SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q/A
(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, 2009
|
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 has submitted electronically and posted on
its corporate website, if any, every interactive data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files). Yes
o
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: 17,990,208 shares at May 14,
2009
Explanatory
Note -Other than the addition of the line item to the Consolidated Statement of
Operations and the resulting changes to Net loss attributable to common
shareholders and Net loss per common share, our Consolidated
Statements of Operations has not been impacted by this modification. This
modification has not had any impact on our Consolidated Balance Sheets or
Consolidated Statements of Cash Flows. The Quarterly Report on Form 10-Q/A has
not been updated to reflect other events occurring after the filing date of the
original Quarterly Report on Form 10-Q or to modify or update those
disclosures affected by subsequent events. Except for the foregoing
amended information, this Quarterly Report on Form 10-Q/A continues to
describe conditions as of the date of the filing of the
original Quarterly Report on Form 10-Q and we have not updated the disclosures
contained herein to reflect events that occurred at a later
date.
MDWERKS,
INC.
FORM
10-Q/A
FOR
THE PERIOD ENDED MARCH 31, 2009
INDEX
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|
Page
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PART
I - FINANCIAL INFORMATION
|
|
|
Item
1 - Consolidated Financial Statements
|
|
|
Consolidated
Balance Sheets As of March 31, 2009 (Unaudited) and December 31,
2008
|
3
|
|
Consolidated
Statements of Operations (Unaudited) For the Three Months Ended March 31,
2009 and 2008
|
4
|
|
Consolidated
Statements of Cash Flows (Unaudited) For the Three Months Ended March 31,
2009 and 2008
|
5
|
|
Notes
to Unaudited Consolidated Financial Statements
|
6-20
|
|
Item
2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
21-25
|
|
Item
3 - Quantitative and Qualitative Disclosures About Market
Risk
|
26
|
|
Item
4 - Controls and Procedures
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26
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PART
II - OTHER INFORMATION
|
|
|
Item
1 - Legal Proceedings
|
27
|
|
Item
2 - Unregistered Sales of Equity Securities and Use of
Proceeds
|
27
|
|
Item
3 - Defaults Upon Senior Securities
|
27
|
|
Item
4 - Submission of Matters to a Vote of Security Holders
|
27
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|
Item
5 - Other Information
|
27
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|
Item
6 - Exhibits
|
27
|
MDWERKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
March
31, 2009
(Unaudited)
|
|
|
December
31, 2008 (1)
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
297,125
|
|
|
$
|
1,223,807
|
|
Notes
receivable
|
|
|
1,418,717
|
|
|
|
1,277,722
|
|
Accounts
receivable, net of allowances of $200,000 at March 31, 2009 and December
31, 2008
|
|
|
197,816
|
|
|
|
188,048
|
|
Leases
receivable
|
|
|
256,000
|
|
|
|
85,000
|
|
Prepaid
expenses and other
|
|
|
85,828
|
|
|
|
132,160
|
|
Total
current assets
|
|
|
2,255,486
|
|
|
|
2,906,737
|
|
Long-term
assets:
|
|
|
|
|
|
|
|
|
Available-for-sale
securities, at fair market value
|
|
|
24,700
|
|
|
|
61,750
|
|
Property
and equipment, net of accumulated depreciation of $174,775 for March 31,
2009 and $179,211 for December 31, 2008
|
|
|
36,589
|
|
|
|
48,120
|
|
Debt
issuance and offering costs, net of accumulated amortization of $589,886
for March 31, 2009 and $505,478 for December 31, 2008
|
|
|
546,622
|
|
|
|
631,037
|
|
Total
assets
|
|
$
|
2,863,397
|
|
|
$
|
3,647,644
|
|
LIABILITIES,
TEMPORARY EQUITY AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable, net
|
|
$
|
1,569,965
|
|
|
$
|
1,290,870
|
|
Accounts
payable
|
|
|
194,633
|
|
|
|
161,516
|
|
Accrued
expenses
|
|
|
747,342
|
|
|
|
602,625
|
|
Dividends
payable
|
|
|
1,248,222
|
|
|
|
948,222
|
|
Total
current liabilities
|
|
|
3,760,162
|
|
|
|
3,003,233
|
|
Total
liabilities
|
|
|
3,760,162
|
|
|
|
3,003,233
|
|
Temporary
equity:
|
|
|
|
|
|
|
|
|
Mandatorily
Redeemable Convertible Series B Preferred Stock, $.001 par value, 1,500
shares authorized;1,000 shares issued and outstanding for March 31, 2009
and December 31, 2008, net
|
|
|
5,241,667
|
|
|
|
4,052,083
|
|
Total
temporary equity
|
|
|
5,241,667
|
|
|
|
4,052,083
|
|
Stockholder’s
deficiency:
|
|
|
|
|
|
|
|
|
Preferred
stock, Series A preferred stock, $.001 par value, 10,000,000
shares authorized;
1
share issued and outstanding at March 31, 2009 and 2 shares issued and
outstanding at December 31, 2008
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $.001 par value, 200,000,000 shares authorized;
14,390,208
shares issued and outstanding for March 31, 2009 and
14,370,208
shares issued and outstanding for December 31, 2008
|
|
|
14,390
|
|
|
|
14,370
|
|
Additional
paid-in capital
|
|
|
47,318,105
|
|
|
|
47,240,654
|
|
Accumulated
deficit
|
|
|
(52,440,827
|
)
|
|
|
(49,669,646
|
)
|
Accumulated
other comprehensive loss
|
|
|
(1,030,100
|
)
|
|
|
(993,050
|
)
|
Total
stockholders' deficiency
|
|
|
(6,138,432
|
)
|
|
|
(3,407,672
|
)
|
Total
liabilities, temporary equity and stockholders' deficiency
|
|
$
|
2,863,397
|
|
|
$
|
3,647,644
|
|
(1)
Derived from audited financial statements
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,
|
|
|
|
2009
|
|
|
2008
(As Restated)
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenue:
|
|
|
|
|
|
|
Service
fees
|
|
$
|
78,944
|
|
|
$
|
162,242
|
|
Financing
income
|
|
|
82,699
|
|
|
|
41,219
|
|
Total
revenue
|
|
|
161,643
|
|
|
|
203,461
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
542,784
|
|
|
|
902,102
|
|
Consulting
expenses
|
|
|
95,025
|
|
|
|
65,481
|
|
Professional
fees
|
|
|
130,957
|
|
|
|
164,688
|
|
Selling,
general and administrative
|
|
|
323,661
|
|
|
|
290,890
|
|
Total
operating expenses
|
|
|
1,092,427
|
|
|
|
1,423,161
|
|
Loss
from operations
|
|
|
(930,784
|
)
|
|
|
(1,219,700
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
24,263
|
|
|
|
1,924
|
|
Interest
expense
|
|
|
(375,076
|
)
|
|
|
(532,557
|
)
|
Other
income
|
|
|
—
|
|
|
|
149
|
|
Total
other income (expense)
|
|
|
(350,813
|
)
|
|
|
(530,484
|
)
|
Net
loss
|
|
$
|
(1,281,597
|
)
|
|
$
|
(1,750,184
|
)
|
Deemed
preferred stock dividend
|
|
|
(1,489,584
|
)
|
|
|
(307,246
|
)
|
Net
loss attributable to common shareholders
|
|
$
|
(2,771,181
|
)
|
|
$
|
(2,057,430
|
)
|
NET
LOSS PER COMMON SHARE - basic and diluted (1)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.16
|
)
|
WEIGHTED-AVERAGE
COMMON SHARES OUTSTANDING – basic and diluted
|
|
|
14,384,430
|
|
|
|
12,940,065
|
|
(1)
Diluted loss per common share is not presented since the impact of stock options
and warrants would be antidilutive.
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
|
|
|
|
2009
|
|
|
(As
Restated)
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,281,597
|
)
|
|
$
|
(1,750,184
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
11,531
|
|
|
|
9,796
|
|
Amortization
of debt discount
|
|
|
279,096
|
|
|
|
418,760
|
|
Amortization
of deferred offering and debt issuance costs
|
|
|
84,408
|
|
|
|
73,698
|
|
Amortization
of deferred compensation
|
|
|
—
|
|
|
|
22,168
|
|
Bad
debts
|
|
|
—
|
|
|
|
125,000
|
|
Stock-based
compensation
|
|
|
77,477
|
|
|
|
381,505
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Notes
receivable
|
|
|
(140,995
|
)
|
|
|
15,988
|
|
Accounts
receivable
|
|
|
(9,768
|
)
|
|
|
(12,439
|
)
|
Leases
receivable
|
|
|
(171,000
|
)
|
|
|
—
|
|
Prepaid
expenses and other
|
|
|
46,332
|
|
|
|
11,529
|
|
Accounts
payable
|
|
|
33,117
|
|
|
|
105,424
|
|
Accrued
expenses
|
|
|
144,717
|
|
|
|
13,252
|
|
Deferred
revenue
|
|
|
—
|
|
|
|
1,898
|
|
Total
adjustments
|
|
|
354,915
|
|
|
|
1,166,579
|
|
Net
cash used in operating activities
|
|
|
(926,682
|
)
|
|
|
(583,605
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment
of notes payable
|
|
|
—
|
|
|
|
(575,000
|
)
|
Repayment
of loan payable
|
|
|
—
|
|
|
|
(40,000
|
)
|
Proceeds
from sale of Mandatorily Redeemable Series B preferred
stock
|
|
|
—
|
|
|
|
8,000,000
|
|
Placement
fees and other expenses paid
|
|
|
—
|
|
|
|
(193,716
|
)
|
Net
cash provided by financing activities
|
|
|
—
|
|
|
|
7,191,284
|
|
Net
increase (decrease) in cash
|
|
|
(926,682
|
)
|
|
|
6,607,679
|
|
Cash
- beginning of year
|
|
|
1,223,807
|
|
|
|
320,903
|
|
Cash
- end of period
|
|
$
|
297,125
|
|
|
$
|
6,928,582
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
81,900
|
|
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, 2009
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 four subsidiaries. Xeni Medical Systems, Inc. ("Xeni Systems") was
incorporated under the laws of the state of Delaware on July 21, 2004.
Through February 28, 2009, Xeni Systems provided a Web-based package of
electronic claims solutions to the healthcare provider industry through Internet
access to its ‘‘MDwerks’’ suite of proprietary products and services so that
healthcare providers could improve daily insurance claims transaction
processing, administration and management.. Xeni Medical Billing,
Corp. ("Xeni Billing") was incorporated under the laws of the state of Florida
on March 2, 2005. Xeni Systems and Xeni Billing have both discontinued their
operations. Xeni Financial Services, Corp. ("Xeni Financial") was incorporated
under the laws of the state of Florida on February 3, 2005 and offers lending
solutions for digital pen leases. Xeni Patient Access Solutions, Inc.
(“XPAS”) was incorporated under the laws of the state of Florida on May 30,
2007, originally formed as Patient Payment Solutions, Inc. and was renamed on
March 2, 2009. XPAS sells D-PAS digital pen technology directly to healthcare
providers such as nursing homes and other health care facilities.
Going
concern
The
accompanying unaudited 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 new 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 Notes 5, 6, 7 and 10, provide the opportunity for the Company to
continue as a going concern.
On April
20, 2009, we, along with our subsidiary Xeni Financial Services, Corp. (“XFS”),
entered into a Loan and Securities Purchase Agreement (the “Loan Agreement”)
with Vicis Capital Master Fund (“Vicis”), dated April 15, 2009 pursuant to which
Vicis loaned the Company $3,200,000, less a deduction for an original issue
discount of 2%. The proceeds from the loan from Vicis are being used for our
corporate operations.
As
reflected in the accompanying unaudited consolidated financial statements, the
Company has a stockholders’ deficiency of $6,138,432 and a working capital
deficiency of $1,504,676 at March 31, 2009.
Basis
of presentation
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Item
310(b) of Regulation S-K. 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, 2008 and notes thereto and other
pertinent information contained in the Form 10-K of the Company for the year
ended December 31, 2008 as filed with the Securities and Exchange Commission
(the ‘‘Commission’’). The results of operations for the three months ended March
31, 2009 are not necessarily indicative of what the results will be for the
full fiscal year ending December 31, 2009.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Consolidation
policy
The
accompanying unaudited consolidated financial statements include the accounts of
MDwerks, Inc. and subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation.
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
Included
in various investment related line items in the financial statements are certain
financial instruments carried at fair value. Other financial
instruments are periodically measured at fair value, such as when impaired, or,
for preferred stock when carried at the lower of cost or market.
The fair
value of an asset is the amount at which that asset could be bought or sold in a
current transaction between willing parties, that is, other than in a forced or
liquidation sale. The fair value of a liability is the amount at
which that liability could be incurred or settled in a current transaction
between willing parties, that is, other than in a forced or liquidation
sale.
Fair
values are based on quoted market prices when available. When market
prices are not available, fair value is generally estimated using discounted
cash flow analyses, incorporating current market inputs for similar financial
instruments with comparable terms and credit quality. In instances
where there is little or no market activity for the same or similar instruments,
the Company estimates fair value using methods, models and assumptions that
management believes market participants would use to determine a current
transaction price. These valuation techniques involve some level of
management estimation and judgment which becomes significant with increasingly
complex instruments or pricing models. Where appropriate, adjustments
are included to reflect the risk inherent in a particular methodology, model or
input used.
The
Company's financial assets and liabilities carried at fair value have been
classified, for disclosure purposes, based on a hierarchy defined by SFAS No.
157,
Fair Value
Measurements
. The hierarchy gives the highest ranking to
fair values determined using unadjusted quoted prices in active markets for
identical assets and liabilities (Level 1) and the lowest ranking to fair values
determined using methodologies and models with unobservable inputs (Level 3). An
asset’s or a liability’s classification is based on the lowest level input that
is significant to its measurement. For example, a Level 3 fair value
measurement may include inputs that are both observable (Levels 1 and 2) and
unobservable (Level 3). The levels of the fair value hierarchy
are as follows:
|
Level 1
- Values are
unadjusted quoted prices for identical assets and liabilities in active
markets accessible at the measurement date.
|
|
Level 2
– Inputs include quoted prices for similar assets or
liabilities in active markets, quoted prices from those willing to trade
in markets that are not active, or other inputs that are observable or can
be corroborated by market data for the term of the
instrument. Such inputs include market interest rates and
volatilities, spreads and yield
curves.
|
|
Level 3
– Certain
inputs are unobservable (supported by little or no market activity) and
significant to the fair value measurement. Unobservable inputs
reflect the Company’s best estimate of what hypothetical market
participants would use to determine a transaction price for the asset or
liability at the reporting date.
|
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Financial
assets and liabilities measured at fair value on a recurring basis
The
following table provides information as of March 31, 2009 about the Company’s
financial assets and liabilities measured at fair value on a recurring
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at fair
value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents – Certificates of Deposit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Notes
receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
1,418,717
|
|
|
|
1,418,717
|
|
Leases
receivable
|
|
|
—
|
|
|
|
|
|
|
|
256,000
|
|
|
|
256,000
|
|
Available-for-sale
securities
|
|
|
24,700
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,700
|
|
Total
assets at fair value
|
|
$
|
24,700
|
|
|
$
|
—
|
|
|
$
|
1,674,717
|
|
|
$
|
1,699,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at fair
value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,569,965
|
|
|
$
|
1,569,965
|
|
Total
liabilities at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,569,965
|
|
|
$
|
1,569,965
|
|
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, 2009, the Company was approximately
$33,000 in excess of the $250,000 per company 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 $0 for the three months ended March 31, 2009 and 2008,
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.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Revenue
recognition
The
Company follows the guidance of the Securities and Exchange Commission’s
(‘‘SEC’’) Staff Accounting Bulletin (“SAB”) 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 collectibility is reasonably
assured. The following policies reflect specific criteria for the various
revenue streams of the Company.
Revenue
derived from term loans or lease purchases to unaffiliated companies are
generally recognized as revenue when earned. Revenue from term loans
and lease purchases can include interest, administrative fees and other
charges.
Revenue
derived from claims purchased from unaffiliated healthcare providers are
generally recognized when the claims are paid and the funds are
collected.
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 net income
(loss) 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, 2009 and 2008, the Company had
outstanding options to purchase an aggregate of 4,986,750 and
3,514,250 shares of common stock, respectively, warrants to purchase an
aggregate of 57,825,946 and 57,566,346 shares of common stock, respectively,
20,000 and 40,000 shares of common stock, respectively, issuable upon conversion
of Series A preferred stock, 13,333,334 and 13,333,334 shares of common stock,
respectively, issuable upon conversion of Series B preferred stock, and
1,474,074 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, 2009 and 2008 since the impact of the stock options and warrants
would be antidilutive.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Concentration
of Credit Risk
The Company had two customers that
accounted for all of total notes receivable for the quarter ended March 31,
2009. The Company did not have any significant concentrations
in revenue.
Stock-based
compensation
The fair
value of stock options granted to employees, directors and others, is estimated
at the date of grant using the Black-Scholes option-pricing model, which takes
into consideration the share price at the date of grant, the exercise price of
the option, the expected life of the option, expected interest rates and the
expected volatility. The value of stock options, as noted, is recognized as
compensation expense on a straight-line basis, over the requisite service period
of the entire award.
Through
December 31, 2008, due to the lack of adequate history of its own stock
volatility, the Company estimated its own expected stock volatility based on the
historical stock volatility of three other comparable publicly held companies.
During 2008, as the Company accumulated its own volatility history over longer
periods of time, the Company’s assumptions about its stock price volatility were
based on a rate that was derived by taking into consideration the volatility
rates of the aforesaid comparable publicly held companies as well as its own
historical volatility rates. Beginning in 2009, the Company estimates its
expected stock volatility based on its own historical stock volatility
rates.
Valuation
Assumptions for Stock Options
The fair
value for each stock option granted to employees and directors during the year
ended December 31, 2008, was estimated at the date of grant using the
Black-Scholes option-pricing model, assuming no dividends using 2.66% for the
calculated risk-free interest rate, 10 years contractual life and 117.43%
volatility. No stock options were granted during the quarter ended
March 31, 2009.
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant for periods corresponding with the expected life of the
option.
The
contractual life represents the period of time that options granted are
outstanding. Options and their terms including required service
period, contractual terms or vesting conditions are granted based upon
recommendations of management and Board approval and vest based upon time and
continuous service with the company. As of May 14, 2009, there are
15,000,000 common shares authorized for stock option grants.
Recent
accounting pronouncements
In
December 2007, the SEC published SAB No. 110, which amends
SAB No. 107 by extending the usage of the Simplified Method, as discussed
in SAB No. 107, in developing an estimate of expected term of “plain
vanilla” share options in accordance with SFAS No. 123 (revised 2004),
”Share-Based Payment”
.
SAB No. 110 was declared effective on January 1, 2008, and allows companies,
which do not have sufficient historical experience, to provide a reasonable
estimate to continue use of the Simplified Method for estimating the expected
term of “plain vanilla” share option grants after December 31, 2007.
Accordingly, the Company will continue to use the Simplified Method until there
is sufficient historical experience to provide a reasonable estimate of expected
term. SAB No. 110 was effective for the Company on January 1, 2008.
In May
2008, the FASB issued FSP Accounting
Principles Board (“
APB”
) Opinion No.
14-1, “
Accounting for Convertible Debt
Instruments That May
Be Settled in Cash upon Conversion
(Including Partial Cash Settlement).”
The FSP clari
fies the accounting for convertible debt
instruments that may be settled in cash (including partial cash settlement) upon
conversion. The FSP requires issuers to account separately for the liability and
equity components of certain convertible debt instru
m
ents in a manner that reflects the
issuer
’
s nonconvertible debt (unsecured debt)
borrowing rate when interest cost is recognized. The FSP requires bifurcation of
a component of the debt, classification of that component in equity and the
accretion of the
r
esulting discount on the debt to be
recognized as part of interest expense in our consolidated statement of
operations. The FSP requires retrospective application to the terms of
instruments as they existed for all periods presented. The
Company adopted th
is FSP
as of January 1, 2009
.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
Recent accounting pronouncements
(continued)
In
May 2008, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 162, The Hierarchy of Generally Accepted Accounting
Principles. This standard is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with generally accepted accounting principles in the United States
for non-governmental entities. SFAS No. 162 is effective 60 days following
approval by the U.S. Securities and Exchange Commission ("SEC") of the Public
Company Accounting Oversight Board's amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles. SFAS No. 162 will have no effect on the Company’s financial
position, results of operations or cash flows.
In June 2008, the FASB ratified EITF
Issue No.
07-5,
“
Determining Whether an
Instrument (or an Embedded Feature) Is Indexed to an Entity
’
s Own Stock”
(EITF 07-5). EITF 07-5 provides that an
entity should use a two step approach to e
valuate whether an equity-linked
financial instrument (or embedded feature) is indexed to its own stock,
including evaluating the instrument
’
s contingent exercise and settlement
provisions. It also clarifies on the impact of foreign currency denominated
s
t
rike prices and market-based employee
stock option valuation instruments on the evaluation. EITF 07-5 is effective for
fiscal years beginning after December 15, 2008.
We do not expect
EITF 07-5 to have a material impact on the preparation of our consolidated
financial statements.
In April
2009, the FASB issued FSP FAS 141(R)-1,
Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies
(“FSP FAS 141(R)-1”). This pronouncement amends SFAS No.
141-R to clarify the initial and subsequent recognition, subsequent accounting,
and disclosure of assets and liabilities arising from contingencies in a
business combination. FSP SFAS No. 141(R)-1 requires that assets acquired and
liabilities assumed in a business combination that arise from contingencies be
recognized at fair value, as determined in accordance with SFAS No. 157, if the
acquisition-date fair value can be reasonably estimated. If the acquisition-date
fair value of an asset or liability cannot be reasonably estimated, the asset or
liability would be measured at the amount that would be recognized in accordance
with FASB Statement No. 5, “Accounting for Contingencies” (SFAS No. 5), and FASB
Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss.” FSP SFAS
No. 141(R)-1 became effective for Companies as of January 1, 2009. As the
provisions of FSP FAS 141(R)-1 are applied prospectively to business
combinations with an acquisition date on or after the guidance became effective,
the impact to the Company cannot be determined until the transactions occur. No
such transactions occurred during the first quarter of 2009.
In April
2009, the FASB issued FSP FAS No. 107-1 and Accounting Principles Board
(“APB”) 28-1,
Interim
Disclosures about Fair Value of Financial Instruments
, which amends SFAS
No. 107,
Disclosures
about Fair Value of Financial Instruments
, (“SFAS No. 107”) and APB
Opinion No. 28, “Interim Financial Reporting,” respectively, to require
disclosures about fair value of financial instruments in interim financial
statements, in addition to the annual financial statements as already required
by SFAS No. 107. FSP FAS 107-1 and APB 28-1 will be required for interim
periods ending after June 15, 2009. As FSP FAS 107-1 and APB 28-1 provide
only disclosure requirements, the application of this standard will not have a
material impact on the Company’s results of operations, cash flows or financial
position.
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.
Reclassifications
For comparability, certain March 31, 2008 amounts have been
reclassified, where applicable, to conform to the financial statement
presentation used at March 31, 2009.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
2 — ACCOUNTS AND NOTES RECEIVABLE
Accounts
receivable are recorded when revenue has been recognized but not yet collected.
The Company had net $197,816 of accounts receivable as of March 31, 2009 and
$188,048 as of December 31, 2008 from claims purchased.
At March
31, 2009, the Company had advanced funding to two healthcare providers under
lines of credit and note agreements aggregating $1,418,717. Advances under the
lines of credit are due to be repaid as the provider collects their
receivables. The Company charges the healthcare providers interest
and other charges as defined in the agreements. At December 31,
2008, the Company had $1,277,722 of notes receivable.
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, 2009, certain amounts were in excess of
90 days, therefore, the Company maintained a $200,000 allowance for doubtful
accounts that was recorded at December 31, 2008 for receivables due from one
customer.
NOTE
3 — AVAILABLE-FOR-SALE SECURITIES
On June 16, 2008, the Company
restructured one healthcare provider’s notes receivable which were due and
payable to the Company on June 15, 2008. Notes receivable of $175,000
were paid off and the remaining balance was consolidated into a new promissory
note totaling $395,835 with a new maturity date of June 15, 2009. As
consideration for the changes to the terms of these notes, among other fees, the
Company was given 920,000 shares of the healthcare provider’s common stock when
the stock was valued at $0.69 per share, 1,000,000 shares when the stock was
valued at $0.31 per share and 550,000 shares when the stock was valued at $0.20
per share as quoted on the OTC Bulletin Board. These stock receipts
were recorded as interest income of $1,054,800 at December 31,
2008. At March 31, 2009, the stock price decreased to $0.01 per share
resulting in a $37,050 decrease in the value of the Available-for-sale
securities. The Company will revalue these securities on a quarterly
basis. These revaluations will correspondingly adjust the Accumulated
other comprehensive income/loss reported in the Equity section of the Balance
Sheet. The Company does not plan to sell these securities within the
next twelve months and has recorded this as a long-term asset.
NOTE
4 — PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
Estimated
Life
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
Office
furniture and equipment
|
5-7
Years
|
|
$
|
30,174
|
|
|
$
|
30,174
|
|
Computer
equipment and software
|
3-5
Years
|
|
|
181,190
|
|
|
|
197,157
|
|
Total
|
|
|
|
211,364
|
|
|
|
227,331
|
|
Less:
accumulated depreciation
|
|
|
|
(174,775
|
)
|
|
|
(179,211
|
)
|
Property
and equipment, net
|
|
|
$
|
36,589
|
|
|
$
|
48,120
|
|
Depreciation
expense for the three months ending March 31, 2009 and 2008 was $11,531 and
$9,796, respectively. The Company lowered the estimated life
for computer equipment to three years in December 2008.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
5 — NOTES PAYABLE
On
each of October 19, 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 net proceeds in the aggregate) in connection with a
financing provided by Gottbetter Capital Master, Ltd. (in liquidation)
“Gottbetter”, an unaffiliated accredited institutional
investor. Pursuant to the terms of a Securities Purchase Agreement,
we issued two senior secured convertible promissory notes to Gottbetter, each in
the original principal amount of $2,500,000 at an initial conversion price of
$2.25 per share (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, as amended, to purchase 541,666 shares of our common stock at a price
of $2.25 per share (‘‘Series E Warrants’’).
On
November 14, 2008, the Company received $300,000 as part of a potential funding
with Debt Opportunity Fund LLLP (“DOF”). This funding was not consummated and a
portion of the funds escrowed were used in the April 20, 2009 transaction
described below.
The
Company valued the Notes Payable at their face value and calculated the
beneficial conversion feature of the warrants using Black Scholes in deriving a
discount that is being amortized over the term of the Notes as interest expense
using a straight line method.
The
promissory notes are as follows:
|
|
March
31,
2009
|
|
|
December
31,
2009
|
|
Notes
payable
|
|
$
|
5,300,000
|
|
|
$
|
5,300,000
|
|
Less
principal repayments
|
|
|
(1,250,000
|
)
|
|
|
(1,250,000
|
)
|
Less
issuance of common stock in connection with debt
conversion
|
|
|
(433,334
|
)
|
|
|
(433,334
|
)
|
Notes
payable outstanding
|
|
|
3,616,666
|
|
|
|
3,616,666
|
|
Less:
unamortized discount on notes payable
|
|
|
(2,046,701
|
)
|
|
|
(2,325,796
|
)
|
Notes
payable, net
|
|
|
1,569,965
|
|
|
|
1,290,870
|
|
Less
current portion
|
|
|
(1,569,965
|
)
|
|
|
(1,290,870
|
)
|
Notes
payable, net of discount of $2,046,701 at March 31, 2009 and $2,325,796 at
December 31, 2008, less current portion
|
|
$
|
—
|
|
|
$
|
—
|
|
On
November 6, 2008, the Company temporarily reduced the conversion price set forth
in the Senior Note issued to Gottbetter on October 19, 2006 (the “October Note”)
from $2.25 per share to $0.303 per share with respect to a one-time conversion
of $433,334 of Conversion Amount (as defined in the October Note).
After the conversion price was reduced, Gottbetter converted $433,334 of
Conversion Amount into 1,430,143 shares of Common Stock of the Company.
The Company recorded a debt conversion expense of $371,265 for the difference
between the original conversion price of $2.25 per share and the one-time
conversion price of $0.303 per share. In connection with the
reduction in the conversion price of the October Note, both Gottbetter and Vicis
waived all anti-dilution adjustments to which they would have been entitled
under the terms of the securities that they hold as result of the reduction
of the conversion price of the October Note. In connection with the
waiver by Vicis of the anti-dilution adjustments to which Vicis was entitled as
described above, the Company is obligated to pay Vicis $250,000. The
remaining principal balance of these Notes at March 31, 2009 and December 31,
2008 was $3,316,666 which is convertible to purchase shares of our common stock,
at the original conversion price of $2.25 per share.
On
November 6, 2008, pursuant to a Securities Purchase Agreement by and between
Vicis and Gottbetter, Vicis purchased from Gottbetter, for a purchase
price of $2,250,000, all of Gottbetter's rights, title and interest in and
to:
(i) that
certain Securities Purchase Agreement, dated as of October 19, 2006, by and
between the Company and Gottbetter pursuant to which the Company issued to
Gottbetter: (A) the Senior Notes, (B) Series D Warrants to purchase an aggregate
of 375,000 shares of Common Stock; and (C) Series E Warrants to purchase an
aggregate of 541,667 shares of Common Stock of the Issuer (the “Series E
Warrants”),
(ii) the
Senior Notes;
(iii)
Series D Warrants to purchase an aggregate of 875,000 shares of Common
Stock;
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
5 — NOTES PAYABLE (continued)
(iv)
Series E Warrants to purchase an aggregate of 541,667 shares of Common
Stock;
(v) the
Security Agreement, dated as of October 19, 2006, by and between the Company and
Gottbetter;
(vi) the
Guaranty Agreement, dated as of October 19, 2006, by and among the Company,
Mdwerks Global Holdings, Inc., Xeni Medical Systems, Inc., Xeni Financial
Services, Corp., Xeni Medical Billing Corp. and Gottbetter; and
(vi) the
Registration Rights Agreement, dated as of October 19, 2006, by and between the
Company and Gottbetter.
On April
20, 2009, we, along with our subsidiary Xeni Financial Services, Corp. (“XFS”),
entered into a Loan and Securities Purchase Agreement (the “Loan Agreement”)
with Vicis Capital Master Fund (“Vicis”), dated April 15, 2009 pursuant to which
Vicis loaned the Company $3,200,000, subject to a deduction for an original
issue discount of 2%. The proceeds from the loan from Vicis will be used for our
corporate operations (See Note 10).
Pursuant
to the Loan Agreement, we issued a Senior Secured Promissory Note, dated April
15, 2009, to Vicis in the original principal amount of $3,851,374 (the “Vicis
Note”) comprised of the current loan of $3,200,000, and prior advances including
the $300,000 loaned to us by DOF on November 14, 2008, accrued interest, and
professional and other fees of $651,375 relative to prior loans and commitments.
The Vicis Note bears interest at the rate of 13% per annum and is payable
monthly, in arrears on the first day of each month, commencing on October 15,
2009. Principal payments in the monthly amount of $40,000 commence on October
15, 2009 and, subject to events of default specified in the Loan Agreement, the
entire amount of principal and accrued but unpaid interest due under the note
becomes due and payable on October 15, 2011.
In
connection with the Loan Agreement and the financing provided under the Loan
Agreement, we, XFS and each of our other subsidiaries, and Vicis entered into
security agreements, dated April 15, 2009, pursuant to which we, XFS and our
other subsidiaries granted a security interest to Vicis in substantially all of
our assets. Each of our subsidiaries (other than XFS) also entered into a
guaranty agreement to guaranty all obligations under the Loan Agreement and
documents entered into in connection with the Loan Agreement.
As
partial consideration for the loan provided by Vicis on April 20, 2009, the
Company adjusted the Series J Warrant held by Vicis to reflect a decrease in the
exercise price to $0.35 per share and a reduction in the number of shares
underlying the Series J Warrant to 493,142 (the “Series J Warrant”) and
issued a ten-year Series K Warrant to purchase 2,550,000 shares of our
common stock at a price of $.35 per share (the “Series K
Warrant”).
In
connection with the issuance of the Series K Warrant, we and Vicis entered into
a registration rights agreement, dated April 15, 2009, pursuant to which, among
other things, we granted “piggyback” registration rights to Vicis for the Series
K Warrant.
In
addition, we also entered into an agreement with Vicis pursuant to which Vicis
agreed to defer the principal and interest installment amounts with respect to
the loans in the original aggregate principal amount of $5,000,000 issued by us
in favor of Vicis as assignee of Gottbetter Capital Master Fund Ltd. Vicis
agreed to defer the payment of each installment amount commencing with the
installment due April 1, 2009 and ending with the installment amount due January
1, 2010. On January 1, 2010, in addition to the regular installment
amount due on January 1, 2010, we shall pay all deferred amounts in full, in one
lump sum.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
6 — TEMPORARY EQUITY
On
September 28, 2007 we received gross proceeds of $2,000,000 (net proceeds of
$1,691,445 after repayment of a $250,000 31-day August 31, 2007 Convertible
Note, interest and closing expenses) from 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.
On
December 3, 2007 we received gross proceeds of $575,000 from Vicis and in
connection with the financing. We issued a Convertible Note to Vicis
which bore interest at the rate of 8% per year. Subject to certain
prepayment provisions, unpaid principal and interest due under the Convertible
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.
On
January 18, 2008, we received net proceeds of $500,000 from 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 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.
On March
31, 2008, we received net proceeds of $6,809,794 from Vicis. In
connection with this $7,500,000 Note Payable to Vicis, 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.
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. Dividends of $1,248,222 and $948,222 have been
accrued as of March 31, 2009 and December 31, 2008, respectively, but are not
payable until there are profits, surplus or other funds available for the
payment of such dividends.
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.
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
6 — TEMPORARY EQUITY (continued)
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.
Since the
redeemable preferred stock contains substantive conversion rights that remain
with the holder until maturity, this preferred stock is required to be recorded
as “temporary equity” according to ASR 268 and Topic No. D-98.
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. Since the redemption is contingent upon the
holder’s not exercising their option to convert into a fixed number of shares,
the Series B Preferred Stock is classified as temporary equity.
As of
March 31, 2009 and December 31, 2008, there were 1,000 shares of Series B
Preferred Stock issued and outstanding.
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, 2009, the outstanding Series H Warrant is exercisable for an aggregate
of 53,333,334 shares or our common stock.
For the
three months ended March 31, 2009 and March 31, 2008, amortization of the debt
discount amounted to $279,096 and $418,760, respectively.
The
mandatorily redeemable convertible Series B preferred stock has been recorded as
follows:
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
Mandatorily
redeemable convertible Series B preferred stock
|
|
$
|
10,000,000
|
|
|
$
|
10,000,000
|
|
Less:
unamortized discount on preferred stock
|
|
|
(4,758,333
|
)
|
|
|
(5,947,917
|
)
|
Mandatorily
redeemable convertible Series B preferred stock, net
|
|
$
|
5,241,667
|
|
|
$
|
4,052,083
|
|
MDWERKS, INC. AND
SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
7 — STOCKHOLDERS’ EQUITY
Common stock
The
Company is authorized to issue 200,000,000 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, 2009, there are
14,390,208 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, of which 1,000 shares are designated
Series A Convertible Preferred stock and 1,500 shares are designated Series B
Convertible Preferred stock.
The
Company is authorized to issue 1,000 shares of Series A Convertible Preferred
stock, $0.001 par value with such designations, rights and preferences are set
forth in the Certificate of Designations Designating Series A Convertible
Preferred stock. Between February 1, 2006 and September 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, 2009, 27.3 shares of Series A Convertible Preferred Stock were
converted into 546,667 shares of common stock leaving one (1) Series A
Convertible Preferred Stock outstanding as of March 31, 2009.
The
Company is authorized to issue 1,500 shares of Series B Convertible Preferred
stock, $0.001 par value with such designations, rights and preferences are set
forth in the Certificate of Designations Designating Series B Convertible
Preferred stock. On September 28, 2007, 200 shares of Series B
convertible preferred stock were issued with the September Securities Purchase
Agreement. On January 18, 2008, 50 shares of Series B convertible
preferred stock were issued with the January Securities Purchase
Agreement. On March 31, 2008, 750 shares of Series B convertible
preferred stock shares were issued with the March Securities Purchase
Agreement. As of March 31, 2009 and 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, 2009
and changes during the period ending on that date is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at December 31, 2008
|
|
|
5,405,080
|
|
|
$
|
1.82
|
|
|
$
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(418,330
|
)
|
|
|
3.12
|
|
|
|
—
|
|
Outstanding
at March 31, 2009
|
|
|
4,986,750
|
|
|
$
|
1.71
|
|
|
$
|
—
|
|
Options
exercisable at end of period
|
|
|
4,593,833
|
|
|
$
|
1.71
|
|
|
$
|
—
|
|
Weighted-average
fair value of options granted during the period
|
|
|
—
|
|
|
|
|
|
|
|
|
|
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
7 — STOCKHOLDERS’ EQUITY
Common
stock options (continued)
The
following information applies to options outstanding at March 31,
2009:
|
|
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
|
|
|
8.75
|
|
$
|
0.38
|
|
|
483,000
|
|
$
|
0.38
|
|
$0.60
|
|
|
185,000
|
|
|
9.00
|
|
$
|
0.60
|
|
|
61,667
|
|
$
|
0.60
|
|
$0.67
|
|
|
175,000
|
|
|
8.50
|
|
$
|
0.67
|
|
|
91,666
|
|
$
|
0.67
|
|
$0.75
|
|
|
1,925,000
|
|
|
9.00
|
|
$
|
0.75
|
|
|
1,925,000
|
|
$
|
0.75
|
|
$1.39
|
|
|
95,000
|
|
|
7.75
|
|
$
|
1.39
|
|
|
95,000
|
|
$
|
1.39
|
|
$2.25
|
|
|
900,000
|
|
|
7.50
|
|
$
|
2.25
|
|
|
900,000
|
|
$
|
2.25
|
|
$3.25
|
|
|
110,000
|
|
|
6.75
|
|
$
|
3.25
|
|
|
110,000
|
|
$
|
3.25
|
|
$3.40
|
|
|
555,000
|
|
|
6.75
|
|
$
|
3.40
|
|
|
555,000
|
|
$
|
3.40
|
|
$4.00
- 4.25
|
|
|
558,750
|
|
|
7.25
|
|
$
|
4.03
|
|
|
372,500
|
|
$
|
4.03
|
|
|
|
|
4,986,750
|
|
|
|
|
$
|
1.59
|
|
|
4,593,833
|
|
$
|
1.66
|
|
In
connection with previously granted stock options, the Company recognized
stock-based compensation expense of $77,477 for the three months ended March 31,
2009 and $381,505 for the three months ended March 31, 2008.
As of
March 31, 2009, the total future compensation expense related to non-vested
options not yet recognized in the consolidated statement of operations is
approximately $366,000, 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, 2009 and changes during the period is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at December 31, 2008
|
|
|
57,925,946
|
|
|
$
|
0.80
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(100,000
|
)
|
|
|
3.40
|
|
Outstanding
at March 31, 2009
|
|
|
57,825,946
|
|
|
$
|
0.79
|
|
Common
stock issuable upon exercise of warrants
|
|
|
57,825,946
|
|
|
$
|
0.79
|
|
MDWERKS,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
7 — 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, 2009
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
at
March
31, 2009
|
|
Weighted
Average
Exercise
Price
|
|
$0.75
|
|
|
56,750,001
|
|
|
8.72
|
|
$
|
0.75
|
|
|
56,750,001
|
|
$
|
0.75
|
|
$1.25
|
|
|
199,000
|
|
|
1.22
|
|
$
|
1.25
|
|
|
199,000
|
|
$
|
1.25
|
|
$1.50
|
|
|
56,667
|
|
|
2.24
|
|
$
|
1.50
|
|
|
56,667
|
|
$
|
1.50
|
|
$2.25
|
|
|
111,111
|
|
|
0.40
|
|
$
|
2.25
|
|
|
111,111
|
|
$
|
2.25
|
|
$3.00
|
|
|
479,167
|
|
|
0.12
|
|
$
|
3.00
|
|
|
479,167
|
|
$
|
3.00
|
|
$3.76
|
|
|
225,000
|
|
|
0.55
|
|
$
|
3.76
|
|
|
225,000
|
|
$
|
3.76
|
|
$4.00
|
|
|
5,000
|
|
|
0.55
|
|
$
|
4.00
|
|
|
5,000
|
|
$
|
4.00
|
|
|
|
|
57,825,946
|
|
|
|
|
$
|
0.79
|
|
|
57,825,946
|
|
$
|
0.79
|
|
Subsequent
to quarter end, and as partial consideration for the loan provided by Vicis on
April 20, 2009, the Company adjusted the Series J Warrant held by Vicis to
reflect a decrease in the exercise price to $0.35 per share and a reduction in
the number of shares underlying the Series J Warrant to 493,142 (the “Series J
Warrant”) and issued a ten-year Series K Warrant to purchase 2,550,000 shares of
our common stock at a price of $0.35 per share (the “Series K
Warrant”).
NOTE
8 - RESTATEMENT
The
Company has effected a restatement of its financial results for the period ended
March 31, 2008 (the “Restatement”). After reviewing certain
accounting principles the Company had applied in previously issued financial
statements, management determined that the Company’s accounting for Mandatorily
Redeemable Convertible Series B Preferred Stock should have been recorded as
Temporary Equity and not Debt and that previously issued Mandatorily Redeemable
Convertible Series B Preferred Stock should not have been recorded as an
extinguishment of debt when new Mandatorily Redeemable Convertible Series B
Preferred Stock was issued on March 31, 2008. Consequently, management is
restating its quarterly financial statements as of March 31, 2008. These changes
decreased net loss by $894,204 due to a decrease in interest expense of $234,082
and the elimination of the loss on extinguishment of debt of
$660,122. These changes also decreased accrued expenses $48,222,
increased dividends payable $307,247, increased temporary equity $483,332 and
decreased stockholder’s deficiency $742,357. These changes in
presentation of the Company’s Mandatorily Redeemable Convertible Series B
Preferred Stock did not impact the cash balance at the end of the
period.
NOTE 9
— COMMITMENTS
Lease
agreements
On
February 1, 2009, the Company was assigned a master lease on its facility and a
5-year lease option was exercised which extends the master lease until July
2013. Rent expense for the three months ended March 31, 2009 and
March 31, 2008 was $20,105 and $21,936, respectively.
Future
minimum operating lease commitments as of March 31, 2009 are as
follows:
Year
Ending
December
31
|
|
Amount
|
2009
|
|
|
36,166
|
2010
|
|
|
50,291
|
2011
|
|
|
52,805
|
2012
|
|
|
55,446
|
2013
|
|
|
33,267
|
|
|
$
|
227,975
|
MDWERKS, INC.
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE 10
— SUBSEQUENT EVENTS
On April
20, 2009, we, along with our subsidiary Xeni Financial Services, Corp. (“XFS”),
entered into a Loan and Securities Purchase Agreement (the “Loan Agreement”)
with Vicis Capital Master Fund (“Vicis”), dated April 15, 2009 pursuant to which
Vicis loaned the Company $3,200,000, subject to a deduction for an original
issue discount of 2%. The proceeds from the loan from Vicis are being used for
our corporate operations.
Pursuant
to the Loan Agreement, we issued a Senior Secured Promissory Note, dated April
15, 2009, to Vicis in the original principal amount of $3,851,374 (the “Vicis
Note”) comprised of the current loan of $3,200,000, and prior advances, accrued
interest, and professional and other fees of $651,375 relative to prior loans
and commitments. The Vicis Note bears interest at the rate of 13% per annum and
is payable monthly, in arrears on the first day of each month, commencing on
October 15, 2009. Principal payments in the monthly amount of $40,000 commence
on October 15, 2009 and, subject to events of default specified in the Loan
Agreement, the entire amount of principal and accrued but unpaid interest due
under the note becomes due and payable on October 15, 2011.
As
partial consideration for the loan provided by Vicis on April 20, 2009, the
Company adjusted the Series J Warrant held by Vicis to reflect a decrease
in the exercise price to $0.35 per share and a reduction in the number of shares
underlying the Series J Warrant to 493,142 (the “Series J Warrant”) and issued a
ten-year Series K Warrant to purchase 2,550,000 shares of our common stock at a
price of $.35 per share (the “Series K Warrant”).
On May
14, 2009, we issued 3,600,000 shares of unregistered common stock to three
employees, three directors and one consultant in connection with Restricted
Stock Agreement awards under the MDwerks, Inc. (the “Company”) 2005 Incentive
Compensation Plan.
All
shares were issued pursuant to the terms and conditions of the Company
Restricted Stock Agreement and all shares of the restricted stock vested
immediately.
A
complete copy of the 2005 Incentive Compensation Plan is contained in the Form
8-K filed with the SEC on November 18, 2005 and the full text of the form of the
Company Restricted Stock Agreement is attached as Exhibit 10.1, both of which
are incorporated herein in their entirety.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
During
2008, we shifted our focus from the electronic medical claims processing,
funding and collection solutions and began focusing our efforts on purchasing
leases for digital medical equipment and services that provide a low cost
solution to physicians for converting medical records to a digital format as
well as being able to create EMR with original intake forms. The
Company will also begin selling the digital medical equipment leases directly to
the healthcare facilities as part of our licensing arrangement with the outside
vendor that we are currently purchasing the leases from. To date we
have not sold any digital medical equipment; however since December 2008, we
have financed six leases of such equipment and will derive approximately
$410,000 in revenue from such financing activities over 36 to 48 month periods.
The digital pen and associated services can improve billing time and accuracy
and allows for substantial savings on paper and record storage.
We also
can provide term loans and purchase medical equipment to improve our client’s
cash flows and to finance certain leases.
Through
March 31, 2009, all of our revenue has been derived from our prior line of
business, the electronic medical claims processing, funding and collection
solution business. From the Company’s inception, we offered 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 helped doctors, hospital based
practices, and other healthcare providers and their vendors to significantly
improve daily insurance claims transaction administration and
management. This part of our business was not deemed viable any
longer and was closed down on February 27, 2009.
Our
future operations will continue to be subject to risks inherent in the
establishing and acquiring of new businesses, 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 revenue 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,
revenue 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
collectibility is reasonably assured. We have identified the policy below as
critical to our business operations and understanding of our financial
results:
Through
February 2009, the Company, through its subsidiaries, provided advance funding
for medical claims and term loan services to unaffiliated healthcare providers
that were customers of the Company. The customer advances were 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 were repaid through the remittance of payments of
customer medical claims, by Payers, directly to the Company. The Company could
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
were recognized as revenue when earned. There was no right of cancellation or
refund provisions in these arrangements and the Company had no further
obligations once the services are rendered.
The
Company, through its subsidiaries, also provided notes and claims purchasing for
medical claims to unaffiliated healthcare providers that are customers of the
Company. The customer advances were repaid through the remittance of payments of
customer medical claims, by Payers. The Company could charge
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 were recognized as
revenue when earned. There was no right of cancellation or refund provisions in
these arrangements and the Company had no further obligations once the services
are rendered.
The
Company, through its subsidiaries, now provides purchasing medical equipment and
software leases from an unaffiliated healthcare customer. The customer assigns
the rights to these leases and the Company is repaid directly from the monthly
lease payments from the lessees. The Company can receive interest, an
administrative fee and other charges. These interest charges, administrative
fees and other charges are recognized as revenue when earned. Under certain
circumstances, there are warranties and refund provisions in these
arrangements and the agreements are non-cancellable without our
consent.
Revenue
derived from fees related to billing and collection services were generally
recognized when the customer’s accounts receivable are collected.
Revenue
from implementation fees were generally recognized over the term of the
customer’s agreement. Revenue derived from maintenance, administrative and
support fees were generally recognized at the time the services are provided to
the customer.
Results
of Operations
For the Three
Months Ended March 31, 2009 Versus the Three Months Ended March 31,
2008
Revenue
For the
three months ended March 31, 2009, we recorded total revenue of $161,643. Of
this total, we recorded service fee revenue of $78,944, accounting for 48.8% of
total revenue, and financing income of $82,699, accounting for 51.2% of total
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. The decrease in revenue
from 2008 resulted primarily from the closing down of our advance funding and
claims processing, billing and collecting business.
Operating
Expenses
For the
three months ended March 31, 2009, total operating expenses were $1,092,427 as
compared to $1,423,161 for the three months ended March 31, 2008, a decrease of
$330,734 or 23.2%. Included in this decrease for the three months ended March
31, 2009 is the following:
|
1.
|
We
recorded compensation expense of $542,784 as compared to $902,102 for the
three months ended March 31, 2008. This $359,318 or 39.8% decrease was
primarily attributable to lower salaries due to fewer employees needed for
the digital pen business, amortization of stock options of $77,477 and
executive bonuses of $13,750 paid during the three months ended March 31,
2009 versus amortization of stock option of $381,505 and executive bonuses
of $55,000 during the three months ended March 31, 2008;
and
|
|
2.
|
Consulting
expense amounted to $95,025 as compared to $65,481 for the three months
ended March 31, 2008, an increase of $29,544, or 45.1%. This increase
resulted from the addition of an outside business development consultant;
and
|
|
3.
|
Professional
fees amounted to $130,957 as compared to $164,688 for the three months
ended March 31, 2008, a decrease of $33,731, or 20.5%. This expense was
attributable to a decrease in legal fees related to SEC filings and Series
B Convertible Preferred Stock offerings;
and
|
|
4.
|
Selling,
general and administrative expenses were $323,661 as compared to $290,890
for the three months ended March 31, 2008, an increase of $32,771, or
11.3%. This increase resulted from an information technology expense
adjustment that lowered expenses in the prior
year.
|
For the
three months ended March 31, 2009 and 2008, selling, general and administrative
expenses consisted of the following:
|
|
March
31,
2009
|
|
|
March
31,
2008
|
|
Employee
benefits and payroll taxes
|
|
|
116,293
|
|
|
|
111,625
|
|
Information
technology
|
|
|
56,378
|
|
|
|
153
|
|
Occupancy
and office expenses
|
|
|
41,274
|
|
|
|
46,709
|
|
Other
selling, general and administrative
|
|
|
109,716
|
|
|
|
132,403
|
|
|
|
$
|
323,661
|
|
|
$
|
290,890
|
|
Other
Income (Expenses)
For the
three months ended March 31, 2009, interest income was $24,263 as compared to
$1,924 for the three months ended March 31, 2008, an increase of $22,339. This
increase was principally due to larger cash balances invested in
2009.
For the
three months ended March 31, 2009, interest expense was $375,076 as compared to
$532,557 for the three months ended March 31, 2008, a decrease of $157,481. This
decrease was primarily due to lower non-cash interest amortization of debt
discount in connection with our notes payable.
Net
Loss
We
reported a net loss of $1,281,597 for the quarter ended March 31, 2009 as
compared to a net loss of $1,750,184 for the quarter ended March 31,
2008.
Deemed
Preferred Stock Dividend
During
the quarters ended March 31, 2009 and 2008, we recorded $1,489,584 and $307,246,
respectively for a deemed preferred stock dividend arising from a beneficial
conversion feature for warrants attached to Series B Convertible Preferred Stock
issued and from dividends accrued on the Series B Convertible Preferred
Stock. Dividends are payable in cash or additional shares of Series B
Preferred Stock and are not payable until there are profits, surplus or other
funds available for the payment of such dividends.
Net
Loss Attributable to Common Shareholders
We
reported a net loss attributable to common shareholders of $2,771,181 for the
quarter ended March 31, 2009 as compared to net loss attributable to common
shareholders of $2,057,430 for the quarter ended March 31, 2008. This translates
to an overall net loss per common share of ($0.19) for the quarter ended March
31, 2009 as compared to an overall net loss per common share of ($0.16) for the
quarter ended March 31, 2008.
Liquidity
and Capital Resources
We used
the proceeds from the sales of preferred stock through March 31, 2009 and
proceeds from notes and loans payable for working capital purposes and to fund
our notes receivable of $1,418,717 and accounts receivable of $397,816 owed to
us at March 31, 2009. We will continue to advance funds under note agreements to
providers that subscribe to our financial services lending
solutions.
On April
20, 2009, we, along with our subsidiary Xeni Financial Services, Corp. (“XFS”),
entered into a Loan and Securities Purchase Agreement (the “Loan Agreement”)
with Vicis Capital Master Fund (“Vicis”), dated April 15, 2009 pursuant to which
Vicis loaned the Company $3,200,000, less a deduction for an original issue
discount of 2%. The proceeds from the loan from Vicis are being used for our
corporate operations.
Pursuant
to the Loan Agreement, we issued a Senior Secured Promissory Note, dated April
15, 2009, to Vicis in the original principal amount of $3,851,374 (the “Vicis
Note”) comprised of the current loan of $3,200,000, and prior advances, accrued
interest, and professional and other fees of $651,375 relative to prior loans
and commitments. The Vicis Note bears interest at the rate of 13% per annum and
is payable monthly, in arrears on the first day of each month, commencing on
October 15, 2009. Principal payments in the monthly amount of $40,000 commence
on October 15, 2009 and, subject to events of default specified in the Loan
Agreement, the entire amount of principal and accrued but unpaid interest due
under the note becomes due and payable on October 15, 2011.
W
e believe we have sufficient funds
and prospective business
activity
to conduct our
business and operations as they are currently undertaken for the
next 12 months.
We
currently have no material commitments for capital expenditures.
Cash
flows
At March
31, 2009, we had cash of $297,125. On April 21, 2009, we received
cash of approximately $3,100,000, in connection with a loan from
Vicis. The cash proceeds are being used for our corporate
operations.
Net cash
used in operating activities was $926,682 for the three months ended March 31,
2009 as compared to $583,605 for the three months ended March 31, 2008, an
increase of $343,077. This increase is primarily attributable to a decrease in
the net loss and the following:
|
1.
|
Gottbetter
and Vicis debt offering costs of $84,408 and debt discount costs of
$279,096, as compared to debt related costs during the three months ended
March 31, 2008 of $492,458;
|
|
2.
|
Stock-based
compensation of $77,477 versus stock-based compensation expense of
$381,505 for the three months ended March 31,
2008;
|
|
3.
|
A
net increase in notes receivable, accounts receivable, leases receivable,
and prepaid expenses aggregating $275,431 principally related to the
increases in leases receivables;
|
|
4.
|
A
net decrease in accounts payable and accrued expenses related to an
increase in operating activities aggregating
$177,834.
|
Net cash
provided by financing activities was $0 for the three months ended March 31,
2009 as compared to net cash provided by financing activities of $7,191,284 for
the three months ended March 31, 2008 due to the proceeds from the sale of
Series B preferred stock in 2008.
Off
Balance Sheet Arrangements
We had no
off balance sheet arrangements as of March 31, 2009.
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)
|
Evaluation of
Disclosure Controls and
Procedures
|
The Company has established
disclosure controls and procedures to ensure that material information relating
to the Company, including its consolidated subsidiaries, is made known on a
timely basis to the officers who certify its financial reports and to other
members of senior management and the Company’s board of directors. Based on
their evaluation as of March 31, 2009, the principal executive
officer and principal financial officer of the Company have concluded that the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure
that the information required to be disclosed by the Company in the reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms.
(b)
Changes in Internal Control
over Financial Reporting
There were no changes to internal
controls over financial reporting that occurred during the three months ended
March 31, 2009, that have materially affected, or are reasonably likely to
materially impact our internal controls 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.
|
|
|
|
MDWERKS,
INC.
|
|
|
|
June
2, 2009
|
|
/s/
David M. Barnes
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
June
2, 2009
|
|
/s/
Adam Friedman
|
|
|
|
Chief
Financial Officer
|
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