-----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, WEBfQw8x3OSxTna/rtzlKyObX7FBqw3meg63pFLjzFuAM2hSz9qMabeBf/1St4Z7 rwiUi7DMIQjnoApQgVA+lQ== 0001010412-00-000088.txt : 20000417 0001010412-00-000088.hdr.sgml : 20000417 ACCESSION NUMBER: 0001010412-00-000088 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 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: 601098 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, 1999 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, 1999 [ ] 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, 1999 - $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 6, 1999 - $11,748,781. There are approximately 9,893,711 shares of common voting stock of the Registrant held by non-affiliates. This valuation is based upon the average bid prices on April 6, 2000, for the common stock of the Registrant on the OTC Bulletin Board of the NASD. (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 6, 1999 23,162,994 DOCUMENTS INCORPORATED BY REFERENCE A description of "Documents Incorporated by Reference" is contained in Part III, Item 13. Transitional Small Business Issuer Format Yes X No ___ PART I Item 1. Description of Business. ------------------------ Business Development. - --------------------- For a discussion of the business development of Sanguine Corporation ("Sanguine" or the "Company") from inception to the end of the calendar year ended December 31, 1998, see its Annual Report on Form 10-KSB for the calendar year ended December 31, 1998, which has been previously filed with the Securities and Exchange Commission and is incorporated herein by this reference. See Part III, Item 13. There were no material developments during the year ended December 31, 1999. The Company's only operations were the continuation of research and development of PHER-O2, its only product, as outlined below under the heading "Business." The Company had no revenues. 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 its particle 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 volume. 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 has been retained to assist the Company in completing the emulsion of perfluoro-decalin and the synthetic surfactants that make up PHER-O2. The Company needs to obtain substantial additional funding for its intended business operations, as to which no assurance can be given. If the Company obtains such funding, 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 the 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, stroke and transfusions. 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 humans and 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/volume; 2. Free of HIV, hepatitis and other blood-borne disease; 3. Universal match for all blood types; 4. May be mass-produced; 5. May have a three-year shelf life; 6. May be stored at room temperature; 7. Has controllable circulatory half-life; and 8. May be 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, which was completed under the management of Thomas C. Drees, Ph.D., the President of Sanguine. 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 safe donated blood is the largest constraint on the number of transfusions given annually. If a safe 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, and increase its use in ambulances. 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 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 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 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 radiation and 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); Biopure Corporation (Boston, Massachusetts); and Northfield Labs (Chicago, Illinois). 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, some 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 facilities, depending upon funding. Air Products and Chemicals, Inc., DuPont, 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. 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. The Company and Battelle Memorial Research Institute have developed eight 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. Since Sanguine California will not have FDA approval until at the least 2002, this License Agreement will lapse. 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. Copies of the License Agreement and the Amended License Agreement were previously filed with the Securities and Exchange Commission as exhibits to the Company's Form 10-SB Registration Statement and is incorporated herein by reference. See Part III, Item 13. 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 entered into an agreement with Battelle in June, 1998 (the Battelle 1998 Agreement"), for further research on PHER-02 for $300,000 of additional development. The Company retains all rights to any inventions discovered; Battelle is required to provide periodic reports to the Company and keep all information confidential; 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. The Battelle Agreement and the Battelle Extension were previously filed with the Securities and Exchange Commission as exhibits to the Company's Form 10-SB Registration Statement and is incorporated herein by reference. See Part III, Item 13. A copy of the Battelle 1998 Agreement is attached hereto and incorporated herein by reference. See Part III, Item 13. 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 heading "Plan of Operation" of Part II, Item 6. 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 synthetic blood 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 inert and 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 ended 1998 and 1999, the Company, through its wholly-owned subsidiary, Sanguine California, expended a total of approximately $276,000 on research and development, $78,000 in 1999 and $198,000 in 1998. 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 three employees, Thomas C. Drees, Ph.D., David E. Nelson and Anthony G. Hargreaves. Dr. Drees and Mr. Hargreaves 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 heading "Plan of Operation" of Part II, Item 6. 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 $1,647 per month. Item 3. Legal Proceedings. ------------------ Neither the Company nor any member of management is party to any material legal proceeding that, if the subject of an adverse ruling, would have any material effect on the Company or its financial statements. 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 has been 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, 1998 and each quarter of the calendar year ended December 31, 1999, 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, 1999 $.16 $.10 June 30, 1999 $.11 $.08 September 30, 1999 $.09 $.07 December 31, 1999 $.50 $.09 March 31, 1998 $.5312 $.125 June 30, 1998 $1.0937 $.25 September 30, 1998 $.75 $.1562 December 31, 1998 $.3437 $.1562
* The future sale of presently outstanding "unregistered" and "restricted" common stock of the Company by present members of management and others may have an adverse effect on any market that may develop in the shares of common stock of the Company. See the heading " Recent Sales of Unregistered Securities," below. Recent Sales of Unregistered Securities. - ---------------------------------------- The following "restricted securities" of the Company were sold during the past two calendar years: Number of Shares Date Consideration - ---------------- ------ ------------- 66,494 08/98 $ * 240,000 08/98 $ 53,127 1,216,000 09/98 $124,000 600,000 10/98 $ 60,000 18,000 11/98 $ 3,240 52,777 04/99 $ 9,499 * Various prices from $0.10 to $0.25 per share in cash and/or services (See the Statements of Stockholders' Equity in the financial statements of the Company accompanying this Report, Part II, Item 7). All of these securities were issued to persons who were either "accredited investors," or "sophisticated investors," who, by reason of education, business acumen, experience or other factors, were fully capable of evaluating the risks and merits of an investment in the Company; and each had prior access to all material information regarding the Company. The offer and sale of these securities was believed to be exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Sections 4(2) and 4(6) thereof, and Regulation D of the Securities and Exchange Commission; and from various similar state exemptions. Sales of "restricted securities" by members of management and others could have an adverse effect on any public market for the common stock of the Company. With the exception of the shares of "restricted securities" issued as outlined above in 1999, all of the remaining 14,500,010 outstanding shares of the Company's common stock that are designated as "restricted securities" have been held for a sufficient period of time for resale under Rule 144 of the Securities and Exchange Commission, subject to volume limitations of subparagraph (e) of this Rule. Holders. - -------- The number of record holders of the Company's common stock as of April 6, 2000, was approximately 469. 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. Item 6. Management's Discussion and Analysis or Plan of Operation. ---------------------------------------------------------- Plan of Operation. - ------------------ The Company has not commenced planned principal operations, and has made little progress since the end of fiscal 1998. 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 one year): In the first six months, 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 six months, 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 a few additional employees. Estimated cost is $1,500,000. 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 a few additional employees. Estimated cost is $3,500,000. Phase III (approximately one year): In the third 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 third 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 third year, Phase III, the Company estimates that it will need to hire additional employees. Estimated cost is $15,000,000. 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 25 years' experience in the blood industry. See the caption "Business Experience" of Part III, Item 9. 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, 1999 and 1998 were $0 and $0, respectively. The Company had no material operations, except the limited research and development activities related to its Battelle 1998 Agreement. The Company realized a net loss from operations of $(217,864), a loss of $(0.01) per share during the calendar year ended December 31, 1999, and a net loss from operations of $(366,439), a loss of $(0.02) per share for the year ending December 31, 1998. Research and development expenses were $78,000 in 1999, compared to $198,000 in 1998; the difference between these expenditures is the primary difference in expenses between 1999 and 1998. Liquidity. - ---------- During the calendar year ended December 31, 1999, the Company had expenses of $217,864, while receiving $0 in revenues; the Company received no revenues, and had total expenses of $366,439 during the calendar year ended December 31, 1998. The amount of research and development in 1998 exceeded these expenses in 1999 by $120,000. Cash resources at December 31, 1999 and 1998 were $1,062 and $499, respectively. The Company issued approximately 52,777 shares of its "restricted" common stock in consideration of cash in the amount of $9,500; and 100,000 shares of its "restricted" common stock in consideration of services valued at $10,000. The commencement 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, 1999, and December 31, 1998 Independent Auditors Report Balance Sheet - December 31, 1999 and 1998 Statements of Operations Accumulated for the Period January 18, 1989 to December 31, 1999 and the Years ended December 31, 1999, 1998 and 1997 Statements of Stockholders' Equity January 1, 1990 to December 31, 1999 Statements of Cash Flows Accumulated for the Period January 18, 1989 to December 31, 1999 and the Years Ended December 31, 1999, 1998 and 1997 Notes to Financial Statements SANGUINE CORPORATION (A Development Stage Company) FINANCIAL STATEMENTS December 31, 1999 & December 31, 1998 /Letterhead/ Schvaneveldt & Company Certified Public Accountant 275 East South Temple, Suite #300 Salt Lake City, Utah 84111 (801) 521-2392 Darrell T. Schvaneveldt, C.P.A. 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, 1999 and 1998, and the related statements of operations, stockholders' equity, and cash flows for the accumulated period of January 18, 1989 to December 31, 1999, and the years ended December 31, 1999, 1998, and 1997. 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, 1999 and 1998, and the results of its operations and its cash flows for the accumulated period of January 18, 1989 to December 31, 1999, and the years ended December 31, 1999, 1998, and 1997, 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 #9 to the financial statements, the Company has an accumulated deficit and a negative net worth at December 31, 1999. 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 #9. 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 11, 2000 SANGUINE CORPORATION (A Development Stage Company) Balance Sheet December 31, 1999 and 1998
1999 1998 Assets Current Assets Cash $ 1,062 $ 499 Property & Equipment Furniture -0- 84 Total Assets $ 1,062 $ 583 Liabilities & Stockholders' Equity Current Liabilities Accounts Payable $ 78,680 $ 14,154 Accrued Salaries 524,000 428,000 Accrued Interest Payable 38,880 33,420 Notes Payable 168,306 135,450 Total Current Liabilities 809,866 611,024 Stockholders' Equity Common Stock, Authorized: 100,000,000 Shares at $0.001 Par Value: 23,162,994 & 23,010,217 Shares Issued & Outstanding Respectively 23,163 23,010 Paid In Capital (Quasi-Reorganized March 20, 1994 Deficit Retained Earnings of $2,423,964 Eliminated) 877,444 858,096 Retained Earnings Deficit (1,709,411) (1,491,547) Total Stockholders' Equity (808,804) (610,441) Total Liabilities & Stockholders' Equity $ 1,062 $ 583
SANGUINE CORPORATION (A Development Stage Company) Statements of Operations Accumulated for the Period January 18, 1989 to December 31, 1999 and the Years Ended December 31, 1999, 1998 and 1997
Accumulated January 18, 1989 to December December December December 31, 1999 31, 1999 31, 1998 31, 1997 Revenues Interest Income $ 4,842 $ -0- $ -0- $ -0- Sales Market Rights 150,000 -0- -0- -0- Total Revenues 154,842 -0- -0- -0- Expenses Depreciation $ 4,609 $ 84 $ 920 $ 920 Research & Development 865,805 78,000 198,000 79,000 Insurance 22,023 23,794 467 672 Office Expenses 93,253 12,627 9,585 8,987 Auto Expenses 26,919 9,922 990 1,170 Legal & Professional Fees 141,231 19,067 30,550 9,773 Rent 98,791 12,564 17,596 16,000 Interest Expenses 69,827 16,746 16,732 10,255 Bad Debts 10,000 -0- -0- 10,000 Travel 20,725 7,570 136 -0- Stock Transfer 4,829 300 1,770 618 Consultant Fees 297,520 -0- 63,710 9,633 Salaries & Wages 112,108 18,000 18,000 18,000 Taxes & Licenses 25,295 1,999 1,167 1,184 Finders Fees 7,825 -0- -0- -0- Promotions 52,094 17,191 6,816 -0- Total Expenses 1,852,854 217,864 366,439 166,212 Net Profit (Loss) From Operations ($1,698,012) ($217,864) ($366,439) ($166,212) Profit (Loss) Per Share ($.01) ($.02) ($.01) Weighted Average Shares Outstanding 23,078,735 21,943,900 20,877,723
SANGUINE CORPORATION (A Development Stage Company) Statement of Stockholders' Equity January 1, 1990 to December 31, 1999
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) SANGUINE CORPORATION (A Development Stage Company) Statement of Stockholders' Equity -Continued- January 1, 1990 to December 31, 1999 Common Shares Paid In Accumulated Shares Amount Capital Deficit 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 SANGUINE CORPORATION (A Development Stage Company) Statement of Stockholders' Equity -Continued- January 1, 1990 to December 31, 1999 Common Shares Paid In Accumulated Shares Amount Capital Deficit 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 9,234 Net Loss for Year Ended December 31, 1997 (166,212) Balance, December 31, 1997 20,977,723 20,977 606,176 (1,125,108) Shares Issued for Services $.025 Per Share 32,281 32 8,038 Shares Issued for Services $0.25 Per Share 31,183 31 7,766 Shares Issued for Services $0.25 Per Share 11,030 11 2,747 Shares Issued in Satisfaction of Accounts Payable $0.21 Per Share 240,000 240 52,887 SANGUINE CORPORATION (A Development Stage Company) Statement of Stockholders' Equity -Continued- January 1, 1990 to December 31, 1999 Common Shares Paid In Accumulated Shares Amount Capital Deficit Shares Issued for Cash $0.13 Per Share 8,000 8 1,192 Shares Canceled ( 100,000) ( 100) 100 Share Issued for Services at $0.10 Per Share 600,000 600 59,400 Shares Issued for Cash at $0.10 Per Share 10,000 10 990 Shares Issued for Cash at $0.10 Per Share 1,200,000 1,200 118,800 Rounding Adjustment 1 Net Loss for Year Ended December 31, 1998 ( 366,439) Balance, December 31, 1998 23,010,217 23,010 858,096 (1,491,547) Shares Issued for Cash at $0.19 Per Share 52,777 53 9,447 Shares Issued for Legal Services at $0.10 Per Share 100,000 100 9,900 Net Loss for Year Ended December 31, 1999 ( 217,864) Balance, December 31, 1999 23,162,994 $23,163 $ 877,443 ($1,709,411)
SANGUINE CORPORATION (A Development Stage Company) Statements of Cash Flows Accumulated for the Period January 18, 1989 to December 31, 1999 and the Years Ended December 31, 1999, 1998 and 1997
Accumulated January 18, 1989 to December December December December 31, 1999 31, 1999 31, 1998 31, 1997 Cash Flows from Operating Activities Net (Loss) ($1,491,547) ($217,864) ($366,439) ($166,212) Adjustments to Reconcile Net (Loss) to Net Cash: Rounding -0- 1 (2) -0- Depreciation 4,525 84 920 920 Non Cash Expense 427,801 10,000 78,625 19,334 Changes in Operating Assets & Liabilities: Increase (Decrease) Accounts Payable 14,154 64,526 31,722 10,189 Increase in Interest Payable 33,420 5,460 5,460 5,460 Increase in Accrued Salaries 428,000 96,000 96,000 96,000 Net Cash Flows from Operating Activities (583,647) ( 41,793) ( 153,714) ( 34,309) Cash Flows from Investing Activities Purchase of Equipment (4,609) -0- -0- -0- Cash Flows from Financing Activities (Decrease) Increase in Notes Payable 135,450 32,856 31,750 33,900 Sale of Common Stock 452,555 9,500 122,200 -0- Contributed Capital 750 -0- -0- -0- Net Cash Flows from Financing Activities 588,755 42,356 153,950 33,900 Increase (Decrease) in Cash 499 563 236 ( 409) Cash at Beginning of Period -0- 499 263 672 Cash at End of Period $ 499 $1,062 $ 499 $ 263 Disclosure for Cash Flows from Interest $ 69,827 $16,746 $16,732 $ 10,255 Taxes -0- -0- -0- -0- Disclosures from Non Cash Transactions Operating Activities Payment of Accounts Payable $ -0- $ -0- $49,930 $ -0- Issued Shares for Services -0- 10,000 78,625 9,333
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. SANGUINE CORPORATION (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #2 - Significant Accounting Policies -Continued- 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 2016 1997 156,878 2017 1998 366,439 2018 1999 217,864 2019 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. 1999 1998 1997 Current Tax Asset Value of Net Operating Loss Carryforwards at Current Prevailing Federal Tax Rate $ 494,717 $ 420,643 $ 296,053 Evaluation Allowance (494,717) (420,643) (296,053) Net Tax Assets $ -0- $ -0- $ -0- Current Income Tax Expense -0- -0- -0- Deferred Income Tax Expense -0- -0- -0- SANGUINE CORPORATION (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #5- Notes Payable - Short Term The Company has three notes payable to three entities. Amounts 1999 1998 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 on demand, interest at 12% per annum. 128,306 95,450 Total Current Notes Payable $168,306 $135,450 NOTE #6 - 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, 1999 and 1998. December 31, Depreciation Accumulated 1999 1998 Expense Depreciation Assets Cost Cost Life 1999 1998 1999 1998 Furniture $ 4,609 $ 4,609 5 $ 84 $ 920 $4,609 $4,525 NOTE #7 - 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 exercise period of warrants issued expired in August 1998 with no warrants being exercised. 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 SANGUINE CORPORATION (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #7 - Stock Option -Continued- 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 1996 and 1998 counsel exercised its option to purchase the 200,000 shares at $0.25 per share. On September 23, 1998, the Company issued an option to its legal counsel for 100,000 shares at $0.10 per share for a period of three years from the date of the grant. The Company's counsel exercised the option for the 100,000 shares at $10,000 for services. NOTE #8 - Lease Commitment The Company rents office space on a month to month arrangement for $1.647. The total annual cost of the space is $19,764. At the present time the Company's President reimburses the Company $596 each month for space he utilizes for non company purposes. NOTE #9 - Going Concern The Company had an accumulated deficit of $1,709,411 at December 31, 1999 and negative cash flows for the year and the proceeding year. 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 #10 - 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 #11 - 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 SANGUINE CORPORATION (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #11 - Employment Agreement -Continued- 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 #12 - 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. In 1997, the Company issued 100,000 shares of its common stock for services rendered to the Company valued at $9,334.00. In 1998, the Company issued 674,494 shares of its common stock for services valued at $78,625. The Company issued 240,000 shares of its common stock for satisfaction of accounts payable valued at $49,930. In 1999, the Company issued 100,000 shares of its common stock for legal services valued at $10,000. NOTE #13 - Subsequent Events In March of 2000, the Company agreed to grant options to purchase shares of common stock to the following; to the Company's Legal Counsel the option to purchase 300,000 shares, an Officer of the Company the option to purchase 100,000 shares and an unrelated party the option to purchase 700,000 shares of common stock. The Option price of the shares is $0.25 per share and may be exercised for 180 days from the grant date. 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 * 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 71, is the founder of Sanguine California. Dr. Drees was Vice President and General Manager of Abbott Scientific Products Division, collector of blood plasma derivatives and manufacturer of human blood derivatives from 1973 to 1978 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 26 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 72 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 57, 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 53 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. 1998 * -0- -0- -0- -0- -0- -0- Drees, Ph.D. 1999 * -0- -0- -0- -0- -0- -0- MBA CEO, President and Chairman of the Board of Directors Anthony G. 1998 * -0- -0- -0- -0- -0- -0- Hargreaves, 1999 * -0- -0- -0- -0- -0- -0- Vice Pres., Sec./Treas. and Director David E. 1998 -0- -0- -0- -0- -0- -0- -0- Nelson, CPA 1999 -0- -0- -0- -0- -0- -0- -0- CFO and Director Edward L. 1998 -0- -0- -0- -0- -0- -0- -0- Kunkel, Esq. 1999 -0- -0- -0- -0- -0- -0- -0- Director
* See the heading "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" of this Item. Bonuses and Deferred Compensation. - ---------------------------------- See the heading "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" of this Item. 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, Secretary/Treasurer 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. As of December 31, 1998, a total of $428,000 in salaries had accrued to Messrs. Drees and Hargreaves pursuant to the above referenced Letter Agreement; and as of December 31, 1999, a total of $524,000 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, which date has been extended to May 31, 2002. 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. - -------------------------------------------------- To the knowledge of management, all filings required to be made by members of management or others pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, have been duly filed. Item 11. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------- The following tables set forth the share holdings 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 6, 2000, with the computations being based upon 23,162,994 shares of common stock being outstanding. This figure takes into account the 23,162,994 presently outstanding shares of common stock; the 470,642 shares subject to an existing option held by Anthony G. Hargreaves (see footnote 2 below); and the 10,000 shares subject to an existing option held by Edward L. Kunkel, Esq. (see footnote 3 below). 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 51.7% 101 East Green Street, #11 Pasadena, California 91105 Anthony G. Hargreaves (1) 1,000,000(2) 4.2% 101 East Green Street, #11 Pasadena, California 91105 David E. Nelson, CPA(1) 150 .0006% 528 14th Avenue Salt Lake City, Utah 84103 Edward L. Kunkel, Esq. (1) 50,000 (3) 0.021% 16 N. Marengo Ave, #517 Pasadena, California 91103 __________ ______ Total: 13,269,283 55.92%
All directors and officers as a group 13,269,283 55.92% (4 persons) (1) See Part III, Item 11, 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. (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, 2002. See the heading "Employment Contracts" of Part III, Item 10. FIVE PERCENT STOCKHOLDERS
Number of Shares Percent Name and Address Beneficially Owned of Class - ---------------- ------------------ -------- Thomas C. Drees, Ph.D., MBA 12,219,133 51.7% 101 East Green Street, #11 Pasadena, California 91105 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. Exhibits* (i) Where Incorporated in this Report -------------- Annual Report on Form 10-KSB for the Part I calendar year ended December 31, 1998** Registration Statement on Form 10-SB, as amended** (ii) Exhibit Number Description - ------ ----------- 10 Battelle 1998 Agreement 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 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: April 12, 2000 By /s/ Thomas C. Drees -------------- ------------------------------------- Thomas C. Drees, Ph.D., MBA CEO, President and Chairman of the Board of Directors Date: April 12, 2000 By /s/ Anthony G. Hargreaves -------------- ------------------------------------- Anthony G. Hargreaves, Vice President, Secretary/Treasurer and Director Date: April 13, 2000 By /s/ David E. Nelson -------------- ------------------------------------- David E. Nelson, CPA CFO and Director
EX-10 2 RESEARCH AND DEVELOPMENT SERVICES AGREEMENT AGREEMENT NUMBER CP036763 LABOR AND MATERIALS TYPE Battelle Memorial Institute, through its Columbus Operations (BATTELLE) agrees to provide to Sanguine Corporation (CLIENT) technical/research services substantially in accordance with BATTELLE's Proposal No. CP036763, (the Project) incorporated herein by reference, under the following terms and conditions: 1. ACCEPTANCE AND COMMENCEMENT BATTELLE's Proposal may be accepted within sixty (60) days from the date of BATTELLE's signature below. BATTELLE will begin work within thirty (30) days of receipt of this Agreement executed by CLIENT. The Project period is estimated as six (6) months from commencement 2. PAYMENT CLIENT agrees to pay BATTELLE's charges for labor services and for other expenses for performance of the Project, estimated at Three Hundred Thousand Dollars and No Cents ($300,000.00), without set-off, payable in advance as follows: A. Initial payment of Sixty Thousand Dollars and No Cents ($60,000.00), due prior to commencement of Project activities. B. Thereafter in Four (4 ) payments of Sixty Thousand Dollars and No Cents ($60,000.00), due within thirty (30) days of presentation of invoice. CLIENT will not be required to reimburse, and BATTELLE shall not be required to incur, any charges for performance in excess of the estimate stated above, unless mutually agreed upon in writing. The balance of the advance payment, if in excess of One Thousand Dollars and No Cents ($1000.00), shall be refunded to CLIENT upon termination of the Project. Invoices not paid within thirty (30) days of the date of invoice shall accrue interest at the rate of two (2) percent per month, compounded daily. 3. INTELLECTUAL PROPERTY The terms of ownership of Intellectual Property are provided in the separate Option Agreement between Client and Battelle. 4. NO ENDORSEMENT/LITIGATION BATTELLE does not endorse products or services. Therefore, CLIENT agrees that it will not use or imply BATTELLE's name, or use BATTELLE's reports, for advertising, promotional purposes, raising of capital, recommending investments, or any way that implies endorsement by BATTELLE, except with prior written approval of an officer of BATTELLE. BATTELLE does not undertake Projects for the purposes of litigation or to assign fault or blame and does not provide expert witness services. Therefore, CLIENT agrees not to use any Project results in any dispute, litigation, or other legal action. In any event, if, at any time, BATTELLE or its employees are required to respond to any subpoenas, orders for attendance at depositions, hearings or trials, document requests, or other legal proceedings as a result of or relating to BATTELLE's work on the Project, CLIENT agrees to reimburse BATTELLE, in addition to any other amounts payable under this Agreement, BATTELLE's labor charges, attorney time and/or fees, travel, photocopying and other miscellaneous expenses. 5. LIMITATION OF LIABILITY BATTELLE will provide a high standard of professional service on a best efforts basis. However, BATTELLE, as a provider of such services, cannot guarantee success, thus BATTELLE NUKES NO WARRANTY OR GUARANTEE, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY, FOR ANY REPORT, DESIGN, ITEM, SERVICE OR OTHER RESULT TO BE DELIVERED UNDER TIHS AGREEMENT. CLIENT assumes responsibility for its use, misuse, or inability to use the Project results and in no event shall BATTELLE have any liability for damages, including but not limited to any indirect, incidental, or consequential damages, arising from or in connection with this Agreement. CLIENT agrees to indemnify and hold BATTELLE harmless from any and all liabilities, suits, claims, demands, and damages, and all costs and expenses in connection therewith, in any manner relating to this Agreement or its performance, asserted by third parties from any cause whatsoever, except for injury or damage occurring during performance of a Task under this Agreement on BATTELLE-owned premises where fault of CLIENT is not a contributing cause. 6. NATURE OF SERVICES CLIENT agrees that BATTELLE is an independent contractor and specifically acknowledges that BATTELLE is a service provider, not a manufacturer or supplier. CLIENT retains all final decision making authority and all responsibility for the formulation, design, manufacture, assembly, packaging, marketing and sale of CLIENT's products, including, without limitation, product labeling, warnings, instructions to users, and for obtaining any governmental or other pre- or postmarket approvals, certifications, registrations, licenses, or permits. 7. PRODUCT LIABILITY INSURANCE CLIENT shall maintain adequate product liability insurance coverage in amounts customary and prudent for a responsible entity in its industry in light of the nature of its product(s). Such insurance shall specifically cover any CLIENT products that may be developed in whole or in part based on BATTELLE's work under this Agreement, and CLIENT shall provide evidence of such insurance upon request. 8. FORCE MAJEURE Neither CLIENT nor BATTELLE shall be liable in any way for failure to perform any provision of this Agreement (except payment of monetary obligations) if such failure is caused by any law, rule, or regulation, or any cause beyond the control of the party in default. 9. EARLY TERMINATION Either party shall have the right to terminate this Agreement upon thirty (30) days' written notice for any good-faith basis. In the event of early termination, BATTELLE agrees to provide CLIENT with all reports, materials, or other deliverable items available as of the date of the termination, provided that CLIENT is not in default of its obligations under this Agreement. In any event, CLIENT agrees to pay all charges incurred or committed by BATTELLE, including costs of termination, within thirty (30) days of receipt of a final invoice. 10. ENTIRE AGREEMENT This Agreement, including the Proposal incorporated herein, represents the entire Agreement of the parties and supersedes any prior discussions or understandings, whether written or oral, relating to the subject matter hereof. This Agreement may be modified or amended only by mutual agreement in writing. No course of dealing, usage of trade, waiver, or non-enforcement shall be construed to modify or otherwise alter the terms and conditions of this Agreement. In the event of any conflict or inconsistency between these terms and conditions and the Proposal, these terms and conditions shall control. 11. APPLICABLE LAW This Agreement shall be governed and construed in accordance with the laws of and enforced within the jurisdiction of the State of Ohio. 12. MISCELLANEOUS This Agreement may not be assigned in whole or in part without the prior written approval of both parties. In any event, however, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the successors, assigns and transferees of the parties. If any part of this Agreement shall be held invalid or unenforceable, such invalidity and unenforceability shall not affect any other part of this Agreement. Captions used as headings in this Agreement are for convenience only and are not to be construed as a substantive part of this Agreement. Sanguine Corporation BATTELLE MEMORIAL INSTITUTE Columbus Operations By/s/Thomas C. Drees By/s/Christina L. Rotunda Christina L. Rotunda Title Chairman/CEO Title Contracting Officer Date June 17, 1998 Date May 21, 1998 Prepared for Dr. Thomas Dress Chairman Sanguine Corporation Preparation and Evaluation of Fluorocarbon- Emulsion for Use as Oxygen-Carrying Blood Substitutes Proposal/Agreement No. CP030763 Battelle Polymer Center February 27,1998 For more Information regarding this proposal, please contact: Dr. Herman P. Benecke Senior Research Scientist Telephone (614) 424-4457; Facsimile (614) 424-7479 Proprietary Statement The Information contained In this proposal is proprietary. Please do not circulate to other's not directly responsible for making a decision regarding this proposal. Overview Our Proposal 2 Introduction 2 Background 2 The Objective 3 Approach 4 Figure 1. Project Schedule 5 Description of Work 4 Task 1: Develop Product Criteria 4 Task 2: Concept Evaluation and Selection 6 Task 3: Synthesis of Candidate Surfactants 7 Task 4: Emulsion Development and Testing 8 Task 5: Toxicological and Biological Testing 8 Task 6: Program Reporting 9 Program Management 9 Benefits 9 Intellectual Property Statement 10 Risk 11 Schedule and Cost 11 OUR PROPOSAL Preparation and Evaluation of Fluorocarbon Emulsions for Use as Oxygen-Carrying Blood Substitutes (Proposal/Agreement No. CP03673) Introduction A market opportunity exists for a blood substitute that is safe and efficacious since the world blood transfusion market is expected to rise and concerns about AIDS have contributed to a rising demand for blood substitutes. Sanguine has estimated that the blood substitute market will reach $1 billion in five years and this market will grow $20-$30 billion in 10-15 years. Blood substitutes are currently categorized as (a) oxygen-carrying emulsified fluorocarbons, or (b) hemoglobin based; The former approach based on the fact that fluorocarbons have a very high solubility for oxygen and carbon dioxide but fluorocarbons must be emulsified since they have negligible solubility in water or blood. With respect to the letter approach, concerns have been raised recently regarding the safety, high-manufacturing costs, and availability of hemoglobin derived products. Thus oxygen-carrying emulsified fluorocarbon products may represent the preferred approach. Background The present day interest in liquid fluorocarbon emulsions as human blood stream oxygen carriers dates from the discovery in 1965 by Dr. Leland Clark that rodents could "breathe" for hours submerged in an oxygen-saturated fluorocarbon liquid. This startling discovery was based on the chemical and physiological inertness of fluorocarbon liquids as wall as the extremely high solubility and diffusibility of oxygen and carbon~dioxide in these materials. This class of liquids is unique among chemicals due to the fact that they can rapidly dissolve about fifty volume percent of oxygen and carbon dioxide and quickly release these gases on demand due to the extremely high gaseous diffusion rates. Even though fluorocarbons are very insoluble in water (or blood), it was quickly recognized that these materials could be used to aid mammalian breathing if they could be safely dispersed in the bloodstream as emulsions. Emulsions are stabilized dispersions of water insoluble materials in which the particle size is 0.1-1.0 microns. Emulsion particles are maintained as stable dispersions by the presence of small amounts of surfactants. Surfactants are molecules with at least two discrete and unlike components, one of which is very soluble in aqueous phase compositions while the other component is insoluble in aqueous phases but is soluble in non-polar materials such as fats or fluorocarbons. Surfactant molecules will align themselves at the interface between two insoluble materials such as water and a fluorocarbon liquid. If such mixtures are mechanically broken into small droplets (with a high shear mixture) in the presence of an appropriate surfactant, the surfactant molecules will become distributed over the surface of the droplet with the fluorocarbon soluble end dissolved in the surface of the fluorocarbon droplet, while the water soluble ends are dissolved in the continuous water phase to form a dispersed emulsion. This surface layer of oriented surfactants molecules can also help keep separate emulsion particles from fusing (coalescing) into larger particles. Fluosol-DA (developed by Alpha Therapeutics, which later became Green Cross Corporation of Japan) is an emulsion of perfluorodecalin and is the only blood substitute, which has been approved by the FDA (on a limited basis). This product has been used successfully in human blood transfusions. Oxygent is another emulsified fluorocarbon blood substitute candidate, which is being developed by Alliance Pharmaceutical and is currently undergoing clinical trials. However, serious deficiencies exist in both of these products, both of which employ lecithin as their primary surfactant. Fluosol-DA has a very short shelf-life which requires that this material be stored frozen, which is a serious disadvantage of this material. A major cause of this short shelf-life is the fact that the non-polar hydrocarbon tails of lecithin have a relatively low solubility in the perfluorodecalin comprising Fluosol-DA. In addition, both Fluosol and Oxygent have half-lives in the bloodstream of only about 4-8 hours which is caused primarily by phagocytosis (engulfing) of the emulsified fluorocarbon particles by macrophage cells of the Immune system. These limited half-lives significantly restrict the type surgical procedures for which these products can be used. The Objective The overall~objective of Battelle's involvement in the blood substitute arena is to develop a technically advanced oxygen-carrying fluorocarbon emulsion which overcomes the problems associated with the above emulsified blood fluorocarbon systems. The recent scientific literature indicates that efficient emulsification of fluorocarbons requires that the surfactant contain appropriate fluorocarbon containing functionality. Whereas the surfactants used in either Fluosol-DA or Oxygent do not incorporate fluorinated surfactants, Battelle chemists have developed specialty surfactant concepts which are based on positioning fluorinated functionality within the surfactant to enhance the attractive interaction between that component of the suractant and the emulsified fluorocarbon droplets, potentially allow use of a one package emulsification system, significantly increase the storage stability of concentrated emulsified fluorocarbons, and increase the emulsion lifetimes when dispersed in aqueous media or blood. Another very important feature of specific Battelle surfactant candidates is they will contain specific functionality expected to camouflage emulsified fluorocarbon droplets from the immune system (impart "stealth" characteristics) and slow the phagocytosis process. This feature is expected to provide increased lifetimes of the emulsified fluorocarbon in the bloodstream to allow the obvious benefit of prolonged oxygen delivery to the patient. The specific objective of this program is to synthesize and purify at least two and potentially three fluorocarbon surfactants on a relatively fast track schedule. These surfactant candidates will undergo appropriate preliminary physical and toxicological testing to evaluate their potential to prepare fluorocarbon emulsions as blood substitutes. With this data in hand, U.S. Patent applications will be filed for all appropriate surfactant candidates to establish dates of invention and provide intellectual property protection provided by patent law. It is anticipated that filing these patent applications will be an important factor in focusing Sanguine's efforts in pursuing a follow-on development program. (Filing patent applications related to the performance of this program is considered outside of the scope of this proposal and will be funded separately.) It is important to stress that this important program represents the initiation of the overall process of delivering an FDA approved blood substitute to the market. Follow-on work includes continued preparation and testing of surfactant candidates, pharmacology and exploratory toxicology, preparation of the "winning" candidate surfactant as well as preparation of fluorocarbon emulsions with this surfactant under Good Manufacturing Practices (GMP) regulations, preclinical trials, and clinical trials. Battelle previously provided a prospectus to Sanguine (January 17, 1996) in which the estimated cost at the time to complete the program through preclinical trials (not including clinical trials) was $5 million. Approach The components of the proposed research for this start-up program are described below. The time intervals required for each activity are shown in a Gantt chart shown in Figure 1 (see page 5). Description of Work Task 1: Develop Product Criteria The initial task in this program will be to specify the product criteria which reflect the specific intended medical uses and required use criteria. Sanguine and Battelle staff will jointly determine these product criteria to utilize the significant experience of Sanguine management concerning the technical and business issues concerning artificial blood. Following are product criteria which are envisioned to be of prime importance: thermal stability (including sterilization requirements), Oxygen carrying capacity, in-vivo half-life, and production costs. In addition, the identity of the fluorocarbon to be used as the oxygen carrier needs to be specified. Other product criteria may be specified during joint Battelle and Sanguine discussions are also possible. These issues can be mainly resolved during a planned program kick-off meeting at Battelle. Task 2: Concept Evaluation and Selection Under an earlier contract which started in early 1994, Battelle scientists generated and delivered to Sanguine specific intellectual property concerning new and improved surfactant concepts for fluorocarbon emulsification. In late 1995, long after completion of this original program with Sanguine, Battelle information retrieval specialists (at Battelle's expense) performed up-to-date computerized literature reviews on this topic. Based on this input and Battelle chemists' personal review of the literature at that time, new classes of surfactant candidates were conceived for the emulsification of fluorocarbons as oxygen-carrying blood substitutes. Battelle surfactant concepts which embody these concepts are described in detail "Intellectual Property Disclosure Records" (IPDRs) on file in Battelle's legal department. Even though an extensive literature review and intensive surfactant concept generation was performed in late 1995, an up-to-date extensive review of the literature on this topic must be performed at the start of this project. This information will allow Battelle to determine if the concepts already described in IPDRs infringe on previously published work or whether we can cleanly proceed to develop previously described concepts. If necessary, a Battelle patent lawyer will be retained to provide internal legal opinions on earlier published work, which presents infringement questions. Of course, we cannot guarantee that the surfactant concepts will be patentable or will not infringe on earlier work, but we intend to use our best professional judgement to focus on approaches that are unencumbered. Sanguine should retain their own legal advice to determine the probability that the individual concepts represent unencumbered inventions and takes full responsibility for these decisions. The literature review may also uncover information, which triggers further concept generation. We believe that a prior art review phase is one of the most important activities in this program since we wish to develop surfactant concepts that do not infringe upon the prior art and thus enhance the probability of patenting these developments. Battelle chemists will apply their considerable experience in emulsion technology to the evaluation and preliminary rank ordering of all classes of surfactants, which are described in Battelle IPDRs and are not encumbered by the prior art. To the extent possible, surfactant structures will incorporate the substantive improvements, which are described in Battelle IPDRs. These anticipated structural features include use of strategically located fluorine functionality to impart "stealth" properties to these candidates. We wish to mention that many flurosurfactants are toxic and (or) cause hemolysis, or rupture of red blood cells, whereas other flurosurfactants are essentially non-toxic and non-hemolytic. Tactics to avid these undesirable properties have been and will continue to be incorporated in the design of Battelle's fluorosurfactants. In general it has been shown that incorporating fragments of naturally occurring materials (such as sugars) in fluorosurfactants result in relatively non-toxic fluorosurfactants. Another approach to minimize or avoid toxicity is to use molecular components in candidate fluorosurfactants (when possible) which have been previously shown to be non-toxic and non-hemolytic in the vascular system in other applications. Those surfactant concepts, which re currently the highest ranked, employ at least one of these principles described above to minimize or avoid vascular toxicity. Task 5 (described below)will provide preliminary toxicology data for fluorosurfactants prepared on this program. To the extent possible, the structural design of Battelle's surfactant candidates as fluorocarbon emulsifiers will be aided by using appropriate molecular modeling methodologies. Currently, a molecular modeling program titled CODESSA is available which predicts the critical micelle concentration (cmc) of surfactants, which is an indicator of the inherent ability of a surfactant to participate in the necessary self-assembly effect to form micelles. Thus, before we initiated the synthesis of any surfactant, we would first determine the predicted cmc of that surfactant and related surfactants to determine that we were preparing the better candidate. Battelle also has a high-end molecular modeling system by Molecular Simulations, Inc. which may also be used to help rank the surfactant concepts and evaluate potential structural improvements before such improvements are implemented in the laboratory. Task 3: Synthesis of Candidate Surfactants Battelle organic and polymer chemists have extensive experience in using new synthetic methods to prepare a wide range of monomeric, oligomeric and polymeric compounds for a variety of uses and have received many patents related to these developments. The lead surfactant candidates form the highest ranked classes of surfactants will be synthesized first in a controlled and documented manner in anticipation of potentially preparing this compound under the auspices of Good Manufacturing Practices. As soon as these surfactant candidates are purified and characterized, they will be submitted for emulsion, pharmacology and toxicology testing. Battelle's extensive synthesis and analytical facilities within Battelle's Polymer Product Group will be used to prepare and fully characterize the physical and chemical properties of each surfactant candidate as well as precursor compounds. This analytical equipment includes proton and carbon nuclear magnetic resonance (NMR) spectroscopy, infrared (IR) spectroscopy, in high performance liquid chromatography (HPLC), gas chromatography (GC) and potentially mass spectroscopy. It is anticipated that preparative scales HPLC will also be used for purification purposes. Task 4: Emulsion Development and Testing Emulsion preparation using synthesized surfactants and the selected fluorocarbon oxygen carrier will be performed using laboratory ultrasonic dispersion techniques to prepare small quantities (10-100 ml) for preliminary physical testing. A few of the parameters that will be tested or evaluated are particle size and distribution, surface and interfacial tension, flow and rheology characteristics, stability to accelerated test conditions such as heating, cooling, and centrifugation, and methods to sterilize these emulsions. Battelle has the equipment required to prepare candidate emulsions at a wide range of scales for emulsion testing. Those surfactant candidates which pass the Emulsion Development and Testing stage will be further tested in toxicological and biological testing. Task 5: Toxicological and Biological Testing Toxicological and biological testing will be an integrated part of emulsion development, characterization and evaluation of emulsions prepared from synthesized surfactants and the selected fluorocarbon. These studies will be non-GLP model designs. The following tests will be performed: Effect on Cell Cultures. A Namalva lyphoblastoid strain with stable and reproducible growth parameters will be chosen to assess direct cell toxicities. Cells will be counted after four day exposures to determine their viability and potential inhibition of cell growth. Hemolysis. The hemolytic effect of surfactant dispersions will be assayed using human red blood cells and will be expressed as the percentage of cells undergoing hemolysis. Acute Toxicology. An indication of the acute toxicology of emulsion particles will be obtained by injection of these materials into the tail veins of mice. Their symptoms, behavior, mortality will be observed throughout 15 day studies and complete gross necropsies will also be performed on euthanized animals to determine potential changes in organ weights. Depending on the timing of these studies relative to synthesis tasks, it is possible that some toxicological results will be available during the course of the surfactant synthesis program, which may be used as feedback in suggesting specific structural modifications of candidates undergoing synthesis. Task 6: Program Reporting We recommend that bymonthly reports be prepared at months 2 and 4 of this program and a comprehensive Final Report be prepared at the end of this 6- month program. As needed, telephone calls will be used to transmit information we believe should be conveyed to Sanguine before the next scheduled reporting period. Program Management Responsibility for this program will be centered in Battelle's Polymer Center. Consistent with Battelle's normal mode of operation, the program will be managed to assure that it proceeds along a predesigned schedule toward meeting the defined deliverables. Any problems encountered will be quickly reported to Sanguine. Dr. Benjamin Maiden, Vice President of the Chemical Market Sector, will provide executive management overview. Line management for conducting the program will reside with the Manager of the Polymer Center, Mr. Joseph A. Jacomet. Dr. Herman Benecke, a synthetic organic chemist, will serve as Program Manager and will also serve as Principal Investigator in directing surfactant synthesis, and emulsion preparation and evaluation. Dr. Benecke has previously directed a large government GMP program for the production of the pharmaceutical material. Mr. Richard Markie, Polymer Specialist and Principal Investigator on the prior Sanguine program, will participate in concept generation and surfactant synthesis, and will codirect the emulsion preparation and testing. Dr. Bhima Vijayendran, an industrial chemist well versed in emulsion technology, will codirect the emulsion preparation and testing task. Dr. Joyce Durnford will oversee the cell toxicology studies and Dr. Merrill Osheroff will oversee the hemolysis and acute toxicology studies. Benefits Interest in synthetic blood substitutes, based on fluorocarbons, has increased significantly as concerns have been raised over the safety and high manufacturing costs for hemoglobin-based products. A huge market opportunity appears to exist for a synthetic blood product that is safe and efficacious for human use. Sanguine has estimated the market for blood substitutes to be in the $1 billion range. Further, opportunities for product differentiation exist through improvement of shelf-life, development of user friendly systems (e.g. products that do not have to be mixed or frozen), and development of products which can be manufactured at a reasonable cost in order to meet required pharmaceutical margins. Companies offering products that meet these criteria and who are first to reach the market may realize enormous gains. However, we believe that second generation blood substitute products which reach the market after initial market entry can still capture a significant or major portion of the market if their product is technologically advanced over the initial entry. We believe >PAGE> that the surfactant features, which we have generally described, offer potential advantages over the emulsified fluorocarbon systems currently undergoing clinical trials. Intellectual Property Statement Three groups of inventions have been or will be created by Battelle which relate to Sanguine's Field of interest (the Field being "oxygen-carrying fluorocarbon emulsions for use as blood substitutes") which can be categorized as follows: Group 1 - Inventions created on Sanguine's earlier project. These inventions were documented in Intellectual Property Disclosure Records (IPDRs listed below) a) Flourosurfactants Based on Phosphatidyl Choline or Glycerophosphorylcholine (GPC), Accession No. 94012 b) Stable Amide Bond-Linked Perfluoro Phosphatidyl Choline Surfactants, Accession No. 94013 c) New Polyvinylpyrrolidone Oligomer-Based Flurosurfactants, Accesssion No. 94014 Group 2 - Proprietary, inventive surfactant materials created by Battelle on its own internally funded projects. All rights to these inventions are currently owned by Battelle. The inventions have been documented in IPDRs which will be delivered to Sanguine under terms of confidentiality. Titles of these IPDRs are: a) Self-Aggregating Extended Lifetime Hydrophilic Fluorocarbon Ampiphiles for Blood Oxygen or Drug Delivery. b) Perfluorosurfactants with Enhanced Prevention of Volatile Fluorocarbon Diffusion for Preparation of Fluorocarbon Emulsions with Improved Stability c) Highly Branched (e.g. Dendritic) Hydrophilic Oligomers/Polymers with Covalently Attached Fluorocarbon-philic or Lipophilic Components for Preparation of Human Blood Circulatory System Extended Lifetime Perfluorocarbon Emulsions, or Very Small Particle Lipid Dispersions, for Prolonged (>1 week) Oxygen or Drug Delivery d) Method to Prepare Branched Water and Blood Soluble Oligomers with Monoprimary End Groups and their Use to Prepare New Perfluoro or Fatty Group- Based Surfactants. Group 3 - Inventions. These inventions will be those conceived and developed while performing the program described in this proposal. An Option Agreement will be provided within one to two weeks, which is to be entered between Sanguine and Battelle simultaneously with the acceptance of the Proposal by Sanguine. The Option Agreement provides the terms for ownership of the inventions of Groups 1, 2 and 3 and includes the terms under which the parties will cooperate in commercialization of the inventions. Risk Battelle believes that this program is likely to result in an improved fluorocarbon emulsion. This belief is based on prior work for Sanguine and internally-funded work at Battelle. However, this is a research and development program with a need to engage in "discovery" of an adequate surfactant and emulsification approach to arrive at a product suitable for use in humans. Therefor, Battelle is unable to make any guarantees regarding the ultimate outcome of the program or the ultimate safety or usefulness of the research results. We believe that a well-managed research approach will allow Sanguine to minimize the ultimate financial risk and maximize the probability of success. Schedule and Cost This program is expected to require 6 months to synthesize up to three target surfactants, produce and test emulsions containing a chosen fluorocarbon oxygen carrier, and perform preliminary biological and acute toxicology testing of the emulsions employing these materials. The estimated cost to complete this program is $300,000. All work conducted on this program will be on a cost-plus-fee, best efforts arrangement. Invoicing will be on a partial advanced-pay basis in accordance with the terms of the Research Agreement. EX-21 3 Sanguine Corporation, a California corporation EX-27 4 FINANCIAL DATA SCHEDULE
5 0000926287 SANGUINE CORPORATION YEAR DEC-31-1999 DEC-31-1999 1062 0 0 0 0 1062 0 0 1062 809866 0 0 0 23163 (831967) 1062 0 0 0 0 217864 0 16746 (201118) 0 0 0 0 0 (201118) (.01) (.01)
-----END PRIVACY-ENHANCED MESSAGE-----