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, 2020. The following are our critical accounting policies:





Revenue Recognition


In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Adoption of New Accounting Guidance on Revenue Recognition

The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.





Type of Revenue


The Company derives revenue primarily from licensing fees on sales of its wound spray product.

The Company recognizes revenue based on the five criteria for revenue recognition established under Topic ASC 606 as set forth below:

The Company's licenses provide a right to use and create performance obligations satisfied at a point in time. The Company recognizes revenue from the license when the performance obligation is satisfied through the transfer of the license. The Company will recognize royalty revenue a) when the licensee makes the subsequent sales or use that trigger the royalty, or (b) the performance obligation to which some or all of the sales-based or usage- based royalties has been allocated has been satisfied.









Research and Development


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

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and development costs totaled $8,311 and $27,226 during the fiscal years ended June 30, 2020 and 2019, respectively.





Foreign Currency Translation


The functional currency of the Company's Sangui GmbH and Sangui KG subsidiaries is the local currency, the Euro. Accordingly, assets and liabilities of the subsidiary are translated into U.S. dollars at period-end exchange rates. Sales and expenses are translated at the average exchange rates in effect for the period. The resulting translation gains or losses are recorded as a component of accumulated other comprehensive income in the consolidated statement of stockholders' equity (deficit). For the periods ending June 30, 2020 and 2019, the Company recognized foreign currency translation gain of $460 and loss of $1,474.

The exchange rates used to calculate values and results for the years ended June 30, 2020 and 2019 were as follows (USD):



                              Year-end Rates   Average Period Rates
                June 30, 2020    0.889150            0.904091
                June 30, 2019    0.878005            0.876498




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. As future events and their effects cannot be determined with precision, actual results could differ from those estimates. Significant estimates made by management are, among others, the realization of receivables, inventories, long-lived assets, and valuation allowance on deferred tax assets. Due to the current dependence of Sangui on the revenue from the license agreement with Sastomed GmbH, the management places the highest priority on the sales development in this area in order to be able to recognize potential risks in good time and to take appropriate measures if necessary. These measures include regular and ad hoc discussions with the licensee about its planned business development.





Going concern


The Company incurred a net loss attributable to common stockholders of $ 192,741 and used cash in operating activities of $168,386 for the year ended June 30, 2020. These and other conditions raise substantial doubt about the Company's ability to continue as a going concern for a period of one year from the issuance of these financial statements. The Company expects to continue to incur significant capital expenses in pursuing its business plan to market its products and expand its product line; however, obtaining additional financing through stock offerings or other feasible financing alternatives may be difficult or even impossible. In order for the Company to continue operating at its existing levels, it will require significant additional funds over the next twelve months. Therefore, the Company is dependent on funds raised through equity or debt offerings. The Company plans to continue to raise necessary capital through both notes payable, as well as stock sales.

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 Company's ability 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


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continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.







FINANCIAL POSITION



Our current assets decreased by $30,275 or 38%, from $78,971 at June 30, 2019 to $48,696 at June 30, 2020. The decrease is primarily attributable to decreases in accounts receivables and cash in the year ended June 30, 2020.

Our net property and equipment is $1,922 at June 30, 2020 and $0 at June 30, 2019, an increase of $1,922.

We funded our operations primarily through our existing cash reserves and cash received from the issuance of shares of common stock and notes payables from related parties. The Company's stockholders' deficit was increased from $591,989 at June 30, 2019 to $729,878 as of June 30, 2020. The primary reason for the increase in the deficit was the net loss of $192,741 offset by issuance of common stock totalling approximately $15,415.

REVENUES. Revenues decrease 67% to $ 28,915 during the year ended June 30, 2020 from $88,001 in the previous fiscal year. This decrease is due to a decrease in income from royalties due from sales of the wound spray product due to restructuring of sales and warehousing at the licensee.

RESEARCH AND DEVELOPMENT. Research and development expenses decreased to $8,311 during the year ended June 30, 2020 from $27,226 during the 2019 fiscal year. This decrease is mainly attributed to lower fees for patents.

OTHER OPERATING EXPENSES. Professional fees for 2020 decreased to $161,036 from $209,516 in 2019 due to decreased fees for consulting, accounting and auditing as well as one-time costs incurred in 2019 to obtain an out-of-court settlement in a patent matter. General and administrative expenses decreased by $149,141, due to costs associated with the closure of the Witten site. Overall Total Operating Expenses decreased by $215,327 or 51%.

OTHER INCOME (EXPENSE). Total other expense increased $12,253 from $4,879 in 2019 to $ 17,132 in 2020. The increase relates to a decrease on gains on foreign currency exchange of $3,127 an increase of interest expenses of $2,412 and an increase of loss on out of court settlement of $6,714.

NET LOSS. As a result of the above and other factors, the Company's consolidated net loss attributable to common stockholders was $ 192,741 or ($0.00) per common share in 2020, as compared to $323,576 or ($0.00) per common share in 2019.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended June 30, 2020, net cash used in operating activities decreased to $168,386 from $316,918 for the year ended June 30, 2019 due to a decrease in net loss, an increase in accounts payable and accrued expenses and an decrease in tax refunds receivable, offset by a decrease in stock issued for services and a decrease in prepaid expenses.

For the year ended June 30, 2020, net cash provided by financing activities decreased from $326,515 received during the fiscal year 2019 to net proceeds of $159,181 received in fiscal year 2019. The decrease came about due to a decrease of related party note payables, a reduction of proceeds arising common stock issued and repayments of note payables.


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We had net working capital deficit of $ 742,789 at June 30, 2020, compared to a deficit of $591,989 at June 30, 2019, primarily attributed to an increase of notes payables and accrued expenses and decreases in cash, prepaid expenses and other assets. The Company had increases in prepaid expenses, tax refunds and note receivables related parties and decreases in cash and in accounts receivable when compared to prior year. While accrued interest and notes payables related parties increased from prior year, there was a decrease in accounts payables and accrued expenses when compared to prior year.

The Company incurred a net loss applicable to common stockholders of $192,741 and used cash in operating activities of $168,386 for the year ended June 30, 2020. 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Currently, it is the core strategy of the Company to license its technologies to industry partners. The current state of the sales efforts, in particular with regard to the Granulox product, distributed by our former joint venture partner, SastoMed, GmbH, has induced management to believe that income from these agreements can reasonably be anticipated to begin during the 2020 fiscal year. The Company will need substantial additional funding to fulfill its business plan. The Company intends to explore financing sources for its future development activities. No assurance can be given that these efforts will be successful.

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