10-Q: MDwerks Q2 Loss Widens Amid Strategic Investments

MDwerks, Inc. reported a substantial increase in net loss for the second quarter and first half of 2025, despite launching new Whiskey-as-a-Service contracts and a sawdust drying system.

Summary

• Net loss for the three months ended June 30, 2025, increased to $1,336,892 from $764,115 in the prior year period.
• Net loss for the six months ended June 30, 2025, nearly doubled to $1,966,246 from $1,066,504 in the prior year period.
• Gross profit shifted to a loss of $148,765 for the six months ended June 30, 2025, compared to a profit of $223,305 in the same period last year.
• Overall revenue for the six months ended June 30, 2025, slightly decreased to $934,539 from $956,554 in the prior year, primarily due to lower bulk alcohol sales in the Two Trees Distilling segment.
• The company launched its Whiskey-as-a-Service (WaaS) model, securing contracts for Spirits Rapid Aging Systems (SRAS) deployments and began aging tanker loads of distillate for a customer.
• MDwerks completed testing and deployed its first Molecular Sawdust Drying System subsequent to the reporting period.
• Management expressed substantial doubt about the company's ability to continue as a going concern due to recurring losses and insufficient liquidity.
• Disclosure controls and procedures were deemed 'not effective' as of June 30, 2025.

Sentiment

Score: 2

Explanation: The company reported a significant increase in net losses and a shift to negative gross profit, coupled with a substantial working capital deficit and an explicit 'going concern' warning from management. While strategic initiatives like Whiskey-as-a-Service and the sawdust drying system show future potential, they have not yet translated into improved financial performance and the company faces critical liquidity challenges. The ineffective disclosure controls also raise governance concerns.

Positives

• Successful launch of the Whiskey-as-a-Service (WaaS) business model with new contracts for Spirits Rapid Aging Systems (SRAS) deployments, indicating future recurring revenue streams.
• Secured an international exclusivity agreement for SRAS deployment in three countries outside the U.S. with a spirits investment fund.
• Completed testing and deployed the first Molecular Sawdust Drying System, demonstrating progress and potential in the RF Specialties segment.
• Two Trees Beverage Company launched a new 'Uplifting Spirits' product line, debuting with 'Land of the Sky' bourbon for Hurricane Helene relief, showcasing social responsibility and product innovation.
• Increased cash balance to $13,330 as of June 30, 2025, from $11,159 at December 31, 2024, primarily due to financing activities.

Negatives

• Net loss for the three months ended June 30, 2025, significantly increased to $1,336,892 from $764,115 in the prior year period.
• Net loss for the six months ended June 30, 2025, nearly doubled to $1,966,246 from $1,066,504 in the prior year period.
• Gross profit turned into a loss of $148,765 for the six months ended June 30, 2025, compared to a profit of $223,305 in the same period last year.
• Overall revenue for the six months ended June 30, 2025, slightly decreased to $934,539 from $956,554, primarily due to lower bulk alcohol sales in the Two Trees Distilling segment.
• Operating expenses increased significantly by $563,526 for the six months ended June 30, 2025, driven by higher payroll, stock-based compensation, and professional fees.
• The company has an accumulated deficit of $4,326,751 as of June 30, 2025.
• A working capital deficit of $1,104,922 was reported as of June 30, 2025.
• Management explicitly stated 'substantial doubt' about the company's ability to continue as a going concern.
• Disclosure controls and procedures were deemed 'not effective' as of June 30, 2025.

Risks

• **Going Concern Doubt**: Management expressed substantial doubt about the company's ability to continue as a going concern due to recurring operating losses and insufficient liquidity to meet obligations for the next 12 months.
• **Capital Requirements**: The company requires significant additional funding to meet ongoing obligations, fund anticipated operating losses, and complete construction of contracted SRAS units and expand production capacity.
• **Financing Risk**: There is no assurance that additional funding will be available on favorable terms, if at all, which could lead to a reduction in business development activities and harm business plans.
• **Internal Control Deficiencies**: Disclosure controls and procedures were deemed 'not effective' as of June 30, 2025, indicating potential weaknesses in financial reporting and information communication.
• **Customer Concentration**: As of June 30, 2025, three customers accounted for 34%, 23%, and 13% of total accounts receivable, and one customer accounted for 28% and 29% of total revenue for the three and six months ended June 30, 2025, respectively.
• **Royalty Payment Default**: The company has not paid an additional $112,500 due by April 1, 2024, under a license agreement with Shine Time, LLC.
• **Performance-Based Compensation Uncertainty**: Significant stock awards to management and consultants are tied to revenue targets (e.g., $5,000,000 to $50,000,000) and vesting was not deemed probable, indicating high hurdles for these targets.

Future Outlook

The company anticipates significant growth in revenue and gross profit from its Two Trees Distilling business in the second half of 2025 and beyond, driven by new Spirits Rapid Aging Systems (SRAS) contracts. The first SRAS unit is scheduled for installation at a large U.S. distillery in Q4 2025, with additional deployments expected in Q1 and H1 2026. An additional SRAS unit will be deployed at the company's Two Trees facility in Q3 2025 to quintuple production capacity. The company also expects potential for multiple additional SRAS deployments by existing and other third-party customers within the next twelve months, including international expansion through a spirits investment fund. Management intends to continue funding the business through equity or debt financing and advances from related parties.

Management Comments

• "We expect to drive significant growth in revenue and gross profit in our Two Trees Distilling business from this new revenue stream going forward."
• "Our upfront investment in these units will begin to pay off as they go live later this year, providing us with new recurring cash flow streams."
• "We see excellent potential for multiple additional SRAS deployments by both customers within the next twelve months as well as by other third parties."
• "We are proud of this initiative [Uplifting Spirits] and pleased to donate ten percent of Land of the Sky sales to relief efforts, including aiding Western North Carolina, where many of our teammates call home."
• "Management has expressed substantial doubt about our ability to continue as a going concern."

Industry Context

MDwerks operates in two distinct but innovative segments: rapid-aging spirits and sustainable radio frequency applications. The Whiskey-as-a-Service model positions the company to capitalize on the growing demand for aged spirits while offering efficiency and environmental benefits, potentially disrupting traditional aging methods. The Molecular Sawdust Drying System addresses the increasing need for green energy sources and efficient industrial processes, aligning with broader sustainability trends. The company's focus on patented energy wave technology suggests a strategy to differentiate itself through proprietary solutions in both sectors, aiming for improved efficiency, higher quality, and reduced processing time.

Comparison to Industry Standards

• The company's Spirits Rapid Aging System (SRAS) is presented as a proprietary process that mirrors and accelerates traditional aging, aiming for products 'nearly indistinguishable' from traditionally aged spirits. This directly competes with conventional distilleries that rely on lengthy barrel aging.
• The SRAS technology claims to offer reduced environmental impact and cost efficiency compared to traditional methods, which, if proven at scale, could provide a competitive advantage over established players in the spirits industry.
• The Molecular Sawdust Drying System, utilizing proprietary molecular energy wave technology, aims to adjust moisture content for wood pellet production, positioning the company within the alternative green energy sector. This technology could offer a more efficient drying process compared to conventional methods used by wood pellet manufacturers.
• The company's ability to secure contracts with 'one of the largest distilleries in the U.S.' for SRAS deployment suggests a degree of industry validation for its technology, though specific comparable project results are not detailed.

Management Changes

Corporate Governance

Legal Proceedings

• None.

Related Party Transactions

• Received $150,000 in proceeds from shareholders (related parties) through advances payable during the six months ended June 30, 2025.
• Repaid $105,500 of principal and $276 of accrued interest on advances from shareholders during the six months ended June 30, 2025.
• Balance owed on advances from shareholders (related parties) was $167,500 as of June 30, 2025, up from $123,000 at December 31, 2024.
• Issued 692,858 shares of common stock to officers, directors, and consultants for services during the three months ended March 31, 2025, resulting in $66,322 in stock-based compensation.
• Issued 184,766 shares of common stock to officers, directors, and consultants for services during the three months ended June 30, 2025, resulting in $39,774 in stock-based compensation.
• CEO Steve Laker and Executive Chairman James Cassidy are eligible for performance-based bonuses, payable partly in cash and partly in company stock, tied to significant revenue targets.
• Independent Directors Timothy Brocopp and Richard Blackstone receive quarterly cash compensation and common stock awards.
• CFO David Stephens is eligible for performance-based bonuses, payable partly in cash and partly in company stock, tied to significant revenue targets.
• A consultant (Senior Director of Revenue) receives 20,000 shares of stock per month and is eligible for additional performance-based shares tied to revenue targets.

Stakeholder Impact

• **Shareholders**: Significant dilution from ongoing common stock sales and stock-based compensation. Increased net losses and going concern warning pose substantial risk to investment value. Potential for future dilution from capital raises.
• **Employees/Management**: New employment agreements for key executives and directors include base salaries and performance-based stock and cash bonuses, potentially incentivizing growth.
• **Customers**: New Whiskey-as-a-Service contracts and the Molecular Sawdust Drying System deployment indicate expansion of service offerings and potential for improved efficiency/sustainability for customers.
• **Creditors**: The 'going concern' warning and high working capital deficit indicate increased risk for current and potential creditors. Related party advances are unsecured and due on demand.
• **Suppliers**: Increased inventory and capital expenditures suggest ongoing operational activity, but liquidity concerns could impact payment terms.

Next Steps

• Installation of the first SRAS unit at a large U.S. distillery in Q4 2025.
• Deployment of an additional SRAS unit at the Two Trees facility in Q3 2025 to quintuple production capacity.
• Installation of a second SRAS unit at the large U.S. distillery in Q1 2026.
• Deployment of a third SRAS unit at a U.S. bulk spirits broker in H1 2026.
• Ongoing efforts to secure additional SRAS deployments by existing and other third-party customers within the next twelve months.
• Continued efforts to raise additional capital through equity or debt financing and advances from related parties.
• Evaluation of the impact of ASU 2024-03 (Disaggregation of Income Statement Expenses) for pending adoption.

Key Dates

Recommendation

The company's financial performance has deteriorated significantly, with net losses nearly doubling and gross profit turning negative for the first half of 2025. Management explicitly states 'substantial doubt' about the company's ability to continue as a going concern due to insufficient liquidity and recurring operating losses. This fundamental uncertainty, combined with a large working capital deficit and disclosed ineffective internal controls, presents an extremely high-risk investment profile. While strategic initiatives like Whiskey-as-a-Service and the sawdust drying system show long-term potential, they are in early stages and have not yet mitigated the severe financial distress. The immediate and severe liquidity issues, coupled with governance concerns, make the stock highly speculative and warrant a strong sell recommendation for any investor prioritizing capital preservation.

Keywords

MDwerks, 10-Q, Quarterly Report, SEC Filing, Financial Results, Spirits Rapid Aging System, SRAS, Whiskey-as-a-Service, WaaS, RF Specialties, Radio Frequency Technology, Two Trees Beverage Co., Distilling, Sawdust Drying System, Liquidity, Going Concern, Operating Loss, Capital Raise, Internal Controls, Corporate Governance, Alcoholic Beverages, Industrial Technology