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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. , 20549
FIRST AMENDMENT TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
DIABETEX INTERNATIONAL CORP.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEVADA 87- 0458228
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR (IRS EMPLOYER IDENTIFICATION
ORGANIZATION) NO.)
7321 ROSEVILLE ROAD, SACRAMENTO, CA 95842
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(ADDRESS OF PRINCIPAL OFFICE) (ZIP CODE)
Issuer's telephone number (702) 293- 0909
Securities to be registered pursuant to Section 12(b) of the Act
Securities to be registered pursuant to Section 12(g) of the Act
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<CAPTION>
Title of each class Name of each exchange on which registered
<S> <C>
DBTX Common Shares NASDAQ OTC BB
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ITEM 1. DESCRIPTION OF BUSINESS: Sheridan Industries Inc. ("Sheridan") was
incorporated in the State of Utah on September 14, 1983. On December 14, 1998,
Sheridan was incorporated in the State of Nevada. On December 1, 1998, the Utah
corporation was merged with and into the Nevada corporation and the Nevada
corporation was the survivor. Accordingly, the domicile of the corporation was
changed. On December 22, 1998, Sheridan changed its name to Diabetex
International Corp. (the "Company").
The business of the Company is the providing of equipment for the monitoring and
treatment of diseases of improper metabolism including its first major market,
diabetes.
The Company has three independent but related lines of products and services;
a.) Non-invasive biological monitoring; b.) Metabolic Activation equipment and
treatment; and c.) New high accuracy infusion devices for the automatic delivery
of its treatments.
A brief summary of the Company's three independent but related lines of products
and services are:
a.) An exclusive worldwide license to exploit, manufacture and market patented
devices to non-invasively determine blood glucose, glycosolated hemoglobin A1C
(average blood glucose level measurement), and other blood levels to help treat
diabetes and potentially other diseases. These device prototypes are in
development, are being tested and refined, and have not been submitted for
approval by the United States Food and Drug Administration ("FDA"). The Company
will develop these devices to final product form, submit them for testing to the
FDA and use original equipment manufacturers to build the equipment to the
designs and specifications of the Company. The Company will use existing
distribution channels for sales and provide its own marketing staff.
b.) An exclusive license to exploit and market a patented metabolism treatment
called Metabolic Activation (also known as hepatic activation or Continuous
Intermittent Intensive Insulin Therapy, or "CIIIT" in some medical
publications). This treatment is delivered by a special infusion device or pumps
with the treatment programmed into the device, and has been FDA approved since
1988. The treatment has been in development for over ten years by Advanced
Metabolic Systems, Inc. ("AMSys"), and has been utilized for the past ten years,
with constant follow-up treatments to demonstrate the prevention of the
complications of diabetes, and certain other metabolism-related disease phases.
Prior to being acquired by the Company, Advanced Metabolic Technologies, Inc.
("AMTech"), (was a wholly owned subsidiary of AMSys), was created for the sale
of the AMSys assets to the Company. Accordingly, the Company acquired this
treatment, business, licenses, special infusion devices and know-how by
acquiring AMTech in exchange for the Company shares with AMSys. AMTech is
currently a wholly-owned subsidiary of the Company.
The Company obtained the technology from AMSys, which developed the treatment
and caused infusion devices or pumps to be modified to provide the treatment.
Pending the final approval of a Hamilton-May infusion device, the Company
expects to use its existing Bionica Ltd. pumps (which are FDA approved). For a
third source of pumps,
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other infusion device manufacturers would be able to modify their existing
infusion devices to provide pumps for the treatment.
The Company provides all services and training required to open a treatment site
in any hospital, clinic or reasonably equipped physician's office and guidance
and responses to those physicians and nurses or technicians that might ask
medically oriented questions.
c.) An exclusive worldwide license to finish development, exploit, manufacture
and sell an ultra accurate pumping system which will replace the Bionica pump
(the current FDA approved device), and provide for automatic delivery of the
treatment and any insulin or insulin related products. The Company has a
prototype mechanical pumping system, which is suitable to be fitted to an
infusion pumping device such as the existing Bonica infusion device.
Prior to acquisition, AMTech was the holder of all patent rights to Metabolic
Activation, and the owner of the FDA approved pumps used for the treatments.
There were no liabilities and no withheld assets from the transfer.
Prior to the acquisition of the license by Hamilton-May Corporation, there were
no dealings or common operations with Hamilton-May Corporation. In the past, the
Aoki Diabetes Research Institute ("Research Institute") has provided clinical
verification and research services to AMSys. The Research Institute is a
non-profit affiliate of the University of California, Davis. The Company is the
exclusive licensee of all related technologies, except for a license to use the
technology in Asia.
In general, diabetes is a huge medical problem in every country and growing in
percentages. The current treatment and equipment being used and developed are
intended to help provide for better care, and presently, diabetics are able to
halt, retard, and reverse the complications of diabetes as to certain
complications. Due to the fact that the treatment addresses the "core" problem
of diabetes (the inability of diabetics to properly metabolize carbohydrates,
and thus rely on high lipid metabolism); the results are uncommon for medical
treatments. The treatments may however, benefit over all of the secondary
complications of diabetes, including kidney, cardiovascular, ocular and
neurological conditions.
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The indicated complications for the treatment are set forth in the
following chart. These complications are the basic problems, which
arise from diabetes.
Indications for the Company's Metabolic Activation (CIIIT) also known as
Hepatic Activation
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SEVERE KIDNEY Patients without kidney disease have PATIENTS ON METABOLIC ACTIVATION SHOULD EXPECT NOT
DISEASE Creatinine Clearance ("CCL")of about 90 TO LOSE ANY OF THEIR CCL LEVELS, as studies have
to 80. shown of 31 patients with CCL of 46, after 37
months, they remained at 46, and many should have
PATIENTS WHO HAVE PROGRESSED TO A CCL OF been on or near renal dialysis. NO PATIENT HAS YET
60 ARE ILL, AND SHOULD EXPECT TO GONE ON TO REQUIRE DIALYSIS.
CONTINUE TO LOSE 10 CCL PER YEAR ON
AVERAGE, WITH KIDNEY FAILURE AND
DIALYSIS AT ABOUT 20 CCL.
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BRITTLE DIABETES PATIENTS WHO DO NOT METABOLIZE PATIENTS ON METABOLIC ACTIVATION WILL NOT HAVE THE
CARBOHYDRATES AND LIPIDS CORRECTLY, WIDE SWINGS AND EXCURSIONS as their bodies both
EXPECT TO HAVE WIDE SWINGS IN THEIR store and release glycogen (glucose). This is seen
BLOOD GLUCOSE. by the uptake of glucose from their blood.
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HYPOGLYCEMIA Patients who have had diabetes for years Patients on Metabolic Activation REGAIN THEIR
AWARENESS lOSE THEIR ABILITY TO SENSE THE ONSET OF ABILITY TO SENSE LOW BLOOD SUGAR, AND DECREASE
LOW BLOOD SUGAR, AND OFTEN "PASS OUT" EPISODES OF HYPOGLYCEMIA BY 98%.
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DIABETIC Patients often suffer from DIABETIC EYE Patients on Metabolic Activation experience a
RETINOPATHY DISEASE AND REQUIRE LASER TREATMENTS. REMARKABLE STABILIZATION OF EYE DISEASE, and do
Diabetes is a major cause of blindness. not require laser treatments after being on the
treatment for one year or longer.
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HYPERTENSION Hypertension (high blood pressure) is a Patients on Metabolic Activation experience a
major problem for many diabetic REDUCTION IN HIGH BLOOD PRESSURE, AND AMAZINGLY,
patients. Their blood pressure STAYS THEY ALSO ELIMINATE ORTHOSTATIC HYPOTENSION (low
ELEVATED EVEN WHILE ASLEEP, AND IS blood pressure), also regaining a healthy change
UNHEALTHY. at night.
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WOUND HEALING Because of poor circulation, and the Patients on Metabolic Activation can expect to
lack of metabolism at the cellular HEAL MORE QUICKLY THAN EVER BEFORE, AND AVOID
level, DIABETIC PATIENTS OFTEN DO NOT AMPUTATIONS DUE TO WOUNDS AND SORES.
HEAL WELL.
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HEART METABOLISM Many heart failures are really due to Patients on Metabolic Activation can expect to
diabetes, and the FAILURE OF THE HEART have their HEART MUSCLE FED AND RECOVER A MORE
TO BE PROPERLY "FED" DUE TO IMPROPER NORMAL LIFE, AS THEIR HEART NO LONGER IS STARVED
METABOLISM, including non-carbohydrate of certain requirements for both fuel and healing.
metabolism.
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NERVE DAMAGE Diabetic neuropathy is common, and Patients on Metabolic Activation enjoy, for the
causes pain even while at rest. THE first time, the ELIMINATION OF NEUROPATHY, AND
PROBLEM IS SEVERE, AND PAIN IS GREAt. EVEN SOME RECOVERY OF FEELING.
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BASIC QUALITY OF Diabetic patients have slowly sunk into Patients on Metabolic Activation immediately
LIFE a state of DEPRESSION AND LOST ENERGY. realize that they had slowly become chronically
They feel badly, and never achieve true ill, and REGAIN THEIR FORMER ENERGY LEVELS, FEEL
well being due to their improper BETTER, HAVE HOPE FOR THEIR LIVES, AND KNOW THAT
metabolism and the problems of not being THEY HAVE FINALLY FOUND A TREATMENT WHICH
able to perform. ADDRESSES THE CORE OF THEIR DISEASE.
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CONCLUSION: THERE IS NO KNOWN ASPECT OF DIABETES WHICH HEALTHY CARBOHYDRATE AND
LIPID METABOLISM (METABOLIC ACTIVATION) DOES NOT GREATLY HELP. THERE HAVE BEEN
NO REPORTED FAILURES OR ADVERSE REACTION TO THE TREATMENT, AS IT RE-ESTABLISHES
WHAT IS NORMAL AND HEALTHY.
Through long term clinical trials , the Company's treatment is the
first ever to provide medical substantiation of the ability to halt or
reverse the complications of diabetes. Metabolic Activation has been in
ongoing treatment follow-ups and extended clinical trials to
demonstrate its unique ability to provide more normal metabolism. As a
result of the recent publication of the results of these studies, and
the data acquired from various sites using the treatment, the business
of the Company is now to commercially launch its treatment by the
Company's wholly owned subsidiary, AMTech.
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In addition to diabetes, the Company expects to begin clinical trials on using
the equipment and treatment for other disease phases such as non-diabetic
cardiovascular disease and obesity. Furthermore, the uses of the non-invasive
glucose and blood substrate measurements are a beneficial, but not necessary
adjunct to the other products of the Company.
The Company currently provides a complete equipping, training, and patient
following service. A physician can now open a clinic in almost any office
clinical setting, with all training and equipment provided. A cost covering fee
is charged for training and assisting the commencement of the operation of a
clinic.
The Company is currently paid $125 per treatment day - per patient, for the
rental of the pumping system containing the treatment program. The pumping
system is rather compact (about the size of a video VCR tape). Treatments are
given once every week, to two weeks, depending upon the physical condition of
the patient, and the degree of existing complications when treatment is
commenced. A clinical technician or registered nurse provides the treatment. A
usual setting for an office or hospital treatment center is a ten chair model,
which can treat 70 to 140 patients a week.
When the patient is on Activation therapy, they discontinue their insulin for
that treatment day. On other non-treatment days, the patient continues with
their conventional treatment of self-administration of insulin or oral agents.
This treatment is consistent with all current forms of treatment and is not a
replacement therapy.
When the patient has fully stabilized (usually after four to eight months), the
patient can learn to treat himself at home using the same pump as is used in the
clinic. The rental of the pumping system, and patient follow-up treatment
services are expected not to change when patients treat themselves at home. It
should be noted that AMSys conducted and completed a two year home protocol, and
the results show that there is no difference between being treated at a clinic
and being treated at home.
Reimbursement for the treatment is now being obtained for patients. Recent
Social Security Administration rulings have provided, on a case by case basis,
that the treatment is effective, not experimental, and not investigational,
causing the treatment to be reimbursed under Medicare. Private insurance
companies are also beginning to cover the costs of the treatment. As with
Medicare and state agencies, payment for the treatment is always on a
case-by-case basis. As the treatment has become more universally used and
accepted, and additional medical reports and papers written, reimbursement will
become the standard. The Company expects to expand the requests for
reimbursement and obtain widespread reimbursement with fewer requests for
hearings.
The ability in the near future to finish the development of the Hamilton-May
fluid micrometer with its one moving part and inexpensive sets, coupled with a
system to automatically deliver the treatment, will make reimbursement very
affordable. For the majority of diabetics, this automation procedure will allow
them to become more metabolically normal.
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THE BUSINESS - METABOLISM
The business of the Company, is to provide equipment and services for the
treatment of metabolic disorders such as diabetes, and heart metabolism and
provide a uniquely beneficial treatment, renting or selling the proprietary
treatment devices used to deliver this breakthrough technology. Thomas T. Aoki,
M.D., invented the treatment approach. Dr. Aoki is one of the world's leading
diabetes research physicians, the Company Medical Director, former Chief of
Endocrinology at the University of California, Davis. He was also formerly Head
of the Metabolism Research at Joslin Diabetes Center in Boston, Massachusetts
and a professor at Harvard Medical School.
The first application of the metabolic enhancement technology is diabetes.
However, AMSys is not only a diabetes treatment company, it is a metabolism
treatment company. The need for treatments for diabetes is one of the greatest
single markets in medicine, but the treatment of metabolism, has even wider
basic potential application.
THE DISEASE OF DIABETES
Insulin keeps diabetic people alive, but is not a cure. All diabetics, no matter
how healthy they may seem, are developing some level of life-limiting
complications. Some develop the complications more progressively than others do.
Poor metabolism attacks the physical condition at its weakest point. There are
two different types of diabetes. Type I, "juvenile onset" or Immune Mediated
(formerly Insulin Dependent) diabetes which also occurs in adults, is caused by
the patent's failure to produce any or enough insulin. Type II, "adult onset"
diabetics, do produce their own insulin but are slow to release insulin and are
often resistant to their own insulin. Both types of diabetes are not just
conditions of insufficient insulin levels, they are diseases of improper body
metabolism. The technical definition of diabetes is that it is a disease of
improper body metabolism. Even though the two types of diabetes have different
causes, both types of diabetics suffer from the same complications due to their
failure to properly process or metabolize food fuels. The activation treatment
addresses the metabolic problem at the cellular level, and treats both Type I
and Type II diabetics. Insulin therapy was introduced in 1923, and until now,
there have been few significant changes in treatment. With insulin therapy,
physicians have prevented their patients from quick, premature deaths, but have
not corrected the metabolic dysfunction which often leads to the various
complications of diabetes such as: blindness, renal failure, accelerated
coronary disease, cerebral vascular disease, disabling neuropathy, severe
peripheral vascular disease which occasionally lead to amputation of
extremities.
Perhaps unlike any other disease, diabetes adversely affects all aspects of the
diabetic and his family. All aspects of life are virtually controlled by
diabetes such as eating, sleeping, physical activities, sexual functions,
employment, travel and the overall way that a diabetic person feels. All aspects
of these activities are dependent on the disease and require constant attention.
Without activation treatments, a diabetic person has no other alternative but to
maintain a balance of the proper blood glucose. Because diabetes is a disease of
improper metabolism, there are whole body widespread severe basic biochemical
abnormalities. The fundamental defect is the
<PAGE> 7
reduced ability of glucose to be used as the fuel for body tissues and a
corresponding increase in the release of glucose from the liver into general
circulation. Diabetic people fail to metabolize the carbohydrates, sugars or
glucose and instead metabolize lipids or fats at a much higher rate than a
normal person do. Thus, diabetics have been referred to as "butter burners."
Unlike the control theory of conventional treatments where the patient is
starved of usual carbohydrates, the activation therapy addresses this
fundamental defect and allows the patient to metabolize carbohydrates.
ROLE OF THE COMPANY
As has been stated earlier, AMSys, exchanged its assets for stock in the Company
by forming AMTech. The Company then, acquired AMTech in return for common shares
in the Company. The exchange of shares provided the Company with the equipment,
training systems, and data needed to begin opening clinics in the
commercialization of Metabolic Activation. Accordingly, the role of the Company
in addressing this basic problem of improper carbohydrate and lipid metabolism
is to provide physicians with the training and equipment necessary for these
medical professionals to treat diabetes (and later other metabolic disorders).
The physician receives fees for his treatment and professional services, thereby
giving the physician the incentive to participate and become a Metabolic
Activation provider. The Company will receive a $125 rental fee for its
proprietary pump and the follow-up treatment service for these patients, as well
as, being on-call for any questions that might arise. The physician receives his
fees and related physician-service income, as well as, the ability to expand his
practice due to providing this new treatment.
The Company currently has the Clinical Operations Manuals, Training Manuals and
Billing Codes, which used to set up and run a clinic in a hospital, clinic or
doctor's office. No further development of treatment protocols, equipment or
manuals is needed to begin widespread commercial expansion.
RELATIONSHIPS IN PROVIDING EQUIPMENT AND SERVICES
The Company has used the Aoki Diabetes Research Institute ("Research
Institute"), an affiliate of the University of California, Davis, as a treatment
verification site, along with other sites. The Research Institute is a
non-profit institute with its offices near the University of California, Davis.
The Research Institute has, in the past, conducted studies for the cost of
providing the treatment and is expected to continue to offer this service.
The Company uses outside vendors such as Bionica Ltd. ("Bionica"), to build
infusion devices that provide the treatment. There are several vendors besides
Bionica which provide intravenous infusion devices. The Company expects to
provide its own new pumping system, utilizing the Hamilton-May pumping design.
The Hamilton-May pumping design is currently in prototype-stage and is licensed
to the Company.
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The Company is currently in Sacramento, California in a shared-space arrangement
with Hamilton-May. It is in these Sacramento premises, where the new pump is
expected to be assembled under original equipment manufacturer (OEM) agreement
with the Company chosen to manufacture the equipment.
Rental of the equipment for $125 per treatment day provides significant business
opportunity for the Company to earn its projected significant revenues.
CONVENTIONAL THERAPY COMPARED
Prior to Metabolic Activation therapy, there was no way to directly address
metabolism dysfunction. Conventional treatment of diabetes attempts to control
blood glucose by injecting insulin in amounts tailored to anticipate meals,
exercise, blood sugar, emotional levels and a host of other variables. The
process of maintaining the blood glucose levels within the range of a normal
person is sometimes called "tight control". The best type of control is to use
multiple injections or a wearable "insulin pump". This new treatment is not
related in any way to the widely used "insulin pumps". The "insulin pumps"
replace injected shots to help control blood glucose levels, but do not change
the basic problem, metabolism dysfunction. As has been stated, diabetes is a
disease of improper metabolism, not a disease of improper blood glucose. Prior
to activation, however, there was no means to directly address metabolism.
Associated with "tight control" was the hope that such therapy will help prevent
the microvascular, atherosclerotic and neuropathic complications of diabetes
mellitus. However, while poor glucose control will result in the earlier onset
of complications, "tight control" has not avoided complications. "Tight control"
often leads to blood sugars that are too low, which has been shown to adversely
affect neurological processes and cause loss of consciousness. The July 1999
issue of the Journal of Clinical Endocrinology, has stated that Metabolic
Activation appears to be the only treatment that results in the normalization of
liver activities and metabolic activities.
THE DISCOVERY, ITS EFFECTS AND APPLICATION
Dr. Aoki has developed a completely new treatment for metabolic dysfunction such
as diabetes. He calls his treatment "Metabolic Activation" or "Hepatic
Activation" (liver activation) and sometimes known as CIIIT (Chronic Intravenous
Intermittent Insulin Therapy). This treatment does not merely treat the high or
low blood sugar conditions of diabetes, it addresses the metabolic problem which
is the core of this (and other) diseases. Dr. Aoki has been using this treatment
in a clinical setting, treating patients of all ages since 1986. Uniquely, this
treatment has produced important previously impossible therapeutic results in
patients treated. Treating the core of the disease, improper metabolism instead
of just trying to keep blood sugar more normal is a real departure in
approaches.
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Through various clinical studies, the Company now knows from the ten year
Diabetes Control and Complications Trial of the National Institute of Health or
DCCT trials (which were conducted from 1983 through 1993 at a cost of $165
million), that keeping diabetes sugar more normal helps in 50% to 75% of the
people, and that proves two things:
1. People who don't control their blood glucose will suffer complications more
rapidly than those who control their glucose better.
2. People who have excellent control, still do not have proper metabolism, and
in 50% to 75% of the time, suffer from the complications.
In reality, the truth of diabetes is worse than stated. While being more
controlled will keep many patients from early complications, they suffer from
the effects of diabetes, and do not have normal energy or life spans.
Eventually, the disease attacks the weakest part of the person. Diabetes is not
a disease of high and low blood glucose levels. For years, however, physicians
have treated it as merely a blood sugar problem diabetics cannot properly
metabolize carbohydrates, and as a result, their bodies convert to a higher rate
of lipids (fats) metabolism with serious consequences. Because diabetic people
cannot burn carbohydrates, the backup system of converting to, and burning
lipids automatically begins to function, which is a major aspect of
cardiovascular and other diseases. The effect of the Company's treatment is to
reestablish proper body wide metabolism, by restoring carbohydrate metabolism,
and reducing the unusually high rate of lipid metabolism. By so doing, one of
the many beneficial results is to restore to the liver the ability to both store
and release glucose (as it does for the non-diabetic) and thereby to buffer and
limit the high and low blood glucose swings of diabetics. In addition to this
change, other changes in enzymes are also a beneficial result of the treatment,
which activate to feed the heart, eye and other tissues both directly and
indirectly through complicated hormone fuel metabolism processes.
The Company's treatment and approach completely differs from conventional
insulin therapy in which carbohydrate intake is greatly restricted and insulin
is administered by subcutaneous injection with little or no effect on liver (and
thus body) metabolism disorders. More normal metabolism has been preventing long
term, complications of the most severely afflicted diabetics at the University
of California, Davis, and now at the other sites of activation, and, there is
substantial evidence to suggest damage is reversible.
This procedure is unique, making it possible for diabetics to lead near normal
lifestyles through increased health and energy, decreases in average glucose
levels, complete elimination of low blood sugar reactions (loss of consciousness
from hypoglycemic episodes) and almost complete elimination of blood glucose
fluctuation related periodic hospitalizations.
Metabolic Activation is accomplished through the use of an FDA approved special
intravenous infusion device built for the Company and containing its treatment
program, which pulses the infusion and is controlled by an algorithm (computer
program). Activations are transacted at any trained physician's clinic, once a
week to once every two weeks. This procedure continues at the physician's office
or clinic until the
<PAGE> 10
individual become stabilized with their new "wellness" after which the patient
may activate at home (using an individually pre-programmed infusion pump). The
availability of the current device is limited, so additional units will be
required as expansion takes place, and it is anticipated that the new
Hamilton-May pump can fill this need.
The metabolic treatment medical breakthrough has applications for other
metabolic related conditions including hypertension, cardiovascular disease,
trauma, organ transplants, and the aging process itself. These benefits derive
primarily from the better metabolic condition of the patients, and apparently a
host of other processes such as an increase in high density lipoproteins (HDL),
and decrease in low, and very low density lipoproteins (LDL, VLDL).
CLINICAL TRIAL RESULTS TO DATE
Metabolic Activation therapy has been provided to patients at the University of
California, Davis, where the most difficult and ill patients have been treated.
Some of these patients have failed under state-of the-art conventional therapy,
and without activation treatment these patients are doomed to suffer the
disabling problems of diabetes as the disease advanced. It has taken a number of
years for Metabolic Activation to demonstrate the long term effects of
activation on complications, and physicians now know that activation
significantly stabilizes these patients and greatly affects the complications of
diabetes, the first treatment ever to do so. This body of information also shows
that other metabolic disease states will respond, many of which are related to
heart disease and strokes.
Metabolic Activation appears to be the only therapy to stop the complications of
diabetes, and further appears to complement almost any other form of treatment.
CLINIC DEVELOPMENT IMPLEMENTATION
A standardized package for setting up clinics using the Company's system and a
related marketing program has been developed along with the system for training
to deliver the treatment.
Physicians will rent the devices on a per use basis, which will also provide
experts by telephone for any questions, and quality assurance.
At the beginning, as many pumps and chairs as there are patients can be set up
in any location, as long as water, and the usual facilities are available. Since
the physician is not being asked to purchase the pump, he can begin with only a
few patients.
<PAGE> 11
A TEN STATION CLINIC MODEL
A ten (10) station clinic model may be the best initial area model as it
satisfies the following criteria:
It is small enough to be easily accommodated by the average size physicians
office or hospital and would use a relatively small area.
It addresses a sufficiently large patient base to attract new patients to the
clinic or hospital.
It is small enough to be broadly distributed in geographical areas for the
convenience of patients.
A ten station treatment system can treat a maximum of twenty people each day,
five days per week equaling 100 patients per week being treated on a weekly
basis, or 200 patients treated every other week. The Company's financial models
assume only a five day work week and never full capacity.
Assuming an average of 20 successive weekly clinical visits per patient, we see
that one ten station clinic can treat a maximum of three groups of 100 patients
(300) yearly, assuming that they can then go home with the home pump. An
exceedingly conservative market intrusion is assumed in the model
The Company's marketing strategy is designed to be integrated into the existing
system of health care delivery, in that most practitioners will keep their
patients for their other health needs, and send them to a central clinic for
activation only.
HOME TREATMENT PROGRAM
With proper training, almost any person can learn to safely and effectively give
the treatment at home, which gives much needed flexibility and saves costs,
while freeing the clinic to process more diabetic people. To date, the Company
has not undertaken a broad based program of home therapy, due to the ongoing
clinical trials, and the availability of being reimbursed by health insurance
and some governmental programs for the treatment.
It was originally assumed that patients would resist continuing activation
treatments if they were required to come into a clinic once every 7 to 14 days,
but such has not been the case. Patients feel so much better, and can validate
their newly restored carbohydrate metabolism while relaxing for 6 to 7 hours and
watching TV and reading. Thus, those persons who are, because of their age or
condition, not able to be easily activated at home, have continued to come in on
schedule since they began, which has been over 8 years in some cases, and over 5
in many.
<PAGE> 12
PRIOR AND CURRENT OPERATIONS
NON-INVASIVE MEASURING EQUIPMENT. The Company has acquired the non-invasive
exclusive license for non-invasive technologies and expects to complete the work
on these products using its employees and consultants. The products include the
following: a) blood glucose meter - a meter to read the blood levels of glucose
of a diabetic; b) a glycosolated hemoglobin A1C meter - a meter which is used to
determine the average blood sugar levels of a diabetic over a period of a few
weeks; and c) a non-invasive hypoglycemic/hyperglycemic warning device - a
device which will warn a patient of glucose levels which are too high or low.
These devices are all based upon technology developed by the Licensor,
consisting of 44 patents with a master list of the patents supplied. Prototype
designs of the blood glucose meter and hemoglobin A1C meter have been built and
are under further development. As to the hypoglycemic warning device the Company
has only developed the initial engineering concept and schematic design.
Furthermore, the Company is negotiating with an engineering firm to build the
first prototype at a cost of approximately $24,000. The Company as not applied
to the FDA and does not intend to submit an application for approval until the
prototype has been built and tested. This procedure is anticipated to occur over
the next 12 months; however, there is no assurance that the concept will work
and there is no budget to bring this device to production until the prototype
under development is successfully tested.
The Company anticipates a cost of $500,000 to complete the production models of
its current prototypes that have been contracted for with United Productions in
New Jersey. The timetable to complete the building and testing process for the
Hemoglobin A1C and Glucose measuring devices is six to nine months. The Company
is subcontracting these projects and therefore, does not anticipate any increase
in its workforce for this area. After completion and FDA approval, the Company
will expand its sales and marketing workforce.
Furthermore, the Company has assembled a group of doctors and engineers in this
area. These professionals are as follows:
1.) Dr. Thomas Aoki, M.D. Medical Director, currently with The Company, and
the Diabetes Research Institute, affiliate of the University of California,
Davis
2.) Dr. Sami Hashim, M.D. head of the metabolism department at St. Luke's
Hospital Roosevelt Hospital NYC , an affiliate of Columbia University.
3.) Dr. Anatoli Tsaliovich, P.H.D. Technical Staff (N.J.).
4.) David Walsh owner of United Productions (N.J.).
5.) John Schunuer owner of PE Engineering (Yellow Springs, Ohio).
Dr. Aoki continues to lead the AMTech clinical treatment division of the
company (see video from Channel 3 News Sacramento titled "Defeating
Diabetes").
Dr. Hashim continues to lead clinical trials division of testing the
non-invasive devices at St. Luke's Hospital in New York City.
<PAGE> 13
Dr. Anatoli Tsaliovich is currently overseeing the engineering necessary to
build the production models of the non-invasive devices being tested at St.
Luke's Hospital and is also overseeing the work at United Productions.
David Walsh, who owns United Productions, is currently developing the final
production models of the current prototype devices. Mr. Walsh was, for 15
years, at Johnson & Johnson before starting his own device manufacturing
company.
John Schnuer is a Radio frequency engineering specialist. He has been an
ongoing subcontractor of the Company and has vastly improved the probe
device for the non-invasive meters as well as refined the concept design
for the new Hypoglycemic/Hyperglycemic Warning Device. He works under Dr.
Anatoli Tsaliovich's direction.
B.) Metabolic Activation Equipment and Services. Prior to the acquisition of
AMTech, (which was formed for the sale of the assets to Diabetex), the
Activation treatments were being given by clinics and hospitals, renting pumping
equipment from AMSys. After the acquisition the equipment ownership was
transferred to the Company's subsidiary, AMTech, a Nevada Corporation formed for
the purpose of making the transfer of assets to the Company. No material changes
took place as a result of the purchase of AMTech, which continues to rent
pumping systems, and expects to expand with the new medical reviews and
successes of the long term clinical reports.
(B) 1. The principal product of the Company is patented treatments for diabetic
patients called Metabolic Activation. In the future, after completion of a
commercially viable unit development and regulatory approval, the company
intends to market devices that detect blood glucose an A I -C levels
non-invasively and a proprietary pump to deliver insulin and insulin related
products.
The treatment takes place in a clinic the first time for two days and is
followed by treatments once every week to perhaps once every two weeks,
depending upon the patient. As the treatments are customized for each patient,
the interval between treatments will vary.
The patients come into the clinic for the first phase of treatments lasting at
least 16 weeks, and then may be eligible for home treatment, depending upon the
availability of equipment and the abilities of the patient. Three treatments are
given on a treatment day, with the patient sitting in a recliner or chair and
being "hooked up" (infused) for one hour, and then disconnected for two hours.
During the treatments, carbohydrates and intravenous insulin are administered
using the Company's computer controlled infusion pump treatment device. After a
minimum of 16 weeks, the home pump (which is the same as the clinic pump) may be
used. An individualized treatment regimen will continue at home or wherever the
patient is, on whatever schedule the patient desires. Certain patients will
require more frequent treatments, and certain patients less, but a normal
diabetic person should be able to transact the treatment at home without any
complications. Another person will have to stay with the patient when treatment
is administered, making sure that blood glucose does not get too low. Currently,
home activations are being conducted as part of the ongoing clinical trials, and
they have
<PAGE> 14
progressed as expected, with no difference from clinic activation. It is
suggested that four times a year, home treatment patients come in for treatment
and metabolic measurement in the clinic.
The patient's body metabolism changes, and drastically so during the first 16
weeks of treatments, with the changes monitored using a standard and proven test
for measuring body-wide metabolism, also known as "MMC" or Metabolic Measurement
Chart. This device measures oxygen consumption and carbon dioxide production on
a breath-by-breath basis, and records for the first time. This allows the
patient to be able to properly metabolize carbohydrates instead of metabolizing
too many lipids. While the re-establishment of metabolic integrity is currently
monitored during treatment in the laboratory or clinic, such measurement is not
needed to deliver the treatments at home. The MMC is used initially to deter the
dose for that patient, and to show the metabolic activation changes. The result
of the treatments is that the liver, and thereby the whole body, achieves
something totally unheard of prior to this therapy, the regaining of true
non-diabetic-like metabolism.
There will be three phases, the first, clinic treatment, the second,
self-administering at home, and the third, in the future, the use of the
Hamilton-May computerized wearable automatically monitoring treatment pump.
Implantable devices may be an optional way to administer the treatments, but due
to the frequency of being treated, it is anticipated that only some patients
will want an implanted device.
As stated, during the first 16 weeks, the patient's body composition changes,
requiring adjustment in the treatment program. After that initial phase, the
treatment dosing does not change significantly, and the patients are able to
adjust any such changes. During the first phase, in clinic, the patient receives
a thorough education about diabetes in general and specifically the new means of
treatments. In the final weeks of this phase, the patient will be taught to
self-administer the Company's treatment at home, and will practice
self-administering in the final clinic treatment sessions.
(B) 2. The American Diabetes Association ("ADA") has stated that over 16 million
Americans currently have diabetes with nearly 100 billion dollars spent on the
treatment of the disease in the United States alone. The Company's initial
market targets the 15% of all diabetics on insulin, who are classified as
"brittle," and a much larger number of acutely ill diabetics. The diabetic
market is so large that the projected demand of the initial "brittle" and "ill"
market in the USA alone is 1,300,000 patents. The true market is any person with
diabetes and their lifespan significantly shortened. Please see the above chart
for the explanation of the terms "brittle".
The patients who will receive first priority for treatments are the patients for
whom conventional insulin therapy is largely ineffectual. These people are
chronically ill and need the life changing benefits of the Company's activation
treatment. These patients quickly respond to the treatments, and the changes are
easily recognized. Acute care patients include diabetics who are very "brittle"
(severe difficulty with blood glucose), pregnant, and some who are of preschool
age. The market also includes the millions of persons with Type Ill (adult
onset) diabetes, including those who currently do not take insulin and are now
on oral agents. The expectation is that Hepatic Activation will
<PAGE> 15
become the standard of treatment for all patients who seek to avoid the
complications of diabetes.
MARKET STRATEGY
The strategy of the Company is to address diabetes first. The world market in
diabetes is very large, costing the United States alone over $27 Billion per
year.
There are 23 Million diagnosed diabetics in the world and the number is
increasing 2% percent each year. The overall approach is simple.
(B) 3. The Company has developed the following to meet the needs of the diabetic
markets as follows:
A. The Company will expand its relationships with leading physicians,
publish the data from the studies; help start physicians using their
clinical settings, and then expand into additional treatment centers
for that area.
B. The Company will sell the disposables and kits, and rent infusion
equipment to the users. After a center is operating properly, the home
activation system will commence, whereby the patients who activate at
home will be monitored by telephone, and come in for quarterly checkup
activations in the clinics.
C. The Company in conjunction with Dr. Aoki, will continue to expand the
research and development of the technology into the treatment of other
diseases of improper metabolism such as hypertension, heart disease,
trauma care, organ transplants, elevated blood lipids and aging. This
research and development effort continues to be one of the most
important forms of marketing and expansion of acceptance through peer
review journals.
(B) 4. There is no direct competition for this therapy. The only issue is the
perceived competition of other claims of progress often found in the media, but
which never seems to get past the initial announcement of "promising preliminary
results". The only current competition is just aggressive conventional
treatment, which is shown to be ineffective as to the onset or retarding of
complications. It should also be noted that with all therapies currently known
in development, (except for gene replacement therapy which actually replaces the
islet cells in the pancreas), were to become available, they would need the
normalization of metabolism provided by activation, since none of the known
therapies, stimulate the liver into the production of the array of enzymes the
human body needs to function properly.
<PAGE> 16
(B) 5. The Company's treatments and products are manufactured pursuant to an
Agreement and Plan of Reorganization by and between the Company and Advanced
Metabolic Systems, Inc.
(B) 6. The Company's consumer base is large and it does not rely on one or even
a few major customers but on a broad based marketing and advertising program.
(B) 7. The Company owns the following licenses:
a.) An exclusive worldwide license to exploit, manufacture and
market a patented device to non-invasively determine blood glucose and
Al-C levels. This device is under development and has not been approved
by the FDA.
b.) An exclusive license to exploit and market a patented
treatment for diabetes patients known as Metabolic activation. (This is
also known as Hepatic activation or CIIIT). Metabolic activation has
met all FDA requirements for use on human patients.
c.) When a commercially viable unit is available, an exclusive
worldwide license to exploit, manufacture and market a proprietary pump
for delivery of insulin and insulin-related products.
(B) 8. As has been stated the Company owns the following licenses and does
require a license or approval form a governmental agency at this time:
a.) An exclusive worldwide license to exploit, manufacture and
market a patented device to non-invasively determine blood glucose and
Al-C levels. This device is under development and has not been approved
by the Food and Drug Administration.
b.) An exclusive license to exploit and market a patented
treatment for diabetes patients known as Metabolic activation. (This is
also known as Hepatic activation or CIIIT). Metabolic activation has
met all Food and Drug Administration requirements for use on human
patients.
(B) 9. At the present time the Company has five (5) full time employees.
(C) The Company shall voluntarily provide its shareholders with an annual report
that will include audited financial statements.
The public may read and copy any materials the Company files with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC
20549. Information regarding the operation of the Public Reference Room
may be obtained by calling the SEC at 1-800-SEC-0330.
<PAGE> 17
ITEM 2. MANAGEMENT'S DECISIONS AND ANALYSIS OR PLAN OF OPERATIONS:
Plan of Operation:
The Company is a developmental stage company. The Company consists of
three key divisions: intellectual properties, non-invasive monitoring devices
for diabetics and lastly, the Dr. Aoki Metabolic activation treatment division.
In connection with the first division, the Company is currently developing a
Hypoglycemic/Hyperglycemic Warning device and has completed the engineering
phase. With regard to the second division, the Company has successfully built
and tested its non-invasive monitoring devices for diabetics. Currently, these
devices are being transferred from working-prototypes to miniaturized models.
Upon approval from the Food and Drug Administration ("FDA"), the miniaturized
models will then be marketed and a major marketing and advertising campaign
shall commence. It should be noted that the final clinical trial will be
conducted under the supervision of Dr. Sami Hasim at St. Luke's Roosevelt
Medical Center in New York, NY. Previous successful clinical trials were
conducted at Loma Linda Diabetex Center and Innovative Health Care under the
direction of Dr. Ivan Goldsmith.
As has been stated earlier, the Company has recently hired Dr. Aoki as
one of its key employees. Dr. Aoki is one of the leading authorities on diabetes
and is one of the directors of the The Aoki Diabetes Institute at University of
California, at Davis, CA. Furthermore, the Company recently acquired Dr. Aoki's
patented treatment to stop the death threatening effects of diabetes known as
CIIIT or Metabolic Activation.
The Company further has acquired Dr. Aoki's diabetes treatment company,
Advance Metabolic Technologies, Inc. and acquired the pump system developed by
Hamilton May Corp. to properly deliver the treatment to the diabetic patient.
With these acquisitions and the relationship's the Company has developed, the
Company believes that it has positioned itself properly to deliver the
instruments and treatments to enhance and assist the diabetic. The Company
believes that the treatments and various products, (such as the miniaturized
non-invasive monitoring devices for diabetics and the Hamilton May pump) would
allow the Company to properly compete with the small to medium diabetic-supply
companies. Currently, these devices are being transferred from
working-prototypes to miniaturized models. Upon approval from the Food and Drug
Administration ("FDA"), the miniaturized models will then be marketed and a
major marketing and advertising campaign would commence.
The Company commenced receiving revenues in July 1999. Revenues for the
first quarter were insignificant and approximately $20,000 per month. Revenues
from the Metabolic Activation treatment and device rentals should increase
commencing February 2000. The Company expects to begin receiving revenues of
approximately $55,700 in May 2000, and increasing to significant revenues
thereafter. The increase in revenues is based upon the newly released
information on the effects of the treatment, and the reimbursement of the
treatment due to its demonstrated ability to affect all diabetic patients. The
Company is now supporting the patents rights to demand reimbursement from
various medical insurers.
Furthermore, FDA approval for the first non-invasive metering device
and the new pumping system are expected to be sought in the year 2000.
<PAGE> 18
No significant capital expenditures or significant increases in the
workforce are expected within the next twelve months. The additional development
costs are set forth in the status sections of the product types. The Company
will be required to obtain additional capital for the completion of these
operations, and succeed with its business plans. Furthermore, the Company is
exploring possible methods of financing, including loans, secondary offering of
security, and private placement.
The new Hamilton-May pump will be designed by the Company, and
submitted for manufacturing by others, as Original Equipment Manufacturing.
While the design and intellectual properties will remain the property of the
Company, it is not anticipated that the Company will manufacture any products
for the immediate future of two years. Production is expected to commence when
the final prototype designs are built and tested.
The Company is currently investigating various investment banking firms
to seek out possible merger or acquisition candidates. The Company further
believes that with the assistance of an investment banking firm, the Company
would resolve any additional financing requirements the Company may interface
with to meet its business objectives in the near future.
ITEM 3. DESCRIPTION OF PROPERTY:
(A) The Company does not own any property. All of its equipment is
in good working order. Its principal location at 7321
Roseville Road, Sacramento, CA 95842 is rented. The building
is a 37,000 square foot combination manufacturing, electronic
development, warehouse and office facility. The Company
co-habits with Hamilton May Corporation and AMTech.
(B) At the present time the Company has no investment policy with
respect to any real estate transactions. Pursuant to the
By-laws the Board of Directors has the sole discretion for any
such investment without limitation. Any change in this regard
would require the vote of the shareholders.
<PAGE> 19
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security ownership of certain beneficial owners.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
- --------------------------------------------------------------------------------------------------------------
Name and Amount and
Title of Class Address of Beneficial Owner Nature of Beneficial Owner Percent of Class
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Voting Henry Cartwright 2,000,000 15.50%
13 Dovetail
Henderson, NV 89014 Individual
- --------------------------------------------------------------------------------------------------------------
Common Voting Advanced Metabolic Systems, Inc. 1,232,261 9.50%
8776 Killdee
Orangevale, CA 95662 Corporation
- --------------------------------------------------------------------------------------------------------------
Common Voting Dominion Investment Ltd. 1,021,070 7.9%
Bahamas Financial Center
P.O.Box Box SS-6827 Corporation
Nassau, Bahamas
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(B) Security ownership of management
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
- --------------------------------------------------------------------------------------------------------------
Name and Amount and
Title of Class Address of Beneficial Owner Nature of Beneficial Owner Percent of class
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Philip R. Blomquist, 50,000
7321 Roseville Road President, Secretary and .004%
Common Voting Sacramento, CA 95842 Sole Director
- --------------------------------------------------------------------------------------------------------------
Floyd Ault as Trustee for the Ault 80,000
Trust Treasurer .006%
Common Voting 7321 Roseville Road
Sacramento, CA 95842
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(C) There are no arrangements that would result in a change of control
of the Company.
<PAGE> 20
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
(A) The following are the Directors and Executive Officers of the
Company:
PHILLIP R. BLOMQUIST, age 69, President and Secretary for a term
of office of 2 years commencing on January 4, 1999 and Sole
Director. Prior to his association with the Company, Mr.
Blomquist was involved in a number of venture capital situations
from real estate development and construction to automotive
sales, leasing and rental. From 1967 to 1973, Mr. Blomquist
served as Salt Lake County Commissioner for Salt Lake City, Utah.
As Salt Lake County Commissioner, he was responsible for the
construction of the Salt Palace, a large convention center and
sports arena. He was also responsible for the Salt Lake County
Hospital and served on the Salt Lake County Board of Health. He
administered all governmental medical services dispensed in the
County. Under his direction, medical services for the indigent
and elderly were expanded substantially and new programs were
implemented.
FLOYD AULT, age 79, Treasurer, term of office 2 years, began
serving January 4, 1999. Prior to his association with the
Company, Mr. Ault was a registered nurse. For the past ten years,
Mr. Ault has served as a medical consultant.
THOMAS T. AOKI, M.D., age 59, President of Advanced Metabolic
Technologies, Inc. (Company's wholly owned subsidiary). Dr. Aoki
is the original patent holder of the Metabolic Activation. Prior
to his association with the Company, is Professor of Medicine and
Chief of the Division of Endocrinology at the University of
California, Davis, Medical Center (Sacramento). He obtained his
M.D. degree from Yale University in 1965 and that year received
the Moseby Award for Scholastic Excellence. Dr. Aoki has served
as a member of numerous professional organizations and committees
in diabetes, endocrinology and metabolism. From 1972 to 1994, he
was as a Senior Investigator of the Research Division at the
Joslin Diabetes Research Center and from 1982 to 1984 served as
the Head of the Metabolism Section. Dr. Aoki is an
internationally recognized expert in the field of hormone-fuel
metabolism and diabetes.
Dr. Aoki responsibilities will include ensuring that all products
and systems developed fully meet the technical, scientific, and
medical requirements for delivering the Advanced Metabolic
Technologies diabetes treatment. He is uniquely qualified to
integrate the requirements of the Advanced Metabolic Technologies
technology with the needs of health care providers and the needs
of patients. His participation will expedite product development
and enable the company to develop market readiness, and market
dominance. He has had 89 professional papers, 71 abstracts, and
21 reviews published and has contributed various chapters to 9
medical books.
<PAGE> 21
There are no key employees at this time other than those serving
in the official capacities above.
(B) There are no family relationships among any of the directors,
executive officers, or any person nominated or chosen to be a
director or executive officer.
(C) 1. There are no legal proceedings, pending or completed against
the Company, its directors, executive officers, or of any
business that any such person was a general partner or executive
officer.
2. None of the directors or executive officers has been convicted
of any criminal offense (excluding traffic violations and other
minor offenses) nor are any such proceedings pending in any court
of competent jurisdiction.
3. No executive officer or director has been the subject of any
judgment or decree by any court of competent jurisdiction
revoking, suspending or enjoining any such executive officer or
director of the Company or otherwise limiting in any way the
participation of such person in the total involvement of
business, securities or banking activities.
4. No executive officer or director has been found by any court
of competent jurisdiction to have violated a federal securities
or commodities law, including any such finding by the Commission
or Commodity Futures Trading Commission.
<PAGE> 22
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION AWARDS PAY-OUTS
------------------- -------------------------- --------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND RESTRICT SECURITIES ALL OTHER
PRINCIPLE OTHER ANNUAL STOCK UNDERLYING LTIP COMP
POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAY- ($)
($) ($) SAR'S OUTS
(#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pres./Secy.
Philip Blomquist 1999 -0- -0- none none None -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Treasurer 1999 -0- -0-
Floyd Ault -0- -0- none none None -0-
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The officers and directors of the Company have served without compensation other
than the shares of restricted stock issued above.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) There have been no transactions or proposed transactions to which the
Company was or is to be a party, in which any of its officers,
directors, nominees had a direct or indirect material interest.
(B) The Company has not issued, either directly or indirectly, anything of
value to any promoter, including money, shares, property, assets,
contracts or options of any kind.
<PAGE> 23
(C) The Company has not granted any material underwriting discounts or
commissions upon the sale of securities to any party who was or is to
be a principal underwriter or is controlling person or member of a
firm that was to be a principal underwriter.
(D) There have been no transactions either to purchase or sell assets of
the Company extraordinary to the normal business operations of the
Company.
ITEM 8. DESCRIPTION OF SECURITIES
1. The Company is offering common equity shares with no dividend or
preemption rights and voting rights of one vote per share.
(A) The Company has no debt securities.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER'S MATTERS
The Company's stock is being traded on the NASD OTC Bulletin Board since
December 30, 1998. The following represents the high and low prices for
each quarter therefrom. As of September 30, 1999, the Company had 248
record holders of its Common Stock.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
QUARTER ENDING MARCH JUNE SEPTEMBER
1999 1999 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HIGH 13.50 22.50 15
- --------------------------------------------------------------------------------------------------
LOW 12.75 22.00 13
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
ITEM 2. LEGAL PROCEEDINGS
There are no legal proceedings, judicial or administrative, pending against
the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Jones, Jensen & Company ("Jones") were previously the principal accountants
of Diabetex International Corp. (formerly Sheridan Industries). On February
1, 1999, the Board of directors approved the engagement of the firm of
Crouch, Bierwolf & Chisholm ("Crouch") to replace Jones, which change was
made at the election of the new Board of Directors of the company. In
connection with the audit of the previous fiscal years ended December 31,
1996, there were no disagreements with Jones on any matter of accounting
principle or practices, financial statement disclosure or auditing scope or
procedures. These disagreements, if any, if not resolved to their
satisfaction would have caused them to make reference in connection with
their opinion to the subject matter of the disagreement, and said firm has
not advised the registrant of any reportable events. The accountant's report
of Jones on the financial statements of the Company as of and for the year
ended December 31, 1996 did not contain any adverse opinion or disclaimer or
opinion, nor were they qualified as to the uncertainty, audit scope or
accounting principles except as to the issue of a going concern.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On January 4, 1999, the Company filed a Form D Notice of Sale of Securities
Pursuant to Regulation D with the Securities and Exchange Commission under
Rule 504 adopted under the Securities Act of 1933 (the "Act") as amended. The
securities sold were common shares and the aggregate dollars raised were
$100,000 to two accredited investors, Colonial National, Ltd. and Hamilton,
Ltd. No officer, director or affiliate received any payment from these funds.
On January 4, 1999 through January 15, 1999, the Company sold 950,000 common
shares at an offering price of $.05 per share. All sales were made pursuant
to an exemption under Rule 506 of Regulation D adopted under the Act as
amended. Investors received information required by Rule 506 of Regulation D
the Act and other requirements of Regulation D were met. The shares were
issued to investors as follows:
<PAGE> 25
<TABLE>
<CAPTION>
NAMES OF PURCHASERS NUMBER OF SHARES PURCHASED
<S> <C>
Ingrid P. Abbey 41,000
Anne Ainsworth 5,000
Betty and Darl Altman 1,000
Craig E. Anderson 1,000
Mary Lou Anderson 1,000
B & A Trading 11,000
Eliot Bauer 4,000
Shawn Burke 3,500
Deverlee Bradin 10,000
Jennifer Burke 3,500
Margaret Sue Carmen 500
Dana R. Cartwright 20,000
Stanley D. Cartwright 20,000
Terry Cartwright 4,000
Terry Cartwright 16,000
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
NAMES OF PURCHASERS NUMBER OF SHARES PURCHASED
<S> <C>
Richard A. Chudey 19,200
Arlene Churchill 5,000
James Drake 11,000
Gurinder S Garcha 1,000
Theodore Georgoff 500
Tim J Gephardt 5,000
GLS Property Management 10,000
Robert E. Gomer 1,000
Walter Grady 500
Richard Hooton 15,000
JMT3T Holdings 500
Ajit Khanuja 1,000
Ajit Khanuja 1,000
Benjamin Kirach 14,000
Godel Kirschenbaum 14,000
Paul Kramer 1,200
Hans Liebig 5,000
Elayne Fanney 1,000
Robert Klorman 400
Blake Kenneth Taylor 5,500
Angel S. Luca 1,000
Patricia McKone 16,000
Spencer McOscar 40,000
Henry Merce, Jr 5,000
Louis Meyers 5,000
Mark Montifiore 10,000
James Nunn 11,000
John Parnes 6,000
Carol Pfeifer 70,000
Robert Pfeifer 50,000
Micael Pizza 5,000
Kerm Rudolph 40,000
Beverlee Robinson 5,000
Thomas Rudolph 5,000
Stephen Rudolph 4,000
John Sampson 8,500
Kenneth Schatz 37,500
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
NAMES OF PURCHASERS NUMBER OF SHARES PURCHASED
<S> <C>
Lawrence Sebuck 5,000
Inder Jitt Singh 500
Jeffrey Skillman 10,000
Skillman Renunion 10,000
Dean Skillman 5,000
Gary Sleimers 3,000
Janice Sleimers 17,000
Jeffrey Sleimers 3,500
Gary Sleimers 40,000
Robert Slykhuis 5,000
Sandra Smith Trust 3,000
Taylor Press Products Co 1,000
Thomas Taylor 28,500
Edward Taylor 12,500
John Unger 5,000
Blaine Wagner 2,500
David Wagner 2,000
John Walker 12,500
Lancer Weinrich, Sr 1,000
Robert Wiley 90,000
Irvin Wisniewski 500
Holdon-Russell Wood 1,600
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS, OFFICERS.
As the Board of Directors may from time to time provide in the By-Laws or by
resolution, the corporation may indemnify its officers, directors, agents and
other persons to the full extent permitted by the laws of the State of Nevada.
<PAGE> 28
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIABETEX INTERNATIONAL CORP.
(Registrant)
Date: November 2, 1999 By: /s/ Philip R. Blomquist
---------------- -----------------------
Philip R. Blomquist
<PAGE> 29
DIABETEX INTERNATIONAL CORPORATION AND SUBSIDIARY
(Formerly Sheridan Industries, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, December 31, 1998 and 1997
<PAGE> 30
INDEPENDENT AUDITOR'S REPORT
Stockholders and Directors
Diabetex International Corporation and subsidiary
Sacramento, CA
We have audited the consolidated accompanying balance sheets of
Diabetex International Corporation (a Nevada Corporation) (a development stage
enterprise) and subsidiary as of June 30, 1999, December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the periods then ended. These consolidated financial statements
are the responsibility of the company's management. Our responsibility is to
express and opinion on these consolidated financial statements based on our
audit. The financial statements of Diabetex International Corporation for the
period September 14, 1983 to December 31, 1996 were audited by other accountants
whose report dated January 15, 1997 expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Diabetex
International Corporation at June 30, 1999, December 31, 1998 and 1997, and the
results of its operations and cash flows for the six months ended June 30, 1999
and for the years ended December 31, 1998 and 1997, and for the period from
September 14, 1983 (inception) to June 30, 1999 in conformity with generally
accepted accounting principles.
Salt Lake City, UT
September 28, 1999
<PAGE> 31
DIABETEX INTERNATIONAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
December 31,
June 30, ------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash (Note 1) $ 71,815 $ -- $ --
Prepaid expenses (Note 7) 144,928 -- --
----------- ----------- -----------
Total Current Assets 216,743 -- --
Property, Plant & Equipment (Note 4) 2,708 -- --
Intangible Assets (Note 3) 9,419,136 -- --
----------- ----------- -----------
$ 9,638,587 $ -- $ --
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 38,627 $ 4,050 $ 3,400
Accounts payable-related party (Note 6) 200,000 -- --
----------- ----------- -----------
Total Current Liabilities 238,627 4,050 3,400
CONTINGENCIES AND
COMMITMENTS (Note 8) -- -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; $.002 par value;
50,000,000 shares authorized,
12,909,979 and 42,508 shares
issued and outstanding (Note 2) 25,820 85 85
Additional paid-in capital 9,856,272 153,499 153,499
Deficit accumulated during the
development stage (482,132) (157,634) (156,984)
----------- ----------- -----------
Total Stockholders' Equity 9,399,960 (4,050) (3,400)
----------- ----------- -----------
$ 9,638,587 $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 32
DIABETEX INTERNATIONAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
For the For the Inception on
Six Months Six Months September 14,
Ended Ended For the Year Ended 1983 to
June 30, June 30, December 31, June 30,
1999 1998 1998 1997 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ -- $ --
EXPENSES
Professional Services 254,032 -- 650 3400 289,082
Legal 46,231 -- -- -- 46,231
Public Relations 11,794 -- -- -- 11,794
Other Administrative 12,441 -- -- 20,131 133,725
Total Expenses 324,498 -- 650 23,531 480,832
------------ ------------ ------------ ------------ ------------
NET LOSS BEFORE
INCOME TAXES (324,498) -- (650) (23,531) (480,832)
PROVISION FOR
TAXES (Note 1) -- -- -- (500) (1,300)
------------ ------------ ------------ ------------ ------------
NET LOSS (324,498) -- $ (650) $ (23,031) $ (482,132)
============ ============ ============ ============ ============
LOSS PER SHARE (Note 1) (.03) -- $ (.02) $ (.54)
============ ============ ============ ============
AVERAGE SHARES
OUTSTANDING 11,598,339 42,511 42,511 42,511
============ ============ ============ ============
</TABLE>
The accompanying notes are an inegral part of these financial statements
<PAGE> 33
DIABETEX INTERNATIONAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Capital in Deficit During
Common Common Excess of Retained
Shares Stock Par Value Deficit
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1989 862 $ 2 $ 94,173 $ (96,973)
Loss for the Year -- -- -- (130)
--------- --------- --------- ---------
Balance, December 31, 1990 862 2 94,173 (97,103)
Issues 225 shares to an
officer in cancellation of debt 225 1 3,772 --
Loss for the Year -- -- -- (3,333)
--------- --------- --------- ---------
Balance, December 31, 1991 1,087 3 97,945 (100,436)
Expenses paid on the Company's
behalf contributed to capital -- -- 2,666 --
March 5, 1992, issued 1,250
shares for services rendered 1,250 2 9,998 --
Loss for the Year -- -- -- (10,278)
--------- --------- --------- ---------
Balance, December 31, 1992 2,337 5 110,609 (110,714)
Loss for the Year -- -- -- (136)
--------- --------- --------- ---------
Balance, December 31, 1993 2,337 5 110,609 (110,850)
October 17, 1994, issued
25,000 shares for expenses paid
on the Company's behalf 25,000 50 20,950 --
Expenses paid on the Company's
behalf contributed to capital -- -- 612 --
Loss for the Year -- -- -- (22,903)
--------- --------- --------- ---------
Balance, December 31, 1994 27,337 55 132,171 (133,753)
Expenses paid on the Company's
behalf contributed to capital -- -- 1,227 --
Loss for the Year -- -- -- (100)
--------- --------- --------- ---------
Balance, December 31, 1995 27,337 55 133,398 (133,853)
Loss for the Year -- -- -- (100)
--------- --------- --------- ---------
Balance, December 31, 1996 27,337 55 133,398 (133,953)
</TABLE>
(continued)
<PAGE> 34
DIABETEX INTERNATIONAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
(continued)
<TABLE>
<CAPTION>
Accumulated
Capital in Deficit During
Common Common Excess of Retained
Shares Stock Par Value Deficit
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 27,337 $ 55 $ 133,398 $(133,953)
Shares issued for asset of Aladdin
Transportation, Landmark, Inc.
and Over 100, Inc. (Note 2) 82,500 165 (165) --
Shares issued for incentives for loans
to Aladdin Transportation, Landmark,
Inc. and Over 100, Inc. (Note 2) 25,163 50 20,081 --
Shares canceled by various
shareholders (10,000) (20) 20 --
Shares canceled for acquisition of
Aladdin Transportation, Landmark,
Inc. and Over 100, Inc. (Note 2) (82,500) (165) 165 --
Shares issued for Presidential and
Regal Limousine Service (Note 2) 4,000 8 (8) --
Shares canceled for Presidential
and Regal Limousine Service
(Note 2) (4,000) (8) 8 --
Net Loss for the Year -- -- -- (23,031)
--------- --------- --------- ---------
Balance, December 31, 1997 42,500 85 153,499 (156,984)
Rounding due to reverse
stock split (Note 2) 11 -- -- --
Net Loss for the Year -- -- -- (650)
--------- --------- --------- ---------
Balance, December 31, 1998 42,511 85 153,499 (157,634)
</TABLE>
(continued)
<PAGE> 35
DIABETEX INTERNATIONAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
(continued)
<TABLE>
<CAPTION>
Accumulated
Capital in Deficit During
Common Common Excess of Retained
Shares Stock Par Value Deficit
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 42,511 $ 85 $ 153,499 $ (157,634)
Shares issued for cash at $.03 per
share (average) 9,285,207 18,570 262,322 --
Shares issued for services at $.12
per share (average)(Note 2) 2,050,000 4,100 245,900 --
Shares issued for intangible assets at
$6 per share (Note 2 & 3) 1,532,261 3,065 9,190,501 --
Expenses paid by shareholder in
Company behalf -- -- 4,050 --
Net Loss for the Period -- -- -- (324,498)
---------- ---------- ---------- ----------
Balance, June 30, 1999 12,909,979 $ 25,820 $9,856,272 $ (482,132)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 36
DIABETEX INTERNATIONAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
For the For the Inception on
Six Months Six Months September 14,
Ended Ended For the Year Ended 1983 to
June 30, June 30, December 31, June 30,
1999 1998 1998 1997 1999
----------- ---- ----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net loss $ (324,498) -- $ (650) $ (23,031) $ (482,132)
Adjustments to net cash used
by operating activities:
Depreciation 300 -- -- -- 300
Stock issued for services 250,000 -- -- -- 281,000
Expenses paid by a shareholder
on the Company's behalf 4,050 -- -- -- 8,555
Increase (Decrease)
in accrued expenses 234,577 -- 650 2,900 238,627
Increase (Decrease) in prepaids (144,928) -- -- -- (144,928)
Expenses paid by stock -- -- -- 20,131 20,131
----------- ---- ----------- ----------- -----------
Net Cash Used by
Operating Activities (19,501) -- -- -- (78,447)
----------- ---- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Cash paid for acquisition of
intangibles (225,570) -- -- -- (225,570)
Cash paid for fixed assets (3,008) -- -- -- (3,008)
----------- ---- ----------- ----------- -----------
Net Cash Provided by
Investing Activities (228,578) -- -- -- (228,578)
----------- ---- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Issuance of common stock 280,892 -- -- -- 394,665
Stock offering costs -- -- -- -- (15,825)
----------- ---- ----------- ----------- -----------
Net Cash Provided by
Financing Activities 280,892 -- -- -- 378,840
----------- ---- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH 71,815 -- -- -- 71,815
CASH, BEGINNING OF PERIOD -- -- -- -- --
----------- ---- ----------- ----------- -----------
CASH, END OF PERIOD $ 71,815 $ -- $ -- $ -- $ 71,815
=========== ==== =========== =========== ===========
CASH PAID FOR:
Interest $ -- $ -- $ -- $ -- $ --
Income taxes $ -- $ -- $ -- $ -- $ --
Non Cash Transactions
Stock Issuance for
Services 250,000 -- $ -- $ -- $ 281,000
Acquisition of Intangibles 9,193,566 -- $ -- $ -- $ 9,193,566
</TABLE>
<PAGE> 37
DIABETEX INTERNATIONAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999, December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND HISTORY
A. Organization
The financial statements presented are those of Diabetex International
Corporation (formerly Sheridan Industries, Inc.) ( a development stage
company). The Company was incorporated under the laws of the State of
Utah on September 14, 1983. The Company changed its name to Associated
Healthcare, Inc. during 1991 but later rescinded the name change and
reverted back to Sheridan Industries, Inc. The Company has never had
any operations up to December 31, 1998 and in accordance with SFAS #7,
is considered a development stage company. The Company is now involved
in the treatment and diagnosis of diabetes.
In 1998, the Company created, and later merged with, a Nevada
subsidiary and changed its name to Diabetex International Corporation.
In June 1999, the Company purchased all of the shares of Advanced
Metabolic Technologies, a Nevada corporation (AMT) (See Note 3 for
discussion of AMT and its activity). The Company was formed on May 19,
1999 as a wholly subsidiary of Advanced Metabolic Systems (AMS) which
transferred an exclusive license to patented proprietary technology for
the treatment of diabetes known as Metabolic Activation.
b. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
c. Loss Per Share
The computations of loss per share of common stock are based on the
weighted average number of shares outstanding at the date of the
financial statements. Fully diluted loss per share and basic loss per
share at June 30, 1999 is the same since any outstanding stock
equivilents at June 30, 1999 (10,000 shares) would be antidilutive.
There were no outstanding stock equivalents for all other periods;
therefore, basic and fully diluted shares are the same.
d. Provision for Taxes
The Company adopted Statement of Financial Standards No. 109
"Accounting for Income taxes" in the fiscal year ended December 31,
1998 and was applied retroactively.
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes"
<PAGE> 38
DIABETEX INTERNATIONAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999, December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND HISTORY (continued)
requires an asset and liability approach for financial accounting and
reporting for income tax purposes. This statement recognizes (a) the
amount of taxes payable or refundable for the current year and (b)
deferred tax liabilities and assets for future tax consequences of
events that have been recognized in the financial statements or tax
returns.
d. Provision for Taxes (continued)
Deferred income taxes result from temporary differences in the
recognition of accounting transactions for tax and financial reporting
purposes. There were no temporary differences at December 31, 1998 and
earlier years; accordingly, no deferred tax liabilities have been
recognized for all years.
The Company has cumulative net operating loss carryforwards of over
$150,000 at December 31, 1998. No effect has been shown in the
financial statements for the net operating loss carryforwards as the
likelihood of future tax benefit from such net operating loss
carryforwards is highly improbable. Accordingly, the potential tax
benefits of the net operating loss carryforwards, estimated based upon
current tax rates at December 31, 1998 have been offset by valuation
reserves of the same amount. The net operating losses begin to expire
in the year 2003.
e. Cash or Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
f. Consolidated Financial Statements
The consolidated financial statements include the accounts of Diabetex
International Corporation and its subsidiary, Advanced Metabolic
Technology. Collectively, these entities are referred to as the
Company. All significant intercompany transactions and accounts have
been eliminated.
g. Impairment of long term assets
All long-lived assets (including intangible assets) are evalutated for
impairment wherever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. An impaired
asset is written down to its estimated fair market value based on the
best information available. An impairment has occured by comparing the
estimated undiscounted future cash flows expected to result from the
use of the asset and its eventual disposal to the asset's carrying
amount.
<PAGE> 39
DIABETEX INTERNATIONAL CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999, December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND HISTORY (continued)
Considerable management judgment is necessary to estimate discounted
future cash flows.
NOTE 2 - NON CASH TRANSACTIONS
During 1999, the Company issued stock for services and the purchase of
a subsidiary and other intellectual properties related to the medical
field, specifically technology that advances the treatment and
diagnosis of diabetes.
The transactions were recorded at estimated fair market value of the
stock, specifically the price of stock being offered at private
placement prices to the general public, or some other negotiated arms
length transaction as best determined at the time by the board of
directors. The following transactions occurred in the first six months
of 1999:
-2,000,000 shares were issued for services rendered for
assistance in obtaining the Company's license to 44 patents covering
technology related to non invasive blood glucose monitoring. Share
shares were valued at $.05 per share or total value of $100,000.
-50,000 shares were issued for services rendered related to
the acquisition of Advanced Metabolic Technologies. The shares were
valued at $3 per share or $150,000.
-1,532,261 shares were issued for acquisition of all of the
stock of Advanced Metabolic Technologies (see note 3) and a license for
the intellectual properties related to an insulin pump developed by
Hamilton May, Inc. The purchase price was negotiated at $6 per share or
a total value of $9,193,566. The fair market value of the stock was $10
(private placement purchase price) or $20 to $22 quoted price on the
bulletin board. The Company had an appraisal completed on Advanced
Metabolic Technologies intellectual properties which substantiated a
value greater than the purchase price. The estimated value of the
Hamilton May insulin pump has not been appraised, but the Company has
adopted a policy of reviewing the value of the Hamilton May pump and
all other intellectual properties that it has or will acquire and write
down the value to estimate future value to the Company in the period
once the value is know to have decreased. (See Note 1)
NOTE 3 - ACQUISITION OF INTANGIBLE ASSETS
Advanced Metabolic Technologies (AMT)
AMT owns an exclusive license to market, and otherwise exploit, that
certain therapy known as hepatic activation or metabolic activation
(the therapy). A patent has been granted covering the therapy (May
1988) and the patent is a subject of the license. The license
<PAGE> 40
DIABETEX INTERNATIONAL CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999, December 31, 1998 and 1997
NOTE 3 - ACQUISITION OF INTANGIBLE ASSETS (continued)
includes any and all improvements to the therapy, the subject patent or
any related subsequent patents. The therapy has been developed at the
Aoki Diabetes Research Institute (ADRI) under the direction of Dr.
Thomas Aoki. ADRI is associated with and maintains it's offices and
clinic on the campus of University of California, Davis, in Sacramento
California. The therapy has been in development and testing for a
period of more than ten years and has met all FDA requirements for use
on human patients. The cost of developing and proving the therapy
exceeded $12,000,000 (twelve million dollars). The therapy is to be
used on patients that suffer from diabetes. Patients that have
undergone regular treatments have reported improvements in diabetes
related health complications such as restoration of kidney function or
cessation of kidney degeneration, restoration of eyesight or cessation
of eyesight degeneration, improved heart metabolism, cessation of
diabetic hyper/hypo glycemic blackouts, and improved sense of general
health and well being and other benefits. Presently, ADRI and five
private clinics administer the therapy to patients of a fee basis. The
Company carries this asset on it's books at a cost of $7,619,136 paid
in stock and cash.
Hamilton May
Hamilton May Corporation has sold the Company a license to market, and
otherwise exploit, that certain mechanical device known as the Hamilton
May Pump (the pump). The license includes any and all improvements to
the pump and rights to patent protection if a patent, covering the
pump, is ever granted. The pump has been developed under the direction
of Dr. Nardo Zaias of Miami, Florida. The pump has been shown to have
the ability to deliver pulses of insulin and insulin related products
to patients with tremendous precision and without shear. There are no
regulatory prohibitions against using the pump on human patients. The
pump has the feature of being a two-way system in that it has the
capacity to both deliver and draw when attached to a patient. The pump
is in the design stage and has not been approved by the FDA.
The Company issued 1,232,261 shares of common stock for all outstanding
shares of AMT (800,000 shares). The only asset of AMT was the license
to market a therapy known as hepatic activation or metabolic
activation. As part of the acquisition, the company agreed to pay a
$50,000 outstanding debt of AMT, pay all legal costs of the
acquisition, and pay directly to the stockholder of AMT, cash in the
amount of $150,000 over a period of 10 months.
The Company has issued 300,000 shares of common stock for the
Hamilton/May pump.
Herein is a summary of the purchase of Advanced Metabolic Technology
(AMT) and Hamilton/May pump:
<PAGE> 41
DIABETEX INTERNATIONAL CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999, December 31, 1998 and 1997
NOTE 3 - ACQUISITION OF INTANGIBLE ASSETS (continued)
:
AMT
Purchase of AMT intellectual properties
<TABLE>
<S> <C>
Stock (1,232,261 shares @ $6 per share) $7,393,566
Cash paid for legal services on transaction 25,570
Cash paid over time ($15,000 over 10 months)(note 6) 150,000
Assumption of debt (note 6) 50,000
----------
$7,619,136
Hamilton/May
Purchase of Hamilton/May pump
Stock (300,000 shares @ $6 per share) $1,800,000
----------
Total
$9,419,136
----------
</TABLE>
The purchase of AMT and Hamilton May were accounted for as a purchase
per APB #16.
The amortization of the intellectual properties of AMT and Hamilton/May
will be established by the board of directors once the technology has
been perfected, all FDA and other government licensing and approvals
have been acquired, and commercial realization of the technology has
begun.
Supplemental information regarding AMT:
No historical information is provided for AMT since AMT was created in
May, 1999 and has no operating history since inception.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property and equipment are recorded at cost. Repairs and maintenance
are charged to operations, and renewals and additions are capitalized.
<PAGE> 42
DIABETEX INTERNATIONAL CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999, December 31, 1998 and 1997
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT (continued)
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computer Equipment $ 3,008 $ -- $ --
Equipment -- -- --
------- ------- -------
Less: Accumulated Depreciation $ (300) -- --
------- ------- -------
---
$ 2,708 $-- $--
======= ======= =======
</TABLE>
Depreciation is based on the estimated useful life of the asset either
on a straight line basis over 5 years.
Depreciation expense for 1998 and 1997 was $0. Depreciation expense for
1999 was $300.
NOTE 5 - USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. In these financial statements, assets, liabilities and earnings
involve extensive reliance on management's estimates. Actual results
could differ from those estimates.
NOTE 6 - ACCOUNTS PAYABLE-RELATED PARTY
At the time of the purchase of American Metabolic Technology (Note 3),
the Company agreed to pay $150,000 in closing and other costs over a
period of time and another $50,000 for research performed by another
research development firm for AMT before the purchase. These payments
were part of the negotiated purchase price of AMT and was included in
the basis of the cost of AMT.
NOTE 7 - PREPAID EXPENSES
Prepaid expenses consists of the following:
<TABLE>
<S> <C>
Advances to affiliate for advance
royalties (Note 8) $119,928
Prepaid consulting fees (Note 8) 25,000
--------
$144,928
========
</TABLE>
<PAGE> 43
DIABETEX INTERNATIONAL CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999, December 31, 1998 and 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES
As part of the purchase of AMT, the Company agreed to pay $200,000 to
Advanced Metabolic Systems (AMS), former parent of AMT, in closing
costs and other expenses related to the insurance billing of AMT for
its metabolic activation therapy. $25,000 for those services were paid
prior to June 30, 1999 and is listed as a prepaid expense.
The Company also agreed to pay two consultants to AMT for a period of
one year at $5,000 each per month.
In 1999, The Company entered into a licensing agreement with Solid
State Farms, Inc. for their 44 international patents covering
proprietary technology to monitor blood glucose levels non invasively.
The agreement calls for a payment of a 7% of the adjusted gross sales
price on all licensed products. The Company has made advance royalty
payments of $119,928 on this royalty up to June 30, 1999.
NOTE 9 - STOCK OPTIONS
In March, 1999, the Company awarded a stock option to an international
corporation as part of a Private Placement Memorandum wherein 50,000
shares could be purchased for $10 up to 12 months of the agreement
(March 1, 1999). As of June 30, 1999, 21,307 shares have been
exercised.
NOTE 10 - REVERSE STOCK SPLIT
In 1998, the Company shareholders approved a 1 for 400 reverse stock
split of its common shares. The financial statements have been restated
retroactively to show the effects of the split.
Note 11 - MARKET SEGMENT INFORMATION
The company is in the business of providing equipment for the
monitoring and treatment of diseases of improper metabolism including
its first major market, Diabetes. The company has three independent but
related lines of products and services; a) non-invasive biological
monitoring; b) metabolic activation equipment and treatment, and c) new
high accuracy infusion devices for the automatic delivery of its
treatments.
Non-invasive Biological Monitoring
An exclusive worldwide license to exploit, manufacture and market
patented devices to non-invasively determine blood glucose, hemoglobin
A1C, and other blood levels to help treat diabetes and potentially
other diseases. These device prototypes are in development, are being
tested and refined, and have not been submitted for approval by the US
Food and Drug Administration ("FDA").
<PAGE> 44
DIABETEX INTERNATIONAL CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999, December 31, 1998 and 1997
Metabolic Activation
An exclusive license to exploit and market a patented metabolism
treatment called Metabolic Activation (also know as hepatic activation
of Continuous Intermittent Insulin Therapy, CIIIT in some medical
publications). This treatment is delivered by a special infusion device
with the treatment programmed into the device, and is FDA approved
since 1988. The treatment has been in development for over ten years by
Advanced Metabolic Systems, Inc., and has been used for the last ten
years, with constant following to demonstrate the stopping of the
complications of diabetes, and certain other metabolism related disease
states. The Company acquired this treatment, business, licenses,
special infusion devices and know-how by exchange of its shares with
Advanced Metabolic Systems, Inc., (AMS).
Infusion Devices
An exclusive worldwide license to finish development, exploit,
manufacture and sell an ultra accurate pumping system which will
replace the current FDA approved device, and provide for automatic
delivery of the treatment, and any insulin or insulin related products.
This technology was acquired from Hamilton/May, Inc.
As of June 30, 1999, the Company has not realized any income from any
of the three distinct technologies. Other selected financial
information regarding each segment as follows:
<TABLE>
<CAPTION>
Biological Metabolic Infusion
Monitoring Activation Devices
---------- ---------- ----------
<S> <C> <C> <C>
Income Statement Information
Sales -- -- --
Expenses -- -- --
Profit/loss from operations -- -- --
Balance Sheet Information
Assets $ 122,636 $7,644,136 $1,800,000
Liabilities -- $ 200,000 --
</TABLE>
<PAGE> 45
Independent Auditors' Report
Board of Directors
Sheridan Industries, Inc.
New York, NY
We have audited the accompanying balance sheets of Sheridan Industries, Inc. (a
development stage company) as of December 31, 1996 and 1995, and the related
statements for operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1996, 1995, and 1994 and from the date of inception on
September 14, 1983 through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial of Sheridan Industries, Inc. as of December
31, 1996 and 1995 and the results of its operations and cash flows for the years
ended December 31, 1996, 1995 and 1994 and from the date of inception on
September 14, 1983 through December 1996 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company is a development stage company with no
operations to date. Since the Company has had no operations to date, there is
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 4. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
<PAGE> 46
Jones, Jensen & Company
January 15, 1997
SHERIDAN INDUSTRIES, INC.
(A Development Stage Company)
Balance Sheets
Assets
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS $ -- $ --
--------- ---------
Total Assets $ -- $ --
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accrued expenses $ 500 $ 400
--------- ---------
Total Current Liabilities $ 500 $ 400
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; $.002 par value;
50,000,000 shares authorized, 10,943,775
shares issued and outstanding 21,869 21,869
Additional paid-in capital 111,584 111,584
Deficit accumulated during the
development stage (133,953) (133,853)
--------- ---------
Total Stockholders' Equity (Deficit) (500) (400)
--------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ -- $ --
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 47
SHERIDAN INDUSTRIES, INC.
(A Development Stage Company)
Stage of Operations
<TABLE>
<CAPTION>
From
Inception on
September 14,
1983 to
For the Fiscal Year Ended December 31, December 31,
1996 1995 1994 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ --
EXPENSES
Consulting fees -- -- 21,000 31,000
General and Administrative -- -- 1,803 101,153
--------- --------- --------- ---------
Total Expenses -- -- 22,803 132,153
--------- --------- --------- ---------
NET LOSS BEFORE
INCOME TAXES -- -- (22,803) (132,153)
--------- --------- --------- ---------
PROVISION FOR TAXES 100 100 100 1,800
--------- --------- --------- ---------
NET LOSS $ (100) $ (100) $ (22,903) $(133,953)
--------- --------- --------- ---------
LOS PER SHARE $ (0.00) $ (0.00) $ (0.01)
--------- --------- ---------
</TABLE>
<PAGE> 48
SHERIDAN INDUSTRIES, INC.
(A Development Stage Company)
Statements of Stockholders Equity (Deficit)
<TABLE>
<CAPTION>
Accumulated
Additional Deficit During
Common Stock Paid-in Development
Shares Amount Capital Stage
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1989 344,825 $ 13,793 $ 80,382 $ (96,973)
Net Loss for the year ended
December 31, 1990 -- -- -- (130)
------- --------- --------- ---------
Balance, December 31, 1990 344,825 13,793 80,382 (97,103)
Issued 89,950 shares to an
officer in cancellation of debt 89,950 3,598 175 --
Net Loss for the year ended
December 31, 1991 -- -- -- (3,333)
------- --------- --------- ---------
Balance, December 31, 1991 434,775 17,391 80,557 (100,436)
February 28, 1992, changed par
Value from $.04 to $.002 -- (16,522) 16,522 --
Expenses paid on the Company's
Behalf contributed to capital -- -- 2,666 --
March 5, 1992, issued 500,000
Shares for services rendered 500,000 1,000 9,000 --
Net loss for the year ended
December 31, 1992 -- -- -- (10,278)
------- --------- --------- ---------
Balance, December 31, 1992 934,775 1,869 108,745 (110,714)
Net loss for the year ended
December 31, 1993 -- -- -- (136)
------- --------- --------- ---------
Balance, December 31, 1993 934,775 $ 1,869 $ 108,745 $(110,850)
------- --------- --------- ---------
</TABLE>
<PAGE> 49
SHERIDAN INDUSTRIES, INC.
(A Development Stage Company)
Statements of Stockholders Equity (Deficit)
<TABLE>
<CAPTION>
Accumulated
Additional Deficit During
Common Stock Paid-in Development
Shares Amount Capital Stage
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 934,775 $ 1,869 $ 108,745 $ (110,850)
October 17, 1994, issued
10,000,000 shares for the expenses
paid on Company's behalf 10,000,000 20,000 1,000 --
Expenses paid on the Company's
Behalf contributed to capital -- -- 612 --
Net loss for the year ended
December 31, 1994 -- -- -- (22,903)
---------- ---------- ---------- ----------
Balance, December 31, 1994 10,934,775 21,869 110,357 (133,753)
Expenses paid on the Company's
Behalf contributed to capital -- -- 1,227 --
Net loss for the year ended
December 31, 1995 -- -- -- (100)
---------- ---------- ---------- ----------
Balance, December 31, 1995 10,934,775 21,869 111,584 (133,853)
Net loss for the year ended
December 31, 1996 -- -- -- (100)
---------- ---------- ---------- ----------
Balance, December 31, 1996 10,934,775 $ 21,869 $ 111,584 $ (133,953)
---------- ---------- ---------- ----------
</TABLE>
<PAGE> 50
SHERIDAN INDUSTRIES, INC.
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
From
Inception on
September 14,
1983 to
For the Fiscal Year Ended December 31, December 31,
1996 1995 1994 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $ (100) $ (100) $ (22,903) $(133,953)
adjustments to reconcile
net loss to net cash used
by operating activities:
stock issued for services -- -- 21,000 31,000
expenses paid by a
shareholder on the
Company's behalf -- -- 612 4,505
increase (decrease)
in accrued expenses 100 100 1,291 500
--------- --------- --------- ---------
Net Cash Used by
Operating Activities -- -- -- (97,948)
CASH FLOWS FROM
FINANCING ACTIVITIES: -- -- -- --
--------- --------- --------- ---------
Issuance of common stock -- -- -- 133,773
Stock offering costs -- -- -- (15,825)
Net Cash Provided by
Financing Activities -- -- -- 97,948
--------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH -- -- -- --
CASH, BEGINNING -- -- -- --
OF PERIOD
CASH, END OF PERIOD $ -- $ -- $ -- $ --
--------- --------- --------- ---------
CASH PAID FOR:
Interest $ -- $ -- $ -- $ --
Income taxes $ -- $ -- $ -- $ --
</TABLE>
<PAGE> 51
SHERIDAN INDUSTRIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996 and 1995
NOTE 1 - ORGANIZATION AND HISTORY
a. ORGANIZATION
The financial statements presented are those of Sheridan
Industries, Inc. (a development stage company). The Company
was incorporated under the laws of the State of Utah on
September 14, 1983 The Company changed its name to Associated
Healthcare, Inc. during 1991 but later rescinded the name
change and reverted back to Sheridan Industries, Inc. The
company has never had any operations and in accordance with
SFAS #7, is considered a development stage company.
The Company issued its common stock to t he public for
$110,000 less offering costs of $15,825. The funds raised in
the public offering have been advanced to various parties.
Management determined that all advances were uncollectible and
the advances were written off in previous years as bad debt.
b. Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting. The Company has elected a
December 31, year end.
c. Loss Per Share
The computations of loss per share of common stock are based
on the weighted average number of shares outstanding at the
date of the financial statements.
<PAGE> 52
d. Provisions for Taxes
At December 31, 1996, the Company had net operating loss
carryforwards of approximately $134,000 that may be offset
against the future taxable income through 2011. No tax benefit
has been reported in the financial statements because the
Company believes there is a 50% or greater chance the net
operating loss carryforwards will expire unused. Accordingly,
the potential tax benefits of the net operating loss
carryforewards are offset by a valuation allowance of the same
amount.
e. Use of Estimates
The preparation of financial statement in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure if contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ form those
estimates.
NOTE 2 - REVERSE STOCK SPLIT
On January 15, 1991, the Company reverse split its common
stock on a 1 for 40 basis. All references to numbers of
shares, except authorized shared in the financial statements,
have been adjusted to reflect the stock split on a retroactive
basis.
NOTE 3 - RELATED PARTY - TRANSACTIONS
On January 15, 1991, the Company issued 89,950 shares of
common stock to an officer and director of the Company in
satisfaction of debt owed him.
<PAGE> 53
NOTE 4 - GOING CONCERN
The Company's financial statements are prepared using
generally accepted accounting principles applicable to a going
concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.
However, the company does not have any such cash or other
material assets, nor does it have and established source of
revenues to allow it to continue as a going concern.
Furthermore, the funds raised in the public offering have been
lost. The Company is seeking to acquire an existing operating
company through a stock for stock exchange. In the interim,
shareholders of the Company have committed to meeting its
minimal operating expenses.
