UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
|
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
quarterly period ended March 31, 2008
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
|
For
the
transition period from _______ to _________
Commission
File Number: 333-118155
MDWERKS,
INC.
(Exact
name of registrant as specified in charter)
|
Delaware
|
33-1095411
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
Windolph
Center, Suite I
1020
N.W. 6th Street
Deerfield
Beach, FL 33442
(Address
of principal executive offices)(Zip Code)
(954)
389-8300
(Registrant's
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the registrant (1) filed all reports required to be filed by Section
13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been
subject to such filing requirements for the past 90
days.
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
|
|
Large accelerated filer
o
|
Accelerated filer
o
|
|
|
Non-accelerated filer
o
|
Smaller reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 12,940,065 shares at May 15,
2008
Transitional
Small Business Disclosure Format (Check one): Yes
o
No
x
MDWERKS,
INC.
FORM
10-Q
FOR
THE PERIOD ENDED MARCH 31, 2008
INDEX
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|
|
Page
|
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
Item
1 - Consolidated Financial Statements
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|
|
|
Consolidated
Balance Sheets As of March 31, 2008 (Unaudited) and December 31,
2007
|
3
|
|
|
Consolidated
Statements of Operations (Unaudited) For the Three Months Ended March
31,
2008 and 2007
|
4
|
|
|
Consolidated
Statements of Cash Flows (Unaudited) For the Three Months Ended March
31,
2008 and 2007
|
5
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
6-22
|
|
|
Item
2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
23-29
|
|
|
Item
3 - Quantitative and Qualitative Disclosures About Market
Risk
|
29
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|
|
Item
4 - Controls and Procedures
|
29
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|
PART
II - OTHER INFORMATION
|
|
|
|
Item
1 - Legal Proceedings
|
30
|
|
|
Item
2 - Unregistered Sales of Equity Securities and Use of
Proceeds
|
30
|
|
|
Item
3 - Defaults Upon Senior Securities
|
30
|
|
|
Item
4 - Submission of Matters to a Vote of Security Holders
|
30
|
|
|
Item
5 - Other Information
|
30
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|
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Item
6 - Exhibits
|
30
|
MDWERKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
March
31,
2008
(Unaudited)
|
|
December
31,
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
6,928,582
|
|
$
|
320,903
|
|
|
Notes
receivable, net of allowance of $125,000 for March 31, 2008 and $0
for
December 31, 2007
|
|
|
1,511,091
|
|
|
1,652,079
|
|
|
Accounts
receivable
|
|
|
79,424
|
|
|
66,985
|
|
|
Prepaid
expenses and other
|
|
|
203,544
|
|
|
215,073
|
|
|
Total
current assets
|
|
|
8,722,641
|
|
|
2,255,040
|
|
|
Long-term
assets:
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $102,791 for March
31,
2008 and $92,995 for December 31, 2007
|
|
|
106,106
|
|
|
115,902
|
|
|
Debt
issuance and offering costs, net of accumulated amortization of $324,265
for March 31, 2008 and $273,997 for December 31, 2007
|
|
|
520,259
|
|
|
400,246
|
|
|
Total
assets
|
|
$
|
9,349,006
|
|
$
|
2,771,188
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable, less long-term portion
|
|
$
|
1,944,444
|
|
$
|
2,942,842
|
|
|
Mandatory
Redeemable Convertible Series B Preferred Stock, $.001 par value,
1,250
shares authorized;1,000 shares issued and outstanding at March 31,
2008
and 250 shares authorized; 200 shares issued and outstanding at December
31, 2007
|
|
|
—
|
|
|
1,346,326
|
|
|
Loans
payable
|
|
|
69,559
|
|
|
109,559
|
|
|
Accounts
payable
|
|
|
456,906
|
|
|
351,482
|
|
|
Accrued
expenses
|
|
|
748,391
|
|
|
686,917
|
|
|
Deferred
revenue
|
|
|
11,107
|
|
|
11,296
|
|
|
Total
current liabilities
|
|
|
3,230,407
|
|
|
5,448,422
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable, net of discount of $2,900,548 at March 31, 2008 and $2,566,395
at
December 31, 2007, less current portion
|
|
|
155,008
|
|
|
65,763
|
|
|
Deferred
revenues, less current portion
|
|
|
3,701
|
|
|
1,613
|
|
|
Total
liabilities
|
|
|
3,389,116
|
|
|
5,515,798
|
|
|
Stockholders'
equity (deficiency):
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value, 10,000,000 shares authorized;
no
shares issued and outstanding
|
|
|
—
|
|
|
—
|
|
|
Series
A preferred stock, $.001 par value, 1,000 shares authorized;
2
shares issued and outstanding at March 31, 2008 and December 31,
2007
|
|
|
—
|
|
|
—
|
|
|
Common
stock, $.001 par value, 100,000,000 shares authorized;
12,940,065
shares issued and outstanding at March 31, 2008 and December 31,
2007
|
|
|
12,940
|
|
|
12,940
|
|
|
Additional
paid-in capital
|
|
|
45,081,578
|
|
|
33,732,690
|
|
|
Accumulated
deficit
|
|
|
(39,134,628
|
)
|
|
(36,490,240
|
)
|
|
Total
stockholders' equity (deficiency)
|
|
|
5,959,890
|
|
|
(2,744,610
|
)
|
|
Total
liabilities and stockholders' equity (deficiency)
|
|
$
|
9,349,006
|
|
$
|
2,771,188
|
|
The
accompanying notes should be read in conjunction with the unaudited consolidated
financial statements
MDWERKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
For
the Three Months
Ended
March 31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Service
fees
|
|
$
|
162,242
|
|
$
|
119,908
|
|
|
Financing
income
|
|
|
41,219
|
|
|
13,977
|
|
|
Total
revenue
|
|
|
203,461
|
|
|
133,885
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
902,102
|
|
|
1,417,321
|
|
|
Consulting
expenses
|
|
|
65,481
|
|
|
162,697
|
|
|
Professional
fees
|
|
|
164,688
|
|
|
125,547
|
|
|
Selling,
general and administrative
|
|
|
290,890
|
|
|
409,019
|
|
|
Total
operating expenses
|
|
|
1,423,161
|
|
|
2,114,584
|
|
|
Loss
from operations
|
|
|
(1,219,700
|
)
|
|
(1,980,699
|
)
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,924
|
|
|
28,239
|
|
|
Interest
expense
|
|
|
(766,639
|
)
|
|
(517,498
|
)
|
|
Loss
on extinguishment of debt
|
|
|
(660,122
|
)
|
|
—
|
|
|
Other
income (expense)
|
|
|
149
|
|
|
—
|
|
|
Total
other income (expense)
|
|
|
(1,424,688
|
)
|
|
(489,259
|
)
|
|
Net
loss
|
|
$
|
(2,644,388
|
)
|
$
|
(2,469,958
|
)
|
|
NET
LOSS PER COMMON SHARE - basic and diluted
|
|
$
|
(0.20
|
)
|
$
|
(0.20
|
)
|
|
WEIGHTED-AVERAGE
COMMON SHARES OUTSTANDING - basic and diluted
|
|
|
12,940,065
|
|
|
12,580,065
|
|
The
accompanying notes should be read in conjunction with the unaudited consolidated
financial statements
MDWERKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
For
the Three Months
Ended
March 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,644,388
|
)
|
$
|
(2,469,958
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
9,796
|
|
|
10,700
|
|
|
Amortization
of debt issuance cost
|
|
|
—
|
|
|
5,360
|
|
|
Amortization
of debt discount
|
|
|
1,264,742
|
|
|
411,409
|
|
|
Amortization
of deferred offering costs
|
|
|
73,698
|
|
|
44,499
|
|
|
Amortization
of deferred compensation
|
|
|
22,168
|
|
|
66,510
|
|
|
Bad
debt
|
|
|
125,000
|
|
|
—
|
|
|
Stock-based
compensation
|
|
|
381,505
|
|
|
910,653
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Notes
receivable
|
|
|
15,988
|
|
|
(129,165
|
)
|
|
Accounts
receivable
|
|
|
(12,439
|
)
|
|
12,509
|
|
|
Prepaid
expenses and other
|
|
|
11,529
|
|
|
(9,595
|
)
|
|
Accounts
payable
|
|
|
105,424
|
|
|
(95,209
|
)
|
|
Accrued
expenses
|
|
|
61,474
|
|
|
(36,267
|
)
|
|
Deferred
revenues
|
|
|
1,898
|
|
|
(8,836
|
)
|
|
Total
adjustments
|
|
|
2,060,783
|
|
|
1,183,568
|
|
|
Net
cash used in operating activities
|
|
|
(583,605
|
)
|
|
(1,286,390
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
—
|
|
|
(1,716
|
)
|
|
Net
cash used in investing activities
|
|
|
—
|
|
|
(1,716
|
)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment
of notes payable
|
|
|
(575,000
|
)
|
|
(124,629
|
)
|
|
Repayment
of loan payable
|
|
|
(40,000
|
)
|
|
(2,916
|
)
|
|
Proceeds
from sale of Mandatory Redeemable Series B preferred stock
|
|
|
8,000,000
|
|
|
—
|
|
|
Placement
fees and other expenses paid
|
|
|
(193,716
|
)
|
|
—
|
|
|
Net
cash provided (used in) by financing activities
|
|
|
7,191,284
|
|
|
(127,545
|
)
|
|
Net
increase (decrease) in cash
|
|
|
6,607,679
|
|
|
(1,415,651
|
)
|
|
Cash
- beginning of period
|
|
|
320,903
|
|
|
3,146,841
|
|
|
Cash
- end of period
|
|
$
|
6,928,582
|
|
$
|
1,731,190
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
66,666
|
|
$
|
108,254
|
|
The
accompanying notes should be read in conjunction with the unaudited consolidated
financial statements
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
On
November 16, 2005, a wholly-owned subsidiary of MDwerks, Inc. (f/k/a Western
Exploration, Inc., and hereinafter referred to as the ‘‘Company’’) was merged
with and into MDwerks Global Holdings, Inc., a Florida corporation
(‘‘MDwerks’’), with MDwerks surviving. The Company acquired all of the
outstanding capital stock of MDwerks in exchange for issuing 9,246,339 shares
of
the Company’s common stock, par value $0.001 per share to MDwerks’ stockholders,
which at closing of the Merger Agreement represented approximately 87.4% of
the
issued and outstanding shares of the Company’s common stock. In connection with
the Merger, the Company changed its corporate name to MDwerks, Inc.
The
Company has three operating subsidiaries. Xeni Medical Systems, Inc. ("Xeni
Medical") was incorporated under the laws of the state of Delaware on July
21,
2004. Xeni Medical provides a Web-based package of electronic claims
solutions to the healthcare provider industry through Internet access to it’s
‘‘MDwerks’’ suite of proprietary products and services so that healthcare
providers can significantly improve daily insurance claims transaction
processing, administration and management. Xeni Financial Services, Corp. ("Xeni
Financial") was incorporated under the laws of the state of Florida on February
3, 2005. Xeni Financial offers financing and advances to health care providers
secured by claims processed through the MDwerks system. Xeni Medical Billing,
Corp. ("Xeni Billing") was incorporated under the laws of the state of Florida
on March 2, 2005. Xeni Billing offers health care providers billing services
facilitated through the MDwerks system. Patient Payment Solutions, Inc. (“PPS”)
was incorporated under the laws of the state of Florida on May 30, 2007. PPS
planned to offer healthcare providers a payment improvement process for “out of
network” claims, but never became operational and is a dormant
entity.
Going
concern
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. The Company has suffered losses
that raise substantial doubt about its ability to continue as a going concern.
While the Company is attempting to attain revenue growth and profitability,
the
growth has not been significant enough to support the Company’s daily
operations. Management may need to raise additional funds by way of a public
or
private offering and make strategic acquisitions. While the Company believes
in
the viability of its strategy to improve sales volume and in its ability to
raise additional funds, there can be no assurances to that effect. The ability
of the Company to continue as a going concern is dependent on the Company’s
ability to further implement its business plan and generate revenue. The
financial statements do not include any adjustments that might be necessary
if
the Company is unable to continue as a going concern. Management believes that
the actions presently being taken to further implement its business plan and
generate revenue, including institutional financing described in Note 4, provide
the opportunity for the Company to continue as a going concern.
The
Company has raised funds in the first quarter of 2008 through the sale of
preferred stock. As reflected in the accompanying consolidated financial
statements, the Company has stockholders’ equity of $5,809,301 and working
capital of $5,492,234 at March 31, 2008.
Basis
of presentation
The
accompanying unaudited consolidated financial statements have been prepared
in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Item 310(b) of Regulation
S-B. Accordingly, the financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and such adjustments are
of
a normal recurring nature. These consolidated financial statements should be
read in conjunction with the consolidated financial statements for the year
ended December 31, 2007 and notes thereto and other pertinent information
contained in the Form 10-KSB of the Company as filed with the Securities and
Exchange Commission (the ‘‘Commission’’). The results of operations for the
three months ended March 31, 2008 are not necessarily indicative of what the
results will be for the full fiscal year ending December 31,
2008.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Fair
value of financial instruments
Statement
of Financial Accounting Standards No. 107, ‘‘Disclosures about Fair Value of
Financial Instruments,’’ requires disclosures of information about the fair
value of certain financial instruments for which it is practicable to estimate
the value. For purpose of this disclosure, the fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or
liquidation.
The
carrying amounts reported in the consolidated balance sheet for cash, notes
receivable, accounts receivable, accounts payable and accrued expenses, notes
payable and loans payable approximate their fair market value based on the
short-term maturity of these instruments.
Cash
and cash equivalents
For
purposes of the consolidated statements of cash flows, the Company considers
all
highly liquid instruments purchased with a maturity of three months or less
and
money market accounts to be cash equivalents.
At
various times, the Company has deposits in excess of the Federal Deposit
Insurance Corporation limit. At March 31, 2008, the Company was approximately
$6,700,000 in excess of the $100,000 limit. The Company has not experienced
any
losses on these accounts.
Advertising
The
Company expenses advertising costs as incurred. Advertising costs charged to
operations were approximately $2,001 and $34,293 for the three months ended
March 31, 2008 and 2007, respectively.
Property
and equipment
Property
and equipment are stated at cost. Depreciation and amortization are provided
using the straight-line method over the estimated useful life.
Revenue
recognition
The
Company follows the guidance of the Securities and Exchange Commission’s
(‘‘SEC’’) Staff Accounting Bulletin 104 for revenue recognition. In
general, the Company records 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. The following policies reflect specific criteria for the various
revenue streams of the Company.
Revenue
derived from fees related to claims and contract management services are
generally recognized when services are provided to the customer.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Revenue
recognition (continued)
The
Company, through its subsidiaries, provides advance funding for medical
claims and term loan services to unaffiliated healthcare providers that are
customers of the Company. The customer advances are typically
collateralized by Security Agreements granting first position liens on the
medical claims submitted by its customers to third party payers (the
‘‘Payers’’). The advances are repaid through the remittance of payments of
customer medical claims, by Payers, directly to the Company. The Company can
withhold from these advances interest, an administrative fee and other charges
as well as any amount for 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. There is no right of cancellation or
refund provisions in these arrangements and the Company has no further
obligations once the services are rendered.
Revenue
derived from fees related to billing and collection services are generally
recognized when the customer’s accounts receivable are collected.
Revenue
from implementation fees are generally recognized over the term of the
customer’s agreement. Revenue derived from maintenance, administrative and
support fees are generally recognized at the time the services are provided
to
the customer.
Income
taxes
Income
taxes are accounted for under the asset and liability method of Statement of
Financial Accounting Standards No. 109, ‘‘Accounting for Income Taxes’’ (‘‘SFAS
109’’). Under SFAS 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax
assets and liabilities of a change in tax rates is recognized in income in
the
period that includes the enactment date.
Loss
per common share
Basic
loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the period. Diluted loss per share
is computed by dividing net loss by the weighted average number of shares of
common stock and potentially dilutive securities outstanding during each period.
For the three months ended March 31, 2008 and 2007, the Company had outstanding
options to purchase an aggregate of 3,514,250 and 2,876,250 shares of common
stock, respectively and warrants to purchase an aggregate of 57,566,346 and
2,733,012 shares of common stock, respectively, 40,000 and 100,000 shares of
common stock, respectively, issuable upon conversion of Series A preferred
stock, 13,333,334 and 0 shares of common stock, respectively, issuable upon
conversion of Series B preferred stock, and 2,222,222 and 2,222,222 shares
of
common stock, respectively, issuable upon conversion of notes payable which
could potentially dilute future earnings per share. Diluted loss per common
share has not been presented for the three months ended March 31, 2008 and
2007
since the impact of the stock options and warrants would be antidilutive.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Stock-based
compensation
In
January 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share Based Payment (‘‘SFAS No. 123R’’)
utilizing the modified prospective method. SFAS No. 123R establishes the
financial accounting and reporting standards for stock-based compensation plans.
As required by SFAS No. 123R, the Company recognizes the cost resulting
from all stock-based payment transactions including shares issued under its
stock option plans in the consolidated financial statements.
Recent
accounting pronouncements
In
February 2007, the FASB issued SFAS No. 159
The
Fair Value Option for Financial Assets and Financial Liabilities - including
an
Amendment of SFAS No. 115
,
(‘‘SFAS 159’’), which permits an entity to measure many financial assets and
financial liabilities at fair value that are not currently required to be
measured at fair value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting date.
The
fair value option may be elected on an instrument-by-instrument basis, with
few
exceptions. SFAS 159 amends previous guidance to extend the use of the fair
value option to available-for-sale and held-to-maturity securities. The
Statement also establishes presentation and disclosure requirements to help
financial statement users understand the effect of the election. SFAS No. 159
is
effective as of the beginning of the first fiscal year beginning after November
15, 2007. The Company is currently evaluating the impact of adopting SFAS
159.
In
December 2007, the FASB issued two new pronouncements, SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements- an amendment
of
ARB N0. 51 and SFAS No. 141 (revised 2007) Business Combinations. Both
pronouncements call for prospective reporting only and would not effect any
current (or currently contemplated) transactions by the Company.
The
Company does not believe that any other recently issued, but not yet effective
accounting standards will have a material effect on the Company’s consolidated
financial position, results of operations or cash flows.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
2 — ACCOUNTS AND NOTES RECEIVABLE
Accounts
receivable are recorded when revenue has been recognized but not yet collected.
The Company had $79,424 of accounts receivable as of March 31, 2008 and 66,985
as of December 31, 2007 from implementation, processing, collection, and other
fees, and disbursements not yet collected.
Accounts
and notes receivable are reported at their outstanding unpaid principal balances
reduced by an allowance for doubtful accounts. The Company estimates doubtful
accounts based on historical bad debts, factors related to specific customers’
ability to pay and current economic trends. The Company writes off receivables
against the allowance when a balance is determined to be uncollectible.
At
March
31, 2008, the Company advanced six healthcare providers under lines of credit
and note agreements, respectively, aggregating $1,636,091. Advances under the
lines of credit are due to be repaid out of providers’ claims
collections, as defined in the agreement. The notes receivable under note
agreements are payable as the provider collects certain receivables. The Company
charged the healthcare providers interest and other charges as defined in the
agreements. At March 31, 2008, no amounts were past due, but an allowance for
doubtful accounts of $125,000 was recorded for one note receivable due to the
company’s estimate of the note holder’s ability to pay. At December 31, 2007,
the Company had $1,652,079 of notes receivable.
NOTE
3 — PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
|
Estimated
Life
|
|
|
March
31,
2008
|
|
|
December
31,
2007
|
|
|
Office
furniture and equipment
|
|
5-7
Years
|
|
$
|
27,077
|
|
$
|
27,077
|
|
|
Computer
equipment and software
|
|
3-5
Years
|
|
|
181,820
|
|
|
181,820
|
|
|
Total
|
|
|
|
|
208,897
|
|
|
208,897
|
|
|
Less:
accumulated depreciation
|
|
|
|
|
(102,791
|
)
|
|
(92,995
|
)
|
|
Property
and equipment, net
|
|
|
|
$
|
106,106
|
|
$
|
115,902
|
|
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
4 — NOTES PAYABLE
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, the Company 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 gross proceeds of
$2,500,000 ($2,375,000 net proceeds) for a total of $5,000,000 in the aggregate
($4,750,000 in the aggregate) in connection with a financing provided by
Gottbetter Capital Master, Ltd. (in liquidation, 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’’).
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
4 — NOTES PAYABLE (continued)
In
connection with an extension until February 1, 2008 of repayment of principal
on
the Senior Notes described above, the Company granted to Gottbetter an
additional five year Series D warrants to purchase 500,000 shares of its common
stock at an exercise price of $2.25 per share which warrants expire on September
27, 2012. These warrants were treated as a discount on the secured promissory
note and were valued at $252,361 amortized over the 4-month extension. The
fair
market value of each stock warrant was estimated on the date of grant using
the
Black-Scholes option-pricing model in accordance with SFAS No. 123R using the
following weighted-average assumptions: expected dividend yield 0%; risk-free
interest rate of 4.23%; volatility of 116% and an expected term of 5
years.
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.
In
connection with obtaining the consent and waiver of Gottbetter to the financing
provided by Vicis Capital Master Fund, an unaffiliated accredited investor
(“Vicis”) described below, we entered into the Gottbetter Consent Agreement,
pursuant to which Gottbetter agreed to waive its anti-dilution rights under
the
Series D Warrants, Series E Warrants and promissory notes that we previously
issued to Gottbetter and Gottbetter consented to the financing provided by
Vicis.
On
December 3, 2007 we received gross 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 was
due
and payable on December 2, 2008. On March 31, 2008 both interest and principal
on this Note were paid in full as part of the March Securities Purchase
Agreement described below.
As
consideration for Gottbetter entering into the Gottbetter Consent Agreement,
we
issued to Gottbetter a Series I warrant to purchase 1,000,000 shares of our
common stock at an exercise price of $0.75 per share. The Series I Warrant
is
exercisable for a period of five years from the date of issuance. The Series
I
Warrant may be exercised on a cashless basis to the extent that the resale
of
shares of common stock underlying the Series I Warrant is not covered by an
effective registration statement. 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 I
Warrant, 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
I
Warrant and issuances of convertible securities with a conversion price below
the exercise price of the Series I Warrant. The fair market value of each stock
warrant was estimated on the date of grant using the Black-Scholes
option-pricing model in accordance with SFAS No. 123R using the following
weighted-average assumptions: expected dividend yield 0%; risk-free interest
rate of 2.46%; volatility of 117% and an expected term of 5 years.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
4 — NOTES PAYABLE (continued)
For
the
three months ended March 31, 2008, amortization of the debt discount on notes
payable amounted to $418,760.
The
promissory notes are as follows:
|
|
|
March
31,
2008
|
|
December
31,
2007
|
|
|
Notes
payable
|
|
$
|
5,000,000
|
|
$
|
5,575,000
|
|
|
Less:
unamortized discount on notes payable
|
|
|
(2,900,548
|
)
|
|
(2,566,395
|
)
|
|
Notes
payable, net
|
|
$
|
2,099,452
|
|
$
|
3,008,605
|
|
|
Less
current portion
|
|
|
(1,944,444
|
)
|
|
(2,942,842
|
)
|
|
Notes
payable, net of discount of $2,900,548, less current
portion
|
|
$
|
155,008
|
|
$
|
65,763
|
|
On
August
31, 2007 we received gross proceeds of $250,000 in connection with a financing
provided by Vicis. In connection with the financing, we issued a 31-day
Convertible Note to Vicis in the original principal amount of
$250,000.
On
September 28, 2007 we received gross proceeds of $2,000,000 (net proceeds of
$1,691,445 after repayment of the $250,000 31-day August 31, 2007 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. As security for our obligations, we, along with our
subsidiaries entered into Security Agreements with the Investor, pursuant to
which we granted a security interest in all of our assets, except for the
accounts receivable and certain contract rights of Xeni Financial, to the
Investor. The fair market value of each stock warrant was estimated on the
date
of grant using the Black-Scholes option-pricing model in accordance with SFAS
No. 123R using the following weighted-average assumptions: expected dividend
yield 0%; risk-free interest rate of 4.23%; volatility of 116% and an expected
term of 7 years.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
4 — NOTES PAYABLE (continued)
On
January 17, 2008 we filed an amended and restated Certificate of Designations
(as amended and restated, the “Certificate of Designations”) with the Secretary
of State of the State of Delaware, to, among other things, increase the number
of authorized shares of Series B Preferred Stock from 250 shares to 325
shares.
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 a price of $2.50 per
share. The fair market value of each stock warrant was estimated on the date
of
grant using the Black-Scholes option-pricing model in accordance with SFAS
No.
123R using the following weighted-average assumptions: expected dividend yield
0%; risk-free interest rate of 4.75%; volatility of 118% and an expected term
of
7 years.
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, dated September 28, 2007,
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.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
4 — NOTES PAYABLE (continued)
We
amended the Registration Rights Agreement, previously entered into, by and
between Vicis and us in September 2007. We agreed, in addition to registering
the securities previously covered by such Registration Rights Agreement, to
register for resale, the common stock relating to convertible shares of our
preferred stock and the Series F Warrants and the Series G Warrants that are
exercisable pursuant to the January Securities Purchase Agreement.
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, since the Company was able to secure additional
financing by March 31, 2008. If the Company was unable to secure additional
financing by March 31, 2008, the amendment to the Senior Notes would have been
void and of no force and effect. In consideration of the amendment to the Senior
Notes, the Company issued to Gottbetter 1,000,000 Series I warrants. The Series
I Warrants are exercisable at a price of $0.75 per share for a period of five
years from the date of issuance.
On
March
31, 2008, we received net proceeds of $6,809,794 in connection with a financing
provided by Vicis. In connection with the financing, we and Vicis entered into
a
Securities Purchase Agreement, dated March 31, 2008 (the “March Securities
Purchase Agreement”), pursuant to which we issued 750 shares of Series B
Convertible Preferred Stock, par value $0.001 ( “Series B Preferred Stock”), a
ten year Series H Warrant to purchase 53,333,334 shares of our common stock
at a
price of $0.75 per share (the “Series H Warrant”), and pursuant to which Vicis
Surrendered for cancellation all Series F Warrants and all Series G Warrants
held by Vicis, which warrants were exercisable in the aggregate for 3,125,000
shares of our common stock. The fair market value of each stock warrant was
estimated on the date of grant using the Black-Scholes option-pricing model
in
accordance with SFAS No. 123R using the following weighted-average assumptions:
expected dividend yield 0%; risk-free interest rate of 2.46%; volatility of
117%
and an expected term of 7 years.
For
the
three months ended March 31, 2008, amortization of the debt discount on
mandatory redeemable convertible Series B preferred stock amounted to $845,982.
The
mandatory redeemable convertible Series B preferred stock is as
follows:
|
|
|
March
31,
2008
|
|
December
31,
2007
|
|
|
Mandatory
redeemable convertible Series B preferred stock
|
|
$
|
10,000,000
|
|
$
|
2,000,000
|
|
|
Less:
unamortized discount on preferred stock
|
|
|
(10,000,000
|
)
|
|
(653,674
|
)
|
|
Mandatory
redeemable convertible Series B preferred stock, net
|
|
$
|
—
|
|
$
|
1,346,326
|
|
In
connection with the sale of the Series B Preferred Stock, we amended and
restated the Registration Rights Agreement, dated September 28, 2007, by and
between Vicis and us (as amended and restated, the “Amended and Restated
Registration Rights Agreement”), pursuant to which, among other things, we
agreed, to register for resale all of the shares of our common stock into which
the outstanding Series B Preferred Stock is convertible and all of the shares
of
our common stock for which the Series H is exercisable.
In
connection with obtaining the consent and waiver of Gottbetter to the financing
provided by Vicis, we entered into an Amendment, Consent and Waiver Agreement
(the “Gottbetter Consent Agreement”), pursuant to which (i) we issued to
Gottbetter a five year Series I warrant to purchase one million shares of our
common stock at an exercise price of $0.75 per share; (ii) Gottbetter agreed
to
waive its anti-dilution rights under the Series D Warrants, Series E Warrants
and Promissory Notes that we previously issued to Gottbetter and (iii)
Gottbetter consented to the financing provided by Vicis.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
4 — NOTES PAYABLE (continued)
March
Securities Purchase Agreement
The
March
Securities Purchase Agreement provided for the sale by us to Vicis of (i) 750
shares of Series B Preferred Stock (ii) and a Series H Warrant to purchase
an
aggregate of 53,333,334 shares of our common stock at a price of $0.75 per
share. Pursuant to the March Securities Purchase Agreement, the aggregate gross
purchase price for the Series B Preferred Stock and the Series H Warrant was
$7,500,000, which was paid by wire transfer of immediately available funds
and
the surrender for cancellation of a promissory note that we issued to Vicis
in
the principal amount of $575,000. Principal and accrued interest under the
promissory note and $100,000 of Vicis’ expenses were applied against the
purchase price.
The
March
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 right of first
refusal is on a pro rata basis (based upon the amount invested) with
Gottbetter.
The
March
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
January Securities Purchase Agreement); (vii) amend our charter documents in
a
way that adversely affects the rights of Vicis; (viii) except through Xeni
Financial Services, Corp., make loans to, or advances or guarantee the
obligations of, third parties; (ix) make intercompany transfers; (x) engage
in
transactions with officers, directors, employees or affiliates; (xi) divert
business to other business entities; (xii) make investments in securities or
evidences of indebtedness (excluding loans made by Xeni Financial Services,
Corp.) in excess of $250,000 in a calendar year; and (xiii) file registration
statements.
Events
of
default under the March 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)
suspension from listing on the OTC Bulletin Board or other exchange for 10
consecutive trading days; (iv) the failure to timely deliver shares of common
stock upon conversion of the Series B Preferred Stock or exercise of the Series
H Warrant ; (v) default in the payment of indebtedness in excess of $250,000;
(vi) a judgment entered against us in excess of $250,000; and (vii) insolvency,
bankruptcy and similar circumstances.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
4 — NOTES PAYABLE (continued)
The
March
Securities Purchase Agreement further provides that our obligations to Vicis
under the Series B Preferred Stock, the March Securities Purchase Agreement
and
the various transaction documents entered into in connection with the March
Securities Purchase Agreement (the “March 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 “Company Security Agreement”).
Series
B
Preferred Stock
On
March
31, 2008 we filed an amended and restated Certificate of Designations (as
amended and restated, the “Certificate of Designations”) with the Secretary of
State of the State of Delaware to, among other things, increase the number
of
authorized shares of Series B Preferred Stock from 325 shares to 1,250
shares.
The
Certificate of Designations, which designates the rights, preferences,
privileges and terms of the Series B Preferred Stock, 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 12% 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 $0.75 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 March
31, 2010, 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.
As
of the
March 31, 2008, there are 1,000 shares of Series B Preferred Stock issued and
outstanding.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
4 — NOTES PAYABLE (continued)
Series
H
Warrant
The
Series H Warrant is exercisable at a price of $0.75 per share for a period
of
ten years from the date of issuance. The Series H Warrant may be exercised
on a
cashless basis to the extent that the resale of shares of common stock
underlying the Series H Warrant is not covered by an effective registration
statement. 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 H Warrant, 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 H Warrant, issuances
of
convertible securities with a conversion price below the exercise price of
the
Series H Warrant.
As
of
March 31, 2008, the outstanding Series H Warrant is exercisable for an aggregate
of 53,333,334 shares or our common stock.
Company
Security Agreement
Pursuant
to the terms of the March Securities Purchase Agreement, we agreed that the
lien
granted pursuant to the Company Security Agreement would, in addition to
securing the obligations previously secured thereby, secure our obligations
in
connection with the March Securities Purchase Agreement, the March Transaction
Documents and the Series B Preferred Stock issued in connection with the March
Securities Purchase Agreement. The Company Security Agreement provides for
a
lien on all of our assets in favor of Vicis.
Guaranty
Agreements
Pursuant
to the terms of the March Securities Purchase Agreement, we agreed that the
Guaranty Agreements would, in addition to applying to the obligations previously
guaranteed thereby, apply to our obligations in connection with the March
Securities Purchase Agreement, the March Transaction Documents and the Series
B
Preferred Stock issued pursuant to the January Securities Purchase Agreement.
The Guaranty Agreements provide for unconditional guaranties of the obligations
guaranteed thereunder.
Guarantor
Security Agreements
Pursuant
to the terms of the March Securities Purchase Agreement, we agreed that the
security interests granted by our subsidiaries pursuant to the Guarantor
Security Agreements would, in addition to securing the obligations previously
secured thereunder, secure the obligations of our subsidiaries under the
Guaranty Agreements insofar as those obligations related to the January
Securities Purchase Agreement, the March Transaction Documents and the Series
B
Preferred Stock issued pursuant to March Securities Purchase Agreement. The
Guarantor Security Agreements provide for liens in favor of Vicis on all of
the
assets of each of our subsidiaries, except for the accounts receivable and
certain contract rights of Xeni Financial Services, Corp.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
4 — NOTES PAYABLE (continued)
Amended
and Restated Registration Rights Agreement
Pursuant
to the Amended and Restated Registration Rights Agreement, we agreed to register
for resale, the shares of our common stock into which the Series B Preferred
Stock is convertible and the shares of our common stock for which the Series
H
Warrant is exercisable.
The
Registration Rights Agreement requires us to file a registration statement
covering the resale of the shares underlying the Series B Preferred Stock and
the Series H warrant within 60 days after the closing date. We are only required
to register up to thirty percent of the number of outstanding shares of common
stock in such registration statement and then file subsequent registration
statements after the later of (i) sixty days following the sale of the
securities covered by the initial registration statement or any subsequent
registration statement and (ii) six months following the effective date of
the
initial registration statement or any subsequent registration statement. We
are
required to cause the initial registration statement to become effective on
or
before the date which is 150 calendar days after the closing date if the
Securities and Exchange Commission (the “SEC”) does not review the registration
statement or 180 calendar days after the closing if the registration statement
receives a full review by the SEC. If we fail to file a registration statement
in the time frame required, fail to file a request for acceleration in the
time
frame required, or fail to maintain the effectiveness of a registration
statement as required by the Registration Rights Agreement, we will be required
to pay a cash penalty in the amount of 1.5% of the aggregate stated value of
the
Series B Preferred Stock for each month, or part thereof, that such registration
statement is not filed or effective, as the case may be. The cash penalty is
limited to 9% of the aggregate stated value of the Series B Preferred
Stock. The cash penalty will not apply to the registration of shares of common
stock underlying the Series H Warrant. The Registration Rights Agreement also
provides for piggyback registration rights.
NOTE
5 — LOAN PAYABLE
The
Company has a loan payable to an unrelated individual in the amount of $69,559
at March 31, 2008 and December 31, 2007. The loan bears interest at 8% per
annum
and is payable on a monthly basis. The loan shall be repaid proportionally
upon
repayment of certain of the Company’s notes receivable.
The
Company also had a net loan payable at December 31, 2007 to a customer of the
Company in the amount of $40,000. During March 2008, the remaining $40,000
of
this loan payable was paid in full to the customer.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
6 — STOCKHOLDERS’ EQUITY
Common
stock
The
Company is authorized to issue 100,000,000 shares of Common stock, $.001 par
value, with such designations, rights and preferences as may be determined
from
time to time by the Board of Directors. As of March 31, 2008, there are
12,940,065 shares issued and outstanding.
Preferred
stock
The
Company is authorized to issue 10,000,000 shares of preferred stock, $.001
par
value, with such designations, rights and preferences as may be determined
from
time to time by the Board of Directors.
The
Company issued 1,000 shares of Series A Convertible Preferred stock, $0.001
par
value with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Between February 1, 2006 and June 30,
2006, the Company sold 28.3 Units to accredited investors. Each unit consists
of
one share of our Series A Convertible Preferred Stock, par value $.001 per
share, and a detachable, transferable Series A Warrant to purchase 20,000 shares
of our common stock, at a purchase price of $3.00 per share. Between August
11,
2006 and March 31, 2008, 26.3 shares of Series A Convertible Preferred Stock
were converted into 526,667 shares of common stock leaving 2 Series A
Convertible Preferred Stock outstanding as of March 31, 2008.
The
Company is authorized to issue 1,250 shares of Series B Convertible Preferred
stock, $0.001 par value with such designations, rights and preferences as may
be
determined from time to time by the Board of Directors. On September 28, 2007,
200 shares of Series B convertible preferred stock were issued in connection
with the September Securities Purchase Agreement. On January 18, 2008, 50 shares
of Series B convertible preferred stock were issued in connection with the
January Securities Purchase Agreement. On March 31, 2008, 750 shares of Series
B
convertible preferred stock shares were issued in connection with the March
Securities Purchase Agreement. As of March 31, 2008, there are 1,000 issued
and
outstanding shares of Series B convertible preferred stock.
Common
stock options
A
summary
of the status of the Company's outstanding stock options as of March 31, 2008
and changes during the period ending on that date is as follows:
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding
at December 31, 2007
|
|
|
3,514,250
|
|
$
|
2.57
|
|
$
|
0
|
|
|
Granted
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding
at March 31, 2008
|
|
|
3,514,250
|
|
$
|
2.57
|
|
$
|
291,410
|
|
|
Options
exercisable at end of period
|
|
|
2,220,083
|
|
$
|
2.80
|
|
$
|
258,827
|
|
|
Weighted-average
fair value of options granted during the period
|
|
|
—
|
|
|
—
|
|
|
—
|
|
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
6 — STOCKHOLDERS’ EQUITY
Common
stock options (continued)
The
following information applies to options outstanding at March 31,
2008:
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Range
of Exercise Prices
|
|
Shares
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
$0.38
|
|
|
483,000
|
|
|
9.75
|
|
$
|
0.38
|
|
|
483,000
|
|
$
|
0.38
|
|
|
$0.67
|
|
|
175,000
|
|
|
9.50
|
|
$
|
0.67
|
|
|
33,333
|
|
$
|
0.67
|
|
|
$1.39
|
|
|
105,000
|
|
|
9.00
|
|
$
|
1.39
|
|
|
95,000
|
|
$
|
1.39
|
|
|
$2.25
|
|
|
1,025,000
|
|
|
8.75
|
|
$
|
2.25
|
|
|
683,333
|
|
$
|
2.25
|
|
|
$3.25
|
|
|
190,000
|
|
|
7.75
|
|
$
|
3.25
|
|
|
126,667
|
|
$
|
3.25
|
|
|
$3.40
|
|
|
860,000
|
|
|
7.75
|
|
$
|
3.40
|
|
|
573,333
|
|
$
|
3.40
|
|
|
$4.00
- 4.25
|
|
|
676,250
|
|
|
8.25
|
|
$
|
4.03
|
|
|
225,417
|
|
$
|
4.03
|
|
|
|
|
|
3,514,250
|
|
|
|
|
$
|
2.57
|
|
|
2,220,083
|
|
$
|
2.80
|
|
In
connection with previously granted stock options, the Company recognized
stock-based compensation expense of $381,504 for the three months ended March
31, 2008 and $910,653 for the three months ended March 31, 2007.
As
of
March 31, 2008, the total future compensation expense related to non-vested
options not yet recognized in the consolidated statement of operations is
approximately $945,000, which will be recognized through September
2010.
Common
stock warrants
A
summary
of the status of the Company's outstanding stock warrants granted as of March
31, 2008 and changes during the period is as follows:
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding
at December 31, 2007
|
|
|
5,733,012
|
|
$
|
2.42
|
|
|
Granted
|
|
|
54,333,334
|
|
|
0.75
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
|
(2,500,000
|
)
|
|
(2.35
|
)
|
|
Outstanding
at March 31, 2008
|
|
|
57,566,346
|
|
$
|
0.85
|
|
|
Common
stock issuable upon exercise of warrants
|
|
|
57,566,346
|
|
$
|
0.85
|
|
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
NOTE
6 — STOCKHOLDERS’ EQUITY
Common
stock warrants (continued)
|
Common
Stock issuable upon
exercise
of warrants outstanding
|
|
Common
Stock issuable upon
Warrants
Exercisable
|
|
|
Range
of
Exercise
Price
|
|
Number
Outstanding
at
March 31, 2008
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
at
March 31, 2008
|
|
Weighted
Average
Exercise
Price
|
|
|
$0.75
|
|
|
54,333,334
|
|
|
9.91
|
|
$
|
0.75
|
|
|
54,333,334
|
|
$
|
0.75
|
|
|
$1.25
|
|
|
199,000
|
|
|
2.22
|
|
$
|
1.25
|
|
|
199,000
|
|
$
|
1.25
|
|
|
$1.50
|
|
|
56,667
|
|
|
3.24
|
|
$
|
1.50
|
|
|
56,667
|
|
$
|
1.50
|
|
|
$2.25
|
|
|
1,527,778
|
|
|
3.89
|
|
$
|
2.25
|
|
|
1,527,778
|
|
$
|
2.25
|
|
|
$2.50
|
|
|
640,400
|
|
|
0.63
|
|
$
|
2.50
|
|
|
640,400
|
|
$
|
2.50
|
|
|
$3.00
|
|
|
579,167
|
|
|
1.12
|
|
$
|
3.00
|
|
|
579,167
|
|
$
|
3.00
|
|
|
$3.76
|
|
|
225,000
|
|
|
1.55
|
|
$
|
3.76
|
|
|
225,000
|
|
$
|
3.76
|
|
|
$4.00
|
|
|
5,000
|
|
|
1.55
|
|
$
|
4.00
|
|
|
5,000
|
|
$
|
4.00
|
|
|
|
|
|
57,566,346
|
|
|
|
|
$
|
0.85
|
|
|
57,566,346
|
|
$
|
0.85
|
|
NOTE
7 — COMMITMENTS
Lease
agreements
The
Company sub-leased its facility, on a month-to-month basis, under a master
lease
expiring July 2008. Rent expense for the three months ended March 31, 2008
was
$21,936. 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
2.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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 Systems, Inc. ("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 Financial Services, Corp. ("Xeni Financial") 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 commercially favorable
terms.
Additionally,
clients may choose to complete the claims management cycle by subscribing to
the
Xeni Medical Billing, Inc. ("Xeni Billing") 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 the Health Insurance
Portability and Accountability Act of 1996 (‘‘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 marketing efforts
in geographic areas such as California, Florida, Texas, New York, Illinois
and
New Jersey, which contains a high concentration 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 payors 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 Three Months Ended March 31, 2008 Versus the Three Months Ended March 31,
2007
Revenue
For
the
three months ended March 31, 2008, we recorded total revenue of $203,461. Of
this total, we recorded service fee revenue of $162,242, accounting for 79.7%
of
total revenue, and financing income of $41,219, accounting for 20.3% of total
revenue. For the three months ended March 31, 2007, we recorded total revenue
of
$133,885 of total revenue. Of this total, we recorded service fee revenue of
$119,908, accounting for 89.6% of total revenue and financing income of $13,977,
accounting for 10.4% of total revenue.
Operating
Expenses
Our
operating expenses significantly decreased for the three months ended March
31,
2008 from the three months ended March 31, 2007 principally as a result of
decreased stock option compensation.
For
the
three months ended March 31, 2008, total operating expenses were $1,423,161
as
compared to $2,114,584 for the three months ended March 31, 2007, a decrease
of
$691,423 or 32.7%. Included in this decrease for the three months ended March
31, 2008 is the following:
|
|
1.
|
We
recorded compensation expense of $902,102 as compared to $1,417,321
for
the three months ended March 31, 2007. This $515,219 or 36.4% decrease
was
attributable to non-cash compensation expense for stock option grants
during 2007; and
|
|
|
2.
|
Consulting
expense amounted to $65,481 as compared to $162,697 for the three
months
ended March 31, 2007, a decrease of $97,216, or 59.8%. This decrease
resulted from lower financing costs and outside business development
an
information technology consultants expense.;
and
|
|
|
3.
|
Professional
fees amounted to $164,688 as compared to $125,547 for the three months
ended March 31, 2007, an increase of $39,141, or 31.2%. This expense
was
attributable to an increase in legal fees related to additional SEC
filings, and Series B Convertible Preferred Stock offerings, higher
accounting fees for SEC filings and other corporate matters;
and
|
|
|
4.
|
Selling,
general and administrative expenses were $290,890 as compared to
$409,019
for the three months ended March 31, 2007, a decrease of $118,129,
or
28.9%. This decrease resulted from a reduction in advertising, sales
travel and trade shows.
|
For
the
three months ended March 31, 2008 and 2007, selling, general and administrative
expenses consisted of the following:
|
|
|
March
31,
2008
|
|
March
31,
2007
|
|
|
Sales
commissions
|
|
$
|
5,120
|
|
$
|
27,585
|
|
|
Advertising
and promotion
|
|
|
2,001
|
|
|
34,293
|
|
|
Employee
benefits and payroll taxes
|
|
|
111,625
|
|
|
108,927
|
|
|
Other
selling, general and administrative
|
|
|
172,144
|
|
|
238,214
|
|
|
|
|
$
|
290,890
|
|
$
|
409,019
|
|
Other
Income (Expenses)
For
the
three months ended March 31, 2008, interest income was $1,924 as compared to
$28,239 for the three months ended March 31, 2007, a decrease of $26,315. This
decrease was principally due to a decrease in interest-bearing cash
deposits.
For
the
three months ended March 31, 2008, interest expense was $766,639 as compared
to
$517,498 for the three months ended March 31, 2007, an increase of $249,141.
This increase was due to an increase in borrowings and amortization of debt
discount and deferred fees in connection with our notes payable.
On
March
31, 2008, the Company received net proceeds of $6,809,794 in connection with
a
financing provided by Vicis. Along with this financing, the Mandatory Redeemable
Convertible Series B Preferred Stock issued in connection with the September
28,
2007 financing of $2,000,000 and the January 18, 2008 financing of $500,000
were
returned and considered debt extinguishment and a new Notes Payable to Vicis
for
$10,000,000 was recorded. The loss on extinguishment of this debt was $660,880.
Net
Loss Attributable to Common Shareholders
We
reported a net loss attributable to common shareholders of $2,644,388 for the
three months ended March 31, 2008 as compared to net loss attributable to common
shareholders of $2,469,958 for the three months ended March 31, 2007. This
translates to an overall per share loss available to shareholders of ($.20)
for
the three months ended March 31, 2008 as compared to a per share loss of ($.20)
for three months ended March 31, 2007.
Liquidity
and Capital Resources
We
used
the proceeds from the sales of preferred stock through March 31, 2008 and
proceeds from notes and loans payable for working capital purposes and to fund
our notes receivable of which we have $1,636,091 owed to us at March 31, 2008.
We will continue to advance funds under note agreements to providers that
subscribe to our financial services lending solutions.
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
August
31, 2007 we received gross proceeds of $250,000 in connection with a financing
provided by Vicis Capital Master Fund, an unaffiliated accredited investor
(“Vicis”). In connection with the financing, we issued a Convertible Note to
Vicis in the original principal amount of $250,000.
On
September 28, 2007 we received gross proceeds of $2,000,000 (net proceeds of
$1,691,445 less repayment of the $250,000 August 31, 2007 Vicis Convertible
Note, interest and closing expenses) in connection with a financing provided
by
Vicis .
On
December 3, 2007 we received gross 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 a price of $2.50 per
share.
On
March
31, 2008, we received net proceeds of $6,809,794 in connection with a financing
provided by Vicis. In connection with the financing, we and Vicis entered into
a
Securities Purchase Agreement, dated March 31, 2008 (the “March Securities
Purchase Agreement”), pursuant to which we issued 750 shares of Series B
Convertible Preferred Stock, par value $0.001 ( “Series B Preferred Stock”), a
ten year Series H Warrant to purchase 53,333,334 shares of our common stock
at a
price of $0.75 per share (the “Series H Warrant”), and pursuant to which Vicis
surrendered for cancellation all Series F Warrants and all Series G Warrants
held by Vicis, which warrants were exercisable in the aggregate for 3,125,000
shares of our common stock
.
We
believe we have sufficient funds to conduct our business and operations as
they
are currently undertaken for the balance of the fiscal year.
While
the
Company is attempting to attain revenue growth and profitability, the growth
has
not been significant enough to support the Company’s daily operations.
Management may need to raise additional funds by way of a public or private
offering and make strategic acquisitions. While the Company believes in the
viability of its strategy to improve sales volume and in its ability to raise
additional funds, there can be no assurances to that effect. The ability of
the
Company to continue as a going concern is dependent on the Company’s ability to
further implement its business plan and generate revenue. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. Management believes that the actions
presently being taken to further implement its business plan and generate
revenue, including institutional financing described in Note 4, provide the
opportunity for the Company to continue as a going concern.
We
currently have no material commitments for capital expenditures.
Cash
flows
At
March
31, 2008, we had cash of $6,928,582.
Net
cash
used in operating activities was $583,605 for the three months ended March
31,
2008 as compared to $1,286,390 for the three months ended March 31, 2007, a
decrease of $702,785. This decrease is primarily attributable to the net effect
of an increase in our net loss and:
|
|
1.
|
Gottbetter
debt offering costs of $73,698 and Gottbetter debt discount costs
of
$1,264,742, compared to debt related costs during the three months
ended
March 31, 2007 of $461,268;
|
|
|
2.
|
Stock-based
compensation of $381,505 versus stock-based compensation expense
of
$910,653 for the three months ended March 31, 2007 primarily related
to
issuance of stock options in 2007 to
employees;
|
|
|
3.
|
A
net decrease in notes receivable, accounts receivable and prepaid
expenses
aggregating $15,078 principally related to the reduction in notes
receivables from providers that subscribe to our MDwerks financial
services solution;
|
|
|
4.
|
An
increase in accounts payable, accrued expenses, and deferred revenue
related to an increase in operating activities aggregating
$168,796.
|
Net
cash
used in investing activities was $0 for the three months ended March 31, 2008
as
compared to $1,716 for the three months ended March 31, 2007.
Net
cash
provided by financing activities was $7,191,284 due to the proceeds from the
sale of Series B Preferred Stock for the three months ended March 31, 2008
as
compared to net cash used by financing activities of $127,545 due to repayments
of notes and loan payable for the three months ended March 31,
2007.
Off
Balance Sheet Arrangements
We
had no
off balance sheet arrangements as of March 31, 2008.
Cautionary
Language Regarding Forward-Looking Statements and Industry
Data
This
report contains ‘‘forward-looking statements’’ within the meaning of the Private
Securities Litigation Reform Act of 1995 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
report. 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
revenue;
·
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 report.
All
statements, other than statements of historical facts, included in this report
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 report, 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 report. 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 report are reasonable, no one can assure
investors that these plans, intentions or expectations will be
achieved.
Information
regarding market and industry statistics contained in this report 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. We have not reviewed
or
included data from all sources, and we cannot assure investors of the accuracy
or completeness of the data included in this report. 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.
ITEM
3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
Company has financial instruments that are subject to interest rate risk,
principally fixed-rate debt obligations and customer financing assets.
Historically, we have not experienced material gains or losses on these
instruments due to interest rate changes.
ITEM
4.
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.
PART
II — OTHER INFORMATION
Item
1 — Legal Proceedings
None
Item
2 — Unregistered Sales of Equity Securities and Use of
Proceeds
None
Item
3 — Defaults Upon Senior Securities
None.
Item
4 — Submissions of Matters to a Vote of Security Holders
None.
Item
5.
Other
Information
None
Item
6.
Exhibits
31.1
Section 302 Certification of Principal Executive Officer
31.2
Section 302 Certification of Principal Financial Officer
32.1
Section 906 Certification of Principal Executive Officer
32.2
Section 906 Certification of Principal Financial Officer
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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MDWERKS,
INC.
|
|
|
|
|
|
May
15, 2008
|
|
/s/
Howard B.
Katz
|
|
|
Howard
B. Katz
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
May
15, 2008
|
|
/s/
Vincent
Colangelo
|
|
|
Vincent
Colangelo
|
|
|
Chief
Financial Officer
|
MDWerks (QB) (USOTC:MDWK)
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