-----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, HOW2jyV5AcyZoO8yBxEKwPPF9qPThT4MGfNvsYxGofhFCwOIBlluQAo6Gsro1xcY MTMyZiDGDrRGLOj9EfhzkQ== 0001010412-05-000150.txt : 20050506 0001010412-05-000150.hdr.sgml : 20050506 20050505175925 ACCESSION NUMBER: 0001010412-05-000150 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050506 DATE AS OF CHANGE: 20050505 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: 1934 Act SEC FILE NUMBER: 000-24480 FILM NUMBER: 05804950 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 k04.txt ANNUAL REPORT ON FORM 10KSB FOR THE YEAR ENDED DECEMBER 31, 2004 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, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________ Commission File No. 000-24480 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 Registrant (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 Registrant 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 filers 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 the Registrant's revenues for its most recent fiscal year: December 31, 2004 - $15,424. State the aggregate market value of the voting stock of the Registrant 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. March 29, 2005 - $11,340,570.93. There are approximately 39,105,417 shares of common voting stock of the Registrant beneficially owned by non-affiliates. This valuation is based upon the bid price of our common as quoted on the OTCBB of the National Association of Securities Dealers, Inc. on that date ($0.29). (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) N/A --- (APPLICABLE ONLY TO CORPORATE ISSUERS) State the number of shares outstanding of each of the Registrant's classes of common equity, as of the latest practicable date: March 29, 2005 - 80,012,884 --------------------------- DOCUMENTS INCORPORATED BY REFERENCE Part III, Item I ---------------- Transitional Small Business Issuer Format: Yes X No - ------------------------------------------ --- ---- PART I Item 1. Description of Business. ------------------------ Business Development. - --------------------- Developmental Information Prior to December 31, 2001. ----------------------------------------------------- We were organized under the laws of the State of Utah on January 24, 1974. For additional information about our historical development, see our 10-KSB Annual Report for the year ended December 31, 2001, that was filed with the Securities and Exchange Commission on April 10, 2002, and is incorporated herein by reference. See Part III, Item 1. Developmental Information for the Year Ended December 31, 2002. --------------------------------------------------------------- On February 15, 2002, we entered into an Exclusive License Agreement (the "Exclusive License Agreement") with Ascendiant-Asia, LLC, a Nevada limited liability corporation ("Ascendiant-Asia"), whereby we granted to Ascendiant-Asia an exclusive license to PHER-02, our developmental synthetic red blood cell product, the licensed process and all proprietary, formula, developmental, technological, intellectual property and patent rights, and all other applications of the above in certain countries in Asia, including the People's Republic of China, Thailand, Laos, Cambodia, Vietnam, Singapore, Malaysia, Indonesia, North Korea, Burma, Mongolia and Taiwan. On April 1, 2002, we also entered into an Exclusive License Agreement (the "Exclusive License Agreement") with Ascendiant-South America, LLC, a Nevada limited liability corporation ("Ascendiant-South America"), whereby we granted to Ascendiant-South America a like exclusive license to PHER-02. These licenses were terminated in 2004. See the heading "Developmental Information for the Year Ended December 31, 2004," below. Developmental Information for the Year Ended December 31, 2003. --------------------------------------------------------------- We provided our product, PHER-02, for cost, confidential treatment of our formuale and the test results for use in our own planned United States Food and Drug Administration ("FDA")application process discussed below under the heading "Business" to three universities that are currently in the final phases of federal and state animal toxicity trials that focus on our product's effectiveness in perfusion for pancreas preservation for transplantation. These perfusion studies are aimed at enhancement of islets used in transplants as an amelioration for diabetes, which is one of the fastest growing diseases in the United States and throughout the world. Islet transplantation is done to improve insulin production in Type 2 or juvenile onset diabetes. PHER-02 is also being provided to one university that is conducting trials for the United States Navy on submarine crew and deep sea diver oxygenation and the treatment of bends. We also began a project with the United States Army Medical Corps to develop a "golden hour" medical kit using PHER-02. The kit would allow self- transfusion on the battlefield, thus helping to prevent bleeding to death injuries, which are a major cause of fatalities in combat, despite current improvements in front line battle care. Developmental Information for the Year Ended December 31, 2004. --------------------------------------------------------------- On September 29, 2004, we terminated Ascendiant-Asia's Exclusive License Agreement for failure to meet minimum production or to pay royalties due pursuant to the terms of that Exclusive License Agreement. Also, on September 29, 2004, we terminated Ascendiant-South America's Exclusive License Agreement for failure to meet minimum production or to pay royalties due pursuant to the terms of that Exclusive License Agreement. We completed the restructuring of our financial statements, including a satisfaction of debt for common stock issuance, issuance of common stock for certain convertible debt and the contribution to capital of other debt, including accrued salaries of management and others. See our 8-K Current Report dated September 29, 2004, filed with the Securities and Exchange Commission on October 7, 2004, and which is incorporated herein by reference. See Part III, Item 1. The testing of our red blood cell substitute, PHER-02, in various phases of animal toxicity trials has begun. The universities of Chicago, Maryland and the University of Alberta (Canada) medical schools are currently focusing on its effectiveness in perfusion for pancreas preservation for transplantation (October, 2004). PHER-02 is being used to develop for the U.S. Navy on submarine crew and deep sea diving oxygenation treatment of the bends (November, 2004). We are conferring with the U.S. Army Medical Corps to develop a "golden hour" medical kit using PHER-02 to allow self blood transfusion on the battlefield (November, 2004). We successfully completed animal toxicity and efficacy trials at the University of Alberta (Canada) respecting transporting of pancreas islet cells (November, 2004). See our 8-K Current Report dated November 17, 2004, filed with the Securities and Exchange Commission on November 18, 2004, and which is incorporated herein by reference. See Part III, Item 1. Our budgets are now in place to plan FDA testing and to select a manufacturer of PHER-02 when our Medical Advisory and Applications Board convenes in early 2005 (December, 2004). We selected a new Medical Advisory and Applications Board member, Dr. Robert Kwun, a retina surgeon, to evaluate the use of PHER-02 in ophthalmic surgery. Dr. Kwun is a graduate of Harvard University and received his medical degree from Columbia University, in New York (December, 2004). Developmental Information Subsequent to the Year Ended December 31, 2004. ------------------------------------------------------------------------- We have convened our Medical Advisory and Applications Board in California on April 2, 2005, to discuss our final selection of a contract research organization to initiate and conduct our animal testing for the FDA approval process and to select a PHER-02 manufacturer. Beckloff Associates, Inc., a Cardinal Health company of Overland Park, Kansas ("Beckloff"), has been selected by us to analyze our IND (indication of what approvals are being sought) submissions, NDA (new drug) applications, ANDA (appended new drug) applications, IDE(investigational device evaluation) submissions, PMA (pre- market approval) applications and 510(k) (form for medical devices) applications, among other requirements, and to comment on the organization and accuracy of our scientific data that is presented, along with advising us on the attitudes, approaches and requirements of the FDA. Business. - --------- We are engaged in the development of a synthetic red blood cell product called "PHER-O2." The development of this product presently comprises our sole business operations. PHER-O2 is composed of perfluoro-decalin molecules, or synthetic red blood cells, purified water and a proprietary, synthetic, fluorinated surfactant, or wetting agent, to hold the emulsion together. Perfluoro-decalin has great oxygen-carrying capacity, yet it can be as much as 25 times smaller than a red blood cell. We believe that PHER-O2 can carry three to four times the oxygen of human blood per unit volume. This increased oxygen-carrying capacity would make PHER-O2 useful in the treatment of heart attacks, strokes, cancer and other diseases for which increased oxygenation is beneficial. We also believe that perfluoro-decalin is effective as an imaging agent in X-ray imaging, nuclear magnetic resonance imaging and CAT scans, without side effects. Our management estimates that PHER-O2 has several other advantages over human blood: that it can be sterilized to be free of disease; that it has the quality of a universal match for all blood types; that it can be mass-produced; and that it can be stored at room temperature for three and one half years, much longer than human blood, which can only be stored at room temperature for about 42 days. We have completed the compounding of PHER-O2, and we are performing initial gross animal tests, which do not require regulatory approval prior to commencement. However, regulatory agencies may review the data gathered from any of these tests. We have manufactured the experimental doses of PHER-O2 required to conduct these tests. Our current second phase of development of PHER-02 involves: * performing animal testing at certain universities as outlined under the subheadings "Developmental Information for the Year Ended December 31, 2003" and "Developmental Information for the Year Ended December 31, 2004" of the heading "Business Development," above; * beginning a project with the United States Army Medical Corps to develop a "golden hour" medical kit using PHER-02. The kit would allow self- transfusion on the battlefield, thus helping to prevent bleeding to death injuries, which are a major cause of fatalities in combat, despite current improvements in front line battle care; * developing a deep sea diving oxygenation treatment of the bends for use by the U.S. Navy on submarine crew; and * completing the animal toxicity and efficacy trials respecting transporting of pancreas islet cells. In our third phase of operations, intended to commence during our second quarter of 2005, we intend to continue developing the perfluorocarbon compounds in PHER-O2 in order to optimize its quality; and begin animal safety and efficacy trials in accordance with FDA guidelines and comparable foreign regulatory requirements, with the aid and assistance of Beckloff, a Cardinal Health company. In our final phase, we intend to: * complete United States testing of PHER-O2; * seek all necessary FDA approvals and begin American and Canadian sales; and * complete overseas testing and begin overseas sales in foreign countries. In our final phase, we also intend to continue trials to test PHER-O2 for other applications, including retinal surgery, transplant organ preservation and treatment of carbon monoxide poisoning, sickle cell anemia, heart attack and stroke. We will have to conduct similar rigorous testing and clinical trials of PHER-O2 for each desired application, although we expect half of all sales will be off-label, as were the first generation sales of Fluosol, a first generation product of PHER-O2. PHER-O2 has not submitted any application to any federal, state or foreign agency to seek authority for animal or human testing. The development process will be time consuming and expensive. It will also be subject to extreme governmental regulation. We will have to prove that our product is safe and efficacious for human use. Until then, we will have no potential for revenues from operations except for licensing. We cannot assure you that we will be able to raise the money necessary to develop PHER-O2 or that, if we raise sufficient funds, that we will ever receive the necessary federal, state or foreign agency approval to manufacture or market the product. Principal Products or Services and their Markets. - ------------------------------------------------- We have one lead product, PHER-O2, and 15 extensions of that product. Our success hinges largely on the success of this product. We can not assure you that it will ever be successful. PHER-O2 is made up of perfluoro-decalin, which is a type of perfluorocarbon that is harmless to humans and the atmosphere and was used in the FDA approved first generation product, Fluosol, purified water and a proprietary surfactant to hold the emulsion together. Perfluoro-decalin gives our product its oxygen carrying ability. The surfactant is non-toxic and was FDA approved in Fluosol and, being fluorinated, helps increase PHER-O2's oxygen carrying capacity and emulsion stability. We believe that the unique chemical nature of PHER-O2 will make it ideal for many medical applications, although each application will be subject to the same types of rigorous testing, clinical trials and governmental regulatory approval process. We believe that PHER-O2 has the following advantages over human blood: * may carry three to four times the oxygen of human blood per unit volume; * free of HIV, hepatitis B & C, Mad Cow and other blood-borne disease; * universal match for all blood types; * may be mass-produced; * may have a three-year shelf life; * may be stored at room temperature; * has controllable circulatory half-life; and * may be 1/25th the size of a red blood cell. PHER-O2 is a second generation improved drug from Fluosol-DA, the only synthetic red blood cell approved by the FDA. This approval was completed under the management of our President and CEO, Thomas C. Drees, Ph.D. We believe that its unique qualities may make PHER-O2 ideal for blood transfusions and numerous other medical applications, including: * transportation of pancreas islets for treatment of diabetes; * ophthalmic retinal surgery; * angioplasty; * external oxygenation of infection, ischemic tissue and diabetic ulcers; * Alzheimer's; * oxygenation of cancerous tumors; * nuclear magnetic resonance imaging; * CAT scans; * cardioplegia, or the priming of heart-lung machines in open heart surgery; and * treatment of heart attacks, strokes, head and neck tumors and hemorrhagic shock. We intend to fully exploit the immense worldwide market for these applications. Preliminary testing has indicated that the transportation of pancreas islet cells in a bath of PHER-02 in the treatment of diabetes has significantly increased the number of islet cells available for transplantation. For Ophthalmic retinal surgery, we are evaluating a new version of PHER- 02 for surgical use. This product is believed to have characteristics that can be used for retinal surgery because of its specific weight properties. The new product will be transparent. Blood transfusion represents a vast market for synthetic red blood cells. 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 present market for transfusions worldwide is 100,000,000 units per year, but that is only one-third of the annual demand. We hope to fulfill this need with PHER-O2. The key ingredients in PHER-O2 are readily available in the United States from many manufacturers. When combined, using our proprietary emulsion process, we know that 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 we know that 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, emergency rooms and battle fields. As HIV, hepatitis B & C 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% effective method for detecting blood-borne diseases 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 with its risk of AIDS, hepatitis and mad cow disease. 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 25 times smaller than human red blood cells. Management 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 our former competitors had obtained in 1989 FDA approval under Dr Drees' management 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 announced in 1993 that it would no longer manufacture its product, leaving us well positioned in this market segment. Fluosol was non-stable, so it had to be frozen, which made it difficult to handle. 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 mechanically to 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, and makes PHER-O2 a diagnostic for these types of tumors. 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. The perfluoro-decalin molecule in PHER-O2 also works as a radiopaque agent in X-ray imaging and as a contrast agent in nuclear magnetic resonance imaging and CAT scans. However, unlike many currently-available imaging agents, PHER-O2 has no known side effects. Competition. - ------------ 10 years ago there were 15 possible competitors. Four companies are still working to develop alternatives to human blood. They include: * Biopure Corporation of Cambridge, Massachusetts, (cows blood); * Hemasol, Inc. of Etobicoke, Ontario, Canada (outdated human blood); * Northfield Laboratories, Inc. of Evanston, Illinois, (outdated human blood); and * Synthetic Blood International, San Diego, California, (PFC). Each of these competitors files reports with the Securities and Exchange Commission and these reports are available for review in the Securities and Exchange Commission's EDGAR Archives. These competitors are involved in the development of a wide variety of human blood substitutes, including synthetic compounds, recycled outdated human blood and bovine hemoglobin. Neither the list of competitors nor the list of human blood substitutes is exhaustive. Furthermore, some of our existing or potential competitors have significantly greater technical and financial resources than we do and may be better able to develop, test, produce and market products. These competitors may develop products that are competitive with or better than our product and that may render our product obsolete. We can provide no assurance that we will be able to compete successfully. These four competitors have repeatedly failed FDA tests. Sources and Availability of Raw Materials. - ------------------------------------------ We plan to purchase highly purified medical-grade perfluorocarbons and surfactants from reliable vendors and to emulsify these ingredients in our own or other facilities, depending upon funding. FluoroMed, LP, F2 Chemicals, Ltd. and KC America are qualified medical grade perfluorocarbon vendors. Surfactants are available through several U. S. vendors. Because intravenous solutions manufacturing plants are very expensive and FDA approval of these plants is a lengthy process, we intend to hire a third party to package the product in sterile plastic bags with intravenous sets attached. Abbott Laboratories, Baxter, B. Braun Medical Inc., Fresenius Kabi, and Alliance Medical Products, Inc. are a few of the U. S. companies with the qualifications and capacity to perform this function. However, we can not assure you that any of these ingredients or services will be available or that they will be available at prices that are low enough to make our operations profitable. Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts. - ---------------- We filed United States Application Patent Nos. 07/952/403 and 08/230/672, covering PHER-O2, with the United States Patent Office on September 28, 1992 and April 21, 1994, respectively. No patent has been issued, and we may have to amend our patent application before any patent is issued, if ever. We filed European Application Patent No. (UK)EPO261802, covering PHER-O2, with the European Patent Office on August 25, 1997. No patent has been issued and, and we may have to amend our patent application before any patent is issued, if ever. We have formulated certain proprietary GRAS surfactants during the course of our research and development activities. The surfactant is mixed with the basic chemical of our product, perfluoro-decalin, to maintain the small particle size in the emulsion of PHER-O2 because the particle size of decalin alone in the blood stream may quickly increase in size and block arteries and veins. We have a Consulting Agreement with Beckloff, a Cardinal Health company, effective for one year commencing on March 25, 2005, whereby Beckloff will assist us in implementing, conducting and completing our FDA testing and approval process. Governmental Approval of Principal Products or Services. - -------------------------------------------------------- The FDA and comparable foreign agencies require laboratory testing, animal and human clinical testing and other costly and time-consuming procedures before biomedical products such as PHER-O2 can be marketed. To date, we have not begun any of these procedures. Our plan for obtaining FDA and overseas approval of PHER-O2 is set forth under the heading "Plan of Operation" of the caption "Management's Discussion and Analysis or Plan of Operation." We can not assure you that these testing procedures will be successfully completed, that if completed, they will show PHER-O2 to be safe and efficacious, or that we will obtain any required governmental approvals. Nor can we assure you that we will ever be permitted to market PHER-O2 in the United States or most foreign countries. The same holds true for any other related products or proprietary rights that we may develop. Effects of Existing or Probable Governmental Regulations. - --------------------------------------------------------- Regulation by governmental authorities in the United States and foreign countries will significantly affect our ability to manufacture and market our product and to conduct our ongoing research and product development activities. Our lead 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. In addition, ongoing compliance with these requirements can require the expenditure of substantial resources. If we or our collaborators or licensees fail to obtain or experience delay in obtaining required regulatory approvals the marketing of our product and our ability to derive product or royalty revenue would be severely limited. 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 ("New Drug Application"), which must be approved before human clinical testing can begin. Successful stability tests and some animal tests have 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 New Drug Application. Further, each clinical study must be conducted under the auspices of an independent investigational review board at the institution where the study will be conducted. Consideration will be given to ethical factors, the safety of human subjects and the possible liability of the institution, among other things. 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, or 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 is designed to further evaluate clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical study sites. Although we believe that our product is substantially different from other synthetic blood products, we may encounter problems in clinical trials which will cause us to delay or suspend them. 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. This application must be approved before commercial sales may begin. We must also file an Establishment License Application, which describes the manufacturing process for the product and the facility at which the product will be produced. The FDA may respond to the filings by granting a license for the manufacture of the product from a designated facility and the commercial sale of the product. It may also deny the applications if it finds that the applications do not meet the criteria for regulatory approval, require additional testing or information or require post-marketing testing and surveillance to monitor the safety of the product if it does not believe that the applications contains adequate evidence of the safety and efficacy of the drug. Despite the submission of this 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. We can not guarantee that approval will be granted for our product or our proposed facilities on a timely basis, if at all. In addition to regulations enforced by the FDA, we 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 federal, state, local and foreign regulations. Cost and Effect of Compliance with Environmental Laws. - ------------------------------------------------------ Management believes that 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, we do not believe that we will have any material expenditures for compliance with environmental laws, rules or regulations. Research and Development Expenses. - ---------------------------------- Since inception we have expended a total of approximately $350,000 on research and development. During years ended December 31, 2004 and 2003, research and development expense was approximately $10,000 and $63,000, respectively. None of these costs were borne by customers or others. Number of Employees. - -------------------- We presently have two employees, our Chairman, President and CEO, Thomas C. Drees, Ph.D.; and our Chief Financial Officer, David E. Nelson. Dr. Drees is employed full time. If we are able to commence initial FDA approved animal testing and manufacturing of this product for these tests, we will need additional employees. We are presently unable to estimate the exact number of employees that we may need for these services. Item 2. Description of Property. ------------------------ We lease approximately 970 square feet of office space located at 101 East Green Street, Suite 11, Pasadena California, 91105, at a base rent of $1,841 per month. The lease runs through April 30, 2004, and is expected to be extended on a month to month basis. Item 3. Legal Proceedings. ------------------ We are not a party to any pending legal proceeding. To the knowledge of our management, no federal, state or local governmental agency is presently contemplating any proceeding against us. No director, executive officer or other person who may be deemed to be our "affiliate" or who is the owner of record or beneficially of more than five percent of our common stock is a party adverse to us or has a material interest adverse to us in any proceeding. 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 and Small Business Purchases of Equity Securities. - ---------------------------------------- Market Information. - ------------------- Our 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 under the symbol "SGNC." The range of high and low bid quotations for our common stock during each quarter of the year ended December 31, 2002, each quarter of the calendar year ended December 31, 2002, each quarter of the calendar year ended December 31, 2003, and each quarter of the calendar year ended December 31, 2004, is shown below. Prices are inter-dealer quotations as reported by the NASD (or the NQB) and do not necessarily reflect transactions, retail markups, mark downs or commissions. STOCK QUOTATIONS* BID Quarter ended: High Low - -------------- ---- --- March 31, 2002 $0.18 $0.11 June 30, 2002 $0.15 $0.105 September 30, 2002 $0.11 $0.05 December 31, 2002 $0.065 $0.03 March 31, 2003 $0.048 $0.025 June 30, 2003 $0.03 $0.015 September 30, 2003 $0.13 $0.021 December 31, 2003 $0.09 $0.045 March 31, 2004 $.085 $.055 June 30, 2004 $.095 $.065 September 30, 2004 $.08 $.05 December 31, 2004 $.49 $.055 * The future sale of presently outstanding "restricted securities" (common stock) by present members of our management and others may have an adverse effect on any market in the shares of our common stock. See the heading " Recent Sales of Unregistered Securities," directly below. Recent Sales of Restricted Securities; Use of Proceeds of Registered Securities. - ----------- Restricted Securities. ---------------------- The following "restricted securities" of our Company were sold during the past three calendar years: Number of Name Shares or Units Date Consideration - ---- --------------- ---- ------------- Five members of 530,000 (1) 11/2000-1/2002 Services the Advisory Board NB, Inc. 250,000 (2) 05/2001 Services Laidlaw Global 327,194 (3) 05/2001 Warrant Ex Securities, Inc. Five subscribers 840,195 (3) 11/2001 Sub-Merger from California Corporation Additional shares 70,030 (3) 11/2001 Sub-Merger issued for acquisition of subsidiary Five members of 50,000 (1) 01/2002 Services the Advisory Board Five members of 50,000 (1) 04/2002 Services the Advisory Board Leonard W. Burningham 500,000 05/2002-09/2002 Services Esq. (4) Marketview Financial 310,000 06/2002 Services Group, Inc. (2) Medical Advisory Board 37,500 08/2002 Services (1) Ascendiant Capital 2,000,000 11/2002 Services (2) M E Dancy & Associates 500,000 12/2002 Services (2) David E. Nelson 100,000 12/2002 Services (5) SCS, Inc. 540,000 12/2002 Services Medical Advisory Board 37,500 12/2002 Services (1) Leonard W. Burningham 525,000 01/2003-03/2003 Services Esq. (4) Jason Carter 100,000 01/2003 Services (6) National Financial 1,063,369 2/2003 Services Communications Corp (2) Medical Advisory Board 37,500 3/2003 Services (1) SCS, Inc. 1,000,000 6/2003 Debt Ret. Medical Advisory Board 37,500 6/2003 Services (1) SCS, Inc. 1,000,000 6/2003 Debt Ret. Medical Advisory Board 37,500 9/2003 Services (1) Leonard W. Burningham, 500,000 10/2003 Services Esq. (4) Medical Advisory Board 37,500 12/2003 Services (1) Leonard W. Burningham, 500,000 9/2004 Services Esq. (7) Seven (7) persons and/or entities (8) 2,800,000 9/2004 Services Nine (9) persons and/or entities (9) 773,902 9/2004 Conversion of Convertible Notes Ascendiant Capital Group LLC (10) 228,666 9/2004 Conversion of Debt Thomas C. Drees, Ph.D. (11) 31,604,000 9/2004 Conversion of Debt Anthony & Audrey Hargreaves Trust (12) 924,600 9/2004 Conversion of Debt (1) See the caption "Executive Compensation" of the Registration Statement. (2) Miscellaneous public relations services. (3) Issued in connection with the acquisition of the remaining 6% interest in our 94%-owned subsidiary, Sanguine California. (4) Legal Services. (5) Services as our Secretary/Treasurer and CFO. (6) Stock transfer services. (7) These shares were valued at $40,000. (8) These shares were valued at $242,034.11. (9) The Convertible Note executed in favor of Barbara R. Mittman on March 19, 2002, in the amount of $3,750.00, together with accrued interest, was converted to 97,102 shares of common stock of our Company. The Convertible Note executed in favor of First York Partners, Inc. on March 15, 2002, in the amount of $25,000, together with accrued interest, was converted to 676,800 shares of common stock of our Company. (10) The Letter Agreement executed in favor of Ascendiant Capital Group, LLC ("Ascendiant"), pursuant to which Ascendiant loaned $12,000 to the Company, together with accrued interest, was converted to 228,666 shares of common stock of our Company; and for previously extending the term of the Letter Agreement, an additional Common Stock Purchase Warrant was granted to Ascendiant for the option to purchase 30,000 shares of common stock of our Company that are "restricted securities" under Rule 144 of the Securities and Exchange Commission. (11) Thomas C. Drees, Ph.D., MBA, our President, CEO and a Director agreed to exchange $1,264,160 of debt owed to him by us for 31,604,000 shares of our common stock that are "restricted securities" under Rule 144 of the Securities and Exchange Commission; and Dr. Drees also agreed to contribute to capital his accrued salary of $497,500 and interest on the debt owed to him by our Company in the amount of $453,630, together with any interest on any of these amounts since June 30, 2004. (12) The Anthony and Audrey Hargreaves Trust (the "Trust") agreed to exchange $36,984 of debt owed by us to Mr. Hargreaves prior to his death for 924,600 shares of our common stock that are "restricted securities" under Rule 144 of the Securities and Exchange Commission; and the Trust also agreed to contribute to capital Mr. Hargreaves' accrued salary of $276,500, together with any interest on any of these amounts since June 30, 2004. We issued all of these securities 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 our company; and each had prior access to all material information about us. We believe that the offer and sale of these securities were exempt from the registration requirements of the Securities Act, pursuant to Sections 4(2) and 4(6) thereof, and Rule 506 of Regulation D of the Securities and Exchange Commission and from various similar state exemptions. Use of Proceeds of Registered Securities. - ----------------------------------------- Proceeds from the sale of registered securities received during the year ended December 31, 2004, totaled $329,240.48. Approximately $30,000 of these proceeds were utilized to pay a contractor that assisted us in the development of our PHER-02 surfactant; an additional $8,815.93 was utilized for accounting costs; $15,753.03 was paid in attorney's fees; and another $1,213.27 went to pay for the subscriptions, Business Wire fees and bank charges. The remaining funds have been deposited into our savings and checking accounts, and will be utilized for day to day expenses and our planned FDA application process regarding PHER-02 through Beckloff. Holders. - -------- The number of record holders of our common stock as of March 29, 2005, was approximately 568. Purchases of Equity Securities by Us and Affiliated Purchasers. - --------------------------------------------------------------- There were no purchases of our equity securities by us or any affiliated purchasers during the calendar year ended December 31, 2004. Dividends. - ---------- We have not declared any cash dividends on our common stock, and we do not intend to declare dividends in the foreseeable future. Management intends to use all available funds for the development of our product, PHER-02 and related business opportunities. There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock. Compensation Pursuant to Plans. - ------------------------------- Equity Compensation Plan Information ------------------------------------
Number of Number of securities securities remaining available to be issued for future issuance upon exercise Weighted-average under equity of outstanding exercise price of compensation plans Plan options, warrants outstanding options, excluding securities category and rights warrants and rights reflected in column (a) - -------- ---------- ------------------- ----------------------- (a) (b) (c) Equity compen- sation plans -0- -0- -0- approved by security holders Equity compen- sation plans not 3,125,000 .037 4,375,000 approved by security holders Total 3,125,000 4,375,000
Item 6. Management's Discussion and Analysis or Plan of Operation. ---------------------------------------------------------- Plan of Operation. - ------------------ General. - -------- We have not commenced planned principal operations, but have made good progress since the end of fiscal 2001,in formulation and stability testing. In January, 2001, we were successful in developing improved formulations of our surfactants for PHER-02. Our proposed plan of operation is composed of three "stages," each of which coincides with a specific milestone in the process of developing PHER- O2. Each stage, and the projected cost of each, is as follows: Stage A (approximately one year): In the first six months, we have completed the development of perfluoro-decalin and the synthetic surfactants that make up PHER-O2, manufactured experimental doses and have performed preliminary animal tests in accordance with FDA and overseas regulations. In the second six months, we will produce optimal quantities and conduct animal safety and efficacy trials in accordance with FDA and overseas requirements. During the course of Stage A, we estimate that our increased technical, administrative, sales/marketing and manufacturing requirements will require us to the hire a few additional employees. Estimated cost is not to exceed $500,000, divided as follows: Completed surfactant formulation (done) and the manufacture of sufficient product for initial testing, (done); animal safety and efficacy trials through a sub-contractor, (done); and administrative, patent and proprietary right protection and marketing costs, $400,000 (in process). Stage B (approximately one year [in process): In the second year, we intend to prepare New Drug Applications for FDA and selected foreign governmental approvals. During the course of Stage B, we estimate that we will need to hire a few additional employees. Estimated cost is $5,000,000, divided as follows: Prepare and file United States, European, Chinese and South American New Drug Applications, $600,000; conduct human safety and efficacy trials through a subcontractor in the United States and overseas, $3,200,000; set-up pilot facility, or subcontract, to manufacture small quantities of PHER-O2 for use in testing and in connection with the New Drug Applications, $500,000; submit license applications for use of PHER-O2 in transfusions overseas, $200,000; and administrative, patent and proprietary right protection and marketing costs, $500,000. Stage C (approximately one year): In the third year, we plan to complete overseas testing of PHER-O2, begin sales in Europe, China, and South America and other overseas areas that may have approved PHER-O2 by this time and may begin construction of facility for manufacturing, storing, inspecting and shipping PHER-O2. During the course of Stage C, we estimate that we will need to hire additional employees. During the third year, we plan to complete testing of PHER-O2 in the United States and receive all necessary FDA approvals and begin American, South American, Chinese and Canadian sales for cancer treatment and angioplasty. During this period, we also plan to subcontract this process, 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. The estimated cost for Stage C is $25,000,000, divided as follows: Complete human safety and efficacy clinical trials and obtain United States and overseas agency approval of PHER-O2, $13,000,000; subcontract with major emulsifying firm, $5,000,000; recruit and train sales force of the United States and foreign markets, $5,000,000; and administrative, patent and proprietary right protection and marketing costs, $2,000,000. These cost estimates are based upon the prior experience of Thomas C. Drees, Ph.D., our President and CEO. Dr. Drees has more than 30 years' experience in the blood industry. Our plan of operation for the next 12 months is to complete the preparation and submission of the U.S. FDA Investigational New Drug Application (IND) to support PHER-02 as a synthetic oxygen carrying product or blood substitute; which will include: * A Gap Analysis for the U.S. IND, meaning a Non-clinical Assessment, a Clinical Assessment and a Chemistry, Manufacturing and Controls Assessment (CMC), preparation for an attendance at a Pre-IND meeting with the FDA, and preparation of a pre-IND briefing document to determine our progress towards the U.S. IND, with the aid and assistance of Beckloff; and * A Clinical Program and Study Design(s), meaning clinical experts will be utilized for assessment as well as attendance in the Pre-IND meeting, (if requested, with the aid and assistance of Beckloff. Our ability to carry out our plan depends entirely upon our ability to obtain additional substantial equity, debt financing or royalties. We can not assure you that we will receive this financing, and except for the possibility of receiving funds from the exercise of our outstanding warrants, we do not have any arrangements that would ensure us any funding. If we do not receive it, we will not be able to proceed with our business plans. Results of Operations. - ---------------------- Revenues for the calendar years ending December 31, 2004 and 2003 were $15,424 and $9,756, respectively. We had no material operations, except the research and development activities related to our subcontracted research and development of our product. We realized a net gain of $907,725, with a gain of $0.01 per share during the calendar year ended December 31, 2004, and a net loss of $(324,531), with a loss of $(.01) per share for the year ending December 31, 2003. Most of our expense related to the value of equity securities issued by us for services rendered. Our research and development expenses were $14,823 in 2004, compared to $63,000 in 2003. The decrease in 2004 was principally the result of our limited capital resources. Liquidity. - ---------- As of December 31, 2004, we had $304,103 in cash, with $46,198 in current liabilities. During the calendar year ended December 31, 2004, we had net expenses of $454,004, while receiving $15,424 in revenues. We received $9,756 in revenues, and had total expenses of $267,286 during the calendar year ended December 31, 2003. Most of these expenses related to the value of equity securities issued by us for services rendered. Cash resources at December 31, 2004 and 2003 were $304,103 and $1,973, respectively. Liquidity during 2004 was provided by warrant exercises that resulted in the issuance of 3,241,131 shares for an aggregate gross proceeds of $329,290.48; subsequent to December 31, 2004, additional warrant exercises resulted in the issuance of 993,254 shares for an aggregate gross proceeds of $79,410.32. Forward Looking Statements. - --------------------------- Statements made in this Form 10-KSB which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, and future performance of our business, including, without limitation, (i) our ability to gain a larger share of the synthetic blood industry, our ability to continue to develop products acceptable to the industry, our ability to retain relationships with suppliers and distributors, our ability to raise capital, and the growth of the synthetic blood industry, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets" or similar expressions. Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in our reports on file with the Securities and Exchange Commission; general economic or industry conditions, nationally and/or in the communities in which we conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the synthetic blood industry, the development of products and that may be superior to the products and services offered by us, demand for synthetic blood products, competition, changes in the quality or composition of our products and services, our ability to develop new products and services, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our operations, products, services and prices. Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements. Item 7. Financial Statements. --------------------- SANGUINE CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004 C O N T E N T S Independent Auditors' Report . . . . . . . . . . . . . . . F - 3 Consolidated Balance Sheet . . . . . . . . . . . . . . . . F - 4 Consolidated Statements of Operations. . . . . . . . . . . F - 5 Consolidated Statements of Stockholders' Equity . . . . . .F - 6 Consolidated Statements of Cash Flows. . . . . . . . . . . F - 12 Notes to the Consolidated Financial Statements . . . . . . F - 14 INDEPENDENT AUDITORS' REPORT Board of Directors Sanguine Corporation and Subsidiary Pasadena, California We have audited the accompanying balance sheet of Sanguine Corporation and Subsidiary (a development stage company) as of December 31, 2004 and the related statements of operations, stockholders' deficit and cash flows for the years ended December 31, 2004 and 2003 and from inception of the development stage on January 18, 1990 through December 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sanguine Corporation and Subsidiary as of December 31, 2004, and the results of their operations and their cash flows for the years ended December 31, 2004 and 2003 and for the period from inception of the development stage January 18, 1990 through December 31, 2004, in conformity with United States generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 7 to the consolidated financial statements, the Company has incurred significant losses which have resulted in an accumulated deficit which raises substantial doubt about their ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 7. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/HJ Associates & Consultants, LLP HJ Associates & Consultants, LLP Salt Lake City, Utah April 15, 2005 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Balance Sheets ASSETS December 31, 2004 CURRENT ASSETS Cash $ 304,103 ------------ Total Current Assets 304,103 PROPERTY AND EQUIPMENT, NET (Note 1) - ------------ TOTAL ASSETS $ 304,103 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Related party payables (Note 3) $ 4,000 Accounts payable 32,073 Accrued compensation (Note 4) 10,125 ----------- Total Current Liabilities 46,198 ----------- COMMITMENTS AND CONTINGENCIES (Note 4) STOCKHOLDERS' EQUITY Common stock: 100,000,000 shares authorized of $0.001 par value, 78,942,904 shares issued and outstanding 78,943 Additional paid-in capital 5,517,066 Deficit accumulated during the development stage (5,338,104) ----------- Total Stockholders' Equity 257,905 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 304,103 =========== The accompanying notes are an integral part of these consolidated financial statements. F-4 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Operations From Inception of the Development Stage on January 18, For the Years Ended 1990 Through December 31, December 31, 2004 2003 2004 REVENUE $ 15,424 $ 9,756 $ 175,180 OPERATING EXPENSES Professional fees 357,578 97,543 2,665,223 Research and development 14,823 63,000 1,356,970 Selling, general and administrative 81,603 106,743 2,338,585 ---------- --------- ------------ Total Operating Expenses 454,004 267,286 6,360,778 ---------- --------- ------------ LOSS FROM OPERATIONS (438,580) (257,530) (6,185,598) ---------- --------- ------------ OTHER INCOME (EXPENSE) Interest income 616 - 28,073 Interest expense (103,814) (138,142) (667,466) Loss on cash deposit - - (10,020) Gain (Loss) on settlement of debt 1,449,503 71,141 1,496,907 ---------- --------- ------------ Total Other Income (Expense) 1,346,305 (67,001) 847,494 ---------- --------- ------------ NET INCOME (LOSS) $ 907,725 $(324,531) $ (5,338,104) ========== ========= ============ BASIC INCOME (LOSS) PER SHARE $ 0.02 $ (0.01) ========== ========= DILUTED INCOME PER SHARE $ 0.02 $ 0.00 ========== ========= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING BASIC AND DILUTED 48,807,880 37,470,947 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. F-5 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Equity Deficit Expenses Accumulated Additional Prepaid with During the Common Stock Paid In Common Development Shares Amount Capital Stock Stage Balance, January 18, 1990 Retroactive restated 1,428,364 $ 1,428 $2,423,214 $ - ($2,464,642) Net income from January 1, 1990 through January 1, 1991 - - - - 73,917 --------- ------- ---------- ------- ------------ Balance, December 31, 1991 1,428,364 1,428 2,423,214 - (2,390,725) Common stock issued for services provided at $0.001 per share 2,720 2 - - - Contributed capital by officer - - 750 - - Net loss for the year ended December 31, 1992 - - - - (77,011) --------- ------- ---------- ------- ------------ Balance, December 31, 1992 1,431,084 1,430 2,423,964 - (2,467,736) Common stock issued to acquire 94% of outstanding Stock of Sanguine Corporation 14,589,775 14,590 - - (14,590) Common stock for cash at $0.22 per share 510,000 510 109,490 - - Net loss for the year ended December 31, 1993 - - - - (92,895) ---------- ------ --------- ------- ------------ Balance, December 31, 1993 16,530,859 $16,530 $2,533,454 $ - $ (2,575,221) ---------- ------ --------- ------- ------------ The accompanying notes are an integral part of these consolidated financial statements. F-6 SANGUINE CORPORATION (A Development Stage Company) Statements of Stockholders' Equity (Continued) Deficit Expenses Accumulated Additional Prepaid with During the Common Stock Paid In Common Development Shares Amount Capital Stock Stage Balance, December 31, 1993 16,530,859 $16,530 $2,533,454 - $ (2,575,221) Quasi-reorganization - - (2,423,964) - 2,423,964 Common stock for cash at $0.39 per share 191,000 191 74,809 - - Net loss for the year ended December 31, 1994 - - - - (230,779) ---------- ------ --------- ------- ------------ Balance, December 31, 1994 16,721,859 16,721 184,299 - (382,036) Common stock issued for debt and payables at $0.11 per share 1,216,000 1,216 128,048 - - Common stock issued for services at $0.13 per share 1,625,000 1,625 201,500 - - Net loss for the year ended December 31, 1995 - - - - (366,843) ---------- ------ --------- -------- ------------ Balance, December 31, 1995 19,562,859 19,562 513,847 - (748,879) Common stock issued for Cash at $0.25 per share 10,000 10 2,490 - - Common stock issued for debt and payables at $0.25 per share 325,506 326 80,605 - - Common stock issued for services at $0.001 per share 979,358 979 - - - Net loss for the year ended December 31, 1996 - - - - (210,017) ---------- ------ -------- ------- ---------- Balance, December 31, 1996 20,877,723 20,877 596,942 - (958,896) Common stock issued for services at $0.09 per share 100,000 100 9,234 - - Net loss for the year ended December 31, 1997 - - - - (166,212) ---------- ------ --------- ------- ---------- Balance, December 31, 1997 20,977,723 $20,977 $ 606,176 $ - $(1,125,108) ---------- ------- --------- ------- ----------- The accompanying notes are an integral part of these consolidated financial statements. F-7 SANGUINE CORPORATION (A Development Stage Company) Statements of Stockholders' Equity (Continued) Deficit Expenses Accumulated Additional Prepaid with During the Common Stock Paid In Common Development Shares Amount Capital Stock Stage Balance, December 31, 1997 20,977,723 $20,977 $ 606,176 $ - $(1,125,108) Common stock issued for cash $0.10 per share 1,218,000 1,218 120,982 - - Common stock issued for debt and payables $0.22 per share 240,000 240 52,887 - - Common stock issued for services at $0.12 per share 674,494 675 77,952 - - Shares canceled (100,000) (100) 100 - - Net loss for the year ended December 31, 1998 - - - - (366,439) ---------- ------- --------- ------- ----------- Balance, December 31, 1998 23,010,217 23,010 858,097 - (1,491,547) Common stock issued for cash $0.18 per share 52,777 53 9,447 - - Common stock issued for services $0.10 per share 100,000 100 9,900 - - Net loss for the year ended December 31, 1999 - - - - (217,864) ---------- ------- --------- ------- ---------- Balance, December 31, 1999 23,162,994 23,163 877,444 - (1,709,411) Common stock issued for cash at $0.19 per share 3,318,269 3,318 632,002 - - Common stock issued for services at $0.26 per share 1,629,925 1,630 427,370 - - Net loss for the year ended December 31, 2000 - - - - (1,444,616) ---------- ------- ---------- ------- ----------- Balance at December 31, 2000 28,111,188 28,111 1,936,816 - (3,154,027) Common stock issued for services at $0.25 per share 125,000 126 31,125 - - Common stock issued for services at $0.23 per share 75,000 75 17,175 - - ---------- ------- ---------- ------- ----------- Balance Forward 28,311,188 $28,312 $1,985,116 $ - $(3,154,027) ---------- ------- ---------- ------- ----------- The accompanying notes are an integral part of these consolidated financial statements. F-8 SANGUINE CORPORATION (A Development Stage Company) Statements of Stockholders' Equity (Continued) Deficit Expenses Accumulated Additional Prepaid with During the Common Stock Paid In Common Development Shares Amount Capital Stock Stage Balance Forward 28,311,188 $28,312 $1,985,116 $ - $(3,154,027) Common stock issued for services at $0.13 per share 825,000 825 103,125 - - Common stock issued for services at $0.17 per share 50,000 50 8,500 - - Common stock issued for prepaid services at $0.23 per share 250,000 250 57,250 (57,500) - Common stock issued for commission of private placement of common stock 327,194 327 (327) - - Common stock issued for acquisition of subsidiary stock held by minority shareholders 840,195 840 (840) - - Amortization of prepaid expenses - - - 43,125 - Net loss for the year ended December 31, 2001 - - - - (1,037,570) ---------- ------- ---------- ------- ----------- Balance, December 31, 2001 30,603,577 30,604 2,152,824 (14,375) (4,191,597) Additional common stock issued for acquisition of subsidiary stock held by minority shareholders in prior year 70,030 70 (70) - - Common stock issued for services at $0.06 and $0.16 per share 1,615,000 1,615 57,122 - - Warrants issued for services - - 989,956 - - Common stock issued for prepaid services at $0.06 per share 1,700,000 1,700 94,810 (96,510) - ---------- ------- ---------- -------- ----------- Balance Forward 33,988,607 $33,989 $3,294,642 $(110,885)$(4,191,597) ---------- ------- ---------- -------- ----------- The accompanying notes are an integral part of these consolidated financial statements. F-9 SANGUINE CORPORATION (A Development Stage Company) Statements of Stockholders' Equity (Continued) Deficit Expenses Accumulated Additional Prepaid with During the Common Stock Paid In Common Development Shares Amount Capital Stock Stage Balance Forward 33,988,607 $33,989 $3,294,642 $(110,885)$(4,191,597) Common stock issued for cash less warrants exercised at $0.06-$0.13 per share 500,000 500 103,125 - - Common stock issued for exercise of warrants for cash at $0.08 per share 310,000 310 24,490 - - Amortization of prepaid expenses - - - 14,375 - Net loss for the year ended December 31, 2002 - - - - (1,729,701) ---------- ------- ---------- --------- ----------- Balance, December 31, 2002 34,798,607 34,799 3,422,257 (96,510) (5,921,298) Common stock issued for cash-less option exercise at $0.03 and $0.04 per share for services and prepaid services 625,000 625 23,375 (19,231) - Common stock issued for services at $0.03-$0.11 per share 150,000 150 9,038 - - Common stock issued for debt at $0.03 and $0.02 per share 2,063,369 2,063 52,964 - - Common stock issued for debt and prepaid expenses at $0.08 per share 1,000,000 1,000 79,000 (62,943) - Amortization of prepaid expenses - - - 115,741 - Net loss for the year ended December 31, 2003 - - - - (324,531) ---------- ------- ---------- --------- ----------- Balance, December 31, 2003 38,636,976 $38,637 $3,586,634 $ (62,943)$(6,245,829) ---------- ------- ---------- --------- ----------- The accompanying notes are an integral part of these consolidated financial statements. F-10 SANGUINE CORPORATION (A Development Stage Company) Statements of Stockholders' Equity (Continued) Deficit Expenses Accumulated Additional Prepaid with During the Common Stock Paid In Common Development Shares Amount Capital Stock Stage Balance Forward 38,636,976 $38,637 $3,586,634 $ (62,943)$(6,245,829) Common stock issued for cash-less option exercise at $0.06 and $0.08 per share for services 3,528,666 3,529 246,192 - - Common stock issued for services at $0.26 per share 150,000 150 38,850 - - Common stock issued for debt at $0.04 and $0.07 per share 33,302,502 33,302 1,319,425 - - Common stock issued for Cash at $0.08-$0.15 per share 3,241,131 3,241 326,049 - - Common stock issued for Cash-less warrant exercise at $0.28 per share 83,629 84 (84) - - Net income for the year ended December 31, 2004 - - - - 907,725 ----------- ------- ---------- ---------- ---------- Balance, December 31, 2004 78,942,904 $78,943 $5,517,066 $ (62,943)$(5,338,104) =========== ======= ========== ========== =========== The accompanying notes are an integral part of these consolidated financial statements. F-11 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Cash Flows From Inception of the Development Stage on January 18, For the Years Ended 1990 Through December 31, December 31, 2004 2003 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 907,725 $ (324,531) $ (5,338,104) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization - - 4,609 Common stock issued for services 268,884 13,956 2,434,211 Interest on beneficial conversion feature - - 25,000 Legal expense related to beneficial conversion feature - - 3,750 Note payable issued for services - - 727,950 (Gain) Loss on extinguishments of debt (51,422) (71,141) (98,826) Gain on conversion of debt to equity (1,398,081) - (1,398,081) Recognition of prepaid expenses and expenses prepaid with common stock 62,943 115,741 456,184 Changes in assets and liabilities: Increase in accounts payable and related party payables 7,459 8,066 350,661 Increase in accrued interest payable 103,814 139,289 547,279 Increase in accrued liabilities 7,756 - 10,125 Increase in customer deposits 45,000 - 45,000 Increase in accrued salaries - 96,000 844,000 -------- ---------- -------------- Net Cash Used by Operating Activities (45,922) (22,620) (1,386,242) CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for fixed assets - - (4,609) -------- ---------- -------------- Net Cash Used by Investing Activities - - (4,609) -------- ---------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from warrant conversion 329,290 - 329,290 Proceeds from notes payable and notes payable-related party 18,762 24,000 212,139 Payments on notes payable and notes payable related party - (800) (9,400) Proceeds from issuance of convertible debentures - - 40,000 Contributed capital - - 750 Common stock issued for cash - - 1,122,175 -------- ---------- -------------- Net Cash Provided by Financing Activities 348,052 23,200 1,694,954 -------- ---------- -------------- NET INCREASE (DECREASE) IN CASH 302,130 580 304,103 CASH AT BEGINNING OF YEAR 1,973 1,393 - -------- ---------- -------------- CASH AT END OF YEAR $304,103 $ 1,973 $ 304,103 ======== ========== ============== The accompanying notes are an integral part of these consolidated financial statements. F-12 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Cash Flows (Continued) From Inception of the Development Stage on January 18, For the Years Ended 1990 Through December 31, December 31, 2004 2003 2004 SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES CASH PAID FOR: Interest $ - $ - $ - Income taxes $ - $ - $ - NON-CASH FINANCING ACTIVITIES Common stock issued for services rendered $ 268,884 $ 13,956 $2,434,211 Interest on beneficial conversion feature $ - $ - $ 25,000 Legal expense related to beneficial conversion feature $ - $ - $ 3,750 Notes payable issued for services $ - $ - $ 727,950 Common stock issued for prepaid services $ - $ 82,174 $ 236,284 Common stock issued for debt $2,822,067 $ - $2,822,067 The accompanying notes are an integral part of these consolidated financial statements. F-13 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Organization Sanguine Corporation, (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 Company is engaged in developing synthetic red blood cells to be used by the medical profession. The Company is conducting research and development leading to F.D.A. clinical trials. 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). During the year ended December 31, 2001, the Company acquired the remaining 6% of the California Corporation in exchange for the issuance of 840,195 shares of common stock. From 1974 to 1980, 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. The Company is a development stage company and these financial statements are presented as those of a development stage company effective January 18, 1990, coinciding with the incorporation date of Sanguine Corporation. b. Accounting Method The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 year-end. F-14 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) c. Basic and Diluted Income (Loss) Per Share The computation of basic inome (loss) per share of common stock is based on the weighted average number of shares outstanding during the period. For the Years Ended December 31, 2004 2003 Loss/Income (numerator) $ 907,725 $ (324,531) Shares (denominator) 40,051,302 37,470,947 Per share amount $ 0.02 $ (0.01) The computation of diluted income (loss) per share of common stock is based on the weighted average number of shares outstanding during the period. For the Year Ended December 31, 2004 Loss/Income (numerator) $ 907,725 Shares (denominator) 48,807,880 Per share amount $ 0.02 The Company's outstanding stock options have been excluded from the basic net loss per share calculation for December 31, 2003 as they are anti-dilutive. d. Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-15 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) e. Income Taxes Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Net deferred tax assets consist of the following components as of December 31, 2004 and 2003: 2004 2003 Deferred tax assets: NOL Carryover $ 876,960 $ 1,412,065 Accrued Officer Salary - 51,115 Related Party Interest - 329,160 -------------- -------------- - 1,792,340 Deferred tax liabilities: Valuation allowance $ (876,960) $ (1,792,340) -------------- -------------- Net deferred tax asset $ - $ - ============== ============== The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended December 31, 2004 and 2003 due to the following: F-16 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) e. Income Taxes (Continued) 2004 2003 Book Income $ 370,703 $ (126,605) NOL carryforward (535,105) - Accrued Interest - 1,355 Accrued Salaries - 37,440 Stock for Services/Options Expense 164,402 50,585 Other - (40) Valuation Allowance - 37,265 ------------ ---------- $ - $ - ============ ========== At December 31, 2004, the Company had net operating loss carryforwards of approximately $2,200,000 that may be offset against future taxable income from the year 2004 through 2024. No tax benefit has been reported in the December 31, 2004 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. f. Development Stage The Company is considered a development stage Company as defined in SFAS No. 7, "Accounting For Development Stage Enterprises". The Company is devoting substantially all of its efforts to research and development and obtaining financing. Principal operations have not commenced and no significant revenues have been derived from operations since inception. The Company has, at the present time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors. g. Property and Equipment Property and equipment are stated at cost. Expenditures for small tools, ordinary maintenance and repairs are charged to operations as incurred. Major additions and improvements are capitalized. Depreciation is computed using the straight-line method over estimated useful lives, which range between 3 to 5 years. As of December 31, 2004, all property and equipment was fully depreciated. F-17 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) h. Revenue Recognition Revenue is recognized when the sales amount is determined, shipment of goods to the customer has occurred and collection is reasonably assured. i. Newly Adopted Accounting Pronouncements On December 16, 2004 the FASB issued SFAS No. 123(R), Share-Based Payment, which is an amendment to SFAS No. 123, Accounting for Stock- Based Compensation. This new standard eliminates the ability to account for share-based compensation transactions using Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and generally requires such transactions to be accounted for using a fair-value-based method and the resulting cost recognized in our financial statements. This new standard is effective for awards that are granted, modified or settled in cash in interim and annual periods beginning after June 15, 2005. In addition, this new standard will apply to unvested options granted prior to the effective date. We will adopt this new standard effective for the fourth fiscal quarter of 2005, and have not yet determined what impact this standard will have on our financial position or results of operations. In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . ." This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not believe the adoption of this Statement will have any immediate material impact on the Company. F-18 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) i. Newly Adopted Accounting Pronouncements (Continued) In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate Time-sharing Transactions, which amends FASB statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes the adoption of this Statement will have no impact on the financial statements of the Company. In December 2004, the FASB issued SFAS No.153, Exchange of Nonmonetary Assets. This Statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetrary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued. Management believes the adoption of this Statement will have no impact on the financial statements of the Company. The implementation of the provisions of these pronouncements are not expected to have a significant effect on the Company's consolidated financial statement presentation. j. Equity Securities Equity securities issued for services rendered have been accounted for at the fair market value of the securities on the date of issuance. F-19 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) k. Stock Options As permitted by FASB Statement 148 "Accounting for Stock Based Compensation - Transition and Disclosure" (SFAS No. 148), the Company elected to measure and record compensation cost relative to employee stock option costs in accordance with Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations and make proforma disclosures of net income and earnings per share as if the fair value method of valuing stock options had been applied. Under APB opinion 25, compensation cost is recognized for stock options granted to employees when the option price is less that the market price of the underlying common stock on the date of grant. l. Valuation of Options and Warrants The valuation of options and warrants granted to unrelated parties for services are measured as of the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached, or (2) the date the counterparty's performance is complete. Pursuant to the requirements of EITF 96-18, the options and warrants will continue to be revalued in situations where they are granted prior to the completion of the performance. m. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. NOTE 2 - MINORITY INTEREST Sanguine Corporation (California) had a total of 6,586,800 shares of its common stock issued and outstanding at June 14, 1993. Pursuant to an Agreement and Plan of Reorganization, Sanguine Corporation (Nevada) acquired 6,200,000 of the issued and outstanding shares. The remaining 386,800 shares of minority interest in California Corporation represented approximately six percent (6%) of the Company's outstanding stock. No provisions for minority interest has been made on the financial statements because of the losses incurred in prior periods and the stockholders' deficit of California. F-20 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 2 - MINORITY INTEREST (Continued) In November 2001 Sanguine Corporation (Nevada) acquired the remaining 386,800 shares of Sanguine Corporation (California) through the issuance of 840,195 shares of common stock. As of that date, Sanguine Corporation (California) was dissolved and is operating as a foreign entity in California. NOTE 3 - RELATED PARTY TRANSACTIONS, DEBT CANCELLATION, CONTRIBUTION AND STOCK ISSUANCES Related party payables at December 31, 2004 represents amounts owed to officers of the Company for reimbursement of expenses paid of $4,000. During the year ended December 31, 2004, the Company authorized the issuance of an aggregate of 32,777,266 shares of the Company's common stock for: (i) the cancellation of certain debts in the amount of $1,313,144, and (ii) the contribution to capital of accrued salary and interest on debt by members of management in the amount of $1,327,630. An additional 3,280,000 shares of common stock were authorized to be issued for services rendered to the Company. The issuance of these shares is reflected in these financial statements. In addition, two convertible notes payable in the aggregate amount of $28,750.00, plus accrued interest, were converted into 773,902 shares of common stock of the Company. The issuance of these shares is reflected in these financial statements. NOTE 4 - COMMITMENTS AND CONTINGENCIES During February 1994, the Company entered into a lease for office space in Pasadena, California. The lease has been extended three times through April 2004 with monthly rent payments of $1,744 with annual increases. Future minimum lease payments under this non-cancelable operating lease are $7,364 through April 2004. Currently the lease is on a month-to- month basis. Rent expense was $24,556 and $22,127 for the years ended December 31, 2004 and 2003, respectively. Employment Agreements Beginning the quarter ended September 30, 2004, the CEO, CFO and Vice President are each entitled to receive 12,500 shares of common stock of the company ("restricted securities") such compensation is to be paid quarterly. As of December 31, 2004, a total of $10,125 in salaries has been accrued. F-21 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued) License Agreements During February and April, 2002, the Company entered into two 25 year exclusive license agreements with two entities by granting the exclusive license rights to its PHER-02 product and associated processes and technologies. These entities had been granted these exclusive licenses for Asia, including the People's Republic of China, Thailand, Laos, Cambodia, Vietnam, Singapore, Malaysia, Indonesia, North Korea, Burma, Mongolia and Taiwan; and one for South America. On September 29, 2004, we terminated Ascendiant-Asia's Exclusive License Agreement for failure to meet minimum production or to pay royalties due pursuant to the terms of that Exclusive License Agreement. Also, on September 29, 2004, we terminated Ascendiant-South America's Exclusive License Agreement for failure to meet minimum production or to pay royalties due pursuant to the terms of that Exclusive License Agreement. NOTE 5 - COMMON STOCK TRANSACTIONS During the year ended December 31, 2003, the Company issued 150,000 shares of common stock for services valued at $9,188; 1,000,000 shares issued for payables of $17,057 and prepaid services valued at $62,943; 625,000 shares issued for cash-less option exercises valued at $24,000; and 1,063,369 shares issued for payables of $34,028 and gain on settlement of $25,972. Common stock issued for services, prepaid services and cash-less option exercises have been accounted for at the fair market value of the securities on the date of issue. NOTE 6 - STOCK OPTIONS AND WARRANTS During January and March 2003, the Company issued options to purchase 1,625,000 shares of common stock to non-employees for services. The options were exercisable at $0.04 per share and were immediately exercised upon issuance in payment of services. As the options were exercised immediately, no expense was recognized upon grant. F-22 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 6 - STOCK OPTIONS AND WARRANTS (Continued) During February 2002, the Company entered into a consulting agreement which provides for the issuance of 300,000 warrants. The consultant received 100,000 warrants upon signing the contract while the remaining 200,000 warrants are contingent upon receipt of funding generated by the consultant. The warrants are exercisable at a price of $0.125 per share and expire February 6, 2007. As of December 31, 2002, no funding has been generated by the consultant and 100,000 warrants are issued and exercisable. The Company recognized $11,252 in expense associated with the issuance of these warrants. During February 2002, the Company issued three warrants to purchase an aggregate of 3,000,000 shares of the Company's common stock to individuals related to an entity that received the exclusive license rights of the Company's PHER-02 product in Asia (See Note 4). The warrants are exercisable at a price of $0.15 per share and expire February 21, 2005. The warrants also have a call provision, which the Company can exercise and require the holders of the warrants to exercise their warrants if at any time the Company's common stock trades for an amount equal to or greater than $1.00 per share for 10 consecutive trading days. The Company recognized $237,455 in expense associated with the issuance of these warrants. During March 2002, and in connection with the issuance of a convertible debenture, the Company issued warrants to purchase 5,937,500 shares of common stock at an exercise price of the greater of $0.08 or 66 2/3% of the five-day trading average of the Company's common stock. The Company recognized $682,465 in expense associated with the issuance of these warrants. During March 2002, the Company issued a warrant to an individual to acquire up to 500,000 shares of the Company' s common stock for services. The exercise price of the warrant is the lower of 50% of the average bid price of the Company's common stock for the five trading days prior to the exercise of the warrant or $0.08 per share. The warrant expires March 11, 2005. The Company recognized $58,784 in expense associated with the issuance of these warrants. F-23 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 6 - STOCK OPTIONS AND WARRANTS (Continued) A summary of the status of the Company's outstanding stock options as of December 31, 2004 and 2003 and changes during the years then ended is presented below: 2004 2003 Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price Outstanding, beginning of year 10,997,709 $ 0.15 10,997,709 $ 0.30 Granted - - 1,625,000 0.04 Expired/Cancelled - - - - Exercised (2,241,131) 0.08 (1,625,000) 0.04 ---------- ------ ---------- ------ Outstanding end of year 8,756,578 $ 0.15 10,997,709 $ 0.15 ========== ====== ========== ====== Exercisable 8,756,578 $ 0.15 10,997,709 $ 0.15 ========== ====== ========== ====== Outstanding Exercisable Weighted Number Average Weighted Number Weighted Outstanding Remaining Average Exercisable Average Range of at December Contractual Exercise at December Exercise Exercise Prices 31, 2004 Life Price 31, 2004 Price $ 0.13 470,642 2.23 $ 0.13 470,642 $ 0.13 0.35 1,799,567 .16 0.35 1,799,567 0.35 0.07-0.15 6,486,369 .90 0.10 6,486,369 0.10 ---------- --------- ----- ------- --------- ------- $0.07-0.35 8,756,758 .69 $ 0.15 8,756,578 $ 0.15 ========== ===== ======= ========== ======= F-24 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 7 - GOING CONCERN The Company's financial statements are prepared using United States generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has historically incurred significant losses, which have resulted in an substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. The Company's management has taken certain steps to maintain its operating and financial requirements in an effort to enable the Company to continue as a going concern until such time that revenues are sufficient to cover expenses, including: The Company's management has taken certain steps to maintain its operating and financial requirements in an effort to continue as a going concern until such time as revenues are sufficient to cover expenses. Future plans include a debt or equity offering for between $300,000 - $500,000 that should enable the Company to complete the animal testing stage for FDA approval of its product. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described above, and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. NOTE 8 - PREPAID EXPENSES AND EXPENSES PREPAID WITH COMMON STOCK During December 2003, the Company issued 1,000,000 shares of common stock for debt and prepaid services valued at $80,000. During the years ended at December 31, 2004 and 2003, the Company recognized $62,943 and $115,741 of consulting expense related to these agreements, respectively. NOTE 9 - EXTINGUISHMENT OF LIABILITIES During 2003, the Company wrote-off $45,169 in payables dating back to 2000 and earlier for which the Company believes it no longer has any liability and for which the statue for collection has passed. Additionally, the Company recognized a total of $25,973 gain from extinguishments of payables through the issuance of common stock. The gain was calculated as the difference between the fair market value of the stock on the date of issue and the value of the debt extinguished. The Company recognized a total of $71,142 at December 31, 2003 in other income related to these extinguishments. F-25 SANGUINE CORPORATION (A Development Stage Company) Notes to the Financial Statements December 31, 2004 and 2003 NOTE 9 - EXTINGUISHMENT OF LIABILITIES (Continued) During 2004, the Company extinguished various notes, accounts payable and accrued expenses (see Note 3). The Company recognized a total of $1,449,503 at December 31, 2004 in other income related to these extinguishments. F-26 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. - --------------------- We changed accountants, from Tanner + Company, Inc. on December 11, 2003. The new accounting firm is HJ Associates & Consultants, LLP. For additional information about our change of accountants, see our 8-K Current Report dated December 11, 2003, as amended, which is incorporated herein by reference. See Part III, Item 13. Item 8(a). Controls and Procedures. - ------------------------------------ As of the end of the period covered by this Annual Report, we carried out an evaluation, under the supervision and with the participation of our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. Item 8(b). Other Information. - ------------------------------ 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 of our current directors and executive officers. These persons will serve until the next annual meeting of the stockholders or until their successors are elected or appointed and qualified, or their prior resignations or terminations.
Directors and Executive Officers. - --------------------------------- 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 Chairman 9/00 6/2003 (Death) Vice President 6/93 6/2003 (Death) Secretary/ 6/93 6/2003 (Death) Treasurer 6/93 6/2003 (Death) Director 6/93 6/2003 (Death) Chief Financial 6/94 3/96 Officer David E. Nelson, CPA Director 3/96 * Chief Financial 3/96 * Officer Secretary/Treasurer 6/03 * Edward L. Kunkel, Esq. Director 4/94 * * These persons presently serve in the capacities indicated.
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. Medical Advisory and Applications Board of Directors. - ----------------------------------------------------- Date of Date of Positions Election or Termination Name Held Designation or Resignation ---- ---- ----------- -------------- Craig Morrison, M.D. Member 10/00 * Leon Cass Terry, M.D., Member 10/00 * Ph.D. Herbert J. Meiselman, Member 10/00 * Sc.D. Joseph P. O'Malley, M.D. Member 6/01 * Robert Kwun, M.D. Member 12/04 *
Business Experience. - -------------------- Thomas C. Drees, Ph.D., MBA, Chairman, President, CEO and a Director. Dr. Drees, age 76, 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 29 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. David E. Nelson, CPA, Chief Financial Officer and Director. Mr. Nelson, age 61, 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., a broker/dealer formerly registered with the Securities and Exchange Commission. Mr. Nelson has been a member of the NASD's 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 57 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, California. 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 also been a licensed real estate broker since 1979. Craig Morrison, M.D., Advisory Board Member, is 62 years of age, and practices at the Brigham Young Student Health Center. He has been an attending and consulting staff general surgeon since 1978 at the following hospitals: Utah Valley Regional Medical Center, Orem Community Hospital, Colombia Mountain View Hospital and Central Valley Hospital. Dr. Morrison received his Doctor of Medicine Degree from the University of Oregon Medical School in 1970, followed by a pediatric internship and surgical residency at the University of Southern California-Los Angeles County Hospital and the Huntington Memorial Hospital in 1975. Leon Cass Terry, M.D., Ph.D., Advisory Board Member, is 63 years of age, and joined the Medical College of Wisconsin as a Professor of Neurology and Professor of Physiology in 1989, and has recently retired. Focusing on his professorial duties, Dr. Terry recently stepped down from his position as the Chairman of Neurology, which he held from June of 1989 to May, 2000. During his tenure, Dr. Terry was the Associate Dean for Ambulatory Care from January, 1997 to March, 1998, and was the Chief of Staff from January, 1997 to January, 1999. He also held previous teaching and professional positions as a Research Scientist for the University of Michigan, Institute of Gerontology; Professor of Neurology and Associate Professor of Physiology and Neurology at the University of Michigan; and Associate Professor of Neurology at the University of Tennessee Center for Health Sciences. Dr. Terry earned his Doctorate of Pharmacology from the University of Michigan, his Doctor of Medicine from Marquette University Medical School, his Ph.D. in Experimental Medicine from McGill University Medical School and his Master of Business Administration from the University of South Florida. Dr. Terry has authored over 100 peer- reviewed articles, abstracts and book chapters in well known and respected publications. He was also principal or co-investigator on over 30 grants from the National Institute of Health, various pharmaceutical companies, philanthropic donations and others. He has also conducted clinical trials in various neurologic disorders. Herbert J. Meiselman, Sc.D., Advisory Board Member, is 64 years of age. He is an active Professor and Vice Chairman of the University of Southern California School of Medicine, Department of Physiology and Biophysics. Professor Meiselman graduated from Michigan Technical University with a BS degree in 1962. He received a Sc.D. degree from the Massachusetts Institute of Technology in 1965. As a Research Fellow at the California Institute of Technology, he studied in-vivo microcirculatory blood flow from 1966 to 1968. In 1968, he expanded his research studies to include in-vivo blood rheology, a program jointly administered by the California Institute of Technology and the University of Southern California Medical School. Since 1972, Dr. Meiselman's research at the University of Southern California has been concentrated in the areas of blood rheology and the physical behavior of red blood cells and white blood cells. He has authored or co-authored over 300 papers on numerous blood-related topics. Joseph P. O'Malley, M.D., Advisory Board Member, is 73 years of age. Mr. O'Malley graduated from Harvard Medical School, cum laude, served 25 years with the National Institute of Health and the Federal Drug Administration and 15 years with the American Red Cross as Regulatory Head of blood services. Robert Kwun, M.D., Advisory Board Member, is 39 years of age. He graduated from Harvard University, and then received his medical degree from Columbia University, in New York. His clinical training includes Columbia University's Manhattan Eye Ear and Throat Hospital, Los Angles Children's- USC Medical Center, the Doheny Eye Institute and New York's St. Vincent's Hospital. Family Relationships. - --------------------- There are no family relationships between any of our directors or executive officers. Involvement in Certain Legal Proceedings. - ----------------------------------------- During the past five years, none of our present or former directors, executive officers or persons nominated to become directors or executive officers: (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. Audit Committee. - ---------------- We do not have an audit committee separate from our Board of Directors because of our present limited operations. Code of Ethics. - --------------- We have adopted a Code of Ethics which was attached as Exhibit 14 to our 2002 Annual Report on Form 10-KSB. See Part III, Item 13. Item 10. Executive Compensation. ----------------------- Cash Compensation. - ------------------ The following table shows the aggregate compensation that we have paid to our directors and executive officers 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) Secur- ities All Name and Year or Other Rest- Under- LTIP Other Principal Period Salary Bonus Annual rictedlying Pay- Comp- Position Ended ($) ($) Compen-Stock Optionsouts ensat'n - ----------------------------------------------------------------- Thomas C. Drees, Ph.D,12/31/04 * 0 0 0 * 0 0 MBA, CEO, 12/31/03 * 0 0 0 0 0 0 President 12/31/02 * 0 0 0 0 0 0 and Chairman of the Board David E. Nelson, CPA 12/31/04 0 0 0 0 * 0 0 CFO and 12/31/03 0 0 0 0 0 0 0 Director 12/31/02 0 0 0 0 0 0 0 Edward L. Kunkel, Esq.12/31/04 0 0 0 0 * 0 0 Director 12/31/03 0 0 0 0 0 0 0 12/31/02 0 0 0 0 0 0 0
* Commencing with the quarter ended December 31, 2004, members of our Board of Directors will be paid 12,500 shares of common stock per quarter for all services rendered to us in lieu of an employment contracts. See Part III, Items 12 and 13, below. Bonuses and Deferred Compensation. - ---------------------------------- See the heading "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" below. Compensation Pursuant to Plans. - ------------------------------- See the heading "Compensation of Directors" below. Also see the heading "Compensation Pursuant to Plans" in Part II, Item 5, above. Pension Table. - -------------- None; not applicable. Other Compensation. - ------------------- Other than as discussed below under the heading "Compensation of Directors," we have no other compensation arrangements with any of our directors or executive officers or our Advisory Board and Applications members. Compensation of Directors. - -------------------------- In 2001, the Board of Directors authorized 25,000 shares of our common stock that are "restricted securities" under Rule 144 to be issued per each quarter of service for members of our Medical Advisory and Applications Board, with the exception of Robert Kwun, M.D., who is to be paid 50,000 shares per quarter, commencing in 2005. Commencing with the fourth quarter ended September 30, 2004, the Board of Directors authorized 25,000 shares of our common stock that are "restricted securities" under Rule 144 per each quarter of service for members of our Board of Directors. Employment Contracts. - --------------------- Except as stated above, there are no employment arrangements with our directors or executive officers. Termination of Employment and Change of Control Arrangements. - ------------------------------------------------------------- We have no special arrangements involving any change of control of our company or termination of any director, executive officer or Medical Advisory and Applications Board member. Compliance with Section 16(a) of the Exchange Act. - -------------------------------------------------- To our knowledge, during our past fiscal year and since then, all filings required to be made by members of management or others pursuant to Section 16(a) of the Exchange Act, have been duly filed. However, the following filings were filed later than their due dates by our directors, executive officers or 5% stockholders:
Date Report Date Report Filer Transaction Due Filed - ----- ----------- --- ----- S. C. S., Inc. Acquisition of 12/01/03 05/12/04 1,000,000 shares Edward L. Kunkel Acquisition of 09/29/04 10/19/04 Esq. 250,000 shares Director Thomas C. Drees Acquisition of 09/29/04 10/19/04 Ph.D. 31,604,000 shares Director and President David E. Nelson Acquisition of 09/29/04 10/19/04 CPA 564,294 shares Director, CFO, Secretary/Treasurer
Item 11. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------- The following tables set forth the share holdings of our directors and executive officers and those persons who own more than five percent of our common stock as of the date of the Annual Report: DIRECTORS AND EXECUTIVE OFFICERS --------------------------------
Number of Shares Percent Name and Address Beneficially Owned of Class* - ---------------- ------------------ -------- Thomas C. Drees, Ph.D., MBA 40,203,133 50.2% 101 East Green Street, #11 Pasadena, California 91105 David E. Nelson, CPA 454.294 .0056% 528 14th Avenue Salt Lake City, Utah 84103 Edward L. Kunkel, Esq. 250,000 .003% 16 N. Marengo Ave, #517 Pasadena, California 91103 --------- ----- All directors and officers as a group 40,907,427 51.1% (three persons)
* Based upon 80,012,844 shares of outstanding common stock. FIVE PERCENT STOCKHOLDERS -------------------------
Number of Shares Percent Name and Address Beneficially Owned of Class * - ---------------- ------------------ -------- Thomas C. Drees, Ph.D., MBA 40,203,133 50.2% 101 East Green Street, #11 Pasadena, California 91105 ---------- ----- Total of all five percent 40,203,133 50.2% stockholders
* Based upon 80,012,844 shares of outstanding common stock. Changes in Control. - ------------------- To our knowledge, there are no present arrangements or pledges of our securities that may result in a change in control of our Company. Item 12. Certain Relationships and Related Transactions. ----------------------------------------------- Transactions with Management and Others. - ---------------------------------------- An unsecured note payable to an officer of our Company (our President) due on demand, payable through the issuance of 1,600,000 shares of common stock as repayment for personally held shares of that officer that were issued as payment of a Company obligation. The face value of the note of $699,200 was based on the market price per share on the date of transfer by the officer. Interest was computed at 12% per annum. An unsecured note payable to an officer of our Company (our President), due on demand, payable through issuance of 1,000,000 shares of common stock as repayment for personally-held shares of that officer that were issued as payment of a Company obligation. The face value of the note of $220,000 was based on the market price per share on the date of transfer by the officer. Interest was computed at 12% per annum. Unsecured notes payable to an officer of our Company (our President) in the amount of $198,943, due on demand, with interest at 12% per annum. Accrued interest on related party notes totaled $ at September 30, 2004, while interest expense on the related party notes totaled $ and $131,059 for the years ended December 31, 2004 and 2003, respectively. Related party payables at December 21, 2003 includes amounts owed to an officer (our President) of the Company for reimbursement of expenses paid of $150,821. The foregoing debts and obligations were resolved during the year ended December 31, 2004, as discussed below. Thomas C. Drees, Ph.D., MBA, our Company's President, CEO and a Director agreed to exchange $1,264,160 of debt owed to him by us for 31,604,000 shares of our common stock that are "restricted securities" under Rule 144 of the Securities and Exchange Commission; and Dr. Drees also agreed to contribute to capital his accrued salary of $497,500 and interest on the debt owed to him by us in the amount of $453,630, together with any interest on any of these amounts since June 30, 2004, effective September 29, 2004. The Anthony and Audrey Hargreaves Trust (the "Trust") agreed to exchange $36,984 of debt owed by us to Mr. Hargreaves prior to his death for 924,600 shares of our common stock that are "restricted securities" under Rule 144 of the Securities and Exchange Commission; and the Trust also agreed to contribute to capital Mr. Hargreaves' accrued salary of $276,500, together with any interest on any of these amounts since June 30, 2004, effective September 29, 2004. Except for the above, there have been no material transactions, series of similar transactions or currently proposed transactions, to which our Company was or is to be a party, in which the amount involved exceeded $60,000 and in which any director or executive officer, or any security holder who is known to us to own of record or beneficially more than five percent of our common stock, or any member of the immediate family of any of the foregoing persons, or any promoter or founder had a material interest. Certain Business Relationships. - ------------------------------- Except as outlined above, there have been no material transactions, series of similar transactions or currently proposed transactions, to which our Company was or is to be a party, in which the amount involved exceeded $60,000 and in which any director or executive officer, or any security holder who is known to us to own of record or beneficially more than five percent of our common stock, or any member of the immediate family of any of the foregoing persons, or any promoter or founder had a material interest. Indebtedness of Management. - --------------------------- Except as outlined above, there have been no material transactions, series of similar transactions or currently proposed transactions, to which our Company was or is to be a party, in which the amount involved exceeded $60,000 and in which any director or executive officer, or any security holder who is known to us to own of record or beneficially more than five percent of our common stock, or any member of the immediate family of any of the foregoing persons, or any promoter or founder had a material interest. Parents of the Issuer. - ---------------------- Except and to the extent that Dr. Drees may be deemed to be a parent of our by virtue of his substantial stock ownership, we have no parents. Transactions with Promoters. - ---------------------------- Except as outlined above, there have been no material transactions, series of similar transactions or currently proposed transactions, to which our Company was or is to be a party, in which the amount involved exceeded $60,000 and in which any director or executive officer, or any security holder who is known to us to own of record or beneficially more than five percent of our common stock, or any member of the immediate family of any of the foregoing persons, or any promoter or founder had a material interest. Item 13. Exhibits and Reports on Form 8-K. --------------------------------- Reports on Form 8-K. - -------------------- See below, for Exhibits that are incorporated herein by reference. Exhibits Incorporated by Reference.* - ------------------------------------ (i) Where Incorporated in this Report -------------- 10-KSB for the fiscal year ended Part I, Item 1 December 31, 2002.** 10-KSB for the fiscal year ended Part I, Item 1 December 31, 2003.** 8-K/A Current Report dated Part II, Item 8 December 11, 2003.** 8-K Current Report dated Part I, Item 1 & September 29, 2004.** Part III, Item 12 8-K Current Report dated Part I, Item 1 November 17, 2004.** (ii) Exhibit Number Description - ------ ----------- 23.1 Consent of HJ Associates & Consultants, LLP 31.1 302 Certification of Thomas C. Drees, Ph.D. 31.2 302 Certification of David E. Nelson 32 906 Certification * 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. Item 14. Principal Accountant Fees and Services. --------------------------------------- The following is a summary of the fees billed to us by our principal accountants during the calendar years ended December 31, 2004, and December 31, 2003: Fee category 2004 2003 ------------ ---- ---- Audit fees $23,500 $6,149 Audit-related fees $ 0 $ 0 Tax fees $ 0 $ 0 All other fees $ 0 $ 0 Total fees $23,500 $6,149 Audit fees. Consists of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and the review of financial statements included in our Forms 10-QSB or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements. Audit-related fees. Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit fees." Tax fees. Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning. All other fees. Consists of fees for products and services provided by our principal accountants, other than the services reported under "Audit fees," "Audit-related fees" and "Tax fees" above. 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: 5/5/2005 By /s/ Thomas C. Drees --------------- ------------------------------------- Thomas C. Drees, Ph.D., MBA CEO, President and Chairman of the Board of Directors Date: 5/5/2005 By /s/ David E. Nelson --------------- ------------------------------------- David E. Nelson, CPA CFO and Director Exhibit 23.1 HJ Associates and Consultants, LLP [Letterhead] Consent of Independent Public Accountants The Board of Directors Sanguine Corporation We consent to the incorporation by reference in the registration statement No. 333-102389 on Form S-8 of Sanguine Corporation filed on January 7, 2003, and in the registration statement No. 333-87140 on Form S-3 of Sanguine Corporation filed on April 29, 2002, of our reports dated March 23, 2004, and April , 2005, relating to the financial statements of Sanguine Corporation as of December 31, 2004, 2003 and 2002, which reports appear in the December 31, 2004, 2003 and 2002 annual reports on Form 10-KSB of Sanguine Corporation. We consent only to the reference of our reports as they relate to Item 3 of Form S-8 and Item 12 of Form S-3, as documents filed pursuant to Section 15(d) of the Securities Exchange Act of 1934 subsequent to the filing of the documents, but prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters the remaining unsold underlying shares. We did not perform review procedures with respect to the initial filings of these registration statements on Forms S-8 and S-3 as we were not auditors of record. HJ Associates & Consultants, LLP April , 2005 Salt Lake City, Utah EX-31 2 ex31-1.txt 302 CERTIFICATION OF THOMAS C. DREES Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas C. Drees, President and Chief Executive Officer of Sanguine Corporation (the "small business issuer"), certify that: 1. I have reviewed this Annual Report on Form 10-KSB of the small business issuer; 2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this Annual Report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and c) disclosed in this Annual Report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions); a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Dated: 5/5/2005 Signature:/s/Thomas C. Drees --------------- ---------------------- Thomas C. Drees President and Chief Executive Officer EX-31 3 ex31-2.txt 302 CERTIFICATION OF DAVID NELSON Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David Nelson, Chief Financial Officer of Sanguine Corporation (the "small business issuer"), certify that: 1. I have reviewed this Annual Report on Form 10-KSB of the small business issuer; 2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this Annual Report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and c) disclosed in this Annual Report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions); a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Dated: 5/5/2005 Signature:/s/David E. Nelson --------------- ---------------------- David E. Nelson Chief Financial Officer Secretary/Treasurer EX-32 4 ex32.txt 906 CERTIFICATION Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Sanguine Corporation (the "Registrant") on Form 10-KSB for the year ended December 31, 2003, as filed with the Commission on the date hereof (the "Annual Report"), we, Thomas C. Drees, President and Chief Executive Officer and David Nelson, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Annual Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and result of operations of the Registrant. Dated: 5/5/2005 /s/Thomas C. Drees ----------------- ------------------------------- Thomas C. Drees President, Chief Executive Officer and Director Dated: 5/5/2005 /s/David E. Nelson ----------------- ------------------------------- David E. Nelson Chief Financial Officer, Secretary/Treasurer and Director -----END PRIVACY-ENHANCED MESSAGE-----