UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

|X|  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the annual period ended JUNE 30, 2003

| |  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For the transition period from _____________ TO  ______________

For the fiscal year ended June 30, 2003
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         (IRS Employer Identification Number)
    incorporation or organization)

    Alfred Herrhausen Street 44                         Germany 58455
                                                        -------------
            58455 Witten, Germany                        (Zip Code)
  (Address of principal executive offices)

Issuer's telephone number, including area code       + 49 (2302) 915-200

                           COMMON STOCK, NO PAR VALUE
                           --------------------------

     Check whether the issuer (1) filed all reports required to be filed by
  Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
      for such shorter period that the registrant was required to file such
         reports), and (2) has been subject to such filing requirements
                             for the past 90 days.

Yes |X|    No  | |

Check whether there is no disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-B in this  Form,  and  will not be  contained,  to the best of
Registrant's  incorporated  by  reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]

The issuer's revenue for the fiscal year ended June 30, 2003 was $138,542.

The market value of the voting stock held by  non-affiliates of the issuer as of
September 19, 2003 was approximately $ 3,659,000.

The number of shares of the common stock  outstanding  as of September  13, 2003
was 40,655,363.

Documents incorporated by reference: None.

Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]


                                      -1-
<PAGE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S>           <C>                                                                                               <C>
PART I....................................................................   3
ITEM 1        Description of Business.....................................   3
ITEM 2        Description of  Properties..................................  13
ITEM 3        Legal Proceedings...........................................  14
ITEM 4        Submission of Matters to a Vote of Security Holders.........  14
PART II...................................................................  14
ITEM 5        Market for SGBI Securities..................................  14
ITEM 6        Management's Discussion and Analysis of Financial
                Condition and Results of Operations.......................  16
              Grants......................................................  16
              Sangui BioTech AG...........................................  16
              Sangui BioTech International Inc............................  16
ITEM 7        Financial Statements........................................ F-1
              Independent Auditors' Report................................ F-1
              Consolidated Balance Sheet.................................. F-2
              Consolidated Statements of Operations and
                Comprehensive Loss........................................ F-3
              Consolidated Statements of Stockholders' Equity............. F-4
              Consolidated Statements of Cash Flows....................... F-5
              Notes to Consolidated Financial Statements.................. F-6
ITEM 8        Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure.......................  19
ITEM 8 A      Controls and Procedures see SEC Release 33-8238, 34-47986...  19
PART III..................................................................  20
ITEM 9        Directors and Executive Officers............................  20
ITEM 10       Executive Compensation and Other Information................  22
ITEM 11       Security Ownership of Certain Beneficial
                Owners and Management.....................................  22
ITEM 12       Certain Relationships and Related Transactions..............  23
ITEM 13       Exhibits and Reports on Form 8-K............................  24
ITEM 14       Principal Accountant Fees and Services......................  25
</TABLE>


                                      -2-
<PAGE>

PART 1
------

FORWARD LOOKING STATEMENT

This Annual Report contains forward-looking  statements concerning,  among other
things,  the  Company's  prospects  affecting  its  potential  and its  business
strategies.

These forward looking statements involve risks and uncertainties. Actual results
may differ  materially  from those predicted by the  forward-looking  statements
because of various factors and possible events,  including those discussed under
Risk  Factors.  Because  these  forward  looking  statements  involve  risks and
uncertainties,  actual results may differ  significantly from those predicted in
these forward looking  statements.  These statements may be accompanied by words
such as believe, estimate,  project, expect, anticipate, or predict that conveys
the  uncertainty  of future events or outcomes.  These  statements  are based on
assumptions  that the Company  believes are  reasonable;  however,  many factors
could cause the Company's actual results in the future to differ materially from
the  forward-looking  statements  made herein and in any other documents or oral
presentations  made by, or on behalf of, the Company.  Important  factors  which
could cause actual results to differ  materially  from those in  forward-looking
statements  include,  among others, the ability to obtain additional  financing,
which is not assured; rapid technological  developments and changes; problems in
developments  of the  Company's  products;  price  and  product  competition  by
competitors; general economic conditions; and factors discussed in the Company's
SEC filings.

ITEM 1. DESCRIPTION OF BUSINESS

HISTORY

Sangui BioTech,  Inc. (SBT) was  incorporated in Delaware on August 2, 1996, and
began  operations in October 1996. In August 1997,  Citadel  Investment  System,
Inc., a Colorado corporation  (Citadel),  a publicly held company,  acquired one
hundred percent (100%) of the outstanding common shares of SBT; as a result, SBT
became a wholly owned  subsidiary of Citadel.  Thereafter,  Citadel  changed its
name to Sangui BioTech International,  Inc. (the Company or SGBI). Until the end
of fiscal year  2001/2002,  the Company's  business  operations  were  conducted
through  four  wholly owned  subsidiaries:  SBT,  SanguiBioTech  AG (Sangui AG),
GlukoMediTech  AG (Gluko AG),  and Sangui  Biotech  Singapore  Pte Ltd.  (Sangui
Singapore).

SBT  was  principally   engaged  in  the  development   and   manufacturing   of
immunodiagnostic  kits,  which  were sold by SBT in niche  markets in the United
States and Europe. During the first quarter of the June 30, 2003 fiscal year SBT
sold its assets,  and commenced the wind-down,  of the U.S. business  operation.
SBT was merged with and into the SGBI effective December 31, 2002.

Sangui AG was  established  and  organized  under the laws of  Germany in Mainz,
Germany,  on November  25,  1995.  Sangui AG is in the  business  of  developing
hemoglobin-based  artificial  oxygen carriers as blood additive and blood volume
substitutes  and products  thereof.  Sangui AG is also  developing an anti-aging
cosmetic based on such artificial oxygen carriers.  Professor Wolfgang Barnikol,
M.D., Ph.D serves as Chief Executive Officer of Sangui AG. The members of Sangui
AG's  supervisory  board as of June 30, 2003 were Professor  Joachim Lutz, M.D.,
Dora  Malek,   attorney-at-law,   Oswald  Burkhard,   M.D.,   Ph.D.,  and  Doris
Barnikol-Keuten,  Ph.D.  Dora Malek  resigned from her position as member of the
supervisory board effective  September 15, 2003. The facilities of Sangui AG are
located  on  the  premises  of the  Forschungs-  und  Entwickungszentrum  of the
University of Witten/Herdecke, Witten, Germany.

Gluko AG was  established  and  organized  under the laws of  Germany  in Mainz,
Germany, on July 15, 1996. Gluko AG was developing long-term implantable glucose
sensors,  including  by-products  thereof,  and  diverse  other  sensors.  Since
additional  financing for the next planned step of product development could not
be secured  Gluko AG was merged with Sangui AG effective  June 30,  2003.  While
further development work in this area was halted, Sangui AG is working to secure
the key patents  relating to the  Glucose  Sensors and will  continue to address
potential strategic financial or industry partners.


                                      -3-
<PAGE>

Sangui  Singapore  was  incorporated  as a  wholly owned  subsidiary  of SGBI in
Singapore on May 15, 1999. Sangui Singapore was the Asia regional office for the
Company and was engaged in animal  experiments  in  conjunction  with the German
subsidiaries.  Effective January 31, 2003 the business was wound down and Sangui
Singapore closed.  The strike-off from the Singapore  register of businesses has
been applied for.

On March 30,  2000,  the Company  acquired all the  outstanding  common stock of
Felnam  Investments,  Inc., a Nevada corporation  (Felnam).  The transaction was
funded through the issuance of 100,000  shares of the Company's  stock valued at
$0 per share due to the Company  treating the transaction as a  recapitalization
of the  Company.  In  conjunction  with the  transaction,  the Company  incurred
approximately $ 180,000 of transaction costs which were charged to operations.

To date, neither SGBI nor any of its subsidiaries has had profitable operations.
The Company has never been profitable and,  through June 30, 2003, the Company's
accumulated  deficit exceeded $18.7 million.  The Company expects to continue to
incur substantial  losses over at least the next several years as it expands its
research  and  development   efforts,   testing   activities  and  manufacturing
operations.  All of the Company's  potential  products are in  development.  The
Company  will need to  obtain  substantial  additional  capital  to  fulfil  its
business plan.

The Company has adopted a program aimed at cost reductions and at refocusing the
Company's  funds to accelerate  time to market for its most promising and mature
products.  No  assurance  can be  given  that  the  Company's  program  will  be
successful.

BUSINESS OF THE COMPANY

The Company's  mission is the  development of novel  proprietary  products.  The
Company is developing  its products  through its wholly owned German  subsidiary
Sangui AG. The  Company and Sangui AG are seeking to market and sell all or some
of their products through partnerships with industry partners.

The  special  focus of Sangui AG is on  developing  oxygen  carriers  capable of
support  of oxygen  transport  in humans in cases of acute and  chronic  lack of
oxygen  due to  arterial  occlusion,  anaemia  or  blood  loss  due to  surgery,
accident,  or  other  causes.  Sangui  AG is  engaged  in  the  development  and
commercialization   of  such   artificial   oxygen   carriers  by   reproducibly
synthesizing  polymers  out of native  hemoglobin  of defined  molecular  sizes.
Sangui AG also develops oxygen carriers for external  application in the medical
and cosmetic fields in the form of jellies and emulsions for the regeneration of
the skin.

ARTIFICIAL OXYGEN CARRIER

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

In December  1997 Sangui AG decided  that porcine  hemoglobin  should be used as
basic material for its artificial oxygen carriers.  In March 1999 Sangui AG came
to the fundamental  decision as to which  hemoglobin  hyperpolymer  will go into
preclinical  investigation and that glutaraldehyde will be taken as cross linker
and the polymer  hemoglobin is chemically masked to prevent protein  interaction
in blood plasma.  The fine  adjustment of the formula of the  artificial  oxygen
carriers - optimized for laboratory  scale  production - was finalized in Summer
2000.

The experiments  completed in Sangui AG'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 AG 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 the  Company's  clean room.  The product was applied in single  volunteers in
pilot self experiments.

The project of developing  blood additives and blood  substitutes was halted due
to the lack of financing for the pre-clinical test phase of the blood additives.
Sangui AG is continuing to address  potential  strategic  financing and industry
partners in order to enter pre-clinical testing.

According to regulatory requirements, all drugs have to pass through preclinical
and  clinical   trials  before   approval  (e.g.  FDA  approval:   Federal  drug
administration)  and launching to the market. The Company's  management believes
that the European and FDA approval process will take at least several years.


                                      -4-
<PAGE>

OXYGEN CARRIERS FOR REGENERATION OF THE SKIN

The healthy skin is supplied  with  oxygen,  both through the supply from inside
and also through diffusion from outside.  Lack of oxygen will cause degenerative
alterations of various  extent,  ranging from premature  aging to surface damage
and open  wounds.  The  cause  for the lack of oxygen  may be the  normal  aging
process,  but it may also be caused  by burns or  radiation.  Impairment  of the
blood  flow,  for  example  caused by  diabetes  mellitus  or by chronic  venous
insufficiency,  can also lead to  insufficient  oxygen supply and resulting skin
damage.

The new  hemoglobin-based  preparations under development by Sangui AG have been
designed to contribute to supporting the  regeneration  of the skin by improving
its oxygen  supply.  In addition to the  therapy,  these  preparations  are also
intended for purposes of prevention, among others for the improved oxygen supply
of the skin in the  course of a  radiation  therapy  or in the course of an acne
treatment.  The key product Sangui AG is currently focussing on is an anti-aging
formulation and treatment for the cosmetics market.

Sangui AG had, in fiscal year 2002,  finalized the  development  of an external,
cosmetic  application of its oxygen carrier.  Sangui AG has established  contact
with a  German  cosmetics  vendor  and is  planning  and  preparing  to  jointly
introduce this application as a cosmetic anti-aging product in the German market
in fiscal year 2004.

PUBLIC GRANTS

With the notification of subsidy dated November 30, 1998,  Sangui AG was granted
a subsidy  amounting  to EUR  1,827,651.18  for the period from April 8, 1998 to
March 31,  2001 to promote  the  project  "Development  of a  procedure  for the
production of synthetic oxygen carriers on the basis of hyperpolymer hemoglobins
as a blood  additive  and a  so-called  blood  substitute".  In March  2001,  an
application to have the subsidy  period  extended to June 30, 2002 was approved.
In March  2002,  the  Company  submitted  a second  application  to the  project
authority  Julich (PtJ) to have the subsidy period  extended;  this was approved
for the period up to December 31, 2002 with the notification of alteration dated
July 2, 2002. Through December 31, 2002, funds were received amounting to (euro)
1,388,278.87.

With  notification  of  subsidy  dated  September  1,  1999,  Gluko AG had funds
amounting  to  (euro)  2,219,397.39  approved  for a period of three  years.  In
October 2001, an  application  was  submitted to the project  authority  Juelich
(PtJ) to have the subsidy  period  extended  until  December 31, 2002;  this was
approved  with the  notification  of alteration  dated  November 28, 2001. Up to
December 31, 2002, the Company had received funds amounting to (euro) 671,129.32
to promote the project "Development of a permanently  implantable glucose sensor
and a controllable insulin pump for diabetics into a technical beta cell".

The remaining  promotion funds from both subsidized projects were returned as of
December 31, 2002.

The accomplishment of further milestones  scheduled for 2003 would have required
the  allocation of funds for the 60%  counter-financing  of the subsidies at the
beginning  of the  working  phase.  This  was not  possible  due to the  lack of
resources.  The Company was therefore asked to either return the remaining funds
or furnish immediate proof of the necessary counter-financing.

To complete the project,  a site  inspection  was held on March 10, 2003, by the
project  manager  from  the  subsidizing   authority  (PtJ),  the  goal  of  the
discussions being to conclude the project by a mutual consent.

The parties agreed on the following:

1.   Efforts  will be  made to sell  all of the  equipment  that  was no  longer
     needed.  The  first  priority  would be to offer  subsidized  equipment  to
     employees on favorable terms. In this case, no proceeds (usually 40% of the
     proceeds  in  accordance  with  the 40%  subsidy  ratio)  would  have to be
     returned to the federal state (Land).

2.   If equipment is sold to third parties,  the proportion of the proceeds that
     corresponds  to the level of subsidy  as a  proportion  of the  development
     funds must be returned to the Land of North  Rhine-Westphalia.  (NB:  until
     now, it has not been  possible to sell any of the  equipment  subsidized by
     the Land.)

                                      -5-
<PAGE>

3.   Efforts will be made to find a successor tenant for the clean room in order
     to avert the  deconstruction  costs that would be incurred if Sangui AG had
     to return the  premises to their  original  condition  when they were first
     occupied.  In  connection  with this,  Sangui AG  submitted an offer to the
     landlord,  the research and development centre (FEZ), according to which it
     would  transfer  the  fixtures to FEZ for the  symbolic  price of one euro.
     Since the Land will not be imposing  any  restrictions  on the use, the FEZ
     can choose its tenant(s) freely.
     (NB: so far no tenant has been found.)

It was  agreed  that the  subsidizing  authority  will put  together  a  written
document  of the  results  of the site  inspection  and send it to Sangui AG. No
correspondence of this kind has been received so far.

Sangui AG is still looking for  industrial  partners for the oxygen  carrier and
glucose  sensor  projects.   Should  this  succeed,  the  projects,   for  which
experiments  have now been halted,  would be reactivated  and the clean room put
back into operation.

PATENTS AND PROPRIETARY RIGHTS

The  Company  has the  policy of  seeking  patents  covering  its  research  and
development  and  all  modifications  and  improvements   thereto.   The  German
subsidiaries,  Sangui AG and Gluko AG, have been granted  eighteen (18) patents.
Furthermore, the subsidiaries have applied for twenty-four (24) patents, most of
which  have been  filed in  Germany,  the USA,  and as an  international  patent
application  with the European Patent Office.  Four (4) patent  applications are
related  to  progress  made in the  final  development  stages  of the  external
application of the artificial oxygen carriers.

MARKETING AND DISTRIBUTION

Sangui AG has not yet manufactured any of its products in commercial quantities.
Sangui AG has limited  experience  in sales and  marketing of  products.  It is,
therefore,  dependent  on  attracting  industrial,  marketing  and  distribution
partners in order to succeed in selling its products in the respective markets.

GOVERNMENT REGULATION

SGBI and its US subsidiary  were subject to  governmental  regulation  under the
Occupational Safety and Health Act, the Environmental  Protection Act, the Toxic
Substances Control Act, and other similar laws of general application, as to all
of which SGBI believes it and its subsidiaries are in material compliance.

Although it is believed that SGBI and its subsidiary were in material compliance
with all applicable governmental and environmental laws, rules,  regulations and
policies,  and although no government  concerns were put forward during or after
the  closing of the Santa Ana  operations,  there can be no  assurance  that the
business,  financial  condition,  and  results  of  operations  of SGBI  and its
subsidiaries  will not be  materially  adversely  affected by future  government
claims with  regard to unlikely  but not  impossible  infringements  on these or
other laws resulting from SGBI's former US operations.

Additionally,  the  clinical  testing,  manufacture,  promotion  and  sale  of a
significant  majority of the products and technologies of the subsidiaries,  and
to a much less extent of SGBI,  if those  products  and  technologies  are to be
offered and sold in the United  States,  are subject to extensive  regulation by
numerous governmental authorities in the United States, principally the FDA, and
corresponding  state  regulatory  agencies.  Additionally,  to the extent  those
products and  technologies  are to be offered and sold in markets other than the
United States,  the clinical testing,  manufacture,  promotion and sale of those
products and technologies will be subject to similar regulation by corresponding
foreign regulatory agencies. In general, the regulatory framework for biological
health  care  products  is more  rigorous  than for  non-biological  health care
products.  Generally,  biological health care products must be shown to be safe,
pure,  potent and effective.  There are numerous state and federal  statutes and
regulations  that  govern  or  influence  the  testing,   manufacture,   safety,
effectiveness,   labeling,  storage,  record  keeping,  approval,   advertising,
distribution  and promotion of biological  health care products.  Non-compliance
with  applicable   requirements  can  result  in,  among  other  things,  fines,
injunctions,  seizures  of  products,  total or  partial  suspension  of product
marketing, failure of the government to grant pre-market approval, withdrawal of
marketing approvals, product recall and criminal prosecution.

COMPETITION

The  market  for  the  products  and  technologies  of  the  Company  is  highly
competitive, and the Company expects competition to increase.

OXYGEN CARRYING BLOOD ADDITIVE

In the  business of blood  additive,  Sangui AG is not aware of any  existing or
potential competitors.


                                      -6-
<PAGE>

OXYGEN CARRYING BLOOD VOLUME SUBSTITUTE

In the  business  of blood  volume  substitute,  there  are at least  six  large
companies that have obtained  substantial  capitalization  either through equity
funding  or  through   acquisition  by  large   corporations,   such  as  Baxter
International acquiring Somatogen. Other future competitors include Hemosol Inc.
in Canada,  Northfield,  Alliance Pharmaceutical and Biopure Corporation.  To be
competitive,  the  Company  is  attempting  to  develop  well-characterized  and
differentiated  products in unique  formulations which could capture some of the
market as a new generation of oxygen carrier/additives to address the markets of
artificial  blood  volume  substitutes  as well as the  potential  new market of
therapeutics for oxygen deficiencies.

RISK FACTORS

An investment in SGBI  involves  significant  risks  associated  with  economic,
business,  market and financial factors and developments  which may have adverse
impacts on the Company's future  performance,  including  significant  risks not
normally  associated  with  investing  in equity  securities  of  United  States
companies including the following:

LIMITED OPERATING HISTORY OF THE COMPANY; LOSSES ARE EXPECTED TO CONTINUE

The Company is a  relatively  new entity with a limited  operating  history upon
which a  significant  evaluation of the  Company's  prospects  can be made.  The
prospects of SGBI must be considered  keeping in mind the risks,  expenses,  and
difficulties frequently encountered in the establishment of a new business in an
ever changing industry and the research, development, manufacture, distribution,
and commercialisation of esoteric medical technology,  procedures,  and products
and related technologies. There can be no assurance that unanticipated technical
or other  problems  will not occur  which  would  result in  material  delays in
product  commercialisation or that the efforts of SGBI will result in successful
product  commercialisation.  SGBI has been  operating  at a loss and expects its
costs to increase  as soon as its  development  efforts  and testing  activities
accelerate.  It  is  currently  unknown  when  profitable  operations  might  be
achieved.

FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING

Although  management  believes  that  the  Company's  cash  position  should  be
sufficient to cover its financing for at least another fiscal year,  substantial
funds will be required to effect the Company's  development  plans.  The Company
will require additional cash for: (i) payment of increased  operating  expenses;
(ii) payment of development expenses;  and (iii) further implementation of those
business strategies.  Such additional capital may be raised by additional public
or private financing,  as well as borrowings and other resources.  To the extent
that  additional  capital  is  received  by  SGBI  by  the  sale  of  equity  or
equity-related  securities,  the  issuance  of such  securities  will  result in
dilution  to  the  Company's  shareholders.  There  can  be  no  assurance  that
additional  funding will be available on favorable  terms,  if at all.  SGBI may
also seek arrangements with  collaborative  partners in order to gain additional
funding, marketing assistance or other contributions. However, such arrangements
may require SGBI to relinquish  rights or reduce its interests in certain of its
technologies or product  candidates.  The inability of the Company to access the
capital markets or obtain  acceptable  financing  could have a material  adverse
effect on the results of  operations  and  financial  condition  of the Company.
Moreover,  if funds are not available  from any sources,  the Company may not be
able to continue to operate.

DEPENDENCE ON KEY PERSONNEL

The  future  success  of the  Company  will  depend  on the  service  of its key
scientific   personnel  in  its   pharmaceutical,   chemistry  and  biochemistry
departments and, when appropriate,  computer hardware and software  engineering,
electrical   and   mechanical   engineering   and   management   personnel  and,
additionally,  its ability to  identify,  hire and retain  additional  qualified
personnel. There is intense competition for qualified personnel in this industry
and there can be no  assurance  that SGBI  will be able to  attract  and  retain
personnel  necessary for the development of the business of SGBI. Because of the
intense  competition,  there can be no assurance that SGBI will be successful in
adding  technical  personnel  if needed to satisfy  its  staffing  requirements.
Failure to attract and retain key personnel could have a material adverse effect
on SGBI.

SGBI and its  subsidiaries  are  dependent on the efforts and abilities of their
senior  management.  The loss of various  members from  management  could have a
material  adverse  effect on the business and prospects of SGBI. In  particular,
SGBI will depend on the service of  Professor  Wolfgang  Barnikol  because he is
instrumental  in his  expertise  in the  development  of the oxygen  carrier and
glucose  sensor  products.  There can be no assurance that upon the departure of
key personnel from the service of SGBI or its subsidiaries suitable replacements
will be available.


                                      -7-
<PAGE>

LICENSES AND CONSENTS

The utilization or other  exploitation of the products and services developed by
SGBI or its subsidiaries may require SGBI or its subsidiaries to obtain licenses
or consents  from the  producers or other holders of copyrights or other similar
rights relating to the products and technologies of SGBI or its subsidiaries. In
the event SGBI or its  subsidiaries  are unable,  if so required,  to obtain any
necessary  license  or  consent  on terms  which the  management  of SGBI or its
subsidiaries consider to be reasonable, SGBI or its subsidiaries may be required
to cease developing,  utilizing, or exploiting products or technologies affected
by those copyrights or similar rights. In the event SGBI or its subsidiaries are
challenged by the holders of such copyrights or other similar rights,  there can
be no assurance that SGBI or its  subsidiaries  will have the financial or other
resources to defend any resulting legal action, which could be significant.

TECHNOLOGICAL FACTORS

The market for the products and technology developed by SGBI is characterized by
rapidly changing technology which could result in product  obsolescence or short
product life cycles.  Similarly,  the industry is  characterized  by  continuous
development and  introduction of new products and technology to replace outdated
products  and  technology.  Accordingly,  the ability of SGBI to compete will be
dependent  upon the ability of SGBI to provide new and  innovative  products and
technology.  There  can  be no  assurance  that  competitors  will  not  develop
technologies  or products  that render the proposed  products and  technology of
SGBI  obsolete  or  less   marketable.   SGBI  will  be  required  to  adapt  to
technological  changes in the industry and develop  products and  technology  to
satisfy evolving industry or customer  requirements,  any of which could require
the  expenditure  of significant  funds and resources,  and SGBI does not have a
source or  commitment  for any such  funds and  resources.  Development  efforts
relating to the  technological  aspects of the various products and technologies
to be developed by SGBI are not substantially completed.  Accordingly, SGBI will
continue  to refine and  improve  those  products  and  technologies.  Continued
refinement and  improvement  efforts remain subject to the risks inherent in new
product development,  including  unanticipated technical or other problems which
could result in material delays in product  commercialisation  or  significantly
increased costs. In addition,  there can be no assurance that those products and
technologies  will prove to be  sufficiently  reliable or durable in wide spread
commercial  application.  The products or technologies sought to be developed by
SGBI will be the result of  significant  efforts which may result in errors that
become apparent subsequent to widespread commercial utilization.  In such event,
SGBI would be required to modify such products or technologies and continue with
additional  research  and  development,  which could delay the plans of SGBI and
cause SGBI to incur additional cost.

EARLY STAGE OF PRODUCT DEVELOPMENT; LACK OF COMMERCIAL PRODUCTS; NO ASSURANCE OF
SUCCESSFUL PRODUCT DEVELOPMENT

The Company's  primary  efforts are devoted to the  development  of  proprietary
products involving artificial oxygen carriers and glucose sensors.

The potential products of SGBI will require additional pre-clinical and clinical
development,   regulatory   approval   and   additional   investment   prior  to
commercialisation,   either  by  SGBI   independently   or  by  others   through
collaborative  arrangements.  Potential  products that appear to be promising at
early stages of development may be ineffective or be shown to cause harmful side
effects  during  pre-clinical  testing  or  clinical  trials,  fail  to  receive
necessary regulatory approvals, be difficult to manufacture,  be uneconomical to
produce,   fail   to   achieve   market   acceptance   or  be   precluded   from
commercialisation  by  proprietary  rights of others.  There can be no assurance
that any potential products will be successfully developed, prove to be safe and
efficacious in clinical trials,  satisfy  applicable  regulatory  standards,  be
capable of being  produced  in  commercial  quantities  at  acceptable  costs or
achieve commercial acceptance.

All products and technologies under development by SGBI will require significant
commitment of personnel and financial  resources.  Several products will require
extensive  evaluation  and  pre-marketing  clearance  by the FDA and  comparable
agencies  in  other   countries   prior  to  commercial   sale.  SGBI  regularly
re-evaluates   its  product   development   efforts.   On  the  basis  of  these
re-evaluations, SGBI may abandon development efforts for particular products. No
assurance can be given that any product or  technology  under  development  will
result  in the  successful  introduction  of any new  product.  The  failure  to
introduce  new products  into the market on a timely basis could have a material
adverse effect on the business,  financial conditions or results of operation of
SGBI.


                                      -8-
<PAGE>

There can be no assurance that human testing of potential products based on such
technologies  will be  permitted  by  regulatory  authorities  or, even if human
testing is permitted,  that products based on such technologies will be shown to
be safe and  efficacious.  Potential  products based on the technologies of SGBI
are at an early  stage of  testing  and  there  can be no  assurance  that  such
products will be shown to be safe or effective.

MARKET ACCEPTANCE

There  can be no  assurance  that the  products  and  technologies  of SGBI will
achieve a  significant  degree of market  acceptance,  and that  acceptance,  if
achieved,  will be  sustained  for any  significant  period or that product life
cycles will be sufficient ( or substitute  products developed) to permit SGBI to
achieve or sustain market  acceptance which could have a material adverse effect
on the business, financial condition, and results of operations of SGBI.

GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL

The clinical  testing,  manufacture,  promotion,  and sale of biotechnology  and
pharmaceutical   products  are  subject  to  extensive  regulation  by  numerous
governmental  authorities  in  the  United  States,  principally  the  FDA,  and
corresponding state and foreign regulatory agencies prior to the introduction of
those products.  Management of SGBI believes that many of the potential products
of SGBI will be regulated by the FDA under current regulations of the FDA. Other
federal and state statutes and  regulations may govern or influence the testing,
manufacture, safety, effectiveness, labeling, storage, record-keeping, approval,
advertising,  distribution and promotion of certain products  developed by SGBI.
Noncompliance  with applicable  requirements  can result in, among other things,
fines,  injunctions,  seizure of products,  suspensions of regulatory approvals,
product recalls,  operating  restrictions,  re-labeling costs,  delays in sales,
cessation  of  manufacture  of  products,  the  imposition  of civil or criminal
sanctions,  total or partial  suspension  of product  marketing,  failure of the
government to grant pre-market  approval,  withdrawal of marketing approvals and
criminal prosecution.

The FDA's  requirements  include  lengthy and detailed  laboratory  and clinical
testing  procedures,  sampling  activities  and other costly and  time-consuming
procedures.  In particular,  human therapeutic  products are subject to rigorous
pre-clinical  and clinical  testing and other approval  requirements by the FDA,
agencies in Germany,  Singapore and other countries.  Although the time required
for  completing   such  testing  and  obtaining  such  approvals  is  uncertain,
satisfaction of these requirements  typically takes a number of years and varies
substantially based on the type, complexity and novelty of each product. Neither
SGBI nor its  subsidiaries can accurately  predict when product  applications or
submissions for FDA or other regulatory  review may be submitted.  Management of
the Company has no experience in obtaining  regulatory  clearance on these types
of products.  The lengthy process of obtaining  regulatory approval and ensuring
compliance   with   applicable  law  requires  the  expenditure  of  substantial
resources.  Any  delays  or  failure  by  SGBI  or its  subsidiaries  to  obtain
regulatory  approval and ensure  compliance  with  appropriate  standards  could
adversely affect the commercialization of such products,  the ability of SGBI to
earn product or royalty  revenue,  and its results of operations,  liquidity and
capital resources.

Pre-clinical  testing is generally  conducted in laboratory  animals to evaluate
the potential  safety and  effectiveness of a drug. The results of these studies
are  submitted to the FDA,  which must be approved  before  clinical  trials can
begin.  Typically,  clinical  evaluation  involves a time  consuming  and costly
three-phase  process.  In Phase I, clinical  trials are  conducted  with a small
number of subjects to determine  the early safety  profile,  the pattern of drug
distribution  and  metabolism.  In Phase II,  clinical trials are conducted with
groups of  patients  afflicted  with a specific  disease  in order to  determine
preliminary efficacy,  optimal dosages and expanded evidence of safety. In Phase
III, large-scale,  multi-center,  comparative trials are conducted with patients
afflicted  with a target  disease in order to provide enough data to demonstrate
the  efficacy  and safety  required  by the FDA.  The FDA closely  monitors  the
progress  of each of the  three  phases  of  clinical  trials  and  may,  at its
discretion,  re-evaluate, alter, suspend or terminate the testing based upon the
data  which  have  been  accumulated  to that  point and its  assessment  of the
risk/benefit ratio to the patient.

Clinical trials and the marketing and  manufacturing  of products are subject to
the rigorous  testing and approval  processes of the FDA and foreign  regulatory
authorities.  The  process  of  obtaining  FDA  and  other  required  regulatory
approvals is lengthy and expensive.  There can be no assurance that SGBI will be
able to obtain  the  necessary  approvals  to  conduct  clinical  trials for the
manufacturing and marketing of products,  that all necessary  clearances will be
granted to SGBI or their  licensors for future products on a timely basis, or at
all,  or that FDA review or other  actions  will not  involve  delays  adversely
affecting  the  marketing  and sale of the products or SGBI.  In  addition,  the
testing and approval process with respect to certain new products which SGBI may
seek to  introduce is likely to take a  substantial  number of years and involve
the  expenditure  of  substantial  resources.  There  can be no  assurance  that

                                      -9-
<PAGE>

pharmaceutical  products  currently in development will be cleared for marketing
by the FDA. Failure to obtain any necessary  approvals or failure to comply with
applicable  regulatory  requirements could have a material adverse effect on the
business,  financial condition or results of operations of SGBI. Further, future
government regulation could prevent or delay regulatory approval of the products
of SGBI.

There can be no assurance  as to the length of the clinical  trial period or the
number of patients the FDA will require to be enrolled in the clinical trials in
order to establish the safety and  effectiveness  of the products of SGBI.  SGBI
may encounter  significant  delays or excessive costs in their efforts to secure
necessary  approvals,  and regulatory  requirements  are evolving and uncertain.
Future United States or foreign  legislative or  administrative  acts could also
prevent or delay  regulatory  approval of the  products of SGBI.  If  commercial
regulatory approvals are obtained,  they may include significant  limitations on
the indicated uses for which a product may be marketed.  In addition, a marketed
product is subject to  continual  FDA  review.  Later  discovery  of  previously
unknown  problems  or the  failure  to  comply  with the  applicable  regulatory
requirements  may result in restrictions on the marketing of a product,  or even
the  removal  of the  product  from the  market,  as well as  possible  civil or
criminal  sanctions.  Failure of SGBI to obtain  marketing  approval  for any of
their  products  under  development  on a timely  basis,  or FDA  withdrawal  of
marketing  approval once obtained,  could have a material  adverse effect on the
business, financial condition and results of operations of SGBI.

Any party that manufactures  therapeutic or pharmaceutical  products is required
to adhere to applicable  standards for manufacturing  practices and to engage in
extensive record keeping and reporting. Any manufacturing facilities of SGBI are
subject to periodic inspection by state and federal agencies,  including the FDA
and  comparable  agencies  in  foreign  countries.  The  effect of  governmental
regulation  may be to delay the  marketing of new  products  for a  considerable
period of time, to impose costly  requirements  on the  activities of SGBI or to
provide a competitive advantage to other companies that compete with SGBI. There
can be no  assurance  that FDA or other  regulatory  approval  for any  products
developed by SGBI will be granted on a timely  basis,  if at all or, if granted,
that compliance with regulatory  standards will be maintained.  Adverse clinical
results  by SGBI  could have a negative  impact on the  regulatory  process  and
timing. A delay in obtaining,  or failure to obtain,  regulatory approvals could
preclude or adversely  affect the  marketing of products and the  liquidity  and
capital  resources  of SGBI.  The  extent of  potentially  adverse  governmental
regulation that might result from future  legislation or  administrative  action
cannot be predicted.

SGBI will be subject to regulatory  authorities  in Germany and other  countries
governing  clinical trials and product sales.  Even if FDA approval is obtained,
approval  of a  product  by  the  comparable  regulatory  authorities  of  other
countries must be obtained prior to the commencement of marketing the product in
those  countries.  The approval  process  varies from country to country and the
time required may be longer or shorter than that required for FDA approval.  The
foreign  regulatory  approval  process includes all of the risks associated with
obtaining FDA approval set forth above,  and approval by the FDA does not ensure
approval  by the  health  authorities  of any  other  country.  There  can be no
assurance that any foreign  regulatory agency will approve any product submitted
for review by SGBI.

SGBI is  subject to  various  federal,  state and local  laws,  regulations  and
recommendations   relating   to  safe   working   conditions,   laboratory   and
manufacturing  practices,  the  experimental  use of  animals  and  the  use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious  disease  agents,  used in connection with its research
work. The extent and character of governmental regulation that might result from
future legislation or administrative action cannot be accurately predicted.

INTENSE COMPETITION

Competition in the biotechnology and pharmaceutical industries is intense and is
expected  to  increase.  SGBI and its  subsidiaries  compete  directly  with the
research  departments of biotechnology and  pharmaceutical  companies,  chemical
companies and,  possibly,  joint  collaborations  between chemical companies and
research  and  academic  institutions.  Management  of SGBI is aware  that other
companies  and  businesses  have  developed and are in the process of developing
technologies  and  products  which  may be  competitive  with the  products  and
technologies developed and offered by SGBI. The biotechnology and pharmaceutical
industries  continue to undergo  rapid  change.  There can be no assurance  that
competitors have not or will not succeed in developing technologies and products
that are more effective than any which have been or are being  developed by SGBI
or which would render the technology and products of SGBI obsolete.  Many of the
competitors  of  SGBI  have  substantially  greater  experience,  financial  and
technical resources and production,  marketing and development capabilities than
SGBI.  Accordingly,  certain  of those  competitors  may  succeed  in  obtaining
regulatory approval for products more rapidly or effectively than SGBI.


                                      -10-
<PAGE>

UNCERTAINTIES ASSOCIATED WITH PATENTS AND PROPRIETARY RIGHTS

The success of SGBI and its  subsidiaries may depend in part on their ability to
obtain patents for their  technologies and products,  if any, resulting from the
application  of such  technologies,  to  defend  patents  once  obtained  and to
maintain trade secrets, both in the United States and in foreign countries.

The success of SGBI will also depend upon avoiding the  infringement  of patents
issued  to  competitors.  There  can be no  assurance  that SGBI will be able to
obtain  patent  protection  for  products  based  upon the  technology  of SGBI.
Moreover,  there  can be no  assurance  that any  patents  issued to SGBI or its
subsidiaries  will not be challenged,  invalidated or  circumvented  or that the
rights  granted  there  under  will  provide  competitive  advantages  to  SGBI.
Litigation,  which could result in substantial cost to SGBI, may be necessary to
enforce  the patent and  license  rights of SGBI or to  determine  the scope and
validity of its and others' proprietary rights.

Due to the length of time and expense  associated  with  bringing  new  products
through  development  and the  length  of  time  required  for the  governmental
approval  process,   the  biotechnology  and   pharmaceutical   industries  have
traditionally placed considerable importance on obtaining and maintaining patent
and trade secret  protection  for  significant  new  technologies,  products and
processes.   The   enforceability   of  patents  issued  to  biotechnology   and
pharmaceutical  firms can be highly  uncertain.  U.S.  Federal  court  decisions
establishing  legal  standards for determining the validity and scope of patents
in the field are in  transition.  In addition,  there can be no  assurance  that
patents  will be  issued  or, if  issued,  any such  patents  will  afford  SGBI
protection from infringing patents granted to others.

A number  of  biotechnology  and  pharmaceutical  companies,  and  research  and
academic institutions, have developed technologies, filed patent applications or
received patents on various  technologies that may be related to the business of
SGBI and its Subsidiaries.  Some of these technologies,  applications or patents
may conflict with the  technologies of SGBI. Such conflicts could also limit the
scope of the  patents,  if any,  that  SGBI or its  subsidiaries  may be able to
obtain or result in the denial of the patent applications of SGBI.

Many of the competitors of SGBI have, or are affiliated  with companies  having,
substantially  greater  resources than SGBI, and such competitors may be able to
sustain  the costs of  complex  patent  litigation  to a greater  degree and for
longer  periods of time than SGBI.  Uncertainties  resulting from the initiation
and  continuation  of any  patent or  related  litigation  could have a material
adverse  effect on the  ability of SGBI to compete  in the  marketplace  pending
resolution of the disputed matters.  Moreover,  an adverse outcome could subject
SGBI to  significant  liabilities  to third  parties and require SGBI to license
disputed rights from third parties or cease using the  technology.  In the event
that third parties have or obtain rights to intellectual  property or technology
used or needed by SGBI,  there can be no assurance  that any  licenses  would be
available to SGBI or would be available on terms reasonably acceptable to SGBI.

SGBI may rely on certain proprietary  technologies,  trade secrets, and know-how
that  are not  patentable.  Although  SGBI has  taken  steps  to  protect  their
unpatented   trade  secrets  and   technology,   in  part  through  the  use  of
confidentiality agreements with their employees,  consultants and certain of its
contractors,  there can be no assurance  that: (i) these  agreements will not be
breached;  (ii) SGBI would have adequate  remedies for any breach;  or (iii) the
proprietary  trade secrets and know-how of SGBI will not otherwise  become known
or be independently developed or discovered by competitors.

RISK OF PRODUCT LIABILITY; POTENTIAL UNAVAILABILITY OF INSURANCE

The business of SGBI will expose it to potential  product  liability  risks that
are inherent in the testing, manufacturing and marketing of human pharmaceutical
and  therapeutic  products.  SGBI  does not  currently  have  product  liability
insurance,  and  there can be no  assurance  that SGBI will be able to obtain or
maintain such insurance on acceptable terms or, if obtained, that such insurance
will be adequate to cover potential  product  liability claims or that a loss of
insurance coverage or the assertion of a product liability claim or claims would
not materially adversely affect the business, financial condition and results of
operations of SGBI. SGBI faces an inherent  business risk of exposure to product
liability  and  other  claims in the event  that the  development  or use of its
technology or products is alleged to have resulted in adverse effects. Such risk
exists even with respect to those products that are manufactured in licensed and
regulated   facilities  or  that  otherwise  possess  regulatory   approval  for
commercial  sale.  There can be no  assurance  that SGBI will avoid  significant
product liability exposure.


                                      -11-
<PAGE>

While  SGBI  has  taken,  and  will  continue  to  take,  what it  believes  are
appropriate  precautions,   there  can  be  no  assurance  that  it  will  avoid
significant  liability  exposure.  An  inability  to  obtain  product  liability
insurance at acceptable cost or to otherwise  protect against  potential product
liability  claims  could  prevent or inhibit the  commercialization  of products
developed  by SGBI.  A product  liability  claim  could have a material  adverse
effect on the business, financial condition and results of operations of SGBI.

UNCERTAINTIES RELATING TO PRICING AND THIRD-PARTY REIMBURSEMENT

The operating results of SGBI may depend in part on the availability of adequate
reimbursement  for  the  products  of  SGBI  from  third-party  payers,  such as
government  entities,  private health  insurers and managed care  organizations.
Third-party payers are increasingly  seeking to negotiate the pricing of medical
services and products. In some cases, third-party payers will pay or reimburse a
user or supplier of a product  for only a portion of the  purchase  price of the
product.  In the case of the  products  of SGBI,  payment  or  reimbursement  by
third-party  payers of only a portion  of the cost of such  products  could make
such products less attractive,  from a cost perspective, to users, suppliers and
physicians. There can be no assurance that reimbursement,  if available, will be
adequate.  Moreover,  certain  of the  products  of SGBI  may not be of the type
generally  eligible for  third-party  reimbursement.  If adequate  reimbursement
levels are not provided by government  entities or other third-party  payers for
the  products  of  SGBI,  the  business,  financial  condition  and  results  of
operations  of  SGBI  would  be  materially  adversely  affected.  A  number  of
legislative and regulatory  proposals aimed at changing the nation's health care
system have been proposed in recent years. While SGBI cannot predict whether any
such proposals will be adopted, or the effect that any such proposal may have on
its business,  such proposals,  if enacted, could have a material adverse effect
on the business, financial condition or results of operations of SGBI.

RISK OF PRODUCT RECALL; PRODUCT RETURNS

Product  recalls  may be  issued  at the  discretion  of SGBI,  the FDA or other
government agencies having regulatory  authority for product sales and may occur
due to disputed labeling claims,  manufacturing issues, quality defects or other
reasons.  No assurance  can be given that product  recalls will not occur in the
future.  Any product  recall could  materially  adversely  affect the  business,
financial  condition or results of operations of SGBI. There can be no assurance
that future recalls or returns would not have a material adverse effect upon the
business, financial condition and results of operations of SGBI.

RISKS OF INTERNATIONAL SALES AND OPERATIONS

SGBI's  results of operations  are subject to  fluctuations  in the value of the
Euro  against  the U.S.  Dollar  due to  SGBI's  German  subsidiaries.  Although
management of SGBI will monitor exposure to currency fluctuations,  there can be
no assurance that exchange rate  fluctuations  will not have a material  adverse
effect on the results of  operations  or  financial  condition  of SGBI.  In the
future,  SGBI could be required to sell its products in other currencies,  which
would make the  management of currency  fluctuations  more  difficult and expose
SGBI to greater risks in this regard.

The products of SGBI will be subject to numerous  foreign  government  standards
and regulations that are continually being amended.  Although SGBI will endeavor
to satisfy foreign technical and regulatory standards, there can be no assurance
that the  products of SGBI will comply with  foreign  government  standards  and
regulations,  or changes thereto,  or that it will be cost effective for SGBI to
redesign  its  products  to  comply  with such  standards  or  regulations.  The
inability  of SGBI to  design  or  redesign  products  to  comply  with  foreign
standards  could have a material  adverse effect on SGBI's  business,  financial
condition and results of operations.

LACK OF COMMERCIAL MANUFACTURING AND MARKETING EXPERIENCE

SGBI has not yet  manufactured  its  products,  in  commercial  quantities.  Its
subsidiaries will be engaged in manufacturing pharmaceutical products which will
be subject to stringent regulatory requirements.  No assurance can be given that
its  subsidiaries,  on a timely basis,  will be able to make the transition from
manufacturing  clinical  trial  quantities to commercial  production  quantities
successfully  or be able to arrange  for  contract  manufacturing.  SGBI and its
subsidiaries  have no experience in the sales,  marketing  and  distribution  of
products.  There can be no assurance that SGBI will be able to establish  sales,
marketing and distribution capabilities or make arrangements with collaborators,
licensees  or others to perform  such  activities  or that such  efforts will be
successful.

                                      -12-
<PAGE>

The  manufacture of the products of SGBI involves a number of steps and requires
compliance with stringent quality control  specifications imposed by SGBI and by
the FDA.  Moreover,  SGBI's products can only be manufactured in a facility

that has undergone a satisfactory inspection by the FDA. For these reasons, SGBI
would not be able to  quickly  replace  its  manufacturing  capacity  if it were
unable  to use its  manufacturing  facilities  as a  result  of a fire,  natural
disaster (including an earthquake), equipment failure or other difficulty, or if
such facilities are deemed not in compliance  with the FDA's Good  Manufacturing
Practice  ("GMP")  requirements  and the  non-compliance  could  not be  rapidly
rectified.  The  inability  or reduced  capacity  of SGBI to  manufacture  their
products would have a material  adverse effect on SGBI's business and results of
operations.

SGBI may enter into arrangements with contract manufacturing companies to expand
its production  capacities in order to satisfy requirements for its products, or
to attempt to improve manufacturing  efficiency. If SGBI chooses to contract for
manufacturing  services and encounters  delays or  difficulties  in establishing
relationships with manufacturers to produce, package and distribute its finished
products,  clinical  trials,  market  introduction  and subsequent sales of such
products would be adversely affected.  Further, contract manufacturers must also
operate in compliance  with the FDA's GMP  requirements;  failure to do so could
result in, among other things, the disruption of product supplies.

HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS

The research and development  processes of SGBI involve the controlled  storage,
use and disposal of hazardous materials.  SGBI is subject to federal,  state and
local  laws  and  regulations  governing  the  use,  generation,  manufacturing,
storage,  handling,  and disposal of such materials and certain waste  products.
Although  SGBI  does not  currently  manufacture  commercial  quantities  of its
product  candidates,  it produces  limited  quantities  of such products for its
clinical  trials and SGBI intends to  manufacture  commercial  quantities of its
products.  Although SGBI believes  that its safety  procedures  for handling and
disposing of such  materials  comply with the standards  prescribed by such laws
and  regulations,  the risk of  accidental  contamination  or injury  from these
materials  cannot be  completely  eliminated.  In the event of such an accident,
SGBI could be held liable for any damages  that result,  and any such  liability
could exceed the resources of SGBI. There can be no assurance that SGBI will not
be  required  to incur  significant  costs to  comply  with  current  or  future
environmental  laws and regulations nor that the operations,  business or assets
of SGBI will not be  materially  or  adversely  affected  by  current  or future
environmental laws or regulations.

DEPENDENCE ON MAJOR CUSTOMERS

Since the  Company  sold its major  test kit  business  to  Axis/Shield  and its
remaining  test kit business to  Biomerica,  Inc. , in July,  2002,  there is no
longer a customer base.

HUMAN RESOURCES

The Company  considers its relations  with its employees to be favorable.  As of
June 30, 2003 the Company and its subsidiaries had 7 fulltime employees of which
4  were  involved  in  research  and  development  and 3  were  responsible  for
administrative   matters.  The  Company  had  consulting   arrangements  with  1
individual as of that date.

REPORTS TO SECURITY HOLDERS

Copies of the  Company's  reports,  as filed with the  Securities  and  Exchange
Commission, are available and can be accessed and downloaded via the internet at
http://www.sec.gov/cgi-bin/srch-edgar,  and  simply  typing in  "Sangui  Biotech
International."

ITEM 2. PROPERTIES

The Company's US laboratory  facility  consisted of  approximately  3,360 square
feet  located in Santa Ana,  California.  Rent expense for the fiscal year ended
June 30, 2003 was approximately  $23,000.  The facility was closed in the course
of the first quarter, ended September 30, 2002.

The German subsidiary is based in the Forschungs- und Entwicklungszentrum of the
University Witten/Herdecke, Germany. Rent expense for the fiscal year ended June
30, 2003 was approximately $99,000.


                                      -13-
<PAGE>

The Singaporean subsidiary, approximately 350 square meters, used to be based in
the Science  Park II,  Gemini  Building.  Rent expense for the fiscal year ended
June 30, 2003 was approximately  $12,000.  The facility was closed in the course
of the second quarter, ended December 31, 2002.

ITEM 3. LEGAL PROCEEDINGS

On July 26,  2001,  the Company  filed a lawsuit in the United  States  District
Court for the  District of Colorado  against  Helmut  Kappes,  a director of the
Company.  In the  lawsuit,  the Company  alleges  that Mr.  Kappes is engaged in
conduct  related to the Company's  affairs that is  fraudulent,  dishonest and a
gross abuse of his  authority or  discretion  as a director and that his removal
from the  Company's  Board of  Directors  would be in the best  interest  of the
Company.  Among other  things,  the Company  alleges that Mr.  Kappes caused the
Company  to  enter  into a  contract  with  Axel  Kleinkorres  without  adequate
disclosure of Mr. Kappes's  conflicts of interest and that the remuneration paid
to Mr.  Kleinkorres  was excessive.  The Company also alleges that Mr. Kappes is
engaged in an improper  exchange offer campaign  involving the Company's shares.
The Court issued a Temporary  Restraining  Order  suspending Mr. Kappes from the
Board of Directors of the Company and  restraining  Mr. Kappes from pursuing the
exchange offer.  The Temporary  Restraining  Order has expired.  The Company has
filed a Motion for  Preliminary  Injunction.  The  Company  seeks the  permanent
removal of Mr.  Kappes from the  Company's  Board of  Directors,  an  injunction
against Mr. Kappes and his affiliates from  exchanging the Company's  shares for
shares of an entity in which Mr. Kappes has a financial  interest,  compensatory
damages in an amount to be  determined  and costs of the action.  Mr. Kappes has
filed an answer denying the Company's claims. In October 2002, the Court granted
the motion of counsel  to Mr.  Kappes to  withdraw  from  representation  of Mr.
Kappes.  Upon  consideration  by the Board of  Directors  of the legal  costs to
prosecute  the claims  against Mr.  Kappes and the  likelihood  of being able to
collect on any obtained  judgment,  the Company has  requested  its attorneys to
take the steps necessary to dismiss the liability claim.

In September 2002, Mr. Kappes' wife, Kerstin Kappes, and Petra  Schwab-Kutscher,
the  wife of Axel  Kutscher,  who is a former  director  of the  Company  and an
associate of Mr. Kappes, commenced an action in the United States District Court
for the District of Colorado  against the Company and its  attorneys for alleged
wrongful  refusal  to permit  Mrs.  Kappes and Mrs.  Kutscher  to  transfer  the
Company's stock In November 2002, the Company  finalized a settlement  agreement
with Mr. and Mrs. Kappes and Mrs. Kutscher  providing for the permitted transfer
by them of their Company stock under certain  conditions.  No money will be paid
by the Company in  connection  with the  settlement.  The legal  action has been
dismissed.

On August 10, 2002,  Sieglinde  Borchert,  a former director of Sangui BioTechAG
and Gluko  Meditech  AG,  filed a lawsuit  against  the two German  Corporations
alleging that she is still member of the Board of Management of these Companies.
The parties  agreed on a settlement in January  2003,  which was approved by the
Court. The legal action has been dismissed.

The Company's wholly owned  subsidiary,  Sangui AG, was a party defendant in the
matter  of Dora  Malek v.  Sangui  AG,  District  Court of  Landgericht  Bochum,
Germany,  File No. 12 O 55/03. The Plaintiff had alleged that on March 14, 2003,
at a special meeting of the shareholders of Sangui BioTech AG, Sangui Biotech AG
dismissed Ms. Malek as a member of the Supervisory  Board and that the dismissal
was in  violation  of German law and thus void and of no force or  effect.  In a
written statement to the Court of May 14th, 2003, Sangui BioTech AG acknowledged
Ms.  Malek's plea. On June 23, 2003,  the Court issued an order  confirming  Ms.
Malek is a member of the Supervisory Board of Sangui Biotech AG. The Company had
to cover the costs of the action amounting to less than $2,000.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to our security  holders for approval  during the fourth
quarter covered by this Report.

PART II

ITEM 5. MARKET FOR SGBI'S SECURITIES

SGBI's common stock is presently  traded on the OTC Bulletin  Board  operated by
NASD  under  the  symbol  SGBI  as well as on the  OTC  markets  of the  Berlin,
Frankfurt and Hamburg stock exchanges in Germany.


                                      -14-
<PAGE>

The  following  table sets forth the high and low  closing  prices for shares of
SGBI common  stock for the fiscal  periods  noted,  as reported by the  National
Daily  Quotation  Service  and  the  OTC  Bulletin  Board.   Quotations  reflect
inter-dealer  prices,  without retail mark-up,  mark-down or commissions and may
not represent actual transactions.

                                            CLOSING PRICES (US$)
FISCAL YEAR       PERIOD                 HIGH                    LOW
---------------------------------------------------------------------
2003              First quarter          0.35                    0.15
                  Second quarter         0.35                    0.05
                  Third quarter          0.09                    0.05
                  Fourth quarter         0.30                    0.04

2002              First quarter          0.59                    0.28
                  Second quarter         0.43                    0.28
                  Third quarter          0.38                    0.25
                  Fourth quarter         0.65                    0.31

In addition to freely tradable shares,  SGBI has numerous shares of common stock
outstanding  which could be sold  pursuant  to Rule 144. In general,  under Rule
144,  subject  to the  satisfaction  of  certain  other  conditions,  a  person,
including one of our affiliates, who has beneficially owned restricted shares of
common  stock for at least one year is  entitled to sell,  in certain  brokerage
transactions,  within any three-month  period,  a number of shares that does not
exceed the greater of 1% of the total number of  outstanding  shares of the same
class,  or the average  weekly  trading  volume during the four  calendar  weeks
immediately  preceding  the sale. A person who  presently is not and who has not
been an affiliate for at least three months  immediately  preceding the sale and
who has beneficially  owned the shares of common stock for at least two years is
entitled to sell such shares under Rule 144 without  regard to any of the volume
limitations described above.

At June 30, 2003, the number of record holders of the Company's common stock was
1,387.  The Company did not pay any cash dividends  during the past three fiscal
years and does not contemplate paying dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

During the fiscal year ended June 30,  2003,  the Company  issued no  additional
shares of common stock nor any other sort of securities.


                                      -15-
<PAGE>

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The  preparation  of  consolidated   financial  statements  in  conformity  with
accounting  principles  generally  accepted in the United States  requires us to
make  estimates  and  judgments  that  affect  the  reported  amounts of assets,
liabilities,  revenue, expenses, and related disclosure of contingent assets and
liabilities.  We believe the following critical  accounting  policies affect our
more  significant  judgments  and  estimates  used  in  the  preparation  of our
consolidated  financial  statements.   Actual  results  may  differ  from  these
estimates under different assumptions or conditions.

GRANTS

The Company  received grants from the German  government which were used to fund
research and development  activities and the  acquisition of equipment.  Revenue
from grants for the  reimbursement  of research  and  development  expenses  are
offset against  research and development  expenses when the related expenses are
incurred. Grants related to the acquisition of tangible property are recorded as
a reduction of the property's historical cost.

The following discussion contains forward-looking statements that are subject to
business and economic risks and uncertainties,  and the Company's actual results
could differ  materially from these  forward-looking  statements.  The following
discussion  regarding the financial  statements of the Company should be read in
conjunction with the financial statements and notes thereto.

FISCAL 2003 COMPARED TO FISCAL 2002

FINANCIAL POSITION

The Company's  current assets decreased  approximately $2 million,  or 50%, from
June 30, 2002 to  approximately  $2 million at June 30,  2003.  The  decrease is
primarily  attributable  to a  decrease  in  available  for sale  securities  of
approximately  $1.8 million,  a decrease in grant  receivable  of  approximately
$214,000,  a decrease in accounts  receivable of  approximately  $85,000,  and a
decrease in inventories of approximately  $52,000,  combined with an increase in
cash and cash equivalents of approximately  $124,000.  The decrease in available
for sale securities results primarily from funding the current year's operations
of the Company with little or no revenues in the year ended June 30, 2003.

The Company's net property and equipment decreased  approximately  $350,000,  or
68%, from June 30, 2002 to approximately $160,000 at June 30, 2003. The decrease
is primarily  attributable to the Company's write-off of approximately  $107,000
of leasehold  improvements at Sangui Singapore and current year  depreciation of
approximately $309,000.

The Company funded its operations  primarily through its existing cash reserves.
The Company's  stockholders'  equity  decreased  approximately  $2 million.  The
primary  decrease  is  caused  by  the  Company's   current  year  net  loss  of
approximately  $2.3  million,  combined  with an increase in  accumulated  other
comprehensive   income  of  approximately   $330,000  due  to  foreign  currency
translation adjustments and unrealized gains on marketable securities.

RESULTS OF OPERATIONS

SANGUI AG

RESEARCH AND  DEVELOPMENT.  Research and development  expenses  decreased 34% to
approximately  $847,000  in 2003 from  approximately  $1,287,000  in 2002.  This
decrease of  $440,000  is due to the  refocusing  of  research  and  development
activities  and halting of the  large-scale  oxygen  carrier and glucose  sensor
projects in 2003.

GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 17% to
approximately  $855,000  in 2003 from  approximately  $1,030,000  in 2002.  This
decrease of $175,000 is attributed to decreases in operating expenses due to the
ongoing cost-cutting programs.

Sangui BioTech International, Inc.
----------------------------------

GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 20% to
approximately  $341,000  in 2003  from  approximately  $425,000  in  2002.  This
decrease is primarily


                                      -16-
<PAGE>

related to legal costs  incurred  in 2002 by the Company in a lawsuit  against a
former  director of the Company and a decrease in  professional  and  consulting
fees.

COMPENSATION  EXPENSE RELATED TO STOCK OPTIONS.  Compensation expense related to
stock options was $1,000,000 in 2002, which  represented the amortization of the
fair value of stock  options  previously  issued to the chairman of the Company.
Effective  June  30,  2002,  these  options  were  cancelled  and  there  is  no
compensation expense related to stock options in 2003.

AMORTIZATION OF PREPAID CONSULTING FEES. Amortization of prepaid consulting fees
was approximately $661,000 in 2002. At June 30, 2002, management determined that
no more benefit would be received in relation to the prepaid consulting fees and
accordingly the unamortized balance was written off in fiscal 2002. Accordingly,
there was no amortization in 2003.

CONSOLIDATED

NET  LOSS.  As a result  of the above  factors  and the loss  from  discontinued
operations,  the Company's consolidated net loss was approximately $2.3 million,
or $0.06 per common share, in 2003,  compared to approximately $4.8 million,  or
$0.12 per common share, in 2002.


                                      -17-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

For the  year  ended  June  30,  2003,  net cash  used in  operating  activities
decreased to approximately  $2.0 million from approximately $2.8 million for the
year ended June 30,  2002,  primarily  related  to a decrease  in the  Company's
consolidated net loss as a result of the ongoing refocusing program.

For the year ended June 30,  2003,  net cash  provided by  investing  activities
increased to approximately $1.9 million from approximately $833,000 for the year
ended June 30, 2002.  The  principal  increase in cash is due to the maturity of
marketable securities and decrease in purchases of marketable securities.

Working capital was  approximately  $1.9 million at June 30, 2003, a decrease of
approximately $1.6 million from June 30, 2002 due primarily to the Company's net
loss for the year. A substantial  portion of the Company's total assets consists
of cash and marketable  securities  classified as available for sale securities.
The highly liquid nature of these assets  provides the Company with  flexibility
in  financing  and  managing  its  business.  For the year ended June 30,  2003,
realized  gains  on  the  Company's  marketable  securities  were  approximately
$55,000, and unrealized net gains of approximately $118,000.

At June 30,  2003 the  Company  had cash and  liquid  marketable  securities  of
approximately $1.8 million. The Company believes that its available cash will be
sufficient to satisfy its  requirements for at least the fiscal year ending June
30, 2004.

Sangui AG has  entered  negotiations  with  distribution  partners  for its skin
regeneration and related products.  The current state of marketing  preparations
has induced  management  to believe  that  revenues  from these  products may be
obtainable in the course of the current fiscal year.  Given the cost containment
achieved during the  restructuring  management  believes that the Company's cash
position should be sufficient to cover its financing for at least another fiscal
year and that the planned revenues should help to build a sustainable  financial
basis.

However,  the Company  will need  substantial  additional  funding to fulfil 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.


                                      -18-
<PAGE>

ITEM 7: FINANCIAL STATEMENTS

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Sangui BioTech International, Inc.

We have audited the  accompanying  consolidated  balance sheet of Sangui BioTech
International,  Inc. and its  subsidiaries  (collectively,  the "Company") as of
June 30,  2003,  and the  related  consolidated  statements  of  operations  and
comprehensive loss,  stockholders'  equity, and cash flows for each of the years
in the two-year period then ended. These consolidated  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall 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 Sangui  BioTech
International, Inc. and its subsidiaries as of June 30, 2003, and the results of
their  operations  and their  cash  flows for each of the years in the  two-year
period then ended in conformity with accounting principles generally accepted in
the United States of America.



CORBIN & COMPANY, LLP

Irvine, California, U.S.A.
September 9, 2003




                                      F-1
<PAGE>


                       SANGUI BIOTECH INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEET

                                     ASSETS

                                                                      June 30,
                                                                       2003
                                                                   ------------
Current assets
      Cash and cash equivalents                                    $    956,531
      Available for sale securities                                     799,068
      Taxes receivable                                                  182,820
      Prepaid expenses and other assets                                  91,416
                                                                   ------------
           Total current assets                                       2,029,835
Property and equipment-net                                              160,117
Patents and licenses-net                                                 19,804
                                                                   ------------
Total assets                                                       $  2,209,756
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
      Accounts payable and accrued expenses                        $    125,816
                                                                   ------------
Commitments and contingencies
Stockholders' equity
      Preferred stock, no par value, 5,000,000 shares
        authorized, no shares issued and outstanding                         --
      Common stock,  no par value, 50,000,000 shares
        authorized, 40,655,363 shares issued and outstanding         18,345,491
      Additional paid-in capital                                      2,000,000
      Accumulated other comprehensive income                            492,706
      Accumulated deficit                                           (18,754,257)
                                                                   ------------
      Total stockholders' equity                                      2,083,940
                                                                   ------------
Total liabilities and stockholders' equity                         $  2,209,756
                                                                   ============

                                      F-2
<PAGE>

                       SANGUI BIOTECH INTERNATIONAL, INC.
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

                                                       Year ended June 30,
                                                   ------------    ------------
                                                       2003            2002
                                                   ------------    ------------
Revenues                                           $         --    $         --
Operating expenses:
Research and development                                846,657       1,287,193
General and administrative                            1,196,272       1,561,252
Depreciation and amortization                           309,024         148,262
Compensation expense related to stock options                --       1,000,000
Amortization of prepaid consulting fees                      --         661,169
                                                   ------------    ------------
Total operating expenses                              2,351,953       4,657,876
Other income:
Interest income                                          68,913          70,940
Other income                                            111,414          95,290
                                                   ------------    ------------
Total other income                                      180,327         166,230
Loss from continuing operations                      (2,171,626)     (4,491,646)
Loss from discontinued operations                      (138,997)       (305,862)
                                                   ------------    ------------
Net loss                                             (2,310,623)     (4,797,508)
Other comprehensive income:
Foreign currency translation adjustments                254,011         468,218
Unrealized gain on marketable securities                 75,753          51,094
                                                   ------------    ------------
Comprehensive loss                                 $ (1,980,859)   $ (4,278,196)
                                                   ============    ============
Net loss available to common shareholder per
   common share:
Net loss from continuing operations                $      (0.05)   $      (0.11)
                                                   ============    ============
Net loss from discontinued operations              $      (0.01)   $      (0.01)
                                                   ============    ============
Net loss                                           $      (0.06)   $      (0.12)
                                                   ============    ============
Basic and diluted weighted average
number of common shares outstanding                  40,655,363      40,622,703
                                                   ============    ============

                                      F-3
<PAGE>

                       Sangui Biotech International, Inc.
                 Consolidated Statements of Stockholders' Equity

For the years ended June 30, 2003 and 2002

<TABLE>
<CAPTION>
                                                                                                               Accumulated
                                                          Common Stock          Additional                        Other
                                                  -------------------------      Paid-in         Prepaid       Comprehensive
                                                    Shares       Amount          Capital     Consulting Fees   Income (Loss)
                                                  --------------------------------------------------------------------------
<S>                                               <C>          <C>            <C>            <C>             <C>
Balance at July 1, 2001                           40,514,363   $ 18,305,881   $  1,000,000   $   (661,169)   $   (356,370)
Compensation expense related to stock options             --             --      1,000,000             --              --
Amortization of prepaid consulting fees                   --             --             --        661,169              --
Issuance of common stock for consulting              141,000         39,610             --             --              --
Currency translation adjustments                          --             --             --             --         468,218
Unrealized gain on marketable securities
and cash equivalents                                      --             --             --             --          51,094
Net loss                                                  --             --             --             --              --
                                                  --------------------------------------------------------------------------
Balance at June 30, 2002                          40,655,363     18,345,491      2,000,000             --         162,942
Currency translation adjustments                          --             --             --             --         254,011
Unrealized gain on marketable securities
and cash equivalents                                      --             --             --             --          75,753
Net loss                                                  --             --             --             --              --
                                                  --------------------------------------------------------------------------
Balance at June 30, 2003                          40,655,363   $ 18,345,491   $  2,000,000   $         --    $    492,706
                                                  ==========================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                    Total
                                                Accumulated      Stockholders'
                                                  Deficit          Equity
                                               ----------------------------
<S>                                            <C>             <C>
Balance at July 1, 2001                        $(11,646,126)   $  6,642,216
Compensation expense related to stock options            --       1,000,000
Amortization of prepaid consulting fees                  --         661,169
Issuance of common stock for consulting                  --          39,610
Currency translation adjustments                         --         468,218
Unrealized gain on marketable securities
and cash equivalents                                     --          51,094
Net loss                                         (4,797,508)     (4,797,508)
                                               ----------------------------
Balance at June 30, 2002                        (16,443,634)      4,064,799
Currency translation adjustments                         --         254,011
Unrealized gain on marketable securities
and cash equivalents                                     --          75,753
Net loss                                         (2,310,623)     (2,310,623)
                                               ----------------------------
Balance at June 30, 2003                       $(18,754,257)   $  2,083,940
                                               ============================
</TABLE>

                                      F-4
<PAGE>

                       SANGUI BIOTECH INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  Year ended June 30,
                                                                              -----------    -----------
                                                                                  2003           2002
                                                                              -----------    -----------
<S>                                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                      $(2,310,623)   $(4,797,508)
Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                               309,024        194,581
      Realized gain on sale of assets of discontinued operations                  (16,980)            --
      Loss on impairment of assets                                                106,927             --
      Realized gains on marketable securities                                     (55,072)       (61,000)
      Compensation expense related to stock options                                    --      1,000,000
      Amortization of prepaid consulting fees                                          --        661,169
      Foreign exchange transactions gains                                          (3,000)       (15,000)
      Estimated fair market value of common stock issued for
         services rendered                                                             --         39,610
Changes in operating assets and liabilities:
      Accounts receivable                                                          84,919         44,009
      Grant receivable                                                            214,321       (208,138)
      Inventories                                                                  16,362         18,309
      Taxes receivable                                                             56,347       (124,763)
      Prepaid expenses and other assets                                            43,789        146,944
      Accounts payable and accrued expenses                                      (441,415)       278,614
                                                                              -----------    -----------
Net cash used in operating activities                                          (1,995,401)    (2,823,173)
                                                                              -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of marketable securities                                       (1,684,600)    (4,846,151)
      Maturities of marketable securities                                       3,678,031      5,877,557
      Payment on note receivable                                                   20,000             --
      Purchase of property and equipment, patents and licenses                    (48,163)      (198,905)
                                                                              -----------    -----------
Net cash provided by investing activities                                       1,965,268        832,501
                                                                              -----------    -----------
Effect of exchange rate changes                                                   154,534        468,218
                                                                              -----------    -----------
Net decrease in cash and cash equivalents                                         124,401     (1,522,454)
Cash and cash equivalents, beginning of period                                    832,130      2,354,584
                                                                              -----------    -----------
Cash and cash equivalents, ending of period                                   $   956,531    $   832,130
                                                                              ===========    ===========
Supplemental disclosures:
      Cash paid during the period for:
      Interest                                                                $        --    $     1,127
                                                                              ===========    ===========
      Income taxes                                                            $       800    $       800
                                                                              ===========    ===========
</TABLE>

During the year ended June 30, 2003, the Company  recorded a note receivable for
$60,000 from the sale of inventory  and  equipment  related to its  discontinued
operations, which is recorded in prepaid expenses and other assets.

                                      F-5
<PAGE>

SANGUI BIO TECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2003

NOTE  1  -  ORGANIZATION AND 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 products.

On June 30, 2003, GlukoMediTech AG ("Gluko AG") was merged into SanguiBioTech AG
("Sangui AG"). After completion of the merger, Sangui AG, which is headquartered
in Witten,  Germany, is engaged in the development of artificial oxygen carriers
(external  applications of hemoglobin,  blood substitute and blood additives) as
well as in the development of glucose implant sensors.

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 (see Note 8). Sangui BioTech
PTE Ltd. ("Sangui Singapore") was a regional office for the Company that carried
out research and development projects in conjunction with Sangui AG. The Company
discontinued the operations of Sangui Singapore in August 2002 (see Note 8). 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 domestic and foreign subsidiaries. All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.  Certain amounts in fiscal 2002 have been reclassified to conform
to the  fiscal  2003  presentation.  These  reclassifications  have no effect on
previously reported net loss.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  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
respective  reporting period.  Actual results could differ from those estimates.
Significant  estimates made by management are, among others,  the realization of
long-lived assets, and valuation allowance on deferred tax assets.

Risks and Uncertainties
-----------------------

The Company's line of future  pharmaceutical  and cosmetic products  (artificial
oxygen  carriers or blood  substitute  and  additives)  as well as other medical
products  being  developed  by Sangui  AG,  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.

                                      F-6
<PAGE>

The Company's  management  believes,  based on its current  operating  plan, its
current cash and marketable  securities  balances  totaling  approximately  $1.8
million at June 30, 2003,  are  sufficient to fund the Company's  operations and
working capital requirements at least through June 30, 2004. The Company is also
considering various debt or equity funding  opportunities.  However, the Company
will need  substantial  additional  funding to fulfil 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.

Financial Instruments
---------------------

The  Company has  financial  instruments  whereby  the fair market  value of the
financial  instruments  could be  different  than that  recorded on a historical
basis.  The  Company's  financial  instruments  consist  of its  cash  and  cash
equivalents,  marketable securities,  and accounts payable and accrued expenses.
The carrying  amount of the  Company's  cash and cash  equivalents  and accounts
payable and accrued  expenses  approximate  their  estimated  fair values due to
their short  maturities.  Marketable  securities  are stated at fair value based
upon quoted market prices and are classified as available-for-sale securities.

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.  During  fiscal  2003 and 2002,  the Company had
foreign  exchange  transaction  gains included in other income of  approximately
$3,000 and $15,000, respectively.

Cash and Cash Equivalents
-------------------------

The Company  maintains its cash in uninsured 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.

Marketable Securities
---------------------

Marketable securities are classified as available-for-sale. Unrealized gains and
losses are excluded  from net loss and are  reported as a separate  component of
other comprehensive  income in stockholders'  equity.  Realized gains and losses
are  included  in  other  income  and  are  determined  based  on  the  specific
identification of the securities bought and sold (see Note 2).

Taxes Receivable
----------------

Taxes  receivable  balance of $182,820 as of June 30, 2003 includes  foreign tax
withholdings refund claims of which approximately  $27,400 has been collected by
the Company subsequent to fiscal 2003 and the remaining balance of $155,420 will
be collected when the Company files its tax return for fiscal 2003.

Property and Equipment
----------------------

Property and  equipment  are recorded at cost and are  depreciated  or amortized
using the  straight-line  method over the estimated  useful lives of the related
assets,  which  range  from  three to five  years.  Leasehold  improvements  are
amortized using the straight-line method over the lesser of the estimated useful
lives of the assets or the related  lease  terms.  Depreciation  expense for the
years  ended June 30, 2003

                                      F-7
<PAGE>

and 2002 was approximately $283,000 and $177,000, respectively. Expenditures for
normal  maintenance and routine repairs are charged to expense,  and significant
improvements are capitalized.  The cost and related accumulated  depreciation of
assets are removed from the accounts upon  retirement or other  disposition  and
any  resulting  gain or loss is reflected in the  statement of  operations.  The
Company  will attempt to sell all of the  equipment  that it will no longer need
related to the halt of the subsidization  projects and might need to return some
of the  proceeds  received  from the sale of this  equipment  back to the German
government (see Note 10).

Patents and Licenses
--------------------

Patents  and  licenses  are  recorded  at  cost  and  are  amortized  using  the
straight-line method over their estimated useful lives, which range from four to
eight  years.  Amortization  expense for the years ended June 30, 2003 and 2002,
was approximately $26,000 and $17,000, respectively.

Impairment of Long-lived Assets
-------------------------------

Long-lived  assets and certain  identifiable  intangibles to be held and used by
the  Company  are  reviewed by the  management  of the  Company  for  impairment
whenever events or changes in circumstances  indicate that the carrying value of
an asset may not be recoverable.  As of June 30, 2003, management of the Company
believes  that no impairment  has been  indicated.  There can be no  assurances,
however,  that  market  conditions  will not change or demand for the  Company's
products will continue, which could result in impairment on long-lived assets in
the future.

Revenue Recognition
-------------------

Revenues from product sales are recognized at the time of shipment.

Research and Development
------------------------

Research and development  are charged to operations as they are incurred.  Legal
fees and other direct costs  incurred in obtaining  and  protecting  patents are
expensed as incurred.

Grants
------

The Company  received grants from the German  government which were used to fund
research and  development  activities and the acquisition of equipment (see Note
10).  Revenue  from grants for the  reimbursement  of research  and  development
expenses were offset against research and development  expenses when the related
expenses were incurred.  Grants related to the acquisition of tangible  property
were recorded as a reduction of the property's historical cost.

Income Taxes
------------

The Company  accounts for income taxes in accordance with Statement of Financial
Accounting  Standards ("SFAS") No. 109,  "Accounting for Income Taxes." Deferred
tax  assets  and  liabilities   are  recognized  for  future  tax   consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets and liabilities  and their  respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. A valuation  allowance is provided for certain deferred
tax assets  when it is more  likely  than not that such tax  assets  will not be
realized through future operations.

Accounting for Stock-based Compensation
---------------------------------------

The Company accounts for stock-based  compensation issued to employees using the
intrinsic value method in accordance with  Accounting  Principles  Board Opinion
No. 25,  "Accounting for Stock Issued to Employees" ("APB 25"), as amended.  The
Financial   Accounting  Standards  Board  ("FASB")  has  issued

                                      F-8
<PAGE>

SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation,"  which,  if fully
adopted,  changes the method of accounting for all  stock-based  compensation to
the fair value method.

In December  2002,  SFAS No. 148,  "Accounting  for  Stock-Based  Compensation -
Transition  and  Disclosure,"  was  issued.  SFAS No. 148 amends SFAS No. 123 to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based method of accounting for stock-based compensation. In addition, SFAS
No. 148 amends the disclosure  requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported  results.  The  provisions  of SFAS No. 148 are  effective  for
financial statements for fiscal years ending after December 15, 2002.

The effect on net loss and loss per share if the  Company  had  applied the fair
value   recognition   provisions  of  SFAS  No.  123  to  stock-based   employee
compensation  is immaterial for fiscal 2002.  There is no  stock-based  employee
compensation expense under APB 25 or pro forma adjustment under SFAS No. 123 for
fiscal  2003,  as the  Company  did not issue any  stock-based  compensation  to
employees since June 30, 2002 (see Note 5).

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 June 30, 2003 and 2002, the
Company had no potentially  dilutive  securities  that would effect 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 cash  equivalents and are recorded as components of stockholders'
equity.

Segments of an Enterprise and Related Information
-------------------------------------------------

The Company adopted SFAS No. 131,  "Disclosures  about Segments of an Enterprise
and Related  Information." SFAS No. 131 establishes standards for the way public
companies  report  information  about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly  reports issued to  stockholders.  It also requires  entity-wide
disclosures  about the products and  services an entity  provides,  the material
countries  in  which  it  holds  assets  and  reports  revenues,  and its  major
customers, if any (see Note 11).

New Accounting Pronouncements
-----------------------------

In May 2003, the Financial  Accounting  Standards Board ("FASB") issued SFAS No.
150, "Accounting for Certain Financial  Instruments with Characteristics of Both
Liabilities and Equity".  SFAS No. 150  establishes  standards for how an issuer
classifies and measures certain financial  instruments with  characteristics  of
both  liabilities  and equity.  It requires that an issuer  classify a financial
instrument  that is  within  its  scope  as a  liability  (or an  asset  in some
circumstances). SFAS No. 150 is effective for financial instruments entered into
or modified  after May 31, 2003,  and otherwise is effective at the beginning of
the first interim period  beginning after June 15, 2003. It is to be implemented
by reporting the  cumulative  effect of a change in an accounting  principle for
financial instruments created before the issuance date of SFAS No. 150 and still
existing at the beginning of the interim period of adoption.  Restatement is not

                                      F-9
<PAGE>

permitted.  The Company  does not expect the  adoption of SFAS No. 150 to have a
material  impact  upon  its  financial  position,   cash  flows  or  results  of
operations.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  -- Transition  and Disclosure - an Amendment of FASB Statement No.
123." This statement provides  alternative methods of transition for a voluntary
change  to  the  fair  value  method  of  accounting  for  stock-based  employee
compensation.   SFAS  No.  148  also  amends  the  disclosure  requirements  for
stock-based employee  compensation,  regardless of which method of accounting is
chosen.  Under  the  new  standard,  companies  must  report  certain  types  of
information  more  prominently  and  in a  more  understandable  format  in  the
footnotes to the financial statements,  and this information must be included in
interim as well as annual financial  statements.  SFAS No. 148 was effective for
the Company's  June 30, 2003 fiscal year. The Company has applied the disclosure
provisions  of SFAS No. 148 in its  consolidated  financial  statements  and the
accompanying notes.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness  of Others." FIN 45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial  statements about its
obligations under certain  guarantees that it has issued. It also clarifies that
a  guarantor  is required to  recognize,  at the  inception  of a  guarantee,  a
liability  for the fair  value  of the  obligation  undertaken  in  issuing  the
guarantee.  The initial recognition and initial measurement provisions of FIN 45
are effective for financial statements of interim or annual periods ending after
December  15, 2002.  The Company  adopted FIN 45 in fiscal 2003 and there was no
effect on its consolidated financial statements.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with  Exit or  Disposal  Activities."  SFAS No.  146  addresses  accounting  and
reporting for costs  associated  with exit or disposal  activities and nullifies
Emerging  Issues Task Force Issue No. 94-3,  "Liability  Recognition for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (Including
Certain  Costs  Incurred  in a  Restructuring)."  SFAS No. 146  requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
and measured  initially at fair value when the  liability is incurred.  SFAS No.
146 is  effective  for exit or  disposal  activities  that are  initiated  after
December 31, 2002, with early application  encouraged.  The adoption of SFAS No.
146 did not have a  material  effect  on the  Company's  consolidated  financial
statements.

NOTE 2 - AVAILABLE FOR SALE  SECURITIES
Available for sale securities consist of the following at June 30, 2003:

<TABLE>
<CAPTION>
                                                                                                     Unrealized
                                                            Cost             Fair Market Value          Gain
<S>                                                       <C>                      <C>             <C>
Corporate bonds due within one year                       $680,612                 $799,068        $  118,456

NOTE 3  -  PROPERTY  AND  EQUIPMENT

Property and equipment consists of the
following at June 30, 2003:

           Technical and laboratory equipment                                      $689,794
           Leasehold improvements                                                   250,724
           Office equipment                                                          30,008
                                                                         ------------------
                                                                                    970,526
           Less accumulated depreciation and amortization                          (810,409)
                                                                         ------------------
                                                                                   $160,117
                                                                         ==================
</TABLE>

                                      F-10
<PAGE>

NOTE  4  -  PATENTS AND LICENSES

At June 30,  2003,  patents  and  licenses  totaled  $124,186  less  accumulated
amortization of $104,382.

NOTE  5  -  STOCKHOLDERS'  EQUITY

Common Stock
------------

The Company is  authorized  to issue  50,000,000  shares of no par value  common
stock.  The holders of the  Company's  common stock are entitled to one vote for
each share held of record on all matters to be voted on by those stockholders.

In 1999, the Company issued 2,600,000 shares of its common stock to a consultant
in  exchange  for a public  relations/promotions  contract  covering  the period
January 1999 to December  2002, as amended in August 2000. The fair value of the
services,  $3,145,000, was being amortized ratably over the contract period. For
the year ended June 30,  2002,  the  Company  initially  recognized  $440,000 of
amortization  expense  leaving an  unamortized  balance of the prepaid  asset of
$221,169.  At June 30, 2002, management determined that no more benefit would be
received in relation to the prepaid consulting fee and accordingly wrote off the
remaining  balance of the prepaid asset of $221,169 to  amortization  of prepaid
consulting fees expenses.

During fiscal 2002, the Company issued 141,000 shares of restricted common stock
valued at $39,610 as payment for consulting services.

Preferred Stock
---------------

The Company is authorized to issue  5,000,000  shares of non-voting no par value
preferred stock. The Board of Directors has not designated any liquidation value
or dividend rates.

Stock Options
-------------

From time to time,  the  Company  may issue  stock  options  pursuant to various
agreements and other contemporary agreements.

In November 1999, pursuant to an agreement with its chairman, the Company issued
the chairman options to purchase 3,000,000 shares of common stock at an exercise
price of $0.01  valued at  $10,845,000  (under  APB 25).  The  options  could be
exercised at the time the Company  completes the  development  of the artificial
oxygen carrier or the implantable sensor and receives  regulatory  approval from
either Germany, the United States, or Singapore.  The Company was amortizing the
option value to compensation expense over the remaining estimated vesting period
of the options since the Company was in the process of developing the artificial
oxygen carrier and implantable sensor. The options were exercisable through June
30, 2009. As a result, the Company recognized compensation expense of $1,000,000
in fiscal 2002 related to the vesting of the options.  Effective  June 30, 2002,
these options were  cancelled by mutual  agreement of both  parties.  No further
compensation  expense was recorded as a result of the cancellation.  At June 30,
2003 and 2002,  and during the year ended June 30, 2003,  no options were issued
or outstanding.

NOTE 6  -  INCOME  TAX  PROVISION

No current provision for income taxes for the years ended June 30, 2003 and 2002
is required,  since the Company  incurred net operating  losses through June 30,
2003.

                                      F-11
<PAGE>

Income tax expense for the years ended June 30, 2003 and 2002  differed from the
amounts  computed by applying the U.S.  federal income tax rate of 34 percent as
follows:

<TABLE>
<CAPTION>
                                                                     2003           2002
                                                                 -----------    -----------
<S>                                                              <C>            <C>
Income tax benefit at U.S. federal statutory rates               $  (786,000)   $(1,631,000)
Net operating losses not benefited                                   921,800      1,631,800
State and local income taxes, net of federal income tax effect      (135,800)          (800)
                                                                 -----------    -----------
                                                                 $        --    $        --
                                                                 ===========    ===========
</TABLE>

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets at June 30, 2003 are presented below:

                 Deferred tax assets:
                 Net operating losses       $ 5,300,000
                 Less valuation allowance    (5,300,000)
                                            -----------
                 Net deferred tax assets    $        --
                                            ===========

As of June 30,  2003,  the  Company  had net  operating  loss  carryforwards  of
approximately  $5.3  million,  $2.7 million and $8.2  available to offset future
taxable federal, state and foreign income,  respectively.  The federal and state
carryforward  amounts  expire in  varying  amounts  between  2004 and 2013.  The
foreign net operating loss carryforwards do not have an expiration period.

NOTE 7  -  BASIC  AND  DILUTED  LOSS  PER  COMMON  SHARE

The following is a  reconciliation  of the  numerators and  denominators  of the
basic and diluted  loss per common share  computations  for the years ended June
30, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                                 2003             2002
                                                                            --------------    ------------
<S>                                                                         <C>               <C>
Numerator for basic and diluted loss per common share -  net loss           $   (2,310,623)   $ (4,797,508)
                                                                            ==============    ============
Denominator  for basic  and  diluted  loss per  common  share -  weighted
average shares                                                                  40,655,363      40,622,703
                                                                            ==============    ============
Basic and diluted loss per common share                                     $        (0.06)   $      (0.12)
                                                                            ==============    ============
</TABLE>

NOTE 8 - DISCONTINUED OPERATIONS

Sangui USA manufactured in vitro immunodiagnostic blood test kits that have been
primarily  sold  in the  United  States  and  Europe.  The  Company  decided  to
discontinue the in vitro immunodiagnostics  business in August 2002, sold Sangui
USA's  inventory and property and  equipment to an unrelated  party for $60,000,
and  closed the  facility.  The sale  resulted  in a gain of  $16,980,  which is
included  as part of  loss  from  discontinued  operations  in the  accompanying
statements  of operations  for the year ended June 30, 2003.  In July 2002,  the
Company  received  $100,000 as part of an agreement to cease  manufacturing  and
selling  certain  blood test kits which is  included  in loss from  discontinued
operations in the accompanying  statements of operations for the year ended June
30, 2003. The Company decided to discontinue the operations of Sangui  Singapore
in August  2002,  recorded an  impairment  loss on  property  and  equipment  of
$106,927, and closed the facility effective December 31, 2002.

                                      F-12
<PAGE>

Components of amounts reflected in the accompanying  consolidated  statements of
operations and comprehensive loss for the years ended June 30, 2003 and 2002 are
presented below:

<TABLE>
<CAPTION>
                                      2003                                   2002
                        SANGUI       SANGUI                     SANGUI      SANGUI
                         USA        SINGAPORE      Total         USA       SINGAPORE      Total
                       ---------    ---------    ---------    ---------    ---------    ---------
<S>                    <C>          <C>          <C>          <C>          <C>          <C>
Sales                  $ 138,542    $      --    $ 138,542    $ 571,742    $      --    $ 571,742
Cost of sales             94,747           --       94,747      364,182           --      364,182
Operating expenses        88,564      107,644      196,208      288,904      224,518      513,422
                       ---------    ---------    ---------    ---------    ---------    ---------
Loss from operations     (44,769)    (107,644)    (152,413)     (81,344)    (224,518)    (305,862)
Other income             116,980        3,363      120,343           --           --           --
Impairment of assets          --     (106,927)    (106,927)          --           --           --
                       ---------    ---------    ---------    ---------    ---------    ---------
Income (loss) from
 discontinued
 operations            $  72,211    $(211,208)   $(138,997)   $ (81,344)   $(224,518)   $(305,862)
                       =========    =========    =========    =========    =========    =========
</TABLE>

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company has an agreement with the Company's  President and CEO,  pursuant to
which he is entitled to 3% royalties of gross  revenues  earned with any product
based on his  inventions.  No  royalties  were paid or earned in fiscal 2003 and
2002.

Effective June 30, 2002,  options to purchase  3,000,000 shares of the Company's
common  stock,  which were  issued to the  President  and CEO of the  Company in
fiscal 2000, were cancelled (see Note 5).

NOTE 10  -  COMMITMENTS  AND  CONTINGENCIES

Operating Leases
----------------

The Company  leases its office and  laboratory  facilities  in Germany  under an
operating lease that expires in May 2004.

Future  minimum lease payments under this lease at June 30, 2003 are $68,000 for
the fiscal 2004.

Rent  expense was  approximately  $138,000 and $210,000 for the years ended June
30, 2003 and 2002, respectively.

Grants
------

In 1998 and 1999, Sangui AG and Gluko AG, respectively, received grants from the
government of the German state of North Rhine-Westphalia within the framework of
the  state's  technology  program  for  business   supporting  their  respective
development  projects.  These  grants  were  designed  to cover 40% of  eligible
research and development costs and capital expenditures subject to the Company's
ability to cover the  remaining  60% of the costs.  The grants for Sangui AG and
Gluko AG  originally  totaled  approximately  $1.8  million  and  $2.2  million,
respectively.

Through  December  31, 2002,  Sangui AG and Gluko AG had received  approximately
$1.3 million and $700,000,  respectively, to promote their development projects.
In  fiscal  2003 and 2002,  the  Company

                                      F-13
<PAGE>

recorded  approximately  $256,000  and  $379,000  of  research  and  development
expenditures,  respectively,  and $10,000  and $62,000 of capital  expenditures,
respectively.   The  grants  were  recorded  as  a  reduction  of  research  and
development  costs and as a reduction of the historical cost of certain property
and equipment.

At the beginning of 2003, the  subsidization  of the projects was halted because
it was  determined  that the  counter-financing  for the  attainment  of further
project  milestones  could no longer be  secured  with the  remaining  financial
resources of the Company. In addition, the Company will make efforts to sell all
of the  subsidized  equipment that it will no longer need first to its employees
and secondly to third  parties.  For any equipment that is sold to third parties
only, the Company must return the proportion of the proceeds that corresponds to
the   subsidy   level  to  the   government   of  the  German   state  of  North
Rhine-Westphalia.  The Company will also make efforts to find a successor tenant
for its clean  room in order to avert the  deconstruction  costs  that  would be
incurred  if Sangui AG had to return the  premises to their  original  condition
when they were first occupied. At present, the Company has not been able to sell
any of the subsidized  equipment or find a tenant.  The Company is  continuously
looking for  industrial  partners  for the oxygen  carrier  and  glucose  sensor
projects. Should this succeed, the projects, for which experiments have now been
halted, would be reactivated.

Litigation
----------

The Company is, from time to time,  involved in various litigation  resulting in
the ordinary course of operating its business.  Management is currently not able
to predict the outcome of these cases.  However,  management  believes  that the
amount of ultimate  liability,  if any,  with respect to these  actions will not
have a  material  effect on the  Company's  financial  position  and  results of
operations.

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.

NOTE 11 - BUSINESS SEGMENTS

The Company reports it business segments based on geographic regions,  which are
as follows as of June 30, 2003 and for the years ended June 30, 2003 and 2002:

                                                      2003              2002
                                                  -----------       -----------
NET SALES
Sangui AG                                         $        --       $        --
Sangui BioTech International, Inc.                         --                --
Sangui USA                                            138,542           571,742
Sangui Singapore                                           --                --
                                                  -----------       -----------
                                                  $   138,542       $   571,742
                                                  ===========       ===========
NET INCOME (LOSS)
Sangui AG                                         $(1,836,547)      $(2,321,281)
Sangui BioTech International, Inc.                   (335,079)       (2,170,365)
Sangui USA                                             72,211           (81,344)
Sangui Singapore                                     (211,208)         (224,518)
                                                  -----------       -----------
                                                  $(2,310,623)      $(4,797,508)
                                                  ===========       ===========
DEPRECIATION AND AMORTIZATION
Sangui AG                                             309,024           148,262
Sangui BioTech International, Inc.                         --                --
Sangui USA                                                 --            13,981
Sangui Singapore                                           --            32,338
                                                  -----------       -----------
                                                  $   309,024       $   194,581
                                                  ===========       ===========
IDENTIFIABLE ASSETS
Sangui AG                                         $ 2,044,106
Sangui BioTech International, Inc.                    165,650
Sangui USA                                                 --
Sangui Singapore                                           --
                                                  -----------
                                                  $ 2,209,756
                                                  ===========

                                      F-14
<PAGE>

ITEM 8. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON AN  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None

ITEM 8A. 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
Annual Report on Form 10-KSB. Based on such evaluation, they have concluded that
as of such date,  our  disclosure  controls and  procedures  are  effective  and
designed to ensure that  information  required to be  disclosed by us in reports
that we file or submit  under the  Securities  Exchange Act of 1934 is recorded,
processed,  summarized  and  reported  within  the  time  periods  specified  in
applicable  SEC rules and forms and that such  information  is  accumulated  and
communicated  to our  management,  including  CEO,  President  and CFO, to allow
timely  decisions  regarding  required  disclosure.

(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.


                                      -19-
<PAGE>

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS

The following  table sets forth the names and ages of the current  directors and
executive officers of Sangui BioTech International, Inc. (SGBI), their principal
offices  and  positions  and the date  each such  person  became a  director  or
executive  officer.  Our executive officers are elected annually by the Board of
Directors.  Our  directors  serve one year  terms  until  their  successors  are
elected.  The executive  officers  serve terms of one year or until their death,
resignation  or  removal  by  the  Board  of  Directors.  There  are  no  family
relationships  between any of the directors and executive officers. In addition,
there was no arrangement or understanding  between any executive officer and any
other person pursuant to which any person was selected as an executive officer.

The directors as of June 30, 2003 were as follows:

<TABLE>
<CAPTION>
NAME                                    AGE   ADDRESS                 RESIDENCE      CURRENT POSITION
-----------------------------------------------------------------------------------------------------------------
<S>                                     <C>   <C>                     <C>            <C>
Prof. Wolfgang Barnikol, M.D., Ph.D:     69   Arndtstr. 8             Germany        Chairman, President, Chief
                                              58453 Witten                           Executive Officer, Executive
                                                                                     Director

Dora Malek                               45   Saturnstr. 19           Germany        Non-Executive Director
                                              85609 Aschheim

Prof. Joachim Lutz, M.D., Ph.D.          70   Thueringer Str. 24      Germany        Non-Executive Director
                                              97078 Wuerzburg

Christoph Ludz, D of Business            40   Neuer Wall 54           Germany        Non-Executive Director
Administration                                20354 Hamburg

Markus Volpers, D of Biology.            43   Gleueler Str. 269       Germany        Non-Executive Director
                                              50935 Koln
</TABLE>

Dora Malek has  resigned  from her  position as member of the board of directors
effective September 15, 2003.

None of the  Directors  are  related  to one  another.  None of the  independent
Directors has a business or professional relationship with SGBI and/or the other
Directors and substantial shareholders of the Company.

The  day-to-day  operations of SGBI are entrusted to the Executive  Directors of
the Company who are  assisted by a  management  team of key  executive  officers
(Executive Officers).  The particulars of the Executive Officers as per June 30,
2003 are set out below:

<TABLE>
<CAPTION>
NAME                                 AGE  ADDRESS                     RESIDENCE       CURRENT POSITION
<S>                                  <C>  <C>                         <C>             <C>
Prof. Wolfgang Barnikol, M.D.,       69   Arndtstr. 8                 Germany         President and Chief
Ph.D:                                     58453 Witten                                Executive Officer
</TABLE>

The business and working  experience of the Directors and key Executive Officers
of the Company are set out below:

PROFESSOR WOLFGANG K. R. BARNIKOL,  M.D., Ph.D.,  Chairman,  President and Chief
Executive Officer, and Executive Director of the Company, has studied chemistry,
physics and medicine at the Universities of Munster,  Aachen and Mainz, Germany.
In 1961, he received a Diploma in chemistry  from  University  of Mainz,  Mainz,
Germany.  In 1964,  he obtained the  doctorate in physical  chemistry  (Dr. rer.
nat.) and in 1973 the doctorate in medicine (Dr.  med.) both from the University
of Mainz, Mainz,  Germany. In that same year, he also was appointed professor in
medical physiology at University of Mainz, Mainz Germany.  In 1996, Dr. Barnikol
was awarded a specialist  in medical  physiology by the medical  association  of
Rheinland-Pfalz  Germany. His research interest in physical chemistry focused on
the  polymerization  of styrene and the  determination  of molecular  weights of
polymers with the electron microscope. Dr. Barnikol's research areas in medicine
are:  (i)  respiration;  and  (ii)  blood  and  circulation.


                                      -20-
<PAGE>

In the  field  of  respiration,  he  works  on the  functional  analysis  of the
bronchial system and gas exchange. Moreover, he is engaged in the development of
respiratory and skin oxygen sensors.  In the field of blood and circulation,  he
works on the  development of artificial  oxygen  carriers for medical use, which
are based on  polymerised  soluble  hemoglobins.  As a third sphere of work, Dr.
Barnikol is engaged in the  development of an implantable  glucose  sensor.  Dr.
Barnikol  has  published  more  than 100  scientific  articles,  a  textbook  in
physiology and a review on the situation of German universities.

PROFESSOR JOACHIM LUTZ, M.D., Non-Executive Director,  professor and lecturer in
medical  physiology  in the  subject  area of the  vascular  system  and  venous
pressure  at  the  Physiological  Institute  of  the  Bavarian-Julius-Maximilian
University  in W rzburg  until  his  retirement  in 1998.  There he spent  years
evaluating artificial oxygen carriers in small animal models such as the magneto
metric  determination  of the impairment of the body's own macrophages  that are
responsible for  detoxification.  He is a member of the  International  Advisory
Committee on Blood Substitutes  (ISABI) as well as the International  Society on
Oxygen Transport to Tissue (ISOTT). He will accelerate  development work as well
as the  pre-clinical  and  clinical  testing  of blood  with  artificial  oxygen
carriers with his technical knowledge and experience.

CHRISTOPH LUDZ, Doctor of Business Administration, (born 1963), has been a major
shareholder of Sangui BioTech International Inc. for over three years. Christoph
Ludz is the Managing Director of Treukonzept GmbH, a financial  advisory company
located in Hamburg,  Germany. Prior to founding Treukonzept in 1998 he served in
the  Financial  Advice  and  Private  Placement   departments  of  private  bank
M.M.Warburg.  He moved there after having passed a two year bank  traineeship at
BHF Bank.  Christoph Ludz studied business  administration at Hamburg University
(examination   1988)  and  passed  his   doctoral   examinations   in   business
administration at the same institution in 1997.

MARKUS VOLPERS,  Doctor of Biology, (born 1960), is the CEO of ITB AG, a company
based in Cologne,  Germany, which focuses on IT-consulting and software services
for health care. ITB's main product is a hospital  information  system.  He also
founded two  companies  in India  specialising  in large  software  projects and
consulting  services mainly for US clients.  Prior to  establishing  ITB jointly
with two  partners  in 1993,  he had  directed  EnviControl  GmbH a company  for
research and distribution of biological early warning systems since 1989. Markus
Volpers holds a Diploma in Biology of Cologne  University  (1988) and passed his
doctoral examinations in biology at the same institution in 1994.

Section 16(a) of the U.S.  Securities Exchange Act of 1934 requires the officers
and  directors of the Company and those persons who  beneficially  own more than
10% of the  outstanding  stock of the  Company  to file  reports  of  securities
ownership and charges in such ownership with the SEC. Based solely upon a review
of copies of the reports filed,  the Company believes that during the year ended
June 30, 2003,  the filing  requirements  were complied with by its officers and
directors,  except that a former director of the Company, Mr. Helmut Kappes, did
not comply with such reporting requirements.

                                      -21-
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY COMPENSATION TABLE

The  following  SGBI  summary  compensation  table  shows  certain  compensation
information  for services  rendered in all capacities for the three fiscal years
ended June 30,  2003,  2002 and 2001.  No executive  officer's  salary and bonus
exceeded  $100,000 in any of the  applicable  years.  The following  information
includes the dollar value of base  salaries,  bonus awards,  the number of stock
options  granted  and  certain  other  compensation,  if  any,  whether  paid or
deferred.

<TABLE>
<CAPTION>
Name and Principal Position            Year    Salary (1)      Other      Stock        Underlying
                                                               Annual     Compen-       Awards             LTIP      All other
                                                               Bonus      sation        SARs (#)         Options   compensation
-------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>      <C>             <C>         <C>          <C>               <C>         <C>
Prof. Wolfgang Barnikol               2003     115,927           0           0              0               0           0
       Chairman, CEO                  2002     115,884           0           0              0               0           0
                                      2001     105,922           0           0      3,000,000 (2)           0           0
Oswald Burkhard                       2003           0           0           0              0               0           0
        Vice President                2002           0           0           0              0               0           0
                                      2001        4775           0           0              0               0           0
Sieglinde Borchert                    2003           0           0           0              0               0           0
                                      2002      40,853           0           0              0               0           0
                                      2001      54,697           0           0              0               0           0
Detlev Frhr. Von Linsingen            2003           0           0           0              0               0           0
                                      2002      76,017           0           0              0               0           0
                                      2001       6,512           0           0              0               0           0
Harald Poetzschke                     2003           0           0           0              0               0           0
                                      2002      46,972           0           0              0               0           0
                                      2001      36,465           0           0              0               0           0
Patrick Onishi                        2003      13,389           0           0              0               0           0
         Secretary                    2002      70,000           0           0              0               0           0
                                      2001      70,000           0           0              0               0           0
</TABLE>

     (1) All figures are expressed in United  States  Dollars  ("USD");  for the
     German management personnel,  the EURO or DM was converted to USD as of the
     fiscal year end of each year.

     (2) These options were cancelled as of June 30, 2002.

COMPENSATION OF DIRECTORS

To date, Directors of the Company have not received any compensation for serving
in such capacity.

EMPLOYMENT AGREEMENTS

The Company and its  subsidiaries  have  employment  agreements with each of its
officers or key employees.  Professor Barnikol has an agreement with the Company
pursuant to which he is entitled to 3% royalties of gross  revenues  earned with
any product based on his inventions.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  following  table  sets  forth  certain  information   regarding  beneficial
ownership of the common stock of SGBI as of the date of this report by:

*    each person or entity known to own beneficially  more than 5% of the common
     stock;

*    each of SGBI's directors;

*    each of SGBI's named executive  officers;  and * all executive officers and
     directors of SGBI as a group.


                                      -22-
<PAGE>

<TABLE>
<CAPTION>
Title of Class      Name and Address                          Amount and Nature of
                    of Beneficial Owner                       Beneficial Ownership         Percent of Class
------------------------------------------------------------------------------------------------------------
<S>                 <C>                                         <C>                       <C>
Common Stock        Dr. Wolfgang Barnikol                          1,853,600 (1)               4.56%
                    Arndstr.8
                    58453 Witten
                    Germany

Common Stock        Dr. Christoph Ludz                             1,420,000                   3,49%
                    Neuer Wall 54
                    20354 Hamburg
                    Germany

Common Stock        Dora Malek                                           200                     *
                    Saturnstr. 19
                    85609 Aschheim
                    Germany
                                                                   -----------------------------------------
Common Stock        All  Officers  and   Directors  as  a          2,648,200                   6.51%
                    Group (8 persons)
</TABLE>

(1) Excludes 3,000,000 options to purchase common stock of the Company that were
cancelled as of June 30, 2002. *Less than 0.1%

ITEM 12. CERTAIN TRANSACTIONS

Except as otherwise  disclosed  below, no Director,  substantial  shareholder or
Executive  Officer  of the  Company  was  or is  interested  in any  transaction
undertaken by SGBI within the last three years.

EURO-AMERICAN.  Euro-American  GmbH (EA) was a  financial  services  corporation
organized  and  established  in Germany.  Axel  Kutscher,  former  Non-Executive
Director of the Company, and Helmut Kappes, former Non-Executive Director of the
Company,  and substantial  shareholders  of the Company,  are also directors and
shareholders  of EA. During 2000, the Company  entered into a subscription  with
EA, a principal stockholder of the Company,  valued at $7,712,000,  of which the
Company  received  $7,487,000.  The  balance,  $225,000,  was  recorded as stock
subscription  receivable.  On June 30, 2002,  the  Company's  Board of Directors
authorized the writing off of the $225,000 of stock subscription receivable.

STOCK  OPTIONS  GRANTED IN FAVOR OF  PROFESSOR  WOLFGANG  BARNIKOL.  The Company
entered into a stock option  agreement  which took effect on September 24, 1999,
with  Professor  Wolfgang  Barnikol,  Chairman,  Chief  Operating  Officer,  and
Executive  Director and a  substantial  shareholder  of the  Company.  Professor
Barnikol was granted a share option of 3 million  Shares at an exercise price of
US$0.01 per share,  in  consideration  of the assignment of his patent rights to
the Company.  Professor Barnikol is entitled to exercise the option at the point
the Company  completes the  development of the artificial  oxygen carrier or the
implantable  sensor  and  receives  regulatory  approval  from  either  Germany,
Singapore  or the United  States.  The option  shall  terminate  and cease to be
exercisable on June 30, 2009 unless  terminated  earlier in accordance  with the
stock option agreement. The stock option agreement is governed under the laws of
the State of California.  As of June 30, 2002 Prof.  Barnikol  waived his rights
concerning the option and the option was cancelled.

ROYALTY  ARRANGEMENT  WITH  PROFESSOR  WOLFGANG  BARNIKOL.  On July 7, 1997, the
Company  entered into an agreement  with  Professor  Barnikol  pursuant to which
Professor Barnikol assigned certain patents to the Company's German subsidiaries
in  exchange  for  a 3%  royalty  on  products  on  net  revenues  developed  by
SanguiBioTech  AG or  GlukoMeditech  AG. The royalty expires in 20 years or upon
expiration  of the  patents.  No  royalties  were paid or earned in fiscal 2003,
2002, and 2001.


                                      -23-
<PAGE>

ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K

(a) Index to Exhibits

EXHIBIT NO.

2.1 (1) Exchange  Agreement  between MRC Legal  Services  LLC and  SanguiBioTech
International, Inc., dated of March 31, 2000 (1)

3.1 (1) Articles of Incorporation of the Company (1)

3.2 (1) Bylaws of the Company(1)

3.3 Articles of Association of GlukoMeditech Aktiengesellschaft (2)

3.4 Articles of Association of SanguiBiotech Aktiengesellschaft (2)

3.5 Memorandum and Articles of Association of Sangui Biotech Singapore Pte. Ltd.
(3)

4.1 Stock  Option  Agreement  between  Professor  Wolfgang  Barnikol  and Sangui
Biotech International, Inc. dated October 12, 2000 (2) (cancelled as of June 30,
2003).

10.1  Office  Lease  between   Brookhollow   Office  Park  and  Sangui   Biotech
International, Inc. dated September 4, 1996 and as amended 2000 (3)

10.2 Fee Agreement  between  GlukoMeditech AG and Dr.  Sieglinde  Borchert dated
June 15, 1998 (2)

10.3 Fee Agreement  between  SanguiBiotech AG and Dr.  Sieglinde  Borchert dated
June 15, 1998 (2)

10.4 Service Contract between  GlukoMeditech AG and Dr. Wolfgang  Barnikol dated
June 30, 1998 (2)

10.5 Service Contract between  SanguiBiotech AG and Dr. Wolfgang  Barnikol dated
June 30, 1998 (2)

10.6 Service  Agreement  between Axel Kleinkorres  Promotionsagentur  and Sangui
Biotech International, Inc. dated April 26, 1999 (2)

10.7 Amendment to Service Agreement  between Axel Kleinkorres  Promotionsagentur
and  Sangui  Biotech  International,   Inc.  dated  August  18,  2000  (2)  10.8
Appropriation  Notice  from  North-Rhine-Westphalia  to  GlukoMediTech  AG dated
November 30, 1998 (2)

10.9  Appropriation  Notice from  North-Rhine-Westphalia  SanguiBiotech AG dated
November 30, 1998 (2)

10.10 Lease Contract for Business Rooms between Research and Development Centre,
Witten, Germany and GlukoMeditech AG dated June 6, 2000 (2)

10.11  Additional  Agreement to Lease Contract  between Research and Development
Centre,  Witten,  Germany  and  GlukoMeditech  AG dated  June 7,  2000 (2) 10.12
Additional  Agreement to Lease Contract between Research and Development Centre,
Witten, Germany and SanguiBiotech AG dated June 7, 2000 (2)

10.13 Assignment of Patents and Royalty Agreement with Dr. Wolfgang Barnikol (3)

10.14 Prolongation Letter for SanguiBiotech AG Grants (4)

21.1 Subsidiaries of the Company (2)

                                      -24-
<PAGE>

31  Certification  of  President,  Chief Executive  Officer  and Chief Financial
Officer pursuant to Rule 13a-14(a) and 15d-14(a), filed herewith.

32  Certification  Pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

(1) Filed as an  Exhibit  to the  Report on Form 8-K filed on or about  April 4,
2000 and incorporated herein by reference.

(2) Filed as an Exhibit to the  original  Report on Form 10-KSB filed on October
13, 2000.

(3) Filed as an Exhibit to the amended  Report on Form 10-KSB  filed on November
20, 2000.

(4) Filed as an Exhibit  to the Report on Form  10-KSB  filed on  September  28,
2002.

(b) Reports on Form 8-K

None

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         INDEPENDENT PUBLIC ACCOUNTANTS
         ------------------------------

     (a) AUDIT FEES.  During the fiscal years ended 2003 and 2002, the aggregate
fees for services rendered for the audit of our annual financial  statements and
the review of the financial statements included in our quarterly reports on Form
10-QSB and annual report on Form 10-KSB or services  provided in connection with
the statutory and regulatory filings or engagements for those fiscal years, were
$50,510 and $66,339, respectively.

     (b) AUDIT-RELATED  FEES. During  the fiscal years ended 2003 and 2002, fees
for any  audit-related  services other than as set forth in paragraph (a) above.
were $1,340 and $0, respectively.

     (c) TAX FEES.  During  the  fiscal  years  ended 2003 and 2002 no fees were
billed by Corbin & Company,  LLP for tax compliance  services.  Our auditors did
not provide tax planning advice during the fiscal years ended 2003 and 2002.

SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant has duly caused this report on Form 10-KSB to be signed on its behalf
by the undersigned hereunto duly authorized.

SANGUI BIOTECH INTERNATIONAL, INC.


                    /s/ Wolfgang Barnikol
                    ----------------------------------
                    Wolfgang  Barnikol
                    President  and  Director


                                      -25-
<PAGE>

In  accordance  with the  Exchange  Act,  this  Report  has been  signed  by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>

               Signatures                                     Title                                 Date
               ----------                                     -----                                 ----
<S>                                       <C>                                             <C>
/s/ Wolfgang Barnikol                     President, Chief Executive Officer and          September 27, 2003
---------------------------
Wolfgang Barnikol, M.D., Ph.D             Director

/s/ Joachim Lutz                          Director                                        September 27, 2003
---------------------------
Joachim Lutz, M.D.

/s/ Christoph Ludz                        Director                                        September 27, 2003
Christoph Ludz, D of Business
Administration.

/s/ Markus Volpers                        Director                                        September 27, 2003
Markus Volpers, D of Biology
</TABLE>


                                      -26-