UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT, 1934
For the Fiscal Year Ended December 31, 1999
Comission File Number 000-3080
DIABETEX INTERNATIONAL, CORP
(Exact nameof registrant as specified in its charter)
Nevada 87-0452228
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7321 Roseville Road, Sacramento, CA 95482
( Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (702) 293-0909
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12 (g) of the Exchange Act:
Title of Each Class
Common Stock, $ 0.002 par value
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
last 90 days.Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B cpmtained in this form and no disclosure will be contained,
to the best of the registrant's knowledge, in difinitive proxy or information
statements incorporated by reference in Part III of this Form 10 KSB [X]
The Registrant's reveues for the fiscal year ended December 31, 1999
were $ 40,605.00
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 22, 2000 was based upon the last sale price of such
stock on that date on the over-the-counter market commonly referred to as the
"pink sheets" was $ 179,535,329. The number of shares of the
Registrant's Common Stock outstanding on March 22, 2000 was 10,880,929 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Sockholders to held on May 15, 2000 are incorporated by
reference in Part III of this Report. Except as expressly incorporated by
reference, the Restrant's Proxy statement shall not be deemed a part of this
Form.
PART I
ITEM 1. THE COMPANY
Sheridan Industries, Inc ("Sheridan") was incorporated in the State of
Utah on September 4, 1983. On December 14, 1998, in order to alter
Sheridan's focus to a diabetes-related products and services, it moved the
business and domicile to the State of Nevada. To properly transact such a
move, a new corporate entity was formed and identically named "Sheridan".
Accordingly, Sheridan was reincorporated in the State of Nevada, becoming a
Nevada corporation.
On December 1, 1998 Sheridan, the Utah corporation merged with Sheridan, the
Nevada corporation being the surviving entity. Through this merger, Sheridan
became domiciled in the State of Nevada. On December 22, 1998, Sheridan
changed its name to Diabetex International, Corp. (the "Company"). The name
change was to better describe the Company's new focus and the acquisition of
certain licenses and related products regarding monitoring the disease of
diabetes.
On June 31, 1999, the Company acquired all the shares to Advanced Metabolic
Technologies, a Nevada corporation ("AmTech"). AmTech was formed to hold
assets related to the treatment of diabetes of a Delaware corporation,
Advanced Metabolic Systems, Inc. ("AmSys"). By acquiring the subsidiary,
AmTech, the Company obtained all of the assets of AmSys relating to diabetes.
AmSys continues to operate and sell and market its Physician Practice
Consulting business. In this meger, the Company assumed none of the
liabilities of AmSys.
With this merger the Company designs, manufactures and markets a non-
invasive diabetes monitoring device, high accuracy infusion and monitoring
device for the automatic delivery of Metabolic Activation treatments, as
well as non-activation insulin or CSII; and provides training of personnel
for the delivery of Metabolic Activation treatments.
The Company's products are designed to improve the quality of patient care
and provide exceptional performance. The Company is currently developing
miniturized versions of its monitoring equipment for home use.
PRINCIPAL PRODUCTS AND SERVICES
Diabetex Non-Invasive Glucose Measurement Device:
The Company holds an exlusive worldwide license to manufacture,
exploit and market a non-invasive patented device for the measurement of
blood glucose, glycosolated hemoglobin A1C (average blood glucose level
measurement), and other blood levels to help treat diabetes and other
diseases. Prototypes have been developed and there has been clincal
testing for the purpose of refinement, but no request for approval from
the Food and Drug Administration ("FDA") has as of yet been requested.
The Company plans to develop these devices to final production form and
upon completion of production model units, submit them for clinical trials
and testing in conjunction with FDA approval application. The Company
continues to use original equipment manufacturer ("OEM") to produce the
equipment to specification of the Company.
Metobolic Activation Treatment
Through the acquisition of AmTech, the Company has the exclusive
worldwide license to exploit and market a patented metoblic treatment
known as Metobolic Activation Treatment. Current medical publications
also refer to this treatment as Hepatic Activation or Chronic
Intermittent Intensive Insulin Therapy ("CIIIT"). This treatment is
delivered via a special intravenous infusion device,or a pump, with
the treatment pre-programmed into the pump. This treatment has been
approved by the FDA for use with the Bionica Microdose pump. Over the
ten (10) years that this treatment has been in clincal use, including
its trials and development, it has proven to prevent and in some
cases reverse health complications caused by diabetes.
Training of Metoblic Activation Technicians
The Company through its acquisiton of AmTech acquired all of the
Clinic Operations Manuals, Training Manuals and the services of all
training personnel used to oversee the establishment of Metabolic
Activation Clinics. There has been no interruption of Clincs already
operating, and the Company currently supplies all services and
training required for these and new clinics by providing technical
assistance to hospitals, doctors and support staff.
SALES AND MARKETING
As of December 31, 1999, the Company has not realized any significant
income from any of its products. There have been no sales of its
Biologic Monitoring Devices, or of its Infusion Devices. Metobolic
Activation accounts for $ 40,605.00 in revenues
The Company plans to develop a marketing plan using traditional
channels of distribution as it draws closer to FDA approval of its
monitoring and infusion devices. Management intends to fund its
subsidary's sctivities according to its business plan and is confident
it will be profitable in the future.
COMPETITION
The Company is competing within the medical reasearch and development market.
It is well ahead of the competition in terms of an accurate non-invasive
glucose measuring device. To the best of management's knowledge it is the
only company developing a complete treatment system ranging from monitoring
to infusion of insulin and other beneficial treatment of metabolic illness
through Metabolic Activation Treatment.
Metabolic Activation Treatment competes with traditional treatment of
diabetes. Currently Metoblic Activation requires at clinic-site treatment
only. Since it is relatively new treatment, insurance reimbursement is only
now becoming more common. The Company believes that insurance and Medicare
reimbursement become more readily available, benefits of Activation will
strongly outvalue traditional care.
RESEARCH AND DEVELOPMENT
The Company continues to develop an infusion pump to replace the Bionica
Microdose and to miniturize its monitoring devices for home use.
The Company does not pay any R&D expenses directly; however, during 1999
it paid $249,703 in prepaid royalties to Solid State Farms, Inc., all of
which went to R&D of the non-invasive blood glucose monitor.
EMPLOYEES:
As of December 31, 1999 the Company had 5 employees of whom 5 are full-
time. The Company has no collective bargaining agreements and
believes that relations with its employees are good.
GOVERNMENT REGULATION
Medical products of the type currently being marketed by the Company are
subject to regulation under the Food and Drug Administration and
Cosmetic Act of (the "FDA Act"), as amended in the Medical Device Amendments
of 1976 (the "1976 Amendments"), the 1990 Safe Medical Devices Act, and most
recently the new Quality System Regulation (QSR) which replaces the
regulations formerly called Good Manufacturing Practice (GMP's).
In addition, depending on the product type, the Company must also comply
with those regulations governing the Conduct of Human Investigations, Pre-
Market Approval Regulations and other requirements, as promulgated by the
Food and Drug Administration (FDA). The FDA is authorized to inspect a
device, its labeling and advertising, and the facilities in which it is
manufactured in order to ensure that the device is not manufactured or
labeled in such a way as it could cause harm or be injurous to health.
Under the 1976 Amendment and the Safe Medical Device Act, the FDA
adopted regulations which classify medical devices based upon the degree
of regulation the FDA believes necessary to assure safety and efficacy.
A device is classified as Class I, II or III device. Class I devices are
subject only to general controls. Class II devices are or will be subject
to "performance stantdards". Most devices are also subject to the 501(k)
pre-market notification provision. In addition, Class III devices require
FDA pre-market approval before they may be marketed commercially because
their safety and effectiveness cannot be assured by the general controls
and performance standards of Class I or II devices. The Company's products
are Class II and Class III devices and as such several may require FDA
notification under Section 501(k) of the FDA Act.
The FDA has authority to among other things deny marketing approval until
all regulatory protocols are deemed acceptable; halt the shipment of
defective products; abd seize defective products sold to customers. Adverse
publicity from the FDA, if any, could have a negative impact on sales.
To date, the Company has had no FDA oversight problems, and none are pending
to its knowledge.
MANUFACTURING AND QUALITY ASSURANCE
The Company manufactures its product at the facility it shares with
Hamilton May the pump company, and Hamilton-Clarke
Industries. It is in these premises, where the new pump is
expected to be assembled under original equipment manufacturer (OEM)
agreement.
Quality control procedures are performed by the Company at this
shared facilty and occasionally at its suppliers' facilities to standards
set forth in the FDA's "Quality Systems Regulation". These procedures
include the inspection of components and full testing of finished goods.
The Company has a controlled clean environment where the final assembly
of single-patient care products is conducted.
TRADEMARKS, PATENTS AND COPYRIGHTS
The Company does not have any registered trademarks for its products. Nor
does it hold any patents. The Company does have a license agreement with
Solid State Farms for the exclusive worldwide right to market, develop,
exploit, manufacture and sell a blood glucose monitoring device. Solid
State Farms holds 44 international patents in this technology.
ITEM 2. PROPERTIES
The Company does not own any real 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.
The property where the Company is located is near the site of the continued
clinical trials where additional information on activation is being developed,
and where there is sufficient space for the inspection and packaging of the
devices to be made by the OEM suppliers. The property is on a month to month
basis whereby the cost of the facilities is borne by the equipment suppliers.
No contracts exist requiring the Company to use any particular manufacturing
supplier or facilities. The only facilities being shared are the facilities
of Hamilton-May which is engaged in the final development of the production
design criteria.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings involving the Company are pending at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company had no matters before the shareholders during the period covered
by this report. On or about April 13, 2000 the Board of Directors elected
Dr. Benjamin Brucker Weisman, PhD as Chief Executive Officer. At a special
meeting of the shareholders, held at the same time Dr. Weisman was elected to
the Board of Directors.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(a) The Common Stock of the Company is traded in the over-the-counter market
commonly referred to as the "pink sheets". The following table shows the high
and low bid quotations for the Company's Common Stock for each quarterly
period for the last 12 months. These prices reflect inter-dealer prices
and may not represent actual transactions and do not include retail mark-ups,
mark-downs or commissions:
<TABLE>
Period Ended High Low
<S> <C> <C>
March 31, 1999 14 10
June 30, 1999 22 14
September 30, 1999 25 9
December 31, 1999 16 10
</TABLE>
(b) The following table sets forth the approximate number of holders of
record of Common Stock of the Company on December 31, 1999
<TABLE>
Title of Class Number of Shareholders
<S> <C>
Common Stock, $0.002 par value 340
</TABLE>
(c) No cash dividends have been declared on the Company's common stock during
1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS:
The Company lost $1,667,116 ($.14 loss per share)in 1999. The computations
of loss per share are based on the weighted average number of shares
outstanding at the date of the financial statements. Fully diluted loss per
share is the same since any outstanding stock equivalents at
December 31, 1999 would be antidilutive. The Company is a development stage
company and its limited market exposure impacted unfavorably on its operating
income.
Revenues for 1999 were $40,605 and came solely from the Metabolic Activation
business stream. These revenues represent a 100% increase over and above
revenues from 1998 when the Company had only glucose monitoring device as its
sole income stream.
Total costs on a consolidated basis was $1,832,731 for 1999. Expenses on each
business segment are as follows:
Biological Monitoring Devices: $ 0.00
Metabolic Activation: $ 381,989
Infusion Devices: $ 45,000
Corporate: $ 1,832,721
The Company does not have any direct R&D expense;however, it has prepaid
royalties in the amount of $249,703 to Solid State Farms, Inc., which funds
have been used for development of its glucose monitoring device.
The Company issued shares equivalent to $15,322,610 for intangible
assets of AmTech and $3,008 for its fixed assets. The Company continues to be
largely dependent on financing working capital to continue operations.
Management is confident of finding appropriate financing avenues and that its
business plan will provide profitable operations in the futre.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999 the Company's cash and cash equivalents totaled
$ 351.00 an increase of $351.00 from the beginning of the period. The
Company's working capital totaled $( 311,996) .
The Company currently has no lines of credit and borrowing,and therefore there
has been no borrowing for the current year. The Company continues to seek
appropriate financing which may include such lines of credit in the future.
The Company has a license agreement with Solid State Farms, Inc. for their
44 international patents covering proprietary technology to monitor blood
glucose levels non-invasively. The license fee is 7% of the adjusted gross
sales price of all licensed products. As of December 31,1999,
the Company has made advanced payments of $249,703 on this royalty.
In addition to the licenses above, the Company as part of its agreement to
purchase AmTech from AmSys, the Company agreed to pay to AmSys $200,000 in
closing costs and other related expenses in connection with the purchase of
AmTech. The Company has also agreed to pay AmSys $75,000 for services
related to the insurance billing of AmTech for its metabolic activation
therapy. Additionally, the Company also agreed to pay two (2)AmTech
consultants for a period of one year at the rate of $5000.00 per month.
While the Company is concerned over its current lack of adequate funds, it
is confident that appropriate funding activities are underway to provide
adequate liquidity and capital resources for its year 2000 financial needs.
YEAR 2000 COMPLIANCE
The year 2000 ('Y2K") issue: There have been no adverse effects on the
Company's systems or operations or with its suppliers.
ITEM 7. INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditor F-1
Balance Sheets December 31, 1999 F-2
Statements of Income for Year Ended
December 31, 1999 F-3
Statement of Shareholders' Equity for
the Year ended December 31, 1999 F-4
Statements of Cash Flows for year
ended December 31, 1999 F-6
Notes to Financial Statements F-9 to F-15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
Reference is made to the sections entitled "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934
in the Registrant's difintive proxy statement to be mailed to shareholders
on or before April 30, 2000 and to filed with the Securities and Exchange
Commission.
ITEM 10. EXECUTIVE COMPENSATION
Reference is made to the section entitled "Compensation of Executive
Officers" and "Election of Directors in the Registrant's difinitive proxy
statement to be mailed to the shareholders on or before April 30, 2000 and
to be filed with the Securities and Exchange Commission.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the section entitled "Stock Ownership" and "Election
of Directors" in the Registrant's definitive proxy statement to be mailed
to the shareholders on or about April 30, 2000, and to be filed with the
Securities and Exchange Commission.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Dr. Weisman have entered into an employment agreement pursuant
to which Dr. Weisman becomes the President and Chief Executive Officer of
the Company. The term of this Agreement is for one year commencing with
April 14, 2000. The Agreement calls for an annual base salary of $60,000 and
132,000 shares of common stock to be granted through stock option or given
directly to Dr. Weisman at Dr. Weisman's determination. This contract may
be terminated in the event of Dr. Weisman's malfeasance or criminal acts
or if there is a Change in Control, which for the purpose of this agreement
is understood to be any merger or corporate combinations reulting in the
alteration of the Agreement. In the event of termination by loss of Control,
Dr. Weisman shall be entitled to receive in full 12 months compensation.
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(A) 3.1 (a) Certificate of Incorporation or Registrant*
(b) By-Laws of Registrant*
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
* Incorporated by reference from the Exhibits filed in the Registrant's
Registration Statement dated October 4, 1999 filed with the Securities
and Exchange Commission.
(B) Reports on 8-K filed: Election of Dr. Benjamin Brucker Weisman as
Director and CEO.
DIABETEX INTERNATIONAL, CORP
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditor F-1
Balance Sheets December 31, 1999 F-2
Statements of Income for Year Ended
December 31, 1999 F-3
Statement of Shareholders' Equity for
the Year ended December 31, 1999 F-4
Statements of Cash Flows for year
ended December 31, 1999 F-6
Notes to Financial Statements F-9 to F-16
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
Stockholders and Directors
Diabetex International Corporation and subsidiary
Sacramento, CA
We have audited the accompanying consolidated balance sheets of
Diabetex International Corporation (a Nevada Corporation) (a development
stage enterprise) and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the years 1999, 1998 and 1997. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Diabetex
International Corporation at December 31, 1999 and 1998, and the results of
its operations and cash flows for the years 1999 , 1998 and 1997, and for
the period from September 14, 1983 (inception) to December 31, 1999 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 12, the
Company's recurring operating losses and lack of working capital raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to those matters are also described in Note 12.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Salt Lake City, UT
April 12, 2000
F-2
Diabetex International Corporation and Subsidiary
<TABLE> (A Development Stage Company)
<CAPTION> Consolidated Balance Sheets
ASSETS
December 31,
1999 1998
CURRENT ASSETS
<S> <C> <C>
Cash (Note 1) $ 351 $ -
Account Receivable (Net of allowance of $0) 23,418 -
-------------- -----------
Total Current Assets 23,769 -
Property, Plant & Equipment (Note 4)(Net) 2,408 -
Intangible Assets (Note 3) (Net) 14,770,772 -
Prepaid Expenses (Note 7) 249,703
-------------- ------------
$ 15,046,652 $ -
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES
Accounts payable & accrued expenses $ 152,952 $ 4,050
Accounts payable-related party (Note 6) 182,813 -
Total Current Liabilities 335,765 4,050
CONTINGENCIES AND
COMMITMENTS (Note 8) - -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; $.002 par value;
50,000,000 shares authorized,
13,110,929 and 42,511 shares
issued and outstanding (Note 2) 26,222 85
Additional paid-in capital 16,509,414 153,499
Deficit accumulated during the
development stage (1,824,750) (157,634)
----------------- --------------
Total Stockholders'
Equity(Deficit) 14,710,886 (4,050)
----------------- ---------------
$ 15,046,652 $ -
================= =================
</TABLE>
F-3
Diabetex International Corporation and Subsidiary
(A Development Stage Company)
<TABLE>
<CAPTION> Consolidated Statements of Operations
From
Inception on
September 14,
For the Year Ended 1983 to
December 31, December 31,
1999 1998 1999
--------- --------- -------------
REVENUES
<S> <C> <C> <C>
Revenues $ 40,605 $ - $ 40,605
EXPENSES
Amortization and
Depreciation 778,008 778,008
Professional Services 805,509 650 930,359
Legal 81,231 81,232
Public Relations 13,794 13,794
Administrative 29,179 150,462
Total Expenses 1,707,721 650 1,989,855
--------------- ---------- ------------
NET LOSS BEFORE
INCOME TAXES ( 1,667,116) ( 650) ( 1,824,250)
=============== ============ =============
PROVISION FOR
TAXES (Note 1) ( 500)
--------------- ----------- -------------
NET LOSS ( 1,667,116) ( 650) ( 1,824,750)
================ =========== =============
LOSS PER SHARE $ (.14) $ (.02)
(Note 1) ---------------- ------------
AVERAGE SHARES
OUTSTANDING 12,288,901 42,511
</TABLE>
F-4
Diabetex International Corporation and Subsidiary
<TABLE> (A Development Stage Company)
<CAPTION> Consolidated Statements of Stockholders' Equity
Accumulated
Capital In Deficit during
Common Common Excess of Retained
Shares Shares Par Value Deficit
---------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance Dec.31,89 862 $ 2 $ 94,173 $ ( 96,973)
Loss for year ( 130)
---------- ---------- ------------ ---------------
Balance Dec. 31,90 862 2 94,173 ( 97,103)
Issues 225 shares to
an officer in
cancellation of debt
at $16.77 225 1 3,722
Loss for the Year ( 3,333)
------------ ---------- ----------- --------------
Balance Dec 31,91 1,087 3 97,945 ( 100,436)
Expenses paid on
the Company's
behalf contributed
to capital 2,666
March 5,92 issued
1250 shares for
services rendered
for $8.00 1,250 2 9,998
Loss for the year ( 10,278)
----------- ----------- ----------- ------------
Balance Dec 31,92 2,337 5 110,609 ( 110,714)
Loss for the Year ( 136)
------------ ------------ ------------ ------------
Balance Dec 31,93 2,337 5 110,609 ( 110,850)
Oct. 17,94 issued
25000 shares for
expenses paid
on Company's
behalf for $.84
per share 25,000 50 20,950
Expenses paid on
the Company's
behalf
contributed to
capital 612
Loss for Year ( 22,903)
----------- --------------- ------------ --------------
Balance
Dec 31,94 27,337 55 132,171 ( 133,753)
Expenses paid
on the Company's
behalf
contributed to
capital 1,227
Loss for Year ( 100)
----------- -------------- ------------ --------------
Balance
Dec 31, 95 27,337 55 133,398 ( 133,853)
Loss for Year ( 100)
------------ --------------- ------------- --------------
Balance,
Dec 31, 96 27,337 55 133,398 ( 133,953)
Continued
F-5
</TABLE>
<TABLE> (A Development Stage Company)
<CAPTION> Consolidated Statements of Stockholders' Equity
Accumulated
Capital In Deficit during
Common Common Excess of Retained
Shares Shares Par Value Deficit
---------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance,Dec. 96 27,337 $ 55 $ 133,398 $ ( 133,953)
Shares issued for
asset of Aladdin
Transportation
Landmark, Inc
and Over 100, Inc
for $0 per share 82,500 165 ( 165)
Shares issued for
loans to Aladdin
Transportation
Landmark, Inc and
Over 100, Inc for
$.80 per share 25,163 50 20,081
Shares canceled
by various
shareholders ( 10,000) ( 20) 20
Shares canceled
for acquisition
of Aladdin and
Over 100, Inc ( 82,500) ( 165) 165
Shares issued for
Presidential and
Regal Limousine
Service at $0
per share 4,000 8 ( 8)
Shares canceled for
Presidential and
Regal Limousine
Service ( 4,000) ( 8) 8
Net loss for year ( 23,031)
------------- ------------ ---------- ---------------
Balance Dec 31,97 42,500 85 153,499 ( 156,984)
Rounding due to
reverse stock
split (Note 2) 11
Net Loss for year ( 650)
------------- ----------- ----------- --------------
Balance Dec. 31,98 42,511 85 153,499 ( 157,634)
continued
</TABLE>
F-6
<TABLE> (A Development Stage Company)
<CAPTION> Consolidated Statements of Stockholders' Equity
Accumulated
Capital In Deficit during
Common Common Excess of Retained
Shares Shares Par Value Deficit
---------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance Dec 31, 98 42,511 $ 85 $ 153,499 $ ( 157.634)
Shares issued for cash
at $.002 per share 8,387,800 16,775 530
Shares issued for
services at .05
per share 2,000,000 4,000 96,000
(Note 2)
Shares issued for cash
at $.05 per share 875,000 1,750 45,767
Shares issued for
services at $3 per
share (Note 2) 50,000 100 149,900
Shares issued for
cash at $3 per
share 1,000 2 2,998
Shares issued for
cash at $10 per
share 21,307 43 213,027
Shares issued for
100% of shares of
Advanced Metabolic
Technoloby at $10
per share 1,232,231 2,456 12,320,145
Shares issued for
intellectual
properties of
Hamilton-May
Inc at $10
per share 300,000 600 2,999,400
Expenses paid by
shareholder on
Company behalf 4,050
Shares issued to
Phoenix Energy
(Note 3) 35,000 70 349,930
Shares issued for
services at
$10 (Note 2) 12,500 25 124,975
Shares issued for
cash at $10 3,450 7 34,493
Shares issued for
services at $.10
(Note 2) 150,000 300 14,700
Net Loss for Year ( 1,667,116)
------------ ------------ --------- ------------
Balance Dec. 31,99 13,110,929 $ 26,222 16,509,414 $( 1,824,750)
============ ============= ========== =============
</TABLE>
F-7
<TABLE> Diabetex International Corporation and Subsidiary
(A Development Stage Company)
<CAPTION> Consolidated Statements of Cash Flows
From
Inception on
September 14,
For the Year Ended 1983 to
December 31, December 31,
1999 1998 1999
--------- --------- -------------
CASH FLOWS FROM
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Loss $ ( 1,667,116) $ ( 650) $ ( 1,824,750)
Adjustments to net cash
used by operating
activities:
Depreciation &
Amortization 778,008 778,008
Stock issued for
services/espenses 615,000 666,131
Expenses paid by a
shareholder on the
company's behalf 4,050 8,555
Increase (Decrease)
in accrued expenses 331,715 650 335,765
Increase (Decrease)
in prepaids ( 124,702) ( 124,702)
Increase (Decrease)
in accounts receivable ( 23,418) ( 23,418)
---------------- ---------- -------------
Net cash used by
operating activities ( 86,463) ( 184,411)
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 315,392 429,165
Stock offering cost ( 15,825)
--------------- ------------- --------------
Net cash provided by
financing activities 315,392 413,340
NET INCREASE (DECREASE)
CASH 351 351
CASH BEGINNING
OF PERIOD
---------------- -------------- --------------
CASH END OF PERIOD $ 351 $ 351
================ =============== ==============
continued
F-8
Diabetex International Corporation and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
(continued)
From
Inception on
September 14,
For the Year Ended 1983 to
December 31, December 31,
1999 1998 1999
--------- --------- -------------
CASH PAID FOR
Interest $ $ $
Income Taxes $ $ $
Non Cash transactions
Stock Issuance for
Services $ 615,000 $ $ 666,000
Acquisition of
Intangibles $15,322.610 $ $15,322,610
Prepaid Expenses 125,000 125,000
</TABLE>
F-9
Diabetex International Corporation and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
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). AMT was formed on May 19, 1999 as a wholly owned
subsidiary of Advanced Metabolic Systems (AMS) which transferred an exclusive
license to patente 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 December 31, 1999 is
the same since any outstanding stock equivalents at December 31, 1999
(335,243 shares) would be antidilutive. There were no outstanding stock
equivalents for all other periods; therefore, basic and fully diluted shares
are the same.
F-10
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND HISTORY (continued)
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" 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.
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, 1999 and earlier years;3
accordingly, no deferred tax liabilities have been recognized for all years.
The Company has cumulative net operating loss carryforwards of over $1,975,000
at December 31, 1999. 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, 1999
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 Lived Assets
All long-lived assets (including intangible assets) are evaluated 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. The Company determines whether an impairment has occurred 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. If the carrying amount exceeds the undiscounted future cash flows,
then the impairment charge is calculated as the excess of the carrying amount
of the asset over its fair market value.
F- 11
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND HISTORY (continued)
h. Stock compensation awards and other non cash transactions
The Company entered into several transactions that involved stock or stock
options for goods or services and acquisitions of subsidiaries and medical
technologies. These transactions were recorded at estimated fair market value
of the stock being offered at private placement prices to the general public,
publically traded prices,or some other fair value as best determined by the
board of directors with the facts and circumstances present at the time of
the transaction. (See Note 2 regarding specific transactions).
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:
-In January, 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. These shares
were valued at $.05 per share or total value of $100,000.
-In March, 1999, 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.
- In June, 1999, 1,232,261 shares were issued for acquisition of all
of the stock of Advanced Metabolic Technologies (see note 3). The purchase
price was $10 per share or a total value of $12,322,610. The fair market
value of the stock was $10 (private placement purchase price). The Company
had an appraisal completed on Advanced Metabolic Technologies intellectual
properties which substantiated a value greater than the purchase price
(Note 3).
In June, 1999, 300,000 shares were issued for acquisition of a license
for all the intellectual properties related to an insulin pump developed by
Hamilton May, Inc. The purchase price was $10 per share or a total value of
$3,000,000. The fair market value of the stock was $10 (private placement
purchase price).
In July, 1999, 35,000 shares were issued to Phoenix Energy for
consulting services. The fair market value of the stock was $10 (Private
Placement purchase price).
F- 12
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 2 - NON CASH TRANSACTIONS - (continued)
In September, 1999, 12,500 shares were issued to Anatoli Tsaliovich for
services to be rendered in connection with the miniaturization and perfection
of the non-invasive blood glucose monitors and hyper/hypo glycemic warning
devices. The fair market value of the stock was $10. (Private Placement
purchase price).
In December, 1999, 50,000 shares of stock were issued to Nathan Drage
for services performed for the Company and not previously compensated.
The shares are further restricted than normal Rule 144 restrictions and have
required revenue platforms before sales of the shares can occur. Due to
these additional restrictions, the shares were valued at $0.10 per share.
In December, 1999, 100,000 shares of stock were issued to Philip Blomquist
for services performed for the Company and not previously compensated.
The shares are further restricted than normal Rule 144 restrictions and have
required revenue platforms before sales of the shares can occur. Due to
these additional restrictions, the shares were valued at $0.10 per share.
In October, November and December, 1999, Dominion exercised 3,450 options
at $10 per share it possessed from an option grant in March 1999.
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 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.
This treatment is delivered by special intravenous infusion devise (sic)
(pump) with the treatment programed into the devise. The devise (sic)
(Bionica Microdose)with the Company's treatment embedded in the devise has
been FDA approved and in use since 1988. The treatment has been refined
over the years including clinical use on human subjects, and clinical trials
for over ten years with constant following of patients to demonstrate the
ability of the treatment to prevent, stop and in some ways reverse the
common complications of 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 on a fee basis. The Company carries this
asset on it's books at a cost of $12,548,180 paid in stock and cash.
F-13
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 3 - ACQUISITION OF INTANGIBLE ASSETS (continued)
The Company issued 1,232,261 shares of common stock for all the outstanding
shares of AMT (800,000 shares). The only asset of AMT was the license to
market a therapy known as hepatic activitation 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.
Hamilton May (sic)
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. 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 design stage and has not been approved by the FDA.
The Company issued 300,000 shares of common stock for the Hamilton/May pump.
Herein is a summary of the purchase of Advanced Metobolic Technology (AMT)
and Hamilton/May pump:
AMT
Purchase of AMT intellectual properties:
Stock (1,232,261 shares @ $10 per share) $12,322,610
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
----------------
12,548,180
Hamilton/May
Purchase of Hamilton/May pump
Stock (300,000 shares @ $10 per share) 3,000,000
-----------------
Total $ 15,548,180
The amortization of the intellectual properties of AMT and Hamilton/May began
June 30, 1999. Amortization expense for 1999 is $777,408.
F- 14
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
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.
Property and equipment consists of the following:
December 31,
1999 1998
Computer Equipment $ 3,008 $ -
----------------- ----------------
Less: Accumulated Depreciation ( 600)
------------------ ---------------
$ 2,408 $ -
================== ================
Depreciation is based on the estimated useful life of the asset either
on a straight line basis over 5 years.
Depreciation expense for 1999 and 1998 was $600 and $0, respectively.
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 - RELATED PARTY TRANSACTIONS
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 were included in the basis of the
cost of AMT. $17,187 was paid in 1999.
Solid State Farms and the Company have several common shareholders with the
Company and has entered into a 7% royalty agreement for any sale of its
products or services. The Company has advanced $124,703 towards those
royalties. (See Note 7 and 8).
F- 15
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 7 - PREPAID EXPENSES
Prepaid expenses consists of the following:
Advances to affiliate for advance
royalties (Note 8) $ 249,703
------------
$ 249,703
============
NOTE 8 - COMMITMENTS AND CONTINGENCIES
As part of the purchase of AMT, the Company agreed to pay $200,000 to
Advanced Metobolic Systems (AMS), former parent of AMT, in closing costs
and other expenses related to the purchase of AMT. The Company also agreed
to pay AMS $75,000 for services related to the insurance billing of AMT for
its metobolic activation therapy. $12,500 of unpaid consulting fees was
accrued for the six months ended December 31, 1999.
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 $124,703 on this royalty as
of December 31, 1999.
NOTE 9 - STOCK OPTIONS
In March, 1999, the board of directors set the price of restricted stock sales
at $10 per share and offered an option to a foreign corporation to exercise
its option to purchase 50,000 restricted shares for the $10 price for a
period of one year. 25,243 options remain unexercised at December 31, 1999.
In August, 1999, the Company issued a one year option to Hank Bagly
to purchase up to 10,000 shares at a price of $6.00 each. No options were
exercised in 1999.
In November, 1999, the Company issued a five year option to M. H. Meyerson
and Co., Inc. to purchase up to 300,000 shares at a price of $10 each in
exchange for investment banking services during the five year term.
No options were exercised in 1999.
F- 15
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
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").
Metabolic Activation
An exclusive license to exploit and market a patented metabolism
treatment called Metabolic Activation (also known 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 3as 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.
F-15
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 11 - MARKET SEGMENT INFORMATION (continued)
As of December 31, 1999, the Company has not realized significant
income from any of the three distinct technologies. Other selected financial
information regarding each segment as follows:
Biological Metabolic Infusion
Monitoring Activation Devices Corporate Total
Income Statement
Information
Sales $ $ 40,605 $ $ $ 40,605
Expenses 422,594 45,000 1,365,127 1,832,721
Profit/loss
from
operations $ - $(381,989) $(45,000)$(1,240,127)$(1,667,721)
Balance Sheet Information
Assets $ - $11,920,771 $2,850,000 $ 275,881 $15,046,652
Liabilities $ - $ 310,2480 $ - $ 25,517 $ 335,765
NOTE 12 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has negative working
capital and has had recurring operating losses and is dependent upon
financing to continue operations. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Management intends to fund its subsidiaries'activities, according to the
business plan, and emerge profitable sometime in the future.
Signature
Pursuant to the requirements of the Securities and Exchange Act of 1934
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.
Diabetex International, Corp
-------------------------------
Date: April 17, 2000 /s/ Philip Bloomquist
-------------------------------
Secretary
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Shareholders and Directors
Diabetex International Corporation and subsidiary
Sacramento, CA.
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-KSB into the Company's
previously filed Registration Statements on Form 10-SB file no.
/s/ Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> Diabetex International, Corporation
<PERIOD-TYPE> 12 mos
<FISCAL-YEAR> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 351
<SECURITIES> 0
<RECEIVABLES> 23,418
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<INVENTORY> 0
<CURRENT-ASSETS> 23,769
<PP&E> 3,008
<DEPRECIATION> 600
<TOTAL-ASSETS> 15,046,652
<CURRENT-LIABILITIES> 335,765
<BONDS> 0
<COMMON> 16,535,636
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<TOTAL-LIABILITY-AND-EQUITY> 15,046,652
<SALES> 40,605
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</TABLE>
