UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
2004
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OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE TRANSITION PERIOD FROM _____TO
_______
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COMMISSION
FILE NUMBER: 33-43423
NUWAY
MEDICAL, INC.
(Name
of
Small Business Issuer in its Charter)
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Delaware
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65-0159115
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification No.)
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2603
Main Street, Suite 1150, Irvine, CA 92614
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(Address
of principal executive offices, Zip Code)
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Issuer’s
telephone number, including area code: (949) 235-8062
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Securities
registered under Section 12(b) of the Exchange Act:
None
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Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.00067 par value
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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) been subject
to
such filing requirements for the past 90 days. Yes o No x.
Check
if
disclosure of delinquent filers in response to Item 405 of Regulation S-B is
not
contained in this form, and no disclosure will be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB o.
Issuer’s
revenue for its most recent fiscal year: $
-0-
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
sold, or the average bid and asked price of such common equity, as of December
31, 2004 was $0.01.
The
number of shares outstanding of the issuer’s class of common equity as of May
31, 2005 was 51,981,236.
Transitional
Small Business Disclosure Format (check one): Yes o No x
TABLE
OF
CONTENTS
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PART
I
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3
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Item
1. Description of Business
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3
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Item
2. Description of Property
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14
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Item
3. Legal Proceedings
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15
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Item
4. Submission of Matters to a Vote of Security Holders
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16
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PART
II
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17
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Item
5. Market for Common Equity and Related Stockholders
Matters
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17
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Item
6. Management’s Discussion and Analysis of Financial Condition and Results
of Operation
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21
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Item
7. Financial Statements
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30
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Item
8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
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30
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Item
8A. Controls and Procedures
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30
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Item
8B. Other Information
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31
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PART
III
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32
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Item
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
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32
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Item
10. Executive Compensation
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35
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Item
11. Security Ownership of Certain Beneficial Owners and
Management
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37
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Item
12. Certain Relationships and Related Transactions
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38
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Item
13. Exhibits
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42
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Item
14. Principal Accountant Fees and Services
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45
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Signatures
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46
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Report
of Independent Registered Public Accounting Firm
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47
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Index
to Financial Statements
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48
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Consolidated
Financial Statements for the Years Ended December 31, 2004 and
2003
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F-1
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Exhibits
Filed With This Report
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PART
I
ITEM
1. DESCRIPTION OF BUSINESS
Use
of Forward Looking Statements in this Report
This
Annual Report on Form 10-KSB (the “Annual Report”) contains forward-looking
statements. These forward-looking statements include predictions regarding
our
future:
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general
and administrative expenses;
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liquidity
and sufficiency of existing cash;
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the
outcome of pending or threatened litigation;
and
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the
effect of recent accounting pronouncements on our financial condition
and
results of operations.
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You
can
identify these and other forward-looking statements by the use of words such
as
“may,”“will,”“expects,”“anticipates,”“believes,”“estimates,”, “continues,”
or the negative of such terms, or other comparable terminology. Forward-looking
statements also include the assumptions underlying or relating to any of the
foregoing statements.
Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those
set
forth below under the heading “Risk Factors.” All forward-looking statements
included in this document are based on information available to us on the date
hereof. We assume no obligation to update any forward-looking statements.
The
information contained in this Annual Report is as of December 31, 2004, unless
expressly stated otherwise.
Overview
NuWay
Medical, Inc., a Delaware corporation (the "Company") had no continuing business
operations as of December 31, 2004. At this time, the Company is operating
as a
public shell and management is seeking merger and acquisition candidates with
ongoing operations.
Over
the
course of several years, the Company has attempted to enter various businesses
through the acquisitions of entities operating ongoing businesses or technology
that needed to be developed and marketed. However, as a result of various
factors, primarily inadequate capital and the inability to raise sufficient
financing successfully, these acquisitions could not be properly exploited
and
integrated to produce profitable operations by the Company. Management of the
Company has elected to dispose, through sales or other means, these
acquisitions.
The
Company was initially organized as Repossession Auction, Inc. under the laws
of
the State of Florida in 1989. In 1991, the Company merged into a Delaware
corporation bearing the same name. In 1994, the Company's name was changed
to
Latin American Casinos, Inc. to reflect its focus on the gaming and casino
business in South and Central America, and in 2001 the Company changed its
name
to NuWay Energy, Inc. to reflect its new emphasis on the oil and gas development
industry. During October 2002, the Company's name was changed to NuWay Medical,
Inc. coincident with the divestiture of its non-medical assets and the retention
of new management.
Since
March 2003, new management of the Company has struggled to deal with the
following issues, often simultaneously:
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Limited
capital resources in a prolonged period of difficulty in the capital
markets, especially for small public companies, creating severe
limitations on the Company's ability to maintain its reporting obligations
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and its business operations
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Trying
to exploit technologies or businesses that existed when the Company’s
president, Dennis Calvert, took the helm of management
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Determining
which businesses were worth pursuing and which were not
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Trying
to acquire or develop new businesses
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Because
of the scarcity of cash on hand, using common stock and securities
convertible into common stock to bring on board employees, directors,
consultants, professional service provides and
advisors
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Because
of the scarcity of cash on hand, using common stock and securities
convertible into common stock to acquire businesses
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Dealing
with inquiries from the SEC regarding certain practices and transactions
in the Company's past, including questions raised about any continued
involvement of Mark Roy Anderson in the ongoing business of the
Company
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Dealing
with the NASDAQ Qualifications Panel hearing process in May 2003
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Dealing
with the delisting of the Company's common stock from the NASDAQ
Small Cap
Market
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Dealing
with inquiries from the Federal Bureau of Investigations ("FBI")
related
to any past dealings with Mr. Anderson or his
affiliates
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Dealing
with litigation with former officers of the Company and related litigation
stemming from their leadership of the Company
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These
issues present extraordinary challenges to management as it tries slowly to
turn
the situation around. The Company is presently focused primarily on maintaining
the corporate entity, complying with its reporting obligations under the
Securities Exchange Act and seeking new business opportunities, including
without limitation, healthcare and technology businesses. The Company will
need
working capital resources to maintain the Company's status and satisfy its
reporting obligations, and to fund other anticipated costs and expenses during
the year ending December 31, 2004 and beyond. The Company's ability to continue
as a going concern is dependent on the Company's ability to raise capital to,
at
a minimum, meet its corporate maintenance requirements and reporting
obligations. If the Company is able to acquire an ongoing business and/or
technology that must be exploited, it would need additional capital until and
unless that prospective operation is able to generate positive working capital
sufficient to fund the Company's cash flow requirements form operations.
Until
April 2005, the Company also continued to deal with the effects of certain
matters that arose (i) under prior management and (ii) from its business
dealings with a former consultant and principal stockholder of the Company,
Mark
Roy Anderson.
Mr.
Anderson is a former affiliate of the Company and was involved in the Company
from June 2002 until March 2003 through a series of transactions between the
Company and Mr. Anderson or companies affiliated with Mr. Anderson. See "Related
Parties and Certain Transactions". Mr. Anderson became involved with the Company
during a period of transition of management from the Company's prior management
team led by Mr. Sanders and a shift in the Company's business focus from a
variety of businesses in gaming, tobacco and oil and gas, to healthcare and
health-related technology.
In
June
2002, Mr. Anderson purchased 1,000,000 shares of the Company's common stock
for
$250,000. In July 2002, Med Wireless, Inc. ("Med Wireless"), a company in which
Mr. Anderson was the founder and principal stockholder, licensed certain
medical-related technology to the Company for a 15-year term. In exchange for
the license, the Med Wireless stockholders in the aggregate received 6,600,000
shares, or approximately 44%, of the Company's then outstanding common stock.
Of
that amount, Mr. Anderson and his affiliates received 2,868,928, or
approximately 19%, of the Company's then outstanding common stock.
Camden
Holdings, Inc. ("Camden Holdings"), another company controlled by Mr. Anderson,
was active in the development of the business of Med Wireless, beginning prior
to the acquisition of the Med Wireless technology by the Company.
In
addition, Camden Holdings was actively involved in the Company's sale-leaseback
program of ultrasound machines, which were marketed primarily to doctors,
medical clinics and hospitals. Under this program, the Company attempted to
arrange the purchase of ultrasound machines by investors, who would lease the
machines to the Company. In turn, the Company would sub-lease the ultrasound
machines to the end user. Camden Holdings secured purchase orders from both
investors and prospective end-use lessees of the ultrasound machines. These
purchase orders were conditioned upon the Company's ability to secure financing
of its own lease obligations of the ultrasound machines from the investors.
This
was not accomplished because the Company lacked the financial resources and
credit to obtain such financing. The Company continued to pursue attempts to
arrange such financing through March 2003.
Also
in
June 2002, the Company purchased a marketing database of healthcare providers
in
the United States from Genesis Healthtech, Inc. ("Genesis"), a wholly-owned
subsidiary of Camden Holdings, which was controlled by Mark Roy Anderson. The
total purchase price of $300,000 was satisfied by the issuance of 666,667 shares
of the Company's common stock. The database was purchased with the intention
of
marketing the Company's sale-leaseback program of ultrasound machines. When
the
Company was unable to make the sale-leaseback program commercially viable,
the
marketing database became useless to the Company.
In
order
to focus the Company's then-primary business opportunity in healthcare
technology, the Company divested its non-core businesses in gaming, oil and
gas
and tobacco, during the period that Mr. Anderson exerted his influence over
the
Company. In October 2002, the Company sold its Latin America gaming businesses,
Latin American Casinos Del Peru S.A., a Peruvian corporation, and Latin American
Casinos of Colombia LTDA, a Colombian corporation, to Casino Venture Partners
("CVP"), another entity controlled by Mr. Anderson.
Also
in
October 2002, the Company sold its Canadian oil and gas development businesses,
NuWay Resources, Ltd., to Summit Oil & Gas, Inc. ("Summit Oil"), yet another
entity which was controlled by Mr. Anderson. In November 2002, World's Best
Rated Cigars, Inc., the Company's wholly-owned subsidiary, which was engaged
in
the distribution and sale of premium brand cigars, was shut down and
discontinued.
As
a
result of all of the foregoing transactions with Mr. Anderson and companies
controlled by Mr. Anderson, the Company believes that Mr. Anderson was the
beneficial owner of an aggregate of 5,777,479 shares, or more than 30%, of
the
Company's common stock outstanding as of December 31, 2002, assuming Mr.
Anderson beneficially owned all the shares at the same time. The Company
believes that Mr. Anderson sold some of the shares which were issued pursuant
to
the Company's 2002 Consultant Equity Plan (the "2002 Plan"), and as such the
number and percentage of the Company's common stock held by Mr. Anderson at
any
one time may have been less than that indicated above. In any event, Mr.
Anderson failed to file any reports with the Securities and Exchange Commission
("SEC") on Schedules 13D or 13G, or on Forms 3 or 4, and, therefore, the Company
cannot confirm any of these numbers at any given point in time.
By
the
end of 2002 and into the beginning of 2003, it had become apparent to the
Company that Mr. Anderson had divergent business objectives to those of the
Company, and the Company had concerns about additional dealings with Mr.
Anderson. In March 2003, the relationship between the Company and Mr. Anderson
reached a climax when the Company severed its business relationships with Mr.
Anderson. At that time, the Company actively supported Dennis Calvert, the
Company's current President, in his purchase of Mr. Anderson's interests in
the
Company. New Millennium Capital Partners, LLC, a Nevada limited liability
company ("New Millennium") controlled by Mr. Calvert, purchased the Company's
promissory note in the principal amount of $1,120,000 and an aggregate of
4,182,107 shares of the Company's common stock from various entities controlled
by Mr. Anderson, although the total number of shares purchased is in
dispute.
The
transaction was executed as part of a plan to remove Mr. Anderson totally from
any involvement in the Company and provide a completely new focus and direction
for the Company under new management led by Mr. Calvert. Please see "Related
Parties and Certain Transactions" for more information regarding these
businesses and the relationship between the Company and Mark Roy
Anderson.
Impaired
Assets and Discontinued Businesses
Med
Wireless and PRLS Technologies
Management
of the Company deemed it necessary to discontinue the Company's attempt to
develop and market the Med Wireless and Player Record Library System ("PRLS")
technologies, because the Company was unable to raise additional funds to
further develop and market those technologies. The Med Wireless technology
consists of software that is compliant with the Health Insurance Portability
and
Accountability Act ("HIPAA"), to electronically organize, store and retrieve
medical records and medical images. Although the formal decision to discontinue
the operations was made subsequent to December 31, 2003, the Company's financial
statements for the year ended December 31, 2003 reflect a discontinued
operations segment related to the abandonment of the exploitation of the Med
Wireless and PRLS technologies after a charge to impairment in an amount equal
to the remaining net book value of the acquired technology. See Note 3 to Notes
to Consolidated Financial Statements.
Based
on
the rapid increase in the number of well-capitalized companies offering
competing technologies, as well as the fact that the Company has been unable
to
continue funding any technology enhancements or development related to the
Med
Wireless technology, management came to believe that the Med Wireless technology
had lost the ability to be a viable competing technology in its sector and
that
it was not in the Company's best interest to continue to pursue the Med Wireless
technology. Moreover, management is doubtful if the Med Wireless technology
will
be considered of any significant value to a prospective buyer or licensee of
the
technology. The Company desires to sell this technology, if the opportunity
presents itself, but expects to realize only nominal net proceeds, if any,
for
the technology.
In
addition, the Company has abandoned its efforts to market a variety of products
and services to the sports industry with an emphasis on health and technology
related products. In 2003, the Company focused its primary efforts on developing
and marketing PRLS, a technology product that is derived, in part, from the
Med
Wireless technology. In December 2002, the Company had established NuWay Sports,
LLC ("NuWay Sports"), to develop and market the PRLS technology. NuWay Sports
is
owned 51% by the Company and 49% by former NFL football player Kenyon Rasheed.
PRLS is a highly specialized electronic medical record and workflow process
software application, designed to address the information technology needs
of
the sports industry relating to player health.
In
2004,
the Company attempted to sell NuWay Sports to a third party; however, these
negotiations were unsuccessful and a sale was not consummated. It is not likely
that the Company will find a party to sell its interest in NuWay Sports. If
it
did, it is not likely that the Company would receive any up-front cash payments.
It should also be noted that because Augustine II, LLC (the "Augustine Fund"),
a
creditor of the Company, has a lien on the Company's 51% membership interest
in
NuWay Sports, they would have to approve any such sale. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".
Ultrasound
Machine Sale-Leaseback Program
Under
the
Company's ultrasound machine sale-leaseback program, the Company attempted
to
arrange the purchase of ultrasound machines by investors, who would lease the
machines to the Company. In turn, the Company would sub-lease the ultrasound
machines to the end user. Camden Holdings secured purchase orders from both
investors and prospective end-use lessees of the ultrasound machines. These
purchase orders were conditioned upon the Company's ability to secure financing
of its own lease obligations of the ultrasound machines from the investors.
This
was not accomplished because the Company lacked the financial resources and
credit to obtain such financing.
The
Company continued to pursue attempts to arrange such financing through March
2003. Thereafter, the Company focused primarily on the Med Wireless and PRLS
technologies and, after occasional attempts to pursue the sale-leaseback program
through mid-2003, this program was no longer pursued.
The
termination of the sale-leaseback program also rendered useless the marketing
database, which the Company had purchased from Genesis, a wholly-owned
subsidiary of Camden Holdings. The database had been purchased with the
intention of marketing the Company's sale-leaseback program of ultrasound
machines.
Please
see Part II, Item 12, "Certain Relationships and Related Transactions” for more
information regarding these businesses and the relationship between the Company
and Mr. Anderson.
Abandoned
Acquisition
On
January 31, 2004, the Company entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") with Premium Medical Group, Inc., a Florida
corporation ("PMG") and PMG's sole stockholders, Eduardo A. Ruiz and Luis A.
Ruiz (the "PMG Stockholders"). Prior to this transaction, there was no business
or other relationship between the Company and its affiliates and PMG or the
PMG
Stockholders and, to the Company's knowledge, there was no business or other
relationship between PMG or the PMG Stockholders and Mark Roy Anderson.
Pursuant
to the Stock Purchase Agreement, the Company agreed to acquire 100% of the
shares of PMG from the PMG Stockholders in exchange for 30,000,000 shares of
the
Company's common stock, subject to certain adjustments. The exact number of
Company Shares to be issued to the PMG Stockholders was subject to adjustment
in
the event certain revenue was or was not generated by PMG during one year
following the closing of the transaction. PMG had been organized in June 2003
to
provide medical products to hospitals and medical clinics in South America,
primarily Venezuela. Luis A. Ruiz became a director of the Company in connection
with the transaction.
The
parties had a difference in expectations regarding who would be ultimately
responsible for paying for the audit of PMG that was required in order for
the
Company to complete its disclosure obligations under the Securities Exchange
Act. Additionally, the Company did not have a sufficient number of authorized
and unissued shares of its common stock to both satisfy its obligations to
the
PMG Stockholders and to issue shares of common stock in a meaningful financing
transaction, given the low price per share at which the Company's common stock
trades. The Company lacked the financial resources to schedule a stockholders'
meeting, prepare a proxy statement and solicit proxies for the purpose of
amending its Certificate of Incorporation to increase its authorized capital
stock.
As
a
result of these and other factors, the Company and PMG never consolidated their
operations, the Company never exercised control over PMG or its operations
and
the parties never exchanged stock certificates evidencing their ownership in
each other.
Therefore,
the parties entered into discussions and concluded amicably that it was in
the
mutual best interest of the respective companies and their respective
stockholders, to rescind the transactions provided for in the Stock Purchase
Agreement and return all parties to their respective positions prior to the
transactions contemplated in the Stock Purchase Agreement.
The
parties entered into a Rescission Agreement on October 14, 2004 that provides,
in relevant part, that (i) all transactions contemplated by the Stock Purchase
Agreement shall be rescinded as if the Stock Purchase Agreement had never been
executed and delivered; (ii) the parties forever waive all rights to receive
stock in PMG and the Company, as the case may be; (iii) Luis A. Ruiz shall
resign as a director of the Company; and (iv) the Company and PMG shall file
appropriate documents with the Secretary of State of the State of Florida with
respect to the rescission of the exchange of shares provided for in the Stock
Purchase Agreement.
Employees
At
December 31, 2004, the Company employed two full-time employees, reflecting
the
reduced operations of the Company at that time.
Risk
Factors
The
Company faces a number of significant risks associated with its current plan
of
operations. These include the following:
We
have a limited operating history and a history of losses.
The
Company has no current operations and, as such, may not be able to overcome
unanticipated difficulties that may be encountered related to the implementation
of its business plan. The Company has a limited operating history, limited
revenue from operations and a history of losses. In addition, because the
Company currently has no operations, the Company faces all of the risks inherent
with a start-up business, including the possibility that the Company cannot
acquire or develop a business that is viable. There is no assurance that, if
the
Company does find or develop a business, to acquire, whether such business
will
ever be profitable. The Company may also face unforeseen problems, difficulties,
expenses or delays in implementing its business plan.
We
need additional funds.
If
it
necessary for the Company to seek to secure additional funds for any new
business, general and administrative expenses and period reporting requirements,
there can be no assurance that such funds will be available, or will be
available on favorable terms. Failure to secure needed funds will directly
impact the Company's ability to maintain its publicly-traded status and,
potentially, the corporate entity itself. While management has dedicated itself
to the efforts to secure needed funds, the outcome and ultimate success of
those
efforts is uncertain.
The
cost of maintaining our reporting obligations is high.
The
Company is obligated to maintain its periodic public filings and public
reporting requirements, on a timely basis, to remain a public company and
maintain its registration as a listed stock. In order to meet these obligations,
the Company will need to continue to raise capital. If adequate funds are not
available to the Company, it will be unable to comply with those requirements
and could cease to be qualified to have its stock traded in the public market.
The Company has a history of delinquencies in its filing obligations with the
Securities and Exchange Commission.
Our
stockholders face potential dilution in any new financing.
Any
additional equity that the Company raises would dilute the interest of the
current stockholders and any persons who may become stockholders before such
financing. Given the low price of the Company's common stock, such dilution
in
any financing of a meaningful amount, could be substantial.
Our
stockholders face potential adverse effect from the terms of any newly issued
preferred stock.
In
order
to raise capital to meet expenses or to acquire a business, the Board of
Directors of the Company may issue additional stock, including preferred stock.
Any preferred stock which the Company may issue may have voting rights,
liquidation preferences, redemption rights and other rights, preferences and
privileges. The rights of the holder's of the Company's Common Stock will be
subject to, and in many respect subordinate to, the rights of the holders of
any
such preferred stock. Furthermore, such Preferred Stock may have other rights,
including economic rights, senior to the Company's Common Stock that could
have
a material adverse effect on the value of the Company's Common Stock. Preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, can also have the effect of making
it
more difficult for a third party to acquire a majority of outstanding voting
stock of the Company, thereby delaying, deferring or preventing a change in
control of the Company.
We
have been unable to obtain a quorum and schedule a vote of stockholders to
approve certain material transactions.
The
Company will be required to obtain stockholder approval to approve certain
material transactions and amend its charter to increase the authorized number
of
shares to approve a transaction with New Millennium, which is controlled by
our
President Dennis Calvert; raise funds; or effect a conversion of the convertible
notes beyond the number of shares of common stock currently authorized but
unissued. Obtaining stockholder approval is both costly and uncertain as to
its
success. The Company has attempted to secure stockholder votes for certain
corporate actions in the past and has been unable to secure a quorum. As a
result, the Company has been unable to effect certain material transactions,
and
this inability to act could threaten the viability of the Company.
If
we acquire any business, we will be dependent upon market acceptance and
competitive factors.
The
success of any business the Company acquires or develops will be highly
dependent upon, among other things, gaining market acceptance from customers
that will use the company's products and services. More specifically, these
factors include, among other things, how well its products or services perform
(ease of implementation, ease of use by customers, reliability, and scope of
products and services), competitive forces, the level of consumer demand for
products and services offered, the selling prices of its products and services,
and the effectiveness of the Company's marketing activities.
Our
common stock is thinly traded and largely illiquid.
In
June
2003, our common stock was delisted from the NASDAQ SmallCap Market. Our stock
currently trades on the Pink Sheets. The delisting has made it more difficult
to
buy or sell our stock and has lead to a significant decline in the frequency
of
trades and trading volume. The delisting will likely adversely affect the
Company's ability to obtain financing in the future due to the decreased
liquidity of the Company's shares. There can be no assurance when or if the
Company's common stock will be quoted on the OTC Bulletin Board, in light of
the
public interest concerns previously raised by NASDAQ in connection with the
delisting of the Company's shares.
Our
common stock is subject to “penny stock” regulations that may affect the
liquidity for our common stock.
Our
common stock is subject to the rules adopted by the Securities and Exchange
Commission that regulate broker-dealer practices in connection with transactions
in "penny stocks." Penny stocks are generally equity securities with a price
of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ Stock Market, provided that current price
and
volume information with respect to transactions in such securities is provided
by the exchange or system). The penny stock rules require a broker-dealer,
prior
to a transaction in a penny stock not otherwise exempt from those rules, deliver
a standardized risk disclosure document prepared by the Securities and Exchange
Commission, which contains the following:
| · |
a
description of the nature and level of risk in the market for penny
stocks
in both public offerings and secondary
trading
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| · |
a
description of the broker's or dealer's duties to the customer and
of the
rights and remedies available to the customer with respect to violation
to
such duties or other requirements of Securities'
laws
|
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a
brief, clear, narrative description of a dealer market, including
"bid"
and "ask" prices for penny stocks and significance of the spread
between
the "bid" and "ask" price
|
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a
toll-free telephone number for inquiries on disciplinary actions;
definitions of significant terms in the disclosure document or in
the
conduct of trading in penny stocks,
and
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| · |
such
other information and is in such form (including language, type,
size and
format), as the Commission shall require by rule or
regulation.
|
Prior
to
effecting any transaction in penny stock, the broker-dealer also must provide
the customer the following:
| · |
the
bid and offer quotations for the penny
stock
|
| · |
the
compensation of the broker-dealer and its salesperson in the
transaction
|
| · |
the
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market
for such stock
|
| · |
the
depth and liquidity of the market for such stock,
and
|
| · |
monthly
account statements showing the market value of each penny stock held
in
the customer's account.
|
In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment
for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement.
These
disclosure requirements may have the effect of reducing the trading activity
in
the secondary market for a stock such as our common stock if it is subject
to
the penny stock rules.
The
Company, some of its directors and its officers face risks in connection with
the criminal investigation of a former consultant and principal stockholder
of
the Company.
In
or
about May 2003, the Company learned through verbal discussions with
representatives of NASDAQ, in preparation for the Company's pending NASDAQ
qualifications hearing, that Mark Roy Anderson had a criminal background. In
or
about May and June 2003, the Company was informed in writing by the United
States Attorney's office in Los Angeles, that Mr. Anderson (i) was the target
of
a criminal investigation (the "Investigation") pertaining to the sale of
securities by Med Wireless (from which the Company licensed certain assets
in
2002), and (ii) had been convicted of multiple felonies unrelated to Med
Wireless in the 1990s. Mr. Anderson was the founder and principal stockholder
of
Med Wireless, and first introduced the concept of licensing the Med Wireless
software application and contracts to the Company in May 2002.
Dennis
Calvert had been approached initially by Mr. Anderson some time in 1996 to
consider entering into a business consulting relationship with
Anderson-controlled entities. Over the period from 1996 to 2001, Mr. Calvert
worked as a consultant periodically with Anderson-related entities for the
purpose of evaluating potential new businesses and potential investment
opportunities being considered by Mr. Anderson and these entities. In June
2002,
Mr. Calvert agreed to become president of Med Wireless, primarily for the
purpose of completing the Med Wireless transaction with the Company. As
consideration for his agreeing to become President of Med Wireless, Mr. Calvert
received 1,327,700 shares of Med Wireless stock from Mr. Anderson's holdings.
These shares were subsequently converted into 600,000 shares of the Company's
common stock pursuant to the terms of the transaction between Med Wireless
and
the Company.
On
June
28, 2002, Mr. Calvert was appointed president of the Company. At the same time,
Joseph Provenzano, who at that time was an employee of Camden Holdings, another
affiliate of Mr. Anderson, joined the Company's board of directors. In addition
to the Med Wireless transaction, and as disclosed elsewhere in this Annual
Report, entities that Mr. Anderson controls, including Camden Holdings, Genesis,
Summit Oil and CVP, invested $250,000 in the Company, sold the Company
additional assets and purchased the Company's previous operating businesses.
See
Part II, Item 12, "Certain Relationships and Related Transactions”. Although Mr.
Anderson never served as an officer or director of the Company, he served as
a
consultant to the Company and received consulting fees in the form of an
aggregate 1,241,884 shares of the Company's common stock. Since December 2002
Mr. Anderson has not been a consultant to the Company and since March 2003
has
not been involved in any way in the Company's operations.
In
the
purchase agreement between Mr. Anderson, his affiliates and New Millennium
in
March 2003 (the "New Millennium Agreement"), Mr. Anderson represented that
he
was selling 100% of his stock to New Millennium and would no longer own any
of
the Company's stock. Mr. Calvert is the Manager and, together with his wife,
the
sole members of New Millennium, and this transaction was engaged in to eliminate
Mr. Anderson as a stockholder of the Company and to remove him from any
involvement in the operations of the Company.
Subsequent
to the closing of that transaction, management learned through the Company's
transfer agent that Camden Holdings still owns 340,894 shares of the Company's
common stock. The Company and New Millennium believe that the existence of
these
340,894 shares of the Company's common stock owned by Camden Holdings Inc.
is a
material breach of the New Millennium Agreement, and the Company and New
Millennium are reviewing their respective legal rights with regards to this
matter.
Technically,
under the terms of the New Millennium Agreement, it is possible that Camden
Holdings or Mr. Anderson has the right to reacquire the shares of the Company's
common stock that were sold to New Millennium, if New Millennium defaults on
the
promissory note issued by New Millennium to Camden Holdings to purchase the
shares (the "New Millennium Note"). See " Part II, Item 12, "Certain
Relationships and Related Transactions”. The New Millennium Note is purportedly
secured by the purchased shares of the Company's common stock; however, New
Millennium and Mr. Calvert believe that Camden Holdings and Mr. Anderson have
not perfected their security interest in those shares. New Millennium has
defaulted on the New Millennium Note. However, New Millennium believes that
Camden Holdings failed to deliver all the shares of the Company held by Camden
Holdings, and thus breached the terms of their purchase agreement, making the
New Millennium Note void by its terms. In addition, the Augustine Fund is the
pledgee of 2,500,000 of these shares and holds those shares as pledgee.
On
or
about May 17, 2003, the Company was served by a subpoena issued by the grand
jury impaneled to investigate Mr. Anderson, requesting documents relating to
Mr.
Anderson and his affiliates, including Med Wireless, Camden Holdings, Summit
Oil
and Gas, and Summit Health Care. Additionally, the subpoena requested
information relating to the identity of the Company's officers, directors,
stockholders and consultants (legal, accounting and otherwise), and that the
Company provide copies of its filings and correspondence with the SEC, the
National Association of Securities Dealers and the NASDAQ Stock Market. The
Company cooperated fully with that request by providing the requested
information and intends to continue to fully cooperate with any future
investigative requests.
The
Company has learned that private placement memoranda distributed to Med Wireless
investors stated that Dennis Calvert was the president of Med Wireless as early
as 2001, and additionally believes that Mr. Anderson apparently made a number
of
similar false representations throughout 2001 and 2002. Mr. Calvert did not
approve this disclosure contained in those private placement memoranda nor
in
any other form, and has informed the Company that he was not engaged as the
president of Med Wireless until June 2002 and not any earlier, and that any
statements to the contrary are untrue.
Mr.
Provenzano joined Camden Holdings in 2001 to assist in its mergers and
acquisitions department, and he worked at Camden Holdings until March 2003.
Both
Mr. Calvert and Mr. Provenzano have informed both the Company and, through
their
own legal counsel, the Assistant U.S. Attorney, that they intend to cooperate
fully with law enforcement officials in the Investigation.
In
mid-2003, the Company was also informed by the Assistant United States Attorney
handling the Investigation that Dennis Calvert and Joseph Provenzano were not
considered "targets" of the Investigation; however, until their respective
roles, if any, in the specific events being investigated are determined, they
will be considered to be "subjects" of the Investigation, meaning that their
conduct is believed by the U.S. Attorney's office to be "within the scope"
of
the grand jury's investigation.
Although
neither the Company nor any of its officers or directors is currently the target
of any criminal investigation, including the one described in the previous
paragraph, there can be no assurance that such an investigation will not be
undertaken. Additionally, although neither the Company nor its officers or
directors have been contacted by either the U.S. Attorney's Office, or the
FBI
regarding the Investigation since mid-2003, neither the Company nor its officers
and directors can be certain that such requests will not be made in the future.
Furthermore, the ongoing Investigation has in the past occupied, and may in
the
future occupy, a significant amount of time of the Company and Messrs. Calvert
and Provenzano, creating a distraction from the Company's business. The mere
existence of the Investigation, not to mention the outcome thereof, depending
upon such outcome, could have a material adverse effect on the
Company.
The
Company may have violated certain securities laws and is delinquent in its
SEC
filings.
While
the
Company and its management seek to operate fully within the scope of the law
and
fulfill any and all regulatory obligations, the Company has been subject to
informal inquiries by the civil enforcement division
of the
SEC for possible securities violations in the past, including the acts of Mark
Roy Anderson and its previous failure to timely file its reports under the
Exchange Act.
On or
about August 19, 2004, the Company received a "Wells Notice" from the SEC that
the Company is delinquent in its filing of periodic reports with the SEC and
the
staff of the SEC may recommend enforcement proceedings be commenced against
the
Company. Since that time, the Company has cured this delinquency.
Although
the SEC formally terminated its investigation on April 19, 2005, and recommended
no enforcement action by the SEC against the Company, there can be no assurance
that the SEC will not begin a new investigation into the Company should
circumstances warrant.
ITEM
2. DESCRIPTION OF PROPERTY
As
of
December 31, 2003, the Company maintained its principal place of business at
23461 South Pointe Drive, Suite 200, Laguna Hills, California 92653. The lease
for the office was on a month-to-month basis, and was cancelable by either
party
with sixty days' written notice. Monthly rent was $7,850, payable in cash or
shares of the Company's common stock, valued at the then-current market price.
In 2003, the Company recorded $96,560 of rental expense in connection with
this
lease.
On
April
1, 2004, the Company terminated this lease. The Company's offices are currently
located at 2603 Main Street, Suite 1150, Irvine, California 92614. The Company
currently occupies space from a consultant at no cost to the
Company.
ITEM
3. LEGAL PROCEEDINGS
In
June
2002, Geraldine Lyons, the Company's former Chief Financial Officer, sued the
Company and the Company's former president Todd Sanders, for breach of her
employment contract. The lawsuit was brought in the Circuit Court of the 11th
Judicial Circuit in Miami-Dade County in Florida. Ms. Lyons seeks approximately
$25,000 due under the contract and the issuance of 100,000 shares of common
stock, with a guarantee that the stock could be sold by Ms. Lyons for $300,000.
Ms. Lyons alleges that additional funds are due under her employment contract;
that the contract requires the Company guarantee that she can sell for $300,000
the 100,000 shares of stock the Company is required to issue her; and, that
Mr.
Sanders promised to purchase from her 100,000 shares of Company common stock
held by her at the price of $4.00 per share.
The
Company has counter-sued Ms. Lyons for breach of fiduciary duty, fraud,
violation of Section 12(a)(2) of the Securities Act of 1933, violation of
Section 517.301 of the Florida Statutes, negligent misrepresentation, conversion
and unjust enrichment resulting from the required restatement of the Company's
financial statements for the years ended December 31, 2000 and December 31,
1999. The restatements corrected the previous omission of certain material
expenses related primarily to compensation expense arising from warrants issued
and repriced stock options, as well as other errors.
The
case
is ongoing at this time, although it has not been vigorously prosecuted by
Ms.
Lyons or the Company, in the Company's case primarily because the Company had
lacked the resources to do so. The Company entered into an agreement (“Legal
Defense Agreement”) in December 2004 such that Augustine Fund would pay for the
legal expenses associated with the Company’s defense and affirmative claims in
this lawsuit (with the right to withdraw funding at any time), and in exchange
would share any net proceeds awarded to the Company pursuant to a settlement
or
judgment. The sharing arrangement provides that Augustine Fund will recover
first, out of any money available from recovery, its legal and out of pocket
expenses related to the lawsuit; second, 85% of any additional amounts recovered
up to $500,000; and third, 50% of amounts recovered beyond $500,000. While
the
Company believes that it has meritorious positions in this litigation, given
the
inherent nature of litigation, it is not possible to predict the outcome of
this
litigation or the impact it would have on the Company.
In
May
2004, the Company was sued by Flight Options, Inc. (“Flight Options”), a jet
plane leasing company, in the Superior Court of Orange County California. The
lawsuit alleges that the Company owes Flight Options approximately $418,300,
pursuant to a five-year lease assigned to the Company by the Company's former
president Todd Sanders, from his corporation, Devenshire Management Corporation
(“Devenshire”). Management of the Company believes that the assignment of the
lease was not properly authorized or approved by the Company, and that by Mr.
Sander's failure to identify the lease in a December 2002 settlement agreement
with the Company, he breached the terms of that settlement agreement and,
pursuant to the settlement agreement, must indemnify the Company for any losses
owed to Flight Options. The Company has cross-complained against Mr. Sanders
for
indemnity, and has added the affirmative claim of breach of fiduciary duty.
On
March
17, 2005, the Company settled the lawsuit with Flight Options pursuant to a
stipulation that allows the Company to either pay Flight Options $100,000 on
or
before August 5, 2005, or allows Flight Options to file a judgment against
the
Company for $163,310 after such date. The Company’s claims against Devenshire
and Mr. Sanders will be litigated through binding arbitration prior to the
date
on which it must pay $100,000 to Flight Options. The Company’s Legal Defense
Agreement with the Augustine Fund applies also to the Flight Options litigation.
While the Company believes that it has meritorious positions against Devenshire
and Mr. Sanders, given the inherent nature of litigation, it is not possible
to
predict the outcome of this litigation or the impact it would have on the
Company.
On
December 4, 2004, the Company was sued by the law firm of Enenstein Russell
and
Saltz, LLP to collect fees that had been billed to the Company in the amount
of
$15,233, which had been disputed by the Company. The case is in its beginning
stage, and discovery has not yet been commenced. While the Company believes
that
it has meritorious positions in this litigation, given the inherent nature
of
litigation, it is not possible to predict the outcome of this litigation or
the
impact it would have on the Company.
The
Company is party to various other claims, legal actions and complaints arising
periodically in the ordinary course of business. In the opinion of management,
no such matters will have a material adverse effect on the Company's financial
position or results of operations.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market
Information
From
October 31, 1998 until June 10, 2003, the Company's common stock were listed
on
the NASDAQ Small Cap Market. Since such date, the Company's common stock has
been quoted on the National Quotation Service Bureau, commonly known as the
"pink sheets", under the symbol "NMED".
The
table
below represents the quarterly high and low bid prices for the Company's Common
Stock and Warrants for the last two fiscal years as reported by NASDAQ through
June 10, 2003 and as reported by Historical Stock Price Reports available at
www.yahoo.com thereafter.
Common
Stock High/Low Bid Prices:
|
2003
|
|
|
1st
Quarter
|
|
$
|
0.25
|
|
$
|
0.10
|
|
|
|
|
|
2nd
Quarter
|
|
$
|
0.14
|
|
$
|
0.08
|
|
|
|
|
|
3rd
Quarter
|
|
$
|
0.09
|
|
$
|
0.05
|
|
|
|
|
|
4th
Quarter
|
|
$
|
0.06
|
|
$
|
0.04
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
1st
Quarter
|
|
$
|
0.01
|
|
$
|
0.01
|
|
|
|
|
|
2nd
Quarter
|
|
$
|
0.01
|
|
$
|
0.01
|
|
|
|
|
|
3rd
Quarter
|
|
$
|
0.01
|
|
$
|
0.01
|
|
|
|
|
|
4th
Quarter
|
|
$
|
0.01
|
|
$
|
0.01
|
|
The
closing price for the Company's common stock on December 31, 2004 was $.01
per
share. As of December 31, 2004, there were approximately 280 registered owners
and of the Company's common stock.
At
December 31, 2004, the Company also had the following warrants outstanding:
| · |
stock
purchase warrants to purchase an aggregate 300,000 shares of the
Company's
common stock, which warrants had been issued in private offerings.
These
warrants permit the holder to purchase shares of common stock at
an
exercise price of $1.75 per share through December 11, 2005.
|
| · |
stock
purchase warrants to purchase an aggregate 519,322 shares of the
Company's
common stock, which warrants had been issued in private offerings.
These
warrants allow for the holder to purchase shares of common stock
at an
exercise price of $0.20 per share through March 7, 2006 (120,000
shares)
and April 15, 2006 (399,322 shares).
|
| · |
stock
purchase warrants to purchase an aggregate 6,158,381 shares of the
Company's common stock, which warrants had been issued in a private
offering to the Augustine Fund. These warrants initially allowed
for the
holder to purchase shares of common stock at an exercise price of
$0.16
per share through August 10, 2008, but were re-priced in 2004 (in
conjunction with an extension of the financing provided by Augustine
Fund)
to $0.035 per share.
|
| · |
stock
purchase warrants to purchase an aggregate 333,333 shares of the
Company's
common stock, which warrants had been issued to a consultant that
provided
services to the Company. These warrants allow for the holder to purchase
shares of common stock at an exercise price of $0.06 per share through
August 29, 2008.
|
Dividends
The
Company has never declared or paid a cash dividend to stockholders. The board
of
directors presently intends to retain any earnings which may be generated in
the
future to finance Company operations.
Sales
of Unregistered Securities
The
Company engaged in the following sales of unregistered securities during the
fiscal year ended December 31, 2004:
In
January 2004, The Company issued 30,000,000 shares of common stock to the
Premium Medical Group Shareholders in connection with a transaction in which
the
Company acquired the outstanding stock of Premium Medical Group. This
transaction has since been rescinded by the parties. See Note 15 to Notes to
Consolidated Financial Statements.
In
February 2004, the Company received gross and net proceeds of $5,000 from an
individual investor in connection with the sale of 156,250 shares of the
Company’s common stock. The issuance of the shares described above was made in
reliance on the exemption from registration set forth in Section 4(2)
of
the Securities Act of 1933, as amended.
In
February, 2004, the Company issued 600,000 shares of its common stock to former
convertible debenture holders to partially satisfy its obligations on a
settlement agreement. The shares issued reduced the Company’s settlement
obligations by approximately $17,000.
In
February, 2004, the Company issued an unvested warrant to Sachi International,
Inc. to purchase up to 3,000,000 shares of common stock at $0.04 a share. The
Warrant vests based on the amount of investment proceeds brought to the Company
by the Holder, with 100% vesting if the Holder brings $500,000 in investment
capital. In the event less than $500,000 is invested, the warrant vests in
a
pro-rata amount. The closing of any such investment shall be in the sole and
absolute discretion of the Company. Sachi International, Inc., has not met
the
conditions to vest the warrant.
In
March
2004, the Company issued 200,000 shares to David Wiechert in exchange for
professional services provided to the Company.
In
March
2004, the Company issued 3,000,000 shares to three of its four directors in
exchange for services provided to the Company.
In
September, 2004, the Company received gross and net proceeds of $25,000 from
two
individual investors in connection with the sale of 5,000,000 shares of the
Company’s common stock.
In
October, 2004, the Company received gross and net proceeds of $50,000 from
an
outside investor and issued its convertible promissory note due and payable
one
year from the date of issuance. The note bears interest at a rate of 10% per
annum, payable on the maturity date. The note can be converted, in whole or
in
part, into shares of the Company’s Series A Preferred stock, on the basis of
$.005 per share, at any time prior to maturity by either the Company or the
lender. Each share of Series A Preferred Stock may be converted by the holder
into one share of the Company’s common stock. If the noteholder converts the
note into Series A Preferred Stock, on or after the note’s original maturity
date the noteholder may require the Company to buy back the shares of Series
A
Preferred Stock for 110% of the principal amount of the promissory note (the
“Buy Back Provision”). If the Company is unable to do so, the Company’s
president, Dennis Calvert, has agreed to buy back the shares on the same terms.
If shares of Series A Preferred Stock are converted into common stock, the
holder has the right to include (piggyback) the shares of common stock in a
registration of securities filed by the Company (other than on Form S-4 or
Form
S-8).
The
Company’s payment obligations under the note may be accelerated upon the
following events: (i) the sale of the Company’s assets outside the ordinary
course of business; (ii) a breach of the representations and warranties
contained within the agreement evidencing the loan; (iii) the failure to timely
pay the note; (iv) the Company’s default in any other loan obligation greater
than $100,000; (v) the Company’s dissolution, liquidation, merger,
consolidation, bankruptcy, or future insolvency; and (vi) the commencement
of
any suit that threatens to have a material adverse effect on the Company,
including the entry of a final judgment or settlement in excess of
$100,000.
In
November, 2004, the Company received gross and net proceeds of $10,000 from
an
outside investor and issued a convertible promissory note on substantially
the
same terms as the previously described note.
In
December 2004, the Company issued 500,000 shares of its common stock to its
remaining former convertible debenture holder to partially satisfy its
obligations on a settlement agreement. The shares issued reduced the Company’s
settlement obligations by approximately $8,700.
All
of
these offerings and sales were made in reliance on the exemption from
registration contained in Section 4(2) of the Securities Exchange Act and/or
Regulation D promulgated thereunder as not involving a public offering of
securities.
Sales
of Unregistered Securities In 2005
In
January 2005, the Company received gross and net proceeds of $25,000 from an
outside investor and issued a convertible promissory note on substantially
the
same terms the previously described note.
Also
in
January 2005, the Company received gross and net proceeds of $75,000 from two
outside investors and issued convertible promissory notes on substantially
the
same terms as the previously described notes, except the notes do not include
buy back provisions, and allow conversion into a total of 18,000,000 shares
of
common stock (at $0.0042 per common share, rather than $0.005 per Series A
Preferred share).
In
February 2005, the Company amended its obligations to Dr. James Seay (the
“noteholder”) under its promissory note dated November 20, 2003 in the principal
amount of $50,000 and which matured on February 18, 2004. On the maturity date
of the note the Company was obligated to pay the noteholder $65,000. The Company
has paid the noteholder $30,000 and the balance of $35,000 remains outstanding.
The amendment to the note entered into on February 10, 2005, (i) extends the
maturity date of the note to February 3, 2006, (ii) provides for interest to
accrue at a rate of 10% per annum (15% upon default), and (iii) allows for
the
conversion of the note into 7,000,000 shares of the Company’s common stock, or
$.005 per share.
In
February 2005, the Company received gross and net proceeds of $16,000 from
three
outside investors and issued convertible promissory notes on substantially
the
same terms as the previously described notes, except the note does not include
buy back provisions, and allow conversion into a total of 2,261,701 shares
of
common stock (at $0.007 per common share, rather than $0.005 per Series A
Preferred share).
In
February 2005, the Company received gross proceeds of $40,000 and net proceeds
of $36,000 from two outside investors and issued convertible promissory notes
on
substantially the same terms as the previously described notes, except the
notes
do not include buy back provisions, and allow conversion into a total of
4,000,000 shares of common stock (at $0.01 per common share, rather than $0.005
per Series A Preferred share).
In
April
2005, the Company received gross proceeds of $25,000 and net proceeds of $23,750
from an outside investor and issued a convertible promissory note on
substantially the same terms as the previously described notes, except the
note
does not include buy back provisions, and allows conversion into a total of
2,500,000 shares of common stock (at $0.01 per common share, rather than $0.005
per Series A Preferred share).
In
May
2005, the Company received gross and net proceeds of $50,000 and $47,500 from
an
outside investor and issued a convertible promissory note on substantially
the
same terms as the previously described notes, except the note does not include
buy back provisions, and allows conversion into a total of 7,142,857 shares
of
common stock (at $0.007 per common share, rather than $0.005 per Series A
Preferred share).
In
June
2005, the Company received gross and net proceeds of $5,000 from an outside
investor and issued a convertible promissory note on substantially the same
terms as the previously described notes, except the note does not include buy
back provisions, and allows conversion into a total of 500,000 shares of common
stock (at $0.01 per common share, rather than $0.005 per Series A Preferred
share).
In
June
2005, the Company received gross and net proceeds of $100,000 from two outside
investors and issued convertible promissory notes on substantially the same
terms as the previously described notes, except the notes do not include buy
back provisions, and allow conversion into a total of 13,000,000 shares of
common stock (at approximately $0.008 per common share, rather than $0.005
per
Series A Preferred share).
All
of
these offerings and sales were made in reliance on the exemption from
registration contained in Section 4(2) of the Securities Exchange Act and/or
Regulation D promulgated thereunder as not involving a public offering of
securities.
Until
the
Company’s stockholders approve an amendment to the Company’s charter to increase
the number of authorized shares of common stock, the Company will be unable
to
fulfill its obligations to all convertible noteholders to permit the conversion
into common stock of amounts due pursuant to the terms of the convertible notes.
In the event that the Company has not raised further capital prior to the
maturity dates of the convertible notes, the Company would be in default of
those notes if its stockholders have not formally approved an increase in the
number of authorized common shares. The Company is not, at this time, in default
of the convertible notes. Securities Authorized for Issuance Under Equity
Compensation Plans
Equity
Compensation Plan Information
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available for future issuance
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
Equity
compensation plans approved by security holders
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
0
|
|
|
0
|
|
|
14,320,000
|
|
|
Total
|
|
|
0
|
|
|
0
|
|
|
14,320,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
ITEM
6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with our audited
consolidated financial statements and the related notes to the consolidated
financial statements included elsewhere in this report.
This
discussion contains forward-looking statements that involve risks and
uncertainties. Such statements, which include statements concerning future
revenue sources and concentration, selling, general and administrative expenses,
research and development expenses, capital resources, additional financings
and
additional losses, are subject to risks and uncertainties, including, but not
limited to, those discussed above in Part I, Item 1 and elsewhere in this Form
10-KSB, particularly in "Risk Factors," that could cause actual results to
differ materially from those projected. The forward-looking statements set
forth
in this Form 10-KSB are as of December 31, 2004, and we undertake no duty to
update this information.
Plan
of Operations
The
Company had no continuing business operations as of December 31, 2004. At this
time, the Company is operating as a public shell and management is seeking
merger and acquisition candidates with ongoing operations.
Over
the
course of several years, the Company has attempted to enter various businesses
through the acquisitions of entities operating ongoing businesses or technology
that needed to be developed and marketed. However, as a result of various
factors, primarily inadequate capital and the inability to raise sufficient
financing successfully, these acquisitions could not be properly exploited
and
integrated to produce profitable operations by the Company. Management of the
Company has elected to dispose, through sales or other means, these
acquisitions, including the Company's attempt to develop and market the 15-year
licensing rights acquired from Med Wireless in July 2002. Although the formal
decision to discontinue these operations was made subsequent to December 31,
2003, the Company's financial statements for the year ended December 31, 2003
reflect a discontinued operations segment related to the abandonment of the
exploitation of the Med Wireless and PRLS technologies after a charge to
impairment in an amount equal to the remaining net book value of the acquired
technology. See Note 3 to Notes to Consolidated Financial
Statements.
Based
on
the rapid increase in the number of well-capitalized companies offering
competing technologies, as well as the fact that the Company has been unable
to
continue funding any technology enhancements or development related to the
Med
Wireless technology, management came to believe that the technology had lost
the
ability to be a viable competing technology in its sector and that it was not
in
the Company's best interest to continue to pursue the Med Wireless technology.
Moreover, management is doubtful if the Med Wireless technology will be
considered of any significant value to a prospective buyer or licensee of the
technology. The Company desires to sell this technology, if the opportunity
presents itself, but expects to realize only nominal net proceeds, if any,
for
the technology.
In
addition, the Company has abandoned its efforts to market a variety of products
and services to the sports industry with an emphasis on health and technology
related products, primarily PRLS. In 2004, the Company attempted to sell NuWay
Sports to a third party; however, these negotiations were unsuccessful and
a
sale was not consummated. It is not likely that the Company will find a party
to
sell its interest in NuWay Sports. If it did, it is not likely that the Company
would receive any up-front cash payments.
The
Company is presently focused on maintaining the corporate entity and seeking
new
business opportunities. The Company will need working capital resources to
maintain the Company's status and to fund other anticipated costs and expenses
during the year ending December 31, 2004 and beyond. The Company's ability
to
continue as a going concern is dependent on the Company's ability to raise
capital to, at a minimum, meet its corporate maintenance requirements. If the
Company is able to acquire an ongoing business and/or technology that must
be
exploited, it would need additional capital until and unless that prospective
operation is able to generate positive working capital sufficient to fund the
Company's cash flow requirements form operations.
As
a
result of the dramatic change in direction of the Company's scope and focus,
and
the discontinuation of its operating businesses in 2003 and 2004, comparisons
of
year-to-year results of operations are not meaningful.
Results
of Operations - Comparison of the Years Ended December 31, 2004 and
2003
Revenue
The
Company had no revenues from continuing operations during 2004 or 2003.
Selling,
General and Administrative Expense
Selling,
and General and Administrative expenses were $970,000 for the year ending
December 31, 2004, as compared to $2,339,000 for the year ending December 31,
2003, or a net decrease of 59%. The largest components of these expenses were:
a. Salaries
and Payroll-related Expenses: These expenses were $371,000 in 2004, versus
$323,000 in 2003, an increase of $48,000 or 15 percent. The $48,000 increase
is
almost entirely attributable to an expense recorded by the Company for the
issuance of 3,000,000 shares of the Company’s common stock to an officer of the
Company in lieu of cash compensation in the amount of $118,000, and relates
to
the efforts by management to obtain additional financing, comply with SEC
reporting requirements, and find a viable merger candidate.
b. Consulting
Expenses: These expenses were $24,000 in 2004, versus $1,108,000 in 2003, a
decrease of $1,084,000. This decrease is primarily attributable to the fact
that
during 2004 the Company substantially reduced the use of and thus compensation
to outside consultants in all areas of the company, including those efforts
focused on identifying potential acquisition candidates for the Company.
Consulting expense for 2004 included $142,000 of expense related to the issuance
of the Company’s common stock, which was offset by a reversal of accrued
consulting expense relating to the issuance (and subsequent return to treasury)
of the Company’s common stock totaling $142,000.
c. Legal
Expenses: These expenses were $307,000 in 2004, versus $694,000 in 2003, a
decrease of $387,000. This decrease is primarily attributable to the high level
of legal assistance required in 2003 for matters such as (i) addressing NASDAQ
compliance issues (ii) a major shift in the Company’s core business (iii)
numerous tock issuances to consultants.
d. Settlement
Charge: This expense was $163,000 in 2004, versus $0 in 2003. This increase
is
attributable to the settlement reached in the Flight Options, Inc. litigation,
in which the Company may be obligated to pay up to approximately $163,000 to
Flight Options, Inc. (See Part I, Item 3, “Legal Proceedings”.)
Expenses
Associated With Stock Issued for Services
In
2004,
the Company recorded an expense of $346,000 related to the issuance of 9,900,000
shares to approximately 14 directors, employees and consultants. Of this amount,
$135,000 related to consulting services, $80,000 related to service by directors
and advisory board members, and $118,000 related to salary expense.
In
2003,
the Company recorded an expense of $1,555,000 related to the issuance of
19,248,759 shares to approximately 20 directors, employees and consultants.
Of
this amount, $1,046,000 related to consulting services, $394,000 related to
legal services, $63,000 related to service by directors and advisory board
members, and $52,000 related to salary expense.
Discontinued
Operations
The
Company disposed of all operating entities and discontinued all operations
during 2003. The Company recorded a Net Loss from Discontinued Operations for
the year ended December 31, 2004 of $0, as compared to a Net Loss from
Discontinued Operations for the year ended December 31, 2003 of $4,938,113.
Net
Loss
Net
Loss
for the year ended December 31, 2004 was $1,218,048 or $0.03 per share compared
to a $7,622,209 loss or $.25 per share for the year the year ended December
31,
2003.
Liquidity
and Capital Resources
Cash
and
cash equivalents totaled $0 at December 31, 2004. The Company had no revenues
in
the twelve-month periods ended December 31, 2004 and was forced to consume
cash
on hand to fund operations. The Company’s cash position is insufficient to meet
its expenses. The Company will be required to raise additional capital to
sustain basic operations through the remainder of 2005 and until a merger
candidate with operations of its own is located and a transaction is
consummated. While the Company is actively seeking investments through private
investors and other parties, there is no assurance that the Company will be
able
to raise additional capital for the entire period required.
Total
Current Liabilities were $3,707,521, as of December 31, 2004, versus $2,924,344
as of December 31, 2003, an increase of $783,177 from. The increase is due
to
(i) an increase of Accrued Expenses of $321,540 related to operating expenses
incurred but not paid (ii) an increase of Officer Payable of $281,083 related
to
business expenses paid on behalf of the Company’s president and compensation but
not paid (iii) an increase of Accrued Interest of $188,572 related to the
Company’s outstanding obligations (iv) an increase in Notes Payable as a result
of the write-off of the Company’s discount on Notes Payable and the funding of
$60,000 from outside sources; offset by (v) a decrease in Debenture Payable
of
$103,849 arising from the conversion of debenture holders of the debentures
into
equity.
The
Company will be required to raise additional capital to sustain operations
and
meet its liabilities as they become due for the next twelve months, and is
actively seeking investments from third parties. There is no assurance that
the
Company will be able to raise additional capital. It is unlikely that the
Company will be able to qualify for bank debt until such time as the Company
is
able to demonstrate the financial strength to provide confidence for a lender.
The
Company's consolidated financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates the realization
of
assets and satisfaction of liabilities in the normal course of business. During
2003, 2004, and as of May 31, 2005, the Company had limited liquid and capital
resources and management is incurring personal losses, while seeking acquisition
opportunities. Total Stockholders' Deficit increased by $1,216,048 during the
year ending December 31, 2004. The reason for the increase is that net loss
totaled $1,216,048.
The
financial statements accompanying this Annual Report have been prepared on
a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of our business.
As reflected in the accompanying financial statements, we had a net
loss of
$6,803,280 and a negative cash flow from operations of $2,411,464 for the year
ending December 31, 2004, and a stockholders’ deficiency of $2,007,144 as
of December 31, 2004. These factors raise substantial doubt about our
ability to continue as a going concern. Our ability to continue as a going
concern is dependent on our ability to raise additional funds and implement
our
business plan. The financial statements do not include any adjustments that
might be necessary if we are unable to continue as a going concern.
During
2004, the Company raised $221,033. These funds were raised through straight
debt
financing, convertible debt financing, and equity financing, as described
below.
Straight
Debt Financing
The
Company’s President, Dennis Calvert, loaned money to the Company by paying from
his personal funds certain of the Company’s expenses. A significant portion of
these personal funds was obtained by Mr. Calvert by refinancing his primary
residence and cashing out equity thereon. For the year ended December 31, 2004,
Mr. Calvert loaned to the Company $131,033. As of December 31, 2004, the Company
repaid $29,263 of this amount. On March 7, 2005, the Company and Mr. Calvert
agreed that the $101,770 still outstanding and owed by the Company to Mr.
Calvert will be repaid under the terms of a promissory note bearing interest
of
10% per annum, requiring monthly payments and maturing on January 15, 2006.
Convertible
Debt Financing
During
2004, the Company raised $60,000 and issued convertible promissory notes due
and
payable one year from the date of issuance. The notes bear interest at a rate
of
10% per annum, payable on the maturity date, and can be converted, in whole
or
in part, into shares of the Company’s Series A Preferred stock, on the basis of
$.005 per share, at any time prior to maturity by either the Company or the
lender. Each share of Series A Preferred Stock may be converted by the holder
into one share of the Company’s common stock. If the noteholder converts the
note into Series A Preferred Stock, on or after the note’s original maturity
date, the noteholder may require the Company to buy back the shares of Series
A
Preferred Stock for 110% of the principal amount of the promissory note. If
the
Company is unable to do so, the Company’s president, Dennis Calvert, has agreed
to buy back the shares on the same terms. If shares of Series A Preferred Stock
are converted into common stock, the holder has the right to include (piggyback)
the shares of common stock in a registration of securities filed by the Company
(other than on Form S-4 or Form S-8).
Equity
Financing
During
the year ended December 31, 2004, the Company received $30,000 (gross and net
proceeds), from the sale of 5,156,250 shares of its common stock which were
restricted and unregistered.
Other
Obligations
Significant
debt obligations at December 31, 2004 included:
(i) $420,000
(plus interest) due to Augustine II, LLC (the “Augustine Fund”), described in
more detail below;
(ii) a
$1,120,000
note payable which was purchased in March 2003 by New Millennium Capital
Partners, LLC, an entity owned and controlled by the Company's president, Dennis
Calvert, and certain members of his family, together with accrued but unpaid
interest, described in more detail below.
(iii) approximately
$15,000 outstanding remaining on a settlement agreement with former convertible
debenture holders;
and
(iv) $32,100
due
to a former advisory board member, reduced from a promissory note dated November
20, 2003 in the principle amount of $65,000.
For
the
year ended December, 2004, there was $189,000 of accrued interest recorded
related to these obligations.
Augustine
Fund Note
On
June
10, 2003 the Company entered into a Term Loan Agreement ("Loan Agreement")
with
the Augustine Fund, pursuant to which the Augustine Fund agreed to lend the
Company $420,000, payable in installments of $250,000, $100,000, and $70,000
(the "Augustine Loan"). The proceeds of the Augustine Loan were used by the
Company for working capital.
Principal
and interest, at an annual rate of 10%, of the Augustine Loan, was originally
due on February 29, 2004. In addition, the Loan Agreement contains certain
requirements that the Company make mandatory prepayments of the Augustine Loan
from the proceeds of any asset sales outside of the ordinary course of business,
and, on a quarterly basis, from positive cash flow. In addition, all or any
portion of the Augustine Loan may be prepaid by the Company may prepay all
or
any portion of the Augustine Loan at any time without premium or penalty.
As
additional consideration for making the Augustine Loan, the Augustine Fund
received five-year warrants to purchase up to 6,158,381 shares of the Company's
common stock at an exercise price of $0.16 per share. The Company could require
that the warrants be exercised if certain conditions were satisfied. Since
these
conditions were not fully satisfied by the maturity date, the Loan Agreement
provides that the Augustine Fund may, at any time following the maturity date
and so long as the warrants remain exercisable, elect to exercise all or any
portion of the warrants pursuant to a "cashless exercise", whereby the Augustine
Fund would be issued the net amount of shares of our common stock, taking into
consideration the difference between the exercise price of the warrants and
the
fair market value of our common stock at the time of exercise, without having
to
pay anything to the Company for such exercise.
As
security for the Augustine Loan, New Millennium Capital Partners LLC ("New
Millennium"), a company controlled and owned by the Company's president, Dennis
Calvert, and members of his family, pledged 2.5 million shares of the Company's
common stock owned by New Millennium, and, in addition, the Company has granted
the Augustine Fund a security interest in its 51% membership ownership interest
in NuWay Sports. As a result, the Company will need to consent of the Augustine
Fund to release its security interest in NuWay Sports if the Company is able
to
sell NuWay Sports.
Prior
to
the original maturity date of the Augustine Loan, the Company spoke with
representatives of the Augustine Fund and advised them that the Company was
unable to pay the amount due under the Augustine Loan by the February 29, 2004
maturity date. On March 30, 2004, the Augustine Fund agreed to extend the
maturity date of the Loan Agreement to August 2004. In addition to the extension
of the maturity date, the Augustine Fund was given the option of having the
Augustine Loan satisfied in cash or by the conversion of any remaining principal
balance and any accrued interest on the Augustine Loan to shares of the
Company's common stock at a 15% discount to market, so long as Augustine Fund's
holdings do not exceed 4.9% of the total issued and outstanding shares of the
Company's common stock at any time. In addition, the warrants held by the
Augustine Fund to purchase 6,158,381 shares of the Company's common stock were
re-priced to an exercise price of $.035 per share. Exercise of the warrants
is
also subject to the limit that the Augustine Fund does not hold more than 4.9%
of the issued and outstanding shares of the Company's common stock. The Company
recorded $19,000 and $50,000 of interest expense for the three- and nine-month
periods ended September 30, 2004, related to the Augustine Loan.
On
March
7, 2005, the Company and the Augustine Fund agreed to extend the maturity date
of the Augustine Loan to May 2006, in exchange for the issuance of a warrant
that gives the Augustine Fund the right to purchase 8,000,000 shares of the
Company’s common stock at $0.005 per share for a period of five years. The final
documentation of the extension and the warrant is being finalized and has not
yet been completed.
Obligation
to New Millennium
In
conjunction with the acquisition from Med Wireless of the license for the Med
Wireless and PRLS technologies on August 21, 2002, the Company assumed a
$1,120,000 note (the “Note”) with interest at 10% per annum payable by Med
Wireless to Summitt Ventures, Inc. (“Summitt Ventures”). Summitt Ventures is
controlled by Mark Anderson, a former consultant and principal stockholder
of
the Company. The Note is secured by the Company's assets and was originally
due
on June 15, 2003.
As
part
of a series of transactions that the Company undertook to separate itself
completely from Mr. Anderson, on March 26, 2003, Summitt Ventures sold the
Note,
together with 4,182,107 shares of the Company's common stock owned by Mr.
Anderson’s affiliates, Camden Holdings and Summit Healthcare, Inc. (“Summit
Healthcare”), to New Millennium, in exchange for a $900,000 promissory note
issued by New Millennium in favor of Summitt Ventures, Camden Holdings, and
Summit Healthcare (the “New Millennium Note”). The New Millennium Note is
secured by all of the stock of the Company owned by New Millennium and Mr.
Calvert. (See “Augustine Fund Note” above.) Other than Mr. Calvert, no
individual, entity or party presently or previously associated with the Company
has ever had any ownership interest in New Millennium. Mr. Anderson, a principal
of those companies that sold and/or licensed the technologies to the Company,
conditioned the transaction with New Millennium on the Company’s agreeing to
convert the Note to common stock.
Since
New
Millennium purchased the Note, the Company has attempted multiple times to
convert the Note, but has been unable to obtain the required stockholder vote,
due to a lack of quorum, to do so. The three attempts are described
below.
On
March
26, 2003, the Company's board of directors voted to convert the Note by New
Millennium into 22,400,000 shares of common stock of the Company, at a
conversion price discounted 37.5% from the then market price of $0.08. New
Millennium agreed to this conversion.
In
arriving at a conversion price, the board of directors determined that a 37.5%
discount to market price was appropriate based on a number of factors, including
that (i) with the quantity of the shares that would be issued, a block of shares
that size could not be liquidated without affecting the market price of the
shares, and (ii) the shares would be "restricted shares" and could therefore
not
be sold by New Millennium in the public markets prior to two years from the
date
of the conversion, and thereafter would be subject to the volume and manner
of
sale limitations of Rule 144 under the Securities Act of 1933.
Subsequent
to the vote by the board to convert the Note, the Company received notification
from NASDAQ’s Listing Qualifications Department that converting the Note without
stockholder approval violated certain NASDAQ Marketplace Rules. In response
to
this notification, the board, with the concurrence of New Millennium, voted
to
amend its resolution and delay conversion of the Note until the Company's
stockholders approved the conversion.
At
the
Company's June 6, 2003 board meeting, Mr. Calvert, on behalf of New Millennium,
and the Company, through the unanimous action of the board (with Mr. Calvert
abstaining), agreed that, in light of current market conditions (namely the
significant increase in the trading price of the Company's common stock since
March 26, 2003, the date on which the conversion of the Note was originally
approved by the board, from $0.08 to $0.28 as of June 6, 2003), it would be
inequitable for New Millennium to convert the Note at the originally agreed
to
$0.05 per share price. Mr. Calvert, on behalf of New Millennium, and the Company
orally agreed to rescind the agreement to convert the Note.
In
addition, New Millennium orally agreed with the Company to extend the maturity
date of the Note to a first payment due October 1, 2003 in the amount of
$100,000 and the balance of the principal due on April 1, 2004, with interest
due according to the original terms of the Note (to correspond to the payment
terms of the New Millennium Note), and furthermore to reduce the Company's
obligation on the Note to the extent that New Millennium might be able to reduce
its obligation on the New Millennium Note. While the prior holder of the Note,
Summitt Ventures, purported to condition New Millennium's purchase on the
conversion of the Note, Mr. Calvert has represented to the Company that due
to
Mr. Anderson's failure to honor his obligations in the purchase agreement,
Mr.
Calvert now believes that conversion of the Note is no longer a required term
of
the agreement between New Millennium and Summitt Ventures.
The
Company was unable to make the $100,000 payment on the Note on the extended
due
date of October 1, 2003. At a board meeting on October 15, 2003, the board
decided to put the issue of conversion of the Note to the Company's stockholders
at a special meeting of the stockholders scheduled for December 9, 2003. The
stockholders meeting was held on December 9, 2003, but adjourned without a
vote,
because not enough shares to constitute a quorum were represented. The
stockholders meeting was rescheduled for December 30, 2003, at which a quorum
was also not present. Because this was the second attempt to obtain a quorum,
and more than 4,000,000 additional shares were required to be voted to obtain
a
quorum, the board adjourned the meeting indefinitely. As a result, the Note
was
not converted into stock and the outstanding principal amount, together with
accrued and unpaid interest, remains as a liability of the Company.
In
conjunction with the Company’s January 31, 2004 purchase of Premium Medical
Group (“PMG”) (later rescinded in October 2004), and as a condition to that
transaction, the Premium Medical Group shareholders (the “PMG Shareholders”)
required the Company to convert the note so as to eliminate the obligation
from
the Company’s balance sheet. At a meeting on February 10, 2004, the board of
directors voted to convert the note into 30,869,992 shares of its common stock,
at a conversion price of $0.04, discounted 20% from the then market price of
$0.05. New Millennium agreed to this conversion. In arriving at a conversion
price, the board of directors determined that a 20% discount to market price
was
appropriate based on a number of factors, including (i) the holding period
of
the stock will be two years, and thus is not liquid until that point, and (ii)
the amount of the stock issued would make it impossible to liquidate the stock
at the current market price. This discount was equal to the discount proposed
to
the stockholders in December 2003 at the abandoned stockholders meeting, and
less than the discount used by the board at the first conversion attempt in
April 2003.
The
board
approved the conversion knowing that, since its conversion was a condition
imposed by the PMG Shareholders, they (who would hold 45% of the Company’s
common stock at the time of such meeting) would provide the additional shares
necessary to obtain a quorum and formal stockholder approval. Stockholder
approval was also necessary to increase the number of authorized shares
necessary to convert the Note. However, due to lack of operational capital,
the
Company was unable to remain current in its SEC filings, and thus was unable
to
hold the required stockholder meeting.
In
October 2004, the Company, PMG and the PMG Shareholders rescinded the Stock
Purchase Agreement. Because the board of director’s decision to convert the Note
was based in part on the requirements of the PMG Stock Purchase Agreement,
the
board on October 28, 2004, determined not to convert the Note. Considering
that
the Company at the time was a shell corporation with no operations, Mr. Calvert
also agreed to extend the maturity of the Note indefinitely until the Company’s
status changed.
Accordingly,
as of September 30, 2004, the principal amount of the loan, together with
$73,504 in accrued but unpaid interest, had not been repaid.
Under
the
terms of the New Millennium Note, it is possible that Summitt Ventures, Camden
Holdings, and Summit Healthcare may have a claim to reacquire the shares of
the
Company's common stock that were sold to New Millennium. The New Millennium
Note
is purportedly secured by the purchased shares of the Company's common stock;
however, New Millennium and Mr. Calvert believe that Mr. Anderson and his
affiliates have not perfected their security interest in those shares. In
addition, the Augustine Fund is the pledgee of 2,500,000 of these shares and
has
physical possession of those shares.
New
Millennium has informed the Company’s board of directors that New Millennium
still intends to fully convert the Note to stock as soon as it is practical,
following stockholder approval. As of the date of the filing of this report,
the
stockholder vote has not taken place and the Note has not been converted into
shares of the Company’s common stock.
Critical
Accounting Policies
The
Securities and Exchange Commission ("SEC") recently issued Financial Reporting
release No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" (FRR 60"), suggesting companies provide additional
disclosure and commentary on their most critical accounting policies. In FRR
60,
the SEC defined the most critical accounting policies as the ones that are
most
important to the portrayal of a company's financial condition and operating
results, and require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that
are
inherently uncertain. Based on this definition, the Company's most critical
accounting policies include: non-cash transactions and compensation valuations
that affect the total expenses reported in the current period and/or values
of
assets received in exchange.
The
Company has established a policy relative to the methodology to determine the
value assigned to each intangible acquired with or licensed by the Company
and/or services or products received for non-cash consideration of the Company's
common stock. The value is based on the market price of the Company's common
stock issued as consideration, at the date of the agreement of each transaction
or when the service is rendered or product is received, as adjusted for
applicable discounts.
The
methods, estimates and judgments the Company uses in applying these most
critical accounting policies have a significant impact on the results of the
Company reports in its financial statements.
ITEM
7. FINANCIAL STATEMENTS.
Our
consolidated financial statements as of and for the years ended December 31,
2004 and 2003 are presented in a separate section of this report following
Item
14 and begin with the index on page F-1.
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
As
disclosed in our Current Report on Form 8-K filed on September 10, 2004, as
amended on September 17, 2004, we dismissed Haskell & White LLP (“H&W”)
as our principal accounting firm as of September 9, 2004. As disclosed in our
Current Report on Form 8-K filed on September 16, 2004, we engaged Jeffrey
S.
Gilbert, CPA ("Gilbert") as our principal accountant. Gilbert was engaged to
audit our consolidated financial statements for the year ended December 31,
2003. The decision to change auditors was recommended by our audit committee
and
approved by our board of directors. During the Company's relationship with
H&W, since H&W's initial engagement as the principal auditors on March
31, 2003, through September 9, 2004, there were no disagreements with H&W,
whether or not resolved, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to H&W's satisfaction, would have caused it to make reference to
the subject matter of the disagreement(s) in connection with its report on
the
consolidated financial statements for the year ended December 31,
2002.
Item 8A.
Controls and Procedures
(a)
Evaluation of disclosure controls and procedures. Our management evaluated,
with
the participation of Dennis Calvert, who serves as both our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Annual
Report on Form 10-KSB. Based on this evaluation, our Chief Executive Officer
and
Chief Financial Officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) are effective to ensure that information required to
be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. It should be noted that
the design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
(b)
Changes in internal control over financial reporting. There was no change in
our
internal control over financial reporting that occurred during the period
covered by this Annual Report on Form 10-KSB that has materially affected,
or is
reasonably likely to materially affect, our internal control over financial
reporting.
Item 8B.
Other Information
During
2004, the Company conducted a private offering of stock and convertible debt,
which offering continued during the fourth quarter of 2004. The Company filed
a
Current Report on Form 8-K with respect to this offering on February 23, 2005.
In
August
2004, the Company defaulted on its payment obligations in the Augustine Loan.
This event was reported in the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2003.
PART
III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT.
Directors
and Executive Officers.
The
following table sets forth information regarding our directors as of December
30, 2004:
|
Name
|
|
Age
|
|
Position
|
|
Director
Since
|
|
|
Dennis
Calvert
|
|
|
42
|
|
|
President,
Chief Executive Officer and Chairman of the Board
|
|
|
2002
|
|
|
Joseph
Provenzano
|
|
|
35
|
|
|
Secretary
and Director
|
|
|
2002
|
|
|
Steven
V. Harrison II (1)(2)
|
|
|
45
|
|
|
Director
|
|
|
2003
|
|
|
Gary
Cox(1)(2)
|
|
|
44
|
|
|
Director
|
|
|
2003
|
|
| |
|
|
|
|
|
|
|
|
|
|
| (1) |
Member
of the Audit Committee.
|
| (2) |
Member
of the Compensation Committee.
|
There
are
no family relationships between any director and any executive officer of the
Company.
DENNIS
CALVERT is our President, Chief Executive Officer, Chairman of the Board, and
Interim Chief Financial Officer. Dennis Calvert was appointed a director in
June
2002, and has served as President and Chief Executive Officer since June 2002,
Corporate Secretary from September 2002 until March 2003, and Interim Chief
Financial Officer since March 2003. Mr. Calvert holds a BA degree in Economics
from Wake Forest University, where he was a varsity basketball player on full
scholarship. Mr. Calvert also studied at Columbia University and Harding
University. He was an honor student in high school with numerous leadership
awards. He is also an Eagle Scout.
Mr.
Calvert has an extensive entrepreneurial background as an operator, investor
and
consultant. From June 2002 to September 2002 he served as president of Med
Wireless, Inc. In 1998 he was a founder, president and board member of Utelecom
Communications, Inc. where he led the acquisition of four companies and secured
a line of credit for $7.5 million. He remains an owner and board member of
that
firm. He was an investor and served as a manager of Beep for Free.com, LLC
beginning in the year 2000, a consumer products and technology related company.
Mr. Calvert resigned as the manager of Beep For Free.com, LLC in June 2002
and
the company ceased operations in December 2002. Mr. Calvert was a founder and
chairman of ZZYZX Technologies, Inc., a company that designed and produced
high
tech equipment. ZZYZX was sold in 2001. From 1990 to 1996 Calvert served as
head
of mergers and acquisitions for Medical Asset Management, Inc., a company that
acquired and managed medical-related businesses. During his tenure he
participated in more than 50 acquisitions and served in numerous positions
with
the Company. Prior, he was a founder and officer of a medical recruiting and
consulting firm named Merritt Hawkins and Associates from 1987 to 1990. Earlier,
he was a top producing sales associate for a leading physician recruitment
firm,
Jackson and Coker, Inc. and served as a sales associate for Diamond Shamrock,
Inc. from 1985 to 1986.
JOSEPH
PROVENZANO was appointed a director in June 2002 and assumed the role of
Corporate Secretary in March 2003. Mr. Provenzano heads the Investor Relations
effort and manages the mergers and acquisitions function for NuWay. He began
his
corporate career in 1988 as a Personnel Manager and Recruiter for First American
Travel, a marketing company in Southern California. He then entered into an
entry-level Technician position within the Commercial and Residential security
industry. He left the industry as a General Manager in the mid 1990's to apply
his marketing and sales training to the logistics industry. He was then employed
by two major Southern California moving and storage companies as head of
marketing. He formed his own marketing company called Pre-Move Marketing
Services (PMSA), offering advertising and direct marketing products for the
moving and storage industry, in 1996. He joined Camden Holdings, Inc., an
investment holding company to manage their mergers and acquisitions department,
in mid 2001, and participated in more than 50 corporate mergers and
acquisitions. He was employed there until March 2003, at which time he became
employed full time by the Company. Mr. Provenzano has participated in organized
rodeo and motocross competitions.
STEVEN
V.
HARRISON II has been a director since March 2003. Mr. Harrison is the president
of Empact, Inc. a consumer products based marketing company. From 1997 to 2001,
he was the founder, president and CEO of In Touch Communications, Inc., a
Competitive Local Exchange Carrier (CLEC), providing residential and business
telephone services within the state of California, with annual revenue of more
than $15 million. During 2001 and 2002 he was an investor in a number of
healthcare and consumer products based companies including Beep for Free.com,
LLC. Mr. Harrison was President of Beep for Free.com, LLC from June 2002 until
it ceased operations in December 2002. From 1991 to 1997, Mr. Harrison was
Chief
Executive Officer of Resource Medical Group, Inc., providing management
consultancy services to the healthcare industry assisting hospitals, Health
Maintenance Organizations, clinics, and practice management firms with medical
staff planning and contracting issues, feasibility studies and physician
recruitment and retention. Mr. Harrison also played Division I football at
Appalachian State University.
GARY
COX
has been a director since May 2003. Mr. Cox has more than 10 years in the
healthcare field as consultant to hospitals and medical groups. He started
his
own firm in 1995 named Resource Medical International and is still active in
that business. He served for more than 10 years with UK firms in sales and
marketing positions prior to beginning his healthcare career. He holds a
technical degree in engineering from Leicester University in England. He was
also a competitive athlete and played for a number of professional soccer
(football) clubs in England in his early career.
Committees
Of The Board Of Directors
The
board
of directors has established an Audit Committee and a Compensation
Committee.
The
Audit
Committee meets with management and the Company's independent public accountants
to review the adequacy of internal controls and other financial reporting
matters. Mr. Harrison is Chairman of the Audit committee. Mr. Cox also serves
on
the audit committee. The board of directors has not designated an audit
committee financial expert and does not believe that either member of the Audit
Committee would satisfy the current definitional requirements of SEC rules
and
regulations to be an audit committee financial expert.
The
Compensation Committee reviews the compensation for all officers and directors
and affiliates of the Company. The Committee also administers the Company's
stock option plan. Mr. Harrison is Chairman of the Compensation Committee and
Mr. Cox serves on the Compensation Committee.
The
board
of directors has determined that each of Messrs. Harrison and Cox is independent
as defined under NASDAQ Marketplace rules. In 2003, the staff of NASDAQ had
questioned whether Mr. Harrison was independent, and the NASDAQ Qualifications
Panel discussed those issues with the Company at a hearing held on May 16,
2003.
The determination letter delivered to the Company by the NASDAQ Qualifications
Panel, which resulted in the delisting of the Company's common stock from the
NASDAQ SmallCap Market, stated, "While the Panel acknowledged that it appears
the Company may have regained compliance with the independent directors and
audit committee composition requirements based on the appointment of Messrs.
Cox
and Harrison, it [the Panel] determined not to make a finding on these
deficiencies given that the appropriate NASDAQ background checks have not yet
been completed".
The
Company continues to believe that Mr. Harrison is independent, because has
no
business dealings with the Company other than in his role as board member.
However, Mr. Harrison formerly was a partner of Mr. Calvert in a business named
Beep For Free.com, LLC, from which Mr. Calvert resigned as the managing member
in June 2002. Beep For Free.com, LLC ceased operations in December
2002.
In
October 2004, the board of directors adopted a written code of ethics that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934 requires the Company's directors,
certain officers and persons holding 10% or more of the Company's common stock
to file reports regarding their ownership and regarding their acquisitions
and
dispositions of the Company's common stock with the Securities and Exchange
Commission. Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
To
our
knowledge, based solely upon review of Forms 3, 4, and 5 (and amendments
thereto) and written representations provided to the Company by executive
officers, directors and stockholders beneficially owning 10% or greater of
the
outstanding shares, the Company believes that such persons filed pursuant to
the
requirements of the Securities and Exchange Commission on a timely basis, other
than one
Mr.
Provenzano’s failure to file a report with respect to two grants of common
stock. Mr. Provenzano intends to file a Form 5 with respect to these
transactions.
ITEM
10. EXECUTIVE COMPENSATION
The
following table sets forth the cash compensation paid by the Company to the
chief executive officer and the next four highest paid executive officers who
received compensation in excess of $100,000 (the "Named Executive Officers")
during 2004 and 2003:
| |
|
|
|
Annual
Compensation
|
|
|
|
Long-term
Compensation
|
|
| |
|
|
|
|
|
|
|
Awards
|
|
|
|
Payouts
|
|
|
|
|
Name
and Principal Position
|
|
Year
|
|
Annual
Salary
|
|
Other
Annual Compensation
|
|
Restricted
Stock Awards
|
|
Securities
Underlying Options/SARs
|
|
TIP
Payouts
|
|
Other
Compensation
|
|
|
Dennis
Calvert,
Chief
Executive Officer
|
|
|
2003
2004
|
|
|
168,000
168,000
|
|
|
--
--
|
|
|
4,000,000
--
|
(2) |
|
--
--
|
|
|
--
--
|
|
|
--
--
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Provenzano,
Secretary
|
|
|
2003
2004
|
(1)
|
|
129,600
154,750
|
(3)
(3)
|
|
--
--
|
|
|
1,200,000
2,000,000
|
|
|
--
--
|
|
|
--
--
|
|
|
--
--
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Became
Secretary in March 2003.
|
| (2) |
Mr.
Calvert was issued 1,000,000 shares on January 9, 2003, and subsequently
returned the shares to the Company. He was also issued 3,000,000
shares on
March 18, 2003, and subsequently returned the shares to the Company.
|
| (3) |
A
portion of the annual compensation for Mr. Provenzano was paid pursuant
to
issuances of a total of 3,000,000 shares of common stock, 1,000,000
of
which was registered pursuant to the Company’s 2004 Equity Plan, and
2,000,000 of which was restricted stock, and is reflected in the
column
“Restricted Stock Awards”.
|
Employment
Agreements
The
Company entered into an employment agreement with Dennis Calvert in December
2002. Mr. Calvert's employment agreement provides for him to be employed for
five years at an annual salary of $168,000. The employment agreement further
provides that Mr. Calvert work with the Company on a full time basis, that
the
office be located in Laguna Hills, California, that he receive annual increases
of 10% of his base income, that bonuses will be payable based on the greater
of
a performance scale established by the Compensation Committee, assigned by
the
board of directors, or 3% of the annual increase in market capitalization value.
The compensation plan includes benefits of a car allowance, insurance and a
standard vacation package. The agreement has certain minimum performance
standards and calls for a severance package equal to one year's base
compensation, plus an additional one half year's compensation for each year
of
service beginning in 2003. Standard confidentiality, company ownership rights
to
property and assets and arbitration clauses are included in the
agreement.
The
Company entered into an employment agreement with Mr. Provenzano in March 2003.
Mr. Provenzano's employment agreement provides for him to be employed for five
years at an annual salary of $130,800. The employment agreement provides that,
at the Company's discretion, the Company may choose to pay up to $4,900 of
Mr.
Provenzano's monthly salary in the form of stock in lieu of cash. Mr. Provenzano
is also eligible to receive incentive bonuses, stock ownership participation
and
employee related benefits. The employment agreement further provides that Mr.
Provenzano receive annual increases of 5% of his base income, that bonuses
will
be payable based on the greater of a performance scale established by the
Compensation Committee, assigned by the board of directors, or 1.5% of the
annual increase in market capitalization value. The compensation plan includes
those benefits of car allowance and insurance benefits and a standard vacation
package. The agreement has certain minimum performance standards and calls
for a
severance package equal to one year's base compensation, plus an additional
one
half year's compensation for each year of service beginning in 2003. Standard
confidentiality, company ownership rights to property and assets and arbitration
clauses are included in the agreement.
Options
Granted During Last Fiscal Year
No
options were granted to the Named Executive Officers during 2004.
Equity
Compensation Plans
2002
Consultant Equity Plan
In
August
2002, the Company's board of directors approved the formation of the 2002
Consultant Equity Plan (the "2002 Plan"), designed to allow consultants to
be
compensated with shares of Company common stock for services provided to the
Company. A total of 1,500,000 shares under the 2002 Plan were registered with
the SEC. The 2002 Plan was amended by the Company's board of directors in
December 2002. A total of 3,500,000 additional shares were registered with
the
SEC on a Form S-8 registration statement on December 27, 2002. Approval of
the
2002 Plan was not submitted to the vote of the stockholders. Persons eligible
to
receive stock awards under the 2002 Plan included "consultants" that provide
bona fide consulting services to the Company, excluding any services incident
to
the raising of capital or promotion or maintenance of a market for the Company's
securities.
The
2002
Plan was terminated by the board of directors on December 16, 2004. From August
2002 through February 2003, the Company issued all but 84,452 of the 5,000,000
shares available under the 2002 Plan to approximately 26 consultants, employees
and directors.
2003
Stock Compensation Plan
In
February 2003, the board of directors approved the 2003 Stock Compensation
Plan
(“2003 Plan”) as a means of providing directors, key employees and consultants
additional incentive to provide services to the Company. The 2003 Plan was
terminated by the board of directors at its meeting on December 16, 2004. The
2003 Plan set aside up to 15,000,000 shares of the Company's common stock for
these purposes, which shares were registered with the SEC on a Form S-8
registration statement on February 27, 2003. Approval of the 2003 Plan was
not
submitted to a vote of the stockholders. The board of directors administered
the
2003 Plan. The 2003 Plan allowed the board of directors to award grants of
shares of the Company's common stock or options to purchase shares of the
Company's common stock.
From
February through September 2003, the Company issued 14,863,230 shares under
the
2003 Plan to 27 directors, employees and consultants.
In
March
2003, the board of directors approved, and the Company issued, 3,000,000 shares
of common stock to Dennis Calvert, President and Chief Executive Officer of
the
Company, as consideration for his services. The board of directors subsequently
modified its approval of this issuance to make it conditioned upon stockholder
approval of the transaction because of NASDAQ Marketplace Rules governing change
of control transactions. Mr. Calvert returned the 3,000,000 shares to the
Company. On December 9, 2003, the Company attempted to conduct a stockholder
meeting to approve the terms of the issuance of 3,000,000 shares of the
Company's common stock to Dennis Calvert. The Company was unable to obtain
a
quorum at the meeting. The meeting was adjourned to December 30, 2003, but
again
the Company was unable to obtain a quorum. As of the date of the filing of
this
Annual Report, the 3,000,000 shares of the Company's common stock have not
been
issued to Mr. Calvert.
2004
Equity Plan
On
March
10, 2004, the board of directors approved the Company's 2004 Equity Plan as
a
means of providing directors, key employees and consultants additional incentive
to provide services for the Company. Both stock options and stock grants may
be
made under this plan. The Plan sets aside up to 20,000,000 shares of the
Company's common stock for these purposes, which were registered with the SEC.
Approval of this plan was not submitted to the vote of the stockholders. The
Board administers this plan. The plan allows the Board to award grants of common
shares or options to purchase common shares. As plan administrator, the board
has sole discretion to set the price of the options. The Board may at any time
amend or terminate the plan. It does not expire on its terms.
During
2004, the Company issued 9,780,000 shares to 16 consultants, directors, and
employees. Of this total 5,680,000 have been registered with the SEC, while
the
balance, 3,500,000 shares were not registered and are restricted securities.
Of
the total issued in 2004, 1,580,000 shares relate to services performed in
2003
and 7,600,000 shares relate to 2004. The effect of the shares issued for 2003
services in 2004 was accrued in the Company's financial statements for the
year
ending December 31, 2003. In 2004 there was $275,400 of expenses recorded
related to the issuance of these shares. Of this amount $120,000 related to
consulting services, $5,400 related to legal services, $60,000 related to Board
of Directors expense, and $90,000 related to salary expense.
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The
following table sets forth information regarding the beneficial ownership of
shares of the Company's common stock as of May 31, 2005 by (i) all stockholders
known to the Company to be beneficial owners of more than 5% of the outstanding
common stock; (ii) each director and executive officer of the Company
individually and (iii) all directors and executive officers of the Company
as a
group.
|
Name
and Address of Beneficial Owner (1)(2)
|
|
Amount
of Beneficial Ownership (3)
|
|
Percent
of Class
(5)
|
|
|
Dennis
Calvert
|
|
|
4,782,107
(4
|
)
|
|
9.2
|
%
|
|
Joseph
Provenzano
|
|
|
4,224,936
|
|
|
8.2
|
%
|
|
Steven
Harrison
|
|
|
1,167,043
|
|
|
2.3
|
%
|
|
Gary
Cox
|
|
|
1,000,000
|
|
|
1.9
|
%
|
|
All
directors and officers as a group (4 persons)
|
|
|
11,174,086
|
|
|
21.6
|
%
|
| |
|
|
|
|
|
|
|
| (1) |
Except
as noted in any footnotes below, each person has sole voting power
and
sole dispositive power as to all of the shares shown as beneficially
owned
by them.
|
| (2) |
Unless
otherwise indicated, the address for each person is 2603 Main Street,
Suite 1150, Irvine, California
92614.
|
| (3) |
Other
than as footnoted below, none of these security holders has the right
to
acquire any amount of the shares within sixty days from options,
warrants,
rights, conversion privilege, or similar obligations. The amount
owned is
based on issued common stock, as well as stock options, which are
currently exercisable.
|
| (4) |
This
amount excludes 30,869,992 shares of the Company’s common stock issuable
upon conversion of the NuWay Note. The conversion of the NuWay Note
is
subject to the prior approval of the Company’s
stockholders. (See Part III, Item 12, “Certain
Relationships and Related
Transactions”)
|
| (5) |
Percentage
ownership is based on 51,981,236
shares
of common stock outstanding on May 31, 2005. Beneficial ownership
is
determined in accordance with the rules of the SEC and generally
includes
voting or investment power with respect to securities. Shares of
common
stock subject to options, warrants and convertible notes currently
exercisable or convertible, or exercisable or convertible within
60 days,
are deemed outstanding for determining the number of shares beneficially
owned and for computing the percentage ownership of the person holding
such options, but are not deemed outstanding for computing the percentage
ownership of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons
named in
the table have sole voting and investment power with respect to all
shares
of common stock shown as beneficially owned by
them.
|
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions
with Dennis Calvert
New
Millennium Capital Partners, LLC Purchase of Common Stock and Promissory Note
from Mark Anderson and Affiliates
In
March
2003, New Millennium, which is controlled by our president Dennis Calvert,
purchased the Company's promissory note in the principal amount of $1,150,000
(the "NuWay Note"), which notes was held by Summitt Ventures, Inc. ("Summitt
Ventures"), and purchased an aggregate of 5,000,000 shares of the Company's
common stock from Camden Holdings and Summit Healthcare, Inc. ("Summit
Healthcare") in consideration of the New Millennium Note. Camden Holdings,
Summitt Ventures and Summit Healthcare are controlled by Mark Roy Anderson.
The
transaction was executed as part of a plan to remove Mr. Anderson totally from
any involvement in the Company and provide a completely new focus and direction
for the Company under management led by Mr. Calvert.
The
New
Millennium Note is secured by all the shares of the Company's common stock
purchased in the transaction and is further secured by shares of the Company's
common stock personally owned by Mr. Calvert, of which he currently owns none.
The transaction was conditioned, among other things, on the Company's converting
the NuWay Note into shares of the Company's common stock.
The
sellers only delivered share certificates representing 4,182,107 shares of
the
Company's common stock, which certificates were delivered to Mr. Calvert on
April 9, 2003. In the New Millennium Agreement, Mr. Anderson represented that
he
was selling 100% of his stock to New Millennium and would no longer own any
of
the Company's stock. Subsequent to the closing of that transaction, management
learned through the Company's transfer agent that Camden Holdings still owns
340,894 shares of the Company's common stock. The Company and New Millennium
believe that the existence of these 340,894 shares of the Company's common
stock
owned by Camden Holdings Inc. is a material breach of the New Millennium
Agreement, and the Company and New Millennium are reviewing their respective
legal rights with regards to this matter.
Technically,
as a matter of the terms of the New Millennium Agreement, it is possible that
Camden Holdings or Mr. Anderson could reacquire the shares of the Company's
common stock that were sold to New Millennium, should New Millennium default
on
the promissory note issued by New Millennium to Camden Holdings to purchase
the
shares, which note is secured by the purchased shares of the Company's common
stock
Conversion
of NuWay Note to Common Stock
Pursuant
to the NuWay Note, the Company owes New Millennium $1,120,000 plus accrued
and
outstanding interest. On March 26, 2003, the board of directors of the Company
voted to convert the NuWay Note into 22,400,000 shares of common stock of the
Company, reflecting a 37.5% discount to market price. New Millennium consented
to the proposed conversion.
The
business purpose of the conversion was to fulfill one of the conditions to
the
transaction between New Millennium and Mr. Anderson and his affiliates, and
to
retire $1,120,000 in debt owed by the Company with the effect increasing
stockholder equity. The board of directors determined that a 37.5% discount
to
market price was appropriate given that (i) the shares into which the NuWay
Note
would be convertible would be subject to the one-year holding period provided
by
of Rule 144 prior to resale and (ii) even after such holding period, this large
amount of shares could only be resold in the market over a significant period
of
time in light of the volume limitations of Rule 144 that would apply to such
resales. The conversion was approved by the Company's non-interested
directors.
After
receiving advice from the staff of NASDAQ regarding the requirements of
applicable NASDAQ Marketplace Rules, the board of directors made the conversion
of the NuWay Note conditional upon receiving stockholder approval of the
conversion. New Millennium agreed to extend the terms of the NuWay Note from
June 15, 2003 to September 15, 2003, to allow sufficient time for the Company
to
obtain the requisite stockholder approval.
On
December 9, 2003, the Company attempted to conduct a stockholder meeting to
approve the terms of the conversion of the Company's Promissory Note. The
Company was unable to obtain a quorum at the meeting. The meeting was adjourned
to December 30, 2003, but again the Company was unable to obtain a quorum,
and
the conversion has not taken place as of the date of the filing of this Annual
Report.
In
conjunction with the Company’s January 31, 2004 purchase of Premium Medical
Group (“PMG”) (later rescinded in October 2004), and as a condition to that
transaction, the Premium Medical Group shareholders (the “PMG Shareholders”)
required the Company to convert the note so as to eliminate the obligation
from
the Company’s balance sheet. At a meeting on February 10, 2004, the board of
directors voted to convert the note into 30,869,992 shares of its common stock,
at a conversion price of $0.04, discounted 20% from the then market price of
$0.05. New Millennium agreed to this conversion. In arriving at a conversion
price, the board of directors determined that a 20% discount to market price
was
appropriate based on a number of factors, including (i) the holding period
of
the stock will be two years, and thus is not liquid until that point, and (ii)
the amount of the stock issued would make it impossible to liquidate the stock
at the current market price. This discount was equal to the discount proposed
to
the stockholders in December 2003 at the abandoned stockholders meeting, and
less than the discount used by the board at the first conversion attempt in
April 2003.
The
board
approved the conversion knowing that, since its conversion was a condition
imposed by the PMG Shareholders, they (who would hold 45% of the Company’s
common stock at the time of such meeting) would provide the additional shares
necessary to obtain a quorum and formal stockholder approval. Stockholder
approval was also necessary to increase the number of authorized shares
necessary to convert the Note. However, due to lack of operational capital,
the
Company was unable to remain current in its SEC filings, and thus was unable
to
hold the required stockholder meeting.
In
October 2004, the Company, PMG and the PMG Shareholders rescinded the Stock
Purchase Agreement. Because the board of director’s decision to convert the Note
was based in part on the requirements of the PMG Stock Purchase Agreement,
the
board on October 28, 2004, determined not to convert the Note. Considering
that
the Company at the time was a shell corporation with no operations, Mr. Calvert
also agreed to extend the maturity of the Note indefinitely until the Company’s
status changed.
Accordingly,
as of September 30, 2004, the principal amount of the loan, together with
$73,504 in accrued but unpaid interest, had not been repaid.
Under
the
terms of the New Millennium Note, it is possible that Summitt Ventures, Camden
Holdings, and Summit Healthcare may have a claim to reacquire the shares of
the
Company's common stock that were sold to New Millennium. The New Millennium
Note
is purportedly secured by the purchased shares of the Company's common stock;
however, New Millennium and Mr. Calvert believe that Mr. Anderson and his
affiliates have not perfected their security interest in those shares. In
addition, the Augustine Fund is the pledgee of 2,500,000 of these shares and
has
physical possession of those shares.
New
Millennium has informed the Company’s board of directors that New Millennium
still intends to fully convert the Note to stock as soon as it is practical,
following stockholder approval. As of the date of the filing of this report,
the
stockholder vote has not taken place and the Note has not been converted into
shares of the Company’s common stock.
Since
that time, New Millennium has agreed to a further indefinite extension of the
maturity date of the NuWay Note pending stockholder approval of the transaction.
The Company has been unable to schedule such a meeting due to the delinquent
status of its periodic reports with the SEC and limited resources to plan the
meeting.
Transactions
with Mark Roy Anderson
During
the period from approximately June 2002 through March 2003, the Company entered
into several transactions with entities controlled by Mark Roy Anderson. These
entities are Med Wireless, Genesis, Camden Holdings, Summit Healthcare, Summitt
Ventures, Summit Oil & Gas, Inc. ("Summit Oil") and CVP. The transactions
are listed in chronological order. Neither the Company, nor any of its directors
or officers, has had any communication with Mr. Anderson since May
2003.
Financing
Agreement with Camden Holdings, Inc.
During
June 2002, as part of a plan introduced to the Company by Mr. Anderson to shift
the Company's focus to the medical technology field and bring in new management,
Camden Holdings purchased 1,000,000 shares of the Company's common stock for
$250,000. At the time of the transaction, Camden Holdings, whose president
at
the time of the transaction was Mr. Anderson, owned no shares in the Company,
this being the initial transaction between the Company and Mr. Anderson and
his
affiliates. After this purchase, the 1,000,000 shares represented approximately
12.9% of the then-issued and outstanding shares of the Company's common stock.
Genesis
Health Tech, Inc.
On
June
28, 2002, the Company purchased a database of healthcare providers in the United
States from Genesis, a wholly-owned subsidiary of Camden Holdings, which was
controlled by Mr. Anderson. The total purchase price of $300,000 was satisfied
by the issuance of 666,667 shares of the Company's common stock. After this
purchase, the 1,666,667 shares of the Company's common stock beneficially owned
by Mr. Anderson represented approximately 19.8% of the then-issued and
outstanding shares of the Company's common stock.
Med
Wireless, Inc.
By
way of
an agreement dated July 16, 2002 and amended August 21, 2002, the Company
acquired a 15-year, fully paid license to certain technology from Med Wireless,
a company whose founder and principal stockholder was Mr. Anderson. Pursuant
to
the related license agreement (i) the Company would license from Med Wireless
all of its rights and interest in certain software applications relating to
the
movement of medical images and data over the Internet and via handheld wireless
devices as well as customer lists; (ii) Med Wireless would assign its customers
and distribution agreements related to the licensed intellectual property to
the
Company; and (iii) the Company would assume $1,120,000 of outstanding debt
(see
further discussions below). In return, the Company agreed to issue to the Med
Wireless stockholders an aggregate of 6,600,000 shares, or approximately 44%,
of
the Company's common stock.
Through
Camden Holdings and Summit Healthcare, Mr. Anderson received an additional
2,868,928 shares of the Company's common stock, as a result of the Med Wireless
transaction, which increased Mr. Anderson's beneficial ownership to 4,535,595
shares, or approximately 28.3%, of the Company's common stock at the time this
transaction was approved by the Company's stockholders. Mr. Anderson also held
a
minority interest in Med Wireless.
In
addition, the Company's current president, Dennis Calvert, was entitled to
receive approximately 9.9% of the stock of Med Wireless and 600,000 shares
of
the Company's common stock as a result of this transaction. Prior to this
transaction, Mr. Calvert was not a stockholder of Med Wireless.
The
transaction was approved by the board of directors and the vote of a majority
of
the Company's shares of common stock, including the shares held by Camden
Holdings. Stockholders of the Company owning 3,930,183 shares of the 7,761,353
shares then outstanding consented to the transaction with Med Wireless,
including the shares held by Mr. Anderson and his affiliates.
Sale
of Casino Operations
The
Company sold its wholly-owned casino rental subsidiaries, Latin American Casinos
del Peru S.A., and Latin American Casinos of Colombia, LTDA, to CVP in October
2002. Mr.. Anderson was a general partner of CVP at the time of the transaction.
Although the purchase price for the stock was $300,000, less all outstanding
liabilities of the two subsidiaries, the outstanding liabilities exceeded that
amount and the Company received no cash in the sale. The transaction price
was
determined as a result of the Company's receiving no viable suitors, bidders
or
offers for the stock or assets of the Company's gaming businesses. The Company's
board of directors approved this transaction, but it was not voted upon by
the
Company's stockholders.
Sale
of Oil Operations
The
Company entered into an agreement on December 15, 2002 to sell 100% of the
stock
of NuWay Resources, Ltd. ("NuWay Resources"), the Company's oil and gas
subsidiary, for $100,000 less outstanding liabilities, to Summit Oil. Mr.
Anderson was president of Summit Oil at the time of the transaction. The Company
received no cash from the sale of the stock, but was able to insure
contractually that it would not retain any liabilities, or incur new liabilities
(which had been increasingly significantly), beyond October 1, 2002. The
transaction price was determined as a result of the Company's receiving no
other
viable offers for NuWay Resources or its assets. The Company's board of
directors approved the transaction, but it was not voted upon by the Company's
stockholders.
Consultancy
Arrangement
Beginning
in September 2002, Mr. Anderson also served as a consultant to the Company
pursuant to a written agreement and received 1,241,884 shares of the Company's
common stock pursuant to the 2002 Consultant Equity Plan. The Consultancy
Agreement was terminated in December 2002.
As
a
result of all of the foregoing transactions, the Company believes that Mr.
Anderson was the beneficial owner of an aggregate of 5,777,479 shares, or more
than 30%, of the Company's common stock outstanding as of December 31, 2002,
assuming Mr. Anderson beneficially owned all the shares at the same time. The
Company believes that Mr. Anderson sold some of the shares which were issued
pursuant to the 2002 Plan, and as such the number and percentage of the
Company's common stock held by Mr. Anderson at any one time may have been less
than that indicated above. In any event, Mr. Anderson failed to file any reports
with the SEC on Schedules 13D or 13G, or on Forms 3 or 4, and therefore, the
Company cannot confirm any of these numbers at any given point in time.
ITEM
13. EXHIBITS.
Index
of exhibits:
| Exhibit No. |
Description of
Exhibit |
| 3.1 |
Certificate
of Incorporation
(1)
|
| 3.2 |
Certificate
of Amendment of Certificate of Incorporation filed 11/26/1991
(9)
|
| 3.3 |
Certificate
of Amendment of Certificate of Incorporation filed 6/24/1994
(9)
|
| 3.4 |
Certificate
of Amendment of Certificate of Incorporation filed 7/22/1999
(10)
|
| 3.5 |
Certificate
of Amendment of Certificate of Incorporation filed 8/31/2001 (1)
|
| 3.6 |
Certificate
of Amendment of Certificate of Incorporation filed 10/30/2002
(2)
|
| 3.7 |
Certificate
of Amendment of Certificate of Incorporation filed 12/26/2002
(2)
|
| 3.8 |
Certificate
of Merger merging Repossession Auction, Inc. (Florida corporation)
and
Repossession, Inc. (Delaware corporation)
(9)
|
| 3.9 |
Certificate
of Designations creating Series A Preferred Stock
(12)
|
| 3.10 |
Bylaws,
as amended and restated (2)
|
| 4.1 |
Form
of Warrant to Purchase Common Stock issued to Preferred Stock investors
(12)
|
| 4.2 |
Warrant
to Purchase Common Stock issued to Arthur Lipper
(12)
|
| 4.3 |
Warrant
No. AG-1 to purchase up to 6,158,381 shares of NuWay Medical, Inc.
common
stock held by Augustine II LLC (5)
|
| 4.4 |
Amended
and Restated Warrant No. AG-1 to purchase up to 6,158,381 shares
of NuWay
Medical, Inc. common stock held by Augustine II LLC
(12)
|
| 10.1 |
Employment
Agreement between the Company and Dennis Calvert dated December
11, 2002
(2)
|
| 10.2 |
Employment
Agreement between the Company and Joseph Provenzano dated March 1,
2003
(2)
|
| 10.3 |
2002
Consultant Equity Plan, as amended on December 27, 2002.
(3)
|
| 10.4 |
License
Agreement with Med Wireless Inc. dated August 21, 2002
(2).
|
| 10.5 |
Amendment
to License Agreement with Med Wireless Inc. dated September 18, 2002
(2)
|
| 10.6 |
Secured
Promissory Note in the face amount of $1,120,000
(4)
|
| 10.7 |
Secured
Term Promissory Note in the face amount of $900,000
(4)
|
| 10.8 |
Convertible
Preferred Stock and Warrant Purchase Agreement
(4)
|
| 10.9 |
Agreement
to issue warrant dated February 24, 2003 between NuWay Medical, Inc.
and
Sachi International, Inc. (12)
|
| 10.10 |
Term
Loan Agreement dated as of June 10, 2003 between NuWay Medical, Inc.
and
Augustine II LLC (5)
|
| 10.11 |
Stock
Pledge Agreement dated as of June 10, 2003, between New Millennium
and
Augustine II LLC (5)
|
| 10.12 |
Stock
Pledge Agreement dated as of June 10, 2003, between NuWay Medical,
Inc.
and Augustine II LLC (5)
|
| 10.13 |
Promissory
Note dated November 20, 2003 between NuWay Medical, Inc. and James
Seay,
DDS. (12)
|
| 10.14* |
Amendment
No. 1 to Promissory Note (dated November 20, 2003 between NuWay Medical,
Inc. and James Seay, DDS) dated February 10,
2005
|
| 10.15 |
Promissory
Note by NuWay Medical, Inc. in favor of Augustine II, LLC
(5)
|
| 10.16 |
Amendment
No. 1 to Term Loan Agreement dated as of March 30, 2004 between NuWay
Medical, Inc. and Augustine II LLC
(12)
|
| 10.17 |
Amended
and Restated Convertible Term Note by NuWay Medical, Inc. in favor
of
Augustine II, LLC (12)
|
| 10.18 |
2003
Stock Compensation Plan (11)
|
| 10.19 |
Convertible
Loan Agreement and Note between NuWay Medical, Inc. and James Burchard
(12)
|
| 10.20 |
Conversion
Agreement with New Millennium dated October 16, 2003
(6)
|
| 10.21 |
Stock
Purchase Agreement with Premium Medical Group, Luis Ruiz and Eduardo
Ruiz
(7)
|
| 10.22 |
Rescission
Agreement with Premium Medical Group, Luis Ruiz and Eduardo Ruiz
(8)
|
| 10.23 |
Unsecured
Promissory Note dated March 7, 2005 in favor of Dennis Calvert
(13)
|
| 10.24* |
Form
of Convertible Term Note
|
| 21.1* |
List
of Subsidiaries of the Registrant
|
| 23.1* |
Consent
of Jeffrey S. Gilbert, CPA
|
| 31.1* |
Certification
of Chief Executive Officer and Interim Chief Financial Officer Pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14
and
15(d)-14 under the Securities Exchange Act of
1934
|
| 32.1* |
Certification
of Chief Executive Officer and Interim Chief Financial Officer Pursuant
to
18 U.S.C. Section 1350.
|
| (1) |
Incorporated
herein by reference from the 10-KSB filed by the Company for the
year
ended December 31, 2001.
|
| (2) |
Incorporated
herein by reference from the 10-KSB filed by the Company for the
year
ended December 31, 2002.
|
| (3) |
Incorporated
herein by reference from the Form S-8 filed by the Company on August
8,
2002, and amended on Form S-8 filed by the Company on December 27,
2002.
|
| (4) |
Incorporated
herein by reference from the Form 8K filed by the Company on May
1,
2003.
|
| (5) |
Incorporated
herein by reference from the 10-QSB filed by the Company for the
period
ending March 31, 2003.
|
| (6) |
Incorporated
herein by reference from the Form 8-K filed by the Company on October
31,
2003.
|
| (7) |
Incorporated
herein by reference from the Form 8-K filed by the Company on February
17,
2004.
|
| (8) |
Incorporated
herein by reference from the Form 8-K filed by the Company on October
15,
2004.
|
| (9) |
Incorporated
herein by reference from the 10-KSB filed by the Company for the
year
ended December 31, 1998
|
| (10) |
Incorporated
herein by reference from the 10-KSB filed by the Company for the
year
ended December 31, 1999
|
| (11) |
Incorporated
herein by reference from the Form S-8 filed by the Company on February
27,
2003.
|
| (12) |
Incorporated
herein by reference from the 10-KSB filed by the Company for the
year
ended December 31, 2003
|
| (13) |
Incorporated
herein by reference from the 10-QSB filed by the Company for the
period
ending March 31, 2004.
|
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table summarizes the fees charged by Gilbert, for certain services
rendered to the Company relating to fiscal years 2003 and 2004.
Gilbert
was retained by the Company in September 2004 to audit the Company’s financial
statements and provide audit-related services for fiscal year 2003.
Because of the date of Gilbert’s engagement, he did not commence audit and
audit-related services until September 2004. Accordingly, all of Gilbert’s fees
were billed and partially paid during 2004 for the audit of the 2003
fiscal year and are shown in the column below under "Fiscal Year
2003".
| |
|
Amount
Billed and Paid
|
|
|
Type
of Fee
|
|
Fiscal
Year 2003
|
|
Fiscal
Year 2004
|
|
| |
|
|
|
|
|
|
Audit(1)
|
|
$
|
40,050
|
|
$
|
18,000
|
|
|
Audit-Related(2)
|
|
|
2,500
|
|
|
8,000
|
|
|
Tax(3)
|
|
|
-
|
|
|
|
|
|
All
Other(4)
|
|
|
5,705
|
|
|
|
|
|
Total
|
|
$
|
48,255
|
|
$
|
26,000
|
|
| |
|
|
|
|
|
|
|
|
(1)
|
This
category consists of fees for the audit of our annual financial statements
included in the Company’s annual report on Form 10-KSB and review of
the financial statements included in the Company’s quarterly reports on
Form 10-QSB. This category also includes advice on audit and
accounting matters that arose during, or as a result of, the audit
or the
review of interim financial statements, statutory audits required
by
non-U.S. jurisdictions and the preparation of an annual “management
letter” on internal control matters.
|
|
(2)
|
Represents
services that are normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements for
those
fiscal years, aggregate fees charged for assurance and related services
that are reasonably related to the performance of the audit and are
not
reported as audit fees. These services include consultations regarding
Sarbanes-Oxley Act requirements, various SEC filings and the
implementation of new accounting requirements.
|
|
(3)
|
Represents
aggregate fees charged for professional services for tax compliance
and
preparation, tax consulting and advice, and tax planning.
|
|
(4)
|
Represents
aggregate fees charged for products and services other than those
services
previously reported as charged by former auditors.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by
the
undersigned, thereunto duly authorized.
| |
|
|
| |
NUWAY
MEDICAL, INC. |
|
|
|
| Date: June
28, 2005 |
By: |
/s/ Dennis
Calvert |
| |
|
| |
Dennis
Calvert, President,
Chief Executive Officer and
Interim Chief Financial
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Company and in the
capacities and on the date indicated:
|
NAME
|
|
TITLE
|
|
DATE
|
| |
|
|
|
|
|
/s/Dennis
Calvert
|
|
Chairman
of the Board, Chief Executive Officer,
|
|
June
28, 2005
|
|
Dennis
Calvert
|
|
President
and Interim Chief Financial
Officer
|
|
|
| |
|
|
|
|
|
/s/Joseph
Provenzano
|
|
Director
|
|
June
28, 2005
|
|
Joseph
Provenzano
|
|
|
|
|
| |
|
|
|
|
|
/s/Steven
V. Harrison II
|
|
Director
|
|
June
28, 2005
|
|
Steven
V. Harrison II
|
|
|
|
|
| |
|
|
|
|
|
/s/
Gary Cox
|
|
Director
|
|
June
28, 2005
|
|
Gary
Cox
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders
NuWay
Medical, Inc.
I
have
audited the consolidated balance sheets of NuWay Medical, Inc. and Subsidiary
(the "Company") as of December 31, 2004 and 2003 and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
then ended. These consolidated financial statements are the responsibility
of
the Company's management. My responsibility is to express an opinion on these
consolidated financial statements based on my audits.
I
conducted my audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I
plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, I express
no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. I believe my audits provide a reasonable basis for
my
opinion.
In
my
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NuWay Medical,
Inc. and Subsidiary as of December 31, 2004 and 2003 and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
As
discussed in Note 1 and 3 to the consolidated financial statements, the Company
during 2003 discontinued its remaining operations.
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has limited liquid resources,
recurring losses, and is seeking to implement its business plan, which requires
the Company to acquire or develop a business. These matters raise substantial
doubt about its ability to continue as a going concern. Management's plans
in
regard to these matters are also discussed in Note 1. The consolidated financial
statements do not include any adjustment that might result from the outcome
of
this uncertainty.
/s/
JEFFREY S. GILBERT
Los
Angeles, California
June
17,
2005
INDEX
TO FINANCIAL STATEMENTS
|
Consolidated
Balance Sheets as of December 31, 2004 and December 31,
2003
|
F-1
|
| |
|
|
Consolidated
Statements of Operations for the years ended December 31, 2004 and
2003
|
F-2
|
| |
|
|
Consolidated
Statements of Changes in Stockholders' Deficit for the years ended
December 31, 2004 and 2003
|
F-3
|
| |
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2004 and
2003
|
F-4
|
| |
|
|
Notes
to Consolidated Financial Statements
|
F-5
- F-30
|
NUWAY
MEDICAL, INC AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2004 AND 2003
|
ASSETS
|
| |
|
|
|
December
31,
2004
|
|
December
31, 2003
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
|
|
|
$
|
--
|
|
$
|
671
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
|
|
|
--
|
|
|
671
|
|
|
TOTAL
ASSETS
|
$
|
--
|
|
$
|
671
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
| |
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
Payable and Accrued Expenses
|
|
|
|
|
$
|
2,054,270
|
|
$
|
1,256,475
|
|
|
Notes
Payable
|
|
|
|
|
|
1,632,100
|
|
|
1,605,000
|
|
|
Discount
on Note, Net
|
|
|
|
|
|
--
|
|
|
(62,131
|
)
|
|
Debentures
Payable, Net
|
|
|
|
|
|
21,151
|
|
|
125,000
|
|
|
Total
Current Liabilities
|
|
|
|
|
|
3,707,521
|
|
|
2,924,344
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS,
CONTINGENCIES AND SUBSEQUENT EVENTS
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Convertible
Preferred Series A, $.00067 Par Value, 25,000,000 Shares
Authorized, 559,322 Shares Issued and Outstanding
at December 31, 2004 and December 31, 2003
|
|
|
|
|
|
375
|
|
|
375
|
|
|
Common
Stock, $.00067 Par Value, 100,000,000 Shares
|
|
|
|
|
|
|
|
|
|
|
|
Authorized,
51,981,236 and 36,386,486 Shares Issued At
December 31, 2004 and December 31, 2003, respectively
|
|
|
|
|
|
34,120
|
|
|
23,976
|
|
|
Additional
Paid-In Capital
|
|
|
|
|
|
23,299,870
|
|
|
23,002,818
|
|
|
Accumulated
Deficit
|
|
|
|
|
|
(27,041,886
|
)
|
|
(25,823,838
|
)
|
|
Treasury
Stock, at cost, 44,900 Shares Held as of December 31 2003
|
|
|
|
|
|
--
|
|
|
(127,004
|
)
|
|
Total
Shareholders’ Equity
|
|
|
|
|
|
(3,707,521
|
)
|
|
(2,923,673
|
)
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
--
|
|
$
|
671
|
|
| |
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements
|
NUWAY
MEDICAL, INC AND SUBSIDIARY
STATEMENTS
OF OPERATIONS FOR THE YEARS ENDED
DECEMBER
31, 2004 AND 2003
|
| |
|
2004
|
|
2003
|
|
|
Revenue
|
|
|
|
|
|
|
Total
Revenues
|
|
|
--
|
|
|
--
|
|
| |
|
|
|
|
|
|
|
|
Costs
and Expenses
|
|
|
|
|
|
|
|
|
Selling,
General and Administrative
|
|
$
|
971,944
|
|
$
|
2,339,264
|
|
|
Depreciation,
Depletion and Amortization
|
|
|
--
|
|
|
--
|
|
|
Total
Costs and Expenses
|
|
|
971,944
|
|
|
2,339,264
|
|
| |
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(971,944
|
)
|
|
(2,339,264
|
)
|
| |
|
|
|
|
|
|
|
|
Other
Income and Expense
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
(250,704
|
)
|
|
(344,832
|
)
|
|
Other
Income
|
|
|
4,600
|
|
|
--
|
|
|
Net
Other Expense
|
|
|
(246,104
|
)
|
|
(344,832
|
)
|
| |
|
|
|
|
|
|
|
|
Loss
Before Income Taxes
|
|
|
(1,218,048
|
)
|
|
(2,684,096
|
)
|
|
Net
Loss from Continuing Operations
|
|
|
(1,218,048
|
)
|
|
(2,684,096
|
)
|
| |
|
|
|
|
|
|
|
|
Loss
from Discontinued Operations
(Includes
$651,750 of depreciation and amortization expense and $3,693,250
of
impairment charge of intangible assets)
|
|
|
--
|
|
|
(4,938,113
|
)
|
|
Net
Loss
|
|
$
|
(1,218,048
|
)
|
$
|
(7,622,209
|
)
|
| |
|
|
|
|
|
|
|
|
Loss
Per Common Share - Basic and Diluted
|
|
|
|
|
|
|
|
|
Loss
per share from Continuing Operations
|
|
$
|
(0.03
|
)
|
$
|
(0.08
|
)
|
|
Loss
per share from Discontinued Operations
|
|
|
(0.00
|
)
|
|
(0.7
|
)
|
|
Net
Loss per Share, rounding
|
|
$
|
(0.03
|
)
|
$
|
(0.25
|
)
|
|
Weighted
Average Common Share Equivalents Outstanding
|
|
|
45,987,808
|
|
|
30,466,628
|
|
| |
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements
NUWAY
MEDICAL, INC AND SUBSIDIARY
STATEMENTS
OF STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2004
| |
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
|
|
| |
|
Number
|
|
Par
|
|
Number
|
|
Par
|
|
Additional
|
|
Retained
|
|
|
|
| |
|
of
|
|
Value
|
|
of
|
|
Value
|
|
Paid-In
|
|
Earnings
|
|
Treasury
|
|
| |
|
Shares
|
|
$.00067
|
|
Shares
|
|
$.00067
|
|
Capital
|
|
(Deficit)
|
|
Stock
|
|
|
BALANCE
DECEMBER 31, 2002
|
|
|
|
|
|
17,137,727
|
|
$
11,483
|
|
$20,239,936
|
|
$(18,201,629)
|
|
$(127,004)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALE
OF PREFERRED SHARES
|
|
|
559,322
|
|
|
375
|
|
|
|
|
|
|
|
|
279,282
|
|
|
|
|
|
|
|
|
STOCK
ISSUED FOR SERVICES
|
|
|
|
|
|
|
|
|
18,623,759
|
|
|
12,478
|
|
|
2,458,611
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERSION
OF DEBENTURES
|
|
|
|
|
|
|
|
|
625,000
|
|
|
15
|
|
|
24,984
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS FOR THE YEAR ENDED
DECEMBER
31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,622,209
|
)
|
|
|
|
|
BALANCE
DECEMBER 31, 2003
|
|
|
559,322
|
|
|
375
|
|
|
36,386,486
|
|
|
23,976
|
|
|
23,002,818
|
|
|
(25,823,838
|
)
|
|
(127,004
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK
ISSUED FOR SERVICES
|
|
|
|
|
|
|
|
|
9.183,400
|
|
|
6,181
|
|
|
362,885
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERSION
OF DEBENTURES
|
|
|
|
|
|
|
|
|
1,100,000
|
|
|
405
|
|
|
34,595
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETIREMENT
OF TREASURY STOCK
|
|
|
|
|
|
|
|
|
(44,900
|
)
|
|
(30
|
)
|
|
(126,974
|
)
|
|
|
|
|
127,004
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALE
OF COMMON STOCK
|
|
|
|
|
|
|
|
|
5,156,250
|
|
|
3,454
|
|
|
26,546
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTMENT
TO COMMON STOCK
|
|
|
|
|
|
|
|
|
2000,000
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,218,048
|
)
|
|
|
|
|
BALANCE
DECEMBER 31, 2004
|
|
|
559,322
|
|
$
|
375
|
|
|
51,981,236
|
|
$
|
34,120
|
|
$
|
23,299,870
|
|
$
|
(27,041,886
|
)
|
$
|
--
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements
NUWAY
MEDICAL, INC AND SUBSIDIARY
STATEMENTS
OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER
31, 2004 AND 2003
| |
|
2004
|
|
2003
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,218,048
|
)
|
$
|
(7,622,209
|
)
|
|
Adjustments
to Reconcile Net Loss to Net Cash Used in Operating
Activities:
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
--
|
|
|
660,302
|
|
|
Impairment
of Property, Plant & Equipment
|
|
|
--
|
|
|
20,292
|
|
|
Issuance
of Stock for Services
|
|
|
362,898
|
|
|
2,175,459
|
|
|
Loss
on disposal of Discontinued Operations
|
|
|
--
|
|
|
3,693,250
|
|
|
Amortization
of Discount on Note
|
|
|
62,131
|
|
|
183,499
|
|
|
Increase
in Accounts Payable and Accrued Expenses
|
|
|
725,248
|
|
|
154,896
|
|
|
Net
Cash Used In Operating Activities
|
|
|
(67,771
|
)
|
|
(734,511
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
No
Cash Used In or Provided by Investing Activities
|
|
|
--
|
|
|
--
|
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Funds
from Loan
|
|
|
60,000
|
|
|
455,000
|
|
|
Payments
to reduce Note Payable
|
|
|
(22,900
|
)
|
|
--
|
|
|
Proceeds
from Sale of Common Stock
|
|
|
30,000
|
|
|
--
|
|
|
Proceeds
from Sale of Preferred Stock
|
|
|
--
|
|
|
279,661
|
|
|
Net
Cash Provided By Financing Activities
|
|
|
67,100
|
|
|
734,661
|
|
| |
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(671
|
)
|
|
150
|
|
| |
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - BEGINNING
|
|
|
671
|
|
|
521
|
|
| |
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - ENDING
|
|
$
|
--
|
|
$
|
671
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASHFLOW INFORMATION
|
|
|
|
|
|
| |
|
|
|
|
|
|
Cash
Paid During the Period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
--
|
|
$
|
--
|
|
|
Income
Taxes
|
|
$
|
--
|
|
$
|
--
|
|
| |
|
|
|
|
|
|
|
|
Conversion
of Debentures and Accrued Interest to Capital
|
|
$
|
103,849
|
|
$
|
--
|
|
| |
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements
Note
1. Business and Organization
Outlook
As
of
December 31, 2004, and as of May 31, 2005, the Company had no continuing
business operations. Any perceived value in the Company is both speculative
and
intangible in nature. The Company is operating as a public shell and its
business operations consist of management seeking merger and acquisition
candidates with ongoing operations.
Cash
and
cash equivalents totaled $0 at December 31, 2004. The Company had no revenues
in
the twelve-month period ended December 31, 2004 (except insignificant other
income) and was forced to consume cash on hand and sell the Company’s common
stock to fund operations. The Company’s cash position is insufficient to meet
its operating expenses for any reasonable period of time. The Company will
be
required to raise additional capital to sustain basic operations through the
remainder of 2005 and until a merger candidate with operations of its own is
located and a transaction is consummated. While the Company is actively seeking
investments through private investors and other parties, there is no assurance
that the Company will be able to raise additional capital for the period
required.
The
Company's consolidated financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates the realization
of
assets and satisfaction of liabilities in the normal course of business. As
of
December 31, 2004, the Company had limited liquid and capital resources and
the
Company’s president is incurring costs on the Company’s behalf while seeking
acquisition opportunities.
Ultimately,
the Company's ability to continue as a going concern is dependent upon its
ability to attract new sources of capital, establish an acquisition or reverse
merger candidate with continuing operations, attain a reasonable threshold
of
operating efficiencies and achieve profitable operations.
For
the
twelve-month period ended December 31, 2004, the Company raised $221,033. These
funds were raised through straight debt financing, convertible debt financing,
equity financing, and advances from the Company’s president.
Organization
NuWay
Energy, Inc., a Delaware corporation (formerly known as Latin American Casinos,
Inc.), changed its name to NuWay Medical Inc. (NuWay) in October 2002. The
name
change reflected the Company's operating focus after it acquired a 15-year
licensing right to certain medical technology from Med Wireless, Inc. in July
2002. (See Note 3.) The Med Wireless software is a HIPAA (Health Insurance
Portability and Accountability Act) compliant technological solution to
electronically organize, store, and retrieve medical records and medical images.
To market this licensing right, the Company formed NuWay Sports Medicine
Ventures, LLC (subsequently renamed NuWay Sports LLC), in which it holds a
51%
membership interest, in December 2002. Although formed in 2002, the subsidiary
did not begin
See
accompanying notes to consolidated financial
statements
operations
until 2003. NuWay Sports developed the Player Record Library System (PRLS),
which is a derivative product of the Med Wireless technology. PRLS is a secure
database for athlete/patient medical data that can be acquired, displayed,
analyzed, interpreted, and archived in a completely digital format, which has
been customized for the sports industry. NuWay Sports generated $40,000 in
revenue during the first quarter of 2003 and entered into negotiating for the
possible use of the product with several professional sports leagues and
individual professional sport clubs. However, these negotiations did not result
in a transaction and the Company has had little success in generating ongoing
revenue. As of December 2004, NuWay Sports had ceased marketing the PRLS system
as a result of inadequate capital, marketing resources, and market competition.
The PRLS system has not developed into a profitable operation and the Company
desires to sell its licensing rights and PRLS product, but does not have any
offers with tangible value.
In
addition, the Company pursued a business opportunity related to an ultrasound
machine sale-leaseback program. The business opportunity came about as a result
of the Med Wireless License transaction with the Company, but no cost associated
with this business opportunity was recorded on the books of the Company. Under
this program, the Company attempted to arrange the purchase of ultrasound
machines by investors, who would lease the machines to the Company. In turn,
the
Company would sub-lease the ultrasound machines to the end user. The Company
secured purchase orders from both investors and prospective end-use lessees
of
the ultrasound machines. These purchase orders were conditioned upon the
Company's ability to secure financing of its own lease obligations of the
ultrasound machines from the investors. This was not accomplished because the
Company lacked the financial resources and credit to obtain such financing.
The
Company continued to pursue attempts to arrange such financing through March
2003. After March 2003, the Company focused primarily on the Med Wireless and
PRLS technologies and, after occasional attempts to pursue the sale-leaseback
program through mid-2003, this ultrasound program was no longer pursued.
Note
2. Summary of Significant Accounting Policies
a)
Principles
of Consolidation.
Management
intends to sell NuWay Sports, LLC. Therefore as of December 31, 2003 revenues
and expenses related to NuWay Sports, LLC have been reclassified from continuing
operations to a Loss from Discontinued Operations. (Note 4) There are no other
subsidiaries.
The
consolidated balance sheets include the accounts of NuWay Medical, Inc. and
NuWay Sports, LLC. The Company has significant influence of the business
operations of NuWay Sports and operations are consolidated. All significant
inter-company balances have been eliminated in consolidation.
b)
Property
and Equipment.
On
April
1, 2004 the Company closed its offices and has in storage its furniture,
fixtures and office equipment. As these items are idle and there is no
foreseeable plan of use, management recorded a write down of the remaining
net
book value totaling $20,292 as of December 31, 2003. Any gain from the sale
of
these items would not have a material affect on these financial statements.
While in use during 2003, depreciation was provided on a straight-line basis
over the estimated useful life of the respective asset. Maintenance and repairs
are charged to expense as incurred. There were no major renewals or
betterments.
See
accompanying notes to consolidated financial
statements
c)
Impairment
of Long-Lived Assets.
The
Company periodically reviews its long-lived assets for potential impairment
as
required by Statement of Financial Accounting Standards No. 144, "Accounting
for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." As discussed in Note 3, the Company recorded an impairment charge totaling
$3,693,250, and $651,750 of depreciation and amortization charges relating
to
the acquired technology.
d)
Subsidiary
and Technology Held for Sale and Discontinued Operations.
The
Company is attempting to sell its majority-owned subsidiary, NuWay Sports and
the Med Wireless technology. Thus, as of December 31, 2003 the Company has
reflected on its Statement of Operations a loss from Discontinued Operations
of
$4,938,113 related to the Med Wireless technology and its investment in NuWay
Sports, LLC. (Note 3) This amount includes the impairment and depreciation
and
amortization amounts described above and $593,113 in net operation charges
incurred in 2003. There are minimal future costs expected to be incurred to
sell
this subsidiary or the technology and, in accordance with FASB Statement No.
146
"Accounting for Costs associated with the exit or disposal activities", any
costs will be expensed as incurred.
e)
Earnings
(Loss) Per Share.
The
Company reports basic and diluted earnings (loss) per share (EPS) for common
and
common share equivalents. Basic EPS is computed by dividing reported earnings
by
the weighted average shares outstanding. Diluted EPS is computed by adding
to
the weighted average shares the dilutive effect if stock options and warrants
were exercised into common stock. For the years ended December 31, 2004 and
2003, the denominator in the diluted EPS computation is the same as the
denominator for basic EPS due to the anti-dilutive effect of the warrants and
stock options on the Company's net loss.
See
accompanying notes to consolidated financial
statements
For
the
years ended December 31, 2004 and 2003, the computation of basic EPS is as
follows:
|
Continuing
Operations:
|
|
2004
|
|
2003
|
|
|
Numerator
- net loss
|
|
$
|
(1,218,048
|
)
|
$
|
(2,406,358
|
)
|
|
Denominator
- weighted shares outstanding
|
|
|
45,987,808
|
|
|
30,466,628
|
|
|
Loss
per share from Continuing Operations
|
|
$
|
(0.03
|
)
|
$
|
(0.08
|
)
|
| |
|
|
|
|
|
|
|
|
Discontinued
Operations:
|
|
|
|
|
|
|
|
|
Numerator
- net loss
|
|
$
|
--
|
|
$
|
(4,871,019
|
)
|
|
Denominator
- weighted shares outstanding
|
|
|
--
|
|
|
30,466,628
|
|
|
Loss
per share from discontinued operations
|
|
$
|
(0.00
|
)
|
$
|
(0.17
|
)
|
| |
|
|
|
|
|
|
|
|
TOTAL:
|
|
|
|
|
|
|
|
|
Numerator
- net loss
|
|
$
|
(1,218,048
|
)
|
$
|
(7,622,209
|
)
|
|
Denominator
- weighted shares outstanding
|
|
|
45,987,808
|
|
|
30,466,628
|
|
|
Loss
per share
|
|
$
|
(0.03
|
)
|
$
|
(0.25
|
)
|
| |
|
|
|
|
|
|
|
f)
Use
of
Estimates.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 stock-based transactions, uncollectible accounts receivable,
asset depreciation and amortization, and taxes, among others.
g)
Stock
Options and Warrants issued for Services.
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," and related interpretations. The Company provides the pro forma
net earnings, pro forma earnings per share, and stock based compensation plan
disclosure requirements set forth in SFAS No. 123.
See
accompanying notes to consolidated financial
statements
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB
Statement No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No.123(R)”). SFAS
No. 123(R) replaces SFAS No. 123 “Accounting for Stock-Based Compensation”,
which supersedes Accounting Principles Board (“APB”) Opinion No. 25 “Accounting
for Stock Issued to Employees”, (“APB 25”), and amends FASB Statement No 95,
“Statement of Cash Flows”. SFAS No. 123 (R) requires all share-based payments to
employees, including grants to employee stock options, to be recognized in
the
financial statements based on their fair values. SFAS No. 123(R) is effective
for the first annual reporting period beginning after June 15, 2005. The Company
does not expect the impact of the adoption of SFAS 123(R) to have a material
effect on the Company’s results of operations.
For
stock
issued to consultants and other non-employees for services, the Company records
the expense based on the fair market value of the securities as of the date
of
the stock issuance.
h)
Advertising
The
Company expenses all advertising costs as incurred. Included in the Statement
of
Operations is approximately $0 and $4,500 of advertising expense charged to
operations for the years ended December 31, 2004 and 2003, respectively. During
2003, substantially all advertising expenses to promote the Company's PRLS
product, marketed through NuWay Sports, were paid through issuance of shares
of
the Company's common stock.
i)
Non-Cash
Transactions
The
Company has established a policy relative to the methodology to determine the
value assigned to each intangible acquired with or licensed by the Company
and/or services or products received for non-cash consideration of the Company's
common stock. The value is based on the market price of the Company's common
stock issued as consideration, at the date of the agreement of each transaction
or when the service is rendered or product is received, as adjusted for
applicable discounts.
The
methods, estimates and judgments the Company uses in applying these most
critical accounting policies have a significant impact on the results of the
Company reports in its financial statements.
Note
3. Impairment of Intangible Assets - 2003
During
the third quarter of 2003, management conducted an impairment analysis of its
two intangible assets, a marketing database purchased from Genesis Health Tech,
Inc. and the Med Wireless software technology license acquired from Med
Wireless, Inc. Both of those entities were controlled by Mark Roy Anderson.
With
respect to the marketing database, management had no success in its marketing
efforts and its future use was uncertain and at that time it had not used the
marketing database to market any product or generate any revenue for the
Company, and has thus determined to record a 100% impairment of that asset
in
the amount of $216,750.
See
accompanying notes to consolidated financial
statements
With
respect to the Med Wireless license, management analyzed the sales prospects
of
its PRLS system (which is a derivative product based upon the technology
licensed from Med Wireless) to the various professional and collegiate sports
organizations. It evaluated the successes the Company's NuWay Sports subsidiary
had in its sales efforts, and the revenue from projected future sales, and
determined to record an impairment charge to the recorded value of the Med
Wireless license of $1,649,594. This amount was calculated projecting sales
over
a three year period (calendar years 2004, 2005 and 2006), factoring in the
costs
of sales and the product costs, discounting projected net revenue to their
present value using a 7.5% interest factor, and further discounts of the
Company's projections for uncertainties relative to the timing of acceptance
of
this technology.
It
was
stated in the Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 2003 that management did not believe that further impairment
of
the Med Wireless license would be necessary. However, due to the lack of capital
to sustain marketing, product development, and operational needs, the Company
was unable to obtain significant sales and had not met any projected results.
In
addition, the Company is attempting to sell the NuWay Sports subsidiary that
was
marketing the PRLS system. In light of these circumstances, management
determined that the book value of the license would not exceed the expected
discounted cash flows of its sales projections. Thus management has recorded
an
additional impairment charge of $1,826,906 in the fourth quarter of the year
ending December 31, 2003. For the fiscal year ending December 31, 2003, the
Company recorded a total impairment charge of $3,693,250. Of this amount,
$216,750 was related to the impairment of the marketing database and the
remaining $3,476,500 related to the Med Wireless license. For the year ended
December 31, 2003, the Company recorded an impairment charge totaling
$3,693,250, and $651,750 of depreciation and amortization charges related to
the
technology acquired in 2002.
Note
4. Discontinued Operations
Management
determined that because of the Company's limited financial resources and
increased competition, it would discontinue operations of NuWay Sports and
any
effort to exploit the Med Wireless license, including development and marketing
of the product. The Company faces increased competition from other more
established companies with more human resources and capital recourses to market
their competing products. While PRLS is narrowly defined in its application
to
the sports industry, management believes the technology related to the PRLS
and
the Med Wireless license could be expanded by others to serve corporate,
government or health provider markets. However, the Company is unable to
adequately support the continued development and marketing of the product to
take advantage of those potential markets. Because NuWay Sports was able to
demonstrate its application with the NFL in the past, the underlying asset
and
its potential for future deployment has potential value to an entity desiring
and capable of exploiting the pursuit of those customers. Therefore, management
is actively seeking to sell NuWay Sports.
The
consolidated statement of operations for the year ended December 31, 2003
reflects a discontinued operations segments related to the abandonment of the
exploitation of the Med Wireless technology after a charge to impairment in
an
amount equal to the remaining net book value related to 2002 acquired
technology. The aggregate of impairment, depreciation and amortization and
net
loss from discontinued operations was $4,938,113. Although the formal decision
to discontinue the operations was made subsequent to December 31, 2003,
management of the Company believes that this presentation appropriately reflects
the current activity and status of the Company.
See
accompanying notes to consolidated financial
statements
Note
5. Property and Equipment.
On
April
1, 2004 the Company closed its offices and has in storage its furniture,
fixtures and office equipment. As these items are idle and there is no
foreseeable plan of use, management recorded a write down of the remaining
balance net book value totaling $20,292 as of December 31, 2003.
Note
6. Warrants
During
2003, the Company issued warrants to purchase a total of 7,011,036 shares of
common stock on the following terms: (i) 120,000 shares to an investor in
connection with a purchase of the Company's preferred stock, at a price of
$0.20
per share, which expires March 7, 2006 (ii) 399,322 shares to investors in
connection with a purchase of the Company's preferred stock, at a price of
$0.20
per share, which expires April 15, 2006; (iii) 6,158,381 shares to an investor
in connection with a loan to the Company, originally at a price of $0.16 per
share, which price adjusted to $0.035 per share in connection with an extension
of the loan repayment obligation, which expires June 10, 2008; (iv) 333,333
shares to a consultant in connection with consulting services, at a price of
$0.06 per share, which expires August 29, 2008. The compensation expense related
to (iv) above is immaterial.
On
October 29, 2003, the Company issued an unvested warrant to an individual to
purchase 2,000,000 shares of common stock at $0.05 a share. The warrant expired
on October 29, 2004. The Warrant was not exercisable unless and until the Holder
introduced to the Company an investor or investors which invest net proceeds
in
the Company of at least $250,000 within three months of the introduction. This
condition was not satisfied and the warrant expired unvested.
In
August
2002, the Company issued a warrant to purchase 100,000 shares of common stock
at
$0.30 per share to a former executive in connection with his resignation from
the Company. The Company recorded compensation expense of $25,000 based on
the
difference between the exercise price and the market price at the date of
issuance. These warrants expired unexercised February 23, 2004.
In
December 2000, the board of directors authorized the issuance of 3,300,000
private five-year stock warrants to acquire common stock at $1.75 per share.
1,500,000 of these warrants as well as 200,000 shares of restricted stock were
issued to the then existing executive officers. In February 2002, 3,000,000
of
the 3,300,000 warrants issued in year 2000 were cancelled. The remaining 300,000
warrants expire in 2005.
See
accompanying notes to consolidated financial
statements
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 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. Effective February 8, 2000, the board of directors reduced
the exercise price to $1.06, which was the closing price of the stock on that
date. These warrants expired unexercised in June 2003.
Note
7. Stock Compensation Plans
1994
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 . In June 1999, the Company increased the shares
allocated to the plan to 1,500,000. 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 percent of the outstanding shares of the voting stock of
the
Company). The 1994 Plan terminated in June 2004.
At
December 31, 2004 and 2003, the Company had options outstanding and exercisable
as follows:
|
|
|
Number
of Shares
|
|
Price
Per Share
|
|
|
Options
Outstanding at December 31, 2002
|
|
|
65,000
|
|
$
|
1.00
- $1.75
|
|
|
Options
Issued
|
|
|
--
|
|
|
|
|
|
Options
Exercised
|
|
|
--
|
|
|
|
|
|
Options
Expired
|
|
|
(65,000
|
)
|
$
|
1.00
- $1.75
|
|
|
Options
Outstanding at December 31, 2003
|
|
|
--
|
|
|
|
|
|
Options
Issued
|
|
|
--
|
|
|
|
|
|
Options
Exercised
|
|
|
--
|
|
|
|
|
|
Options
Expired
|
|
|
--
|
|
|
|
|
|
Options
Outstanding at December 31, 2004
|
|
|
--
|
|
|
|
|
| |
|
|
|
|
|
|
|
All
outstanding stock options and warrants were fully exercisable at December 31,
2003. The following shows the years in which these options and warrants will
expire:
| |
|
Private
Warrants
|
|
Investment
Banker Warrants
|
|
Employee
Stock Options and Warrants
|
|
|
Range
of Prices
|
|
$0.06
to $1.75
|
|
$1.06
|
|
$0.30
to $1.75
|
|
| |
|
|
|
|
|
|
|
|
Expired
in 2003
|
|
|
--
|
|
|
225,000
|
|
|
65,000
|
|
|
Expired
in 2004
|
|
|
--
|
|
|
--
|
|
|
100,000
|
|
|
To
Expire in 2005
|
|
|
300,000
|
|
|
--
|
|
|
--
|
|
|
To
Expire in 2006
|
|
|
559,322
|
|
|
--
|
|
|
--
|
|
|
To
Expire in 2008
|
|
|
6,491,714
|
|
|
--
|
|
|
--
|
|
| |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements
The
Company also had 1,725,000 publicly traded warrants to purchase the Company's
common stock at an exercise price of $3.00 per share which expired unexercised
on December 11, 2003.
2002
CONSULTANT EQUITY PLAN
In
August
of 2002, the board approved the formation of the 2002 Consultant Equity Plan
designed to allow consultants to be compensated with shares of Company common
stock for services provided to the Company. A total of 5,000,000 shares were
registered under this plan with the Securities and Exchange Commission (the
"SEC") during 2002. The Board amended this plan in December 2002. Approval
of
this plan was not submitted to the vote of the shareholders. Persons eligible
to
receive stock awards under this plan included "consultants" that provide bona
fide consulting services to the Company, excluding any services incident to
the
raising of capital or promotion or maintenance of a market for the Company's
securities. The plan is set to expire 10 years from its inception. A plan
committee of two or more members of the Board administers the plan. The plan
committee can award shares or options to purchase shares at a price in its
discretion, so long as the price chosen is not less than 85% of the fair market
value of the underlying shares as of the date of the grant.
At
December 31, 2002, there were 2,636,000 of unrestricted shares that were issued
in January 2003 for services performed in 2002. Of this amount, 1,200,000 shares
were issued to executive officers and the remaining balance was issued to
various individuals for consulting, legal and accounting services. Compensation
and consulting expense equal to the market value of the stock at the date of
issuance totaling $645,000 was accrued in December 2002.
From
August 2002 through February 2003, the Company issued all but 84,452 of the
5,000,000 shares available under this plan to approximately 26 consultants,
employees and directors. Part of this issuance was a grant of 1,000,000 shares
to Mr. Dennis Calvert, president and CEO of the Company, as consideration for
his services. Those 1,000,000 shares were issued in January of 2003, but were
returned by Mr. Calvert to the Company for cancellation that same
month.
2003
STOCK COMPENSATION PLAN
On
February 14, 2003, the board of directors approved the Company's 2003 Stock
Compensation Plan as a means of providing directors, key employees and
consultants' additional incentive to provide services for the Company. Both
stock options and stock grants may be made under this plan. The Plan sets aside
up to 15,000,000 shares of the Company's common stock for these purposes, which
were registered with the SEC. Approval of this plan was not submitted to the
vote of the shareholders. The Board administers this plan. The plan allows
the
Board to award grants of common shares or options to purchase common shares.
The
board has discretion to set the price of the options, but in no event shall
that
price be less than 100% of the fair market value of the shares at the time
of
the grant. The Board may at any time amend or terminate the plan. It does not
expire on its terms.
See
accompanying notes to consolidated financial
statements
During
2003, the Company issued 19,248,759 shares to approximately 37 consultants,
directors, and employees. Of this total, 17,327,753 have been registered with
the SEC, while the balance of 1,921,006 shares, were not registered and are
restricted securities. Of the total issued in 2003, 2,633,590 relate to services
performed in 2002 and 16,519,169 relate to 2003. The expenses related to the
shares issued for 2002 services in 2003 were recorded in the Company's financial
statements for the year ending December 31, 2002. In 2003 there were $1,554,700
of expenses recorded related to the issuance of these shares. Of this amount
$1,045,600 related to consulting services, $394,000 related to legal services,
$63,000 related to Advisory and Board of Directors expense, and $52,100 related
to salary expense.
At
December 31, 2003, there were 900,000 unrestricted shares held, to be issued
when the Company is in compliance with its regulatory filings. All of these
shares are to be issued and the consulting expense related to these share totals
$81,000 and is included in the Accounts Payable and Accrued Expenses as of
December 31, 2003 .
The
board
of directors approved a grant of 3,000,000 shares of stock pursuant to the
Company's 2003 Stock Compensation Plan to Mr. Dennis Calvert, president and
CEO
of the Company, as consideration for his services. Those 3,000,000 shares were
issued in March 2003. The board of directors subsequently modified its approval
of this issuance to make it conditioned upon stockholder approval of the
transaction because of NASDAQ Marketplace Rules governing change of control
transactions. Mr. Calvert returned those 3,000,000 shares to the Company and
they are not included in the above-described issuance.
NUWAY
MEDICAL, INC. 2004 EQUITY PLAN
On
March
10, 2004, the board of directors approved the Company's 2004 Equity Plan as
a
means of providing directors, key employees and consultants additional incentive
to provide services for the Company. Both stock options and stock grants may
be
made under this plan. The Plan sets aside up to 20,000,000 shares of the
Company's common stock for these purposes, which were registered with the SEC.
Approval of this plan was not submitted to the vote of the shareholders. The
Board administers this plan. The plan allows the Board to award grants of common
shares or options to purchase common shares. As plan administrator, the board
has sole discretion to set the price of the options. The Board may at any time
amend or terminate the plan. It does not expire on its terms.
During
2004, the Company issued approximately 9,180,000 shares to 16 consultants,
directors, and employees. Of this total 5,680,000 have been registered with
the
SEC, while the balance, 3,500,000 shares were not registered and are restricted
securities. Of the total issued in 2004, 1,580,000 shares relate to services
performed in 2003 and 7,600,000 shares relate to 2004. The effect of the shares
issued for 2003 services in 2004 was accrued in the Company's financial
statements for the year ending December 31, 2003. In 2004 there were $275,400
of
expenses recorded related to the issuance of these shares. Of this amount
$120,000 related to consulting services, $5,400 related to legal services,
$60,000 related to Board of Directors expense, and $90,000 related to salary
expense.
See
accompanying notes to consolidated financial
statements
Note
8. Sale of Unregistered Securities in 2004
In
January 2004, The Company issued 30,000,000 shares of common stock to the
Premium Medical Group Shareholders in connection with a transaction in which
the
Company acquired the outstanding stock of Premium Medical Group. This
transaction has since been rescinded by the parties. (Note 15)
In
February 2004, the Company received gross and net proceeds of $5,000 from an
individual investor in connection with the sale of 156,250 shares of the
Company’s common stock. The issuance of the shares described above was made in
reliance on the exemption from registration set forth in Section 4(2)
of
the Securities Act of 1933, as amended.
In
February, 2004, the Company issued 600,000 shares of its common stock to former
convertible debenture holders to partially satisfy its obligations on a
settlement agreement. The shares issued reduced the Company’s settlement
obligations by approximately $17,000.
In
February, 2004, the Company issued an unvested warrant to Sachi International,
Inc. to purchase up to 3,000,000 shares of common stock at $0.04 a share. The
Warrant vests based on the amount of investment proceeds brought to the Company
by the Holder, with 100% vesting if the Holder brings $500,000 in investment
capital. In the event less than $500,000 is invested, the warrant vests in
a
pro-rata amount. The closing of any such investment shall be in the sole and
absolute discretion of the Company. Sachi International, Inc., has not met
the
conditions to vest the warrant.
In
March
2004, the Company issued 200,000 shares in exchange for professional services
provided to the Company.
In
March
2004, the Company issued 3,000,000 shares to three of its four directors in
exchange for services provided to the Company.
In
September, 2004, the Company received gross and net proceeds of $25,000 from
two
individual investors in connection with the sale of 5,000,000 shares of the
Company’s common stock.
In
October, 2004, the Company received gross and net proceeds of $50,000 from
an
outside investor and issued its convertible promissory note due and payable
one
year from the date of issuance. The note bears interest at a rate of 10% per
annum, payable on the maturity date. The note can be converted, in whole or
in
part, into shares of the Company’s Series A Preferred stock, on the basis of
$.005 per share, at any time prior to maturity by either the Company or the
lender. Each share of Series A Preferred Stock may be converted by the holder
into one share of the Company’s common stock. If the noteholder converts the
note into Series A Preferred Stock, on or after the note’s original maturity
date the noteholder may require the Company to buy back the shares of Series
A
Preferred Stock for 110% of the principal amount of the promissory note (the
“Buy Back Provision”). If the Company is unable to do so, the Company’s
president, Dennis Calvert, has agreed to buy back the shares on the same terms.
If shares of Series A Preferred Stock are converted into common stock, the
holder has the right to include (piggyback) the shares of common stock in a
registration of securities filed by the Company (other than on Form S-4 or
Form
S-8).
See
accompanying notes to consolidated financial
statements
The
Company’s payment obligations under the note may be accelerated upon the
following events: (i) the sale of the Company’s assets outside the ordinary
course of business; (ii) a breach of the representations and warranties
contained within the agreement evidencing the loan; (iii) the failure to timely
pay the note; (iv) the Company’s default in any other loan obligation greater
than $100,000; (v) the Company’s dissolution, liquidation, merger,
consolidation, bankruptcy, or future insolvency; and (vi) the commencement
of
any suit that threatens to have a material adverse effect on the Company,
including the entry of a final judgment or settlement in excess of
$100,000.
In
November, 2004, the Company received gross and net proceeds of $10,000 from
an
outside investor and issued a convertible promissory note on substantially
the
same terms as the previously described note.
In
December, 2004, the Company issued 500,000 shares of its common stock to its
remaining former convertible debenture holder to partially satisfy its
obligations on a settlement agreement. The shares issued reduced the Company’s
settlement obligations by approximately $8,700.
Sale
of Preferred Shares
During
the year ended December 31, 2003, the Company entered into two Convertible
Preferred Stock and Warrant Purchase Agreements whereby the Company sold an
aggregate of 559,322 shares of a newly created series of Preferred Stock, Series
A Convertible Preferred Stock, par value $.00067, for a total consideration
of
$279,661. Each share of the Series A Preferred Stock is convertible into one
share of the Company's common stock. In addition, for each share of preferred
stock sold, the purchaser received one warrant to purchase one share of common
stock at a price of $0.20 per share. Using the Black-Scholes pricing model,
the
Company estimated the fair value of these warrants to be approximately $35,000,
and such amount has been netted in additional paid in capital on the December
31, 2003 consolidated balance sheet. The Black Scholes calculation assumed
a
discount rate of approximately five percent, volatility of 180 percent, and
no
dividends. The Series A Preferred Stock may be converted by the holder, at
any
time after six months from the purchase date and the warrant is exercisable
for
a period of three years from the purchase date. These Preferred Shares shall
vote with the holders of the outstanding shares of Common Stock and not as
a
separate class or series.
The
holders of outstanding shares of Series 2003 Convertible Preferred Stock (which
may be referred to as the "Series 2003 Preferred Stock") shall be entitled
to
receive in any fiscal year, dividends, if, when and as declared by the Board
of
Directors, out of any assets at the time legally available therefore in cash
at
a rate equal to 7% per share, per annum, of the original liquidation preference
of $2.00 per share, subject to adjustment as provided herein. There have been
no
dividends declared by the Board of Directors of the Company.
See
accompanying notes to consolidated financial
statements
Note
9. Convertible Debentures
In
December 2000, the Company, through a private placement, issued $3,500,000
principal amount of 6 percent Convertible Debentures to several investors.
These
debentures were originally due June 13, 2001 and their maturity date was
subsequently extended to December 13, 2001. They are convertible into common
stock at a price of $1.75 per share. The interest on the debentures is payable
either in cash or shares of common stock, at the discretion of the Company.
During 2001, $1,100,000 of the debentures plus accrued interest was converted
into 666,283 shares of the Company's common stock. During 2002, $2,250,000
of
the remaining debentures plus accrued interest was converted into 1,332,570
shares of common stock.
In
December 2002 the Company received a notice from the remaining two debenture
holders (the "Remaining Debenture Holders") requesting conversion of the
remaining outstanding $150,000 of debentures. The notice provided that, as
a
condition to conversion, the certificates representing the shares issuable
upon
conversion of the debentures would need to be delivered to the Remaining
Debenture Holders prior to the end of 2002. Pursuant to the request, and to
complete the conversion, the Company issued to the Remaining Debenture Holders
96,006 shares of common stock and promptly notified the Remaining Debenture
Holders' counsel and the Company's transfer agent of the approval and
ratification of the issuance. However, the actual certificates representing
the
shares were not delivered to the Remaining Debenture Holders until the first
quarter of 2003. The Remaining Debenture Holders then refused acceptance of
the
shares, claiming that because the actual certificates representing the shares
were not delivered in 2002 as specified in the conversion notice, the conversion
was invalid and the debentures would therefore remaining outstanding and
continue to accrue interest until repaid in full. The Remaining Debenture
Holders then demanded full payment on their $150,000 of debentures (plus accrued
interest).
In
June
2003, the Remaining Debenture Holders filed suit in the Orange County Superior
Court against the Company claiming it breached the debenture agreement by
failing to honor the terms of the notice of conversion. The Company and the
Remaining Debenture Holders then entered into a settlement agreement in which
the Remaining Debenture holders would convert the debentures into common stock
equal to approximately $70,000. The settlement agreement called for conversion
into stock over a period of three months. The Company had partially satisfied
the obligations under this agreement as of December 31, 2003, and further
satisfied its obligations in 2004.
See
accompanying notes to consolidated financial
statements
Note
10. Loan Agreement
On
June
10, 2003 the Company entered into a Term Loan Agreement ("Loan Agreement")
with
Augustine II, LLC ("Augustine"), pursuant to which Augustine agreed to loan
the
Company $420,000, payable in installments of $250,000, $100,000, and $70,000
(the "Loan"). The Company received all scheduled installments, and principal
and
interest (at an annual rate of 10%) were originally due in full on February
29,
2004. Augustine, however, agreed to extend the maturity date of the Loan
Agreement to August 2004. In addition to the extension of the maturity date,
Augustine was given the option of having the Loan satisfied in cash or by the
conversion of any remaining principal balance and any accrued interest on the
Loan to shares of the Company's common stock at a 15% discount to market, so
long as Augustine's holdings do not exceed 4.9% of the total issued and
outstanding shares of the Company's common stock at any time. Since that time,
the Company and Augustine have entered into negotiations to further extend
the
maturity date of the Loan and those negotiations are currently being finalized
and the new terms documented. While the precise terms have not been finalized
and are subject to change, the Company believes that the loan will be extended
an additional six months. The Company recorded $69,445 for the year ended
December 31, 2004 and $23,210 of interest expense for the year ended December
31, 2003. The Loan Agreement is subject to certain requirements that the Company
make mandatory prepayments of the Loan from the proceeds of any asset sales
outside of the ordinary course of business, and, on a quarterly basis, from
positive cash flow. In addition, the Company may prepay all or any portion
of
the Loan at any time without premium or penalty. The proceeds of the Loan were
used by the Company for working capital.
As
additional consideration for making the Loan, Augustine received five year
warrants to purchase up to 6,158,381 shares of the Company's common stock at
an
exercise price of $0.16 per share. The Company can require that the warrants
be
exercised if the Company's shares trade at or above $0.60 per share for each
trading day within the 30 calendar days prior to the maturity date of the Loan,
trading volume of the shares equals or exceeds 100,000 shares per day during
such period, and the shares of the Company's common stock underlying the
warrants have been included on a registration statement filed with and declared
effective by the SEC prior to the maturity date. If these conditions are not
fully satisfied by the maturity date, then Augustine may, at any time following
the maturity date and so long as the warrants remain exercisable, elect to
exercise all or any portion of the warrants pursuant to the "cashless exercise"
provisions of the warrants. Using the Black-Scholes pricing model, the Company
allocated approximately $245,000 of the Loan proceeds to the warrants and
$175,000 to the note payable, which allocations were made on a pro rata basis
based on the fair value of the warrants. The Black Scholes calculation assumed
a
discount rate of approximately four percent, volatility of 257 percent and
no
dividends. Given that the warrants were issued in conjunction with Loan
Agreement, such fair value represents an effective discount on the debt and
will
be amortized over the term of the loan. Amortization of this discount for the
year ended December 31, 2003 was approximately $183,500 and $61,500 for the
year
ended December 31, 2004 and is recorded as effective interest expense in the
accompanying consolidated statement of operations. In conjunction with the
extension of the maturity date of the Loan from February 2004 to August 2004,
the warrants held by Augustine to purchase 6,158,381 shares of the Company's
common stock were re-priced to an exercise price of $.035 per
share.
As
security for the Loan, New Millennium (an affiliate of Mr. Calvert) pledged
2.5
million shares of the Company's common stock owned by New Millennium, and the
Company has granted Augustine a security interest in its ownership interest
in
the Company's subsidiary, NuWay Sports, LLC.
See
accompanying notes to consolidated financial
statements
Note
11. Other Loan
On
November 20, 2003, the Company received $50,000 in exchange for a promissory
note in which it agreed to pay $65,000 to Dr. James Seay (the “noteholder”) 90
days from the date of the loan. The Company's president personally guaranteed
the note. The note matured on February 18, 2004. The Company has paid the
noteholder $30,000 and the balance of $35,000 remains outstanding. On February
10, 2005, the Company amended its obligations to the noteholder, which amendment
(i) extends the maturity date of the note to February 3, 2006, (ii) provides
for
interest to accrue at a rate of 10% per annum (15% upon default), and (iii)
allows for the conversion of the note into 7,000,000 shares of the Company’s
common stock, or $.005 per share.
During
2004, the Company raised $60,000 and issued convertible promissory notes due
and
payable one year from the date of issuance. The notes bear interest at a rate
of
10% per annum, payable on the maturity date, and can be converted, in whole
or
in part, into shares of the Company’s Series A Preferred stock, on the basis of
$.005 per share, at any time prior to maturity by either the Company or the
lender. Each share of Series A Preferred Stock may be converted by the holder
into one share of the Company’s common stock. If the noteholder converts the
note into Series A Preferred Stock, on or after the note’s original maturity
date, the noteholder may require the Company to buy back the shares of Series
A
Preferred Stock for 110% of the principal amount of the promissory note. If
the
Company is unable to do so, the Company’s president, Dennis Calvert, has agreed
to buy back the shares on the same terms. If shares of Series A Preferred Stock
are converted into common stock, the holder has the right to include (piggyback)
the shares of common stock in a registration of securities filed by the Company
(other than on Form S-4 or Form S-8).
Note
12. Provision for Income Taxes
Any
deferred tax assets have been subjected to a 100% valuation allowance, as
management is unable to determine that it is more likely than not that such
will
be realized. Due to changes in the Company's ownership through various issuance
of common stock during 2002 and 2003, the utilization of net operating loss
carryforwards may be subjected to annual limitations under provisions of the
Internal Revenue Code. Such limitations could result in the permanent loss
of a
portion of the net operating loss carry forwards. The Company has not yet
evaluated the status of its net operating loss carry forwards and may not do
so
until such time as the Company expects operating profits.
The
Company has not filed its 2002, 2003 and 2004 Federal and State Income tax
returns. Management of the Company does not feel that it will have a material
impact on the financial condition of the Company.
See
accompanying notes to consolidated financial
statements
Note
13. Related Party Transactions
Due
To President
New
Millennium Note
In
conjunction with the acquisition of the technology license from Med Wireless,
Inc. on August 21, 2002, the Company assumed a $1,120,000 note with interest
at
10% per annum payable by Med Wireless to Summitt Ventures, Inc., a company
controlled by Mark Roy Anderson. The note is secured by the Company's assets
and
was originally due on June 15, 2003. On March 26, 2003, Summitt Ventures sold
the note, together with 4,182,107 shares of the Company's common stock, to
New
Millennium Capital Partners LLC ("New Millennium"), a limited liability company
controlled and owned by the Company's president and family, in exchange for
a
$900,000 promissory note issued by New Millennium in favor of Summitt
Ventures.
This
note
is secured by all of the stock of the Company owned by New Millennium and Mr.
Calvert. On March 26, 2003, the Company's board of directors voted to convert
the $1,120,000 note held by New Millennium into 22,400,000 shares of restricted
common stock of the Company (at a conversion price discounted 37.5% to the
then
market price of $0.08). New Millennium agreed to this conversion. Subsequent
to
the vote by the board to convert the note, the Company received notification
from NASDAQ's Listing Qualifications Department that converting the note without
shareholder approval violated certain NASDAQ Marketplace Rules. In response
to
this notification, the board, with the concurrence of New Millennium, voted
to
amend its resolution and withhold issuance of the shares to New Millennium
until
the Company's shareholders approved the conversion. This shareholder vote has
not taken place and the shares have not been issued to New Millennium.
New
Millennium Capital Partners, LLC, a Nevada limited liability company partially
owned and controlled by the Company's President and his family as an investment
vehicle was formed in 1999. No individual, entity or party (s) associated with
the Company's business has ever had any ownership interest in New Millennium
and
it is an independent company. Mark Anderson, a principal or controlling
stockholder of those companies, conditioned the purchase by New Millennium
on
the Company converting the promissory note to common stock. The conversion
of
the note held by New Millennium is a matter to be brought before the NuWay
shareholders at its next available shareholders meeting.
The
business purpose of the original decision to convert the note into equity was
to
retire $1,120,000 in debt owed by the Company thereby increasing shareholder
equity by that amount and avoiding a default on the note and the insolvency
and
possible liquidation of the Company. In arriving at a conversion price, the
board of directors determined that a 37.5% discount to market price was
appropriate based on a number of factors, including that (i) with the quantity
of the shares that would be issued, a block of shares that size could not be
liquidated without affecting the market price of the shares, and (ii) the shares
would be "restricted shares" and could therefore not be sold by New Millennium
(an affiliate of the Company) in the public markets prior to two years from
the
date of the conversion, and thereafter would be subject to the volume and manner
of sale limitations of Rule 144 under the Securities Act of 1933.
See
accompanying notes to consolidated financial
statements
To
allow
time for a shareholder vote with respect to the conversion, New Millennium
agreed to extend the terms of the note, from June 15, 2003 to October 1,
2003.
At
the
Company's June 6, 2003 board meeting, Mr. Calvert, on behalf of New Millennium,
and the Company, through the unanimous action of the Board (with Mr. Calvert
abstaining), agreed that, in light of current market conditions (namely the
significant increase in the trading price of the Company's common stock since
March 26, 2003, the date on which the conversion of the note to equity was
originally approved by the Board, from $0.08 to $0.28 as of June 6, 2003),
it
would be inequitable for New Millennium to convert the note at the originally
agreed to $0.05 per share price. In this regard, Mr. Calvert, on behalf of
New
Millennium, and the Company orally agreed to rescind the agreement to convert
the note. In addition, New Millennium orally agreed with the Company to extend
the maturity date of the note to a first payment due October 1, 2003 in the
amount of $100,000 and the balance of the principal due on April 1, 2004, with
interest due according to the original terms of the note (to correspond to
the
payment terms of the note made by New Millennium in favor of Summitt), and
furthermore to reduce the Company's obligation on the note to the extent that
New Millennium is able to reduce its obligation on its note with Summitt
Ventures. While the prior holder of the note, Summitt Ventures, purported to
condition New Millennium's purchase on the conversion of the note, Mr. Calvert
has represented to the Company that due to Mr. Anderson's actions, Mr. Calvert
now believes that conversion of the note is no longer a required term of the
agreement between New Millennium and Summitt.
The
Company was unable to pay the note at the due date of October 1, 2003. At the
board meeting on October 15, 2003, the board determined to put the issue of
conversion of the note to the Company's shareholders at a special meeting of
the
shareholders scheduled for December 9, 2003. On November 7, 2003, the Company
with respect to that meeting filed a Definitive 14a. The shareholders meeting
was held on December 9, 2003, but adjourned without a vote, as there were not
enough shareholders present to hold a vote. The meeting was rescheduled for
December 30, 2003. At the December 30, 2003 shareholder meeting, the board
was
again advised that there was not a quorum, and therefore the vote could not
be
held. Because this was the second attempt to obtain a quorum, and more than
4,000,000 additional shares were required to be voted to obtain a quorum, the
board voted to adjourn the meeting indefinitely.
Since
that time, New Millennium has agreed to an indefinite extension of the maturity
date of the NuWay Note pending stockholder approval of the transaction. The
Company has been unable to schedule such a meeting due to the delinquent status
of its periodic reports with the SEC and limited resources to plan the meeting.
The amounts due to Mr. Anderson by New Millennium are in default.Technically,
under the terms of the New Millennium Agreement, it is possible that Mr.
Anderson has the right to reacquire the shares of the Company's common stock
that were sold to New Millennium, if New Millennium defaults on the promissory
note issued by New Millennium to Camden Holdings to purchase the shares. The
New
Millennium Note is purportedly secured by the purchased shares of the Company's
common stock; however, New Millennium and Mr. Calvert believe that Mr. Anderson
has not perfected his security interest in those shares. Moreover, the Augustine
Fund is the pledgee of 2,500,000 of these shares and holds those shares as
pledgee.
See
accompanying notes to consolidated financial
statements
Operating
Capital Loan
The
Company’s President, Dennis Calvert, loaned money to the Company by paying from
his personal funds certain of the Company’s expenses. A significant portion of
these personal funds was obtained by Mr. Calvert by refinancing his primary
residence and cashing out equity thereon. For the year ended December 31, 2004,
Mr. Calvert loaned to the Company $131,033. From
October, 2003 to February 28, 2005, Mr. Calvert loaned the Company a total
of
$143,141. As of December 31, 2005 and February 28, 2005, the Company repaid
$10,371 and $41,371 of this amount, respectively. On March 7, 2005, the Company
and Mr. Calvert agreed such that the $101,770 still outstanding and owed by
the
Company to Mr. Calvert will be repaid under the terms of a promissory note
bearing interest of 10% per annum, requiring monthly payments and maturing
on
January 15, 2006.
As
of
December 31, 2004, the Company had accrued an expense related to the unpaid
accrued compensation due its president, Mr. Calvert, in the amount of
$204,900.
Transactions
with Mark Roy Anderson
During
the period from approximately June 2002 through March 2003, the Company entered
into several transactions with entities controlled by Mark Roy Anderson. These
entities are Med Wireless, Genesis, Camden Holdings, Summit Healthcare, Summitt
Ventures, Summit Oil & Gas, Inc. ("Summit Oil") and CVP. The transactions
are listed in chronological order. Neither the Company, nor any of its directors
or officers, has had any communication with Mr. Anderson since May
2003.
Financing
Agreement with Camden Holdings, Inc.
During
June 2002, as part of a plan introduced to the Company by Mr. Anderson to shift
the Company's focus to the medical technology field and bring in new management,
Camden Holdings purchased 1,000,000 shares of the Company's common stock for
$250,000. At the time of the transaction, Camden Holdings, whose president
at
the time of the transaction was Mr. Anderson, owned no shares in the Company,
this being the initial transaction between the Company and Mr. Anderson and
his
affiliates. After this purchase, the 1,000,000 shares represented approximately
12.9% of the then-issued and outstanding shares of the Company's common stock.
Genesis
Health Tech, Inc.
On
June
28, 2002, the Company purchased a database of healthcare providers in the United
States from Genesis, a wholly-owned subsidiary of Camden Holdings, which was
controlled by Mr. Anderson. The total purchase price of $300,000 was satisfied
by the issuance of 666,667 shares of the Company's common stock. After this
purchase, the 1,666,667 shares of the Company's common stock beneficially owned
by Mr. Anderson represented approximately 19.8% of the then-issued and
outstanding shares of the Company's common stock.
See
accompanying notes to consolidated financial
statements
Med
Wireless, Inc.
By
way of
an agreement dated July 16, 2002 and amended August 21, 2002, the Company
acquired a 15-year, fully paid license to certain technology from Med Wireless,
a company whose founder and principal stockholder was Mr. Anderson. Pursuant
to
the related license agreement (i) the Company would license from Med Wireless
all of its rights and interest in certain software applications relating to
the
movement of medical images and data over the Internet and via handheld wireless
devices as well as customer lists; (ii) Med Wireless would assign its customers
and distribution agreements related to the licensed intellectual property to
the
Company; and (iii) the Company would assume $1,120,000 of outstanding debt
(see
further discussions below). In return, the Company agreed to issue to the Med
Wireless stockholders an aggregate of 6,600,000 shares, or approximately 44%,
of
the Company's common stock.
Through
Camden Holdings and Summit Healthcare, Mr. Anderson received an additional
2,868,928 shares of the Company's common stock, as a result of the Med Wireless
transaction, which increased Mr. Anderson's beneficial ownership to 4,535,595
shares, or approximately 28.3%, of the Company's common stock at the time this
transaction was approved by the Company's stockholders. Mr. Anderson also held
a
minority interest in Med Wireless.
In
addition, the Company's current president, Dennis Calvert, was entitled to
receive approximately 9.9% of the stock of Med Wireless and 600,000 shares
of
the Company's common stock as a result of this transaction. Prior to this
transaction, Mr. Calvert was not a stockholder of Med Wireless.
The
transaction was approved by the board of directors and the vote of a majority
of
the Company's shares of common stock, including the shares held by Camden
Holdings. Stockholders of the Company owning 3,930,183 shares of the 7,761,353
shares then outstanding consented to the transaction with Med Wireless,
including the shares held by Mr. Anderson and his affiliates.
Sale
of Casino Operations
The
Company sold its wholly-owned casino rental subsidiaries, Latin American Casinos
del Peru S.A., and Latin American Casinos of Colombia, LTDA, to CVP in October
2002. Mr.. Anderson was a general partner of CVP at the time of the transaction.
Although the purchase price for the stock was $300,000, less all outstanding
liabilities of the two subsidiaries, the outstanding liabilities exceeded that
amount and the Company received no cash in the sale. The transaction price
was
determined as a result of the Company's receiving no viable suitors, bidders
or
offers for the stock or assets of the Company's gaming businesses. The Company's
board of directors approved this transaction, but it was not voted upon by
the
Company's stockholders.
Sale
of Oil Operations
The
Company entered into an agreement on December 15, 2002 to sell 100% of the
stock
of NuWay Resources, Ltd. ("NuWay Resources"), the Company's oil and gas
subsidiary, for $100,000 less outstanding liabilities, to Summit Oil. Mr.
Anderson was president of Summit Oil at the time of the transaction. The Company
received no cash from the sale of the stock, but was able to insure
contractually that it would not retain any liabilities, or incur new liabilities
(which had been increasingly significantly), beyond October 1, 2002. The
transaction price was determined as a result of the Company's receiving no
other
viable offers for NuWay Resources or its assets. The Company's board of
directors approved the transaction, but it was not voted upon by the Company's
stockholders.
See
accompanying notes to consolidated financial
statements
Consultancy
Arrangement
Beginning
in September 2002, Mr. Anderson also served as a consultant to the Company
pursuant to a written agreement and received 1,241,884 shares of the Company's
common stock pursuant to the 2002 Consultant Equity Plan. The Consultancy
Agreement was terminated in December 2002.
As
a
result of all of the foregoing transactions, the Company believes that Mr.
Anderson was the beneficial owner of an aggregate of 5,777,479 shares, or more
than 30%, of the Company's common stock outstanding as of December 31, 2002,
assuming Mr. Anderson beneficially owned all the shares at the same time. The
Company believes that Mr. Anderson sold some of the shares which were issued
pursuant to the 2002 Plan, and as such the number and percentage of the
Company's common stock held by Mr. Anderson at any one time may have been less
than that indicated above. In any event, Mr. Anderson failed to file any reports
with the SEC on Schedules 13D or 13G, or on Forms 3 or 4, and therefore, the
Company cannot confirm any of these numbers at any given point in
time.
Note
14. Commitments and Contingencies
Litigation
The
Company is a defendant from time to time in litigation arising out of the normal
course of its business, none of which is expected to have a material adverse
effect on its business, operations, financial position or corporate
liquidity.
During
2002, Ms. Geraldine Lyons, the Company's former Chief Financial Officer, sued
the Company for breach of her employment contract. The lawsuit was brought
in
the Circuit Court of the 11th Judicial Circuit in Miami-Dade County in of
Florida and was initiated by the filing of the complaint in June 2002. The
principal parties in the case are Ms. Lyons, the Company, and the Company's
former president Todd Sanders. The amount at issue in her affirmative claim
is
the sum of approximately $25,000 due under the contract, and the issuance of
100,000 shares of common stock, with a guarantee that the stock could be sold
by
Ms. Lyons for $300,000. Ms. Lyons alleges that additional funds are due under
her employment contract; that the contract requires the Company guarantee that
she can sell for $300,000 the 100,000 shares of stock the Company is required
to
issue her; and, that Mr. Sanders promised to purchase from her 100,000 shares
of
Company common stock held by her at the price of $4.00 per share. The Company
has counter-sued Ms. Lyons for breach of fiduciary duty, fraud, violation of
section 12(a)(2) of the 1933 Securities Act, violation of section 517.301 of
the
Florida Statutes, negligent misrepresentation, conversion, and unjust enrichment
resulting from the required restatement of the Company's financial statements
for the years ended December 31, 2000 and December 31, 1999. The restatements
corrected the previous omission of certain material expenses related primarily
to compensation expense arising from warrants issued and repriced stock options,
as well as other errors. The case is ongoing at this time. The Company intends
to vigorously defend its actions and pursue its affirmative claims to the
fullest extent possible. Management does not expect that this case will have
a
material adverse effect on the Company's financial position.
In
December 2002, the Company settled an outstanding lawsuit filed by Devenshire
Management Corp., a company owned by the Company's former president Todd
Sanders. The settlement involved no payment of cash by the Company, and resolved
all issues relating to the Company's obligation to remove restrictive legends
from stock owned by Devenshire. As part of this settlement the Company agreed
to
defend, but not indemnify, Mr. Sanders in the Lyons lawsuit described
immediately above.
See
accompanying notes to consolidated financial
statements
In
May
2004, the Company was sued by Flight Options, Inc., a jet plane leasing company,
in the Superior Court of Orange County California. The lawsuit alleges that
the
Company owes Flight Options approximately $418,300, pursuant to a five-year
lease assigned to the Company by the Company's former president Todd Sanders,
from his corporation, Devenshire Management Corporation (“Devenshire”).
Management of the Company believes that the assignment of the lease was not
properly authorized or approved by the Company, and that by Mr. Sander's failure
to identify the lease in a December 2002 settlement agreement with the Company,
he breached the terms of that settlement agreement and, pursuant to the
settlement agreement, must indemnify the Company for any losses owed to Flight
Options. The Company has cross-complained against Mr. Sanders for indemnity,
and
has added the affirmative claim of breach of fiduciary duty. The Company has
settled with plaintiff Flight Options pursuant to a stipulation that allows
the
Company to either pay to Flight Options $100,000 on or before August 5, 2005,
or
allow Flight Options to file a judgment against the Company for $163,310. The
Company’s claims against Devenshire and Mr. Sanders will be litigated through
binding arbitration prior to the date in which it must pay $100,000 to Flight
Options. While the Company believes that it has meritorious positions in this
litigation against Devenshire and Mr. Sanders, given the inherent nature of
litigation, it is not possible to predict the outcome of this litigation or
the
impact it would have on the Company.
On
December 4, 2004 the Company was sued by the law firm of Enenstein Russell
and
Saltz, LLP to collect fees that had been billed to the Company in the amount
of
$15,233, which had been disputed by the Company. The Company is defending its
rights in the lawsuit. The case is in its beginning stage, and a trial date
has
not been set. While the Company believes that it has meritorious positions
in
this litigation, given the inherent nature of litigation, it is not possible
to
predict the outcome of this litigation or the impact it would have on the
Company.
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 a merger,
consolidation, sale or conveyance of substantially all the assets of the Company
which resulted in the discharge of Mr. Lyons, he would be entitled to 200
percent of the balance of payments remaining under the contract. The contract
provided salary continuation for a period of two years after his death. In
January 2000, Mr. Lyons passed away and effective August 2, 2000 the Company
amended its employment contract with his widow and primary beneficiary of his
estate, whereby the salary continuation clause included in his contract was
replaced with a severance arrangement that requires the Company to pay Mrs.
Lyons $100,000 over a one year period commencing on the first month following
the termination of her employment with the Company. Furthermore, 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 will
obligate 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. Effective October 29, 2001 Mrs.
Lyons tendered her resignation and based upon the terms of her severance
agreement, expenses of $350,000 had been recorded of which $308,000 is included
in accounts payable and accrued expenses at December 31, 2003 and 2004.
In
December of 2002, The Company entered into a five-year employment agreement
with
the Company's current president, Dennis Calvert. His agreement calls for a
base
monthly income of $14,000 plus performance bonuses and employee related
benefits. He serves as president, Chief Executive Officer, Interim CFO and
Chairman of the Board.
In
March
2003, the Company entered into a five-year employment agreement with Joseph
Provenzano. Mr. Provenzano serves the Company as Secretary, Board Member and
Senior Executive reporting to Mr. Calvert. His agreement calls for him to
receive not less than $10,900 per month in salary plus incentive bonuses, stock
ownership participation and employee related benefits. At the Company's
discretion, the Company may choose to pay up to $4,900 of this monthly salary
with stock in lieu of cash.
See
accompanying notes to consolidated financial
statements
Lease
Commitment
The
Company was obligated on a month-to-month office lease at its California
facility. This lease required monthly rentals of $7,850. All other leases are
of
short duration or are on a month-to-month arrangement. Rent expense for December
31, 2004 and 2003 was $0 and $70,200, respectively. The lease was terminated
in
April 2004.
Stock-Based
Commitments
The
Company has utilized the services of a number of consultants who were
compensated with shares of common stock. While each agreement can generally
be
terminated with a 15-day notice, the Company may be obligated to issue
additional shares to the consultants.
Note
15. Abandoned Acquisition
On
January 31, 2004, the Company entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") with Premium Medical Group, Inc., a Florida
corporation ("PMG") and PMG's sole stockholders, Eduardo A. Ruiz and Luis A.
Ruiz (the "PMG Stockholders"). Prior to this transaction, there was no business
or other relationship between the Company and its affiliates and PMG or the
PMG
Stockholders.
Pursuant
to the Stock Purchase Agreement, the Company agreed to acquire 100% of the
shares of PMG from the PMG Stockholders in exchange for 30,000,000 shares of
the
Company's common stock, subject to certain adjustments. The exact number of
Company Shares to be issued to the PMG Stockholders was subject to adjustment
in
the event certain revenue was generated by PMG during one year following the
closing of the transaction. PMG had been organized in June 2003 to provide
medical products to hospitals and medical clinics in South America, primarily
Venezuela. Luis A. Ruiz became a director of the Company in connection with
the
transaction.
The
parties had a difference in expectations regarding who would be ultimately
responsible for paying for the audit of PMG that was required in order for
the
Company to complete its disclosure obligations under the Securities Exchange
Act. Additionally, the Company did not have a sufficient number of authorized
and unissued shares of its common stock to both satisfy its obligations to
the
PMG Stockholders and to issue shares of common stock in a meaningful financing
transaction, given the low price per share at which the Company's common stock
trades. The Company lacked the financial resources to schedule a stockholders'
meeting, prepare a proxy statement and solicit proxies for the purpose of
amending its Certificate of Incorporation to increase its authorized capital
stock. As a result of these and other factors, the Company and PMG never
consolidated their operations, the Company never exercised control over PMG
or
its operations and the parties never exchanged stock certificates evidencing
their ownership in each other.
Therefore,
the parties entered into discussions and concluded amicably that it was in
the
mutual best interest of the respective companies and their respective
stockholders, to rescind the transactions provided for in the Stock Purchase
Agreement and return all parties to their respective positions prior to the
transactions contemplated in the Stock Purchase Agreement.
See
accompanying notes to consolidated financial
statements
The
parties entered into a Rescission Agreement on October 14, 2004 that provides,
in relevant part, that (i) all transactions contemplated by the Stock Purchase
Agreement shall be rescinded as if the Stock Purchase Agreement had never been
executed and delivered; (ii) the parties forever waive all rights to receive
stock in PMG and the Company, as the case may be; (iii) Luis A. Ruiz shall
resign as a director of the Company; and (iv) the Company and PMG shall file
appropriate documents with the Secretary of State of the State of Florida with
respect to the rescission of the exchange of shares provided for in the Stock
Purchase Agreement.
Note
16. Retirement of Treasury Stock
During
2004, the Company determined that based on reconciliations of its stock records
and its stock transfer agent that 200,000 shares of the Company’s common stock
has been issued in prior years but not recorded in the Company’s books. An
adjustment was made as of December 31, 2004 to give effect to this non-material
error. In addition, the shares included in treasury stock were determined to
have been formally cancelled and an adjustment was made at December 31, 2004
to
reflect this cancellation.
Note
17. Subsequent Events
Sales
of Unregistered Securities
On
January 6, 2005, the Company received gross and net proceeds of $25,000 from
an
outside investor and issued a convertible promissory note on substantially
the
same terms as in Note 8.
On
January 7, 2005, the Company received gross and net proceeds of $75,000 from
two
outside investors and issued convertible promissory notes on substantially
the
same terms as the previously described notes, except the notes do not include
buy back provisions, and allow conversion into a total of 18,000,000 shares
of
common stock (at $0.0042 per common share, rather than $0.005 per Series A
Preferred share).
On
February 10, 2005, the Company amended its obligations to Dr. James Seay (the
“noteholder”) under its promissory note dated November 20, 2003 in the principal
amount of $50,000 and which matured on February 18, 2004. On the maturity date
of the note the Company was obligated to pay the noteholder $65,000. The Company
has paid the noteholder $30,000 and the balance of $35,000 remains outstanding.
The amendment to the note entered into on February 10, 2005, (i) extends the
maturity date of the note to February 3, 2006, (ii) provides for interest to
accrue at a rate of 10% per annum (15% upon default), and (iii) allows for
the
conversion of the note into 7,000,000 shares of the Company’s common stock, or
$.005 per share.
In
February, 2005, the Company received gross and net proceeds of $16,000 from
three outside investors and issued convertible promissory notes on substantially
the same terms as the previously described notes, except the note does not
include buy back provisions, and allow conversion into a total of 2,261,701
shares of common stock (at $0.007 per common share, rather than $0.005 per
Series A Preferred share).
See
accompanying notes to consolidated financial
statements
On
February 24, 2005, the Company received gross proceeds of $40,000 and net
proceeds of $36,000 from two outside investors and issued convertible promissory
notes on substantially the same terms as the previously described notes, except
the notes do not include buy back provisions, and allow conversion into a total
of 4,000,000 shares of common stock (at $0.01 per common share, rather than
$0.005 per Series A Preferred share).
On
April
18, 2005, the Company received gross and net proceeds of $25,000 and $23,750,
respectively, from an outside investor and issued a convertible promissory
note
on substantially the same terms as the previously described notes, except the
note does not include buy back provisions, and allows conversion into a total
of
2,500,000 shares of common stock (at $0.01 per common share, rather than $0.005
per Series A Preferred share).
On
May 2,
2005, the Company received gross and net proceeds of $50,000 and $47,500,
respectively, from an outside investor and issued a convertible promissory
note
on substantially the same terms as the previously described notes, except the
note does not include buy back provisions, and allows conversion into a total
of
7,142,857 shares of common stock (at $0.007 per common share, rather than $0.005
per Series A Preferred share).
On
June
7, 2005, the Company received gross and net proceeds of $5,000 from an outside
investor and issued a convertible promissory note on substantially the same
terms as the previously described notes, except the note does not include buy
back provisions, and allows conversion into a total of 500,000 shares of common
stock (at $0.01 per common share, rather than $0.005 per Series A Preferred
share).
On
June
9, 2005, the Company received gross and net proceeds of $100,000 from two
outside investors and issued convertible promissory notes on substantially
the
same terms as the previously described notes, except the notes do not include
buy back provisions, and allow conversion into a total of 13,000,000 shares
of
common stock (at approximately $0.008 per common share, rather than $0.005
per
Series A Preferred share).
All
of
these offerings and sales were made in reliance on the exemption from
registration contained in Section 4(2) of the Securities Exchange Act and/or
Regulation D promulgated thereunder as not involving a public offering of
securities.
Until
the
Company’s stockholders approve an amendment to the Company’s charter to increase
the number of authorized shares of common stock, the Company will be unable
to
fulfill its obligations to all convertible noteholders to permit the conversion
into common stock of amounts due pursuant to the terms of the convertible notes.
In the event that the Company has not raised further capital prior to the
maturity dates of the convertible notes, the Company would be in default of
those notes if its stockholders have not formally approved an increase in the
number of authorized common shares. The Company is not, at this time, in default
of the convertible notes.
See
accompanying notes to consolidated financial
statements