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.