UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FOURTH 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 (IRS Employer Identification No.)
incorporation or organization)
7321 ROSEVILLE ROAD, SACRAMENTO, CA 95842
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(Address of Principal Office) (Zip Code)
Issuer's telephone number (916) 331- 3300
Securities to be registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange on which registered
Securities to be registered pursuant to Section 12(g) of the Act
Diabetex Common Voting Shares NASD
Item 1. Description of Business:
HISTORY OF THE COMPANIES
Sheridan Industries Inc. ("Sheridan") was incorporated in the State
of Utah on September 14, 1983. On December 14, 1998, in order to alter
Sheridan's focus to diabetes-related products and services, it moved the
business and domicile to the State of Nevada. Once in the State of Nevada,
Sheridan's operations and technical product development activities commenced
taking place. In order to properly transact such move, a new corporate
entity was formed and identically named "Sheridan". Accordingly, Sheridan was
reincorporated in the State of Nevada and thus became a Utah corporation. On
December 1, 1998, Sheridan, the Utah corporation was merged with and into a
Nevada corporation; with the Nevada corporation being the surviving entity.
Thus, through this merger, the domicile of the new corporation, Sheridan,
was changed to the State of Nevada. On December 22, 1998, Sheridan changed
its name to Diabetex International Corp. (the "Company"). The Company
changed its name due to its new focus and acquisition of licenses and related
products related to monitoring the disease, diabetes.
After the merger to change the domicile to the State of Nevada, on June 31,
1999, the Company acquired all of the shares of Advanced Metabolic
Technologies, a Nevada corporation ("AmTech"). The consideration paid for this
acquisiton was 1,232,261 shares of Diabetex common voting stock, equal to
approximately 9.5% of the Company. Primarily, AmTech was formed
to transfer into this entity, all of diabetes-related assets of Advanced
Metabolic Systems, a Delaware corporation ("AmSys).
In order to accomplish such a transfer of diabetes-related technologies and
assets, AmSys, the Delaware corporation formed an entity known as Advanced
Metabolic Technologies of Nevada, and transferred all of its diabetes related
assets into that new company and transferred these diabetes technologies and
assets to the Company with the Company acquiring all of the stock of AmTech.
Accordingly, by the acquisition of the diabetes assets of AmSys, in the form
of "AmTech" as a subsidiary, the Company combined two complimentary
technologies, one diabetes monitoring technology, and one newly released
proven diabetes treatment technology.
In order for the diabetes related assets and technologies of Advance
Metabolic Systems, Inc. (of Delaware), to be combined with Diabetex's
business, "AmSys" created "AmTech" as its wholly owned subsidiary, put its
diabetes related assets into that subsidiary, and by the acquisition of
AmTech in exchange for certain shares of Diabetex, the Company acquired the
diabetes related treatment, business, licenses, special infusion devices and
know-how of AmSys for stock. AmTech, then became and remains a wholly-owned
subsidiary of the Company. In the trade of the Company's shares for AmTech,
no "tax free" exchange status was sought.
Not included in the transfer from AmSys to the Company were the
"Physician Practice consulting business" of AmSys which remains in AmSys,
along with certain other minor physical assets.
AmSys continues to exist and operate in Connecticut, and continues with all
of its employees employed prior to the acquisition by AmSys of Diabetex
stock. AmSys continues to provide consulting services for practices and has
not transferred any employees to the Company. None of the liabilities of
AmSys were assumed by the Company in the acquisition of AmTech, and no
creditor of AmSys was adversely affected thereby. In effect, AmSys severed
and sold its diabetes related division for stock, and thereby combined its
newly proven technologies with the technologies of the Company.
In order to operate this new subsidiary and clinical treatment business,
the Company re-located to Sacramento, California, and hired personnel
including Dr. Aoki, John Fitzgerald, Ed Iaconis and Michael Arcangeli to
help open, train, follow-up and ship to the customers of the Company. It has
further acquired consultants for its equipment manufacturing, and has
acquired new consulting services for its next generations of meter products.
the Company also intends to open an office on the East Coast, preferably
in New York, NY.
None of the operations or personnel is common to AmSys. Following the
acquisition, there is no overlapping of businesses by and between AmSys and
the Company. The Company continues to use the business practice billing
services of AmSys, which continues to independently operate in Connecticut.
On the same date that Diabetex acquired AmTech, it also acquired a license to
make insulin fluid infusion devices for delivery of the Company's treatment
with technology awaiting patent. This new pumping system has been named
the "Fluid Micrometer" with "Real-Time Reading" systems. This license for
all insulin uses was acquired by the Company from Hamilton-May Corporation,
which is a Nevada corporation with prototype devices and the ability to
modify the currently used treatment device style pump with its fluid
micrometer pumping technology. This pumping system is intended to be used
to deliver the diabetes treatment, as well as provide Continuous
Subcutaneous Insulin Infusion ("CSII") pumps for diabetic persons and meter
certain blood levels to affect that reading.
THE PRODUCTS AND SERVICES
The business of the Company can be generally described as the combined
businesses of providing equipment for monitoring diabetes and other physical
properties; the providing of equipment for the treatment of diseases of
improper metabolism (including diabetes, the first major market); and the
final development and modification of its pumping equipment to deliver the
Company's treatment, as well as, expanding into the diabetes market.
Thus, the Company has three independent but related lines of products and
services; a.) Non-invasive biological monitoring devices for human use; b.)
The supplying for and training of personnel for the delivery of Metabolic
Activation treatments; and c.) High accuracy infusion and monitoring devices
for the automatic delivery of the Metabolic Activation treatments, as well as
non-activation insulin or CSII.
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 other disease states. Device prototypes
are in development, have been in clinical testing for refinement, but have
not yet been submitted for the required approval by the United States Food
and Drug Administration ("FDA"). The Company will develop
these devices to final-production-product form, build production model units,
submit them for clinical trials and testing in conjunction with a FDA
application and use existing original equipment manufacturers to build the
equipment to final production designs and specifications of the Company.
The Company intends to use outside distribution channels for sales and to
develop 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
Chronic Intermittent Intensive Insulin Therapy, ("CIIIT") in current medical
publications). This treatment is delivered by a special intravenous infusion
device (pump) with the treatment programmed into the device. The device
(Bionica Microdose) with the Company's treatment embedded in the device has
been FDA approved and in use since 1988. The treatment has been in
development including clinical use on human subjects, and clinical trials for
over ten years by Advanced Metabolic Systems, Inc. ("AmSys"), with constant
follow-up of patients to demonstrate the ability of the treatment to prevent,
stop and in some cases, reverse the common complications of diabetes.
Pending FDA approval of a new intravenous infusion device from Hamilton-May
Corporation, the Company expects to use its existing FDA approved Bionica
Ltd. Pumps. As a potential third source of infusion devices (pumps), other
infusion device manufacturers would be able to modify their existing pumps to
provide infusion devices for the treatment.
In connection with the acquisition of AmTech, the Company acquired all of the
Clinic Operations manuals, Training Manuals, and the services of all former
training personnel used to train, oversee and start clinics. No interruption
of existing clinical programs has taken place. The Company currently has
and provides all services and training required to open treatment sites in
any hospital, clinic or reasonably equipped physician's office, providing
guidance, following, training and support to physicians.
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 products. The Company
has acquired the prototype mechanical pumping system, which is suitable to be
fitted to an infusion-pumping device such as the existing Bionica pump. The
Company expects to modify the Bionica FDA approval to allow the new ultra
accurate pumping mechanism to be used, and continue with the existing treatment
programming which resides in the current Bionica pump, which has had no
reportable failures or incidents in over nine (9) years of clinical
operational history.
Prior to its acquisition, AmTech was the holder of all patent rights to
Metabolic Activation by license from the inventor, and the owner of the FDA
approved pumps used for Metabolic Activation treatments. There were no
liabilities assumed by the Company in the transfer. The purpose for using a
subsidiary was to allow for an easy and efficient way to handle the ownership
of shares in the Company. No tax deferment was sought, and the exchange of
shares were not treated as a tax-free exchange.
Prior to the acquisition of the ultra accurate pump license from Hamilton-May
Corporation, there were no dealings or common operations with Hamilton-May
Corporation.
For the past 13 years, the Aoki Diabetes Research Institute
("Research Institute") has provided clinical verification and research
services to AmSys. The Research Institute is a non-profit 501 C 3 affiliate
of the University of California, Davis. The Company is the exclusive
licensee of all related technologies, except for a license to use the
metabolic treatment technology in Asia.
THE MARKET
In general, diabetes is a huge worldwide medical problem and growing
in percentages. The Company's treatment and equipment helps to provide for
better care, and peer-reviewed data in multiple sites show the treatment is
able to halt, retard, and reverse the common complications of diabetes.
Because the treatment addresses the "core" problem of diabetes (the inability
of diabetics to properly metabolize carbohydrates which cause high lipid
metabolism); the treatment results are uncommonly uniform. The treatments
benefit all of the secondary complications of diabetes, including kidney,
cardiovascular, ocular, neurological and major blood swings conditions.
It is important to note that the Company's treatment is in addition to
traditional insulin injection treatment, and as such is complementary of this
treatment. The Company's technology not only provides diabetics with a non-
invasive procedure to determine blood glucose levels, but also with a more
efficient method of insulin delivery. This added with Metabolic Activation
treatments provides added benefit to the patient, including in many cases the
reversal of organ damage caused by diabetes.
The indicated complications for the treatment are set forth in the following
chart. These complications are the basic problems, which arise from diabetes.
<TABLE>
<CAPTION>
INDICATIONS FOR THE COMPANY'S METABOLIC ACTIVATION (CIIIT)
ALSO KNOWN AS HEPATIC ACTIVATION
- ---------------------------------------------------------------------------
<S> <C> <C>
Severe Kidney
Disease Patients without kidney disease Patients on Metabolic
have Creatinine Clearance ("CCL") Activation caught in time
of about 100 to 80. can expect not to lose any
Patients who have progressed to of their CCL levels, as
a CCL of 60 are ill, and should studies have shown of 31
expect to continue to lose 10 CCL patients with CCL of 46,
per year on average, with kidney after 37 months, they
failure and dialysis at about 20 remained at 46, and many
CCL. should have been on or near
renal dialysis. No patient
has yet gone on to require
dialysis
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Brittle
Diabetes Patients who do not metabolize Patients on Metabolic
carbohydrates and lipids correctly, Activation will not have the
expect to have wide swings in their wide swings and excursions
blood glucose. as their bodies both store
and release glycogen
(glucose). This is seen by
the uptake of glucose from
their blood.
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Hypoglycemia
Awareness Patients who have had diabetes Patients on Metabolic
for years lose their ability to Activation regain there
sense the onset of low blood sugar, ability to sense low blood
and often "pass out" sugar and decrease their
episodes of hypoglycemia by
98%
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Diabetic
Retinopathy Patients often suffer from Patients on Metabolic
diabetic eye disease and Activation experience a
require laser treatments. remarkable stabilization of
Diabetes is a major cause of eye disease, and most will
blindness. require laser treatments
after being on the treatment
for one year or longer
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Hypertension Hypertension (high blood Patients on Metabolic
pressure) is a major problem Activation experience a
for many diabetic patients. reduction in high blood
Their blood pressure stays pressure, and amazingly,
elevated even while asleep, and they also eliminate
is unhealthy. orthostatic hypotension (low
blood pressure), also
regaining a healthy change
(drop) at sleep.
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Wound
Healing Because of poor circulation, and Patients on Metabolic
the lack of proper metabolism at the Activation can expect to
cellular level, diabetic patients heal more quickly than ever
often do not heal well or at all. before, and avoid amputations
due to wounds and sores.
- ------- ---------------------------------- ------------------------------
Heart
Metabolism Many heart failures are really due Patients on Metabolic
to diabetes, and the failure of the Activation can expect to have
heart to be properly "fed" due to their heart muscle fed and
improper metabolism, low heart oxygen recover a more normal life, as
levels, and non-carbohydrate their heart no longer is
metabolism. starved of certain
requirements for both fuel
and healing. Their hearts
also require less oxygen for
use.
- ---------- --------------------------------- ------------------------------
Nerve
Damage Diabetic neuropathy is common, and Patients on Metabolic
causes pain even while at rest. The Activation enjoy, for the
problem is severe, and pain is great. first time, the elimination
of neuropathy, and even some
recovery of feeling.
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Basic
Quality
of Life Diabetic patients have slowly sunk Patients on Metabolic
into a state of depression and lost Activation immediately
energy. They feel badly, and never realize that they had slowly
achieve true well being due to their become chronically ill, and
improper metabolism and the problems regain their former energy
of not being able to perform. levels, feel better, have
hope for their lives, and
know that they have finally
found a treatment which
addresses the core of their
disease.
- ------- ------------------------------------ -------------------------------
</TABLE>
The information above has been drawn from the Aoki Diabetes Research
Institute, at the University of California, at Davis.
Conclusion: There is no known aspect of diabetes which healthy carbohydrate
and lipid metabolism (metabolic activation) does not greatly help. This
treatment addresses the "core" problem of the disease. Furthermore, there
have been no reported failures or adverse reaction to the treatment.
Throughout long-term clinical trials, the Company's treatment is the first
ever to provide medical substantiation at leading universities of the ability
to halt or reverse the complications of diabetes.
Metabolic Activation has been an ongoing treatment and extended clinical
trials for the ten (10) years necessary to demonstrate its unique ability to
provide more normal metabolism. (The DCCT studies were also ten year
studies.) As a result of recent publications of the results of some of these
studies, and the data acquired from various sites using the treatment, the
business of the Company is to now commercially launch its treatment by
opening many additional clinics through the Company's wholly owned subsidiary,
AmTech.
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. The Company plans to include
clinical trials to prove the value of its treatment in heart desease.
It expects to conduct these trials at a leading heart institute. The Company
hopes to have selected the site and initiate these trials during the Spring,
early summer of 2000.
The Company currently provides all necessary equipment, training and patient
follow-up services to open clinics at reasonable locations. A physician
may open an activation clinic in almost any office clinical setting. A fee
to cover the out of pocket costs is charged for training and assisting the
commencement of the operation of a clinic. There are currently two (2)people
with AmTech who have been opening and training clinic sites for AmSys.
There are no further personnel necessary to deliver the treatment
The Company is currently paid $125 per treatment day - per patient, for the
review and patient follow-up services, as well as the rental of the pumping
system containing the treatment program. The pumping system is very compact
and is about the size of a video VCR tape. The ultra accurate next
generation pump is expected to be even smaller, and is expected to be
incorporated into the Company's licensed sites in two (2)years.
Treatments are given once every week, to two (2) 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. The treatment is consistent with all current forms of other
treatments needed by diabetics and does not adversely impact other therapies.
When the patient has become fully stabilized (usually after four to eight
months of treatment in the clinic), patients will be able to learn to
treat themselves 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. Patients
should not treat themselves alone, but any other responsible person can
provide monitoring. It should be noted that AmSys conducted and completed a
two (2) year home protocol and the results show that there is no difference
between being treated in a clinic and being treated at home.
REIMBURSEMENT FOR TREATMENTS
Reimbursement codes already exist for the various types of functions which
the Activation treatment requires, such as starting an IV, taking
blood glucose, measuring metabolism and infusing insulin with a pump.
Reimbursement for treatment is thus being obtained for patients in many
different ways.
While recent Social Security Administration rulings have provided, on a
case by case basis, that the treatment may be coded for payment by Medicare
as a single treatment, and thus making the treatment eligible for
reimbursement under Medicare as a single treatment. Private insurance
companies do reimburse for each of or all of the procedures that make up this
treatment. The Company's clients are physicians and clinics, not patients,
therefore its reliance on medical insurance reimbursement is ancillary.
Treatments for diabetes have the additional requirement that they continue
for long periods to prove their efficacy as the disease is a long-term disease.
As such, it has taken over ten (10) years to answer many of the questions as
to efficacy.
Because the costs of treatment for the secondary complications of diabetes
are very expensive, the cost benefits for the treatment are very advantageous
to health providers, particularly in a program where home treatment takes
place.
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 treatment, will make delivery very
affordable. This may encourage insurance carriers in the future to code the
treatment as a single procedure. Acceptance by insurance carriers as a single
procedure may have some effect on a physician's willingness to prescribe
metabolic activation.
Thomas T. Aoki, M.D., invented the treatment approach. Dr. Aoki is one of
the world's leading diabetes research physicians and is the Company's 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. 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 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 with insulin therapy, physicians have prevented their
patients from quick, premature deaths, but have not corrected the metabolic
dysfunction, which leads to the complications of blindness, renal failure,
accelerated coronary disease, cerebral vascular disease, disabling neuropathy,
severe swings in glucose levels and peripheral vascular disease leading 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 has no
other alternative but to maintain a balance of the proper blood glucose.
Because diabetes is a disease of improper metabolism, there is a whole body
widespread severe basic biochemical abnormalities. The fundamental defect
is the reduced ability of glucose to used as a fuel for body tissues and a
corresponding increase in the use of lipids. Diabetics fail to metabolize
carbohydrates, sugar or glucose and instead metabolize lipids or fats at a
much higher rate than a normal person does. Activation therapy addresses this
fundamental defect and allows the patient to metabolize carbohydrates and
thus reduce lipid use.
ROLE OF THE COMPANY
AmSys, a private company seeking to expand and wanting to combine its
technology with the meter technology and the new pump technology, exchanged
its assets for stock in the Company by forming AmTech. Diabetex then,
acquired AmTech in return for common shares in the Company. The exchange of
shares provided the Company with the equipment, new versions of equipment,
training programs, and the personnel necessary to begin opening clinics in
the commercialization of Metabolic Activation.
The clinics are not owned or operated by the Company, the treatment is
licensed and the equipment for providing the treatment is rented to qualified
physicians, clinics or hospitals. The treating physician receives traditional
fees for professional services, thereby paying the physician for his time and
giving an incentive to become a Metabolic Activation provider. The clinic or
hospital becomes a center of excellence, which helps to establish the other
services of the facility. The Company receives a $125 per treatment day rental
fee for its proprietary pump and patient follow-up services for Metabolic
Activation patients, including the service of an expert on Activation being
on call for any questions that may arise. The physician also receives the
benefit of bringing the highest quality and newest treatments to his or her
patients, as well as, the opportunity to expand the physician's practice.
The Company currently has all Clinical Operations Manuals, Equipment Manuals,
Procedure Codes, Training Manuals, Billing Codes, and peer-reviewed data to
prove to providers the efficacy of the treatment. 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 several other well respected
university and clinic sites. The Research Institute, as a non-profit entity,
is able to conduct clinical trails and work with other entities, such as the
University of California, to continue conducting studies for less cost than
would otherwise be required.
The Company is currently located in Sacramento, California in a shared-space
arrangement with Hamilton-May, the pump company, and Hamilton-Clarke
Industries. It is in these Sacramento premises, where the new pump is
expected to be assembled under original equipment manufacturer (OEM)
agreement. The Company has acquired a complete boxing and shipping
system through its co-location with the Hamilton companies. The co-location
is on a month to month rental, and was offered to the Company to help
centralize the manufacture, shipping and handling facilities with the pumping
company, which has licensed the new pumping system to the Company. No long
term agreements or leases are in effect, and the Company can re-locate at
will. The proximity of the Sacramento location to the continued research and
trials conducted at the University of California, and Research Institute
provide coordination benefits to the Company.
Rental of the equipment for $125 per treatment day provides significant
business opportunity for the Company to earn its projected significant
revenues. Additional services are also anticipated.
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" which is not
intravenous, and only replaces insulin shots. The Company's treatment is not
related in any way to the widely used "insulin pumps" and many of the current
patients are also using these pumps between treatments. Conventional
"insulin pumps" or "CSII (Continuous Subcutaneous Insulin Infusion) replace
injections and do not address the core problem, metabolism dysfunction.
Associated with "tight control" was the hope that such therapy will help
prevent the 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 is 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 published
study demonstrated the ability of Metabolic Activation to stop kidney disease
for over three years.
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), demonstrated that keeping diabetes sugar
more normal helps in 50% to 75% of the people, and that confirms what
physicians have known from their practices:
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.
Diabetes is a wider problem than is realized. While being more controlled
will keep many patients from early complications, they will still 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. For years
physicians have treated diabetes as a blood sugar problem, but that is only
the result of the problem. Because diabetics 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.
Restoring carbohydrate metabolism, and reducing the unusually high rate of
lipid metabolism addresses this problem. By so doing, one of the many
benefits is to restore the ability of the liver and muscle to both store and
release glucose (as they do for the non-diabetic) and thereby automatically
buffer and limit the high and low blood glucose swings of diabetics. In
addition to this restored enzyme pathways activate to feed the heart, eye
and other tissues both directly and indirectly through complicated hormone
fuel metabolism processes.
The Company's treatment avoids the artificial restrictions of carbohydrates.
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 that some of the damage is reversible.
After ten years at the University of California, Davis, the treatment has
shown, unlike the DCCT, to provide slowing, stopping and in some conditions,
reversal of the complications of diabetes.
This procedure makes 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.
The metabolic treatment medical breakthrough has potential 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 RESULTS
Metabolic Activation therapy has been provided to patients at various
locations including the University of California, Davis, where the most
difficult to treat and ill patients have been successfully treated. Most of
these patients have failed under state-of the-art conventional therapy, and
without activation treatment these patients would have been doomed to suffer
the disabling problems of diabetes. A number of years are required for
Metabolic Activation to prove the continued long-term effects of Activation
on complications. Because of these continued patient benefits, treating
physicians know that activation significantly stabilizes these patients and
greatly affects the complications of diabetes. Activation is the first-ever
treatment 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 stroke. Metabolic Activation is the only known therapy proven to
stop the complications of diabetes, and further appears to complement almost
any other form of treatment. Complete medical packages for clinical trials
and results are available through the University of California, Davis,
Division of Endocrinology and the Diabetes Research Institute.
CLINICAL DEVELOPMENT IMPLEMENTATION
A standardized package for setting up clinics has been developed along with
all of the support and training systems necessary to deliver the treatment.
Physicians or clinics will rent the devices on a per use basis, which will
also provide experts by telephone for any questions, and quality assurance.
Since the physician or clinic is not being asked to purchase the pump,
clinics can begin with only a few patients to develop reimbursement and local
awareness.
A TEN-STATION CLINIC
A clinic can easily operate with ten stations or chairs. 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. And, it is
small enough to be broadly distributed in geographical areas for the
convenience of patients.
A ten-chair clinic 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 workweek and never full capacity.
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. After being in the clinic program for a minimum of 16
weeks, the patients are eligible for activation at home using the home
treatment program, and routine visits to the clinic once every quarter.
HOME TREATMENT PROGRAM
With proper training, almost any diabetic person can learn to safely and
effectively receive the treatment at home, which gives much needed
flexibility and saves costs. A pilot study has shown that Home Treatment is
as effective as clinical treatment. To date, the Company has not undertaken a
broad based program of home therapy, due to the ongoing clinical trials, and
the need for reimbursement by health insurance and governmental programs.
It was originally assumed that patients would resist weekly visits to the
clinic, 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. Thus, those persons who are not able to be easily activated at
home, can continue to have clinical treatments as have many at the University
of California who have been treated for over a period between eight (8) and five
(5) years.
NON-INVASIVE MEASURING EQUIPMENT
The Company has acquired the exclusive license for non-invasive
technologies and expects to complete the work on these products using its
own 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 that will
warn the patient of glucose levels that 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 has not applied to the FDA and does not intend to submit
an application for approval until the production prototype has been built and
properly 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 (Ohio).
6.) Tom Clemens, consulting engineer, (Wisconsin)
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 conduct and lead clinical trials division of testing
the non-invasive devices at St. Luke's Hospital in New York City.
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 Schunuer 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 direction.
Tom Clemens was involved in the first glucometer and Miles Biostator, and has
experience in on line and off-line continuous glucose monitoring. Mr.
Clemens is known as the father of glucose monitoring, and made the first ever
glucose meter. Mr. Clemens has a Masters Degree in electrical engineering,
and has filed and procured over 30 US patents.
B.) Metabolic Activation Equipment and Services. Prior to the
acquisition of AmTech, (which was formed for the sale of the diabetes related
assets to Diabetex), the Activation treatments were being provided by clinics
and hospitals, renting pumping equipment from AmSys, in California, Texas,
Kansas and Mass.
(B) 1. The principal product of the Company is a system for patented
treatments for diabetic patients called Metabolic Activation and equipment
which delivers such treatment. 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 A1-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 control
pump treatment device. After a minimum of 16 weeks, the home pump (which is
the same as the clinic pump) may be used. Currently, home activations are
being conducted as part of ongoing clinical trials, and they have progressed
as expected, with no apparent 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 during the first 16 weeks of treatments.
The changes monitored using a standard and proven test for measuring body-wide
metabolism, also known as "MMC" or Metabolic Measurement Chart. The MMC
device measures oxygen consumption and carbon dioxide production on a
breath-by-breath basis, and records for the first time. This procedure
allows the patient to be able to properly metabolize carbohydrates instead
of metabolizing too many lipids. Such measurement is not needed to deliver
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 the
regaining of true non-diabetic-like metabolism.
There will be three phases of treatment, the first: the in-clinic treatment,
the second: self-administering at home, and the third: the use of the
Hamilton-May computerized wearable automatically monitoring treatment pump
which will deliver the treatment every day, instead of once per week.
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.
During the first 16 weeks, the patient's body composition changes, requiring
adjustment in the treatment program. After the initial phase, the
treatment dosing does not change significantly, and the patients are able to
make any necessary adjustment. During the first phase, in clinic, the patient
receives a thorough education about diabetes in general and specifically in
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 patients. The true
market is any diabetic or person with a life-shortening metabolic disease.
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 people
with Type II (adult onset) diabetes, including those who currently do not
take insulin and are on oral agents. The expectation is that Hepatic
Activation will 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 the disease of diabetes initially.
The world market in diabetes is very huge, 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.
(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
more data from past and ongoing studies; help physicians to start delivering
treatment in their current clinical settings, and then expand into additional
treatment centers for that area. Initial advertising will be started in the
diabetes related magazines and other periodicals, which are directed to
diabetic patients and healthcare providers.
B. The Company will sell the disposables and kits, and rent infusion
equipment to users. Because of the co-location of the Company in Sacramento
with a distribution pump company, sales will be made either to the clinics or
directly to the patients at home. 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 "tight control" or 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 aggressive conventional treatment, which was shown in the DCCT ten year
study to be effective in 50% to 75% of patients, with arguable long term
complications in every event. With all therapies currently known in
development, (except for gene replacement therapy, which actually replaces the
islet cells in the pancreas), and if all these therapies were to become
available, they would still need the normalization of metabolism provided by
Activation, since non of the currently known therapies stimulate the liver
into the production of the array of enzymes the human body needs to function
properly.
(B) 5. The Company's products are manufactured by outside companies under
contract for OEM production. In addition, the Company's glucose meter is
expected to be manufactured by United Production or some other manufacturer,
and the Company's pumping devices manufactured to be modified for fitting to
the Company's current pump, which was made by Bionica under contract to AmSys.
The agreements between the Company and Advanced Metabolic Systems, Inc., and
Hamilton-May Corporation is referenced for additional detail.
(B) 6. The Company's consumer base is over ten million individuals, so
large that it does not rely on a few major customers, or even any one subset
of customers but on a broad based marketing and advertising program directly
to consumers.
(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, with the device currently in use
being approved under 510K number K875316 and other approval numbers.
c.) When a commercially viable unit is available, an exclusive worldwide
license to exploit, manufacture and market a proprietary pump and in-line
measurement system 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.
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 with intellectual properties: non-invasive monitoring
devices for diabetics, the Metabolic Activation treatment division, and the
equipment division to manufacture on OEM basis the Metabolic Activation
treatment pumps. In connection with the first division, the Company is
currently developing a Hypoglycemic and/or 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 trials will be conducted under the supervision
of Dr. Sami Hashim at St. Luke's Roosevelt Medical Center in New York, NY.
Previous developmentally successful clinical trials were conducted at Loma
Linda Diabetex Center and Innovative Health Care under the direction of Dr.
Ivan Goldsmith.
The current cash position of the Company as of September 30, 1999 was $40,545.
The Company currently has sufficient funds for operations for the next 12
months. The Company plans may require $500,000 in additional capital in the
development of its non-invasive glucose measurement device. The Company is
currently negotiating a number of funding opportunities to raise this capital.
The completion of the pump development is contingient on completing
appropriate funding arrangements.
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.
With the acquisitions of the stated technologies, and the relationship's the
Company has developed, the Company believes that it has positioned itself
properly to deliver the most effective instruments and treatments available
to diabetic people, and will extend these technologies into other disease
states related to metabolism. The Company believes that these various
products will allow the Company to properly augment as well as directly
compete with the small to medium diabetic-supply companies.
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 March 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 Patients' Rights to demand
reimbursement from various medical insurers. The Company has used the
outside consulting services of AmSys corporation to help develop billing,
reimbursement and physician practice management tools. AmSys, independently
continues to operate in Connecticut, with the sole business of billing and
practice management consulting. All other operations, assets and
intellectual property rights, except the right to use data for its practice
management business, has been acquired by the Company and moved to
California. The Company expects to open administrative offices in New York
and acquire additional management.
Furthermore, FDA approval for the first non-invasive metering device and the
new pumping system are expected to be sought in the year 2000, or as late as
early 2001.
Except as to recruitment of new management to augment the current team, and
approximately $500,000 as stated earlier in the section entitled NON-INVASIVE
MEASURING EQUIPMENT, no significant increases 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
initial business plans.
The Company has no new inventory requirements for Bionica pumps. There are
fifty (50) pumps on hand, sufficient to establish ten (10) clinics over the
next twelve months. Since Metabolic Activation is a technical service
involving a series of medical procedures no manufacturing is required.
The non-invasive glucose measuring device is still in development.
Manufacturing costs cannot be determined until this device is proven and
approved. The same is true for the Hamilton-May pump which is still in
development.
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
manufacture by others, as "Original Equipment Manufacturing" or OEM. 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 (2) 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 strategic alliances and merger 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 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.
(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.
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(A) Security ownership of certain beneficial owners.
<TABLE>
<CAPTION> SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(1) (2) (3) (4)
- ------------- --------------- ------------------ -----------------
Title NAME AND AMOUNT AND PERCENT OF
of Class ADDRESS OF BENEFICIAL NATURE OF BENEFICIAL CLASS
OWNER OWNER
- ------------- ---------------- -------------------- ----------------
<S> <C> <C> <C>
Common Voting Henry Cartwright 2,000,000 15.5%
13 Dovetail
Henderson, NV 89014 Individual
- ------------- ---------------------- --------------------- --------------
Common Voting Advanced Metabolic 1,232,261 9.50%
Systems, Inc.
Attn: Richard Sandberg
8776 Killdee
Orangevale, CA 95662 Corporation
- -------------- ---------------------- --------------------- -------------
Common Voting Dominion Investment Ltd.
Attn: Martin Tremblay 1,021,070 7.9%
Bahamas Financial Center
P.O.Box Box SS-6827
Nassau, Bahamas Corporation
- ------------ ------------------------ ------------------ ---------------
</TABLE>
<TABLE>
<CAPTION> (B) SECURITY OWNERSHIP OF MANAGEMENT
(1) (2) (3) (4)
- ------------ ---------------------- -------------------- --------------
Title of Name and Amount and Percent of
Class Address of Beneficial Nature of Beneficial Class
Owner Owner
<S> <C> <C> <C>
- ----------- ---------------------- --------------------- --------------
Common Voting Philip R. Blomquist, 50,000 .004%
7321 Roseville Road President, Secretary
Sacramento, CA 95842 and Sole Director
- ----------- ----------------------- ---------------------- --------------
Common Voting Floyd Ault as Trustee 80,000 .006%
for the Ault Trust Treasurer
7321 Roseville Road
Sacramento, CA 95842
- ---------- ------------------------ --------------------- ---------------
</TABLE>
C) There are no arrangements that would result in a change of control of
the Company.
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(A) The following are the Directors and Executive Officers of the Company:
Benjamin Brucker Weisman, Ph.D, age ,Chief Executive Officer for a
term office of one (1) year, commencing on April 14, 2000 and will join
Mr. Bloomquist as a Director. Dr. Weisman is a businessman, financial
consultant, academic administrator and educator. He has established or
assisted in the creation of 80 businesses as a consultant or principal. He
has served as a consultant to IBM, General Foods, Phillip Morris, Cellular
One and other major firms. As a financial advisor, he supervised over one
dozen investement portfolios. Parnered with Financial World Magazine in the
creation and world wide distribution of Weisman Stock Selections. He has been
cited by Forbes Magazine as having the best portfolio record. He has chaired
both graduate and undergraduate departments at Long Island University, Iona
College, and Mercy College. He is a lecturer and Professor of finance and
business administration. Dr. Weisman has entered into a one year employment
contract with Diabetex. The contract is included by reference in this filing,
and has been submitted as part of the Company's recent 8k filing.
Phillip R. Blomquist, age 69, Secretary for a term of office of
2 years commencing on January 4, 1999 and 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 need
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.
The Company has four (4) full time medical technicians and trainers which
at the present level of revnue is sufficient for managements plans and
operations.
(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.
Item 6. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------
Long Term Compensation
- ----------------------- -------------------- ---------------------------
Annual Compensation Awards Pay-Outs
- ------- ------ ----- -------- ----- ---------- ---------- -------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------ ------ ------- -------- ----- ---------- --------- -------- -------
Name and YEAR SALARY BONUS OTHER RESTRICTED SECURITIES
Principle ANNUAL STOCK UNDERLYING LTIP ALL OTHER
Position COMP. AWARDS OPTIONS/ PAYOUTS
$ $ $ SAR'S $
- ------- ------ ------- ------ ------ ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sec. 1999 -0- -0- none 50,000 none none -0-
Philip
Blomquist
- ------ ------ ------- ------- ------- ------- --------- -------- ---------
Treasurer
Floyd 1999 -0- -0- none 80,000 none none -0-
Ault
- ----- ------ ------ -------- ------- ------- -------- --------- ---------
CEO
Benjamin 1999 -0- -0- 60,000 132,000 none none -0-
Weisman
</TABLE>
Mr. Bloomquist and Mr. Alt have served without compensation except for any
shares stated above and Mr. Weisman receives an annual salary of $60,000 and
11,000 shares of stock for each month of completed service.
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.
(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.
The Board of Directors of the Company may from time to time declare, and
the Company may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions set forth by law and its Articles of
Incorporation. The Company to date has not declared any dividends.
(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 there from. As of September 30, 1999, the Company had 248 record
holders of its Common Stock.
<TABLE>
<CAPTION>
High/Low Performance by Quarter
- -------------- -------------- ----------- ---------- -------------
(1) (2) (3) (4) (5)
- -------------- --------------- ----------- ---------- ------------
Quarter March June September December
Quarter Ending 1999 1999 1999 1999
<S> <C> <C> <C> <C>
High 14 22 25 16
- -------------- -------------- ----------- ---------- ------------
Low 10 14 9 10
- -------------- -------------- ----------- ---------- ------------
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,and throughout the subsequent interim period throughout the effective date
of their replacement, there were no disagreements with Jones on any matter
of accounting principal or practices, financial statement disclosure or
auditing scope 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.
Furthermore, 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, 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:
</TABLE>
<TABLE>
<CAPTION> SHARES ISSUED
- ---------------------------------------- --------------------------
(1) (2)
- ---------------------------------------- --------------------------
NAMES OF PURCHASERS NUMBER OF SHARES PURCHASED
<S> <C>
Ingrid P. Abbey 41,000
Anne Ainsworth 5,000
Betty and Darl Atlman 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 Cartwright 20,000
Terry Cartwright 4,000
Terry Cartwright 16,000
Richard A Chudley 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 Montefiore 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
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-Russel 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.
PART III
FINANCIAL STATEMENTS
Diabetex International Corporation and Subsidiary
(Formerly Sheridan Industries, Inc.)
Consolidated Financial Statements
September 30, 1999, December 31,1998 and 1997
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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the years then ended. 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 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 December 31, 1998 and 1997, and the
results of its operations and cash flows for the years 1998 and 1997, and
for the period from September 14, 1983 (inception) to December 31, 1998
in conformity with generally accepted accounting principles.
/s/ Crouch, Bierwolf & Chisholm
Salt Lake City, UT
September 28, 1999
Diabetex InternationalCorporation and Subsidiary
<TABLE> (A Development Stage Company)
Consolidated Balance Sheets
<CAPTION> ASSETS
December 31,
1999 1998
CURRENT ASSETS
<S> <C> <C>
Cash (Note 1) 351 -
Account Receivable
(Note 1) 23,418 -
------------- -------------
Total Current Assets 23,769 -
Property Plant and 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
CURRENT LIABILITIES
Accounts payable $ 152,952 $ 4,050
& accrued expenses
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 14,710,886 ( 4,050)
--------------- -------------
$ 15,046,652 $ -
=============== ==============
</TABLE>
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>
$ 40,605 $ - $ 40.605
EXPENSES
Amortization &
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
=============== ============= ==============
Provision for
Taxes (Note 1) ( 500)
-------------- -------------- ---------------
NET LOSS BEFORE
INCOME TAXES ( 1,667,116) ( 650) ( 1,824,750)
=================== ================= ================
NET LOSS ( 1,667,116) ( 650) ( 1,824,750)
LOSS PER SHARE
(Note 1) $( .14) $( .02)
================== =================
AVERAGE SHARES
OUTSTANDING 12,288,901 42,511
</TABLE>
<TABLE>
<CAPTION> Diabetex International Corporation and Subsidiary
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
Accumulated
Capital in Deficit During
Common Common Excess of Retained
Par Value Deficit
--------- --------- ----------- ---------------
Balance, December 31, 1989
<S> <C> <C> <C> <C>
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
at $16.77 per share 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
for $8 per share (Note 10) 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 for
$.84 per share (Note 10) 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)
(continued)
Diabetex International Corporation and Subsidiary
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
(continued)
Accumulated
Capital in Deficit During
Common Common Excess of Retained
Shares Stock Par Value
Deficit
----------- -------- ---------- -----------------
Balance, December 31, 1996 <C> <C> <C> <C>
<S> 27,337 55 $ 133,398 $ ( 133,953)
Shares issued for asset
of Aladdin
Transportation, Landmark,
Inc. and Over 100, Inc.
(Note 2) for
$0 per share (Note 10) 82,500 165 (165) -
Shares issued for incentive
for loans to Aladdin
Transportation, Landmark,
Inc. and Over 100, Inc.3
(Note 2) for $.80 per share
(Note 10) 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) for $0 per share
(Note 10) 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)
(continued)
Diabetex International Corporation and Subsidiary
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
(continued)
Accumulated Accumulated
Common Common Capital in Deficit During.
Shares Shares Excess of Retained
Par Value Deficit
---------- -------- ---------------- ----------------
Balance, December 31,
1998 <C> <C> <C> <C>
<S> 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
(Note 2) 2,000,000 4,000 96,000 -
Shares issued for cash
at $.05 per share 875,100 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
Technology at
$10 per share 1,232,261 2,465 12,320,145 -
Shares issued for
intellectual properties
Hamilton-May, Inc.
at $10 per share 300,000 600 2,999,400 -
Expenses paid by
shareholder in
Company behalf - - 4,050 -
Shares issued to
Phoenix Energy, Co 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>
<TABLE>
<CAPTION>
Diabetex International Corporation and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
From
Inception on
For the Year ended September 14,
December 31, 1983 to
1999 1998 Dec. 31, 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 & 778,008 778,008
Amortization
Stock issued for
services 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 315,392 429,340
Stock Offering Cost ( 15.825)
Net cash provided
by financing activities 315,392 413,340
NET INCREASE
(DECREASE)IN CASH 351 351
-------------------- ---------------- ---------------
CASH, BEGINNING
OF PERIOD - - -
-------------------- ---------------- ---------------
CASH, END OF PERIOD $ 351 $ 351
==================== ================ ================
(continued)
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
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
</TABLE>
Diabetex International Corporation and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 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 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 December 31, 1999
is the same since any outstanding stock equivalents at December 31, 1999
(335,243 shares) would be antidilutive. There was no outstanding stock
equivalents for all other periods; therefore, basic and fully diluted shares
are the same.
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;
accordingly, no deferred tax liabilities have been recognized for all years.
The Company has cumulative net operating loss carry forwards of over
$ 1,975,000 at December 31, 1999. No effect has been shown in the financial
statements for the net operating loss carry forwards as the likelihood of
future tax benefit from such net operating loss carry forwards is highly
improbable. Accordingly, the potential tax benefits of the net operating loss
carry forwards, 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
intercom any 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.
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.)
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 rendered in connection with the miniaturization and prefection
of the non-invasive blood glucose monitors and hyper/hypo-glycemic warning
devices. The fair market value of the stock was $10. (Private Placement
price).
In December, 1999, 50,000 shares of stock issued to Nathan Drage, Esq, 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 thes 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 comensated. The
shares are further restricted than normal Rule 144 restrictions, and have
required revenue platforms before the sale of the shares can occur. Due
to these additional restrictions, the shares are valued at $0.10 per share.
In October, November and December, 1999, Dominion exercised 3,450 options at
$10. per share. It possessed 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 its
offices and clinic on the campus of University of California, Davis, in
Sacramento California.
This treatment is delivered by special intravenous infusion devise (pump)
with the treatment programmed into the devise. The devise (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 of a fee basis. The Company carries this
asset on its books at a cost of $12,548,180 paid in stock and cash.
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 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.
Hamilton May (sic)
Hamilton May Corporation (sic) 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.
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 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:
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.
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:
<TABLE>
September 30, December 31,
1999 1998
<S> ----------------- ---------------
Computer <C> <C>
Equipment $ 3,008 $ -
Less:
Accumulated
Depreciation (600) -
---------- ---------------
$ 2,408 $ -
============= ==============
</TABLE>
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT (continued)
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 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 was included in the basis of the
cost of AMT. $17,187 were 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).
NOTE 7 - PREPAID EXPENSES
Prepaid expenses consists of the following:
Advances to affiliate for advance
royalties (Note 8) $ 249,403
----------------
$ 249,403
================
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
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 purchase of AMT. The Company also agreed to
pay AMS $75,000 for services related to the insurance billing of AMT for its
metabolic activation therapy. $12,500 of unpaid consulting fees were 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 up to 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.
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.
Diabetex International Corporation
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 11 - MARKET SEGMENT INFORMATION (continued)
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 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 that 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.
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:
<TABLE>
Biological Metabolic Infusion
Monitoring Activation Devices Corporate Total
------------- -------------- ----------- --------- ---------
Income Statement
Information
<S> <C> <C> <C> <C> <C>
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 $ - $ 310,248 $ - $ 25,517 $ 335,765
</TABLE>
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 in the future.
EXHIBIT INDEX
2.1(a) Agreement and Plan of Reorganization among Diabetex International Corp.
and Advanced Metabolic Systems dated June 30, 1999
(b) Asset Sale Agreement Dated May 26, 1999
3.1(a) Articles of Incorporation of Sheridan Industries, Inc. (issuer -- UT)
(a) Article of Incorporation of Sheridan Ind. (NV)
3.1(b) Articles of Incorporation of Advanced Metabolic Tech. (subsidiary)
(c) Articles of Incorporation of Hamilton May Corporation (Licensor)
3.2(a) Bylaws of Sheridan Ind.
3.2(b) Bylaws of Hamilton May Corporation (Licensor)
10(a) Consulting Agreement for Thomas Aoki dated June 30, 1999
10(b) Consulting Agreement for Gregory Gilbert dated June 30, 1999
(c) License Agreement between Hamilton May Corp., Gregory Gilbert and
Diabetex International Corp. dated June 30, 1999
99.1 Aoki Patent
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 5, 2000 By: /s/ Philip R. Blomquist
----------------------------
Philip R. Blomquist, Secretary
Jones, Jensen & Company
--------------------------------
Certified Public Accountants
November 1, 1999
Securities & Exchange Commission
Washington, DC
Gentlemen:
We have been furnished with a copy of the response to Item 3 of the
Form 10-SB for the event that occurred on February 1, 1999 filed by
our former client, Diabetex International Corp.
(formerly Sheridan Industries). We agree with the statements
made in response to that item insofar as they related to our firm.
Sincerely,
/s/Jones, Jensen & Company
Jones, Jensen & Company
