-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HwvylRI9I6vPG+9Z5YcOWZQhJleXPPFSjgyMfvZAVfzSV/K/UEybC40rrE9PbCQq AQwvE0+ncTTsdiFCx/d0gA== 0001010412-98-000064.txt : 19980416 0001010412-98-000064.hdr.sgml : 19980416 ACCESSION NUMBER: 0001010412-98-000064 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980415 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANGUINE CORP CENTRAL INDEX KEY: 0000926287 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 954347608 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-24480 FILM NUMBER: 98594834 BUSINESS ADDRESS: STREET 1: 101 EAST GREEN ST STREET 2: #11 CITY: PASADENA STATE: CA ZIP: 91105 BUSINESS PHONE: 8184050079 MAIL ADDRESS: STREET 1: 101 EAST GREEN ST STREET 2: STE 11 CITY: PASADENA STATE: CA ZIP: 91105 10KSB 1 ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 U. S. Securities and Exchange Commission Washington, D. C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________ Commission File No. 0-24480 SANGUINE CORPORATION (Name of Small Business Issuer in its Charter) NEVADA 95-4347608 (State or Other Jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 101 East Green Street, #11 Pasadena, California 91105 (Address of Principal Executive Offices) Issuer's Telephone Number: (626) 405-0079 N/A (Former Name or Former Address, if changed since last Report) Securities Registered under Section 12(b) of the Exchange Act: None Name of Each Exchange on Which Registered: None Securities Registered under Section 12(g) of the Exchange Act: $0.001 par value common stock Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes X No (2) Yes X No --- --- --- --- Check if there is no disclosure of delinquent files in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State Issuer's revenues for its most recent fiscal year: December 31, 1997 - $0 State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days. April 14, 1998 - $5,569.92. There are approximately 5,569,921 shares of common voting stock of the Company held by non-affiliates. During the past two years there has been no "established public market" for shares of common voting stock of the Company, so the Company has arbitrarily valued these shares based on $0.001 par value per share. (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Not Applicable. (APPLICABLE ONLY TO CORPORATE ISSUERS) State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date: April 14, 1998 21,010,004 DOCUMENTS INCORPORATED BY REFERENCE A description of "Documents Incorporated by Reference" is contained in Item 13 of this report. Transitional Small Business Issuer Format Yes X No ___ PART I Item 1. Description of Business. ------------------------ Business Development. - --------------------- Acting by unanimous consent on November 21, 1997, the Board of Directors of the Company resolved to issue 100,000 "unregistered" and "restricted" shares of common stock to David E. Nelson, its Chief Financial Officer, for services rendered to the Company. These shares were issued on December 1, 1997. At a Special Meeting of the Company's Board of Directors held January 13, 1998, which is subsequent to the period covered by this Report, a majority of the Board of Directors resolved (i) to accept the resignation of Holomon J. Nicholas, II, as President and Chief Operating Officer of the Company, effective as of December, 1996; (ii) to prohibit Mr. Nicholas from representing himself as an executive officer of the Company and from disseminating confidential information about the Company; (iii) to cancel the shares of stock issued to Mr. Nicholas due to failure of consideration on the part of Mr. Nicholas; and (iv) to instruct the Company's transfer agent to refuse to register the transfer of any shares from Mr. Nicholas. On February 9, 1998, which is subsequent to the period covered by this Report, the Company filed its Complaint against Mr. Nicholas in the Third Judicial District Court of the State of Utah, seeking monetary damages and a preliminary injunction against Mr. Nicholas' sale of any of his shares of the Company's common stock. The case was designated Case No. 980901338, and is discussed under the caption "Legal Proceedings," Part I, Item 3 of this Report. Mr. Nicholas resigned as a director of the Company on February 27, 1998, which is subsequent to the period covered by this Report. For a discussion of the business development of the Company from inception to the end of the calendar year ended December 31, 1996, see its Registration Statement on Form 10-SB-A1, filed with the Securities and Exchange Commission on August 19, 1994; its Annual Report on Form 10-KSB-A1 for the calendar year ended December 31, 1994, filed on August 2, 1995; its Annual Report on Form 10-KSB-A1 for the calendar year ended December 31, 1995, filed on June 17, 1996; and its Annual Report on Form 10-KSB for the calendar year ended December 31, 1996, filed on April 21, 1998, each of which is incorporated herein by this reference. See Item 13 of this Report. Business. - --------- The Company, through its majority-owned subsidiary, Sanguine Corporation, a California corporation ("Sanguine California"), is engaged in the development of a synthetic red blood cell product called "PHER-O2." PHER-O2 is a second generation version of Fluosol, the only FDA-approved synthetic blood product to date. The development of this product presently comprises its sole business operations. PHER-O2 is composed of perfluoro- decalin molecules (i.e., synthetic red blood cells), purified water and a proprietary, synthetic, fluorinated surfactant to hold the emulsion together. Perfluoro-decalin has great oxygen-carrying capacity, yet it can be as much as 900 times smaller than a red blood cell. Management believes that PHER-O2 may carry three to four times the oxygen of human blood per unit. This increased oxygen-carrying capacity may make PHER-O2 useful in the treatment of heart attacks, strokes, cancer and other diseases for which increased oxygenation is beneficial. Furthermore, the Company believes that perfluoro-decalin may be effective as an imaging agent in X-ray imaging, nuclear magnetic resonance (NMR) imaging and CAT scans, without side effects. Management also believes that PHER-O2 has several other advantages over human blood: it may be sterilized to be free of disease; is believed to have the quality of a universal match for all blood types; may be mass-produced; and may be stored much longer than human blood. Battelle Memorial Institute was retained to assist the Company in completing the emulsion of perfluoro-decalin and the synthetic surfactants that make up PHER-O2. These activities ceased in May, 1994, when the Company became unable to pay for new Battelle research services. In the event that the Company is able to obtain substantial additional funding, as to which no assurance can be given, it is anticipated that on completion of the compounding of PHER-O2, Battelle Memorial Institute will perform initial gross animal tests, which do not require regulatory approval prior to commencement; however, the data gathered from any such tests will be subject to regulatory review in the future. The Company anticipates that it will manufacture experimental doses of PHER-O2 required to conduct gross animal testing. In its second phase of operations, management intends to continue developing the perfluorocarbon compounds in PHER-O2 in order to optimize its quality, and expects to begin animal safety and efficacy trials in accordance with guidelines of the United States Food and Drug Administration ("FDA") and comparable foreign regulatory requirements. In the final phase of the Company's proposed business operations, it intends to complete its United States testing of PHER-O2, receive all necessary FDA approvals and begin American and Canadian sales for cancer treatment and angioplasty; and complete overseas testing, begin overseas sales and begin the construction of manufacturing facilities. Sanguine California has previously licensed BioLogix to manufacture and market PHER-O2 in Canada, including any future Canadian patent rights, and the exclusive right to market PHER-O2 in U.S. military pre-hospital markets. In this final phase, the Company also intends to continue trials to test PHER-O2 for other applications, including transplant organ preservation and the treatment of carbon monoxide poisoning, sickle cell anemia, heart attack and stroke. The Company will be required to conduct similar rigorous testing and clinical trials of PHER-O2 for each desired application for which it is sought to be used. PHER-O2 is still in the research and development stage. It has not been tested on animals or humans; nor has any application been submitted to any federal, state or foreign agency to seek authority for such testing. This development process will be time consuming, costly, subject to extreme governmental regulation and must prove that this product is safe and efficacious for human use. Until then, the Company will have no potential for revenues from operations. No assurance can be given that the Company will be able to raise the capital it will need to develop PHER-O2, or that if sufficient funds are raised, that the Company will ever receive requisite federal, state or foreign agency approval to manufacture or market this product. See the captions "Principal Products or Services and their Markets," "Competition," "Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts" and "Governmental Approval of Principal Products or Services" of this Item. Principal Products or Services and their Markets. - ------------------------------------------------- The Company has only one product, PHER-O2, which is still in the research and development stage. The Company's success hinges solely on the success of this product, as to which no assurance can be given. PHER-O2 is made up of perfluoro-decalin (a type of perfluorocarbon that is harmless to the atmosphere), purified water and a proprietary surfactant to hold the emulsion together. Perfluoro-decalin gives the product its oxygen carrying ability. The surfactant is non-toxic and, being fluorinated, helps increase PHER-O2's oxygen carrying capacity and emulsion stability. Sanguine believes that the unique chemical nature of PHER-O2 will make it ideal for many medical applications; each such application will be subject to the same types of rigorous testing, clinical trials and regulatory approval process. PHER-O2 is believed to have the following advantages over human blood: 1. May carry three to four times the oxygen of human blood per unit; 2. Free of HIV, hepatitis and other blood-borne disease; 3. Universal match for all blood types; 4. May be mass-produced; 5. Has a three-year shelf life; 6. May be stored at room temperature; 7. Has controllable circulatory half-life; and 8. 1/900th the size of a red blood cell. 9. PHER-O2 is a second generation drug from Fluosol-DA, the only synthetic red blood cell approved by the Food and Drug Administration. The Company believes that these unique qualities may make PHER-O2 ideal for blood transfusions and numerous other medical applications, including nuclear magnetic resonance imaging, CAT scans, cardioplegia (i.e., the priming of heart-lung machines in open heart surgery) and treatment of heart attacks, strokes, head and neck tumors and hemorrhagic shock. The Company intends to fully exploit the immense worldwide market for these applications. Blood transfusion represents a vast market for synthetic blood. The limited supply of donated blood is the largest constraint on the number of transfusions given annually. If a blood substitute were widely available, more transfusions could be given to those who desperately need them. The Company hopes to fill this need with PHER-O2. The key ingredients in PHER-O2 are readily available in the U.S. from many manufacturers. When combined in the Company's proposed factory, using the Company's proprietary emulsion process, the result will be a plentiful alternative to donated human blood. Another disadvantage to the use of human blood in transfusions is the waiting period while the donor's blood is being matched to the recipient's. Because it is believed PHER-O2 does not need to be matched to the recipient's blood type, the use of PHER-O2 would eliminate this potentially fatal wait. As HIV, hepatitis and other diseases have infected the world's blood supply, the need for an absolutely sterile blood product has become increasingly apparent. There is currently no 100 percent effective method for detecting blood-borne disease and sterilization of donated blood is not yet possible. In light of these facts, PHER-O2's potential sterility makes it especially attractive in comparison to donated blood. PHER-O2's anticipated ability to carry up to four times the oxygen of human blood makes it promising for many medical applications in which increased oxygenation is vital. PHER-O2 molecules are up to 900 times smaller than human red blood cells. The Company believes that this fact will make PHER-O2 particularly useful for oxygenating organs through blocked arteries, which are the primary cause of heart attack and stroke. One of the Company's erstwhile competitors has obtained FDA approval for the use of a similar product in angioplasty, the treatment of blocked arteries with small inflated balloons. This application involves the injection of the blood substitute into the artery past the inflated balloon. As a result, the heart receives more oxygen, the treating physician can keep the balloon inflated longer and the angioplasty is more effective than it would otherwise be. This competitor has recently announced that it will no longer manufacture its product, leaving Sanguine well-positioned in this market segment. See the caption "Competition" of this Item. Management also believes that PHER-O2 will be ideal for use in open-heart surgery. Cardiac surgeons need an oxygen-carrying fluid that can be used to prime the heart-lung bypass machines that are used to mechanically pump and oxygenate heart patients' blood. This procedure is known as "cardioplegia." Surgeons currently use saline, dextrose or hydroxyethyl starch solutions for this purpose, but these fluids can dilute the red blood cells in the body, and thus decrease the ability of the blood to carry oxygen. Moreover, the risk of infection from whole blood or its derivatives makes them undesirable for use as priming fluids. PHER-O2's significant oxygen-carrying ability and its sterility address both of these concerns. The treatment of head and neck tumors is another promising application for PHER-O2. Increased oxygenation of these tumors makes them more susceptible to the effects of chemotherapeutic drugs. Another potential benefit of PHER-O2, though little understood, is the ability of oxygen-rich blood to cause a tumor to produce hydrogen peroxide, which in turn tends to shrink the tumor. Finally, the perfluoro-decalin molecule in PHER-O2 works as a radiopaque agent in X-ray imaging and as a contrast agent in nuclear magnetic resonance (NMR) imaging and CAT scans. However, unlike many currently-available imaging agents, PHER-O2 has no known side effects. Competition. - ------------ Several other companies, both domestic and foreign, are working to develop alternatives to human blood. They include: Alliance Pharmaceutical Corporation (San Diego, California); Baxter International (Deerfield, Illinois); Biopure Corporation (Boston, Massachusetts); Northfield Labs (Chicago, Illinois); and Somatogen Corporation (Boulder, Colorado). These competitors are involved in the development of a wide variety of human blood substitutes, including synthetic compounds, recycled human blood and recombinant hemoglobin. Neither the list of competitors nor the list of human blood substitutes is exhaustive. Furthermore, many of the Company's existing or potential competitors have significantly greater technical and financial resources than the Company and may be better able to develop, test, produce and market products. These competitors may develop products that are competitive with or better than the Company's product and that may render the Company's product obsolete. The Company can provide no assurance that it will be able to compete successfully. Sources and Availability of Raw Materials. - ------------------------------------------ The Company plans to purchase medical-grade perfluorocarbons and surfactants from reliable vendors and to emulsify these ingredients in its own facility. Air Products and Chemicals, Inc., PCR, Inc. and BNFL Fluorochemicals, Ltd. are qualified medical grade perfluorocarbon vendors. Surfactants are available through numerous vendors. Because intravenous solutions plants are very expensive and FDA approval of such plants is a lengthy process, the Company intends to hire a third party to package the product in sterile plastic bags with intravenous sets attached. Abbott Laboratories, Baxter, McGaw, Fresenius and Kabi are a few of the companies with the qualifications and capacity to perform this function; however, the Company can provide no assurances that any of these ingredients or services will be available or that they will be available at prices that are low enough to make the Company's operations profitable. Most of the Company's potential competitors have a severe shortage of raw materials, namely the outdated blood that is required to produce their products. Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts. - ---------------- Assuming the Company's product is proven efficacious for one or more applications and receives requisite regulatory approval, the Company's success will depend in part on its ability to obtain patents, protect trade secrets and avoid infringing the proprietary rights of others. On September 28, 1992, Sanguine California filed a patent application for the PHER-O2 surfactant and micro-emulsion technology with the U.S. Patent Office and received patent pending status on the same date. In 1994, the Company and Battelle Memorial Research Institute developed three other proprietary synthetic blood compounds using newly developed surfactants, for which the Company intends to file the necessary patent applications. However, the patent position of biotechnology companies in general is highly uncertain and involves complicated factual and legal questions. The Company can provide no assurance that it will receive a patent for PHER-O2 or any other property for which a patent is sought. Nor can the Company provide any assurance that any issued patents will give it any competitive advantage, that competitors' patents will not adversely affect the Company's business, or that competitors will not develop similar products that are beyond the scope of the Company's patents. On March 28, 1991, Sanguine California and BioLogix, entered into a 10-year License Agreement whereby Sanguine California granted to BioLogix certain license rights to manufacture and market PHER-O2 (the "License Agreement"). Under the License Agreement, as amended on September 28, 1991, Sanguine California granted to BioLogix the exclusive right to manufacture and market PHER-O2 in Canada, including any future Canadian patent rights, and the exclusive right to market PHER-O2 in U.S. military pre-hospital markets (i.e., non-hospital emergency markets such as ambulances, fire and rescue vehicles and out-patient clinics). The consideration for these rights was the payment by BioLogix to Sanguine California of $100,000. The amended License Agreement also granted BioLogix the right to purchase for $200,000 a "co-exclusive license" with Sanguine California to market PHER-O2 in all American pre-hospital markets. Only $50,000 of this amount was paid and the right to purchase the co-exclusive license expired on March 31, 1992. Finally, the License Agreement, as amended, provided for the payment of royalties equal to 10 percent of gross sales revenues for PHER-O2 by the party selling PHER-O2 pursuant to the License Agreement to the non-selling party. On December 9, 1993, the Company entered into an Agreement with Battelle Memorial Institute, through its Battelle Columbus Operations (the "Battelle Agreement"), for research and development of the use of surfactants to form a stable microemulsion using the Company's perfluorocarbon for use as a blood substitute. Terms under the initial Battelle Agreement provided for the payment of $62,500 by the Company for these services, and an additional $162,500 under an extension dated April 7, 1994 (the "Battelle Extension"). The Company retains all rights to any inventions discovered; Battelle is required to provide periodic reports to the Company and keep all information confidential; and either party may terminate the Battelle Agreement on fifteen days' written notice, and Battelle may terminate on ten days' written notice of default in any payment due from the Company, unless payment is received. In the event of termination, Battelle is required to provide the Company with all reports, materials or other deliverable items available as of such date. Continued research and development of PHER-O2 will depend upon the Company's receipt of substantial additional debt or equity funding, as to which no assurance can be given. Governmental Approval of Principal Products or Services. - -------------------------------------------------------- FDA and comparable foreign agencies require laboratory testing, clinical testing and other costly and time-consuming procedures before biomedical products such as PHER-O2 can be marketed. To date, the Company has not begun any of these procedures. The Company's plan for obtaining FDA and overseas approval of PHER-O2 is set forth under the caption "Plan of Operation." The Company can provide no assurance that these testing procedures will be successfully completed, that if completed, they will show PHER-O2 to be safe and efficacious or that any required governmental approvals will be obtained. Accordingly, there can be no assurance that the Company will ever be permitted to market PHER-O2 in the United States or most foreign countries. The same holds true for any other products that the Company may develop. See the caption "Effects of Existing or Probable Governmental Regulations" of this Item. Effects of Existing or Probable Governmental Regulations. - --------------------------------------------------------- Regulation by governmental authorities in the United States and foreign countries will significantly affect the Company's ability to manufacture and market its product and to conduct its ongoing research and product development activities. The Company's only product, PHER-O2, will require regulatory approval by appropriate governmental agencies before it can be commercialized. Human therapeutic products are subject to rigorous pre- clinical and clinical testing and other approval procedures by the FDA and similar health authorities in foreign countries. Various federal, state and foreign statutes also govern or influence the manufacturing, safety, labeling, storage, record-keeping and marketing of such products. The process of obtaining these approvals is costly and time consuming. Further, ongoing compliance with these requirements can require the expenditure of substantial resources. Any failure by the Company or its collaborators or licensees to obtain, or delay in obtaining, required regulatory approvals would adversely affect the marketing of the Company's product and its ability to derive product or royalty revenue. Pre-clinical testing is generally conducted in animal or in vitro models to evaluate the potential efficacy and safety of a compound before it is administered to humans. The results of these studies are submitted to the FDA as part of an Investigational New Drug application ("IND"), which must be approved before human clinical testing can begin. No tests of any nature whatsoever have yet been run on PHER-O2. Clinical trials involve the administration of the investigational new drug to healthy volunteers or to patients, under the supervision of a qualified principal investigator. Clinical trials are conducted in accordance with certain standards under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further, each clinical study must be conducted under the auspices of an independent IRB at the institution at which the study will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. Clinical trials are typically conducted in three sequential phases, but the phases may overlap. In the first phase, the product is usually infused into a limited number of human subjects and will be tested for safety or adverse effects, dosage tolerance and pharmacokinetics (clinical pharmacology). The second phase involves studies in a somewhat larger patient population to identify possible adverse effects and safety risks and to begin gathering preliminary efficacy data. The third phase of trials will be undertaken to further evaluate clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical study sites. Although the Company believes its product is substantially different from other blood substitute products, there can be no assurance that the Company will not encounter problems in clinical trials which will cause the Company to delay or suspend clinical trials. In the case of biologic products such as PHER-O2, the results of pharmaceutical development and the pre-clinical and clinical testing are submitted to the FDA in the form of a Product License Application ("PLA"), which must be approved before commercial sales may begin. The Company must also file an Establishment License Application ("ELA") which describes the manufacturing process for the product and the facility at which the product will be produced. The FDA may respond to the PLA and the ELA by granting a license for the manufacture of the product from a designated facility and the commercial sale of the product or by denying the application if it finds that the application does not meet the criteria for regulatory approval, requires additional testing or information or requires post-marketing testing and surveillance to monitor the safety of the Company's product if they do not view the PLA as containing adequate evidence of the safety and efficacy of the drug. Notwithstanding the submission of such data, the FDA may ultimately decide that the application does not satisfy its regulatory criteria for approval. The testing and approval process is likely to require substantial time and effort. There can be no assurance that approval will be granted for the Company's product or its proposed facilities on a timely basis, if at all. In addition to regulations enforced by the FDA, the Company may also be subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the National Environmental Policy Act, the Clean Air Act, the Medical Waste Tracking Act, the federal Water Pollution Control Act and other present and potential future federal, state and local regulations. Cost and Effect of Compliance with Environmental Laws. - ------------------------------------------------------ Management believes all of the substances making up PHER-O2 are non-toxic and that no toxic or hazardous materials will be byproducts of the manufacturing process of PHER-O2. PHER-O2 is totally inert. Accordingly, management does not believe the Company will have any material expenditures related to the cost of compliance with applicable environmental laws, rules or regulations. Research and Development Expenses. - ---------------------------------- In calendar years 1995, 1996 and 1997, the Company, through its wholly-owned subsidiary, Sanguine California, expended a total of $273,171 on research and development. As neither the Company nor Sanguine California presently has any customers, none of the cost of these activities was borne directly by customers. Number of Employees. - -------------------- The Company presently has two employees, Dr. Drees and Mr. Hargreaves, both of whom are employed full time. Once the development of PHER-O2 is completed and the Company commences initial animal testing and manufacturing of this product for these tests, additional employees will be required; the Company is unable to presently estimate the exact number of employees it may need for these services; however, see the caption "Plan of Operation." Item 2. Description of Property. ------------------------ The Company leases approximately 970 square feet of office space located at 101 East Green Street, Suite 11, Pasadena California, 91105, at a base rent of $1600 per month. Item 3. Legal Proceedings. ------------------ At a Special Meeting of the Company's Board of Directors, held January 28, 1998, which is subsequent to the period covered by this Report, a majority of the Company's directors resolved to retain counsel for the purpose of filing an action against Holomon J. Nicholas, II to recover damages for breach of contract, fraud, breach of fiduciary duties. The Company filed its Complaint against Mr. Nicholas on February 9, 1998, in the Third Judicial District Court of the State of Utah, alleging breach of contract, breach of fiduciary duties to the Company, breach of contract and unjust enrichment, and seeking monetary damages and a preliminary injunction against the sale of any of Mr. Nicholas' shares of the Company's common stock. The case was designated Case No. 980901338. The basis of the Company's complaint was Mr. Nicholas' agreement at the time that he was engaged to serve as President that he would assist the Company in raising at least $5,000,000 during the 18 months immediately following his election and that he would not sell any shares of the Company's common stock until he was successful in raising such funding. In reliance on these representations, the Complaint alleged that the Company caused 400,000 shares to be sold to Mr. Nicholas and Mr. Nicholas failed to perform his duties under the agreement. On March 2, 1998, Mr. Nicholas filed with the Court his Answer and Counterclaim, in which Mr. Nicholas denied the material allegations of the Company's Complaint and alleging breach of contract\wrongful failure to transfer certificates shares, breach of contract\failure to pay wages and intentional interference with prospective economic relations. Mr. Nicholas' counterclaim sought damages in an amount to be shown at trial, together with costs of court and attorney's fees and a declaratory judgment declaring the rights of the parties with respect to Mr. Nicholas' sale and disposition of his shares of the Company's common stock. Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- None; not applicable. PART II Item 5. Market for Common Equity and Related Stockholder Matters. --------------------------------------------------------- Market Information - ------------------ Until the quarter ended June 30, 1994, and for at least five years previously, there had been no "public market" for the shares of common stock of the Company. The Company's common stock commenced to trade on the "OTC Bulletin Board" of the National Association of Securities Dealers, Inc. ("NASD") in the second quarter of 1994; however, there is no "established trading market" in these shares of common stock. The range of high and low bid quotations for the Company's common stock during the each quarter of the year ended December 31, 1996 and each quarter of the calendar year ended December 31, 1997, is shown below. Prices are inter-dealer quotations as reported by the NASD and do not necessarily reflect transactions, retail markups, mark downs or commissions.
STOCK QUOTATIONS* BID Quarter ended: High Low - -------------- ---- --- March 31, 1996 1-1/4 7/8 June 30, 1996 1-1/8 1/5 September 30, 1996 9/16 3/16 December 31, 1996 15/32 5/16 March 31, 1997 7/16 1/4 June 30, 1997 3/8 7/32 September 30, 1997 13/32 3/16 December 31, 1997 13/32 3/16
* The future sale of presently outstanding "unregistered" and "restricted" common stock of the Company by present members of management and persons who own more than five percent of the outstanding voting securities of the Company may have an adverse effect on any market that may develop in the shares of common stock of the Company. Holders - ------- The number of record holders of the Company's common stock as of April 14, 1998, was approximately 614. Dividends - --------- The Company has not declared any cash dividends with respect to its common stock, and does not intend to declare dividends in the foreseeable future. The present intention of management is to utilize all available funds for the development of the Company's business. There are no material restrictions limiting, or that are likely to limit, the Company's ability to pay dividends on its common stock. Recent Sales of Unregistered Securities. - ---------------------------------------- The Board of Directors of the Company unanimously resolved on November 21, 1997, to issue 100,000 shares of "unregistered" and "restricted" common stock to David E. Nelson in consideration of services rendered to the Company valued at a total of $9,333. Item 6. Management's Discussion and Analysis or Plan of Operation. ---------------------------------------------------------- Plan of Operation. - ------------------ The Company's proposed plan of operation is composed of three "phases," each of which coincides with a specific milestone in the process of developing PHER-O2. These phases (which will begin subject to available funding), and the projected cost of each phase, are as follows: Phase I (approximately two years): In the first year, the Company plans to complete the development of perfluoro-decalin and the synthetic surfactants that make up PHER-O2, manufacture experimental doses and perform preliminary animal tests in accordance with FDA and overseas regulations. In the second year, the Company intends to continue developing the perfluorocarbon compounds in PHER-O2 in order to produce optimal qualities and to conduct animal safety and efficacy trials in accordance with FDA and overseas requirements. During the course of Phase I, the Company estimates that its increased technical, administrative, sales/marketing and manufacturing requirements will necessitate the hiring of additional employees. Phase II (approximately one year): In the third year, the Company intends to prepare Investigational New Drug applications for FDA and European approval, conduct trials for cardioplegia, cancer treatment and cardiology treatment in the United States and conduct transfusion trials offshore. During this period, the Company also plans to submit license applications for transfusion with overseas authorities, begin production of PHER-O2 itself or with its subcontractors and submit a New Drug Application for PHER-O2 in the United States. During the course of Phase II, the Company estimates that it will need to hire additional employees. Phase III (approximately two years): In the fourth year, the Company plans to complete overseas testing of PHER-O2, begin sales in Europe and other overseas areas that may have approved PHER-O2 by this time and may begin construction of its facility for manufacturing, storing, inspecting and shipping PHER-O2. During the course of Phase III, the Company estimates that it will need to hire additional employees. During the fifth year, the Company plans to complete testing of PHER-O2 in the United States and receive all necessary FDA approvals and begin American and Canadian sales for cancer treatment and angioplasty. During this period, the Company also plans to complete construction of its manufacturing facility and continue trials of other PHER-O2 applications, including transplant organ preservation and treatment of carbon monoxide poisoning, sickle cell anemia, stroke and heart attack. During the course of the fifth year, Phase III, the Company estimates that it will need to hire additional employees. The foregoing cost estimates are based on the prior experiences of Dr. Thomas C. Drees, the Company's CEO, President and Chairman of the Board of Directors. Dr. Drees has more than 20 years' experience in the blood industry. See the caption "Business Experience" of Part I, Item 5. The Company's Plan of Operation for the next twelve months is to begin Phase I of its business plan; i.e., to complete the synthesis of the PHER-O2 surfactant and its emulsion with perfluoro-decalin, to manufacture experimental doses of PHER-O2 and to perform preliminary animal tests in accordance with FDA and comparable foreign overseas regulations. The ability to commence and to carry out this plan is dependent upon the Company's ability to obtain substantial equity or debt financing, as to which no assurance can be given. Results of Operations. - ---------------------- Revenues for the calendar years ending December 31, 1996 and 1997, were $3 and $0, respectively. The Company realized a net loss from operations of $210,016 (a loss of $0.01 per share) during the calendar year ended December 31, 1996, and a net loss from operations of $166,212 (a loss of $0.01 per share) for the year ending December 31, 1997. Liquidity. - ---------- During the calendar year ended December 31, 1996, the Company had expenses of $210,016, while receiving $3 in revenues; the Company received no revenues, and had total expenses of $166,212 during the calendar year ended December 31, 1997. The Company is currently unable to pay its debts as they become due. These debts include three notes payable, totaling approximately $103,700, which the Company is unable to pay. The continuation of the Company's proposed business operations are subject to the ability of the Company to raise substantial additional funding, as to which no assurance can be given. Item 7. Financial Statements. --------------------- Financial Statements for the years ended December 31, 1997, and December 31, 1996 Independent Auditors Report Balance Sheet - December 31, 1997 and 1996 Statements of Operations Accumulated for the Period January 18, 1989 to December 31, 1997 and the Years ended December 31, 1997, 1996 and 1995 Statements of Cash Flows Accumulated for the Period January 18, 1989 to December 31, 1997 and the Years Ended December 31, 1997, 1996 and 1995 Statements of Stockholders' Equity January 1, 1990 to December 31, 1997 Notes to Financial Statements Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. - --------------------- None; not applicable. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. - -------------------------------------------------- Identification of Directors and Executive Officers - -------------------------------------------------- The following table sets forth the names of all current directors and executive officers of the Company. These persons will serve until the next annual meeting of stockholders (held in June of each year) or until their successors are elected or appointed and qualified, or their prior resignation or termination.
Date of Date of Positions Election or Termination Name Held Designation or Resignation ---- ---- ----------- -------------- Thomas C. Drees, CEO 6/93 * Ph.D., MBA President 1/98 * Chairman 11/95 * Director 6/93 * Holomon J. Nicholas, II, President/COO 11/95 12/96 MBA Director 3/96 2/98 Anthony G. Hargreaves Vice President 6/93 * Secretary/ 6/93 * Treasurer 6/93 * Director 6/93 * Chief Financial 6/94 3/96 Officer David E. Nelson, CPA Director 3/96 * Chief Financial 3/96 * Officer Edward L. Kunkel, Esq. Director 4/94 *
* These persons presently serve in the capacities indicated opposite their respective names. Term of Office - -------------- The terms of office of the current directors shall continue until the annual meeting of stockholders, which has been scheduled by the Board of Directors to be held in June of each year. The annual meeting of the Board of Directors immediately follows the annual meeting of stockholders, at which executive officers for the coming year are elected. Business Experience - ------------------- Thomas C. Drees, Ph.D., MBA, CEO, President and Chairman of the Board of Directors. Dr. Drees, age 69, is the founder of Sanguine California. From 1978 to 1984, he was the President and CEO of Alpha Therapeutics Corporation, a subsidiary of Green Cross Corporation of Japan and the developer of Fluosol DA 20, the only FDA-approved synthetic blood product. For 24 years, Dr. Drees has been involved at top management levels with the collection, manufacture and marketing of human blood plasma derivatives. He has written many publications on the subject, including the widely-acclaimed book Blood Plasma: The Promise and the Politics, Ashley Books, New York, 1983. Anthony G. Hargreaves, Vice President, Secretary/Treasurer, and Director. Mr. Hargreaves is 70 years old. He is a former Royal Marine Officer with long experience in marketing, trust department banking (with Bank of America) and group insurance sales management (with the Connecticut General Life Insurance Company). His medical background includes service as General Manager of VK Limited in Pasadena, California, where Mr. Hargreaves helped secure funding for a wearable, continuously-operating artificial kidney machine. In the early 1980's, Mr. Hargreaves organized and scripted telemarketing sales of various products to retail stores throughout the United States. David E. Nelson, CPA, Chief Financial Officer and Director. Mr. Nelson, age 55, received a B.S. degree in accounting from the University of Utah in 1966. He has over 20 years' experience in operations, finance and regulatory compliance of stock brokerage firms. He is the past President of Covey & Company, Inc. Mr. Nelson has been a member of the NASD Board of Arbitrators, the American Institute of Certified Public Accountants and the Utah Association of Certified Public Accountants. Edward L. Kunkel, Esq., Director. Mr. Kunkel is 51 years of age. He graduated with a Juris Doctor degree from the University of Southern California in 1973. From 1973 to 1978, he practiced law with the firm of Karns & Karabian in Los Angeles. From 1978 to the present, he has practiced educational law, real estate law and general business law in his own firm. Mr. Kunkel is a member of the State Bar of California, the Los Angeles County Bar Association and the National School Board Attorneys Association; he has been a licensed real estate broker since 1979. Family Relationships - -------------------- There are no family relationships between any directors or executive officers of the Company, either by blood or by marriage. Involvement in Certain Legal Proceedings - ---------------------------------------- Except as indicated below, to the knowledge of management, during the past five years, no present or former director, executive officer, or person nominated to become a director or an executive officer of the Company: (1) Filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; (2) Was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) Was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from or otherwise limiting his involvement in any type of business, securities or banking activities; (4) Was found by a court of competent jurisdiction in a civil action, by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated. Item 10. Executive Compensation. ----------------------- Cash Compensation - ----------------- The following table sets forth the aggregate compensation paid by the Company for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE Long Term Compensation Annual Compensation Awards Payouts (a) (b) (c) (d) (e) (f) (g) (h) (i) Name and Year or Other Restricted Option\LTIP All Principal Period $ $ Annual Stock SAR's Payouts Other Position Ended Salary Bonus Compen- Awards ($) (#) ($) Compensa- December sation($) tion ($) 31 Thomas C. 1996 (1) -0- -0- -0- -0- -0- -0- Drees, Ph.D. 1997 (1) -0- -0- -0- -0- -0- -0- MBA CEO, President and Chairman of the Board of Directors Holomon J. 1996 $6,500 -0- (2) 400 (3) -0- -0- -0- Nicholas, II 1997 $6,500 -0- (2) -0- -0- -0- -0- Former Pres., COO and Dir. Anthony G. 1996 (1),(4) -0- -0- 529.36(4) -0- -0- -0- Hargreaves, 1997 (1),(4) -0- -0- -0- -0- -0- -0- Vice Pres., Sec./Treas. and Director David E. 1996 -0- -0- -0- -0- -0- -0- -0- Nelson, CPA 1997 -0- -0- -0- 9,333(5) -0- -0- -0- CFO and Director Edward L. 1996 -0- -0- -0- 50(6) -0- -0- -0- Kunkel, Esq. 1997 -0- -0- -0- -0- -0- -0- -0- Director
(1) See the caption "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" of this Item. (2) The Board of Directors of the Company unanimously resolved on November 13, 1995, to issue 200,000 "unregistered" and "restricted" shares of the Company's common stock to Mr. Nicholas if and when he was successful in raising at least $5,000,000 in funding for the Company in the 12 to 18 month period following the date of the resolution, and an additional 200,000 "unregistered" and "restricted" shares to be issued to Mr. Nicholas if and when he was successful in raising at least $10,000,000 in funding for the Company in the 12 to 18 month period following the date of the resolution, all on satisfactory terms to the Board of Directors of the Company. On September 24, 1996, the Board of Directors resolved to amend this resolution to increase the total number of shares to be issued to 500,000 "unregistered" and "restricted" shares, 250,000 shares upon satisfaction of the first contingency, and 250,000 shares upon satisfaction of the second. As of the date of this Report, 400,000 such shares have been issued to Mr. Nicholas, who has resigned as an executive officer and director of the Company as previously disclosed in this Report. These shares are the subject of the current litigation filed by the Company against Mr. Nicholas. See the heading "Business" under the caption "Description of Business," Part I, Item 1, and the caption "Legal Proceedings," Part I, Item 3 of this Report. (3) At a special meeting held September 24, 1996, the Board of Directors resolved to issue to Mr. Nicholas 400,000 "unregistered" and "restricted" shares of common stock in consideration of services rendered. Due to the lack of any "established trading market" in the securities of the Company, these shares have been valued at par value, which is one mill ($0.001) per share. See the financial statements hereto. (4) At a special meeting held on September 24, 1996, the Board of Directors of the Company resolved to issue to Mr. Hargreaves 529,358 "unregistered" and "restricted" shares of common stock in consideration of services rendered over a six year period. Due to the lack of any "established trading market" in the shares of the Company, these shares were valued at $0.001 per share. See the financial statements hereto. (5) On November 21, 1997, the Board of Directors of the Company unanimously resolved to issue 100,000 "unregistered" and "restricted" shares of common stock to Mr. Nelson in consideration of services rendered, valued at a total of $9,333. See the heading "Business" Development" of the caption "Business," Part I, Item 1 and the heading "Recent Sales of Unregistered Securities" of the caption "Market for Common Equity and Related Stockholder Matters," Part II, Item 5 of this Report. (6) On September 24, 1996, the Board of Directors of the Company resolved to issue to Mr. Kunkel 50,000 "unregistered" and "restricted" shares of common stock in consideration of services rendered over a two year period. Due to the lack of any "established trading market" in the securities of the Company, these shares have been valued at par value, which is one mill ($0.001) per share. See the financial statements hereto. Bonuses and Deferred Compensation - --------------------------------- None. Compensation Pursuant to Plans - ------------------------------ None. Pension Table - ------------- None; not applicable. Other Compensation - ------------------ None. Compensation of Directors - ------------------------- Effective June 15, 1994, the Board of Directors, by unanimous written consent pursuant to Section 78-315 of the Nevada Revised Statutes, adopted, ratified and approved resolutions providing for payment of the sum of $500 per month for service as a director of the Company. This fee, at the option of each director, may be paid in "unregistered" and "restricted" shares of common stock of the Company. Directors shall also be reimbursed for direct out-of-pocket expenses for attendance at meetings of the Board of Directors and for expenses incurred for and on behalf of the Company. Due to lack of funding, the Company has not made any payments pursuant to the above referenced resolutions. No such payments will be made until the Company has received substantial additional funding, as to which no assurance can be given. Employment Contracts - -------------------- On January 22, 1990, Sanguine California entered into two Employment Agreements, one with Dr. Thomas C. Drees for services as President, Chief Executive Officer and Chairman of the Board of Directors, and one with Anthony G. Hargreaves for services as Vice President and Director (collectively, the "Employees"). The Employment Agreements provided for the employment of the Employees for seven years, commencing on January 22, 1990 (the "Employment Term"). In consideration of his exclusive service to Sanguine California, each Employee was to receive the following: (1) an adjustable base salary (starting at $120,000 for Dr. Drees and $72,000 for Mr. Hargreaves); (2) inclusion in all incentive, stock option, 401(k) and similar plans, including one percent of Sanguine California's pre-tax profit; (3) entitlement to all perquisites that are available to employees of similar station, including financial consulting, legal assistance and security; (4) payment of all costs incurred in connection with the Employees' maintenance of home offices, including qualified entertainment expenses, business telephone charges and home security devices; (5) payment of initiation fees, regular dues and expenses relating to membership in a business, social or country club; (6)use of a new automobile of the Employee's choice, payment of all operating expenses and automobile liability insurance; (7) reimbursement of reasonable business expenses, including travel and entertainment; (8) group life insurance equal to six times annual compensation and accidental death and dismemberment equal to ten times annual compensation; and (9) disability insurance providing for payments, in the event of disability, until the Employee reaches age 70 (for Dr. Drees) or age 71 (for Mr. Hargreaves). In addition, in the event of an Employee's death during the Employment Term, Sanguine California agreed to pay to each Employee's widow, designee or estate the Employee's base salary for the remainder of the Employment Term. Neither of the Employment Agreements was enforced, and both Employment Agreements were canceled by the Company's Board of Directors on May 31, 1993. On September 23, 1993, the Board of Directors reinstated both Employment Agreements for a seven-year period commencing on August 1, 1993. On June 2, 1994, pursuant to a Letter Agreement addressed to the Company and accepted by the Company on June 3, 1994, and adopted, ratified and approved by written consent by persons owning a majority of the outstanding voting securities of the Company pursuant to Section 78-320 of the Nevada Revised Statutes (Dr. Drees, Mr. Hargreaves and A. Smith Associates were the persons or entities signing the written consent), it was agreed that the salaries provided in these Employment Agreements would not commence until June 1, 1994, and that no salaries had accrued or were payable under these Employment Agreements prior to such date; that for the months of June, July and August, 1994, the salaries payable under these Employment Agreements would be one-fourth of the amounts provided therein; and that commencing September 1, 1994, the salaries payable under these Employment Agreements would be one-half of the amounts provided therein, and would continue at such rate until the Company shall have raised not less than the sum of $1,500,000 in debt or equity financing, with all funds raised since the completion of the Sanguine Plan being computed in arriving at the sum of $1,500,000 required to be raised. On September 24, 1996, the Board of Directors of the Company resolved to issue to Mr. Hargreaves 529,358 "unregistered" and "restricted" shares in consideration of services rendered over the previous six years. See Item 1 of this Report and the Summary Compensation Table of this Item. As of December 31, 1996, a total of $156,500 in salaries had accrued to Messrs. Drees and Hargreaves pursuant to the above referenced Letter Agreement. The Company and Edward L. Kunkel, who is a director of the Company, executed an Employment Agreement on June 1, 1994 (the "Kunkel Agreement"). The Kunkel Agreement provided for Mr. Kunkel to receive compensation equal to $500 per month or $500 worth of the Company's "unregistered" and "restricted" common stock, provided that no compensation was to be payable until such time as the Company had received operating funds totaling at least $1,000,000 cash. No such compensation has yet been paid due to the Company's inability to obtain such funding. The term of the Kunkel Agreement was one year from the date of its execution, subject to renewal by the parties. As of the date of this Report, the Kunkel Agreement has not been renewed. The Kunkel Agreement further irrevocably granted to Mr. Kunkel the option to purchase 10,000 "unregistered" and "restricted" shares of the Company's common stock, exercisable in whole or in part until May 31, 1997. The price per share of these shares equals the average low bid price per share as quoted on the OTC Bulletin Board of the NASD on June 1, 1994. As of the date of this Report, the option has not been exercised in whole or in part. Termination of Employment and Change of Control Arrangements - ------------------------------------------------------------ None. Compliance with Section 16(a) of the Exchange Act - ------------------------------------------------- During the calendar year ended December 31, 1997, there were no transactions in the Company's securities by Messrs. Hargreaves or Kunkel. Form 5 Annual Statements of Beneficial Ownership of Securities of Messrs. Drees and Nelson were due on February 14, 1998, and management believes that such Reports will be filed in several days. Management is informed and believes that Mr. Nicholas disposed of shares of common stock in the Company during the calendar year ended December 31, 1997, but to the knowledge of management, no Form 4 or Form 5 has been filed in connection with such disposition. Item 11. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------- The following tables set forth the shareholdings of the Company's directors and executive officers and those persons who own more than five percent of the Company's common stock as of April 14, 1998, with the computations being based upon 21,565,140 shares of common stock being outstanding. This figure takes into account the 21,010,004 presently outstanding shares of common stock; the 470,642 shares subject to an existing option held by Anthony G. Hargreaves (see footnote 2 below); the 10,000 shares subject to an existing option held by Edward L. Kunkel, Esq. (see footnote 3 below); and the 74,494 shares subject to an existing option held by Leonard W. Burningham, Esq. (see the financial statements hereto): DIRECTORS AND EXECUTIVE OFFICERS
Number of Shares Percent Name and Address Beneficially Owned of Class - ---------------- ------------------ -------- Thomas C. Drees, Ph.D, MBA (1) 12,219,133 56.7% 101 East Green Street, #11 Pasadena, California 91105 Anthony G. Hargreaves (1) 1,470,642(2) 6.8% 101 East Green Street, #11 Pasadena, California 91105 David E. Nelson, CPA(1) 100,150 0.5% 528 14th Avenue Salt Lake City, Utah 84103 Edward L. Kunkel, Esq. (1) 60,000 (3) 0.3% 39 East Union Street Pasadena, California 91103 __________ ______
All directors and officers as a group (5) 13,849,925 64.3% (1) See Part I, Item 5, below, for information concerning the offices or other capacities in which the foregoing persons serve with the Company. (2) Includes an option to acquire 470,642 shares of "unregistered" and "restricted" common stock of the Company at a price of $0.1275 per share, exercisable until September 22, 2001, which Mr. Hargreaves received in exchange for an option to purchase 200,000 shares of common stock of Sanguine California at $2 per share under the Sanguine Plan. (3) Includes an option to acquire 10,000 shares of "unregistered" and "restricted" common stock of the Company at a price equal to the average low bid price per share of the Company's common stock as quoted on the OTC Bulletin Board of the NASD on June 1, 1994, the date of the Employment Agreement granting such option. This option was exercisable in whole or in part until May 31, 1997, and the Company has expressed its intention to extend this option until May 31, 1999. See the caption "Employment Contracts" of Part III, Item 10 of this Report. FIVE PERCENT STOCKHOLDERS
Number of Shares Percent Name and Address Beneficially Owned of Class - ---------------- ------------------ -------- Thomas C. Drees, Ph.D, MBA 12,219,133 56.7% 101 East Green Street, #11 Pasadena, California 91105 A. Smith Associates(4) 1,110,000 5.2% 455 East 500 South, #201 Salt Lake City, Utah 84111 A.K.S., Inc.(5) 100,000 0.5% 455 East 500 South, #201 Salt Lake City, Utah 84111 Karl Smith 188,300 0.9% 455 East 500 South, #201 Salt Lake City, Utah 84111 _______ ______ 13,617,433 63.2%
(4) A. Smith Associates is a Utah corporation, the majority of which is owned by Karl Smith of Salt Lake City, Utah. (5) A.K.S., Inc. is a Utah corporation, the majority of which is owned by Karl Smith of Salt Lake City, Utah. Changes in Control - ------------------ To the knowledge of the Company's management, there are no present arrangements or pledges of the Company's securities which may result in a change in control of the Company. Item 12. Certain Relationships and Related Transactions. ----------------------------------------------- Transactions with Management and Others. - ---------------------------------------- During the past two years, there have been no material transactions, series of similar transactions or currently proposed transactions, to which the Company or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $60,000 and in which any director or executive officer, or any security holder who is known to the Company to own of record or beneficially more than five percent of the Company's common stock, or any member of the immediate family of any of the foregoing persons, had a material interest. Certain Business Relationships. - ------------------------------- During the past two years, there have been no material transactions, series of similar transactions or currently proposed transactions, to which the Company or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $60,000 and in which any director or executive officer, or any security holder who is known to the Company to own of record or beneficially more than five percent of the Company's common stock, or any member of the immediate family of any of the foregoing persons, had a material interest. Indebtedness of Management. - --------------------------- During the past two years, there have been no material transactions, series of similar transactions or currently proposed transactions, to which the Company or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $60,000 and in which any director or executive officer, or any security holder who is known to the Company to own of record or beneficially more than five percent of the Company's common stock, or any member of the immediate family of any of the foregoing persons, had a material interest. Parents of the Issuer. - ---------------------- Except and to the extent that Dr. Drees may be deemed to be a parent of the Company by virtue of his substantial stock ownership, the Company has no parents. Transactions with Promoters. - ---------------------------- During the past two years, there have been no material transactions, series of similar transactions, currently proposed transactions, or series of similar transactions, to which the Company or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $60,000 and in which any promoter or founder, or any member of the immediate family of any of the foregoing persons, had a material interest. Item 13. Exhibits and Reports on Form 8-K. --------------------------------- Reports on Form 8-K None during the past two years. Exhibits* (i) Where Incorporated in this Report -------------- Registration Statement on Form 10-SB-A1, Part I filed August 19, 1994** Annual Report on Form 10-KSB-A1, Part I filed August 2, 1995** Annual Report on Form 10-KSB-A1, Part I filed June 17, 1996** Annual Report on Form 10-KSB, Part I filed April 21, 1997 (ii) Exhibit Number Description - ------ ----------- 21 Subsidiaries of the Company** 27 Financial Data Schedule * Summaries of all exhibits contained within this Report are modified in their entirety by reference to these Exhibits. ** These documents and related exhibits have been previously filed with the Securities and Exchange Commission and are incorporated herein by reference. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SANGUINE CORPORATION Date: 4/15/98 By /s/ Thomas C. Drees -------------- -------------------------------------- Thomas C. Drees, Ph.D., MBA CEO, President and Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated: SANGUINE CORPORATION Date: 4/15/98 By /s/ Thomas C. Drees ------------- ------------------------------------ Thomas C. Drees, Ph.D., MBA CEO, President and Chairman of the Board of Directors Date: 4/15/98 By /s/ A. G. Hargreaves ------------- ------------------------------------ Anthony G. Hargreaves, Vice President, Secretary/Treasurer and Director Date: 4/15/98 By /s/ David E. Nelson -------------- ------------------------------------- David E. Nelson, CPA CFO and Director SANGUINE CORPORATION (A Development Stage Company) FINANCIAL STATEMENTS December 31, 1997 & December 31, 1996 Independent Auditors Report Board of Directors Sanguine Corporation (A Development Stage Company) I have audited the accompanying balance sheets of Sanguine Corporation, as of December 31, 1997 and 1996, and the related statements of operations, stockholders equity, and cash flows for the accumulated period of January 18, 1989 to December 31, 1997, and the years ended December 31, 1997, 1996, and 1995. These financial statements are the responsibility of the Company s management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Sanguine Corporation, as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the accumulated period of January 18, 1989 to December 31, 1997, and the years ended December 31, 1997, 1996, and 1995, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note #10 to the financial statements, the Company has an accumulated deficit and a negative net worth at December 31, 1997. These factors raise substantial doubt about the Company s ability to continue as a going concern. Management s plans in regard to these matters are also discussed in Note #10. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /S/Schvaneveldt Company Salt Lake City, Utah April 1, 1998 SANGUINE CORPORATION (A Development Stage Company) Balance Sheet December 31, 1997 and 1996
1997 1996 ASSETS Current Assets Cash $ 263 $ 672 Property & Equipment Furniture 1,004 1,924 Other Assets Refundable Loan Commitment Fee (See Note #10) -0- 10,000 TOTAL ASSETS $ 1,267 $ 12,596 LIABILITIES & STOCKHOLDERS EQUITY Current Liabilities Accounts Payable $ 35,562 $ 25,373 Accrued Salaries 332,000 236,000 Accrued Interest Payable 27,960 22,500 Notes Payable 103,700 69,800 Total Current Liabilities 499,222 353,673 Stockholders Equity Common Stock, Authorized: 100,000 Shares at $0.001 Par Value: 20,977,723 & 20,877,723 Shares Issued & Outstanding Respectively 20,977 20,877 Paid In Capital (Quasi-Reorganized March 20, 1994 Deficit Retained Earnings of $2,423,964 Eliminated) 606,176 596,942 Retained Earnings Deficit (1,125,108) (958,896) Total Stockholders Equity (497,955) (341,077) TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 1,267 $ 12,596
SANGUINE CORPORATION (A Development Stage Company) Statements of Operations Accumulated for the Period January 18, 1989 to December 31, 1997 and the Years Ended December 31, 1997, 1996 and 1995
Accumulated January 18, 1989 to December December December December 31, 1997 31, 1997 31, 1996 31, 1995 Revenues Interest Income $ 4,842 $ -0- $ 3 $ 6 Sales Market Rights 150,000 -0- -0- -0- Total Revenues 154,842 -0- 3 6 Expenses Depreciation $ 3,605 $ 920 $ 920 $ 920 Research & Development 589,805 79,000 93,451 100,720 Insurance 2,961 672 515 639 Office Expenses 72,353 8,987 15,035 10,268 Auto Expenses 17,822 1,170 1,080 1,084 Legal & Professional Fees 91,614 9,773 8,932 31,302 Rent 66,844 16,000 14,622 13,293 Interest Expenses 36,349 10,255 6,603 5,710 Bad Debts 10,000 10,000 -0- -0- Travel 17,879 -0- 1,318 1,335 Stock Transfer 2,759 618 882 231 Consultant Fees 233,810 9,633 45,780 178,084 Salaries & Wages 76,108 18,000 18,000 18,000 Taxes & Licenses 22,129 1,184 381 1,347 Finders Fees 7,825 -0- -0- -0- Promotions 28,087 -0- 2,500 3,916 Total Expenses 1,279,950 166,212 210,019 366,849 Net Profit (Loss) From Operations ($1,125,108)($166,212)($210,016)($366,843) Profit (Loss) Per Share ($ .01) ($ .01)($ .02) Weighted Average Shares Outstanding 20,877,723 19,946,773 17,396,965
SANGUINE CORPORATION (A Development Stage Company) Statement of Stockholders Equity January 1, 1990 to December 31, 1997
Common Shares Paid In Accumulated Shares Amount Capital Deficit Balance, January 1, 1990 Retroactively Restated 1,428,364 $ 1,428 $2,423,214 ($2,464,642) Balance, December 31, 1990 1,428,364 1,428 2,423,214 (2,464,642) Net Profit Year Ended December 31, 1991 73,917 Balance, December 31, 1991 1,428,364 1,428 2,423,214 (2,390,725) Shares Issued for Services $0.001 Per Share 2,720 2 Contributed Capital by Officer 750 Net Loss Year Ended December 31, 1992 (77,011) Balance, December 31, 1992 1,431,084 1,430 2,423,964 (2,467,736) Shares Issued to Acquire 94% of Outstanding Shares of Sanguine Corporation (A California Corporation) 14,589,775 14,590 (14,590) Shares Issued for Cash $.20 Per Share 500,000 500 99,500 Shares Issued for Cash $1.00 Per Shares 10,000 10 9,990 Net Loss Year Ended December 31, 1993 (92,895) Balance, December 31, 1993 16,530,859 16,530 2,533,454 (2,575,221) Quasi-Reorganization Restated of Equity Accounts (2,423,964) 2,423,964 Cash Received of Exercise of Option to Purchase Shares at $.36 Per Share 175,000 175 62,825 Cash Received from Sale of Stock at $.75 Per Share 16,000 16 11,984 Net Loss Year Ended December 31, 1994 (230,779) Balance, December 31, 1994 16,721,859 16,721 184,299 (382,036) Shares Issued in Satisfaction of Accounts Payable at $0.17 Per Share 500,000 500 83,585 Shares Issued in Satisfaction of Accounts Payable at $.05 Per Shares 700,000 700 31,238 Shares Issued for Services at $.125 Per Share 1,625,000 1,625 201,500 Shares Issued in Satisfaction Notes Payable at $.75 Per Share 16,000 16 13,225 Net Loss Year Ended December 31, 1995 (366,843) Balance, December 31, 1995 19,562,859 19,562 513,847 (748,879) Shares Issued for Cash $0.25 Per Share 10,000 10 2,490 Shares Issue for Services $0.001 Per Share 450,000 450 Shares issued in Satisfaction of Accrued Expenses $0.25 Per Share 125,506 126 31,251 Shares Issued In Satisfaction of Services Rendered $0.001 Per Share 529,358 529 Shares Issued in Satisfaction of Accounts Payable $0.247 Per Share 200,000 200 49,354 Rounding (1) Net Loss for Year Ended December 31, 1996 (210,016) Balance, December 31, 1996 20,877,723 20,877 596,942 (958,896) Shares Issued for Services 100,000 100 Net Loss for Year Ended December 31, 1997 (166,212) Balance, December 31, 1997 20,977,723 $ 20,977 $ 596,942 ($1,125,108)
SANGUINE CORPORATION (A Development Stage Company) Statements of Cash Flows Accumulated for the Period January 18, 1989 to December 31, 1997 and the Years Ended December 31, 1997, 1996 and 1995
Accumulated January 18, 1989 to December December December December 31, 1997 31, 1997 31, 1996 31, 1995 Cash Flows from Operating Activities Net (Loss) ($1,125,108)($166,212)($210,016)($366,843) Adjustments to Reconcile Net (Loss) to Net Cash: Depreciation 3,605 920 920 920 Non Cash Expense 299,248 19,334 81,909 203,125 Changes in Operating Assets & Liabilities: (Increase) in Receivable Offshore Corporation -0- -0- -0- 3,300 Increase (Decrease)Accounts Payable 35,562 10,189 (2,253) (62,327) Increase in Interest Payable 27,960 5,460 4,500 4,219 Increase in Accrued Salaries 332,000 96,000 96,000 96,000 Net Cash Flows from Operating Activities (426,733) (34,309) (28,940) (121,606) Cash Flows from Investing Activities Purchase of Equipment (4,609) -0- -0- -0- Cash Flows from Financing Activities (Decrease) Increase in Notes Payable 103,700 33,900 26,400 (8,600) Sale of Common Stock 327,155 -0- 2,500 129,264 Contributed Capital 750 -0- -0- -0- Net Cash Flows from Financing Activities 431,605 33,900 28,900 120,664 Increase (Decrease) in Cash 263 (409) (40) (942) Cash at Beginning of Period -0- 672 712 1,654 Cash at End of Period $ 263 $ 263 $ 672 $ 712 Disclosure for Cash Flows from: Interest $ 36,349 $ 10,255 $ 6,602 $ 5,710 Taxes -0- -0- -0- -0- Disclosures from Non Cash Transactions: Operating Activities Payment of Accounts Payable $ -0- $ -0- $ 81,909 $ -0- Issued 100,000 at Par Value for Services -0- 9,333 -0- -0-
SANGUINE CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE #1 - Corporate History The Company was incorporated January 27, 1974, in the State of Utah, using the name Sight and Sound Systems, Inc. On July 8, 1974, the Company changed its name to International Health Resorts, Inc., and on June 25, 1993, the Company filed a Certificate of Amendment changing the name to Sanguine Corporation. In May of 1992, the Company changed its domicile to the State of Nevada. The stated purpose of the Company is to engage without qualification, in any lawful acts, or activity for which a corporation may be organized under the laws of the state of Nevada. Currently, the Company is engaged in developing artificial blood to be used by the medical profession. The Company is conducting research and development leading to F.D.A. clinical trials. The Company forward split its outstanding shares 1.5 shares for 1 on July 14, 1993. As a consequence of this action, the Company had 1,431,000 shares issued and outstanding prior to the Agreement and Plan of Reorganization in which Sanguine Corporation (a California Corporation) was acquired. On June 14, 1993 the Company entered into an Agreement and Plan of Reorganization, wherein it was agreed that Sanguine Corporation (a Nevada Corporation) would issue 14,589,775 shares of its common stock to acquire 94% of the issued and outstanding shares of stock of Sanguine Corporation (a California Corporation). From 1974 to 1989, the Company engaged in several business ventures. These business activities resulted in the loss of all Company assets. Because of the search for a new business venture, the Company has entered into the development stage company status again. Sanguine Corporation (California) is a development stage company and these financial statements are presented as those of a development stage company effective January 18, 1989, coinciding with the incorporation date of Sanguine Corporation (California). NOTE #2 - Significant Accounting Policies (A) The Company uses the accrual method of accounting. (B) Revenues and directly related expenses are recognized in the period when the goods are shipped to the customer. (C) The Company considers all short term, highly liquid investments that are readily convertible, within three months, to known amounts as cash equivalents. The Company currently has no cash equivalents. (D) Primary Earnings Per Share amounts are based on the weighted average number of shares outstanding at the dates of the financial statements. Fully Diluted Earnings Per Shares shall be shown on stock options and other convertible issues that may be exercised within ten years of the financial statement dates. (E) Inventories: Inventories are stated at the lower of cost, determined by the FIFO method or market. (F) Depreciation: The cost of property and equipment is depreciated over the estimated useful lives of the related assets. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related assets or the estimated lives of the assets. Depreciation is computed on the straight line method for reporting purposes and for tax purposes. (G) Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE #3 - Common Stock Public Offering In June of 1974, the Company completed a public offering of 3,000,000 shares of its common stock at $0.02 per share. NOTE #4 - Net Operating Losses for Tax Carryforward The Company had net operating losses to carryforward to years expiring in 1985. Sanguine Corporation (California) has had operating losses to carryforward as scheduled below. Year of Expiration Loss Amount Date 1992 $ 3,094 2007 1993 149,162 2008 1995 186,779 2009 1995 165,343 2010 1996 209,488 2011 1997 156,878 2012 The Company has adopted FASB 109 to account for income taxes. The Company currently has no issues that create timing differences that would mandate deferred tax expenses. Net operating losses would create possible tax assets in future years. Due to the uncertainty as to the utilization of net operating loss carryforwards an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate. 1997 1996 1995 Current Tax Asset Value of Net Operating Loss Carryforwards at Current Prevailing Federal Tax Rate $296,053 $242,715 $171,489 Evaluation Allowance (296,053) (242,715) (171,489) Net Tax Assets $ -0- $ -0- $ -0- Current Income Tax Expense -0- -0- -0- Deferred Income Tax Expense -0- -0- -0- NOTE#5- Quasi-Reorganization Pursuant to actions of the Board of Directors on March 30, 1994, the Company effected a Quasi-Reorganization for the purpose of reducing the Company's retained deficit to the extent of its paid in capital. Prior to the reorganization, the Company (Sanguine Corporation - Nevada) had paid in capital in excess of par value of $2,423,964 and deficit retained earnings of $(2,467,736). The deficit retained earnings was eliminated to the extent of paid in capital leaving a retained earnings deficit of $(43,772). NOTE #6- Notes Payable - Short Term The Company has three notes payable to three entities. Amounts 1997 1996 Note #1 to an individual, due on demand, interest at 10% per annum, with option to the holder to convert to 35,277 shares of common stock to $0.4252 per share. $ 15,000 $ 15,000 Note #2 to a partnership, due on demand, but not later than August 10, 1994, at 12% per annum interest. 25,000 25,000 Note #3 to an individual, (related party) due September 15, 1995, interest at 12% per annum. 63,700 29,800 Total Current Notes Payable $103,700 $ 69,800 NOTE #7 - Property & Equipment The Company capitalized the purchase of equipment and fixtures for major purchases in excess of $1,000 per item. Capitalized amounts are depreciated over the useful life of the assets using the straight-line method of depreciation. Scheduled below are the assets, costs, lives, and accumulated depreciation at December 31, 1997 and 1996. December 31, Depreciation Accumulated 1997 1996 Expense Depreciation Assets Cost Cost Life 1997 1996 1997 1996 Furniture $4,609 $4,609 5 $920 $920 $3,605 $2,685 NOTE #8 - Stock Option The Company has set aside 1,500,000 shares of its common stock options at a price not to exceed $5.00 per share. The Corporation has issued 893,449 warrants as follows: 587,715 at $0.8504 per share. 305,734 at $0.4252 per share. The warrants may be exercised at various dates through August 1998. Pursuant to the Agreement and Plan of Reorganization dated June 14, 1993, the Company issued an option to purchase 470,642 shares of its common stock at $0.1275 per share. The option has been extended by the Company and expires on September 22, 2001. The option issued by Sanguine Corporation (Nevada Corporation) replaced options issued by the California Corporation to an officer as part of his compensation for services. When the option was issued by the Company the shares of the Company had no market value. On November 10, 1995, the Company issued an option to its legal counsel for 200,000 shares at $.25 per share for a period of five years. In December 1996, Counsel exercised options to purchase 125,506 shares of stock after the exercise there remained 74,494 shares available through the option agreement. NOTE #9 - Refundable Commitment Fee The Company has advanced to a funding group in California $10,000 as a refundable commitment fee. The funding group proposes to obtain an investor to commit up to $35,000,000 under a mutually agreed contract in exchange for 43% of the Corporation's stock. Shares of Stock equal to 43% of the shares outstanding have been placed in escrow. The agreement was extended on a month to month basis but expired in 1995. At December 31, 1997, the Company determined there would be no recovery of the loan fee and wrote if off. NOTE #10 - Lease Commitment The Company had a one year lease on its office facilities in California for the period March 1, 1994 to March 1, 1995 at a total cost of $15,696. The Company continues to rent the office space at the monthly rate of $1,600 on a month to month basis. NOTE #11 - Going Concern The Company has an accumulated deficit of $1,115,774 at December 31, 1997 and negative cash flows for the year and the proceeding year then ended. Until the Company commences business operations, management anticipates that negative cash flows will continue. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company seeks to find a business opportunity to acquire or merge with that will provide operating capital. NOTE #12 - Minority Interest Sanguine Corporation (California) had a total of 6,586,800 shares of its common stock issued and outstanding. Pursuant to the Agreement and Plan of Reorganization, Sanguine Corporation (Nevada) acquired 6,200,000 of the issued and outstanding shares. The resulting 386,800 shares of minority interest in the California Corporation represents approximately six percent (6%) of the Company s outstanding stock. No provision for minority interest has been made on the financial statements because of the losses incurred in the presented periods and the deficit stockholder's equity. NOTE #13 - Employment Agreement The Company has employment agreements with Dr. Thomas Drees and Anthony G. Hargreaves dated January 22, 1990. The agreements call for a base salary of $120,000 to Dr. Drees and $72,000 to Mr. Hargreaves annually. Insurance benefits, home office reimbursement, and an automobile are to be provided by the Company and reimbursement for out of pocket expenses will be paid to Dr. Drees and Anthony G. Hargreaves. Subject to an agreement of June 2, 1994, Dr. Drees and Mr. Hargreaves agreed to cancel all outstanding accruals for expenses under the provision of the Agreements and to accept as full satisfaction of all of their claims against Sanguine Corporation the payments they received in November 1993. In addition the Agreements were modified to provide that for June, July, and August of 1994, salary shall be paid at one fourth the amount specified by the Agreements. Commencing September 1, 1994, Dr. Drees and Mr. Hargreaves will be entitled to receive one half the salary specified until such time as Sanguine Corporation shall have raised $1,500,000 in debt or equity funding. All funds raised since the completion of the Agreement and Plan of Reorganization between Sanguine Corporation (California), and Sanguine Corporation (Nevada), are being counted in arriving at this sum. NOTE #14 - Non Cash Investing & Financing Activities In 1993, the Company issued 14,589,775 shares of its common stock to finance the acquisition of Sanguine Corporation (a California Corporation). In 1995, the Company issued 1,625,000 shares of its common stock at par value in payment of services received from several vendors. In 1996, the Company issued 450,000 shares of stock for services valued at $450 and 854,864 shares for settlement of accounts payable and accrued expenses. EX-27 2 FINANCIAL DATA SCHEDULE
5 0000926287 SANGUINE CORPORATION YEAR DEC-31-1997 DEC-31-1997 263 0 0 0 0 263 1004 0 1267 499222 0 0 0 20,977 (518932) 1267 0 0 0 0 155957 0 10255 0 0 0 0 0 0 (166212) (.01) (.01)
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