U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________.
Commission File Number 33-43423
NUWAY MEDICAL, INC.
Formerly known as (NUWAY ENERGY, INC.)
----------------------------
(Exact name of small business issuer as
specified in its charter)
DELAWARE 65-0159115
--------------------------------- ---------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
23461 South Pointe Drive, Suite 200
Laguna Hills, CA 92653
----------------------------------------
(Address of principal executive offices)
(949) 454-9011
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of each of the issuer's classes of common equity,
as of September 30, 2002: 16,005,005 shares of common stock, $0.00067 par value
per share.
NUWAY MEDICAL, INC. AND SUBSIDIARIES
----------------------------------------
REVIEW REPORT
--------------
AS OF SEPTEMBER 30, 2002
----------------------------
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
CONTENTS
--------
ACCOUNTANT'S REVIEW REPORT 1
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2002
AND DECEMBER 31, 2001 2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
AND THE YEAR ENDED DECEMBER 31, 2001 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2002 AND 2001 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER
30, 2002 AND DECEMBER 31, 2001 6-21
ACCOUNTANTS' REVIEW REPORT
--------------------------
To the Board of Directors of:
NuWay Medical, Inc. and Subsidiaries
We have reviewed the accompanying consolidated balance sheets of NuWay Medical,
Inc. and Subsidiaries as of September 30, 2002, and the related consolidated
statements of operations, changes in stockholders equity and cash flows for the
nine months ended September 30, 2002, in accordance with the Statements for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of NuWay Medical, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
As discussed in Note 11 certain conditions indicates that the company may be
unable to continue as a going concern. The accompanying financial statements do
not include any adjustments to the financial statements that might be necessary
should the company be unable to continue as a going concern.
The balance sheet for the year ended December 31, 2001 was audited by us and we
expressed an opinion on it that was qualified as to the ability of the company
to continue as a going concern, in our report dated April 10, 2002, but we have
not performed any auditing procedures since that date.
Shubitz Rosenbloom & Co., P.A.
Miami, Florida
November 15, 2002
1
NUWAY MEDICAL, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
-----------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
------------------------------------------------------
ASSETS
------
SEPTEMBER 30, DECEMBER 31,
2002 2001
------ --------
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $8,902 $ 440,827
ACCOUNTS RECEIVABLE, NET OF
$25,000 OF ALLOWANCE FOR DOUBTFUL ACCOUNTS 174,015 234,054
INVENTORY 150,000 475,291
NOTES RECEIVABLE OFFICERS AND AFFILIATES,
CURRENT PORTION 59,623 -
PREPAID EXPENSES AND OTHER CURRENT ASSETS 28,282 156,958
--------- -----------
TOTAL CURRENT ASSETS 420,822 1,307,130
--------- -----------
PROPERTY EQUIPMENT AND INTANGIBLE ASSETS, NET 6,989,639 2,360,135
--------- -----------
OTHER ASSETS
ACCOUNTS RECEIVABLE LONG-TERM, NET OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS OF $200,000 IN 2002 AND
$150,000 IN 2001 373,000 450,000
DEPOSITS - 26,693
NOTES RECEIVABLE - OFFICERS AND AFFILIATES
NET OF CURRENT PORTION - 440,000
OTHER ASSETS 13,790 6,374
--------- -----------
TOTAL OTHER ASSETS 386,790 923,067
--------- -----------
TOTAL ASSETS $ 7,797,251 $4,590,332
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 773,754 $ 985,776
DEBENTURES PAYABLE 150,000 2,400,004
NOTE PAYABLE SUMMITT VENTURES, INC. 1,120,000 -
--------- -----------
TOTAL CURRENT LIABILITIES 2,043,754 3,385,780
--------- -----------
COMMITMENTS AND CONTINGENCIES - -
--------- -----------
TOTAL LIABILITIES $ 2,043,754 3,385,780
--------- -----------
STOCKHOLDERS' EQUITY
COMMON STOCK, $.00067 PAR VALUE 100,000,000
SHARES AUTHORIZED, 16,049,905 SHARES ISSUED
16,005,005 SHARES OUTSTANDING AND 44,900 SHARES
HELD AS TREASURY STOCK 10,752 3,402
ADDITIONAL PAID-IN CAPITAL 20,497,722 15,137,225
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ( 595,829) ( 544,539)
RETAINED EARNINGS (DEFICIT) (14,032,144) (13,264,532)
TREASURY STOCK, AT COST ( 127,004) ( 127,004)
--------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,753,497 1,204,552
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,797,251 $ 4,590,332
=========== ===========
READ ACCOUNTANTS' REVIEW REPORT AND NOTES TO FINANCIAL STATEMENTS.
2
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2001
------------------------------------
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------------------
Common Stock
------------------ Accumulated
Number Par Additional Other Retained Comprehensive
of Value Paid-In Comprehensive Earnings Treasury Income
Shares $.00067 Capital Income (Loss) (Deficit) Stock (Loss)
--------- ------- ----------- -------------- ----------- ---------- --------------
BALANCE JANUARY 1,
2001 4,225,000 $ 2,831 $13,796,612 ($ 560,326) ($6,612,099) $ 5,235 $ -
ADJUSTMENT FOR FOREIGN
CURRENCY TRANSACTIONS - - - 15,787 - - 15,787
STOCK ISSUED FOR
SERVICES 187,500 126 405,524 - - - -
REPRICING ON VARIABLE
OPTION PLAN - - ( 230,460) - - - -
TREASURY STOCK - - - - - 121,769 -
CONVERSION OF
DEBENTURES 666,283 446 1,165,549 - - - -
NET (LOSS) FOR THE
YEAR ENDED
DECEMBER 31, 2001 - - - - ( 6,652,433) - (6,652,433)
--------- ------- ----------- -------------- ----------- ---------- --------------
BALANCE DECEMBER 31, 5,078,783 3,403 15,137,225 (544,539) (13,264,532) 127,004
2001
COMPREHENSIVE (LOSS)
FOR THE YEAR
ENDED DECEMBER 31,
2001 $(6,636,646)
=============
STOCK ISSUED FOR
SERVICES 1,368,552 917 644,081 - - - -
CONVERSION OF
DEBENTURES 1,332,570 893 2,331,705 - - - -
CANCELLATION OF
WARRANTS - - (1,659,750) - 1,659,750 - -
ADDITIONAL SUBSCRIPTION
RECEIVABLE 1,000,000 670 249,330 - - - -
STOCK ISSUED FOR
SOFTWARE 670,000 447 299,553 - - - -
STOCK ISSUED FOR
ASSETS OF MED-
WAREHOUSES, INC. 6,600,000 4,422 3,495,578
ADJUSTMENT FOR FOREIGN
CURRENCY TRANSACTIONS - - - ( 51,290) ( 51,290)
NET (LOSS) FOR THE NINE
MONTHS ENDED SEPTEMBER
30, 2002 - - - - ( 2,427,362) - (2,427,362)
--------- ------- ----------- -------------- ----------- ---------- --------------
BALANCE SEPTEMBER 30,
2002 16,049,905 $10,752 $20,497,722 ($595,829) $(14,032,144) $ 127,004
========== ======= =========== ============== ============ ==========
COMPREHENSIVE INCOME
(LOSS) FOR THE NINE
MONTHS ENDED SEPTEMBER 30
$(2,478,652)
==============
Read accountant`s review report and notes to financial statements.
3
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- -------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- --------------
2002 2001 2002 2001
REVENUE
RENTAL INCOME $62,318 $109,034 $245,658 $374,792
SALES OF CIGARS 39,322 50,995 85,230 122,770
OIL SALES 83,965 - 298,527 -
------- -------- -------- --------
TOTAL REVENUES 185,605 160,029 629,415 497,562
------- -------- -------- --------
COST AND EXPENSES
SELLING, GENERAL & ADMINISTRATION 559,100 1,343,890 1,634,003 2,688,076
DEPRECIATION, DEPLETION AND
AMORTIZATION 84,346 36,686 318,020 87,555
COST OF CIGAR SALES 321,994 34,628 348,908 77,944
EXPENSES ASSOCIATED WITH
STOCK ISSUED FOR SERVICES 295,500 - 645,000 -
OIL AND GAS LEASE OPERATING COST 33,656 - 104,392 -
SITE RESTORATION COSTS 3,851 - 14,020 -
IMPAIRMENT CHARGES - - - 347,071
------- -------- -------- --------
TOTAL COST AND EXPENSES 1,298,447 1,415,204 3,064,343 3,200,646
------- -------- -------- --------
OPERATING INCOME (LOSS) (1,112,842)(1,255,175) (2,434,928) (2,703,084)
------- -------- -------- --------
OTHER INCOME (EXPENSES)
INTEREST INCOME 92 23,352 7,566 125,129
------- -------- -------- --------
NET OTHER INCOME (EXPENSES) 92 23,352 7,566 125,129
------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (1,112,750) (1,231,823) (2,427,362) (2,577,955)
------- -------- -------- --------
INCOME TAXES (PROVISION) BENEFIT - - - -
NET INCOME (LOSS) ($1,112,750)($1,231,823)($2,427,362) ($2,577,955)
========== ========= ========= ==========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENT BASIC
AND FULLY DILUTED
COMMON SHARE EQUIVALENT
OUTSTANDING 9,999,062 4,214,683 7,437,069 4,219,294
========== ========= ========= ==========
NET INCOME (LOSS)
PER SHARE $ ( .11) $ ( .29)$( .33) $( .61)
========== ========= ========= ==========
Read accountant`s review report and notes to financial statements.
4
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
-----------------------------------------------------
2002 2001
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) ( 2,427,362) ($2,577,955)
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION, DEPLETION AND AMORTIZATION 318,020 87,555
ISSUANCE OF STOCK FOR SERVICES & INTEREST 727,582 -
ASSET IMPAIRMENT CHARGES - 347,071
(GAIN) LOSS ON SALE OF ASSET - 14,936
AMORTIZATION OF DEFERRED DEBT ISSUANCE COSTS - 48,370
CHANGES IN ASSETS - (INCREASE) DECREASE:
ACCOUNTS RECEIVABLE 137,039
PREPAID EXPENSES AND OTHER CURRENT ASSETS 128,676 4,377
INVENTORY OF CIGARS 325,291 23,700
CHANGES IN LIABILITIES - INCREASE (DECREASE):
ACCOUNTS PAYABLE AND ACCRUED EXPENSES ( 212,002) 500,550
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ( 1,002,756 ( 1,372,679)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
INVESTMENT IN OIL AND GAS VENTURE - (1,530,582)
PROCEEDS ON SALE OF FIXED ASSETS 33,802 152,561
FIXED ASSETS INCREASE AND OTHER ( 61,335) ( 44,894)
OTHER ASSETS 19,277 ( 112,432)
----------- -----------
NET CASH PROVIDED BY (USED IN)INVESTING
ACTIVITIES ( 8,256) (1,535,347)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS ON SALE OF SECURITIES 250,000 -
ACQUISITION OF TREASURY STOCK - ( 120,000)
REDUCTION OF STOCKHOLDER LOANS 380,377 -
----------- ------------
NET CASH (USED IN) FINANCING ACTIVITIES 630,377 ( 120,000)
----------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS ( 51,290) 40,354
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 431,925) ( 2,987,672)
CASH AND CASH EQUIVALENTS - BEGINNING 440,827 4,422,715
------------ ------------
CASH AND CASH EQUIVALENTS - ENDING $8,902 $ 1,435,043
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST $ - $ 6,460
INCOME TAXES, FOREIGN $ - $ -
CONVERSION OF DEBENTURES TO CAPITAL $ 2,250,004 $ -
============ ============
ISSUANCE OF STOCK FOR CAPITALIZED ASSETS
SOFTWARE COSTS $ 300,000 $ -
============ ============
LICENSE RIGHTS MED-WIRELESS, INC. $ 4,620,000 $ -
============ ============
INCREASE OF DEBT FOR MED-WIRELESS LICENSE RIGHTS $ 1,120,000 $ -
============ ============
Read accountant`s review report and notes to financial statement.
5
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------- ----------------------------------------------
A BUSINESS AND ORGANIZATION
---------------------------
In July 2002 Nuway Energy, Inc. (formerly known as Latin American
Casinos, Inc.) changed its name to Nuway Medical, Inc. The company
intends to change its focus to pursue opportunities in the Medical
Technology and Health-Care services business. In that regard the
company is considering divesting itself of the gaming industry and
cigar operations in the future. At present no firm committment has
been made to discontinue these operations. In September 2002 the
company filed Schedule 14c information with the Securities and
Exchange Commission. The document indicates a majority of the
stockholders concurred with among other items, the corporate name
change, the approval of the exclusive license and assignment agreement
with Med Wireless, Inc., as discussed below, and the approval to amend
the corporate charter to increase the authorized common stock from
15,000,000 shares to 100,000,000 shares, and to authorize the issuance
of up to 25,000,000 shares of preferred stock, whose terms are to be
defined at the time of their issuance. NuWay Medical, Inc. (formerly
Nuway Energy, Inc.) is a Delaware corporation incorporated on
September 19, 1991.
In 1994, the Company entered in the gaming and casino business,
primarily in Peru and other Latin American countries renting casino
type slot machines.
In 1994, the Company formed a Peruvian subsidiary; in 1995, the
Company formed a Colombian subsidiary and in 1997, the Company formed
a subsidiary in Nicaragua that are in the gaming and casino business
in Latin America (See Note 9C). The operations include the renting of
casino slot machines as well as other gaming equipment to casino
operators. The Company had originally acquired in total approximately
8,000 slot machines and related parts. It had been the Company's
policy to capitalize all cost necessary to place the equipment on
rental which included transportation, duty and refurbishing costs. In
year 2001, as a result of deteriorating market conditions and
obsolescence of the slot machines and a mandate by the Peruvian
Government, a valuation of all gaming equipment was performed and as a
result as further discussed in note 2, an asset impairment charge was
recorded.
In September 1997, the Company incorporated World's Best Rated Cigar
Company (World) as a wholly owned subsidiary of NuWay Medical, Inc. to
distribute quality cigars. Is was originally intended that the Company
would market premium cigars at "off price", and would acquire quality
cigars from six South American producers and market them through large
retail chains, initially on a consignment basis. The cigar operations
have been slower than originally anticipated and as at September 31,
2002, the Company had expended approximately $1,186,000 in regard to
the cigar operations. Such expenditures have been included in the
accompanying consolidated financial statements as follows:
CASH AND CASH EQUIVALENTS $ -
ACCOUNTS RECEIVABLE -
PREPAID AND OTHER CURRENT ASSETS -
INVENTORY 150,000
FIXED ASSETS, NET OF ACCUMULATED DEPRECIATION 30,000
OTHER ASSETS -
AGGREGATE ACCUMULATED DEFICIT 1,006,000
---------------------------------
TOTAL INVESTMENT $ 1,186,000
=================================
Read accountant`s review report.
6
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------- ----------------------------------------------
In the year 2001,the Company incorporated NuWay Resources, Inc., a
Nevada Corporation and NuWay Resources of Canada, Ltd., a Canadian
Company, both wholly owned subsidiaries of NuWay Medical, Inc. These
corporations were formed to pursue opportunities in the oil and gas
exploration industry, with its principal activity in the exploration,
development and product of oil and gas properties in Western Canada.
In June,2002, the Company acquired medical software from Camden
Holdings, Inc., an affiliate, for 670,000 shares of stock valued at
approximately $.45 per share. That affiliate subscribed to an
additional 1,000,000 shares of stock at $.25 per share. In July 2002
the company acquired fifteen-year licensing rights from Med Wireless,
Inc. a company affiliated to a principal stockholder of NuWay Medical,
Inc. The acquisition obligated the company to issue 6,600,000 shares
of stock valued at $3,500,000 plus assumed a note payable to Summitt
Ventures, Inc for $1,120,000. The note requires monthly interest,
computed at 10% per annum. The note and all accrued interest is due
June 15, 2003. The licensing agreement includes software applications
that allow high resolution transfer of diagnostic quality images,
including Ultra Sound, over the Internet and Internet network. As of
September 30, 2002 the company has not commenced operations in the
medical imaging business.
B PRINCIPLES OF CONSOLIDATION
-----------------------------
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Latin
American Casinos Del Peru S.A. a Peruvian Corporation, Latin American
Casinos of Colombia LTDA, a Colombian Corporation, World's Best Rated
Cigars, Inc., Nuway Resources, Inc., a Nevada Corporation and Nuway
Resource of Canada, Ltd., a Canadian Company.
All material inter-company transactions, balance and profits have been
eliminated.
C PROPERTY AND EQUIPMENT
------------------------
Property and Equipment are stated at cost. Depreciation is provided on
accelerated and straight-line methods over the estimated useful lives
of the respective assets. Maintenance and repairs are charged to
expense as incurred; major renewals and betterment's are capitalized.
When items of property or equipment are sold or retired, the related
cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in the results of operations. Whenever
there is a change in events or circumstances in the business economic
environment or a significant change in the volume of operations, the
Company performs an impairment analysis by comparing the estimated
future undiscounted cash flows projected to be generated by the
assets, and if they are less than the asset carrying amount an
impairment charge is recorded to reduce the assets to its estimated
fair value. In addition, the Company periodically reviews the costs
associated with undeveloped oil and gas properties and mineral rights
to determine whether they are likely to be recovered, when such costs
are not likely to be recovered, such costs are transferred to the
depletable pool of oil and gas cost.
Read accountant`s review report.
7
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------- ----------------------------------------------
D OIL AND GAS OPERATIONS
-------------------------
Substantially all of the Company's exploration and development
activities related to oil and gas are conducted jointly with others
and accordingly the financial statements reflect only the Company's
proportionate interest in such activities.
The net carrying cost of the Company's oil and gas properties in
producing cost centers is limited to an estimated recoverable amount.
This amount is the aggregate of future net revenues from proved
reserves and the costs of undeveloped properties, net of impairment
allowance, less future general and administrative costs, financing
costs and income taxes. Future net revenues are calculated using
year-end prices that are not escalated or discounted. For Canadian,
GAAP future net revenues are undiscounted, whereas for U.S. GAAP,
future net revenues are discounted at 10%. In conducting its ceiling
test evaluation, the Company followed generally accepted accounting
standards which provided for a two-year exemption from write-down
where the purchase price of reserves had been determined on a basis
which provided a higher amount than the ceiling test value, and where
the excess was not considered to represent a permanent impairment in
the ultimate recoverable amount. If the two-year exemption had not
been used, the Company would have taken a write-down of $692,000 based
on prices at September 30, 2001 of $19.64 per bbl of heavy oil and
$2.68 per Mmbtu of gas. The Company qualified for the exemption in
connection of its acquisitions of resource properties in August and
September of 2001.
Ceiling test calculations are based on the Company's reserve report
prepared annually, on December 31, by McDaniel & Associates
Consultants, LTD. and do not reflect current prices which at September
30, 2002 were $19.64 per bbl of heavy oil and $2.68 per mmbtu for gas.
Gains or losses are not recognized upon disposition of oil and gas
properties unless crediting the proceeds against accumulated costs
would result in a change in the rate of depletion of 20% or more.
Future site restoration cost for working interest properties are being
provided on a unit of production basis. The provision is based on
current cost of complying with existing legislation and industry
practice for site restoration and abandonment. The estimated cost of
abandoning carried interest wells are not included in future site
restoration cost. This cost would be paid by the working interest
partners and charged to the carried interest account.
Read accountant`s review report.
8
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------- ----------------------------------------------
E REVENUE RECOGNITION
--------------------
Revenue is recognized monthly on the rental of slot machines as the
slot machines are placed in service. Typical rental arrangements for
slot machines are for one year or less in duration with constant rent
income earned over the life of the lease. As a general rule, the
Company does not incur any significant direct cost with the inception
of the lease. All leasing expense, payroll and maintenance of
equipment are charged to operations as incurred. Revenue on the sale
of cigars are recorded when customer orders are shipped. The cost of
cigar sales represents the direct cost of the product sold. The
Company recognizes revenue on its working and royalty interest
properties from the production of oil and gas in the period the oil
and gas are sold, net of royalty payments due.
In regard to the oil and gas operations, revenue on its working and
royalty interest properties is recognized in the period the oil and
gas are sold. Revenue under carried interest agreements is recorded in
the period when the net proceeds become receivable and collection is
reasonably assured. Under the carried interest agreements, the Company
records oil and gas revenues net of operating and capital cost
incurred by the working interest participants. The time the net
revenues become receivable and collection is reasonably assured
depends on the terms and conditions of the relevant agreements and the
practices followed by the operator. As a result, net revenues may lag
the production.
F STATEMENT OF CASH FLOWS
--------------------------
For purposes of this statement, the Company considers all liquid
investments purchased with an original maturity of three months or
less to be cash equivalents.
G INCOME (LOSS) PER COMMON SHARE
----------------------------------
Basic earnings per common share and common share equivalents were
computed by dividing net income (loss) by the weighted average number
of shares of common stock outstanding during the period. Fully diluted
earnings per share was calculated based on the assumption that the
increase in the number of common shares assumed outstanding on
conversion of debentures and excise of options and warrants are
reduced by the number of common shares that are assumed to be
purchased with the proceeds from the exercise of the options and
warrants. During 2001 and 2002 all warrants, stock options and
underwriter's options (Notes 4, 5, 6) were anti-dilutive, and excluded
from the computation of basic and diluted earning (loss) per share.
In the future, if all the convertible debt, warrants, stock options
and underwriting options were exercised or converted, future earnings
per share could be diluted by 2,713,359 additional shares as follows:
PUBLICLY TRADED OPTIONS 1,725,000
PRIVATE WARRANTS 300,000
INVESTMENT BANKER WARRANTS 225,000
INCENTIVE STOCK OPTIONS 372,500
DEBENTURES INCLUDING ACCRUED INTEREST 90,857
---------
2,713,357
=========
Read accountant`s review report.
9
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------- ----------------------------------------------
H SIGNIFICANT CONCENTRATION OF CREDIT RISK
--------------------------------------------
The Company has concentrated its credit risk for cash by maintaining
deposits in banks located within the same geographic region. The
maximum loss that would have resulted from risk totaled $9,000 and
$238,000 as of September 30, 2002 and December 31, 2001 for the excess
of the deposit liabilities reported by the bank over the amounts that
would have been covered by federal deposit insurance.
I USE OF ESTIMATES
------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and revenues and expenses during
the period reported. Actual results could differ from those estimates.
Estimates are used when accounting for uncollectible accounts
receivable, obsolescence, equipment depreciation and amortization,
taxes, among others.
J FOREIGN CURRENCY TRANSLATION
------------------------------
For most international operations, assets and liabilities are
translated into U.S. dollars at year-end exchange rates, and revenues
and expenses are translated at average exchange rates prevailing
during the year. Translation adjustments, resulting from fluctuations
in exchange rates are recorded as a separate component of
shareholders' equity, as other comprehensive income (loss).
K INVENTORIES
-----------
Inventory of cigars and related material are stated at the lower of
average cost or market. The Company has in excess of one-year supply
of cigar inventory but believes it can sell the entire inventory
within one year. In that regard, the company sold all its cigars that
were being stored in South America aggregating $300,000 in one bulk
sale and recorded a loss of $150,000 on the sale. Based on anticipated
future sale the company recorded an additional inventory write down on
the remaining inventory of $120,000 to adjust the inventory to the
lower of cost or realizable market value.
L VALUATION OF COMPANY'S STOCK OPTIONS AND WARRANTS
-------------------------------------------------------
As permitted under the Statement of Financial Accounting Standards No.
123 (SFAS No. 123), Accounting for Stock-Based Compensation, the
Company accounts for its stock-based compensation to employees in
accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees. As such,
compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise
price. Certain pro-forma net income and EPS disclosures for employee
stock options grants are also included in the notes to the financial
statements as if the fair value method as defined in SFAS No 123 had
been applied. Transactions in equity instruments with non-employees
for goods or services are accounted for by the fair value method.
Read accountant`s review report.
10
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------- ----------------------------------------------
M ADVERTISING
-----------
The Company expenses all advertising cost as incurred. Included in the
statement of operations is approximately $2,600 and $100,000
advertising expense charged to operations for the six months ended
September 30, 2002 and 2001, respectively. Substantially all
advertising expenses incurred in year 2001 were paid with barter
transactions at published costs. Barter transactions were terminated
in 2001.
NOTE 2. PROPERTY AND EQUIPMENT
-------- ------------------------
PROPERTY AND EQUIPMENT ARE SUMMARIZED AS FOLLOWS:
SEPTEMBER 30, DECEMBER31,
2001
------------- ------------
LICENSING AGREEMENT FROM
MED WIRELESS, INC. (SEE NOTE 1) $4,620,000 $ -
SOFTWARE COSTS (SEE NOTE 1) 300,000 -
EXPLORATION AND DEVELOPMENT EQUIPMENT 994,185 933,624
OIL & GAS PROPERTIES AT COST 757,928 752,067
LAND & BUILDING (SEE NOTE 10) 35,000 35,000
RENTAL EQUIPMENT(SEE NOTE 10) 903,115 1,039,008
FURNITURE, FIXTURES & OFFICE EQUIPMENT 139,855 151,818
TRANSPORTATION EQUIPMENT - 2;862
---------- ------------
TOTAL 7,750,083 2,914,379
LESS: ACCUMULATED DEPRECIATION 760,444 554,244
---------- ------------
PROPERTY AND EQUIPMENT - NET $6,989,639 $2,360,135
=========== ============
THE ESTIMATED USEFUL LIVES
OF PROPERTY AND EQUIPMENT,
ARE AS FOLLOWS:
RENTAL EQUIPMENT 5-7 YEARS
SPECIAL USE BUILDINGS 10 YEARS
COMMERCIAL BUILDINGS 30 YEARS
FURNITURE, FIXTURES AND OFFICE EQUIPMENT 5-7 YEARS
TRANSPORTATION EQUIPMENT 5 YEARS
The licensing agreement and software cost have not been depreciated or
amortized inasmuch as the operations have not commenced.
Depletion is provided on cost accumulated in producing cost centers
including production equipment using the unit of production method.
For purposes of the depletion calculation, gross proved oil and gas
reserves as determined by outside consultants are converted to a
common unit of measure on the basis of their approximate relative
energy content.
Included in Rental Equipment is approximately $70,000 of parts and
supplies purchased or obtained from other machines previously
disassembled for parts. In year 2001, as a result of market conditions
and obsolescence, the Company reviewed all costs associated with its
gaming equipment and recorded an impairment charge of $2,789,000 on
gaming equipment.
Read accountant`s review report.
11
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 2. PROPERTY AND EQUIPMENT (CONTINUED)
-------- ------------------------
Rent expense for the nine months ended September 30, 2002 and 2001
were $130,000 and $167,000, respectively.
NOTE 3. NOTES RECEIVABLE - STOCKHOLDERS AND AFFILIATES
-------- ---------------------------------------------------
In October, 2001 the Company advanced loans to two companies
controlled respectively by the then Chief Operating and Economic
Officer in the aggregate amount of $400,000 which was due in October,
2006. Interest on these notes are payable quarterly and computed at
the prime rate plus 1%. These notes have been reduced to $19,623 at
September 30, 2002 and are anticipated to be either repaired or
considered compensation by year-end. Accordingly these notes have been
classified as a current asset in the accompanying financial
statements.
In June, 2001 the Company advanced $40,000 to another officer. This
note is due on the earlier of the officer's termination or June, 2002
and is repayable as reductions of severance arrangements included in
his employment contract (See Note 9B). Interest is payable quarterly
and calculated at the prime rate plus 1%. In September, 2002 the
officer terminated his services and an accrual was recorded for
severance pay of $40,000, as further discerned in Note 9B.
NOTE 4. WARRANTS AND OPTIONS AND STOCK ISSUED FOR SERVICES
-------- ---------------------------------------------------------
As of June 30, 2002, the Company has outstanding 1,725,000 five year
publicly traded warrants that were issued as part of the Company's
initial public offering to purchase one share of the Company's common
stock at an exercise price of $3.00 by December 11, 2003. In December
2000, the board of directors authorized the issuance of an additional
3,300,000 private five year stock warrants to acquire common stock at
$1.75 per share. 1,500,000 of the issuance of the private warrants and
200,000 shares of restricted stock were issued to executives of the
corporation. Compensation was recorded on the arrangement equal to the
market value of he restricted stock, $350,000. The remaining warrants,
1,800,000 were issued in connection with service rendered by several
individuals and entities and were valued at $1,991,700 using the
Black-Scholes Options pricing model assuming a 5% interest rate and
high volatility to underlying stock prices. The 1,500,000 warrants
issued to the executives were valued at the intrinsic value in
accordance with APB 25 at $1,620,000. (See Note 6). In year 2002,
3,000,000 of the 3,300,000 warrants issued in year 2000, were
cancelled and approximately $1,660,000 of previously recorded expenses
that was recorded in year 2000 was adjusted against retained earnings
and paid-in-capital, accordingly.
In year 2001, the Company issued or was committed to issue 187,500
shares of stock for services. Expenses were recorded based on the
value of the stock, which ranged from $2.51 per share to $1.98 per
share, for a total consideration of $405,524. In year 2002, a total of
1,368,552 shares of stock were issued for services. These shares were
recorded at the closing price at date of issue, which ranged from $.25
to $.55 and aggregated $645,000.
Read accountant`s review report.
12
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 5. INVESTMENT BANKER WARRANTS
-------- ----------------------------
Effective June 5, 1998, the Company contracted with an investment
banker to provide on a non-exclusive basis to the Company assistance
in possible mergers, acquisitions and internal capital structuring.
The duration of the contract is for five years. In consideration for
these services, The Company granted warrants to purchase an aggregate
of 225,000 shares of common stock at the closing bid price of $1.875
as of June 5, 1998, which can be exercised through June 5, 2003.
Effective February 8, 2000, the Board of Directors reduced the
exercise price to $1.06, which was the closing price of the stock at
that date. These warrants are fully vested.
NOTE 6. INCENTIVE STOCK OPTION PLAN
-------- ------------------------------
On June 13, 1994, the Board of Directors adopted the 1994 Stock Option
Plan in which the aggregate number of shares for which options may be
granted under the Plan shall not exceed 1,000,000 shares. The term of
each option shall not exceed ten years from the date of granting (five
years for options granted to employees owning more than 10% of the
outstanding shares of the voting stock of the Company). The 1991 plan
became effective on September 30, 1991 and was terminated in March,
1999. The 1994 plan became effective on June 13, 1994 and will
terminate in June, 2004, unless terminated earlier by action of the
Board of Directors. In December, 1995, the Company authorized the
issuance under the 1994 Stock Option Plan of 492,500 options at an
exercise price of $2.50 per share to various officers and employees.
On March 6, 1997 the Company authorized the issuance of an additional
415,000 options at an exercise price of $2.50 to various officers and
employees. In June, 1999, the Company increased the shares allocated
to the plan to 1,500,000. Effective December 31, 1998, the Company
ratified the repricing of the employee stock options to $1.00 per
share and simultaneously authorized the issuance of 85,000 options at
an exercise price of $1.00 per share and canceled 10,000 options
issued in 1995 at $2.50 per share. Effective February, 2000 the
Company issued 35,000 options at an exercise price of $1.06 and in
December, 2000 the Company issued 80,000 options at a $1.75 exercise
price.
Read accountant`s review report.
13
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 6. INCENTIVE STOCK OPTION PLAN (CONTINUED)
-------- ------------------------------
INCENTIVE STOCK OPTIONS OUTSTANDING
--------------------------------------
AMOUNT PRICE PER SHARE
---------- ---------------
OPTIONS OUTSTANDING AT JANUARY 1, 2000 982,500 $1.00
ADDITIONAL OPTIONS ISSUED 35,000 $1.06
ADDITIONAL OPTIONS ISSUED 80,000 $1.75
OPTIONS LAPSED ( 75,000) $1.00
OPTIONS EXERCISED ( 650,000) $1.00
----------- -------------
OPTIONS OUTSTANDING AT DECEMBER 31, 2001 372,500
=========== =============
AND SEPTEMBER 30, 2002
All outstanding warrants and non-qualified options and incentive stock
options were exercisable at September 30, 2002.
The following table shows the years in which all of the Company's
options and warrants (as discussed in Notes 4, 5 and 6) will expire:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
RANGE SHARES PRICE
---------------- ----------- --------------
YEAR ENDED DECEMBER 31 LOW HIGH
------- -------- ----------- --------------
2003 $3.00 $3.00 1,725,000 $3.00
2002 1.00 1.00 172;500 1.00
2003 1.00 1.00 310,000 1.00
2004 - - - -
THEREAFTER 1.06 1.75 415,000 1.74
---------
TOTAL 2,622,500
=========
No options were granted in 2001 and 2002
The Company adopted the provisions of SFAS No. 123, Accounting for
Stock Based Compensation, effective for fiscal year 1997 for all
issuances of stock options to non-employees of the Company. The
Company will continue to apply APB Opinion No. 25 (Opinion 25),
Accounting for Stock Issued to Employees for all issuances stock
options to its employees. In June 1999, the Company adopted the
Financial Accounting Standards Board Interpretation Number 44, which
requires re-priced options be re-measured for expenses based on the
quarter end stock price. Expenses are also re-measured upon exercise
for the options.
Read accountant`s review report.
14
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 7. DEBENTURES
-------- ----------
In December, 2000, the Company, through a private placement, issued
$3,500,000 principle amount of 6% Convertible Debentures. These
debentures were due June 13, 2001, which had been subsequently
extended to December 13, 2001, and are Convertible into common stock
at an exercise price of $1.75 per share. The Company incurred
approximately $64,500 of costs in regard to this private placement and
the debt issuance costs were amortized over the life of the
debentures. Included as part of selling general and administration
expenses in the statement of operations for the nine months ended
September 30, 2001 is $48,375 amortization of deferred debt issuance
cost. The interest on the debentures is payable either in cash or in
additional shares of common stock, at the discretion of the Company.
The conversion price of the debentures was determined by the
approximate market value of the common stock at the date of issuance.
Prior to December 31, 2001, approximately $1,100,000 of debenture
holders converted their debentures into common stock for the value of
their debentures and the accrued interest of $66,000. At December 31,
2001, included in accounts payable was $144,000 of accrued interest on
these debentures. Through September 30, 2002 an additional $2,250,000
of debentures holder's converted their debentures into Company stock
for the value of their debentures and accrued interest of $132,000. At
September 30, 2002, included in accounts payable is $9,000 of accrued
interest on the remaining debentures payable.
NOTE 8. PROVISION OF INCOME TAXES
-------- ----------------------------
As of September 30, 2002, the Company had available for income tax
purposes unused net operating loss carry forwards which may provide
future tax benefits of $13,093,000 expiring through the year 2016. No
valuation allowance has been provided for unremitted foreign profits.
No provision had been provided for deferred taxes in the accompanying
financial statements in that any amount of tax benefit based on
available evidence are not expected to be realized. Some of the net
operating loss may have been reduced or eliminated due to the
significant change in corporate ownership.
NOTE 9. COMMITMENTS AND CONTINGENCIES
-------- -------------------------------
A LITIGATION
----------
The Company is a defendant from time to time on claims and lawsuits
arising out of the normal course of its business, none of which are
expected to have a material adverse effect on its business,
operations, financial position or corporate liquidity.
Read accountant`s review report.
15
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-------- -------------------------------
B EMPLOYMENT AGREEMENTS
----------------------
In January 1997, the Company entered into a five year employment
agreement with Lloyd Lyons which provided in part that in the event of
either a merger, consolidation, sale or conveyance of substantially
all the assets of the Company which results in the discharge of Mr.
Lyons, he would be entitled to 200% of the balance of payments
remaining under the contract upon the death of Mr. Lyons the Company
amended its employment contract with the surviving widow and primary
beneficiary of the Estate of Lloyd Lyons, where-in the salary
continuation clause included in his contract was replaced with a
severance arrangement which requires the Company to pay the spouse
$100,000 over a one year period commencing on the first month
following her termination, from her employment with the Company and
upon her termination she is to receive 100,000 shares of common stock
pursuant to an amendment to her employment agreement. The amended
employment agreement obligated the Company to register these shares
and reimburse her for the difference in the gross proceeds upon the
sale of such shares and $300,000, regardless of the time she holds
such shares. Upon termination of the employee contract, the Company
will record additional compensation at the greater of the market price
of the Company stock or the guaranteed price stipulated in the
contract. Effective October 29, 2001, Mrs. Lyons tendered her
resignation and based upon the terms of her contract, severance
expenses of $350,000 had been recorded in year 2001 with $308,000
included in accounts payable and accrued expenses at September 30,
2002. The compensation expense recorded in September, 2001 was
comprised of $100,000 payable monthly for one year plus the value of
100,000 shares to be issued. The Company has not paid the severance
requirement, as discussed, and is considering its legal options to
void the contract.
In January, 2000, the Company entered into two additional employment
contracts, both for the duration of two years and provides that the
Company be obligated for an aggregate compensation of $115,000 in year
2000 and $126,500 in year 2001. Effective August 2, 2000, both of
these employment contracts were amended to reflect upon termination
from employment, these individuals will be entitled to nine months of
compensation and will receive in the aggregate 35,000 shares of common
stock which the Company has agreed to reimburse the respective
employees the difference between the gross proceeds they receive upon
sale and $105,000, regardless of the term the employees hold such
shares. Upon termination of the employee contract, the Company will
record additional compensation at the greater of the market price of
the Company stock or the guaranteed price stipulated in the contract.
One of the officers resigned in the quarter ended September 30, 2002.
The Company recorded an accrual for severance pay equal to the amount
due from the officer on a note (See Note 3). The Company is
considering legal action, if necessary, to void the remaining clauses
in his contract.
The Company entered into two additional one-year employment agreements
with the Chief Operating Officer and the Chief Executive Officer
requiring the Company issue to each 100,000 shares of stock
individually and 750,000 warrants to purchase additional common stock
at $1.75 per shares, individually, in March 2002, 1,500,000 warrants
to purchase additional common stock were cancelled (Note 4). In June,
2002, the Board of Directors authorized the payment of officer's
compensation for each of the officers at $12,000 per month retroactive
to October, 2001. Included in Selling, General and Administrative
Expenses are $242,000 of salaries in regard to this arrangement for
the nine months ended September 30, 2002. These individuals have
resigned their positions.
Read accountant`s review report.
16
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-------- -------------------------------
C FOREIGN ASSETS
---------------
The accompanying consolidated balance sheets for the period ended
September 30, 2002, includes assets relating to the Company's slot
machine operations in Peru and Colombia of $730,000 and $588,000
respectively. Although these countries are considered politically and
economically stable, it is possible that unanticipated events in
foreign countries could disrupt the company's operations. In that
regard, the company was informed that in Peru an excise tax has been
instituted effective October 1, 1996, on the leases of gaming
equipment. The company with others in the industry negotiated with the
appropriate governmental agencies and have had the excise tax
significantly curtailed
Revenue from rental operations is entirely earned in Columbia and
Peru.
The assets of the oil and gas operations, which aggregate
approximately $1,330,000 are entirely in Canada. All revenue from oil
and gas is earned in Canada.
D LEASE COMMITMENT
-----------------
As at September 30, 2002, all operating leases for corporate
facilities are either short-term leases or have expired and are being
continued on a month-to-month basis.
E CONTRACTUAL COMMITMENT
-----------------------
In February, 2002, the Company entered into an agreement with Avalon
Capital, Inc. (AVA) whereby AVA will use its best efforts to find a
merger candidate for the Company. If a merger is consummated within a
year of introduction, AVA will be entitled a finders fee equal to 3%
of the value of the aggregate number of shares outstanding after the
merger, on a fully diluted basis.
F CONSULTING AGREEMENT
---------------------
In September, 2002 the Company entered into an agreement with a
consultant to provide assistance in implementing its medical business
strategy related to its shift in business focus to the medical
technology and healthcare industries. The arrangement obligates the
Company to issue 125,000 of stock for past consultations and $15,000
per month for twelve months during the duration of the contract. The
arrangement can be terminated by either party with fifteen days
written notice.
NOTE 10 IMPAIRMENT LOSS
-------- ----------------
In 2001, the Company recorded an impairment loss as a result of the
obsolescence of parts used in the gaming equipment and reduction of
values of the utility of the gaming equipment.
Read accountant`s review report.
17
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 11 GOING CONCERN
-------- --------------
The Company has accumulated net losses of $14,032,144 through
September 30, 2002, and has a history of deficiency of operating cash
flows and losses from operations. These factors create an uncertainty
about the Company's ability to continue as a going concern. Management
of the Company is developing a plan to reduce current liabilities,
reduce expenses, raise additional capital, and considering the sale of
certain oil well assets to generate sufficient cash to sustain
operating overhead. In addition, the Company is exploring other
business ventures they anticipate will be profitable. The financial
statements do not include any adjustments that might be necessary if
the company is unable to continue as a going concern.
NOTE 12 OPERATING SEGMENTS
-------- -------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
----------------------------------------------------
CIGAR OIL GAMING
TOTAL OPERATIONS & GAS EQUIPMENT UNALLOCATED
------- ---------- --------- ---------- -----------
REVENUES $ 629,415 $ 85,230 $298,527 $ 245,658 $ -
COST & EXPENSES
COST OF PRODUCT
SOLD* 348,908 348,908 - - -
DIRECT OVERHEAD
COST 814,210 116,059 82,959 373,192 242,000
ALLOCATED
OVERHEAD COST 938,205 127,044 444,984 366,177 -
DEPRECIATION &
DEPLETION 318,020 5,352 284,218 20,650 7,800
EXPENSES ASSOC.,
WITH TOCK ISSUED
FOR SERVICES 645,000 - - - 645,000
------- ---------- -------- --------- -----------
TOTAL COST AND
EXPENSES 3,064,343 597,363 812,161 760,019 894,800
--------- ---------- -------- --------- ----------
OPERATING
INCOME(LOSS) ($2,434,928) ($512,133) ($513,634) ($514,361) ($894,800)
----------- ---------- ---------- ----------- -----------
TOTAL ASSETS $7,797,000 $180,000 $1,330,000 $1,318,000 $4,969,000
=========== ========= ========== ========== ==========
Include the cost of losses on a bulk sale of $150,000 and an inventory
adjustment of $120,000 to reflect inventory at the lower of cost or market value
(See Note 1-K).
Read accountant`s review report.
18
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 12 OPERATING SEGMENTS (CONTINUED)
-------- -------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
----------------------------------------------------
CIGAR OIL GAMING
TOTAL OPERATIONS & GAS EQUIPMENT UNALLOCATED
----------- ---------- --------- ---------- ------------
REVENUES $497,562 $122,770 $ - $374,792 $ 0
----------- ---------- ---------- ----------- ------------
COST & EXPENSES
COST OF PRODUCT
SOLD 77,944 77,944 - - -
DIRECT OVERHEAD
COST 904,910 145,716 25,438 733,756 -
ALLOCATED
OVERHEAD COST 1,783,166 440,019 - 1,343,147 -
DEPRECIATION AND
DEPLETION 87,555 7,803 - 71,652 8,100
ASSET IMPAIRMENT
CHARGES 347,071 - - 347,071 -
----------- ---------- ---------- ----------- ------------
TOTAL COST AND
EXPENSES 3,200,646 671,482 25,438 2,495,626 8,100
----------- ---------- ---------- ----------- ------------
OPERATING
INCOME(LOSS) ($2,703,084) ($548,712) ($25,438)($2,120,834) ($8,100)
----------- ---------- ---------- ----------- ------------
TOTAL ASSETS $8,139,700 $631,000 $1,825,000 $4,347,895 $1,336,000
=========== ========= ========== ========== ============
The Company allocates indirect overhead expenses to specific segments
in proportion to the revenues earned by the segment. All revenue from
gaming equipment and the related assets are in South America All
revenue and significantly all assets of the cigar operations are in
the United States. All operations and assets of the oil and gas
operations are in Canada.
Read accountant`s review report.
19
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 13 OIL AND GAS PRODUCING ACTIVITIES
-------- ------------------------------------
The following information includes estimates which are subject to
rapid and unanticipated change. The Company cautions that the
discounted future net cash flows from proved oil and gas reserves are
not an indication of the fair market value of the Company's oil and
gas properties or the future net cash flows expected to be generated
from the properties. The discounted future net cash flows do not
include the fair market value of exploratory properties and probable
or possible oil and gas reserves. Also, the estimates do not consider
the effect of future changes in oil and gas prices, development, sit
restoration and production costs, and possible changes in tax and
royalty regulations. The prescribed discount rate of 10% may not
appropriately reflect future interest rates.
All amounts below, except for cost, acreage, wells drilled and present
activities, relate to Canada. McDaniel & Associates Consultants Ltd.,
Independent consultants, provided oil and gas reserve data and the
information relating to cash flows.
Estimated net quantities of proved oil and gas reserves at are as
follows:
OIL GAS
PROVED RESERVES: (BBLS) (MCF)
------------------ -------
BALANCE AT DECEMBER 31, 2001 140,000 70,700
PRODUCTION FOR NINE MONTHS ENDED
SEPTEMBER 30, 2002 21,500 -
------------------ -------
BALANCE SEPTEMBER 30, 2002 118,500 70,700
================== =======
PROVED DEVELOPED RESERVES
BALANCE AT DECEMBER 31, 2001 140,000 70,700
PRODUCTION FOR NINE MONTH ENDED
SEPTEMBER 30, 2002 21,500 -
------------------ -------
BALANCE SEPTEMBER 30, 2002 118,500 70,700
================== =======
RESULTS OF OIL AND GAS OPERATIONS
---------------------------------
INCOME:
OIL SALES $ 298,527
------------------
COST AND EXPENSES:
LEASE OPERATING COST 104,392
DEPLETION, DEPRECIATION AMORTIZATION 284,218
SITE RESTORATION COSTS 14,020
------------------
402,630
------------------
NET LOSS FROM OPERATIONS ($104,103)
==================
CAPITALIZED COST OF OIL AND GAS ACTIVITIES:
ACQUISITION COSTS $ 257,928
EXPLORATION 379,781
DEVELOPMENT 614,403
Read accountant`s review report.
20
NUWAY MEDICAL, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
----------------------------------------------
NOTE 13 OIL AND GAS PRODUCING ACTIVITIES CONTINUED
-------- ------------------------------------
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVE QUANTITIES DURING
THE FOLLOWING PERIOD:
FUTURE CASH INFLOWS $ 1,578,000
FUTURE DEVELOPMENT AND PRODUCTION COST 891,000
-------------
687,000
FUTURE INCOME TAX EXPENSE* -
-------------
FUTURE NET CASH FLOWS 687,000
10% ANNUAL DISCOUNT ( 51,000)
-------------
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS $ 636,000
=============
*Reflects total tax pools for the period to September 30, 2002 that
may be used to offset oil and gas income. The tax pools are comprised of carry
forward of exploration, development and lease acquisition costs,
under-appreciated capital costs and earned depletion of $1,513,000.
Current prices used in the above estimates were based upon selling
prices at the wellhead at January 1, 2002 less the historical quality and price
differentials for each respective field as follows:
Oil - Hardisty Heavy ($CDN./bbl)(In U.S. $) $ 11.831
Gas - Alberta average @ Field gate $CDN./Mmbm) (In US$) $ 3.458
Current cost was based upon estimates made by consulting engineers at
December 31, 2001.
Read accountant`s review report.
21
GENERAL
-------
Latin American Casinos, Inc.
-------------------------------
The Company entered the gaming and casino industry in Peru in 1994. Since
January 1995, the Company has been engaged in the renting of slot machines and
other gaming equipment to licensed gaming establishments in various cities
through its wholly owned subsidiaries in South and Central America. In 1994, the
Company formed its Peruvian subsidiary, and in late 1995 the Company formed its
Colombian subsidiary.
As of September 30, 2002, the Company had approximately 300 machines under
rental contracts in Peru and Colombia.
The Company in this segment concentrates its efforts on the rental of used five
reel slot machines. These machines were purchased at a fraction of the cost of
new machines and are refurbished for use in South and Central America.
Whereas a new slot machine would cost approximately $10,000 plus additional
charges for duty, the used slot machines cost approximately $700 each including
freight, duty, and refurbishing expenditures.
During the most recent quarter ended September 30, 2002, the Company announced
that it would sell the Latin American Casinos business unit and negotiations and
efforts are underway to accomplish that goal.
World's Best Rated Cigar Company, Inc.
-------------------------------------------
In September 1997, the Company incorporated World's Best Rated Cigar Company, as
a wholly owned subsidiary to distribute premium cigars. It was originally
intended that the company would acquire quality cigars from six manufacturers
and market them at "off price" through large retail chains. In February 2000,
the marketing strategy was modified to include selling directly to consumers
through our web site, www.worldsbestrated.com, and our toll free number.
Substantially all advertising expense incurred is paid with barter transactions.
During the quarter ended September 30, 2002, the company disposed of 300,000
cigars and converted its retail selling operation to a wholesale selling
operation until the inventory is fully sold at which time the Company will
discontinue operations in this business.
The Nuway Resources of Canada, Inc.
----------------------------------------
Beginning in July 2001 the Company directed part of its efforts to the
exploration for and the development of oil and gas properties in Canada. The
Company's exploration and development activities related to oil and gas are
conducted jointly with others. The Company purchased a 30% working interest in
the Superb area of Saskatchewan, Canada and a 20% working interest in the
Altares Gas project in Northeast British Columbia.
The Company intends to divest itself of these assets and is exploring numerous
options, including without limitation, a spin-off, a sale (either together or
separately) or other divestiture so that the Company can concentrate on its
medical technology and health care services business.
Shift in Business Focus to Medical Technology and Healthcare Services
------------------------------------------------------------------------------
Beginning in June 2002, the Company began its shift in business focus away from
the gaming equipment and cigar industries, and toward the medical technology and
healthcare services industries. The reason for this is the Board of Directors
believed the healthcare sector represents a significant business opportunity for
the Company, and current management has the experience to take advantage of
current market conditions in this sector.
Name Change
------------
On July 18, 2002, the Board issued a Consent whereby they unanimously approved
an amendment to The Company's Certificate of Incorporation to change the name of
the company from "Nuway Energy, Inc." to "The Nuway Medical, Inc." (the "Name
Change"). On August 12, 2002, the consenting stockholders issued a Consent,
whereby they approved the Name Change. It is the opinion of the Board and the
consenting shareholders that the Name Change is desirable to more accurately
22
reflect the nature of the business and operations of the Company on a going
forward basis. Accordingly, it is the opinion of the Board that it is in the
best interests of the company and its shareholders to commence the Name Change.
The Board of the Company approved this decision and a majority of the
stockholders have consented to the transaction. The effectiveness of this Name
Change was subject to our compliance with Regulation 14C of the Securities and
Exchange Act of 1934, as amended, and NASDAQ regulations, including all
requisite filings, which was accomplished. The filing was made on September 23,
2002. Of the 7,761,353 shares outstanding, shareholders owning 3,930,183 shares
consented. The Name Change Amendment became effective upon the filing of the
Amended Certificate of Incorporation with the Secretary of State of Delaware.
Under federal securities laws, The Company could not file the Amended
Certificate of Incorporation until at least 20 days after the mailing of this
Information Statement and the Company filed that Amended Certificate of
Incorporation during the month of October.
Increase in Authorized Shares and Creation of a Preferred Class of Stock
--------------------------------------------------------------------------------
On July 18, 2002, the Board issued a Consent whereby they unanimously approved
an amendment to The Company's Certificate of Incorporation to increase the
authorized common stock from 15,000,000 to 100,000,000 shares, and to authorize
the issuance of up to 25,000,000 shares of preferred stock, such terms to be
defined at the time of issuance. Both share authorizations are cumulatively
referred to as the "Authorized Shares Amendment." On August 12, 2002, the
consenting stockholders issued a Consent, whereby they approved the Authorized
Shares Amendment. At the time this action was approved, The Company had
15,000,000 shares of common stock authorized, of which 7,761,353 shares are
issued and outstanding as of the record date. Shareholders owning 3,930,183
shares consented.
The Authorized Shares Amendment will be implemented by filing the Amended
Certificate of Incorporation with the Secretary of State of Delaware. Once The
Company filed the Amended Certificate of Incorporation, The Company would have
92,238,647 shares of authorized but unissued common stock available for
issuance, as determined on the date the decision was made, less any common
shares that may have been issued between the date upon which the Board of
Directors approved the increase and it's effective date, so long as the total
issued and outstanding number of common shares did not exceed the limit of
15,000,000, prior to effective date of the increase to 100,000,000 shares.
The unissued shares of common stock will be available for issuance from time to
time as may be deemed advisable or required for various purposes, including the
issuance of shares in connection with financing or acquisition transactions and
the issuance or reservation of common stock for employee stock options. The
Company's Board would be able to authorize the issuance of shares for these
transactions without the necessity, and related costs and delays, of either
calling a special stockholders' meeting or of waiting for the regularly
scheduled annual meeting of stockholders in order to increase the authorized
capital. If in a particular transaction shareholder approval were required by
law or any stock exchanges or markets or were otherwise deemed advisable by the
Board, then the matter would be referred to the stockholders for their approval
notwithstanding that The Company might have the requisite number of voting
shares to consummate the transaction.
The Authorized Shares Amendment is not intended to have any anti-takeover effect
and is not part of any series of anti-takeover measures contained in any debt
instruments or the Certificate of Incorporation or the Bylaws of The Company in
effect on the date of this Information Statement. However, The Company
stockholders should note that the availability of additional authorized and
unissued shares of common stock could make any attempt to gain control of The
Company or the Board more difficult or time consuming and that the availability
of additional authorized and unissued shares might make it more difficult to
remove management. Although the Board currently has no intention of doing so,
shares of common stock could be issued by the Board to dilute the percentage of
common stock owned by a significant shareholder and increase the cost of, or the
number of, voting shares necessary to acquire control of the Board or to meet
23
the voting requirements imposed by Delaware law with respect to a merger or
other business combination involving The Company. The Company is not aware of
any proposed attempt to take over the company or of any attempt to acquire a
large block of The Company's common stock. The Company has no present intention
to use the increased authorized common stock for anti-takeover purposes. The
Authorized Shares Amendment will become effective upon the filing of the Amended
Certificate of Incorporation. Under federal securities laws, The Company cannot
file the Amended Certificate of Incorporation until at least 20 days after the
mailing of this Information Statement, which has been accomplished.
Transactions Related to Medical Technology and Healthcare Services
-------------------------------------------------------------------------
As of the quarter ended September 30, 2002 the Company had concluded three
transactions in accordance with it's stated shift in business focus.
The first agreement dated June 27, 2002 was with Camden Holdings, Inc., a
diversified holding company with interests in many industries, including the
healthcare industry. The Company received financing of $250,000 in exchange for
1,000,000 shares of our restricted common stock. Shareholder consent was not
required for the agreement.
The second agreement, dated June 28, 2002, is an asset purchase agreement with
Genesis Health Tech, Inc., a wholly owned subsidiary of Camden Holdings. The
Company purchased a comprehensive database of healthcare providers throughout
the U.S., in exchange for 666,667 shares of our restricted common stock. The
Board has approved this agreement, and a majority of the stockholders have
consented to the transaction. Of the 7,761,353 shares of common stock
outstanding, shareholders owning 3,930,183 shares consented to this transaction.
The closing of this transaction was subject to our compliance with Regulation
14C of the Securities and Exchange Act of 1934, as amended, and NASDAQ
regulations, including all the filings, which has been accomplished.
The Company entered into a third agreement with Med Wireless, Inc., on July 16,
2002, as amended August 21, 2002. The initial executed agreement contemplated
the issuance of 3 shares of The Company for each 1 share of Med Wireless shares,
but only after giving effect to a 5 for 1 forward split of the Company Shares,
as was contemplated by the Board of Directors of The Company and called for in
the agreements between the Company and Med Wireless, Inc. Subsequent to the
execution of the Med Wireless, Inc. agreement, dated July 16, 2002, the Board of
Directors of The Company elected by written consent on August 18, 2002 elected
to delay the implementation of a 5 for 1 Forward Split of it's common stock.
The agreements between Med Wireless and the Company were then amended by Med
Wireless, Inc and the Company to reflect the issuance of 6,600,000 shares of The
Company common stock to the shareholders of record of Med Wireless, Inc, which
results in the same proportionate ownership of The Company to the Med Wireless,
Inc. shareholders as contemplated in the original executed agreement as more
fully described below. The Company Board of Directors intends to consider the
decision to affect the forward split in the future, and it now delayed until
further notice.
On August 12, 2002, the consenting stockholders issued a Consent whereby they
approved the Terms (as defined below) of a proposed license and assignment
agreement between the Corporation and Med Wireless, Inc., a Nevada corporation
("Med Wireless"). On August 19, 2002, the Board issued a Resolution adopting
and approving an Exclusive License and Assignment Agreement (the "Med Wireless
Agreement") by and among The Company and Med Wireless pursuant to which (i) for
a period of 15 years, The Company would license from Med Wireless all of its
rights and interest in certain applications and software relating to the
movement of medical images and data though the Internet and handheld wireless
devices, databases of healthcare providers and customer lists, (ii) Med Wireless
would assign its customer and distribution agreements related to the licensed
intellectual property to The Company, and (iii) The Company would assume
$1,120,000 of outstanding debt of Med Wireless, in exchange for the issuance to
Med Wireless of 6,600,000 shares of The Company restricted common stock (the
"Terms"). The Med Wireless Agreement will result in Med Wireless owning
approximately 44% of The Company's outstanding shares after giving effect to the
transaction. Two affiliated parties, each with minority interests in The
Company, also own minority interests in Med Wireless either directly or
indirectly. The two parties combined control 52.3% of Med Wireless, although
24
the two parties do not have any oral or written agreement to act in concert in
any respect. The closing of this transaction was subject to the effectiveness
of a filing of a Schedule 14C and compliance with NASDAQ regulations, including
all requisite filings, which were accomplished during the quarter. Of the
7,761,353 shares outstanding, shareholders owning 3,930,183 shares consented to
this transaction.
Med Wireless, Inc. has developed a number of wireless applications for the
healthcare industry. These technologies are primarily based on allowing
high-resolution transfer of diagnostic-quality images, including ultrasound,
over the Internet and intranet networks. We intend to license the entire suite
of products, sell direct to end-users and enter into distribution agreements
for the sale of these products.
The Med Wireless products offering are unique and highly specialized.
FUTURE TRENDS
--------------
Over the next four quarters, we intend to continue to shift our business focus
away from the gaming equipment and cigar industries, and toward the medical
technology and healthcare services industries.
The company intends to add products and services, which are complimentary to the
company's core technology and distribution capabilities. Management is
actively negotiating with potential customers distributors and suppliers to add
to the company's offering to customers. The company has begun a comprehensive
marketing program including participation in trade show events and media
promotions and direct selling efforts.
Management is actively evaluating potential acquisition candidates and intends
to acquire complimentary companies or technologies.
All transactions have been and continue to be conducted at arms-length terms,
and all shares received were and will be valued at fair market price as
determined by our trading price.
We intend to divest ourselves of the gaming equipment and cigar industries when
and if such opportunities arise which result in a transaction value that is
beneficial to the company and its shareholders. Any such transaction will be
conducted at arms-length and for fair value. We do not currently have any such
definitive agreements proposed or pending.
Litigation between Todd Sanders and Nuway Medical, Inc.
--------------------------------------------------------------
On October 30, 2002 Mr. Todd Sanders, former President and CEO of the Company,
through his company, Devenshire Management Corp, as represented by counsel,
filed a legal action against the Company in the Superior Court of the State of
California and in and for the County of Los Angeles, seeking an order to show
cause regarding a preliminary injunction; mandatory preliminary injunction and
seeking a temporary restraining order, effectively seeking to force the Company
to instruct the Company's stock transfer agent, American Stock Transfer to
remove any restricted legend on 323,903 shares of common stock which Devenshire
indicated in it's pleadings had already been sold. The initial motion was heard
in an Ex Parte Hearing and the request was initially granted in favor of
Devenshire.
The Company, upon learning of the action referenced above, through it's counsel,
appeared in the same Superior Court forthwith, presenting argument in opposition
to the motions by Devenshire and the initial ruling by the Court was reversed,
in favor of the Company, pending additional hearings. Two days later another
hearing was scheduled and the Court elected to not hear any argument, and set a
hearing for November 25, 2002.
In a separate matter, on November 11, 2002, the Company tendered a formal notice
of Mr. Todd Sanders that he promptly return all corporate records, minute books,
and Board of Directors resolutions that the Company believes he had removed from
the Company's former corporate offices, without authority of the Board or the
Company. He has not yet complied nor responded to the demand. The Board of
Directors is reviewing his activities as an officer of the Company.
25
NASDAQ
------
NASDAQ delivered to the Company a letter on June 14, 2002 notifying the company
of it's requirement to maintain compliance with Marketplace Rule 4310 (c)
(8)(D), commonly referred to as the $1.00 minimum bid price rule. This letter
put the Company on notice of its obligation to fulfill the requirements of the
Rule on or before December 11, 2002. It further went on to explain that if the
company did not meet the requirements of the Rule, that the NASDAQ staff would
review the most recent quarterly report of the company to determine if the
Company met the initial listing criteria. If the Staff determines that the
Company meets the initial listing criteria, then an additional 180 days would be
granted to allow the company time to meet the Rule. If the Company does not meet
the initial listing requirements on or before December 11, 2002, then the Staff
would notify the Company that it's would be delisted and the Company is entitled
to an appeal process.
Based on the information contained in this report, the Company believes it will
meet the initial listing requirements.
ISOP
----
On October 12, 2002 the Board of Directors approved the formation and
ratification of a company Incentive Stock Option Plan for use in recruitment and
retention of qualified staff to serve the Company. The plan authorizes the
issuance of up to 5,000,000 common shares of stock. The Board of Directors
approved by written consent a grant of 1,000,000 shares of stock pursuant to the
Company's Incentive Stock Option Plan, to be granted to Mr. Dennis Calvert,
President and CEO of the Company as consideration for his services.
Employment Agreement
---------------------
The Company is seeking to secure a long-term employment agreement with Mr.
Calvert and intends to conclude such an agreement as soon as possible, but not
later than by the end of the year 2002.
Quarterly Filing Due September 14, 2002
--------------------------------------------
In an effort to comply with it's filing requirements, the Company filed a
notification of late filing on Form 12b-25 in paper form by overnight delivery
on November 14, 2002 for delivery to the Securities and Exchange Commission for
delivery on November 15, 2002. This form is used as a notification of late
filing by a reporting company that determines that it is unable to file a
required periodic report when first due without unreasonable effort or expense.
If a company files a Form 12b-25, it is entitled to relief, but must file the
required report within five calendar days (for a Form 10-Q or 10-QSB) or within
fifteen calendar days (for a Form 10-K, 10-KSB, 20-F, 11-K, or N-SAR).
On the next business day, November 18, 2002, the Company filed the same Form
12b-25 by electronic submission through the EDGAR system. That electronic
submission was received and recorded as "accepted but reclassified as NTN 10Q".
The Company intends on reviewing this classification in light of the paper
filing accomplished on November 15, 2002 to reclassify its filing as a timely
filing. The Company believes that this would be proper in light of unusual and
unforeseen circumstances. On November 14, 2002, the SEC's EDGAR system
experienced technical difficulties and in an abundance of caution the Company
filed the Form 12b-25 by paper. No assurance can be given that the Company's
submission will be reclassified as timely.
Management's Discussion and Analysis or Plan of Operation
----------------------------------------------------------------
26
Results of Operations
-----------------------
The nine-month period and three-month period ended September 30, 2002 as
compared to the nine-month period and three-month period ended September 30,
2001
----------------------
Revenues
--------
Revenues from the gaming equipment operations in Peru and Colombia for the
nine-month period ended September 30, 2002 decreased by $129,134 or 34%, to
$245,658 from $374,792 for the comparable period in 2001. For the three month
period ended September 30,2002 revenues decreased by $46,716 or 43% to $62, 318
from $109,034 compared to the same period in 2001. This decrease in both
periods was the result of an overall weakness of the economy in South America,
political changes and increased competition in the industry. The company also
experienced the effects of government-mandated obsolescence in Peru, which
required us to retire 200 machines from our inventory. We also significantly
reduced marketing and advertising expensing, in view of our decision to
discontinue operations in this business.
Revenues from cigar sales for the nine months ended September 30, 2002 were
$85,230 a decrease of $37,540 or 31% for the same period in 2001. For the three
month period ended September 30,2002 revenues were $39,322 compared to revenues
of $50,995 a decrease of $11,673 or 23% compared to the same period in 2001. We
also significantly reduced marketing and advertising expensing, in view of our
decision to discontinue operations in this business.
Revenues from our oil and gas operations for the nine months ended
September 30, 2002 were $298,527. For the three month period ended September
30,2002 revenues were $83,965. The company did not have any oil and gas
activities in the corresponding periods in 2001.
Capital Expenditures
---------------------
There were no capital expenditures for the gaming equipment operations for
the nine-month period ended September 30, 2002, which is equivalent to the
capital expenditures of the same period ended 2001. The three-month results are
the same as nine-month results.
Capital expenditures for the cigar business were zero for the nine months
ended September 30, 2002, as compared to zero for the nine months ended
September 30, 2001. The three-month results are the same as nine-month results.
Capital expenditures for the oil and gas business were $1,530,582 for the
nine months ended September 30, 2002, as compared to zero for the nine months
ended September 30, 2001. The three-month results are the same as nine-month
results.
Capital expenditures for the Med Wireless Transaction were $4,620,000 for
the nine months ended September 30, 2002 as compared to zero for the nine months
ended September 30, 2001. All capital expenditures for this transaction were
recorded in the past three months and there were zero capital expenditures
related to this transaction in 2001.
Selling, General and Administrative Expenses
------------------------------------------------
Selling, general, and administrative expenses incurred in the nine-months
ended September 30, 2002 decreased $854,073 or 52%, to $1,634,003 from
$2,688,076 for the same period in 2001, and for the three months ended September
30, 2002 decreased $784,790 or 58%, to $559,100 from $1,343,890 for the same
period in 2001. This reduction is due to our reduction in marketing and
advertising expenses for our cigar and gaming equipment industries, as well as
our 10% reduction in staff in our Miami operations.
27
Net Profit (Loss)
-------------------
Net loss for the months ended September 30, 2002 was $2,427,362 or $(.33)
per share as compared to $2,577,955 loss or $(.61) per share for the same period
2001. Net loss for the three months ended September 30, 2002 was ($1,112,750),
or $(.11) per share as compared to ($1,231,823) or $(.29) per share for the
comparable period ended 2001, representing a decrease of $119,023 in net loss.
The reason for the net loss per share being less for the three and nine month
periods ended September 30, 2002 as compared to the same periods in 2001 was
because of the increase in outstanding shares in 2002. This reduction is the
result of our reduction of costs in selling, general and administrative
expenses, discussed above.
Liquidity and Capital Resources
----------------------------------
Cash and cash equivalents decreased approximately $823 to $8,902 at
September 30, 2002 from $9,725 at June 30, 2002. The decrease is attributable to
overhead expenditures higher than operating revenues, and the continued slow
growth of the cigar operations and increase of oil and gas operations.
The company has $19,623 outstanding in loans to companies controlled by
Related parties please refer to our discussion in note 3 to our financial
statements. The notes are payable quarterly, and accrue interest at prime plus
1% (5.75% at September 30, 2002). The company anticipates full repayment of
this loan by the end of 2002.
The company has an outstanding loan of $40,000 to Jeffrey Felder, the
current president of our cigar subsidiary, and formerly an officer of the
company. The note was payable quarterly, and accrued interest at prime plus 1%,
and matured on October 29, 2001, the termination date of the officer. The
company anticipates full repayment of this note by the end of 2002.
In December 2000, the company offered a private placement of $3,500,000 in
principal amount of 6% Convertible Debentures, which are convertible into common
stock at an exercise price of $1.75 per share. These debentures were due
September 13, 2001, and were subsequently extended to December 13, 2001.
$150,000 of these debentures remains unconverted and outstanding, with accrued
interest of $9,000. These notes are currently under default, and the company is
negotiating the terms of settlement with the note holders. Please refer to our
discussion in Note 7 to our financial statements.
Part II - OTHER INFORMATION
Legal Proceedings
------------------
The disclosures set forth under the caption "Litigation between Todd Sanders and
Nuway Medical, Inc." are hereby incorporated by reference.
Defaults of Senior Securities
--------------------------------
As of December 13, 2001, the Company has been in default on its 6% convertible
debentures. The current amount in default is $150,000, not including $9,000
of accrued interest due. Please refer to our discussion in "Management's
Discussion and Analysis - Liquidity and Capital Resources," and Note 7 to our
financial statements.
Submission of Matter to a Vote of Security Holders
----------------------------------------------------------
28
The disclosures set forth under the captions "Name Change", "Increase in
Authorized Shares and Creation of a Preferred Class of Stock", and "Transactions
Related to Medical Technology and Healthcare Services" are hereby incorporated
by reference.
Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
3.1 Articles of Incorporation (Delaware), as amended (1)
3.2 Certificate of Merger Merging Repossession Auction, Inc. (Florida
Corporation) and Repossession Auction, Inc. (Delaware
Corporation)(1)
3.3 Bylaws (1)
3.4 Certificate of Amendment to Certificate of Incorporation (1)
3.5 Certificate of Amendment to Certificate of Incorporation (3)
3.6 Bylaws, as amended (3)
4.1 Form of publicly traded Warrant Agreement (1)
4.2 Form of private warrant dated December 12, 2000 (1)
4.3 Form of 6% Convertible Debenture dated December 14, 2000 (1)
4.4 Form of Amendment to 6% Convertible Debenture (1)
4.5 Amendment to Publicly Traded Warrant (1)
10.1 Share Purchase Agreement with Camden Holdings, dated June 27, 2002
10.2 Asset Purchase Agreement by and among the Company, Camden Holdings and
Genesis Health Tech, dated June 28, 2002.
10.3 Agreement with Med Wireless Inc. dated August 21, 2002, as amended (3)
10.4 Incentive Stock Option Plan (3)
15.1 Letter on unedited interim financial statements (2)
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
________________
(1) Previously filed on Form 10-KSB for the fiscal year ended December 31,
2001.
(2) Incorporated into financial statements filed herein.
(3) To be filed by amendment.
(b) Forms 8-K
----------
A Form 8K was filed on September 20, 2002 under "Item 5. Other Events" pursuant
to which the resignations of the following directors was reported: Todd
Sanders, Michael Iscove and William Bossung. The resignation of Mr. Bossung as
Chief Operating Officer and Secretary was also reported.
29
Signatures
----------
In accordance with the requirements of the Securities and Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Nuway Medical, Inc.
Date: November 18, 2002 /s/ Dennis Calvert
------------------------------
By: Dennis Calvert
President
Date: November 18, 2002 /s/ Joseph Tawil
------------------------------
Acting Chief Financial Officer
and Chief Accounting Officer
30
I, Dennis Calvert certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Nuway Medical, Inc.
(Formerly known as Nuway Energy, Inc.).
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: 11-18-02
/s/ Dennis Calvert
------------------
Dennis Calvert - President
31
I, Joseph Tawil certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Nuway Medical, Inc.
(Formerly known as Nuway Energy, Inc.).
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: 11-18-02
/s/ Joseph Tawil
----------------
Joseph Tawil- Chief Financial Officer
32