**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,
      2005**




**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 is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.   o





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   xNo  
      o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is 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.   o




Indicate
      by check mark whether the
      Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
      Act).  Yes   oNo  
x




The
      Issuer's revenues for the most recent fiscal year ended June 30, 2005, were
      approximately $
      45,200.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the Registrant on May 29, 2007 based upon the average bid
      and
      ask price of the common stock on the pinksheets.com market segment for such
      date, was approximately $ 30,750,000.





The
      number of shares of the Registrant's common stock issued and outstanding on
      May
      29, 2007, was 50,000,000.





Transitional
      Small Business Disclosure Format.   Yes   o  No  
      x





**Table
      of Contents**


**PART
                  I**
              
              **Page**ITEM
                  1
              Description
                  of Business
              1ITEM
                  2
              Description
                  of Property
              14ITEM
                  3
              Legal
                  Proceedings
              14ITEM
                  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
              15ITEM
                  6
              Management’s
                  Discussion and Analysis or Plan of Operation
              16ITEM
                  7
              Financial
                  Statements
              19Independent
                  Auditors’ Report
              20Consolidated
                  Balance Sheet
              21Consolidated
                  Statements of Operations
              23Consolidated
                  Statements of Stockholders’ Equity
              24Consolidated
                  Statements of Cash Flows
              25Notes
                  to Consolidated Financial Statements
              27ITEM
                  8
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              38ITEM
                  8 A
              Controls
                  and Procedures
              38ITEM
                  8 B
              Other
                  Information
              38**PART
                  III**ITEM
                  9
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance with
                  Section
                  16(a) of the Exchange Act
              40ITEM
                  10
              Executive
                  Compensation
              43ITEM
                  11
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholders Matters
              45ITEM
                  12
              Certain
                  Relationships and Related Transactions
              46ITEM
                  13
              Exhibits
              47ITEM
                  14
              Principal
                  Accountant Fees and Services
              48









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:





·  the
      success or failure of management's efforts to implement their business
      strategy;


·  the
      ability of the Company to raise sufficient capital to meet operating
      requirements;


·  the
      uncertainty of consumer demand for our product;


·  the
      ability of the Company to protect its intellectual property rights;


·  the
      ability of the Company to compete with major established companies;


·  the
      effect of changing economic conditions;


·  the
      ability of the Company to attract and retain quality employees; and


·  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.













**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.  Shortly after the formation of Sangui
      BioTech, Inc., the shareholders of SanguiBioTech AG and GlukoMediTech AG agreed
      to a share swap in which all of the outstanding shares held by the shareholders
      would be exchanged for shares of Sangui BioTech, Inc., thereby making
      SanguiBioTech AG and GlukoMediTech AG wholly owned subsidiaries of Sangui
      BioTech, Inc.  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., and
      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).





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.





Until
      the
      end of fiscal year 2002, SGBI's business operations were conducted through
      its
      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 2003 fiscal year,
      SBT sold its assets, and commenced a wind-down of its U.S. business
      operations.  SBT was merged with and into SGBI effective December 31,
      2002.




1





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 Asian regional office for SGBI and was engaged in animal experiments in
      conjunction with the German subsidiaries.  Effective as of January 31,
      2003, Sangui Singapore was wound down and closed.  On 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
      its
      register in its official Gazette on March 31, 2004 and that three months
      following the name of Sangui Singapore would be struck off the register without
      further notice.  The company assumes, therefore, that the strike-off
      was executed on or about June 30, 2004.





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, by-products thereof, and diverse other
      sensors.  Since additional financing for the next planned step of
      product development could not be secured, Gluko AG was merged with Sangui AG
      effective June 30, 2002.  While further development work in this area
      was halted, Sangui GmbH (see below) is working to secure the key patents
      relating to the existing Glucose Sensors and will continue to seek out potential
      strategic financial or industry partners.





SanguiBioTech
      AG





SanguiBioTech
      AG (Sangui GmbH) was established and organized under the laws of Germany in
      Mainz, Germany on November 25, 1995.  Effective November 4, 2003,
      SanguiBioTech AG was converted into SanguiBioTech GmbH, a limited liability
      company under German law.  Sangui GmbH develops hemoglobin-based
      artificial oxygen carriers for use as blood additives, blood volume substitutes
      and variant products thereof.  Sangui GmbH has also developed an
      anti-aging cosmetic and a number of related products aimed at improving oxygen
      supply to the skin.  Enhanced oxygen supply is the key to improved
      wound healing, therefore the company has extended its product portfolio to
      contain wound pads and other wound management products with these goals in
      mind.  The facilities of Sangui GmbH are located on the premises of
      the Forschungs- und Entwicklungszentrum of the University of Witten/Herdecke,
      Witten, Germany.





To
      date,
      neither SGBI nor any of its subsidiaries has had profitable
      operations.  The Company has never been profitable, and through June
      30, 2005, SGBI's accumulated deficit has exceeded $21.1 million.  The
      Company expects to continue to incur substantial losses over the next several
      years as it pursues its research and development efforts, testing activities
      and
      other growth operations.  SGBI's most promising potential products are
      still in early development stages.  As such the Company will need to
      obtain substantial additional capital to fulfill 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 as of August 31, 2004, the company reduced any
      extraneous activities for cost saving purposes.  The Company’s current
      key focus is on selling its cosmetics and wound management products to
      distribution partners, identifying additional industrial and distribution
      partners for its patents and products, and on obtaining the additional financial
      resources necessary to finalize the certification processes of its development
      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 and proprietary pharmaceutical,
      medical and cosmetic products.  The Company develops its products
      through its wholly owned German subsidiary Sangui GmbH.  The Company
      is seeking to market and sell some, or all, of their products through
      partnerships with industry partners.





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





Sangui
      GmbH holds the exclusive distribution rights for Chitoskin wound pads for the
      European Union and various other countries.  Sangui GmbH has filed a
      patent cooperation treatment applications (PCT) for the production and use
      of
      improved Chitoskin wound pads using gelatine instead of collagen as the carrier
      substance.  In addition, Sangui GmbH is a co-filer for a PCT for the
      production and use of glycosaminoglycansbased on Chitosan and
      its
      derivatives.




2





ARTIFICIAL
      OXYGEN CARRIERS




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





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





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





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





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





NANO
      FORMULATIONS FOR THE REGENERATION OF THE SKIN




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





The
      nano-emulsion-based preparations now being sold by Sangui GmbH have been
      designed to support the regeneration of the skin by improving its oxygen
      supply.  The products Sangui GmbH are currently focussing on are:
      (1) an anti-aging formulation and treatment; and, (2) an
      anti-cellulite formulation for the cosmetics market.  The products
      were thoroughly tested by an independent research institute and received top
      marks for skin moisturization, and enhanced skin elasticity,
      respectively.





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





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




3





CHITOSKIN
      WOUND PADS





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





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





PUBLIC
      GRANTS




Sangui
      GmbH was granted a subsidy amounting to $1,535,300 for the period from April
      8,
      1998 to March 31, 2001 for research and development in association with the
      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, Jülich
      (PtJ), to have the subsidy period extended again; this was approved for the
      period up to December 31, 2002 in the notification of alteration dated July
      2,
      2002.  Funds in the amount of $1,166,210 were received in regard to
      this project through December 31, 2002.





On
      September 1, 1999, Gluko AG was granted $1,864,383 over a period of three years
      to promote the project known as “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, Jülich (PtJ), to have the subsidy period extended until
      December 31, 2002; this was approved in a  notification of alteration
      dated November 28, 2001.  SGBI had received funds in regard to this
      project amounting to $563,775 through December 31, 2002.





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





In
      the fourth quarter of our fiscal
      year ended June 30, 2005, a final project review was carried out by the state
      authorities of Northrhine-Westfalia.  The review resulted in a final
      accounting in our favor totalling to approximately $195,850 for both
      projects.  $148,810 of this amount was received in the fourth quarter
      of our fiscal year ended June 30, 2005, for the oxygen carrier project, and
      in
      the first quarter of the fiscal year ended June 30, 2006 for the glucose sensor
      project.  The remaining $47,040 was received in the first quarter of
      the 2006 fiscal year, and is accrued as accounts receivable at June 30,
      2005.





PATENTS
      AND PROPRIETARY RIGHTS




The
      Company seeks patent protection for all of its research and development, and
      all
      modifications and improvements thereto.  As of June 30, 2005, Sangui
      GmbH had been granted 18 patents.  Furthermore, its subsidiary has
      applied for 24 patents, most of which have been filed in Germany (DE), the
      United States of America (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.  Below are listed the most pertinent of the rights
      held by the Company.





**1.
      Haemoglobin-Polymers**




EP-P
                  0 685 492
              “Process
                  for the preparation of haemoglobin hyperpolymers of uniform molecular
                  weight” (Patent Granted)US-A
                  10/878,724US-P
                  5,985,332
              “Hemoglobins
                  provided with ligands protecting the oxygen binding sites for use
                  as
                  artificial oxygen carriers for direct application in
                  medicineEP-P
                  0857 733
              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 artificial medical oxygenEP-O
                  1 299 457
              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 improved functional propertiesEP-O
                  1 249 385
              of
                  haemoglobin by cross-linking in the presence of chemically non-reacting
                  effectors of the oxygen affinity of the haemoglobin” (Patent
                  Pending)US-O
                  2004/0029780
              “Synthetic
                  oxygen transport made from cross-linked modified human or porcine
                  haemoglobin with improved properties, methodEP-O
                  1294386
              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 in treatmentEP
                  2004/012363
              of
                  lung oedema” (Patents
                  Pending)
  4





**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 opticalbasis
                  as well as a device to perform the pertinent tests” (Patent
                  Granted)US-P
                  6,577,393
              “Polarimetric
                  procedure for determining the (main) vibration plane of polarized
                  light to
                  about 0.1 m° and miniaturizedDE-P
                  198 26 294
              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 interstitialtissue
                  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 components ofDE-P
                  100 20 615
              aqueous
                  solutions, and device for carrying out said method” (German Patent
                  Granted)DE-P
                  100 20 613
              “Method
                  and Device for reproducible polarimetric measurement of the concentration
                  of the components of aequous solutions”(German
                  Patent Granted)EP-A
                  01 953
                  958
              “Refractometric
                  method for carrying out long-term stable accurate measurements
                  of the
                  concentrations of dissolved substancesDE-P
                  100 30 927
              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 mixturePCT-O
                  WO
                  02/01202
              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 hemoglobin and myoglobin,US-O
                  2004/0022839
              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 the
                  case of
                  oxygen deficiency” (European Patent Granted)US-O
                  2003/0180365EP-A
                  03 740 198
              “Microemulsions
                  having a binary phase differentiability and active substance
                  differentiability, the production thereof and their
                  use,US-A
                  10/518,667
              particularly
                  for the topical supply of oxygen” (Patents Pending)DE-O
                  103 60 503
              “Combination
                  set and method for the bio-regenerative treatment of skin”  (Patents
                  Pending)PCT-O
                  2005 /063193




5





**4.
      Wound Management**




EP-A
                  03 708 173
              “Use
                  of one or more natural or modified oxygen carriers, devoid of plasma
                  and
                  cellular membrane constituents,US-A
                  10/508,092
              for
                  externally treating open, in particular chronic wounds” (Patents
                  Pending)PCT-O
                  2005/063311
              “Therapeutically
                  active wound dressings, production thereof, and use of the same” (Patents
                  Pending)
  MANUFACTURING,
      MARKETING AND DISTRIBUTION




For
      the
      manufacturing of our products we rely on certified specialist contract
      manufacturers who specialize in the fields of cosmetic and medical
      products.  Production processes have been certified and comply with
      the respective best practices in the industry.  Production is
      constantly being monitored by us and by the respective certifying
      authorities.





We
      still
      have limited experience in the selling and marketing of our
      products.  We are therefore dependent on attracting industry marketing
      and distribution partners in order to succeed in selling our products in their
      respective markets.





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. Research and development costs totaled $426,831 and
      $886,962 during the fiscal years ended June 30, 2005 and 2004,
      respectively.




GOVERNMENT
      REGULATION




SGBI
      and
      its former United States 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 United States 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 the operation of 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
      United States 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 Federal Drug Administration
      (FDA), and corresponding state regulatory agencies.  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, labelling, 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, and 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 Alliance
      Pharmaceutical Corp. of San Diego, California, as well as Biopure Corp. of
      Cambridge, Massachusetts.  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




As
        of
        June 30, 2005, the company entertained business relationships with three
        major
        customers, Mercatura Biocosmetics AG, Cosmed-Naturell GmbH and Karl Beese
        GmbH
& Co.  No assurance can be given that these companies will be
        successful in marketing and distributing our products.  These three
        companies combined to constitute approximately 88% of the Company’s gross
        revenues for the year ended June 30, 2005.




6





HUMAN
      RESOURCES




The
        Company considers its relations with its employees to be
        favorable.  As of June 30, 2005 SGBI and its subsidiaries had 2
        fulltime employees, neither of whom was involved in research and
        development.  For research and development purposes, the Company had
        consulting arrangements with five individuals.





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.





REPORTS
      TO SECURITY HOLDERS





Copies
      of
      the Company’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 via the web links 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 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) or 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





**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 its 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.   As of June 30, 2005, the Company has issued all of its
      common shares of stock as authorized by its Articles.  The
      Company is unable to consummate any additional sales of common stock until
      additional shares are authorized by the Board of Directors, the
      shareholders of the Company, and an amendment to the Company’s
      Articles of Incorporation is completed.





**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





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 patents, trademarks, copyrights
      or other similar rights (Intellectual Property) 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 Intellectual
      Property rights.  In the event SGBI or its subsidiaries are challenged
      by the holders of such Intellectual Property 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





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 Federal
      Drug Administration 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 Federal Drug
      Administration (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, subject to the then 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, and other like 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.





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.




10





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 of the 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.





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





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





**Intense
      Competition**





Competition
      in the biotechnology, 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.




11





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





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





**Risk
      of Product Liability; Potential Unavailability of
      Insurance**





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




12





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 United State's health care system have been proposed in recent
      years.  While SGBI cannot predict whether any such proposals will be
      adopted, or the effect that any such proposal may have on its business, such
      proposals, if enacted, could have a material adverse effect on the business,
      financial condition or results of operations of SGBI.





**Risk
      of Product Recall; Product Returns**





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





**Risks
      of International Sales and Operations**





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





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





**Lack
      of Commercial Manufacturing and Marketing Experience**





SGBI
      has
      not yet manufactured its products in commercial quantities.  The
      Company and its manufacturing contractors and partners will be engaged in
      manufacturing pharmaceutical products which will be subject to stringent
      regulatory requirements.  No assurance can be given that the Company,
      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
      effort will be successful.




13





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 or similar regulatory bodies under the law of the respective
      countries.  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 one of its manufacturing contractors or partners were unable to
      use
      their manufacturing facilities as a result of a fire, natural disaster,
      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
      has
      entered and 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.





Currently,
      SGBI has its products manufactured by contract manufacturers in Germany and
      anticipates future production in Mexico.  No assurance can be given,
      that these vendors will be willing or able to produce the products in the
      required quality or quantitities or at prices which will enable SGBI to sell
      the
      end products as requested by its customers.





**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 or comparable testing and SGBI may
      eventually intend to manufacture commercial quantities of its
      products.  Although SGBI has passed the ISO 9001:2000 (General Quality
      Management System) and ISO 13485:2003 (Quality Management System Medical
      Products) audits, and obtained the respective certifications, and although
      it
      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.




**Fluctuations
      in Foreign Currency Exchange Rates could have an Adverse
      Impact.**





Because
      a
      portion of our total revenue is derived from international operations that
      are
      conducted in foreign currencies, changes in value of these foreign currencies
      relative to the US dollar may affect our results of operation and financial
      position.  If for any reason exchange or price controls or other
      restriction on the conversion of foreign currencies were imposed, our business
      could be adversely affected.





**ITEM
      2. PROPERTIES**





The
      Company leases its office and laboratory facilities and is housed in
      approximately 8,600 square feet based in the Forschungs- und Entwicklungszentrum
      of the University Witten/Herdecke, Germany.  Rent expense was
      approximately $56,525 and $66,966 during the years ended June 30, 2005 and
      2004,
      respectively.





**ITEM
      3. LEGAL PROCEEDINGS**





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 denied that the claim
      is justified and brought forward the opinion that he could claim additional
      fees.  On February 10, 2005, the lawsuit was settled by order of the
      Court.  All claims and counterclaims between the parties were
      irrevocably dismissed.




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 the
      Company, had neglected its duty in dealing with some of the plaintiff’s Sangui
      BioTech International, Inc. shares.  A judgement was handed down on
      July 28, 2004 whereby the plaintiff’s action was been dismissed.  No
      appeal has been lodged.  The Company recognized no financial impact
      from this litigation.




14





On
      June 15, 2005, SanguiBioTech GmbH
      was served with a lawsuit, Amtsgericht Witten, Case No. 2 C
      429/05.  The plaintiff is a supplier of packaging foils for certain
      medical products.  The plaintiff claims payment of invoices
      amounting to approximately $ 8,500.  The Company had rejected the
      delivery of the goods covered by the invoices due to poor
      quality.  The claim was settled subsequent to the period of this
      report by order of the Court on September 7, 2005, whereby Sangui agreed to
      pay
      a lesser amount of approximately $6,406, including court fees.


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 period 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, 2005, SGBI's common stock was 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
www.pinksheets.com.  Quotations reflect inter-dealer prices,
      without retail mark-up, markdown or commissions and may not represent actual
      transactions.





CLOSING     PRICES  
                (US$)FISCAL
                YEAR
            PERIOD
            HIGH
            LOW2004
            July
                - September
            0.30
            0.08October
                - December
            0.13
            0.10January
                - March
            0.38
            0.22April
                – June
            0.33
            0.172005
            July
                - September
            0.27
            0.07October
                - December
            0.23
            0.05January
                - March
            0.27
            0.11April
                – June
            0.22
            0.12





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.





At
      June 30, 2005, the number of record holders of the Company's common stock was
      approximately 888.  The Company did not pay any cash dividends during
      the past two fiscal years and does not contemplate paying dividends in the
      foreseeable future.





RECENT
      SALES OF UNREGISTERED SECURITIES





In
      January and February, 2005, the
      company sold 3,500,000 shares of common stock to four German investors yielding
      positive cash inflow of $187,500.The
      issuance was not involving a public offering the offer and sale of the shares
      occurred outside of the United States and the shares were sold and issued to
      individuals who reside outside of the United States, pursuant to an exemption
      from registration under Rule 901, Regulation S of the Securities Act of 1933,
      as
      amended.




15





In
      February 2005, the Company issued
      200,000 shares of common stock for prepaid consulting services valued at
      $17,500.  The issuance was not involving a public offering the offer
      and sale of the shares occurred outside of the United States and the shares
      were
      sold and issued to individuals who reside outside of the United States, pursuant
      to an exemption from registration under Rule 901, Regulation S of the Securities
      Act of 1933, as amended.




**Subsequent
      Events**





In
      August, 2005, the company sold
      1,148,386 shares of common stock to a German investor yielding a cash
      contribution in the amount of $100,484.  The issuance was not
      involving a public offering the offer and sale of the shares occurred outside
      of
      the United States and the shares were sold and issued to individuals who reside
      outside of the United States, pursuant to an exemption from registration under
      Rule 901, Regulation S of the Securities Act of 1933, as amended.




In
      January, 2006, the company sold
      1,495,960 shares of common stock to one Swiss investor yielding a cash
      contribution in the amount of $135,758.  The issuance was not
      involving a public offering the offer and sale of the shares occurred outside
      of
      the United States and the shares were sold and issued to individuals who reside
      outside of the United States, pursuant to an exemption from registration under
      Rule 901, Regulation S of the Securities Act of 1933, as amended.




**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.





CRITICAL
      ACCOUNTING POLICIES Our
      significant accounting policies are described in Note 1 to the consolidated
      financial statements for the year ended June 30, 2005.  The following
      are our critical accounting policies:




Revenue
      Recognition




Revenue
      is
      recognized when the sales amount is determined, shipment of goods to the
      customer has occurred and collection is reasonably assured. Product is shipped
      FOB origination.





Research
      and Development




Research
      and
      development are charged to operations as they are incurred.  Legal
      fees and other direct costs incurred in obtaining and protecting patents are
      expensed as incurred. Research and development costs totaled $426,831 and
      $886,962 during the fiscal years ended June 30, 2005 and 2004,
      respectively.





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.




16





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.





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
      2005 COMPARED TO FISCAL 2004**





FINANCIAL
      POSITION





The
      Company’s current assets decreased by $454,201, or 93%, from June 30, 2004
      to $38,281 at June 30, 2005.  The decrease is primarily
      attributable to a significant decrease in cash and taxes
      receivable.  The decrease in cash and taxes receivable results
      primarily from funding the current year’s operations of the Company
      with minimal revenues in the year ended June 30, 2005.





The
      Company's net property and equipment decreased $50,645 or 50%, from June 30,
      2004 to $33,608 at June 30, 2005.  The decrease is primarily
      attributable to the current year depreciation of approximately
      $66,894.





The
      Company funded its operations primarily through the sale of common
      stock.  The Company’s stockholders’ equity decreased $517,126, to
      $162.  The primary decrease is caused by the Company's current year
      net loss of $704,612.





REVENUES.  Revenues
      increased 51% to $45,212 during the year ended June 30, 2005 from $23,228 during
      2004.  This increase is due primarily to the company’s increased
      emphasis on sales and exploitation of existing research and
      development.  The Company incurred Cost of Sales totalling $44,051
      during the 2005 fiscal year, a 64% increase over the prior year.





RESEARCH
      AND DEVELOPMENT.  Research and development expenses decreased 52% to
      $426,831 in 2005 from $886,962 in 2004.  This decrease of $460,131 was
      primarilty the result of decreased operations, and a decreased cash flow during
      the period.





GENERAL
      AND ADMINISTRATIVE.  General and administrative expenses decreased 28%
      to $480,666 in 2005 from $671,383 in 2004.  This decrease of $190,717
      is attributed to decreases in operating expenses due to the ongoing cost-cutting
      programs.





NET
      LOSS.  As a result of the above factors, the Company's consolidated
      net loss was approximately $705,000, or $0.02 per common share, in 2005,
      compared to $1,574,517, or $0.04 per common share, in 2004.




17





LIQUIDITY
      AND CAPITAL RESOURCES





For
      the
      year ended June 30, 2005, net cash used in operating activities decreased to
      $414,593 from $1,464,276 for the year ended June 30, 2004, 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, 2005, net cash flows from investing activities decreased
      to
      $1,631from a surplus of $803,408 for the year ended June 30,
      2004.  The principal decrease is due to the maturity of marketable
      securities in prior years.





The
      Company had a working capital deficit of $126,750 at June 30, 2005, compared
      to
      working capital of $400,759 at June 30, 2004, an overall decrease of $527,509,
      due primarily to the Company’s net loss for the year.





The
      Company incurred a net loss applicable to common stockholders of $704,612 and
      used cash in operating activities of $414,593 for the year ended June 30,
      2005.  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.





Sales
      of
      our anti-aging formulation started in early 2005, sales of our product skin
      regeneration as well as wound pad products have started in the course of the
      first quarter of our current fiscal year. The current state of the different
      sales efforts 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.




18


**ITEM
        7: FINANCIAL STATEMENTS**







SANGUI
        BIOTECH INTERNATIONAL, INC.
 
 CONSOLIDATED
        FINANCIAL STATEMENTS
 
 June
        30,
        2005


19










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, 2005
          and the
          related consolidated statement of operations, stockholders’ equity (deficit),
          comprehensive income, and cash flows for the two years ended June 30, 2004
          and
          2005.  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 audits provide a reasonable basis
          for our opinion.
 
 In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of Sangui Biotech
          International, Inc. and Subsidiaries as of June 30, 2005 and the results
          of
          their operations and their cash flows for the two years ended June 30,
          2004 and
          2005 in conformity with U.S. generally accepted accounting
          principles.
 
 The
          accompanying consolidated financial statements have been prepared assuming
          that
          the Company will continue as a going concern.  As discussed in Note 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.
 
 
 /s/
          HJ
& Associates, LLC
 HJ
&
          Associates, LLC
 Salt
          Lake
          City, Utah
 May
          17,
          2007




20


SANGUI
        BIOTECH INTERNATIONAL, INC.
 Consolidated
        Balance Sheet
 
 
 ASSETS
 --------
 
 June
        30,
 2005
 ----------------
 
 CURRENT
        ASSETS
 
 Cash                                                                                                        $         9,497
 Accounts
        receivable                                                                                       4,300
 Inventory                                                                                                          7,063
 Prepaid
        expenses and other
        assets                                                             17,421
 ----------------
 Total
        Current
        Assets                                                                                   38,281
 ----------------
 
 FIXED
        ASSETS, NET
 
 Property
        and
        equipment                                                                               
33,608
 ----------------
 Total
        Fixed
        Assets                                                                                       33,608
 ----------------
 
 OTHER
        ASSETS
 
 Patents
        and licenses,
        net                                                                                2,490
 Other
        miscellaneous
        assets                                                                          90,814
 ----------------
 Total
        Other
        Assets                                                                                      93,304
 ----------------
 
 TOTAL
        ASSETS                                                                                  $    165,193
 =========
 
  
 
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.




21











SANGUI
      BIOTECH INTERNATIONAL, INC.


Consolidated
      Balance Sheet (Continued)








LIABILITIES
      AND STOCKHOLDERS' EQUITY


----------------------------------------------





June 30,


2005


-------------





CURRENT
      LIABILITIES





Accounts
      payable and accrued
      expenses                                              $  140,899


Notes
      payable                                                                                                   24,132


-------------


Total
      Current
      Liabilities                                                                                
165,031


-------------





TOTAL
      LIABILITIES                                                                                    
165,031


-------------





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,
      47,503,749 shares issued and outstanding


shares
      issued and
      outstanding                                                               
18,746,100


Additional
      paid in
      capital                                                                             1,986,398


Treasury
      stock                                                                                                  
(82,357)


Accumulated
      other comprehensive
      income                                                 383,407


Accumulated
      deficit                                                                                   (21,033,386)


----------------


Total
      Stockholders'
      Equity 162


----------------





TOTAL
      LIABILITIES AND STOCKHOLDERS'


EQUITY                                                                                                $      165,193


==========

















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




22








SANGUI
      BIOTECH INTERNATIONAL, INC.


Consolidated
      Statements of Operations











For the Years Ended


June
      30,


------------------------------------


2005                   
     2004


-----------------           -----------------


REVENUES                                                                             $        
      45,212           
$        23,228





COST
      OF
      GOODS
      SOLD                                                                
44,051                    
 16,438


-----------------           -----------------


GROSS
      PROFIT                                                                                 
1,161                       
6,790


-----------------           -----------------





OPERATING
      EXPENSES





Research
      and
      development                                                         
426,831                  
886,962


General
      and
      administrative                                                          
480,666                   671,383


Depreciation
      and
      amortization                                                      66,894                      86,621


-----------------           -----------------


Total
      Operating
      Expenses                                                         
974,391                 1,644,966


-----------------           -----------------





OTHER
      INCOME (EXPENSE)





Interest
      expense                                                                             
 (3,498)                       
      -


Interest
      income                                                                                   
 704                    
 40,653


Other
      income                                                                                  271,412                   
  23,006


-----------------           -----------------


Total
      Other Income
      (Expense)                                                   268,618                     
63,659


-----------------           -----------------





NET
      LOSS                                                                                  
   
(704,612)               (1,574,517)








OTHER
      COMPREHENSIVE INCOME





Foreign
      currency translation
      adjustments                            
  (145,262)                  
  30,353


Unrealized
      gain on marketable
      securities                                             
-                       
5,610


-----------------           -----------------


COMPREHENSIVE
      LOSS                                                       $   
(849,874)           $  (1,538,554)


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





NET
      LOSS
      AVAILABLE TO COMMON


SHAREHOLDER
      PER COMMON
      SHARE                        $     
   (0.02)          
 $          (0.04)


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





BASIC
      AND
      DILUTED WEIGHTED AVERAGE


NUMBER
      OF COMMON SHARES
      OUTSTANDING        44,312,968             
 40,655,363


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











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




23





SANGUI
      BIOTECH INTERNATIONAL, INC


Consolidated
      Statements of Stockholders' Equity (Deficit)


June
      30,
      2004 and 2005











Accumulated


Common
      Stock                   
Additional                              
Other


------------------------------------         Paid-in       
      Treasury   Comprehensive  Accumulated


Shares            Amount             
       Capital          
 Stock              Loss                 
Deficit


--------------     ------------------     ----------------    ------------   ------------------    ------------------


Balance,
      June 30, 2003     
40,655,363        
18,345,491         2,000,000                   
-             
492,706     $  (18,754,257)





Currency
      translation


adjustment                                        -                    
          -                       
-                     
-               
30,353
                       
-





Unrealized
      gain on


marketable
      securities                       -                      
  -                        -                   
  -                
5,610
                        
-





Purchase
      of treasury


stock                                                  -                      
        -                        -            
 28,098               
       -                         
 -





Net
      loss                                              -                       
 -                        -                     
 -             
          -          
(1,574,517)


---------------      -----------------     ----------------     ------------     ----------------     -----------------


Balance
      June 30, 2004     
40,655,363        
18,345,491         
2,000,000            
28,098          
528,669          20,328,774





Issue
      of
      common stock


to
      employees-no


consideration                    1,200,000             
      100,125                       
-                      
 -                    
   -                        
 -





Currency
      translation


adjustment                                       -                         -                       
       -                       
 -          
(145,262)                        -





Purchase
      of treasury
      stock            -                      
   -                       
-             
118,116                      -                        
  -





Sale
      of
      treasury
      stock                     -                   
      -             (13,602)            
(63,907)                   
 -                        
  -





Proceeds
      from sale


of
      stock                              5,648,386            
300,484                       
 -                         -                     
-                       
   -





Net
      loss                                            -                         -                          -                      
  -                     
-             
(704,612)


----------------    ------------------    ----------------      ---------------    ---------------    ------------------


Balance
      June 30, 2005    47,503,749    
$  18,746,100      $  
1,986,398      $      
82,357    $     383,407
   $  (21,033,386)


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
















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




24





SANGUI
      BIOTECH INTERNATIONAL, INC.


Consolidated
      Statements of Cash Flows











For the Year Ended


June 30,


-----------------------------------------


2005                      
2004


-----------------       ------------------





CASH
      FLOWS FROM OPERATING ACTIVITIES





Net
      loss                                                                                              
$    
(704,612)        $  
(1,574,517)


Adjustments
      to reconcile net loss to net


cash
      used by operating activities:


Depreciation
      and
      amortization                                                                66,894                    
86,621


Stock
      compensation                                                                               100,125                            
 -


Gain
      on sale of treasury
      stock                                                                
(3,101)                           
 -


Changes
      in operating assets and liabilities:


Accounts
      and
      taxes receivable                                   
                         128,286                   (27,346)


Inventory                                                                                                    (7,063)                        
          -


Prepaid
      expenses and other
      assets                                                      
(50,298)                   91,059


Accounts
      payable and accrued
      expenses                                            
55,176                 
(40,093)


---------------          -----------------


Net
      Cash Used in Operating
      Activities                                                (414,593)            
(1,464,276)


---------------          -----------------





CASH
      FLOWS FROM INVESTING ACTIVITIES





Maturities
      of marketable
      securities                                                                
-                   818,400


Purchases
      of marketable
      securities                                              
                  -                   (26,997)


Purchases
      of
      patents                                                                                (1,470)                          
 -


Collection
      of notes
      receivable                                                                     
   -                  
  20,000


Purchases
      of property and
      equipment                                                          
-                     (7,995)


Sales
      of property and
      equipment                
      3,101    -


---------------           ----------------


Net
      Cash Provided (Used) by Investing
      Activities                                 1,631                  803,408


---------------           ----------------





CASH
      FLOWS FROM FINANCING ACTIVITIES





Proceeds
      from issuance of common
      stock                                       
300,484                          
   -


Proceeds
      from notes
      payable                                                                24,132                            
 -


Purchase
      of treasury
      stock                                                               
 (118,166)             
    (28,098)


Sale
      of treasury
      stock                                                                             50,305                              -


--------------           
  --------------


Net
      Cash Provided by Financing
      Activities                                        256,755                   
(28,098)


--------------            
 --------------





EFFECT
      OF
      EXCHANGE RATE
      CHANGES                                       
(145,255)                    43,394


--------------              --------------


NET
      DECREASE IN
      CASH                                                                    
(301,462)               
 (645,572)





CASH,
      BEGINNING OF
      PERIOD                                                             310,959                   
956,531


----------------            
----------------


CASH,
      END
      OF
      PERIOD                                                                   $         
9,497              $    310,959


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








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




25








SANGUI
      BIOTECH INTERNATIONAL, INC.


Consolidated
      Statements of Cash Flows (continued)











For
      the Year Ended


June
      30,


------------------------------------


2005                   
2004


---------------         --------------





SUPPLEMENTAL
      DISCLOSURES OF


CASH
      FLOW INFORMATION





CASH
      PAID
      FOR:





Interest                                                                                               $     2,834           $           
       -


Income
      Taxes                                                                                    $             -           $           
 -














































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




26











SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








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 $704,612 and
      used cash in operating activities of $414,593 for the year ended June 30, 2005.
      These, and other 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 2004 have been reclassified to conform
      to the fiscal 2005 presentation. These reclassifications have no effect on
      previously reported net loss.







27








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








NOTE
      1 -
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


-------------------------------------------------------------------------------------------------------------------------





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.





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.  The Company had no cash equivalents
      outstanding as of June 30, 2005.





28








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








NOTE
      1 -
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


-------------------------------------------------------------------------------------------------------------------------





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, 2005 and 2004 was
      approximately $66,894 and $77,600, 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.





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, 2005 and 2004 was
      approximately $0 and $8,661, 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, 2005, 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


-----------------------------





Revenue
      is recognized when the sales amount is determined, shipment of goods to the
      customer has occurred and collection is reasonably assured. Product is shipped
      FOB origination.





Research
      and Development


--------------------------------------





Research
      and development are charged to operations as they are incurred.  Legal
      fees and other direct costs incurred in obtaining and protecting patents are
      expensed as incurred. Research and development costs totaled $426,831 and
      $886,962 during the fiscal years ended June 30, 2005 and 2004,
      respectively.





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 is offset against research and development expenses when
      the related expenses we incurred.  The Company had no active grants
      during the fiscal years ended June 30, 2005 and 2004.  However, the
      Company did derive other income from additional reimbursements pertaining to
      the
      grants, during the fiscal years ended June 30, 2005 and 2004.




29








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








NOTE
      1 -
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


-------------------------------------------------------------------------------------------------------------------------





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 2005 or 2004, as the Company did not
      issue any stock-based compensation to employees since June 30,
      2002.





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, 2005 and 2004,
      the
      Company had no potentially dilutive securities that would effect the loss per
      share if they were to be dilutive.




30








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








NOTE
      1 -
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


-------------------------------------------------------------------------------------------------------------------------





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.
  Inventory
 ------------
 
 Inventory
        is stated at the lower of cost (computed on a first-in, first-out basis)
        or
        market value.  At June 30, 2005 all inventory consists of finished
        goods.  Inventory is evaluated periodically by management for
        potential impairment.  During the years ended June 30, 2005 and 2004,
        the Company recognized no impairment expense pertaining to
        inventory.
 
 Trade
        Receivables
 -------------------------
 
 The
        Company periodically reviews its trade receivables for potential collectibility
        issues.  The Company has implemented the policy to charge-off trade
        receivables older than 120 days outstanding as bad-debt
        expense.  During the years ended June 30, 2005 and 2004, the Company
        recorded no bad debt expense pertaining to uncollectible trade
        receivables.
 
 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.




31








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








NOTE
      1 -
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


-------------------------------------------------------------------------------------------------------------------------




In
      December 2004, the FASB issued SFAS No. 123R "Shared Based Payment". This
      statement is a revision of SFAS Statement No. 123, "Accounting for Stock-Based
      Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued
      to
      Employees," and its related implementation guidance. SFAS 123R addresses all
      forms of shared based payment ("SBP") awards, including shares issued under
      employee stock purchase plans, stock options, restricted stock and stock
      appreciation rights. Under SFAS 123R, SBP awards result in a cost that will
      be
      measured at fair value on the awards' grant date, based on the estimated number
      of awards that are expected to vest and will be reflected as compensation cost
      in the historical financial statements. This statement is effective for public
      entities as of the beginning of the first interim or annual reporting period
      that begins after June 15, 2005.




In
      May
      2005, the FASB issued Statement of Financial Accounting Standards No.
      154*“Accounting Changes and Error Corrections, an amendment of APB Opinion
      20
      and FASB Statement No. 3,”* which changes the requirements for accounting
      for and reporting on a change in accounting principle. This statement is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. We believe that the adoption of SFAS No.
      154
      will not have a material impact on our results of operations.




In
      March
      2006, the FASB issued SFAS No. 156*“Accounting for Servicing of Financial
      Assets, an amendment of FASB No. 140,”* which modifies the accounting for
      and reporting of servicing asset and servicing liabilities. This statement
      is
      effective as of the beginning of our first fiscal year that begins after
      September 15, 2006. SFAS No. 156 is not currently applicable to the company
      and,
      we believe that the adoption of SFAS No. 156 will not have a material impact
      on
      our results of operations.




In
      June
      2006, the FASB issued Financial Interpretation No. (FIN) 48, “*Accounting for
      Uncertainty in Income Taxes - an interpretation of FASB Statement 109*.” FIN
      48 prescribes a recognition threshold and a measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. This interpretation also provides guidance
      on de-recognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. This interpretation is effective for fiscal
      years beginning after December 15, 2006. The Company is currently evaluating
      the
      impact of applying the various provisions of FIN 48. [Missing Graphic Reference]




In
      September 2006, the FASB issued SFAS No. 157, “*Fair Value
      Measurements*,” that provides guidance for using fair value to measure
      assets and liabilities. Under SFAS 157, fair value refers to the price that
      would be received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the reporting
      entity transacts. SFAS 157 establishes a fair value hierarchy that prioritizes
      the information used to develop the assumptions that market participants would
      use when pricing the asset or liability. The fair value hierarchy gives the
      highest priority to quoted prices in active markets and the lowest priority
      to
      unobservable data. In addition, SFAS 157 requires that fair value measurements
      be separately disclosed by level within the fair value hierarchy. This standard
      will be effective for financial statements issued for fiscal periods beginning
      after November 15, 2007 and interim periods within those fiscal years. The
      Company is currently evaluating the impact of applying the various provisions
      of
      SFAS 157.


Major
        Customers
 -----------------------
 
 During
        the years ended June 30, 2005 and 2004 the Company had three customers to
        whom
        sales exceeded 10% of the Company’s total sales for the period.  Each
        customer is an unrelated third party.  These three companies combined
        to constitute approximately 88% of the Company’s gross revenues for the year
        ended June 30, 2005.


32








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








NOTE  2  -  PROPERTY  AND  EQUIPMENT


------------------------------------------------------------





Property
      and equipment consists of
      the following at June 30, 2005:





Technical
      and laboratory
      equipment                                                         $         
645,214


Leasehold
      improvements                                                                                         388,855


Office
      equipment              
      142,630


Office
      furniture                                                                                                            
26,962


Other                                                                                                                              
      1,324


---------------


1,204,985





Less
      accumulated depreciation and
      amortization                                                               
(1,171,377)


---------------


$           33,608


==========





NOTE  3  -  PATENTS
      AND LICENSES


-----------------------------------------------------





At
      June
      30, 2005, patents and licenses totaled $124,186 less accumulated amortization
      of
      $121,696.





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, 2005 and
        2004, and during the years ended June 30, 2005 and 2004, no options were
        issued
        or outstanding.
 
 Treasury
        Stock - On July 1, 2004, the Company purchased 100,000 shares of its common
        stock from an investor for approximately $0.278 per share.  The
        Company purchased an additional 620,000 shares of its common stock on November
        11, 2004 for approximately $0.191 per share.  During the course of the
        2005 fiscal year the Company sold a total of 288,000 of these treasury shares
        for total proceeds of approximately $63,907, resulting in a loss of
        approximately $13,602, which was applied to additional paid-in
        capital.  As of June 30, 2005 the Company held 432,000 shares of
        treasury stock.  The shares are valued at cost.
  33








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








NOTE
      5  -  INCOME  TAX  PROVISION


-----------------------------------------------------




Deferred
      taxes are provided on a liability method whereby deferred tax assets are
      recognized for deductible temporary differences and operating loss and tax
      credit carryforwards and deferred tax liabilities are recognized for taxable
      temporary differences.  Temporary differences are the differences
      between the reported amounts of assets and liabilities and their tax
      bases.  Deferred tax assets are reduced by a valuation allowance when,
      in the opinion of management, it is more likely than not that some portion
      or
      all of the deferred tax assets will not be realized.  Deferred tax
      assets and liabilities are adjusted for the effects of changes in tax laws
      and
      rates on the date of enactment.


Net
        deferred tax assets consist of the following components as of June 30, 2005
        and
        2004:
 
 June
        30,                June
        30,
 2005                       2004
 Deferred
        tax assets:
 NOL
        Carryover                                                               
$6,900,000            
$6,800,000
 
 Deferred
        Tax
        Liabilities:                                                                   
-                             -
 
 Valuation
        allowance                                                          (6,900,000)            (6,800,000)
 
 Net
        deferred tax
        asst                                                         $              -   
$             
-
   The
        income tax provision differs from the amount of income tax determined by
        applying the U.S. federal and state income tax rates of 39% to pretax income
        from continuing operations for the periods ended June 30, 2005 and 2004 due
        to
        the following:
 
 June
        30,      June 30,
 2005                       
2004
 Book
        income
        (loss)                                                            $
        (274,799)           
$  (538,000)
 Common
        stock issued for
        services                                       
39,049                              -
 State
        and local income
        taxes                                                           
-                 
(147,000)
 Valuation
        allowance                                                               235,750         685,000
 $             -             
$              
-
   At
        June
        30, 2005, the Company had net operating loss carryforwards of approximately
        $6,900,000 that may be offset against future taxable income from the year
        2005
        through 2025. No tax benefit has been reported in the accompanying financial
        statements since the potential tax benefit is offset by a valuation allowance
        of
        the same amount.
  Due
        to
        the change in ownership provisions of the Tax Reform Act of 1986, net operating
        loss carryforwards for Federal income tax reporting purposes are subject
        to
        annual limitations.  Should a change in ownership occur, net operating
        loss carryforwards may be limited as to use in future years.


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,
      2005
      and 2004:





2005                                         2004


----------------                           -----------------


Numerator
      for basic and diluted loss per common


share
–
net
      loss                                                                                    
$(704,612)                          
      $(1,574,517)


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





Denominator
      for basic and diluted loss per common


share
      – weighted average
      shares                                                                           44,312,968                             40,655,363


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


Basic
      and
      diluted loss per common
      share                                                       
$            (0.02)           
$         (0.04)


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





NOTE
      7 -
      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 2005 and 2004.




34








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








NOTE
      8  -  COMMITMENTS  AND  CONTINGENCIES


-------------------------------------------------------------------------




Operating
        Leases
 ------------------------
 
 The
        Company leases its office and laboratory facilities in Germany under an
        operating lease that expires in May, 2006.  Future minimum lease
        payments under this lease at June 30, 2005 are approximately $60,000 for
        fiscal
        2006.  Rent expense was approximately $68,000 and $70,000 for the
        years ended June 30, 2005 and 2004, respectively.
  The
        Company entered into an automobile lease agreement in June, 2004.  The
        lease was for a term of 24 months, and expired on June 15, 2006.  The
        Lease called for monthly payments of approximately $1,130.  Future
        minimum lease payments under this lease at June 30, 2005 were approximately
        $13,556.  Automobile lease expense was approximately $13,556 and $-0-
        for the years ended June 30, 2005 and 2004, respectively.
  Litigation
 ------------
 
 The
        Company is, from time to time, involved in various litigations 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.
 
 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 the
        Company, had neglected its duty in dealing with some of the plaintiff’s Sangui
        BioTech International, Inc. shares.  A judgement was handed down on
        July 28th, 2004 whereby the plaintiff’s action was been dismissed.  No
        appeal has been lodged.  The Company recognized no financial impact
        from this litigation.
  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 denied that the claim is justified and brought forward the opinion
        that he could claim additional fees.  On February 10, 2005, the
        lawsuit was settled by order of the Court.  All claims and
        counterclaims between the parties were irrevocably dismissed.
 
 On
        June
        15, 2005, SanguiBioTech GmbH was served with a lawsuit, Amtsgericht Witten,
        Case
        No. 2 C 429/05.  The plaintiff is a supplier of packaging foils for
        certain medical products.  He claims payment of invoices amounting to
        approximately $ 8,500.  The Company had rejected the delivery of the
        goods covered by the invoices due to poor quality.  The claim was
        settled by order of the Court on September 7, 2005, whereby Sangui agreed
        to pay
        a lesser amount of approximately $6,406, including court
        fees.
  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.


Other
 -------
 
 On
        April
        14, 2005 the Company entered into a distribution agreement with an unrelated
        third party.  According to the terms of the Agreement, the Company
        granted exclusive marketing and distribution rights pertaining to the Company’s
        Chitosan-based wound pads to the third party for a period of five
        years.
  35








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005








NOTE
      9 -
      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.





NOTE
      10 -
      NOTE PAYABLE


--------------------------------------





On
      June
      16, 2005 the Company consummated into a note payable agreement with an unrelated
      third party, whereby the Company may borrow up to $46,936.  As of June
      30, 2005, the Company had borrowed $24,132.  Subsequent to year-end,
      the Company borrowed the remaining $22,804.  The note accrues interest
      at a rate of 6.0% per annum, and becomes due one week after the Company’s
      receipt of certain government subsidies.





NOTE
      11 –
SUBSEQUENT EVENTS


--------------------------------------------------





In
      August, 2005 the Company sold 1,000,000 shares of its common stock to a European
      investor yielding cash contribution of $87,500.  In addition, the
      Company sold 1,495,960 shares of its common stock to a European investor
      yielding a cash inflow of $135,758





Subsequent
      to the period covered by this report, from January 2006 through January 2007,
      the Company borrowed money from four separate European Companies in order to
      supplement its ongoing operational cash flow.  The Company issued
      notes in exchange for cash pursuant to the following terms.  All notes
      are due and payable on the fifth anniversary of its issuance at a rate of 5%
      simple interest.  The Company has the right to convert these notes,
      including all unpaid principal and any interest thereon, into shares of the
      Company’s Common Stock at any time prior to full repayment or the Due Date. The
      total amount borrowed under these terms was $512,959.




Loan
      Agreement with FID Esprit AG




Subsequent
      to the period covered by this report, on April 4, 2006, the Company entered
      into
      a loan agreement with FID Esprit AG.  Pursuant to the terms of the loan
      agreement, FID Esprit AG loaned the Company approximately $ 48,264 with interest
      of six percent per annum.  The Company has the option of paying the loan
      and interest in cash or with shares of SanguiBioTech AG common stock, its
      wholly-owned subsidiary, valued at 50% of the average Hamburg OTC trading price
      over the four weeks prior to repayment.




36








SANGUI
      BIOTECH INTERNATIONAL, INC.


Notes
      to
      the Consolidated Financial Statements


For
      the
      year ended June 30, 2005







NOTE
      11 –
SUBSEQUENT EVENTS (Continued)


-----------------------------------------------------------------




Loan
      Agreement with Feedback AG




Subsequent
      to the period covered by this report, on June 9, 2006, the Company entered
      into
      a loan agreement with Feedback AG.  Dr. Christoph Ludz and Thomas Striepe
      are signatories for Feedback AG.  Pursuant to the terms of the loan
      agreement, Feedback AG loaned the Company approximately $96,527 with interest
      of
      six percent per annum.  The Company has the option of paying the loan and
      interest in cash or with shares of SanguiBioTech AG common stock, its
      wholly-owned subsidiary, valued at 50% of the average Hamburg OTC trading price
      over the four weeks prior to repayment.




Second
      Loan Agreement with Feedback AG




Subsequent
      to the period covered by this report, on July 21, 2006, the Company entered
      into
      a loan agreement with Feedback AG.  Dr. Christoph Ludz and Thomas Striepe
      are signatories for Feedback AG.  Pursuant to the terms of the loan
      agreement, Feedback AG loaned the Company approximately $18,100 for the purpose
      of preparing a shareholders meeting.  The interest on this loan is set at
      six percent per annum.  The Company is to pay the loan and interest off
      utilizing its common stock following the shareholders meeting, however, if
      a
      shareholders meeting has not been held as of July 30, 2007, then the loan and
      interest are due and payable in cash.


Additional
        Loans
  From
        January 2006 to January 2007 the Company borrowed money from four separate
        European companies and their affiliates to supplement its ongoing operational
        cash flow.  The Company issued notes in exchange for cash pursuant to
        the following terms:  All notes are due and payable in the fifth
        anniversary of issuance at a rate of 5% simple interest.  The Company,
        in its sole discretion, has the right to convert these notes, including all
        unpaid principal and any interest thereon, into shares of the Company’s common
        stock at the rate of approximately $0.11 per share at any time prior to full
        repayment or on the Due Date.
 
 Agreements
        with ERC Nano Med S.A. de C.V.
 
 On
        October 13, 2006 the Company entered into a Distribution, Collaboration,
        and
        Commercialization Agreement with ERC S.A. de C.V., a division of ERC Nano
        Med.
        of Mexico (“ERC”).  Under the terms of the Agreement, the Company is
        granting exclusive distribution rights of its 1) hemospray, 2) wound cleaner
        liquid gel, 3) chitosin, and 4) bloodadditiv to ERC.  In return, ERC
        is to work with various Mexican Health Authorities necessary to grant government
        approvals necessary for the products to be sold and distributed in
        Mexico.  All costs for obtaining the necessary approvals in Mexico are
        to be born by ERC.
 
   37





**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, 2005 and 2004, financial statements
      as well as the annual reports on Forms 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
      ineffective and represent a material weakness.  Such controls are
      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**





Distribution
      Agreement with Karl Beese GmbH





On
      April 14, 2005, the Company entered
      into a distribution agreement with Karl Beese GmbH.  Under the
      distribution agreement, Karl Beese GmbH will have exclusive rights to market
      and
      distribute the Company’s Chitosan based wound pads to Europe for a period of
      five years from execution.





Loan
      Agreement with FID Esprit AG





Subsequent
      to the period covered by
      this report, on April 4, 2006, the Company entered into a loan agreement with
      FID Esprit AG.  Pursuant to the terms of the loan agreement, FID
      Esprit AG loaned the Company $48,264 with interest of six percent per
      annum.  The Company has the option of paying the loan and interest in
      cash or with shares of SanguiBioTech AG common stock, its wholly-owned
      subsidiary, valued at 50% of the average Hamburg OTC trading price over the
      four
      weeks prior to repayment.





Loan
      Agreement with Feedback AG





Subsequent
      to the period covered by this report, on June 9, 2006, the Company entered
      into
      a loan agreement with Feedback AG.  Dr. Christoph Ludz and Thomas
      Striepe are signatories for Feedback AG.  Pursuant to the terms of the
      loan agreement, Feedback AG loaned the Company $96,527 with interest of six
      percent per annum.  The Company has the option of paying the loan and
      interest in cash or with shares of SanguiBioTech AG common stock, its
      wholly-owned subsidiary, valued at 50% of the average Hamburg OTC trading price
      over the four weeks prior to repayment.




38





Second
      Loan Agreement with Feedback AG





Subsequent
      to the period covered by
      this report, on July 21, 2006, the Company entered into a loan agreement with
      Feedback AG.  Dr. Christoph Ludz and Thomas Striepe are signatories
      for Feedback AG.  Pursuant to the terms of the loan agreement,
      Feedback AG loaned the Company approximately $18,000 for the purpose of
      preparing a shareholders meeting.  The interest on this loan is set at
      six percent per annum.  The Company is to pay the loan and interest
      off utilizing its common stock following the shareholders meeting, however,
      if a
      shareholders meeting has not been held as of July 30, 2007, then the loan and
      interest are due and payable in cash.





Agreements
      with ERC Nano Med S.A. de C.V.





Subsequent
      to the period covered by
      this report, on October 13, 2006, the Company entered into a Distribution,
      Collaboration, and Commercialization Agreement with ERC S.A. de C.V., a division
      of ERC Nano Med. of Mexico (“ERC”).  Under the terms of the agreement
      the Company is granting the exclusive distribution rights of its i) hemospray,
      ii) wound cleaner liquid gel, iii) chitoskin wound pads and iv) bloodadditiv
      to
      ERC.  In return ERC is to work with the various Mexican Health
      Authorities necessary to grant government approvals necessary for the products
      to be sold and distributed in Mexico.  All costs for obtaining the
      necessary approvals in Mexico are to be born by ERC.





Subsequent
      Sales of Securities





Subsequent
      to the period covered by
      this report, in August 2005, the Company sold 1,000,000 shares of its common
      stock to a European investor yielding cash contribution of
      $87,500.  No underwriters were used.  The offer and sale of
      the shares occurred outside of the United States and the shares were sold and
      issued to individuals who reside outside of the United States, pursuant to
      an
      exemption from registration under Rule 901, Regulation S of the Securities
      Act
      of 1933, as amended.





Subsequent
      to the period covered by
      this report, in January 2006, the Company sold 1,495,960 shares of its common
      stock to a European investor yielding a cash inflow of $512,959.  No
      underwriters were used.  The offer and sale of the shares occurred
      outside of the United States and the shares were sold and issued to individuals
      who reside outside of the United States, pursuant to an exemption from
      registration under Rule 901, Regulation S of the Securities Act of 1933, as
      amended.





Subsequent
      Additional Loans to the Company





Subsequent
      to the period covered by
      this report, from January 2006 through January 2007, the Company borrowed money
      from four separate European Companies and their affiliates to supplement its
      ongoing operational cash flow.  The Company issued notes in exchange
      for cash pursuant to the following terms.  All notes are due and
      payable on the fifth anniversary of its issuance at a rate of 5% simple
      interest.  The Company, in its sole discretion, has the right to
      convert these notes, including all unpaid principal and any interest thereon,
      into shares of the Borrower’s Common Stock at any time prior to full repayment
      or the Due Date.  The total amount borrowed under these notes was
      $512,959.




39





**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE
      WITH
      SECTION 16(a) OF THE EXCHANGE ACT.**





The
      following table sets forth the names and ages of the current directors and
      executive officers of Sangui BioTech International, Inc.,  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, 2005 were as follows:


**Name**
            
            **Age**
            
            **Positions
                and Offices**
            **Directorship
                Term**
            **Period
                of Service as a Director**Prof.
                Wolfgang Barnikol, M.D., Ph.D:
            
            70
            
            Chairman,
                President, Chief Executive Officer, Executive Director
            One
                Year
            Apr
                18, 2001Joachim
                Fleing, Ph.D..
            
            52
            
            Non-Executive
                Director
            One
                Year
            Dec
                13, 2003Prof.
                Joachim Lutz, M.D., Ph.D.
            
            71
            
            Non-Executive
                Director
            One
                Year
            Aug,
                1997Thomas
                Striepe.
            
            41
            
            Non-Executive
                Director
            One
                Year
            Feb
                7, 2005





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, except as follows:





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 (See below: Item 12 Certain Relationships and Related
      Transactions).  No royalties were paid or earned in fiscal 2005 and
      2004.





Since
      July, 2002, the Company has an agreement with Joachim Fleing under which the
      latter serves as a communications specialist on an hourly basis.





The
      day-to-day operations of SGBI are
      entrusted to the Executive Directors of SGBI.





The
      business and working experience of the Directors and key Executive Officers
      of
      SGBI as of June 30, 2005, 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.




40





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
      Wuerzburg 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.





THOMAS
      STRIEPE, Non-Executive Director, is Vice President Accounting and Controlling
      at
      Dr. Ludz GmbH, Hamburg, Germany, a financial services company. Prior to joining
      Dr. Ludz GmbH in 2004, he held management positions in the accounting
      departments of several German and international corporations. He holds an MBA
      of
      Hamburg University.





JOACHIM
      FLEING, PhD, Non-Executive Director, 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. During the last decade prior to 2000 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.





**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.




41





**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 qualifies 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, 2005, 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.





**Code
      of Ethics**





The
      Company has not as of the date of this report adopted a code of
      ethics.




42





**ITEM
      10. EXECUTIVE COMPENSATION AND OTHER INFORMATION**




**Summary
      Compensation Table**




The
      table below summarizes all compensation awarded to, earned by, or paid to our
      Officer for all services rendered in all capacities to us for the fiscal periods
      indicated.








**Name**
              **and**
              **Principal**
              **Position**
              **(a)**
            **Year**
              **(b)**
            **Salary**
              **($)(1)**
              **(c)**
            **Bonus**
              **($)**
              **(d)**
            **Stock**
              **Awards**
              **($)**
              **(e)**
            **Option
                Awards**
              **($)**
              **(f)**
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
              **(g)**
            **Nonqualified
                Deferred Compensation Earnings**
              **($)**
              **(h)**
            **All
                Other Compensation**
              **($)**
              **(i)**
            **Total**
              **($)(1)**
              **(j)**Prof.
                Wolfgang Barnikol
              Chairman,
                CEO, CFO
            2005
              2004
              2003
            38,134
              126,858
              115,927
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            38,134
              126,858
              115,927Patrick
                Onishi
              Secretary
            2005
              2004
              2003
            0
              0
              13,389
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              13,389





(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.




**Narrative
      Disclosure to Summary Compensation Table**





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 (See below: Item 12 Certain Relationships and Related
      Transactions).  No royalties were paid or earned in fiscal 2005 and
      2004.





There
      are no other employment
      contracts, compensatory plans or arrangements, including payments to be received
      from the Company with respect to any executive officer, that would result in
      payments to such person because of his or her resignation, retirement or other
      termination of employment with the Company, or its subsidiaries, any change
      in
      control, or a change in the person’s responsibilities following a change in
      control of the Company.




There
      are no agreements or
      understandings for any executive officer to resign at the request of another
      person. None of our executive officers acts or will act on behalf of or at
      the
      direction of any other person.




43





**Outstanding
      Equity Awards at Fiscal Year-End Table and Narative**





The
      Company had no outstanding equity
      awards at fiscal year-end.




**Compensation
      of Directors**





The
      table below summarizes all
      compensation awarded to, earned by, or paid to our Directors for all services
      rendered in all capacities to us for the fiscal periods indicated.





**Name**
              
              
              **(a)**
            **Fees
                Earned or Paid in Cash**
              
              **(b)**
            **Stock**
              **Awards**
              **($)**
              **(c)**
            **Option
                Awards**
              **($)**
              
              **(d)**
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
              **(e)**
            **Nonqualified
                Deferred Compensation Earnings**
              **($)**
              **(f)**
            **All
                Other Compensation**
              **($)**
              
              **(g)**
            **Total**
              **($)**
              
              **(j)**Prof.
                Wolfgang Barnikol
            2005
              2004
              2003
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            $0
              $0
              $0Joachim
                Lutz
            2005
              2004
              2003
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            $0
              $0
              $0Thomas
                Striepe
            2005
              2004
              2003
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            $0
              $0
              $0Joachim
                Fleing
            2005
              2004
              2003
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            0
              0
              0
            $0
              $0
              $0





**Narrative
      to Director Compensation Table**





Directors
      serve without compensation
      and there are no standard or other arrangements for their
      compensation.  There are no employment contracts, compensatory plans
      or arrangements, including payments to be received from the Company with respect
      to any Director that would result in payments to such person because of his
      or
      her resignation with the Company, or its subsidiaries, in the event of any
      change in control of the Company.  There are no agreements or
      understandings for any Director to resign at the request of another
      person.  None of our Directors or executive officers acts or will act
      on behalf of or at the direction of any other person.




**Other
      Contracts**





None.




44





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**





**Securities
      Authorized for Issuance under Equity Compensation Plans**





No
        securities
        have been authorized for issuance as part of any Equity Compensation
        Plan.





**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.


**Security
      Ownership of Certain Beneficial Owners**





As
      of June 30, 2005 the Company is not
      aware of any person who is the beneficial owner of more than 5% of the
      issued and outstanding Common Stock of the Company.




**Security
      Ownership of Management**





The
      following table sets forth, as of
      June 30, 2005, certain information concerning ownership of shares of Common
      Stock by each director of the Company and by all executive officers and
      directors of the Company as a group:





Title
                of Class
            Name
                and Address
              of
                Beneficial Owner
            Amount
                and Nature of Beneficial Ownership
            Percent
                of ClassCommon
                Stock
            Dr.
                Wolfgang Barnikol
              Arndstr.8
              58453
                Witten
              Germany
            1,853,600
                (1)
            3.9
                %Common
                Stock
            Dr.
                Joachim Fleing
              Am
                Vogelherd 43
              35043
                Marburg
              Germany
            202,000
            0.4
                %Common
                Stock
            Joachim
                Lutz
            0
            0.0%Common
                Stock
            Thomas
                Striepe
            0
            0.0%Common
                Stock
            All
                Officers and Directors as a Group (4 persons)
            2,055,600
            4.3
                %




(1)
      This
      amount includes 1,153,600 shares held in the name of Dr. Doris Barnikol-Keuten,
      Dr. Wolfgang Barnikol’s spouse.





45





**Changes
      In Control**





To
      the
      best of the Company’s knowledge there are no present arrangements or pledges of
      the Company's securities, which may result in a change in control of the
      Company.





**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





**Transactions
      with related persons**





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





Royalty
      Arrangment With Professor Wolfgang Barnikol





Subsequent
      to the period covered by
      this report 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 net revenues on products
      developed by SanguiBioTech AG or GlukoMeditech AG based on those
      patents.  The royalty expires in 20 years or upon expiration of the
      patents.  Upon the merger of the two former subsidiaries 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.





**Parents**





Not
      applicable.





**Promoters
      and Control Persons**





Not
      applicable.




46





**ITEM
      13 EXHIBITS**





(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)





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





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


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


(2)





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





10.14
      Prolongation Letter for SanguiBiotech AG Grants (4)





21.1
      Subsidiaries of SGBI (2)





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.




47





**ITEM
      14. Principal Accountant Fees and Services.**





**Independent
      Public Accountants**




The
      Company's independent accountants
      for the fiscal year ended June 30, 2004 was 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 year ended 2004, the aggregate fees
      billed by Corbin & Company, LLP for services rendered for the review of the
      financial statements included in our quarterly reports on Form 10-QSB or
      services provided in connection with the statutory and regulatory filings or
      engagements for that fiscal year, were $51,699.





(b)           Audit-Related
      Fees.  For the fiscal year ended 2004, fees billed by Corbin &
Company, LLP, were an aggregate $0 for any audit-related services other
      than as
      set forth in paragraph (a) above.





(c)           Tax
      Fees.  For the fiscal year ended 2004, Corbin & Company, LLP
      did not bill any fees for tax compliance services.  The auditors did
      not provide tax-planning advice for the fiscal year ended 2004.





(d)           All
      Other Fees.  None.





The
      Company’s independent accountants for the fiscal year ended June 30, 2005 were
      HJ & Associates, LLP.





(a)           Audit
      Fees.  For the fiscal years ended 2005 and 2004, the aggregate
      fees billed by HJ & Associates, LLP for services rendered for the audits of
      the annual financial statements and the review of the financial statements
      included in the quarterly reports on Form 10-QSB or services provided in
      connection with the statutory and regulatory filings or engagements for those
      fiscal years were $48,000 and $17,500 respectively.





(b)           Audit-Related
      Fees.  For the fiscal years ended 2005 and 2004, fees billed by HJ
& Associates, LLP, were an aggregate $0 for any audit-related services other
      than as set forth in paragraph (a) above.





(c)           Tax
      Fees.  For the fiscal years ended 2005 and 2004, HJ &
Associates, LLP did not bill any fees for tax compliance
      services.  The auditors did not provide tax-planning advice for the
      fiscal years ended 2005 and 2004.





(d)           All
      Other Fees.  None.




48





**SIGNATURES**





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





**SANGUI
      BIOTECH INTERNATIONAL, INC.**





*/s/
                Wolfgang Barnikol*
              *Wolfgang  Barnikol*
              *President  and  Director*
            June
              11, 2007





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





Signatures
            Title
            Date*/s/
                Wolfgang
                Barnikol*
              Wolfgang
                Barnikol, M.D., Ph.D
            President,
                Chief Executive Officer and Director
            June
                11, 2007*/s/
                Joachim
                Lutz*
              Joachim
                Lutz, M.D.
            Director
            June
                13, 2007*/s/
                Thomas Striepe*
              Thomas
                Striepe
            Director
            June
                13, 2006*/s/
                Joachim Fleing*
              Joachim
                Fleing, Ph.D
            Director
            June
                7,
                2007








49