UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-KSB/A
(Mark
One)
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x
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ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF
1934
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For
the fiscal year ended December 31, 2007
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF
1934
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For
the transition period from ___________ to ___________
Commission
file number 333-118155
MDWERKS,
INC.
(Name
of
Small Business Issuer in Its Charter)
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Delaware
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33-1095411
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
No.)
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Windolph
Center, Suite I
1020
N.W. 6th Street
Deerfield
Beach, FL 33442
(Address
of Principal Executive Offices and Zip Code)
Issuer’s
Telephone Number: (954) 389-8300
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
None
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes
x
No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
x
Revenues
during the fiscal year ended December 31, 2007 were $577,251.
The
aggregate market value of the issuer’s common equity held by non-affiliates, as
of March 24, 2008 was $4,826,584.
As
of
March 24, 2008, there were 12,940,065 shares of the issuer’s common equity
outstanding.
Documents
incorporated by reference:
None
Transitional
Small Business Disclosure Format (
Check
one
):
Yes
o
No
x
Explanatory
Note: This amendment is being filed to amend and restate the section titled
“Competition” under Part I, Item 1 of the issuers Form 10-KSB for the year ended
December 31, 2007, which was filed with the SEC on March 27,
2008.
TABLE
OF CONTENTS
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PAGE
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PART
I
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ITEM
1.
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DESCRIPTION
OF BUSINESS
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1
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ITEM
2.
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PROPERTY
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41
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ITEM
3.
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LEGAL
PROCEEDINGS
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41
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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41
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PART
II
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ITEM
5.
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MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
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42
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ITEM
6.
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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52
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ITEM
7.
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FINANCIAL
STATEMENTS
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57
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ITEM
8.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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57
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ITEM
8A.
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CONTROLS
AND PROCEDURES
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57
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ITEM
8B.
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OTHER
INFORMATION
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58
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PART
III
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ITEM
9.
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DIRECTORS
AND EXECUTIVE OFFICERS
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59
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ITEM
10.
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EXECUTIVE
COMPENSATION
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65
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ITEM
11.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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72
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ITEM
12.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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73
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ITEM
13.
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EXHIBITS
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74
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ITEM
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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77
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PART
I
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ITEM
1.
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DESCRIPTION
OF BUSINESS
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Unless
otherwise indicated, all references to ‘‘we’’, ‘‘us’’, ‘‘our’’, the ‘‘Company’’
and similar terms, as well as references to the ‘‘Registrant’’ in this Annual
Report on Form 10-KSB, refer to MDwerks, Inc. (including its
subsidiaries
).
Description
of Business
We
offer
a web-based comprehensive selection of electronic medical claims processing,
funding and collection solutions to the healthcare provider industry. Our
services can help doctors, clinics, surgical or hospital based practices, and
other healthcare providers and their vendors significantly improve daily
insurance claims transaction administration and management as
follows:
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Increase
office efficiencies and lower collection
costs;
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Reduce
administrative workload;
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Improve
claims accuracy before submission to, and increase acceptance by,
third
party payers;
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Reduce
payment cycle time;
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Improve
cash flow management;
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Increase
revenue control;
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Leverage
receivables through competitive short term financing
arrangements;
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Improve
information management, financial security and provider regulatory
compliance;
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‘‘End-to-end’’
solution for claims management; and
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Fully
automate the revenue process by the use of electronic claims and
remittance advice, and payment reconciliation
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MDwerks,
Inc., an OTC Bulletin Board company (OTCBB:MDWK) conducts its business through
four wholly owned subsidiaries of our wholly-owned subsidiary, MDwerks Global
Holdings, Inc., namely: Xeni Medical Systems, Inc. (‘‘Xeni Systems’’); Xeni
Medical Billing, Corp. (‘‘Xeni Billing’’); Xeni Financial Services, Corp. (Xeni
Financial); and, Patient Payment Solutions, Inc. (“PPS”). Xeni Systems, Xeni
Billing and Xeni Financial are the ‘‘Xeni Companies’’. PPS planned to offer
healthcare providers a payment improvement process for “out of network” claims,
but never became operational and is a dormant entity.
Business
Services
Our
CLAIMwerks™ solutions, which are offered through Xeni Systems, can provide
actual contract based, insurance company comparable screening and analysis
of
medical claims directly from a healthcare provider’s practice management system,
so that deficiencies and errors can be corrected before they are submitted
to
insurance companies for electronic payment. Our CLAIMwerks™ solutions and
services improve a healthcare provider’s ability to process and manage claims
for reimbursement from third party payers by consolidating the process
(including clearinghouse, contract management and remittance functions). As
part
of CLAIMwerks™ services, we integrate transactions involving insurance claims by
providing a single interface for the healthcare provider, the payer (such as
an
insurance company) and the lender (when the healthcare provider elects to take
advantage of receivables financing).
Xeni
Systems collects transaction fees from healthcare providers for: the analysis,
automated processing, electronic submission, and reporting of claim information;
management of healthcare provider contracts for pricing and rules; electronic
remittance of payments; explanations of benefits (payments) (“EOB’s”) made
available from payers; and, reconciliation and posting of the payments and
EOB’s. Fees may also be generated from lenders for the valuation of processed
claims that are used as collateral for loans from lenders, as well as
administrative tasks related to the disbursement of funds. Fees may also be
collected from clearinghouses and insurance companies for submitting more
accurate claims, once certain volume levels are achieved. Xeni Systems may
also
collect one-time implementation fees for initial set-up and
training.
Although
we do not currently offer asset and wealth management services, we may have
the
opportunity to offer asset and wealth management services through third party
sources. We expect to receive referral or administrative handling fees for
such
services, as appropriate.
Billing
Services
Our
BILLwerks™ solutions provide value added billing services leveraging the Xeni
Systems technology solutions and services for improved efficiencies. As part
of
our BILLwerks™ solutions, Xeni Billing offers collections and appeals services,
as well as solutions for the collection of old existing medical claim
submissions. Our BILLwerks™ solutions are designed to operate in an integrated
fashion with the solutions and services offered by Xeni Systems. There are
fewer
manual and paper functions to be performed in the combined claims management
processing/billing solutions process offered by Xeni Systems and Xeni Billing.
This can reduce a healthcare provider’s claims related operations even more than
using the stand-alone solutions offered by Xeni Systems.
Xeni
Billing typically charges providers (directly or as a subcontractor of Xeni
Systems) fees as a percentage of collected claims. Xeni Billing also shares
fees
(as a channel associate) with Xeni Systems for supporting its claims process
and
information management. Additionally, Xeni Billing can collect one-time set-up
fees, appeals and third party appeals work fees and any consulting fees for
customization or support of the healthcare provider outside the scope of
services. Finally, Xeni Billing may share in claims revenue recovered when
contracted to perform reviews of unpaid claims that were submitted to payers
prior to use of our automated claims submission solutions and
services.
Lending
Services
Our
FUNDwerks™ solutions can electronically manage loans, loan repayments and the
movement of funds through linked bank accounts.
Through
Xeni Financial, we can offer to lend or arrange lending from third parties
to
healthcare providers on a short term, revolving line of credit and sometimes
on
a term loan basis. The loans are secured by claims receivable of the healthcare
provider. Like Xeni Billing, Xeni Financial leverages the solutions and services
offered by Xeni Systems to value the claims, score risk, document and track
claims payment status, verify remittance of payments from insurance companies
and sweep funds to the appropriate accounts with the assistance of electronic
and automated processes. Xeni Financial is able to arrange loans at attractive
rates and terms, since it has not had to invest significant capital to develop
or make a major hardware and software purchase of a system to make loans secured
by receivables. It also does not need to maintain a large workforce as it can
manage many of its business processes through the solutions and services offered
by Xeni Systems. Xeni Financial can lend to healthcare providers on the merit
of
the receivables and can even lend on Medicare claims.
Consulting
Service
s
Although
we provide Internet-based solutions that do not require our customers to
purchase new hardware or software, healthcare providers can take advantage
of
customized and premium enhancements through our third party associates,
including enhanced billing and collection services. Consulting services are
also
available to enhance healthcare provider practices or business
operations.
Workers’
Compensation, Durable Medical Equipment and Pharmacy Claim
Services
Our
current products and services have been focused on improving the ability of
healthcare providers to collect on commercial and government insurance claims,
and to enhance their cash flow controls. We have decided to expand our current
service offerings to include workers’ compensation, durable medical equipment
and pharmacy claims electronic processing, management, and funding.
By
using
our present technology we plan to offer a greatly improved electronic workers’
compensation, durable medical equipment and pharmacy claims collections and
remittance process to our clients in place of today’s existing error ridden
paper based method. Most provider practices avoid workers’ compensation patients
because of the time, effort, and cost associated with getting paid, thereby
giving up perhaps as much as10% to 25% of their revenue. MDwerks can greatly
improve the ability of healthcare providers to be paid on workers’ compensation
claims, and enable them to continue to provide or expand these services.
We
can
manage claims transactions electronically from three perspectives in connection
with workers’ compensation claims: the provider, the insurance company payer and
the lender (when the provider elects to take advantage of our receivables
financing). Our system can manage each workers’ compensation claims transaction
by leveraging our tools to automatically analyze claims, and record collections,
appeals and funding. Since we designed our products and services to operate
in a
fully integrated electronic environment with provider and payer systems, there
are fewer manual and paper functions to perform in the combined claims
processing/billing solution, which should result in reduced errors as well
as
fewer payment delays and lower collection costs.
Through
Xeni Billing, MDwerks can offer collections and appeals services for workers’
compensation claims. This allows healthcare providers to outsource these tasks
from their offices and focus resources in other areas.
Through
Xeni Financial, MDwerks can offer funding to healthcare providers on a short
term, revolving line of credit basis, or in some cases can purchase healthcare
providers’ receivables, which are secured by claims processed through the
MDwerks System. Our system can also include MDwerks’ tools to help lenders value
claims, score risk, document and track claims payments, verify remittance and
sweep funds to appropriate bank accounts with electronic and automated
processes.
MDwerks
can collect transaction fees for automated processing, submission, reporting
and
analysis of workers’ compensation claims information and management of payer
contracts rules and pricing. Fees can be collected for information management
on
processed claims that are used as collateral and for administrative tasks
related to the movement of funds among bank accounts. Fees can also be collected
from clearinghouses and insurance companies to which MDwerks sends cleaner
claims electronically. One time fees can be charged for initial set-up and
training.
Market
for Our Solutions and Services
Healthcare
providers face serious challenges in processing claims submitted to third party
payers, as well as in getting correct and prompt payment from payers. Claims
must be prepared by gathering data from the front office to the back, with
processing often occurring at different times and locations for each procedure.
Many healthcare providers’ current billing systems require the performance of
different steps by different third party sources. Claims can move among the
healthcare provider’s internal staff, through a practice management system and
across multiple offices, to billing, editing engines, clearinghouse, contract
management, banking and other resources.
The
need
for security and privacy of patient information requires complex data
management. Claims may be processed on the payer end through out-of-network
claims administrators, re-pricing organizations, third party administrators,
managed care organizations, independent physician associations, and preferred
provider organizations. Further, healthcare providers face continuing pressure
from payers to accept lower fees on changing definitions of covered claims,
with
variations in customary remittance values. At the same time, payers require
precise documentation and justification for covered claims.
Claims
may be rejected for a variety of reasons including medical necessity,
eligibility, coding errors, tardiness, deductibles, referrals,
pre-certifications and improper documentation. Lack of access to basic, but
important, claim information and the lack of real-time data and feedback may
waste office hours and affect reimbursement. Repetitive paperwork and phone
conversations dealing with disputes, errors and rejections may be typical
occurrences in the provider’s office. Additionally, the failure, or inability,
to match claims against existing contracts, when added to these other factors,
can make it extremely difficult to determine how much and when the healthcare
provider will be paid.
Management
of the status of claims and valuation, remittance and validation of proper
payment and disbursement requires detailed real time information. If claims
are
not being compared to contracts in real time, and if robust tracking and
auditing mechanisms are not in place, then the availability and transparency
of
data cannot be optimized. As a result, the healthcare provider’s financial
managers may only estimate results, with varying degrees of volatility, cash
flow predictability and accuracy. Moreover, they may miss, ignore or abandon
incorrect or partial payments.
The
challenges faced in connection with claims management can result in lost
revenue, volatile and unsatisfactory cash flow, inaccurate reporting,
inefficient management of operations and attendant increases in office workload,
expenses and costs of borrowing. In the past, healthcare providers have been
required to use a patchwork of internal and third party resources to address
these problems, with mixed results. For example, billing and practice management
systems attempt to address the claims processing market predominantly by selling
proprietary hardware and software products (and maintenance and upgrades or
customization), with various degrees of success in features and benefits. They
may or may not generate Health Insurance Portability and Accountability Act
of
1996 (‘‘HIPAA’’) compliant electronic forms from their systems, and if they do,
such forms may be mapped and formatted in different ways, leading to potential
errors and problems with acceptance and payment. Ultimately, they offer tools
that require office staff and/or external resources to perform critical claims
management functions.
Claims-related
management challenges have also greatly impacted the borrowing abilities of
healthcare providers. Healthcare providers typically borrow by factoring their
receivables arising out of non-Medicare insurance claims, personally guarantying
a loan with their own credit, bundling large provider claims for sale to wealthy
private investors or taking an expensive asset-based loan against claims
receivables at a significant discount with significant required reserves.
Lenders typically have not been able to offer short term, revolving credit
lines
on receivables arising out of insurance claims, because of the existing
difficulty in qualifying them as low risk, high quality, and commoditized
collateral. Lenders remain concerned about safely and accurately assessing
either the true value or the payment risk associated with any given claim or
group of claims. Any solution to this problem is further complicated by the
lender’s resistance to risking the purchase of an inadequate or expensive
customized solution to serve this market.
Short
term, revolving lines of credit on medical receivables require a solution that
mitigates the uncertainty of quickly and accurately assessing the true market
value of claims, their aging and cycle times and their inherent lending risk
through a complex series of verifications and evaluations. Assessment, and
the
subsequent presentation of results, must be accomplished in a real time, secure
environment. Cycle times for claims remittances must be short (ideally at or
below 45-60 days). Additionally, the cost of administering and processing must
leave net interest margins that justify the loan.
We
believe our integrated suite of solutions and services are the first to market,
offering healthcare providers and their lenders comprehensive, cost efficient
and superior claims processing and management solutions over the Internet.
Our
system can become a healthcare provider’s single source platform for integrating
claims management and funding functions. Our solutions and services quickly
improve claims accuracy, valuation and remittance success, enable outsourced
payer contract management, facilitate prompt financing of claims, and produce
superior cash and information management. Our technology also offers benefits
to
small and medium healthcare provider practices with limited resources and staff,
allowing them to perform or facilitate the performance of tasks and functions
previously only available to much larger practices capable of purchasing more
sophisticated and expensive tools and hiring more people to use them. It also
allows many financial institutions to lend to healthcare providers on qualified
receivables, at risk and cost factors not previously available. With our
products and services, healthcare providers of a variety of specialties and
sizes have the ability to leverage an ‘‘end-to-end’’ claims management
solution.
By
combining automated batched and real time functionality into a proprietary
‘‘end
to end’’ claims management and funding system, we believe that our solutions and
services offer superior value and competitive advantages, including the
following:
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Reduced
Workload
: Healthcare
providers can reduce and/or eliminate manual, labor intensive, repetitive
and inefficient administrative functions. The level of reduction
depends
on many factors, including the type of practice management and billing
systems in use, number of staff members and their training and skills
in
operating existing systems, practice size and mix and contractual
relationships with payers, and how paper intensive or electronic
their
existing process may be.
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‘‘
Pay
As You Go
’’: Fees
charges to healthcare providers for processing insurance claims typically
are fixed monthly or calculated as a percentage of each claim’s contract
valuation or predicted value, based on history and regional Medicare
tables for reference, if, for example a healthcare provider is
out-of-network. The use of our solutions and services doesn’t require high
up-front investment, hardware and software purchases, or payment
based on
the number of claims submitted or the amount of billed
claims.
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Superior
Cash Management
: In
as little as five business days or less, healthcare providers can
borrow
funds from us at competitive short-term rates against a determined
value
of each submitted claim. Healthcare providers and lenders can choose
amounts or categories of claims for funding, including Medicare claims.
Financial institutions have an automated risk profile and lending
process
available to them on a daily claim-by-claim basis, which is customized
to
their own lending parameters, without the necessity of building new
lending tools.
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Increased
Efficiency/Lower Costs
: Claims
that we process are ‘‘flagged’’ for potential errors as they are received,
based on a combination of proprietary technology and use of the same
type
of rules engine as many insurance companies. Healthcare providers
managing
their own claims can edit flagged claims using simple prompts, so
a
‘‘cleaner’’ claim can be submitted to the payer. Claim values are
determined daily against actual contracts and payment tables, when
available, and are adjusted for history and changes in insurance
plans.
Healthcare providers can know almost exactly how much they will get
paid
on claims. Also, multiple healthcare provider locations can be connected
to capture information earlier and more
accurately.
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Superior
Information Management
: Healthcare
providers have access to daily reports on claims status, their expected
(not just billed) value, and tools for tracking, auditing and confirming
claims remittance, verification and payment. This means they can
spend
less time trying to determine what is owed and by whom and more time
taking action to collect what is
owed.
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Web-based,
User Friendly Technology
: The
solutions and services that we offer can be accessed over the Internet
using standard Microsoft Explorer software (or most other browser
software) on standard Windows desktop hardware and software. The
systems
are designed to be used ‘‘off the shelf’’ with no need to purchase
hardware or software, and are designed to support large numbers of
users.
They also can be easily expanded to accommodate future
growth.
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Integrated
Functions
: Healthcare
providers can integrate and consolidate, through a single source,
multiple
claims processing and management functions within their offices,
across
multiple offices and across third party vendors, including insurance
companies, banks and
clearinghouses.
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We
believe that the technology that we deploy offers the following competitive
advantages:
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First
In Marketplace
: We
believe we are one of the first application service providers to
offer a
fully electronic comprehensive bundled service that provides web-based
insurance claims management, billing services and lending services
(for
both borrowers and lenders). This creates a unique, cost effective
advantage in capturing clients and developing brand
loyalty.
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Barriers
to Entry
: We
believe potential competitors face significant barriers to
duplicating what we have to offer, including the
following:
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Process:
Aggregating
and integrating healthcare providers, insurance companies and financial
institutions in a legally compliant manner requires a very complex business
process.
Cost
to Develop:
Matching
features and benefits of our systems would require substantial investment and
substantial time and technical resources.
Extensive/Proprietary
Feature Set:
We
offer
an extensive and unique feature set.
Complex
to Build:
The
solutions and services that we offer were developed as a multi-tiered high
availability solution, requiring substantial software engineering expertise.
Solutions were derived from expertise in insurance, banking, medical, legal
and
other industries, requiring more than just technical production.
Extensive
Compliance Issues:
We
operate amidst a highly regulated environment. For example, we must operate
in
accordance with HIPAA, the Financial Holding Company Act and the Gramm Leach
Bliley Act. Requirements for handling patient information and claims securely
are complex and may serve as a major development challenge to some competitors.
Furthermore, we must operate in accordance with state regulations regarding
fee-splitting with medical professionals.
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·
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Features
Appeal to Lenders
: Our
solutions and services appeal to lenders, because lenders do not
have to
negotiate to purchase receivables, acquire a system to process claims
for
financing or buy hardware and software from us. At the same time,
asset
based loan assessments can be performed against actual claims value
and
status on a daily basis, potentially increasing the value and collateral
associated with a loan and reducing
risk.
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·
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Contract
management is critical to maximizing reimbursement
. Complying
with terms for getting paid on a claim, accurately valuing the claim
and
monitoring pricing for each contract creates more reliable receivables
and
more desirable collateral to secure desired
loans.
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·
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Superior
Claims Engine
: We
aggregate the insurance carrier network through the use of a combination
of third party and proprietary claims engine functions. This enables
healthcare providers to have access to all available insurance carriers
for electronic claims handling through a single
solution.
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·
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Module
Independence
: Many
components of our solutions and services can be utilized independently
of
each other, making different technologies rapidly available, and
allowing
us to adapt quickly to new client
requests.
|
Industry
Analysis
Industry
Size:
Healthcare
has been called the single largest U.S. industry. According to the Centers
for
Medicare and Medicaid Services (CMS), it is expected to reach
$3.0
trillion plus
over the
next three years. The National healthcare expenditure projections are produced
annually by the Office of the Actuary at the CMS. They are based on historical
national health expenditures and a model framework that incorporates actuarial,
econometric
and judgmental factors. National health expenditures are forecast to reach
$3.3
trillion by 2012
,
growing
at a mean annual rate of 7.3%. During this period, health spending is expected
to grow 2.5% per year faster than nominal gross domestic product (GDP), so
that
by 2012 it will constitute approximately 18.8% of GDP compared to its 2000
level
of 13.8%.
The
general term "Healthcare" encompasses a multitude of products and
services.
In 2007, CMS forecasted
$2.33
trillion in health expenditures,
expected
to be distributed by type of expenditure as follows:
The
source of payment for 2007 expenditures was distributed as follows (source:
CMS):
Private
health insurance: $806.2 billion
,
Federal: $789.5 billion, out-of-pocket payments: $261.9 billion, state and
local: $299.2 billion, and other private funds: $169.0 billion.
Market
Needs
Technology
has provided increased efficiency, especially in the delivery of healthcare.
However, one of the most troubled areas is the medical claims billing,
processing, and payment area. This segment continues to suffer errors and
inefficiencies, as well as large amounts of paper transactions and piecemeal
solutions, leaving a significant claims management burden in the provider’s back
office.
Claims
processing is a chief contributor, since the vast majority of claim transactions
require a large amount of manual intervention. Healthcare is unlike many other
businesses in that the value of the service is determined retrospectively.
This
negative aspect of the business becomes more evident and pronounced when coupled
with Workers Compensation and Personal Injury medical services, which have
additional administrative hurdles to overcome to receive payment. These facts,
combined with a paper and manual work dependent system, result in significant
inefficiencies in the claims filing, payment and reconciliation process. Our
system can greatly reduce these inefficiencies by automating and replacing
many
manual labor intensive paper-ridden processes with fully electronic processes,
which increase the information available to manage and collect outstanding
claims. Medical claims processed in the United States escalated from just 5
billion in 1990 to more than 10 billion at the turn of the 21st century and
this
figure has been steadily increasing. According to the AMA, the average number
of
claims generated per doctor is 440 claims per month.
Payers
realize the importance of moving claim transactions to electronic media through
the Internet. From the payers’ perspective, administrative costs could be
substantially lowered if claims were submitted electronically and were accurate
enough to be adjudicated by a computer system without any requirement for manual
intervention and/or resubmission. Payers could also save administrative costs
by
implementing electronic payment systems, including electronic explanation of
payments.
HIPAA
requires payers to move to electronic claim transactions and establish format
standards. Although payers continue to make significant technology investments
to comply, as well as for their own e-commerce objectives, providers are behind
in technical expertise and system resources necessary to effect change, and
are
burdened with paying for systems and processes to become compliant. As HIPAA
compliance is now enforceable by fines, the pressure for secure and compliant
solutions has become greater than ever.
HIPAA
has
compelled health plans, clearing houses and other healthcare providers to move
to a uniform electronic format. Specifically, HIPAA requires standard electronic
formats for the following transactions:
|
|
·
|
Healthcare
claims or equivalent encounter
information;
|
|
|
·
|
Healthcare
payment and remittance advice;
|
|
|
·
|
Coordination
of benefits when separate plans have differing payment
responsibilities;
|
|
|
·
|
Health
claims status when providers inquire about claims they have
submitted;
|
|
|
·
|
Plan
enrollment and dis-enrollment;
|
|
|
·
|
Health
plan eligibility;
|
|
|
·
|
Health
plan premium payments;
|
|
|
·
|
Referral
certifications and authorizations;
|
|
|
·
|
First
reports of injuries or illnesses;
|
|
|
·
|
Health
claims attachments used to justify services;
and
|
|
|
·
|
Other
transactions the federal government may specify in the
future.
|
We
view
this highly inefficient market as our primary opportunity. Our solutions and
services can significantly decrease the cost of claims processing for both
providers and payers, and can also create a new asset class consisting of
claims, against which financial institutions can lend.
Market
Strategy
We
plan
to sell to physician and clinical service group practices, hospitals,
rehabilitation centers, nursing homes and certain related practice vendors
by
using internal and external resources. Internal resources will consist mainly
of
specialized sales executives with industry knowledge and/or a portfolio of
contacts. External resources will consist primarily of independent sales
representatives as well as channel associates such as vendors of practice
management systems and medical industry specific sales groups such as office
management consultants. These sales resources can leverage an existing customer
base and contacts.
Our
marketing is based on prioritizing potential subscribers by size, location
and
density, need for our products and services and distribution opportunities.
Accordingly, we expect to focus our marketing efforts in geographic areas that
contain high concentrations of prospective clients, such as
California, Florida, Massachusetts, Texas, New York and New Jersey. Since part
of our business involves management and review of healthcare provider contracts
with payers, and their contracts tend to be similar by region, we believe that
a
concentration of marketing efforts in areas with high concentrations of
prospective clients will also reduce costs (for example, by reducing processing
of repetitive contract pricing and increasing set-up efficiencies for field
reps) as well as increasing revenues.
Media
Marketing
Our
advertising strategy prioritizes spending to facilitate sales goals. We expect
to utilize internal and external resources to develop advertising mediums
to open the appropriate sales opportunities, which may include the
following:
|
|
·
|
Business-to-business
advertising;
|
|
|
·
|
Search
engine and Web-site
advertising;
|
|
|
·
|
Magazine/trade
journal advertising;
|
|
|
·
|
Trade-show
advertising, slogans and headlines;
and
|
|
|
·
|
Media
Advertising (television, radio, billboards, Internet,
etc.).
|
Non-Media
Marketing
We
expect
to accelerate client acquisition by marketing through independent sales and
affinity business representatives. Typical independent sales representatives
are
already selling other products and services of other companies to the same
target market and may be looking for new, non-competitive lines to promote.
Affinity business representatives sell their own complimentary products or
services, and may see our solutions and services as a new product line,
enhancement or up-sell to their existing line. Affinity business representatives
are expected to include vendors and suppliers of healthcare providers, such
as
clearinghouses, diagnostic services and medical supply companies, as well as
billing and practice management product sellers. Banks and insurance companies
can make excellent affinity business representatives, as we offer
‘‘off-the-shelf’’ access to the lucrative healthcare provider community for a
new lending product, with tremendous up-selling opportunities, including by
co-branding and return referrals to the other services that they
represent.
We
believe independent representatives will offer us access to healthcare providers
based on existing relationships, as well as pre-determined variable costs of
subscriber acquisition tied to sales or referral success. We believe we will
rapidly gain field presence, experienced personnel and credibility without
investing in, and building, resources from the ground up. Multiple resources
can
be engaged in less time to acquire subscriber prospects.
Sales
Methods
Sales
will be generated by conventional methods, which may include direct sales calls,
trade shows, seminars, dinners, Webcasts and direct mail. Lead generation will
include Internet presence and third party referral sources. We also expect
to
obtain sales from strategic business alliances.
Revenue
Generation
Current
Businesse
s
We
expect
to generate revenues derived from healthcare providers, their payers and
lenders, as well as strategic associates that pay referral fees. Examples
include the following:
CLAIMwerks
™
Subscription
Fees
:
Healthcare
providers are typically charged a percentage of the value of every claim that
we
process for administration of claims, including claims remittances through
various accounts, with a minimum monthly fee; occasionally, other payment
arrangements are made.
FUNDwerks
™
Fees
:
Providers
are typically charged an increased percentage (from that charged for
CLAIMwerks™) of the value of every claim that we process in consideration of
administration of the loan, including for its settlement and posting, with
a
minimum monthly fee. A provider cannot subscribe to FUNDwerks™ without also
subscribing to CLAIMwerks™, the underlying technology platform.
BILLwerks
™
Fees
:
Providers
are typically charged a percentage of the value of every claim that is collected
by Xeni Billing for collections, appeals and patient letter billing services;
occasionally, other payment arrangements are made. Like FUNDwerks™, BILLwerks™
billing functionality is a value-added service to CLAIMwerks™ solutions and
cannot be subscribed to separately.
Support
Fees:
Healthcare
providers and financial institutions are typically charged a one-time setup
and
training fee.
Payer
and Clearinghouse Fees:
We
may be
able to charge payers and clearinghouses fees per clean claim submitted, based
on achieving minimum volume requirements.
Financial
Institution Fees:
Lenders
may pay basis points or other fees to us based on the value of each new claim
loaned against, for accessing and using the lending tools that we
offer.
Customization
and Consulting Fees:
Clients
will be charged for any non-standard client support, consulting and any
customization, such as for electronic interfaces from the healthcare provider’s
existing legacy management system to our systems.
Referral
Fees:
Lenders,
billing companies and others may generate referral or administrative fees for
cross or up selling of their products.
New
lines of Business
We
plan
to capitalize on our proven technology and apply it to solving the more complex
administrative issues associated with Workers Compensation and Personal Injury
claims. We expect to generate new revenue derived from healthcare providers,
their payers and lenders, as well as strategic associates who pay referral
fees.
Providers
can also be charged a percentage of the value or discount fee for every workers’
compensation claim that we process in consideration of administration of the
loan or purchases, including settlement and posting, with a minimum monthly
fee.
We
also
plan to generate additional revenues through strategic
acquisitions.
Competition
The
market for medical claims-related products and services is generally highly
competitive and subject to constant change as a result of new product
introductions, technological developments and market activities of industry
participants. We anticipate competition from a number of public and private
companies involved in the business of medical claims transaction processing
and
solutions, including editing engines, claims management and/or practice
management systems, clearinghouses, and medical receivable funding companies.
We
are also aware that other companies offer products and services with some or
many features similar to those that we offer. However, we are not aware of
any
direct competition that offers in one system the full set of comprehensive
features that we offer, including our proprietary combination of automation,
batching and real time functionality, especially as it relates to our planned
workers’
compensation, durable medical equipment and pharmacy claims services. Some
of
the various types of services or systems that offer aspects found in the suite
of products that we offer include the following:
|
|
·
|
Claims
Management/Practice Management Systems:
Claims management and/or
practice management systems are used by all forms of healthcare
providers
and medical billing companies. They offer such services as eligibility
verification, claim scrubbing, claim status inquiry, claim submission
and
remittance, comprehensive reporting, patient statement processing
and
patient scheduling, although we believe only a few offer the full
range of
services that we offer.
|
For
example, AthenaHealth is a Web-based practice management system offering
subscribers all the above services, including a sophisticated rules engine
similar to ours, and charges on a flat monthly fee per provider and/or a
percentage of revenue collected depending on the products and services selected.
AthenaHealth offers products and services that are similar to ours; however,
we
do not believe they offer advance funding features. Most critically, the use
of
AthenaHealth products and services is dependent on the purchase or subscription
to the AthenaHealth practice management system, requiring a change of
technology, management, use of tools and processes in the provider’s
office.
We
understand OrthoMart provides a web based practice management system that
offers services for commercial and government claims, including workers’
compensation type claims. We do not believe OrthoMart provides contract-based
claims analysis, advance funding or automated account reconciliation functions.
Like AthenaHealth and similar competitors, the provision of OrthoMart solutions
may require a significant change in the provider’s office, and continue to
rely on the combination of their system tools and office or external resources
to perform many critical functions, which may be simplified or eliminated
by our
solutions. Our solutions connect into practice management systems and help
enhance and optimize their use by the provider through the performance of
functions outside of the office and by not requiring a fundamental change
of
process and technology in the office.
We
believe other practice management systems, such as the EZDME web based solution,
cater only to processing durable medical equipment type claims and require
the
healthcare provider to purchase or subscribe to an array of ‘‘add-on’’ modules
to take advantage of a complete package of tools and services. By comparison,
our services are packaged as bundled services offering end-to-end solutions.
Additionally, these competitors are marketed as an alternative to the healthcare
provider’s current billing system. Our products and services are designed to
‘‘plug in’’ to, and work in conjunction with, a healthcare provider’s existing
system to simplify and accelerate the means of claims payment.
|
|
·
|
Clearinghouses:
A
clearinghouse functions primarily as a conduit between a healthcare
provider and payer by electronically transmitting claims, or converting
claims to paper format when necessary. Currently, there are many
clearinghouses in operation and competition is fierce amongst
them.
|
Although
many clearinghouses boast about their particular ‘‘claim scrubbing’’ features,
these are typically limited to the most basic editing functions, namely
validating for format and completeness. Some clearinghouses claim to maintain
or
access payer specific databases. Such databases allow potential editing
enhancements, but not analysis of claims prior to submission. They also are
not
verifying and fixing claims against specific contracts, rules and fee schedules
applicable to the specific provider and particular claim. One advantage
clearinghouses do have is their ability to meet the specific data requirements
of designated payers. However, we offer this same advantage, by contracting
directly with clearinghouses such as Emdeon and including their value added
services with our own. The end result is that all the unique features offered
by
clearinghouses are passed on to our clients, eliminating the need for a
healthcare provider’s separate clearinghouse submission and
expense.
One
competitor, Providerpay.com, claims it will process a healthcare provider’s
submissions against payer-specific edits, send the claim on to the payer,
advance funds on a line of credit and deposit those funds into the provider’s
operating account within two business days. Providerpay.com also claims to
process the payment and deposit it to the provider’s account. The healthcare
provider may access certain information regarding the history of submitted
claims, including claims status.
Providerpay.com’s
website states that Providerpay.com is a cooperative effort of P5, Inc. and
a
bank, and involves technology that may be patent protected or patent pending.
Providerpay.com is advertised as ‘‘complete payment solutions’’.
Providerpay.com
appears to have some Web-based tools for performing data-based edits, like
other
clearinghouses, and then funding on a line of credit with a bank. There is
no
indication the edits are based on actual payer contracts or an outsourced
contract management system with automated, batched and/or real time
functionality. There is no indication of eligibility, pre-certification or
referral analysis. The loan is not advertised as a revolving line of credit,
but
rather a more conventional type of loan as described below. Similarly, it is
unclear Providerpay.com automates/batches reconciliation, settlement and account
management for all providers and payers, or posts critical information back
to
the provider’s practice management system. Rather, its website and published
online help documentation seems to indicate the potential for extensive user
interaction with its system. This user intervention may include providers
performing their own reconciliation and sending and managing claims through
multiple sources and clearinghouses. Finally, there is no indication of billing
or collection services, either as a separate or integrated feature of their
system. Additionally, Providerpay.com’s website does not indicate funding or
electronic submission and/or remittance reconciliation for workers’
compensation, durable medical equipment and pharmacy claims.
|
|
·
|
Editing
Engines:
Some
form of ‘‘editing engine’’ is integrated into most practice management or
claims management systems, as well as clearinghouses. These engines
allow
healthcare providers to submit ‘‘cleaner’’ claims to payers, thereby
reducing the percentage of rejections, reductions or denials. The
significant difference with most editing engines, however, is that
the
healthcare provider maintains them, which can be costly and time
consuming. Our clients do not have to continually monitor and update
the
rules engine to ensure the proper edits are in
place.
|
|
|
·
|
Medical
Receivables Funding:
Until
recently, a healthcare provider’s options for immediate cash flow were
mostly limited to bank loans based on personal credit and personal
guarantees, sales of claims to factoring companies, or bundling of
claims
in large volume practices for sale to wealthy private investors.
Collateral security could include medical equipment and office assets
such
as fixtures and furnishings, as well as compensating
balances.
|
A
bank
loan is reflected on a healthcare provider’s balance sheet as a debt, and
requires repayment of the debt with cash. Factoring companies actually purchase
claims from healthcare providers, creating ‘‘off balance sheet’’ funding. This
may seem like an attractive offer and quick solution for healthcare providers;
however, it requires selling a claim for a significantly reduced price, as
the
‘‘purchase’’ amount is determined to a great extent by the estimated risk and
time that it will take for a particular payer to adjudicate or deny payment
of
the claims, as well as allowing for a substantial discount on the claims,
because of the typically significant variation in billing-to-collection ratios
experienced by most healthcare providers.
True
advance funding of medical receivables is a relatively new service in the
healthcare industry. One competitor offering these services is Medical Capital
Financing, which purports to lend up to 85% of the estimated reimbursement
on a
weekly basis, calculated as an aggregate value based on past billing and
collection history. The fees charged to the healthcare provider are also based
on such factors as size of practice, size of weekly receivables, and average
turnaround time. Triad Capital is another competitor. It currently only offers
lending to healthcare providers with net receivables of $50,000 or more, funds
on a weekly basis, and charges a set-up fee with an average fee of 3-4 percent
of the value of every invoice purchased. It will also purchase aged and
charged-off invoices.
First
Capital Funding, Corp. (‘‘First Capital’’) represents a typical medical
receivables funding service. It currently arranges for funding of up to 85%
of
net receivables (as determined by First Capital) within 48 hours. First Capital
merely performs a due diligence audit of outstanding receivables and then finds
a lending source to provide funding. One significant disadvantage of First
Capital is that the healthcare provider has no control over the loaned amounts
each month. The amount is established at the time of application and remains
the
same throughout the term of the contract.
Providerpay.com
offers a funding service with some features bearing some similarity to ours.
Providerpay.com states that it will provide a line of credit within two business
days of a claim passing certain claim edits and submitted only through its
clearinghouse. Interest, guarantee types, asset security and covered payer
claims are undisclosed. Comprehensive integrated claims management and billing
solutions do not appear to be offered. Claims must be funded only through its
clearinghouse and only with a single bank. Our revolving line of credit
capabilities appear more extensive, including in areas critical to the
automation and reduction of administrative workload and human intervention,
as
well as information demanded of a complete claims management and payment
solutions for providers and lenders. For instance, all of our solutions and
services are designed to work with multiple clearinghouses and
lenders.
Despite
the increasing business of medical receivable purchasing and/or funding
services, we distinguish ourselves by offering a short term (120 days or less)
revolving line of credit where the primary security is intended to be the claims
receivables and not other provider assets or personal credit. As an asset-based
loan, Medicare claims can be leveraged. Since claims are flagged and scrubbed
before submission, and are valued against actual payer contracts and rules,
valuation is enhanced, risk is reduced and costs of money can be more
competitive. Since we can offer to advance funds to healthcare providers in
as
little as five business days or less from the date of claim submission for
payment, coupled with low administrative fees and a proprietary combination
of
automated or batched reconciliation, posting, settlement, reporting and billing
solutions, we believe this service to be a major marketing edge. Our new
offerings extend this edge to the very unique workers’ compensation, durable
medical equipment and pharmacy claims processing, purchasing and/or funding
market.
Competitive
Analysis - Feature Comparison Chart
|
Features
|
|
MDwerks
|
|
ProviderPay
|
|
EMDEON
|
|
ATHENA
|
|
OrthoMart
|
|
EZDME
|
|
HIPAA
Compliant EDI
|
|
X
|
|
X
|
|
X
|
|
X
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processes
commercial and Medicare claims
|
|
X
|
|
X
|
|
X
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processes
Worker’s Comp and Personal Injury claims
|
|
X
|
|
|
|
X
|
|
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processes
DME and Pharmacy claims
|
|
X
|
|
|
|
X
|
|
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic
claim submission to Medical Insurance companies
|
|
X
|
|
X
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic
claim submission to Causality Insurance companies
|
|
X
|
|
|
|
|
|
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
claim status inquiry
|
|
X
|
|
X
|
|
X
|
|
X
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
patient eligibility verification
|
|
X
|
|
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully
managed network Payer Contract Service
|
|
X
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-depth
real-time clinical claim edits and error analysis
|
|
X
|
|
X
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automatic
data table updates (CPTs, ICDs, and Fee Schedules)
|
|
X
|
|
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
reporting and statistical analysis
|
|
X
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic
remittance processing (ERA)
|
|
X
|
|
X
|
|
X
|
|
X
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automatic
payment posting and reconciliation
|
|
X
|
|
|
|
X
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding/Purchasing
of medical receivables
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
Web-based platform (ASP)
|
|
X
|
|
X
|
|
X
|
|
X
|
|
X
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
conversion of all paper ERA’s to electronic HIPAA compliant
EDI
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Billing and Collections Service
|
|
X
|
|
|
|
|
|
X
|
|
|
|
|
History
of the Company
After
5
years of research, development and testing with strategic and ‘‘name brand’’
resources, the designer of Xeni Systems’ products, MEDwerks, LLC, substantially
completed the initial product development cycle for the products offered by
Xeni
Systems. The solutions developed by MEDwerks, LLC were tested with 2 doctors
and
2 banks. In October of 2003, MEDwerks, LLC ceased operations, due to a lack
of
continuing operating capital. In October of 2004, substantially all of the
assets of MEDwerks, LLC were acquired by Xeni Systems pursuant to a Contribution
and Stockholders Agreement (the ‘‘Contribution Agreement’’) in exchange for
MEDwerks, LLC receiving approximately a 67% equity interest in Xeni Systems.
The
purpose of the Contribution Agreement transaction was to launch and market
the
MDwerks System commercially, utilizing a growth oriented management team of
seasoned professionals. Xeni Systems successfully obtained investment and
financing of $450,000 and positioned the technology for demonstration and
pre-commercial sale.
Xeni
Financial was organized in February 2005, to finance providers seeking loans
on
receivables processed through Xeni Systems. Xeni Billing was organized in March
2005, to provide billing services to providers processing their claims through
Xeni Systems.
MDwerks
Global Holdings, Inc. was originally formed under the name Global IP
Communications, Inc., in October 2003, as a provider of telecommunications
products and services. In April 2004, MDwerks Global Holdings, Inc. decided
to
discontinue its telecommunications business and in December 2004, it decided
to
focus on a new line of business in the area of providing insurance claims
transaction solutions and related services through investment in Xeni Systems.
In December 2004, MDwerks Global Holdings, Inc. loaned $250,000 to Xeni Systems
in exchange for a promissory note and in early May 2005, MDwerks Global
Holdings, Inc. invested another $200,000 into Xeni Systems in exchange for
a
promissory note. In late May 2005, the Xeni Companies and MDwerks Global
Holdings, Inc. determined that a holding company structure with MDwerks Global
Holdings, Inc. serving as a holding company and overseeing the business of
the
Xeni Companies provided certain strategic advantages to the Xeni Companies.
In
addition, it also provided the Xeni Companies with access to cash held by
MDwerks Global Holdings, Inc. to continue to fund the business of the Xeni
Companies. As a result, the Xeni Companies became wholly-owned subsidiaries
of
MDwerks Global Holdings, Inc., pursuant to share exchange agreements between
MDwerks and each of the shareholders of the Xeni Companies. Each of the
promissory notes issued by Xeni Systems to MDwerks Global Holding, Inc. was
cancelled in connection with the share exchange.
Western
Exploration, Inc.(later to be known as MDwerks, Inc.) was incorporated in the
State of Delaware on July 22, 2003. From then, until November, 2005, it was
a
resource exploration stage company. In December, 2003, Western Exploration,
Inc.. was presented with the opportunity to purchase a property that potentially
contains a large resource of limestone. Based on such opportunity, Western
Exploration, Inc. carried out research on the limestone market in the province
of British Columbia as well as the Pacific Northwest region of the United
States. Western Exploration, Inc. was unable to obtain adequate financing to
continue its operations as they were conducted and determined to cease
operations.
On
October 12, 2005, Western Exploration, Inc., MDwerks Global Holdings, Inc.
and
MDwerks Acquisition Corp., a Florida corporation (‘‘Acquisition Corp.’’), and
wholly-owned subsidiary of Western Exploration, Inc., entered into an Agreement
of Merger and Plan of Reorganization (the ‘‘Merger Agreement’’) pursuant to
which, on November 16, 2005, Acquisition Corp. was merged with and into MDwerks
Global Holdings, Inc., with MDwerks Global Holdings, Inc. surviving as a
wholly-owned subsidiary of Western Exploration, Inc. (the ‘‘Merger’’). MDwerks,
Inc. acquired all of the outstanding capital stock of MDwerks Global Holdings,
Inc. in exchange for issuing shares of Common Stock of Western Exploration,
Inc.
to MDwerks Global Holdings Inc.’s stockholders at a ratio of 0.158074 shares of
Common Stock for each share of MDwerks Global Holdings, Inc. common stock
outstanding at the effective time of the Merger. Upon the closing of the Merger,
we changed our corporate name from ‘‘Western Exploration, Inc.’’ to ‘‘MDwerks,
Inc.’’ and succeeded to the business of MDwerks Global Holdings, Inc. as our
sole line of business under the direction of MDwerks Global Holdings, Inc.’s
management.
In
connection with the Merger described above, we completed the closing of a
private offering of our securities in which, through December 31, 2005, we
sold
an aggregate of approximately 64 Units to accredited investors in the
Private Placement, pursuant to the terms of a Confidential Private Placement
Memorandum dated June 13, 2005, as supplemented. Each Unit consisted of 10,000
shares of common stock and a warrant to purchase 10,000 shares of common stock.
Each warrant entitles the holder to purchase 10,000 shares of common stock
for
$2.50 per share. The Units were offered by Brookshire Securities Corporation,
as
placement agent, pursuant to a placement agent agreement under which the
placement agent, in addition to a percentage of gross proceeds of the Private
Placement, received 96,000 shares of common stock and a warrant to purchase
up
to an aggregate of 64,000 shares of common stock. We realized gross proceeds
from the Private Placement of $1,600,000, before payment of commissions and
expenses.
On
June
28, 2006 we completed a private placement offering of units, pursuant to the
terms of a Confidential Private Placement Memorandum dated February 1, 2006.
Each unit consisted of one share of Series A Convertible Preferred Stock and
a
detachable three-year Series A Warrant to purchase twenty thousand (20,000)
shares of our common stock at an exercise price of $3.00 per share (‘‘Series A
Preferred Units’’). We sold an aggregate of 28.3 Series A Convertible Preferred
Units to accredited investors in this private placement. As of December 31,
2007, 26.3 shares of Series A Convertible Preferred Stock had been converted
into 526,667 shares of common stock. The Series A Preferred Units were offered
by Brookshire Securities Corporation, as placement agent. The placement agent,
in addition to a percentage of gross proceeds of the second private placement,
received 170,000 shares of common stock and, for nominal consideration, a
warrant to purchase up to an aggregate of 56,667 shares of common stock at
an
exercise price of $1.50 per share. We realized gross proceeds from the second
private placement of $1,700,000, before payment of commissions and
expenses.
Pursuant
to the Private Placement Subscription documents, we agreed to file a
registration statement with the Securities and Exchange Commission to register
the shares and warrants held by the selling security holders for resale. That
registration statement was declared effective on December 7, 2006. We have
agreed to maintain the effectiveness of the registration statement from the
effective date through and until the earlier of two years following December
31,
2005 (which was the termination date of the first private placement described
above) or the earlier of two years following June 28, 2006 (which was the
effective date of the termination of the second private placement described
above) and such time as exempt sales pursuant to Rule144(k) under the Securities
Act of 1933 (‘‘Rule 144(k)’’) may be permitted for purchasers of
Units.
On
August
24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566,
after expenses) in connection with a financing provided by an unrelated party.
These notes bore interest at 7% per year, and both interest and principal were
paid in full on October 1, 2007.
On
August
24, 2006, we received gross proceeds of $110,000 (net proceeds of $100,000,
after expenses) in connection with a financing provided equally by two unrelated
parties. These notes bore interest at 10% per year, and both interest and
principal were paid in full on the January 21, 2007 maturity date
On
each
of October 20, 2006 and November 9, 2006 we received net proceeds of $2,375,000
for total net proceeds of $4,750,000 in the aggregate in connection with a
financing provided by Gottbetter Capital Master, Ltd., an unaffiliated
accredited institutional investor (”Gottbetter’’). Pursuant to the terms of a
Securities Purchase Agreement that we entered into with Gottbetter in connection
with the financing, we issued two senior secured convertible promissory notes
to
Gottbetter, each in the original principal amount of $2,500,000 (each a ‘‘Senior
Note’’ and collectively, the ‘‘Senior Notes’’), five year Series D Warrants to
purchase 375,000 shares of our common stock at a price of $2.25 per share
(‘‘Series D Warrants’’) and five year Series E Warrants to purchase 375,000
shares of our common stock at a price of $3.25 per share (‘‘Series E
Warrants’’).
The
Gottbetter Securities Purchase Agreement provides to Gottbetter, for so long
as
the Senior Notes remain outstanding, a right of first refusal to purchase
securities offered by MDwerks, Inc., except for the issuance of Excluded
Securities (as defined in the Gottbetter Securities Purchase Agreement). The
Gottbetter Securities Purchase Agreement also contains restrictions against
issuing shares of our Common Stock for a price per share that is less than
the
price at which our Common Stock is traded on any national exchange or market.
This restriction also covers the issuance of convertible securities with an
exercise or conversion price that is lower than the price at which our Common
Stock is traded on any national exchange or market.
The
Senior Notes bear interest at the rate of 8% per year, payable monthly in
arrears, commencing December 1, 2006. Subject to certain mandatory prepayment
provisions, and events of default, unpaid principal and interest due under
the
Senior Notes, as amended, will become due and payable on January 1, 2011. The
Senior Notes require monthly principal payments until the January 1, 2011
maturity date. The Senior Notes are convertible, at the option of the holder,
into shares of our common stock at a price of $2.25 per share (the ‘‘Conversion
Price’’), subject to adjustment for stock splits, stock dividends, or similar
transactions, sales of our common stock at a price per share below the
Conversion Price or the issuance of convertible securities or options or
warrants to purchase shares of our common stock at an exercise price or
conversion price that is less than the Conversion Price.
The
Senior Notes provide for optional redemption by us at a redemption price equal
to 110% of the face amount redeemed plus accrued interest.
Events
of
default will result in a default rate of interest of 15% per year and the holder
may require that the Senior Note be redeemed at the Event of Default Redemption
Price (as defined in the Senior Notes). The Event of Default Redemption Price
includes various premiums depending on the nature of the event of default.
Events of default include, but are not limited to,: (i) the failure to keep
the
registration statement covering shares underlying the Senior Notes, the Series
D
Warrants and the Series E Warrants effective, as required by the Registration
Rights Agreement that we entered into with Gottbetter; (ii) suspension from
trading on the OTC Bulletin Board; (iii) failure to timely deliver shares in
the
event the Senior Notes are converted; (iv) failure to reserve adequate shares
for conversion of the Senior Notes; (v) failure to pay principal, interest
or
late charges when due; (vi) any default in the payment of other indebtedness
in
excess of $250,000; (vii) bankruptcy events; and (viii) judgments against us
in
excess of $250,000.
The
Senior Notes also provide that in the event of a Change of Control (as defined
in the Senior Notes), the holder may require that such holder's Senior Note
be
redeemed at the Change of Control Redemption Price (as defined in the Senior
Notes). The Change of Control Redemption Price includes certain premiums in
the
event a Senior Note is redeemed in the event of a Change of
Control.
The
Series D Warrants are exercisable at a price of $2.25 per share for a period
of
five years from the date of issuance. The Series D Warrants may be exercised
on
a cashless basis. The exercise price will be subject to adjustment in the event
of subdivision or combination of shares of our common stock and similar
transactions, distributions of assets, issuances of shares of common stock
with
a purchase price below the exercise price of the Series D Warrants, issuances
of
any rights, warrants or options to purchase shares of our common stock with
an
exercise price below the exercise price of the Series D Warrants, issuances
of
convertible securities with a conversion price below the exercise price of
the
Series D Warrants.
The
Series E Warrants, as amended, are exercisable at a price of $2.25 per share
for
a period of five years from the date of issuance. The Series E Warrants may
be
exercised on a cashless basis. The exercise price will be subject to adjustment
in the event of subdivision or combination of shares of our common stock and
similar transactions, distributions of assets, issuances of shares of common
stock with a purchase price below the exercise price of the Series E Warrants,
issuances of any rights, warrants or options to purchase shares of our common
stock with an exercise price below the exercise price of the Series E Warrants,
issuances of convertible securities with a conversion price below the exercise
price of the Series E Warrants.
We
entered into a Security Agreement with Gottbetter . The Security Agreement,
as
amended, provides for a lien in favor of Gottbetter on all of our assets except
for certain assets of our subsidiary, Xeni Financial.
Our
subsidiaries entered into a Guaranty Agreement with Gottbetter, pursuant to
which they have agreed to unconditionally guaranty our obligations under the
Senior Notes and the documents entered into by us in connection the sale of
the
Senior Notes.
We
also
entered into a Registration Rights Agreement and amendments thereto with
Gottbetter. Pursuant to the amended Registration Rights Agreement, we included
in our registration statement that was declared effective on December 7, 2006,
2,777,778 shares underlying the Senior Notes. In addition to it being an event
of default under the Senior Notes, if we fail to maintain the effectiveness
of
the registration statement as required by the Registration Rights Agreement,
the
exercise price of the Series D and the Series E Warrants will immediately be
reduced by $0.25 per share and then reduced by an additional $0.10 per share
for
each thirty day period thereafter that the registration statement is not filed
or effective, as the case may be, up to a maximum reduction of
$0.65.
On
August
31, 2007 we received net proceeds of $250,000 in connection with a financing
provided by Vicis Capital Master Fund (“Vicis”), an unaffiliated accredited. In
connection with the financing, we issued a 31-day Convertible Note to Vicis
in
the original principal amount of $250,000 (the “Vicis Convertible
Note”).
On
September 28, 2007 we received net proceeds of $1,633,190, after repayment
of the Vicis Convertible Note, interest and closing expenses, in connection
with
a financing provided by Vicis. In connection with the financing, pursuant to
the
terms of a Securities Purchase Agreement, we issued 200 shares of Series B
Convertible Preferred Stock (“Series B Preferred Stock”), a seven year Series F
Warrant to purchase 1,500,000 shares of our common stock at a price of $2.25
per
share and a seven year Series G Warrant to purchase 1,000,000 shares of our
common stock at a price of $2.50 per share.
The
following are summary descriptions of the material agreements entered into
in
connection with the transaction described above and such descriptions are
qualified in its entirety by reference to the full agreements filed either
as
exhibits hereto or previous SEC filings.
Securities
Purchase Agreement
The
Securities Purchase Agreement provided for the sale of (i) 200 shares of Series
B Preferred Stock (ii) Series F Warrants to purchase an aggregate of 1,500,000
shares of Common Stock and (iii) Series G Warrants to purchase an aggregate
of
1,000,000 shares of Common Stock. Pursuant to the Securities Purchase Agreement,
the aggregate purchase price for the Series B Preferred Stock, the Series F
Warrants and the Series G Warrants was $2 million. Payment was made by
$1,691,445 in cash, the conversion of $251,555 in principal and interest of
the
Vicis Convertible Note and deduction of certain closing expenses.
The
Securities Purchase Agreement provides to Vicis, for a period of eighteen months
after the closing date, a right of first refusal with respect to subsequent
placements of equity or equity equivalent securities by us.
The
Securities Purchase Agreement contains certain restrictions on our ability
to:
(i) declare dividends; (ii) reclassify, combine or reverse split our Common
Stock; (iii) incur liens; (iii) incur certain types of indebtedness; (iv) issue
classes of securities senior to, or
pari
passu
with,
the Series B Preferred Stock; (v) liquidate or sell a substantial portion of
our
assets; (vi) enter into transactions that would result in a Change of Control
(as defined in the Securities Purchase Agreement); (vi) amend our charter
documents in a way that adversely affects the rights of Vicis; (vii) except
through Xeni Financial, make loans to, or advances or guarantee the obligations
of, third parties; (viii) make intercompany transfers; (ix) engage in
transactions with officers, directors, employees or affiliates; (x) divert
business to other business entities; (xi) make investments in securities or
evidences of indebtedness (excluding of loans made by Xeni Financial) in excess
of $250,000 in a calendar year; and (xii) file registration
statements.
Events
of
default under the Securities Purchase Agreement include: (i) default in the
payment of dividends on or the failure to redeem the Series B Preferred Stock
when due; (ii) failure to perform the covenants contained in the Securities
Purchase Agreement or the related transaction documents; (iii) failure to file,
or cause to become effective, a registration statement covering the shares
of
Common Stock underlying the Series F Warrants, the Series G Warrants and the
Series B Preferred Stock within the timeframes required by the Registration
Rights Agreement or the failure to keep such registration effective as required
by the Registration Rights Agreement; (iv) suspension from listing on the OTC
Bulletin Board or other exchange for 10 consecutive trading days; (v) the
failure to timely deliver shares of Common Stock upon conversion of the Series
B
Preferred Stock or exercise of the Series F Warrants or the Series G Warrants;
(vi) default in the payment of indebtedness in excess of $250,000; (vii) a
judgment entered against us in excess of $250,000; and (viii) insolvency,
bankruptcy and similar circumstances.
The
Securities Purchase Agreement also contains customary representations,
warranties, covenants and indemnification provisions for transactions of the
type entered into between the Company and Vicis.
Series
B Preferred Stock
The
Certificate of Designations, which designates the rights, preferences,
privileges and terms of the Series B Preferred Stock (the “Certificate of
Designations”) provides that the Series B Preferred Stock will rank senior to
other classes of Common Stock and preferred stock that are currently outstanding
as to distributions of assets upon liquidation, dissolution or winding up and
as
to payment of dividends on shares of equity securities.
Each
share of Series B Preferred Stock is entitled to cumulative dividends at the
annual rate of 8% of the stated value of the Series B Preferred Stock. The
stated value of each share of Series B Preferred Stock is $10,000. Dividends
are
payable in cash or additional shares of Series B Preferred Stock.
Each
share of Series B Preferred Stock is convertible, at any time, at the option
of
the holder, into the number of shares of Common Stock determined by dividing
the
stated value of the Series B Preferred Stock by the conversion price. The
initial conversion price of the Series B Preferred Stock is $2.25 per
share.
The
conversion price is subject to adjustment for stock splits, dividends,
subdivisions, distributions, reorganizations and similar transactions.
Furthermore, the conversion price is also subject to adjustment in the event
of
the issuance of securities for a price below the conversion price then in effect
or the issuance of convertible securities with an exercise or conversion price
that is less than the then current conversion price for the shares of Series
B
Preferred Stock.
To
the
extent that any shares of Series B Preferred Stock remain outstanding on
September 28, 2008, each holder thereof shall have the option to either require
us to redeem such holder’s shares of Series B Preferred Stock or convert such
holder’s shares of Series B Preferred Stock into shares of Common Stock at the
conversion price then in effect.
Holders
of Series B Preferred Stock have the option to require us to redeem shares
of
Series B Preferred Stock in the event of a Change of Control (as defined in
the
Certificate of Designations).
Holders
of Series B Preferred Stock are entitled to vote on matters submitted to our
stockholders as if the Series B Preferred Stock had been converted into shares
of Common Stock pursuant to the terms of the Certificate of Designations. To
the
extent the holders of Series B Preferred Stock are required to vote separately,
as a class, the affirmative vote of the holders of a majority of the outstanding
shares of Series B Preferred Stock will be required to approve the matter to
be
voted upon.
Series
F Warrants
The
Series F Warrants are exercisable at a price of $2.25 per share for a period
of
seven years from the date of issuance. The Series F Warrants may be exercised
on
a cashless basis. The exercise price will be subject to adjustment in the event
of subdivision or combination of shares of our common stock and similar
transactions, distributions of assets, issuances of shares of common stock
with
a purchase price below the exercise price of the Series F Warrants, issuances
of
any rights, warrants or options to purchase shares of our common stock with
an
exercise price below the exercise price of the Series F Warrants, issuances
of
convertible securities with a conversion price below the exercise price of
the
Series F Warrants.
Series
G Warrants
The
Series G Warrants are exercisable at a price of $2.50 per share for a period
of
seven years from the date of issuance, with the same provisions as the Series
F
warrants.
Security
Agreement
We,
along
with our subsidiaries MDwerks, Xeni Medical, Xeni Financial, Xeni Billing,
and
PPS entered into Security Agreements with Vicis. The Security Agreements provide
for liens in favor of Vicis on all of our assets, including the assets of each
of our subsidiaries, except for the accounts receivable and certain contract
rights of Xeni Financial Services, Corp.
Guaranty
Agreement
Our
subsidiaries, MDwerks, Xeni Medical, Xeni Financial, Xeni Billing, and
PPS entered into Guaranty Agreements with Vicis, pursuant to which they
have agreed to unconditionally guaranty our obligations under the Series B
Preferred Stock and the documents entered into by us in connection with the
sale
of the Series B Preferred Stock.
Registration
Rights Agreement
We
entered into a Registration Rights Agreement with Vicis. The Registration Rights
Agreement requires us to file a registration statement covering the resale
of
the shares underlying the Series B Preferred Stock, the Series F Warrants and
the Series G Warrants within 365 calendar days after the closing date. We are
required to cause such registration statement to become effective on or before
the date which is 485 calendar days after the filing of such registration
statement. In addition to it being an event of default under the Securities
Purchase Agreement, if we fail to file such registration statement in the time
frame required, fail to cause it to become effective in the time frame required,
or fail to maintain the effectiveness of the registration statement as required
by the Registration Rights Agreement, we will be required to pay a cash penalty
in the amount of 2% of the aggregate stated value of the Series B Preferred
Stock for each month, or part thereof, that the registration statement is not
filed or effective, as the case may be. The cash penalty is limited to 15%
of
the aggregate stated value of the Series B Preferred Stock.
The
Registration Rights Agreement also provides for piggyback registration
rights.
Amendment,
Consent & Waiver Agreement
In
connection with the transactions described above, we entered into a Consent
and
Waiver Agreement with Gottbetter (the “Consent and Waiver Agreement”), whereby,
among other things: (i) Gottbetter consented to the transactions described
above, (ii) Gottbetter agreed to delay, until February 1, 2008, principal
payments under the Senior Secured Convertible Note issued by the Corporation
to
Gottbetter on October 19, 2006 (the “October Note”) and under the Senior Secured
Convertible Note issued by the Corporation to Gottbetter on November 9, 2006
(the “November Note”), (iii) Gottbetter agreed that its right of first refusal
with respect to subsequent financings will be on a
pro
rata, pari passu
basis
with Vicis and (v) Gottbetter released its security interest in certain
collateral of Xeni Financial.
Also
in
connection with the transactions described above, the conversion price of the
Gottbetter Series E Warrants were reduced to $2.25 per share subject to further
adjustment, and the number of Warrant Shares for which such warrants may be
exercised were increased to 541,666 and 2/3 shares subject to further
adjustment.
In
consideration of Gottbetter entering into the Consent and Waiver Agreement,
we
issued to Gottbetter additional Series D Warrant to purchase 500,000 shares
of
our Common Stock.
Amended
& Restated Notes
In
order
to memorialize the extension of the principal payment date to February 1, 2008
in the October Note and the November Note, we issued to Gottbetter an amended
and restated October Note and an amended and restated November
Note.
On
December 3, 2007 we received net proceeds of $575,000 in connection with a
financing provided by Vicis. In connection with the financing, we issued a
Convertible Note to Vicis in the original principal amount of $575,000 (the
“Note”). The Note bears interest at the rate of 8% per year. Subject to certain
prepayment provisions, unpaid principal and interest due under the Note will
become due and payable on December 2, 2008.
On
January 18, 2008, we received net proceeds of $500,000 in connection with a
financing provided by Vicis. In connection with the financing, we and Vicis
entered into a Securities Purchase Agreement, dated January 18, 2008 (the
“January Securities Purchase Agreement”), pursuant to which we issued to Vicis
50 shares of Series B Preferred Stock, a Series F Warrant to purchase 375,000
shares of our common stock at a price of $2.25 per share and a seven year Series
G Warrant to purchase 250,000 shares of our common stock at a price of $2.50
per
share.
The
Securities Purchase Agreement, dated January 18, 2008, by and between Vicis
and
us (the “January Securities Purchase Agreement”) provided that our obligations
to Vicis under the Series B Preferred Stock, the January Securities Purchase
Agreement and the various transaction documents entered into in connection
with
the January Securities Purchase Agreement (the “January Transaction Documents”)
are secured by a lien on all of our assets pursuant to the Security Agreement,
dated September 28, 2007, between us and Vicis.
The
January Securities Purchase Agreement further provided that our obligations
under the Series B Preferred Stock, the January Securities Purchase Agreement
and the January Transaction Documents are guaranteed by each of our subsidiaries
pursuant to the terms of the Guaranty Agreements previously entered into between
Vicis and each of our subsidiaries in September 2007.
The
January Securities Purchase Agreement also provided that the guaranty
obligations of our subsidiaries in connection with the January Securities
Purchase Agreement and the January Transaction Documents are secured by the
liens on all of the assets of each our subsidiaries, except for the accounts
receivable and certain contract rights of Xeni Financial Services, Corp.,
created pursuant to the Security Agreements, previously entered into by and
between our subsidiaries and Vicis in September 2007.
In
connection with the sale of the Series B Preferred Stock, we amended the
Registration Rights Agreement previously entered into, by and between Vicis
and
us in September 2007, pursuant to which we agreed, in addition to registering
the securities previously covered by such Registration Rights Agreement, to
register for resale, the shares of our common stock into which the Series B
Preferred Stock sold pursuant to the January Securities Purchase Agreement
is
convertible and the shares of our common stock for which the Series F Warrants
and the Series G Warrants sold pursuant to the January Securities Purchase
Agreement are exercisable.
On
March
1, 2008, the Company and Gottbetter amended the Senior Notes to extend the
maturity date of the Senior Notes to January 1, 2011 and delay principal
payments until March 1, 2008, if the Company is able to secure additional
financing by March 31, 2008. If the Company is unable to secure additional
financing by March 31, 2008, the amendment to the Senior notes will be void
and
of no force and effect. In consideration of the amendment to the Senior Notes,
if we are able to obtain at least $5,000,000 in additional financing, MDwerks,
Inc. will issue to Gottbetter 2,000,000 warrants at an exercise price to be
determined at the time of the financing. We are in discussions with Vicis
regarding the provision of additional financing.
Corporate
Information Regarding the Company and its Subsidiaries
MDwerks,
Inc. is a corporation, organized under the laws of the State of Delaware,
originally formed on July 22, 2003.
MDwerks
Global Holdings, Inc. is a corporation, organized under the laws of the State
of
Florida, originally formed on October 23, 2003.
Xeni
Systems, Inc. is a corporation organized under the laws of the State of
Delaware, originally formed on July 21, 2004.
Xeni
Financial Services Corporation is a corporation organized under the laws of
the
State of Florida, originally formed on February 3, 2005.
Xeni
Medical Billing Corp. is a corporation organized under the laws of the State
of
Delaware, originally formed on March 2, 2005.
Patient
Payment Solutions, Inc. is a corporation organized under the laws of the State
of Florida, originally formed on May 30, 2007.
Our
principal executive office is located at Windolph Center, Suite I, 1020 NW
6th Street, Deerfield Beach, Florida 33442 and our telephone number is (954)
389-8300. Our website address is www.mdwerks.com.
Employees
We
employ
approximately 16 people who devote their full business time to our activities
and 1 person who devotes some of their business time to our
activities.
Intellectual
Property
A
United
States patent application regarding certain aspects of our systems was
filed by our predecessor, MEDwerks, LLC, on April 15, 2002. The US Patent Office
has
recently
issued
an office action indicating that it will not allow a patent based upon
our
current
claims
.
Our
patent counsel, DLA Piper
US
LLP is in the process of modifying
our
patent application
claims
based
upon the US Patent Office's action and
will
submit a
response to the office action. If the response from the US Patent Office to
our
modified
claims is
unfavorable or only partially successful, the process may be extended up to
3 years and we could incur substantial
expenses
in prosecuting the patent. We plan to undertake prosecution of the patent filing
to conclusion, if practical and economical.
Properties
The
Company sub-leased its facility, on a month-to-month basis, under a master
lease
expiring July 2008. Rent expense for the year ended December 31, 2007 was
$83,772. On February 1, 2008, the Company was assigned the master lease and
a
5-year lease option was exercised which extends the master lease until June
2013.
Government
Regulation
See
Risk
Factors - ‘‘We are subject to substantial government regulations.’’
RISK
FACTORS
We
have a very limited operating history, making it difficult to accurately
forecast our revenues and appropriately plan our
expenses.
We
began
operations as Xeni Systems, when, in October 2004, Xeni Systems acquired
substantially all of the assets of MEDwerks, LLC. MEDwerks, LLC, commenced
operations in 2000 and focused the majority of its capital and time developing
software programs for the medical transaction system employed by us. From its
inception, MEDwerks, LLC incurred substantial net losses in each fiscal year
of
operation. MEDwerks, LLC closed down its business operations in October 2003,
before ever launching its products and services commercially. Xeni Financial
was
formed in February 2005 and currently provides its products and services only
to
customers of Xeni Systems. Xeni Billing was formed in March 2005 and currently
provides its products and services only to customers of Xeni Systems. MDwerks
Global Holdings, Inc. was originally formed in October 2003 for the purpose
of
operating a business as a provider of telecommunications products and services.
In April 2004, MDwerks Global Holdings, Inc. discontinued its telecommunications
business and in December 2004, it began to focus on developing the business
of
Xeni Systems. Pursuant to share exchange agreements, MDwerks Global Holdings,
Inc. acquired Xeni Systems, Xeni Financial and Xeni Billing as wholly-owned
subsidiaries. In November, 2005, we acquired MDwerks Global Holdings, Inc.
as a
wholly-owned subsidiary and we operate the businesses of MDwerks Global
Holdings, Inc. and the Xeni Companies as our sole lines of business.
Accordingly, we should be viewed as an entity with a very limited operating
history.
Because
we have had a limited operating history, it is difficult to accurately forecast
our revenues and expenses. Additionally, our operations will continue to be
subject to risks inherent in the establishment of a developing new business,
including, among other things, efficiently deploying our capital, developing
our
product and services offerings, developing and implementing our marketing
campaigns and strategies and developing awareness and acceptance of our
products. Our ability to generate future revenues will be dependent on a number
of factors, many of which are beyond our control, including the pricing of
other
services, overall demand for our products, market competition and government
regulation. As with any investment in a company with a limited operating
history, ownership of our securities may involve a high degree of risk and
is
not recommended if an investor cannot reasonably bear the risk of a total loss
of his or her investment.
We
have historically incurred net losses and may not be profitable in the future.
In addition, we intend to continue to spend resources on maintaining and
strengthening our business and this may cause our operating expenses to increase
and operating results to decrease.
Our
net
loss attributable to common shareholders for the year ended December 31, 2007
was $9,882,330 and since our inception, our accumulated deficit as of December
31, 2006 was $36,490,240. We expect to continue to incur additional substantial
operating and net losses for the foreseeable future. The profit potential of
our
business model is unproven, and, to be successful, we must, among other things,
develop and market products and services that would be widely accepted by
potential users of such products and services at prices that will yield a
profit. If our products and services cannot be commercially developed and
launched, and do not achieve or sustain broad market acceptance we will not
achieve sufficient revenues to continue to operate our business.
If
we
continue to incur losses in future periods, we may be unable to retain employees
or fund investments in our systems development, sales and marketing programs,
research and development and business plan. There can be no assurance that
we
will ever obtain sufficient revenues to exceed our cost structure and achieve
profitability. If we do achieve profitability, there can be no assurance that
we
may sustain or increase profitability in the future.
The
report of our independent registered public accountants contains the following
statement with which we concur: ‘‘the accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a
going
concern. As discussed in Note 1 to the financial statements, the Company has
suffered recurring losses from operations that raises substantial doubt about
its ability to continue as a going concern.’’
We
will need to raise additional capital in the future and may need to initiate
other operational strategies to continue our
operations.
As
of
December 31, 2007, we had a cash balance of $320,903. The amount of cash
available to us will be insufficient for us to service our current indebtedness
and implement our business plan as anticipated and will require us to seek
additional debt or equity financing in the near future, as we will be unable
to
generate sufficient cash flow from our operations. As our business develops,
we
will need to raise capital through the incurrence of additional long-term or
short-term indebtedness or the issuance of additional equity securities in
private or public transactions in order to complete further investments. This
could result in dilution of existing equity positions, increased interest
expense, decreased net income and diminished shareholder’s value. In addition,
significant capital requirements associated with such investments may impair
our
ability to pay dividends (although we do not anticipate paying any dividends
on
common stock in the foreseeable future) or interest on indebtedness or to meet
our operating needs. There can be no assurance that acceptable financing for
future investments can be obtained on suitable terms, if at all. If we do not
raise additional capital, we may cease to operate as a going
concern.
Competition
from providers of similar products and services could adversely affect our
revenues and financial condition.
We
compete in a rapidly evolving, highly competitive and fragmented market. We
expect competition to intensify in the future. There can be no assurance that
we
will be able to compete effectively. We believe that the main competitive
factors in the medical transactions processing, billing, payment and financing
industry include effective marketing and sales, brand recognition, product
quality, ease of product use, niche marketing and segmentation and value
propositions. Competitive factors also include the features, functionality
and
cost of product and services. Many of our competitors are established,
profitable and have strong attributes in many, most or all of these areas.
They
may be able to leverage their existing relationships to offer alternative
products or services on more attractive terms or with better customer support.
Other companies may also enter our markets with better products or services,
greater financial and human resources and/or greater brand recognition.
Competitors may continue to improve or expand current products and introduce
new
products. We may be perceived as relatively too small or untested to be awarded
business relative to the competition. To be competitive, we will have to invest
significant resources in business development, advertising and marketing. We
may
also have to rely on strategic partnerships for critical branding and
relationship leverage, which partnerships may or may not be available or
sufficient. We cannot assure that we will have sufficient resources to make
these investments or that we will be able to make the advances necessary to
be
competitive. Increased competition may result in fee reductions, reduced gross
margin and loss of market share. Failure to compete successfully against current
or future competitors will result in less revenue and have a material adverse
effect on our business, operating results and financial condition.
If
our technology is not operational and usable it could adversely affect our
business.
Xeni
Financial and Xeni Billing rely almost exclusively on the technology of Xeni
Systems. We believe that neither Xeni Financial nor Xeni Billing can operate
as
a stand-alone business, but will provide products and services that are
ancillary to the products and services of Xeni Systems. As a result, the success
of our business proposition is materially and substantially dependent on the
technology of Xeni Systems (and the availability, operability and use of such
technology in whole or in part). If the technology of Xeni Systems is not
usable, we will be unable to operate, as our systems are dependent upon such
technology.
Our
products and services were designed and built using certain key technologies
and
licenses from a limited number of suppliers. We will depend on these other
companies for software updates, technical support and possibly for system
management or for new product development. Although we believe there might
be
alternative suppliers for some or all of these technologies, it would take
a
significant period of time and money to establish relationships with alternative
suppliers and substitute their technologies for technologies currently being
used. The loss of any of our relationships with these suppliers could result
in
system shut downs and/or the inability to offer services we offer, or intend
to
offer, which could result in a material adverse effect on our business,
operating results and financial condition.
If
our systems fail, it could interrupt operations and could adversely impact
us.
Our
operations are dependent upon our ability to support our highly complex network
infrastructure and avoid damage from fires, earthquakes, floods, hurricanes,
power losses, war, terrorist attacks, telecommunications failures and similar
natural or manmade events. The occurrence of a natural disaster, intentional
or
unintentional human error or action, or other unanticipated problem could cause
interruptions in the services that we provide. Additionally, the failure of
our
third-party backbone providers to provide the data communications capacity
that
we require, as a result of natural disaster, operational disruption or any
other
reason could cause interruptions in the services that we provide. Any damage
or
failure that causes interruptions in our operations could result in loss of
revenues from clients, loss of clients, monetary damage, or increased costs
of
operations, any or all of which could have a material adverse effect on our
business, operating results and financial condition.
If
we do not protect our proprietary technology and intellectual property rights
against infringement or misappropriation and defend against third parties
assertions that we have infringed on their intellectual property rights, we
may
lose our competitive advantage, which could impair our ability to grow our
revenues.
A
United
States patent application regarding certain aspects of our systems was
filed by our predecessor, MEDwerks, LLC, on April 15, 2002. The US Patent Office
has recently issued an office action indicating that it will not
allow a patent based upon our current claims. Our patent counsel, DLA
Piper US LLP is in the process of modifying our patent
application claims based upon the US Patent Office's action
and will submit a response to the office action. If the response from the
US Patent Office to our modified claims is unfavorable or only
partially successful, the process may be extended up to 3 years and we
could incur substantial expenses in prosecuting the patent. We plan to undertake
prosecution of the patent filing to conclusion, if practical and
economical.
There
is
no assurance that the patent application will be successfully completed and
if
completed, there can be no assurance that the patent will afford meaningful
protection of our intellectual property rights. Despite efforts to protect
our
intellectual property rights, unauthorized parties may attempt to copy aspects
of our systems or our source code to software or to obtain or use information
that is proprietary. The scope of any intellectual property rights that we
have
is uncertain and is not sufficient to prevent infringement claims against us
or
claims that we have violated the intellectual property rights of third parties.
While we know of no basis for any claims of this type, the existence of and
ownership of intellectual property can be difficult to verify and we have not
made an exhaustive search of all patent filings. If any of our proprietary
rights are misappropriated or we are forced to defend our intellectual property
rights, we will have to incur substantial costs. We may not have the financial
resources to prosecute any infringement claims that we may have or defend
against any infringement claims that are brought against us, or choose to defend
such claims. Even if we do, defending or prosecuting our intellectual property
rights will divert valuable working capital and management’s attention from
business and operational issues.
If
we are unable to retain key personnel it will have an adverse effect on our
business. We do not maintain ‘‘key man’’ life insurance policies on our key
personnel.
Our
operations have been and will continue be dependent on the efforts of Mr. Howard
Katz, our Chief Executive Officer, Mr. Solon Kandel, our President and Mr.
Vincent Colangelo, our Chief Financial Officer and Corporate Secretary. The
commercialization of our products and the development of improvements to our
products and systems, as well as the development of new products is dependent
on
retaining the services of certain technical personnel who were involved in
the
development of MDwerks’ products and services. The loss of key management, the
inability to secure or retain such key legacy personnel with unique knowledge
of
our products and services and the technology and programming employed as part
of
our products and services, the failure to transfer knowledge from legacy
personnel to current personnel, or an inability to attract and retain sufficient
numbers of other qualified management personnel would adversely delay and affect
our business, products and services and could have a material adverse effect
on
our business, operating results and financial condition.
We
do not
have ‘‘key man’’ life insurance policies for Mr. Katz, Mr. Kandel or Mr.
Colangelo. Even if we were to obtain ‘‘key man’’ insurance for Mr. Katz, Mr.
Kandel or Mr. Colangelo of which there can be no assurance, the amount of such
policies may not be sufficient to cover losses experienced by us as a result
of
the loss of Mr. Katz, Mr. Kandel or Mr. Colangelo.
If
we fail to attract skilled personnel it could adversely affect our
business.
Our
future success depends, in large part, on our ability to attract and retain
highly skilled personnel. If we are unable to attract or retain qualified
personnel in the future or there are any delays in hiring required personnel,
particularly technical, sales, marketing and financial personnel, it could
materially adversely affect our business, operating results and financial
condition.
We
will
need to expand our sales operations and marketing operations in order to
increase market awareness of our products and generate revenues. New sales
personnel and marketing personnel will require training and it will take time
to
achieve full productivity. Competition for such personnel is intense. We cannot
be certain that we will successfully attract and retain additional qualified
personnel.
The
use of independent sales representatives or distributors will subject us to
certain risks.
We
presently generate revenue from the efforts of independent sales representatives
and we expect to generate a substantial portion of our revenue from independent
sales representatives or distributors. Such representatives and distributors
may
not be required to meet sales quotas and our ability to manage independent
sales
representatives or distributors to performance standards is unknown. Failure
to
generate revenue from these sales representatives or distributors would have
a
negative impact on our business.
Our
business may subject us to risks related to nationwide or international
operations.
If
we
offer our products and services on a national, or even international, basis,
distribution would be subject to a variety of associated risks, any of which
could seriously harm our business, financial condition and results of
operations.
These
risks include:
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greater
difficulty in collecting accounts
receivable;
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satisfying
import or export licensing and product certification
requirements;
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taxes,
tariffs, duties, price controls or other restrictions on out-of-state
companies, foreign currencies or trade barriers imposed by states
or
foreign countries;
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potential
adverse tax consequences, including restrictions on repatriation
of
earnings;
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fluctuations
in currency exchange rates;
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seasonal
reductions in business activity in some parts of the country or the
world;
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unexpected
changes in local, state, federal or international regulatory
requirements;
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burdens
of complying with a wide variety of state and foreign
laws;
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difficulties
and costs of staffing and managing national and foreign
operations;
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different
regulatory and political climates and/or political
instability;
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the
impact of economic recessions in and outside of the United States;
and
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limited
ability to enforce agreements, intellectual property and other rights
in
foreign territories.
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We
are subject to substantial government regulation which may adversely affect
the
way we conduct our business and the costs of conducting our
business.
The
healthcare industry is highly regulated and is subject to changing political,
economic and regulatory influences. Federal and state legislatures have
periodically considered programs to reform or amend the U.S. healthcare system
at both the federal and state level and to change healthcare financing and
reimbursement systems, such as the Balanced Budget Act of 1997 and the Medicare
Modernization Act of 2003. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates or otherwise
change the environment in which healthcare industry participants operate.
Current or future government regulations or healthcare reform measures may
affect our business. Healthcare industry participants may respond by reducing
their investments or postponing investment decisions, including investments
in
our products and services.
Our
medical billing, lending and collection activities are governed by numerous
federal and state civil and criminal laws. Federal and state regulators use
these laws to investigate healthcare providers and companies that provide
lending, billing and collection services. In connection with these laws, we
may
be subjected to federal or state government investigations and possible
penalties may be imposed, false claims actions may have to be defended, private
payers may file claims against us, and we may be excluded from Medicare,
Medicaid or other government-funded healthcare programs. Some of these laws
may
carry strict liability provisions that impose responsibilities and liabilities
on us without any wrongdoing or negligence on our part.
We
may
become the subject of false claims litigation or additional investigations
relating to our lending, billing and collection activities, even when simply
passing on claims originating from and edited by third parties for content.
Any
such proceeding or investigation could have a material adverse effect on our
business, operating results and financial condition.
Under
the
Health Insurance Portability and Accountability Act of 1996, or HIPAA, final
rules were published regarding standards for electronic transactions as well
as
standards for privacy and security of individually identifiable health
information. The HIPAA rules set new or higher standards for the healthcare
industry in handling healthcare transactions and information, with penalties
for
noncompliance. We have incurred and we will continue to incur costs to comply
with these rules. Compliance with these rules may prove to be more costly than
we currently anticipate. Failure to comply with such rules may have a material
adverse effect on our business and may subject us to civil and criminal
penalties as well as loss of customers.
We
will
rely upon third parties to provide data elements to process electronic medical
claims in a HIPAA compliant format. While we believe we will be fully and
properly prepared to process electronic medical claims in a HIPAA-compliant
format, there can be no assurance that third parties, including healthcare
providers and payers, will likewise be prepared to supply all the data elements
required to process electronic medical claims and make electronic remittance
under HIPAA's standards. We have made and expect to continue to make investments
in product enhancements to support customer operations that are regulated by
HIPAA. Responding to HIPAA's impact may require us to make investments in new
products or charge higher prices.
HIPAA,
in
part, governs the collection, use, storage and disclosure of health information
for the purpose of safeguarding the privacy and security of such information.
Persons who believe health information has been misused or disclosed improperly
may file complaints against offending parties, which may lead to investigation
and potential civil and criminal penalties from Federal or state
governments.
The
passage of HIPAA is part of a wider healthcare reform initiative. We expect
that
the debate on healthcare reform will continue. We also expect that the federal
government as well as state governments will pass laws and issue regulations
addressing healthcare issues and reimbursement of healthcare providers. We
cannot predict whether the governmental-bodies regulators will enact new
legislation and regulations, and, if enacted, whether such new developments
will
have an adverse affect our business, operating results or financial
condition.
The
Gramm
Leach Bliley Act may govern our lending practices as related to safeguarding
personal customer information.
Many
healthcare providers who are potential clients may have existing systems that
do
not generate electronic files in a HIPAA-compliant format, which will limit
the
amount of services we can provide to and the amount of revenues that can be
generated from such healthcare providers.
Many
healthcare providers have practice management systems that do not have
electronic interfaces which produce a HIPAA compliant form. If the interface
doesn't exist, they must purchase a new system from a third party, which may
be
expensive and not a desirable business proposition for such healthcare
providers. If claims cannot be submitted electronically, the claims data must
be
manually entered into our system, which can be time consuming and duplicative
of
work already done by a healthcare provider. Manually entering the data also
subjects claims to greater risk of human error in the data entry process. While
we believe we can provide solutions to healthcare providers to enable them
to
establish electronic interfaces to submit claims electronically in a HIPAA
compliant manner, there can be no assurance healthcare providers will be willing
to implement the solutions that we propose. If healthcare providers can not
supply electronic medical claims and such claims are processed manually rather
than electronically, services that we can provide will be greatly limited and
our ability to generate revenues from such providers will be curtailed which
could result in a material adverse affect on our business, operating results
or
financial condition.
We
may make errors in processing information provided by our clients and, as a
result, we may suffer losses.
We
will
receive detailed information provided by clients. Even if clients provide full
and accurate disclosure of all material information to be submitted as part
of a
claim for payment, such information may be misinterpreted or incorrectly
analyzed. Mistakes by our systems or personnel may cause us to incur liability
to our clients in connection with such mistakes.
Solutions
and services that we offer may subject us to product liability
claims.
Solutions
that we sell may fail to perform in a variety of ways, and services that we
provide may not meet customer expectations, including shipping a product which
is either late, does not meet customer requirements or expectations, or is
lost,
damaged, stolen or corrupted, or which faces frequent Internet service
interruptions, which take it off-line. Such problems would seriously harm our
credibility, market acceptance of our products and the value of our brands.
In
addition, such problems may result in liability for damages arising out of
product liability of our products and services. The occurrence of some of these
types of problems may seriously harm our business, operating results and
financial condition.
Our
systems are subject to certain security risks which can adversely affect our
operations.
Despite
the implementation of security measures, our systems may be vulnerable to
unauthorized access, computer viruses and other disruptive problems. Companies
have experienced, and may experience, interruptions in service as a result
of
the accidental or intentional actions of Internet users, current and former
employees or others. Unauthorized access could also potentially jeopardize
the
security of customers’ and our confidential information stored in our computer
systems, which may result in liability to customers and also may deter potential
customers from using our products and services. Although we intend to continue
to implement industry-standard security measures, such measures have been
circumvented in the past, and there can be no assurance that measures that
we
implement will not be circumvented in the future. Eliminating computer viruses
and alleviating other security problems may require interruptions, delays or
cessation of service to our customers, such interruptions, delays or cessation
of services may result in a loss of customers or subject us to potential
liability for actions out of such interruptions, delays or cessation of
services.
If
we fail to enter into a banking relationship to offer our lending services
it
will limit our ability to provide funding services and it will adversely affect
our business.
We
will
need to enter into agreements with financial institutions to enable us to offer
sufficient funds for the lending services that we plan to offer customers.
The
lending services that we will offer will allow customers to utilize receivables
to receive advance funding from such financial institutions through us. To
date,
we do not have any such agreement with any financial institution. There can
be
no assurance that we will be able to enter into such an agreement with a
financial institution. If we fail to enter into such an agreement with a
financial institution we may not generate sufficient funds to offer our lending
services in a meaningful fashion which could result in a material adverse effect
on our business, operating results and financial condition.
If
we fail to recover the value of amounts that we lend to healthcare providers
it
will adversely affect our business.
With
respect to loans made by us to providers, we expect to experience charge-offs
in
the future. A charge-off occurs when all or part of the principal of a
particular loan is no longer recoverable and will not be repaid. If we were
to
experience material losses on our loan portfolio, it would have a material
adverse effect on our ability to fund our business and to the extent the losses
exceed our provision for loan losses, it could have a material adverse effect
on
our revenues, net income and assets.
Other
commercial finance companies have experienced charge offs. In addition, like
other commercial finance companies, we may experience missed and late payments,
failures by clients to comply with operational and financial covenants in their
loan agreements and client performance below that which it expected when we
originated the loan. Any of the events described in the preceding sentence
may
be an indication that our risk of loss with respect to a particular loan has
materially increased.
We
intend to make loans to privately owned small and medium-sized companies, which
present a greater risk of loss than larger companies.
Our
loan
portfolio will consist primarily of commercial loans to small and medium-sized,
privately owned medical practices, and to vendors and suppliers, such as
diagnostic companies. Compared to larger, publicly owned firms, these companies
generally have more limited access to capital and higher funding costs, may
be
in a weaker financial position and may need more capital to expand or compete.
These financial challenges may make it difficult for clients to make scheduled
payments of interest or principal on loans. Accordingly, advances made to these
types of clients entail higher risks than advances made to companies who are
able to access traditional credit sources.
Numerous
factors may affect a client’s ability to make scheduled payments on its loan,
including the failure to meet its business plan or a downturn in its industry.
In part because of their smaller size, our clients may:
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experience
significant variations in operating
results;
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depend
on the management talents and efforts of a single individual or a
small
group of persons for their success, the death, disability or resignation
of whom could materially harm the client’s financial condition or
prospects;
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have
less skilled or experienced management personnel than larger companies;
or
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could
be adversely affected by policy or regulatory changes and changes
in
reimbursement policies of insurance
companies.
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Accordingly,
any of these factors could impair a client’s cash flow or result in other
events, such as bankruptcy, which could limit that client’s ability to repay its
obligations to us, and may lead to losses in our loan portfolio and a decrease
in our revenues, net income and assets and result in a material adverse effect
on our business, operating results and financial condition.
Our
lack of operating history makes it difficult to accurately judge the credit
performance of our loan portfolio and, as a result, increases the risk that
the
allowance for loan losses may prove inadequate.
Our
lending services depend on the creditworthiness of our clients. While we will
conduct general due diligence and a general review of the creditworthiness
of
each of our clients, this review requires the application of significant
judgment by our management, which judgment may not be correct.
We
will
maintain an allowance for loan losses on our consolidated financial statements
in an amount that reflects our judgment concerning the potential for losses
inherent in our loan portfolio. Because we have not yet recorded any loan
charge-offs, our reserve rate was developed independent of the historical
performance of our loan portfolio. Because our lack of operating history and
the
relative lack of seasoning of our loans make it difficult to judge the credit
performance of our loan portfolio, there can be no assurance that the estimates
and judgment with respect to the appropriateness of our allowance for loan
losses are accurate. Our allowance may not be adequate to cover credit losses
in
our loan portfolio as a result of unanticipated adverse changes in the economy
or events adversely affecting specific clients, industries or markets. If our
allowance for loan losses is not adequate, our net income will suffer, and
our
financial performance and condition could be significantly
impaired.
We
may not have all of the material information relating to a potential client
at
the time that we make a credit decision with respect to that potential client,
or at the time we advance funds to the client which may subject us to a greater
risk of loss on loans that we make.
We
may
suffer losses on loans or make advances that we would not have made if we had
all of the material information about clients.
There
is
generally no publicly available information about the privately owned companies
to which we will typically lend. Therefore, we must rely on our clients and
the
due diligence efforts of our employees to obtain the information that we will
consider when making credit decisions. To some extent, our employees depend
and
rely upon the management of these companies to provide full and accurate
disclosure of material information concerning their business, financial
condition and prospects. If our employees do not have access to all of the
material information about a particular client’s business, financial condition
and prospects, or if a client’s accounting records are poorly maintained or
organized, we may not make a fully informed credit decision which may lead,
ultimately, to a failure or inability to recover the loan in its
entirety.
We
may make errors in evaluating accurate information reported by our clients
and,
as a result, we may suffer losses on loans or advances that we would not have
made if we had properly evaluated the information.
We
intend
to make loans primarily secured by claims receivable and not based on detailed
financial information provided to us by our clients or personal creditworthiness
or personal credit guarantees. Even if clients provide us with full and accurate
disclosure of all material information concerning their businesses, and even
if
we require personal credit guarantees from our clients, we may misinterpret
or
incorrectly analyze credit performance related information. Mistakes by our
staff may cause us to make loans that we otherwise would not have made, to
fund
advances that we otherwise would not have funded or result in losses on one
or
more existing loans.
A
client’s fraud could cause us to suffer losses.
A
client
could defraud us by, among other things:
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directing
the proceeds of collections of its accounts receivable to bank accounts
other than established lockboxes or re-directing elsewhere governmental
account sweeps that are supposed to go from client bank accounts
to our
lockboxes;
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creating
and submitting false, inaccurate or misleading medical
claims;
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failing
to accurately record accounts receivable
aging;
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overstating
or falsifying records creating or showing accounts receivable;
or
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providing
inaccurate reporting of other financial
information.
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The
failure of a client to accurately create and submit claims or report its
financial position, compliance with loan covenants or eligibility for additional
borrowings could result in the loss of some or the entire principal of a
particular loan or loans including, in the case of revolving loans, amounts
we
may not have advanced had we possessed complete and accurate
information.
Our
concentration of loans to a limited number of borrowers within a particular
industry, such as the healthcare industry, could impair our revenues, if the
industry were to experience economic difficulties.
Defaults
by our clients may be correlated with economic conditions affecting particular
industries. As a result, if the healthcare industry were to experience economic
difficulties, the overall timing and amount of collections on our loans to
clients may differ from what we expected and result in material harm to our
revenues, net income and assets.
The
dependence by our clients on reimbursement revenues could cause us to suffer
losses in several instances:
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If
clients fail to comply with operational covenants and other regulations
imposed by these programs, they may lose their eligibility to continue
to
receive reimbursements under the program or incur monetary penalties,
either of which could result in the client’s inability to make scheduled
payments.
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If
reimbursement rates do not keep pace with increasing costs of services
to
eligible recipients, or funding levels decrease as a result of increasing
pressures from carriers to control healthcare costs, clients may
not be
able to generate adequate revenues to satisfy their
obligations.
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If
a healthcare client were to default on its loan, we may be unable
to
invoke our rights to pledged receivables directly as the law prohibits
the
initial payment of amounts owed to healthcare providers under the
Medicare
and Medicaid programs to be directed to any entity other than the
actual
providers. Consequently, a court order would be needed to enforce
collection directly against these governmental payers or re-direction
of
accounts, set-offs or other disposition of payments received by providers
on government claims that have not been forwarded to the lockbox.
There is
no assurance that we would be successful in obtaining this type of
court
order.
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We
may be unable to recognize or act upon an operational or financial problem
with
a client in a timely fashion so as to prevent a loss of our loan to that client.
Our
clients may experience operational or financial problems that, if not timely
addressed by us, could result in a substantial impairment or loss of the value
of the loan to the client. We may fail to identify problems, because our client
did not report them in a timely manner or, even if the client did report the
problem, we may fail to address it quickly enough, adequately enough or at
all.
As a result, we could suffer loan losses, which could have a material adverse
effect on our revenues, net income and results of operations.
The
collateral securing a loan may not be sufficient to protect us from a partial
or
complete loss if the loan becomes non-performing, and we are required to
foreclose.
While
most of our loans will be secured by a lien on specified collateral of the
client, there is no assurance that the collateral securing any particular loan
will protect us from suffering a partial or complete loss if the loan becomes
non-performing and we move to foreclose on the collateral. The collateral
securing our loans is subject to inherent risks that may limit our ability
to
recover the principal of a non-performing loan. Risks that may affect the value
of accounts receivable in which we may take a security interest include, among
other things, the following:
|
|
·
|
problems
with the client’s underlying agreements with insurance carriers, which
result in greater than anticipated, disputed
accounts;
|
|
|
·
|
unrecorded
liabilities;
|
|
|
·
|
the
disruption or bankruptcy of key obligor who is responsible for material
amounts of the accounts receivable;
|
|
|
·
|
the
client misrepresents, or does not keep adequate records of, claims
or
important information concerning the amounts and aging of its accounts
receivable; or
|
|
|
·
|
the
client’s government claims that are being sent to a client controlled
account and then ‘‘swept’’ (directed) to a lockbox are stopped by client
from being swept or are re-directed by client, which may require
judicial
action or relief.
|
Any
one
or more of the preceding factors could materially impair our ability to recover
principal in a foreclosure on the related loan.
Our
advance funding loans are not fully covered by the value of tangible assets
or
collateral of the client and, consequently, if any of these loans becomes
non-performing, we could suffer a loss of some or all of our value in the loan.
The
risks
inherent in advance lending based upon receivables include, among other things,
the following:
|
|
·
|
reduced
use of or demand for the client’s services and, thus, reduced cash flow of
the client to service the loan as well as reduced value of the client
as a
going concern;
|
|
|
·
|
poor
accounting systems of the client, which adversely affect the ability
to
accurately predict the client’s cash
flows;
|
|
|
·
|
economic
downturns, political events, regulatory changes, litigation or acts
of
terrorism that affect the client’s business, financial condition and
prospects; and
|
|
|
·
|
poor
management performance.
|
Errors
by or dishonesty of our employees could result in loan losses.
We
will
rely heavily on the performance and integrity of our employees in making initial
credit decisions with respect to loans and in servicing the loans after they
have closed. Because there is generally little or no publicly available
information about the clients to whom we will lend, we cannot independently
confirm or verify the information employees provide for use in making credit
and
funding decisions. Errors by employees in assembling, analyzing or recording
information concerning clients could cause us to originate loans or fund
subsequent advances that we would not otherwise originate or fund. This could
result in losses. Losses could also arise if any employees were dishonest.
A
dishonest employee could collude with clients to misrepresent the
creditworthiness of a prospective client or to provide inaccurate reports
regarding the client’s compliance with the covenants in its loan agreement. If,
based on an employee’s dishonesty, we made a loan to a client that was not
creditworthy or failed to exercise our rights under a loan agreement against
a
client that was not in compliance with covenants in the agreement, we could
lose
some or the entire principal of the loan. Further, if we determine to pursue
remedies against a dishonest employee, the costs of pursuing such remedies
could
be substantial and there can be no assurance that we will be able to obtain
an
adequate remedy against a dishonest employee to offset losses caused by such
employee.
If
interest rates rise, some of our existing clients may be unable to service
interest on their loans.
Virtually
all of our loans will bear interest at floating interest rates. To the extent
interest rates increase, monthly interest obligations owed by clients will
also
increase. Some clients may not be able to make the increased interest payments,
resulting in defaults on their loans.
Loans
could be subject to equitable subordination by a court and thereby increase
the
risk of loss with respect to such loans.
Courts
have, in some cases, applied the doctrine of equitable subordination to
subordinate the claim of a lending institution against a borrower to claims
of
other creditors of the borrower, when the lending institution is found to have
engaged in unfair, inequitable or fraudulent conduct. The courts have also
applied the doctrine of equitable subordination when a lending institution
or
its affiliates are found to have exerted inappropriate control over a client,
including control resulting from the ownership of equity interests in a client.
Payments on one or more of our loans, particularly a loan to a client in which
we also hold equity interests, may be subject to claims of equitable
subordination. If, when challenged, these factors were deemed to give us the
ability to control or otherwise exercise influence over the business and affairs
of one or more of its clients, this control or influence could constitute
grounds for equitable subordination. This means that a court may treat one
or
more of our loans as if it were common equity in the client. In that case,
if
the client were to liquidate, we would be entitled to repayment of its loan
on
an equal basis with other holders of the client’s common equity only after all
of the client’s obligations relating to its debt and preferred securities had
been satisfied. One or more successful claims of equitable subordination against
us could have a material adverse effect on our business, operating results
and
financial condition.
We
may incur lender liability as a result of our lending activities.
In
recent
years, a number of judicial decisions have upheld the right of borrowers to
sue
lending institutions on the basis of various evolving legal theories,
collectively termed ‘‘lender liability.’’ Generally, lender liability is founded
on the premise that a lender has either violated a duty, whether implied or
contractual, of good faith and fair dealing owed to the borrower or has assumed
a degree of control over the borrower resulting in the creation of a fiduciary
duty owed to the borrower or its other creditors or shareholders. We may be
subject to allegations of lender liability. There can be no assurance that
these
claims will not arise or that we will not be subject to significant liability
if
a claim of this type did arise. Such liability could result in a material
adverse effect on our business, operating results and financial
condition.
Our
lending activities, as well as our claims management solutions, are subject
to
additional governmental regulations and future regulations may make it more
difficult for us to operate on a profitable basis.
Our
healthcare advance lending business, as well as our claims management solutions,
is subject to numerous federal and state laws and regulations, which, among
other things, may (i) require us to obtain and maintain certain licenses and
qualifications, (ii) limit the interest rates, fees and other charges that
we
are permitted to collect, (iii) limit or prescribe certain other terms of our
financed receivables arrangements with clients, and (iv) subject us to certain
claims, defenses and rights of offset, or (v) change the way we process, send,
secure, format, receive or otherwise use or interact with claims information
or
data. Although we believe that our current business plan is in compliance with
statutes and regulations applicable to our business, there can be no assurance
that we will be able to maintain such compliance without incurring significant
expense. The failure to comply with such statutes and regulations could have
a
material adverse effect upon us. Furthermore, the adoption of additional
statutes and regulations, changes in the interpretation and enforcement of
current statutes and regulations, or the expansion of the business into
jurisdictions that have adopted more stringent regulatory requirements than
those in which we currently conduct business could have a material adverse
effect upon our business, operating results and financial
condition.
There
can
be no assurance that currently proposed or future healthcare legislation or
other changes in the administration or interpretation of governmental provider
payment programs (‘‘Government Programs’’) will not have an adverse effect on us
or that payments under Government Programs will remain at levels comparable
to
present levels or will be sufficient to cover the costs allocable to patients
eligible for reimbursement pursuant to such programs. Concern about the
potential effects of the proposed reform measures has contributed to the
volatility of prices of securities of companies in healthcare and related
industries, and may similarly affect the price of our securities in the
future.
In
addition, certain private reform efforts have been instituted throughout the
healthcare industry, including the capitation of certain healthcare
expenditures. Capitation is the pre-payment of certain healthcare costs by
third-party payers (typically health maintenance organizations and other managed
healthcare concerns), based upon a predetermined monthly fee for the aggregate
patient lives under any given healthcare provider's care. The healthcare
provider then provides healthcare to such patients when and as needed, and
assumes the risk that its prepayments will cover its costs and provide a profit
for all of such services rendered. Since capitation essentially reduces or
eliminates clients' need for claims management solutions and/or accounts
receivable that are the primary source of payment for our financed receivables,
capitation could materially adversely affect our business, operating results
and
financial condition.
We
have not paid dividends and do not expect to do so in the future.
We
have
not paid any cash dividends on our common stock. For the foreseeable future,
it
is anticipated that earnings, if any, which may be generated from operations
will be used to finance our growth and that dividends will not be paid to
holders of common stock.
Our
certificate of incorporation, bylaws and state law contains provisions that
preserve current management.
Provisions
of state law, our articles of incorporation and by-laws may discourage, delay
or
prevent a change in our management team that stockholders may consider
favorable. These provisions include:
|
|
·
|
authorizing
the issuance of ‘‘blank check’’ preferred stock without any need for
action by stockholders;
|
|
|
·
|
eliminating
the ability of stockholders to call special meetings of
stockholders;
|
|
|
·
|
permitting
stockholder action by written consent;
and
|
|
|
·
|
establishing
advance notice requirements for nominations for election to the board
of
directors or for proposing matters that can be acted on by stockholders
at
stockholder meetings.
|
These
provisions could allow our Board of Directors to affect the investor’s rights as
a stockholder since the Board of Directors can make it more difficult for
preferred stockholders or common stockholders to replace members of the Board.
Because the Board of Directors is responsible for appointing the members of
the
management team, these provisions could in turn affect any attempt to replace
the current or future management team.
Our
Common Stock is considered ‘‘penny stock’’ and may be difficult to
trade.
The
SEC
has adopted regulations that generally define ‘‘penny stock’’ to be an equity
security that has a market or exercise price of less than $5.00 per share,
subject to specific exemptions. The market price of our common stock is less
than $5.00 per share and, therefore, subject to ‘‘penny stock’’ rules pursuant
to Section 15(g) of the Exchange Act. This designation requires any broker
or
dealer selling these securities to disclose certain information concerning
the
transaction, obtain a written agreement from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules
may
restrict the ability of brokers or dealers to sell our common stock and may
affect the ability of investors to sell their shares. In addition, since our
common stock is currently only quoted on the OTCBB, investors may find it
difficult to obtain accurate quotations of our common stock and may experience
a
lack of buyers to purchase such stock or a lack of market makers to support
the
stock price.
A
significant number of our shares are eligible for sale, and their sale could
depress the market price of our stock.
Sales
of
a significant number of shares of our common stock in the public market pursuant
to our registration statement which became effective on December 7, 2006, could
harm the market price of our common stock. As additional shares of common stock
may be sold in the public market, the supply of common stock will increase,
which could decrease its price. Additionally, some or all of our shares of
common stock may be offered from time to time in the open market pursuant to
Rule 144, and these sales may have a depressive effect on the market for shares
of common stock. In general, a person who has held restricted shares for a
period of one year may, upon filing with the SEC a notification on Form 144,
sell into the market common stock in an amount equal to the greater of 1% of
the
outstanding shares or the average weekly number of shares sold in the last
four
weeks prior to such sale. Such sales may be repeated once each three months,
and
any amount of the restricted shares may be sold by a non-affiliate after they
have been held two years.
There
is no public market for our Common Stock other than
OTCBB.
There
is
no public market for our common stock other than the market that exists in
the
common stock of the Company on the over-the-counter bulletin board market
(‘‘OTCBB’’). There can be no assurance that any other trading market will
develop in the common stock of the Company, or that the OTCBB market trading
will be sustained.
Until
November, 2005 we were a public shell company. There are certain risks
associated with transactions with public shell companies generally, including
increased SEC scrutiny and regulation and lack of analyst coverage of the
Company.
In
November 2005, we succeeded to the business of MDwerks Global Holdings, Inc.
and
the Xeni Companies pursuant to a merger of a wholly owned subsidiary of ours
into MDwerks Global Holdings, Inc. (the ‘‘Merger’’). As a result of the Merger,
MDwerks Global Holdings, Inc. became our wholly owned subsidiary and we began
to
operate its business and the businesses of the Xeni Companies as our sole line
of business. Until such time, the Company was and had been effectively a public
shell company with no material assets or operations whose only value was that
it
maintained current filings with the SEC and a class of securities that was
offered for sale pursuant to the OTCBB. The Merger provided an immediate benefit
for the then existing stockholders of the Company that might not have been
readily available, or available at all, to other stockholders who either
acquired their shares of stock in connection with the purchase of Units in
this
Offering or otherwise.
Substantial
additional risks are associated with a public shell merger transaction such
as
absence of accurate or adequate public information concerning the public shell;
undisclosed liabilities; improper accounting; claims or litigation from former
officers, directors, employees or stockholders; contractual obligations;
regulatory requirements and others. Although management performed due diligence
on the Company, there can be no assurance that such risks do not occur. The
occurrence of any such risk could materially adversely affect the Company’s
results of operations, financial condition and stock price. In addition, the
cost of operations of the Company has increased as a result of the Merger due
to
legal, regulatory, and accounting requirements imposed upon a company with
a
class of registered securities and based upon the acquisition by the Company
of
an operating company.
Additional
risks may exist since the Merger involved a ‘‘reverse merger’’ or ‘‘reverse
public offering.’’ Security analysts of major brokerage firms may not provide
coverage of the Company since there is no incentive to brokerage firms to
recommend the purchase of the common stock. No assurance can be given that
brokerage firms will want to conduct any secondary public offerings on behalf
of
the Company in the future.
There
has been a limited active public market for the Common Stock, and prospective
investors may not be able to resell their shares at or above the price at which
they purchase shares, if at all.
Shares
of
our common are traded on the Over the Counter Bulletin Board (‘‘OTCBB’’). We
plan on seeking to retain the OTCBB status of the Company so that the registered
securities of the Company will have the benefit of a trading market, but will
likely be traded only in the OTCBB market for the foreseeable future, although
listing on a national exchange such as the AMEX, or NASDAQ Small Cap market
may
be sought, but is not assured. There is no guarantee that if such listing is
pursued the Company will meet the listing requirements or that such efforts
to
list the Company’s common stock on any national or regional exchange or the
NASDAQ Small Cap market will be successful, or if successful, will be
maintained, including but not limited to requirements associated with
maintenance of a minimum net worth, minimum stock price and ability to establish
a sufficient number of market makers. As a result, the reported prices for
the
Company’s securities may be: (i) arbitrarily determined, as a result of the
valuation ascribed to the shares in transactions by the Company and adopted
for
purposes of securities offerings; and (ii) the result of market forces, and
as
such reported prices may not necessarily indicate the value of the traded shares
or of the Company. Furthermore, there has been a limited to no public market
for
our common stock. An active public market for our common stock may not develop
or be sustained.
The
market price of our securities may fluctuate significantly in response to
factors, some of which will be beyond our control, such as the announcement
of
new products or product enhancements by the Company or its competitors;
developments concerning intellectual property rights and regulatory approvals;
quarterly variations in our competitors’ results of operations; changes in
earnings estimates or recommendations by securities analysts; developments
in
our industry; and general market conditions and other factors, including factors
unrelated to our operations.
The
stock
market in general may experience extreme price and volume fluctuations. In
particular, market prices of securities of technology companies have experienced
fluctuations that often have been unrelated or disproportionate to the operating
results of these companies. Market fluctuations could result in extreme
volatility in the price of the common stock, which could cause a decline in
the
value of the common stock. Prospective investors should also be aware that
price
volatility might be exacerbated if the trading volume of the common stock is
low.
There
are additional costs of being a public company and those costs may be
significant.
We
are a
publicly traded company, and, accordingly, subject to the information and
reporting requirements of the U.S. securities laws. The U.S. securities laws
require, among other things, review, audit and public reporting of the Company’s
financial results, business activities and other matters. The public company
costs of preparing and filing annual and quarterly reports, proxy statements
and
other information with the SEC and furnishing audited reports to stockholders,
which we estimate will be approximately $250,000 per year, will cause our
expenses to be higher than they would be if we were privately-held. In addition,
the Company incurred estimated expenses of approximately $100,000 in connection
with the preparation of the registration statement and related documents with
respect to the registration of the common stock required to be registered
pursuant to the Company’s undertaking to file a registration statement as
described herein. These increased costs may be material and may include the
hiring of additional employees and/or the retention of additional consultants
and professionals. Failure by the Company to comply with the federal or state
securities laws could result in private or governmental legal action against
the
Company and/or its officers and directors, which could have a detrimental effect
on the business and finances of the Company, the value of the Company’s stock
and the ability of stockholders to resell their stock.
CAUTIONARY
LANGUAGE REGARDING FORWARD-LOOKING
STATEMENTS
AND INDUSTRY DATA
This
Annual Report on Form 10-KSB contains ‘‘forward-looking statements’’ that
involve risks and uncertainties, many of which are beyond our control. Our
actual results could differ materially and adversely from those anticipated
in
such forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Annual Report on Form 10-KSB.
Important factors that may cause actual results to differ from projections
include, but are not limited to, for example:
|
|
·
|
adverse
economic conditions;
|
|
|
·
|
inability
to raise sufficient additional capital to implement our business
plan;
|
|
|
·
|
intense
competition, from providers of services similar to those offered
by
us;
|
|
|
·
|
unexpected
costs and operating deficits, and lower than expected sales and
revenues;
|
|
|
·
|
adverse
results of any legal proceedings;
|
|
|
·
|
inability
to satisfy government and commercial customers using our
technology;
|
|
|
·
|
the
volatility of our operating results and financial
condition;
|
|
|
·
|
inability
to attract or retain qualified senior management personnel, including
sales and marketing, and technology personnel;
and
|
|
|
·
|
other
specific risks that may be alluded to in this Annual Report on Form
10-KSB.
|
All
statements, other than statements of historical facts, included in this Annual
Report on Form 10-KSB regarding our strategy, future operations, financial
position, estimated revenue or losses, projected costs, prospects and plans
and
objectives of management are forward-looking statements. When used in this
Annual Report on Form 10-KSB, the words ‘‘will,’’ ‘‘may,’’ ‘‘believe,’’
‘‘anticipate,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘project,’’ ‘‘plan’’ and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words.
All
forward-looking statements speak only as of the date of this Annual Report
on
Form 10-KSB. We do not undertake any obligation to update any forward-looking
statements or other information contained herein. Potential investors should
not
place undue reliance on these forward-looking statements. Although we believe
that our plans, intentions and expectations reflected in or suggested by the
forward-looking statements in this Annual Report on Form 10-KSB are reasonable,
no one can assure investors that these plans, intentions or expectations will
be
achieved. Important factors that could cause actual results to differ materially
from expectations expressed herein are described under ‘‘Risk Factors’’ and
elsewhere in this Annual Report on Form 10-KSB. These cautionary statements
and
risk factors qualify all forward-looking statements attributable to information
provided in this Annual Report on Form 10-KSB and on behalf of us or persons
acting on our behalf.
Information
regarding market and industry statistics contained in this Annual Report on
Form
10-KSB is included based on information available to us that we believe is
accurate. It is generally based on academic and other publications that are
not
produced for purposes of securities offerings or economic analysis. Forecasts
and other forward-looking information obtained from these sources are subject
to
the same qualifications and the additional uncertainties accompanying any
estimates of future market size, revenue and market acceptance of products
and
services. We have no obligation to update forward-looking information to reflect
actual results or changes in assumptions or other factors that could affect
those statements. See ‘‘Risk Factors’’ for a more detailed discussion of
uncertainties and risks that may have an impact on future results.
The
Company sub-leased its facility, on a month-to-month basis, under a master
lease
expiring July 2008. Rent expense for the year ended December 31, 2007 was
$83,772. On February 1, 2008, the Company was assigned the master lease and
a
5-year lease option was exercised which extends the master lease until June
2013.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
We
are
not a party to any material pending legal proceedings.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise.
PART
II
|
ITEM
5.
|
MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
|
Our
Common Stock has been quoted on the OTC Bulletin Board since November 16,
2005 under the symbol MDWK.OB. Prior to that date, there was no active market
for our Common Stock. As of March 24, 2008, there were approximately 332 holders
of record of our Common Stock.
The
following table sets forth the high and low sales prices for our Common Stock
for the periods indicated as reported by the OTC Bulletin Board.
|
|
|
High
|
|
Low
|
|
|
Fiscal
Year 2006
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
4.25
|
|
$
|
2.40
|
|
|
Second
Quarter
|
|
|
5.00
|
|
|
2.45
|
|
|
Third
Quarter
|
|
|
4.25
|
|
|
2.60
|
|
|
Fourth
Quarter
|
|
|
3.60
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2007
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.50
|
|
$
|
0.47
|
|
|
Second
Quarter
|
|
|
1.30
|
|
|
0.35
|
|
|
Third
Quarter
|
|
|
1.55
|
|
|
0.60
|
|
|
Fourth
Quarter
|
|
|
0.74
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2008
|
|
|
|
|
|
|
|
|
First
Quarter (through March 24, 2008)
|
|
$
|
1.20
|
|
$
|
0.38
|
|
The
prices reported on the OTC Bulletin Board as high and low sales prices vary
from
inter-dealer bids which state inter-dealer quotations. Such inter-dealer bids
(and reported high and low sales prices) do not include retail mark-ups,
mark-downs or commissions. Such prices do not necessarily represent actual
transactions.
We
have
not declared or paid any dividends on our Common Stock and do not anticipate
declaring or paying any cash dividends in the foreseeable future. We currently
expect to retain future earnings, if any, to finance the growth and development
of our business. The holders of our Common Stock are entitled to dividends
when
and if declared by our Board from legally available funds.
Sales
of Unregistered Securities
The
securities issued by the Company upon the consummation of the Merger discussed
in the ‘‘BUSINESS - History of the Company’’ section of this Annual Report on
Form 10-KSB were not registered under the Securities Act of 1933, as amended.
At
the effective time of the Merger, each outstanding share of common stock
of
MDwerks Global Holdings, Inc. was converted into the right to receive 0.158074
shares of the Company’s common stock. At the effective time of the Merger,
approximately 59,162,000 shares of MDwerks Global Holdings, Inc. shares of
common stock were outstanding and no options or warrants to purchase shares
of
MDwerks Global Holdings, Inc. common stock were outstanding. As a result
of the
Merger, the approximately 59,162,000 shares of common stock of MDwerks Global
Holdings, Inc. that were outstanding were exchanged for approximately 9,352,000
shares of common stock of the Company. Set forth below is a list of shareholders
who received shares of common stock in connection with such merger and the
number of shares they received:
|
Name
|
|
Number
of
Shares
Received
|
|
|
Peter
Dunne
|
|
|
39,519
|
|
|
Rosemarie
Manchio
|
|
|
19,715
|
|
|
Steven
Brandenburg IRA
|
|
|
11,903
|
|
|
Thomas
Stephens
|
|
|
35,077
|
|
|
Ronald
& Lydia Hankins JTWROS
|
|
|
13,478
|
|
|
Bernard
O’Neil
|
|
|
17,319
|
|
|
Robert
Bouvier
|
|
|
1,628
|
|
|
Arthur
J. Ballinger
|
|
|
11,959
|
|
|
Roger
Hermes
|
|
|
36,452
|
|
|
F.
Bradford Wilson
|
|
|
19,805
|
|
|
John
& Jeanie Garell JTWROS
|
|
|
62,236
|
|
|
Jai
Gaur
|
|
|
988
|
|
|
Phil
Dean
|
|
|
39,233
|
|
|
Joseph
Morgillo
|
|
|
21,435
|
|
|
Solon
Kandel & Vivian Kandel TEN ENT
|
|
|
1,018,310
|
|
|
73142
Corp.
|
|
|
113,813
|
|
|
Arrowhead
Consultants, Inc.
|
|
|
294,308
|
|
|
Glenwood
Capital, Inc.
|
|
|
294,308
|
|
|
Steven
Brandenburg
|
|
|
9,726
|
|
|
Kay
Garell Trust
|
|
|
28,041
|
|
|
Wesley
Neal
|
|
|
11,856
|
|
|
Sol
Bandiero
|
|
|
83,679
|
|
|
Stephen
Katz
|
|
|
176,152
|
|
|
Gerard
Maresca
|
|
|
71,713
|
|
|
Tonia
Pfannenstiel
|
|
|
23,350
|
|
|
Stephen
Weiss
|
|
|
65,809
|
|
|
Phil
Margetts
|
|
|
33,483
|
|
|
Ronald
Hankins
|
|
|
13,609
|
|
|
John
Garell
|
|
|
16,666
|
|
|
Todd
Adler
|
|
|
131,751
|
|
|
Leanne
Kennedy
|
|
|
56,501
|
|
|
Jon
Zimmerman
|
|
|
54,251
|
|
|
Howard
Katz and Denise Katz TEN ENT
|
|
|
1,084,001
|
|
|
Harley
Kane
|
|
|
102,334
|
|
|
Lauren
Kluger
|
|
|
24,542
|
|
|
MedWerks,
LLC
|
|
|
5,115,912
|
|
|
Larry
Biggs
|
|
|
59,968
|
|
|
Peter
Chung
|
|
|
38,750
|
|
|
Sparta
Road, Ltd.
|
|
|
38,750
|
|
|
Todd
Snyder
|
|
|
20,000
|
|
|
Frank
Essner Trust
|
|
|
20,000
|
|
|
Jason
Clark
|
|
|
20,000
|
|
These
shares of our common stock issued in connection with the Merger qualified for
exemption under Section 4(2) of the Securities Act of 1933 since the issuance
shares by us did not involve a public offering. The offering was not a ‘‘public
offering’’ as defined in Section 4(2) due to the insubstantial number of persons
involved in the deal, size of the offering, manner of the offering and number
of
shares offered. We did not undertake an offering in which we sold a high number
of shares to a high number of investors. In addition, the shareholders listed
above had the necessary investment intent as required by Section 4(2) since
they
agreed to and received a share certificate bearing a legend stating that such
shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This
restriction ensures that these shares would not be immediately redistributed
into the market and therefore not be part of a ‘‘public offering.’’ Based on an
analysis of the above factors, we have met the requirements to qualify for
exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
Furthermore, each of the shareholders listed above is an ‘‘accredited investor’’
as defined in Regulation D of the Securities Act of 1933.
In
connection with the Merger, we completed the closing of a private offering
of
our securities in which, through December 31, 2005, we sold an aggregate of
approximately 64 Units to accredited investors, pursuant to the terms of a
Confidential Private Placement Memorandum dated June 13, 2005, as supplemented.
Each Unit consists of 10,000 shares of common stock and a warrant to purchase
10,000 shares of common stock. Each warrant entitles the holder to purchase
10,000 shares of common stock for $2.50 per share. The Units were offered by
Brookshire Securities Corporation, as placement agent, pursuant to a placement
agent agreement under which the placement agent, in addition to a percentage
of
gross proceeds of the Private Placement, received 96,000 shares of common stock
and a warrant to purchase up to an aggregate of 64,000 shares of common stock.
We realized gross proceeds from the Private Placement of $1,600,000, before
payment of commissions and expenses. The private placement was made solely
to
‘‘accredited investors,’’ as that term is defined in Regulation D under the
Securities Act of 1933. The shares of common stock and warrants to purchase
common stock were not registered under the Securities Act of 1933, or the
securities laws of any state, and were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule
506)
under the Securities Act of 1933 and corresponding provisions of state
securities laws. Set forth below is a list of the purchasers in the Private
Placement and the number of Units purchased:
|
Name
|
|
Amount
Paid
for
Units
|
|
Number
of Units
Purchased
|
|
|
Arrowhead
Consultants, Inc.
|
|
$
|
149,500
|
|
|
5.98
|
|
|
Constantine
G. Barbounis
|
|
$
|
50,000
|
|
|
2
|
|
|
Brookshire
Securities Corp.
|
|
$
|
17,000
|
|
|
0.68
|
|
|
Daniel
R. Brown
|
|
$
|
25,000
|
|
|
1
|
|
|
Jason
Clarke / Tanya Clarke (T/E)
|
|
$
|
25,000
|
|
|
1
|
|
|
Donia
Hachem Revocable Trust
|
|
$
|
50,000
|
|
|
2
|
|
|
Ronald
Hankins
|
|
$
|
22,000
|
|
|
0.88
|
|
|
Philip
J. Hempleman
|
|
$
|
100,000
|
|
|
4
|
|
|
Roger
Hermes
|
|
$
|
25,000
|
|
|
1
|
|
|
Domenico
Iannucci
|
|
$
|
250,000
|
|
|
10
|
|
|
Carlos
A. Jimenez
|
|
$
|
25,000
|
|
|
1
|
|
|
Carlos
A. Jimenez and Jason M. Beccaris
|
|
$
|
25,000
|
|
|
1
|
|
|
JTP
Holdings, LLC
|
|
$
|
25,000
|
|
|
1
|
|
|
Dr.
Irving Karten
|
|
$
|
25,000
|
|
|
1
|
|
|
Rosemarie
Manchio
|
|
$
|
25,000
|
|
|
1
|
|
|
Daniel
J. O'Sullivan
|
|
$
|
100,000
|
|
|
4
|
|
|
Eric
W. Penttinen
|
|
$
|
25,000
|
|
|
1
|
|
|
Jonathan
J. Rotella
|
|
$
|
25,000
|
|
|
1
|
|
|
SCG
Capital LLC
|
|
$
|
300,000
|
|
|
12
|
|
|
Todd
Snyder
|
|
$
|
50,000
|
|
|
2
|
|
|
Thomas
S. Stephens
|
|
$
|
12,500
|
|
|
0.5
|
|
|
Jamie
Toddings
|
|
$
|
25,000
|
|
|
1
|
|
|
Alphonse
Tribuiani
|
|
$
|
25,000
|
|
|
1
|
|
|
Roger
Walker
|
|
$
|
25,000
|
|
|
1
|
|
|
Todd
Wiseberg
|
|
$
|
50,000
|
|
|
2
|
|
|
Jon
R. Zimmerman
|
|
$
|
50,000
|
|
|
2
|
|
|
Robert
E. Zimmerman
|
|
$
|
75,000
|
|
|
3
|
|
On
June
28, 2006 we completed a private placement offering of Units consisting of one
share of Series A Convertible Preferred Stock and a three-year warrant to
purchase up to 20,000 shares of our common stock at a purchase price of $3.00
per share. We sold an aggregate of 28.3 Units to accredited investors pursuant
to the terms of a confidential private placement memorandum, dated February
1,
2006, used in connection with this offering. As of December 31, 2007, 26.3
shares of Series A Convertible Preferred Stock had been converted into 526,667
shares of common stock. The Units were offered by Brookshire Securities
Corporation as placement agent. The placement agent received $170,000 in cash
and 170,000 shares of our common stock and, for nominal consideration, a warrant
to purchase up to an aggregate of 56,667 shares of our common stock at a
purchase price of $1.50 per share. We realized gross proceeds from this private
placement of $1,700,000 before payment of commissions and expenses. The private
placement was made solely to ‘‘accredited investors,’’ as that term is defined
in Regulation D under the Securities Act of 1933. The shares of Series A
Convertible Preferred Stock and warrants to purchase shares of common stock
were
not registered under the Securities Act of 1933, or the securities laws of
any
state, and were offered and sold in reliance on the exemption from registration
offered by Section 4(2) and Regulation D (Rule 506) under the Securities Act
of
1933 and corresponding provisions of state securities laws. Set forth below
is a
list of purchasers in this private placement and the number of Units
purchased:
|
Name
|
|
Amount
Paid
for
Units
|
|
Number
of Units
Purchased
|
|
|
RAJ
Investments Limited Liability Partnership
|
|
$
|
60,000
|
|
|
1
|
|
|
Daniel
J. O'Sullivan
|
|
$
|
120,000
|
|
|
2
|
|
|
Kevin
William Walker
|
|
$
|
60,000
|
|
|
1
|
|
|
Frank
V. Cappo
|
|
$
|
120,000
|
|
|
2
|
|
|
Rick
A. Bennett
|
|
$
|
60,000
|
|
|
1
|
|
|
Rion
Needs
|
|
$
|
60,000
|
|
|
1
|
|
|
J.
Joseph Levine
|
|
$
|
60,000
|
|
|
1
|
|
|
Terence
Smith
|
|
$
|
60,000
|
|
|
1
|
|
|
Tim
Johnson
|
|
$
|
60,000
|
|
|
1
|
|
|
Joe
Sparieino
|
|
$
|
60,000
|
|
|
1
|
|
|
Scott
McNair
|
|
$
|
50,000
|
|
|
0.8333
|
|
|
Gerald
F. Huepel, Jr.
|
|
$
|
50,000
|
|
|
0.8333
|
|
|
Louise
E. Rehling Tr. Dated 3/9/00
|
|
$
|
25,000
|
|
|
0.4167
|
|
|
PH
D Investments I, LP
|
|
$
|
150,000
|
|
|
2.5
|
|
|
Kevin
& Brenda Narcomey
|
|
$
|
50,000
|
|
|
0.8333
|
|
|
Daniel
Craig Sager
|
|
$
|
25,000
|
|
|
0.4167
|
|
|
CH
Medical PSP
|
|
$
|
75,000
|
|
|
1.25
|
|
|
Joseph
Lewin
|
|
$
|
60,000
|
|
|
1
|
|
|
Joe
& Carolyn Hubbard, JTWROS
|
|
$
|
60,000
|
|
|
1
|
|
|
John
R. Harrison
|
|
$
|
60,000
|
|
|
1
|
|
|
Melvin
C. Sanders
|
|
$
|
60,000
|
|
|
1
|
|
|
Randy
Bean Revocable Trust 2/21/05
|
|
$
|
30,000
|
|
|
0.5
|
|
|
C.
Edward White, Jr./Brenda R. Fortunate, JTWROS
|
|
$
|
60,000
|
|
|
1
|
|
|
James
W. Lees
|
|
$
|
75,000
|
|
|
1.25
|
|
|
M.
Michael Anderson
|
|
$
|
60,000
|
|
|
1
|
|
|
Sharon
Sootin
|
|
$
|
90,000
|
|
|
1.50
|
|
Institutional
Financings
On
each
of October 20, 2006 and November 9, 2006 we received net proceeds of $2,375,000
for total net proceeds of $4,750,000 in the aggregate in connection with a
financing provided by Gottbetter Capital Master, Ltd., an unaffiliated
accredited institutional investor (”Gottbetter’’). Pursuant to the terms of a
Securities Purchase Agreement that we entered into with Gottbetter in connection
with the financing, we issued two senior secured convertible promissory notes
to
Gottbetter, each in the original principal amount of $2,500,000 (each a ‘‘Senior
Note’’ and collectively, the ‘‘Senior Notes’’), five year Series D Warrants to
purchase 375,000 shares of our common stock at a price of $2.25 per share
(‘‘Series D Warrants’’) and five year Series E Warrants to purchase 375,000
shares of our common stock at a price of $3.25 per share (‘‘Series E
Warrants’’).
The
following are summary descriptions of the material agreements entered into
in
connection with the transaction described above and such descriptions are
qualified in their entirety by reference to the full agreements filed either
as
exhibits hereto or previous SEC filings.
Securities
Purchase Agreement
The
Gottbetter Securities Purchase Agreement provides to Gottbetter, for so long
as
the Senior Notes remain outstanding, a right of first refusal to purchase
securities offered by MDwerks, Inc., except for the issuance of Excluded
Securities (as defined in the Gottbetter Securities Purchase Agreement). The
Gottbetter Securities Purchase Agreement also contains restrictions against
issuing shares of our Common Stock for a price per share that is less than
the
price at which our Common Stock is traded on any national exchange or market.
This restriction also covers the issuance of convertible securities with an
exercise or conversion price that is lower than the price at which our Common
Stock is traded on any national exchange or market.
Senior
Notes
The
Senior Notes bear interest at the rate of 8% per year, payable monthly in
arrears, commencing December 1, 2006. Subject to certain mandatory prepayment
provisions, and events of default, unpaid principal and interest due under
the
Senior Notes, as amended, will become due and payable on January 1, 2011. The
Senior Notes require monthly principal payments until the January 1, 2011
maturity date The Senior Notes are convertible, at the option of the holder,
into shares of our common stock at a price of $2.25 per share (the ‘‘Conversion
Price’’), subject to adjustment for stock splits, stock dividends, or similar
transactions, sales of our common stock at a price per share below the
Conversion Price or the issuance of convertible securities or options or
warrants to purchase shares of our common stock at an exercise price or
conversion price that is less than the Conversion Price.
The
Senior Notes provide for optional redemption by us at a redemption price equal
to 110% of the face amount redeemed plus accrued interest.
Events
of
default will result in a default rate of interest of 15% per year and the holder
may require that the Senior Note be redeemed at the Event of Default Redemption
Price (as defined in the Senior Notes). The Event of Default Redemption Price
includes various premiums depending on the nature of the event of default.
Events of default include, but are not limited to,: (i) the failure to keep
the
registration statement covering shares underlying the Senior Notes, the Series
D
Warrants and the Series E Warrants effective, as required by the Registration
Rights Agreement that we entered into with Gottbetter; (ii) suspension from
trading on the OTC Bulletin Board; (iii) failure to timely deliver shares in
the
event the Senior Notes are converted; (iv) failure to reserve adequate shares
for conversion of the Senior Notes; (v) failure to pay principal, interest
or
late charges when due; (vi) any default in the payment of other indebtedness
in
excess of $250,000; (vii) bankruptcy events; and (viii) judgments against us
in
excess of $250,000.
The
Senior Notes also provide that in the event of a Change of Control (as defined
in the Senior Notes), the holder may require that such holder's Senior Note
be
redeemed at the Change of Control Redemption Price (as defined in the Senior
Notes). The Change of Control Redemption Price includes certain premiums in
the
event a Senior Note is redeemed in the event of a Change of
Control.
Series
D Warrants
The
Series D Warrants are exercisable at a price of $2.25 per share for a period
of
five years from the date of issuance. The Series D Warrants may be exercised
on
a cashless basis. The exercise price will be subject to adjustment in the event
of subdivision or combination of shares of our common stock and similar
transactions, distributions of assets, issuances of shares of common stock
with
a purchase price below the exercise price of the Series D Warrants, issuances
of
any rights, warrants or options to purchase shares of our common stock with
an
exercise price below the exercise price of the Series D Warrants, issuances
of
convertible securities with a conversion price below the exercise price of
the
Series D Warrants.
Series
E Warrants
The
Series E Warrants, as amended, are exercisable at a price of $2.25 per share
for
a period of five years from the date of issuance. The Series E Warrants may
be
exercised on a cashless basis. The exercise price will be subject to adjustment
in the event of subdivision or combination of shares of our common stock and
similar transactions, distributions of assets, issuances of shares of common
stock with a purchase price below the exercise price of the Series E Warrants,
issuances of any rights, warrants or options to purchase shares of our common
stock with an exercise price below the exercise price of the Series E Warrants,
issuances of convertible securities with a conversion price below the exercise
price of the Series E Warrants.
Security
Agreements
We
entered into a Security Agreement with Gottbetter. The Security Agreement,
as
amended, provides for a lien in favor of Gottbetter on all of our assets
except for certain assets of our subsidiary, Xeni Financial.
Guaranty
Agreements
Our
subsidiaries entered into a Guaranty Agreement with Gottbetter, pursuant to
which they have agreed to unconditionally guaranty our obligations under the
Senior Notes and the documents entered into by us in connection the sale of
the
Senior Notes.
Registration
Rights Agreement
We
also
entered into a Registration Rights Agreement and amendments thereto with
Gottbetter. Pursuant to the amended Registration Rights Agreement, we included
in our registration statement that was declared effective on December 7, 2006,
2,777,778 shares underlying the Senior Notes. In addition to it being an event
of default under the Senior Notes, if we fail to maintain the effectiveness
of
the registration statement as required by the Registration Rights Agreement,
the
exercise price of the Series D and the Series E Warrants will immediately be
reduced by $0.25 per share and then reduced by an additional $0.10 per share
for
each thirty day period thereafter that the registration statement is not filed
or effective, as the case may be, up to a maximum reduction of
$0.65.
Gottbetter
is an ‘‘accredited investor,’’ as defined in Regulation D under the Securities
Act of 1933, as amended, or the Securities Act. None of the Senior Note, the
Series D Warrants, the Series E Warrants or the shares of our common stock
underlying such securities were registered under the Securities Act, or the
securities laws of any state and were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule
506)
under the Securities Act and corresponding provisions of state securities laws,
which exempts transactions by an issuer not involving any public offering.
We
made this determination based on the representations of Gottbetter, which
included, in pertinent part, that Gottbetter is an ‘‘accredited investor’’
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, and that Gottbetter was acquiring the Senior Notes, the Series D Warrants
and the Series E Warrants for investment purposes for its own account and not
as
nominee or agent, and not with a view to the resale or distribution, and that
Investor understood such securities may not be sold or otherwise disposed of
without registration under the Securities Act or an applicable exemption there
from.
On
August
31, 2007 we received net proceeds of $250,000 in connection with a financing
provided by Vicis Capital Master Fund (“Vicis”), an unaffiliated accredited
investor. In connection with the financing, we issued a 31-day Convertible
Note
to Vicis in the original principal amount of $250,000 (the “Vicis Convertible
Note”).
On
September 28, 2007 we received net proceeds of $1,633,190, after repayment
of the Vicis Convertible Note, interest and closing expenses in connection
with
a financing provided by Vicis. In connection with the financing, pursuant to
the
terms of a Securities Purchase Agreement, we issued 200 shares of Series B
Convertible Preferred Stock (a “Series B Preferred Stock”), a seven year Series
F Warrant to purchase 1,500,000 shares of our common stock at a price of $2.25
per share and a seven year Series G Warrant to purchase 1,000,000 shares of
our
common stock at a price of $2.50 per share.
Vicis
is
an ‘‘accredited investor,’’ as defined in Regulation D under the Securities Act
of 1933, as amended, or the Securities Act. None of the Senior Note, the Series
D Warrants, the Series E Warrants or the shares of our common stock underlying
such securities were registered under the Securities Act, or the securities
laws
of any state and were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws, which
exempts transactions by an issuer not involving any public offering. We made
this determination based on the representations of Vicis, which included, in
pertinent part, that Vicis is an ‘‘accredited investor’’ within the meaning of
Rule 501 of Regulation D promulgated under the Securities Act, and that Vicis
was acquiring the Senior Notes, the Series D Warrants and the Series E Warrants
for investment purposes for its own account and not as nominee or agent, and
not
with a view to the resale or distribution, and that Investor understood such
securities may not be sold or otherwise disposed of without registration under
the Securities Act or an applicable exemption there from.
The
following are summary descriptions of the material agreements entered into
in
connection with the transaction described above and such descriptions are
qualified in its entirety by reference to the full agreements filed either
as
exhibits hereto or previous SEC filings.
Securities
Purchase Agreement
The
Securities Purchase Agreement provided for the sale of (i) 200 shares of Series
B Preferred Stock (ii) Series F Warrants to purchase an aggregate of 1,500,000
shares of Common Stock and (iii) Series G Warrants to purchase an aggregate of
1,000,000 shares of Common Stock. Pursuant to the Securities Purchase Agreement,
the aggregate purchase price for the Series B Preferred Stock, the Series F
Warrants and the Series G Warrants was $2 million. Payment was made by
$1,691,445 in cash, the conversion of $251,555 in principal and interest of
the
Vicis Convertible Note and deduction of certain closing expenses.
The
Securities Purchase Agreement provides to Vicis, for a period of eighteen months
after the closing date, a right of first refusal with respect to subsequent
placements of equity or equity equivalent securities by us.
The
Securities Purchase Agreement contains certain restrictions on our ability
to:
(i) declare dividends; (ii) reclassify, combine or reverse split our Common
Stock; (iii) incur liens; (iii) incur certain types of indebtedness; (iv) issue
classes of securities senior to, or
pari
passu
with,
the Series B Preferred Stock; (v) liquidate or sell a substantial portion of
our
assets; (vi) enter into transactions that would result in a Change of Control
(as defined in the Securities Purchase Agreement); (vi) amend our charter
documents in a way that adversely affects the rights of Vicis; (vii) except
through Xeni Financial, make loans to, or advances or guarantee the obligations
of, third parties; (viii) make intercompany transfers; (ix) engage in
transactions with officers, directors, employees or affiliates; (x) divert
business to other business entities; (xi) make investments in securities or
evidences of indebtedness (excluding of loans made by Xeni Financial) in excess
of $250,000 in a calendar year; and (xii) file registration
statements.
Events
of
default under the Securities Purchase Agreement include: (i) default in the
payment of dividends on or the failure to redeem the Series B Preferred Stock
when due; (ii) failure to perform the covenants contained in the Securities
Purchase Agreement or the related transaction documents; (iii) failure to file,
or cause to become effective, a registration statement covering the shares
of
Common Stock underlying the Series F Warrants, the Series G Warrants and the
Series B Preferred Stock within the timeframes required by the Registration
Rights Agreement or the failure to keep such registration effective as required
by the Registration Rights Agreement; (iv) suspension from listing on the OTC
Bulletin Board or other exchange for 10 consecutive trading days; (v) the
failure to timely deliver shares of Common Stock upon conversion of the Series
B
Preferred Stock or exercise of the Series F Warrants or the Series G Warrants;
(vi) default in the payment of indebtedness in excess of $250,000; (vii) a
judgment entered against us in excess of $250,000; and (viii) insolvency,
bankruptcy and similar circumstances.
The
Securities Purchase Agreement also contains customary representations,
warranties, covenants and indemnification provisions for transactions of the
type entered into between the Company and Vicis.
Series
B Preferred Stock
The
Certificate of Designations, which designates the rights, preferences,
privileges and terms of the Series B Preferred Stock (the “Certificate of
Designations”) provides that the Series B Preferred Stock will rank senior to
other classes of Common Stock and preferred stock that are currently outstanding
as to distributions of assets upon liquidation, dissolution or winding up and
as
to payment of dividends on shares of equity securities.
Each
share of Series B Preferred Stock is entitled to cumulative dividends at the
annual rate of 8% of the stated value of the Series B Preferred Stock. The
stated value of each share of Series B Preferred Stock is $10,000. Dividends
are
payable in cash or additional shares of Series B Preferred Stock.
Each
share of Series B Preferred Stock is convertible, at any time, at the option
of
the holder, into the number of shares of Common Stock determined by dividing
the
stated value of the Series B Preferred Stock by the conversion price. The
initial conversion price of the Series B Preferred Stock is $2.25 per
share.
The
conversion price is subject to adjustment for stock splits, dividends,
subdivisions, distributions, reorganizations and similar transactions.
Furthermore, the conversion price is also subject to adjustment in the event
of
the issuance of securities for a price below the conversion price then in effect
or the issuance of convertible securities with an exercise or conversion price
that is less than the then current conversion price for the shares of Series
B
Preferred Stock.
To
the
extent that any shares of Series B Preferred Stock remain outstanding on
September 28, 2008, each holder thereof shall have the option to either require
us to redeem such holder’s shares of Series B Preferred Stock or convert such
holder’s shares of Series B Preferred Stock into shares of Common Stock at the
conversion price then in effect.
Holders
of Series B Preferred Stock have the option to require us to redeem shares
of
Series B Preferred Stock in the event of a Change of Control (as defined in
the
Certificate of Designations).
Holders
of Series B Preferred Stock are entitled to vote on matters submitted to our
stockholders as if the Series B Preferred Stock had been converted into shares
of Common Stock pursuant to the terms of the Certificate of Designations. To
the
extent the holders of Series B Preferred Stock are required to vote separately,
as a class, the affirmative vote of the holders of a majority of the outstanding
shares of Series B Preferred Stock will be required to approve the matter to
be
voted upon.
Series
F Warrants
The
Series F Warrants are exercisable at a price of $2.25 per share for a period
of
seven years from the date of issuance. The Series F Warrants may be exercised
on
a cashless basis. The exercise price will be subject to adjustment in the event
of subdivision or combination of shares of our common stock and similar
transactions, distributions of assets, issuances of shares of common stock
with
a purchase price below the exercise price of the Series F Warrants, issuances
of
any rights, warrants or options to purchase shares of our common stock with
an
exercise price below the exercise price of the Series F Warrants, issuances
of
convertible securities with a conversion price below the exercise price of
the
Series F Warrants.
Series
G Warrants
The
Series G Warrants are exercisable at a price of $2.50 per share for a period
of
seven years from the date of issuance, with the same provisions as the Series
F
warrants.
Security
Agreement
We,
along
with our subsidiaries MDwerks, Xeni Medical, Xeni Financial, Xeni Billing,
and
PPS entered into Security Agreements with Vicis. The Security Agreements provide
for liens in favor of Vicis on all of our assets, including the assets of each
of our subsidiaries, except for the accounts receivable and certain contract
rights of Xeni Financial Services, Corp.
Guaranty
Agreement
Our
subsidiaries, MDwerks, Xeni Medical, Xeni Financial, Xeni Billing, and
PPS entered into Guaranty Agreements with Vicis, pursuant to which they
have agreed to unconditionally guaranty our obligations under the Series B
Preferred Stock and the documents entered into by us in connection with the
sale
of the Series B Preferred Stock.
Registration
Rights Agreement
We
entered into a Registration Rights Agreement with Vicis. The Registration Rights
Agreement requires us to file a registration statement covering the resale
of
the shares underlying the Series B Preferred Stock, the Series F Warrants and
the Series G Warrants within 365 calendar days after the closing date. We are
required to cause such registration statement to become effective on or before
the date which is 485 calendar days after the filing of such registration
statement. In addition to it being an event of default under the Securities
Purchase Agreement, if we fail to file such registration statement in the time
frame required, fail to cause it to become effective in the time frame required,
or fail to maintain the effectiveness of the registration statement as required
by the Registration Rights Agreement, we will be required to pay a cash penalty
in the amount of 2% of the aggregate stated value of the Series B Preferred
Stock for each month, or part thereof, that the registration statement is not
filed or effective, as the case may be. The cash penalty is limited to 15%
of
the aggregate stated value of the Series B Preferred Stock.
The
Registration Rights Agreement also provides for piggyback registration
rights.
Amendment,
Consent & Waiver Agreement
In
connection with the transactions described above, we entered into a Consent
and
Waiver Agreement with Gottbetter (the “Consent and Waiver Agreement”), whereby,
among other things: (i) Gottbetter consented to the transactions described
above, (ii) Gottbetter agreed to delay, until February 1, 2008, principal
payments under the Senior Secured Convertible Note issued by the Corporation
to
Gottbetter on October 19, 2006 (the “October Note”) and under the Senior Secured
Convertible Note issued by the Corporation to Gottbetter on November 9, 2006
(the “November Note”), (iii) Gottbetter agreed that its right of first refusal
with respect to subsequent financings will be on a
pro
rata, pari passu
basis
with Vicis and (v) Gottbetter released its security interest in certain
collateral of Xeni Financial.
Also
in
connection with the transactions described above, the conversion price of the
Gottbetter Series E Warrants were reduced to $2.25 per share subject to further
adjustment, and the number of Warrant Shares for which such warrants may be
exercised were increased to 541,666 and 2/3 shares subject to further
adjustment.
In
consideration of Gottbetter entering into the Consent and Waiver Agreement,
we
issued to Gottbetter a Series D Warrant to purchase 500,000 shares of our Common
Stock.
Amended
& Restated Notes
In
order
to memorialize the extension of the principal payment date to February 1, 2008
in the October Note and the November Note, we issued to Gottbetter an amended
and restated October Note and an amended and restated November
Note.
On
December 3, 2007 we received net proceeds of $575,000 in connection with a
financing provided by Vicis. In connection with the financing, we issued a
Convertible Note to Vicis in the original principal amount of $575,000 (the
“Note”). The Note bears interest at the rate of 8% per year. Subject to certain
prepayment provisions, unpaid principal and interest due under the Note will
become due and payable on December 2, 2008.
On
January 18, 2008, we received net proceeds of $500,000 in connection with a
financing provided by Vicis. In connection with the financing, we and Vicis
entered into a Securities Purchase Agreement, dated January 18, 2008 (the
“January Securities Purchase Agreement”), pursuant to which we issued 50 shares
of Series B Preferred Stock, a seven year Series F Warrant to purchase 375,000
shares of our common stock at a price of $2.25 per share and a seven year Series
G Warrant to purchase 250,000 shares of our common stock at a price of $2.50
per
share.
The
Securities Purchase Agreement, dated January 18, 2008, by and between Vicis
and
us (the “January Securities Purchase Agreement”) provides that our obligations
to Vicis under the Series B Preferred Stock, the January Securities Purchase
Agreement and the various transaction documents entered into in connection
with
the January Securities Purchase Agreement (the “January Transaction Documents”)
are secured by a lien on all of our assets pursuant to the Security Agreement,
dated September 28, 2007, between us and Vicis.
The
January Securities Purchase Agreement further provides that our obligations
under the Series B Preferred Stock, the January Securities Purchase Agreement
and the January Transaction Documents are guaranteed by each of our subsidiaries
pursuant to the terms of the Guaranty Agreements previously entered into between
Vicis and each of our subsidiaries in September, 2007.
The
January Securities Purchase Agreement also provides that the guaranty
obligations of our subsidiaries in connection with the January Securities
Purchase Agreement and the January Transaction Documents are secured by the
liens on all of the assets of each our subsidiaries, except for the accounts
receivable and certain contract rights of Xeni Financial Services, Corp.,
created pursuant to the Security Agreements, previously entered into by and
between our subsidiaries and Vicis in September, 2007.
In
connection with the sale of the Series B Preferred Stock, we amended the
Registration Rights Agreement, previously entered into, by and between Vicis
and
us in September 2007, pursuant to which we agreed, in addition to registering
the securities previously covered by such Registration Rights Agreement, to
register for resale, the shares of our common stock into which the Series B
Preferred Stock sold pursuant to the January Securities Purchase Agreement
is
convertible and the shares of our common stock for which the Series F Warrants
and the Series G Warrants sold pursuant to the January Securities Purchase
Agreement are exercisable.
On
March
1, 2008, the Company and Gottbetter amended the Senior Notes to extend the
maturity date of the Senior Notes to January 1, 2011 and to delay principal
payments until March 1, 2008, if the Company is able to secure additional
financing by March 31, 2008. If the Company is unable to secure additional
financing by March 31, 2008, the amendment to the Senior Notes will be void
and
of no force and effect. In consideration of the amendment to the Senior Notes,
if the Company is able to obtain at least $5,000,000 in additional financing,
MDwerks, Inc. will issue to Gottbetter 2,000,000 warrants at an exercise price
to be determined at the time of the financing. We are in discussions with Vicis
regarding the provision of additional financing.
Loans
from Unaffiliated Third Parties
On
August
24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566,
after expenses) in connection with a financing provided by an unrelated party.
These notes bore interest at 7% per year, and both interest and principal were
paid in full on October 1, 2007.
On
August
24, 2006, we received gross proceeds of $110,000 (net proceeds of $100,000,
after expenses) in connection with a financing provided equally by two unrelated
parties. These notes bore interest at 10% per year, and both interest and
principal were paid in full on the January 21, 2007 maturity date.
|
ITEM
6.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
|
Overview
We
offer
a comprehensive technology-based selection of electronic medical claims
processing, funding and collection solutions to the healthcare provider industry
through an Internet Web browser. Our services help doctors, hospital based
practices, and other healthcare providers and their vendors to significantly
improve daily insurance claims transaction administration and
management.
Our
Xeni
Medical CLAIMwerks™ solutions can provide actual contract based, insurance
company comparable screening and analysis of medical claims directly from a
client’s practice management system, so that deficiencies and errors can be
corrected before they are submitted to insurance companies for electronic
payment. Further, the matching, settlement and posting of private insurance
company claims payments is electronically performed for clients, minimizing
the
bookkeeping and investigation necessary to determine payment status and
collection actions.
Since
the
system has the capability of analyzing value and risk of claims payment, clients
may also qualify for pre-approved revolving line of credit advances on claims
processed by our Xeni Finance FUNDwerks™ solution. FUNDwerks™ can
electronically manage loans, loan repayments and the movement of funds through
linked bank accounts administered by us for banks or finance companies; clients
can receive electronic advance funding on claims they select within five
business days on favorable terms.
Additionally,
clients may choose to complete the claims management cycle by subscribing to
the
Xeni Billing’s BILLwerks™ services, which can include patient billing and
collections and/or managing third party appeals on the provider’s
behalf.
There
is
no major hardware or software investment required to use the Company’s Web-based
systems. All transactions are designed to comply with HIPAA.
We
offer
our services to physician and clinical service group practices, hospitals,
rehabilitation centers, nursing homes and certain related practice vendors,
by
using internal and external resources. Internal resources consist mainly of
specialized sales executives with industry knowledge and/or a portfolio of
contacts. External resources consist primarily of independent sales
representatives as well as channel associates such as vendors of practice
management systems and medical industry specific sales groups such as office
management consultants. These sales resources can leverage an existing customer
base and contacts. Our marketing is based on prioritizing potential subscribers
by size, location and density, need for our products and services and
distribution opportunities. Accordingly, we are focusing our initial marketing
efforts in geographic areas such as California, Florida, Massachusetts, Texas,
New York and New Jersey, which contain high concentrations of prospective
clients.
Because
we have had a limited operating history, it is difficult to accurately forecast
our revenues and expenses. Additionally, our operations will continue to be
subject to risks inherent in the establishment of a new business, including,
among other things, efficiently deploying our capital, developing our product
and services offerings, developing and implementing our marketing campaigns
and
strategies and developing awareness and acceptance of our products. Our ability
to generate future revenues will be dependent on a number of factors, many
of
which are beyond our control, including the pricing of other services, overall
demand for our products, market competition and government
regulation.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations
are
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates based on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We
apply
the Securities and Exchange Commission's Staff Accounting Bulletin 104 for
revenue recognition. In general, we record revenue when persuasive evidence
of
an arrangement exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable, and
collectability is reasonably assured. We have identified the policy below
as
critical to our business operations and understanding of our financial
results:
Revenues
derived from fees related to claims and contract management services are
generally recognized when services are provided to the customer. We provide
advance funding for medical claims and term loan services to unaffiliated
healthcare providers. These arrangements typically require us to advance funds
to these unaffiliated healthcare providers (our customers) in exchange for
liens
on the receivables related to invoices remitted to their clients for services
performed. The advances are generally repaid through the remittance of payments
of receivables by their payers directly to us. We may withhold from these
advances interest, a fee charged in consideration of administration of advance
funding and loans and other charges as well as the amount of receivables
relating to prior advances that remain unpaid after a specified number of days.
These interest charges, administrative fees and other charges are recognized
as
revenue when earned and are calculated on a daily basis.
Revenues
derived from fees related to billing and collection services are generally
recognized when the customer's accounts receivable are collected. Revenues
from
implementation fees are generally recognized over the term of the customer
agreement. Revenues derived from maintenance, administrative and support fees
are generally recognized at the time the services are provided to the
customer.
Results
of Operations
For
the Year Ended December 31, 2007 Versus Year Ended December 31,
2006
Revenue
For
the
year ended December 31, 2007, we recorded total revenue of $577,251. Of this
total, we recorded service fee revenue of $470,149, accounting for 81.4% of
total revenue and financing income of $107,102, accounting for 18.6% of total
revenue. For the year ended December 31, 2006, we recorded total revenue of
$427,778. Of this total, we recorded service fee revenue of $355,429, accounting
for 83.1% of total revenue and financing income of $72,349, accounting for
16.9%
of total revenue.
Operating
Expenses
Our
operating expenses decreased for the year ended December 31, 2007 from the
year
ended December 31, 2006 as a result of reduced compensation and selling, general
and administrative expenses.
For
the
year ended December 31, 2007, total operating expenses were $8,022,031 as
compared to $9,036,301 for the year ended December 31, 2006, a decrease of
$1,014,270. Included in this decrease for the year ended December 31, 2007
are
the following:
|
|
1.
|
We
recorded compensation expense of $5,286,985
for
the year ended December 31, 2007
as
compared to $5,732,372 for the year ended December 31, 2006. This
$445,387
decrease was attributable to non-cash compensation expense for stock
option grants during 2007 in the amount of $3,196,046 as compared
to
$3,911,640 in 2006. We expect cash and non-cash compensation expense
to
increase as we hire additional administrative, sales and technical
personnel and record the expense of both current and future stock
option
grants; and
|
|
|
2.
|
Consulting
expense amounted to $760,284 for the year ended December 31, 2007
as
compared to $943,500 for the year ended December 31, 2006, a decrease
of
$183,216, or 19.4%. This decrease resulted from a lower costs in
2007
associated with obtaining financing as opposed to 2006 and the
transferring of outside business development consultant expense to
compensation expense due to the hiring of new
employees.
|
|
|
3.
|
Professional
fees amounted to $411,917 for the year ended December 31, 2007 as
compared
to $358,969 for the year ended December 31, 2006, an increase of
$52,948,
or 14.8%. This expense was attributable to an increase in our legal
fees
related to additional SEC filings, the Series B Preferred Stock offering,
and other corporate matters; and
|
|
|
4.
|
Selling,
general and administrative expenses were $1,562,845 for the year
ended
December 31, 2007 as compared to $2,001,460 for the year ended December
31, 2006, a decrease of $438,615, or 21.9%. This decrease resulted
from
the reduction of outside sales consultants, a decrease in investor
relations costs in the current year and a loss on notes payable
conversions in the prior year for which there is no comparable expense
in
2007.
|
For
the
years ended December 31, 2007 and 2006, selling, general and administrative
expenses consisted of the following:
|
|
|
2007
|
|
2006
|
|
|
Sales
commissions
|
|
$
|
68,849
|
|
$
|
201,674
|
|
|
Advertising
and promotion
|
|
|
92,899
|
|
|
196,750
|
|
|
Employee
benefits and payroll taxes
|
|
|
385,679
|
|
|
333,601
|
|
|
Other
selling, general and administrative
|
|
|
1,015,418
|
|
|
1,269,435
|
|
|
|
|
$
|
1,562,845
|
|
$
|
2,001,460
|
|
Other
Income (Expenses)
For
the
year ended December 31, 2007, interest expense was $2,484,835 as compared to
$905,374 for the year ended December 31, 2006, an increase of $1,579,461. This
increase was due to an increase in borrowings and amortization of debt discount
and deferred fees in connection with our notes payable. Additionally in 2006,
in
connection with the granting of 90,000 warrants related to certain notes
payable, we recorded interest expense of $335,273.
During
the year ended December 31, 2006, we recorded a loss on the revaluation of
warrant liability of $192,914 related to the change in fair value of the
warrants during this period.
Net
Loss
As
a
result of these factors, we reported a net loss of $9,882,330 for the year
ended
December 31, 2007 as compared to a net loss of $9,675,046 for the year ended
December 31, 2006.
Deemed
Dividend arising from beneficial conversion on Preferred Stock and Other
Charges
During
the year ended December 31, 2006, we recorded a deemed dividend arising from
a
beneficial conversion feature of preferred stock of $913,777 which relates
to
our Series A Convertible Preferred Stock. This non-cash item is related to
the
beneficial conversion features on our Series A Convertible Preferred Stock.
In
addition, for the year ended December 31, 2006, we issued 76,000 shares of
the
Company's common stock to certain shareholders pursuant to agreements to offset
the effect of dilutive financings of the Xeni Companies. The shares issued
were
valued at the fair market value at the date of issuance of $246,240 and were
treated as an additional charge to the loss attributable to common
shareholders.
Net
Loss Attributable to Common Shareholders
We
reported a net loss attributable to common shareholders of $9,882,330 for the
year ended December 31, 2007 as compared to net loss attributable to common
shareholders of $10,835,063 for the year ended December 31, 2006. This
translates to an overall per share loss available to shareholders of ($.77)
for
the year ended December 31, 2007 as compared to a per share loss of ($.91)
for
the year ended December 31, 2006.
Liquidity
and Capital Resources
We
used
the proceeds from the sales of preferred stock and notes and loans payable
through December 31, 2007 for working capital purposes and for funding our
notes
receivables of which we have $1,652,079 owed to us at December 31, 2007. We
will
continue to advance funds under note agreements to providers that subscribe
to
our MDwerks financial services solutions.
As
of
December 31, 2007, we had a cash balance of $320,903. The amount of cash
available to us at December 31, 2007, along with the $500,000 January 18, 2008
financing, will be insufficient for us to service our current indebtedness
and
implement our business plan as anticipated and will require us to seek
additional debt or equity financing in the near future, as we will be unable
to
generate sufficient cash flow from our operations. Our ability to continue
to
implement our revenue and profit growth strategy will be adversely affected
and
the Company will have to curtail operations if we are unable to consummate
a
sufficient amount of additional private placement transactions or debt
financing, which we are currently pursuing.
We
currently have no material commitments for capital expenditures.
Cash
flows
At
December 31, 2007, we had cash of $320,903.
Net
cash
used in operating activities was $4,967,641 for the year ended December 31,
2007
as compared to $3,614,120 for the year ended December 31, 2006, an increase
of
$1,353,521. This increase is primarily attributable to an increase in our net
loss and:
|
|
1.
|
Stock-based
compensation of $3,346,046 is primarily related to lower issuances
of
stock options to employees and shares of our common stock to consultants,
versus $4,334,140 for the year ended December 31,
2006;
|
|
|
2.
|
Loss
on valuation of warrant liability for the year ended December 31,
2007 of
$0 versus $192,914 through September 30, 2006 due to the revaluation
of
our warrant liability to fair value for the year ended December 31,
2006;
|
|
|
3.
|
Amortization
of debt discount related to the Gottbetter, Grenier and Goldner Notes
of
$2,021,396 , deferred compensation of $266,040, Gottbetter and Vicis
debt
offering costs of $207,202, and Goldner and Grenier debt issuance
costs of
$10,954, compared to debt discount related to the Gottbetter Notes
of
$354,190, deferred compensation of $291,487, Gottbetter debt offering
costs of $43,361 and Goldner and Grenier debt issuance costs of $12,480
during the year ended December 31,
2006;
|
|
|
4
|
No
settlement expense for the year ended December 31, 2007 versus $180,827
for the conversion of $40,000 of notes payable to common stock for
the
year ended December 31, 2006;
|
|
|
5.
|
No
interest expense in connection with the grant of warrants versus
$460,572
for the year ended December 31,
2006;
|
|
|
6.
|
A
net increase in notes receivable, accounts receivable and prepaid
expenses
aggregating $1,331,056 principally related to the increase in funding
of
notes receivable to providers that subscribe to our MDwerks financial
services solution and other healthcare providers;.
|
Net
cash
used in investing activities was $5,209 for the year ended December 31, 2007
as
compared to $110,457 for the year ended December 31, 2006 and is principally
related to the acquisition of computer and office equipment and
furniture.
Net
cash
provided by financing activities was $2,146,912 for the year ended December
31,
2007 as compared to $6,104,954 for the year ended December 31, 2006. For the
year ended December 31, 2007, we received gross proceeds from the sale of Series
B Convertible Preferred Stock of $2,000,000 reduced by placement fees and other
expenses paid of $116,810 and we received net proceeds from notes payable of
$575,000 and $250,000 and a loan payable of $250,000. During 2007, we made
notes
payable repayments of $598,362 and loans payable repayments of $212,916. For
the
year ended December 31, 2006, we received gross proceeds from notes payable
of
$4,750,000 from Gottbetter and $360,000 from three qualified investors which
were offset by placement fees of $263,264. We also received proceeds from the
sale of Series A Convertible Preferred Stock of $1,700,000 reduced by placement
fees and other expenses paid of $313,923. During 2006, we made notes payable
repayments of $101,634 and loans payable repayments of $26,225..
Off
Balance Sheet Arrangements
We
had no
off balance sheet arrangements as of December 31, 2007.
|
ITEM
7.
|
FINANCIAL
STATEMENTS
|
See
our
Financial Statements beginning on page F-1.
|
ITEM
8.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None
|
ITEM
8A.
|
CONTROLS
AND
PROCEDURES
|
|
(a)
|
Disclosure
Controls and
Procedures
|
Under
the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this
report (the “Evaluation Date”). Based on this evaluation, our principal
executive officer and principal financial officer concluded as of the Evaluation
Date that our disclosure controls and procedures were effective such that the
information relating to MDwerks, Inc., including our consolidated subsidiaries,
required to be disclosed in our Securities and Exchange Commission (“SEC”)
reports (i) is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms and (ii) is accumulated and
communicated to MDwerks, Inc. management, including our principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no matter
how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Due
to
the inherent limitations in all control systems, no evaluation of controls
can
provide absolute assurance that all control issues and instances of fraud,
if
any, within MDwerks, Inc. have been detected.
|
(b)
|
Management’s
Report on Internal Control over Financial
Reporting
|
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act, as amended). Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2007. In
making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal
Control-Integrated Framework
.
Our
management has concluded that, as of December 31, 2007, our internal control
over financial reporting is effective based on these criteria.
|
(c)
|
Changes
in Internal Control over Financial
Reporting
|
Our
management has also evaluated our internal controls over financial reporting,
and there have been no significant changes in our internal controls or in other
factors that could significantly affect those controls subsequent to the date
of
their last evaluation.
This
annual report does not include an attestation report of our public accounting
firm regarding internal control over financial reporting. Our management’s
report was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit us to provide only management’s report in this annual
report.
There
have been no changes in our internal control over financial reporting during
our
fourth fiscal quarter that has materially affected, or is reasonably likely
to
materially affect, our internal control over financial reporting.
On
July
25, 2007, the Securities and Exchange Commission unanimously approved the Public
Company Accounting Oversight Board's (PCAOB) proposed Auditing Standard No.
5,
An
Audit of Internal Control Over Financial Reporting That is Integrated With
An
Audit of Financial Statement
.
Auditing Standard No. 5 provides the new professional standards and related
performance guidance for independent auditors to attest to, and report on,
management's assessment of the effectiveness of internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX). We
have
engaged a qualified third-party to assist us with the preparations for
management’s assessment of the effectiveness of internal controls over financial
reporting required by the end of this fiscal year and with the documentation
and
procedures required for our external auditor attestation requirement, which
becomes effective fiscal year ending 2009.
|
ITEM
8B.
|
OTHER
INFORMATION
|
Not
applicable.
PART
III
|
ITEM
9.
|
DIRECTORS
AND EXECUTIVE OFFICERS
|
The
following table sets forth information regarding the members of our Board of
Directors and our executive officers. The directors listed below will serve
until the next annual meeting of our stockholders.
|
Name
|
|
Age
|
|
Position
|
|
|
Howard
Katz
|
|
|
66
|
|
|
Chief
Executive Officer and Director
|
|
|
Solon
Kandel
|
|
|
47
|
|
|
President
and Director
|
|
|
Vincent
Colangelo
|
|
|
64
|
|
|
Chief
Financial Officer and Secretary
|
|
|
Gerard
Maresca
|
|
|
62
|
|
|
Vice
President of Business Development
|
|
|
Stephen
M. Weiss
|
|
|
54
|
|
|
Chief
Operating Officer
|
|
|
David
M. Barnes
|
|
|
65
|
|
|
Director
|
|
|
Peter
Dunne
|
|
|
50
|
|
|
Director
|
|
|
Paul
Kushner
|
|
|
61
|
|
|
Director
|
|
The
principal occupation for the past five years (and, in some instances, for prior
years) of each of our directors and officers are as follows:
Howard
B. Katz
became,
effective as of November 16, 2005, our Chief Executive Officer and a Member
of
our Board of Directors. Mr. Katz is also the Chief Executive Officer and a
Director of our wholly-owned subsidiary MDwerks Global Holdings, Inc., which
positions he has held since June, 2005. Since July, 2004, Mr. Katz has been
a
Director and Chief Executive Officer of Xeni Medical Systems, Inc., and Mr.
Katz
has been the sole Director and Chief Executive Officer of Xeni Medical Billing
Corp. since March 2005, and has been the sole Director and Chief Executive
Officer of Xeni Financial Services, Corporation since February 2005. From
December, 2002 until October, 2004, Mr. Katz was Chief Executive Officer of
ViewPoint Exams International, Inc., a company that facilitated independent
medical examinations in connection with insurance and litigation matters. From
August 1998 to December, 2002, Mr. Katz was the Chief Executive Officer of
Imagine Networks, Inc., a company based in New York City that engaged in prepaid
telecommunications and financial services. Mr. Katz served on the Board of
Directors of American United Global, Inc., a publicly traded company from April
1996 until August 2005. Mr. Katz has over 35 years of operating, financial
and
senior management experience, in both public and private companies. His
responsibilities have included numerous progressive positions as CFO, President
and CEO of ‘‘high tech’’, software development and other high growth businesses,
including one involving banking transactions. Mr. Katz was President of National
Fiber Network, Inc. which later became MetroMedia Fiber Network, Inc. and
reached a peak public market capitalization of over $30 billion. Mr. Katz has
been a principal in, or helped consummate, numerous public offerings and other
successful business ventures. Mr. Katz received an MBA from New York
University.
Solon
L. Kandel
became,
effective as of November 16, 2005, our President and a member of our Board
of
Directors. Mr. Kandel is also the President and a Director of MDwerks Global
Holdings, Inc., which he has held since June, 2005. Since July, 2004, Mr. Kandel
has been a Director and President of Xeni Medical Systems, Inc., and Mr. Kandel
has been President of Xeni Medical Billing Corp. since March 2005, and has
been
President of Xeni Financial Services, Corporation since February 2005. Since
November 2000, Mr. Kandel has been the Chief Executive Officer and Managing
Member of The Ashwood Group, L.L.C., a venture development and business
consulting company based in Boca Raton, Florida. From April 1999 to October
2000, Mr. Kandel was the President, Chief Executive Officer of Independent
Wireless One, Inc., a wireless voice, data and Internet Company based in Albany,
New York. From April 1999 to April 2002, Mr. Kandel also served as a member
of
the Board of Directors of Independent Wireless One, Inc. Mr. Kandel has enjoyed
over 15 years of progressive and diverse operating and senior management
experience, ranging from start-up to large, multi-billion dollar company
environments. Prior to business management, Mr. Kandel performed corporate
and
banking transactions law for several years and was a Senior Attorney at McCaw
Cellular Communications. Mr. Kandel received a JD from Rutgers University School
of Law and is a Truman Scholar.
Vincent
Colangelo
became,
effective as of November 16, 2005, our Chief Financial Officer. Since July,
2005, until becoming our Chief Financial Officer, Mr. Colangelo provided
consulting services to us. From March 2004 to November 2005, Mr. Colangelo
was
the President and Principal Consultant of Weston Business Advisors, Inc., a
business consulting company based in Weston, Florida. From January 2003 to
March
2004, Mr. Colangelo was the President of Cartridge World Florida in Weston,
Florida, a master franchisee for the State of Florida for a world wide print
cartridge refilling organization. From September 1995 to December 2002, Mr.
Colangelo was the President and Principal Consultant of Birchwood Associates,
Inc., a business consulting company based in Weston, Florida. Mr. Colangelo
has
over 35 years of financial executive and operational management experience.
As a
principal of the management consulting firms, Mr. Colangelo provided interim
CFO, COO and general financial consulting services to clients ranging from
small
businesses to Fortune 100 companies. Mr. Colangelo brings to us a unique
combination of financial management skills, industry experience and familiarity
with our product line. Mr. Colangelo was also President of a start-up
multi-national publishing company and worked at Xerox’ world headquarters as a
consolidations and regulatory reporting manager and as a financial planning
manager. Mr. Colangelo received an MBA and a BBA from Iona College and is a
New
York State CPA.
Stephen
M. Weiss
became,
effective as of May 29, 2007, our Chief Operating Officer. Prior to this Mr.
Weiss served from November 16, 2005, as our Chief Technology Officer. Mr. Weiss
has provided consulting services to us and served as acting Chief Technology
Officer of MDwerks Global Holdings, Inc. since March 2005. From March 2002
to
March 2005, Mr. Weiss was the Chief Technology Officer and Chief Operating
Officer of Enterprise Technology Corporation, a financial software services
consulting company that served many Fortune 500 clients. From September 1999
to
November 2001, Mr. Weiss was the Chief Technology Officer at Imagine Networks,
Inc., where he designed and managed the development of electronic payment
systems linked to telecommunications pre-paid systems. Prior to joining Imagine
Networks, Inc., he co-founded AstraTek, a software products and consulting
firm
that developed products and consulting services for financial and technology
companies including Microsoft, IBM and Citrix. Mr. Weiss also served as Vice
President at Bankers Trust Company for over 13 years, where he developed a
number of advanced communication systems, including a global cryptography-based
authentication system and links in Tokyo between the bank’s back office systems
and the Bank of Japan’s money transfer and clearance systems. Mr. Weiss received
a BA from Buffalo State College.
Gerard
Maresca
became,
effective February 1, 2007, our Vice President of Business Development. From
February 14, 2006 to February 1, 2007, Mr. Maresca served as our Chief Operating
Officer. From November 16, 2005 until February 14, 2006, Mr. Maresca was our
Vice President of Business Development. Prior to joining us, since January
2004,
Mr. Maresca operated a technology and business consulting company called GMAR,
Inc. From February 2000 to October 2003, Mr. Maresca was the Executive Vice
President and Chief Technology Officer of MEDwerks, LLC, and was responsible
for
development of our products. Mr. Maresca has 28 years of technology,
engineering, and program management experience, focused on hardware and software
development of computer based products. Mr. Maresca has served as a hardware
and
software system architect, with experience in Internet and web applications.
While Product Director at Intel Corp. (‘‘Intel’’) for 9 ½ years, he managed
development of Intel's i860 program parallel microprocessor, product marketing,
manufacturing and R&D, as well as new business development and client
support. Mr. Maresca was also Vice President at Diagnostic Retrieval Systems,
Inc. for 8 years until he began working with MEDwerks, LLC. Mr. Maresca received
a BSEC from Brooklyn Polytech, and a MSCS from Columbia University. He holds
five U.S. patents and has published.
David
M. Barnes
became,
effective as of November 16, 2005, a member of the Board of Directors and serves
on our Audit Committee as Chairman and is also a member of our Compensation
Committee. Mr. Barnes has also served as Chief Financial Officer of Neah Power
Systems, Inc., (NPWS:OTCBB), since April 2006, and was Chief Financial Officer
of Cyber Defense Systems, Inc., (CYDF:OTCBB), from August 2005 through November
2007. In addition, Mr. Barnes was a Director, Executive Vice President and
Chief
Financial Officer of American United Global, Inc., now Solar Thin Films, Inc.
(SLTN:OTCBB), from April 1996 through July 2006. Mr. Barnes is also a member
of
the Board of Directors, Audit Committee and Compensation Committee of China
Direct, Inc. (CDS:ASE),
Searchhelp,
Inc. (SHLP:OTCBB), Medical Solutions Management Inc. (MSMI:OTCBB) and
Thinkpath,Inc. (THPHF:OTCBB). On March 7, 2008, Thinkpath, Inc. filed a
bankruptcy petition under Chapter 11 of the U.S. Bankruptcy Code.
Peter
Dunne
became,
effective as of November 16, 2005, a member of our Board of Directors and serves
on our Compensation Committee. Mr. Dunne has spent over 25 years in
communications management. Currently he is President and partner of Franklin
Communications, LLC, a full service graphic services company, a position he
has
held since July 2002. From March 2002 to July 2002 he was Regional General
Manager for Kelmscott Communications, LLC overseeing Franklin Communications,
Trade Litho, Little River Press, and Lauderdale Graphics. From September 2000
to
July 2002 he held the position of Regional Controller for the same companies.
From September 1982 to September 2000 he was Vice President and Controller
of
Franklin Communications. Mr. Dunne’s other experiences include positions in
Dataco, a national data entry service business, and Robertson Leasing Corp,
an
equipment leasing company, both formerly divisions of Robertson Financial
Corporation. Mr. Dunne is Vice Chairman of the Board of Directors of the
Printing Association of Florida and on the CEO Advisory Board to the Printing
Industries of America.
Paul
Kushner
became,
effective June 22, 2006, a member of our Board of Directors and serves on our
Audit Committee. Mr. Kushner has been President and Owner of Asset Indemnity
Brokerage Corp., an insurance brokerage firm since July 1994. Mr. Kushner
started his career in the surety industry in 1967 and has been world regional
bond manager for American International Group (AIG) and special representative
to Norway for the introduction of surety bonds in the United States. In 1987,
he
was the New York Manager of American International Group, Domestic and
International Operations.
Board
of Director Composition and Committees
Our
Board
of Directors is comprised of five directors, Messrs. Katz, Kandel, Barnes,
Dunne
and Kushner. David M. Barnes and Peter Dunne serve as members of our
Compensation Committee and David M. Barnes and Paul Kushner serve as members
of
our Audit Committee. We have independent parties serving on each of the Audit
Committee and the Compensation Committee.
Director
Compensation
The
following non-management directors received compensation from MDwerks, Inc.
in
the amounts set forth in the chart below for the twelve months ended December
31, 2007, December 31, 2006 and December 31, 2005. We intend to continue to
compensate non-management directors through the issuance of stock awards
including, without limitation, incentive stock options, restricted stock awards,
stock grants and or stock appreciation rights. The value attributable to any
Option Awards in the following chart is computed in accordance with FAS 123R.
No
other item of compensation was paid to any director of the Company other than
reimbursement of expenses:
DIRECTOR
COMPENSATION
|
Name
|
|
Year
|
|
Fees
Earned
or
Paid in
Cash
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-
Equity
Incentive
Plan
Compen-
sation
|
|
Change
in
Pension
Value
and
Non-
qualified
Deferred
Compen-
sation
Earnings
|
|
All
Other
Compen-
sation
|
|
Total
|
|
|
David
M. Barnes
|
|
|
2007
|
|
$
|
20,000
|
|
$
|
25,000
|
1
|
$
|
54,000
|
2
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
99,000
|
|
|
|
|
|
2006
|
|
$
|
14,000
|
|
$
|
87,500
|
3
|
$
|
165,750
|
4
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
267,250
|
|
|
|
|
|
2005
|
|
$
|
3,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
Dunne
|
|
|
2007
|
|
$
|
14,000
|
|
|
—
|
|
$
|
12,000
|
5
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
26,000
|
|
|
|
|
|
2006
|
|
$
|
14,000
|
|
|
—
|
|
$
|
342,800
|
6
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
356,800
|
|
|
|
|
|
2005
|
|
$
|
3,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Kushner
|
|
|
2007
|
|
$
|
14,000
|
|
|
—
|
|
$
|
12,000
|
5
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
26,000
|
|
|
|
|
|
2006
|
|
$
|
7,000
|
|
|
—
|
|
$
|
360,800
|
7
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
367,800
|
|
|
|
|
|
2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
On
May 29, 2007, the Company issued 50,000 shares of common stock to
a David
M. Barnes in consideration for services rendered. The shares were
issued
at the fair value at the date of the issuance of $25,000 or $0.50
per
share. The Company recorded stock-based consulting expense of
$25,000.
|
|
2
|
Consists
of Incentive Stock Options to purchase 150,000 shares of common stock
at a
price of $0.38 per share granted on December 31, 2007 and vesting
on
December 31, 2007.
|
|
3
|
On
June 19, 2006, the Company authorized the issuance of 75,000 shares
of
common stock to David M. Barnes in consideration for services rendered.
On
June 22, 2006, the Company issued 25,000 of these authorized shares
of
common stock at the fair value at the date of the issuance of $87,500
or
$3.50 per share. The Company recorded stock-based compensation of
$87,500.
|
|
4
|
Consists
of Incentive Stock Options to purchase 44,000 shares of common stock
and
Non-qualified Stock Options to purchase 31,000 shares of common stock
both
at a price of $2.25 per share granted on October 11, 2006 and vesting
in ⅓
increments starting on October 11, 2006 and on each of the next two
anniversaries of the date of the
grant.
|
|
5
|
Consists
of Incentive Stock Options to purchase 35,000 shares of common stock
at a
price of $0.38 per share granted on December 31, 2007 and vesting
on
December 31, 2007.
|
|
6
|
Consists
of Incentive Stock Options to purchase 25,000 shares of common stock
and
Non-qualified Stock Options to purchase 50,000 shares of common stock
both
at a price of $4.00 per share granted on June 19, 2006 and vesting
in ⅓
increments on each anniversary of the grant, and Non-qualified Stock
Options to purchase 25,000 shares of common stock at a price of $2.25
per
share granted on October 11, 2006 and vesting in ⅓ increments starting on
October 11, 2006 and on each of the next two anniversaries of the
date of
the grant.
|
|
7
|
Consists
of Incentive Stock Options to purchase 23,500 shares of common stock
and
Non-qualified Stock Options to purchase 51,500 shares of common stock
both
at a price of $4.25 per share granted on June 22, 2006 and vesting
in ⅓
increments on each anniversary of the grant, and Non-qualified Stock
Options to purchase 25,000 shares of common stock at a price of $2.25
per
share granted on October 11, 2006 and vesting in ⅓ increments starting on
October 11, 2006 and on each of the next two anniversaries of the
date of
the grant.
|
Audit
Committee Financial Expert
David
M.
Barnes serves on our Audit Committee as the audit committee financial expert.
Mr. Barnes is independent (as such term is used in Item 7(d) (3) (iv) of
Schedule 14A under the Exchange Act).
Executive
Officer Employment Agreements
Effective
January 1, 2006, each of Howard B. Katz, Solon L. Kandel, Vincent Colangelo,
and
Stephen W. Weiss entered into an employment agreement with us. The employment
agreement with Mr. Katz was extended on December 31, 2007 to a term expiring
on
December 31, 2010. The employment agreement with Mr. Colangelo extends for
a
term expiring on December 31, 2009. The employment agreements with Messrs.
Kandel and Weiss expired on December 31, 2007 and are being extended on a
month-to-month basis. Pursuant to these employment agreements, Mr. Katz has
agreed to devote substantially all of his time, attention and ability, and
Messrs. Kandel, Colangelo and Weiss have each agreed to devote all of their
time, attention and ability, to our business as our Chief Executive Officer,
President, Chief Financial Officer, Chief Operating Officer, respectively.
The
employment agreements provide that Messrs. Katz, Kandel, Colangelo, and Weiss
will receive a base salary during calendar year 2007 at an annual rate of
$225,000, $200,000, $175,000, and $165,000 for services rendered in such
positions. Mr. Kandel agreed to defer payment on his entire 2007 annual base
salary increase of $25,000 and Mr. Colangelo agreed to defer payment of $15,000
of his 2007 annual base salary increase of $25,000. During calendar years 2008
and 2009 under the employment agreements for Messrs. Katz and Colangelo, their
annual base salaries will be increased to $300,000 and $330,000, respectively,
for Mr. Katz, and $200,000 and $220,000, respectively, for Mr. Colangelo. During
calendar years 2010, under the employment agreement for Mr. Katz, the annual
base salary will be increased to $363,000. In addition, each executive may
be
entitled to receive, at the sole discretion of our board of directors, cash
bonuses based on the executive meeting and exceeding performance goals. The
cash
bonuses range from up to 25% of the executive’s annual base salary for Mr.
Weiss, up to 100% of the executive’s annual base salary for Messrs. Kandel and
Colangelo, and up to 150% of the executive’s annual base salary for Mr. Katz.
The cash bonuses for Messrs. Katz, Kandel and Colangelo include a minimum bonus
due of 40%, 25% and 25% respectively. Messrs. Katz, Kandel, and Colangelo have
agreed to defer payment on their 2007 bonuses, to which they were entitled.
Each
of our executive officers is entitled to participate in our 2005 Incentive
Compensation Plan. We have also agreed to pay or reimburse each executive
officer up to a specified monthly amount for the business use of his or her
personal car and cell phone. The employment agreements provide for termination
by us upon death or disability (defined as 90 aggregate days of incapacity
during any 365-consecutive day period) of the executive or upon conviction
of a
felony or any crime involving moral turpitude, or willful and material
malfeasance, dishonesty or habitual drug or alcohol abuse by the executive,
related to or affecting the performance of his duties. In the event any of
the
employment agreements are terminated by us without cause, such executive will
be
entitled to compensation for the balance of the term of his employment agreement
or, if longer, for three years in the case of Mr. Katz and two years in the
case
of Mr. Colangelo. Messrs. Katz, Kandel and Colangelo also have the right, if
terminated without cause, to accelerate the vesting of any stock options or
other awards granted under our 2005 Incentive Compensation Plan. We intend
to
obtain commitments for key-man life insurance policies for our benefit on the
lives of Messrs. Katz, Kandel and Colangelo equal to three times their
respective annual base salary. In addition to the key-man life insurance
policies, we have agreed to maintain throughout the term of each employment
agreement 15-year term life insurance policies on the lives of Messrs. Katz,
Kandel and Colangelo, with benefits payable to their designated beneficiaries,
and to pay all premiums in connection with those policies
In
the
event of a change of control of our company, Messrs. Katz and Colangelo may
terminate their employment with us within six months after such event and will
be entitled to continue to be paid pursuant to the terms of their respective
employment agreements.
The
employment agreements also contain covenants (a) restricting the executive
from
engaging in any activities competitive with our business during the terms of
such employment agreements and one year thereafter, (b) prohibiting the
executive from disclosure of confidential information regarding us at any time
and (c) confirming that all intellectual property developed by the executive
and
relating to our business constitutes our sole and exclusive
property.
The
foregoing summaries of our employment agreements are qualified by reference
to
the full texts of the form of each of the Senior Executive Level Employment
Agreement and Executive Level Employment Agreement, filed as Exhibits 10.1
and
10.2 to our Current Report on Form 8-K, filed with the SEC on January 5, 2006,
respectively, as Exhibit 10.1 to our Current Report on Form 8-K, filed with
the
SEC on February 2, 2007, and as Exhibit 10.1 to our Current Report on Form
8-K,
filed with the SEC on January 4, 2008 all of which are incorporated herein
in
their entirety.
Currently,
we do not have an employment agreement with Gerard Maresca and, therefore,
his
employment is on an ‘‘at-will’’ basis
Indemnification
of Directors and Officers
As
permitted by the provisions of the Delaware General Corporation Law (the
‘‘DGCL’’), we have the power to indemnify any person made a party to an action,
suit or proceeding by reason of the fact that they are or were a director,
officer, employee or agent of ours, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with any such action, suit or proceeding if they acted in good faith
and in a manner which they reasonably believed to be in, or not opposed to,
our
best interest and, in any criminal action or proceeding, they had no reasonable
cause to believe their conduct was unlawful. Termination of any action, suit
or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo
contendere
or its
equivalent, does not, of itself, create a presumption that the person did not
act in good faith and in a manner which they reasonably believed to be in or
not
opposed to our best interests, and, in any criminal action or proceeding, they
had no reasonable cause to believe their conduct was unlawful.
We
must
indemnify a director, officer, employee or agent who is successful, on the
merits or otherwise, in the defense of any action, suit or proceeding, or in
defense of any claim, issue, or matter in the proceeding, to which they are
a
party because they are or were a director, officer, employee or agent, against
expenses actually and reasonably incurred by them in connection with the
defense.
We
may
provide to pay the expenses of officers and directors incurred in defending
a
civil or criminal action, suit or proceeding as the expenses are incurred and
in
advance of the final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that they
are not entitled to be indemnified.
The
DGCL
also permits a corporation to purchase and maintain liability insurance or
make
other financial arrangements on behalf of any person who is or was
|
|
·
|
a
director, officer, employee or agent of
ours,
|
|
|
·
|
or
is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other
enterprises.
|
Such
coverage may be for any liability asserted against them and liability and
expenses incurred by them in their capacity as a director, officer, employee
or
agent, or arising out of their status as such, whether or not the corporation
has the authority to indemnify them against such liability and
expenses.
Insofar
as indemnification for liabilities arising under the Securities Act, as amended,
may be permitted to officers, directors or persons controlling our company
pursuant to the foregoing provisions, we have been informed that in the opinion
of the SEC such indemnification is against public policy as expressed in such
Act and is therefore unenforceable.
Code
of Ethics
We
adopted a code of ethics that applies to our officers, directors and employees,
including our chief executive officer and chief financial officer.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934, as amended, which requires
executive officers and directors, and persons who beneficially own more than
ten
(10%) percent of the common stock of a company with a class of securities
registered under the Securities Exchange Act of 1934, to file initial reports
of
ownership and reports of changes in ownership with the Securities and Exchange
Commission, is not currently applicable to us.
|
ITEM
10.
|
EXECUTIVE
COMPENSATION
|
Incentive
Compensation Plan
In
November, 2005, we approved the MDwerks, Inc. 2005 Incentive Compensation Plan
(the ‘‘Incentive Plan’’). The Incentive Plan covers grants of stock options,
grants of equity securities, dividend equivalents and other customary items
covered by such plans. Persons eligible to receive awards under the Incentive
Plan are the officers, directors, employees, consultants and other persons
who
provide services to us or any Related Entity (as defined in the Incentive
Plan).
The
Incentive Plan is administered by our Compensation Committee; however, the
Board
of Directors can exercise any power or authority granted to the Compensation
Committee under the Incentive Plan, unless expressly provided otherwise in
the
Incentive Plan.
We
have
reserved 10,000,000 shares of our authorized Common Stock for issuance pursuant
to grants under the Incentive Plan.
The
following executives received grants of stock options from MDwerks, Inc. through
December 31, 2007:
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
Name
and
Principal Position
|
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
|
|
Howard
Katz
|
|
|
16,667
|
|
|
8,333
|
1
|
|
—
|
|
$
|
3.25
|
|
|
12/28/2015
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Chief
Executive
|
|
|
141,667
|
|
|
283,333
|
2
|
|
—
|
|
$
|
3.40
|
|
|
1/2/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Officer
and
|
|
|
83,333
|
|
|
166,667
|
3
|
|
—
|
|
$
|
4.00
|
|
|
6/18/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Director
|
|
|
333,333
|
|
|
166,667
|
4
|
|
—
|
|
$
|
2.25
|
|
|
10/10/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
50,000
|
|
|
—
|
|
|
—
|
|
$
|
1.39
|
|
|
12/26/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
263,000
|
|
|
—
|
|
|
—
|
|
$
|
0.38
|
|
|
12/31/2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vincent
Colangelo
|
|
|
16,667
|
|
|
8,333
|
1
|
|
—
|
|
$
|
3.25
|
|
|
12/28/2015
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Chief
Financial
|
|
|
41,667
|
|
|
83,333
|
|
|
—
|
|
$
|
3.40
|
|
|
1/2/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Officer
and
|
|
|
25,000
|
|
|
50,000
|
3
|
|
—
|
|
$
|
4.00
|
|
|
6/18/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Secretary
|
|
|
50,000
|
|
|
25,000
|
4
|
|
—
|
|
$
|
2.25
|
|
|
10/10/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
15,000
|
|
|
—
|
|
|
—
|
|
$
|
1.39
|
|
|
12/26/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solon
Kandel
|
|
|
16,667
|
|
|
8,333
|
1
|
|
—
|
|
$
|
3.25
|
|
|
12/28/2015
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
President
and
|
|
|
100,000
|
|
|
200,000
|
2
|
|
—
|
|
$
|
3.40
|
|
|
1/2/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Director
|
|
|
25,000
|
|
|
50,000
|
3
|
|
—
|
|
$
|
4.00
|
|
|
6/18/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
66,667
|
|
|
33,333
|
4
|
|
—
|
|
$
|
2.25
|
|
|
10/10/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerard
Maresca
|
|
|
16,667
|
|
|
8,333
|
1
|
|
—
|
|
$
|
3.25
|
|
|
12/28/2015
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Vice
President,
|
|
|
1,667
|
|
|
3,333
|
2
|
|
—
|
|
$
|
3.40
|
|
|
1/2/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Business
|
|
|
8,333
|
|
|
16,667
|
3
|
|
—
|
|
$
|
4.00
|
|
|
6/18/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Development
|
|
|
16,667
|
|
|
8,333
|
4
|
|
—
|
|
$
|
2.25
|
|
|
10/10/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
M. Weiss
|
|
|
16,667
|
|
|
8,333
|
1
|
|
—
|
|
$
|
3.25
|
|
|
12/28/2015
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Chief
Operating
|
|
|
1,667
|
|
|
3,333
|
2
|
|
—
|
|
$
|
3.40
|
|
|
1/2/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Officer
|
|
|
8,333
|
|
|
16,667
|
3
|
|
—
|
|
$
|
4.00
|
|
|
6/18/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
16,667
|
|
|
8,333
|
4
|
|
—
|
|
$
|
2.25
|
|
|
10/10/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
10,000
|
|
|
5,000
|
5
|
|
—
|
|
$
|
1.39
|
|
|
12/26/2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
Consists
of Options vesting on December 28,
2008.
|
|
2
|
Consists
of Options vesting ½ on January 2, 2008 and vesting ½ on January 2,
2009.
|
|
3
|
Consists
of Options vesting ½ on June 18, 2008 and vesting ½ on June 18,
2009.
|
|
4
|
Consists
of Options vesting on October 10,
2008.
|
|
5
|
Consists
of Options vesting on December 26,
2008.
|
As
of
March 1, 2008, the following awards have been granted to the executive officers
named in this Annual Report on Form 10-KSB under the Incentive
Plan:
|
Name
of Grantee
|
|
Incentive
Stock
Options
|
|
Non-Qualified
Stock
Options
|
|
Percentage
of
all
Options
Granted
to
Employees
|
|
|
Howard
Katz
|
|
|
316,750
|
1
|
|
1,196,250
|
2
|
|
55.3
|
%
|
|
Solon
Kandel
|
|
|
53,750
|
3
|
|
446,250
|
4
|
|
17.7
|
%
|
|
Vincent
Colangelo
|
|
|
53,750
|
3
|
|
261,250
|
5
|
|
10.8
|
%
|
|
Gerard
Maresca
|
|
|
50,750
|
6
|
|
29,250
|
7
|
|
2.0
|
%
|
|
Stephen
Weiss
|
|
|
50,750
|
6
|
|
44,250
|
8
|
|
2.6
|
%
|
The
following awards have been granted to the executive officers named in this
Annual Report on Form 10-KSB under the Incentive Plan in the last fiscal
year:
|
Name
of Grantee
|
|
Incentive
Stock
Options
|
|
Non-Qualified
Stock
Options
|
|
Percentage
of
all
Options
Granted
to
Employees
in
Last
Fiscal
Year
|
|
|
Howard
Katz
|
|
|
263,000
|
9
|
|
0
|
|
|
100.0
|
%
|
|
Solon
Kandel
|
|
|
0
|
|
|
0
|
|
|
0.0
|
%
|
|
Vincent
Colangelo
|
|
|
0
|
|
|
0
|
|
|
0.0
|
%
|
|
Gerard
Maresca
|
|
|
0
|
|
|
0
|
|
|
0.0
|
%
|
|
Stephen
Weiss
|
|
|
0
|
|
|
0
|
|
|
0.0
|
%
|
|
1
|
Consists
of (i) options to purchase 25,000 shares of Common Stock at a price
of
$3.25 per share, granted on December 29, 2005, and vesting in ⅓ increments
on each anniversary date of the date of grant, (ii) options to purchase
25,000 shares of Common Stock at a price of $3.40 per share, granted
on
January 3, 2006 and vesting in ⅓ increments on each anniversary date of
the date of grant, (iii) options to purchase 3,750 shares of Common
Stock
at a price of $4.00 per share, granted on June 19, 2006 and vesting
in ⅓
increments on each anniversary date of the date of the grant and
(iv)
options to purchase 263,000 shares of Common Stock at a price of
$0.38 per
share, granted on December 31, 2007 and vesting immediately.
|
|
2
|
Consists
of (i) options to purchase 400,000 shares of Common Stock at a price
of
$3.40 per share, granted on January 3, 2006, and vesting in ⅓ increments
on each anniversary date of the date of grant, (ii) options to purchase
246,250 shares of Common Stock at a price of 4.00 per share, granted
on
June 19, 2006 and vesting in ⅓ increments on each anniversary date of the
date of the grant, (iii) options to purchase 500,000 shares of Common
Stock at a price of $2.25 per share, granted on October 11, 2006
and
vesting in ⅓ increments on October 11, 2006 and each subsequent
anniversary date of the date of the grant , and (iv) options to purchase
50,000 shares of Common Stock at a price of $1.39 per share, granted
on
December 27, 2006 and vesting on December 27, 2006. All Non-qualified
Stock Options granted to Mr. Katz are owned with his spouse as Tenants
in
the Entireties.
|
|
3
|
Consists
of (i) options to purchase 25,000 shares of Common Stock at a price
of
$3.25 per share, granted on December 29, 2005, and vesting in ⅓ increments
on each anniversary date of the date of grant, and (ii) options to
purchase 25,000 shares of Common Stock at a price of $3.40 per share,
granted on January 3, 2006 and vesting in ⅓ increments on each anniversary
date of the date of grant. and (iii) options to purchase 3,750 shares
of
Common Stock at a price of $4.00 per share, granted on June 19, 2006
and
vesting in ⅓ increments on each anniversary date of the date of the grant.
|
|
4
|
Consists
of (i) options to purchase 275,000 shares of Common Stock at a price
of
$3.40 per share, granted on January 3, 2006, and vesting in ⅓ increments
on each anniversary date of the date of grant, (ii) options to purchase
71,250 shares of Common Stock at a price of 4.00 per share, granted
on
June 19, 2006 and vesting in ⅓ increments on each anniversary date of the
date of the grant, and (iii) options to purchase 100,000 shares of
Common
Stock at a price of $2.25 per share, granted on October 11, 2006
and
vesting in ⅓ increments on October 11, 2006 and each subsequent
anniversary date of the date of the grant. All Non-qualified Stock
Options
granted to Mr. Kandel are owned with his spouse as Tenants in the
Entireties.
|
|
5
|
Consists
of (i) options to purchase 100,000 shares of Common Stock at a price
of
$3.40 per share, granted on January 3, 2006, and vesting in ⅓ increments
on each anniversary date of the date of grant, (ii) options to purchase
71,250 shares of Common Stock at a price of 4.00 per share, granted
on
June 19, 2006 and vesting in ⅓ increments on each anniversary date of the
date of the grant, (iii) options to purchase 75,000 shares of Common
Stock
at a price of $2.25 per share, granted on October 11, 2006 and vesting
in
⅓ increments on October 11, 2006 and each subsequent anniversary date
of
the date of the grant, and (iv) options to purchase 15,000 shares
of
Common Stock at a price of $1.39 per share, granted on December 27,
2006
and vesting on December 27, 2006. All Non-qualified Stock Options
granted
to Mr. Colangelo are owned with his spouse as Tenants in the
Entireties.
|
|
6
|
Consists
of (i) options to purchase 25,000 shares of Common Stock at a price
of
$3.25 per share, granted on December 29, 2005, and vesting in ⅓ increments
on each anniversary date of the date of grant, (ii) options to purchase
5,000 shares of Common Stock at a price of $3.40 per share, granted
on
January 3, 2006 and vesting in ⅓ increments on each anniversary date of
the date of grant and (iii) options to purchase 20,750 shares of
common
stock at a price of 4.00 per share, granted on June 19, 2006 and
vesting
in ⅓ increments on each anniversary date of the date of the
grant.
|
|
7
|
Consists
of (i) options to purchase 4,250 shares of Common Stock at a price
of 4.00
per share, granted on June 19, 2006 and vesting in ⅓ increments on each
anniversary date of the date of the grant, and (ii) options to purchase
25,000 shares of Common Stock at a price of $2.25 per share, granted
on
October 11, 2006 and vesting in ⅓ increments on October 11, 2006 and each
subsequent anniversary date of the date of the
grant.
|
|
8
|
Consists
of (i) options to purchase 4,250 shares of Common Stock at a price
of
$4.00 per share, granted on June 19, 2006, and vesting in ⅓ increments on
each anniversary date of the date of grant, (ii) options to purchase
25,000 shares of Common Stock at a price of $2.25 per share, granted
on
October 11, 2006 and vesting in ⅓ increments on October 11, 2006 and each
subsequent anniversary date of the date of the grant, and (iii) options
to
purchase 15,000 shares of Common Stock at a price of $1.39 per share,
granted on December 27, 2006 and vesting in ⅓ increments on December 27,
2006 and each subsequent anniversary date of the date of the
grant.
|
|
9
|
Consists
of options to purchase 263,000 shares of Common Stock at a price
of $0.38
per share, granted on December 31, 2007 and vesting
immediately
|
Executive
Compensation
The
primary objective of our executive compensation program is to attract and retain
qualified, energetic managers who are enthusiastic about our mission and
culture. A further objective of our compensation program is to provide
incentives and reward each manager for their contribution. In addition, we
strive to promote an ownership mentality among key leadership and the Board
of
Directors.
Our
Compensation Committee reviews and approves, or in some cases recommends for
the
approval of the full Board of Directors, the annual compensation for our
Executive Officers. Regarding most compensation matters, including executive
and
director compensation, our management provides recommendations to the
Compensation Committee; however, the Compensation Committee does not delegate
any of its functions to others in setting compensation. Our Compensation
Committee does not include any Executive Officers. We do not currently engage
any consultant to advise the Company on executive and/or director compensation
matters.
In
measuring our Executive Officers' contributions, the Compensation Committee
considers numerous factors including our growth, strategic business
relationships and financial performance. Stock price performance has not been
a
factor in determining annual compensation because the price of our common stock
is subject to a variety of factors outside of our control. We do not have an
exact formula for allocating between cash and non-cash
compensation.
Annual
executive officer compensation generally consists of a base salary and annual
bonus component, as well as periodic stock option grants. It is the Compensation
Committee's intention to set total executive cash compensation sufficiently
high
enough to attract and retain a strong motivated leadership team, but not so
high
that it creates a negative perception with our stakeholders. Each of our
executive officers receives stock option grants under our 2005 Incentive
Compensation Plan. Each executive's current and prior compensation is considered
in setting future compensation. In addition, we review the compensation
practices of other companies. To some extent, our compensation plan is based
on
the market and the companies we compete against for executive management. The
elements of our plan (e.g., base salary, bonus and stock options) are similar
to
the elements used by many companies.
Stock
options are granted to include a long-term component to the Executive's overall
compensation package. The Company has no pension plan, non-equity incentive
plan
or deferred compensation arrangement. The number of stock options granted to
each executive officer is made on a discretionary rather than a formula basis
by
the Compensation Committee. The Company does not have a specific program, plan
or practice to time stock option grants. The pricing of stock option grants
are
based upon the stock's opening price on the date of the grant.
Each
of
our executive officers, except for the VP of Business Development, Chief
Operating Officer and President, has an employment agreement with the Company
that outlines salary and benefit arrangements. These agreements have similar
terms, which include, but are not limited to: base salaries; annual bonuses;
reimbursements of certain expenses; group health, disability, and life
insurances; and, termination provisions. These agreements have initial terms
of
one, two or three years.
The
following executives received compensation from MDwerks, Inc.. in the amounts
set forth in the chart below for the twelve months ended December 31, 2007,
December 31, 2006 and December 31, 2005. The value attributable to any Option
Awards in the following chart is computed in accordance with FAS 123R. No other
item of compensation was paid to any officer or director of the Company other
than reimbursement of expenses:
SUMMARY
COMPENSATION TABLE
|
Name
and
Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-
Equity
Incentive
Plan
Compen-
sation
|
|
Change
in
Pension
Value
and
Non-
qualified
Deferred
Compen-
sation
Earnings
|
|
All
Other
Compen-
sation
|
|
Total
|
|
|
Howard
Katz
|
|
|
2007
|
|
$
|
225,000
|
|
$
|
103,413
|
1
|
|
—
|
|
$
|
94,680
|
2
|
|
—
|
|
|
—
|
|
$
|
51,000
|
3
|
$
|
474,093
|
|
|
Chief
Executive
|
|
|
2006
|
|
$
|
195,000
|
|
$
|
87,778
|
4
|
|
—
|
|
$
|
3,406,150
|
5
|
|
—
|
|
|
—
|
|
$
|
51,000
|
3
|
$
|
3,739,928
|
|
|
Officer
and Director
|
|
|
2005
|
|
$
|
79,231
|
|
|
—
|
|
|
—
|
|
$
|
81,250
|
6
|
|
—
|
|
|
—
|
|
$
|
50,769
|
7
|
$
|
211,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vincent
Colangelo
|
|
|
2007
|
|
$
|
175,000
|
8
|
$
|
53,596
|
9
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
12,000
|
10
|
$
|
240,596
|
|
|
Chief
Financial
|
|
|
2006
|
|
$
|
150,000
|
|
$
|
44,100
|
11
|
$
|
81,000
|
12
|
$
|
848,600
|
13
|
|
—
|
|
|
—
|
|
$
|
12,000
|
10
|
$
|
1,135,700
|
|
|
Officer
and Secretary
|
|
|
2005
|
|
$
|
50,385
|
|
|
—
|
|
|
—
|
|
$
|
81,250
|
6
|
|
—
|
|
|
—
|
|
$
|
25,500
|
14
|
$
|
157,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solon
Kandel
|
|
|
2007
|
|
$
|
200,000
|
15
|
$
|
52,019
|
16
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
$
|
13,800
|
17
|
$
|
265,819
|
|
|
President
and
|
|
|
2006
|
|
$
|
175,000
|
|
$
|
50,527
|
18
|
|
—
|
|
$
|
1,407,950
|
19
|
|
—
|
|
|
—
|
|
$
|
13,800
|
17
|
$
|
1,647,277
|
|
|
Director
|
|
|
2005
|
|
$
|
53,846
|
|
|
—
|
|
|
—
|
|
$
|
81,250
|
6
|
|
—
|
|
|
—
|
|
$
|
46,154
|
20
|
$
|
181,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerard
Maresca
|
|
|
2007
|
|
$
|
150,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
1,968
|
21
|
$
|
151,968
|
|
|
Vice
President,
|
|
|
2006
|
|
$
|
150,000
|
|
|
—
|
|
|
—
|
|
$
|
166,090
|
22
|
|
—
|
|
|
—
|
|
$
|
2,290
|
23
|
$
|
318,380
|
|
|
Business
Development
|
|
|
2005
|
|
$
|
40,296
|
|
|
—
|
|
|
—
|
|
$
|
81,250
|
6
|
|
—
|
|
|
—
|
|
$
|
90,185
|
24
|
$
|
211,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
M. Weiss
|
|
|
2007
|
|
$
|
160,000
|
|
$
|
17,885
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
4,800
|
25
|
$
|
182,685
|
|
|
Chief
Operating
|
|
|
2006
|
|
$
|
150,000
|
|
$
|
20,828
|
|
|
—
|
|
$
|
186,640
|
26
|
|
—
|
|
|
—
|
|
$
|
4,800
|
25
|
$
|
362,268
|
|
|
Officer
|
|
|
2005
|
|
$
|
33,391
|
|
|
—
|
|
|
—
|
|
$
|
81,250
|
6
|
|
—
|
|
|
—
|
|
$
|
67,000
|
27
|
$
|
181,641
|
|
|
1
|
Consists
of $5,170 bonus paid during 2007 and $98,243 accrued as a Company
obligation.
|
|
2
|
Consists
of Incentive Stock Options to purchase 263,000 shares of Common
Stock at a
price of $0.38 per share, granted on December 31, 2007 and vesting
on
December 31, 2007.
|
|
3
|
Consists
of an auto allowance of $18,000, a business use of home allowance
of
$30,000 and a contribution of $3,000 towards the Company's medical
Flexible Spending account.
|
|
4
|
Consists
of $51,389 bonus paid during 2006 and $36,389 bonus paid during
2007.
|
|
5
|
Consists
of Incentive Stock Options to purchase: (i) 25,000 shares of Common
Stock
at a price of $3.40 per share, granted on January 3, 2006 and vesting
in ⅓
increments on each anniversary date of the date of grant; and,
(ii) 3,750
shares of Common Stock at a price of $4.00 per share, granted on
June 19,
2006 and vesting in ⅓ increments on each anniversary date of the date of
the grant and Non-qualified Stock Options to purchase: (i) 400,000
shares
of Common Stock at a price of $3.40 per share, granted on January
3, 2006,
and vesting in ⅓ increments on each anniversary date of the date of grant,
(ii) 246,250 shares of Common Stock at a price of $4.00 per share,
granted
on June 19, 2006 and vesting in ⅓ increments on each anniversary date of
the date of the grant, (iii) 500,000 shares of Common Stock at
a price of
$2.25 per share, granted on October 11, 2006 and vesting in ⅓ increments
on October 11, 2006 and each subsequent anniversary date of the
date of
the grant, and (iv) 50,000 shares of Common Stock at a price of
$1.39 per
share, granted on December 27, 2006 and vesting on December 27,
2006. All
Non-qualified Stock Options granted to Mr. Katz are owned with
his spouse
as Tenants in the Entireties.
|
|
6
|
Consists
of Incentive stock options to purchase 25,000 shares of Common
Stock at a
price of $3.25 per share, granted on December 29, 2005, exercisable
at a
price of $3.25 per share, and vesting in ⅓ increments on each anniversary
date of the date of grant.
|
|
7
|
Prior
to becoming an employee of the Company on September 26, 2005, Mr.
Katz was
compensated for his services to the Company in his capacity as
a
consultant. $18,333 was paid to Mr. Katz and $32,436 was paid to
Greater
Condor Evaluations, Inc., an entity owned and controlled by Mr.
Katz for
such services.
|
|
8
|
Consists
of $160,000 salary paid and $15,000 accrued as a Company
obligation.
|
|
9
|
Consists
of $738 bonus paid during 2007 and $52,858 accrued as a Company
obligation.
|
|
10
|
Consists
of an auto allowance of $9,000 and a contribution of $3,000 towards
the
Company's medical Flexible Spending
account.
|
|
11
|
Consists
of a $26,377 bonus paid during 2006 and $17,723 bonus paid in
2007.
|
|
12
|
Consists
of $81,000 for services rendered to the Company, paid as 25,000
shares of
Common Stock issued on February 28,
2006.
|
|
13
|
Consists
of Incentive Stock Options to purchase: (i) 25,000 shares of Common
Stock
at a price of $3.40 per share, granted on January 3, 2006 and vesting
in ⅓
increments on each anniversary date of the date of grant; and,
(ii) 3,750
shares of Common Stock at a price of $4.00 per share, granted on
June 19,
2006 and vesting in ⅓ increments on each anniversary date of the date of
the grant and Non-qualified Stock Options to purchase: (i) 100,000
shares
of Common Stock at a price of $3.40 per share, granted on January
3, 2006,
and vesting in ⅓ increments on each anniversary date of the date of grant,
(ii) 71,250 shares of Common Stock at a price of $4.00 per share,
granted
on June 19, 2006 and vesting in ⅓ increments on each anniversary date of
the date of the grant, (iii) 75,000 shares of Common Stock at a
price of
$2.25 per share, granted on October 11, 2006 and vesting in ⅓ increments
on October 11, 2006 and each subsequent anniversary date of the
date of
the grant , and (iv) 15,000 shares of Common Stock at a price of
$1.39 per
share, granted on December 27, 2006 and vesting on December 27,
2006. All
Non-qualified Stock Options granted to Mr. Colangelo are owned
with his
spouse as Tenants in the
Entireties.
|
|
14
|
Prior
to becoming an employee of the Company on September 26, 2005, Mr.
Colangelo was compensated for his services to the Company in his
capacity
as a consultant. $25,500 was paid to Weston Business Advisors,
Inc., a
corporation owned and controlled by Mr. Colangelo for such
services.
|
|
15
|
Consists
of $175,000 salary paid and $25,000 accrued as a Company
obligation.
|
|
16
|
Consists
of a $14,714 bonus paid during 2007 and $37,305 accrued as a Company
obligation.
|
|
17
|
Consists
of an auto allowance of $10,800 and a contribution of $3,000 towards
the
Company's medical Flexible Spending
account.
|
|
18
|
Consists
of a $29,302 bonus paid during 2006 and $21,225 bonus paid in
2007.
|
|
19
|
Consists
of Incentive Stock Options to purchase: (i) 25,000 shares of Common
Stock
at a price of $3.40 per share, granted on January 3, 2006 and vesting
in ⅓
increments on each anniversary date of the date of grant: and (ii)
3,750
shares of Common Stock at a price of $4.00 per share, granted on
June 19,
2006 and vesting in ⅓ increments on each anniversary date of the date of
the grant and Non-qualified Stock Options to purchase: (i) 275,000
shares
of Common Stock at a price of $3.40 per share, granted on January
3, 2006,
and vesting in ⅓ increments on each anniversary date of the date of grant;
(ii) 71,250 shares of Common Stock at a price of $4.00 per share,
granted
on June 19, 2006 and vesting in ⅓ increments on each anniversary date of
the date of the grant; and, (iii) 100,000 shares of Common Stock
at a
price of $2.25 per share, granted on October 11, 2006 and vesting
in ⅓
increments on October 11, 2006 and each subsequent anniversary
date of the
date of the grant. All Non-qualified Stock Options granted to Mr.
Kandel
are owned with his spouse as Tenants in the
Entireties.
|
|
20
|
Prior
to becoming an employee of the Company on September 26, 2005, Mr.
Kandel
was compensated for his services to the Company in his capacity
as a
consultant. $33,333 was paid to Mr. Kandel as consulting fees and
$12,821
was paid to The Ashwood Group, LLC, an entity owned and controlled
by Mr.
Kandel for such services.
|
|
21
|
Consists
of an auto allowance of $1,800 and a contribution of $168 towards
the
Company's medical Flexible Spending
account.
|
|
22
|
Consists
of Incentive Stock Options to purchase: (i) 5,000 shares of Common
Stock
at a price of $3.40 per share, granted on January 3, 2006 and vesting
in ⅓
increments on each anniversary date of the date of grant; and,
(ii) 20,750
shares of Common Stock at a price of $4.00 per share, granted on
June 19,
2006 and vesting in ⅓ increments on each anniversary date of the date of
the grant and Non-qualified Stock Options to purchase: (i) 4,250
shares of
Common Stock at a price of $4.00 per share, granted on June 19,
2006 and
vesting in ⅓ increments on each anniversary date of the date of the grant;
and, (ii) 25,000 shares of Common Stock at a price of $2.25 per
share,
granted on October 11, 2006 and vesting in ⅓ increments on October 11,
2006 and each subsequent anniversary date of the date of the
grant
|
|
23
|
Consists
of an auto allowance of $1,800 and a contribution of $490 towards
the
Company's medical Flexible Spending
account.
|
|
24
|
Prior
to becoming an employee of the Company on September 26, 2005, Mr.
Maresca
was compensated for his services to the Company in his capacity
as a
consultant. $90,185 was paid to GMAR, Inc., a corporation owned
and
controlled by Mr. Maresca for such
services.
|
|
25
|
Consists
of an auto allowance of $1,800 and a contribution of $3,000 towards
the
Company's medical Flexible Spending
account.
|
|
26
|
Consists
of Incentive Stock Options to purchase: (i) 5,000 shares of Common
Stock
at a price of $3.40 per share, granted on January 3, 2006 and vesting
in ⅓
increments on each anniversary date of the date of grant; and,
(ii) 20,750
shares of Common Stock at a price of $4.00 per share, granted on
June 19,
2006 and vesting in ⅓ increments on each anniversary date of the date of
the grant and Non-qualified Stock Options to purchase: (i) 4,250
shares of
Common Stock at a price of $4.00 per share, granted on June 19,
2006 and
vesting in ⅓ increments on each anniversary date of the date of the grant;
and, (ii) 25,000 shares of Common Stock at a price of $2.25 per
share,
granted on October 11, 2006 and vesting in ⅓ increments on October 11,
2006 and each subsequent anniversary date of the date of the grant;
and
(iii) options to purchase 15,000 shares of Common Stock at a price
of
$1.39 per share, granted on December 27, 2006 and vesting in ⅓ increments
on December 27, 2006 and each subsequent anniversary date of the
date of
the grant.
|
|
27
|
Prior
to becoming an employee of the Company on September 26, 2005, Mr.
Weiss
was compensated for his services to the Company in his capacity
as a
consultant. $67,000 was paid to Argent Consulting Services, Inc.,
a
corporation owned and controlled by Mr. Weiss for such
services.
|
|
ITEM
11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
The
following table sets forth information regarding the number of shares of Common
Stock beneficially owned on March 17, 2008, by each person who is known by
the
Company to beneficially own 5% or more of the Company’s Common Stock, each of
the Company’s directors and executive officers, and all of the Company’s
directors and executive officers, as a group:
|
Name
of Beneficial Owner
|
|
Common
Shares
Owned
|
|
Presently
Exercisable
Options
or
Options
Exercisable
Within
60 Days
|
|
Shares
Beneficially
Owned
|
|
Percentage
of
Class
|
|
|
Howard
B. Katz
|
|
|
1,141,814
|
1
|
|
1,029,667
|
|
|
2,171,481
|
2
|
|
15.5
|
%
|
|
Solon
Kandel
|
|
|
922,781
|
|
|
308,333
|
|
|
1,231,114
|
2
|
|
9.3
|
%
|
|
Vincent
Colangelo
|
|
|
25,000
|
|
|
190,000
|
|
|
215,000
|
2
|
|
1.6
|
%
|
|
Stephen
Weiss
|
|
|
65,809
|
|
|
55,001
|
|
|
120,810
|
2
|
|
0.9
|
%
|
|
Gerard
Maresca
|
|
|
136,849
|
|
|
45,000
|
|
|
181,849
|
2
|
|
1.4
|
%
|
|
David
M. Barnes
|
|
|
75,000
|
|
|
200,000
|
|
|
275,000
|
2
|
|
2.1
|
%
|
|
Peter
Dunne
|
|
|
53,430
|
|
|
76,667
|
|
|
130,097
|
2
|
|
1.0
|
%
|
|
Paul
Kushner
|
|
|
141,290
|
|
|
51,667
|
|
|
192,957
|
2
|
|
1.5
|
%
|
|
Directors
and officers as a group (8 persons):
|
|
|
2,561,973
|
|
|
1,956,333
|
|
|
4,518,306
|
|
|
30.4
|
%
|
|
Persons
known to beneficially own more than 5% of the outstanding Common
Stock:
|
|
|
|
|
|
|
|
|
MEDwerks.com
Corp
3
|
|
|
2,139,316
|
|
|
0
|
|
|
2,139,316
|
|
|
16.5
|
%
|
|
AJKN
Partnership
3
|
|
|
853,481
|
|
|
0
|
|
|
853,481
|
|
|
6.6
|
%
|
|
AJLN
Partnership
3
|
|
|
853,481
|
|
|
0
|
|
|
853,481
|
|
|
6.6
|
%
|
|
AJMN
Partnership
3
|
|
|
853,481
|
|
|
0
|
|
|
853,481
|
|
|
6.6
|
%
|
|
1
|
Includes
113,813 shares of common stock owned by 73142 Corp., an entity
controlled
by Howard Katz as the sole officer and director. Mr. Katz is not a
shareholder of 73142 Corp.
|
|
2
|
Includes
presently exercisable options, as disclosed under Director Compensation
and Executive Compensation; there are no options exercisable
within 60
days of March 14, 2008.
|
|
3
|
Dr.
Jacob Nudel, MDwerks' former chairman, exercises investment and
voting
control of the shares beneficially owned by Medwerks.com Corp.
Dr. Nudel
is General Partner of and exercises dispositive voting control
of the
shares beneficially owned by AJKN Limited Partnership, AJLN Limited
Partnership and AJMN Limited Partnership, but is only a 1% limited
partner
of each of these
entities.
|
|
ITEM
12.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
Stephen
Katz, the son of Howard Katz, the Company’s Chief Executive Officer, is a
partner at Peckar & Abramson, P.C., which is the Company’s outside legal
counsel. The Company is charged Peckar & Abramson’s standard billing rates
for legal services rendered. Stephen Katz owns: 174,000 restricted shares of
the
Common Stock of the Company; Incentive Stock Options to purchase 44,000 shares
of Common Stock at a price of $2.25 per share granted on October 11, 2006 and
vesting in ⅓ increments starting on October 11, 2006 and on each of the next two
anniversaries of the date of the grant; and, Non-Qualified Stock Options to
purchase 131,000 shares of Common Stock at a price of $2.25 per share granted
on
October 11, 2006 and vesting in ⅓ increments starting on October 11, 2006 and on
each of the next two anniversaries of the date of the grant.
EXHIBITS
|
Exhibit
No.
|
|
Exhibits
|
|
3.1
|
|
Company
Certificate of Incorporation
1
|
|
|
|
|
|
3.2
|
|
Amendment
to Company’ Certificate of Incorporation changing name to MDwerks, Inc.
and amending terms of Blank Check Preferred Stock
2
|
|
|
|
|
|
3.3
|
|
Certificate
of Designations Designating Series A Convertible Preferred
Stock.
3
|
|
|
|
|
|
3.4
|
|
Amended
and Restated Certificate of Designations Designating Series B Convertible
Preferred Stock
4
|
|
|
|
|
|
3.5
|
|
Bylaws
of the Company.
5
|
|
|
|
|
|
4.1
|
|
MDwerks,
Inc. 2005 Incentive Compensation Plan.
6
|
|
|
|
|
|
4.2
|
|
Form
of Warrants to purchase shares of Common Stock at a price of $2.50
per
share.
7
|
|
|
|
|
|
4.3
|
|
Form
of Warrants issued to Placement Agent (and sub-agents) to purchase
shares
of Common Stock at a price of $1.25 per share.
8
|
|
|
|
|
|
4.4
|
|
Form
of Series A Warrants to purchase shares of Common Stock at a price
of
$3.00 per share.
9
|
|
|
|
|
|
4.5
|
|
Form
of Series A Warrants issued to Placement Agent and sub-agents to
purchase
shares of Common Stock at a price of $1.50 per share.
10
|
|
|
|
|
|
4.6
|
|
Class
C Warrant to purchase shares of Common Stock at a price of $2.25
per
share
11
|
|
|
|
|
|
4.7
|
|
Securities
Purchase Agreement by and between Gottbetter and MDwerks, Inc.
12
|
|
|
|
|
|
4.8
|
|
Form
of Series D Warrant to purchase shares of Common Stock at a price
of $2.25
per share
13
|
|
|
|
|
|
4.9
|
|
Form
of Series E Warrant to purchase shares of Common Stock at a price
of $3.25
per share
14
|
|
|
|
|
|
4.10
|
|
Forms
of Amended and Restated Senior Secured Convertible Notes
15
|
|
|
|
|
|
4.11
|
|
Amendment
No. 1 dated March 1, 2008, to Amended and Restated Senior Secured
Convertible Note
16
|
|
|
|
|
|
4.12
|
|
Amendment
No. 1 dated March 1, 2008, to Amended and Restated Senior Secured
Convertible Note
17
|
|
|
|
|
|
4.13
|
|
Amendment,
Consent and Waiver Agreement by and among MDwerks, Inc., Xeni Financial
and Gottbetter
18
|
|
|
|
|
|
4.14
|
|
Registration
Rights Agreement between MDwerks, Inc. and Gottbetter
19
|
|
|
|
|
|
4.15
|
|
Securities
Purchase Agreement dated September 28, 2007, by and between MDwerks,
Inc.
and Vicis
20
|
|
|
|
|
|
4.16
|
|
Securities
Purchase Agreement dated January 18, 2008, by and between MDwerks,
Inc.
and Vicis
21
|
|
|
|
|
|
4.17
|
|
Form
of Series F Warrant to purchase shares of Common Stock at a price
of $2.25
per share
22
|
|
|
|
|
|
4.18
|
|
Form
of Series G Warrant to purchase shares of Common Stock at a price
of $2.50
per share
23
|
|
|
|
|
|
4.19
|
|
Registration
Rights Agreement between MDwerks, Inc. and Vicis
24
|
|
Exhibit
No.
|
|
Exhibits
|
|
10.1
|
|
Agreement
of Merger and Plan of Reorganization among Western Exploration, Inc.,
MDwerks Acquisition Corp. and MDwerks Global Holdings, Inc.
25
|
|
|
|
|
|
10.2
|
|
Placement
Agent Agreement by and among the Company, MDwerks and Brookshire
Securities Corporation.
26
|
|
|
|
|
|
10.3
|
|
Form
of Lock Up Agreement between the Company and executive officers and
certain stockholders.
27
|
|
|
|
|
|
10.4
|
|
Form
of Private Placement Subscription Agreement.
28
|
|
|
|
|
|
10.5
|
|
Form
of Senior Executive Level Employment Agreement between MDwerks, Inc.
and
each of Howard B. Katz, Solon L. Kandel and Vincent Colangelo.
29
|
|
|
|
|
|
10.6
|
|
Form
of Executive Level Employment Agreement between MDwerks, Inc. and
Stephen
Weiss.
30
|
|
|
|
|
|
10.7
|
|
Guaranty
issued to Gottbetter by Xeni Financial Services, Corp., Xeni Medical
Billing, Corp., MDwerks Global Holdings, Inc. and Xeni Medical Systems,
Inc.
31
|
|
|
|
|
|
10.8
|
|
Security
Agreement by and among Gottbetter, MDwerks, Inc., Xeni Financial
Services,
Corp., Xeni Medical Corp., Xeni Medical Billing, Corp., MDwerks Global
Holdings, Inc. and Xeni Medical Systems, Inc.
32
|
|
|
|
|
|
10.9
|
|
Closing
Agreement by and between Gottbetter and MDwerks, Inc. Modifying and
Waiving Registration Rights Provisions
33
|
|
|
|
|
|
10.10
|
|
Guaranty
issued to Vicis by Xeni Financial Services, Corp.
34
|
|
|
|
|
|
10.11
|
|
Guaranty
issued to Vicis by Xeni Medical Billing, Corp.
35
|
|
|
|
|
|
10.12
|
|
Guaranty
issued to Vicis by MDwerks Global Holdings, Inc.
36
|
|
|
|
|
|
10.13
|
|
Guaranty
issued to Vicis by Xeni Medical Systems, Inc.
37
|
|
|
|
|
|
10.14
|
|
Guaranty
issued to Vicis by Patient Payment Solutions, Inc.
38
|
|
|
|
|
|
10.15
|
|
Security
Agreement entered into by and between Vicis and MDwerks, Inc.
39
|
|
|
|
|
|
10.16
|
|
Security
Agreement entered into by and between Vicis and Xeni Medical Billing,
Corp.
40
|
|
|
|
|
|
10.17
|
|
Security
Agreement entered into by and between Vicis and MDwerks Global Holdings,
Inc.
41
|
|
|
|
|
|
10.18
|
|
Security
Agreement entered into by and between Vicis and Xeni Medical Systems,
Inc.
42
|
|
|
|
|
|
10.19
|
|
Security
Agreement entered into by and between Vicis and Xeni Financial Services,
Corp.
43
|
|
|
|
|
|
10.20
|
|
Security
Agreement entered into by and between Vicis and Patient Payment Solutions,
Inc.
44
|
|
|
|
|
|
14.1
|
|
Code
of Ethics
45
|
|
|
|
|
|
22.1
|
|
Subsidiaries
46
|
|
|
|
|
|
23.1
|
|
Consent
of Sherb & Co., LLP
47
|
|
|
|
|
|
31.1
|
|
Section
302 Certification of Chief Executive Officer
47
|
|
|
|
|
|
31.2
|
|
Section
302 Certification of Chief Financial Officer
47
|
|
|
|
|
|
32.1
|
|
Section
906 Certification of Chief Executive Officer
47
|
|
Exhibit
No.
|
|
Exhibits
|
|
32.2
|
|
Section
906 Certification of Chief Financial Officer
47
|
|
|
|
|
|
99.1
|
|
Audit
Committee Charter
48
|
|
|
|
|
|
99.2
|
|
Compensation
Committee Charter
49
|
|
1
|
Incorporated
by reference to our Registration Statement on Form SB-2 filed with
the SEC
on August 12, 2004.
|
|
2
|
Incorporated
by reference to Exhibit 3.1 included with our Current Report on
Form 8-K
filed with the SEC on November 18,
2005.
|
|
3
|
Incorporated
by reference to Exhibit 3.3 to our Registration Statement on Form
SB-2
originally filed with the SEC on March 9, 2006, as amended and
supplemented.
|
|
4
|
Incorporated
by reference to Exhibit 3.1 included with our Current Report on
Form 8-K
filed with the SEC on January 23,
2008.
|
|
5
|
Incorporated
by reference to our Registration Statement on Form SB-2, filed
with the
SEC on August 12, 2004.
|
|
6
|
Incorporated
by reference to Exhibit 4.1 included with our Current Report on
Form 8-K,
filed with the SEC on November 18,
2005.
|
|
7
|
Incorporated
by reference to Exhibit 4.2 included with our Current Report on
Form 8-K,
filed with the SEC on November 18,
2005.
|
|
8
|
Incorporated
by reference to Exhibit 4.3 included with our Current Report on
Form 8-K,
filed with the SEC on November 18,
2005.
|
|
9
|
Incorporated
by reference to Exhibit 4.4 to our Registration Statement on Form
SB-2
originally filed with the Commission on March 9, 2006, as amended
and
supplemented.
|
|
10
|
Incorporated
by reference to Exhibit 4.5 to our Registration Statement on Form
SB-2
originally filed with the Commission on March 9, 2006, as amended
and
supplemented.
|
|
11
|
Incorporated
by reference to Exhibit 4.2 included with our Current Report on
Form 8-K
filed with the SEC on August 23,
2006.
|
|
12
|
Incorporated
by reference to Exhibit 4.1 included with our Current Report on
Form 8-K
filed with the SEC on October 23,
2006.
|
|
13
|
Incorporated
by reference to Exhibit 4.2 included with our Current Report on
Form 8-K
filed with the SEC on October 23,
2006.
|
|
14
|
Incorporated
by reference to Exhibit 4.3 included with our Current Report on
Form 8-K
filed with the SEC on October 23,
2006.
|
|
15
|
Incorporated
by reference to Exhibits 10.13 and 10.14 included with our Current
Report
on Form 8-K filed with the SEC on October 2,
2007.
|
|
18
|
Incorporated
by reference to Exhibit 10.12 included with our Current Report
on Form 8-K
filed with the SEC on October 2,
2007.
|
|
19
|
Incorporated
by reference to Exhibit 4.5 included with our Current Report on
Form 8-K
filed with the SEC on October 23,
2006.
|
|
20
|
Incorporated
by reference to Exhibit 4.1 included with our Current Report on
Form 8-K,
filed with the SEC on October 2,
2007.
|
|
21
|
Incorporated
by reference to Exhibit 4.1 included with our Current Report on
Form 8-K,
filed with the SEC on January 23,
2008.
|
|
22
|
Incorporated
by reference to Exhibit 4.2 included with our Current Report on
Form 8-K,
filed with the SEC on October 2,
2007.
|
|
23
|
Incorporated
by reference to Exhibit 4.3 included with our Current Report on
Form 8-K,
filed with the SEC on October 2,
2007.
|
|
24
|
Incorporated
by reference to Exhibit 4.4 included with our Current Report on
Form 8-K,
filed with the SEC on October 2,
2007.
|
|
25
|
Incorporated
by reference to Exhibit 10.1 included with our Current Report on
Form 8-K,
filed with the SEC on October 13,
2005.
|
|
26
|
Incorporated
by reference to Exhibit 10.2 included with our Current Report on
Form 8-K,
filed with the SEC on November 18,
2005.
|
|
27
|
Incorporated
by reference to Exhibit 10.3 included with our Current Report on
Form 8-K,
filed with the SEC on November 18,
2005.
|
|
28
|
Incorporated
by reference to Exhibit 10.4 included with our Current Report on
Form 8-K,
filed with the SEC on November 18,
2005.
|
|
29
|
Incorporated
by reference to Exhibit 10.5 to our Registration Statement on
Form SB-2,
originally filed with the SEC on March 9, 2006, as amended and
supplemented.
|
|
30
|
Incorporated
by reference to Exhibit 10.6 to our Registration Statement on
Form SB-2,
originally filed with the SEC on March 9, 2006, as amended and
supplemented.
|
|
31
|
Incorporated
by reference to Exhibit 10.1 included with our Current Report
on Form 8-K,
filed with the SEC on October 23,
2006.
|
|
32
|
Incorporated
by reference to Exhibit 10.2 included with our Current Report
on Form 8-K
filed with the SEC on October 23,
2006.
|
|
33
|
Incorporated
by reference to Exhibit 10.13 to our Registration Statement on
Form SB-2,
originally filed with the SEC on March 9, 2006 as amended and
supplemented.
|
|
34
|
Incorporated
by reference to Exhibit 10.1 included with our Current Report
on Form 8-K,
filed with the SEC on October 2,
2007.
|
|
35
|
Incorporated
by reference to Exhibit 10.2 included with our Current Report
on Form 8-K,
filed with the SEC on October 2,
2007.
|
|
36
|
Incorporated
by reference to Exhibit 10.3 included with our Current Report
on Form 8-K,
filed with the SEC on October 2,
2007.
|
|
37
|
Incorporated
by reference to Exhibit 10.4 included with our Current Report
on Form 8-K,
filed with the SEC on October 2,
2007.
|
|
38
|
Incorporated
by reference to Exhibit 10.5 included with our Current Report
on Form 8-K,
filed with the SEC on October 2,
2007.
|
|
39
|
Incorporated
by reference to Exhibit 10.6 included with our Current Report
on Form 8-K,
filed with the SEC on October 2,
2007.
|
|
40
|
Incorporated
by reference to Exhibit 10.7 included with our Current Report
on Form 8-K,
filed with the SEC on October 2,
2007.
|
|
41
|
Incorporated
by reference to Exhibit 10.8 included with our Current Report
on Form 8-K,
filed with the SEC on October 2,
2007.
|
|
42
|
Incorporated
by reference to Exhibit 10.9 included with our Current Report
on Form 8-K,
filed with the SEC on October 2,
2007.
|
|
43
|
Incorporated
by reference to Exhibit 10.10 included with our Current Report
on Form
8-K, filed with the SEC on October 2,
2007.
|
|
44
|
Incorporated
by reference to Exhibit 10.11 included with our Current Report
on Form
8-K, filed with the SEC on October 2,
2007.
|
|
45
|
Incorporated
by reference to Exhibit 14.1 included with our Current Report
on Form 8-K
filed with the SEC on November 18,
2005.
|
|
46
|
Incorporated
by reference to our Registration Statement on Form SB-2, originally
filed
with the SEC on March 9, 2006, as amended and
supplemented.
|
|
48
|
Incorporated
by reference to Exhibit 99.2 included with our Current Report
on Form 8-K,
filed with the SEC on November 18,
2005.
|
|
49
|
Incorporated
by reference to Exhibit 99.3 included with our Current Report
on Form 8-K,
filed with the SEC on November 18,
2005.
|
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
The
following table sets forth the fees billed by our principal independent
accountants for each of our last two fiscal years for the categories of services
indicated.
|
|
|
Year
Ended December 31,
|
|
|
Category
|
|
2007
|
|
2006
|
|
|
Audit
Fees
1
|
|
$
|
40,000
|
|
$
|
32,500
|
|
|
Audit
Related Fees
2
|
|
|
15,000
|
|
|
27,000
|
|
|
Tax
Fees
3
|
|
|
12,000
|
|
|
27,205
|
|
|
All
Other Fees
4
|
|
|
6,532
|
|
|
13,877
|
|
|
1
|
Consists
of fees billed for the audit of our annual financial statements,
review of
our Form 10-KSB and services that are normally provided by the accountant
in connection with year end statutory and regulatory filings or
engagements.
|
|
2
|
Consists
of fees billed for the review of our quarterly financial statements,
review of our forms 10-QSB and 8-K and services that are normally
provided
by the accountant in connection with non year end statutory and regulatory
filings on engagements.
|
|
3
|
Consists
of professional services rendered by a company aligned with our principal
accountant for tax compliance, tax advice and tax
planning.
|
|
4
|
The
services provided by our accountants within this category consisted
of
advice and other services relating to SEC matters, registration statement
review, accounting issues and client
conferences.
|
Audit
Committee Pre-Approval Policy
In
addition to retaining Sherb & Co., LLP to audit our consolidated financial
statements for the years ended December 31, 2007 and December 31, 2006, we
retained Sherb & Co., LLP to provide other professional services to us in
our 2006 and 2007 fiscal years. We understand the need for Sherb & Co., LLP
to maintain objectivity and independence in its audit of our financial
statements. To minimize relationships that could appear to impair the
objectivity of Sherb & Co., LLP, our audit committee has restricted the
non-audit services that Sherb & Co., LLP may provide to us primarily to tax
services.
The
audit
committee also has adopted policies and procedures for pre-approving all
non-audit work performed by Sherb & Co., LLP.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
|
|
MDwerks,
Inc.
|
|
|
|
|
|
By:
|
/s/
Howard B. Katz
|
|
|
Name:
Howard B. Katz
Title:
Chief Executive Officer
Date:
April 11, 2008
|
In
accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Howard B. Katz
|
|
Chief
Executive Officer and
|
|
April
11, 2008
|
|
Howard
B. Katz
|
|
Director
(Principal Executive
Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Vincent Colangelo
|
|
Chief
Financial Officer and
|
|
|
|
Vincent
Colangelo
|
|
Secretary
(Principal Accounting
|
|
|
|
|
|
and
Financial
Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Solon Kandel
|
|
President
and Director
|
|
|
|
Solon
Kandel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Adam Friedman
|
|
Controller
|
|
|
|
Adam
Friedman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
David M. Barnes
|
|
Director
|
|
|
|
David
M. Barnes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Peter Dunne
|
|
Director
|
|
|
|
Peter
Dunne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Paul Kushner
|
|
Director
|
|
|
|
Paul
Kushner
|
|
|
|
|
MDWerks (QB) (USOTC:MDWK)
Gráfica de Acción Histórica
De Nov 2024 a Dic 2024
MDWerks (QB) (USOTC:MDWK)
Gráfica de Acción Histórica
De Dic 2023 a Dic 2024
