MDWerks, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Overview Plan of Operations As of March 31, 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, in connection with the change of control and composition of the Board of Directors of the Company (the “Board”), the Company 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. 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. 11 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; (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”). 12 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. ● 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. 13 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. 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. 14 Results of Operations Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022 Revenues. We did not earn any revenues during the three months ended March 31, 2023 and 2022. Operating Expenses. The Company reported operating expenses of $41,451, consisting primarily of legal, accounting and various other public company related expenses for the three months ended March 31, 2023, compared to $5,494 for the three months ended March 31, 2022. The $35,957 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. Total other income was $0 for the three months ended March 31, 2023, compared to $0 for the three months ended March 31, 2022. There has been no change in other income. 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, 2023 and 2022, we had $41,228 and $0 cash, respectively. We anticipate that our current cash and cash equivalents and cash generated from financing activities will be insufficient to satisfy our liquidity requirements for the next 12 months. As of March 31, 2023, the Company had incurred operating losses since inception of $489,167. At March 31, 2023, the Company had a working capital deficit of $70,820. 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. 15 Cash Flows Cash Used in Operating Activities. Net cash used in operating activities for the three months ended March 31, 2023 and 2022, were $58,754 and $1,000, respectively. The increase was attributable to an increase in net loss, partially offset by an increase in accounts payable. Cash Provided by Financing Activities. Net cash provided by financing activities for the three months ended March 31, 2023 and 2022 was $76,267 and $1,000, respectively. The increase was attributable to proceeds from subscriptions agreements, offset by repayment of advances payable. 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.