MDWerks, Inc. 10-K

ITEM 1. BUSINESS Business Overview MDwerks, Inc. (the “Company,” “MDwerks,” “we,” “us,” or “our”), 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 (a “Business Combination”) that would benefit from the Company’s public reporting status. In December 2023, the Company completed two acquisitions of business as outlined below. The Company is a forward-thinking company that is leading the charge in the world of sustainable technology. As a leading provider of energy wave technologies, MDwerks is dedicated to creating innovative solutions that help businesses reduce their energy costs while also increasing speed to market. Our expertise in radio wave technologies and microwave technologies has led to multiple breakthroughs with applications both industrial and commercial. Acquisitions Two Trees On February 13, 2023, we entered into a Merger Agreement (the “Merger Agreement”), by and between the Company, MD-TT Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and Two Trees Beverage Co. (“Two Trees”). The 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, had 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”). 4 Amendment No. 1 to Two Trees Merger Agreement 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. Clawback Policy On January 1, 2024, the Company’s Board of Directors adopted a Compensation Recovery Policy (the “Policy”). The Policy is intended to further the Company’s pay-for-performance philosophy and to comply with applicable law by providing for the reasonably prompt recovery of certain incentive-based compensation received by executive officers in the event of an accounting restatement. The Policy is intended to comply with, and will be interpreted in a manner consistent with, Section 10D of the Exchange Act, with Exchange Act Rule 10D-1 and with the Nasdaq listing standards. Pursuant to the Policy, if the Company is required to prepare an accounting restatement due to the material noncompliance by the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (an “Accounting Restatement”), then the Compensation Committee must determine the Excess Compensation (as hereinafter defined), if any, that must be recovered. The Company’s obligation to recover Excess Compensation is not dependent on if or when the restated financial statements are filed. The Company must recover Excess Compensation reasonably promptly and executive officers are required to repay Excess Compensation to the Company, subject to the terms of the Policy. The Policy applies to certain incentive-based compensation that is received on or after January 1, 2024 during the three completed fiscal years immediately preceding the Accounting Restatement determination date, as provided in the Policy (the “Covered Period”) while the Company has a class of securities listed on a national securities exchange. The incentive-based compensation is considered “Clawback Eligible Incentive-Based Compensation” if the incentive-based compensation is received by a person after such person became an executive officer and the person served as an executive officer at any time during the performance period to which the incentive-based compensation applies. The “Excess Compensation” that is subject to recovery under the Policy is the amount of Clawback Eligible Incentive-Based Compensation that exceeds the amount of Clawback Eligible Incentive-Based Compensation that otherwise would have been received had such Clawback Eligible Incentive-Based Compensation been determined based on the restated amounts (this is referred to in the listing standards as “erroneously awarded incentive-based compensation”). Overview of the Business of Two Trees The Two Trees Story We produce a variety of aged alcoholic beverages using an innovative rapid-aging system. This scalable technology results in all-natural, high-quality products, efficiently produced, with a reduced environmental impact. Our products are nearly indistinguishable from those that are traditionally aged. Deep in Appalachian Mountain country, we created a proprietary process that mirrors and accelerates the natural aging process that occurs when alcohol is aged in wooden barrels over time. The true art of our craft spirits lives within the balance between the grain selection, local water, and the full-bodied flavors from our toasted wood chip varieties. Our wood chips are selected to pair with specific grains and toasted to just the right char, bringing rich flavor profiles to life with a hint of smoke. 5 Brands Two Trees has built a portfolio of more than 30 spirit brands that are refined and capable of being produced in a fraction of the time it takes to produce traditional whiskies using the traditional production process discussed below. Three of Two Trees portfolio brands received 2022 SIP Awards, with its Two Trees Carolina Peach Whiskey receiving a Platinum Award, Two Trees Sea Salted Caramel Whiskey receiving a Gold Award and Two Trees Old Fashioned RTD receiving a Gold Award. Also, two of its portfolio brands received 2022 50 Best Awards with Two Trees Peanut Butter Whiskey and Two Trees Sea Salted Caramel Whiskey receiving Best Flavored Whiskey awards. Also, Two Trees received the Best of Ashville 2023 award for its sustainable matured, award-winning bourbon, whiskey, flavored whiskey and vodka. Our full current flavored whisky brand portfolio includes the following: SEA SALTED CARAMEL – a sweet soft caramel paired with real sea salt and aged in slow toasted Appalachian white oak. BATCH 314 - A long toasting of Tennessee white oak brings out a soft caramel flavor with notes of vanilla and spice. CRISP APPLE - Tart flavors of fresh picked green apples and the sweet charred profile of Appalachian white oak blend easily. CANDY APPLE - Vanilla profile of heavy toasted Tennessee white oak adds to the caramel dipped green apple flavor. CINNAMON SPICE - Aged in charred and toasted Missouri white oak, with the cinnamon spice and the sweet essence of red hots candy. MICHIGAN CHERRY - Made with sweet corn to balance and compliment the tartness of the Montmorency cherry profile. CAROLINA PEACH - Made with delicious South Carolina peaches and natural flavors to compliment the sweet charred flavor profile of Appalachian white oak. GOLDEN HONEY - Flavor reminiscent of toasted Appalachian white oak, and the essence of fresh honeycomb and the taste of natural honey. SCORCHED BROWN SUGAR - Flavor reminiscent of charred Appalachian white oak, real brown sugar and natural vanilla flavor. PEANUT BUTTER - A taste reminiscent of Appalachian white oak with rich smooth notes of peanut butter. Our ready to drink portfolio includes the following: OLD FASHIONED - Plush, dignified cocktail of muddled sugar, whiskey, bitters and Appalachian Mountain spring water blended with toasted Missouri and Tennessee white oak is sleek and ready to pour. MANHATTAN - Austere rye whiskey with a rich touch of both sweet and dry vermouths sculpted with toasted Missouri and Tennessee white oak creates a glossy, mirror like smoothness, made effortlessly. Our Tim Smith product portfolio includes the following: CLIMAX MOONSHINE - The original recipe is distilled from corn, rye, and barley malt. Clean and natural tasting with a subtle sweetness and bold defiance. 6 CLIMAX WOOD-FIRED WHISKEY - This isn’t your ordinary American bourbon-style whiskey its Tim Smith’s century-old moonshine recipe aged and filtered with toasted oak and maple wood imparting color and revolutionary flavors. The final process allows the whiskey to cool in Oak containers and the result is Tim Smith’s revolutionary Climax Whiskey – Made to be in a Class of its Own. CLIMAX FIRE NO. 32 - Cinnamon Spice Moonshine using Tim Smith’s original pot-distilled recipe. Bold, Hot and Smooth. As a volunteer fire chief in Climax, VA, Tim created this moonshine as a tribute to firefighters across the country. TIM SMITH SOUTHERN RESERVE BOURBON - Amber in appearance. Caramelized sugar and vanilla melt into a soft wheat. It finishes with a sweet honey profile. TIM SMITH SOUTHERN RESERVE RYE - Golden amber in appearance. Notes of spicy toasted American oak give way to the gentle warm finish of sweet rye and caramel. TIM SMITH SOUTHERN RESERVE WHISKEY - Reddish amber in appearance. Sweet corn and mild rye blend with smoky, caramelized oak. It finishes with earthy, nutty notes. We also produce a wood crafted portfolio American whiskey. This blend is colored and flavored with Appalachian white oak chips. This brings out a soft caramel flavor with notes of vanilla and spice. The charred white oak chips soften this spirit to make it smooth and easy to drink. Patent and Trademarks – Two Trees We, primarily through our subsidiaries, hold or have rights to use various service marks, trademarks and trade names we use in the operation of our businesses that we deem particularly important to each of our products. As of the date of this report, we had 12 trademarks for our products and services as follows: Trademark Registration Date Reg. Number Class TIM SMITH’S CLIMAX MOONSHINE 3/21/2017 5,166,624 Class 21: portable coolers Class 25: shirts, caps Class 33: distilled spirits CLIMAX MOONSHINE 10/20/2015 4,834,895 Classes 2, 13, 23, 29, 30, 33, 40 and 50: drinking glasses and drinking flasks Classes 22 and 39: shirts and hats Classes 47 and 49: distilled spirits FIRE NO 32 2/21/2017 5,147,397 Class 33: distilled spirits CLIMAX WHISKEY 8/01/2017 5,257,114 Class 33: distilled spirits CLIMAX WOOD-FIRED 8/22/2017 5,272,047 Class 33: distilled spirits TIM SMITH SOUTHERN RESERVE 11/26/2019 5,922,109 Class 33: distilled spirits, whiskey SNARLY YOW 1/14/2020 5,963,107 Class 33: distilled spirits, whiskey TWO TREES 3/24/2020 6,020,545 Class 33: Alcoholic beverages except beers, not wine based; Distilled spirits; Whiskey OWL HEAD 6/16/2020 6,079,608 Class 33: distilled spirits; whiskey WAMPUS CAT 6/16/2020 6,079,610 Class 33: distilled spirits; whiskey MOON CHASERS 6/12/2022 6,785,148 Class 33: alcoholic beverages, namely, ready-to-drink cocktails SUSTAINABLY – MATURED 11/14/2023 7219580 Class 40: Alcohol distillery services; Spirits distillery services; Whisky distillery services 7 Two Trees has the followings patents: Patent Issue date Patent Number Expiration Date System & method for the rapid aging of a distilled ethyl alcohol with rf energy and wood material supporting platform April 18, 2023 US 11,629,317 B2 January 21, 2034 System & method for the rapid aging of a distilled ethyl alcohol with rf energy and wood material supporting platform April 30, 2024 US 11,970,678 B2 January 21, 2034 Overview of the Business of RF Specialties 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 became a wholly owned subsidiary of the Company. RFS is engaged in the business of developing sustainable radio frequency (RF) applications, and for over 12 years, has addressed the challenges faced by companies by implementing automated radio frequency technology. RFS has developed a system and method for the rapid aging of distilled spirits with RF energy that reduces energy and production costs thus increasing the speed to market for distilled beverages when compared to traditional technologies. Patent and Trademarks – RF Specialties RF Specialties holds or has the rights to use patents we use in the operation of our businesses that we deem particularly important to each of our products. As of the date of this report, we had the following patents: Patent Issue Date Patent Number Expiration Date Systems, apparatuses, and methods for molecular targeting and separation of feedstock fluids June 11, 2019 US 10315126 B2 November 22, 2036 Employees As of December 31, 2023, the Company had twelve full-time and two part-time employees. None of our employees are covered by collective bargaining agreements and we consider our relations with our employees to be good. We believe that hiring a diverse workforce is important to our success. We intend to continue to evaluate our use of human capital measures and objectives to ensure we have a stable workforce to run our business effectively and provide a comfortable working environment for our employees. The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees, and we provide our employees and their families with competitive pay and benefits.