10-Q/A 2 dbtx9q.txt AMENDED 10Q FOR SEPT 99 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10Q-SB Amended Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the Period ended September 30, 1999 Commission file number: 0-30380 Diabetex International Corporation -------------------------------------------------- (Exact name of registrant as specified in charter) Nevada 87-048228 ---------------------- ------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 142 Ferry Road, Suites 1 & 2, Old Saybrook, Ct. 06475 ----------------------------------------------- ------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (860)395-1933 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practical date: September 30, 1999 Common Shares 12,035,552 at par value $.001 PART 1 FINANCIAL INFORMATION 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 INDEPENDENT AUDITOR'S REPORT Board of Directors Sheridan Industries, Inc New York, NY We have audited the accompanying balance sheets of Sheridan Industries, Inc. (a development stage company) as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years ended December 31, 1996, 1995 and 1994 and from the date of inception on September 14, 1983 through December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sheridan Industries, Inc. as of December 31, 1996 and 1995, and the results of its operations and cash flows for the years ended December 31, 1996, 1995 and 1994 and from the date of inception on September 14, 1983 through December 31, 1996 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company is a development stage company with no operations to date. Since the Company has had no operations to date, there is substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 4. The financial statements do not include any adjustments that might result from this uncertainty. /s/ Jones, Jensen & Company January 15, 1997 Diabetex International Corporation and Subsidiary (A Development Stage Company) Consolidated Balance Sheets
BALANCE SHEETS ASSETS September 30, December 31, 1999 1998 1997 (unaudited) (audited) (audited) CURRENT ASSETS Cash (Note 1) $ 6,057 $ - $ - Account Receivable (Note 1) 35,500 - - Prepaid expenses (Note 7) 144,928 - - Total Current Assets 186,485 - - Property, Plant & Equipment (Note 4)(Net) 2,558 - - Intangible Assets (Note 3) (Net) 15,159,476 - - $15,348,519 $ - $ - LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 81,445 $ 4,050 $ 3,400 Accounts payable-related party (Note 6) 200,000 - - Total Current Liabilities 281,445 4,050 3,400 CONTINGENCIES AND COMMITMENTS (Note 8) - - - STOCKHOLDERS' EQUITY (DEFICIT) Common stock; $.002 par value; 50,000,000 shares authorized, 12,909,979, 42,511 and 42,511 shares issued and outstanding (Note 2) 25,820 85 85 Additional paid-in capital 15,985,316 153,499 153,499 Deficit accumulated during the development stage ( 944,062) ( 157,634) ( 156,984) Total Stockholders' Equity 15,067,074 ( 4,050) ( 3,400) $ 15,348,519 $ - $ -
Diabetex International Corporation and Subsidiary (A Development Stage Company) Consolidated Statements of Operations
STATMENTS OF OPERATIONS From For the Inception on Nine Months September 14, Ended For the Year Ended 1983 to September 30,December 31,September 30, OPERATIONS 1999 1998 1998 1997 1999 (unaudited) (unaudited)(audited)(audited)(unaudited) REVENUES $ 35,500 $ - $ -$ - $ 35,500 EXPENSES Amortization and Depreciation 389,154 - - - 389,154 Professional Services 327,580 - 650 3,400 362,630 Legal 66,231 - - - 66,231 Public Relations 13,794 - - - 13,794 Administrative 25,170 - - 20,131 146,453 Total Expenses 821,929 - 650 23,531 978,262 NET LOSS BEFORE INCOME TAXES (786,429) - ( 650)( 23,531) (942,762) PROVISION FOR TAXES (Note 1) - - - ( 500) ( 1,300) NET LOSS $ (786,429) $ - $ ( 650) $( 23,031)$(944,062) LOSS PER SHARE (Note 1) $ ( .07) $ - $ ( .02) $ ( .54) AVERAGE SHARES OUTSTANDING 12,035,552 42,511 42,511 42,511
Diabetex International Corporation and Subsidiary (A Development Stage Company) Consolidated Statements of Stockholders' Equity (unaudited)
STOCKHOLDERS' EQUITY Accumulated Capital in Deficit During Common Common Excess of Retained Shares Stock Par Value Deficit STOCKHOLDER EQUITY Balance, December 31, 1989 862 $ 2 $ 94,173 $ ( 96,973) Loss for the Year - - - ( 130) Balance, December 31, 1990 862 2 94,173 ( 97,103) Issues 225 shares to an officer in cancellation of debt at $16.77 per share (Note 10) 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)
Diabetex International Corporation and Subsidiary (A Development Stage Company) Consolidated Statements of Stockholders' Equity
STOCKHOLDERS' EQUITY Accumulated Capital in Deficit During Common Common Excess of Retained Shares Stock Par Value Deficit STOCKHOLDERS' EQUITY Balance, December 31, 1996 27,337 $ 55 $ 133,398 $ ( 133,953) Shares issued for asset of Aladdin Transportation, Landmark, Inc. and Over 100, Inc. (Note 2) for $0 per share (Note 10) 82,500 165 ( 165) - Shares issued for incentives for loans to Aladdin Transportation, Landmark, Inc. and Over 100, Inc. (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)
Diabetex International Corporation and Subsidiary (A Development Stage Company) Consolidated Statements of Stockholders' Equity
STOCKHOLDERS' EQUITY Accumulated Capital in Deficit During Common Common Excess of Retained Shares Stock Par Value Deficit STOCKHOLDERS' EQUITY Balance, December 31, 1998 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 - Net Loss for the Period - - - ( 786,429) Balance, September 30, 1999 12,909,979 $ 25,820 $ 15,985,316 $( 944,062)
Diabetex International Corporation and Subsidiary (A Development Stage Company) Consolidated Statements of Cash Flows
CASH FLOWS From For the Inception on Nine Months September 14, Ended For the Year Ended 1983 to September 30, December 31, September 30, 1999 1998 1998 1997 1999 CASH FLOWS FROM (unaudited)(unaudited)(audited)(audited)(unaudited) OPERATING ACTIVITIES Net loss $ (786,429)$ - $ ( 650) $ ( 23,031)$ ( 944,062) Adjustments to net cash used by operating activities: Depreciation & Amortization 389,154 - - - 389,154 Stock issued for services 250,000 - - - 281,000 Expenses paid by a shareholder on the Company's behalf 4,050 - - - 8,555 Increase (Decrease) in accrued expenses 277,395 - 650 2,900 281,445 Increase (Decrease) in prepaids (144,928) - - - ( 144,928) Increase (Decrease) In accounts receivable ( 35,500) - - - ( 35,500) Expenses paid by stock - - - 20,131 20,131 Net Cash Used by Operating Activities ( 46,258) - - - ( 144,205) CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisition of intangibles ( 225,570) - - - ( 225,570) Cash paid for fixed assets ( 3,008) - - - ( 3,008) Net Cash Provided by Investing Activities(228,578 ) - - - ( 228,578) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 280,892 - - - 394,665 Stock offering costs - - - - ( 15,825) Net Cash Provided by Financing Activities280,892 - - - 378,840 NET INCREASE (DECREASE)IN CASH 6,057 - - - 6,057 CASH, BEGINNING OF PERIOD - - - - - CASH, END OF PERIOD $ 6,057 $ - $ - $ - $ 6,057 CASH PAID FOR: Interest $ - $ - $ - $ - $ - Income taxes $ - $ - $ - $ - $ - Non Cash Transactions Stock Issuance for Services $ 250,000 $ - $ - $ - $ 281,000 Acquisition of Intangibles $15,322,610$ - $ - $ - $15,322,610
Diabetex International Corporation and Subsidiary (A Development Stage Company) Notes to the Consolidated Financial Statements September 30, 1999, December 31, 1998 and 1997 NOTE 1 - ORGANIZATION AND HISTORY A. Organization The financial statements presented are those of Diabetex International Corporation (formerly Sheridan Industries, Inc.) ( a development stage company). The Company was incorporated under the laws of the State of Utah on September 14, 1983. The Company changed its name to Associated Healthcare, Inc. during 1991 but later rescinded the name change and reverted back to Sheridan Industries, Inc. The Company has never had any operations up to December 31, 1998 and in accordance with SFAS #7, is considered a 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 September 30, 1999 is the same since any outstanding stock equivalents at September 30, 1999 (10,000 shares) would be antidilutive. There were no outstanding stock equivalents for all other periods; therefore, basic and fully diluted shares are the same. Diabetex International Corporation (A Development Stage Company) Notes to the Financial Statements September 30, 1999, December 31, 1998 and 1997 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, 1998 and earlier years; accordingly, no deferred tax liabilities have been recognized for all years. The Company has cumulative net operating loss carryforwards of over $150,000 at December 31, 1998. No effect has been shown in the financial statements for the net operating loss carryforwards as the likelihood of future tax benefit from such net operating loss carryforwards is highly improbable. Accordingly, the potential tax benefits of the net operating loss carryforwards, estimated based upon current tax rates at December 31, 1998 have been offset by valuation reserves of the same amount. The net operating losses expire in the year 2003. e. Cash or Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. f. Consolidated Financial Statements The consolidated financial statements include the accounts of Diabetex International Corporation and its subsidiary, Advanced Metabolic Technology. Collectively, these entities are referred to as the Company. All significant intercompany transactions and accounts have been eliminated. g. Impairment of Long Lived Assets All long-lived assets (including intangible assets) are evaluated for impairment wherever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair market value based on the best information available. The Company determines whether an impairment has occurred by comparing the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposal to the asset's carrying amount 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 September 30, 1999, December 31, 1998 and 1997 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, publicly 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 8 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). Diabetex International Corporation (A Development Stage Company) Notes to the Financial Statements September 30, 1999, December 31, 1998 and 1997 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 maintains its offices and clinic 3100 O Street, 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 activitation or metabolic activation. As part of the acquisition, the Company agreed to pay a $50,000 outstanding debt of AMT, pay all legal costs of the acquisition, and pay directly to the stockholder of AMT, cash in the amount of $150,000 over a period of 10 months. Hamilton May Hamilton May Corporation has sold the Company a license to market, and otherwise exploit, that certain mechanical device known as the Hamilton May Pump (the pump). The license includes any and all improvements to the pump and rights to patent protection if a patent, covering the pump, is ever granted. The pump has been developed under the direction of Dr. Nardo Zaias of Miami, Florida. The pump has been shown to have the ability to deliver pulses of insulin and insulin related products to patients with tremendous precision and without shear. The pump has the feature of being a two-way system in that it has the capacity to both deliver and draw when attached to a patient. The pump is in design stage and has not been approved by the FDA. Diabetex International Corporation (A Development Stage Company) Notes to the Financial Statements September 30, 1999, December 31, 1998 and 1997 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 Metobolic Technology (AMT) and Hamilton/May pump: AMT Purchase of AMT intellectual properties: Stock (1,232,261 shares @ $10 per share) $12,322,610 Cash paid for legal services on transaction 25,570 Cash paid over time ($15,000 over 10 months) (note 6) 150,000 Assumption of debt (note 6) 50,000 12,548,180 Hamilton/May Purchase of Hamilton/May pump Stock (300,000 shares @ $10 per share) 3,000,000 Total $15,548,180 The amortization of the intellectual properties of AMT and Hamilton/May began June 30, 1999. Amortization expense for 1999 is $388,704. 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: September 30, December 31, 1999 1998 1997 Computer Equipment $ 3,008 $ - $ - Less: Accumulated Depreciation ( 450) - - $ 2,558 $ - $ - Diabetex International Corporation (A Development Stage Company) Notes to the Financial Statements September 30, 1999, December 31, 1998 and 1997 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 1998 and 1997 was $0. Depreciation expense for 1999 was $450. NOTE 5 - USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. In these financial statements, assets, liabilities and earnings involve extensive reliance on management's estimates. Actual results could differ from those estimates. NOTE 6 - RELATED PARTY TRANSACTIONS At the time of the purchase of American Metabolic Technology (Note 3), the Company agreed to pay $150,000 in closing and other costs over a period of time and another $50,000 for research performed by another research development firm for AMT before the purchase. These payments were part of the negotiated purchase price of AMT and was included in the basis of the cost of AMT. 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 $119,928 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) $ 119,928 Prepaid consulting fees (Note 8) 25,000 $ 144,928 Diabetex International Corporation (A Development Stage Company) Notes to the Financial Statements September 30, 1999, December 31, 1998 and 1997 NOTE 8 - COMMITMENTS AND CONTINGENCIES As part of the purchase of AMT, the Company agreed to pay $200,000 to Advanced Metobolic Systems (AMS), former parent of AMT, in closing costs and other expenses related to the previous licensing agreement between AMS and Aoki Diabetes Research Institute (ADRI) to fund the continuing research of ADRI into advancing the metabolic activation process through a 5% royalty on all revenues of the metabolic activation technology developed by AMT. The Company also agreed to pay AMS $75,000 for services related to insurnace billing of AMT for its metabolic activation therapy. $25,000 for these services were paid at June 30, 1999. There were no royalty payments due at September 30, 1999 or for any earlier period. The Company signed an agreement effective June 30, 1999 to fund two consulting contracts for a total cost of $220,000 per year ($18,334 per month). Of this amount, $7,500 is accrued per month until such time as the Company can determine that it can pay the additional compensation. The consulting contracts are for a period of two years and is renewable for another year upon approval of both parties. The consulting agreement for $10,000 per month is payable in cash or restricted stock which will be valued price for a period of 30 days before the payment of the services. No compensation has been paid to September 30, 1999 and has been accrued as a payable. In 1999, The Company entered into a licensing agreement with Solid State Farms, Inc. for their 8 international patents covering proprietary technology to monitor blood glucose levels non-invasively. The agreement calls for a payment of a 7% of the adjusted gross sales price on all licensed products. The Company has made advance royalty payments of $119,928 on this royalty up to September 30, 1999. NOTE 9 - PRIVATE PLACE OF RESTRICTED STOCK In March, 1999, the board of directors set the price of restricted stock sales at $10 per share and offered a foreign corporation an extended agreement for a period of one year to purchase 50,000 restricted shares for the $10 price. 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. Diabetex International Corporation (A Development Stage Company) Notes to the Financial Statements September 30, 1999, December 31, 1998 and 1997 NOTE 11 - MARKET SEGMENT INFORMATION The company is in the business of providing equipment for the monitoring and treatment of diseases of improper metabolism including its first major market, Diabetes. The company has three independent but related lines of products and services; a) non-invasive biological monitoring; b) metabolic activation equipment and treatment, and c) new high accuracy infusion devices for the automatic delivery of its treatments. Non-invasive Biological Monitoring An exclusive worldwide license to exploit, manufacture and market patented devices to non-invasively determine blood glucose, hemoglobin A1C, and other blood levels to help treat diabetes and potentially other diseases. These device prototypes are in development, are being tested and refined, and have not been submitted for approval by the US Food and Drug Administration ("FDA"). Metabolic Activation An exclusive license to exploit and market a patented metabolism treatment called Metabolic Activation (also 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 followiing to demonstrate the stopping of the complications of diabetes, and certain other metabolism related disease states. The Company acquired this treatment, business, licenses, special infusion devices and know-how by exchange of its shares with Advanced Metabolic Systems, Inc., (AMS). Infusion Devices An exclusive worldwide license to finish development, exploit, manufacture and sell an ultra accurate pumping system which will replace the current FDA approved device, and provide for automatic delivery of the treatment, and any insulin or insulin related products. This technology was acquired from Hamilton/May, Inc. Diabetex International Corporation (A Development Stage Company) Notes to the Financial Statements September 30, 1999, December 31, 1998 and 1997 NOTE 11 - MARKET SEGMENT INFORMATION (continued) As of September 30, 1999, the Company has not realized significant income from any of the three distinct technologies. Other selected financial information regarding each segment as follows: Biological Metabolic Infusion Monitoring Activation Devices Corporate Total Income Statement Information Sales $ - $ 35,500 $ - $ - $ 35,500 Expenses - 358,704 45,000 418,225 821,929 Profit/loss from operations $ - $(323,204) $(45,000)$(418,225)$(786,429) Balance Sheet Information Assets $ - $12,235,976 $2,955,000 $157,543$15,348,519 Liabilities $ - $ 215,000 $ - $ 66,445 $ 281,445 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES: The Company's working capital at the end of nine month period ending September 30, 1999 was $6,057. Since the Company was first being formed during 1999 there is no similar period with which to compare these results. The fact that the Company is in the development stage and its major products are still in the development stage as well results in poor sales and revenues. The Company continues its efforts to raise working capital through various means of private and public financing. RESULTS OF OPERATIONS: Net sales for the nine months ending Sept. 30, 1999 were $ 35,500. Sales revenues are the result of the Company's Metabolic Activation therapies. The pump and glucose monitoring devices have yet to be sold on the open market, as they are still under development. The operating loss for this period $786,429. This loss is due to the Company's minimal sales and the development costs for the pump and glucose monitoring devices. The Company's Metabolic Activation therapies are responsible for all of the Company's sales to date. While the benefits of these therapies have been tested and proven over the last ten (10) years, they are recently becoming wide spread. Management is confident that these therapies will continue to gain wide acceptance in the medical industry and will provide significant revenues in the future. There are no financial accounting standards that have become effective during this period that will have any substantial effect on the Company's financial condition or results of its operations. PART II OTHER INFORMATION Item #6 Exhibits and Reports on Form 8K (a) Exhibit 27 Financial Data Schedule (b) No reports have been filed on Form 8K during the quarter ended September 30, 1999 PART III Signatures Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly cause this report to be signed on its behalf by the undersigned thereunto duly authorized. Diabetex International Corp. ----------------------------- Registrant Dated: December 5, 2000 By: /s/ Benjamin Brucker Weisman ------------------------- Benjamin Brucker Weisman, CEO