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 registrant as specified in its charter)
Commission
File Number:
| (State or other jurisdiction or incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s telephone number, including area code)
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 Securities 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 ☐ No
As of May 5, 2025, the Company has shares of common stock issued and outstanding.
Table of Contents
| PART I—FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 8 |
| Item 4. | Controls and Procedures | 8 |
| PART II—OTHER INFORMATION | 9 | |
| Item 1. | Legal Proceedings | 9 |
| Item 1A. | Risk Factors | 9 |
| Item 2. | Unregistered Sales of Securities and Use of Proceeds | 9 |
| Item 3. | Defaults Upon Senior Securities | 9 |
| Item 4. | Mine Safety Disclosure | 9 |
| Item 5. | Other Information | 9 |
| Item 6. | Exhibits | 10 |
| SIGNATURES | 11 | |
| 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,” “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 means MDwerks, Inc.
| 3 |
Index to Financial Statements
As of March 31, 2025
and for the Three Months Ended March 31, 2025 and 2024
| F-1 |
MDwerks, Inc.
Consolidated Balance Sheets
(Unaudited)
| March 31, 2025 | December 31, 2024 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Fixed assets, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use asset | ||||||||
| Goodwill | ||||||||
| Other non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable – related party | ||||||||
| Notes payable | ||||||||
| Notes payable – related party | ||||||||
| Deferred revenue | ||||||||
| Right-of-use liability, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Notes payable – related party, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Right-of use liability, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| 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, 2025 and December 31, 2024, respectively | ||||||||
| Additional paid in capital | ||||||||
| Subscription payable | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ||||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
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, | ||||||||
| 2025 | 2024 | |||||||
| 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): | ||||||||
| Gain (loss) on sale of assets | ||||||||
| 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 | Subscription | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Total | |||||||||||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Common Shares sold for cash | - | |||||||||||||||||||||||||||||||
| Common shares to be issued for royalty agreement | ||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Balance December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Common shares sold for cash | - | |||||||||||||||||||||||||||||||
| Common shares issued for inventory | - | |||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
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, 2025 | March 31, 2024 | |||||||
| 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 | ||||||||
| Allowance for credit losses | ||||||||
| Interest income | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expense | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Right-of-use asset | ||||||||
| Accounts payable | ||||||||
| Accounts payable – related | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Right-of-use liability | ( | ) | ( | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from related party notes payable | ||||||||
| Repayment of related party notes payable | ( | ) | ( | ) | ||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Proceeds from subscription agreements | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET CHANGE IN CASH | ||||||||
| CASH - BEGINNING OF YEAR | ||||||||
| CASH - END OF PERIOD | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Property and equipment acquired with notes payable | $ | $ | ||||||
| Common stock issued for inventory | $ | $ | ||||||
| Insurance being financed with a note 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, 2025 and 2024
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 (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”).
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 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 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”). Immediately following the Exchange, Two Trees became a wholly owned subsidiary of the Company. The Merger closed on December 8, 2023.
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, 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,
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 and 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.
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, 2024, which was filed with the Securities and Exchange Commission (“SEC”) on March 25, 2025. 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 financial statements as of March 31, 2025, and for the three months ended March 31, 2025 and 2024. 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, 2024.
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Two Trees Beverage Company, Prost Beverage Co, Radio Aged Beer LLC, RF Kettle Company LLC, Two Trees, Drilling, RAS LLC, (collectively referred to as “Two Trees”) and RF Specialties, LLC. 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 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.
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 $
| F-7 |
Revenue Recognition - Net sales from Two Trees include liquor and related products, less excise taxes and customer programs and incentives. Sales from RF Specialties, LLC 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.
The
Company recognizes deferred revenue for performance obligations not yet satisfied, primarily related to liquor sales not yet shipped.
As of March 31, 2025 and December 31, 2024, the Company had $
During the three months ended March 31, 2025, the Company’s revenue consisted of liquor sales resulting from the acquisition of Two Trees and labor costs related to the product and service income resulting from the acquisition of RF Specialties.
For
the three months ended March 31, 2025, the Company had one customer who accounted for
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
| F-8 |
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, 2025, and 2024,
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, 2025, and 2024,
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
| 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.
Research and Development Expenses - The Company records research and development expenses in the period in which they are incurred as a component of product development expenses.
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 $
| F-9 |
Segment Reporting - In November 2023, the Financial Accounting Standard Board (“FASB”) issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which amends the existing segment reporting guidance (ASC Topic 280) to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, an amount for other segment items by reportable segment and a description of its composition, the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
Reclassifications – Certain prior period amounts have been reclassified to conform to current period presentation.
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.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (DISE), requiring additional disclosure of the nature of expenses included in the income statement. The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The amendments in this update are effective for annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of our pending adoption of this standard on our consolidated financial statements.
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 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 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, 2025 | December 31, 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods and packaging | ||||||||
| Total inventories | $ | $ | ||||||
On
January 27, 2025, the Company’s wholly owned subsidiary, Two Trees Beverage Company and Brown Water Bourbon Xchange, LLC, a Kentucky
Limited Liability Company entered into an Asset Purchase Agreement. According to the terms of the Agreement, Brown Water Bourbon Xchange,
LLC sold to the Company
| F-10 |
NOTE 4 – FIXED ASSETS, NET
Fixed assets, net consisted of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Furniture and office equipment | ||||||||
| Buildings | ||||||||
| Construction in progress | ||||||||
| 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 of
ours to Dream Workz for a purchase price of $
On
January 31, 2024, the Company received assets under the second purchase agreement totaling $
As
of March 31, 2025 and December 31, 2024, the Company owed $
Two Trees entered into two contracts with two spirit companies for the deployment and license of our proprietary Spirits Rapid Aging System (“SRAS”). The first contract is for the building and deployment of SRAS at the customer’s facilities within the next three months, with the potential for additional SRAS deployments in the next 12 months. The second contract is for the building and deployment of SRAS at the customer’s facilities within the next six to nine months, with the potential for additional SRAS deployments in the next 12 months. Under both agreements, RFS will assemble the SRAS units and provide ongoing machine servicing and maintenance, thereby is entitled to receive recurring monthly license payments from the customers for use of the SRAS units. The Company is constructing the machines which expect to be deployed by the end of fiscal year ended December 31, 2025.
Depreciation
expense totaled $
NOTE 5 – INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| 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, 2025 and 2024 was $
| F-11 |
On
February 5, 2024, the Company, through its wholly owned subsidiary, Two Trees Beverages, entered into a new 15-year license agreement
with Shine Time, LLC, licensing 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 agreed to
pay a royalty of
NOTE 7 - NOTES PAYABLE
The Company has the following outstanding notes payable:
| Loans | Origination Date | Interest Rate | Balance as of March 31, 2025 | Balance as of December 31, 2024 | ||||||||||
| Asset purchase agreement notes | % | $ | $ | |||||||||||
| Termination Agreement | % | |||||||||||||
| Loan Payable - Mercedes | % | |||||||||||||
| First Insurance Funding | % | |||||||||||||
| Advances Payable – Related parties | % | |||||||||||||
| Total | $ | $ | ||||||||||||
The following is a summary of the future minimum payments of loans payable:
| 12 months ending: | ||||
| March 31, 2026 | $ | |||
| March 31, 2027 | ||||
| March 31, 2028 | ||||
| March 31, 2029 | ||||
| $ | ||||
During
the year ended December 31, 2020, the Company entered into a termination agreement and agreed to pay the sum of $
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 $
| F-12 |
During
the three months ended March 31, 2025, the Company received a total of $
In
March 2025, the Company entered into an insurance policy financing arrangement. The total principal was $
Interest
expense of $
NOTE 8 - CAPITAL STOCK
Preferred stock
The Company is authorized to issue shares of preferred stock, $ par value, with such designations, rights and preferences as may be determined from time to time by the Board of Directors, of which shares are designated Series A Convertible Preferred.
On
June 15, 2014,
On
November 7, 2024, the Company agreed to purchased shares of Series A Convertible Preferred Stock, representing all of the issued
and outstanding shares of Series A Convertible Preferred Stock of the Company from, Tradition Reserve I LLC, a New York limited liability
company, in exchange for $
Common stock
The Company is authorized to issue shares of Common stock, $ par value, with such designations, rights and preferences as may be determined from time to time by the Board of Directors.
During
the three months ended March 31, 2025, the Company sold shares of common stock in exchange for cash proceeds of $
On
January 27, 2025, the Company’s wholly owned subsidiary, Two Trees Beverage Company and Brown Water Bourbon Xchange, LLC, a Kentucky
Limited Liability Company entered into an Asset Purchase Agreement. According to the terms of the Agreement, Brown Water Bourbon Xchange,
LLC sold to the Company
During the three months ended March 31, 2025, the Company issued a total of shares of common stock to officers, directors and consultants for services under the agreements discussed in Note 9. The Company recorded stock-based compensation of $ under the agreements, based on the common stock prices ranging from $ to $ on the respective grant dates.
| F-13 |
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 $
At March 31, 2025 and December 31, 2024, there were and shares issued and outstanding, respectively.
Warrants
The following table represents warrant activity during the three months ended March 31, 2025:
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Forfeited, cancelled | ||||||||
| Outstanding at March 31, 2025 | $ | |||||||
| Exercisable at March 31, 2025 | $ | |||||||
The warrants had a weighted average remaining life of years and intrinsic value as of March 31, 2025.
Stock options
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Options | Prices | |||||||
| Balance, December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Cancelled | ||||||||
| Balance, March 31, 2025 | $ | |||||||
| Exercisable, March 31, 2025 | $ | |||||||
The options had a weighted average remaining life of years and intrinsic value as of March 31, 2025.
NOTE 9 - COMMITMENTS AND 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.
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 |
On
November 6, 2024, the Company entered into an employment agreement with its CEO, Steve Laker. The agreement specifies an annual salary
of $
On
November 6, 2024, the Company entered into an employment agreement with its Executive Chairman James Cassidy. The agreement specifies
an annual salary of $
On
November 18, 2024, Mr. Timothy Brocopp and the Company entered into an Independent Director Agreement, with the following summarized
terms: Mr. Brocopp shall serve as an independent director of the Company and be available to perform the duties consistent with such
position pursuant to the Certificate of Incorporation and Bylaws of the Company.
| F-15 |
On
December 3, 2024, Mr. Richard Blackstone and the Company entered into an Independent Director Agreement. Mr. Blackstone shall serve as
an independent director of the Company and be available to perform the duties consistent with such position pursuant to the Certificate
of Incorporation and Bylaws of the Company.
On December 11, 2024, the Company and a consultant entered into an independent contractor agreement whereby the consultant shall serve as Senior Director of Revenue of the Company on a month to month basis, which can be terminated by either party with 30 days notice. As compensation for his services, the consultant will receive shares of stock per month. As of March 31, 2025, the consultant is owed a total of shares with a fair value of $, based on the common stock prices at the end of each month. The shares have not been issued to date, and the fair value is included in subscriptions payable on the Company’s consolidated balance sheet.
On
March 10, 2025, the Company entered into an Executive Employment Agreement with David Stephens. Mr. Stephens shall serve as the Chief
Financial Officer of the Company. Mr. Stephen’s employment commenced on March 1, 2025, and continues for a term of three (3) years.
Compensation that Mr. Stephens will receive during his term includes (i) for the period of January 1, 2025 through December 31, 2025,
a base salary of $
| F-16 |
Upon execution of the agreement, the Company issued shares of common stock to Mr. Stephens with a fair value of $, with shares vesting on execution of the agreement and the remainder . The Company recognized expense of $ for these awards during the three months ended March 31, 2025 and expects to recognize an additional $ through the end of the vesting period. Additionally, Mr. Stephens is eligible to receive an additional shares of common stock based on performance benchmarks tied to certain revenue targets, with targets ranging from $ to $. These performance awards had a grant date fair value of $. The Company recognized expense during the three months ended March 31, 2025 related to these awards as vesting was not deemed probable.
On March 14, 2025, the Company agreed to issue shares of common stock to a consultant, of which vest upon execution, and the remaining The shares were valued at $ based on the common stock price at the date of grant. The Company recognized expense of $ during the three months ended March 31, 2025 and expects to recognize an additional $ through the end of the vesting period. Additionally, the consultant is eligible to receive an additional shares of common stock based on performance benchmarks tied to certain revenue targets, with targets ranging from $ to $. These performance awards had a grant date fair value of $. The Company recognized expense during the three months ended March 31, 2025 related to these awards as vesting was not deemed probable.
NOTE 10 - RELATED PARTY TRANSACTIONS
During
the three months ended March 31, 2025, the Company received a total of $
NOTE 11 – LEASES
The
Company maintains an operating lease for its office space and operating facility. The lease has a remaining term of
The following table provides the maturities of lease liabilities at March 31, 2025:
| Operating Lease | Remaining Term in Years | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| thereafter | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | ) | ||||||
| Present value of lease liability | ||||||||
| F-17 |
NOTE 12 – SEGMENT REPORTING
The
Company’s operations are managed and reported in
Significant segment expenses and assets information is as follows:
| For the Three Months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | ||||||||
| Two Trees Distilling | $ | $ | ||||||
| RF Specialties | ||||||||
| Total | $ | $ | ||||||
| Cost of Sales | ||||||||
| Two Trees Distilling | $ | $ | ||||||
| RF Specialties | ||||||||
| Total | $ | $ | ||||||
| Gross profit | ||||||||
| Two Trees Distilling | $ | $ | ||||||
| RF Specialties | ||||||||
| Total | $ | $ | ||||||
| General & Administrative Expense | ||||||||
| Two Trees Distilling | $ | $ | ||||||
| RF Specialties | ||||||||
| Corporate | ||||||||
| Total | $ | $ | ||||||
| Salary and Wages | ||||||||
| Two Trees Distilling | $ | $ | ||||||
| RF Specialties | ||||||||
| Corporate | ||||||||
| Total | $ | $ | ||||||
| Depreciation and Amortization Expense | ||||||||
| Two Trees Distilling | $ | $ | ||||||
| RF Specialties | ||||||||
| Corporate | ||||||||
| Total | $ | $ | ||||||
| Net loss from operations | ||||||||
| Two Trees Distilling | $ | ( | ) | $ | ( | ) | ||
| RF Specialties | ( | ) | ( | ) | ||||
| Corporate | ( | ) | ( | ) | ||||
| Total | $ | ( | ) | $ | ( | ) | ||
| Assets | ||||||||
| Two Trees Distilling | $ | $ | ||||||
| RF Specialties | ||||||||
| Corporate | ||||||||
| Total | $ | $ | ||||||
| Capital expenditures | ||||||||
| Two Trees Distilling | $ | $ | ||||||
| RF Specialties | ||||||||
| Total | $ | $ | ||||||
NOTE 13 - SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued.
In
April 2025, the Company issued shares related to subscriptions received during the three months ended March 31, 2025. Subsequent to March 31, 2025, the Company sold
shares of common stock for cash proceeds of $
| F-18 |
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 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.
Overview
MDwerks, Inc., a Delaware corporation, was previously 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 our public reporting status. In December 2023, we completed the acquisition of RF Specialties, LLC (“RFS”) and Two Trees Beverage Co. and its subsidiaries (“Two Trees”).
Our wholly owned subsidiary, RFS, is a technology company pioneering the development of innovative energy wave solutions for industrial and other commercial enterprises. Our expertise in radio wave technologies and microwave technologies has led to multiple breakthroughs with applications both industrial and commercial. Our patented energy wave technology introduces a revolutionary approach to industrial processes by specific molecular targeting, which can be applied at precise and multiple locations in a system in ways that conventional single point heat sources cannot, resulting in improved efficiency, higher quality, and reduced processing time.
Our wholly-owned subsidiary, Two Trees Beverage Company, utilizes our Spirits Rapid Aging System, validating the use of our patented energy wave technology within the premium craft spirits industry. Our proprietary and patented molecular targeting system swiftly and sustainably transforms distillate to maturity, delivering traditional flavors in a fraction of the time with greatly reduced environmental impact and cost. Precision engineered to match traditional aging flavors and aromas, it has been used to produce over 50 SKUs and many award-winning products.
Recent Developments
RF Specialties, Inc. Acquisition
On January 19, 2023, we entered into an Exchange Agreement (the “Exchange Agreement”) with RF Specialties, LLC (“RFS”) and Keith Mort, as the sole member of RFS. Pursuant to the terms of the Exchange Agreement, we agreed to acquire from Mr. Mort, and Mr. Mort agreed to sell to us, 100% of the equity interests and membership interests of RFS, in exchange for the issuance to Mr. Mort of 7,500,000 shares of our common stock (the “Exchange”). Immediately following the Exchange, RFS became our wholly owned subsidiary.
RFS is an innovative company pushing the boundaries of sustainable Radio Frequency applications. For over 13 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.
| 4 |
Two Trees Acquisition
On February 13, 2023, we entered into a Merger Agreement (the “Merger Agreement”) with MD-TT Merger Sub, Inc., a wholly owned subsidiary (“Merger Sub”) and Two Trees Beverage Co. (“Two Trees”). 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, has the right to convert all of the shares of Two Trees stock into a total of 60,000,000 shares of our common stock, which was 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”). Immediately following the Exchange, Two Trees became our wholly owned subsidiary.
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.
Appointment of Chief Financial Officer
On March 10, 2015, we appointed David Stephens as our Chief Financial Officer, effective March 1, 2025. We entered into an employment agreement with Mr. Stephens for a term of three years with the following compensation terms:
| - | A base salary of $120,000 in 2025; $150,000 in 2026; and $175,000 in 2027; | |
| - | For the first two years of the term, a performance based bonus of 15% of his then current base salary for any quarter that gross revenues increased a minimum of 25% from its prior year gross revenue for that corresponding quarter; | |
| - | After the first two years of the term, an annual performance based bonus based on prior year gross revenues, in a schedule as set forth in his employment agreement. |
Two New Contracts
Two Trees entered into two contracts with two spirit companies for the deployment and license of our proprietary Spirits Rapid Aging System (“SRAS”). The first contract is for the building and deployment of SRAS at the customer’s facilities within the next three months, with the potential for additional SRAS deployments in the next 12 months. The second contract is for the building and deployment of SRAS at the customer’s facilities within the next six to nine months, with the potential for additional SRAS deployments in the next 12 months. Under both agreements, RFS will assemble the SRAS units and provide ongoing machine servicing and maintenance, thereby is entitled to receive recurring monthly license payments from the customers for use of the SRAS units.
Asset Purchase Agreement
On January 27, 2025, Two Trees (the “Buyer”) and Brown Water Bourbon Xchange, LLC, a Kentucky limited liability company (the “Seller”) (collectively the “Parties”) entered into an Asset Purchase Agreement (the “Agreement”). According to the terms of the Agreement, the Seller sold to the Buyer 680 barrels of whiskey in exchange for 5,000,000 restricted shares of Common Stock of the Company (the “Shares”). On the same day, the Buyer and Seller closed the transaction.
| 5 |
Results of Operations
Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
| For the Three Months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | ||||||||
| Two Trees Distilling | $ | 252,837 | $ | 514,866 | ||||
| RF Specialties | 261,093 | 169,794 | ||||||
| Total | $ | 513,930 | $ | 684,660 | ||||
| Cost of Sales | ||||||||
| Two Trees Distilling | $ | 168,715 | $ | 287,679 | ||||
| RF Specialties | 212,683 | 102,162 | ||||||
| Total | $ | 381,398 | $ | 389,841 | ||||
| Gross profit | ||||||||
| Two Trees Distilling | $ | 84,122 | $ | 227,187 | ||||
| RF Specialties | 48,410 | 67,632 | ||||||
| Total | $ | 132,532 | $ | 294,819 | ||||
Revenue. Revenue for the three months ended March 31, 2025 was $513,930 compared to $684,660 for the three months ended March 31, 2024. The $170,730 decrease in revenue was primarily attributable to decreased liquor sale volumes in the current period primarily from lower bulk alcohol sales, partially offset by an increase in product and services revenues from RF Specialties from progress made on its molecular sawdust drying system contract.
In February 2025, the Company executed contracts with two customers related to the lease of an aggregate of three SRAS that are expected to begin producing revenue to the Company in the second half of 2025. The Company began building the machines for these customers in the first quarter, and we expect to drive significant growth in revenue and gross profit in our Two Trees Distilling business from this new revenue stream going forward.
Cost of Sales. Cost of sales for the three months ended March 31, 2025 was $381,398 compared to $389,841 for three months ended March 31, 2024. Cost of sales for the Company’s Two Trees Distilling operations was $168,715 in 2025 compared to $287,679 in 2024, with the decline driven by volume decreases described above. The Company’s RF Specialties business incurred costs of sales of $212,683 in 2025 compared to $102,162 in 2024. The increase is due to the costs associated with the molecular sawdust drying module contract ongoing since November 2024.
Operating Expenses. We reported operating expenses of $750,321 consisting primarily of legal, accounting, payroll, and general business related expenses for the three months ended March 31, 2025 compared to $599,966 for the three months ended March 31, 2024. The $150,355 increase in operating expenses was primarily attributable to increased professional fees as the Company’s reporting obligations increased with the acquisitions, payroll costs from new officer and director contracts, increased stock-based compensation of $66,322 from those new contracts, partially offset by decreases in royalty expense from lower sales volumes. Operating expenses included depreciation and amortization expense of $72,607 and $77,930 for the three months ended March 31, 2025 and 2024, respectively.
Total Other Expenses. Total other expense was $11,565 for the three months ended March 31, 2025 compared to $2,758 for the three months ended March 31, 2024. Other expense for the three months ended March 31, 2025 primarily consisted of interest expense of $11,765 and interest income of $200. Other income for the three months ended March 31, 2024 consisted of $5,600 offset by interest expense of $2,842.
Liquidity and Capital Resources
As of March 31, 2025, and December 31, 2024, we had $593,175 and $11,159 of cash, respectively. 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, 2025, we have incurred operating losses since inception of $2,989,859. At March 31, 2025, we had working capital of $222,164.
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. We require additional funding to meet our ongoing obligations and to fund anticipated operating losses. Management has expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on raising capital to fund our 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.
| 6 |
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. During the three months ended, we raised $1,584,000 in cash proceeds from the sale of common stock. 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. We intend to continue to fund our 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, 2025 and 2024 were $421,316 and $280,931. The increase was attributable to an increase in net loss compared to the prior year as a result of increased operating expenses associated with the new businesses as described above.
Cash Used from Investing Activities. Cash used in investing activities for the three months ended March 31, 2025 and 2024 was $604,377 and $8,820, respectively, related to purchases of equipment in developing its SRAS machines for its customer, and a new system for the Company’s own use.
Cash Provided by Financing Activities. Net cash provided by financing activities for the three months ended March 31, 2025 and 2024 was $1,607,709 and $337,534, respectively. The cash provided by financing activities for the three months ended March 31, 2025 was attributable to proceeds from the sale of common stock of $1,434,000, including subscription payable of $150,000, proceeds from related party notes payable of $150,000, partially offset by repayments of notes payable of $126,291. 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.
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
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (DISE), requiring additional disclosure of the nature of expenses included in the income statement. The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The amendments in this update are effective for annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact of our pending adoption of this standard on our consolidated financial statements.
We have implemented all new accounting standards that are in effect and that may impact our financial statements and do 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.
| 7 |
Revenue Recognition
Net sales from Two Trees include liquor and related products, less excise taxes and customer programs and incentives. Sales from RFS include product and services related to sustainable Radio Frequency applications to a wide range of industries including structural engineering, food & beverage, and manufacturing. We recognize 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.
We recognize 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, we recognize 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 our radio frequency applications, we recognize revenue as the services are provided to the customer over the length of the contract. Our 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, we have 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, we conclude 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 we conclude otherwise, we are 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. We have determined that we have two reporting units.
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 Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2025. Based upon such evaluation, the principal executive officer and principal financial officer have concluded that, as of March 31, 2025, our 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, 2025 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
| 8 |
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
None.
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 has not been previously included in a Quarterly Report on Form 10-Q or a Current Report of Form 8-K which were not registered under 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 (the “Securities Act”), or Regulation D or Regulation S promulgated thereunder.
During the three months ended March 31, 2025, we sold 10,493,332 shares of common stock in exchange for cash proceeds of $1,584,000, of which 400,000 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 our Board of Directors since we last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.
(c)
During the quarter ended March 31, 2025, no director or officer
| 9 |
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
| 31.2* | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
| 32.1** | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act | |
| 32.2** | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act | |
| 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 Documen | |
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
| * | Filed herewith. | |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MDwerks, Inc. | |
| Date: May 13, 2025 | /s/ Steven C. Laker |
| Steven C. Laker | |
| Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer) | |
| Date: May 13, 2025 | /s/ David Stephens |
| David Stephens | |
| Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
| 11 |