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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             _______________________

                                   FORM 10-KSB
                    ANNUAL REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: June 30, 2004         Commission File Number: 0-21271
                             _______________________

                       SANGUI BIOTECH INTERNATIONAL, INC.
                 (Name of Small Business Issuer in Its charter)

            Colorado                                             84-1330732
            --------                                             ----------
(State or Other Jurisdiction of                               (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

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


                                49 (2302) 915-200
                                -----------------
                (Issuer's Telephone Number, including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                      None

         Securities registered under Section 12(g) of the Exchange Act:

                           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 Securities Exchange Act during the past 12 months
(or for such shorter period that a registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes _X_ No ___

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ___

     The Issuer's revenues for the most recent fiscal year ended June 30, 2004,
were approximately $23,000.

     The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant on January 26, 2005 based upon the average
bid and ask price of the common stock on the pinksheets.com market segment for
such date, was approximately $ 5,653,157. The number of shares of the
Registrant's common stock issued and outstanding on January 26, 2005, was
43,655,363.

     Transitional Small Business Disclosure Format. Yes ___  No _X_

================================================================================

<PAGE>

<TABLE>
<CAPTION>

                               Table of Contents
<S>     <C>                                                                                             <C>

Part I                                                                                                  Page
        ITEM 1        Description of Business                                                           1
        ITEM 2        Description of Property                                                           14
        ITEM 3        Legal Proceedings                                                                 15
        ITEM 4        Submission of Matters to a Vote of Security Holders                               15

Part II
        ITEM 5        Market for Common Equity, Related Stockholder Matters and Small Business
                      Issuer Purchases of Equity Securities                                             15
        ITEM 6        Management's Discussion and Analysis or Plan of Operation                         16
                        Grants                                                                          16
                        Sangui BioTech GmbH                                                             17
                        Sangui BioTech International Inc.                                               17
        ITEM 7        Financial Statements
                        Reports of Independent Registered Public Accounting Firms                       19
                        Consolidated Balance Sheet                                                      21
                        Consolidated Statements of Operations and Comprehensive Loss                    22
                        Consolidated Statements of Cash Flows                                           23
                        Consolidated Statements of Stockholders' Equity                                 24
                        Notes to Consolidated Financial Statements                                      25
        ITEM 8        Changes in and Disagreements with Accountants on Accounting and Financial
                      Disclosure                                                                        33
        ITEM 8 A      Controls and Procedures                                                           33
        ITEM 8 B      Other Information                                                                 33

Part III
        ITEM 9        Directors and Executive Officers of the Registrant                                34
        ITEM 10       Executive Compensation                                                            37
        ITEM 11       Security Ownership of Certain Beneficial Owners and Management and Related
                      Stockholders Matters                                                              38
        ITEM 12       Certain Relationships and Related Transactions                                    38
        ITEM 13       Exhibits                                                                          39
        ITEM 14       Principal Accountant Fees and Services                                            41
</TABLE>

                                       i

<PAGE>

                              CAUTIONARY STATEMENT

     Some of the statements contained in this Form 10-KSB for Sangui Biotech
International, Inc. (the "Company" or "SGBI") discuss future expectations,
contain projections of results of operation or financial condition or state
other "forward-looking" information. These statements are subject to known and
unknown risks, uncertainties, and other factors that could cause the actual
results to differ materially from those contemplated by the statements. The
forward-looking information is based on various factors and is derived using
numerous assumptions. Important factors that may cause actual results to differ
from projections include, for example:

o    the success or failure of management's efforts to implement their business
     strategy;
o    the ability of the Company to raise sufficient capital to meet operating
     requirements;
o    the uncertainty of consumer demand for our product;
o    the ability of the Company to protect its intellectual property rights;
o    the ability of the Company to compete with major established companies;
o    the effect of changing economic conditions;
o    the ability of the Company to attract and retain quality employees; and
o    other risks which may be described in future filings with the SEC.

     Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates," and variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual results and
outcomes may differ materially from what is expressed or forecasted in any such
forward-looking statements. Such risks and uncertainties include those set forth
herein under "Risk Factors" as well as those noted in the documents incorporated
herein by reference. Unless required by law, the Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.

                                       ii

<PAGE>

                                     PART 1
                                     ------

ITEM 1. DESCRIPTION OF BUSINESS

                                     HISTORY

     Sangui BioTech, Inc. was incorporated in Delaware on August 2, 1996, and
began operations in October 1996. In August 1997 a publicly held company,
Citadel Investment System, Inc., a Colorado corporation (Citadel), acquired one
hundred percent (100%) of the outstanding common shares of Sangui BioTech, Inc.;
as a result, Sangui BioTech, Inc. 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, SGBI's business
operations were conducted through four wholly owned subsidiaries: Sangui
BioTech, Inc., SanguiBioTech AG, GlukoMediTech AG, and Sangui Biotech Singapore
Pte Ltd.

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

     Sangui, BioTech, Inc. ("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 its
U.S. business operation. SBT was merged with and into the SGBI effective
December 31, 2002.

SanguiBioTech AG
----------------

     SanguiBioTech AG ("Sangui GmbH") was established and organized under the
laws of Germany in Mainz, Germany, on November 25, 1995. Sangui GmbH is in the
business of developing hemoglobin-based artificial oxygen carriers as blood
additive and blood volume substitutes and variant products thereof. Sangui GmbH
is also developing an anti-aging cosmetic based on these artificial oxygen
carriers. The members of Sangui GmbH'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.
Effective November 4, 2003, SanguiBioTech AG was converted into SanguiBioTech
GmbH, a limited liability company under German law.

     The facilities of Sangui GmbH are located on the premises of the
Forschungs- und Entwicklungszentrum of the University of Witten/Herdecke,
Witten, Germany.

GlukoMediTech AG
----------------

     GlukoMediTech AG ("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 GmbH
effective June 30, 2002. While further development work in this area was halted,
Sangui GmbH is working to secure the key patents relating to the Glucose Sensors
and will continue to address potential strategic financial or industry partners.

Sangui Biotech Singapore Pte Ltd.
--------------------------------

     Sangui Biotech Singapore Pte Ltd. ("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 SGBI 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. As of February 25, 2004,
the Registry of Companies and Businesses of the Republic of Singapore informed
the company, that it would announce the projected strike-off from the register
in its official Gazette on March 31, 2004. Upon expiration of another 3 months
the name of Sangui Singapore would be struck off the register without further
notice. The company assumes, therefore, that the strike-off was executed as of
June 30, 2004.

     On March 30, 2000, SGBI 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 SGBI's stock valued at $0 per share
due to SGBI treating the transaction as a recapitalization of SGBI. In
conjunction with the transaction, SGBI incurred approximately $180,000 of
transaction costs that were charged to operations.

                                       1

<PAGE>

     To date, neither SGBI nor any of its subsidiaries has had profitable
operations. The Company has never been profitable and, through June 30, 2004,
SGBI's accumulated deficit has exceeded $20.3 million. The Company expects to
continue to incur substantial losses over at least the next several years as it
pursues its research and development efforts, testing activities and
manufacturing operations. All of SGBI's potential products are in development
stages. 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 SGBI's funds to accelerate time to market for its most promising and
mature products. Effective August 31, 2004, the company further reduced its
activities for cost saving purposes. The Company's current key focus is on
identifying industrial and distribution partners for its patents and products
and on obtaining additional financial resources to finalize the certification
processes of certain products. No assurance can be given that SGBI'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 GmbH. The Company and Sangui GmbH are seeking to market and sell all or
some of their products through partnerships with industry partners.

     The traditional focus of Sangui GmbH 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 GmbH 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 GmbH also develops external applications in the medical and cosmetic
fields in the form of gels and emulsions for the regeneration of the skin.

     Sangui GmbH holds exclusive distribution rights for Chitoskin wound pads
for the European Union and other countries. In addition, Sangui GmbH is a
co-filer for a PTE patent for the production and use of glycosaminoglycans based
on Chitosan and its derivatives.

ARTIFICIAL OXYGEN CARRIER
-------------------------

     Sangui GmbH 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 GmbH decided that porcine hemoglobin should be
used as basic material for its artificial oxygen carriers. In March 1999, Sangui
GmbH 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 the summer of 2000.

     The experiments completed in Sangui GmbH's laboratories demonstrated that
it is possible to polymerize hemoglobins isolated from porcine blood resulting
in huge soluble molecules, so-called hyperpolymers. In August 2000, Sangui GmbH
finalized its work on the pharmaceutical formulation of the oxygen carrier for
laboratory scale. In February 2001 a pilot production in a laboratory scale was
carried out in SGBI's clean room. The 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 GmbH is continuing to address potential strategic financing
and industry partners in order to enter pre-clinical testing. Subsequent to the
period covered by this report, the first and second quarter of fiscal year
2004/2005, promising talks have been initiated with a leading German
pharmaceutical company. No assurance can be given, however, that these talks
will lead to any cooperation or contract in the course of the current fiscal
year.

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

                                       2

<PAGE>

OXYGEN CARRIERS AND OTHER FORMULATIONS 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 GmbH have
been designed to contribute to supporting the regeneration of the skin by
improving its oxygen supply. In addition to this regenerative therapy, these
preparations are also intended for purposes of prevention, for example, 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 GmbH is currently
focussing on is an anti-aging formulation and treatment for the cosmetics
market. The product was thoroughly tested by an independent research institute
and received top marks for skin moisturization. Another row of tests is
currently being carried out with regard to its anti-cellulite capacities that
have shown encouraging interim results.

     As of June 30, 2004, Sangui GmbH had signed a letter of intent with
cosmetics vendor Mercatura Biocosmetics AG, Achim, Germany ("Mercatura"). This
letter of intent led to a marketing and distribution contract, which was signed
in July 2004. Under the terms of the contract, Mercatura obtained from Sangui
the exclusive right to manufacture, market und distribute the Sangui formulation
for skin regeneration and anti-aging. The Company has sold to Mercatura a
quantity of 60 kg of the preparation to be used in test sales, which began in
September 2004. Mercatura will pay Sangui per unit licensing fees for each
product package sold. The licensing fees will be between 5.5% and 8% of the
ex-works price for the product, depending on the total revenue amount.

     Initially, the contract covers German-speaking areas only. Mercatura is
obliged to submit on completion of its quarterly accounting its sales reports
for the preceding quarter confirmed by an independent auditor. These reports
will be the basis for the calculation of the royalties due to Sangui. The
parties have agreed to extend the reach of this agreement to target markets
world wide, if Sangui's formulation is included in the proposed cooperation
between Mercatura and Wolfgang Joop GmbH. Mercatura is contractually obliged to
confirm by February 28, 2005, whether or not Wolfgang Joop GmbH is willing to
include the Anti-Aging formulation in their "Wunderkind" marketing program.
Global distribution rights outside the German speaking countries will be
returned to Sangui if Wolfgang Joop GmbH refrains from using the product.

CHITOSKIN WOUND PADS
--------------------

     The company is currently in the final phase of the CE certification of
"CHITOSKIN" wound pads authorizing the distribution of these medical products in
the European markets. It is anticipated that the CE certification will be
granted in the course of the third quarter of Sangui's fiscal year 2004/2005.
The "CHITOSKIN" trademark has been granted to the company for the European
countries effective November 1, 2004. In the German market the wound pads will
be distributed by Beese GmbH, of Norderstedt, Germany, a leading medical
products distributor. A contract to this effect is currently being negotiated
and will be entered into following CE certification. Joint pre-marketing
activities have started. Negotiations with distributors in other regions
including Spain, Turkey, various Middle Eastern countries, and China are under
way.

PUBLIC GRANTS
-------------

     Sangui GmbH was granted a subsidy amounting to $1,535,300 for the period
from April 8, 1998 to March 31, 2001 to promote a project known as "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, SGBI 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. Funds in the amount of $1,166,210 were received
through December 31, 2002.

     On September 1, 1999, Gluko AG was granted $1,864,383 in funds approved for
a period of three years to promote the project "Development of a permanently
implantable glucose sensor and a controllable insulin pump for diabetics into a
technical beta cell." 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. SGBI had received funds amounting to $563,775 through
December 31, 2002.

                                       3

<PAGE>

     All remaining funds from both of the above-subsidized projects were
returned as of December 31, 2002.

     The accomplishment of further milestones 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 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, the goal of the discussions
being to conclude the project by 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 of North-Rhine Westfalia.

2.   If equipment is sold to third parties, the proportion of the proceeds that
     correspond to the level of subsidy as a proportion of the development funds
     must be returned to the state of North Rhine-Westphalia. None of the
     subsidized equipment has been sold to date.

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 GmbH had
     to return the premises to their original condition when they were first
     occupied. To date no new tenant has been found. In connection with this,
     Sangui GmbH 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. There have been no additional
     negotiations or activities in this respect.

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

     Sangui GmbH 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. Sangui GmbH has been
granted eighteen (18) patents. Furthermore, the subsidiary has applied for
twenty-four (24) patents, most of which have been filed in Germany (DE), the USA
(US), and as an international patent application with the European Patent Office
(EP). Global patent applications are marked PCT. Four (4) patent applications
are related to progress made in the final development stages of the external
application of the artificial oxygen carriers.

<TABLE>
<CAPTION>
1. Haemoglobin-Polymers
<S>                     <C>

EP-P 0 685 492          "Process for the preparation of haemoglobin hyperpolymers of uniform molecular weight" (Patent Granted)
US-A 10/878,724

US-P 5,985,332          "Hemoglobins provided with ligands protecting the oxygen binding sites for useas artificial oxygen carriers
EP-P 0857 733           for direct application in medicine and biolgy, and method for the preparation thereof" (Patent Granted)

US-O 2004/0014641       "Mammalion haemoglobin compatible with blood plasma, cross-linked and conjugated with polyalkylene oxides as
EP-O 1 299 457          artificial medical oxygen carriers, production and use thereof" (Patent Pending)

US-O 2004/0023851       "Method for the production of artificial oxygen carriers from covalently cross linking haemoglobin with
EP-O 1 249 385          improved functional properties of haemoglobin by cross-linking in the presence of chemically non-reacting
                        effectors of the oxygen affinity of the haemoglobin" (Patent Pending)

                                       4

<PAGE>

US-O 2004/0029780       "Synthetic oxygen transport made from cross-linked modified human or porcine haemoglobin with improved
EP-O 1294386            properties, method for a preparation thereof from purified material and use thereof" (Patent Pending)

PCT-A 103 52 692        "Use of hypo-oncotic solutions of hyperpolymerised haemoglobins to be added to the human blood circulation
EP 2004/012363          in treatment of lung oedema" (Patents Pending)

2. GlucoTector

US-P 4,775,514          "Luminescent layers for use in apparatus for determining the oxygen concentration in gases and the like"
                        (Patent Granted)

DE-P 198 15 932         "Miniaturisation of a polarimetre for the analysis of low concentration components in liquid test materials
                        on an optical basis as well as a device to perform the pertinent tests" (German and Japanese Patents
                        Granted)

US-P 6,577,393          "Polarimetric procedure for determining the (main) vibration plane of polarized light to about 0.1 m and
DE-P 198 26 294         miniaturized device for its implmentation" (Patents Granted)

DE-P 199 11 265         "Method for the measurement of the concentration of glucose in aequous solutions containing proteins, i.e.
                        in interstitial tissue fluids in particular, as well as implantable devices for carrying out said method"
                        (German Patent Granted)

EP-A 01 940 355         "Method for the long-term stable and well-reproducible spectrometric measurement of the concentrations of
DE-P 100 20 615         components of aqueous solutions, and device for carrying out said method" (German Patent Granted)

EP-A 01 940 355         "Refractometric method for carrying out long-term stable accurate measurements of the concentrations of
DE-P 100 30 027         dissolved substances and miniaturizable device for carrying out said method" (German Patent Granted; EP
                        Patent Pending)

US-A 10/312,142         "Device for combined and simultaneous use of several measuring methods for analysing components of a liquid
PCT-O WO 02/01202       mixture of several substances" (German Patent Granted; EP and US Patents Pending)
DE-P 100 30 920

3. External applications of artificial oxygen carriers

EP-P 1 301 169          "Preparation in the form of an emulsion that contains an oxygen carrier selected from hemoglobin or
US-O 2004/0022839       hemoglobin and myoglobin, for use as a topically applicable cosmetic and for the natural regeneration of the
                        skin in the case of oxygen deficiency" (European Patent Granted)

EP-P 1 303 297          "Preparation containing an oxygen carrier for regeneration of the skin in thecase of oxygen deficiency"
US-O 2003/0180365       (European Patent Granted)
</TABLE>

MARKETING AND DISTRIBUTION
--------------------------

     Sangui GmbH has not yet manufactured any of its products in commercial
quantities. Sangui GmbH 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.

RESEARCH AND DEVELOPMENT
------------------------

     Research and development expenses increased 5% to approximately $887,000 in
2004 from approximately $847,000 in 2003. This increase of $40,000 is due to the
refocusing of research and development activities in 2004. Research and
development expenses are mainly the salaries and fees of the company's employees
and consultants. The increase this fiscal year is due to the employment of an
additional certification expert, working on the CE certification of the
Chitoskin wound pads.

                                       5

<PAGE>

GOVERNMENT REGULATION
---------------------

     SGBI and its former 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 US 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 SGBI is highly competitive,
and SGBI expects competition to increase. Experiments and clinical testing in
the field of artificial oxygen carriers are being carried out by Sangart Inc. of
San Diego, California. Companies researching into the possibility of developing
implantable glucose sensors include Roche Diagnostics, Animas, Corp., Frazer,
Pennsylvania, and Medtronic Inc. of Sylmar, California. In the fields of
anti-aging and anti-cellulite cosmetics, all major cosmetic vendors are actively
marketing proprietary formulations. Leading wound pad providers include
Johnson&Johnson, Bristol-Myers Squibb, as well as Beiersdorf AG.

DEPENDENCE ON MAJOR CUSTOMERS
-----------------------------

     At present the company entertains business relationships with only one
customer, Mercatura Biocosmetics AG. No assurance can be given that this company
will be successful in marketing the anti-aging product covered by the contract
of July 12, 2004 mentioned previously.

HUMAN RESOURCES
---------------

     The Company considers its relations with its employees to be favorable. As
of June 30, 2004 SGBI and its subsidiaries had 8 fulltime employees of which 5
were involved in research and development and 3 were responsible for
administrative matters. Additionally, the Company had consulting arrangements
with one individual as of that date. Subsequent to the period covered by this
report, August 31, 2004, contracts with most of the employees were cancelled. As
of December 1, 2004, the company employs 2 fulltime employees and have
consulting arrangements with 5 persons. idends No Dividends

DIVIDENDS
---------

     The Company anticipates that it will use any funds available to finance its
growth and that it will not pay cash dividends to stockholders in the
foreseeable future.

                                       6

<PAGE>

REPORTS TO SECURITY HOLDERS
---------------------------

     Copies of SGBI's reports, as filed with the Securities and Exchange
Commission, are available and may be viewed as filed at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549 or by calling
1-800-SEC-0330. Additionally they can be accessed and downloaded via the
internet at http://www.sec.gov/cgi-bin/srch-edgar by simply typing in "Sangui
Biotech International" or at the corporate website http://www.sanguibiotech.com.

                             CERTAIN BUSINESS RISKS

     The risks and uncertainties described below are not the only ones facing
SGBI and there may be additional risks that are not presently known or are
currently deemed immaterial. All of these risks may impair business operations.

     The Company's present and proposed business operations will be highly
speculative and subject to the same types of risks inherent in any new or
unproven venture, as well as risk factors particular to the industries in which
it will operate, as well as other significant risks not normally associated with
investing in equity securities of United States companies, among other things,
those types of risk factors outlined below.

Risk that SGBI's Common Stock may be deemed a "Penny Stock"
----------------------------------------------------------

     The Company's common stock may be deemed to be a "penny stock" as that term
is defined in Rule 3a51-1 of the Exchange Act of 1934. Penny stocks are stocks
(i) with a price of less than five dollars per share; (ii) that are not traded
on a "recognized" national exchange; (iii) whose prices are not quoted on the
NASDAQ automated quotation system (NASDAQ-listed stocks must still meet
requirement (i) above); or (iv) of an issuer with net tangible assets of less
than US$2,000,000 (if the issuer has been in continuous operation for at least
three years) or US$5,000,000 (if in continuous operation for less than three
years), or with average annual revenues of less than US$6,000,000 for the last
three years.

     A principal exclusion from the definition of a penny stock is an equity
security that has a price of five dollars ($5.00) of more, excluding any broker
or dealer commissions, markups or markdowns. As of the date of this report
SGBI's common stock has a price less than $5.00.

     If SGBI's Common Stock is at any time deemed a penny stock, section 15(g)
and Rule 3a51-1 of the Exchange Act of 1934 would require broker-dealers dealing
in SGBI's Common Stock to provide potential investors with a document disclosing
the risks of penny stocks and to obtain a manually signed and dated written
receipt of the document before effecting any transaction in a penny stock for
the investor's account. Potential investors in SGBI's common stock are urged to
obtain and read such disclosure carefully before purchasing any shares that are
deemed to be "penny stock."

     Moreover, Rule 15g-9 of the Exchange Act of 1934 requires broker-dealers in
penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stock to that investor. This procedure requires
the broker-dealer to (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in SGBI's common
stock to resell their shares to third parties or to otherwise dispose of them.

                                       7

<PAGE>

Conflicts of Interest; Related Party Transactions
-------------------------------------------------

     The possibility exists that the Company may acquire or merge with a
business or company in which the Company's executive officers, directors,
beneficial owners or their affiliates may have an ownership interest. Although
there is no formal bylaw, stockholder resolution or agreement authorizing any
such transaction, corporate policy does not forbid it and such a transaction may
occur if management deems it to be in the best interests of the Company and its
stockholders, after consideration of all factors. A transaction of this nature
would present a conflict of interest to those parties with a managerial position
and/or an ownership interest in both the Company and the acquired entity, and
may compromise management's fiduciary duties to the Company's stockholders. An
independent appraisal of the acquired company may or may not be obtained in the
event a related party transaction is contemplated. Furthermore, because
management and/or beneficial owners of the Company's common stock may be
eligible for finder's fees or other compensation related to potential
acquisitions by the Company, such compensation may become a factor in
negotiations regarding such potential acquisitions. It is the Company's
intention that all future transactions be entered into on such terms as if
negotiated at arms length, unless the Company is able to receive more favorable
terms from a related party.

Limited Operating History Of The Company; Losses Are Expected To Continue
-------------------------------------------------------------------------

     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.

Substantial Doubt that the Company Can Continue as a Going Concern
------------------------------------------------------------------

     The Company expects to continue to incur significant capital expenses in
pursuing its business plan to market its products and expand its product line,
while obtaining additional financing through stock offerings or other feasible
financing alternatives. In order for the Company to continue its operations at
its existing levels, the Company will require significant additional funds over
the next twelve months. Therefore, the Company is dependent on funds raised
through equity or debt offerings. Additional financing may not be available on
terms favorable to the Company, or at all. If these funds are not available the
Company may not be able to execute its business plan or take advantage of
business opportunities. The ability of the Company to obtain such additional
financing and to achieve its operating goals is uncertain. In the event that the
Company does not obtain additional capital or is not able to increase cash flow
through the increase of sales, there is a substantial doubt of its being able to
continue as a going concern.

Future Capital Needs And Uncertainty Of Additional Funding
----------------------------------------------------------

     Although management believes that SGBI's cash position should be sufficient
to cover its financing for at least the current fiscal year, substantial funds
will be required to effect SGBI'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 SGBI'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 SGBI to access the capital markets or
obtain acceptable financing could have a material adverse effect on the results
of operations and financial condition of SGBI. Moreover, if funds are not
available from any sources, SGBI may not be able to continue to operate.

Dependence On Key Personnel
---------------------------

     The future success of SGBI will depend on the service of its key scientific
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.

                                       8

<PAGE>

     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.

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.

                                        9

<PAGE>

     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.

     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.
Non-compliance 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
SGBI 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.

                                       10

<PAGE>

     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
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.

                                       11

<PAGE>

Intense Competition
-------------------

     Competition in the biotechnology, pharmaceutical and cosmetic industries is
intense and is expected to increase. In the field of its medical and cosmetic
products 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. Eventually, this might include the field of blood additives
where there is no direct competition at present. 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.

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.

                                       12

<PAGE>

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.

     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.

                                       13

<PAGE>

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.

     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.

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. There was no more rent
expense in the fiscal year ended June 30, 2004 in relation to this property.

     The German subsidiary is housed in approximately 8,600 square feet based in
the Forschungs- und Entwicklungszentrum of the University Witten/Herdecke,
Germany. Rent expense for the fiscal year ended June 30, 2004, was approximately
$99,000.

     The Singaporean subsidiary was housed in approximately 3700 square feet at
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. There was no more rent expense
in the fiscal year ended June 30, 2004 in relation to this property.

                                       14

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

     On November 27, 2003, the company was served with a lawsuit, Landgericht
Bochum Court, Case No. 6 O 435/03. The lawsuit named, among others,
SanguiBioTech AG as defendant. The plaintiff alleged that SanguiBioTech AG,
which was converted into SanguiBioTech GmbH in the meantime, had neglected its
duty in dealing with some of the plaintiff's Sangui BioTech International, Inc.,
shares. A judgement was handed down subsequent to the period covered by this
report on July 28th, 2004; the plaintiff's action has been dismissed. No appeal
has been lodged.

     On August 4, 2003, SanguiBioTech AG filed a lawsuit against a former
director of SGBI, claiming that some payments incurred by the defendant were
unjustified under German law, Landgericht Munich I Court, Case No. 34 O
14027/03. The defendant denies that the claim is justified and has brought
forward the opinion that he can claim additional fees. The plaintiff has
rejected the defendant's opinion. The litigation is still pending. The financial
risk related to this lawsuit does not exceed $1,000.

     The Company is not aware of pending claims or assessments, other than as
described above, which may have a material adverse impact on the Company's
financial position or results of operations.

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 COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES

     As of June 30, 2004, SGBI's common stock was 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. Due to the delay
in filing this annual report, SGBI's common stock is presently traded on
www.pinksheets.com under the symbol SGBI as well as on the OTC market of the
Hamburg stock exchange in Germany

     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, markdown or commissions and may not
represent actual transactions.

<TABLE>
<CAPTION>
                                                                           CLOSING PRICES (US$)
FISCAL YEAR                   PERIOD                                    HIGH                    LOW
<S>                           <C>                                       <C>                     <C>

2004                          First quarter                             0.30                    0.08
                              Second quarter                            0.13                    0.10
                              Third quarter                             0.38                    0.22
                              Fourth quarter                            0.33                    0.17
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
</TABLE>

     In addition to freely tradable shares, SGBI has numerous shares of common
stock outstanding that 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.

     On September 30, 2004, the number of record holders of the Company's common
stock was 938. The Company did not pay any cash dividends during the past two
fiscal years and does not contemplate paying dividends in the foreseeable
future.

                                       15

<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------

     During the fiscal year ended June 30, 2002, the Company issued 141,000
shares of common stock for consulting services, valued at $39,610, based on the
closing price of the Company's common stock on the date of issuance. The
issuance was an isolated transaction not involving a public offering pursuant to
Section (4) 2 of the Securities Act of 1933.

     There were no additional recent sales of unregistered securities during the
previous three fiscal years prior to this report.

Subsequent Events

     In November and December 2004, the company sold 2,000,000 shares of common
stock to two German investors yielding cash contribution of US$100,000.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN 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
------

     Prior to December 31, 2002, 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 were offset against research and development expenses
when the related expenses are incurred. Grants related to the acquisition of
tangible property were 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 2004 COMPARED TO FISCAL 2003
                       -----------------------------------

FINANCIAL POSITION
------------------

     The Company's current assets decreased approximately $1.5 million, or 76%,
from June 30, 2003 to approximately $486,000 million at June 30, 2004. The
decrease is primarily attributable to a decrease in available for sale
securities of approximately $799,000, and a decrease in cash and cash
equivalents of approximately $646,000. The decrease in available for sale
securities and cash and cash equivalents results primarily from funding the
current year's operations of the Company with little or no revenues in the year
ended June 30, 2004.

     The Company's net property and equipment decreased approximately $59,000 or
37%, from June 30, 2003 to approximately $101,000 at June 30, 2004. The decrease
is primarily attributable to the current year depreciation of approximately
$86,000.

     The Company funded its operations primarily through its existing cash
reserves. The Company's stockholders' equity decreased approximately $1.5
million. The primary decrease is caused by the Company's current year net loss
of approximately $1.6 million, combined with an increase in accumulated other
comprehensive income of approximately $36,000 due to foreign currency
translation adjustments and unrealized gains on marketable securities.

                                       16

<PAGE>

RESULTS OF OPERATIONS
---------------------

Sangui GmbH
-----------

     RESEARCH AND DEVELOPMENT. Research and development expenses increased 5% to
approximately $887,000 in 2004 from approximately $847,000 in 2003. This
increase of $40,000 is due to the refocusing of research and development
activities in 2004.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
40% to approximately $516,000 in 2004 from approximately $855,000 in 2003. This
decrease of $339,000 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
54% to approximately $156,000 in 2004 from approximately $341,000 in 2003. This
decrease is primarily related to decreases in operating expenses due to the
ongoing cost-cutting programs.

Consolidated
------------

     NET LOSS. As a result of the above factors, the Company's consolidated net
loss was approximately $1.6 million, or $0.04 per common share, in 2004,
compared to approximately $2.3 million, or $0.06 per common share, in 2002.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     For the year ended June 30, 2004, net cash used in operating activities
decreased to approximately $1.5 million from approximately $2.0 million for the
year ended June 30, 2003, 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, 2004, net cash provided by investing activities
decreased to approximately $775,000 from approximately $2.0 million for the year
ended June 30, 2003. The principal decrease is due to the maturity of marketable
securities in prior years.

     Working capital was approximately $400,000 at June 30, 2004, a decrease of
approximately $1.5 million from June 30, 2003 due primarily to the Company's net
loss for the year. A substantial portion of the Company's total assets consists
of cash.

     The Company incurred a net loss applicable to common stockholders of $1.6
million and used cash in operating activities of $1.5 million for the year ended
June 30, 2004. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The Company expects to continue to incur
significant capital expenses in pursuing its business plan to market its
products and expand its product line, while obtaining additional financing
through stock offerings or other feasible financing alternatives. In order for
the Company to continue its operations at its existing levels, the Company will
require significant additional funds over the next twelve months. Therefore, the
Company is dependent on funds raised through equity or debt offerings.
Additional financing may not be available on terms favorable to the Company, or
at all. If these funds are not available the Company may not be able to execute
its business plan or take advantage of business opportunities. The ability of
the Company to obtain such additional financing and to achieve its operating
goals is uncertain. In the event that the Company does not obtain additional
capital or is not able to increase cash flow through the increase of sales,
there is a substantial doubt of its being able to continue as a going concern.
The accompanying condensed consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

     Sangui GmbH 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. 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.

                          CRITICAL ACCOUNTING POLICIES
                          ----------------------------

     Our significant accounting policies are described in Note 1 to the
consolidated financial statements for the year ended June 30, 2004. The
following are our critical accounting policies:

                                       17

<PAGE>

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.

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.

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

     In January 2003, the FASB issued Interpretation Number 46, "Consolidation
of Variable Interest Entities" ("FIN No. 46"). This Interpretation of Accounting
Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides
guidance for identifying a controlling interest in a variable interest entity
("VIE") established by means other than voting interests. FIN No. 46 also
requires consolidation of a VIE by an enterprise that holds such a controlling
interest. In December 2003, FASB completed its deliberations regarding the
proposed modification to FIN no. 46 and issued Interpretation Number 46 (R)
"Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51"
("FIN No. 46 (R)"). The decisions reached included a deferral of the effective
date and provisions for additional scope exceptions for certain types of
variable interests. Application of FIN No. 46 (R) is required in financial
statements of public entities that have interests in VIEs or potential VIEs
commonly referred to as special-purpose entities for periods ending after
December 15, 2004. The adoption of FIN No. 46 (R) is not expected to have an
impact on the Company's consolidated financial position, results of operations
or cash flows.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments embedded
in other contracts and for hedging activities under SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." It is effective for
contracts entered into or modified after June 30, 2003, except as stated within
the statement, and should be applied prospectively. Management believes the
provisions of this Standard currently have no effect on our financial position
or results of operations.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. 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 September 15, 2003. Management believes the provisions of
this Standard currently have no effect on our financial position or results of
operations.

                                       18

<PAGE>

ITEM 7: FINANCIAL STATEMENTS


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------


To the Board of Directors
Sangui Biotech International, Inc. and Subsidiaries
Witten Germany


We have audited the  accompanying  consolidated  balance sheet of Sangui Biotech
International,  Inc. and Subsidiaries  (the Company) as of June 30, 2004 and the
related  consolidated  statement of  operations,  stockholders'  equity and cash
flows for the year ended June 30, 2004. These consolidated  financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audit.

We  conducted  our audit in  accordance  with  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Sangui
Biotech International, Inc. and Subsidiaries as of June 30, 2004 and the results
of their  consolidated  operations  and their cash flows for the year ended June
30, 2004 in conformity  with  accounting  principles  generally  accepted in the
United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial  statements,  the Company has no  significant  operating
results to date, which raises substantial doubt about its ability to continue as
a going  concern.  Management's  plans  in  regard  to  these  matters  are also
described in Note 1. The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.


HJ & Associates, LLC
Salt Lake City, Utah
December 29, 2004

                                       19

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------



To the Board of Directors and Stockholders of
Sangui Biotech International, Inc.

We have audited the  accompanying  consolidated  statements  of  operations  and
comprehensive  loss,  stockholders'  equity,  and cash  flows of Sangui  Biotech
International, Inc. and its subsidiaries (the "Company") for the year ended June
30, 2003. 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 audit.

We  conducted  our audit in  accordance  with  auditing  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the 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
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the results of operations and cash flows of
Sangui Biotech International,  Inc. and its subsidiaries for the year ended June
30, 2003, in conformity with  accounting  principles  generally  accepted in the
Unites States of America.



CORBIN & COMPANY, LLP
Irvine, California, U.S.A.
September 9, 2003

                                       20

<PAGE>


                       SANGUI BIOTECH INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>

                                     Assets
                                     ------

                                                                                                 June 30,
                                                                                                   2004
                                                                                               -----------
<S>                                                                                            <C>
Current assets

  Cash and cash equivalents                                                                    $   310,959

  Accounts receivable                                                                               27,346

  Taxes receivable                                                                                 105,240

  Prepaid expenses and other assets                                                                 42,937
                                                                                               -----------
      Total current assets                                                                         486,482


Property and equipment-net                                                                         100,509

Deposits                                                                                            15,000

Patents and licenses-net                                                                             1,020
                                                                                               -----------

Total assets                                                                                   $   603,011
                                                                                               ===========


                       Liabilities & Stockholders' Equity
                       ----------------------------------

Current liabilities

  Accounts payable and accrued expenses                                                        $    85,723
                                                                                               -----------
      Total Current Liabilities                                                                $    85,723


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

  Treasury stock                                                                                   (28,098)

  Accumulated other comprehensive income                                                           528,669

  Accumulated deficit                                                                          (20,328,774)
                                                                                               -----------

  Total stockholders' equity                                                                       517,288
                                                                                               -----------

Total liabilities and stockholders' equity                                                     $   603,011
                                                                                               ===========
</TABLE>

       See accompanying notes to these consolidated financial statements

                                       21

<PAGE>

                       SANGUI BIOTECH INTERNATIONAL, INC.
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
                                                                                        Year ended June 30,
                                                                                -----------------------------------
                                                                                    2004                   2003
                                                                                ------------           ------------
<S>                                                                             <C>                    <C>
Revenues                                                                        $     23,228           $          -

Cost of goods sold                                                                    16,438                      -
                                                                                ------------           ------------
Gross profit                                                                           6,790                      -


Operating expenses

  Research and development                                                           886,962                846,657

  General and administrative                                                         671,383              1,196,272

  Depreciation and amortization                                                       86,621                309,024
                                                                                ------------           ------------
Total operating expenses                                                           1,644,966              2,351,953


Other income                                                                          23,006                 68,913

  Interest income                                                                     40,653                111,414
                                                                                ------------           ------------
  Other income                                                                        63,659                180,327

Total Other Income


Loss from continuing operations                                                   (1,574,517)            (2,171,626)

Loss from discontinued operations                                                          -               (138,997)
                                                                                ------------           ------------
Net loss                                                                          (1,574,517)            (2,310,623)


Other comprehensive income

  Foreign currency translation adjustments                                            30,353                254,011

  Unrealized gain on marketable securities                                             5,610                 75,753
                                                                                ------------           ------------
Comprehensive loss                                                              $ (1,538,554)          $ (1,980,859)
                                                                                ============           ============



Net loss available to common shareholder per common share:

  Net loss from continuing operations                                           $      (0.04)          $      (0.05)
                                                                                ============           ============
  Net loss from discontinued operations                                         $          -           $      (0.00)
                                                                                ============           ============
                                                                                $      (0.04)          $      (0.06)
                                                                                ============           ============

Basic and diluted weighted average

  number of common shares outstanding                                             40,655,363             40,655,363
                                                                                ============           ============
</TABLE>

       See accompanying notes to these consolidated financial statements

                                       22

<PAGE>

                       Sangui Biotech International, Inc.
                 Consolidated Statements of Stockholders' Equity
                   for the Years Ended June 30, 2004 and 2003

<TABLE>
<CAPTION>
                                                                                        Accumulated
                                                            Additional                     Other                          Total
                                   Common Stock               Paid-in      Treasury    Comprehensive   Accumulated    Stockholders'
                              Shares          Amount          Capital        Stock     Income (Loss)     Deficit          Equity
                           ------------    ------------    ------------    --------    ------------    ------------    ------------
<S>                        <C>             <C>             <C>             <C>         <C>             <C>             <C>

Balance at
July 1, 2002                 40,655,363    $ 18,345,491    $  2,000,000           -    $    162,942    $(16,443,634)   $  4,064,799

Currency translation
adjustments                           -               -               -           -         254,011               -         254,011

Unrealized gain
on marketable
securities and
cash equivalents                      -               -               -           -          75,753               -          75,753

Net loss                              -               -               -           -               -      (2,310,623)     (2,310,623)
                           --------------------------------------------------------------------------------------------------------
Balance at
June 30, 2003                40,655,363      18,345,491       2,000,000           -         492,706     (18,754,257)      2,083,940

Currency translation
adjustments                           -               -               -           -          30,353               -          30,353

Unrealized gain
on marketable
securities                            -               -               -           -           5,610               -           5,610

Purchase of
treasury stock                        -               -               -     (28,098)              -               -         (28,098)

Net loss                              -               -               -           -               -      (1,574,517)     (1,574,517)
                           --------------------------------------------------------------------------------------------------------
Balance at
June 30, 2004                40,655,363    $ 18,345,491    $  2,000,000     (28,098)   $    528,669    $(20,328,774)   $    517,288
                           ========================================================================================================
</TABLE>

       See accompanying notes to these consolidated financial statements

                                       23

<PAGE>

                       SANGUI BIOTECH INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                        Year ended June 30,
                                                                                -----------------------------------
                                                                                    2004                   2003
                                                                                ------------           ------------
<S>                                                                             <C>                    <C>

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Loss                                                                        $ (1,574,517)          $ (2,310,623)
Adjustments to reconcile net loss to cash used in operating activities
  Depreciation and amortization                                                       86,621                309,024
  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)
  Foreign exchange transaction gain                                                        -                 (3,000)
Changes in operating asset and liabilities:
  Accounts receivable                                                                (27,346)                84,919
  Inventories                                                                              -                 16,362
  Grant receivable                                                                         -                214,321
  Taxes receivable                                                                    77,580                 56,347
  Prepaid expenses and other assets                                                   13,479                 43,789
  Accounts payable and accrued expenses                                              (40,093)              (441,415)
                                                                                ------------           ------------
Net cash used in operating activities                                             (1,464,276)            (1,995,401)


CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of marketable securities                                                 (26,997)            (1,684,600)
  Maturities of marketable securities                                                818,400              3,678,031
  Collection of note receivable                                                       20,000                 20,000
  Purchase of property and equipment                                                  (7,995)               (48,163)
  Purchase of treasury stock                                                         (28,098)                     -
                                                                                ------------           ------------

Net cash provided by investing activities                                            775,310              1,965,268
                                                                                ------------           ------------
  Cash flow from financing activities                                                      -                      -

Effect of exchange rate changes                                                       43,394                154,534
                                                                                ------------           ------------
Net decrease in cash and cash equivalents                                           (645,572)               124,401

Cash and cash equivalents, begining of period                                        956,531                832,130
                                                                                ------------           ------------
Cash and cash equivalents, ending of period                                     $    310,959           $    956,531
                                                                                ============           ============
</TABLE>

       See accompanying notes to these consolidated financial statements

                                       24

<PAGE>


                       SANGUI BIOTECH INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2004

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 Sangui
BioTech AG ("Sangui AG"). Effective November 4, 2003, Sangui AG was converted
into Sangui BioTech GmbH (Sangui GmbH). After completion of the restructuring,
Sangui GmbH, which is headquartered in Witten, Germany, is engaged in the
development of artificial oxygen carriers (external applications of haemoglobin,
blood substitutes 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 7). Sangui BioTech
PTE Ltd ("Sangui Singapore") was a regional office for the Company that carried
out research and development projects in conjunction with Sangui GmbH and Sangui
Singapore. The Company discontinued the operations of Sangui Singapore in August
2002 (see Note 7). The Singapore office was closed effective December 31, 2002.

     The Company incurred a net loss applicable to common stockholders of $1.6
million and used cash in operating activities of $1.5 million for the year ended
June 30, 2004. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The Company expects to continue to incur
significant capital expenses in pursuing its business plan to market its
products and expand its product line, while obtaining additional financing
through stock offerings or other feasible financing alternatives. In order for
the Company to continue its operations at its existing levels, the Company will
require significant additional funds over the next twelve months. Therefore, the
Company is dependent on funds raised through equity or debt offerings.
Additional financing may not be available on terms favorable to the Company, or
at all. If these funds are not available the Company may not be able to execute
its business plan or take advantage of business opportunities. The ability of
the Company to obtain such additional financing and to achieve its operating
goals is uncertain. In the event that the Company does not obtain additional
capital or is not able to increase cash flow through the increase of sales,
there is a substantial doubt of its being able to continue as a going concern.
The accompanying condensed consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

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 2003 have been
reclassified to conform to the fiscal 2004 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 of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the respective reporting period. Actual results could differ
from those estimates. Significant estimates made by management are, among
others, the realization of receivables and long-lived assets, and valuation
allowance on deferred tax assets.

                                       25

<PAGE>

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 GmbH, are deemed as medical devices
or biologics, and as such are governed by the Federal Food and Drug and
Cosmetics Act and by the regulations of state agencies and various foreign
government agencies. The pharmaceutical and biosensor products, under
development in Germany, will be subject to more stringent regulatory
requirements, because they are in vivo products for humans. The Company and its
subsidiaries have no experience in obtaining regulatory clearance on these types
of products. Therefore, the Company will be subject to the risks of delays in
obtaining or failing to obtain regulatory clearance.

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 the
short-term nature of these financial statements. 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.

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.

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

     Taxes receivable balance of $ 105,240 as of June 30, 2004 includes foreign
tax withholdings refund claims which will be collected when the Company files
its foreign tax returns for fiscal 2004. The Company received taxes receivable
in the amount of $ 15,800 during the first quarter of fiscal year 2005 and taxes
receivable in the amount of $ 108,000 during the second quarter of fiscal year
2005.

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

     Property and equipment are recorded at cost and are depreciated or
amortized using the straight-line method over the expected useful lives, 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,
2004 and 2003 was approximately $79,000 and $283,000, 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; any resulting gain or loss is reflected in the statement of
operations.

                                       26

<PAGE>

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, 2004 and 2003,
was approximately $8,000 and $26,000, respectively.

Impairment of Long-Lived Assets
-------------------------------

     Long-lived assets and certain identifiable intangibles to be held and used
by an entity 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, 2004, 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.
Revenue from grants for the reimbursement of research and development expenses
are offset against research and development expenses when the related expenses
we incurred. Grants related to the acquisition of tangible property are 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 based method as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), as
amended. The Financial Accounting Standards Board ("FASB") has issued 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.

     There is no stock-based employee compensation expense under APB 25 or pro
forma adjustment under SFAS No. 123 for fiscal 2004 or 2003, as the Company did
not issue any stock-based compensation to employees since June 30,2002.

                                       27

<PAGE>

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, 2004 and 2003, 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.

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

     In January 2003, the FASB issued Interpretation Number 46, "Consolidation
of Variable Interest Entities" ("FIN No. 46"). This Interpretation of Accounting
Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides
guidance for identifying a controlling interest in a variable interest entity
("VIE") established by means other than voting interests. FIN No. 46 also
requires consolidation of a VIE by an enterprise that holds such a controlling
interest. In December 2003, FASB completed its deliberations regarding the
proposed modification to FIN no. 46 and issued Interpretation Number 46 (R)
"Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51"
("FIN No. 46 (R)"). The decisions reached included a deferral of the effective
date and provisions for additional scope exceptions for certain types of
variable interests. Application of FIN No. 46 (R) is required in financial
statements of public entities that have interests in VIEs or potential VIEs
commonly referred to as special-purpose entities for periods ending after
December 15, 2004. The adoption of FIN No. 46 (R) is not expected to have an
impact on the Company's consolidated financial position, results of operations
or cash flows.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments embedded
in other contracts and for hedging activities under SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." It is effective for
contracts entered into or modified after June 30, 2003, except as stated within
the statement, and should be applied prospectively. Management believes the
provisions of this Standard currently have no effect on our financial position
or results of operations.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS
No. 150 establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. 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 September 15, 2003. Management believes the provisions of
this Standard currently have no effect on our financial position or results of
operations.

                                       28

<PAGE>

NOTE  2  -  PROPERTY  AND  EQUIPMENT
------------------------------------
<TABLE>
<CAPTION>

         Property and equipment consists of the following at June 30, 2004:
           <S>                                                           <C>

           Technical and laboratory equipment                            $      697,789
           Leasehold improvements                                               250,724
           Office equipment                                                      30,008
                                                                         --------------
                                                                         --------------
                                                                                978,521

           Less accumulated depreciation and amortization                      (878,012)
                                                                         --------------
                                                                         $      100,509
                                                                         ==============
</TABLE>

NOTE  3  -  PATENTS AND LICENSES
--------------------------------

     At June 30, 2004, patents and licenses totalled $ 124,186 less accumulated
amortization of $ 112,462.

NOTE  4  -  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.

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.

     At June 30, 2004 and 2003, and during the years ended June 30, 2004 and
2003, no options were issued or outstanding.

NOTE 5  -  INCOME  TAX  PROVISION
---------------------------------

     No current provision for income taxes for the years ended June 30, 2004 and
2003 is required, since the Company incurred net operating losses through June
30, 2004.

     Income tax expense for the years ended June 30, 2004 and 2003 differed from
the amounts computed by applying the U.S. federal income tax rate of 34 percent
as follows:
<TABLE>
<CAPTION>

                                                                       2004                2003
                                                                   --------------------------------
<S>                                                                <C>                <C>
Income tax benefit at U.S. federal statutory rates                 $    (538,000)     $    (786,000)
Net operating losses not benefited                                       685,000            921,800
State and local income taxes, net of federal income tax effect          (147,000)          (135,800)
                                                                   --------------------------------
                                                                   $           -      $           -
                                                                   ================================
</TABLE>

                                       29

<PAGE>

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at June 30, 2004 are presented below:

          Deferred  tax  assets:
          Net  operating  losses                             $        6,800,000
          Less  valuation  allowance                                 (6,800,000)
                                                             -------------------
          Net  deferred  tax  assets                         $                 -
                                                             ===================

     As of June 30, 2004, the Company had net operating loss carryforwards of
approximately $6.8 million, $3.4 million and $9.6 available to offset future
taxable federal, state and foreign income, respectively. The federal and state
carryforward amounts expire in varying amounts between 2005 and 2014. The
foreign net operating loss carryforwards do not have an expiration period.

NOTE 6  -  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>
                                                                                 2004                 2003
                                                                           ----------------    ------------------
<S>                                                                        <C>                 <C>
Numerator for basic and diluted loss per common share - net loss
                                                                           $     (1,574,517)   $       (2,310,623)
                                                                           ================    ==================
Denominator  for basic  and  diluted  loss per  common  share -  weighted
average shares                                                                   40,655,363            40,655,363
                                                                           ================    ==================

Basic and diluted loss per common share                                    $          (0.04)   $            (0.06)
                                                                           ================    ==================
</TABLE>

NOTE 7 - 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.

     Components of amounts reflected in the accompanying income statements for
the year ended June 30, 2003 are presented below:

<TABLE>
<CAPTION>
                                                                       2003
                                                     Sangui           Sangui
                                                      USA            Singapore         Total
                                                --------------   --------------   --------------
                      <S>                       <C>              <C>              <C>

                                     Sales      $      138,542   $            -   $      138,542
                             Cost of sales              94,747                -           94,747
                        Operating expenses              88,564          107,644          196,208
                                                --------------   --------------   --------------

                      Loss from operations             (44,769)        (107,644)        (152,413)
                              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)
                                                ==============   ==============   ==============
</TABLE>

                                       30

<PAGE>

NOTE 8 - RELATED PARTY TRANSACTIONS
-----------------------------------

     The Company has an agreement with Professor Barnikol, 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 2004 and 2003.

NOTE 9  -  COMMITMENTS  AND  CONTINGENCIES
------------------------------------------

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

     The Company leases its office and laboratory facilities in Germany under an
operating lease that expires in May, 2005.

     Future minimum lease payments under this lease at June 30, 2004 are
approximately $68,000 for fiscal 2005.

     Rent expense was approximately $70,000 and $138,000 for the years ended
June 30, 2004 and 2003, respectively.

Grants
------

     In 1998 and 1999, Sangui AG and Gluko AG, respectively, received grants
from the government of the German state of Northrhine-Westphalia within the
framework of the state's technology program for business supporting their
respective development projects.

     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 the Company recorded approximately $256,000 of research and
development expenditures, and $ 10,000 of capital expenditures. 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 financial
resources of the Company.

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.

                                       31

<PAGE>

NOTE 10 - STOCK-BASED COMPENSATION
----------------------------------

     The Company has applied the disclosure provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure -- An Amendment of FASB Statement No. 123," for the
years ended December 31, 2003 and 2002. Issued in December 2002, SFAS No. 148
amends SFAS No. 123, "Accounting for Stock-Based Compensation" 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. As permitted by SFAS No. 148, the Company continues to
account for stock options under APB Opinion No. 25, under which no compensation
has been recognized. There were no stock options granted or exercised during
this reporting period. Had there been, the Company would have applied the fair
value recognition disclosure provisions of SFAS No. 123, as amended by SFAS No.
148, to stock-based compensation. As a result, no pro forma disclosures are
presented.

     On April 28, 2004, the company adopted the 2004 Employee Stock Incentive
Plan (the Plan). Under the terms of this plan the Board was authorized to issue
up to 1,000,000 shares of common stock to certain eligible employees of the
company or its subsidiaries.

     Subsequent to year-end, the Company issued 1,000,000 shares to Sangui GmbH
employees.

NOTE 11 - BUSINESS SEGMENTS
---------------------------

     The Company reports it business segments based on geographic regions, which
are as follows as of:

<TABLE>
<CAPTION>
                                                                                    Year ended June 30,
                                                                                 2004                2003
                                                                             ------------        ------------
<S>                                                                          <C>                 <C>
Net sales:
----------
Sangui GmbH                                                                  $     23,228        $          -
Sangui Biotech International, Inc.                                                      -                   -
Sangui USA (included in discontinued operations)                                        -             138,542
Sangui Singapore                                                                        -                   -
                                                                             ------------        ------------
                                                                             $     23,228        $    138,542

Net income (loss):
-----------------
Sangui GmbH                                                                  $ (1,412,316)       $ (1,836,547)
Sangui Biotech International, Inc.                                               (162,201)           (335,079)
Sangui USA (included in discontinued operations)                                        -              72,211
Sangui Singapore (included in discontinued operations)                                  -            (211,208)
                                                                             ------------        ------------
                                                                             $ (1,574,517)       $ (2,310,623)

Depreciation and amortization
-----------------------------
Sangui GmbH                                                                  $     86,621        $    309,024
Sangui Biotech International, Inc.                                                      -                   -
Sangui USA                                                                              -                   -
Sangui Singapore                                                                        -                   -
                                                                             ------------        ------------
                                                                             $     86,621        $    309,024

Identifiable assets

Sangui GmbH                                                                  $    583,011                   -
Sangui Biotech International, Inc.                                                 20,000                   -
Sangui USA                                                                              -                   -
Sangui Singapore                                                                        -                   -
                                                                             ------------        ------------
                                                                             $    603,011                   -
</TABLE>

                                       32

<PAGE>

NOTE 12 - SUBSEQUENT EVENTS
---------------------------

     As of June 30, 2004 SGBI and its subsidiaries had 8 fulltime employees of
which 5 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. As of August 31, 2004, contracts with most employees
were cancelled.

     In July 2004, the Company issued 217,500 shares under the 2004 Employee
Stock Incentive Plan (the Plan) to Sangui GmbH employees. In November 2004,
782,500 additional shares under the Plan were issued to another employee of
Sangui GmbH.

     In November and December 2004, the company sold 2,000,000 shares of common
stock to two German investors yielding a cash contribution of US$ 100,000.

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

     The Board of Directors of the companies resolved as of September 9, 2004,
to conclude the association with Corbin & Company, LLP, effective June 30, 2004.
The company has asked HJ & Associates, Salt Lake City, Utah, to carry out the
audit of its June 30, 2004, financial statements as well as the annual report on
Form 10-KSB.

     There were no disagreements between the company and Corbin & Company
regarding the company's accounting principles and procedures.

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.

ITEM 8B. OTHER INFORMATION

     None.

                                       33

<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, 2004 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

Joachim Fleing, Ph.D.                   51    Am Vogelherd 43         Germany        Non-Executive Director
                                              35043 Marburg

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>

     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 SGBI.

     The Company has an agreement with Professor Barnikol, 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 2004 and 2003.

     The day-to-day operations of SGBI are entrusted to the Executive Directors
of SGBI who are assisted by a management team of key executive officers
(Executive Officers). The particulars of the Executive Officers as per June 30,
2004 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, Chief Executive
Ph.D:                                     58453 Witten                                Officer, and
                                                                                      Chief Financial Officer
</TABLE>

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

     PROFESSOR WOLFGANG K. R. BARNIKOL, M.D., Ph.D., Chairman, President, Chief
Executive Officer, Chief Financial Officer, and Executive Director of SGBI, 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. 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.

                                       34

<PAGE>

     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.

     JOACHIM FLEING, PhD, (born 1953), is a communications specialist. His
professional experience includes the position of a communications officer and
the position as an account director at an international PR agency. Joachim
Fleing holds a PhD of Wuppertal University.

     There are no arrangements or understandings between any of the directors or
executive officers, or any other person or person pursuant to which they were
selected as directors and/or officers.

Significant Employees

     HUBERTUS SCHMELZ is the General Manager of Sangui GmbH. He was appointed to
this position effective December 16, 2003. Prior to joining Sangui he acted as
legal and business consultant. In the 1990ies he was entrusted with numerous
business development projects by the German Treuhandanstalt in restructuring the
economy of Eastern Germany. After having studied the Law he acted as Legal
Counsel in several positions.

Directorships

     No Director of the Company or person nominated or chosen to become a
Director holds any other directorship in any company with a class of securities
registered pursuant to section 12 of the Exchange Act or subject to the
requirements of section 15(d) of such Act or any other company registered as an
investment company under the Investment Company Act of 1940.

Family Relationships

     There are no family relationships between any of the directors, officers or
employees of the Company.

                                       35

<PAGE>

Involvement in Certain Legal Proceedings

     During the past five years, no present or former director, executive
officer or person nominated to become a director or an executive officer of the
Company:

     (1) was a general partner or executive officer of any business against
     which any bankruptcy petition was filed, either at the time of the
     bankruptcy or two years prior to that time;

     (2) was convicted in a criminal proceeding or named subject to a pending
     criminal proceeding (excluding traffic violations and other minor
     offenses);

     (3) was subject to any order, judgment or decree, not subsequently
     reversed, suspended or vacated, of any court of competent jurisdiction,
     permanently or temporarily enjoining, barring, suspending or otherwise
     limiting his involvement in any type of business, securities or banking
     activities; or

     (4) was found by a court of competent jurisdiction (in a civil action), the
     Securities and Exchange Commission or the Commodity Futures Trading
     Commission to have violated a Federal or state securities or commodities
     law, and the judgment has not been reversed, suspended or vacated.

Audit Committee and Audit Committee Financial Expert

     The Company has no separately designated standing audit committee nor
another committee performing similar functions. The Board of Directors acts as
the audit committee. None of the Directors qualify as an Audit Committee
Financial Expert.

Material Changes To The Method By Which The Shareholders May Recommend  Nominees
To The Board Of Directors

     None.

Section 16 (a) Beneficial Ownership Compliance

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent of the
Company's Common Stock, to file initial reports of beneficial ownership on Form
3, changes in beneficial ownership on Form 4 and an annual statement of
beneficial ownership on Form 5, with the SEC. Such executive officers, directors
and greater than ten percent shareholders are required by SEC rules to furnish
the Company with copies of all such forms that they have filed.

     Based solely upon a review of copies of the reports filed, SGBI believes
that during the year ended June 30, 2004, that all executive officers, directors
and persons who own more than ten percent of the Company's Common Stock are in
compliance with such regulations.

                                       36

<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, 2004, 2003 and 2002. 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>
                                                                                                Securities
                                                                      Other         Restricted  Underlying    LTIP     All Other
                                                                      Annual        Stock       Options/      Payouts  Compensation
Name and Principal Position           Year     Salary (1)    Bonus    Compensation  Awards      SARs
<S>                                   <C>      <C>           <C>      <C>           <C>          <C>          <C>      <C>

Prof. Wolfgang Barnikol (2)           2004     126,858       0        0             0            0            0        0
Chairman, CEO, CFO                    2003     115,927       0        0             0            0            0        0
                                      2002     115,884       0        0             0            0            0        0
Sieglinde Borchert                    2004           0       0        0             0            0            0        0
Former COO                            2003           0       0        0             0            0            0        0
                                      2002      40,853       0        0             0            0            0        0
Detlev Frhr. Von Linsingen            2004           0       0        0             0            0            0        0
Former CFO                            2003           0       0        0             0            0            0        0
                                      2002      76,017       0        0             0            0            0        0
Harald Poetzschke                     2004           0       0        0             0            0            0        0
Former CSO                            2003           0       0        0             0            0            0        0
                                      2002      46,972       0        0             0            0            0        0
Patrick Onishi                        2004           0       0        0             0            0            0        0
Former Secretary                      2003      13,389       0        0             0            0            0        0
                                      2002      70,000       0        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)  The Company has an agreement with Professor Barnikol, 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 which is not
     part of his compensation by the Company. No royalties were paid or earned
     in fiscal 2004 and 2003.

Compensation of Directors

     To date, Directors of SGBI 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 SGBI
pursuant to which he is entitled to 3% royalties of gross revenues earned with
any product based on his inventions.

Other Contracts

     None.

Stock Options and Warrants

     There are no Stock Options or Warrants outstanding.

Option/SAR Grants Table

     There have been no stock options granted for the fiscal year end
represented by this report, therefore the table has been omitted.

Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table

     There have been no stock options granted for the fiscal year end
represented by this report, therefore the table has been omitted.

Long-Term Incentive Plan ("LTIP") Awards Table

     There have been no long-term incentive plan awards granted for the fiscal
year end represented by this report, therefore the table has been omitted.

                                       37

<PAGE>

Option Exercise and Year End-Value Table

     There have been no stock options exercised for the fiscal year end
represented by this report therefore the table has been omitted.

Stock Incentive Plan

     On April 28, 2004, the company adopted the 2004 Employee Stock Incentive
Plan. Under the terms of this plan the Board was authorized to issue up to
1,000,000 shares of common stock to certain eligible employees of the company or
its subsidiaries. Subsequent to year-end, the Company issued 1,000,000 shares to
Sangui GmbH employees.

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:

o    each person or entity known to own beneficially more than 5% of the common
     stock;
o    each of SGBI's directors;
o    each of SGBI's named executive officers; and * all executive officers and
     directors of SGBI as a group.

<TABLE>
<CAPTION>
Title of Class      Name and Address                          Amount and Nature of         Percent of Class
                    of Beneficial Owner                       Beneficial Ownership
------------------------------------------------------------------------------------------------------------
<S>                 <C>                                       <C>                          <C>

Common Stock        Dr. Wolfgang Barnikol                                    1,853,600               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        Dr. Joachim Fleing                                           2,000                    *
                    Am Vogelherd 43
                    35043 Marburg
                    Germany

Common Stock        All Officers and Directors as a                          3,275,600               8.06 %
                    Group (5 persons)
------------------------------------------------------------------------------------------------------------
</TABLE>

*Less than 0.1%

     The company has reason to believe that Mrs. Roswitha Grundey of
Frankfurt/M., Germany, currently holds close to 3 million shares which is
equivalent to 7.2% of the common stock of the company.

ITEM 12. CERTAIN TRANSACTIONS

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

     ROYALTY ARRANGEMENT WITH PROFESSOR WOLFGANG BARNIKOL. On July 7, 1997, SGBI
entered into an agreement with Professor Barnikol pursuant to which Professor
Barnikol assigned certain patents to SGBI'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. Upon the merger of the two former subsidiary and subsequently upon
their conversion into SanguiBioTech GmbH, this agreement was transferred to the
respective new legal entities.

     CONSULTING CONTRACT WITH JOACHIM FLEING, PhD. The company signed a
consulting contract with Joachim Fleing, PhD, covering certain investor
relations services on July 17, 2002. When the latter was appointed a director of
the company effective December 16, 2003, the Board of Directors unanimously
agreed that this contract should persist. Under this resolution Joachim Fleing,
like the other directors will not obtain any remuneration for serving as a
director, while those services as rendered under the contract should be
remunerated as before.

                                       38

<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 SGBI (1)

3.2  (1) Bylaws of SGBI(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)

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

10.11Additional 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 SGBI (2)

                                       39

<PAGE>

31.1 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

     On May 13, 2004, the Company filed a report on Form 8-K stating it had
issued a press release on May 6, 2004 announcing that its German subsidiary,
Sangui Biotech GmbH had signed a letter of intent with Mercatura Cosmetics
Biotech AG, aimed at marketing "Pure Moisture," an anti-aging nano-formulation
developed by Sangui. A copy of the press release was attached as an exhibit to
the current report.

     On June 21, 2004, the Company filed a report on Form 8-K stating a press
release was issued on June 24, 2004 announcing that Sangui BioTech and a German
pharmaceutical company were planning a joint development of the Haemoglobin
Wound Spray. A copy of the press release was attached as an exhibit to the
current report.

     There were no other current reports on Form 8-K filed during the period
ending June 30, 2004.

Subsequent Reports on Form 8-K

     Subsequent to the period covered by this report, on August 13, 2004 the
Company filed a report on Form 8-K that stated on July 8, 2004 their wholly
owned subsidiary SanguiBioTech GmbH entered into an agreement with Mercatura
Cosmetics BioTech AG under which Mercatura obtained from Sangui the exclusive
right to manufacture, market and distribute the Sangui Nano-Emulsion formulation
known as "Pure Moisture" for five years, starting September 1, 2004, in all
German speaking localities. A copy of the Summary of Terms of licensing Contract
was attached as an exhibit to the current report.

     Subsequent to the period covered by this report, on November 17, 2004 the
Company filed a report on Form 8-K announcing in a press release dated November
16, 2004 that SanguiBioTech GmbH, and Karl Beese GmbH & Co. will jointly market
and distribute Sangui's innovative Chitoskin(R) wound pads after obtaining the
CE mark authorizing the sales of the product in the European Union. A copy of
the press release was attached as an exhibit to the current report.

     Subsequent to the period covered by this report on December 10, 2004, the
Company filed a report on Form 8-K announcing that on September 9, 2004, Corbin
& Company, LLP was dismissed as the Company's independent accountants and that
the Company had engaged HJ & Associates, LLC, as its new independent accountant.
A copy of the letter of Corbin & Company, LLP dated December 7, 2004, addressed
to the Securities and Exchange Commission was attached as an exhibit to the
current report.

     Subsequent to the period covered by this report on January 11, 2005, the
Company announced that between November 3, 2004 and December 23, 2004 it had
sold 2,000,000 restricted shares of common stock at a price of $0.05 per share,
for aggregate proceeds to the Registrant of $100,000.

                                       40

<PAGE>
ITEM 14. Principal Accountant Fees and Services.

     Independent Public Accountants

     The Company's independent accountants for the fiscal year ended June 30,
2004 and 2003 were Corbin & Company, LLP, however, Corbin & Company, LLP only
completed the audit of June 30, 2003; HJ & Associates, of Salt Lake City, Utah,
were responsible for completing the audit of June 30, 2004.

     (a) Audit Fees. During the fiscal years ended 2004 and 2003, the aggregate
fees billed by Corbin & Company, LLP 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, was $51,699 and $50,510 respectively.

     (b) Audit-Related Fees. During the fiscal years ended 2004 and 2003 fees
for any audit-related services other than as set forth in paragraph (a) above
were $ 0 and $1,340, 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 2004 and 2003.

     Change of Principal Accountants

     The Board of Directors of the companies resolved as of September 9, 2004,
to conclude the cooperation with Corbin & Company, LLP, effective June 30, 2004.
The company has asked HJ & Associates, Salt Lake City, Utah, to carry out the
audit of its June 30, 2004, financial statements as well as the annual report on
Form 10-KSB. HJ&Associates estimate that this audit will be carried out for a
total of $ 20.000.

     There were no disagreements between the company and Corbin & Company
regarding the company's accounting principles and procedures.

SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SANGUI BIOTECH INTERNATIONAL, INC.


Date: February 23, 2005                 /s/ Wolfgang Barnikol
                                        ----------------------------------
                                        Wolfgang Barnikol
                                        President, CEO, CFO, and Director


Date: February 23, 2005                 /s/ Joachim Fleing
                                        ----------------------------------
                                        Joachim Fleing
                                        Chief Accounting Officer and Director


     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.



Date: February 23, 2005                 /s/ Wolfgang Barnikol
                                        ----------------------------------
                                        Wolfgang Barnikol, M.D., Ph.D
                                        President, CEO, CFO, and Director

Date: February 23, 2005                 /s/ Joachim Lutz
                                        ----------------------------------
                                        Joachim Lutz, M.D.
                                        Director

Date: February 23, 2005                 /s/ Thomas Striepe
                                        ----------------------------------
                                        Thomas Striepe
                                        Director

Date: February 23, 2005                 /s/ Joachim Fleing
                                        ----------------------------------
                                        Joachim Fleing, Ph.D
                                        Chief Accounting Officer and Director

                                       41