10KSB 1 k06.txt ANNUAL REPORT ON FORM 10KSB FOR THE YEAR ENDED DECEMBER 31, 2006 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, 2006 [ ] 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, #6 Pasadena, California 91105 --------------------------- (Address of Principal Executive Offices) Issuer's Telephone Number: (626) 405-0079 -------------------------- N/A --- (Former Name or Former Address, if changed since last Report) Securities Registered under Section 12(b) of the Exchange Act: None Name of Each Exchange on Which Registered: None Securities Registered under Section 12(g) of the Exchange Act: $0.001 par value common stock Check whether the Issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ] Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Issuer 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 the Issuer'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. [ ] Indicate by check mark whether the Issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X State the Issuer's revenues for its most recent fiscal year: December 31, 2006 - $5,563. State the aggregate market value of the voting stock of the Issuer 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 20, 2007 - $4,997,747.76. There are approximately 41,647,898 shares of common voting stock of the Issuer 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 ($0.12). (Issuers Involved in Bankruptcy Proceedings During the past Five Years) Not Applicable. (Applicable Only to Corporate Issuers) State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date: March 19, 2007 - 82,842,825 shares of common stock. Documents Incorporated by Reference See Part III, Item I. Transitional Small Business Issuer Format: Yes No X PART I Item 1. Description of Business. ------------------------ Business Development. --------------------- Developmental Information for the Year Ended December 31, 2004. --------------------------------------------------------------- We completed the restructuring of our financial statements that involved the 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, that was filed with the Securities and Exchange Commission on October 7, 2004, and which is incorporated herein by reference. See Part III, Item 13. The testing of our red blood cell substitute product, PHER-02, in various phases of animal toxicity trials, was begun. The universities of Chicago, Maryland and the University of Alberta (Canada) medical schools conducted testing that focused on its effectiveness in perfusion for pancreas preservation for transplantation. PHER-02 is still being used to develop a deep sea diving oxygenation treatment of the bends for the U.S. Navy submarine crews. We also continue to confer 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. We have successfully completed animal toxicity and efficacy trials at the University of Alberta (Canada) respecting transporting of pancreas islet cells. See our 8-K Current Report dated November 17, 2004, that was filed with the Securities and Exchange Commission on November 18, 2004, and which is incorporated herein by reference. See Part III, Item 13. For information about additional developments during 2004, see our 10-KSB Annual Report for the calendar year ended December 31, 2004, that was filed with the Securities and Exchange Commission on May 6, 2005, and which is incorporated herein by reference. See Part III, Item 13. Developmental Information for the Year Ended December 31, 2005. --------------------------------------------------------------- We 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. Developmental Information for the Year Ended December 31, 2006. --------------------------------------------------------------- On February 16, 2006, we entered into an Agreement for Department of Energy Funded Technology Assistance with the Battelle Memorial Institute, Pacific Northwest National Laboratory, Office of Small Business Programs, pursuant to which Pacific Northwest Laboratories will assess the affinity of our proprietary product, PHER-O2, as an industrially useful carrier of hydrogen and carbon dioxide. In March, 2006, our Board of Directors resolved to offer for sale in a private placement 20,000,000 shares of our common stock that were "restricted securities" as defined in Rule 144 of the Securities and Exchange Commission for $0.07 per share to "accredited investors" only, as that term is defined in Rule 501 of Regulation D. The anticipated aggregate gross proceeds of $1,400,000 were to be utilized by us to fund the FDA required animal studies of our synthetic red cell blood product, PHER-02, for use in the transportation of pancreas islet cells in the treatment of diabetes and for other purposes. This offering was terminated without making any sales in the third quarter of 2006. On October 18, 2006, our Board of Directors resolved to offer for sale in a private placement 6,666,667 shares of our common stock that are "restricted securities" to "accredited investors" at $0.06 per share for aggregate gross proceeds of $400,000. This offering was closed on February 12, 2007, with 746,667 shares having been sold for gross proceeds of approximately $44,800. Developmental Information subsequent to the Year Ended December 31, 2006. ------------------------------------------------------------------------- Effective January, 2007 we extended the expiration dates of 1,943,115 outstanding warrants to purchase shares of our common stock at $0.08 per share to March, 2008, or a year from the date on which they were scheduled to expire. 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 up to 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 have and are continuing to perform initial gross animal tests that 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: * continual animal testing at certain universities as outlined above under the caption "Developmental Information for the Year Ended December 31, 2004;" * beginning our 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 its submarine crews; 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 2007, 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. We will need additional funding for these purposes. 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 cannot 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 and one half 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 each of 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. Distribution Methods of the Products or Services. ------------------------------------------------- None; not applicable. Status of any Publicly Announced New Product or Service. -------------------------------------------------------- None; not applicable. Competitive Business Conditions and the Small Business Issuer's Competitive Position in the Industry and Methods of Competition. ---------------------------------------------------- 10 years ago, there were 15 possible competitors. Three companies are still working to develop alternatives to human blood. They include: * Biopure Corporation of Cambridge, Massachusetts; * Northfield Laboratories, Inc. of Evanston, Illinois (Northfield is currently engaged in FDA testing of its synthetic blood product, PolyHeme, that it believes is compatible with all human blood types and can be used in the treatment of all trauma victims [Associated Press, March 6, 2006]); 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. Sources and Availability of Raw Materials and Names of Principal Suppliers. --------------------------------------------------------------------------- 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 sterile 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 cannot 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. Dependence on One or a Few Major Customers. ------------------------------------------- None; not applicable. Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, including Duration. ------------------------------------ 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, that was effective for one year commencing on March 25, 2005, whereby Beckloff agreed to assist us in implementing, conducting and completing our FDA testing and approval process. Subject to available funding, we expect these services to continue through 2007 for the same purposes. Need for any 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" in Part I, Item 6. We cannot 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. Effect of Existing or Probable Governmental Regulations on the Business. ------------------------------------------------------------------------ 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 cannot 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. Research and Development Costs During the Last Two Fiscal Years. ---------------------------------------------------------------- Since inception, we have expended a total of approximately $1,900,000 on research and development. During years ended December 31, 2006, and 2005, research and development expense was approximately $361,432 and $181,246, respectively. None of these costs were borne by customers or others. Cost and Effects 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. Number of Total Employees and Number of Full Time 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. Reports to Security Holders. ---------------------------- You may read and copy any materials that we file with the Securities and Exchange Commission at the Securities and Exchange Commission's public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may also find all of the reports that we have filed electronically with the Securities and Exchange Commission at their Internet site www.sec.gov. Item 2. Description of Property. ------------------------ We lease approximately 600 square feet of office space located at 101 East Green Street, Suite 6, Pasadena California, 91105, at a base rent of $896 per month. The lease is 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. ---------------------------------------------------- No matter was submitted to a vote of our Company's stockholders during the fourth quarter of the period covered by this Annual Report or during the previous two fiscal years. PART II Item 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer 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, 2005, and December 31, 2006, is presented below. Prices are inter-dealer quotations as reported by the NASD (or the NQB, LLC) and do not necessarily reflect transactions, retail markups, mark downs or commissions. STOCK QUOTATIONS* BID Quarter ended: High Low -------------- ---- --- March 31, 2005 $.35 $.26 June 30, 2005 $.29 $.145 September 30, 2005 $.16 $.10 December 31, 2005 $.17 $.095 March 31, 2006 $.16 $.12 June 30, 2006 $.22 $.105 September 30, 2006 $.24 $.11 December 31, 2006 $.125 $.075 * 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. Holders. -------- The number of record holders of our common stock as of March 20, 2007, was approximately 563. 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. Securities Authorized for Issuance under Equity Compensation 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 2,123,115 .08 4,375,000 approved by security holders Total 2,123,115 4,375,000 Recent Sales of Unregistered 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 ---- --------------- ---- ------------- Leonard W. Burningham, 500,000 9/2004 Services Esq. (2) Seven (7) persons and/or entities (3) 2,800,000 9/2004 Services Nine (9) persons and/or entities (4) 773,902 9/2004 Conversion of Convertible Notes Ascendiant Capital Group LLC (5) 228,666 9/2004 Conversion of Debt Thomas C. Drees, Ph.D. (6) 31,604,000 9/2004 Conversion of Debt Anthony & Audrey Hargreaves Trust (7) 924,600 9/2004 Conversion of Debt Richard H. Walker (5) 300,000 12/2004 Warrant Exercise Jossef Kahlon (5) 700,000 12/2004 Warrant Exercise Medical Advisory Board 150,000 12/2004 Services (1) Kelly Trimble (8) 163,691 12/2004 Warrant Exercise Mark Sansom (8) 163,690 12/2004 Warrant Exercise Jason Douglas (8) 100,000 12/2004 Warrant Exercise Max Sabour (8) 100,000 12/2004 Warrant Exercise Todd Kinney (8) 100,000 12/2004 Warrant Exercise Robert Kwun (1) 100,000 12/2004 Warrant Exercise Leonard W. Burningham, 513,750 12/2004 Warrant Exercise Esq. (8) Branden Burningham, 350,000 12/2004 Warrant Exercise Esq. (8) Brad Burningham, 350,000 12/2004 Warrant Exercise Esq. (8) Leonard W. Burningham, 300,000 12/2004 Warrant Exercise Esq. C/F (8) Richard P. Stanton (5) 83,629 12/2004 Warrant Exercise Leonard W. Burningham, 200,000 2005 Warrant Exercise Esq.(8) Joseph Trabacoone(8) 100,000 2005 Warrant Exercise Todd Kinney(8) 100,000 2005 Warrant Exercise William P. Archer(8) 100,000 2005 Warrant Exercise Robert S. Howell(8) 46,627 2005 Warrant Exercise SCS, Inc.(9) 160,000 2005 Warrant Exercise Susan Johnston(8) 100,000 2005 Warrant Exercise James R. Dunn(8) 100,000 2005 Warrant Exercise Joseph Trabaccone(8) 90,000 2/2005 Warrant Exercise Robert Kwun(1) 73,313 2/2005 Services Medical Advisory Board 37,500 4/2005 Services (1) Robert Kwun(1) 50,000 4/2005 Services Joseph Trabaccone(8) 83,314 4/2005 Warrant Exercise Thomas C. Drees(1) 25,000 4/2005 Services David E. Nelson(1) 25,000 4/2005 Services Edward L. Kunkel(1) 25,000 4/2005 Services Leonard W. Burningham, 200,000 5/2005 Warrant Exercise Esq. (8) Thomas C. Drees(1) 25,000 10/2005 Services David E. Nelson(1) 25,000 10/2005 Services Edward L. Kunkel(1) 25,000 10/2005 Services Medical Advisory Board 75,000 10/2005 Services (1) Robert Kwun(1) 100,000 10/2005 Services Thomas C. Drees(1) 25,000 5/2006 Services David E. Nelson(1) 25,000 5/2006 Services Edward L. Kunkel(1) 25,000 5/2006 Services Medical Advisory Board 75,000 5/2006 Services (1) Robert Kwun(1) 25,000 5/2006 Services Jonathan Lakey(1) 100,000 5/2006 Services James Shapiro(1) 50,000 5/2006 Services Leonard W. Burningham(8)250,000 5/2006 Warrant Exercise M. E. Dancy Consulting Services, Inc. (10) 400,000 7/2006 Services Thomas C. Drees(1) 37,500 1/2007 Services David E. Nelson(1) 37,500 1/2007 Services Edward L. Kunkel(1) 37,500 1/2007 Services Medical Advisory Board 112,500 1/2007 Services (1) Robert Kwun(1) 37,500 1/2007 Services James Shapiro(1) 150,000 1/2007 Services Private Placement 746,667 3/8/07 $0.06 per share (1) Issued for service as a member of the Board of Directors or the Medical Advisory Board. (2) These shares were valued at $40,000. (3) These shares were valued at $242,034.11. (4) 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 by the holders thereof to 676,800 shares of common stock of our Company. (5) 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. (6) 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. (7) 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. (8) Issued at $0.08 per share on the exercise of outstanding warrants. (9) Issued at $0.06 per share for the payment of expenses on our behalf. (10) Issued for services related to public relations. 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, 2006, totaled $95,410, from warrant exercises. These funds were primarily used for professional services and administrative expenses. 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, 2006. 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 2005, in formulation and stability testing. In January, 2005, we were successful in developing improved formulations of our surfactants for PHER-02. In December, 2006, we completed a pre-IND meeting with the FDA, where Company management presented data to determine an appropriate regulatory path related to PHER-O2. Our plan of operation for the next 12 months is to complete the preparation and submission of the U.S. FDA New Device Application to support PHER-02 as a synthetic oxygen carrying product. Our proposed plan of operation is composed of "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 three-six months): Complete the development of perfluoro-decalin and the synthetic surfactants that make up PHER-O2, manufactured experimental doses in accordance with FDA and overseas regulations and submit data to support a Master Drug Filing. Estimated cost is not to exceed $500,000, divided as follows: Completed surfactant formulation (done) and the manufacture of sufficient product for testing, (on going); animal safety and efficacy trials through a sub-contractor, (done); and administrative, patent and proprietary right protection and marketing costs,(in process) Optimize stabilized product to support the Master Drug Filing (in process). Stage B (approximately three-six months): In the second period, we will produce optimal quantities and conduct testing 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 contractors and/or employees. Stage C (approximately three-six months): In the third period, we intend to prepare new 510(k) device application with the FDA. Estimated cost is $1,000,000, to be used as follows: set-up pilot facility, or subcontractor, to manufacture small quantities of PHER-O2 for use in testing and in connection with the New Drug Applications [done], prepare and submit data for use of PHER-O2 as a whole organ transportation medium in support of FDA labeling, and administrative, patent and proprietary right protection and marketing costs, (in process). These cost estimates are based upon the prior experience of Thomas C. Drees, Ph.D., our President and CEO. Dr. Drees has more than 33 years' experience in the blood industry with Abbott Scientific, Alpha Therapeutics and Sanguine Corporation. Management's Discussion and Analysis of Financial Condition and Results of Operations. ----------- Revenues for the calendar years ending December 31, 2006, and 2005, were $5,563 and $1,019, respectively. We had no material operations, except the research and development activities related to our subcontracted research and development of our product, PHER-O2. We realized a net loss of $619,905 for the year ended December 31, 2006, and a net loss of $337,751 for the year ended December 31, 2005. Most of our expense related to the value of equity securities issued by us for services rendered. Our research and development expenses were $361,432 in 2006, compared to $181,246 in 2005. Liquidity. ---------- As of December 31, 2006, we had $30,288 in cash, with $408,430 in current liabilities. During the calendar year ended December 31, 2006, we had net expenses of $624,307, while receiving $5,563 in revenues. We received $1,019 in revenues, and had total expenses of $348,032 during the calendar year ended December 31, 2005. Most of these expenses related to the value of equity securities issued by us for services rendered. Cash resources at December 31, 2006, and 2005, were $30,288 and $159,466, respectively. Liquidity during 2005 was provided by additional warrant exercises resulting in the issuance of 1,193,254 shares for an aggregate gross proceeds of $95,410. In March, 2006, our Board of Directors resolved to offer for sale in a private placement 20,000,000 shares of our common stock that were "restricted securities" as defined in Rule 144 of the Securities and Exchange Commission for $0.07 per share to "accredited investors" only, as that term is defined in Rule 501 of Regulation D. The anticipated aggregate gross proceeds of $1,400,000 were to be utilized to fund the FDA required animal studies of our synthetic red cell blood product, PHER-02, for use in the transportation of pancreas islet cells in the treatment of diabetes and for other purposes. This offering was terminated without making any sales in the third quarter of 2006. On October 18, 2006, our Board of Directors resolved to offer for sale in a private placement 6,666,667 shares of our common stock that are "restricted securities" to "accredited investors" at $0.06 per share for aggregate gross proceeds of $400,000. This offering was closed on February 12, 2007, with 746,667 shares having been sold for gross proceeds of approximately $44,800. Off Balance Sheet Arrangements. ------------------------------- We had no off balance sheet arrangements during the year ended December 31, 2006. 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. --------------------- The financial statements in this Annual Report are being amended to account for the potential risk to the Company of being unable to issue registered common stock for certain outstanding warrants. SANGUINE CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2006 C O N T E N T S Report of Independent Registered Public Accounting Firm F - 3 Consolidated Balance Sheet F - 4 Consolidated Statements of Operations F - 6 Consolidated Statements of Stockholders' Deficit F - 7 Consolidated Statements of Cash Flows F - 17 Notes to the Consolidated Financial Statements F - 19 Report of Independent Registered Public Accounting Firm To the Board of Directors Sanguine Corporation and Subsidiary (A Development Stage Company) Pasadena, California We have audited the consolidated balance sheet of Sanguine Corporation and Subsidiary (a development stage company) as of December 31, 2006, and the related consolidated statements of operations, stockholders' deficit and cash flows for years ended December 31, 2006 and 2005, and for the period from inception of the development stage on January 18, 1990, through December 31, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 (a development stage company) as of December 31, 2006, and the results of their operations and their cash flows for years ended December 31, 2006 and 2005, and for the period from inception of the development stage on January 18, 1990, through December 31, 2006, in conformity with U.S. generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the consolidated financial statements, the Company has incurred significant losses which have resulted in an accumulated deficit and has a deficit in working capital, raising substantial doubt about their ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 6. 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 March 20, 2007 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Balance Sheet ASSETS December 31, 2006 CURRENT ASSETS Cash $ 30,288 ------------ Total Current Assets 30,288 PROPERTY AND EQUIPMENT, NET (Note 1) 968 ------------ TOTAL ASSETS $ 31,256 ============ The accompanying notes are an integral part of these consolidated financial statements. F-4 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Balance Sheet LIABILITIES AND STOCKHOLDERS' DEFICIT December 31, 2006 CURRENT LIABILITIES Related party payables (Note 2) $ 4,000 Accounts payable 323,370 Warrant liability 2,123 Accrued compensation (Note 3) 78,937 ------------ Total Current Liabilities 408,430 ------------ COMMITMENTS AND CONTINGENCIES (Note 3) STOCKHOLDERS' DEFICIT Common stock: 200,000,000 shares authorized of $0.001 par value, 81,683,658 shares issued and outstanding 81,684 Common stock subscribed 27,800 Additional paid-in capital 5,873,443 Accumulated other comprehensive income (loss) (2,570) Deficit accumulated during the development stage (6,357,531) ------------ Total Stockholders' Deficit (377,174) ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 31,256 ============ 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 Operations From Inception of the Development Stage on January 18, For the Years Ended 1990 Through December 31, December 2006 2005 31, 2006 REVENUE $ 5,563 $ 1,019 $ 181,762 ----------- --------- ------------ OPERATING EXPENSES Professional fees 154,724 76,231 2,896,178 Research and development 361,432 181,246 1,899,648 Selling, general & administrative 108,151 90,555 2,601,632 ----------- --------- ------------ Total Operating Expenses 624,307 348,032 7,397,458 ----------- --------- ------------ LOSS FROM OPERATIONS (618,744) (347,013) (7,215,696) ----------- --------- ------------ OTHER INCOME (EXPENSE) Interest income 1,929 9,262 39,264 Interest expense (520) - (667,986) Loss on cash deposit - - (10,020) Gain on settlement of debt - - 1,496,907 ----------- --------- ------------ Total Other Income (Expense) 1,409 9,262 858,165 ----------- --------- ------------ NET LOSS (617,335) (337,751) (6,357,531) OTHER COMPREHENSIVE LOSS Loss on Foreign Currency Exchange (2,570) - (2,570) ----------- --------- ------------ TOTAL COMPREHENSIVE LOSS $ (619,905) $(337,751) $ (6,360,101) =========== ========= ============ BASIC LOSS PER SHARE $ (0.01) $ (0.00) =========== ========= DILUTED LOSS PER SHARE $ (0.01) $ (0.00) =========== ========= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 81,078,726 80,322,502 =========== ========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 81,078,726 80,322,502 =========== ========== The accompanying notes are an integral part of these consolidated financial statements. F-6 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income 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 Corp. 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-7 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income Balance, December 31, 1993 16,530,859 $16,530 $ 2,533,454 $ - $ - $(2,575,221)$ - Quasi-re organization - - (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 - - - - ---------- ------- ----------- --------- -------- ----------- ------- Balance Forward 19,898,365 $19,898 $ 596,942 $ - $ - $ (748,879)$ - ---------- ------- ----------- --------- -------- ----------- ------- The accompanying notes are an integral part of these consolidated financial statements. F-8 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income Balance Forward 19,898,365 $19,898 $ 596,942 $ - $ - $ (748,879)$ - 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) - Common stock issued for cash at $0.10 per share 1,218,000 1,218 120,982 - - - - Common stock issued for debt and payables at $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 $ - $ - $(1,491,547)$ - ---------- ------- ----------- --------- -------- ----------- ------- The accompanying notes are an integral part of these consolidated financial statements. F-9 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income Balance, December 31, 1998 23,010,217 $23,010 $ 858,097 $ - $ - $(1,491,547)$ - Common stock issued for cash at $0.18 per share 52,777 53 9,447 - - - - Common stock issued for services at $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, 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-10 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income 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 shareholders840,195 840 (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)$ - $(4,191,597)$ - ---------- ------- ----------- --------- -------- ----------- ------- 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 Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income 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) - - - Common stock issued for Cash-less warrant exercise 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)$ - $(5,921,298)$ - ---------- ------- ----------- --------- -------- ----------- ------- 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 Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income 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-13 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income 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 (62,943) - - - 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 - - - - - 843,384 - ---------- ------- ----------- --------- -------- ----------- ------- Balance, December 31, 2004 78,942,904 $78,943 $ 5,517,066 $ - $ - $(5,402,445)$ - ---------- ------- ----------- --------- -------- ----------- ------- The accompanying notes are an integral part of these consolidated financial statements. F-14 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income Balance, December 31, 2004 78,942,904 $78,943 $ 5,517,066 $ - $ - $(5,402,445)$ - Common stock issued for services at $0.11 -$0.30 per share 412,500 413 80,713 - - - - Common stock issued for Cash at $0.08 per share 1,193,254 1,193 102,867 - - - - Common stock issued for Debt reduction at $0.06 per share 160,000 160 9,440 - - - - Net loss for the year ended December 31, 2005 - - - - - (337,751) - ---------- ------- ----------- --------- -------- ----------- ------- Balance, December 31, 2005 80,708,658 80,709 5,710,086 - - (5,741,196) - Common stock issued for services at $0.12 -$0.25 per share 725,000 725 143,087 - - - - Common stock issued for Cash at $0.08 per share 250,000 250 19,750 - - - - Common stock subscribed - - - - 27,800 - - ---------- ------- ----------- --------- -------- ----------- ------- Balance Forward 81,683,658 $81,684 $ 5,872,923 $ - $ 27,800 $(5,741,196)$ - ---------- ------- ----------- --------- -------- ----------- ------- The accompanying notes are an integral part of these consolidated financial statements. F-15 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Deficit Expenses Deficit Prepaid Accumulated Accumulated Common Additional with Common During the Other Common Stock Paid-in Common Stock Development Comprehensive Shares Amount Capital Stock Subscribed Stage Income Balance Forward 81,683,658 $81,684 $ 5,872,923 $ - $ 27,800 $(5,741,196)$ - Contributed capital for Contributed interest on Notes payable - - 520 - - - - Loss on Foreign Currency Exchange - - - - - - (2,570) Net loss for the year ended December 31, 2006 - - - - - (617,335) - ---------- ------- ----------- --------- -------- ----------- ------- Balance, December 31, 2006 81,683,658 $81,684 $ 5,873,443 $ - $ 27,800$(6,357,531)$(2,570) ========== ======= =========== ========= ======== ========== ======= The accompanying notes are an integral part of these consolidated financial statements. F-16 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 2006 2005 31, 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (617,335) $ (337,751) $ (6,357,531) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 299 224 5,132 Common stock issued for services 143,812 81,126 2,659,149 Contributed capital 520 - 520 Stock warrants granted - 8,650 8,650 Interest on beneficial conversion feature - - 25,000 Legal expense related to beneficial conversion feature - - 3,750 Note payable issued for services - - 727,950 Gain on extinguishments of debt - - (98,826) Gain on conversion of debt to equity - - (1,398,081) Recognition of prepaid expenses and expenses prepaid with common stock - - 456,184 Changes in assets and liabilities: Increase in accounts payable and related party payables 257,307 41,020 648,988 Increase in accrued interest payable - - 547,279 Increase in accrued liabilities - - 10,125 Increase in customer deposits - - 45,000 Increase (decrease) in warrant liability (19,205) (43,013) 2,123 Increase in accrued salaries 57,624 11,188 912,812 ----------- --------- ----------- Net Cash Used by Operating Activities (176,978) (238,556) (1,801,776) ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for fixed assets - (1,491) (6,100) ----------- --------- ----------- Net Cash Used by Investing Activities - (1,491) (6,100) ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from warrant conversion - 95,410 424,700 Proceeds from notes payable and notes payable-related party - - 212,139 Payments on notes payable and notes payable - related party - - (9,400) Proceeds from issuance of convertible debentures - - 40,000 Contributed capital - - 750 Proceeds from Common stock subscribed 27,800 - 27,800 Common stock issued for cash 20,000 - 1,142,175 ----------- --------- ----------- Net Cash Provided by Financing Activities 47,800 95,410 1,838,164 ----------- --------- ----------- NET INCREASE (DECREASE) IN CASH (129,178) (144,637) 30,288 CASH AT BEGINNING OF YEAR 159,466 304,103 - ----------- --------- ----------- CASH AT END OF YEAR $ 30,288 $ 159,466 $ 30,288 =========== ========= =========== The accompanying notes are an integral part of these consolidated financial statements. F-17 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 2006 2005 31, 2006 SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES CASH PAID FOR: Interest $ - $ - $ - Income taxes $ - $ - $ - NON-CASH FINANCING ACTIVITIES Conversion stock issued for debt conversion $ - $ 9,600 $ 9,600 Common stock issued for services rendered $ 143,812 $ 81,126 $ 2,515,337 Contributed capital for interest contributed $ 520 $ - $ 520 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 $ - $ - $ 236,284 Common stock issued for debt $ - $ - $ 2,822,067 The accompanying notes are an integral part of these consolidated financial statements. F-18 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 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 oxygen carriers 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 consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 year-end. c. Basic and Diluted Income (Loss) Per Share The computation of basic income (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, 2006 2005 Loss (numerator) $ (617,335) $ (377,751) Shares (denominator) 81,683,658 80,322,502 Per share amount $ (.01) $ (.00) F-19 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) c. Basic and Diluted Income (Loss) Per Share (continued) 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 Years Ended December 31, 2006 2005 Loss (numerator) $ (617,335) $ (377,751) Shares (denominator) 81,683,658 80,322,502 Per share amount $ (.01) $ (.00) The Company's outstanding stock options have been excluded from the 2006 basic net loss per share calculation as they are anti-dilutive. The Company has excluded common stock equivalents. 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. 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. F-20 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) e. Income Taxes (Continued) Net deferred tax liabilities asset consists of the following components as of December 31, 2006 and 2005: 2006 2005 Deferred tax assets: Research and Development $ 84,067 $ - NOL Carryover 597,593 1,011,800 Accrued Salaries 30,800 16,600 ------------ ----------- 712,460 1,028,400 Deferred tax liabilities: Depreciation (100) - Valuation allowance (712,360) (1,028,400) ------------ ----------- 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, 2006 and 2005 due to the following: 2006 2005 Book Income $ (240,761) $ (131,720) Research and Development 23,420 - Stock for Services/Options Expense 56,087 21,980 Meals and Entertainment 268 58 Warranty liability - (12,405) Accrued compensation 30,785 - Change in valuation allowance 130,201 122,087 ------------ ----------- $ - $ - ============ =========== At December 31, 2006, the Company had net operating loss carryforwards of approximately $1,500,000 that may be offset against future taxable income from the year 2006 through 2026. No tax benefit has been reported in the December 31, 2006 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. F-21 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) e. Income Taxes (Continued) 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. Fixed assets and related depreciation for the period are as follows: December 31, 2006 Furniture and fixtures $ 1,491 Accumulated depreciation (523) ---------- Total Fixed Assets $ 968 ========== 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 New accounting pronouncements that have a current or future potential impact on our financial statements are as follows: F-22 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I. Newly Adopted Accounting Pronouncements (continued) In April 2006, the FASB issued FASB Staff Position FIN 46 )-6, Determining the Variability to be Considered in Applying FASB Interpretation No. 46 ) that became effective for the third quarter of 2006. FSP FIN No. 46 )-6 clarifies that the variability to be considered in applying Interpretation 46 ) shall be based on an analysis of the design of the variable interest entity. The adoption of this standard did not materially impact the Company's consolidated financial statements. In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. The Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The provision is effective no later than the end of fiscal years ending after December 15, 2005. The Company will adopt FIN 47 beginning the first quarter of fiscal year 2006 and does not believe the adoption will have a material impact on its consolidated financial position or results of operations or cash flows. In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company's financial statements in accordance with FASB Statement No. 109 "Accounting for Income Taxes." FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. FIN 48 is effective for the Company on January 1, 2007. Based on the Company's evaluation and analysis, FIN 48 is not expected to have a material impact on the Company's consolidated financial statements. In February of 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments", which is intended to simplify the accounting and improve the financial reporting of certain hybrid financial instruments (i.e., derivatives embedded in other financial instruments). The statement amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" a replacement of FASB Statement No. 125." SFAS No. 155 is effective for all financial instruments issued or acquired after the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company does not expect the adoption of SFAS No. 155 to have an impact on its consolidated financial statements. In September 2006, the FASB issued FASB Statement No. 157, "Fair Value Measurements" ("FAS 157"), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. The FASB believes that the new standard will make the measurement of fair value more consistent and comparable and improve disclosures about those measures. FAS 157 is effective for fiscal years F-23 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I. Newly Adopted Accounting Pronouncements (continued) beginning after November 15, 2007. - The Company is currently evaluating the requirements and impact of FAS 157 on the Company's consolidated financial statements, and will adopt the provisions on January 1, 2008. FAS 157 is not expected to have a material impact on the Company's consolidated financial statements. Also in September 2006, the FASB issued FASB Statement No. 158, "Employers' Accounting for Defined Benefit Pension and other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132- R" ("FAS 158"). FAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. FAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position . This statement is effective for the Company as of December 31, 2006, but did not have an impact on the Company's consolidated financial statements as the Company does not sponsor a defined benefit pension or postretirement plan. In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements ("SAB 108"), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The adoption of this standard did not materially impact the Company's consolidated financial statements. 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. k. Stock Options As required by FASB Statement 123R "Share Based Payment", the Company elected to measure and record compensation cost relative to employee stock option costs. SFAS 123R requires compensation cost relating to share-based payment transactions to be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. F-24 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 - RELATED PARTY TRANSACTIONS Related party payables at December 31, 2006 and 2005 represents amounts owed to officers of the Company for reimbursement of expenses paid of $4,000. During the year ended December 31, 2005, 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 the 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, 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 3 - COMMITMENTS AND CONTINGENCIES During February 1994, the Company entered into a lease for office space in Pasadena, California. The lease has been extended through October 2008 with monthly rent payments of $789 with annual increases. Future minimum lease payments under this non-cancelable operating lease are $17,351 through October 2008. Currently the lease is on a month-to-month basis. Rent expense was $9,948 and $19,412 for the years ended December 31, 2006 and 2005, respectively. F-25 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 NOTE 3 - COMMITMENTS AND CONTINGENCIES (continued) 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 and restricted securities. Such compensation is to be paid quarterly. As of December 31, 2006, a total of $21,313 in salaries has been accrued. NOTE 4 - COMMON STOCK TRANSACTIONS During the year ended December 31, 2006, the Company issued 725,000 shares of common stock for services valued at $143,812; 250,000 shares issued for warrants exercises valued at $20,000. During the year ended December 31, 2005, the Company issued 412,500 shares of common stock for services valued at $81,126; 160,000 shares issued for payables of $10,000; 1,193,254 shares issued for warrants exercises valued at $95,410. 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 5 - STOCK OPTIONS AND WARRANTS 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, 2006, 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 F-26 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 NOTE 5 - STOCK OPTIONS AND WARRANTS (continued) PHER-02 product in Asia (See Note 3). The warrants are exercisable at a price of $0.15 per share and expired February 21, 2006. 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. Through December 31, 2006, a total of 3,994,385 of these warrants have been exercised with 1,943,115 remaining outstanding. A summary of the status of the Company's outstanding stock options as of December 31, 2006 and 2005 and changes during the years then ended is presented below: 2006 2005 Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price Outstanding, beginning of year 2,843,757 $ 0.15 8,756,578 $ 0.15 Granted - - 80,000 0.10 Expired/Cancelled (470,642) 0.13 (4,799,567) 0.21 Exercised (250,000) 0.08 (1,193,254) 0.08 ---------- -------- ---------- -------- Outstanding end of year 2,123,115 $ 0.08 2,843,757 $ 0.09 ========== ======== ========== ======== Exercisable 2,123,115 $ 0.08 2,843,757 $ 0.09 ========== ======== ========== ======== 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, 2006 Life Price 31, 2006 Price $ 0.08 1,943,115 1.50 $ 0.08 1,943,115 $ 0.08 0.13 150,000 .10 0.13 150,000 0.13 0.08 30,000 1.50 0.08 30,000 0.08 --------- -------- --------- ---------- 2,123,115 $ 0.08 2,123,115 $ 0.08 ========= ======== ========= ========== F-27 SANGUINE CORPORATION AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements December 31, 2006 and 2005 NOTE 6 - GOING CONCERN The Company's consolidated financial statements are prepared using 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 accumulated deficit of $6,357,531 at December 31, 2006 which raises 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 $1,000,000 - $1,500,000 that should enable the Company to complete the 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 7 - SUBSEQUENT EVENTS Effective January, 2007, the Company extended the expiration dates of 1,943,115 outstanding warrants to purchase shares of common stock to March, 2008. As a result, the Company will recognize an additional expense of $64,270. F-28 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. --------------------- During the past two fiscal years, and since then, there have been no changes in our independent auditors or any disagreement on accounting and/or financial disclosure. Item 8(a)T. Controls and Procedures. ------------------------------------- Management's Annual Report on Internal Control Over Financial Reporting 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 Secretary, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our President and Secretary concluded that information required to be disclosed is recorded, processed, summarized and reported within the specified periods and is accumulated and communicated to management, including our President and Secretary, to allow for timely decisions regarding required disclosure of material information required to be included in our periodic Securities and Exchange Commission reports. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our President and Secretary have concluded that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives. However, 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 over financial reporting, and there have been no changes in our internal controls or in other factors in the last fiscal quarter that has materially affected our internal controls over financial reporting. Changes in Internal Control Over Financial Reporting We had no changes in our internal control over financial reporting for the period covered by this Annual Report. 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 * 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. Robert Kwun, M.D. Member 12/04 * Business Experience. -------------------- Thomas C. Drees, Ph.D., MBA, Chairman, President, CEO and a Director. Dr. Drees, age 78, 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 33 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 63, 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 59 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 64 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 65 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 neurological disorders. Herbert J. Meiselman, Sc.D., Advisory Board Member, is 66 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. Robert Kwun, M.D., Advisory Board Member, is 41 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. Significant Employees. ---------------------- There are no significant employees. 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. 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 ----- ----------- --- ----- David E. Nelson Disposal of 10/27/04 04/18/05 CPA 110,000 shares Director, CFO, Acquisition of 04/13/05 04/18/05 Secretary/Treasurer 25,000 shares Disposal of 01/05/05 04/18/05 246,627 warrants Edward L. Kunkel Acquisition of 04/13/05 04/19/05 Esq. 25,000 shares Director Thomas C. Drees Acquisition of 04/13/05 04/19/05 Ph.D. 25,000 shares Director and PresidentDisposal of 12/22/04 04/19/05 205,000 shares Code of Ethics. --------------- We have adopted a Code of Ethics which was attached as Exhibit 14 to our Annual Report on Form 10-KSB for the calendar year ended December 31, 2002. See Part III, Item 13. Nominating Committee. --------------------- We have not established a Nominating Committee because we believe that our three member Board of Directors is able to effectively manage the issues normally considered by a Nominating Committee. If we do establish a Nominating Committee, we will disclose this change to our procedures by which shareholders may recommend nominees to our board of directors. Audit Committee. ---------------- We do not have an Audit Committee separate from our Board of Directors because of our present limited operations. 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 (a) (b) (c) (d) (e) (f) (g) (h) (I) (j) Non-Equity Non- All Total Incentive Qualified Other Earn Name and Year Stock Option Plan Deferred Comp- ings Principal Salary Bonus Awards Awards Comp- Comp- Position ($) ($) ($) ($) ($) ($) ($) ($) ------------------------------------------------------------------------------ Thomas C. Drees, Ph.D,12/31/06 * 0 0 0 * 0 0 0 MBA, CEO, 12/31/05 * 0 0 0 * 0 0 0 President 12/31/04 * 0 0 0 * 0 0 0 and Chairman of the Board David E. Nelson, CPA 12/31/06 * 0 0 0 * 0 0 0 CFO and 12/31/05 * 0 0 0 * 0 0 0 Director 12/31/04 * 0 0 0 * 0 0 0 Edward L. Kunkel, Esq.12/31/06 * 0 0 0 * 0 0 0 Director 12/31/05 * 0 0 0 * 0 0 0 12/31/04 * 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 employment contracts. See Part III, Items 12 and 13, below. Outstanding Equity Awards. -------------------------- See the heading "Compensation of Directors" below. Also, see the heading "Securities Authorized for Issuance Under Equity Compensation Plans" in Part II, Item 5, above. Compensation of Directors. -------------------------- All directors, executive officers and Medical Advisory Board Members will be paid 50,000 shares of our common stock per year, in quarterly issuances. 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: Security Ownership of Certain Beneficial Owners. ------------------------------------------------ Number of Shares Percent Name and Address Beneficially Owned of Class * ---------------- ------------------ -------- Thomas C. Drees, Ph.D., MBA 40,315,633 48.7% 101 East Green Street, #11 Pasadena, California 91105 ---------- ----- Total of all five percent 40,315,633 48.7% stockholders * Based upon 82,842,825 shares of outstanding common stock. Security Ownership of Management. --------------------------------- Number of Shares Percent Name and Address Beneficially Owned of Class* ---------------- ------------------ -------- Thomas C. Drees, Ph.D., MBA 40,315,633 48.7% 101 East Green Street, #11 Pasadena, California 91105 David E. Nelson, CPA 566,794 .0068% 528 14th Avenue Salt Lake City, Utah 84103 Edward L. Kunkel, Esq. 312,500 .0038% 16 N. Marengo Ave, #517 Pasadena, California 91103 --------- ----- All directors and officers as a group 41,194,927 49.7% (three persons) * Based upon 82,842,825 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. Securities Authorized for Issuance under Equity Compensation 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 2,123,115 .08 4,375,000 approved by security holders Total 2,123,115 4,375,000 Item 12. Certain Relationships and Related Transactions. ----------------------------------------------- Transactions with Related Persons. ---------------------------------- Related party payables at December 31, 2006, and 2005, represents amounts owed to our officers for reimbursement of expenses paid of $4,000. During the year ended December 31, 2005, we authorized the issuance of an aggregate total of 32,777,266 shares of our common stock for: (I) the cancellation of certain debts in the amount of $1,313,144, and (ii) the contribution to the 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 us. The issuance of these shares is reflected in our financial statements. In addition, two convertible notes payable in the aggregate amount of $28,750, plus accrued interest, were converted into 773,902 shares of our common stock. The issuance of these shares is also reflected in our financial statements. Except as indicated 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 ours by virtue of his substantial stock ownership, we have no parents. Transactions with Promoters and Control Persons. ------------------------------------------------ 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. --------- Exhibits Incorporated by Reference.* ------------------------------------ (I) Where Incorporated in this Report -------------- 8-K Current Report dated September Part I, Item 1 29, 2004** 8-K Current Report dated November Part I, Item 1 17, 2004** Definitive Information Statement Part I, Item 4 filed December 23, 2005 10-KSB for the fiscal year ended Part I, Item 1 December 31, 2004** (ii) Exhibit Number Description ------ ----------- 3.2 Articles of Amendment increasing the authorized shares- Definitive Information Statement filed 12/23/2005** 3.3 Bylaws-8-K Current Report dated 11/28/2005** 14 Code of Ethics-Form 10KSB for the year ended December 31, 2002** 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, 2006, and December 31, 2005: Fee category 2006 2005 ------------ ---- ---- Audit fees $21,705 $14,100 Audit-related fees $ 0 $ 0 Tax fees $ 2,279 $ 0 All other fees $ 0 $ 0 Total fees $23,984 $14,100 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. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors. --------------------------------- We do not have an Audit Committee; therefore, there is no Audit Committee policy in this regard. However, we do require approval in advance of the performance of professional services to be provided us by our principal accountant. Additionally, all services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant. SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act, the Company caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SANGUINE CORPORATION Date: 3/23/2007 By /s/ Thomas C. Drees --------------- ------------------------------------- Thomas C. Drees, Ph.D., MBA CEO, President and Chairman of the Board of Directors Date: 3/23/2007 By /s/ David E. Nelson --------------- ------------------------------------- David E. Nelson, CPA CFO and Director