MDWK 8-K
MDWerks, Inc. (MDWK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K, including the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this Current Report on Form 8-K include, but are not limited to, statements about:
| ● | the implementation of our strategic plans for our business; |
| ● | our financial performance; |
| ● | developments relating to our competitors and our industry, including the impact of government regulation; |
| ● | estimates of our expenses, future revenues, capital requirements and our needs for additional financing; and |
| ● | other risks and uncertainties, including those listed under the captions “Business,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” |
In some cases, forward-looking statements can be identified by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “could,” “project,” “intend,” “will,” “will be,” “would,” or the negative of these terms or other comparable terminology and expressions. However, this is not an exclusive way of identifying such statements. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in this Current Report on Form 8-K. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Current Report on Form 8-K and the documents that we reference in this Current Report on Form 8-K and have filed with the Securities and Exchange Commission (“SEC”) as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.
The forward-looking statements in this Current Report on Form 8-K represent our views as of the date of this Current Report on Form 8-K. We anticipate that subsequent events and developments will cause our views to change. Except as expressly required under federal securities laws and the rules and regulations of the SEC, we do not undertake any obligation to update any forward-looking statements to reflect events or circumstances arising after the date of this Current Report on Form 8-K, whether as a result of new information or future events or otherwise. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Current Report on Form 8-K. You should not place undue reliance on the forward-looking statements included in this Current Report on Form 8-K. All forward-looking statements attributable to use are expressly qualified by these cautionary statements.
INDUSTRY DATA
This Current Report on Form 8-K includes industry and market data and other information, which we have obtained from, or is based upon, market research, independent industry publications, surveys and studies conducted by third parties or other publicly available information. Although we believe each such source to have been reliable as of its respective date, none guarantees the accuracy or completeness of such information. We have not independently verified the information contained in such sources. Any such data and other information are subject to change based on various factors, including those described elsewhere in this Current Report on Form 8-K.
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TABLE OF CONTENTS
| Item No. | Description of Item | Page No. | ||
| Item 1.01 | Entry into a Material Definitive Agreement | 4 | ||
| Item 2.01 | Completion of Acquisition or Disposition of Assets | 4 | ||
| Item 3.02 | Unregistered Sales of Equity Securities | 33 | ||
| Item 4.01 | Change in Registrant’s Certifying Accountant | 34 | ||
| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers | 34 | ||
| Item 5.06 | Change in Shell Company Status | 34 | ||
| Item 8.01 | Other Events | 34 | ||
| Item 9.01 | Financial Statements and Exhibits | 34 |
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Explanatory Note
This Form 8-K is being filed by MDwerks, Inc., a Delaware corporation (the “Company” or “MDwerks”) in connection with a transaction in which the Company’s wholly owned subsidiary, MD-TT Merger Sub, Inc. (“Merger Sub”), merged with Two Trees Beverage Company, a Delaware corporation (“Two Trees”) on December 8, 2023 (the “Merger Closing Date”) pursuant to the previously disclosed terms and conditions set forth in a Merger Agreement dated as of February 13, 2023 and amended on February 16, 2023, September 11, 2023 and December 7, 2023 (the “Merger Agreement”), by and between the Company, Merger Sub and Two Trees, with Two Trees continuing as the surviving corporation (the “Merger”).
Item 1.01 Entry into a Material Definitive Agreement
Item 2.01 Completion of Acquisition or Disposition of Assets.
The Company completed the Merger on the Merger Closing Date pursuant to the Merger Agreement. Pursuant to the terms of the Merger Agreement, on the Merger Closing Date of the Merger, the Company issued 60,000,000 shares of its common stock, $0.001 par value per share, (the “Company Common Stock”) which was apportioned among the Two Trees stockholders, pro rata, based on the number of shares of Two Trees common stock, par value $0.0001 per share (the “Two Trees Common Stock”) held by each of the Two Trees stockholders as of the closing of the Merger (the “Merger Consideration”). Upon completion of the Merger, all 12,045,276.84 shares of Two Trees common stock were cancelled in exchange for the right of the Two Trees stockholders to receive the Merger Consideration. Each share of common stock of Merger Sub issued and outstanding immediately prior to the effective time of the Merger was converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, $0.001 par value per share, of Two Trees as the surviving corporation.
As a result of the Closing of the Merger, Two Trees became a wholly owned subsidiary of the Company and the former stockholders of Two Trees will hold, in the aggregate, approximately 32.4% of the issued and outstanding shares of the Company’s Common Stock.
At the effective time of the Merger, Two Trees’ options to purchase 933,647 shares of Two Trees Common Stock (the “Two Trees Options”) generally will be treated in the following manner:
● Two Trees option holders exchanged all of their Two Trees Options for options to acquire 4,650,685 shares of Company common stock at an exercise price of $0.36 per share (the “MDwerks Options”).
● The MDwerks Options provide for substantially the same terms as the Two Trees Options, other than (1) they will be fully vested at issuance, and increase the number of shares of Company common stock underlying the MDwerks Options from the number of shares of Two Trees common stock underlying the Two Trees Options, and (2) retain the same exercise price per share of Company common stock underlying the MDwerks Options as the exercise price per share of Two Trees common stock underlying the Two Trees Options, in each case as necessary to provide for the same spread value for each applicable option holder.
Effective on the Merger Closing Date, the Company’s Board of Directors (the “Board”) was expanded and James P. Cassidy and Edward D. Kratovil who were named by Two Trees, were appointed to the Board.
Pursuant to the terms of the Merger Agreement, as amended at the Closing of the Merger, James P. Cassidy, Two Trees’ Chairman of the Board of Directors, entered into an indemnification agreement, pursuant to which Mr. Cassidy agreed to indemnify the Company for certain breaches of the representations and warranties of Two Trees as set forth in the Merger Agreement.
The parties to the Merger Agreement intended, for U.S. federal income tax purposes, that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and that the Merger Agreement was adopted as a plan of reorganization within the meaning of Treasury Regulations Section 1.368-2(g).
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FORM 10 DISCLOSURES
Item 2.01(f) of Form 8-K states that if the registrant was a shell company, as the Company was immediately before the closing of the Merger, then the registrant must disclose the information that would be required if the registrant were filing a general form for registration of securities on Form 10. Accordingly, the Company is providing the information below that would be included in a Form 10 if the Company were to file a Form 10. Please note that the information provided below relates to MDwerks and Two Trees as the combined company after the closing of the Merger, unless otherwise specifically indicated or the context otherwise requires.
BUSINESS
Unless context otherwise indicates, the disclosure in this “Business” section relates to Two Trees, an operating company that became a wholly owned subsidiary of the Company at the Closing of the Merger Agreement.
Organizational History of MDwerks, Inc.
History of the Company
We were organized and incorporated in the State of Delaware on July 22, 2003 under the name Western Exploration, Inc. as a resource exploration stage company. In November 2005, we ceased operations as a resource exploration company due to inadequate financing. On November 16, 2005, Western Exploration, Inc. engaged in a merger with MDwerks Global Holdings, Inc. and MDwerks Acquisition Corp., a Florida corporation (“Acquisition Corp.”), a wholly-owned subsidiary of Western Exploration, Inc., with MDwerks Global Holdings, Inc. (“MDwerks Global”) surviving as a wholly-owned subsidiary of Western Exploration, Inc. Upon the closing of the merger with MDwerks Global, we changed our corporate name from “Western Exploration, Inc.” to “MDwerks, Inc.” and succeeded to the business of MDwerks Global as our sole line of business under the direction of MDwerks Global’s management.
On February 12, 2010, MDwerks, Inc. ceased all operations. On or about June 23, 2021, we began the process of seeking to create value for our shareholders by merging with another entity with experienced management and opportunities for growth in return for shares of our common stock and on June 23, 2021 we filed a Registration Statement on Form 10 with the SEC to register our common stock under Section 12(g) of the Exchange Act of 1934, as amended.
Recent Developments
Change of Control
On July 21, 2022, the Company in connection with the change of control and composition of the Board entered into a Stock Purchase Agreement (the “SPA”) with (i) Tradition Reserve I LLC, a New York limited liability company (“Buyer”); and (ii) Ronin Equity Partners, Inc., a Texas corporation (“Seller”).
Pursuant to the SPA, the Seller sold to the Buyer, on July 21, 2022 (the “Closing Date”) free and clear of all liens, 10,000,000 shares of Series A Convertible Preferred Stock, par value $0.001 (“Preferred Stock”) of the Company, held by the Seller (the “Shares”), representing 100% of the Company’s authorized and issued Preferred Stock, as of the Closing Date. In exchange for the sale of the Shares to Buyer, Buyer paid the Seller a total purchase price of $520,000 (the “Purchase Price”).
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Further, at the closing of the transactions contemplated within the SPA (which include, but are not limited to, the purchases and sales of the Shares described above) (the “Closing”), the parties agreed that as of the Closing:
| a) | The Forgiven Debt (as defined hereinafter) was forgiven, as well as the Asia Note (as defined hereinafter), and any other loan agreements between the Company and Asia Pacific Partners, Inc. (“APP”), a Florida corporation. The Parties acknowledge and agreed that the Company was indebted to APP, an affiliate of the Seller, in the amount of approximately $239,444, comprised of (i) the principal amount and accrued interest pursuant to a convertible promissory note dated July 18, 2014 in the amount of $210,000 as originally issued by the Company to Azure Associates, Inc. and purchased by APP on July 28th, 2020 (the “Asia Note”), and (ii) various cash advances for a total of $29,444 as advanced by APP to the Company for working capital (the “Asia Cash Advances” and, together with any and all amounts that may have been due and payable pursuant to the Asia Note, the “Forgiven Debt”); | |
| b) | The Company’s Board of Directors was required to undertake such actions as required to: |
| (i) | Expand the Company Board to be a number of persons as determined by Buyer, and to name such persons as selected by Buyer as directors on the Company Board; | |
| (ii) | Name such persons as selected by Buyer as officers of the Company, to the positions as determined by Buyer; and | |
| (iii) | Following (i) and (ii), all of the directors and officers of the Company, other than those named in or pursuant to (i) and (ii) shall resign from all such positions with the Company. |
Prior to the Closing of the SPA, voting control of the Company was held by the Seller, of which Jacob D. Cohen was the primary shareholder, and held voting and dispositive control over the Shares.
On the Closing Date, Buyer purchased the Shares, which both pre- and post-conversion represented approximately 98.23% of the Company’s outstanding voting securities as of the Closing Date, resulting in a change in control of the Company. The Company had previously designated the Preferred Stock so that each share would hold with it conversion rights of one hundred (100) shares of common stock for every share of Preferred stock held, and that each share of Preferred stock will also hold with it the same number of common share votes prior to conversion as it would if fully converted to be used in voting on any company matter requiring a vote of shareholders. At the Closing Date, there were 18,010,208 shares of common stock issued and outstanding. Kerry E. Cassidy is the majority membership unit holder and Managing Member of the Buyer, and therefore is deemed to have voting and dispositive power over the Company’s Shares held by the Buyer.
As a result of the Closing, the Company was no longer a company controlled by the Seller. Prior to the Closing, the Company was a shell company, and following the Closing, the Company continued to be a shell company. There has been no change in the Company’s shell company status or the Company’s operations as a result of the Closing.
Planned Acquisitions
RF Specialties, Inc.
On January 19, 2023, we entered into an Exchange Agreement (the “Exchange Agreement”) by and between the Company, RFS and Keith A. Mort as the sole member of RFS. Pursuant to the terms of the Exchange Agreement, the Company agreed to acquire from Mr. Mort, and Mr. Mort agreed to sell to the Company, 100% of the equity interests and membership interests of RFS, in exchange for the issuance by the Company to Mr. Mort of 7,500,000 shares of the Company’s common stock (the “Exchange”). Immediately following the Exchange, RFS will be a wholly owned subsidiary of the Company.
The shares received by Mr. Mort in the Exchange (the “Exchange Shares”) will be subject to a 24-month lock-up; provided, however, that (i) one-third of the Exchange Shares will be released from the lock-up restrictions on the 12-month anniversary of the closing of the Exchange, and (ii) one-third of the Exchange Shares will be released from the lock-up restrictions on the 18-month anniversary of the closing of the Exchange. The remaining one-third of the Exchange Shares will be released from the lock-up restrictions on the 24-month anniversary of the closing of the Exchange.
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The parties have made customary representations, warranties and covenants in the Exchange Agreement. In addition to certain customary closing conditions, the obligations of the Company to consummate the closing of the Exchange are subject to the satisfaction (or waiver by the Company), at or before the closing date, of certain conditions, including that (i) RFS will have provided to the Company audited financial statements for RFS for each of the two most recently ended fiscal years and unaudited financial statements for any other required interim periods (the “Financial Statements Closing Condition”), and (ii) the Company will have completed its due diligence review and examination of RFS to its satisfaction in its sole discretion (the “Due Diligence Closing Condition”).
The Exchange Agreement may be terminated on or prior to the closing date of the Exchange:
| (a) | By the mutual written consent of all the parties to the Exchange Agreement. |
| (b) | By the Company (i) if the closing conditions applicable to all parties and applicable to the Company as set forth in the Exchange Agreement, including the Financial Statements Closing Condition and the Due Diligence Closing Condition, have not been satisfied or waived by the Company, which waiver the Company may give or withhold in its sole discretion, by May 31, 2023 (the “Termination Date”); provided, however, that the Company may not terminate the Exchange Agreement if the reason for the failure of any such condition to occur was the breach of the terms of the Exchange Agreement by the Company; or (ii) if there has been a material violation, breach or inaccuracy of any representation, warranty, covenant or agreement of RFS or Mr. Mort as set forth in the Exchange Agreement; |
| (c) | By RFS and Mr. Mort acting together (i) if the closing conditions applicable to all parties and applicable to RFS and Mr. Mort have not been satisfied or waived by RFS and Mr. Mort, which waiver RFS and Mr. Mort may give or withhold in their sole discretion, by the Termination Date; provided, however, that RFS and Mr. Mort may not terminate the Exchange Agreement if the reason for the failure of any such condition to occur was the breach of the terms of the Exchange Agreement by any of RFS or Mr. Mort; or (ii) if there has been a material violation, breach or inaccuracy of any representation, warranty, covenant or agreement of the Company as set forth in the Exchange Agreement; |
| (d) | By any party to the Exchange Agreement, if a court of competent jurisdiction or other governmental authority shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Exchange Agreement and such order or action shall have become final and nonappealable; or |
| (e) | By the Company, if the Company, in its sole discretion, at any time prior to the closing of the Exchange determines that its due diligence review of RFS is not satisfactory to the Company. |
Sale of Assets
On August 25, 2023, we entered an asset purchase agreement with an unrelated company, Dream Workz Automotive LLC, a Colorado limited liability company (“Dream Workz”). Pursuant to this agreement, we sold certain tangible manufacturing assets of ours to Dream Workz for a purchase price of $195,000 (the “Purchase Price”). The Purchase Price was paid in a combination of cash in the amount of $100,000 and a promissory note in the amount of $95,000 (the “Note”). The Note is unsecured and bears interest at the rate of 8% per annum commencing as of August 25, 2023. The Note is payable in consecutive monthly installments of principal and interest amortized over a period of 72 months commencing as of August 25, 2023 with payments commencing on November 15, 2023 until the maturity date of August 25, 2030 when the remaining principal balance due under the Note is due and payable in full.
Organizational History of Two Trees
Two Trees Beverage Company was incorporated under the laws of the State of Delaware on October 29, 2020. As discussed above, on December 8, 2023, pursuant to the closing of the transactions pursuant to the Merger Agreement, Two Trees merged into a wholly owned subsidiary of the Company, with Two Trees continuing as the surviving corporation.
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Overview of the Business of Two Trees
The Two Trees Story
We produce a variety of aged alcoholic beverages using an innovative rapid-aging system. This scalable technology results in all-natural, high-quality products, efficiently produced, with a reduced environmental impact. Our products are nearly indistinguishable from those that are traditionally aged.
Deep in Appalachian Mountain country, we created a proprietary process that mirrors and accelerates the natural aging process that occurs when alcohol is aged in wooden barrels over time. The true art of our craft spirits lives within the balance between the grain selection, local water, and the full-bodied flavors from our toasted wood chip varieties. Our wood chips are selected to pair with specific grains and toasted to just the right char, bringing rich flavor profiles to life with a hint of smoke.
Brands
Two Trees has built a portfolio of more than 30 spirit brands that are refined and capable of being produced in a fraction of the time it takes to produce traditional whiskies using the traditional production process discussed below. Three of Two Trees portfolio brands received 2022 SIP Awards, with its Two Trees Carolina Peach Whiskey receiving a Platinum Award, Two Trees Sea Salted Caramel Whiskey receiving a Gold Award and Two Trees Old Fashioned RTD receiving a Gold Award. Also, two of its portfolio brands received 2022 50 Best Awards with Two Trees Peanut Butter Whiskey and Two Trees Sea Salted Caramel Whiskey receiving Best Flavored Whiskey awards. Also, Two Trees received the Best of Ashville 2023 award for its sustainable matured, award-winning bourbon, whiskey, flavored whiskey and vodka.
Our full current flavored whisky brand portfolio includes the following:
SEA SALTED CARAMEL – a sweet soft caramel paired with real sea salt and aged in slow toasted Appalachian white oak.
BATCH 314 - A long toasting of Tennessee white oak brings out a soft caramel flavor with notes of vanilla and spice.
CRISP APPLE - Tart flavors of fresh picked green apples and the sweet charred profile of Appalachian white oak blend easily.
CANDY APPLE - Vanilla profile of heavy toasted Tennessee white oak adds to the caramel dipped green
apple flavor.
CINNAMON SPICE - Aged in charred and toasted Missouri white oak, with the cinnamon spice and the
sweet essence of red hots candy.
MICHIGAN CHERRY - Made with sweet corn to balance and compliment the tartness of the Montmorency cherry profile.
CAROLINA PEACH - Made with delicious South Carolina peaches and natural flavors to compliment the sweet charred flavor profile of Appalachian white oak.
GOLDEN HONEY - Flavor reminiscent of toasted Appalachian white oak, and the essence of fresh
honeycomb and the taste of natural honey.
SCORCHED BROWN SUGAR - Flavor reminiscent of charred Appalachian white oak, real brown sugar and natural vanilla flavor.
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PEANUT BUTTER - A taste reminiscent of Appalachian white oak with rich smooth notes of peanut butter.
Our ready to drink portfolio includes the following:
OLD FASHIONED - Plush, dignified cocktail of muddled sugar, whiskey, bitters and Appalachian Mountain spring water blended with toasted Missouri and Tennessee white oak is sleek and ready to pour.
MANHATTAN - Austere rye whiskey with a rich touch of both sweet and dry vermouths sculpted with toasted Missouri and Tennessee white oak creates a glossy, mirror like smoothness, made effortlessly.
Our Tim Smith product portfolio includes the following:
CLIMAX MOONSHINE - The original recipe is distilled from corn, rye, and barley malt. Clean and natural tasting with a subtle sweetness and bold defiance.
CLIMAX WOOD-FIRED WHISKEY - This isn’t your ordinary American bourbon-style whiskey its Tim Smith’s century-old moonshine recipe aged and filtered with toasted oak and maple wood imparting color and revolutionary flavors. The final process allows the whiskey to cool in Oak containers and the result is Tim Smith’s revolutionary Climax Whiskey – Made to be in a Class of its Own.
CLIMAX FIRE NO. 32 - Cinnamon Spice Moonshine using Tim Smith’s original pot-distilled recipe. Bold, Hot and Smooth. As a volunteer fire chief in Climax, VA, Tim created this moonshine as a tribute to firefighters across the country.
TIM SMITH SOUTHERN RESERVE BOURBON - Amber in appearance. Caramelized sugar and vanilla melt into a soft wheat. It finishes with a sweet honey profile.
TIM SMITH SOUTHERN RESERVE RYE - Golden amber in appearance. Notes of spicy toasted American oak give way to the gentle warm finish of sweet rye and caramel.
TIM SMITH SOUTHERN RESERVE WHISKEY - Reddish amber in appearance. Sweet corn and mild rye blend with smoky, caramelized oak. It finishes with earthy, nutty notes.
We also produce a wood crafted portfolio American whiskey. This blend is colored and flavored with Appalachian white oak chips. This brings out a soft caramel flavor with notes of vanilla and spice. The charred white oak chips soften this spirit to make it smooth and easy to drink.
The Traditional Production Process
Traditional distillation is a production process that involves the flow of spirits in and out of a wooden barrel. The liquid absorbs characteristics from the barrel that change its appearance and flavor resulting in spirits that are soft and rich in character. This aging process is a multi-year journey with barrels sitting in a warehouse until the right flavor profile is reached. This process is costly; barrels can only be used once to age whiskey and product must be stored for years before its value can be unlocked.
The Two Trees Solution
Two Trees’ aging technology accelerates the physical and chemical changes that occur during aging without altering the natural process. These changes happen simultaneously, which leads to a well-balanced final product. We call this process the “Two Trees Process”, as discussed below.
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The Two Trees Process.
Our aging process uses the same ingredients as traditional aging does with wood, water, and alcohol, while activating the same conversion of acids into esters (esterification). Our unique combination of saturated wood chips and unflavored spirits are placed in a stainless steel tank and introduced to our proprietary electrical current technology. Radio waves cause the pores in the wood to open, transferring tannins and hemicellulose to the spirits. Resulting in vanilla, caramel, leather and floral aromas and flavors. The physical and chemical changes happen simultaneously, leading to an exceptionally balanced final product.
Benefits of Our Process and Technology
Our aging process and proprietary technology provides the following benefits:
| ● | Artistry and Innovation – Ability to experiment with intriguing flavor profiles across a variety of spirit categories, using a unique combinations of wood types and flavoring including those that cannot be used to make barrels. | |
| ● | Speed and Scalability - Once a product has been developed and consumer tested, we can scale up production quickly to meet ongoing demand. This allows us to capitalize on emerging trends and rapidly expand into new markets. Customers can get supply on demand while our competitors wait years. | |
| ● | Sustainability - Our process uses between 85% to 90% less wood used in traditional barrel aging and eliminates the need to house barrels for multiple years. |
A Sustainable Production Process as White Oak Grows Scarce
We believe that our proprietary electrical current technology enhanced aging process will reduce the overuse of American white oak used in the making of barrels aged spirits. American white oak is a hardwood tree native to eastern and central North America and has been the go-to wood to make barrels. It takes 80 to 100 years for an American white oak tree to reach maturity when it can then be harvested for use in making barrels.
As demand for whiskey grows, among other things, oak supply has been shrinking. The supply of oak is hindered by a lack of planting, competing species, climate change, invasive insects, disease and the prevalence of advanced aged existing trees.
The price of a whiskey barrel has increased from $300 to $500 since the early 2000s. A fully mature American white oak tree produces about two to three traditional barrels with a 53 gallon capacity. Two Trees can use discarded white oak in its production process instead of removing live trees, which is both cost effective and environmentally friendly.
Licensing Opportunities
Two Trees plans to license our proprietary accelerated-aging technology to other spirit producers who can take advantage of the technology’s speed and financial benefits for their own facilities. Licensing our technology offers opportunity to generate a recurring revenue stream with each individual aging system and has potential to add value in locations worldwide struggling to meet consumer demands, while reducing costs for aged spirits.
Opportunities to Meet Projected Increases in Demand
We believe there is an opportunity to expand our sales to meet projected increases in demand. Total craft whiskey sales volume in the United States, including all sub-segments of Bourbon, blended, rye, Tennessee, other US, American single malt and moonshine, have shown accelerated growth in recent years. Sales in this product category are forecasted to reach 8.07 million nine-liter cases by 2024 on a cumulative annual growth rate of 13.1% during the period from 2019 through 2024 with the addition of 3.7 million nine-liter cases as noted in the charts below.
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Source: 2020 IWSR Drinks market analysis
Expansion Plans
Two Trees plans to focus on licensing our proprietary technology and bulk aging alcohols, as well as expanding and building distribution for our owned brands and as a private label initiative for wholesale and retail customers. Two Trees is considering acquiring complementary distilleries to expand its sales and marketing efforts on its current portfolio brands along with others that are under development.
See “Management’s Discussion and Analysis of Financial Condition and Plan of Operations – Two Trees Beverage Company, Inc. - Liquidity and Capital Resources.”
Markets
Two Trees Products are available through a network of authorized distributors. Continued growth is important to our long-term success and we expect to foster this growth by emphasizing fast-growing spirits categories, continued product and packaging innovation, brand building within targeted consumer segments and pursuing brand licensing opportunities. This includes increasing emphasis on licensing and expansion of our distributor network and marketing to better connect and engage with consumers.
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Competition
Two Trees recently commenced the production and sale of spirits with sales of $2.1 million for the year ended December 31, 2022 and $1.3 million as of September 30, 2023 which represents a very small fraction of the approximate total $525.30 billion market1. According to International Wine & Spirit Research (IWSR), for calendar year 2022, the ten largest global spirits companies controlled over 20% of the total spirits volume sold around the world. While we believe that the overall market environment offers considerable growth opportunities for us, our industry is, and will remain, highly competitive. We compete against many global, regional, and local brands in a variety of categories of beverage alcohol, but our brands compete primarily in the industry’s craft distillery market many of which entered the market in the last few years. Our competitors include craft producers and major global spirits companies, such as Diageo, Brown-Forman Corporation, and Constellation Brands.
Brand recognition, brand provenance, quality of product and packaging, availability, flavor profile, and price affect consumers’ choices among competing brands in our industry. Other factors also influence consumers including advertising, promotions, merchandising at the point of sale, expert or celebrity endorsement, social media and word of mouth, and the timing and relevance of new product introductions. Although our competitors have substantially greater resources than we do, we believe that our competitive position is strong, particularly as it relates to price, quality, and relevance of new product introductions and our unique proprietary technology.
Distribution Network and Customers
In the United States, which generally prohibits spirits and wine manufacturers from selling their products directly to consumers, we sell our brands either to distributors or to state governments (in states that directly control alcohol sales) that then sell to retail customers and consumers.
We believe that our customer relationships are good and that our exposure to concentrations of credit risk is limited due to our thorough evaluation of each customer. In fiscal 2022, our three largest customers accounted for approximately 12.5%, 11.0% and 10% of net sales, respectively. No other customer accounted for 10% or more of our net sales in fiscal 2022.
License Agreement
Through our wholly owned subsidiary, Prost Beverage Company, LLC (“Prost Beverage”), we are the exclusive licensee in the United States, Canada and Mexico of certain intellectual property related to Tim Smith with respect to products that include moonshine, flavored moonshine, whiskey, flavored whiskey and ready to drink moonshine or whiskey, various promotional items and unaged distillate bases. This license agreement provides for payment to the licensor of a guaranteed minimum royalty and a share of the net proceeds received by Prost Beverage in connection with the sale of assets relating to the licensed property.
Seasonality
In some years, holiday buying makes the fourth calendar quarter the peak season for our business. Approximately 32% and 13% of our net sales for fiscal 2021 and fiscal 2022, respectively, were in the fourth calendar quarter.
Regulatory Environment
Federal, state and local authorities regulate how we produce, store, transport, distribute, market, and sell our products. Some countries and local jurisdictions prohibit or restrict the marketing or sale of distilled spirits in whole or in part.
1 https://www.statista.com/outlook/cmo/alcoholic-drinks/spirits/worldwide
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At the federal level in the United States, the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury regulates the spirits and wine industry with respect to the production, blending, bottling, labeling, advertising, sales, and transportation of beverage alcohol. Similar regulatory regimes exist at the state level where we sell or plan to sell our products. In addition, beverage alcohol products are subject to customs duties, excise taxes, and/or sales taxes in many countries, including taxation at the federal, state, and local level in the United States.
U.S. federal and state regulations set their own distilling and maturation requirements. At the federal level, we hold a federal basic Distilled Spirits Plant (“DSP”) permit issued by the Alcohol and Tobacco Tax and Trade Bureau (the “TTB”) which permits us to establish a DSP to produce, bottle, rectify, process or store beverage spirits. In addition, through our wholly owned subsidiary, Prost Beverage Company, LLC (“Prost Beverage”), we hold a federal basic importer and wholesaler permit with the TTB which permits us to import distilled spirits, wine or malt beverages into the United States.
At the state level, we hold a state alcohol beverage license issued by the North Carolina Alcoholic Beverage Control and we are subject to the North Carolina General Statutes and the North Carolina Administrative Code, as well as any industry guidance, ruling, or similar documents published by the governing alcohol agency. We are also subject to state alcohol beverage regulations in states where we are permitted to ship alcohol to wholesalers. In particular, Prost Beverage must abide by the provisions of Title 34, Florida Statutes (Alcoholic Beverages and Tabacco) and the regulations promulgated thereunder, because Prost Beverage is located in Florida. Prost Beverage is also licensed to sell alcoholic beverages to distributors in other states and is subject to the alcohol beverage regulations and laws of those states and, where applicable, state excise tax provisions governing alcohol beverages. We believe our operations comply with all of the applicable laws and regulations.
Our operations are also subject to various environmental protection statutes and regulations, and our policy is to comply with them. Complying with these statutes and regulations has not materially impacted our capital expenditures, earnings or competitive position, and is not expected to have a material impact during fiscal 2023.
Intellectual Property
We, primarily through our subsidiaries, hold or have rights to use various service marks, trademarks and trade names we use in the operation of our businesses that we deem particularly important to each of our products. As of the date of this report, we had 12 trademarks for our products and services as follows:
| Trademark | Registration Date | Reg. Number | Class | |||
| TIM SMITH’S CLIMAX MOONSHINE | 3/21/2017 | 5,166,624 | Class 21: portable coolers Class 25: shirts, caps Class 33: distilled spirits | |||
| CLIMAX MOONSHINE | 10/20/2015 | 4,834,895 | Classes 2, 13, 23, 29, 30, 33, 40 and 50: drinking glasses and drinking flasks Classes 22 and 39: shirts and hats Classes 47 and 49: distilled spirits | |||
| FIRE NO 32 | 2/21/2017 | 5,147,397 | Class 33: distilled spirits | |||
| CLIMAX WHISKEY | 8/01/2017 | 5,257,114 | Class 33: distilled spirits | |||
| CLIMAX WOOD-FIRED | 8/22/2017 | 5,272,047 | Class 33: distilled spirits | |||
| TIM SMITH SOUTHERN RESERVE | 11/26/2019 | 5,922,109 | Class 33: distilled spirits, whiskey | |||
| SNARLY YOW | 1/14/2020 | 5,963,107 | Class 33: distilled spirits, whiskey | |||
| TWO TREES | 3/24/2020 | 6,020,545 | Class 33: Alcoholic beverages except beers, not wine based; Distilled spirits; Whiskey | |||
| OWL HEAD | 6/16/2020 | 6,079,608 | Class 33: distilled spirits; whiskey | |||
| WAMPUS CAT | 6/16/2020 | 6,079,610 | Class 33: distilled spirits; whiskey | |||
| MOON CHASERS | 6/12/2022 | 6,785,148 | Class 33: alcoholic beverages, namely, ready-to-drink cocktails | |||
| SUSTAINABLY – MATURED | 11/14/2023 | 7219580 | Class 40: Alcohol distillery services; Spirits distillery services; Whisky distillery services |
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We have significant capabilities in the areas of aging of spirits and have developed a number of proprietary systems and methodologies. As of the date of this report, we have been issued one patent, one allowed patent and have three pending patents in the United States as follows:
| Application Title | Application Date | Application Number |
Status | Patent Summary | ||||
| System & method for the rapid aging of a distilled ethyl alcohol with RF energy and wood material supporting platform | 7/19/2022 |
17/868,667 | Issued on 4/18/2023 Patent No.: US 11,629,317 B2 |
Provides a novel method and system for the rapid aging of a distilled ethyl alcohol, aka a distilled spirit for human consumption, with RF energy. | ||||
| System & method for the rapid aging of a distilled ethyl alcohol with RF energy and wood material supporting platform | 2/15/2023 | 1//110,250 |
Allowed | |||||
| Ethanol Based Extraction of Soluble Wood Components | 2/11/2021 | 17/173,277 | Pending |
A method for ethanol-based extraction of soluble wood components. | ||||
| System & Method for the Rapid Aging of a Distilled ethyl Alcohol With RF Energy | 11/1/2021 | 17/516,544 | Pending |
Provides a novel method and system for the rapid aging of a distilled ethyl alcohol, aka a distilled spirit for human consumption, with RF energy. | ||||
| System and method for the rapid aging of a distilled ethyl alcohol with RF energy to fracture and expand wood capilaries | 7/19/2022 | 17/868,649 | Pending |
Provides a novel method and system for the rapid aging of a distilled ethyl alcohol, aka a distilled spirit for human consumption, with RF energy. |
We regularly seek to protect our intellectual property rights in connection with our products and production processes. We rely on non-disclosure/confidentiality agreements to protect our intellectual property rights. To the extent we describe or disclose our proprietary technology, we redact or request redaction of such information prior to public disclosure. Despite these measures, we may be unable to detect the unauthorized use of, or take appropriate steps to enforce our intellectual property rights. Failure to adequately protect our intellectual property could impair our ability to compete effectively. Further, enforcing our intellectual property rights could result in the expenditure of significant financial and managerial resources and may not prove successful. Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful.
We own the website www.twotreesdistilling.com.
Employees
As of September 30, 2023, Two Trees had nine full time employees and/or independent contractors, none of which were seasonal. We consider our relations with our employees to be good.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
The following discussion and analysis of the results of operations and financial condition of Two Trees for the periods ended December 31, 2022 and 2021 and the nine month periods ended September 30, 2023 should be read in conjunction with the other sections of this Current Report on Form 8-K, including “Description of Business” and the Financial Statements and notes thereto of Two Trees filed herewith as Exhibits 99.1 and 99.2 and the pro forma financials and notes thereto are filed herewith as Exhibit 99.3. The various sections of this discussion contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout Current Report on Form 8-K as well as other matters over which we have no control. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Current Report on Form 8-K, other than as required by law.
Overview
For an overview of the business of Two Trees, please see the section titled “Overview of the Business of Two Trees” beginning on page 8.
Results of Operations
MDwerks, Inc.—Results of Operations
Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2023
Revenues. We did not earn any revenues during the three months ended September 30, 2023 and 2022.
Operating Expenses. The Company reported operating expenses of $129,132, consisting primarily of legal, accounting and various other public company related expenses for the three months ended September 30, 2023, compared to $49,652 for the three months ended September 30, 2022. The $79,480 increase was primarily attributable to increased legal and accounting fees related to our public company reporting obligations as well as our activities related to the completion of the merger with Two Trees discussed elsewhere in this report.
Total Other Income and Expense. Total other income was $164,623 for the three months ended September 30, 2023, compared to $0 for the three months ended September 30, 2022. The increase was primarily attributable to a $168,855 gain realized in connection with the sale of assets to Dream Workz disclosed elsewhere in this report partially offset by interest expense of $4,232 for the three months ended September 30, 2023, compared to $0 for the three months ended September 30, 2022.
Net Income. Net income was $35,491 for the three months ended September 30, 2023 compared to a net loss of $49,652 as a result of an increase in total other income, partially offset by an increase in operating expenses, each of which are discussed above.
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2023
Revenues. We did not earn any revenues during the nine months ended September 30, 2023 and 2022.
Operating Expenses. The Company reported operating expenses of $234,659, consisting primarily of legal, accounting and various other public company related expenses for the nine months ended September 30, 2023, compared to $58,298 for the nine months ended September 30, 2022. The $176,361 increase was primarily attributable to increased legal and accounting fees related to our public company reporting obligations, as well as our activities related to the completion of the merger with Tow Trees discussed elsewhere in this report.
Total Other Income and Expense. Total other income was $158,947 for the nine months ended September 30, 2023, compared to $0 for the nine months ended September 30, 2022. The increase of $158,947 was primarily attributable to a $168,855 gain realized in connection with the sale of assets to Dream Workz disclosed elsewhere in this report partially offset by an increase in interest expense of $9,908 for the nine months ended September 30, 2023, compared to $0 for the nine months ended September 30, 2022.
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Net Income. Net income (loss) was ($75,712) for the nine months ended September 30, 2023 compared to a net loss of ($58,298) as a result of an increase in total other income, partially offset by an increase in operating expenses, each of which are discussed above.
Working Capital
The calculation of Working Capital provides additional information and is not defined under GAAP. We define Working Capital as current assets less current liabilities. This measure should not be considered in isolation or as a substitute for any standardized measure under GAAP. This information is intended to provide investors with information about our liquidity.
Other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.
MDwerks, Inc.—Liquidity and Capital Resources
As of September 30, 2023 and 2022, we had $166,048 and $23,715 in cash. We anticipate that our current cash and cash equivalents and cash generated from financing activities will be insufficient to satisfy our liquidity requirements for the next 12 months. As of September 30, 2023, the Company has incurred operating losses since inception of $523,428. At September 30, 2023, the Company had working capital of $30,904 an increase of $145,871 from December 31, 2022 primarily as a result of a $217,333 increase in cash and a $75,000 loan receivable provided by the sale of assets to Dream Workz disclosed elsewhere in this report, partially offset by a $71,462 increase in total liabilities.
The Company requires additional funding to meet its ongoing obligations and to fund anticipated operating losses. Management has expressed substantial doubt about our ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
We expect to incur marketing, professional, and administrative expenses as well expenses associated with maintaining our filings with the Commission. We will require additional funds during this time and will seek to raise the necessary additional capital. If we are unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results. Additional funding may not be available on favorable terms, if at all. The Company intends to continue to fund its business by way of equity or debt financing and advances from related parties. Any inability to raise capital as needed would have a material adverse effect on our business, financial condition and results of operations.
Two Trees Beverage Company —Results of Operations
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2023
Sales for the nine months ended September 30, 2023 decreased to $1,251,408, or approximately 39.4%, from $2,064,124 for the nine months ended September 30, 2022. The decrease in revenue is primarily attributable to decreased liquor sales during the period.
During the nine months ended September 30, 2023, cost of sales decreased to $751,789, or approximately 41.8%, from $1,291,023 for the comparable 2022 period. The decrease is primarily attributable to the costs associated with decreased liquor sales in the period.
Total operating expenses for the nine months ended September 30, 2023 decreased to $1,478,342, or approximately 36.6%, from $2,330,278 for the nine months ended September 30, 2022. This decrease is primarily due to the reduction of additional sales personnel and event coordinators which resulted in a $698,644 reduction in salary and wages and $51,240 reduction in general and administrative expenses.
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Two Tree’s net loss for the nine months ended September 30, 2023 decreased to $978,369 from net loss of $1,555,605 during the comparable 2022 period. The decrease is attributable to decreased sales during the period which was offset by decreased expenses.
Two Trees Beverage Company — Liquidity and Capital Resources
As of September 30, 2023, Two Trees total assets were $847,148 comprised of $30,064 in cash, $81,246 in accounts receivables, $207,134 in inventories, $11,170 in prepaid expenses, $180,379 in property and equipment and $337,155 in right-of-use assets. This is a decrease in total assets from $976,564 as of December 31, 2022. As of September 30, 2023, Two Trees working capital deficit was $317,106.
Two Trees cash flows from operations and Two Trees available capital are presently insufficient to sustain Two Trees current level of operations for the next 12 months. Furthermore, Two Trees will require a minimum of $5 million to expand and market its products. Two Trees plans to improve its cash position by focusing on increasing sales, improving profitability and a combination of capital sources, including debt and equity financings. The ability to fund operations, to make planned capital expenditures, to execute on our expansion plans depends on our ability to raise funds from debt and/or equity financing which is subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control. There can be no assurance that additional financing will be available to us when needed or at all, or obtained on commercially reasonable terms acceptable to us.
On August 25th and 29th 2023, MDWerks, Inc. loaned Two Trees $15,000 and $30,000 respectively, which accrues interest daily at the rate of 10% per annum (computed on the basis of the actual number of days elapsed and a year of 360 days and compounded monthly) from August 25th and 29th, 2023. The loans mature on August 25th and 29th, 2024, respectively, but they may be prepaid in whole or in part at any time prior to the maturity dates.
Going Concern
MDwerks. The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company had a net loss of $75,712 and an accumulated deficit of $523,428 as of and for the nine months ended September 30, 2023. Although management believes that it will be able to successfully complete the Two Trees Merger and the raising of capital to meet the Company’s future liquidity needs, there can be no assurances in this regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
Two Trees. Two Trees’s financial statements have been prepared assuming that Two Trees will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of the financial statements for Two Trees included elsewhere in this report. On a consolidated basis, Two Trees has incurred significant operating losses since inception. Because Two Trees does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about Two Trees’s ability to continue as a going concern. Therefore, Two Trees will need to raise additional funds and is currently exploring alternative sources of financing. Historically, Two Trees has raised capital through private placements, notes payable and related party loans as an interim measure to finance working capital needs and may continue to raise additional capital through the sale of common stock or other securities and obtaining some short-term loans in order to fund its operations. On September 30, 2023, Two Trees had a net loss of $978,369, an accumulated deficit of $7,108,137 and a working capital deficit of $317,106. The financial statements do not include any adjustments that might be necessary if Two Trees is unable to continue as a going concern. Two Trees’s continuation as a going concern is dependent upon the ability to raise financing from third parties and generating revenues from operations. There is no assurance that Two Trees will be successful in doing so.
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Critical Accounting Policies and Estimates
Business Segments
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Use of Estimates
Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Changes in estimates are recorded in the period in which they become known. Two Trees bases its estimates on historical experience and other assumptions, which include both quantitative and qualitative assessments that it believes to be reasonable under the circumstances.
Fair Value of Financial Instruments
Two Trees accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on Two Trees’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
Two Trees uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires Two Trees to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
| ● | Level 1 - Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
| ● | Level 2 - Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
| ● | Level 3 - Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. Two Trees may also engage external advisors to assist in determining fair value, as appropriate.
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DESCRIPTION OF PROPERTY
Our principal executive offices and production facility is located at 17 Continuum Drive, Fletcher, North Carolina 28732. In addition, Two Trees maintains a corporate office at 5300 Glades Cutoff Road, Ft. Pierce, Florida 34981.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) each director and named executive officer, (ii) all executive officers and directors as a group; and (iii) each shareholder known to be the beneficial owner of 5% or more of the outstanding common stock of the Company as of December 8, 2023.
Beneficial ownership is determined in accordance with the rules of the SEC. Generally, a person is considered to beneficially own securities: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, and (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days (such as through exercise of stock options or warrants). For purposes of computing the percentage of outstanding shares held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days of December 8, 2023 are deemed to be outstanding but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. The following table sets forth information regarding the number of shares of Common Stock and Series A Preferred Stock beneficially owned as of the date of this Annual Report, by each person who is known by the Company to beneficially own 5% or more of the Company’s Common Stock, each of the Company’s directors and executive officers, and all of the Company’s directors and executive officers, as a group: On December 8, 2023 we had [__] shares of common stock issued and outstanding and 8,957,500 shares of Series A Preferred Stock issued and outstanding.
| Common Stock | Series A Preferred Stock | Total | Voting | |||||||||||||||||||||||||
| Name, Position and Address of Beneficial Owner | No. Beneficially Owned | % of Common Stock(1) | No. Beneficially Owned | % of Series A Preferred Shares(1)(2) | Total No. of Capital Stock Owned(2) | % of Total Capital Stock | % of Voting Capital Stock | |||||||||||||||||||||
| Directors and Executive Officers | ||||||||||||||||||||||||||||
| Joseph R. Ragazzo(3) | 752,162 | * | - | - | 752,162 | * | ||||||||||||||||||||||
| James P. Cassidy(4) | 5,221,202 | 2.72 | % | - | - | 5,221,202 | * | |||||||||||||||||||||
| Edward D. Kratovil | - | - | - | - | - | - | - | |||||||||||||||||||||
| Steven C. Laker (5) | 1,050,000 | * | - | - | 1,050,000 | * | * | |||||||||||||||||||||
| Michael Nordlicht (6) | 2,250,000 | 1.18 | % | - | - | 2,250,000 | * | * | ||||||||||||||||||||
| All directors and officers as a group (5 persons) | 9,273,364 | 4.82 | % | - | - | % | 9,273,364 | * | % | * | ||||||||||||||||||
| Five Percent Shareholders: | ||||||||||||||||||||||||||||
| Infinity Holdings, GR(7) | 10,152,204 | 5.32 | % | - | - | 10,152,204 | * | * | ||||||||||||||||||||
| Tradition Reserve Trust 1 LLC. (8) | - | - | 8,957,500 | 100 | % | 895,750,000 | 82.43 | % | 82.43 | % | ||||||||||||||||||
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Notes:
| * | less than 1%. |
| (1) | The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our capital stock outstanding on December 8, 2023. To calculate a stockholder’s percentage of beneficial ownership, we include in the numerator and denominator the common stock outstanding and all shares of our common stock issuable to that person in the event of the exercise of outstanding options and other derivative securities owned by that person which are exercisable within 60 days of December 8, 2023. Common stock options and derivative securities held by other stockholders are disregarded in this calculation. Therefore, the denominator used in calculating beneficial ownership among our stockholders may differ. Unless we have indicated otherwise, each person named in the table has sole voting power and sole investment power for the shares listed opposite such person’s name. |
| (2) | Each share of Series A Preferred Stock is convertible into 100 shares of Common Stock and is entitled to 100 votes per share. |
| (3) | The number of shares beneficially owned by Mr. Ragazzo includes options to purchase 752,162 shares of common stock at an exercise price of $0.36 per share expiring on December 8, 2023. |
| (4) | The number of shares beneficially owned by Mr. Cassidy includes 500,000 shares owned prior to the closing of the Merger, 2,000,000 shares owned by an entity owned or controlled by Mr. Cassidy, 1,977,832 shares owned by an entity owned or controlled by Mr. Cassidy issued in connection with the Merger, and options to purchase 743,370 shares of common stock at an exercise price of $0.36 per share expiring on December 8, 2033. |
| (5) | Steve C. Laker is Chief Executive Officer and Director of the Company. |
| (6) | Michael Nordlicht is Chief Operating Officer and Director of the Company. |
| (7) | Brian Plotkin is the president of Infinity Holdings GR and has sole dispositive power over the shares owned by Infinity Holdings GR. Its address is 911 Half Moon Bay Dr, Croton on Hudson, NY 10520. |
| (8) | Kerry E. Cassidy is the Managing Member of Tradition Reserve Trust 1 LLC and has sole dispositive power over the shares owned by Tradition Reserve Trust 1 LLC. Its address is 107 N Greeley Ave., PO Box 892, Chappaqua New York 10514. |
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and director are as follows:
The following table sets forth the names, positions and ages of our current directors and executive officers. Each director is elected at our annual meeting of stockholders and holds office for one year, or until his successor is elected and qualified. Officers are elected by our Board of Directors and their terms of office are at the discretion of our Board.
| Name | Position | Age | Term of Office | |||
| Joseph R. Ragazzo | Interim Two Trees Beverage Company Chief Executive Officer | 58 | Appointed July 2022 | |||
| James P. Cassidy | Executive Chairman of the Board of Directors | 61 | Appointed December, 2023 | |||
| Edward D. Kratovil | Director | 78 | Appointed December, 2023 | |||
| Steven C. Laker | Chief Executive Officer, Chief Financial Officer and Director | 45 | Appointed July 21, 2022 | |||
| Michael Nordlicht | Chief Operating Officer and Director | 36 | Appointed July 21, 2022 |
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Biographical information concerning the directors and executive officers listed above is set forth below:
Joseph R. Ragazzo. Mr. Ragazzo was appointed as Two Trees’ interim Chief Executive Officer in July 2022. He is responsible for overseeing its day-to-day operations. From February 2020 until June 2023, Mr. Ragazzo was the Chief Revenue Officer of El Hempe Spirits, Inc., a company he co-founded where he was responsible for overseeing its day-to-day operations, portfolio and pricing strategies, route-to-market, and execution of its operations. From June 2015 to February 2020, Mr. Ragazzo was a Vice President/General Manager for the Alcohol Division of LiDestri Food & Drink where he was responsible for growing its spirits portfolio and revenues through expansion of its consumer reach through market growth, social media engagement and partner connections. From 1981 to 2013, Mr. Ragazzo held positions of increasing responsibility at Brown-Forman Corporation, a producer of a wide variety of beverage alcohol products. From 2007 to 2013, Mr. Ragazzo was a director of national accounts at Brown-Forman Corporation where his responsibilities included a focus on big box retailers. Mr. Ragazzo received a Bachelor of Science degree in Criminal Justice and Business from American University and a Master of Business Administration from Lesley University.
James. P. Cassidy. Mr. Cassidy was appointed as a Director of the Company on December 8, 2023 following its acquisition of Two Trees. Mr. Cassidy is the founder and Managing Partner of Preposterous Holdings, a family run private equity business with offices in Asheville, North Carolina which he established in 2013. Mr. Cassidy has worked as a private equity investor and advisor for over 25 years with dozens of companies across several industries, with extensive experience in the tobacco, technology, hospitality, consumer packaged goods, and healthcare sectors. Since May 2021, he has served as Chairman of the Board of Two Trees. Beginning in 2016 he was an early investor in, and helped guide, GoFire, Inc. as a board member and consultant until the sale of its certain vaporizer and inhalation-related intellectual property assets to Kaival Brands Innovations Group, Inc. (Nasdaq: KAVL) in May 2023. From 2000 to 2007, Mr. Cassidy was a partner in The StrataGroup, a wealth management advisory group at Smith Barney. From 1983 to 1993, he worked in various roles in the government relations department and as Director of Corporate Services at UST Inc., a tobacco business holding company.
Edward D. Kratovil. Mr. Kratovil was appointed to the Board of Directors on December 8, 2023. Since April 2009 he has been a corporate crisis management consultant for companies engaged in sales of tobacco, nicotine products, and vapor devices. In 2009, Mr. Kratovil retired as a Senior Vice President from UST Inc (sold to Altria in 2008) where he had been employed since 1985. UST Inc produced and marketed smokeless tobacco products and wine, sparkling wine, and cigars under brand names such as Chateau Ste. Michelle, Columbia Crest , Don Tomas Cigars. Mr. Kratovil previously was the Director of Government Relations for American Can Company, served for three years as Chairman of the Connecticut Gaming Policy Board, spent seven years on the Board of the Congressional Sportsmen’s Foundation and received a Bachelor of Arts with a major in Political Science from Southampton College of Long Island University.
Steven C. Laker. Steven C. Laker was appointed as the Company’s Chief Executive Officer, Chief Financial Officer, and Director on July 21, 2022. Mr. Laker has served as the Chief Executive Officer of Sunwave USA Holdings Inc., a company focused on the energy and sustainability industry (“Sunwave”) since 2019. Previously, Mr. Laker served as Chief Executive Officer of Agera Energy LLC and its affiliates, from 2014 through 2018. Mr. Laker received a Bachelor of Arts from SUNY Empire State College
Michael Nordlicht. Michael Nordlicht was appointed as the Company’s Chief Operating Officer and Director on July 21, 2022.
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Mr. Nordlicht, served a Vice President of Sunwave, a company focused on the energy and sustainability industry from 2019 to 2022. Also, Mr. Nordlicht served as the General Counsel for Agera Energy LLC, an electricity and natural gas provider from June 2014 through January 2019. Mr. Nordlicht received a Bachelor of Arts degree from Yeshiva University and Juris Doctor degree from Georgetown University Law Center.
Key Employees
We employ certain individuals who, while not executive officers, make significant contributions to our business and operations and hold various positions within our subsidiaries.
Chad Slagle. Chad Slagle is a cofounder and is the Senior Vice President of Product Innovation and Bulk Sales of the Company’s wholly-owned indirect subsidiary, Two Trees Distilling Company and has various positions since 2018. In this current role, he is responsible for product development and bulk spirit sales, among other areas of responsibility. Mr. Slagle received a Bachelor of Arts in Health Promotion from Appalachian State University.
Chip Flanders. Chip Flanders has been the National Sales Director for Two Trees since July 2016. Previously, Mr. Flanders has been a sales representative and a national sales director in the craft spirits and wine industry for various companies. Mr. Flanders received a Bachelor of Science in Business Administration from the College of Charleston.
Family Relationships
None.
Involvement in Certain Legal Proceedings
To our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has:
● Been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
● Had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
● Been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
● Been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
● Been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
● Been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
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Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Committees
We do not have a standing nominating, compensation or audit committee. Rather, our full Board of Directors performs the functions of these committees. We do not believe it is necessary for our Board of Directors to appoint such committees because the volume of matters that come before our Board of Directors for consideration permits the directors to give sufficient time and attention to such matters to be involved in all decision making. Additionally, because our common stock is not listed for trading or quotation on a national securities exchange, we are not required to have such committees.
Director Independence
We have one independent director, Edward D. Kratovil, as such term is defined in the listing standards of The NASDAQ Stock Market, at this time. The Company is not quoted on any exchange that requires director independence requirements.
Code of Ethics
We have not yet adopted a code of ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting.
Board Qualifications
We believe that each of the members of our board of directors has the experience, qualifications, attributes and skills that make him or her suitable to serve as our director, in light of our regulated business and the complex nature of our operations. See above under the heading Item 10. “Directors, Executive Officers and Corporate Governance” for a description of the education and experience of each director.
Board Leadership Structure and Board’s Role in Risk Oversight
Our board is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal source of risk falls into two categories, financial and product commercialization. The board oversees management of financial risks; our board regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. The board regularly reviews plans, results and potential risks related to our business. The board is also expected to oversee risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors, particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks which could have a material adverse effect on the Company.
Limitation on Liability and Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law (the “DGCL”) empowers a Delaware corporation to indemnify any persons who are, or are threatened to be made, parties to any threatened, pending, or completed legal action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer or director of such corporation, or is or was serving at the request of such corporation as a director, officer, employee, or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit, or proceeding, provided that such officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation’s best interests, and, for criminal proceedings, had no reasonable cause to believe his conduct was illegal. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation in the performance of his duty. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director actually and reasonably incurred.
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In accordance with Section 102(b)(7) of the DGCL, our certificate of incorporation provides that directors will not be personally liable for monetary damages for breaches of their fiduciary duty as directors. The effect of this provision is to eliminate the personal liability of directors for monetary damages or actions involving a breach of their fiduciary duty of care, including any actions involving gross negligence.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.
We believe that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors.
EXECUTIVE COMPENSATION
Summary Compensation Table – MDwerks, Inc.
We have made no provisions for paying cash or non-cash compensation to its officers and directors. No salaries have been paid for the years ended December 31, 2022 and 2021, and none will be paid unless and until our operations generate sufficient cash flows.
The following table summarizes all compensation recorded by us in the past two fiscal years for:
● our principal executive officer or other individual acting in a similar capacity during the fiscal year ended December 31, 2022,
● our two most highly compensated executive officers, other than our principal executive officers, who were serving as executive officers at December 31, 2022, and
● up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer at December 31, 2022.
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For definitional purposes, these individuals are sometimes referred to as the “named executive officers.”
2022 Summary Compensation of Named Executive Officers of MDwerks, Inc.
| Name and Principal Position | Fiscal Year ended December 31 | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Steve Laker | 2022 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Present, Chief Executive Officer Chief Financial Officer, | 2021 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Michael Gelmon, | 2022 | — | — | |||||||||||||||||||||||||||||||||
| Former Chief Executive Officer(1) | 2021 | — | — | — | ||||||||||||||||||||||||||||||||
| Michael Nordlicht | 2022 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Chief Operating Officer | 2021 | — | — | — | — | — | — | — | — |
1. Resigned on July 21, 2022.
Summary Compensation Table – Two Trees Beverage Company
The following table summarizes all compensation recorded by Two Trees in the past fiscal year for:
● Two Trees’ principal executive officer or other individual acting in a similar capacity during the fiscal year ended December 31, 2022,
● Two Trees’ two most highly compensated executive officers, other than its principal executive officers, who were serving as executive officers at December 31, 2022, and
● up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer of Two Trees at December 31, 2022.
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For definitional purposes, these individuals are sometimes referred to as the “named executive officers.”
2022 Summary Compensation of Named Executive Officers of Two Trees Beverage Company
| Name and Principal Position | Fiscal Year ended December 31 | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Joseph R. Ragazzo, Interim Chief Executive Officer | 2022 | 18,000 | - | - | 54,360 | - | - | - | 72,360 | |||||||||||||||||||||||||||
| Chadwick Slagle, Chief Operating Officer | 2022 | 128,500 | - | - | 11,160 | - | - | 11,917 | 151,577 | |||||||||||||||||||||||||||
| John Anderson, Former Chief Financial Officer | 2022 | 114,475 | - | - | 3,600 | - | - | 33,907 | 148,982 | |||||||||||||||||||||||||||
Outstanding Equity Awards at Fiscal Year End
MDwerks, Inc. None of our named executive officers received any equity awards, including, options, restricted stock, performance awards or other equity incentives during the year ended December 31, 2022.
Two Trees Beverage Company As of December 31, 2022, Two Trees has awarded an aggregate of 933,647 options to acquire its common stock at a weighted average exercise price of $0.36 per share (the “Two Trees Stock Options”). Pursuant to the terms of the Merger Agreement, we have assumed the Two Trees Stock Options which convert into an aggregate of 4,598,385 shares of our Common Stock at a weighted-average exercise price of $1.7932 per share.
Employment Contracts
MDwerks, Inc. At this time, we have not entered into any employment agreements with our officers and directors. If there is sufficient cash flow available from our future operations, the company may enter into employment agreements with our officers and directors.
Two Trees Beverage Company Two Trees entered into a consulting agreement with Mr. Ragazzo on July 18, 2022 and amended that agreement on September 19, 2022 (the “Ragazzo Consulting Agreement”). Pursuant to the terms of the Ragazzo Consulting Agreement, Mr. Ragazzo agreed to serve as Two Trees Interim Chief Executive Officer in exchange for options to purchase 120,000 shares of Two Trees common stock at an exercise price of $0.36 per share (the “Ragazzo Stock Options”). The Ragazzo Stock Options are issuable by Two Trees at the rate of 20,000 options per month during the term of the agreement. The term of this agreement is for a period of nine months from the date of the agreement and such term may be extended with the written consent of Two Trees and Mr. Ragazzo. The Ragazzo Consulting Agreement requires Mr. Ragazzo to maintain the confidentiality of Two Trees confidential information as defined in the agreement and includes a “work made for hire” clause whereby all intellectual property that is developed by Mr. Ragazzo pursuant to the agreement is the sole property of Two Trees. The Ragazzo Consulting Agreement provides that each of the parties to the agreement are obligated to indemnify each other as a result of certain losses and damages which occur in connection with the agreement.
Equity Award Plans
MDwerks, Inc. We have not adopted any equity compensation plans but may do so in the future. The terms of any such plan have not been determined. As of December 31, 2022, there are no outstanding equity awards concerning unexercised options, stock that has not vested nor equity incentive plan awards for any named executive officer.
Two Trees Beverage Company Pursuant to the Merger Agreement, we exchanged the Two Trees Options for 4,650,685 MDwerks Options exercisable at a price of $0.36 per share. These options expire on 8, 2033.
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Director Compensation
Currently, non-employee directors do not receive any compensation for their services as directors. In the future, the Board expects to develop and adopt a compensation plan for all directors. Further, the Board has not adopted a stock option plan. The company has no plans to adopt it but may choose to do so in the future. If such a plan is adopted, this may be administered by the Board or a committee appointed by the Board (the “Committee”). The committee would have the power to modify, extend or renew outstanding options and to authorize the grant of new options in substitution therefore, provided that any such action may not impair any rights under any option previously granted.
The table below summarizes all compensation awarded to, earned by, or paid to our directors for all services rendered in all capacities to us during the year ended December 31, 2022.
| DIRECTOR COMPENSATION | ||||||||||||||||||||||||||||
| Name | Fees
Earned or Paid in Cash ($) | Stock Awards | Option Awards | Non-Equity Compensation | Non-Qualified Earnings ($) | All Other Compensation | Total
($) | |||||||||||||||||||||
| Michael Gelmon(1) | - | - | - | - | - | - | - | |||||||||||||||||||||
| Steven C. Laker | - | - | - | - | - | - | - | |||||||||||||||||||||
| Michael Nordlicht | - | - | - | - | - | - | - | |||||||||||||||||||||
(1) Resigned as a director on July 21, 2022.
Board Committees
We have not formed an Audit Committee, Compensation Committee or Nominating and Corporate Governance Committee as of the filing of this Annual Report. Our Board of Directors performs the principal functions of an Audit Committee. We currently do not have an audit committee financial expert on our Board of Directors. We believe that an audit committee financial expert is not required because the cost of hiring an audit committee financial expert to act as one of our directors and to be a member of an Audit Committee outweighs the benefits of having an audit committee financial expert at this time.
Executive Compensation Philosophy
Our Board determines the compensation given to our executive officers in its sole determination. Our Board reserves the right to pay our executives or any future executives a salary, and/or issue them shares of stock issued in consideration for services rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance. This package may also include long-term stock-based compensation to certain executives, which is intended to align the performance of our executives with our long-term business strategies. Additionally, the Board reserves the right to grant performance base stock options in the future, if the Board in its sole determination believes such grants would be in the best interests of the Company.
Incentive Bonus
The Board may grant incentive bonuses to our executive officers and/or future executive officers in its sole discretion, if the Board believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue and profits we are able to generate each month, both of which are a direct result of the actions and ability of such executives.
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Long-Term, Stock Based Compensation
In order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we may award our executives and any future executives with long-term, stock-based compensation in the future, at the sole discretion of our Board, which we do not currently have any immediate plans to award.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We do not have a written policy for the review, approval, or ratification of transactions with related parties or conflicted transactions.
The following includes a summary of transactions since the beginning of the 2022 fiscal year, or any currently proposed transaction, in which Two Trees or the Company were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of their total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
Related party transactions of the Company:
Related party transactions of Two Trees:
Pursuant to the terms of the Merger Agreement, as amended at the Closing of the Merger, James P. Cassidy, Two Trees’ Chairman of the Board of Directors, entered into an indemnification agreement, pursuant to which Mr. Cassidy agreed to indemnify the Company for certain breaches of the representations and warranties of Two Trees as set forth in the Merger Agreement.
LEGAL PROCEEDINGS
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Reference is made to the disclosure set forth under Item 4.01 of this Report, which is incorporated herein by reference.
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the Pink Tier of OTC Market Group LLC’s Marketplace under the symbol “MDWK”. The OTC Market is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,” as well as volume information. The trading of securities on the OTC Pink is often sporadic and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative effect on the market price of our common stock.
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The following table sets forth, for the periods indicated over the last two years, the high and low closing bid quotations, as reported by the OTC Markets, and represents prices between dealers, does not include retail markups, markdowns or commissions, and may not represent actual transactions:
| Low Trading Price | High Trading Price | |||||||
| Period | ($) | ($) | ||||||
| Third Quarter (September 30, 2023) | 0.03333 | 0.06000 | ||||||
| Second Quarter (June 30, 2023) | 0.06390 | 0.08450 | ||||||
| First Quarter (March 31, 2023) | 0.00380 | 0.07290 | ||||||
| Year Ended December 31, 2022 | ||||||||
| Fourth Quarter (December 31, 2022) | 0.03000 | 0.11990 | ||||||
| Third Quarter (September 30, 2022) | 0.01200 | 0.20410 | ||||||
| Second Quarter (June 30, 2022) | 0.01719 | 0.0377 | ||||||
| First Quarter (March 31, 2022) | 0.01719 | 0.0450 | ||||||
| Year Ended December 31, 2021 | ||||||||
| Fourth Quarter (December 31, 2021) | 0.02952 | 0.07900 | ||||||
| Third Quarter (September 30, 2021) | 0.01620 | 0.08100 | ||||||
| Second Quarter (June 30, 2021) | 0.01000 | 0.14050 | ||||||
| First Quarter (March 31, 2021) | 0.00710 | 0.08860 | ||||||
Notes:
| (1) | Source: Yahoo Finance. |
Holders
As of December 8, 2023, there were approximately 184 holders of record of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
Dividends
We have not declared or paid any dividends on our common stock since our inception. We currently intend to reinvest all cash resources to finance the development and growth of our business. As a result, we do not intend to pay dividends on our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on the financial condition, earnings, legal requirements, restrictions in its debt agreements and any other factors that our board of directors deems relevant. In addition, as a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their respective jurisdictions of organization, agreements of our subsidiaries or covenants under future indebtedness that we or our subsidiaries may incur.
Recent Sales of Unregistered Securities
Reference is made to the disclosure set forth under Item 3.02 of this Report, which is incorporated herein by reference.
Equity Compensation Plans
At Closing, the Company reserved 4,650,685 shares of Company common stock for issuance to Two Trees employees pursuant to stock options issued by Two Trees prior to the Closing of Merger.
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Transfer Agent and Registrar
The Company’s transfer agent is EQ by Equiniti, formerly known as Corporate Stock Transfer, located at, 1110 Centre Pointe Curve, Suite 101 Mendota Heights, Minnesota 55120.
DESCRIPTION OF SECURITIES
Capital Stock
We are authorized to issue 300,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share, which have been designated as Series A Convertible Preferred Stock. As of December 8, 2023, 190,891,536 shares of Common Stock are issued and outstanding after giving effect to the issuance of the shares of Common Stock as Merger Consideration pursuant to the Merger Agreement.
All of our shares of common stock have equal rights and privileges with respect to voting, liquidation and dividend rights. Each share of common stock entitles the holder thereof (a) to one non-cumulative vote for each share held of record on all matters submitted to a vote of the stockholders; (b) to participate equally and to receive any and all such dividends as may be declared by the board of directors; and (c) to participate pro rata in any distribution of assets available for distribution upon liquidation. Holders of our common stock have no pre-emptive rights to acquire additional shares of common stock or any other securities. Our common stock is not subject to redemption and carries no subscription or conversion rights.
Our certificate of incorporation also provides that the board of directors has the flexibility to set new classes, series, and other terms and conditions of the preferred shares. Preferred shares may be issued from time to time in one or more series in the discretion of the board of directors. The board has the authority to establish the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof.
Our certificate of incorporation also provides that the board of directors may issue preferred shares without further stockholder approval and for such purposes as the board deems in the best interest of our company including future stock splits and split-ups, stock dividends, equity financings and issuances for acquisitions and business combinations. In addition, such authorized but unissued common and preferred shares could be used by the board of directors for defensive purposes against a hostile takeover attempt, including (by way of example) the private placement of shares or the granting of options to purchase shares to persons or entities sympathetic to, or contractually bound to support, management. We have no such present arrangement or understanding with any person. Further, the common and preferred shares may be reserved for issuance upon exercise of stock purchase rights designed to deter hostile takeovers, commonly known as a ‘‘poison pill.’’
Common Stock
The holders of common stock are entitled to one vote per share. The Company’s Certificate of Incorporation does not provide for cumulative voting. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. However, the current policy of the Board of Directors is to retain earnings, if any, for the operation and expansion of the Company. Upon liquidation, dissolution or winding-up of the Company, the holders of common stock are entitled to share ratably in all assets of the Company which are legally available for distribution, after payment of or provision for all liabilities and the liquidation preference of any outstanding Preferred Stock. The holders of common stock have no pre-emptive, subscription, redemption or conversion rights. All issued and outstanding shares of common stock are, and the common stock reserved for issuance upon conversion of the Preferred Stock and exercise of option will be, when issued, fully-paid and non-assessable.
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 10,000,000 shares are designated Series A Convertible Preferred.
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On June 15, 2014, the Company designated the Series A Convertible Preferred so that each share shall hold with it conversion rights of one hundred (100) shares of common stock for every share of Series A Preferred stock held, and that each share of Series A Preferred stock will also hold with it the same number of common share votes prior to conversion as it would if fully converted to be used in voting on any company matter requiring a vote of shareholders. As of the date of this report, there were 8,957,500 shares of Series A Convertible Preferred Stock issued and outstanding.
Anti-Takeover Effects of Provisions of the Delaware General Corporation Law and our Certificate of Incorporation and Bylaws
Provisions of the Delaware General Corporation Law (DGCL) and our Certificate of Incorporation and Bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and takeover bids that our board of directors may consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in improved terms for our stockholders.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the DGCL. Subject to certain exceptions, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for three years following the date the person became an interested stockholder, unless the interested stockholder attained such status with the approval of our board of directors or unless the business combination is approved in a prescribed manner.
Section 203 of the DGCL generally defines a “business combination” to include, among other things, any merger or consolidation involving us and the interested stockholder and the sale of more than 10% of our assets.
In general, an “interested stockholder” is any entity or person beneficially owning 15% or more of our voting stock or any entity or person associated or affiliated with or controlling or controlled by such entity or person.
Exclusive Forum Provision
Our Bylaws provide that, unless the Company consents in writing, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii) an action asserting a claim arising pursuant to any provision of the DGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be a state or federal court located with the State of Delaware, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. Notwithstanding the foregoing, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act, the Securities Act, or any claim for which the federal courts have exclusive or concurrent jurisdiction. Notwithstanding the foregoing, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act, the Securities Act, or any claim for which the federal courts have exclusive or concurrent jurisdiction.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our Bylaws. This choice of forum provision may limit or make more costly a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
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The exclusive forum provision contained in the Company’s Bylaws may have the effect of discouraging lawsuits against our directors, officers, other employees or stockholders.
Amendments to Our Certificate of Incorporation
Under the DGCL, the affirmative vote of a majority of the outstanding shares entitled to vote thereon, and in certain cases a majority of the outstanding stock of each class entitled to vote thereon, is required to amend a corporation’s certificate of incorporation. Under the DGCL, the holders of the outstanding shares of a class of our capital stock shall be entitled to vote as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would:
| ● | increase or decrease the aggregate number of authorized shares of such class; |
| ● | increase or decrease the par value of the shares of such class; or |
| ● | alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. |
If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class of our capital stock so as to affect them adversely, but shall not so affect the entire class, then only the shares of the series so affected by the amendment shall be considered a separate class for the purposes of this provision.
Vacancies in the Board of Directors
Our Bylaws provide that, subject to limitations, any vacancy occurring in our board of directors for any reason may be filled by a majority of the remaining members of our board of directors then in office, even if such majority is less than a quorum. Each director so elected shall hold office until the expiration of the term and until his successor shall be duly chosen.
Special Meetings of Stockholders
Under our Bylaws, a special meeting of stockholders (other than a special meeting for the election of directors), unless otherwise prescribed by statute, may only be called by the board and may be called at any time by the board. At any special meeting, only such business may be transacted as is related to the purpose(s) of such meeting set forth in the notice thereof given pursuant to the terms of the Bylaws or in any waiver of notice thereof, each pursuant to the terms of the Bylaws. Under the DGCL, written notice of any special meeting must be given not less than 10 nor more than 60 days before the date of the special meeting to each stockholder entitled to vote at such meeting.
No Cumulative Voting
The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless our Certificate of Incorporation provides otherwise. Our Certificate of Incorporation does not provide for cumulative voting.
Limitations on Directors’ Liability; Indemnification of Directors and Officers
Our Certificate of Incorporation and Bylaws contain provisions indemnifying our directors and officers to the fullest extent permitted by law. In addition, as permitted by Delaware law, our Certificate of Incorporation provides that no director will be liable to us or our stockholders for monetary damages for breach of certain fiduciary duties as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach of certain fiduciary duties as a director, except that a director will be personally liable for:
| ● | any breach of his or her duty of loyalty to us or our stockholders; |
| ● | acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law; |
| ● | the payment of dividends or the redemption or purchase of stock in violation of Delaware law; or |
| ● | any transaction from which the director derived an improper personal benefit. |
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This provision does not affect a director’s liability under the federal securities laws.
Our Bylaws provide that we shall indemnify our directors, officers, employees and agents to the fullest extent permitted by the DGCL. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, we understand that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The DGCL and our Certificate of Incorporation and Bylaws provide for indemnification of our directors and officers for liabilities and expenses that they may incur in such capacities. In general, directors and officers are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the registrant and, with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful.
Our Certificate of Incorporation provides that no director shall be personally liable to us or to our stockholders for monetary damages for breach of fiduciary duty as a director, except that the limitation shall not eliminate or limit liability to the extent that the elimination or limitation of such liability is not permitted by the DGCL as the same exists or may hereafter be amended.
Our Bylaws further provide for the indemnification of our directors and officers to the fullest extent permitted by Section 145 of the DGCL, including circumstances in which indemnification is otherwise discretionary. A principal effect of these provisions is to limit or eliminate the potential liability of our directors for monetary damages arising from breaches of their duty of care, subject to certain exceptions. These provisions may also shield directors from liability under federal and state securities laws.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 3.02 Unregistered Sales of Equity Securities.
The company incorporates the disclosure in Item 2.01 herein.
The securities issuances described herein were exempt from registration under the Securities Act in reliance on the exemptions provided by Regulation D and Section 4(a)(2) and Section 3(a)(10), as applicable under the Securities Act.
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Item 4.01 Changes in Registrant’s Certifying Accountant.
(a) Resignation of Independent Registered Public Accounting Firm
On February 2, 2023, the Board dismissed TAAD LLP (“TAAD”) as the Company’s independent registered public accounting firm.
TAAD’s reports on the Company’s financial statements for the fiscal years ended December 31, 2021 and 2020 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that such reports expressed substantial doubt regarding the Company’s ability to continue as a going concern. Furthermore, during the fiscal years ended December 31, 2021 and 2020 and through February 2, 2023, there have been no disagreements with TAAD on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to TAAD’s satisfaction, would have caused TAAD to make reference to the subject matter of the disagreement in connection with its reports on the Company’s financial statements for such periods.
For the fiscal years ended December 31, 2021 and 2020 and through February 2, 2023, there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.
The Company provided TAAD with a copy of the disclosure contained herein, prior to its filing with the Securities and Exchange Commission (the “Commission”), and requested that TAAD furnish the Company a letter addressed to the Commission stating whether or not it agreed with the statements herein and, if not, stating the respects in which it does not agree. TAAD’s letter to the Commission is attached hereto as Exhibit 16.1.
(b) Engagement of New Independent Registered Public Accounting Firm
On February 2, 2023, the Board appointed M&K CPAs LLC (“M&K”) as the Company’s new independent registered public accounting firm. During the fiscal years ended December 31, 2021 and 2020 and through February 2, 2023, neither the Company nor anyone acting on the Company’s behalf consulted M&K with respect to any of the matters or reportable events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangement of Certain Officers.
Information concerning the departure of directors and certain officers and the appointment of new officers and directors upon the Closing of the Merger is set forth in Item 2.01 and biographical information concerning the newly appointed directors and officers and their compensation is set forth in the section titled “Directors and Executive Officers” above and incorporated herein by this reference.
Item 5.06 Change in Shell Company Status.
As a result of the Closing of the Merger Agreement as described in Item 2.01, which description is incorporated by reference in this Item 5.06 of this Current Report on Form 8-K, the Company ceased being a shell company on December 8, 2023 as such term is defined in Rule 12b-2 under the Exchange Act.
Item 8.01 Other Events
On December 12, 2023, the Company issued a press release announcing the closing under the Merger Agreement. A copy of the press release is attached as Exhibit 99.4 to this Current Report on Form 8-K.
Item 9.01 Financial Statement and Exhibits.
(a) Financial Statements of Business Acquired.
The audited financial statements of Two Trees from for the years ended December 31, 2021 and December 31, 2022 are attached to this Current Report on Form 8-K as Exhibit 99.1 and are incorporated by reference herein. The unaudited financial statements of Two Trees for the period ended September 30, 2023 are attached to this Current Report on Form 8-K as Exhibit 99.2 and are incorporated by reference herein.
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(b) Pro Forma Financials.
The unaudited pro forma condensed combined financial statements of the Company and Two Trees for the nine month period ended September 30, 2023 and the year ended December 31, 2022 are attached to this Current Report on Form 8-K as Exhibit 99.3 and incorporated by reference herein.
(d) Exhibits
The following exhibits are filed with this Current Report on Form 8-K:
| * | Filed herewith |
| † | Includes management contracts and compensation plans and arrangements |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MDwerks, Inc. | |
| Date: December 12, 2023 | /s/ Seven C. Laker |
| Steven C. Laker | |
| Chief Executive Officer |
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Exhibit 2.4
Amendment and Waiver Pursuant to Merger Agreement
December 7, 2023
This Amendment and Waiver Pursuant to Merger Agreement (this “Amendment and Waiver”) is made and entered into as of the date first set forth above (the “Amendment Date”) by and among (i) MDwerks, Inc., a Delaware corporation (the “Company”); (ii) MD-TT Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”); and (iii) Two Trees Beverage Company, a Delaware corporation (“Two Trees”). Each of the Company, Merger Sub and Two Trees may be referred to herein collectively as the “Parties” and separately as a “Party”.
WHEREAS, the Parties are all parties to that certain Merger Agreement, dated as of February 13, 2023, as amended to date (as so amended, the “Agreement”) and now desire to amend and to waive certain provisions of the Agreement as set forth herein in connection with the closing of the transactions as set forth therein; and
WHEREAS, pursuant to the provisions of Section 9.12 of the Agreement, the Agreement may be amended and provisions of the Agreement may be waived in a writing signed by the Parties;
NOW, THEREFORE, in consideration of the premises set forth above, which are incorporated in this Amendment and Waiver as if fully set forth below, and the representations, warranties, covenants and agreements contained in this Amendment and Waiver, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledges and agreed, and intending to be legally bound hereby, the Parties hereby agree as follows:
| 1. | Definitions. Defined terms used herein without definition shall have the meanings given in the Agreement. |
| 2. | Waiver. Pursuant to the provisions of Section 9.12 of the Agreement, the Parties waive the condition and agreement in Section 2.06(a) of the Agreement that, at the Closing, the Company Board shall be expanded and a number of persons as named by Two Trees shall be named to the Company Board such that such persons comprise a majority of the Company Board. The Parties now agree that two persons, being James Cassidy and Ed Kratovil, shall be named to the Company Board at the Closing. |
| 3. | Amendment. The Parties acknowledge and agree that the Merger Agreement and the Transaction Documents referred to Two Trees as “Two Trees Beverage Co.” and that the full name of Two Trees as on file with the Secretary of State of the State of Delaware is “Two Trees Beverage Company”. The Parties further acknowledge and agree that, pursuant to the provisions of Section 9.12 of the Agreement, any references to “Two Trees” or “Two Trees Beverage Co.” in the Merger Agreement and any of the other Transaction Documents was intended to be, and shall be read as, a reference to “Two Trees Beverage Company”, and Merger Agreement and any of the other Transaction Documents are hereby deemed amended as required to give effect thereto. |
| 4. | Miscellaneous. |
| (a) | Other than as amended and waived as set forth herein, the Agreement shall remain in full force and effect. Following the full execution of this Amendment and Waiver, any reference in the Agreement to the “Agreement” shall be deemed a reference to the Agreement as amended and supplemented by this Amendment and Waiver, and the Agreement and this Amendment and Waiver shall be interpreted, operated and enforced as one combined agreement. | |
| (b) | This Amendment and Waiver shall be governed by, construed and enforced in accordance with the Laws of the State of Delaware without regard to the conflict of laws principles thereof. | |
| (c) | This Amendment and Waiver may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. |
[Signatures
appear on following pages]
IN WITNESS WHEREOF, each Party hereto has caused this Amendment and Waiver to be signed and delivered by its respective duly authorized officer as of the Amendment Date.
| MDwerks, Inc. | ||
| By: | /s/ Steven Laker | |
| Name: | Steven Laker | |
| Title: | Chief Executive Officer | |
| MD-TT Merger Sub, Inc. | ||
| By: | /s/ Michael Nordlicht | |
| Name: | Michael Nordlicht | |
| Title: | Chief Executive Officer | |
| Two Trees Beverage Co. | ||
| By: | /s/ Joe Ragazzo | |
| Name: | Joe Ragazzo | |
| Title: | Chief Executive Officer | |
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Exhibit 10.1
Option Rollover Agreement
Rollover Holder: [_______________]
This Option Rollover Agreement (this “Agreement”) is entered into as of [_____], 2023 (the “Effective Date”), by and between the MDwerks, Inc., a Delaware corporation (the “Company”), and the person or entity as set forth above (the “Rollover Holder”). The Company and the Rollover Holder may each be referred to herein individually as a “Party” and collectively as the “Parties”.
WHEREAS, the Company, Two Trees Beverage Company, a Delaware corporation (“Two Trees”), MD-TT Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”) entered into that certain Merger Agreement, dated as of February 13, 2023 (as the same may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”);
WHEREAS, pursuant to the Merger Agreement, at the closing of the transactions as set forth in the Merger Agreement (the “Closing”), Two Trees shall merge with and into Merger Sub, with Two Trees surviving as the surviving corporation (the “Merger”) and in connection with the Merger the Company shall issue to the stockholders of Two Trees certain shares of the Company’s common stock, par value $0.001 per share (the “Company Common Stock”) with Two Trees becoming a wholly owned subsidiary of the Company, which transactions, for Federal income tax purposes, are intended to qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”); and
WHEREAS, in pursuance of the plan of reorganization as set forth in the Merger Agreement and pursuant to Section 354(a)(1) of the Code, at the Closing, the options to acquire shares of Two Trees Stock (the “Two Trees Options”) will be converted into options to acquire shares of Company Common Stock (the “Company Options”);
WHEREAS, the Rollover Holder is an Option-Holder (as defined in the Merger Agreement) and is currently is the holder of an Two Trees Option, being a stock option to acquire [________] shares of Two Trees Stock at an exercise price of $0.36 per share (the “Two Trees Rollover Options”); and
WHEREAS, subject to the terms and conditions of this Agreement, the Company and the Rollover Holder desire, immediately prior to Closing, to enter into this Agreement to provide the terms and conditions on which the Rollover Holder will exchange the Two Trees Rollover Options for new options to purchase shares of Company Common Stock in accordance with the terms and conditions set forth herein and in the Merger Agreement;
NOW THEREFORE, on the stated premises and for and in consideration of the mutual covenants and agreements hereinafter set forth and the mutual benefits to the Parties to be derived herefrom, and intending to be legally bound hereby, it is hereby agreed as follows:
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Article I. Definition and Interpretation
Section 1.01 Definitions. The following terms, as used herein, have the following meanings:
| (a) | “Enforceability Exceptions” means (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar Laws of general application affecting enforcement of creditors’ rights generally and (b) general principles of equity. | |
| (b) | “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. | |
| (c) | “Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction. | |
| (d) | “Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority. | |
| (e) | “Lien” means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, and any conditional sale or voting agreement or proxy, including any agreement to give any of the foregoing. | |
| (f) | “Person” means any individual, corporation, partnership (including a general partnership, limited partnership or limited liability partnership), limited liability company, association, trust or other entity or organization, including a government, domestic or foreign, or political subdivision thereof, or an agency or instrumentality thereof. | |
| (g) | “SEC Reports” means the reports and filings made by the Company with the Securities and Exchange Commission pursuant to the Securities Act or the Exchange Act. | |
| (h) | “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. | |
| (i) | “Transaction Documents” means this Agreement, the New Options and any other certificate, agreement or document entered into or delivered in connection with the transactions as contemplated herein or therein, other than the Merger Agreement. | |
| (j) | “Transactions” means the transactions as contemplated by this Agreement. |
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Section 1.02 Interpretive Provisions. Unless the express context otherwise requires (i) the words “hereof,” “herein,” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement; (ii) terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa; (iii) the terms “Dollars” and “$” mean United States Dollars; (iv) references herein to a specific Section, Subsection, Recital or Exhibit shall refer, respectively, to Sections, Subsections, Recitals or Exhibits of this Agreement; (v) wherever the word “include,” “includes,” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation”; (vi) references herein to any gender shall include each other gender; (vii) references herein to any Person shall include such Person’s heirs, executors, personal Representatives, administrators, successors and assigns; provided, however, that nothing contained herein is intended to authorize any assignment or transfer not otherwise permitted by this Agreement; (viii) references herein to a Person in a particular capacity or capacities shall exclude such Person in any other capacity; (ix) references herein to any contract or agreement (including this Agreement) mean such contract or agreement as amended, supplemented or modified from time to time in accordance with the terms thereof; (x) with respect to the determination of any period of time, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”; (xi) references herein to any Law or any license mean such Law or license as amended, modified, codified, reenacted, supplemented or superseded in whole or in part, and in effect from time to time; and (xii) references herein to any Law shall be deemed also to refer to all rules and regulations promulgated thereunder.
Article II. Operative Provisions
Section 2.01 Transactions. The Parties acknowledge and agree that this Agreement and the transactions as set forth therein, are and shall be mutually dependent on the Merger Agreement and the transactions set forth therein, and the consummation of the transactions set forth therein shall be a condition to the consummation of the transactions herein, and the consummation of the transactions as set forth herein shall be a condition to the consummation of the transactions set forth therein.
Section 2.02 Authorization of New Option.
| (a) | Subject to the terms and conditions of this Agreement, effective as of the Closing, the Company will grant the to the Rollover Holder the option to acquire shares of Company Common Stock pursuant to the Option Award Agreement as attached hereto as Exhibit A (the “New Options”). | |
| (b) | On the date of the Closing (the “Closing Date”), and subject to the terms and conditions contained herein, the Rollover Holder hereby irrevocably and unconditionally agrees to exchange all Two Trees Rollover Options for the New Options in accordance with the terms and conditions set forth herein. | |
| (c) | Immediately upon the consummation of the transactions contemplated by the Merger Agreement, the Two Trees Rollover Options will be of no further force and effect, and neither the Company nor any of its affiliates (including Two Trees) will have any further liability or obligation to the Rollover Holder or any other Person (as defined below) with respect thereto (except the obligation to grant New Options). |
Section 2.03 Additional Covenants and Agreements.
| (a) | The Rollover Holder agrees that he, she or it shall, upon request, execute and deliver any additional documents reasonably deemed by the Company to be necessary to complete the proper exchange of the Two Trees Rollover Options for the New Options in accordance with the terms and conditions of this Agreement. |
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| (b) | The intent of the Parties is that the exchange of Two Trees Rollover Options for New Options as contemplated herein will comply with Section 409A of the Code, and the Treasury Regulations promulgated thereunder regarding substitutions of stock rights by reason of a corporate transaction and shall be construed in furtherance of such intent. Neither the Company nor Two Trees warrants that the issuance of the New Options will qualify for favorable tax treatment under Section 409A of the Code or any other provision of federal, state, local or foreign law. The Rollover Holder is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or in respect of the Rollover Holder in connection with the New Options, including any taxes and penalties under Section 409A of the Code. Neither the Company nor Two Trees (a) will be liable to the Rollover Holder for any tax, interest, or penalties that the Rollover Holder might owe as a result of the issuance of the New Options; or (b) will have any obligation to indemnify or otherwise hold the Rollover Holder harmless from any or all of such taxes or penalties. | |
| (c) | The Company shall be entitled, if necessary or desirable, to withhold from the Rollover Holder any amount due and payable by the Company to the Rollover Holder (or secure payment from the Rollover Holder in lieu of withholding) the amount of any withholding or other tax due from the Company with respect to the Transactions contemplated hereunder or with respect to the vesting, exercise, or any other disposition of the New Options, and the Company may defer such issuance or such vesting exercise or other disposition unless indemnified by the Rollover Holder to its satisfaction. | |
| (d) | This Agreement shall terminate, and be of no further force and effect, upon the valid termination of the Merger Agreement in accordance with the terms and conditions thereof and, to the extent applicable, all transactions contemplated by this Agreement will be deemed to be rescinded and, for the avoidance of doubt, all Two Trees Rollover Options shall be returned to the Rollover Holder, if applicable. |
Article III. Representations and Warranties of the Rollover Holder.
In connection with the issuance of the New Options under this Agreement, as a material inducement for the Company to enter into this Agreement, the Rollover Holder represents and warrants to the Company as follows:
Section 3.01 Existence and Power. Rollover Holder is a natural person or is an entity duly organized, validly existing, and in good standing under the Laws of the state of its organization and has the power and is duly authorized under all applicable Laws, regulations, ordinances, and orders of public authorities to carry on its business in all material respects as it is now being conducted.
Section 3.02 Due Authorization. Rollover Holder has taken all actions required by Law, its organizational documents (if applicable) or otherwise to authorize the execution, delivery and performance of this Agreement and to consummate the Transactions.
Section 3.03 Valid Obligation. This Agreement and all Transaction Documents executed by Rollover Holder in connection herewith constitute the valid and binding obligations of Rollover Holder, enforceable in accordance with its or their terms, except as may be limited by the Enforceability Exceptions.
Section 3.04 No Conflict With Other Instruments. The execution of this Agreement by Rollover Holder and the consummation of the Transactions by Rollover Holder will not result in the breach of any term or provision of, constitute a default under, or terminate, accelerate or modify the terms of, any indenture, mortgage, deed of trust, or other material agreement or instrument to which Rollover Holder is a party or to which any of Rollover Holder’s assets, properties or operations are subject.
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Section 3.05 Governmental Authorization. Neither the execution, delivery nor performance of this Agreement by Rollover Holder requires any consent, approval, license or other action by or in respect of, or registration, declaration or filing with any Governmental Authority, in each case on the part of Rollover Holder.
Section 3.06 Title to Rollover Option. The Rollover Holder is the record and beneficial owner of the Two Trees Rollover Options free and clear of any restrictions on transfer (other than any restrictions under applicable securities Laws), security interests or Liens as of the date hereof and as of the Closing Date is the legal and beneficial owner of the Two Trees Rollover Options, and irrevocably and unconditionally covenants and agrees that Rollover Holder shall not transfer any actual or beneficial interest in any of the Two Trees Rollover Options and shall not exercise any of the Two Trees Rollover Options prior to the Closing Date.
Section 3.07 Investment Representations.
| (a) | Investment Purpose. Rollover Holder understands and agrees that the consummation of the Transactions including the delivery of the New Option and the shares of Company Common Stock that may be received on exercise of the New Options (collectively, the “Securities”) as contemplated hereby, constitutes the offer and sale of securities under the Securities Act and applicable state statutes and that the Securities are being acquired by Rollover Holder are being acquired by Rollover Holder for Rollover Holder’s own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act. | |
| (b) | Investor Status. Rollover Holder is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (and “Accredited Investor”) or is not an Accredited Investor, as indicated on Rollover Holder’s signature page to this Agreement. | |
| (c) | Information. Rollover Holder has been furnished with all documents and materials relating to the business, finances and operations of the Company and its subsidiaries and information that Rollover Holder requested and deemed material to making an informed decision regarding this Agreement and the underlying transactions. Rollover Holder acknowledges and agrees that the SEC Reports and the other information, materials and documents as required to be delivered to the Two Trees Stock pursuant to Rule 502 under Regulation D pursuant to the Securities Act has been delivered to Rollover Holder, and Rollover Holder has received and reviewed such SEC Reports and other information, materials and documents. | |
| (d) | Reliance on Exemptions. Rollover Holder understands that the Securities are being offered and sold to Rollover Holder in reliance upon specific exemptions from the registration requirements of United States federal and state securities Laws and that the Company is relying upon the truth and accuracy of, and Rollover Holder’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of Rollover Holder set forth herein in order to determine the availability of such exemptions and the eligibility of Rollover Holder to acquire the Securities. |
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| (e) | Information. Rollover Holder and his, her or its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by Rollover Holder or his, her or its advisors. Rollover Holder and his, her or its advisors, if any, have been afforded the opportunity to ask questions of the Company. Rollover Holder, either alone or with his, her or its purchaser representative(s) has such knowledge and experience in financial and business matters that Rollover Holder is capable of evaluating the merits and risks of the prospective investment and the receipt of the Securities. Rollover Holder understands that Rollover Holder’s investment in the Securities involves a significant degree of risk. Rollover Holder is not aware of any facts that may constitute a breach of any of the Company’s representations and warranties made herein. | |
| (f) | Governmental Review. Rollover Holder understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. | |
| (g) | Transfer or Resale. Rollover Holder understands that (i) the sale or re-sale of the Securities has not been and is not being registered under the Securities Act or any applicable state securities Laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the Securities Act, or (b) the Securities are sold or transferred otherwise in compliance with all applicable securities Laws and, if the Securities bear a legend or are subject to a stop-transfer order referenced in Section 3.07(h) or otherwise required by the Company’s transfer agent, Rollover Holder shall have delivered to the Company an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, which opinion, to the extent available, shall be delivered by the Company’s counsel and at the cost of the Company in the event requested within a period of three years following the Closing. Rollover Holder acknowledges that neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities Laws or to comply with the terms and conditions of any exemption thereunder (in each case), except that the Company will use its commercially reasonable efforts to comply with the current public information requirements set forth in Rule 144(c)(1). | |
| (h) | Legends. Rollover Holder understands that the Securities, until such time as the Securities have been registered under the Securities Act, or may be sold pursuant to Rule 144 promulgated under the Securities Act (“Rule 144”) or S under the Securities Act (or a successor rule) (“Regulation S”), without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a standard Rule 144 legend and a stop-transfer order may be placed against transfer of the certificates for such Securities. | |
| (i) | Removal. The legend(s) referenced in Section 3.07(h) shall be removed and the Company shall issue a certificate without such legend to the holder of any Securities upon which it is stamped, if, unless otherwise required by applicable state securities Laws, (a) the Securities are registered for sale under an effective registration statement filed under the Securities Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the Securities Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. Rollover Holder agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. |
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Section 3.08 No Brokers. Rollover Holder has not retained any broker or finder in connection with any of the Transactions, and Rollover Holder has not incurred or agreed to pay, or taken any other action that would entitle any Person to receive, any brokerage fee, finder’s fee or other similar fee or commission with respect to any of the Transactions.
Article IV. Representations and Warranties of the Company
As an inducement to, and to obtain the reliance of Rollover Holder, the Company represents and warrants to Rollover Holder as follows:
Section 4.01 Corporate Existence and Power. The Company is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Delaware and has the corporate power and is duly authorized under all applicable Laws, regulations, ordinances, and orders of public authorities to carry on its business in all material respects as it is now being conducted. The SEC Reports contain copies of the articles of incorporation and bylaws of the Company as in effect on the Effective Date (the “Company Organizational Documents”). The execution and delivery of this Agreement does not, and the consummation of the Transactions will not, violate any provision of the Company Organizational Documents. The Company has taken all action required by Law, the Company Organizational Documents, or otherwise to authorize the execution and delivery of this Agreement, and the Company has full power, authority, and legal right and has taken all action required by Law, the Company Organizational Documents or otherwise to consummate the Transactions.
Section 4.02 Due Authorization. The execution, delivery and performance of this Agreement does not, and the consummation of the Transactions will not, violate any provision of the Company Organizational Documents. The Company has taken all actions required by Law, the Company Organizational Documents or otherwise to authorize the execution, delivery and performance of this Agreement and to consummate the Transactions.
Section 4.03 Valid Obligation. This Agreement and all agreements and other documents executed by the Company in connection herewith constitute the valid and binding obligations of the Company, enforceable in accordance with its or their terms, except as may be limited the Enforceability Exceptions.
Section 4.04 No Conflict With Other Instruments. The execution of this Agreement by the Company and the consummation of the Transactions by the Company will not result in the breach of any term or provision of, constitute a default under, or terminate, accelerate or modify the terms of, any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or to which any of its assets, properties or operations are subject.
Section 4.05 Governmental Authorization. Neither the execution, delivery nor performance of this Agreement by the Company requires any consent, approval, license or other action by or in respect of, or registration, declaration or filing with any Governmental Authority.
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Section 4.06 Authorized Shares and Capital. The authorized capital stock of the Company is comprised of 10,000,000,000 shares of Common Stock and 50,000,000 shares of preferred stock, par value $0.0001 per share (the “Preferred Stock”). 200,000 shares of the Preferred Stock has been designated as the Series A Preferred Stock of the Company (the “Series A Stock”). As of the Effective Date, there are 25,872,504 shares of Common Stock issued and outstanding, and 35,520 shares of Series A Stock issued and outstanding, and there are no issued or outstanding Derivatives to acquire any shares of capital stock of the Company.
Section 4.07 Approval of Agreement. The Company Board has authorized the execution and delivery of this Agreement by the Company and has approved this Agreement and the Transactions.
Section 4.08 No Brokers. The Company has not retained any broker or finder in connection with any of the Transactions, and the Company has not incurred or agreed to pay, or taken any other action that would entitle any Person to receive, any brokerage fee, finder’s fee or other similar fee or commission with respect to any of the Transactions.
Article V. Miscellaneous
Section 5.01 Governing Law. This Agreement shall be governed by, enforced, and construed under and in accordance with the Laws of the State of Delaware, without giving effect to the principles of conflicts of law thereunder. Each of the Parties (a) irrevocably consents and agrees that any legal or equitable action or proceedings arising under or in connection with this Agreement shall be brought exclusively in the state or federal courts of the United States with jurisdiction in Clay County, Florida. By execution and delivery of this Agreement, each Party hereto irrevocably submits to and accepts, with respect to any such action or proceeding, generally and unconditionally, the jurisdiction of the aforesaid courts, and irrevocably waives any and all rights such Party may now or hereafter have to object to such jurisdiction.
Section 5.02 Waiver of Jury Trial.
| (a) | EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 5.02(a). | |
| (b) | Each of the Parties acknowledge that each has been represented in connection with the signing of this waiver by independent legal counsel selected by the respective Party and that such Party has discussed the legal consequences and import of this waiver with legal counsel. Each of the Parties further acknowledge that each has read and understands the meaning of this waiver and grants this waiver knowingly, voluntarily, without duress and only after consideration of the consequences of this waiver with legal counsel. |
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Section 5.03 Limitation on Damages. In no event will any Party be liable to any other Party under or in connection with this Agreement or in connection with the Transactions for special, general, indirect or consequential damages, including damages for lost profits or lost opportunity, even if the Party sought to be held liable has been advised of the possibility of such damage.
Section 5.04 Notices.
| (a) | Any notice or other communications required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered to it or sent by email, overnight courier or registered mail or certified mail, postage prepaid, addressed as follows: |
| If to the Company, to: |
| MDwerks, Inc. | |
| Attn: Steven Laker | |
| 411 Walnut Street, Suite 20125 | |
| Green Cove Springs, FL 32043 | |
| Email: [email protected] |
| With a copy, which shall not constitute notice, to: |
| Anthony L.G., PLLC | |
| Attn: Laura Anthony | |
| 625 N. Flagler Drive, Suite 600 | |
| West Palm Beach, FL 33401 | |
| Email: [email protected] |
If to Rollover Holder, to the address for Rollover Holder as set forth on the signature page hereof.
| (b) | Any Party may change its address for notices hereunder upon notice to each other Party in the manner for giving notices hereunder. | |
| (c) | Any notice hereunder shall be deemed to have been given (i) upon receipt, if personally delivered, (ii) on the day after dispatch, if sent by overnight courier, (iii) upon dispatch, if transmitted by email with return receipt requested and received and (iv) three (3) days after mailing, if sent by registered or certified mail. |
Section 5.05 Attorneys’ Fees. In the event that any Party institutes any action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the prevailing Party shall be reimbursed by the losing Party for all costs, including reasonable attorneys’ fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein.
Section 5.06 Confidentiality. Each Party agrees that, unless and until the Transactions have been consummated, it and its Representatives will hold in strict confidence all data and information obtained with respect to another Party or any subsidiary thereof from any Representative, officer, director or employee, or from any books or records or from personal inspection, of such other Party, and shall not use such data or information or disclose the same to others, except (i) to the extent such data or information is published, is a matter of public knowledge, or is required by Law to be published; or (ii) to the extent that such data or information must be used or disclosed in order to consummate the Transactions. In the event of the termination of this Agreement, each Party shall return to the applicable other Party all documents and other materials obtained by it or on its behalf and shall destroy all copies, digests, work papers, abstracts or other materials relating thereto, and each Party will continue to comply with the confidentiality provisions set forth herein.
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Section 5.07 Third Party Beneficiaries. This contract is strictly between the Parties, and except as specifically provided herein, no other Person and no director, officer, stockholder, employee, agent, independent contractor or any other Person shall be deemed to be a third-party beneficiary of this Agreement.
Section 5.08 Expenses. Whether or not the Transactions are consummated, each of the Parties will bear their own respective expenses, including legal, accounting and professional fees, incurred in connection with the Transactions.
Section 5.09 Entire Agreement. This Agreement and the other agreements and documents referenced herein represent the entire agreement between the Parties relating to the subject matter thereof and supersede all prior agreements, understandings and negotiations, written or oral, with respect to such subject matter.
Section 5.10 Survival. The representations, warranties, and covenants of the respective Parties shall survive the Closing Date and the consummation of the Transactions for a period of one year.
Section 5.11 Amendment; Waiver; Remedies; Agent.
| (a) | This Agreement may be amended, modified, superseded, terminated or cancelled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by both Parties. | |
| (b) | Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any Party of the performance of any obligation by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing. | |
| (c) | Neither any failure or delay in exercising any right or remedy hereunder or in requiring satisfaction of any condition herein nor any course of dealing shall constitute a waiver of or prevent any Party from enforcing any right or remedy or from requiring satisfaction of any condition. No notice to or demand on a Party waives or otherwise affects any obligation of that Party or impairs any right of the Party giving such notice or making such demand, including any right to take any action without notice or demand not otherwise required by this Agreement. No exercise of any right or remedy with respect to a breach of this Agreement shall preclude exercise of any other right or remedy, as appropriate to make the aggrieved Party whole with respect to such breach, or subsequent exercise of any right or remedy with respect to any other breach. | |
| (d) | Notwithstanding anything else contained herein, no Party shall seek, nor shall any Party be liable for, consequential, punitive or exemplary damages, under any tort, contract, equity, or other legal theory, with respect to any breach (or alleged breach) of this Agreement or any provision hereof or any matter otherwise relating hereto or arising in connection herewith. |
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Section 5.12 Arm’s Length Bargaining; No Presumption Against Drafter. This Agreement has been negotiated at arm’s-length by parties of equal bargaining strength, each represented by counsel or having had but declined the opportunity to be represented by counsel and having participated in the drafting of this Agreement. This Agreement creates no fiduciary or other special relationship between the Parties, and no such relationship otherwise exists. No presumption in favor of or against any Party in the construction or interpretation of this Agreement or any provision hereof shall be made based upon which Person might have drafted this Agreement or such provision.
Section 5.13 Headings. The headings contained in this Agreement are intended solely for convenience and shall not affect the rights of the Parties.
Section 5.14 No Assignment or Delegation. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns. No Party shall have any power or any right to assign or transfer, in whole or in part, this Agreement, or any of its rights or any of its obligations hereunder, including, without limitation, any right to pursue any claim for damages pursuant to this Agreement or the transactions contemplated herein, or to pursue any claim for any breach or default of this Agreement, or any right arising from the purported assignor’s due performance of its obligations hereunder, without the prior written consent of the other Party and any such purported assignment in contravention of the provisions herein shall be null and void and of no force or effect.
Section 5.15 Further Assurances. From and after the Effective Date, each Party shall execute and deliver such documents and take such action, as may reasonably be considered within the scope of such Party’s obligations hereunder, necessary to effectuate the Transactions.
Section 5.16 Specific Performance. The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by them in accordance with the terms hereof or were otherwise breached and that each Party hereto shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches of the provisions hereof and to enforce specifically the terms and provisions hereof, without the proof of actual damages, in addition to any other remedy to which they are entitled at law or in equity. Each Party agrees to waive any requirement for the security or posting of any bond in connection with any such equitable remedy, and agrees that it will not oppose the granting of an injunction, specific performance or other equitable relief on the basis that (a) the other Party has an adequate remedy at law, or (b) an award of specific performance is not an appropriate remedy for any reason at law or equity.
Section 5.17 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
[Signatures Appear on Following Pages]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.
| MDwerks, Inc. | ||
| By: | ||
| Name: | Steven Laker | |
| Title: | Chief Executive Officer | |
| Rollover Holder: |
| By: | ||
| Name: | ||
| Title: | ||
| (if applicable) | ||
| Address for notices: | ||
| Email: | ||
| Rollover Holder certifies that he/she/it is: | ||
| An Accredited Investor | ||
| Not an Accredited Investor | ||
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Exhibit A
New Option Agreement
(Attached)
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Exhibit 10.2
MDwerks, Inc. - Option Award Agreement
Holder: [__________________]
Dated as of [________], 2023
This Option Award Agreement (this “Agreement”) dated as of the date first set forth above (the “Award Date”) is entered into by and between MDwerks, Inc., a Delaware corporation (the “Company”), and the holder as named above (the “Holder”). The Company and Holder may collective be referred to as the “Parties” and each individually as a “Party.”
This Agreement is entered into pursuant to an Option Rollover Agreement by and between the Parties dated as of the Award Date (the “Rollover Agreement”) and is subject to the terms and conditions thereof.
WHEREAS, the Holder is an employee of or service provider to the Company or certain of its affiliates and Company now desires to grant to Holder certain options to acquire certain shares of common stock, par value par value $0.001 per share, of the Company (the “Common Stock”);
NOW, THEREFORE, in consideration of the promises and of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Holder hereby agree as follows:
| 1. | Grant. As of the Award Date, the Company hereby grants to the Holder an option (the “Option”) to purchase on the terms and conditions hereinafter set forth all or any part of an aggregate of [_______] shares of Common Stock (the “Option Shares”), at a purchase price of $[_____] per share (as the same may be adjusted as set forth herein, the “Option Price”). The Option shall be fully vested and exercisable on issuance. The Option is not intended to be an “Incentive Stock Option” as defined by Section 422 of the Internal Revenue Code of 1986, as amended. |
| 2. | Term. The Option granted hereunder shall expire in all events at 5:00 p.m., Eastern time on the tenth anniversary of the Award Date (the period from the Award Date to such date being the “Option Period”). |
| 3. | Exercise. |
| (a) | The Option shall be exercisable by Holder delivering to the Company, during the Option Period, a Notice of Option Exercise in the form as attached hereto as Exhibit A (the “Exercise Notice”) and complying with the remaining terms and conditions herein. |
| (b) | Holder may pay for Option Shares, and the amount of any tax withholding required hereunder, (i) in cash, (ii) by certified check payable to the order of the Company, (iii) by means of a net issuance (as described below), or (iv) by a combination of the foregoing. |
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| (c) | The Holder may arrange for exercise of the Option and payment of the Option Price by means of a net issuance of shares of Common Stock as described below (i.e., a cashless exercise), provided, however, that exercise by means of a net issuance shall be permitted only as follows: (x) if the Holder is an officer (as defined for purposes of Section 16 of the Securities Exchange Act of 1934, as amended) at the time of exercise, then a net issuance must be approved in advance by the Compensation Committee of the Board of Directors or by the full Board of Directors if the Board has not established a Compensation Committee at such time (as applicable, the “Committee), and (y) if the Holder is not an officer (as defined for purposes of Section 16 of the Securities Exchange Act of 1934, as amended) at the time of exercise, then a net issuance must be approved in advance by the Committee or, if and to the extent the Committee so determines, the Company’s General Counsel or other officer of the Company. If a net issuance of Option Shares is so approved and the Holder chooses to exercise in that manner, the exercise of the Option shall be treated as follows: Upon notice of exercise, the Holder shall be deemed, as of the date of exercise, to have received all of the shares of Common Stock subject to the Option (or such portion of such shares of Common Stock as corresponds to the portion of the Option being exercised), and shall simultaneously be deemed to have delivered back to the Company that number of such shares of Common Stock as have a fair market value (determined as of the date of exercise) equal to the Option Price required to be paid on exercise of the Option (or portion being exercised) and any additional amounts required to be paid by the Holder in connection with the exercise of the Option. |
| (d) | In addition to payment of the Option Price for the Option Shares being purchased, as a condition to the issuance of Option Shares and the delivery of any certificate for such Option Shares, the Holder shall be required to remit to the Company an amount sufficient to satisfy any federal, state and/or local tax withholding requirements arising in connection with the exercise of the Option. If the Company for any reason does not require the Holder to make a payment sufficient to satisfy such withholding requirements, any tax withholding payments made by the Company or any affiliate of the Company to any federal, state or local tax authority with respect to the exercise of the Option shall constitute a personal obligation of the Holder to the Company, payable upon demand or, at the option of the Company, by deduction from future compensation payable to the Holder. In addition, at the request of the Holder, with consent of the Committee (which may be unreasonably withheld), or to the extent it is determined by the Committee to be necessary or appropriate in connection with any applicable federal, state or local tax withholding obligations, the Company may withhold a portion of the Option Shares that would otherwise be issuable to the Holder on the exercise of the Option. In such event, the portion of the withholding obligation thus satisfied shall be equal to the fair market value of the Option Shares so withheld determined as of the date the Option is exercised. |
| 4. | Adjustments. Upon the occurrence of any of the following events, the Holder’s rights with respect to the Option shall be adjusted as hereinafter provided unless otherwise specifically provided in a written agreement between the Holder and the Company relating to the Option: |
| (a) | In the event that, prior to the delivery by the Company of all of the Option Shares in respect of which the Option is granted, there shall be an increase or decrease in the number of issued shares of Common Stock of the Company as a result of a subdivision or consolidation of Shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such Shares, effected without receipt of consideration by the Company, the remaining number of Option Shares still subject to the Option and the Option Price therefor shall be adjusted in a manner determined by the Committee so that the adjusted number of Option Shares and the adjusted Option Price shall be the substantial equivalent of the remaining number of Option Shares still subject to the Option and the Option Price thereof prior to such change. |
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| (b) | If the Company is merged or consolidated with or is acquired by another entity (any, an “Acquisition”), the Acquisition agreement shall provide that the Option shall be assumed by the surviving entity and the Exercise Price and number of Option Shares subject to this Option shall be equitably adjusted. |
| (c) | In the event of a recapitalization or a reorganization of the Company (other than a transaction described in Section 4(b) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, the Holder upon exercising the Option shall be entitled to receive for the purchase price paid upon such exercise, the securities the Holder would have received if the Holder had exercised the Option prior to such recapitalization or reorganization. Except as expressly provided herein, no issuance by the Company of shares of Common Stock of any class or securities convertible or exercisable into shares of Common Stock of any class shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to the Option. No adjustments shall be made for dividends or other distributions paid in cash or in property other than securities). With respect to shares issued in accordance with this Option, no fractional shares shall be issued and the Holder shall receive from the Company cash in lieu of such fractional shares or the Company shall round to the nearest whole share of Common Stock, as determined by the Committee. |
| (d) | The Committee shall determine the specific adjustments to be made under this Section 4, and its determination shall be conclusive. If the Holder receives securities or cash in connection with a transaction described in this Section 4 above as a result of holding the Option, such securities or cash shall be subject to all of the conditions and restrictions applicable to the Option with respect to which such securities or cash were issued, unless otherwise determined by the Committee. |
| 5. | Legal Requirements. If the listing, registration or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any governmental regulatory body is necessary as a condition of or in connection with the purchase of such Option Shares, the Company shall not be obligated to issue or deliver the certificates representing the Option Shares as to which the Option has been exercised unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained. If registration is considered unnecessary by the Company or its counsel, the Company may cause a legend to be placed on the Option Shares being issued calling attention to the fact that they have been acquired for investment and have not been registered. |
| 6. | No Transfer. Holder may not sell, transfer, assign, give, place in trust, or otherwise dispose of or pledge, grant a security interest in, or otherwise encumber the Option or otherwise encumber the Option or any rights herein or therein, and any attempted transfer shall be null and void ab initio and the Company shall not recognize any purported transferee as the holder thereof. |
| 7. | Notices. Any notice to be given to the Company shall be addressed to the Committee at its principal executive office, and any notice to be given to the Holder shall be addressed to the Holder at the address then appearing on the personnel or other records of the Company, or at such other address as either party hereafter may designate in writing to the other. Any such notice shall be deemed to have been duly given when deposited in the United States mail, addressed as aforesaid, registered or certified mail, and with proper postage and registration or certification fees prepaid. |
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| 8. | Reservation of Right to Terminate. Nothing herein contained shall affect the right of the Company to terminate the Holder in its applicable capacity as an employee of the Company at any time for any reason whatsoever, subject to the terms of any other agreement between the Company and the Holder. |
| 9. | Governing Law, etc. This Agreement shall be governed by, enforced, and construed under and in accordance with the Laws of the State of Delaware, without giving effect to the principles of conflicts of law thereunder. Each of the Parties (a) irrevocably consents and agrees that any legal or equitable action or proceedings arising under or in connection with this Agreement shall be brought exclusively in the state or federal courts of the United States with jurisdiction in Clay County, Florida. By execution and delivery of this Agreement, each Party hereto irrevocably submits to and accepts, with respect to any such action or proceeding, generally and unconditionally, the jurisdiction of the aforesaid courts, and irrevocably waives any and all rights such Party may now or hereafter have to object to such jurisdiction. |
| 10. | Waiver of Jury Trial. |
| (a) | EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10(a). |
| (b) | Each of the Parties acknowledge that each has been represented in connection with the signing of this waiver by independent legal counsel selected by the respective Party and that such Party has discussed the legal consequences and import of this waiver with legal counsel. Each of the Parties further acknowledge that each has read and understands the meaning of this waiver and grants this waiver knowingly, voluntarily, without duress and only after consideration of the consequences of this waiver with legal counsel. |
| 11. | Assignment. This Agreement may not be assigned by either Party without the express prior written consent of the other Party hereto, except that the Company (i) may assign this Agreement to any subsidiary or affiliate of the Company, provided that no such assignment shall relieve the Company of its obligations hereunder without the written consent of the Holder, and (ii) will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. This Agreement shall inure to the benefit of, and shall be binding upon, the successors and permitted assigns of the Parties. |
| 12. | Entire Agreement. This Agreement and the Rollover Agreement set forth all the promises, covenants, agreements, conditions and understandings between the Parties, and supersede all prior and contemporaneous agreements, understandings, inducements or conditions, expressed or implied, oral or written, except as herein or therein contained. |
| 13. | Headings. The headings used in this Agreement are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Agreement. |
| 14. | Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. |
[Signatures appear on following page]
| 4 |
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Award Date.
| MDwerks, Inc. | ||
| By: | ||
| Name: | Steven Laker | |
| Title: | Chief Executive Officer | |
| Holder: | ||
| By: | ||
| Name: | ||
| Title: | ||
| (if applicable) | ||
| 5 |
EXHIBIT A
NOTICE OF OPTION EXERCISE
Dated: _________________, 202___
To: MDwerks, Inc.
Attn: [_______________]
Sir/Madam:
Notice is hereby given of my election to purchase _____ shares of common stock of MDwerks, Inc. (the “Company”) at a price of $[________] per share under the provisions of the stock option (“Option”) granted to me on [___], 2023.
(1) The undersigned hereby exercises the Option with respect to ________ Option Shares pursuant to the terms of the Option, and tenders herewith payment of the exercise price in full (subject to the provisions below), together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] if permitted the cancellation of such number of Option Shares as is necessary, in accordance with the formula set forth in Section 3(c) of the Option, to exercise the Option pursuant to the cashless exercise procedure set forth in Section 3(c) of the Option.
(3) Please issue said Option Shares in the name of the undersigned:
The following information is supplied for use in issuing and registering the shares purchased:
Number of shares of Common Stock: ____________________
| Full Name: | ||
| Address: | ||
| Signature: |
Exhibit 10.3
Form of Indemnification Agreement
Dated as of [__________], 2023
This Indemnification Agreement (this “Agreement”) is entered into as of the date first set forth above (the “Effective Date”) by and between (i) MDwerks, Inc., a Delaware corporation (the “Company”); and (ii) [__] (“Indemnitor”). Each of Indemnitor and the Company may be referred to herein collectively as the “Parties” and separately as a “Party.”
WHEREAS, the Company, MD-TT Merger Sub, Inc., a Delaware corporation which was a wholly owned subsidiary of Blue Core (“Merger Sub”), and Two Trees Beverage Co., a Delaware corporation (“Two Trees”) are the parties to that certain Agreement and Plan of Merger, dated as of February 13, 2023 (the “Merger Agreement”);
WHEREAS, effective as of the Effective Date, pursuant to the Merger Agreement, Merger Sub has merged with and into Two Trees, with Two Trees continuing as the surviving corporation; and
WHEREAS, Indemnitor agrees that he has received substantial benefits from the closing of the transactions as set forth in the Merger Agreement, and that the execution and delivery of this Agreement is required as a condition to the closing of the transactions as set forth in the Merger Agreement;
NOW THEREFORE, on the stated premises and for and in consideration of the mutual covenants and agreements hereinafter set forth and the mutual benefits to the Parties to be derived herefrom, and intending to be legally bound hereby, it is hereby agreed as follows:
Article I. Definitions and Interpretation
Section 1.01 Definitions. Defined terms used herein without definition shall have the meanings given in the Merger Agreement.
Section 1.02 Certain Interpretations. Unless otherwise indicated (i) all references herein to Articles or Sections, shall be deemed to refer to Articles or Sections of this Agreement, as applicable; (ii) the words “include,” “includes” and “including,” when used herein, shall be deemed, in each case, to be followed by the words “without limitation”; (iii) the headings set forth in this Agreement are for convenience of reference purposes only and shall not affect or be deemed to affect in any way the meaning or interpretation of this Agreement or any term or provision hereof, (iv) whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa; (v) the word “extent” and the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and such word or phrase shall not simply mean “if”; (vi) all references in this Agreement to dollar amounts and to “$” are intended to refer to U.S. dollars; (vii) any reference to a law or statute shall include such law or statute, as amended (including by succession of comparable successor statutes), and the rules and regulations promulgated thereunder, or any successor statute, rules or regulations thereto, unless the context requires otherwise; (viii) the words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; (ix) unless otherwise expressly provided, wherever the consent of any Person is required or permitted herein, such consent may be withheld in such Person’s sole and absolute discretion; (x) unless the context otherwise requires “or” is disjunctive but not necessarily exclusive; (xi) references to any Person include the successors and permitted assigns of that Person; (xii) references from or through any date mean, unless otherwise specified, from and including or through and including, respectively; and (xiii) if any action under this Agreement is required to be done or taken on a day that is not a Business Day, then such action shall be required to be done or taken not on such day but on the first succeeding Business Day thereafter.
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Article II. Indemnification
Section 2.01 Indemnification. Indemnitor hereby agrees to indemnify and hold harmless to the fullest extent permitted by applicable law the Company, each of its Affiliates and each of its and their respective members, managers, partners, directors, officers, employees, stockholders, attorneys and agents and permitted assignees (each an “Indemnified Party”), against and in respect of any and all out-of-pocket loss, cost, payments, demand, penalty, forfeiture, expense, liability, judgment, deficiency or damage, and diminution in value or claim (including actual costs of investigation and attorneys’ fees and other costs and expenses) (all of the foregoing collectively, “Losses” and each individually a “Loss”) incurred or sustained by any Indemnified Party as a result of or in connection with any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties, covenants and agreements of Two Trees contained in the Merger Agreement.
Section 2.02 Procedure. The following shall apply with respect to all claims by any Indemnified Party for indemnification with respect to actions by third-parties:
| (a) | Third-Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to the Merger Agreement or an Affiliate of a party to the Merger Agreement or a Representative of the foregoing (a “Third-Party Claim”) against such Indemnified Party with respect to which Indemnitor is obligated to provide indemnification under this Agreement, the Indemnified Party shall give Indemnitor reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after receipt of such notice of such Third-Party Claim. The failure to give such prompt written notice shall not, however, relieve Indemnitor of his indemnification obligations, except and only to the extent that Indemnitor forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third-Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. Indemnitor shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third-Party Claim at Indemnitor’s expense and by Indemnitor’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense. In the event that Indemnitor assumes the defense of any Third-Party Claim, subject to Section 2.02(b), he shall have the right to take such action as he deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third-Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third-Party Claim with counsel selected by it subject to Indemnitor’s right to control the defense thereof, provided that the fees and disbursements of such counsel shall be at the expense of the Indemnified Party. |
| (b) | Settlement of Third-Party Claims. Notwithstanding any other provision of this Agreement, Indemnitor shall not enter into settlement of any Third-Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 2.02(b). If a firm offer is made to settle a Third-Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third-Party Claim and Indemnitor desires to accept and agree to such offer, Indemnitor shall give written notice to that effect to the Indemnified Party. If the Indemnified Party consents to such firm offer Indemnitor may settle the Third-Party Claim upon the terms set forth in such firm offer to settle such Third-Party Claim. If the Indemnified Party objects to such offer, or does not provide a response to such firm offer within ten days after its receipt of such notice (in which case the Indemnified Party shall be deemed to not have consented to such offer), the Indemnified Party shall thereafter assume the defense of such Third-Party Claim and shall continue to contest or defend such Third-Party Claim and in such event the maximum liability of Indemnitor as to such Third-Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party has assumed the defense pursuant to this Section 2.02(b), the Indemnified Party shall not agree to any settlement without the written consent of Indemnitor (which consent shall not be unreasonably withheld or delayed). |
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| (c) | Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third-Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving Indemnitor reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve Indemnitor of his indemnification obligations, except and only to the extent that Indemnitor forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. Indemnitor shall have thirty (30) calendar days after his receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow Indemnitor and his professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist Indemnitor’s investigation by giving such information and assistance as Indemnitor or any of his professional advisors may reasonably request. If Indemnitor does not so respond within such thirty (30) calendar day period, Indemnitor shall be deemed to have accepted liability for such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement. |
| (d) | Cooperation. Upon a reasonable request made by Indemnitor, each Indemnified Party seeking indemnification hereunder in respect of any Direct Claim, hereby agrees to consult with Indemnitor and act reasonably to take actions reasonably requested by Indemnitor in order to attempt to reduce the amount of Losses in respect of such Direct Claim. Any costs or expenses associated with taking such actions shall be included as Losses hereunder. |
Section 2.03 Insurance. Any indemnification payments hereunder shall take into account any insurance proceeds or other third-party reimbursement actually received.
Section 2.04 Time Limit. The obligations of Indemnitor hereunder shall expire one (1) year from the Closing Date, except with respect to (i) an indemnification claim asserted in accordance with the provisions of this Agreement which remains unresolved, for which the obligation to indemnify shall continue until such claim is resolved; and (ii) resolved claims for which payment has not yet been paid to the Indemnified Party, and no indemnification claim may be commenced by any party more than one (1) year from the Closing Date.
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Section 2.05 Certain Limitations. The indemnification provided for herein shall be subject to the limitation that Indemnitor shall not be liable to the Indemnified Parties for indemnification hereunder until the aggregate amount of all Losses in respect of indemnification hereunder exceeds $10,000 (the “Basket”), in which event Indemnitor shall be required to pay or be liable for all such Losses in excess of the Basket up to a maximum amount equal to $2,500,000.
Section 2.06 Effect of Investigation. Any Indemnified Party’s right to indemnification hereunder shall not be affected or deemed waived by reason of any investigation made by or on behalf of any Indemnified Party or by reason of the fact that such Indemnified Party knew or should have known that any representation or warranty is, was or might be inaccurate.
Article III. General Provisions
Section 3.01 Fees and Expenses. Other than as specifically set forth herein, each Party shall bear its own fees and Expenses incurred in connection with this Agreement and the transactions contemplated hereby.
Section 3.02 Amendment. Subject to applicable Law and the other provisions of this Agreement, this Agreement may be amended by the Parties at any time only by execution of an instrument in writing signed on behalf of each Party.
Section 3.03 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly delivered and received hereunder (i) three (3) Business Days after being sent by registered or certified mail, return receipt requested, postage prepaid, (ii) two (2) Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable international overnight courier service, or (iii) immediately upon delivery by email, by hand delivery or by facsimile (with a written or electronic confirmation of receipt), in each case to the intended recipient as set forth below:
if to the Company:
MDwerks, Inc.
Attn: Steven Laker
411 Walnut Street, Suite 20125
Green Cove Springs, FL 32043
Email: [email protected]
with a copy (which shall not constitute notice) to:
Anthony L.G., PLLC
Attn: Laura Anthony
625 N. Flagler Drive, Suite 600
West Palm Beach, FL 33401
Email: [email protected]
if to Indemnitor, to:
[__]
Email: [______________]
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With a copy, which shall not constitute notice, to:
[__]
Email: [__]
Section 3.04 Assignment. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns. No Party shall have any power or any right to assign or transfer, in whole or in part, this Agreement, or any of its rights or any of its obligations hereunder, including, without limitation, any right to pursue any claim for damages pursuant to this Agreement or the transactions contemplated herein, or to pursue any claim for any breach or default of this Agreement, or any right arising from the purported assignor’s due performance of its obligations hereunder, including by merger, consolidation, operation of law, or otherwise, without the prior written consent of the other Party and any such purported assignment in contravention of the provisions herein shall be null and void and of no force or effect.
Section 3.05 Entire Agreement. This Agreement and the Merger Agreement, and the documents and instruments and other agreements contemplated by or referred to herein, constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof.
Section 3.06 Arm’s Length Bargaining; No Presumption Against Drafter. This Agreement has been negotiated at arm’s-length by parties of equal bargaining strength, each represented by counsel or having had but declined the opportunity to be represented by counsel and having participated in the drafting of this Agreement. This Agreement creates no fiduciary or other special relationship between the Parties, and no such relationship otherwise exists. No presumption in favor of or against any Party in the construction or interpretation of this Agreement or any provision hereof shall be made based upon which Person might have drafted this Agreement or such provision.
Section 3.07 Commercially Reasonable Efforts. Subject to the terms and conditions herein provided, each Party shall use their respective commercially reasonable efforts to perform or fulfill all conditions and obligations to be performed or fulfilled by it under this Agreement so that the transactions contemplated hereby shall be consummated as soon as practicable, and to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and regulations to consummate and make effective this Agreement and the transactions contemplated herein.
Section 3.08 Further Assurances. From and after the Effective Date, each Party shall execute and deliver such documents and take such action, as may reasonably be considered within the scope of such Party’s obligations hereunder, necessary to effectuate the transactions contemplated by this Agreement.
Section 3.09 Arbitration.
| (a) | The Parties shall promptly submit any dispute, claim, or controversy arising out of or relating to this Agreement (including with respect to the meaning, effect, validity, termination, interpretation, performance, or enforcement of this Agreement) or any alleged breach thereof (including any action in tort, contract, equity, or otherwise), to binding arbitration before one arbitrator (the “Arbitrator”). Binding arbitration shall be the sole means of resolving any dispute, claim, or controversy arising out of or relating to this Agreement (including with respect to the meaning, effect, validity, termination, interpretation, performance or enforcement of this Agreement) or any alleged breach thereof (including any claim in tort, contract, equity, or otherwise). |
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| (b) | If the Parties cannot agree upon the Arbitrator within ten (10) Business Days of the commencement of the efforts to so agree on an Arbitrator, each of the Company and Two Trees shall select one arbitrator and the two arbitrators so selected shall select the sole Arbitrator who shall hear and resolve the dispute. |
| (c) | The laws of the State of Delaware shall apply to any arbitration hereunder. In any arbitration hereunder, this Agreement and any agreement contemplated hereby shall be governed by the laws of the State of Delaware applicable to a contract negotiated, signed, and wholly to be performed in the State of Delaware, which laws the Arbitrator shall apply in rendering his decision. The Arbitrator shall issue a written decision, setting forth findings of fact and conclusions of law, within sixty (60) days after he shall have been selected. The Arbitrator shall have no authority to award punitive or other exemplary damages. |
| (d) | The arbitration shall be held in Green Cove Springs, Florida in accordance with and under the then-current provisions of the rules of the American Arbitration Association, except as otherwise provided herein. |
| (e) | On application to the Arbitrator, any Party shall have rights to discovery to the same extent as would be provided under the Federal Rules of Civil Procedure, and the Federal Rules of Evidence shall apply to any arbitration under this Agreement; provided, however, that the Arbitrator shall limit any discovery or evidence such that his decision shall be rendered within the period referred to in Section 3.09(b). |
| (f) | The Arbitrator may, at his discretion and at the expense of the Party who will bear the cost of the arbitration, employ experts to assist him in his determinations. |
| (g) | The costs of the arbitration proceeding and any proceeding in court to confirm any arbitration award or to obtain relief, as applicable (including actual attorneys’ fees and costs), shall be borne by the unsuccessful Party and shall be awarded as part of the Arbitrator’s decision, unless the Arbitrator shall otherwise allocate such costs in such decision. The determination of the Arbitrator shall be final and binding upon the Parties and not subject to appeal. |
| (h) | Any judgment upon any award rendered by the Arbitrator may be entered in and enforced by any court of competent jurisdiction. The Parties expressly consent to the non-exclusive jurisdiction of the courts (Federal and state) located in Clay County, Florida to enforce any award of the Arbitrator or to render any provisional, temporary, or injunctive relief in connection with or in aid of the Arbitration. The Parties expressly consent to the personal and subject matter jurisdiction of the Arbitrator to arbitrate any and all matters to be submitted to arbitration hereunder. None of the Parties hereto shall challenge any arbitration hereunder on the grounds that any party necessary to such arbitration (including the Parties) shall have been absent from such arbitration for any reason, including that such Party shall have been the subject of any bankruptcy, reorganization, or insolvency proceeding. |
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Section 3.10 Third Party Beneficiaries. Other than as specifically set forth herein, this Agreement is not intended to, and shall not, confer upon any other Person any rights or remedies hereunder.
Section 3.11 Severability. In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other Persons or circumstances will be interpreted so as reasonably to effect the intent of the Parties. The Parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.
Section 3.12 Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by Law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise of any other remedy.
Section 3.13 Governing Law. This Agreement, and any and all claims, proceedings or causes of action relating to this Agreement or arising from this Agreement or the transactions contemplated herein, including, without limitation, tort claims, statutory claims and contract claims, shall be interpreted, construed, governed and enforced under and in accordance with the substantive and procedural Laws of the State of Delaware in each case as in effect from time to time and as the same may be amended from time to time, and as applied to agreements performed wholly within the State of Delaware.
Section 3.14 Consent to Jurisdiction and Venue; Waiver of Jury Trial.
| (a) | Each of the Parties hereby irrevocably submits to the personal jurisdiction of United States Federal Courts and the courts of the State of Florida located in Clay County, Florida (the “Chosen Courts”) in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in or contemplated by this Agreement, and in respect of the transactions contemplated herein, or the negotiation, execution or performance hereof, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in the Chosen Courts or that any Chosen Court is an inconvenient forum or that the venue thereof may not be appropriate, or that this Agreement or any such document may not be enforced in or by such Chosen Court, and each of the Parties hereto irrevocably agrees that all claims, actions, suits and proceedings or other causes of action (whether at Law, in contract, in tort or otherwise) that may be based upon, arising out of or relating to this Agreement or any of the transactions contemplated herein, or the negotiation, execution or performance hereof shall be heard and determined exclusively in the Chosen Courts. Each of the Parties hereby consents to and grants any such Chosen Court jurisdiction over the person of such Party and, to the extent permitted by Law, over the subject matter of such dispute and agrees that mailing of process or other papers in connection with any such action, suit or proceeding in the manner as may be permitted by Law shall be valid, effective and sufficient service thereof. |
| (b) | Each of the Parties acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore each such Party hereby irrevocably and unconditionally waives any right such Party may have to a trial by jury in respect of any action, suit or proceeding directly or indirectly arising out of or relating to this Agreement or the transactions contemplated herein. Each Party certifies and acknowledges that (i) no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of such action, suit or proceeding, seek to enforce the foregoing waiver, (ii) each of the Parties understands and has considered the implications of this waiver, and (iii) each Party makes this waiver voluntarily. |
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Section 3.15 Specific Performance. The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that each of the Parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which such Party is entitled at law or in equity. In the event that specific performance is granted to a Party pursuant to the terms and conditions herein, such Party shall also be entitled to be awarded its costs and expenses (including reasonable attorneys’ fees and expenses) incurred solely in connection with obtaining such specific performance. The preceding sentence will not limit the right or ability of a Party seeking specific performance to recover damages, costs or expenses, under another provision of this Agreement or of any other document or agreement related hereto.
Section 3.16 Limitation on Damages. In no event will any Party be liable to any other Party under or in connection with this Agreement or in connection with the transactions contemplated herein for special, general, indirect or consequential damages, including damages for lost profits or lost opportunity, even if the Party sought to be held liable has been advised of the possibility of such damage.
Section 3.17 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
[Signature Page Follows]
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N WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the Effective Date.
| MDwerks, Inc. | ||
| By: | ||
| Name: | Steven Laker | |
| Title: | Chief Executive Officer | |
| By: | ||
| Name | : | |
| 9 |
Exhibit 10.5
Consulting Agreement
This consulting agreement (The “Agreement”) is dated this 18th day of July, 2022.
Client
Two Trees Beverage Company
17 Continuum Dr, Fletcher, NC 28732
(the “client”) |
Consultant
Joe Ragazzo
100 District Drive, Apt 302 Asheville, NC 28803
(the “Consultant”) |
Background
| a. | The Client is of the opinion that the Consultant has the necessary qualifications, experience and abilities to provide consulting services to the Client. | |
| b. | The Consultant is agreeable to providing such consulting services to the on the terms and conditions set out in this Agreement. |
IN CONSIDERATION OF the matters described above and the mutual benefits and obligations set forth in this Agreement, the receipt and sufficiency of which consideration is hereby acknowledged, the Client and the Consultant (individually the “Party” and collectively the “Parties” to this Agreement) agree as follows:
SERVICES PROVIDED
| 1. | The client hereby agrees to engage the Consultant to provide the Client with the following Interim Chief Executive Officer services (the “Services): |
| a. | Assume all duties normal and regular to those of a chief executive officer in a fast paced startup environment – according to his reasonable business judgement. |
| 2. | The Services will also include any other consulting tasks which the Parties may agree on. The Consultant hereby agrees to provide such Services to the Client. |
TERM OF AGREEMENT
| 3. | The term of this Agreement (the “Term”) will begin on the date of this Agreement and will remain in full force and effect for six months upon signing date, subject to earlier termination as provided in this Agreement. The Term may be extended with the written consent of the Parties. |
| 4. | In the event that either Party wishes to terminate this Agreement prior to the completion of the Services, that Party will be required to provide thirty days’ written notice to the other Party. |
PERFORMANCE
| 5. | The Parties agree to do everything necessary to ensure that the terms of this Agreement take effect. |
CURRENCY
| 6. | Except as otherwise provided in this Agreement, all monetary amounts referred to in this Agreement are in USD (US Dollars). |
COMPENSATION
| 7. | The Consultant will charge the Client for the Service as follows (the “Compensation”): |
| a. | The Client will pay the Consultant 60,000 stock options in total, with 10,000 options issued each month. Such stock options shall be issued at Thirty-six Cents (36 Cents) a share, pursuant to the company’s 2021 Incentive Equity Plan and fully vest at the end of each month. The options are “non-qualified” for ERISA and tax purposes. Issuance is subject to board approval. | |
| b. | In exchange for the Services to be rendered to Company, Company shall provide Consultant the amount of $ 3,000 per month. |
| 8. | Invoices submitted by the Consultant to the Client are due within 30 days. |
REIMBURSEMENT OF EXPENSES
| 9. | The Consultant will be reimbursed from time to time for reasonable and necessary expenses incurred by the Consultant in connection with providing the Services. | |
| 10. | All expenses must be pre-approved by the Client, via written consent from the Chairman of the Board. |
CONFIDENTIALITY
| 11. | Confidential information (the “Confidential information”) refers to any data or information relating to the Client, whether business or personal, which would reasonably be considered to be private or proprietary to the Client and that is not generally known and where the release of that confidential information could reasonably be expected to cause harm to the Client. | |
| 12. | The Consultant agrees that they will not disclose, divulge, reveal, report or use, for any purpose, any Confidential Information which the Consultant has obtained, except as authorized by the Client or as required by law. The obligations of confidentiality will apply during the Term and will survive indefinitely upon termination of this Agreement. |
| 13. | All written and oral information and material disclosed or provided by the Client to the Consultant under this Agreement is Confidential Information regardless of whether it was provided before or after the date of this Agreement or how it was provided to the Consultant. |
OWNERSHIP OF INTELLECTUAL PROPERTY
| 14. | All intellectual property and related material, including any trade secrets, moral rights, goodwill, relevant registrations or applications for registration, and rights in any patent, copyright, trademark, trade dress, industrial design and trade name (the “intellectual Property”) that is developed or produced under this Agreement, is a “work made for hire” and will be the sole property of the Client. The use of the Intellectual Property by the Client will not be restricted in any manner. | |
| 15. | The Consultant may not use the Intellectual Property for any purpose other than that contracted for in this Agreement except with the written consent of the Client. The Consultant will be responsible for any and all damages resulting from the unauthorized use of the Intellectual Property. |
RETURN OF PROPERTY
| 16. | Upon the expiration or termination of this Agreement, the Consultant will return to the Client any property, documentation, records, or Confidential Information which is the property of the Client. |
CAPACITY/INDEPENDENT CONTRACTOR
| 17. | In providing the Services under this Agreement it is expressly agreed that the Consultant is acting as an independent contractor and not as an employee. The Consultant and the Client acknowledge that this Agreement does not create a partnership or joint venture between them, and is exclusively a contract for service. The Client is not required to pay, or make any contributions to, any social security, local, state or federal tax, unemployment compensation, workers’ compensation, insurance premium, profit-sharing, pension or any other employee benefit for the Consultant during the Term. The Client to deduct all local, state and federal taxes. |
AUTONOMY
| 18. | Except as otherwise provided in this Agreement, the Consultant will have full control over working time, methods, and decision making in relation to provision of the Services in accordance with the Agreement. The Consultant will work autonomously and not at the direction of the Client. However, the Consultant will be responsive to the reasonable needs and concerns of the Client. |
EQUIPMENT
| 19. | Except as otherwise provided in this Agreement, the Consultant will provide at the Consultant’s own expense, any and all equipment, software, materials and any other supplies necessary to deliver the Services in accordance with the Agreement. |
NO EXCLUSIVITY
| 20. | The Parties acknowledge that this Agreement is non-exclusive and that either Party will be free, during and after the Term to engage or contract with third parties for the provision of services similar to the Services. |
NOTICE
| 21. | All notices, requests, demands or other communications required or permitted by the terms of this Agreement will be given in writing and delivered to the Parties at the following addresses: |
| a. | Two Trees Beverage Company | |
| 17 Continuum Dr, Fletcher, NC 28732 | ||
| b. | Joe Ragazzo | |
| 100 District Drive Asheville, NC 28803 |
Or to such other address as either Party may from time to time notify the other, and will be deemed to be properly delivered (a) immediately upon being served personally, (b) two days after being deposited with the postal service if served by registered mail, or the following day after being deposited with an overnight courier.
INDEMNIFICATION
| 22. | Except to the extent paid in settlement from any applicable insurance policies, and to the extent permitted by applicable law, each Party agrees to indemnify and hold harmless the other Party, and its respective affiliates, officers, agents, employees and permitted successors and assigns against any and all claims, losses, damages, liabilities, penalties, punitive damages, expenses, reasonable legal fees and costs of any kind or amount whatsoever, which result from or arise out of any kind or amount whatsoever, which result from or arise out of any act or omission of the indemnifying party, its respective affiliates, officers, agents, employees, and permitted successors and assigns that occurs in connection with this Agreement. This indemnification will survive the termination of this Agreement. |
MODIFICATION OF AGREEMENT
| 23. | Any amendment or modification of this Agreement or additional obligation assumed by either Party in connection with this Agreement will only be binding if evidenced in writing signed by each Party or an authorized representative of each Party. |
TIME OF THE ESSENCE
| 24. | Time is of the essence in this Agreement. No extension or variation of this Agreement will operate as a waiver of this provision. |
ASSIGNMENT
| 25. | The Consultant will not voluntarily, or by operation of law, assign or otherwise transfer its obligations under this Agreement without the prior written consent of the Client. |
ENTIRE AGREEMENT
| 26. | It is agreed that there is no representation, warranty, collateral agreement or condition affecting this Agreement except as expressly provided in this Agreement. |
ENUREMENT
| 27. | This Agreement will enure to the benefit of and be binding on the Parties and their respective heirs, executors, administrators and permitted successors and assigns. |
TITLES/HEADINGS
| 28. | Headings are inserted for the convenience of the Parties only and are not to be considered when interpreting this Agreement. |
GENDER
| 29. | Words in the singular mean and include the plural and vice versa. Words in the masculine mean and include the feminine and vice versa. |
GOVERNING LAW
| 30. | This Agreement will be governed by and construed in accordance with the laws of the State of North Carolina. |
SEVERABILITY
| 31. | In the event that any of the provisions of this Agreement are held to be invalid or unenforceable in whole or in part, all other provisions will nevertheless continue to be valid and enforceable with the invalid or unenforceable parts severed from the remainder of this Agreement. |
WAIVER
| 32. | The waiver by either Party of a breach, default, delay or omission of any of the provisions of this Agreement by the other Party will not be construed as a waiver of any subsequent breach of the same or other provisions. |
[Signature page follows]
SIGNATURE PAGE TO CONSULTING AGREEMENT
IN WITNESS WHEREOF the Parties have duly affixed their signatures under hand and seal on this 18th day of July, 2022.
| Two Trees Beverage Company | |
| Per: | |
| /s/ Keith Most | |
| (Seal) | |
| Officer’s Name: | |
| Keith Most | |
| Consultant: | |
| /s/ Joe Ragazzo | |
| Joe Ragazzo |
Exhibit 10.6
FIRST AMENDMENT TO CONSULTING AGREEMENT
THIS First AMENDMENT TO CONSULTING AGREEMENT (the “First Amendment”) is made as of September 19, 2022 by and between Two Trees Beverage Company (the “Client”) and Joe Ragazzo (the “Consultant”), each of whom may be referred to herein as a “Party” and together as “Parties”.
BACKGROUND
WHEREAS, On ________________, 2022, the Parties executed that certain consulting agreement (the “Consulting Agreement”); and
WHEREAS, the Parties wish to amend the Consulting Agreement;
NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties do hereby agree as follows:
1. Recitals. The recitals set forth above are incorporated herein by reference. The use of any capitalized term not otherwise defined herein shall have the meaning ascribed thereto in the Consulting Agreement.
2. Amendments.
a. Section 7 and Section 8 of the Consulting Agreement is hereby deleted in its entirety and replaced with the following:
“COMPENSATION.
7. The Consultant will charge the Client for the Service as follows (the “Compensation”):
a. The Client will pay the Consultant 120,000 stock options in total, with 20,000 options issued each month. Such stock options shall be issued pursuant to the company’s 2021 Incentive Equity Plan. The options are “non-qualified” for ERISA and tax purposes. Issuance is subject to board approval.
8. Invoices submitted by the Consultant to the Client are due within 30 days.”
3. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but one and the same instrument. Facsimile, email or electronic signatures shall be deemed originals.
[Signature page follows]
IN WI1NESS WHEREOF, the undersigned have executed this First Amendment in their respective capacities set forth below as of the date first set forth above.
| CLIENT: | CONSULTANT: | |||
| TWO TREES BEVERAGE COMPANY | Joe Ragazzo | |||
| By: | James P. Cassidy | By: | /s/ Joe Ragazzo | |
| Name: | James P. Cassidy | Name: | Joe Ragazzo | |
| Title: | Chairman | |||
| Date: 9/19/2022 | Date: 9/19/22 | |||
Exhibit 21.1
List of Subsidiaries of
MDwerks, Inc.
| Entity Name | Place of Organization | |
| Two Trees Beverage Company* | Delaware | |
| Radio Aged Spirits, LLC** | North Carolina | |
| Radio Aged Beer, LLC** | North Carolina | |
| RF Kettle Company, LLC ** | North Carolina | |
| Two Trees Distilling Company, LLC** | North Carolina | |
| Prost Beverage Company** | Florida |
| * | 100% owned subsidiary of MDwerks, Inc. |
| ** | 100% owned subsidiary of Two Trees Beverage Company, Inc. |
Exhibit 99.1
Two Trees Beverage Company
Audited Consolidated Financial Statements
December 31, 2022 and 2021
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Two Trees Beverage Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Two Trees Beverage Company, (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB ..
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Going Concern
As discussed in Note 1, the Company has a going concern due to a negative working capital and losses from operations.
Auditing management’s evaluation of a going concern can be a significant judgment given the fact that the Company uses management estimates on future revenues and expenses, which are not able to be substantiated.
To evaluate the appropriateness of the going concern, we examined and evaluated the financial information that was the initial cause along with management’s plans to mitigate the going concern and management’s disclosure on going concern.
/s/ M&K CPAS, PLLC
We have served as the Company’s auditor since 2022
Houston, TX
December 12, 2023
| 1 |
Consolidated Balance Sheets
| December 31, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 188,302 | $ | 1,015,258 | ||||
| Accounts Receivable, Net | 145,099 | 330,700 | ||||||
| Inventory | 376,738 | 382,985 | ||||||
| Prepaid Expenses | 35,715 | 36,495 | ||||||
| Total Current Assets | 745,854 | 1,765,438 | ||||||
| Property & Equipment, Net | 210,793 | 285,752 | ||||||
| Right-of-use Asset | 19,917 | 136,580 | ||||||
| Total Assets | $ | 976,564 | $ | 2,187,770 | ||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 154,172 | $ | 287,896 | ||||
| Promissory Note Payable | 31,584 | 31,584 | ||||||
| Convertible Notes Payable, current | - | 953,484 | ||||||
| Accrued Expenses | 32,006 | 49,381 | ||||||
| Right-of-use Liability, current | 42,398 | 42,398 | ||||||
| Total Current Liabilities | 260,160 | 1,364,743 | ||||||
| Right-of-use Liability, net of current portion | - | 126,951 | ||||||
| Total Liabilities | 260,160 | 1,491,694 | ||||||
| Mezzanine | ||||||||
| Preferred stock, par value $0.0001; 2,045,940 shares authorized of which 2,045,940 shares are issued and outstanding at December 31, 2022 and 1,239,127 shares are issued and outstanding at December 31, 2021. | 3,325,099 | 1,953,516 | ||||||
| Stockholders’ Equity (Deficit) | ||||||||
Common stock, par value $0.001; 9,999,605 shares authorized of which 9,999,605 shares are issued and outstanding at December 31, 2022 and 2021. | 1,000 | 1,000 | ||||||
| Additional Paid in Capital | 3,520,073 | 2,428,000 | ||||||
| Accumulated Deficit | (6,129,768 | ) | (3,686,440 | ) | ||||
| Total Stockholders’ Equity (Deficit) | (2,608,695 | ) | (1,257,440 | ) | ||||
| Total Liabilities, Mezzanine and Stockholders’ Equity (Deficit) | $ | 975,545 | $ | 2,187,770 | ||||
The accompanying notes are an integral part of these financial statements.
| 2 |
Consolidated Statements of Operations
For the years ended December 31, 2022 and 2021
| 2022 | 2021 | |||||||
| Revenue | $ | 2,602,058 | $ | 2,827,572 | ||||
| Cost of Sales | 1,489,036 | 1,344,964 | ||||||
| Gross Profit | 1,113,022 | 1,482,608 | ||||||
| Operating Expenses | ||||||||
| General & Administrative Expenses | 2,288,551 | 1,283,124 | ||||||
| Salaries and Wages | 1,148,364 | 1,011,315 | ||||||
| Depreciation and Amortization Expense | 108,439 | 75,912 | ||||||
| Total Operating Expenses | 3,545,354 | 2,370,351 | ||||||
| Net Loss from Operations | (2,432,332 | ) | (887,743 | ) | ||||
| Other Expenses (Income) | ||||||||
| Other Income | - | (1,373 | ) | |||||
| Gain on debt forgiveness & settlement | - | (140,916 | ) | |||||
| Interest Expense - Net | 10,996 | 48,105 | ||||||
| Total Other Expenses (Income) | 10,996 | (94,184 | ) | |||||
| Net Income (Loss) | $ | (2,443,328 | ) | $ | (793,559 | ) | ||
| Net Income (Loss) per share | ||||||||
| Basic | $ | (0.24 | ) | $ | (0.07 | ) | ||
| Diluted | $ | (0.24 | ) | $ | (0.07 | ) | ||
| Weighted average number of shares outstanding | ||||||||
| Basic | 11,694,204 | 10,784,456 | ||||||
| Diluted | 11,694,204 | 10,784,456 | ||||||
The accompanying notes are an integral part of these financial statements.
| 3 |
Consolidated Statements of Stockholders’ Equity (Deficit)
| Preferred Shares | Common Shares | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance, January 1, 2020 | - | $ | - | 9,999,605 | $ | 1,000 | $ | 2,428,000 | $ | (2,892,881 | ) | $ | (463,881 | ) | ||||||||||||||
| Preferred shares sold for cash | 1,239,127 | 1,953,516 | - | - | - | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (793,559 | ) | (793,559 | ) | |||||||||||||||||||
| Balance, December 31, 2021 | 1,239,127 | 1,953,516 | 9,999,605 | 1,000 | 2,428,000 | (3,686,440 | ) | (1,257,440 | ) | |||||||||||||||||||
| Preferred shares sold for cash | 233,174 | 396,396 | - | - | - | - | - | |||||||||||||||||||||
| Convertible notes payable | ||||||||||||||||||||||||||||
| converted to preferred shares | 573,639 | 975,187 | - | - | - | - | - | |||||||||||||||||||||
| Vesting of options | ||||||||||||||||||||||||||||
| granted to employees | - | - | - | - | 699,393 | - | 699,393 | |||||||||||||||||||||
| Vesting of options | ||||||||||||||||||||||||||||
| granted to non-employees | - | - | - | - | 392,680 | - | 392,680 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (2,443,328 | ) | (2,443,328 | ) | |||||||||||||||||||
| Balance, December 31, 2022 | 2,045,940 | $ | 3,325,099 | 9,999,605 | $ | 1,000 | $ | 3,520,073 | $ | (6,129,768 | ) | $ | (2,608,695 | ) | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
| 4 |
Consolidated Statement of Cash Flows
For the years ended December 31, 2022 and 2021
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (2,443,328 | ) | $ | (793,559 | ) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: | ||||||||
| Gain on forgiveness and settlement of debt | - | (140,916 | ) | |||||
| Loss on disposal of fixed assets | 19,750 | - | ||||||
| Depreciation | 108,439 | 75,912 | ||||||
| Stock based compensation | 1,092,073 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 185,601 | 51,211 | ||||||
| Inventory | 6,247 | (85,145 | ) | |||||
| Prepaid expenses | 780 | (30,618 | ) | |||||
| Right-of-use assets | 116,663 | 106,176 | ||||||
| Accounts payable | (133,724 | ) | 17,877 | |||||
| Accrued expenses | 4,328 | 49,381 | ||||||
| Right-of-use liability | (126,951 | ) | (115,356 | ) | ||||
| CASH USED IN OPERATING ACTIVITIES | (1,170,122 | ) | (865,037 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for purchase of fixed assets | (53,230 | ) | (182,812 | ) | ||||
| CASH USED IN INVESTING ACTIVITIES | (53,230 | ) | (182,812 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of preferred stock | 396,396 | 1,953,516 | ||||||
| Borrowings on convertible debt | - | 953,484 | ||||||
| Principal payments on loans payable | - | (936,912 | ) | |||||
| CASH PROVIDED BY FINANCING ACTIVITIES | 396,396 | 1,970,088 | ||||||
| NET INCREASE (DECREASE) IN CASH | (826,956 | ) | 922,239 | |||||
| CASH AT BEGINNING OF PERIOD | 1,015,258 | 93,019 | ||||||
| CASH AT END OF PERIOD | $ | 188,302 | $ | 1,015,258 | ||||
| NON-CASH TRANSACTIONS | ||||||||
| Conversion of notes payable and interest to preferred stock | $ | 975,187 | $ | - | ||||
The accompanying notes are an integral part of these financial statements.
| 5 |
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
| Note 1: | Summary of Significant Accounting Policies |
Company Operations
Two Trees Beverage Company, a Delaware corporation (the “Company”), reverently provides an improved, innovative maturation process to produce award-winning spirits, beer, wine and RTDs. Through its proprietary, rapid-aging process, Two Trees Beverage Co. develops premium craft beverages at scale with consistency in a sustainable and socially responsible manner using an endless combination of wood types and flavoring. Two Trees Beverage Co. offers rapid-aging on a contract basis to address consumer demand for premium products and improve speed-to-market for retailers and manufacturers while reducing the industry’s dependency on wood supply. Two Trees Beverage Co. provides third-party manufacturing for private label, new and established beverage brands that are looking for ways to diversify portfolios, and improve taste experiences.
Basis of Presentation
The accompanying audited consolidated financial statements for the Company and its wholly owned subsidiaries, Two Trees Distilling Company LLC and Prost Beverage Company, LLC were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for financial information. All intercompany accounts, transactions and balances have been eliminated in consolidation.
In management’s opinion, the audited consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s financial position as of December 31, 2021, and 2022.
Going Concern
The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained a net loss for the years ended December 31, 2022, and 2021 and does not have sufficient revenues and income to fully fund the operations. As a result, the Company has relied on loans from stockholders and others as well as stock sales to fund its activities to date. For the year ended December 31, 2022, the Company had a net loss of $2,443,328. At December 31, 2022, the Company had an accumulated deficit of $6,129,768. The Company anticipates that it will continue to generate operating losses and use cash in operations through the foreseeable future.
The Company’s management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Revenue Recognition
Net sales include product sales, less excise taxes and customer programs and incentives. The Company recognizes revenue by applying the following steps in accordance with Accounting Standards Codification (“ASC”) Topic 606 – Revenue from Contracts with Customers: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
The Company recognizes sales when merchandise is shipped from a warehouse directly to wholesale customers (except in the case of a consignment sale). For consignment sales, which include sales to the Oregon Liquor Control Commission, the Company recognizes sales upon the consignee’s shipment to the customer. Postage and handling charges billed to customers are also recognized as sales upon shipment of the related merchandise. Shipping terms are generally FOB shipping point, and title passes to the customer at the time and place of shipment or purchase by customers at a retail location. For consignment sales, title passes to the consignee concurrent with the consignee’s shipment to the customer. The customer has no cancellation privileges after shipment or upon purchase at retail locations, other than customary rights of return.
| 6 |
Basis of Accounting and Use of Estimates
The accompanying consolidated financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United State of America (US GAAP).
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent asset and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents
All highly liquid temporary cash investments with original maturities of three months or less are considered to be cash equivalents.
The Company maintains its cash balances in financial institutions. The balances in the financial institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, the Company’s cash balances may be in excess of the insured limit.
Inventory
Inventories primarily consist of bulk and bottled liquor and raw materials and are stated at the lower of cost or market. Cost is determined using an average costing methodology, which approximates cost under the first-in, first-out (“FIFO”) method. A portion of the Company’s finished goods inventory is held in warehouses located in several states that maintain control over the alcohol beverage distribution process until it is sold in to the retail distribution channel within those states. The Company regularly monitors inventory quantities on hand and records write-downs for excess and obsolete inventories based primarily on the Company’s estimated forecast of product demand and production requirements. Such write-downs establish a new cost basis of accounting for the related inventory.
Prepaid Expenses and Other Assets
Prepaid expenses primarily consist of prepaid purchases, insurance, income tax refund receivable, and various other expenses. These amounts are recognized as an expense in the period the related service or benefit is received.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives of the assets. Furniture and fixture assets are depreciated over seven years. Expenditures for renewals and betterments that extend the useful lives of or improve existing property or equipment are capitalized. Expenditures for maintenance and repairs are expensed as incurred.
Leases
Management determines if an arrangement is a lease at the inception of the agreement. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liability on the accompanying consolidated balance sheet. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses the rate implicit in the lease agreement, when available, or a discount rate based on the information available at the commencement date in determining the present value of lease payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
| 7 |
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair market value of the assets. During the years ended December 31, 2022, and 2021, no impairment expense was recognized.
Accounts Receivable and the Allowances for Doubtful Accounts
Accounts receivable are recorded in the period when the right to receive payment or other consideration becomes unconditional. Accounts receivable are recorded at the invoiced amount and do not earn interest. The Company maintains an allowance for doubtful accounts based upon the best estimate of probable credit losses in existing accounts receivable. The Company determines the allowance based upon individual accounts when information indicates the customers may have an inability to meet their financial obligations, as well as historical collection and write-off experience. The company had an accounts receivable balance of $145,099 net of zero allowance for doubtful accounts as of December 31, 2022. The company had an accounts receivable balance of $330,700 net of $3,058 allowance for doubtful accounts as of December 31, 2021.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Excise Taxes
The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) regulations, which includes making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcoholic beverages in varying amounts. The Company calculates its excise tax expense based upon units produced and on its understanding of the applicable excise tax laws. Excise taxes totaled $0.2 million and $0.3 million for the years ended December 31, 2022, and 2021, respectively.
Fair Value Measurement
GAAP defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. GAAP permits an entity to choose to measure many financial instruments and certain other items at fair value and contains financial statement presentation and disclosure requirements for assets and liabilities for which the fair value option is elected. As of December 31, 2022, and 2021, management has not elected to report any of the Company’s assets or liabilities at fair value under the “fair value option” provided by GAAP. The hierarchy of fair value valuation techniques under GAAP provides for three levels: Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, generally would require significant management judgment. The three levels for categorizing assets and liabilities under GAAP’s fair value measurement requirements are as follows:
| Level 1: | Fair value of the asset or liability is determined using cash or unadjusted quoted prices in active markets for identical assets or liabilities. |
| Level 2: | Fair value of the asset or liability is determined using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
| 8 |
| Level 3: | Fair value of the asset or liability is determined using unobservable inputs that are significant to the fair value measurement and reflect management’s own assumptions regarding the applicable asset or liability. |
None of the Company’s assets or liabilities were measured at fair value as of December 31, 2022, or 2021. However, GAAP requires the disclosure of fair value information about financial instruments that are not measured at fair value. Financial instruments consist principally of trade receivables, accounts payable, accrued liabilities, notes payable, and the secured credit facilities. The estimated fair value of trade receivables, accounts payable, and accrued liabilities approximate their carrying value due to the short period of time to their maturities. As of December 31, 2022, and 2021, the principal amounts of the Company’s notes approximate fair value.
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, (“ASU 2021-08”) which requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue Recognition. This ASU is effective for annual and interim periods beginning after December 15, 2022. Early adoption is permitted. The Company early adopted ASU 2021-08 for the year ended December 31, 2021.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, (“ASU 2020-06”) which simplifies the accounting for convertible instruments by eliminating the beneficial conversion feature and cash conversion models. Certain convertible instruments will be accounted for as a single unit of account, unless the conversion feature requires bifurcation and recognition as a derivative. Additionally, this ASU simplifies the earnings per share calculation, by eliminating the treasury stock method and requiring entities to use the if-converted method. This guidance is effective for annual periods beginning after December 31, 2021, with early adoption permitted. The Company early adopted ASU 2020-06 for the year ended December 31, 2021.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” (“ASU 2016-13”). The standard introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses and will apply to trade receivables. The new guidance will be effective for the Company’s annual and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of the adoption of the standard on the consolidated financial statements.
| Note 2: | Related Parties |
.
The Company granted 933,647 options for services to employees and non-employees during the year ended December 31, 2022, with various vesting terms. The options are for the issuance of one share of common stock with an exercise price of $0.36 per share.
Note 3: |
Prepaid Expenses and Other Assets |
Prepaid expenses for various prepaid insurance policies, including crime, property, machinery, and umbrella amounting to $35,715 and $36,495 as of December 31, 2022, and 2021, respectively.
| Note 4: | Accounts Payable and Accrued Expenses |
The Company’s accounts payable was $154,171 and $287,896 as of December 31, 2022, and 2021, respectively and consists of trade payables.
The Company’s accrued expenses was $32,006 and $49,381 as of December 31, 2022, and 2021, respectively and consists of accounting fees and production costs.
| 9 |
| Note 5: | Leases |
The Company maintains an operating lease for its office space and operating facility. The lease has a remaining term of 23 months. The Company determines if an arrangement is a lease at inception. As the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate based on information available at commencement to determine the present value of the lease payments. Right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less (“short-term leases”) are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. As of December 31, 2022, the amount of right-of-use assets and lease liabilities were $19,917 and $42,398, respectively. As of December 31, 2021, the amount of right-of-use assets and lease liabilities were $136,580 and $169,349, respectively. Aggregate lease expense for the years ended December 31, 2022, and 2021 $125,624 and $125,624, respectively.
| Remaining | ||||||||
| Operating | Term in | |||||||
| Lease | Years | |||||||
| 2023 | 54,744 | |||||||
| 2024 | - | |||||||
| 2025 | - | |||||||
| Total lease payments | 54,744 | |||||||
| Less imputed interest (based on 8% discount rate) | (12,346 | ) | ||||||
| Present value of lease liability | 42,398 | 0.17 | ||||||
| Note 6: | Contingencies and Concentration of Risks |
Contingencies
The Company is subject to various claims that arise in the normal course of business. In the opinion of management, the ultimate disposition of such claims will not have a material adverse effect on the financial position or results of operations of the Company.
Concentration of risks
None of the Company’s customers accounted for more than 10% of its revenues during the years ended December 31, 2022, and 2021.
Two of the Company’s customers accounted for more than 10% of its accounts receivable as of December 31, 2022, Customer A with 13% and Customer B with 11%. One of the Company’s customers accounted for more than 10% of its accounts receivable as of December 31, 2021, Customer A with 18%.
| Note 7: | Stock-Based Compensation |
The Company recognizes as compensation expense all stock-based awards issued to employees. The compensation cost is measured based on the grant-date fair value of the related stock-based awards and is recognized over the service period of stock-based awards, which is generally the same as the vesting period. The fair value of stock options is determined using the Black-Scholes valuation model, which estimates the fair value of each award on the date of grant based on a variety of assumptions including expected stock price volatility, expected terms of the awards, risk-free interest rate, and dividend rates, if applicable. Stock-based awards issued to nonemployees are recorded at fair value on the measurement date and are subject to periodic market adjustments at the end of each reporting period and as the underlying stock-based awards vest. The Company granted 933,647 options for services to employees and non-employees during the year ended December 31, 2022, with various vesting terms. The options are for the issuance of one share of common stock with an exercise price of $0.36 per share.
| 10 |
A summary of all stock option activity as of and for the year ended December 31, 2022 is presented below:
| Weighted-Average | ||||||||
| # of Options | Exercise Price | |||||||
| Outstanding as of December 31, 2021 | - | $ | - | |||||
| Options granted | 933,647 | 0.36 | ||||||
| Options cancelled | - | - | ||||||
| Options forfeited | - | - | ||||||
| Outstanding as of December 31, 2022 | 933,647 | $ | 0.36 | |||||
| Exercisable as of December 31, 2022 | 394,412 | $ | 0.36 | |||||
The aggregate intrinsic value of options outstanding as of December 31, 2022, was $0.
As of December 31, 2022, there were 278,000 unvested options with an aggregate grant date fair value of $0.36 per share. The unvested options will vest in accordance with the vesting schedule in each respective option agreement, which varies between immediate and five years from the grant date. The aggregate intrinsic value of unvested options as of December 31, 2022, was $0. During the year ended December 31, 2022, 482,647 options and warrants vested.
The estimated fair value of the options granted was based on a combination of recent sales price to third parties, and the Black-Scholes option-pricing model, using the assumptions below:
| Average Volatility | 268 | % | ||
| Average Risk-free interest rate | 3.25 | % | ||
| Average Expected term (in years) | 7.1 | |||
| Average Expected dividend yield | - | |||
| Fair Value of options | $ | 1.70 |
| Note 8: | Inventories |
Inventories primarily consist of bulk and bottled liquor and raw materials and are stated at the lower of cost or market. Cost is determined using an average costing methodology, which approximates cost under the first-in, first-out (“FIFO”) method. A portion of the Company’s finished goods inventory is held in warehouses located in several states that maintain control over the alcohol beverage distribution process until it is sold in to the retail distribution channel within those states. The Company regularly monitors inventory quantities on hand and records write-downs for excess and obsolete inventories based primarily on the Company’s estimated forecast of product demand and production requirements. Such write-downs establish a new cost basis of accounting for the related inventory.
Inventories consisted of the following as of December 31:
| 2022 | 2023 | |||||||
| Raw materials | $ | 63,383 | $ | 68,746 | ||||
| Finished goods | 313,355 | 314,239 | ||||||
| Total inventories | $ | 376,738 | $ | 382,985 | ||||
| 11 |
| Note 9: | Income Tax |
Due to its history of losses, the Company is not subject to federal or state income taxes.
The Company is subject to United States federal income taxes at an approximate rate of 21%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:
| Year Ended | Year Ended | |||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Federal tax rate | 21 | % | 21 | % | ||||
| Carryforward | $ | (3,686,440 | ) | $ | (2,892,881 | ) | ||
| Net loss | (2,443,328 | ) | (793,559 | ) | ||||
| Stock-based compensation | 1,092,073 | - | ||||||
| Net operating losses current | $ | (5,037,695 | ) | $ | (3,686,440 | ) | ||
The significant components of deferred income tax assets and liabilities at December 31, 2022 and 2021 are as follows:
| Year Ended | Year Ended | |||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Deferred tax assets | $ | 513,099 | $ | 166,647 | ||||
| Less: valuation allowance | (513,099 | ) | (166,647 | ) | ||||
| Net Deferred tax assets | $ | - | $ | - | ||||
| Note 10: | Stockholders’ Equity (Deficit) & Mezzanine |
Preferred Shares
The Company has 3,529,500 shares of preferred stock authorized with 1,239,127 shares outstanding as of December 31, 2021, and 2,045,940 outstanding as of December 31, 2022. The preferred shares have a par value of $0.0001, no dividends, voting rights of one vote per share, are convertible into common stock at a price of $1.70 per share, and with liquidation preferences in the event off a voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event.
During the year ended December 31, 2021, 1,239,127 shares were sold for total proceeds of $1,953,516 net of issuance costs of $153,000.
During the year ended December 31, 2022, 233,174 shares were sold to convertible note for total proceeds of $396,396 net of issuance costs of $19,820.
On June 1, 2022, the convertible note holders converted $953,484 of principal and $21,703 of accrued interest into preferred stock of the company at $1.70 per share with no gain or loss on the conversion as it occurred within the terms of the convertible note agreement. The conversion resulted in 573,639 shares of preferred stock being issued in 2022.
| 12 |
Common Shares
The Company has 15,000,000 shares of common stock authorized with 9,999,605 shares outstanding as of December 31, 2022, and 2021. The common shares have a par value of $0.0001, no dividends, voting rights of one vote per share.
| Note 11: | Convertible Notes Payable |
On May 4, 2021, and several subsequent dates through March 3, 2022, the Company issued convertible notes to a group of investors pursuant to a Subscription Agreement. The convertible notes accrued at a 2% rate per annum. On June 1, 2022, the convertible notes were converted into 573,639 preferred shares of the Company. The notes were convertible into shares of preferred stock at a conversion rate of $1.70 per share. On June 1, 2022, the convertible note holders converted $953,484 of principal and $21,704 of accrued interest into preferred stock of the company at $1.70 per share with no gain or loss on the conversion as it occurred within the terms of the convertible note agreement. The conversion resulted in 573,639 shares of preferred stock being issued in 2022.
| Note 12: | Loans Payable and Promissory Note Payable |
Loans payable for the year ended December 31, 2021, are listed in the table below, no loans payable activity occurred in the year ended December 31, 2022:
| Loans | Origination Date | Interest Rate | 2021 Borrowings | 2021 Repayments | 2021 Forgiveness | |||||||||||||
| Line of Credit – Center State Bank | 9/4/2019 | 4.50% | - | 447,000 | - | |||||||||||||
| Loan Payable – S.E.D. | Various | 0.00% | - | 337,314 | - | |||||||||||||
| Loan Payable – GM | Various | 5.00% | - | 7,006 | - | |||||||||||||
| PPP Loan – Center State Bank | 4/12/2020 | 0.00% | - | - | 76,500 | |||||||||||||
| PPP Loan – Center State Bank | 4/13/2020 | 0.00% | - | - | 46,000 | |||||||||||||
| Madden Shine, LLC | 7/31/2020 | 0.00% | - | - | 18,416 | |||||||||||||
| Line of Credit – Center State Bank | 7/31/2018 | 4.50% | - | 145,529 | - | |||||||||||||
| Total | $ | - | $ | 936,849 | $ | 140,916 | ||||||||||||
Interest expense of $48,105 was recorded in the year ended December 31, 2021. All balances were settled as of December 31, 2021, with no outstanding Loans Payable balance or related interest.
During the year ended December 31, 2020, the Company entered into a termination agreement and agreed to pay the sum of $50,000, pursuant to the agreement. During the year ended December 31, 2021, the Company issued a promissory note payable in the amount of $31,584 at the rate of 0.13% per annum, with a maturity date on or before January 1, 2025, for settlement of the $50,000 agreed upon in the termination agreement. During the year ended December 31, 2021, the Company recorded a gain of $18,416 on the settlement. The balance of the promissory note payable as of December 31, 2022, and 2021 is $31,584.
| Note 13: | Property and Equipment |
Property and equipment consisted of the following as of December 31:
| 2022 | 2021 | |||||||
| Furniture and equipment | $ | 145,401 | $ | - | ||||
| Machinery and equipment | 328,641 | 452,657 | ||||||
| Leasehold improvements | 113,474 | 101,380 | ||||||
| Less accumulated depreciation | (376,723 | ) | (268,285 | ) | ||||
| Total property and equipment, net | $ | 210,793 | $ | 285,752 | ||||
Purchases of property and equipment totaled $53,230 and $182,812 for the years ended December 31, 2022, and 2021, respectively. Depreciation expense totaled $108,439 and $75,912 for the years ended December 31, 2022, and 2021, respectively. A loss of $19,750 was recorded in the year ended December 31, 2022, for the disposal of equipment with a net book value of $19,750.
| Note 14: | Subsequent Events |
The existing lease was to expire on March 1, 2023, and was renewed on March 1, 2023, with a new term end date of February 28, 2026, with an option to extend the lease to February 28, 2029.
In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through December 11, 2023, the date these consolidated financial statements were available to be issued. Except as disclosed above, management was not aware of any subsequent events requiring additional accrual or disclosure in the accompanying consolidated financial statements, with the exception of the following transaction:
| 13 |
On December 8, 2023, the Company consummated the merger provided for in the Merger Agreement (the “Merger Agreement”), dated as of February 13, 2023, by and among MDwerks, Inc. (“MDwerks”), MD-TT Merger Sub, Inc., a wholly owned subsidiary of the MDwerks (“Merger Sub”) and the Company. The Merger Agreement was amended on February 16, 2023, September 11, 2023 and December 7, 2023. MDwerks, Merger Sub and The Company may be referred to herein collectively as the “Parties” and separately as a “Party.”
The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, the Parties wish to effect a business combination through a merger of Merger Sub with and into the Company (the “Merger”), subject to the terms and conditions set forth in the Merger Agreement, with the Company continuing as the surviving corporation (“Surviving Corporation”). As a result of the Merger, the certificate of incorporation of the Company as in effect immediately prior to the closing date will be the certificate of incorporation of the Surviving Corporation, and the bylaws of the Company as in effect immediately prior to the closing date will be the bylaws of the Surviving Corporation.
In consideration of the Merger Agreement, on December 8, 2023, the effective time of the Merger, each of the holders of the Company stock, subject to certain exceptions set forth in the Merger Agreement, converted all of the shares of the Company stock into a total of 60,000,000 shares of MDwerks common stock, which was apportioned between the Company stockholders, pro rata, based on the number of shares of the Company stock held by each of the Company stockholders as of the closing of the Merger (the “Merger Consideration”).
At the effective time of the Merger, shares of the Company’s common stock generally were treated in the following manner:
| ● | (1) Any shares of the Company common stock held as treasury stock or held or owned by the Company or Merger Sub immediately prior to the effective time of the Merger will be canceled and retired and will cease to exist, and no consideration will be delivered in exchange therefor; and (2) each share of the Company common stock outstanding immediately prior to the effective time of the Merger, excluding shares to be canceled pursuant to (1) herein and excluding shares of the Company common stock who have exercised and perfected appraisal rights for such shares in accordance with the Delaware General Corporation Law, will be automatically converted solely into the right to receive a number of shares of Company common stock equal to those set forth in the Merger Consideration. | |
| ● | No fractional shares of Company common stock will be issued in connection with the Merger and any fractional share otherwise issuable to any the Company stockholder will be rounded up to the next whole share. | |
| ● | Each share of common stock of Merger Sub issued and outstanding immediately prior to the effective time of the Merger will be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, $0.001 par value per share, of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares will, as of the effective time of the Merger, evidence shares of common stock of the Surviving Corporation. |
According to the terms of the Merger Agreement, MDwerks common stock issued at the closing of the Merger is subject to a lock-up, pursuant to which the Company stockholders receiving shares of MDwerks’s common stock will not transfer or dispose of the shares except according to the following schedule: (1) one-third of the shares will be released from the restriction on the nine-month anniversary of the effective date of the Merger; (2) one-third of the shares will be released from the restrictions on the 18-month anniversary of the effective date of the Merger; and (3) the remaining one-third of the shares will be released from the restrictions on the 36-month anniversary of the effective date of the Merger.
At the effective time of the Merger, the Company’ stock options (the “Company Options”) generally were treated in the following manner:
| ● | the Company option holders will exchange all of their Company Options for options to acquire shares of MDwerks common stock (the “MDwerks Options”). | |
| ● | The MDwerks Options will provide for substantially the same terms as the Company Options, other than (1) they will be fully vested at issuance, and will increase the number of shares of Company common stock underlying the MDwerks Options from the number of shares of the Company common stock underlying the Company Options, and (2) will retain the same exercise price per share of Company common stock underlying the MDwerks Options as the exercise price per share of the Company common stock underlying the Company Options, in each case as necessary to provide for the same spread value for each applicable option holder. |
Consummation of the Merger was subject to the satisfaction or waiver of customary closing conditions, including: (1) approval of the Merger Agreement by the Company stockholders; (2) the absence of any law or order by a governmental authority of the United States or certain non-United States jurisdictions that has the effect of rendering illegal or prohibiting consummation of the Merger, or causing the Merger to be rescinded following the completion thereof. In addition, consummation of the Merger by MDwerks and Merger Sub are subject to the satisfaction or waiver of customary closing conditions, including that (i) MDwerks will have completed its due diligence review of the Company to its satisfaction in its sole discretion; and (ii) the Company will have provided to MDwerks audited financial statements for the Company and related auditor reports thereon, as provided in the Merger Agreement.
The Parties intend, for U.S. federal income tax purposes, that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and that the Merger Agreement was adopted as a plan of reorganization within the meaning of Treasury Regulations Section 1.368-2(g).
| 14 |
Exhibit 99.2
Two Trees Beverage Company
Consolidated Unaudited Financial Statements
September 30, 2023
Table of Contents
Consolidated Balance Sheets
(Unaudited)
September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 30,064 | $ | 188,302 | ||||
| Accounts Receivable, Net | 81,246 | 145,099 | ||||||
| Inventory | 207,134 | 376,738 | ||||||
| Prepaid Expenses | 11,170 | 35,715 | ||||||
| Total current assets | 329,614 | 745,854 | ||||||
| Property & Equipment, Net | 180,379 | 210,793 | ||||||
| Right-of-use asset | 337,155 | 19,917 | ||||||
| Total assets | 847,148 | $ | 976,564 | |||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Accounts Payable | $ | 328,060 | $ | 154,172 | ||||
| Promissory Note Payable | 21,584 | 31,584 | ||||||
| Loan Payable – Related Party | 75,000 | - | ||||||
| Deferred Revenue | 44,759 | - | ||||||
| Accrued Expenses | 57,768 | 32,006 | ||||||
| Right-of-use Liability, current portion | 119,549 | 42,398 | ||||||
| Total current liabilities | 646,720 | 260,160 | ||||||
| Right-of-use Liability, net of current portion | 220,081 | - | ||||||
| Total liabilities | 866,801 | 260,160 | ||||||
| Mezzanine: | ||||||||
| Preferred stock, $0.0001 par value, 2,045,940 shares authorized of which 2,045,940 shares are issued and outstanding at September 30, 2023 and December 31, 2022. | 3,325,099 | 3,325,099 | ||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Common stock, $0.0001 par value, 9,999,605 shares authorized of which 9,999,605 shares are issued and outstanding at September 30, 2023 and December 31, 2022. | 1,000 | 1,000 | ||||||
| Additional paid in capital | 3,762,385 | 3,520,073 | ||||||
| Accumulated deficit | (7,108,137 | ) | (6,129,768 | ) | ||||
| Total stockholders’ Equity (Deficit) | (3,344,752 | ) | (2,608,695 | ) | ||||
| Total liabilities, Mezzanine and Stockholders’ Equity (Deficit) | $ | 847,148 | $ | 976,564 | ||||
See the accompanying notes to these unaudited consolidated financial statements
| 1 |
Consolidated Statements Of Operations
For The Nine Months Ended September 30, 2023 and 2022
(Unaudited)
September 30, 2023 | September 30, 2022 | |||||||
| Revenue | $ | 1,251,408 | $ | 2,064,124 | ||||
| Cost of Sales | 751,789 | 1,291,023 | ||||||
| 499,619 | 773,101 | |||||||
| OPERATING EXPENSES: | ||||||||
| General & Administrative Expense | 1,002,082 | 1,053,322 | ||||||
| Salary and Wages | 431,653 | 1,130,297 | ||||||
| Depreciation & Amortization Expense | 44,607 | 146,659 | ||||||
| Total operating expenses | 1,478,342 | 2,330,278 | ||||||
| Net loss from operations | (978,723 | ) | (1,557,177 | ) | ||||
| OTHER INCOME (EXPENSES): | ||||||||
| Other Income | 959 | 1,572 | ||||||
| Interest Expense - Net | (605 | ) | - | |||||
| Total other income (expense) | 354 | 1,572 | ||||||
| NET INCOME (LOSS) | $ | (978,369 | ) | $ | (1,555,605 | ) | ||
| Loss per common share, basic and diluted | $ | (0.08 | ) | $ | (0.13 | ) | ||
| Weighted average number of common shares outstanding, basic and diluted | 12,045,545 | 11,584,521 | ||||||
See the accompanying notes to these unaudited consolidated financial statements
| 2 |
Consolidated Statements Of Stockholders’ Equity (Deficit)
For The Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| Additional | Total Stockholders’ | |||||||||||||||||||||||||||
| Preferred Shares | Common Shares | Paid In | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance, December 31, 2022 | 2,045,940 | $ | 3,325,099 | 9,999,605 | $ | 1,000 | $ | 3,520,073 | $ | (6,129,768 | ) | $ | (2,608,695 | ) | ||||||||||||||
| Vesting of options granted to employees | - | - | - | - | 145,731 | - | 145,731 | |||||||||||||||||||||
| Vesting of options granted to non-employees | - | - | - | - | 96,581 | - | 96,581 | |||||||||||||||||||||
| Net Loss | - | - | - | - | (978,369 | ) | (978,369 | ) | ||||||||||||||||||||
| Balance, September 30, 2023 | 2,045,940 | $ | 3,325,099 | 9,999,605 | $ | 1,000 | $ | 3,762,385 | $ | (7,108,137 | ) | $ | (3,344,752 | ) | ||||||||||||||
| Balance, December 31, 2021 | 1,239,127 | $ | 1,953,516 | 9,999,605 | $ | 1,000 | $ | 2,428,000 | $ | (3,686,440 | ) | $ | (1,257,440 | ) | ||||||||||||||
| Preferred shares sold for cash | 164,872 | 280,396 | - | - | - | - | - | |||||||||||||||||||||
| Convertible notes payable converted to preferred shares | 573,639 | 975,187 | - | - | - | - | - | |||||||||||||||||||||
| Vesting of options granted to employees | - | - | - | - | 267,594 | - | 267,594 | |||||||||||||||||||||
| Vesting of options granted to non-employees | - | - | - | - | 141,480 | - | 141,480 | |||||||||||||||||||||
| Net Loss | - | - | - | - | (1,555,605 | ) | (1,555,605 | ) | ||||||||||||||||||||
| Balance, September 30, 2022 | 1,977,638 | $ | 3,209,099 | 9,999,605 | $ | 1,000 | $ | 2,837,074 | $ | (5,242,045 | ) | $ | (2,403,971 | ) | ||||||||||||||
See the accompanying notes to these unaudited consolidated financial statements
| 3 |
Consolidated Statement of Cash Flows
For The Nine Months Ended September 30, 2023 and 2022
(Unaudited)
September 30, 2023 | September 30, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (Loss) | $ | (978,369 | ) | $ | (1,555,605 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on disposal of fixed assets | - | 19,750 | ||||||
| Depreciation Expense | 44,607 | 146,659 | ||||||
| Stock-based compensation | 242,312 | 409,074 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts Receivable | 63,853 | 65,092 | ||||||
| Prepaid Expenses | 24,545 | (5,093 | ) | |||||
| Inventory | 169,604 | (40,884 | ) | |||||
| Right-of-use asset | (329,016 | ) | 2,396 | |||||
| Accounts Payable | 173,888 | (20,564 | ) | |||||
| Deferred Revenue | 44,759 | - | ||||||
| Accrued Expenses | 25,762 | 61,167 | ||||||
| Right-of-use Liability | 297,232 | (94,258 | ) | |||||
| Net cash used in operating activities | (220,823 | ) | (1,012,266 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | (2,415 | ) | (50,466 | ) | ||||
| Net cash provided by (used in) investing activities | (2,415 | ) | (50,466 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on promissory note | (10,000 | ) | - | |||||
| Proceeds from loans payable | 75,000 | - | ||||||
| Proceeds from sale of preferred stock | - | 266,375 | ||||||
| Net cash provided by financing activities | 65,000 | 266,375 | ||||||
| Net change in cash | (158,238 | ) | (796,357 | ) | ||||
| Cash at beginning of period | 188,302 | 1,015,258 | ||||||
| Cash at end of period | $ | 30,064 | $ | 218,901 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | - | - | ||||||
| Cash paid for taxes | - | - | ||||||
| Supplemental disclosure of cash flow from financing activities: | ||||||||
| Conversion of notes payable and interest to preferred stock | $ | - | $ | 975,187 | ||||
See the accompanying notes to these unaudited consolidated financial statements
| 4 |
Two Trees Beverage Company
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND GOING CONCERN
Organization and Nature of Operations
Two Trees Beverage Company, a Delaware corporation (the “Company”), reverently provides an improved, innovative maturation process to produce award-winning spirits, beer, wine and RTDs. Through its proprietary, rapid-aging process, the Company develops premium craft beverages at scale with consistency in a sustainable and socially responsible manner using an endless combination of wood types and flavoring. The Company offers rapid-aging on a contract basis to address consumer demand for premium products and improve speed-to-market for retailers and manufacturers while reducing the industry’s dependency on wood supply. The Company provides third-party manufacturing for private label, new and established beverage brands that are looking for ways to diversify portfolios, and improve taste experiences.
Going Concern
The Company’s interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained a net loss for the nine months ended September 30, 2023, and does not have sufficient revenues and income to fully fund the operations. As a result, the Company has relied on loans from stockholders and others as well as stock sales to fund its activities to date. For the nine months ended September 30, 2023, the Company had a net loss of $978,369. At September 30, 2023, the Company had an accumulated deficit of $7,108,137. The Company anticipates that it will continue to generate operating losses and use cash in operations through the foreseeable future.
The Company’s management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2022. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been omitted from this report.
Results for the interim periods in this report are not necessarily indicative of future financial results and have not been audited by our independent registered public accounting firm. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our interim consolidated financial statements as of September 30, 2023, and for the nine months ended September 30, 2023, and 2022. These adjustments are of a normal recurring nature and consistent with the adjustments recorded to prepare the annual audited consolidated financial statements as of December 31, 2022.
Basis of Presentation
The accompanying interim consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries, Two Trees Distilling Company LLC and Prost Beverage Company, LLC. All intercompany accounts, transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable and the Allowances for Doubtful Accounts
Accounts receivable are recorded in the period when the right to receive payment or other consideration becomes unconditional. Accounts receivable are recorded at the invoiced amount and do not earn interest. The Company maintains an allowance for doubtful accounts based upon the best estimate of probable credit losses in existing accounts receivable. The Company determines the allowance based upon individual accounts when information indicates the customers may have an inability to meet their financial obligations, as well as historical collection and write-off experience. The company had an accounts receivable balance of $81,246 net of zero allowance for doubtful accounts as of September 30, 2023. The company had an accounts receivable balance of $145,099 net of zero allowance for doubtful accounts as of December 31, 2022
| 5 |
Inventory
Inventories primarily consist of bulk and bottled liquor and raw materials and are stated at the lower of cost or market. Cost is determined using an average costing methodology, which approximates cost under the first-in, first-out (“FIFO”) method. A portion of the Company’s finished goods inventory is held in warehouses located in several states that maintain control over the alcohol beverage distribution process until it is sold in to the retail distribution channel within those states. The Company regularly monitors inventory quantities on hand and records write-downs for excess and obsolete inventories based primarily on the Company’s estimated forecast of product demand and production requirements. Such write-downs establish a new cost basis of accounting for the related inventory.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair market value of the assets. During the nine months ended September 30, 2023, and year ended December 31, 2022, no impairment expense was recognized.
Excise Taxes
The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) regulations, which includes making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcoholic beverages in varying amounts. The Company calculates its excise tax expense based upon units produced and on its understanding of the applicable excise tax laws. Excise taxes totaled $0.03 million and $0.02 million for the nine months ended September 30, 2023, and 2022, respectively.
Revenue Recognition
Net sales include product sales, less excise taxes and customer programs and incentives. The Company recognizes revenue by applying the following steps in accordance with Accounting Standards Codification (“ASC”) Topic 606 – Revenue from Contracts with Customers: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
The Company recognizes sales when merchandise is shipped from a warehouse directly to wholesale customers (except in the case of a consignment sale). For consignment sales, which include sales to the Oregon Liquor Control Commission, the Company recognizes sales upon the consignee’s shipment to the customer. Postage and handling charges billed to customers are also recognized as sales upon shipment of the related merchandise. Shipping terms are generally FOB shipping point, and title passes to the customer at the time and place of shipment or purchase by customers at a retail location. For consignment sales, title passes to the consignee concurrent with the consignee’s shipment to the customer. The customer has no cancellation privileges after shipment or upon purchase at retail locations, other than customary rights of return.
Fair Value Measurement
None of the Company’s assets or liabilities were measured at fair value as of September 30, 2023, and December 31, 2022. However, GAAP requires the disclosure of fair value information about financial instruments that are not measured at fair value. Financial instruments consist principally of trade receivables, accounts payable, accrued liabilities, notes payable, and the secured credit facilities. The estimated fair value of trade receivables, accounts payable, and accrued liabilities approximate their carrying value due to the short period of time to their maturities. As of September 30, 2023, and December 31, 2022, the principal amounts of the Company’s notes approximate fair value.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” (“ASU 2016-13”). The standard introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses and will apply to trade receivables. The new guidance will be effective for the Company’s annual and interim periods beginning after December 15, 2022. The adoption of the standard on the consolidated financial statements had no material impact.
| 6 |
Note 2: Loan Payable Related Pary
During the nine months ended September 30, 2023, the Company received loans in the amount of $75,000. The loans are non-interest bearing and due on demand. The loan payable balance as of September 30, 2023, and December 31, 2022, was $75,000 and $0, respectively.
Note 3: Promissory Note Payable
During the year ended December 31, 2020, the Company entered into a termination agreement and agreed to pay the sum of $50,000, pursuant to the agreement. During the year ended December 31, 2021, the Company issued a promissory note payable in the amount of $31,584 at the rate of 0.13% per annum, with a maturity date on or before January 1, 2025, for settlement of the $50,000 agreed upon in the termination agreement. The balance as of September 30, 2023, and December 31, 2022, is $21,584 and $31,584, respectively. During the period ended September 30, 2023, the Company made a payment of $10,000.
Note 4: Deferred Revenue
During the nine months ended September 30, 2023, the Company recorded deferred revenue in the amount of $44,759 for payments received for product sales not yet delivered as of September 30, 2023.
Note 5: Leases
The Company maintains an operating lease for its office space and operating facility. The lease has a remaining term of 29 months. The Company determines if an arrangement is a lease at inception. As the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate based on information available at commencement to determine the present value of the lease payments. Right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less (“short-term leases”) are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. As of September 30, 2023, and December 31, 2022, the amount of right-of-use assets and lease liabilities were $339,630 and $42,398, respectively. Aggregate lease expense for the nine months ended September 30, 2023, and 2022 were $99,906 and $126,987, respectively.
| Remaining | ||||||||
| Operating | Term in | |||||||
| Lease | Years | |||||||
| 2023 | 144,231 | |||||||
| 2024 | 144,231 | |||||||
| 2025 | 60,096 | |||||||
| Total lease payments | 348,558 | |||||||
| Less imputed interest | (8,928 | ) | ||||||
| Present value of lease liability | 339,630 | 2.42 | ||||||
Note 6: Contingencies and Concentration of Risks
Contingencies
The Company is subject to various claims that arise in the normal course of business. In the opinion of management, the ultimate disposition of such claims will not have a material adverse effect on the financial position or results of operations of the Company.
Concentration of risks
None of the Company’s customers accounted for more than 10% of its revenues during the nine months ended September 30, 2023, and 2022.
Two of the Company’s customers accounted for more than 10% of its accounts receivable as of September 30, 2023, Customer A with 24% and Customer B with 15%. Two of the Company’s customers accounted for more than 10% of its accounts receivable as of December 31, 2022, Customer A with 13% and Customer B with 11%.
Note 7: Stock-Based Compensation
The Company recognizes as compensation expense all stock-based awards issued to employees. The compensation cost is measured based on the grant-date fair value of the related stock-based awards and is recognized over the service period of stock-based awards, which is generally the same as the vesting period. The fair value of stock options is determined using the Black-Scholes valuation model, which estimates the fair value of each award on the date of grant based on a variety of assumptions. The Company granted 933,647 options for services to employees and non-employees during the year ended December 31, 2022, with various vesting terms. The options are for the issuance of one share of common stock with an exercise price of $0.36 per share.
| 7 |
A summary of all stock option activity as of and for the nine months ended September 30, 2023, is presented below:
| Weighted-Average | ||||||||
| # of Options | Exercise Price | |||||||
| Outstanding as of December 31, 2022 | 933,647 | $ | 0.36 | |||||
| Options granted | - | - | ||||||
| Options cancelled | - | - | ||||||
| Options forfeited | - | - | ||||||
| Outstanding as of September 30, 2023 | 933,647 | $ | 0.36 | |||||
| Exercisable as of September 30, 2023 | 549,412 | $ | 0.36 | |||||
The aggregate intrinsic value of options outstanding as of September 30, 2023, was $0.
As of September 30, 2023, and December 31, 2022, there were 0 and 278,000 unvested options with an aggregate grant date fair value of $0.36 per share. The unvested options will vest in accordance with the vesting schedule in each respective option agreement, which varies between immediate and five years from the grant date. The aggregate intrinsic value of unvested options as of September 30, 2023, and December 31, 2022, was $0. During the nine months ended September 30, 2023, 637,647 and 482,647 options and warrants vested, respectively.
Note 8: Inventories
Inventories primarily consist of bulk and bottled liquor and raw materials and are stated at the lower of cost or market. Cost is determined using an average costing methodology, which approximates cost under the first-in, first-out (“FIFO”) method. A portion of the Company’s finished goods inventory is held in warehouses located in several states that maintain control over the alcohol beverage distribution process until it is sold in to the retail distribution channel within those states. The Company regularly monitors inventory quantities on hand and records write-downs for excess and obsolete inventories based primarily on the Company’s estimated forecast of product demand and production requirements. Such write-downs establish a new cost basis of accounting for the related inventory.
Inventories consisted of the following as of September 30, 2023, and December 31, 2022:
| 2023 | 2022 | |||||||
| Raw materials | $ | 62,364 | $ | 63,383 | ||||
| Finished goods | 144,770 | 313,355 | ||||||
| Total inventories | $ | 207,134 | $ | 376,738 | ||||
Note 9: Stockholders Equity (Deficit) & Mezzanine
Preferred Shares - Mezzanine
The Company has 3,529,500 shares of preferred stock authorized with 2,045,940 issued and outstanding as of September 30, 2023, and December 31, 2022. The preferred shares have a par value of $0.0001, no dividends, voting rights of one vote per share, are convertible into common stock at a price of $1.70 per share, and with liquidation preferences in the event off a voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event.
No preferred shares were issued during the nine months ended September 30, 2023.
During the year ended December 31, 2022, 233,174 shares were sold to for total proceeds of $396,396 net of issuance costs of $19,820.
On June 1, 2022, the convertible note holders converted $953,484 of principal and $21,704 of accrued interest into preferred stock of the company at $1.70 per share with no gain or loss on the conversion as it occurred within the terms of the convertible note agreement. The conversion resulted in 573,639 shares of preferred stock being issued in 2022.
| 8 |
Common Shares
The Company has 15,000,000 shares of common stock authorized with 9,999,605 shares issued and outstanding as of September 30, 2023, and December 31, 2022. The common shares have a par value of $0.0001, no dividends, voting rights of one vote per share.
No common shares were issued during the nine months ended September 30, 2023.
Note 10: Property and Equipment
Property and equipment consisted of the following as of September 30, 2023, and December 31, 2022:
| 2023 | 2022 | |||||||
| Furniture and equipment | $ | 145,401 | $ | 145,401 | ||||
| Machinery and equipment | 342,833 | 328,641 | ||||||
| Leasehold improvements | 113,474 | 113,474 | ||||||
| Less accumulated depreciation | (421,329 | ) | (376,723 | ) | ||||
| Total property and equipment, net | $ | 180,379 | $ | 210,793 | ||||
Purchases of machinery and equipment totaled $2,415 and $50,466 for the nine months ended September 30, 2023, and 2022, respectively. Depreciation expense totaled $44,607 and $146,659 for the nine months ended September 30, 2023, and 2022, respectively.
Note 11: Subsequent Events
In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through December 6, 2023, the date these consolidated financial statements were available to be issued. Except as disclosed above, management was not aware of any subsequent events requiring additional accrual or disclosure in the accompanying consolidated financial statements.
Merger Agreement with MDwerks, Inc.
On December 8, 2023, the Company consummated the merger provided for in the Merger Agreement (the “Merger Agreement”), dated as of February 13, 2023, by and among MDwerks, Inc. (“MDwerks”), MD-TT Merger Sub, Inc., a wholly owned subsidiary of the MDwerks (“Merger Sub”) and the Company. The Merger Agreement was amended on February 16, 2023, September 11, 2023 and December 7, 2023. MDwerks, Merger Sub and The Company may be referred to herein collectively as the “Parties” and separately as a “Party.”
The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, the Parties wish to effect a business combination through a merger of Merger Sub with and into the Company (the “Merger”), subject to the terms and conditions set forth in the Merger Agreement, with the Company continuing as the surviving corporation (“Surviving Corporation”). As a result of the Merger, the certificate of incorporation of the Company as in effect immediately prior to the closing date will be the certificate of incorporation of the Surviving Corporation, and the bylaws of the Company as in effect immediately prior to the closing date will be the bylaws of the Surviving Corporation.
In consideration of the Merger Agreement, on December 8, 2023, the effective time of the Merger, each of the holders of the Company stock, subject to certain exceptions set forth in the Merger Agreement, converted all of the shares of the Company stock into a total of 60,000,000 shares of MDwerks common stock, which was apportioned between the Company stockholders, pro rata, based on the number of shares of the Company stock held by each of the Company stockholders as of the closing of the Merger (the “Merger Consideration”).
At the effective time of the Merger, shares of the Company’s common stock generally were treated in the following manner:
| ● | (1) Any shares of the Company common stock held as treasury stock or held or owned by the Company or Merger Sub immediately prior to the effective time of the Merger will be canceled and retired and will cease to exist, and no consideration will be delivered in exchange therefor; and (2) each share of the Company common stock outstanding immediately prior to the effective time of the Merger, excluding shares to be canceled pursuant to (1) herein and excluding shares of the Company common stock who have exercised and perfected appraisal rights for such shares in accordance with the Delaware General Corporation Law, will be automatically converted solely into the right to receive a number of shares of Company common stock equal to those set forth in the Merger Consideration. | |
| ● | No fractional shares of Company common stock will be issued in connection with the Merger and any fractional share otherwise issuable to any the Company stockholder will be rounded up to the next whole share. |
| 9 |
| ● | Each share of common stock of Merger Sub issued and outstanding immediately prior to the effective time of the Merger will be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, $0.001 par value per share, of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares will, as of the effective time of the Merger, evidence shares of common stock of the Surviving Corporation. |
According to the terms of the Merger Agreement, MDwerks common stock issued at the closing of the Merger is subject to a lock-up, pursuant to which the Company stockholders receiving shares of MDwerks’s common stock will not transfer or dispose of the shares except according to the following schedule: (1) one-third of the shares will be released from the restriction on the nine-month anniversary of the effective date of the Merger; (2) one-third of the shares will be released from the restrictions on the 18-month anniversary of the effective date of the Merger; and (3) the remaining one-third of the shares will be released from the restrictions on the 36-month anniversary of the effective date of the Merger.
At the effective time of the Merger, the Company’ stock options (the “Company Options”) generally were treated in the following manner:
| ● | the Company option holders will exchange all of their Company Options for options to acquire shares of MDwerks common stock (the “MDwerks Options”). | |
| ● | The MDwerks Options will provide for substantially the same terms as the Company Options, other than (1) they will be fully vested at issuance, and will increase the number of shares of Company common stock underlying the MDwerks Options from the number of shares of the Company common stock underlying the Company Options, and (2) will retain the same exercise price per share of Company common stock underlying the MDwerks Options as the exercise price per share of the Company common stock underlying the Company Options, in each case as necessary to provide for the same spread value for each applicable option holder. |
Consummation of the Merger was subject to the satisfaction or waiver of customary closing conditions, including: (1) approval of the Merger Agreement by the Company stockholders; (2) the absence of any law or order by a governmental authority of the United States or certain non-United States jurisdictions that has the effect of rendering illegal or prohibiting consummation of the Merger, or causing the Merger to be rescinded following the completion thereof. In addition, consummation of the Merger by MDwerks and Merger Sub are subject to the satisfaction or waiver of customary closing conditions, including that (i) MDwerks will have completed its due diligence review of the Company to its satisfaction in its sole discretion; and (ii) the Company will have provided to MDwerks audited financial statements for the Company and related auditor reports thereon, as provided in the Merger Agreement.
The Parties intend, for U.S. federal income tax purposes, that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and that the Merger Agreement was adopted as a plan of reorganization within the meaning of Treasury Regulations Section 1.368-2(g).
| 10 |
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial data are presented to illustrate the effect of the following merger agreement (the “Merger”): On February 13, 2023, MDwerks, Inc. (the “Company”) entered into a Merger Agreement (the “Merger Agreement”), by and between the Company, MD-TT Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”) and Two Trees Beverage Co. (“Two Trees”). The Merger Agreement was amended on February 16, 2023, September 11, 2023 and December 7, 2023. The Company, Merger Sub and Two Trees may be referred to herein collectively as the “Parties” and separately as a “Party.” The Merger closed on December 8, 2023.
In consideration of the Merger Agreement, at the effective time of the Merger, each of the holders of Two Trees stock, subject to certain exceptions set forth in the Merger Agreement, shall have the right to convert all of the shares of Two Trees stock into a total of 60,000,000 shares of Company common stock, which shall be apportioned between the Two Trees stockholders, pro rata, based on the number of shares of Two Trees stock held by each of the Two Trees stockholders as of the closing of the Merger (the “Merger Consideration”). In addition, at the effective time of the Merger, stock options to purchase shares of Two Trees common stock (the “Two Trees Stock Options”) generally will be treated in the following manner:
| ● | the holders of the Two Trees Stock Options will exchange all of their Two Trees Stock Options for options to acquire shares of the Company’s common stock (the “MDwerks Options”). | |
| ● | The MDwerks Options will provide for substantially the same terms as the Two Trees Stock Options, other than (1) they will be fully vested at issuance, and will increase the number of shares of Company common stock underlying the MDwerks Options from the number of shares of the Company common stock underlying the Two Trees Stock Options, and (2) will retain the same exercise price per share of Company common stock underlying the MDwerks Options as the exercise price per share of the Company common stock underlying the Two Trees Stock Options, in each case as necessary to provide for the same spread value for each applicable option holder. |
The following unaudited pro forma combined balance sheet data as of September 30, 2023, is presented as if the Merger had occurred on January 1, 2022. The following unaudited pro forma combined statements of operations data for the nine months ended September 30, 2023, and the year ended December 31, 2022, is presented as if the Merger occurred on January 1, 2022.
The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable under the circumstances; however, the actual results could differ. The pro forma adjustments are directly attributable to the Merger and are expected to have a continuing impact on the results of operations of the Company. Management believes that all adjustments necessary to present fairly the unaudited pro forma combined financial statements have been made. The unaudited pro forma combined financial statements are presented for informational purposes only and are not necessarily indicative of the results of operations that would have resulted had the Merger been consummated on the dates indicated and should not be construed as being representative of the Company’s future results of operations or financial position.
The acquired assets, liabilities and results of operations presented herein were derived from the audited financial statements of the Two Trees for the year ended December 31, 2022 and the unaudited interim financial statements for the nine months ended September 30, 2023 (collectively, the “Financial Statements”).
The unaudited pro forma combined financial statements included herein constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See the sections titled “Cautionary Note Regarding Forward-Looking Information” in the Company’s Current Report on Form 8-K which these unaudited pro forma combined financial statements are a part of and the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, as filed with the Commission.
MDwerks, Inc.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2023
Historical Two Trees Beverage Company | Historical MDwerks, Inc. | Pro Forma | Combined Pro Forma | |||||||||||||
September 30, 2023 | September 30, 2023 | Adjustments ( See Notes) | September 30, 2023 | |||||||||||||
| ASSETS | ||||||||||||||||
| Current Assets | ||||||||||||||||
| Cash | $ | 30,064 | $ | 166,048 | $ | - | $ | 196,112 | ||||||||
| Accounts receivable, net | 81,246 | - | - | 81,246 | ||||||||||||
| Loans receivable | - | 75,000 | (75,000 | )(b) | - | |||||||||||
| Inventory | 207,134 | - | - | 207,134 | ||||||||||||
| Prepaid expenses | 11,170 | - | - | 11,170 | ||||||||||||
| Total current assets | 329,614 | 241,048 | (75,000 | ) | 495,662 | |||||||||||
| Non-current Assets | ||||||||||||||||
| Right-of-use asset | 337,155 | - | - | 337,155 | ||||||||||||
| Intangible Assets, net | - | 18,864 | - | 18,864 | ||||||||||||
| Property & Equipment, net | 180,379 | 61,856 | - | 242,235 | ||||||||||||
| Other Assets, net | - | - | - | - | ||||||||||||
| Note receivable | 95,000 | 95,000 | ||||||||||||||
| Goodwill | - | 604,653 | (d) | 604,653 | ||||||||||||
| - | ||||||||||||||||
| TOTAL ASSETS | $ | 847,148 | $ | 416,768 | $ | 529,653 | $ | 1,793,569 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Accounts payable & accrued expenses | 328,060 | 6,640 | - | 334,700 | ||||||||||||
| Advances payable | - | 203,504 | - | 203,504 | ||||||||||||
| Notes Payable, current | 21,584 | - | - | 21,584 | ||||||||||||
| Loan Payable – Related Party | 75,000 | - | (75,000 | )(b) | - | |||||||||||
| Deferred Revenue | 44,759 | - | 44,759 | |||||||||||||
| Accrued expenses | 57,768 | - | 57,768 | |||||||||||||
| Right-of-use liability, current portion | 119,549 | - | 119,549 | |||||||||||||
| Total current liabilities | 646,720 | 210,144 | (75,000 | ) | 781,864 | |||||||||||
| Right-of-use Liability, net of current portion | 220,081 | 220,081 | ||||||||||||||
| Total liabilities | 866,801 | 210,144 | (75,000 | ) | 1,001,945 | |||||||||||
| Mezzanine | ||||||||||||||||
| Preferred stock, par value $0.0001; 2,045,940 shares authorized of which 2,045,940 shares are issued and outstanding as of September 30, 2023 | 3,325,099 | (3,325,099 | )(a) | - | ||||||||||||
| Stockholders’ Equity (Deficit) | ||||||||||||||||
| Preferred stock, par value .0001; 10,000,000 shares authorized, of which 8,957,500 are issued and outstanding as of September 30, 2023 | 8,958 | 8,958 | ||||||||||||||
| Common stock, par value $0.0001; 9,999,605 shares authorized of which 9,999,605 shares are issued and outstanding as of September 30, 2023 | 1,000 | (1,000 | )(a) | - | ||||||||||||
| Common stock, par value .0001, 300,000,000 shares authorized, of which 122,260,208 shares issued and outstanding as of September 30, 2023 | 127,492 | 60,000 | (c) | 187,492 | ||||||||||||
| Additional paid-in capital | 3,762,385 | 593,602 | (3,237,385 | )(a),(c) | 1,118,602 | |||||||||||
| Accumulated deficit | (7,108,137 | ) | (523,428 | ) | 7,108,137 | (a) | (523,428 | ) | ||||||||
| Total stockholders’ equity (deficit) | (3,344,752 | ) | 206,624 | 604,653 | 791,624 | |||||||||||
| TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 847,148 | $ | 416,768 | $ | 529,653 | $ | 1,793,569 | ||||||||
See the accompanying notes to these unaudited proforma consolidated financial statements
MDwerks, Inc.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
Consolidated Historical Two Trees Beverage Company September 30, 2023 | Historical MDwerks, Inc. September 30, 2023 | Pro Forma Adjustments | Combined Pro Forma September 30, 2023 | |||||||||||||
| Total Income | $ | 1,251,408 | $ | - | $ | - | $ | 1,251,408 | ||||||||
| Cost of Goods Sold | 751,789 | - | - | 751,789 | ||||||||||||
| Gross profit | 499,619 | - | - | 499,619 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General & Administrative Expense | 1,002,082 | 234,659 | - | 1,236,741 | ||||||||||||
| Salary and Wages | 431,653 | - | - | 431,653 | ||||||||||||
| Depreciation & Amortization Expense | 44,607 | - | - | 44,607 | ||||||||||||
| Total operating expenses | 1,478,342 | 234,659 | - | 1,713,001 | ||||||||||||
| Income (loss) from operations | (978,723 | ) | (234,659 | ) | - | (1,213,382 | ) | |||||||||
| Other income (expense): | ||||||||||||||||
| Other Income | 959 | - | - | 959 | ||||||||||||
| Interest Expense - Net | (605 | ) | (9,908 | ) | - | (10,513 | ) | |||||||||
| Gain on Sale of Asset | - | 168,855 | - | 168,855 | ||||||||||||
| Total other income (expense) | 354 | 158,947 | - | 159,301 | ||||||||||||
| Income (loss) before income taxes | (978,369 | ) | (75,712 | ) | - | (1,054,081 | ) | |||||||||
| Income tax benefit | - | - | - | - | ||||||||||||
| Net income (loss) | $ | (978,369 | ) | $ | (75,712 | ) | $ | - | (1,054,081 | ) | ||||||
| - | ||||||||||||||||
| Income (loss) per common share | ||||||||||||||||
| Basic | $ | (0.00 | ) | $ | (0.01 | ) | ||||||||||
| Shares used in computing earnings/(loss) per common share | ||||||||||||||||
| Basic | 124,077,691 | 60,000,000 | 184,077,691 | |||||||||||||
See the accompanying notes to these unaudited proforma consolidated financial statements
MDwerks, Inc.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2022
Historical Two Trees Beverage Company December 31, 2022 | Historical MDwerks, Inc. December 31, 2022 | Pro Forma Adjustments | Combined Pro Forma December 31, 2022 | |||||||||||||
| Total Income | $ | 2,602,058 | $ | - | $ | - | $ | 2,602,058 | ||||||||
| Cost of Goods Sold | 1,489,036 | - | 1,489,036 | |||||||||||||
| Gross profit | 1,113,022 | - | - | 1,113,022 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | 2,288,551 | 136,721 | 2,425,272 | |||||||||||||
| Salaries and Wages | 1,148,364 | 1,148,364 | ||||||||||||||
| Depreciation and Amortization | 108,439 | 108,439 | ||||||||||||||
| Total operating expenses | 3,525,534 | 136,721 | - | 3,682,075 | ||||||||||||
| Income (loss) from operations | (2,432,332 | ) | (136,721 | ) | - | (2,569,053 | ) | |||||||||
| Other income (expense): | ||||||||||||||||
| Other Income/(Loss) - Tax/Depr/Amort | - | - | ||||||||||||||
| Interest | (10,996 | ) | - | (10,996 | ) | |||||||||||
| Total other income (expense) | (10,996 | ) | - | - | (10,996 | ) | ||||||||||
| Income (loss) before income taxes | (2,443,328 | ) | (136,721 | ) | - | (2,580,049 | ) | |||||||||
| Income tax benefit | - | - | ||||||||||||||
| Net income (loss) | $ | (2,443,328 | ) | $ | (136,721 | ) | $ | - | $ | (2,580,049 | ) | |||||
| Income (loss) per common share | ||||||||||||||||
| Basic | $ | (0.00 | ) | $ | (0.01 | ) | ||||||||||
| Shares used in computing earnings/(loss) per common share | ||||||||||||||||
| Basic | 123,284,882 | 60,000,000 | 183,284,882 | |||||||||||||
See the accompanying notes to these unaudited proforma consolidated financial statements
MDwerks, Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
| 1. | DESCRIPTION OF TRANSACTIONS |
Two Trees Merger Agreement
On February 13, 2023, MDwerks, Inc. (the “Company”) entered into a Merger Agreement (the “Merger Agreement”), dated as of February 13, 2023, by and between the Company, MD-TT Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”) and Two Trees Beverage Company (“Two Trees”). The Company, Merger Sub and Two Trees may be referred to herein collectively as the “Parties” and separately as a “Party.”
The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, the Parties wish to effect a business combination through a merger of Merger Sub with and into Two Trees (the “Merger”), subject to the terms and conditions set forth in the Merger Agreement, with Two Trees continuing as the surviving corporation (“Surviving Corporation”). As a result of the Merger, the certificate of incorporation of Two Trees as in effect immediately prior to the closing date will be the certificate of incorporation of the Surviving Corporation, and the bylaws of Two Trees as in effect immediately prior to the closing date will be the bylaws of the Surviving Corporation.
Pursuant to the terms of the Merger Agreement, at the closing of the Merger, the Company’s Board of Directors (the “Company Board”) will be expanded and a number of persons as named by Two Trees will be named to the Company Board such that such persons comprise a majority of the Company Board, and the Company Board as such newly constituted will name or replace any officers of the Company as it may determine. In addition, at the closing of the Merger, the directors and officers of Two Trees as in place immediately prior to the closing will remain in place as the directors and officers of the Surviving Corporation.
The transaction closed on December 8, 2023 and will be accounted for as a business combination under ASC 805.
| 2. | BASIS OF PRESENTATION |
The accompanying unaudited pro forma combined financial statements are based on the Company’s and the Two Trees’ historical financial as adjusted to give effect to the pro forma adjustments necessary to reflect the Merger and the Company’s new equity issuance to finance the acquisition. The unaudited pro forma combined statement of operations for the nine months ended September 30, 2023, and the year ended December 31, 2022, gives effect to Two Trees as if it had occurred on January 1, 2023, and 2022, respectively and the pro forma combined balance sheet as of September 30, 2023, gives effect to the Merger as if it had occurred on September 30, 2023.
| 3. | PRELIMINARY PURCHASE PRICE ALLOCATIONS |
The preliminary purchase price for Two Trees has been allocated to the assets acquired and liabilities assumed for purposes of this pro forma financial information based on their estimated relative fair values. The purchase price allocations herein are preliminary. The final purchase price allocations for Two Trees will be determined after completion of a thorough analysis to determine the fair value of all assets acquired and liabilities assumed but in no event later than one year following completion of the Merger. Accordingly, the final merger accounting adjustments could differ materially from the accounting adjustments included in the pro forma financial statements presented herein. Any increase or decrease in the fair value of the assets acquired and liabilities assumed, as compared to the information shown herein, could also change the portion of purchase price allocable to goodwill and could impact the operating results of the Company following the merger due to differences in purchase price allocation, depreciation and amortization related to some of these assets and liabilities.
Two Trees Preliminary Purchase Price Allocation
The merger with Two Trees is being accounted for as a business combination under Financial Accounting Standards Board Accounting Standards Codification (ASC) 805. The following information summarizes the provisional purchase consideration and preliminary allocation of the fair values assigned to the assets at the purchase date:
Preliminary Purchase Price:
| 60,000,000 common share @ $0.011 per share | $ | 660,000 | ||
| Total preliminary purchase consideration | $ | 660,000 | ||
| Preliminary Purchase Price Allocation | ||||
| Cash | $ | 30,064 | ||
| Accounts receivable | 81,246 | |||
| Inventory | 207,134 | |||
| Prepaid expenses | 11,170 | |||
| Other assets | 337,155 | |||
| Fixtures and equipment | 180,379 | |||
| Liabilities assumed | (791,801 | ) | ||
| Goodwill | 604,653 | |||
| Net assets acquired | $ | 660,000 |
| 4. | PRO FORMA ADJUSTMENTS |
The unaudited pro forma combined statements of operations and balance sheets reflect the effect of the following pro forma adjustments:
| Proforma Adjustments | |
| (a) | Net Proforma Cash impact |
| $ | (30,064 | ) | ||
| Total proforma cash impact | $ | (30,064 | ) |
| (b) | Estimated Fair Value of goodwill acquired in merger: |
| Goodwill acquired from Purchase | 604,653 | |||
| Total proforma goodwill acquired | $ | 604,653 |
| (c) | Elimination of assets and liabilities associated with the acquired business |
| (d) | Estimated Fair Value of common shares issued in the merger |
Exhibit 99.4
MDWerks Acquires Two Trees Beverage Company
Disruptive, Proprietary and Proven Sustainably Matured ™ Liquid Maturation Technology Produces New Spirits in Days, Not Years, While Eliminating the Costs, Waste, and
Environmental Impact of Wood Barrels
Transaction Brings Award-Winning American Whiskey Portfolio
of Two Trees® and Tim Smith Spirits® Brands
Green Cove Springs, FL – December 12, 2023 – MDWerks, Inc. (“MDWK” or the “Company”) (OTC: MDWK), a forward-thinking company leading the charge in the world of sustainable technology, today announced that it has acquired Two Trees Beverage Company (“Two Trees”), an award-winning fine spirits company with a disruptive, proprietary, and proven liquid maturation technology that accelerates the natural aging process that happens when alcohol is aged in wooden barrels over time. This scalable, environmentally friendly technology results in all-natural, high-quality distilled products, efficiently produced, that are indistinguishable by taste from those that are traditionally aged in wooden barrels. This transaction brings additional patents and patents pending, strengthening the Company’s broader technology portfolio and overall strategy of using energy wave technologies to disrupt the food and beverage industry.
Foundational Technology, Growing Portfolio, Valuable Brand Partnerships, and Experienced Leadership
Steven Laker, CEO of MDWK, commented, “We’ve closely followed Two Trees’ innovative journey in the beverage industry over the past few years. We believe that the technological foundation at Two Trees will be the catalyst for a revolution in beverage production and become the centerpiece of the Company’s growth strategy. The portfolio of more than 30 refined spirit brands, including Two Trees™ Whiskeys, Two Trees™ Flavored Whiskeys, Two Trees™ Ready to Drink Whiskeys, Two Trees™ Wood Crafted Whiskeys, and a range of Tim Smith Spirits® products, are being produced in a fraction of the time it takes to age traditional whiskies. We see a significant opportunity to license our proprietary accelerated-aging technology to other spirit producers who can take advantage of the associated speed, financial benefits, and ethically sourced profile it delivers. We are thrilled to welcome the Two Trees team into the MDWerks organization.”
Mr. Laker noted that the transaction also brings to the Company a valuable partnership with Tim Smith, renowned for his starring role in Discovery Channel’s “Moonshiners” and for his critically acclaimed Tim Smith’s Original Climax Moonshine™. Products under the Tim Smith Spirits® brand name include Climax Moonshine™, Climax Wood Fired Whiskey™, Climax Fire No 32™, Southern Reserve Whiskey™, Southern Reserve Bourbon™, and Southern Reserve Rye™.
The Two Trees production facilities and talented leadership team are based in Fletcher, North Carolina – the heart of Appalachian Mountain country.
Two Trees has distribution across 29 states and generated revenue of $2.1 million during the year ended December 31, 2022.
Sustainable Maturation Technology
Under Two Trees’ Sustainably Matured™ method, a proprietary energy wave process accelerates the physical and chemical changes that occur during aging without altering natural progression that occurs when alcohol is aged in White Oak barrels. These changes happen simultaneously, which leads to a well-balanced final product. The Company’s accelerated aging process uses the same ingredients as traditional aging – wood, water, and alcohol – while activating the same conversion of acids into esters (esterification).
The Two Trees process uses 85% to 90% less wood than used in traditional barrel aging, eliminating the need to house barrels for multiple years. This process yields advantages of speed to market, scalability, and lower production costs. Moreover, the ability to efficiently test new formulations and receive almost instantaneous outcomes promotes innovation and the creation of uniquely appealing flavor profiles. Two Trees’ approved patents, patents pending, and proprietary processes have broader implications for the food and beverage industry. The Company intends to expand its business by capitalizing on this core technological advantage.
“We believe we are on the cusp of a watershed moment in the beverage industry. With our proprietary aging technology, award-winning products, talent and experience, we are uniquely positioned to drive unprecedented value and results in the space. We believe that this combination will allow us to offer an enhanced experience to consumers while simultaneously reducing costs and environmental impact in the industry,” added Joe Ragazzo, interim CEO of Two Trees Beverage Company.
Award Winning Portfolio of Fine Spirits
Crafted under the Sustainably Matured™ method and leveraging pristine Appalachian Mountain water, Two Trees’ fine spirits brands, including Two Trees® and Tim Smith Spirits®, have received multiple industry awards, including the following recent recognition:
| ● | 2022 Sip Awards – Two Trees Carolina Peach™ – Platinum | |
| ● | 2022 Sip Awards – Two Trees Sea Salted Caramel™ – Gold | |
| ● | 2022 Sip Awards – Two Trees Old Fashioned Ready to Drink™ – Gold | |
| ● | 2022 Fifty Best Awards – Two Trees Peanut Butter™ – Best Flavored Whiskey | |
| ● | 2022 Fifty Best Awards – Two Trees Sea Salted Caramel™ – Best Flavored Whiskey | |
| ● | 2023 Best of Asheville – Two Trees Sustainably Matured™ Product Line |
Our Sustainable Process is Saving the American White Oak Tree
Two Trees’ Sustainably Matured™ method delivers consequential benefits for the environment by reducing the overuse of American White Oak trees, which has historically been the primary hardwood used in making barrel aged spirits. It takes 80 -100 years for the American White Oak to reach maturity, at which time it can be harvested to produce just two to three 53-gallon whiskey barrels.
The supply of white oak trees is shrinking due to several factors, including the increasing demand for whiskey, and the cost of whiskey barrels has risen approximately 70% since the early 2000s. The Two Trees process can use repurposed white oak in its production process instead of removing live trees, which is both cost effective and environmentally friendly.
Form 8-K
A Current Report on Form 8-K containing further details of the transaction was filed by MDWK and is available free of charge on the U.S. Securities and Exchange Commission’s EDGAR website at www.sec.gov.
About Two Trees Beverage Company
Deep in the Appalachian Mountain country, Two Trees Beverage Company creates fine spirits, aged sustainably. For more information, please visit https://twotreesdistilling.com/.
About MDWerks
MDWerks, Inc. (“MDWK”) (OTC: MDWK) is a forward-thinking company that is leading the charge in the world of sustainable technology. As a prominent provider of energy wave technologies, MDWerks is committed to developing innovative solutions that help businesses reduce their energy costs and drive business value. For more information, please visit https://mdwerksinc.com/.
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are predictive in nature and are identified by the use of the terms “will,” “look forward to” and “aim,” and similar words indicating possible future expectations, events or actions. Such forward-looking statements are based on current expectations, assumptions, estimates and projections about our business and our industry, and are not guarantees of our future performance. These statements are subject to a number of known and unknown risks, uncertainties and other factors, many of which are beyond our ability to control or predict, which may cause actual events to be materially different from those expressed or implied herein. The Company has provided additional information about the risks facing our business in its most recent annual report on Form 10-K, and any subsequent periodic and current reports on Forms 10-Q and 8-K, filed by it with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made and are expressly qualified in their entirety by the cautionary statements set forth herein and in the filings with the Securities and Exchange Commission identified above, which you should read in their entirety before making an investment decision with respect to our securities. We undertake no obligation to update or revise any forward-looking statements contained in this release, whether as a result of new information, future events or otherwise, except as required by applicable law.
Company Contact:
MDWerks
Steven Laker
T: (252) 501-0019
Investor Contact:
The Equity Group
Kalle Ahl, CFA
T: (303) 953-9878