UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549


_______________________





FORM
      10-QSB




(Mark
      One)




[  X  ]   QUARTERLY
      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934




For
      Quarterly period Ended: **March 31, 2006**; or





[     
       ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
      THE SECURITIES EXCHANGE
      ACT OF 1934




For
      the transition period __________ to __________





Commission
      File Number: 0-21271


_________________________





**SANGUI
      BIOTECH INTERNATIONAL, INC.**


________________________________________________


(Exact
      name of Small Business Issuer as specified in its charter)





COLORADO                               
                
 84-1330732


______________________                            
      ___________


(State
      or
      other Jurisdiction
      of                              (I.R.S.
      Employer


Incorporation
      or
      Organization)                             Identification
      No.)








Alfred-Herrhausen-Str.
      44, 58455 Witten, Germany


_____________________________


(Address
      of principal executive offices)





011-49-2302-915-204


___________________________________


(Issuer's
      telephone number, including area code)




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
      a
      registrant was required to file such reports), and (2) has been subject to
      such
      filing requirements for the past 90 days.  Yes o   No
x




Indicate
      by
      check mark whether the registrant is a shell company (as defined in Rule 12b-2
      of the Exchange Act).   Yes o   No
x




The
      number of
      shares outstanding of the issuer's common stock, no par value, as of November
      28, 2007, was 50,000,000




Transitional
      Small Business Disclosure Format. Yes o   No
x













SANGUI
      BIOTECH INTERNATIONAL, INC.





Report
      on
      Form 10-QSB





For
      the
      Quarter Ended March 31, 2006





INDEX







Page




Part
      I.  Financial Information




Item
      1.  Consolidated Financial Statements


Consolidated
      Balance Sheets
      ..............................................................            
   2


Consolidated
      Statements of Operations
      ............................................               
4


Consolidated
      Statements of Cash Flows ...........................................
              
5


Notes
      to the
      Consolidated Financial Statements  ............................
               6





Item
      2.  Management's Discussion and Analysis or Plan of Operation 
.........              
11


Item
      3.  Controls and Procedures
      ..........................................................................              14




Part
      II.
      Other Information




Item
      1.  Legal Proceedings
      .....................................................................................              
14




Item
      2.  Unregistered Sales of Equity Securities and Use of Proceeds
      ...........              
14




Item
      3.  Defaults Upon Senior Securities
      ..............................................................              
14




Item
      4.  Submission of Matters to a Vote of Security Holders
      ..........................              
14




Item
      5.  Other Information
      ......................................................................................              
14




Item
      6.  Exhibits
      .........................................................................................................              
14
























ii












PART
      I -
      FINANCIAL INFORMATION





Item
      1
– Consolidated Financial Statements




The
      accompanying
      unaudited consolidated financial statements have been prepared in accordance
      with the instructions to Form 10-QSB pursuant to the rules and regulations
      of
      the Securities and Exchange Commission and, therefore, do not include all
      information and footnotes necessary for a complete presentation of our financial
      position, results of operations, cash flows, and stockholders' deficit in
      conformity with generally accepted accounting principles in the United States
      of
      America. In the opinion of management, all adjustments considered necessary
      for
      a fair presentation of the consolidated results of operations and financial
      position have been included and all such adjustments are of a normal recurring
      nature.




Our
      unaudited
      consolidated balance sheet as of March 31, 2006 and our unaudited consolidated
      statements of operations for the three month periods ended March 31, 2006 and
      2005, and the unaudited consolidated statements of cash flows for the three
      month periods ended March 31, 2006 and 2005, are attached hereto and
      incorporated herein by this reference.
























1












**SANGUI
                BIOTECH INTERNATIONAL, INC.**Consolidated
                Balance SheetsASSETSMarch
                31,
            
            
            June
                30,2006
            
            
            2005CURRENT
                ASSETS
            
            (Unaudited)Cash
            
            $
            5,413
            
            
            $
            9,497Accounts
                receivable
            
            
            7,248
            
            
            
            4,300Inventory
            
            
            12,214
            
            
            
            7,063Prepaid
                expenses and other assets
            
            
            68,079
            
            
            
            17,421Total
                Current Assets
            
            
            92,954
            
            
            
            38,281FIXED
                ASSETS, NetProperty
                and equipment
            
            
            7,747
            
            
            
            33,608Total
                Fixed Assets
            
            
            7,747
            
            
            
            33,608OTHER
                ASSETSPatents
                and licenses, net
            
            
            -
            
            
            
            2,490Other
                miscellaneous assets
            
            
            43,003
            
            
            
            90,814Total
                Other Assets
            
            
            43,003
            
            
            
            93,304TOTAL
                ASSETS
            
            $
            143,704
            
            
            $
            165,193


The
        accompanying condensed notes are an integral part of these interim consolidated
        financial statements.
  2














**SANGUI
                BIOTECH INTERNATIONAL, INC.**Consolidated
                Balance Sheets (Continued)LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)March
                31,
            
            
            June
                30,2006
            
            
            2005(Unaudited)CURRENT
                LIABILITIESAccounts
                payable and accrued expenses
            
            $
            238,898
            
            
            $
            140,899Notes
                payable
            
            
            57,218
            
            
            
            24,132Total
                Current Liabilities
            
            
            296,116
            
            
            
            165,031TOTAL
                LIABILITIES
            
            
            296,116
            
            
            
            165,031STOCKHOLDERS'
                EQUITY (DEFICIT)Preferred
                stock, no par value; 5,000,000 sharesauthorized,
                -0- shares issued and outstanding
            
            
            
            
            
            
            -Common
                stock, no par value; 50,000,000 sharesauthorized,
                50,000,000 and 47,503,749 sharesissued
                and outstanding, respectively
            
            
            18,956,571
            
            
            
            18,746,100Additional
                paid-in capital
            
            
            1,958,376
            
            
            
            1,986,398Treasury
                stock
            
            
            -
            
            
            
            (82,357
            )Accumulated
                other comprehensive income
            
            
            389,061
            
            
            
            383,407Accumulated
                deficit
            
            
            (21,456,420
            )
            
            
            (21,033,386
            )Total
                Stockholders' Equity (Deficit)
            
            
            (152,412
            )
            
            
            162TOTAL
                LIABILITIES AND STOCKHOLDERS'EQUITY
                (DEFICIT)
            
            $
            143,704
            
            
            $
            165,193


The
          accompanying condensed notes are an integral part of these interim consolidated
          financial statements.
 3














**SANGUI
                BIOTECH INTERNATIONAL, INC.**Consolidated
                Statements of Operations(Unaudited)For
                the Three
            
            
            For
                the NineMonths
                Ended
            
            
            Months
                EndedMarch
                31,
            
            
            March
                31,2006
            
            
            2005
            
            
            2006
            
            
            2005REVENUES
            
            $
            41,672
            
            
            $
            23,163
            
            
            $
            95,662
            
            
            $
            33,912COST
                OF SALES
            
            
            17,019
            
            
            
            37,301
            
            
            
            32,759
            
            
            
            44,929GROSS
                PROFIT
            
            
            24,653
            
            
            
            (14,138
            )
            
            
            62,903
            
            
            
            (11,017
            )OPERATING
                EXPENSESResearch
                and development
            
            
            32,960
            
            
            
            47,165
            
            
            
            82,870
            
            
            
            371,122Depreciation
                and amortization
            
            
            6,482
            
            
            
            15,086
            
            
            
            28,351
            
            
            
            48,291General
                and administrative
            
            
            129,468
            
            
            
            163,940
            
            
            
            375,772
            
            
            
            446,934Total
                Operating Expenses
            
            
            168,910
            
            
            
            226,191
            
            
            
            486,993
            
            
            
            866,347OPERATING
                LOSS
            
            
            (144,257
            )
            
            
            (240,329
            )
            
            
            (424,090
            )
            
            
            (877,364
            )OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            94
            
            
            
            427
            
            
            
            94
            
            
            
            1,972Interest
                expense
            
            
            (3,029
            )
            
            
            -
            
            
            
            (8,352
            )
            
            
            -Other
                income (loss)
            
            
            802
            
            
            
            86,737
            
            
            
            9,317
            
            
            
            141,128Total
                Other Income (Expense)
            
            
            (2,133
            )
            
            
            87,164
            
            
            
            1,059
            
            
            
            143,100NET
                LOSS
            
            
            (146,390
            )
            
            
            (153,165
            )
            
            
            (423,031
            )
            
            
            (734,264
            )OTHER
                COMPREHENSIVE INCOMEForeign
                currency translation adjustments
            
            
            (7,236
            )
            
            
            (102,965
            )
            
            
            5,651
            
            
            
            4,000Unrealized
                gain on marketable securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
                Other Comprehensive Income
            
            
            (7,236
            )
            
            
            (102,965
            )
            
            
            5,651
            
            
            
            4,000COMPREHENSIVE
                INCOME (LOSS)
            
            $
            (153,626
            )
            
            $
            (256,130
            )
            
            $
            (417,380
            )
            
            $
            (730,264
            )BASIC
                AND DILUTED LOSSPER
                SHARE
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.01
            )
            
            $
            (0.02
            )WEIGHTED
                AVERAGE NUMBEROF
                SHARES OUTSTANDING
            
            
            48,503,749
            
            
            
            46,475,363
            
            
            
            48,332,216
            
            
            
            43,417,918




The
      accompanying condensed notes are an integral part of these interim consolidated
      financial statements.




4













**SANGUI
                BIOTECH INTERNATIONAL, INC.**Statements
                of Cash Flows(Unaudited)For
                the NineMonths
                EndedMarch
                31,2006
            
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (423,031
            )
            
            $
            (734,264
            )Adjustments
                to reconcile net loss to net cashused
                by operating activities:Depreciation,
                depletion and amortization
            
            
            28,351
            
            
            
            48,291Common
                stock issued for services
            
            
            10,837
            
            
            
            104,256Gain
                on sale of assets
            
            
            -
            
            
            
            (3,101
            )Changes
                in operating assets and liabilitiesDecrease
                in accounts receivable
            
            
            (2,948
            )
            
            
            77,740Decrease
                (Increase) in inventory
            
            
            (5,151
            )
            
            
            (2,816
            )Decrease
                in prepaid expenses and other assets
            
            
            51,488
            
            
            
            8,032Increase
                in accounts payable and accrued expenses
            
            
            97,999
            
            
            
            2,839Net
                Cash Used by Operating Activities
            
            
            (242,455
            )
            
            
            (499,023
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPayment
                of patent costs
            
            
            -
            
            
            
            (9,151
            )Sale
                of property and equipment
            
            
            -
            
            
            
            2,516Purchase
                of property and equipment
            
            
            -
            
            
            
            (6,378
            )Net
                Cash Used by Investing Activities
            
            
            -
            
            
            
            (13,013
            )CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                from notes payable
            
            
            57,218
            
            
            
            -Purchase
                of treasury stock
            
            
            -
            
            
            
            (126,916
            )Sales
                of treasury stock
            
            
            -
            
            
            
            51,069Sale
                of common stock for cash
            
            
            175,502
            
            
            
            305,000Net
                Cash Provided by Financing Activities
            
            
            232,720
            
            
            
            229,153EFFECT
                OF EXCHANGE RATE CHANGES
            
            
            5,651
            
            
            
            4,000NET
                DECREASE IN CASH
            
            
            (4,084
            )
            
            
            (278,883
            )CASH
                AT BEGINNING OF PERIOD
            
            
            9,497
            
            
            
            310,959CASH
                AT END OF PERIOD
            
            $
            5,413
            
            
            $
            32,076SUPPLIMENTAL
                DISCLOSURES OFCASH
                FLOW INFORMATIONCASH
                PAID FOR:Interest
            
            $
            -
            
            
            $
            -Income
                Taxes
            
            $
            -
            
            
            $
            -NON
                CASH FINANCING ACTIVITIES:Common
                stock issued for debt
            
            $
            24,132
            
            
            $
            -


The
        accompanying condensed notes are an integral part of these interim consolidated
        financial statements.
  5










**SANGUI
            BIOTECH INTERNATIONAL,
            INC.**
 Notes
            to
            the Consolidated Financial
            Statements




NOTE
      1 -
      BASIS OF PRESENTATION


The
        accompanying consolidated financial statements have been prepared without
        audit
        in accordance with accounting principles generally accepted in the United
        States
        of America for interim financial information and with the instructions to
        Form
        10-QSB and Item 301 of Regulation S-B. Certain information and footnote
        disclosures normally included in financial statements prepared in accordance
        with accounting principles generally accepted in the United States of America
        have been condensed or omitted pursuant to such rules and regulations. The
        unaudited consolidated financial statements and notes should, therefore,
        be read
        in conjunction with the consolidated financial statements and notes thereto
        in
        the Company's Form 10-KSB for the year ended June 30, 2005. In the opinion
        of
        management, all adjustments (consisting of normal and recurring adjustments)
        considered necessary for a fair presentation, have been included. The results
        of
        operations for the three-month period ended March 31, 2006 are not necessarily
        indicative of the results that may be expected for the full fiscal year ending
        June 30, 2006.
 
 NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature
        of Business
 
 Sangui
        Biotech International, Inc., incorporated in Colorado in 1995, and its wholly
        owned subsidiaries, Sangui Biotech, Inc., SanguiBioTech AG, GlukoMediTech
        AG,
        and Sangui BioTech PTE Ltd., (collectively, the "Company") have been engaged
        in
        the research, development, manufacture, and sales of medical and cosmetic
        products.
 
 On
        June 30,
        2003, GlukoMediTech AG ("Gluko AG") was merged into Sangui BioTech AG ("Sangui
        AG"). Effective November 4, 2003, Sangui AG was converted into Sangui BioTech
        GmbH (Sangui GmbH). After completion of the restructuring, Sangui GmbH, which
        is
        headquartered in Witten, Germany, is engaged in the development of artificial
        oxygen carriers (external applications of hemoglobin, blood substitutes and
        blood additives) as well as in the development of glucose implant
        sensors.
 
 The
        operations of Sangui BioTech, Inc. and Sangui BioTech PTE Ltd Singapore,
        two
        former wholly-owned subsidiaries, were discontinued and dissolved during
        2002.
  The
        operations of Sangui BioTech, Inc. ("Sangui USA") were discontinued during
        2002
        upon the sale of its in vitro immunodiagnostics business and the subsequent
        merger of Sangui USA with and into the parent company, Sangui BioTech
        International, Inc., effective December 31, 2002. Sangui BioTech PTE Ltd
        ("Sangui Singapore") was a regional office for the Company that carried out
        research and development projects in conjunction with Sangui GmbH and Sangui
        Singapore. The Company discontinued the operations of Sangui Singapore in
        August
        2002. The Singapore office was closed effective December 31, 2002.
 
 Consolidation
 
 The
        consolidated financial statements include the accounts of Sangui BioTech
        International, Inc. and its wholly owned subsidiaries. All significant
        intercompany accounts and transactions have been eliminated in consolidation.
        Certain amounts in the three and nine months ended March 31, 2004 have been
        reclassified to conform to the three and nine months ended March 31, 2006
        presentation. These reclassifications have no effect on previously reported
        net
        loss.
 
 **SANGUI
                BIOTECH INTERNATIONAL,
                INC.**
 Notes
                to
                the Consolidated Financial
                Statements
 NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Foreign
        Currency Translation
 
 Assets
        and
        liabilities of the Company's foreign operations are translated into U.S.
        dollars
        at period-end exchange rates. Net exchange gains or losses resulting from
        such
        translation are excluded from net loss but are included in comprehensive
        income
        (loss) and accumulated in a separate component of stockholders' equity. Income
        and expenses are translated at weighted average exchange rates for the
        period.
 
 Risk
        and Uncertainties
 
 The
        Company's
        line of future pharmaceutical products (artificial oxygen carriers or blood
        substitute and additives) and in vivo biosensors (glucose implant sensor)
        being
        developed by Sangui GmbH, are deemed as medical devices or biologics, and
        as
        such are governed by the Federal Food and Drug and Cosmetics Act and by the
        regulations of state agencies and various foreign government agencies. The
        pharmaceutical and biosensor products, under development in Germany, will
        be
        subject to more stringent regulatory requirements, because they are in vivo
        products for humans. The Company and its subsidiaries have no experience
        in
        obtaining regulatory clearance on these types of products. Therefore, the
        Company will be subject to the risks of delays in obtaining or failing to
        obtain
        regulatory clearance.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern, which contemplates, among other
        things, the realization of assets and satisfaction of liabilities in the
        normal
        course of business. The Company has accumulated deficit of $21,456,420 as
        of
        March 31, 2006 and has been significantly reducing its working capital since
        June 30, 2004. The Company incurred a net loss applicable to common stockholders
        of $423,031 during the nine months ended March 31, 2006 and used cash in
        operating activities of $242,455 for the nine months ended March 31, 2006.
        These
        conditions raise substantial doubt about the Company's ability to continue
        as a
        going concern. The Company expects to continue to incur significant capital
        expenses in pursuing its business plan to market its products and expand
        its
        product line, while obtaining additional financing through stock offerings
        or
        other feasible financing alternatives. In order for the Company to continue
        its
        operations at its existing levels, the Company will require significant
        additional funds over the next twelve months. Therefore, the Company is
        dependent on funds raised through equity or debt offerings. Additional financing
        may not be available on terms favorable to the Company, or at all. If these
        funds are not available the Company may not be able to execute its business
        plan
        or take advantage of business opportunities. The ability of the Company to
        obtain such additional financing and to achieve its operating goals is
        uncertain. In the event that the Company does not obtain additional capital
        or
        is not able to increase cash flow through the increase of sales, there is
        a
        substantial doubt of its being able to continue as a going concern. The
        accompanying condensed consolidated financial statements do not include any
        adjustments that might result from the outcome of this uncertainty.
 
 Cash
        and Cash Equivalents
 
 The
        Company
        maintains its cash in bank accounts in Germany. Cash and cash equivalents
        include time deposits for which the Company has no requirements for compensating
        balances. The Company has not experienced any losses in its uninsured bank
        accounts.  At March 31, 2006 the Company had no cash
        equivalents.
 
 **SANGUI
                BIOTECH INTERNATIONAL,
                INC.**
 Notes
                to
                the Consolidated Financial
                Statements
 
 NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Revenue
        Recognition
 
 Revenue
        is
        recognized when the sales amount is determined, shipment of goods to the
        customer has occurred and collection is reasonably assured. Product is shipped
        FOB origination.
 
 Research
        and Development
 
 Research
        and
        development costs are charged to operations as they are
        incurred.  Legal fees and other direct costs incurred in obtaining and
        protecting patents are expensed as incurred.
 
 Basic
        and Diluted Earnings (Loss) Per Common Share
 
 Basic
        earnings (loss) per common share is computed by dividing income (loss) available
        to common stockholders by the weighted average number of common shares
        outstanding during the period of computation. Diluted earnings (loss) per
        share
        gives effect to all potential dilutive common shares outstanding during the
        period of compensation. The computation of diluted earnings (loss) per share
        does not assume conversion, exercise or contingent exercise of securities
        that
        would have an antidilutive effect on earnings. As of March 31, 2006 and 2005,
        the Company had no potentially dilutive securities that would affect the
        loss
        per share if they were to be dilutive.
 
 Comprehensive
        Income (Loss)
 
 Total
        comprehensive income (loss) represents the net change in stockholders' equity
        during a period from sources other than transactions with stockholders and
        as
        such, includes net earnings (loss). For the Company, the components of other
        comprehensive income (loss) are the changes in the cumulative foreign currency
        translation adjustments and unrealized gains (losses) on marketable securities
        and are recorded as components of stockholders' equity.
 
 New
        Accounting Pronouncements
  In
        December
        2004, the FASB issued SFAS No. 123R "Share Based Payment". This statement
        is a
        revision of SFAS Statement No. 123, "Accounting for Stock-Based Compensation"
        and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
        and its related implementation guidance. SFAS 123R addresses all forms of
        share
        based payment ("SBP") awards, including shares issued under employee stock
        purchase plans, stock options, restricted stock and stock appreciation rights.
        Under SFAS 123R, SBP awards result in a cost that will be measured at fair
        value
        on the awards' grant date, based on the estimated number of awards that are
        expected to vest and will be reflected as compensation cost in the historical
        financial statements. This statement is effective for public entities as
        of the
        beginning of the first interim or annual reporting period that begins after
        June
        15, 2005.
  In
        May 2005,
        the FASB issued Statement of Financial Accounting Standards No.
        154*“Accounting Changes and Error Corrections, an amendment of APB Opinion
        20
        and FASB Statement No. 3,”* which changes the requirements for accounting
        for and reporting on a change in accounting principle. This statement is
        effective for accounting changes and corrections of errors made in fiscal
        years
        beginning after December 15, 2005. We believe that the adoption of SFAS No.
        154
        will not have a material impact on our results of operations.
  **SANGUI
                BIOTECH INTERNATIONAL,
                INC.**
 Notes
                to
                the Consolidated Financial
                Statements
  NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 New
        Accounting Pronouncements (Continued)
  In
        March
        2006, the FASB issued SFAS No. 156*“Accounting for Servicing of Financial
        Assets, an amendment of FASB No. 140,”* which modifies the accounting for
        and reporting of servicing asset and servicing liabilities. This statement
        is
        effective as of the beginning of our first fiscal year that begins after
        September 15, 2006. SFAS No. 156 is not currently applicable to the company
        and,
        we believe that the adoption of SFAS No. 156 will not have a material impact
        on
        our results of operations.
  In
        June 2006,
        the FASB issued Financial Interpretation No. (FIN) 48, “*Accounting for
        Uncertainty in Income Taxes - an interpretation of FASB Statement 109*.” FIN
        48 prescribes a recognition threshold and a measurement attribute for the
        financial statement recognition and measurement of a tax position taken or
        expected to be taken in a tax return. This interpretation also provides guidance
        on de-recognition, classification, interest and penalties, accounting in
        interim
        periods, disclosure and transition. This interpretation is effective for
        fiscal
        years beginning after December 15, 2006. The Company is currently evaluating
        the
        impact of applying the various provisions of FIN 48.
  In
        September
        2006, the FASB issued SFAS No. 157, “*Fair Value Measurements*,” that
        provides guidance for using fair value to measure assets and liabilities.
        Under
        SFAS 157, fair value refers to the price that would be received to sell an
        asset
        or paid to transfer a liability in an orderly transaction between market
        participants in the market in which the reporting entity transacts. SFAS
        157
        establishes a fair value hierarchy that prioritizes the information used
        to
        develop the assumptions that market participants would use when pricing the
        asset or liability. The fair value hierarchy gives the highest priority to
        quoted prices in active markets and the lowest priority to unobservable data.
        In
        addition, SFAS 157 requires that fair value measurements be separately disclosed
        by level within the fair value hierarchy. This standard will be effective
        for
        financial statements issued for fiscal periods beginning after November 15,
        2007
        and interim periods within those fiscal years. SFAS 157 had no effect on
        the
        Company’s financial statements for the period ended March 31, 2006.
 
 NOTE
        3 -
        STOCKHOLDERS' EQUITY
 
 During
        the
        nine months ended March 31, 2006, the Company issued 2,495,960 restricted
        shares
        of its previously unissued common stock in exchange for $175,502 in cash,
        $10,837 in services, and $24,132 in debts.
 
 NOTE
        4 -
        COMMITMENTS AND CONTINGENCIES
 
 Litigation
 
 The
        Company
        may, from time to time, be involved in various legal disputes resulting from
        the
        ordinary course of operating its business. Management is currently not able
        to
        predict the outcome of any such cases. However, management believes that
        the
        amount of ultimate liability, if any, with respect to such actions will not
        have
        a material effect on the Company's financial position or results of
        operations.
 
 **SANGUI
                BIOTECH INTERNATIONAL,
                INC.**
 Notes
                to
                the Consolidated Financial
                Statements
 
 NOTE
        4 -
        COMMITMENTS AND CONTINGENCIES (Continued)
 
 Indemnities
        and Guarantees
 
 During
        the
        normal course of business, the Company has made certain indemnities and
        guarantees under which it may be required to make payments in relation to
        certain transactions. These indemnities include certain agreements with the
        Company's officers, under which the Company may be required to indemnify
        such
        person for liabilities arising out of their employment relationship. The
        duration of these indemnities and guarantees varies and, in certain cases,
        is
        indefinite. The majority of these indemnities and guarantees do not provide
        for
        any limitation of the maximum potential future payments the Company could
        be
        obligated to make. Historically, the Company has not been obligated to make
        significant payments for these obligations and no liabilities have been recorded
        for these indemnities and guarantees in the accompanying consolidated balance
        sheet.


10







ITEM
      2 -
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Forward-looking
      Statements




The
      following
      discussion of our financial condition and results of operations should be read
      in conjunction with the consolidated financial statements and the related notes
      thereto included elsewhere in this quarterly report. Some of the information
      in
      this quarterly report contains forward-looking statements, including statements
      related to anticipated operating results, margins, growth, financial resources,
      capital requirements, adequacy of the Company's financial resources, trends
      in
      spending on research and development, the development of new markets, the
      development, regulatory approval, manufacture, distribution, and commercial
      acceptance of new products, and future product development efforts. Investors
      are cautioned that forward-looking statements involve risks and uncertainties,
      which may affect our business and prospects, including but not limited to,
      the
      Company's expected need for additional funding and the uncertainty of receiving
      the additional funding, changes in economic and market conditions, acceptance
      of
      our products by the health care and reimbursement communities, new development
      of competitive products and treatments, administrative and regulatory approval
      and related considerations, health care legislation and regulation, and other
      factors discussed in our filings with the Securities and Exchange
      Commission.





GENERAL





The
      Company's
      mission is the development of novel and proprietary pharmaceutical, medical
      and
      cosmetic products.  The Company develops its products through its
      wholly owned German subsidiary Sangui GmbH.  The Company is seeking to
      market and sell some or all of their products through partnerships with industry
      partners.





The
      focus of
      Sangui GmbH has been the development of oxygen carriers capable of providing
      oxygen transport in humans in the event of acute and/or chronic lack of oxygen
      dueto arterial occlusion, anaemia or blood loss whether due to surgery, trauma,
      or other causes.  Sangui GmbH has thus far focused its development and
      commercialization efforts of such artificial oxygen carriers by reproducing
      and
      synthesizing polymers out of native hemoglobin of defined molecular
      sizes.  Sangui GmbH, has in addition developed external applications
      of oxygen transporters in the medical and cosmetic fields in the form of gels
      and emulsions for the regeneration of the skin





Sangui
      GmbH
      holds the exclusive distribution rights for Chitoskin wound pads for the
      European Union and various other countries.  Sangui GmbH has filed a
      patent cooperation treatment applications (“PCT”) for the production and use of
      improved Chitoskin wound pads using gelatine instead of collagen as the carrier
      substance.





ARTIFICIAL
      OXYGEN CARRIERS




Sangui
      GmbH
      develops several products based on polymers of purified natural porcine
      hemoglobin with oxygen carrying abilities that are similar to native
      hemoglobin.  These are (1) oxygen carrying blood additives and (2)
      oxygen carrying blood volume substitutes.




In
      December
      1997, Sangui GmbH decided that porcine hemoglobin should be used as the basic
      material for its artificial oxygen carriers.  In March 1999, Sangui
      GmbH decided which hemoglobin hyperpolymer would go into preclinical
      investigation and that glutaraldehyde would be utilized as a cross linker,
      and
      further that the polymer hemoglobin be chemically masked to prevent protein
      interaction in blood plasma.  The fine adjustment of the molecular
      formula of the artificial oxygen carriers - optimized for laboratory scale
      production - was finalized in the summer of 2000.




The
      experiments completed in Sangui GmbH’s laboratories demonstrated that it is
      possible to polymerize hemoglobins isolated from porcine blood resulting in
      huge
      soluble molecules, so-called hyperpolymers.  In August 2000, Sangui
      GmbH finalized its work on the pharmaceutical formulation of the oxygen carrier
      for laboratory scale.  In February 2001 a pilot production in a
      laboratory scale was carried out in SGBI's clean room.  The resulting
      product was applied in single volunteers in pilot self-experiments.




The
      blood
      additives and blood substitute projects were halted in 2003 due to the lack
      of
      financing for the pre-clinical test phase of the blood additives.  In
      October, 2006, subsequent to the period covered by this report, a contract
      was
      entered into between Sangui GmbH and ERC Nano Med S.A. de C.V. of Monterrey,
      Mexico (“ERC”), which provides that ERC will establish a production facility in
      Mexico to produce sufficient quantities of the blood additive.  In
      cooperation with the medical faculty of Monterrey University and the Mexican
      National Health Organizations, ERC will initiate all necessary steps to begin
      the pre-clinical test phase for the products as soon as possible.  It
      is anticipated that this will lead to the FDA authorization process in due
      course. The authorization process will be managed in cooperation with
      Medicoforum group of Hannover, Germany, a company specializing in international
      pharmaceutical and medical product authorizations,




According
      to
      regulatory requirements, all drugs must complete preclinical and clinical trials
      before approval (e.g. Federal Drug Administration approval, see Certain Business
      Risks below) and market launch.  The Company’s management believes
      that the European and FDA approval process will take at a minimum several years
      to complete.


11


NANO
      FORMULATIONS FOR THE REGENERATION OF THE SKIN





Healthy
      skin
      is supplied with oxygen both from the inside as well as through diffusion from
      the outside.  A lack of oxygen will cause degenerative alterations,
      ranging from premature aging, to surface damage, and even as extensive as
      causing open wounds.  The cause for the lack of oxygen may be a part
      of the normal aging process, but it may also be caused by burns, radiation,
      trauma, or a medical condition.  Impairment of the blood flow, for
      example caused by diabetes mellitus or by chronic venous insufficiency, can
      also
      lead to insufficient oxygen supply and the resulting skin damage.




The
      nano-emulsion-based preparations now being sold by Sangui GmbH have been
      designed to supporting the regeneration of the skin by improving its oxygen
      supply.  The products Sangui GmbH are currently focussing on are an
      anti-aging formulation and treatment and an anti-cellulite formulation for
      the
      cosmetics market.  The products were thoroughly tested by an
      independent research institute and received top marks for skin moisturization,
      and enhanced skin elasticity, respectively.




Sangui’s
      cosmetic business model is reliant upon cooperation with its manufacturing
      and
      distribution partners.  Sangui has its various formulations produced
      by a contract manufacturer and sells quantities of the products either in bulk
      or in customized private label packaging, as requested.  In addition,
      Sangui started to sell its cosmetic products under its own brand “Pure
      MO2isture” via an internet shop as of mid September, 2006.




Sales
      of the
      anti-cellulite products started subsequent to this report in August, 2005 via
      two German TV shop programs.  Sales figures in this distribution
      channel are stable, according to information provided by our distribution
      partner.  Additionally, distribution partners in Argentina and Mexico
      have purchased launch quantities in November, 2005, and July, 2006,
      respectively.




CHITOSKIN
      WOUND PADS




In
      March,
      2005, SanguiBioTech GmbH was awarded the CE mark for this
      product.  The CE mark authorizes the company to distribute and sell
      this medical product in the member countries of the European
      Union.  At the same time Sangui GmbH successfully passed the ISO
      9001:2000 (General Quality Management System) and ISO 13485:2003 (Quality
      Management System Medical Products) audits, and obtained the respective
      certifications.  The “Chitoskin” trademark was already granted to the
      company for the European countries effective November 1, 2004.




Karl
      Beese
      GmbH, a leading German vendor and distributor of hospital supplies began
      marketing and distributing the wound pad product in August, 2005, and has placed
      several subsequent orders with the company.  In addition, Karl Beese
      will deliver large quantities of the wound pad product to a Czech distribution
      partner through summer 2006.





FINANCIAL
      POSITION




The
      Company's
      current assets increased approximately $54,673, or 158%, from June 30, 2005
      to
      approximately $92,954 at March 31, 2006. The decrease is primarily attributable
      to an increase in prepaid expenses and other assets of approximately
      $50,658.




The
      Company's
      net property and equipment decreased approximately $25,861, or 77% from June
      30,
      2005 to approximately $7,747 at March 31, 2006. The decrease is primarily
      attributable to current period depreciation.




The
      Company
      funded its operations primarily through its existing cash reserves and cash
      received from the sale of common stock. The Company's stockholders' equity
      decreased approximately $21,489. The primary decrease is caused by the Company's
      current period net loss of approximately $423,031.




RESULTS
      OF OPERATIONS




Three
      months ended March 31, 2006 and 2005:




RESEARCH
      AND
      DEVELOPMENT- Research and development expenses decreased $14,205 to
      approximately $32,960 in 2006 from approximately $47,165 in 2005. The decrease
      is mainly attributed to the Company lacking the requisite funding and a
      reduction in staff. The Company is seeking additional sources to provide
      financing for additional research and development.




GENERAL
      AND
      ADMINISTRATIVE - General and administrative expenses decreased 18% to
      approximately $129,468 in 2006 from approximately $163,940 in 2005. This
      decrease is mainly attributed to the ongoing refocusing program, and a reduction
      in staff.




DEPRECIATION
      AND AMORTIZATION - Depreciation decreased $8,604 to approximately $6,482 in
      2006
      from approximately $15,086 in 2005. This decrease is mainly attributed to the
      ongoing restructuring of Sangui GmbH.




NET
      LOSS. As
      a result of the above factors, the Company's consolidated net loss was
      approximately $146,390, or approximately $(0.00) per common share, for the
      three
      months ended March 31, 2006, compared to approximately $153,165, or $0.00 per
      common share, during the comparable period in 2005.


12


Nine
      months ended March 31, 2006 and 2005:




RESEARCH
      AND
      DEVELOPMENT. Research and development expenses decreased $288,252 to
      approximately $82,870 in 2006 from approximately $371,122 in 2005. The decrease
      is mainly attributed to the Company lacking the requisite funding, and a
      reduction in staff.  The Company is seeking additional sources to
      provide financing for additional research and development.




GENERAL
      AND
      ADMINISTRATIVE. General and administrative expenses decreased 16% to
      approximately $375,772 in 2006 from approximately $446,934 in 2005. This
      decrease is mainly attributed to the ongoing refocusing program, and a reduction
      in staff.




DEPRECIATION
      AND AMORTIZATION. Depreciation and amortization decreased $19,940 to
      approximately $28,351 in 2006 from approximately $48,291 in 2005. This decrease
      is mainly attributed to the ongoing restructuring of Sangui GmbH.




NET
      LOSS. As
      a result of the above factors, the Company's consolidated net loss was
      approximately $423,031, or approximately $(0.01) per common share, for the
      nine
      months ended March 31, 2006, compared to approximately $734,264, or $0.01 per
      common share, during the comparable period in 2005.




LIQUIDITY
      AND CAPITAL RESOURCES




For
      the nine
      months ended March 31, 2006, net cash used in operating activities decreased
      to
      approximately $242,455, from approximately $499,023 in the corresponding period
      in 2005, primarily related to an increase in the Company's consolidated net
      loss
      as a result of the ongoing refocusing program.




The
      Company
      had a working capital deficit of approximately $203,162 at March 31, 2006,
      an
      increase of approximately $70,412 from June 30, 2005 due primarily to the
      Company's net loss for the nine-month period, as well as a significant increase
      in notes payable.  At March 31, 2006, the Company had cash of
      approximately $5,413. The Company will need substantial additional funding
      to
      fulfill its business plan and the Company intends to explore financing sources
      for its future development activities. No assurance can be given that these
      efforts will be successful.




13







ITEM
      3
      - CONTROLS AND PROCEDURES




(a)
      Evaluation of disclosure controls and procedures. Our principal executive
      officer and principal financial officer have evaluated the effectiveness of
      our
      disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
      under the Exchange Act), as of a date within 90 days of the filing date of
      this
      Quarterly Report on Form 10-QSB. Based on such evaluation, they have concluded
      that as of such date, our disclosure controls and procedures are have not been
      effective or designed to ensure that information required to be disclosed by
      us
      in reports that we file or submit under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in applicable SEC
      rules and forms.  Our principal executive officer and principal
      financial officer are currently working to streamline our disclosure controls
      and procedures, so as to adequately comply with such SEC rules and
      forms.




(b)
      Changes
      in internal controls. There were no significant changes in our internal controls
      or in other factors that could significantly affect these controls subsequent
      to
      the date of evaluation by our principal executive officer and principal
      financial officer.




PART
      II - OTHER INFORMATION





ITEM
      1
      - LEGAL PROCEEDINGS




The
      Company
      is not aware of pending claims or assessments which may have a material adverse
      impact on the Company’s financial position or results of
      operations.


ITEM
      2
      - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


During
        the
        nine months ended March 31, 2006, the Company issued 2,495,960 restricted
        shares
        of its previously unissued common stock in exchange for $175,502 in cash,
        $10,837 in services, and $24,132 in debts.




ITEM
      3
      - DEFAULTS UPON SENIOR SECURITIES




None.





ITEM
      4
      - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS




None.





ITEM
      5
      - OTHER INFORMATION




None.




ITEM
      6
      - EXHIBITS




31.1
      Certification Pursuant to Rule 13a-14(a) and 15d-14(a), filed
      herewith.




32.1  Certification
      Pursuant to Section 1350 of Title 18 of the United States Code, filed
      herewith.




SIGNATURES





Pursuant
      to
      the requirements of the Securities Exchange Act of 1934, the Registrant has
      duly
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.





SANGUI
      BIOTECH INTERNATIONAL,
      INC.





Date:
              November 30,
              2007                             /s/  Wolfgang
              Barnikol
 By:
            Wolfgang Barnikol
 Chief
            Executive Officer and Chief Financial Officer






14