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). ☐ Yes
As of July 9, 2024, the Company has shares of common stock issued and outstanding.
Table of Contents
| PART I—FINANCIAL INFORMATION | F-1 | |
| Item 1. | Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 7 |
| Item 4. | Controls and Procedures | 7 |
| PART II—OTHER INFORMATION | 8 | |
| Item 1. | Legal Proceedings | 8 |
| Item 1A. | Risk Factors | 8 |
| Item 2. | Unregistered Sales of Securities and Use of Proceeds | 8 |
| Item 3. | Defaults Upon Senior Securities | 8 |
| Item 4. | Mine Safety Disclosure | 8 |
| Item 5. | Other Information | 8 |
| Item 6. | Exhibits | 8 |
| SIGNATURES | 9 | |
| 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 “Company,” “our company” and similar expressions mean MDwerks, Inc. and its consolidated subsidiaries.
| 3 |
Index to Financial Statements
As of March 31, 2024 and December 31, 2023
and for the Three Months Ended March 31, 2024 and 2023
| F-1 |
MDwerks, Inc.
Consolidated Balance Sheets
(Unaudited)
| March 31, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Note receivable | ||||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Fixed assets, net of accumulated depreciation of $ | ||||||||
| Intangible assets, net of accumulated amortization of $ | ||||||||
| Right-of-use asset | ||||||||
| Goodwill | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Notes payable, current portion | ||||||||
| Deferred revenue | ||||||||
| Right-of-use liability, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Notes payable, net of current portion | ||||||||
| Right-of use liability, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, par value $; shares authorized, of which were issued and outstanding | ||||||||
| Common stock, par value $; shares authorized, of which and shares were issued and outstanding at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid in capital | ||||||||
| Subscription payable | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-2 |
MDwerks, Inc.
Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | ||||||||
| Salaries and wages | ||||||||
| Depreciation expense | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Other income | ||||||||
| Interest expense, net | ( | ) | ||||||
| Total other income (expense) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share – basic | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share – diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-3 |
MDwerks, Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Subscriptions | Accumulated | Total Stockholders’ (Deficit) | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||||||||
| Balance January 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Common Shares sold for cash | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Balance January 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Common Shares sold for cash | - | |||||||||||||||||||||||||||||||
| Common Shares to be issued for royalty agreement | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-4 |
MDwerks, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Interest income | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expense | ( | ) | ||||||
| Inventory | ||||||||
| Right-of-use asset | ||||||||
| Accounts payable | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Right-of-use liability | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property & equipment | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from related party notes payable | ||||||||
| Repayment of related notes payable | ( | ) | ||||||
| Repayment of notes 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 | $ | $ | ||||||
| Noncash investing and financing activities: | ||||||||
| Property and equipment acquired with notes payable | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-5 |
MDwerks, Inc.
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2024 and 2023
NOTE 1 - ORGANIZATION AND DESCRIPTION OF THE BUSINESS
MDwerks, Inc. (the “Company”), a Delaware corporation, was focused on effecting a “reverse merger,” capital exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more unrelated businesses (the “Business Combination”) that would benefit from the Company’s public reporting status.
On February 13, 2023, the Company entered into a Merger Agreement (as amended 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. (“TTBC”).
Two Trees produces 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. Two Trees 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.
In consideration of the Merger Agreement, at the effective time of the Two Trees Merger (as hereinafter defined), each of the holders of Two Trees stock, subject to certain exceptions set forth in the Merger Agreement, had the right to convert all of the shares of Two Trees stock into a total of 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 Two Trees Merger (the “Merger Consideration”). Immediately following such exchange, Two Trees became a wholly owned subsidiary of the Company (the “Two Trees Merger”). The Two Trees Merger closed on December 8, 2023.
RF
Specialties, LLC (“RFS”) is an innovative company pushing the boundaries of sustainable Radio Frequency applications. For
over 12 years RF Specialties has addressed companies’ most pressing challenges by implementing automated Radio Frequency Technology
in a sustainable way reducing energy costs and increasing speed to market when compared to traditional methods. By bringing radio frequency
applications to market RFS has successfully elevated a wide range of industries including structural engineering, food & beverage,
and manufacturing. As discussed below, on January 25, 2023, the “Company entered into an Exchange Agreement (the “Exchange
Agreement”), dated as of January 19, 2023, 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,
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying interim unaudited 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 financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (“SEC”) on June 28, 2024. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been omitted from this quarterly report on Form 10-Q pursuant to the rules and regulations of the SEC.
| F-6 |
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 unaudited financial statements as of March 31, 2024, and for the three months ended March 31, 2024 and 2023. 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, 2023.
The accompanying interim unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, TTBC, Prost Beverage Co, Radio Aged Beer LLC, RF Kettle Company LLC, Two Trees, Drilling, RAS LLC, (collectively referred to as “Two Trees”) and RFS. All intercompany accounts, transactions and balances have been eliminated in consolidation.
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.
Accounts
Receivable and the Allowances for Credit losses - 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 credit losses 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 $
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 (“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.
Going
Concern - These interim unaudited consolidated 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 financial statements, the Company had a net loss of $
| F-7 |
Revenue Recognition - Net sales from Two Trees include liquor and related products, less excise taxes and customer programs and incentives. Sales from RFS will include product and services related to sustainable radio frequency applications to a wide range of industries including structural engineering, food & beverage, and manufacturing. The Company recognizes revenue by applying the following steps in accordance with 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. For service revenue within the Company’s radio frequency applications, the Company recognizes revenue as the services are provided to the customer. The Company’s contracts typically have a single performance obligation, and do not contain a significant financing component.
The
Company recognizes deferred revenue for performance obligations not yet satisfied, primarily related to liquor sales not yet shipped.
As of March 31, 2024 and December 31, 2023, the Company had $
During the three months ended March 31, 2024, the Company’s revenue consisted of revenues from liquor sales from Two Trees, and service and product income from RFS. There were no revenues during the three months ended March 31, 2023.
For
the three months ended March 31, 2024, the Company had one customer who accounted for
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 into 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.
Intangible Assets - Intangible assets, consisting of trade names, developed technology, and customer relationships, are accounted for in accordance with ASC 350 Intangibles - Goodwill and Other. Intangible assets that have finite lives are amortized using the straight-line method over their estimated useful lives of three to fifteen years.
Goodwill - Goodwill represents the excess of acquisition cost over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it can conclude the assessment. If the Company concludes otherwise, the Company is required to perform a quantitative analysis to determine the amount of impairment. A quantitative analysis is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value to determine the amount of impairment, if any. The Company has determined that it has one reporting unit. During the three months ended March 31, 2024, no impairment expense was recognized. During the year ended December 31, 2023, no impairment expense was recognized.
| F-8 |
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 three months ended March 31, 2024, no impairment expense was recognized. During the year ended December 31, 2023, no impairment expense was recognized.
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.
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, vehicles are depreciated over five years, and computer and equipment are depreciated over three 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. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows:
| Category | Estimated Useful Lives | |
| Machinery and equipment | ||
| Vehicles | ||
| Furniture & Fixtures | ||
| Computers |
Leasehold improvements are depreciated over the shorter period of their estimated useful life or term of the lease.
Stock-Based Compensation - The Company measures stock-based compensation at the estimated fair value on the grant date and recognizes the amortization of stock-based compensation expense on a straight-line basis over the requisite service period, or when it is probable criteria will be achieved for performance-based awards. Fair value is determined based on assumptions related to the fair value of the Company common stock, stock volatility and risk-free rate of return. The Company has elected to recognize forfeitures when realized.
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 $
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 financial position or results of operations upon adoption.
| F-9 |
NOTE 3 - 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 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:
| March 31, 2024 | December 31, 2023 | |||||||
| Raw materials and packaging | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
NOTE 4 – FIXED ASSETS, NET
Fixed assets, net consisted of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Furniture and office equipment | ||||||||
| Vehicles | ||||||||
| Buildings | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
On
August 25, 2023, the Company entered an asset purchase agreement with an unrelated company, Dream Workz Automotive LLC, a Colorado limited
liability company (“Dream Workz”). Pursuant to this agreement, the Company sold certain tangible manufacturing assets to
Dream Workz for a purchase price of $
On
January 31, 2024 , the Company received assets under the second purchase agreement totaling $
On
February 5, 2024, the Company, through its wholly owned subsidiary, Two Trees Beverages, entered a new, fifteen (15) year license agreement
with Shine Time, LLC, pursuant to which it licensed additional territories for Tim Smith Spirits® expanding its territories
beyond the United States to include all members of the European Union, the United Kingdom, Norway, Switzerland, Iceland, Serbia, Turkey
and Ukraine. The Company will pay a royalty of
| F-10 |
Depreciation
expense totaled $
NOTE 5 – INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Trade names and license, | $ | $ | ||||||
| Developed technology, | ||||||||
| Customer relationships, | ||||||||
| Total intangible assets | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Total intangible assets, net | $ | $ | ||||||
Total
amortization expense for the three months ended March 31, 2024 and 2023 was $
NOTE 6 – NOTE RECEIVABLE
During
the year ended December 31, 2023, the Company sold certain fixed assets for $
NOTE 7 - ACQUISITIONS
Two Trees
The Company completed the Two Trees December 8, 2023 pursuant to the Merger Agreement. Pursuant to the terms of the Merger Agreement, on the closing date of the Two Trees Merger, the Company issued shares of its common stock, $ 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 $ per share (the “Two Trees Common Stock”) held by each of the Two Trees stockholders as of the closing of the Two Trees Merger (the “Merger Consideration”). Upon completion of the Two Trees Merger, all 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 Two Trees Merger was converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, $ par value per share, of Two Trees as the surviving corporation.
RF Specialties
On December 27, 2023, the Company completed the acquisition of RFS and the Exchange and issued to Mr. Mort shares of Company common stock. Immediately following the completion of the Exchange, RFS became a wholly owned subsidiary of the Company
| F-11 |
Unaudited Pro Forma Financial Information
The following table sets forth the pro-forma consolidated results of operations for the three months ended March 31, 2024 and 2023 as if the RFS Exchange and the Two Trees Merger occurred on January 1, 2023. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisitions had taken place on the dates noted above, or of results that may occur in the future.
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | $ | ||||||
| Operating loss | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss per common share | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding | ||||||||
Asset purchase agreements
Prior
to its acquisition by the Company on December 27, 2023, RFS entered into two asset purchase agreements to acquire certain tools and equipment.
The Company received assets under one agreement in December 2023, totaling $
On
January 31, 2024, the Company received assets under the second purchase agreement totaling $
As
of March 31, 2024 and December 31, 2023, the Company owed $
NOTE 8 - ADVANCES PAYABLE
The Company received advances aggregating $ from two non-related parties during the year ended December 31, 2022 to cover legal, accounting, and other various public company related operating expenses. The advances are unsecured, non-interest bearing and are due on demand. During the year ended December 31, 2023, the Company repaid $ in cash of the advances. The balance as of March 31, 2024 and December 31, 2023 was $.
During
the three months ended March 31, 2023, the Company repaid $
NOTE 9 - NOTES PAYABLE
The Company had the following outstanding notes payable as of March 31, 2024 and December 31, 2023:
| Loans | Origination Date |
Interest Rate |
Balance as of March 31, 2024 |
Balance
as of December 31, 2023 |
|||||||||
| Asset purchase agreement notes (see note 8) | % | $ | $ | ||||||||||
| Termination Agreement | % | ||||||||||||
| Loan Payable - Mercedes | % | ||||||||||||
| Loan Payable - Dodge | % | ||||||||||||
| Total | $ | $ | |||||||||||
| F-12 |
The following is a summary of the future minimum payments of loans payable:
| Twelve Months Ending March 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 and Thereafter | ||||
| $ | ||||
On
January 1, 2024, the Company entered into a short-term loan agreement with an existing shareholder for $
Interest
expense of $
NOTE 10 - CAPITAL STOCK
The Company is authorized to issue (i) shares of common stock, $ par value, and (ii) shares of preferred stock, par value $ per share, with such designations, rights and preferences as may be determined from time to time by the Board of Directors.
Preferred stock
shares of preferred stock has been designated Series A Convertible Preferred.
Common stock
At March 31, 2024 and December 31, 2023, there were and shares issued and outstanding, respectively.
During
the period ended March 31, 2024, the Company sold a total of shares of restricted common stock to accredited investors for
total cash proceeds of $
As
part of the license agreement disclosed in Note 4, the Company agreed to issue restricted shares of common stock with a fair
value of $
During
the period ended March 31, 2023, the Company issued a total of restricted shares of common stock to accredited investors for
total cash proceeds of $
| F-13 |
NOTE 11 - CONTINGENCIES
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.
NOTE 12 - RELATED PARTY TRANSACTIONS
On
January 1, 2024, the Company entered into a short-term loan agreement with an existing shareholder for $
NOTE 13 – LEASES
The
Company maintains an operating lease for its office space and operating facility. The lease has a remaining term of 80 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. The
Company used a weighted average incremental borrowing rate of 8.4% ROU 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 March 31,
2024, the amount of ROU assets and lease liabilities were $
The following table provides the maturities of lease liabilities at March 31, 2024:
| Remaining | ||||||||
| Operating Lease | Term in Years | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| thereafter | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | ) | ||||||
| Present value of lease liability | ||||||||
NOTE 14 - SUBSEQUENT EVENTS
On
April 22, 2024, the Company entered into a broker agreement with a third party. Under the agreement, the Company will pay a monthly fee
of $
| F-14 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Throughout this Quarterly Report on Form 10-Q, references to “we,” “our,” “us,” the “Company,” or “MDwerks,” refer to MDwerks, Inc. and its consolidated subsidiaries.
Overview
We completed two acquisitions in December 2023 as follows:
On December 8, 2023, we acquired Two Trees Beverage Co. and its subsidiaries (collectively, “Two Trees”). Two Trees produces 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. Two Trees 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.
On December 27, 2023, we acquired the operations of RF Specialties, LLC (“RFS”). RFS is an innovative company pushing the boundaries of sustainable radio frequency applications. For over 12 years RFS has addressed companies’ most pressing challenges by implementing automated radio frequency technology in a sustainable way reducing energy costs and increasing speed to market when compared to traditional methods. By bringing radio frequency applications to market RFS has successfully elevated a wide range of industries including structural engineering, food & beverage, and manufacturing.
Our results of operations for the three months ended March 31, 2024 include the operations of these business for the full quarter. The results of operations for the three months ended March 31, 2023 do not included any results from the acquired businesses.
Results of Operations
Three Months Ended March 31, 2024, compared to Three Months Ended March 31, 2023
The Company’s results of operations for the three months ended March 31, 2024 include the results of Two Trees since the acquisition date of December 8, 2023, and include the results of RFS from the acquisition date of December 27, 2023.
Revenue. Revenue for the three months ended March 31, 2024 was $684,660 compared to $0 for the three months ended March 31, 2023. The revenue is primarily attributable to liquor sales during the three months resulting from the acquisition of Two Trees and product and service income resulting from the acquisition of RFS. We did not earn any revenues for the three months ended March 31, 2023.
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Cost of Sales. Cost of sales for the three months ended March 31, 2024 was $180,445 compared to $0 for three months ended March 31, 2023. The cost of sales is primarily attributable to liquor sales during the period resulting from the acquisition of Two Trees and product and service income resulting from the acquisition of RFS. We did not incur any cost of sales for the three months ended March 31, 2023.
Operating Expenses. The Company reported operating expenses of $809,362 consisting primarily of legal, accounting, payroll, and general business related expenses for the three months ended March 31, 2024 compared to $41,451 for the three months ended March 31, 2023. The $767,911 increase in operating expenses was primarily attributable to increased legal, payroll expenses and accounting fees related to our acquisitions that occurred in December 2023, our public company reporting obligations associated with this acquisitions, and increased audit fees from the acquisitions closing in December 2023.
Total Other Income. Total other income was $2,758 for the three months ended March 31, 2024 compared to $0 for the three months ended March 31, 2023.
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 March 31, 2024, and December 31, 2023, we had $162,894 and $115,111 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 March 31, 2024, the Company has incurred operating losses since inception of $1,041,777. At March 31, 2024, the Company had a working capital deficit of $492,845.
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 Securities and Exchange Commission (the “SEC”). 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 three months ended March 31, 2024, and 2023, were $280,931 and $58,754, respectively. The increase was attributable to an increase in net loss compared to the prior year, and an increase in accounts receivable compared to December 31, 2023 from the timing of collections on the Company’s revenue.
Cash Used from Investing Activities. Cash used for the purchase of property and equipment for the three months ended March 31, 2024, and 2023 was $8,820 and $0, respectively.
Cash Provided by Financing Activities. Net cash provided by financing activities for the three months ended March 31, 2024, and 2023 was $337,534 and $76,267, respectively. The cash provided by financing activities for the three months ended March 31, 2024 was attributable to proceeds from subscriptions agreements of $390,000, proceeds from notes payable of $25,000, partially offset by repayments of notes payable of $77,466. The cash provided by financing activities for the three months ended March 31, 2023 was attributable to proceeds from sale of common stock of $85,598, partially offset by repayment of advances of $9,331.
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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.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, or complex judgments.
Revenue Recognition - Net sales from Two Trees include liquor and related products, less excise taxes and customer programs and incentives. Sales from RFS will include product and services related to sustainable Radio Frequency applications to a wide range of industries including structural engineering, food & beverage, and manufacturing. 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. For service revenue within the Company’s radio frequency applications, the Company recognizes revenue as the services are provided to the customer. The Company’s contracts typically have a single performance obligation, and do not contain a significant financing component.
Goodwill - Goodwill represents the excess of acquisition cost over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it can conclude the assessment. If the Company concludes otherwise, the Company is required to perform a quantitative analysis to determine the amount of impairment. A quantitative analysis is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value to determine the amount of impairment, if any. The Company has determined that it has one reporting unit.
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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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (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 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 March 31, 2024. Based upon such evaluation, the principal executive officer and principal financial officer have concluded that, as of March 31, 2024, 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 March 31, 2024, 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.
The following information represents securities sold by us that have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K which were not registered under the Securities Act of 1933, as amended (the “Securities Act”). Included are new issues, securities issued in exchange for property, services or other securities, securities issued upon conversion from our other share classes and new securities resulting from the modification of outstanding securities. We issued all of the securities listed below pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act, or Regulation D or Regulation S promulgated thereunder.
During the quarter ended March 31, 2024, the Company sold 2,600,000 shares of common stock in exchange for cash proceeds of $390,000, of which 500,000 shares are not yet issued.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosure.
None
Item 5. Other Information.
(a) None.
(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.
(c)
During the quarter ended March 31, 2024, no director or officer of the Company
Item 6. Exhibits
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed herewith. |
| ** | Furnished herewith. |
| 8 |
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: July 9, 2024 | /s/ Steven C. Laker |
| Steven C. Laker | |
| Chief Executive Officer | |
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)) |
| 9 |