-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IFgME9QsZ2juOyD3l0eAR8TZnt6tSrHaABbN0Ak+K7vK/Vr+O55lE58ehUAc23GD RBmWTp0o+WtQh7KSODbvyw== 0001144204-05-023789.txt : 20050804 0001144204-05-023789.hdr.sgml : 20050804 20050804165847 ACCESSION NUMBER: 0001144204-05-023789 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050804 DATE AS OF CHANGE: 20050804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUWAY MEDICAL INC CENTRAL INDEX KEY: 0000880242 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 650159115 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19709 FILM NUMBER: 051000046 BUSINESS ADDRESS: STREET 1: 23461 SOUTH POINTE DRIVE STREET 2: SUITE 200 CITY: LUGANA, HILLS STATE: CA ZIP: 92653 BUSINESS PHONE: 949-454-9011 MAIL ADDRESS: STREET 1: 23461 SOUTH POINTE DRIVE STREET 2: SUITE 200 CITY: LUGANA, HILLS STATE: CA ZIP: 92653 FORMER COMPANY: FORMER CONFORMED NAME: NUWAY ENERGY INC DATE OF NAME CHANGE: 20010815 FORMER COMPANY: FORMER CONFORMED NAME: LATIN AMERICAN CASINOS INC DATE OF NAME CHANGE: 19960520 FORMER COMPANY: FORMER CONFORMED NAME: REPOSSESSION AUCTION INC DATE OF NAME CHANGE: 19940823 10QSB 1 v023205_10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005. or |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _____________ Commission File Number 000-19709 NUWAY MEDICAL, INC. (Exact name of registrant as specified in its charter) Delaware 66-0159115 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2603 Main Street, Suite 1150 Irvine, California 92614 (Address, including zip code, of principal executive offices) (949) 235-8062 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.0067 par value. Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |_| No |X| The number of shares of the Registrant's Common Stock outstanding as of March 31, 2005 was 51,981,236 shares and as of July 31, 2005 was 62,371,236 shares. DOCUMENTS INCORPORATED BY REFERENCE: None Transitional Small Business Disclosure Format (Check one): Yes |_| No |X| NUWAY MEDICAL, INC. FORM 10-QSB INDEX PART I Item 1 Financial Statements..............................................3 Item 2 Management's Discussion and Analysis.............................13 Item 3 Controls and Procedures..........................................19 PART II Item 1 Legal Proceedings................................................20 Item 2 Changes in Securities............................................21 Item 5 Other Information................................................23 Item 6 Exhibits.........................................................24 Signatures.......................................................25 Exhibit Index Exhibit 10.1....................................................... Exhibit 10.2....................................................... Exhibit 10.3....................................................... Exhibit 10.4....................................................... Exhibit 31.1....................................................... Exhibit 31.2....................................................... Exhibit 32......................................................... 2 PART I Item 1. Financial Statements NUWAY MEDICAL, INC AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2005 AND DECEMBER 31, 2004 ASSETS
March 31, December 31, 2005 2004 (unaudited) (unaudited) ------------ ------------ CURRENT ASSETS Cash and Cash Equivalents $ 481 $ -- ------------ ------------ Total Current Assets 481 671 ------------ ------------ TOTAL ASSETS $ 481 $ 671 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 2,144,880 $ 2,054,270 Notes Payable 1,786,000 1,632,100 Debentures Payable, Net 21,151 21,151 ------------ ------------ Total Current Liabilities 3, 952,031 3,707,521 ------------ ------------ 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 March 31, 2005 and December 31, 2004 375 375 Common Stock, $.00067 Par Value, 100,000,000 Shares Authorized, 51,981,236 and 51,981,236 Shares Issued At March 31, 2005 and December 31, 2004, respectively 34,120 34,120 Additional Paid-In Capital 23,299,870 23,299,870 Accumulated Deficit (27,285,915) (27,041,886) ------------ ------------ Total Shareholders' Equity (3,951,550) (3,707,521) ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 481 $ -- ============ ============
See accompanying notes to unaudited consolidated financial statements. 3 NUWAY MEDICAL, INC AND SUBSIDIARY STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDING MARCH 31, 2005 AND 2004
For the period ending March 31 2005 2004 (unaudited) (unaudited) ------------ ------------ Revenue Total Revenues -- -- ------------ ------------ Costs and Expenses Selling, General and Administrative 193,712 368,596 Depreciation, Depletion and Amortization -- -- ------------ ------------ Total Costs and Expenses 193,712 368,596 ------------ ------------ Loss from operations (193,712) (368,596) ------------ ------------ Other Income and Expense Interest Expense (50,317) (105,156) Other Income -- 4,600 ------------ ------------ Net Other Expense (50,317) (100,556) ------------ ------------ Loss Before Income Taxes (244,029) (469,152) Provision for Income Taxes (Benefit) -- -- ------------ ------------ Net Loss (244,029) (469,152) ============ ============ ============ ============ Loss Per Common Share - Basic and Diluted Loss per share from Continuing Operations $ (0.01) $ (0.01) ============ ============ Net Loss per Share, rounding $ (0.01) $ (0.01) ============ ============ Weighted Average Common Share Equivalents Outstanding 45,786,842 38,618,877 ============ ============
See accompanying notes to unaudited consolidated financial statements. 4 NUWAY MEDICAL, INC AND SUBSIDIARY STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED) FOR THE THREE MONTH PERIOD ENDING MARCH 31, 2005
Preferred Stock Common Stock ---------------------------- --------------------------- Number Par Number Par Additional Retained of Value of Value Paid-In Earnings Shares $.00067 Shares $.00067 Capital (Deficit) ------------ ------------ ------------ ------------ ------------ ------------ BALANCE DECEMBER 31, 2004 559,322 375 51,981,236 $ 34,120 $ 23,299,870 $(27,041,886) STOCK ISSUED FOR SERVICES -- -- -- CONVERSION OF DEBENTURES -- -- -- SALE OF COMMON STOCK -- -- -- NET LOSS (244,029) ------------ ------------ ------------ ------------ ------------ ------------ BALANCE MARCH 31, 2005 559,322 $ 375 51,981,236 $ 34,120 $ 23,299,870 $(27,285,915) ============ ============ ============ ============ ============ ============
See accompanying notes to unaudited consolidated financial statements. 5 NUWAY MEDICAL, INC AND SUBSIDIARY STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDING MARCH 31, 2005 AND 2004 Three Month Periods Ending
March 31, ---------------------------- 2005 2004 (unaudited) (unaudited) ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (244,029) $ (469,152) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Issuance of Stock for Services -- 298,350 Amortization of Discount on Note -- 62,131 Increase in Accounts Payable and Accrued Expenses 90,610 126,182 ------------ ------------ Net Cash Used In Operating Activities (153,419) 17,511 ------------ ------------ CASH FLOWS USED IN INVESTING ACTIVITIES ------------ ------------ No Cash Used In or Provided by Investing Activities -- -- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Funds from Loans 153,900 -- Payments to reduce Note Payable -- (22,900) Proceeds from Sale of Common Stock -- 5,000 ------------ ------------ Net Cash Provided By Financing Activities 153,900 (17,900) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 481 (389) CASH AND CASH EQUIVALENTS - BEGINNING -- 671 ------------ ------------ CASH AND CASH EQUIVALENTS - ENDING $ 481 $ 282 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION Cash Paid During the Period for: Interest $ -- $ -- ============ ============ Income Taxes $ -- $ -- ============ ============ Conversion of Debentures and Accrued Interest to Capital $ -- $ 98,849 ============ ============
See accompanying notes to unaudited consolidated financial statements. 6 NUWAY MEDICAL, INC. AND SUBSIDARY NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1. Accounting Policies-Basis of Presentation In the opinion of management, the accompanying balance sheets and related interim statements of operations, cash flows, and stockholders' equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management's estimates and assumptions. Estimates are used when accounting for stock-based transactions, uncollectible accounts receivable, asset depreciation and amortization, and taxes, among others. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-QSB should be read in conjunction with Management's Discussion and Analysis and financial statements and notes thereto included in the NuWay Medical, Inc. Annual Report on Form 10-KSB for the year ended December 31, 2004. Note 2. Business and Organization Outlook The Company had no continuing business operations as of March 31, 2005. The Company operated as a public shell during the three-month period ended March 31, 2005, and operations primarily consisted of the Company's president seeking funding, maintaining the corporate entity, complying with the requirements of the Securities Exchange Commission (the "SEC") and seeking merger and acquisition candidates or new business opportunities. The financial statements accompanying this 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. .. We had a net loss of $1,218,048 and $244,029 for the year ending December 31, 2004 and the three-month period ended March 31, 2005, respectively; a negative cash flow from operating activities of $67,771 and $153,419 for the year ending December 31, 2004 and the three-month period ended March 31, 2005, respectively; and a stockholders' deficiency of $27,041,886 and $27,285,915 as of December 31, 2004 and March 31, 2005, respectively. As of March 31, 2005, the Company has limited liquid and capital resources although it is seeking acquisition opportunities. These factors raise substantial doubt about its ability to continue as a going concern. 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 7 NUWAY MEDICAL, INC. AND SUBSIDARY NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) merger candidate with continuing operations, attain a reasonable threshold of operating efficiencies and achieve profitable operations. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. For the three-month period ended March 31, 2005, the Company raised $151,000 through convertible debt financing. Note 3. Due to President - Unreimbursed business expenses In 2003 and 2004 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 were obtained by Mr. Calvert by refinancing his primary residence and cashing out equity thereon. 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 March 31, 2005, the Company had accrued an expense related to the unpaid accrued compensation due its president, Mr. Calvert, in the amount of $274,900. Note 4. Sales of Unregistered Securities In January, 2005, the Company received gross and net proceeds of $25,000 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 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 8 NUWAY MEDICAL, INC. AND SUBSIDARY NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 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 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 Note, 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 proceeds of $51,000 and net proceeds of $47,000 from four outside investors and issued convertible promissory notes on substantially the same terms as the previously described Note, except the notes do not include Buy Back Provisions, and allow conversion into a total of 5,558,036 shares of common stock (at an average of $0.009 per common share, ranging from $0.007 to $0.01 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 on any of the convertible notes. Note 5. Subsequent Events Sales of Unregistered Securities 9 NUWAY MEDICAL, INC. AND SUBSIDARY NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 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 Note, 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 Note, 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 Note, 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 Note, 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). On June 21, 2005, the Company received gross and net proceeds of $20,120 from three outside investors and issued convertible promissory notes on substantially the same terms as the previously described Note, except the notes do not include Buy Back Provisions, and allow conversion into a total of 2,120,000 shares of common stock (at approximately $0.01 per common share, rather than $0.005 per Series A Preferred share). On June 22, 2005, the Company received gross and net proceeds of $22,000 from two individual investors and issued convertible promissory notes on substantially the same terms as the previously described Note, except the notes do not include Buy Back Provisions, and allow conversion into a total of 2,200,000 shares of common stock (at approximately $0.01 per common share, rather than $0.005 per Series A Preferred share). On June 29, 2005, the Company received gross and net proceeds of $110,000 from three individual investors and issued convertible promissory notes on substantially the same terms as the previously described Note, except the notes do not include Buy Back Provisions, and allow conversion into a total of 11,000,000 shares of common stock (at approximately $0.01 per common share, rather than $0.005 per Series A Preferred share). 10 NUWAY MEDICAL, INC. AND SUBSIDARY NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) On July 21, 2005, the Company received gross proceeds of $10,000 and net proceeds of $9,500 from an outside investor and issued convertible promissory note on substantially the same terms as the previously described Note, except the note does not include Buy Back Provisions, and allow conversion into a total of 625,000 shares of common stock (at approximately $0.016 per common share, rather than $0.005 per Series A Preferred share). On July 28, 2005, the Company's board of directors approved the issuance of an aggregate of 4,390,000 shares of the Company's common stock to two consultants, at a share price of $0.01 per share. This issuance was in satisfaction of an aggregate of $43,900 owed by the Company for services previously performed by these individuals. On August 1, 2005, the Company received gross proceeds of $50,000 and net proceeds of $47,500 from an individual investor and issued convertible promissory note on substantially the same terms as the previously described Note, except the note does not include Buy Back Provisions, and allow conversion into a total of 3,125,000 shares of common stock (at approximately $0.016 per common share, rather than $0.005 per Series A Preferred share). On, August 2, 2005, the Company received gross proceeds of $100,000 and net proceeds of $95,000 from an individual investor and issued convertible promissory note on substantially the same terms as the previously described Note, except the note does not include Buy Back Provisions, and allow conversion into a total of 6,250,000 shares of common stock (at approximately $0.016 per common share, rather than $0.005 per Series A Preferred share). On, August 3, 2005, the Company received gross and net proceeds of $105,000 from two individual investors and issued convertible promissory notes on substantially the same terms as the previously described Note, except the notes do not include Buy Back Provisions, and allow conversion into a total of 6,562,500 shares of common stock (at approximately $0.016 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. 11 NUWAY MEDICAL, INC. AND SUBSIDARY NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) Execution of Letter of Intent On July 25, 2005, the Company and IOWC Technologies, Inc. ("IOWC") signed a binding letter of intent pursuant to which the Company will acquire certain assets, including intellectual property, from IOWC, and IOWC will receive approximately 51% of the issued and outstanding stock of the Company on an after-issued basis. Given the numerous significant conditions which must be satisfied prior to the closing of the transactions, there can be no assurance that the transactions will be consummated as presently envisioned. Extension of Augustine Loan On July 29, 2005, the Company and the Augustine Fund finalized the terms of an amendment to the Augustine Loan and executed formal documentation, in which the parties agreed to further extend the maturity date to May 2006. In exchange, the Company issued 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. 12 Item 2. Management's Discussion and Analysis This Quarterly Report on Form 10-QSB of NuWay Medical, Inc. (the "Company") contains forward-looking statements. These forward-looking statements include predictions regarding, among other things, our: o general and administrative expenses; o liquidity and sufficiency of existing cash; o purchase or other acquisition of new businesses; and o the outcome of pending or threatened litigation. 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. Such statements, which include statements concerning future revenue sources and concentrations, 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 elsewhere in this Form 10-QSB, that could actual results to differ materially from those projected. 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" in our Annual Report on Form 10-KSB for the year ended December 31, 2004. 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. Unless otherwise expressly stated herein, all statements, including forward-looking statements, set forth in this Form 10-QSB are as of March 31, 2005, and we undertake no duty to update this information. Plan of Operations Overview The Company had no continuing business operations as of March 31, 2005. The Company operated as a public shell during the three-month period ended March 31, 2005, and operations primarily consisted of the Company's president seeking funding, maintaining the corporate entity, complying with the requirements of the Securities Exchange Commission (the "SEC") and seeking merger and acquisition candidates or 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, 2005 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 13 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 from operations. Results of Operations The Company had no revenues from continuing operations during the three-month periods ended March 31, 2005 and 2004. Selling, General and Administrative Expense Selling, general and administrative expenses were $194,000 for the three-month period ended March 31, 2005, compared to $369,000 for the three-month period ended March 31, 2004. This decrease is primarily attributable to the decrease in legal expenses in the three-month period ended March 31, 2005 compared with the same period in 2004. The largest components of these expenses were: a. Salaries and Payroll-Related Expenses: These expenses were $49,000 for the three-month period ended March 31, 2005, compared to $177,000 for the three-month period ended March 31, 2004, a decrease of $128,000. The decrease is almost entirely attributable to an expense recorded by the Company in the prior year 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. b. Consulting Expenses: These expenses were $41,000 for the three-month period ended March 31, 2005, compared to $3,000 for the three-month period ended March 31, 2004, an increase of $38,000. The increase is related to a reversal of accrued consulting expense relating to the issuance (and subsequent return to treasury) of the Company's common stock in the prior year. c. Legal Expenses: These expenses were $51,000 for the three-month period ended March 31, 2005, compared to $157,000 for the three-month period ended March 31, 2004, a decrease of $106,000. This decrease is primarily due to the high level of legal services required during the three-month period ended March 31, 2004 with respect to the Premium Medical Group, Inc. ("PMG") acquisition, which acquisition was later rescinded. Net Loss Net loss for the three-month period ended March 31, 2005 was $244,029, or $(0.01) per share, compared to a net loss of $469,000, or $(0.01) per share for the three-month period ended March 31, 2004. Liquidity and Capital Resources General 14 Cash and cash equivalents totaled $481 at March 31, 2005. We had no revenues in the three-month period ended March 31, 2005 and were 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 or acquisition 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. 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 financial statements accompanying this 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. We had a net loss of $244,029 the three-month period ended March 31, 2005, and $1,218,048 for the year ending December 31, 2004; a negative cash flow from operating activities of $67,771 the three-month period ended March 31, 2005, and $153,419 for the year ending December 31, 2004; and a stockholders' deficiency of $27,041,886 as of December 31, 2004, and $27,285,915 as of March 31, 2005. As of March 31, 2005, the Company has limited liquid and capital resources although it is seeking acquisition opportunities. These factors raise substantial doubt about our ability to continue as a going concern. 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. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. For the three-month period ended March 31, 2005, the Company raised an aggregate of $151,000 gross proceeds and $147,000 net proceeds from seven individual investors 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 common stock, on the basis of $.005 to $0.01 per share, at any time prior to maturity by either the Company or the holder. 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). Please see Part II, Item 2 "Changes in Securities". Significant debt obligations at March 31, 2005 included: 15 (i) $420,000 due to Augustine II, LLC (the "Augustine Fund"), together with accrued but unpaid interest, described in more detail below; (ii) a $1,120,000 note payable which was purchased in March 2003 by New Millennium Capital Partners, LLC ("New Millennium"), 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) amounts owed to Mr. Calvert personally in the aggregate amount of approximately $372,000, as described below; (iv) convertible promissory notes to various investors in the aggregate principal amount of $253,500, plus accrued interest; (v) approximately $21,151 outstanding remaining on a settlement agreement with former convertible debenture holders; and (vi) $35,000 in remaining balance due to a former advisory board member, from a promissory note dated November 20, 2003 in the original principal amount of $65,000. For the three-month period ended March 31, 2005, there was $50,357 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 16 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 $14,000 of interest expense as of March 31, 2004, related to the Augustine Loan. On March 7, 2005, the Company and the Augustine Fund agreed to further 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. After the completion of the period ended March 31, 2005, the Company and the Augustine Fund finalized and executed formal documentation of these amended terms. See Part II, Item 5. Obligation to New Millennium In conjunction with the acquisition from Med Wireless of the license for the its technology in 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"). The Note is secured by the Company's assets and was originally due on June 15, 2003. It was sold, as part of a series of transactions with Mark Anderson, a former consultant and former principle stockholder of the Company, and his affiliated entities, to New Millennium, an entity owned and controlled by the Company's president, Dennis Calvert, and certain members of his family, in March 2003. 17 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. 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. The Company was unable to make the $100,000 payment on the Note on the extended due date of October 1, 2003. In October 2004, New Millennium agreed to extend the maturity of the Note indefinitely until the Company acquired assets or an operating business that would allow it to meet its obligations on the note. Accordingly, as of March 31, 2005, the principal amount of the loan, together with $231,465 in accrued but unpaid interest, had not been repaid. Under the terms of the New Millennium Note, it is possible that Summitt Ventures, and Mr. Anderson's affiliated entities 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 those shares and has physical possession of those shares. New Millennium has informed the Company's board of directors that New Millennium 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. Obligations to Dennis Calvert In 2003 and 2004 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. 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 March 31, 2005, the Company had accrued an expense related to the unpaid accrued compensation due Mr. Calvert in the amount of $274,900. Critical Accounting Policies The 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 18 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 3. Controls and Procedures (a) Evaluation of disclosure controls and procedures: Our management evaluated, with the participation of 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 Quarterly Report on Form 10-QSB. 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 (the "Exchange Act")) 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 SEC 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 Quarterly Report on Form 10-QSB that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 19 PART II Item 1. 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 II, LLC ("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 20 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 the plaintiff 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 is in negotiations to extend the August 5, 2005 deadline. Those negotiations have not been concluded, and there can be no assurance that Flight Options will agree to extend the deadline. The Company's claims against Devenshire and Mr. Sanders will be litigated through binding arbitration. 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 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. 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 2. Changes in Securities In January, 2005, the Company received gross and net proceeds of $25,000 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. 21 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 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). 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 proceeds of $51,000 and net proceeds of $47,000 from four 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 5,558,036 shares of common stock (at an average of $0.009 per common share, ranging from $0.007 to $0.01 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 22 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. Item 5. Other On July 29, 2005, the Company and the Augustine Fund finalized the terms of an amendment to the Augustine Loan and executed formal documentation, in which the parties agreed to further extend the maturity date to May 2006. In exchange, the Company issued 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. On August 1, 2005, the Company received gross and net proceeds of $50,000 and net proceeds of $47,500 from an individual investor and issued its convertible promissory note ("Note") due and payable one year from the date of issuance. The Note bears interest at a rate of 10% per annum, payable one year from the date of issuance. The Note can be converted, in whole or in part, into shares of the Company's common stock, at the rate of $.016 per share, at any time prior to maturity by either the Company or the lender. The Company's payment obligations under the Note may be accelerated upon the following events of default: (i) the Company's dissolution, liquidation, merger, consolidation, bankruptcy, or future insolvency; and (ii) 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. On, August 2, 2005, the Company received gross proceeds of $100,000 and net proceeds of $95,000 from an individual investor and issued a Note on the same terms as the previously described Note, except that this Note matures on August 2, 2006. On, August 3, 2005, the Company received gross and net proceeds of $105,000 from two individual investors and issued Notes on the same terms as the previously described Notes, except that these Notes mature on August 3, 2006. 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 on any of the convertible notes. 23 Item 6. Exhibits The exhibits listed below are attached hereto and filed herewith: Exhibit No. Description 10.1 Unsecured Promissory Note dated March 7, 2005 in favor of Dennis Calvert. (Previously filed as an exhibit to the Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004, originally filed with the SEC on March 18, 2005 10.2* Second Amended and Restated Convertible Term Note by NuWay Medical, Inc., in favor of Augustine II, LLC 10.3* Amendment Number 2 to Term Loan Agreement dated as of July 29, 2005 between NuWay Medical, Inc. and Augustine II, LLC 10.4* Warrant Number AG-II to Purchase Common Stock issued July 29, 2005 in favor of Augustine II, LLC 31.1* Certification of Chief Executive Officer of Quarterly Report Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e). 31.2* Certification of Chief Financial Officer of Quarterly Report Pursuant to 18 U.S.C. Section 1350 32* Certification of Chief Executive Officer and Chief Financial Officer of Quarterly Report pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e). * Filed Herewith. 24 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. NUWAY MEDICAL, INC. Date: August 4, 2005 By: /s/ Dennis Calvert ------------------------------------ Dennis Calvert President, Chief Executive Officer and Interim Chief Financial Officer 25 EXHIBIT INDEX Exhibit No. Description 10.1 Unsecured Promissory Note dated March 7, 2005 in favor of Dennis Calvert. (Previously filed as an exhibit to the Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004, originally filed with the SEC on March 18, 2005 10.2* Second Amended and Restated Convertible Term Note by NuWay Medical, Inc., in favor of Augustine II, LLC 10.3* Amendment Number 2 to Term Loan Agreement dated as of July 29, 2005 between NuWay Medical, Inc. and Augustine II, LLC 10.4* Warrant Number AG-II to Purchase Common Stock issued July 29, 2005 in favor of Augustine II, LLC 31.1* Certification of Chief Executive Officer of Quarterly Report Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e). 31.2* Certification of Chief Financial Officer of Quarterly Report Pursuant to 18 U.S.C. Section 1350 32* Certification of Chief Executive Officer and Chief Financial Officer of Quarterly Report pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e). * Filed Herewith. 26 EX-10.2 2 v023205_ex10-2.txt Exhibit 10.2 EXHIBIT A SECOND AMENDED AND RESTATED CONVERTIBLE TERM NOTE $ 420,000 Chicago, Illinois Originally Executed: June 10, 2003 Amended and Restated Effective: March 30, 2004 Second Amendment and Restatement Effective: July 29, 2005 Maturity Date: May 1, 2006 FOR VALUE RECEIVED, NUWAY MEDICAL, INC., a corporation organized under the laws of the state of Delaware ("Borrower"), promises to pay to the order of AUGUSTINE II, LLC, a limited liability company formed under the laws of the State of Delaware (hereafter, together with any subsequent holder hereof, called "Lender"), at its office 141 West Jackson Blvd., Suite 2182, Chicago, Illinois 60604, or at such other place as Lender may direct, the principal sum of FOUR HUNDRED TWENTY THOUSAND UNITED STATES DOLLARS ($420,000) (the "Loan"), payable in full at the Maturity Date indicated above or at an earlier date as provided in Section 3.2 of the Term Loan Agreement (as defined hereinafter). This Note is convertible at the Lender's option as provided below. Borrower agrees to pay interest on the unpaid principal amount from time to time outstanding hereunder on the dates and at the rate or rates as set forth in the Term Loan Agreement. This Note evidences borrowings under and has been issued by the Borrower in accordance with the terms of the Term Loan Agreement. This Note amends and restates in its entirety the Amended and Restated Term Note which was previously executed and delivered by Borrower to Lender on March 30, 2004 (the "First Amended Note"). It is the intent of the parties hereto that the First Amended Note, as restated hereby, shall re-evidence the Term Loan under the Loan Agreement and is in no way intended to constitute repayment or a novation of any of the indebtedness which is evidenced by the Loan Agreement or the First Amended Note or any of the other Loan Documents executed in connection therewith. The Lender and any holder hereof is entitled to the benefits of the Loan Agreement and the other Loan Documents, and may enforce the agreements of the Borrower contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Loan Agreement. Payments of both principal and interest are to be made in immediately available funds in lawful money of the United States of America, or in Common Stock of the Borrower as set forth in the Term Loan Agreement. This Note evidences indebtedness incurred under a Term Loan Agreement dated as June 10, 2003, as amended by Amendment No. 1 to Term Loan Agreement dated as of March 30, 2004 and Amendment No. 2 dated as of the date hereof executed by and between Borrower and Lender (and, if amended, restated or replaced, all amendments, restatements and replacements thereto or therefor, if any) (the "Term Loan Agreement"), to which Term Loan Agreement reference is hereby made for a statement of its terms and provisions, including without limitation those under which this Note may be paid prior to its due date or have its due date accelerated. This Note and any document or instrument executed in connection herewith shall be governed by and construed in accordance with the internal law of the State of Illinois, and shall be deemed to have been executed in the State of Illinois. Unless the context requires otherwise, wherever used herein the singular shall include the plural and vice versa. This Term Note shall bind Borrower successors and assigns, and shall inure to the benefit of Lender, its successors and assigns, except that Borrower may not transfer or assign any of its rights or interest hereunder without the prior written consent of Lender. Borrower agrees to pay upon demand all expenses (including without limitation reasonable attorneys' fees, legal costs and expenses, and time charges of attorneys who may be employees of Lender, in each case whether in or out of court, in original or appellate proceedings or in bankruptcy) incurred or paid by Lender or any holder hereof in connection with the enforcement or preservation of its rights hereunder or under any document or instrument executed in connection herewith. Borrower expressly and irrevocably waives presentment, protest, demand and notice of any kind in connection herewith. Conversion (a) Lender may, at any time while the Note is outstanding prior to or on the Term Loan Maturity Date and thereafter during the continuance of any Event of Default, convert (a "Conversion Event") some or all of the outstanding principal and, if Lender so elects, some or all accrued and unpaid interest hereunder into Common Stock of the Borrower, par value $0.00067 (the "Common Stock"). (b) To effect a Conversion Event Lender shall execute and deliver to the Company a Conversion Notice (attached hereto as Exhibit 1), and, in the event that the entire amount outstanding under this Note is converted, Lender shall also surrender this Note to the Company for cancellation. (c) The number of shares to be received by Lender upon any Conversion Event shall be equal to the (i) the total sum of indebtedness specified in the Conversion Notice as being subject to conversion, divided by (ii) the product of 0.85 and the average of the last five closing bids for the Company's Common Stock received prior to the date of the Conversion Notice. (d) All principal and accrued and unpaid interest that is not converted at the time of a Conversion Event, shall be paid in cash by the Company on the Term Loan Maturity Date. Interest hereunder shall cease to accrue with respect to 2 that portion of principal then being converted to equity in connection with a Conversion Event upon the Company's receipt of a Conversion Notice. (e) No fractional shares of Common Stock will be issued on conversion of this Note. If any conversion of this Note results in an obligation to issue a fraction of a share of Common Stock, the Company will pay the value of that fractional share in cash. (f) All shares of Common Stock issued upon the conversion of this Note shall be duly authorized, validly issued, non-assessable and free and clear of all claims, liens or encumbrances. If the shares of Common Stock are certificated, certificates representing the shares of Common Stock issued upon conversion hereof shall be delivered to Lender. The Company shall deliver such certificates or make appropriate notations to show Lender as the record and beneficial owner of the Conversion Shares within two (2) Trading Days of receiving a Conversion Notice from Lender, with "Trading Days" defined for purposes of this Note as a day on which the Common Stock is traded. (g) This Note does not by itself entitle Lender to any voting rights or other rights as a equity holder. In the absence of conversion of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of Lender shall cause Lender to be an equity holder or for any purpose by virtue hereof. (h) Notwithstanding anything to the contrary herein, Lender may not use its ability to convert this Note if such conversion would result in the total number of shares of Common Stock deemed beneficially owned by Lender (together with all shares of Common Stock deemed beneficially owned by any of Lender's affiliates that would be aggregated for purposes of determining a group under Section 13(d) of the Exchange Act) exceeding, when issued, 4.9% of the total issued and outstanding shares of the Company's Common Stock (the "Restricted Ownership Percentage"); provided, however, that (i) Lender shall have the right at any time and from time to time to increase or decrease its Restricted Ownership Percentage and otherwise waive in whole or in part the restrictions of this subparagraph (h) immediately upon written notice to the Company, and (ii) Lender can make subsequent adjustments pursuant to the preceding clause (i) any number of times; and provided further that nothing in the foregoing shall prevent the partial conversion of this Note for such number of shares of Common Stock as do not exceed the Restricted Ownership Percentage. IN WITNESS WHEREOF, the parties have caused this Note to be duly executed as of the day and year first above written. NUWAY MEDICAL, INC. By: /s/ Dennis Calvert ------------------ Title: Dennis Calvert, President 3 EXHIBIT 1 NOTICE OF CONVERSION (To be executed by holder upon conversion of the Note) TO: NUWAY MEDICAL, INC. The undersigned, holder of that certain Amended and Restated Convertible Term Note in the original Principal Amount of $420,000, originally dated as of June 10, 2003 and amended and restated as of August 31, 2004 (the "Note"), issued by Nuway Medical, Inc. (the "Company"), hereby exercises his/her/its right to convert unpaid principal amount of the Note, equal to $_______________, and accrued but unpaid interest of the Note, equal to $_____________, into shares of Common Stock of the Company pursuant to the terms of the Note. Please issue the shares of Common Stock as follows: - -------------------------------------------------------------------------------- Print or Type Name of Stockholder - -------------------------------------------------------------------------------- Social Security or Other Identifying Number - -------------------------------------------------------------------------------- Street Address - -------------------------------------------------------------------------------- City State Zip Code and deliver it to the above address, unless a different address is indicated below. Dated: ----------- ------------------------------------ Signature (Signature must conform in all respects to name of holder as specified on the face of the Note) 4 EX-10.3 3 v023205_ex10-3.txt AMENDMENT NO. 2 TO TERM LOAN AGREEMENT This AMENDMENT NO. 2 TO TERM LOAN AGREEMENT (this "Amendment") is dated to be effective as of July 29, 2005, and is entered into between NUWAY MEDICAL, INC., a corporation organized under the laws of the state of Delaware (the "Borrower"), and AUGUSTINE II, LLC, a limited liability company formed under the laws of the State of Delaware (the "Lender"). BACKGROUND: Borrower and Lender are parties to that certain Term Loan Agreement dated as of June 10, 2003, as amended by that certain Amendment No. 1 to Term Loan Agreement dated effective March 30, 2004 (the Term Loan Agreement, as so amended, the "Agreement"). Pursuant to the Agreement, Borrower and Lender have also entered into that certain Pledge Agreement dated as of June 10, 2003 (the "Pledge Agreement"), and Borrower previously has delivered to Lender an Amended and Restated Convertible Term Note (the "Existing Note") and Amended and Restated Warrant to Purchase Common Stock No. AG-1 (the "Existing Warrant"), each dated as of March 30, 2004 (the Pledge Agreement, Existing Note and Existing Warrant, together with the Agreement, the "Loan Documents"). Borrower has requested that Lender extend the maturity date of the term loan evidenced by the Loan Documents, and in consideration of Lender's willingness to do so has agreed to issue an additional Warrant. Capitalized terms used herein shall have the meanings ascribed to such terms in the Agreement. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged: 1. Extension of Maturity Date. The Term Loan Maturity Date is hereby extended to May 1, 2006, and the last sentence of Section 1.2 of the Agreement is amended accordingly. 2. Amended Note. The Existing Note shall be replaced by the Second Amended and Restated Term Note in the form attached hereto as Exhibit A (the "Second Amended Note"), and upon delivery of the executed Amended Note to Lender, Lender shall deliver the Existing Note to Borrower. Thereafter, all references in the Agreement to "Term Note" shall be deemed to be references to the Amended Note. 3. Additional Warrant. The Borrower shall issue to the Lender an additional warrant number AG-II that allows the Lender to purchase up to 8,000,000 shares of the Borrower's common stock for $0.005 per share. (the "Second Warrant") The value of this warrant is $40,000. Thereafter, all references in the Agreement to "Warrant" shall be deemed to be references collectively to the Existing Warrant, and the Second Warrant. 3. Representations, Warranties and Covenants. The representations of Borrower in the Agreement and the other Loan Documents, as amended hereby, are true and correct as of the date hereof as though each of said representations and warranties was made on the date hereof except for those representations and warranties which are made as of a specified date in the applicable Loan Document. 4. Amendment Supplementary. This Amendment, the Second Amended Note and the Second Warrant are supplementary to the Loan Documents. All of the provisions of the Loan Documents, including without limitation the right to declare principal and accrued interest due for any cause specified in the Loan Documents, shall remain in full force and effect except as expressly modified. The Agreement and the other Loan Documents and all rights and powers created thereby and thereunder or under such other documents are in all respects ratified and confirmed. From and after the date hereof, the Agreement and the other Loan Documents shall be deemed to be amended and modified as herein provided, but, except as so amended and modified, the Agreement and the other Loan Documents shall continue in full force and effect and the Agreement, the other Loan Documents, this Amendment, the Second Amended Note and the Second Warrant shall be read, taken and construed as one and the same instrument. On and after the date hereof, any references in the Loan Documents to the Agreement shall mean the Agreement as amended hereby, any references to the Note shall mean the Second Amended Note and any references to the Warrant shall mean the Existing Warrant and the Second Warrant. 6. Waiver of Claims. Borrower hereby acknowledges, agrees and affirms that it possesses no claims, defenses, offsets, recoupment or counterclaims of any kind or nature against or with respect to the enforcement of the Agreement, or any other Loan Document or any amendments thereto (collectively, the "Claims"), nor does Borrower now have knowledge of any facts that would or might give rise to any Claims. If facts exist as of the date of this Amendment which would or could give rise to any Claim against or with respect to the enforcement of the Agreement, or any other Loan Document, as amended by the amendments and/or restatements thereto, Borrower hereby unconditionally, irrevocably and unequivocally waives and fully releases any and all such Claims as if such Claims were the subject of a lawsuit, adjudicated to final judgment from which no appeal could be taken and therein dismissed with prejudice. In furtherance of the intention of the parties, Borrower hereby expressly waives any and all rights conferred upon it by the provisions of any applicable law which would provide that "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release which, if known by him, must have materially affected his settlement with the debtor." Borrower hereby understands and acknowledges the significance and consequences of the foregoing release and waiver. 7. Representation by Counsel. Borrower hereby represents that it has been represented by competent counsel of its choice in the negotiation and execution of this Amendment; that it has read and fully understands the terms hereof, that 2 Borrower and its counsel have been afforded an opportunity to review, negotiate and modify the terms of this Amendment, and that it intends to be bound hereby. 8. Counterparts. This Amendment may be executed in one or more counterparts, which counterparts, when taken together and collated shall constitute one agreement. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed effective as of the day and year first above written. NUWAY MEDICAL, INC. /s/Dennis Calvert By: ------------------------------ Dennis Calvert, President AUGUSTINE II, LLC By: AUGUSTINE CAPITAL MANAGEMENT, L.L.C., its manager By: ------------------------------ Thomas F. Duszynski Member and Authorized Officer EX-10.4 4 v023205_ex10-4.txt Exhibit 10.4 THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES ACT OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS COVERING THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACTS. NUWAY MEDICAL, INC. WARRANT TO PURCHASE COMMON STOCK Issued: July 29, 2005 WARRANT NO. AG-II THIS CERTIFIES THAT, for value received, AUGUSTINE II, LLC, a limited liability company formed under the laws of the State of Delaware (the "Holder"), is entitled to subscribe for and purchase from NUWAY MEDICAL, INC., a corporation organized under the laws of the state of Delaware (the "Company"), commencing at the time periods prescribed herein and ending at 5:00 p.m. Chicago, Illinois time on the fifth (5th) calendar anniversary of the date hereof, 8,000,000 shares (the "Shares") of common stock, par value, $0.00067, of the Company (the "Common Stock"). The exercise price for each Share subject to this Warrant (the "Warrant Price") is equal to $0.005. The number of Shares and the Warrant Price are subject to adjustment from time to time as provided in Section 5 of this Warrant, subject in all cases to the Restricted Ownership Percentage as provided in Section 1 of this Warrant. This Warrant is issued in connection with and as consideration for the extension of the Second Amended and Restated Convertible Term Note dated the date hereof and issued by the Company in favor of the Holder, which Term Note has been issued pursuant to that certain Amendment Number 2 to Term Loan Agreement dated the date hereof between the Company and the Holder. 1. Method of Exercise; Payment; Issuance of New Warrant. The purchase right represented by this Warrant may be exercised by the Holder, in whole or in part, subject to the limitation set forth below, and from time to time, by (i) the surrender of this Warrant (with a notice of exercise in the form attached hereto as Exhibit A, duly executed) at the principal office of the Company and (ii) the payment to the Company, by check or wire transfer of funds to an account specified in writing by the Company, of an amount equal to the aggregate Warrant Price (provided, however, this clause (ii) shall not be applicable if the Holder is making a cashless exercise pursuant to Section 2 of this Warrant). The Shares so purchased, representing the aggregate number of shares specified in the executed Exhibit A, shall be delivered to the Holder within a reasonable time, not exceeding five (5) business days, after this Warrant shall have been so exercised. Upon receipt by the Company of this Warrant at the office of the Company, in proper form for exercise and, unless a cashless exercise is being made in accordance with Section 2 of this Warrant, accompanied by the amount equal to the aggregate Warrant Price, the Holder shall be deemed to be the holder of record of the Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Shares shall not then be actually delivered to the Holder. Notwithstanding anything else herein to the contrary, the Holder shall not have the right, and the Company shall not have the obligation, to exercise all or any portion of this Warrant if and to the extent that the issuance to the Holder of shares of Common Stock upon such exercise would result in the total number of shares of Common Stock deemed beneficially owned by the Holder (together with all shares of Common Stock deemed beneficially owned by any of the Holder's affiliates that would be aggregated for purposes of determining a group under Section 13(d) of the Exchange Act) exceeding, when issued, 4.9% of the total issued and outstanding shares of the Company's Common Stock (the "Restricted Ownership Percentage"); provided, however, that (i) Holder shall have the right at any time and from time to time to increase or decrease its Restricted Ownership Percentage and otherwise waive in whole or in part the restrictions of this paragraph immediately upon written notice to the Company, and (ii) Holder can make subsequent adjustments pursuant to the preceding clause (i) any number of times, and provided further that nothing in the foregoing shall prevent the partial exercise of the Warrant for such number of shares of Common Stock as do not exceed the Restricted Ownership Percentage. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of such Shares, deliver to the Holder a new Warrant evidencing the right to purchase the remaining Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of Holder, appropriate notation may be made on this Warrant which shall then be returned to Holder. 2. Exercise. The Holder shall pay the Warrant Price to the Company for each Warrant that it exercises if as of the Term Loan Maturity Date (a) the registration statement to be filed by the Company with the Securities and Exchange Commission (the "SEC") to register the Holder's re-sale of the Common Stock underlying the Warrant has been declared effective by the SEC; (b) the closing bid price of the Common Stock of the Company as published in Bloomberg for each trading day within the thirty calendar days prior to the Term Loan Maturity Date has equaled or exceeded $0.60 per share; and (c) the volume of trading of the Common Stock of the Company as published in Bloomberg for each trading day within the thirty calendar days prior to the Term Loan Maturity Date has equaled or exceeded 100,000 shares. If all of such conditions are not fully satisfied by the Term Loan Maturity Date, then in lieu of exercising this Warrant by payment in cash or check, the Holder may elect to pay the Warrant Price by reducing the number of Shares issuable upon exercise of this Warrant in accordance with the following formula: X =Y(A-B) -------- A Where: X = the number of Shares to be issued to the Holder. Y = the number of Shares requested to be exercised under this Warrant. A = the Fair Market Value of one (1) Share of Common Stock as of the date such Warrant is exercised. B = the Warrant Price. 2 "Fair Market Value" of the Company's Common Stock means the average of the closing bid prices of the Common Stock as published in Bloomberg for the ten trading days prior to the date of determination of fair market value. 3. Stock Fully Paid; Reservation of Shares. All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable, and free from all preemptive rights, taxes, liens and charges with respect to the issue thereof; provided, however, that the Company shall not be required to pay any transfer taxes with respect to the issue of shares in any name other than that of the registered holder hereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. The Company shall at all times take all such action and obtain all such permits or orders as may be necessary to enable the Company lawfully to issue such Common Stock as duly and validly issued, fully paid and nonassessable shares upon exercise in full of this Warrant. 4. Fractional Shares. No fractional shares of Common Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Fair Market Value of such Shares. 5. Adjustment. This Warrant shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Adjustment for Stock Splits and Combinations. If the Company shall at any time or from time to time after the date hereof effect a subdivision of the outstanding Common Stock, the Warrant Price then in effect immediately before that subdivision shall be proportionately decreased. If the Company shall at any time or from time to time after the date hereof combine the outstanding Common Stock, the Warrant Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective. (b) Adjustment for Certain Dividends and Distributions. In the event the Company at any time or from time to time after the date hereof shall make or issue a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Warrant Price shall be decreased as of the time of such issuance, by multiplying the Warrant Price by a fraction: (x) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance; and (y) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution. (c) Adjustment of Number of Shares. Upon each adjustment of the Warrant Price pursuant to either Section 5(a) or 5(b) of this Warrant, the number of shares of Common Stock purchasable upon exercise of this Warrant shall be adjusted to the number of shares of Common Stock, calculated to the nearest one hundredth of a share, obtained by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment upon the exercise of the Warrant by the Warrant Price in effect prior to such adjustment and dividing the product so obtained by the new Warrant Price. 3 (d) Adjustment for Reclassification, Exchange and Substitution. If the Common Stock issuable upon the exercise of this Warrant are changed into the same or different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination provided for in Section 5(a) above, a dividend or distribution provided for in Section 5(b) above, or a reorganization, merger, consolidation or sale of assets, provided for in Section 5(e) below), then and in any such event the Holder shall have the right thereafter to exercise this Warrant into the kind and amount of stock and other securities receivable upon such recapitalization, reclassification or other change, by holders of the number of shares of Common Stock for which this Warrant might have been exercised immediately prior to such recapitalization, reclassification or change. (e) Reorganization, Mergers, Consolidations or Sales of Assets. If at any time or from time to time there is a capital reorganization of the Common Stock (other than a subdivision or combination provided for in Section 5(a) above, a dividend or distribution provided for in Section 5(b) above, or a reclassification or exchange of shares provided for in Section 5(d) above) or a merger or consolidation of the Company with or into another entity, or a sale of all or substantially all of the Company's properties and assets to any other person or entity, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant the number of shares of stock or other securities, money or property of the Company, or of the successor entity resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. The Company shall not effect any reorganization, merger, consolidation or sale unless prior to the consummation thereof each entity or person (other than the Company) that may be required to deliver any cash, securities or other property upon the exercise of this Warrant shall assume, by written instrument delivered to the Holder, the obligation to deliver to the Holder such cash, securities or other property as in accordance with the foregoing provisions the Holder may be entitled to receive. The foregoing provisions of this Section 5(e) shall similarly apply to successive reorganizations, mergers, consolidations and sales. (f) Adjustment of Warrant Price for Matching Purposes. In the event that the Company shall issue Common Stock or rights, warrants, options or convertible or exchangeable securities entitling the holder thereof to subscribe for or purchase, convert or exercise into or exchange for Common Stock, in any such case at a price (the "Dilutive Strike Price") per share less than $0.035 ("Dilutive Securities"), then the Warrant Price in effect immediately prior to such earliest date shall be adjusted so that the Warrant Price shall equal the price determined by multiplying the Warrant Price in effect immediately prior to such earliest date by the fraction: (i) whose numerator shall be the number of shares of Common Stock outstanding on such date plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at the then applicable Warrant Price (such amount, with respect to any such Dilutive Securities determined by multiplying the total number of shares subject thereto by the Dilutive Strike Price and dividing the product so obtained by the then applicable Warrant Price), and (ii) whose denominator shall be the number of shares of Common Stock outstanding on such date plus the number of additional shares of Common Stock to be issued or distributed or receivable upon exercise of any such Dilutive Securities. Such adjustment shall be made successively whenever any such Dilutive Securities are issued or distributed. In determining whether any Dilutive Securities entitle the holders to subscribe for or purchase shares of Common Stock at less than $0.035, and in determining the aggregate offering price of shares of Common Stock so issued or distributed, there shall be taken into account any 4 consideration received by the Company for such Dilutive Securities. If any Dilutive Securities to purchase or acquire Common Stock, the issuance of which resulted in an adjustment in the Warrant Price pursuant to this Section 5(f) shall expire and shall not have been exercised, the Warrant Price shall immediately upon such expiration be recomputed to the Warrant Price which would have been in effect had the adjustment of the Warrant Price made upon the issuance of such Dilutive Securities been made on the basis of offering for subscription, purchase or issuance, as the case may be, only of that number of shares of Common Stock actually purchased or issued upon the actual exercise of such Dilutive Securities. (g) Exceptions to Adjustment. Notwithstanding the provisions of Section 5(f): (i) No adjustment in the Warrant Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Warrant Price then in effect; provided, however, that any adjustments that by reason of this subparagraph (g)(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subparagraph shall be made to the nearest cent or nearest 1/100th of a share. (ii) Upon the sale or issuance of any Dilutive Securities as compensation to officers, directors, employees or consultants of the Company other than pursuant to compensation or incentive plans existing as of the date of this Warrant, then the Warrant Price shall be automatically adjusted, for an equivalent number of Shares equal to all such compensatory Dilutive Securities, to be equal to the lowest Dilutive Strike Price of all such compensatory Dilutive Securities. By way of illustration, if compensatory Dilutive Securities to purchase 1,000 shares of Common Stock are issued to various persons at Strike Prices of $0.01, $.02 and $0.025, this Warrant shall be adjusted so as to provide the Holder with the right to purchase 1,000 shares of Common Stock at $0.01 per share. (iii) Upon the sale or issuance of any Dilutive Securities in connection with capital investment into the Company, or debt financings or refinancings, then the Warrant Price shall be automatically adjusted to be equal to the lowest Dilutive Strike Price of all such Dilutive Securities. The parties intend that any Dilutive Securities sold or issued to placement agents, finders, brokers, underwriters and the like as compensation for their assistance with respect to any such transaction are intended to be governed by this provisions of this subparagraph (g)(iii) rather than the provisions of subparagraph 5(g)(ii). (iv) Notwithstanding anything to the contrary set forth in this Section 5(f), no adjustment shall be made to the Warrant Price upon the issuance of Common Stock upon the conversion or exercise of the options, warrants or rights of the Company outstanding as of the date hereof. (h) No Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holder against dilution or other impairment. Without limiting the generality of the foregoing, the Company will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon the voluntary or involuntary dissolution, liquidation or winding up of the Company. (i) Notice of Adjustments. Whenever this Warrant shall be adjusted pursuant to this Section 5, the Company shall make a certificate signed by an officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such 5 adjustment was calculated, and the new Warrant Price and the type or the number of Shares purchasable after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by first class mail, postage prepaid) to the Holder. 6. The Company's Obligation to Make Payments. (a) Dividends and Distributions. In the event the Company at any time or from time to time after the date hereof shall make or issue a dividend or other distribution, whether payable in cash, securities or other property of the Company, with respect to any of its capital stock for which an adjustment is not made pursuant to Section 5 of this Warrant, then and in each such event, the Company shall concurrently make a cash payment to the Holder equal to the product of (i) the quotient obtained by dividing (x) the amount of cash plus the fair value of any property or securities distributed by (y) the number of shares of Common Stock outstanding on the record date for such dividend or distribution and (ii) the number of Shares on such record date. (b) Redemption of Capital Stock. In the event the Company at any time or from time to time after the date hereof shall repurchase or redeem any of its capital stock or any rights, including without limitation, options, warrants or other convertible or exchangeable securities, to acquire such capital stock, then and in each such event, the Company shall concurrently make a cash payment to the Holder equal to the product of (i) the quotient obtained by dividing (x) the aggregate amount of cash and the aggregate fair value of any property paid out by the Company in connection with any such repurchase or redemption by (y) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such repurchase or redemption and (2) the number of Shares. 7. Notice of Record Date. In the event: (1) that the Company declares a dividend (or any other distribution) on any of its capital stock (including without limitation, its Common Stock); (2) that the Company repurchases or redeems any of its capital stock (including without limitation, its Common Stock) or any rights to acquire such capital stock; (3) that the Company subdivides or combines its outstanding shares of Common Stock; (4) of any reclassification of the Common Stock, or of any consolidation, merger or share exchange of the Company into or with another entity, or of the sale of all or substantially all of the assets of the Company; (5) of the involuntary or voluntary dissolution, liquidation or winding up of the Company; or (6) of any offer of its Common Stock or any rights to acquire such Common Stock for consideration paid per share of Common Stock less than the Warrant Price then in effect. then the Company shall notify the Holder at least 30 days prior to the date specified in (A), (B) or (C) below, in writing stating: (A) the record date of such dividend, distribution, repurchase, redemption, subdivision or combination, or, if a record is not to be 6 taken, the date as to which the holders of Common Stock of record to be entitled to such dividend, distribution, repurchase, redemption, subdivision or combination are to be determined; (B) the date on which such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up; or (C) the date on which such offering of its Common Stock or any rights to acquire such Common Stock for consideration paid per share of Common Stock less than the Warrant Price is expected to become consummated. 8. Compliance with Securities Act; Disposition of Warrant or Common Stock. (a) Compliance with Securities Act. The Holder, by acceptance hereof, agrees that this Warrant and the Shares to be issued upon exercise hereof are being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Warrant or any Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Act"). All Shares issued upon exercise of this Warrant (unless registered under the Act or sold or transferred pursuant to Rule 144 promulgated under the Act) shall be stamped or imprinted with a legend in substantially the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES ACTS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS COVERING THIS SECURITY OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACTS." (b) Disposition of Warrant or Shares. Subject to the terms and conditions of this Warrant and applicable securities laws, this Warrant and the rights represented by this Warrant may be transferred, assigned or pledged, in whole or in part with prior written notice to the Company. Any transfer shall be accompanied by the Notice of Transfer form attached hereto as Exhibit B. 9. Rights as Shareholders. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. 10. Representations and Warranties. The Company represents and warrants to the Holder as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms; (b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable; (c) The rights, preferences, privileges and restrictions granted to or imposed upon the Shares and the holders thereof are as set forth in the Company's Articles of Incorporation; 7 (d) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Articles of Incorporation or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and, except for consents that have already been obtained by the Company, do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration with or the taking of any action in respect of or by, any federal, state or local government authority or agency or other person; and (e) Capitalization. As of the date of this Warrant the capitalization of the Company is as follows: (i) Common Stock. A total of 100,000,000 authorized shares of Common Stock, of which approximately 55,000,000 shares were issued and outstanding. All of such outstanding shares are validly issued, fully paid and non-assessable. No shares of the Common Stock are held in the Company's treasury. (ii) Preferred Stock. A total of 25,000,000 authorized shares of Preferred Stock, of which 559,322 shares were issued and outstanding. (iii) Options, Warrants, Reserved Shares. Except as disclosed in the Form 10-KSB for the period ended December 31, 2004 filed by the Company, and any subsequent reports filed with the SEC, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Company's capital stock. No shares of the Company's outstanding capital stock, or stock issuable upon exercise, conversion or exchange of any outstanding options, warrants or rights, or other stock issuable by the Company, are subject to any rights of first refusal or other rights to purchase such stock (whether in favor of the Company or any other person), pursuant to any agreement, commitment or other obligation of the Company. 11. Registration Rights. If the Company proposes to file any registration statement under the Act (other than Form S-8), with respect to an offering of any equity securities, then the Company shall give the Holder written notice of such proposed filing as soon as practicable (but in no event less than thirty (30) days before the anticipated initial filing date of such registration statement), and such notice shall offer the Holder the opportunity to register such number of Shares as the Holder shall request (the "Piggyback Shares"). The Company shall bear all costs of registering the Piggyback Shares, except for underwriting discounts or commissions if the registration statement relates to an underwritten offering. Any registration rights granted by this paragraph expire when shares issued pursuant to this Warrant Agreement are eligible for sale under Rule 144(k) of the Securities Act of 1933. 12. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 13. Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered to the applicable party at its address 8 specified opposite its signature below, or at such other address as shall be designated by such party in a written notice to the other. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier. 14. Descriptive Headings. The descriptive headings of the several sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 15. Governing Law. THIS WARRANT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS. 16. Binding Effect on Successors. This Warrant shall be binding upon any entity succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets, and all of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise, and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the Holder. 17. Severability. In case any one or more of the provisions contained in this Warrant shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 18. Lost Warrants or Stock Certificates. The Company covenants to the Holder that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. [Signature Page Follows] 9 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and delivered by its duly authorized officer on the day and year first above written. NUWAY MEDICAL, INC. By: /s/ Dennis Calvert Name: Dennis Calvert, President Address: 2603 Main Street, Suite 1150 Irvine, California 92614 Attention: Dennis Calvert Facsimile: 949 666-7297 ACKNOWLEDGED AND ACCEPTED: AUGUSTINE II, LLC By: AUGUSTINE CAPITAL MANAGEMENT, L.L.C., its manager By: /s/Thomas F. Duszynski --------------------------- Thomas F. Duszynski Member and Authorized Officer Address: 141 West Jackson Boulevard, Suite 2182 Chicago, Illinois 60604 Attention: John T. Porter Facsimile: (312) 427-5396 10 EXHIBIT A NOTICE OF EXERCISE TO: NUWAY MEDICAL, INC. (1) The undersigned hereby elects to purchase __________ shares of Common Stock of NUWAY MEDICAL, INC. pursuant to the terms of the attached Warrant, and, unless such Warrant allows the exercise to be "cashless," tenders herewith payment of the Warrant Price for such shares in full. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: --------------------------------- (Name) --------------------------------- (Name) (3) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below: --------------------------------- (Name) --------------------------------- (Address) --------------------------------- (Signature) --------------------------------- (Date) EXHIBIT B NOTICE OF TRANSFER (To be signed only upon transfer of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ____________________________________________ the right represented by the attached Warrant to purchase __________ shares of the Common Stock of NUWAY MEDICAL, INC., to which the attached Warrant relates, and appoints _____________________ as Attorney to transfer such right on the books of NUWAY MEDICAL, INC., with full power of substitution in the premises. Dated: ------------------------ --------------------------------------- (Signature must conform in all respects to the name of the Holder as specified on the face of the Warrant) --------------------------------------- --------------------------------------- (Address) Signed in the presence of: ---------------------------- EX-31.1 5 v023205_ex31-1.txt EXHIBIT 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934 I, Dennis Calvert, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of NuWay Medical, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 4, 2005 /s/ Dennis Calvert ------------------ Dennis Calvert Chief Executive Officer EX-31.2 6 v023205_ex31-2.txt EXHIBIT 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934 I, Dennis Calvert, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of NuWay Medical, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 4, 2005 /s/ Dennis Calvert ------------------ Dennis Calvert Interim Chief Financial Officer EX-32 7 v023205_ex32.txt EXHIBIT 32 Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Solely for the purposes of complying with 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Aura Systems, Inc. (the "Company"), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-QSB of the Company for the quarter ended March 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 4, 2005 /s/ Dennis Calvert ------------------ Dennis Calvert Chief Executive Officer Date: August 4, 2005 /s/ Dennis Calvert ------------------ Dennis Calvert Interim Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----