MDWK 10-Q
MDWerks, Inc. (MDWK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from __________ to __________
(Exact name of small business issuer as specified in its charter)
Commission
File No.
| (State
or other jurisdiction or incorporation or organization) |
(I.R.S.
Employer Identification No.) |
(Address of Principal Executive Offices)
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ☐ Accelerated filer ☐
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. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☒
As of November 14, 2023, the Company has shares of common stock issued and outstanding.
Table of Contents
| PART I—FINANCIAL INFORMATION | 4 | |
| Item 1. | Financial Statements | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 19 |
| Item 4. | Controls and Procedures | 19 |
| PART II—OTHER INFORMATION | 20 | |
| Item 1. | Legal Proceedings | 20 |
| Item 1A. | Risk Factors | 20 |
| Item 2. | Unregistered Sales of Securities and Use of Proceeds | 20 |
| Item 3. | Defaults Upon Senior Securities | 20 |
| Item 4. | Mine Safety Disclosure | 20 |
| Item 5. | Other Information | 20 |
| Item 6. | Exhibits | 20 |
| SIGNATURES | 21 | |
| EXHIBIT 31.1 | ||
| EXHIBIT 31.2 | ||
| EXHIBIT 32.1 | ||
| 2 |
Forward-Looking Statements
Various statements contained in this report constitute “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are based on current expectations and are indicated by words or phrases such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “plan,” “intend” or “anticipate” or the negative thereof or comparable terminology, or by discussion of strategy. Forward-looking statements represent as of the date of this report our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. Such forward-looking statements are based largely on our current expectations and are inherently subject to risks and uncertainties. Our actual results could differ materially from those that are anticipated or projected as a result of certain risks and uncertainties, including, but not limited to, a number of factors, such as: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles and the other risks and uncertainties that are set forth in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the Securities and Exchange Commission (“SEC”) pursuant to the SEC’s rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking information contained in this report will in fact transpire.
As used in this Quarterly Report on Form 10-Q, unless the context requires or is otherwise indicated, the terms “we,” “us,” “our,” the “Registrant,” the “Company,” “our company” and similar expressions means MDwerks, Inc.
| 3 |
Item 1. Financial Statements
MDWerks, Inc
Condensed Balance Sheet
(unaudited)
| September 30, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Loans receivable | ||||||||
| Total Current Assets | ||||||||
| Intangible assets, net
of Accumulated amortization of $ | ||||||||
| Fixed assets, net of Accumulated
depreciation of $ | ||||||||
| Note receivable | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Advances payable | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, par value $; shares authorized of which are issued and outstanding | ||||||||
| Common stock, par value $; shares authorized of which shares are issued and outstanding at December 31, 2022 and shares are issued and outstanding at September 30, 2023 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
MDWerks, Inc
Condensed Statements of Operations
(unaudited)
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Net Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest | ( | ) | ( | ) | ||||||||||||
| Gain on Sale of Asset | ||||||||||||||||
| Total Other Income (Expense) | ||||||||||||||||
| Net Income (Loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net Income (Loss) per share | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted Average Number of Shares | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
MDWERKS, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
Nine months ended September 30, 2023, and 2022
| Preferred Stock | Common Stock |
Additional Paid-in |
Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance March 31, 2022 | ( |
) | ( |
) | ||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance June 30, 2022 | ( |
) | ( |
) | ||||||||||||||||||||||||
|
Forgiveness of debt |
- | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Common Shares sold for cash | - | |||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance March 31, 2023 | ( |
) | ( |
) | ||||||||||||||||||||||||
| Common Shares sold for cash | - | |||||||||||||||||||||||||||
| Imputed interest | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance June 30, 2023 | ( |
) | ( |
) | ||||||||||||||||||||||||
| Common Shares sold for cash | - | |||||||||||||||||||||||||||
| Imputed interest | - | - | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance September 30, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
MDWERKS, INC.
Condensed Statement of Cash Flows
(unaudited)
| Nine months ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Accumulated amortization | ||||||||
| Gain on sale of assets | ( | ) | ||||||
| Imputed interest | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses | ||||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of intangible assets | ( | ) | ||||||
| Purchase of fixed assets | ( | ) | ||||||
| Proceeds from sale of fixed assets | ||||||||
| Payments on loans receivable | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from advances payable | ||||||||
| Repayment of advances payable | ( | ) | ||||||
| Proceeds from subscription agreements | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET CHANGE IN CASH | ||||||||
| CASH - BEGINNING OF YEAR | ||||||||
| CASH - END OF PERIOD | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Forgiveness of debt as capital contribution | $ | $ | ||||||
| Note receivable issued for asset sale | $ | $ | ||||||
| Conversion of preferred stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 7 |
MDWERKS, INC.
Notes to Unaudited Condensed Financial Statements
For the Nine Months Ended September 30, 2023, and 2022
NOTE 1 – ORGANIZATION AND DESCRIPTION OF THE BUSINESS
MDWerks, Inc. (the “Company”), a Delaware corporation, is focused on effecting a “reverse merger,” capital exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more unrelated businesses (a “Business Combination”) that would benefit from the Company’s public reporting status. The Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination. As of the date of this report, the Company has not yet commenced any operations. All activity through the date of this report relates to preserving cash, making settlements with creditors, attempting to raise capital, and continuing the Company’s public reporting.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The financial statements present the financial position, results of operations and cash flows of the Company in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). All dollar amounts are rounded to the nearest thousand dollars.
Cash
and Cash Equivalents – The Company considers all highly liquid instruments with original maturities of six months or less when
acquired, to be cash equivalents. The Company had
Fixed
Assets, net - The Company provides for depreciation using the straight-line method over the estimated useful lives of the fixed assets,
which range from to
Impairment of Long-Lived Assets - Long-lived assets, including equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates these assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. If the estimated undiscounted cash flows are less than the carrying value of the assets, the assets are written down to their fair value. There was no impairment of long-lived assets, as of September 30, 2023, and December 31, 2022, respectively.
Income Taxes – The Company complies with the accounting and reporting requirements of US GAAP in accounting for income taxes. The Company uses the asset and liability approach to financial reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in future taxable or deductible amounts and are based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized.
The Company also complies with US GAAP in accounting for uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of September 30, 2023. However, the Company’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized as of September 30, 2023.
| 8 |
Basic income (loss) per share excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted average common shares outstanding for the year. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For the three and nine months ended September 30, 2023, there were no options, warrants or derivative securities outstanding. Therefore, basic and diluted loss per share were the same for the three and nine months ended September 30, 2023. Due to the net loss for the period the warrants are anti-dilutive.
Use of Estimates and Assumptions - The preparation of financial statements in accordance with US GAAP requires the Company’s 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 consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results can, and in many cases will, differ from those estimates.
Fair Value of Financial Instruments - The Company measures its financial and non-financial assets and liabilities, as well as makes related disclosures, in accordance with the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) No. 820, Fair Value Measurement (“ASC 820”), which provides guidance with respect to valuation techniques to be utilized in the determination of fair value of assets and liabilities. Approaches include, (i) the market approach (comparable market prices), (ii) the income approach (present value of future income or cash flow), and (iii) the cost approach (cost to replace the service capacity of an asset or replacement cost). ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.
The carrying values of the Company’s accounts payable and accrued liabilities, advances payable, and convertible notes payable, approximate their fair value due to their short-term nature.
Convertible notes payable - The Company accounts for convertible notes payable in accordance with the ASC No. 815, Derivatives and Hedging, since the conversion feature is not indexed to the Company’s stock and cannot be classified in equity. The Company allocates the proceeds received from convertible notes payable between the liability component and conversion feature component. The conversion feature that is considered embedded derivative liabilities has been recorded at their fair value as its fair value can be separated from the convertible note and its conversion is independent of the underlying note value. The Company has also recorded the resulting discount on debt related to the conversion feature and is amortizing the discount using the effective interest rate method over the life of the debt instruments.
| 9 |
Going
Concern – These financial statements have been prepared assuming that the Company 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. As reflected
in the accompanying financials, the Company had a net loss of $
Recently Issued Accounting Pronouncements - From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in US GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.
NOTE 3 – ACCOUNTS PAYABLE
The
Company had accounts payable balance of $
NOTE 4 – ADVANCES PAYABLE
The Company had advances aggregating $ as of December 31, 2022, and $ as of September 30, 2023, from a non-related third party in order to cover legal, accounting and other various public company related operating expenses.
The
Company borrowed $
The
Company repaid $
NOTE 5 – CAPITAL STOCK
Common Stock
The
Company is authorized to issue shares of common stock, $ par value. At September 30, 2023, there were shares
of common stock issued and outstanding. During the nine month period ended September 30, 2023 shares were sold and issued for
$
The weighted average assumptions used in the valuation of the warrants are as follows, Risk-free interest rate %, Expected volatility %, Expected option term (years) , and Expected dividend yield %
| 10 |
Preferred Stock
The Company is authorized to issue shares of preferred stock, $ par value, with such designations, rights and preferences as may be determined from time to time by the Board of Directors, of which shares are designated Series A Convertible Preferred Stock.
Nothing
was outstanding in 2022. A total of
Stock Warrants
The following table represents stock warrant activity during the nine months ended September 30, 2023:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | ||||||||||
| Outstanding at December 31, 2022 | - | |||||||||||
| Warrants granted | ||||||||||||
| Warrants forfeited | - | |||||||||||
| Outstanding at September 30, 2023 | $ | |||||||||||
| Exercisable at September 30, 2023 | ||||||||||||
NOTE 6 – INTELLECTUAL PROPERTY
On
April 21, 2023, the Company purchased from Don Ramer certain intellectual property for $
NOTE 7 – FIXED ASSETS
On
May 31, 2023, the Company purchased certain assets for $
During
the nine months ended September 30, 2023, the Company sold fixed assets for $
NOTE 8 – CONTINGENCY
In the ordinary course of business, the Company may become a party to lawsuits involving various matters. The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company believes the ultimate resolution of any such current proceeding will not have a material adverse effect on our continued financial position, results of operations or cash flows.
| 11 |
NOTE 9 – LOAN RECEIVABLE
During
the nine months ended September 30, 2023, the Company issued loans in the amount of $
NOTE 10 – NOTE RECEIVABLE
During
the nine months ended September 30, 2023, the Company sold fixed assets for $
NOTE 11 – SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet and up to November 13, 2023. Management has determined that there are no other items requiring disclosure of adjustment.
| 12 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Overview
Plan of Operations
As of September 30, 2023, we had not commenced any operations. Our activities relate to our focus on effecting a “reverse merger,” capital exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more unrelated businesses (a “Business Combination”) that would benefit from our public reporting status. We also completed a change of control transaction on July 21, 2022 (the “Change of Control”). See “—Recent Developments—Change of Control”. In addition, in furtherance of our plans to consummate a Business Combination, on January 19, 2023, we entered into an Exchange Agreement to acquire RF Specialties LLC (“RFS”) and on February 13, 2023, we entered into a Merger Agreement to acquire Two Trees Beverage Co. (“Two Trees”). See “—Recent Developments—Planned Acquisitions”.
Recent Developments
Change of Control
On July 21, 2022, the Company in connection with the change of control and composition of the Board of Directors of the Company (the “Board”) entered into a Stock Purchase Agreement (the “SPA”) with (i) Tradition Reserve I LLC (“Buyer”); and (ii) Ronin Equity Partners, Inc. (“Seller”).
Pursuant to the SPA, on July 21, 2022 (the “Closing Date”) the Seller sold to the Buyer 10,000,000 shares of the Company’s Series A Convertible Preferred Stock 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 the Buyer, the Buyer paid the Seller a total purchase price of $520,000 (the “Purchase Price”).
Further, at the closing of the transactions contemplated by 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”). The parties acknowledged 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 28, 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.
The Closing was subject to certain customary closing conditions, including, but not limited to, the accuracy of the representations and warranties made by the parties, all necessary consents having been obtained to effect the transactions, and the receipt of any necessary government approvals in order to effect the transactions contemplated in the SPA.
| 13 |
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, resulting in a change in control of the Company. Each share of preferred stock was convertible into 100 shares of common stock, and each share of preferred stock had 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 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 continues 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.
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;
| 14 |
(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.
Two Trees
On February 13, 2023, we 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 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 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’s Board, and the Company’s 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 board of directors of Merger Sub and the Company’s Board unanimously approved the transactions contemplated by the Merger Agreement, including the Merger, and the Company as the sole stockholder of Merger Sub approved the Merger Agreement and the Merger.
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”).
Under the Merger Agreement, at the effective time of the Merger, each of the issued and outstanding shares of common stock of Two Trees, subject to certain exceptions set forth in the Merger Agreement, shall be converted into shares of the Company’s common stock.
At the effective time of the Merger, shares of Two Trees’ common stock generally will be treated in the following manner:
● (1) Any shares of Two Trees common stock held as treasury stock or held or owned by Two Trees 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 Two Trees 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 Two Trees 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.
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● No fractional shares of Company common stock will be issued in connection with the Merger and any fractional share otherwise issuable to any Two Trees 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, the Company common stock issued at the closing of the Merger will be subject to a lock-up, pursuant to which the Two Trees stockholders receiving shares of the Company’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, Two Trees’ stock options (the “Two Trees Options”) generally will be treated in the following manner:
● Two Trees option holders will exchange all of their Two Trees Options for options to acquire shares of Company common stock (the “MDwerks Options”).
● The MDwerks Options will provide for substantially the same terms as the Two Trees 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 Two Trees common stock underlying the Two Trees 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 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.
Consummation of the Merger is subject to the satisfaction or waiver of customary closing conditions, including: (1) approval of the Merger Agreement by the Two Trees 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 the Company and Merger Sub are subject to the satisfaction or waiver of customary closing conditions, including that (i) the Company will have completed its due diligence review of Two Trees to its satisfaction in its sole discretion; and (ii) Two Trees will have provided to the Company audited financial statements for Two Trees and related auditor reports thereon, as provided in the Merger Agreement.
Pursuant to the terms of the Merger Agreement, Two Trees agreed that at the closing of the Merger, Joe Ragazzo, Two Trees’ Chief Executive Officer, will shall enter into an indemnification agreement, pursuant to which Mr. Ragazzo will agree to indemnify the Company for certain breaches of the representations and warranties of Two Trees.
The Merger Agreement contains customary representations, warranties and covenants made by each of the Company, Merger Sub and Two Trees, including, among others, covenants by Two Trees regarding the conduct of its business prior to the closing of the Merger.
Either the Company or Two Trees may terminate the Merger Agreement prior to the closing date if, among certain other circumstances, certain conditions of the closing have not been satisfied. The Merger Agreement may be terminated by the Company if, among other things, (1) the Two Trees stockholders vote against the adoption of the Merger Agreement; (2) any Action is brought by a third-party non-Affiliate to enjoin or otherwise restrict the consummation of the closing; or (3) within five business days after receipt by the opposing party of written notice thereof that the other party is not reasonably capable of curing a material breach of the Merger Agreement prior to the termination date thereof.
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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).
On February 16, 2023, the Company, Merger Sub and Two Trees entered into Amendment No. 1 to Merger Agreement (“Amendment No. 1”). Pursuant to the terms of Amendment No. 1, the Merger Agreement was amended to reflect Two Trees’ authorized, issued and outstanding capital stock as of the effective date of the Merger Agreement, which capital stock consisted of 15,000,000 shares of common stock, par value $0.0001 per share, of which 9,999,604.69 shares were issued and outstanding as of the effective date of the Merger Agreement, and 3,529,500 shares of preferred stock, par value $0.0001 per share, of which 2,045,672.16 shares were issued and outstanding as of the effective date of the Merger Agreement. In addition, pursuant to the terms of Amendment No. 1, the Merger Agreement was amended to replace Mr. Ragazzo with James Cassidy, Two Trees’ Chairman of the Board as the party to indemnify the Company for certain breaches of the representations and warranties of Two Trees.
Non-Reliance on Previously Issued Financial Statements
On May 15, 2023, M&K CPAS, PLLC, the Company’s independent registered public accounting firm (“M&K”), notified the Company that the Company’s balance sheet as of December 31, 2022, and the related statements of operations, statement of changes in stockholders’ equity (deficit), and cash flows (the “2022 Financial Statements”) included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2023 (the “10-K”) should be restated and should no longer be relied upon.
Subsequent to the Company’s filing of the 10-K, it was discovered that a bank account of the Company was not included in the 10-K, and the Company determined that the errors required adjustment of 2022 Financial Statements. This led to an understatement of certain expenses and an understatement of the Company’s cash balance.
The Company and M&K determined that the reporting effects of the above errors had a material impact to the 2022 Financial Statements included in the 10-K. As a result, the 2022 Financial Statements will be restated, and the Company will file an amendment to the 10-K with the SEC.
The Company’s management concluded that in light of the errors mentioned above, a material weakness existed in the Company’s internal control over financial reporting as of December 31, 2022, and the Company’s disclosure controls and procedures were not effective as of December 31, 2022.
Going Concern
Conditions exist that raise substantial doubt about our ability to continue as a going concern due to our recurring losses from operations, deficit in equity, and the need to raise additional capital to fund operations. The “going concern” opinion could impair our ability to finance our operations through the sale of debt or equity securities.
Results of Operations
Three and Nine Months Ended September 30, 2023, compared to Three and Nine Months Ended September 30, 2022
Revenues. We did not earn any revenues during the three and 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 transactions involving the Change of Control and the planned acquisitions discussed above.
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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 transactions involving the Change of Control and the planned acquisitions discussed above.
Total Other Income and Expense. Total other expense was $158,947 for the nine months ended September 30, 2023, compared to $0 for the nine months ended September 30, 2022. There was interest expense of $4,232 for the three months ended September 30, 2023, compared to $0 for the three months ended September 30, 2022. The Company recorded a gain of $168,855 and $0 on sale of fixed assets for the nine months ended September 30, 2023, and 2022, respectively. There was no such transaction during the three months ended September 30, 2023, and 2022.
Liquidity and Capital Resources
We believe that if we do not raise additional capital over the next 12 months, we may be required to suspend or cease the implementation of our business plans.
As of September 30, 2023, and December 31, 2022, we had $166,048 and $23,715 cash. We anticipate that our current cash 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 has working capital of $30,904.
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.
Cash Flows
Cash Used in Operating Activities. Net cash used in operating activities for the nine months ended September 30, 2023, and 2022, were $266,815 and $59,437. The increase was attributable to an increase in net loss and a paydown of accounts payable partially offset by an increase in accrued expenses and imputed interest.
Cash Used from Investing Activities. Cash used for the purchase of IP and equipment for the nine months ended September 30, 2023, and 2022 was $107,500 and $0, respectively. Cash received on the sale of fixed assets was $100,000 for the nine months ended September 30, 2023, and the Company lent $75,000 to Two Trees during the same period.
Cash Provided by Financing Activities. Net cash provided by financing activities for the nine months ended September 30, 2023, and 2022 was $491,648 and $59,437, respectively. The increase was attributable to proceeds from subscriptions agreements and proceeds from advances partially offset by repayment of advances payable.
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Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements currently contemplated by management or in place that are reasonably likely to have a current or future effect on the business, financial condition, changes in financial condition, revenue or expenses, result of operations, liquidity, capital expenditures and/or capital resources.
Recent Accounting Standards
The Company has implemented all new accounting standards that are in effect and that may impact its financial statements and does not believe that there are any other new accounting standards that have been issued that might have a material impact on its financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023. Based upon such evaluation, the principal executive officer and principal financial officer have concluded that, as of September 30, 2023, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)) during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Currently we are not involved in any pending litigation or legal proceedings.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 2. Unregistered Sales of Securities and Use of Proceeds.
1,141,298 shares sold for $85,598 during Q1 2023
1,333,333 shares sold for $100,000 during Q1 2023.
2,756,679 shares sold for $206,751 during Q3 2023.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosure.
None
Item 5. Other Information.
None
Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
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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 thereunto duly authorized.
| MDWERKS, Inc. | |
| Date: November 14, 2023 | /s/ Steven C. Laker |
| Steven C. Laker | |
| Chief Executive Officer and Chief Financial Officer | |
| (principal executive officer, principal financial officer and | |
| principal accounting officer) |
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