MDWerks, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements As of December 31, 2022 and 2021 and for the Years Ended December 31, 2022 and 2021 Report of Independent Registered Public Accounting Firm (PCAOB ID 5854 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID 2738 ) F-3 Balance Sheet F-4 Statements of Operations F-5 Statement of Changes in Stockholders’ Equity (Deficit) F-6 Statements of Cash Flows F-7 Notes to Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of MDWerks, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheet of MDWerks, Inc. (the Company) as of December 31, 2021 and the related statements of income, comprehensive income, stockholders’ deficit, and cash flow for the year ended December 31, 2021 and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern Matter The accompanying financial statement have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management’s plan in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. We determined that there are no critical matters. /s/ TAAD LLP We have served as the Company’s auditor from February 2021 to February 2023 Diamond Bar, CA April 15, 2022 F- 2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of MDWerks, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheet of MDWerks, Inc. (the Company) as of December 31, 2022, and the related statements of operations, statement of changes in stockholders’ equity (deficit), and cash flows and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The financial statements of MDWerks Inc. as of December 31, 2021 were audited by other auditors whose report dated April 15, 2022 expressed an unqualified opinion on those statements. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered net losses from operations and a deficit in equity, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Going Concern Due to the net loss for the year, the Company evaluated the need for a going concern. Auditing management’s evaluation of a going concern can be a significant judgement given the fact that the Company uses management estimates on future revenues and expenses which are not able to be substantiated. As discussed in Note 2, the Company has a going concern due to net loss during the year as well as having negative cash flows from operations during the year ended December 31,2022. To evaluate the appropriateness of the going concern, we examined and evaluated the financial information along with management’s plans to mitigate the going concern and management’s disclosure on going concern. /s/ M&K CPAS, PLLC We have served as the Company’s auditor since 2022. Houston, TX March 27, 2023 F- 3 MDWERKS, INC. Balance Sheet December 31, 2022 December 31, 2021 ASSETS TOTAL ASSETS $ – $ – LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable and accrued liabilities $ 23,871 $ 1,139 Advances Payable 104,204 19,659 Convertible notes payable – 210,000 TOTAL CURRENT LIABILITIES 128,075 230,798 TOTAL LIABILITIES 128,075 230,798 STOCKHOLDERS’ DEFICIT Preferred stock, par value .001 ; 10,000,000 shares authorized, of which 8,957,500 and 10,000,000 are issued and outstanding as of December 31, 2022 and 2021 8,958 10,000 Common stock, par value .001 , 300,000,000 shares authorized, of which 122,260,208 and 18,010,028 are shares issued and outstanding as of December 31, 2022 and 2021 122,260 18,010 Additional paid in capital 171,431 35,195 Accumulated deficit ( 430,724 ) ( 294,003 ) TOTAL STOCKHOLDERS’ DEFICIT ( 128,075 ) ( 230,798 ) TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $ – $ – The accompanying notes are an integral part of these financial statements. F- 4 MDWERKS, INC. Statements of Operations For the Year Ended December 31, 2022 For the Year Ended December 31, 2021 Operating Expenses General and administrative expenses $ 136,721 $ 20,798 Total operating expenses 136,721 20,798 Net (Loss) ( 136,721 ) ( 20,798 ) Other Income/Expenses Interest Expense – ( 6,825 ) Gain on Forgiveness of Debt – 65,599 Total Other Income – 58,774 Net (loss) income $ ( 136,721 ) $ 37,976 Net (loss) income per share Basic $ ( 0.01 ) $ ( 0.00 ) Diluted $ ( 0.01 ) $ ( 0.00 ) Weighted average number of shares outstanding Basic 24,565,003 18,010,208 Diluted 24,565,003 18,010,208 The accompanying notes are an integral part of the financial statements. F- 5 MDWERKS, INC. Statement of Changes in Stockholders’ Equity (Deficit) Shares Amount Shares Amount Capital Deficit (Deficit) Preferred Stock Common Stock Additional Paid in Accumulated Total Shareholder’s Shares Amount Shares Amount Capital Deficit (Deficit) Balance, January 1, 2021 10,000,000 $ 10,000 18,010,208 $ 18,010 $ 28,370 $ ( 331,979 ) $ ( 275,599 ) Imputed Interest – – – – 6,825 – 6,825 Net (loss) Income – – – – – 37,976 37,976 Balance, December 31, 2021 10,000,000 $ 10,000 18,010,208 $ 18,010 $ 35,195 $ ( 294,003 ) $ ( 230,798 ) Preferred Stock Common Stock Additional Paid in Accumulated Total Shareholder’s Shares Amount Shares Amount Capital Deficit (Deficit) Balance, January 1, 2022 10,000,000 10,000 18,010,208 $ 18,010 $ 35,195 $ ( 294,003 ) $ ( 230,798 ) Net (loss) – – – – – ( 136,721 ) ( 136,721 ) Net income (loss) – – – – – ( 136,721 ) ( 136,721 ) Conversion of preferred stock-related party ( 1,042,500 ) ( 1,042 ) 104,250,000 104,250 ( 103,208 ) – – Forgiveness of debt-related party – – – – 239,444 – 239,444 Balance, December 31, 2022 8,957,500 8,958 122,260,208 $ 122,260 $ 171,431 $ ( 430,724 ) $ ( 128,075 ) The accompanying notes are an integral part of these financial statements. F- 6 MDWERKS, INC. Statements of Cash Flows For the Year Ended December 31, 2022 For the Year Ended December 31, 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 136,721 ) $ 37,976 Adjustments to reconcile net loss to net cash used in operating activities: Imputed interest – 6,825 Changes in operating assets and liabilities: Accounts payable 22,732 ( 64,460 ) NET CASH (USED IN) OPERATING ACTIVITIES ( 113,989 ) ( 19,659 ) CASH FLOWS FROM FINANCING ACTIVITIES: Advances Payable 113,989 19,659 NET CASH PROVIDED BY FINANCING ACTIVITIES 113,989 19,659 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS – – CASH AND CASH EQUIVALENTS: Beginning of period – – End of period $ – $ – Supplemental disclosure of cash flow information: Cash paid for income taxes $ – $ – Cash paid for interest $ – $ – Supplemental disclosure of non-cash investing and financing activities Forgiveness of debt as capital contribution-related party $ 239,444 $ – Conversion of preferred stock-related party $ 104,250 $ – The accompanying notes are an integral part of these financial statements. F- 7 MDWERKS, Inc. Notes to Financial Statements For the Years Ended December 31, 2022 and 2021 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 (the “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 had 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 three months or less when acquired, to be cash equivalents. The Company had no cash equivalents at December 31, 2022 and December 31, 2021. 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 December 31, 2022 and December 31, 2021. 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 and for the years ended December 31, 2022 and December 31, 2021. Loss Per Share –Earnings per share is computed based on the weighted average number of common shares outstanding. Basic (loss) per share excludes dilution and is computed by dividing (loss) available to common stockholders by the weighted average common shares outstanding for the year. Diluted 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. In the fiscal years ended December 31, 2022 and December 31, 2021, there were no options, warrants or derivative securities outstanding. 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. F- 8 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 FASB Accounting Standards Codification 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 FASB Accounting Standards Codification No. 815, Derivatives and Hedging, since the conversion feature is not indexed to the Company’s stock and can’t 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. 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 financial statements, the Company had loss of $ 136,721 and an accumulated deficit of $ 430,724 as of and for the year ended December 31, 2022. Although management believes that it will be able to successfully execute a business combination, which includes third party financing and the raising of capital to meet the Company’s future liquidity needs, there can be no assurances in this regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Recently Issued Accounting Pronouncements – From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“ 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. NOTE 3 – ACCOUNTS PAYABLE The Company’s accounts payable as of December 31, 2022 and 2021 consists of trades payable of $ 23,871 and $ 1,139 , respectively. NOTE-4 ADVANCES PAYABLE The Company received advances aggregating $ 29,444 from a non-related parties during the first half of 2022 in order to cover legal, accounting and other various public company related operating expenses. The balance owed to this non-related party was $ 29,444 as of June 30, 2022 which was satisfied in July 2022. This amount was forgiven, along with the outstanding note payable of $ 210,000 . The SPA, provides, among other things, that the Company’s obligations under its convertible notes and advances payable aggregating $ 239,444 are forgiven. This transaction was recognized as an in substance related party transaction. The forgiveness of debt was recognized as capital contribution during July 2022 in the accompanying financial statements. The Company received advances aggregating $ 104,204 from two non-related parties during the second half of 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. NOTE 5 – NOTES PAYABLE On July 18, 2014, the Company sold and issued a convertible promissory note in the principal amount of $ 210,000 to an investor in exchange for $ 210,000 in cash (the “Note”). The Note has no maturity date and is due on demand by the holder at any time. The Note converts into shares of the Company’s common stock at a fixed conversion price of $ 0.0005 per share provided that the Holder shall not convert into any amount exceeding 9.99 % of the then issued and outstanding shares of the Company. On July 28, 2020, the Note was subsequently sold and purchased by a non-related 3 rd party investor. The outstanding balance owed on this note is $ 0 and $ 210,000 as of December 31, 2022 and 2021, respectively. During July 2022, the holders of the Company’s shares of Preferred Stock sold their shares pursuant to a Stock Purchase Agreement (“SPA”), executed with (i) Tradition Reserve I LLC, a New York limited liability company (“Buyer”); and (ii) Ronin Equity Partners, Inc., a Texas corporation (“Seller”). The SPA, provides, among other things, that the Company’s obligations under its convertible notes and advances payable aggregating $ 239,444 are forgiven. This transaction was recognized as an in substance related party transaction. The forgiveness of debt was recognized as capital contribution during July 2022 in the accompanying financial statements. F- 9 NOTE 6 – CAPITAL STOCK The Company is authorized to issue 300,000,000 shares of Common stock, $ 0.001 par value, with such designations, rights and preferences as may be determined from time to time by the Board of Directors. The increase in authorized shares from 200,000,000 to 300,000,000 was effective September 13, 2022. At December 31, 2022, there were 122,260,208 shares issued and outstanding. Holders of the Preferred Stock converted 1,042,500 shares of Preferred Stock into 104,250,000 shares of the Company’s common stock during December 2022. Preferred stock The Company is authorized to issue 10,000,000 shares of preferred stock, $ 0.001 par value, with such designations, rights and preferences as may be determined from time to time by the Board of Directors, of which 10,000,000 shares are designated Series A Convertible Preferred. On June 15, 2014, the Company designated the Series A Convertible Preferred so that each share shall hold with it conversion rights of one hundred (100) shares of common stock for every share of Series A Preferred stock held, and that each share of Series A Preferred stock will also hold with it the same number of common share votes prior to conversion as it would if fully converted to be used in voting on any company matter requiring a vote of shareholders. At December 31, 2022 and December 31, 2021, there were 8,957,500 and 10,000,000 shares issued and outstanding, respectively. NOTE 7 – 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. NOTE 8- RELATED PARTY TRANSACTIONS During July 2022, the holders of the Company’s shares of Preferred Stock sold their shares pursuant to a Stock Purchase Agreement (“SPA”), executed with (i) Tradition Reserve I LLC, a New York limited liability company (“Buyer”); and (ii) Ronin Equity Partners, Inc., a Texas corporation (“Seller”). The SPA, provides, among other things, that the Company’s obligations under its convertible notes and advances payable aggregating $ 239,444 are forgiven. This transaction was recognized as an in substance related party transaction. The forgiveness of debt was recognized as capital contribution during July 2022 in the accompanying financial statements. Holders of the Preferred Stock, the largest Company’s shareholder, converted 1,042,500 shares of Preferred Stock into 104,250,000 shares of the Company’s common stock during December 2022. NOTE 9 – SUBSEQUENT EVENTS The Company evaluated subsequent events and transactions that occurred after the balance sheet and up to March 27, 2023, the date that the financial statements were issued. Based on the review, management has determined that there are no other items requiring disclosure or adjustment, with the exceptions of the following: On January 19, 2023, the Company entered into an Exchange Agreement (the “Exchange Agreement”), , by and between the Company, RF Specialties LLC (“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 Exchange Agreement is subject to certain closing conditions. 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 Company, Merger Sub and Two Trees may be referred to herein collectively as the “Parties” and separately as a “Party.” 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”). The Merger Agreement is subject to certain closing conditions. F- 10 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. There have been no reportable events pursuant to Item 304(b) of Regulation S-K in connection with a change in our accountants.