10-Q: MDwerks Reports Deepening Losses Amid Strategic Expansion

MDwerks, Inc. reported a significant increase in net loss and a going concern warning for Q3 2025, despite launching new services and securing strategic contracts.

Summary

• MDwerks, Inc. reported a net loss of $2,984,683 for the nine months ended September 30, 2025, a substantial increase from $909,480 in the prior year period.
• Revenue decreased to $1,714,680 for the nine months ended September 30, 2025, down from $2,015,261 in the same period of 2024, primarily due to non-recurring service revenue in RF Specialties in the prior year and decreased liquor sales volumes in Two Trees Distilling.
• The company experienced a gross loss of $30,495 for the nine months ended September 30, 2025, a sharp decline from a gross profit of $956,173 in the prior year.
• Operating expenses surged to $2,904,054 for the nine months ended September 30, 2025, up from $1,799,948, driven by increased payroll costs, stock-based compensation, and professional fees.
• Management expressed substantial doubt about the company's ability to continue as a going concern, citing ongoing losses and the need for additional capital.
• Cash and cash equivalents increased to $181,278 as of September 30, 2025, from $11,159 at December 31, 2024, primarily due to significant financing activities.
• The company launched its Whiskey-as-a-Service (WaaS) model, securing contracts for Spirits Rapid Aging System (SRAS) deployments and an international exclusivity agreement.
• MDwerks acquired 680 barrels of whiskey for 5,000,000 restricted common shares, valued at $850,000, on January 27, 2025.
• The company's disclosure controls and procedures were deemed not effective as of September 30, 2025.

Sentiment

Score: 2

Explanation: The company faces severe financial challenges, including a significant increase in net loss, a shift to gross loss, and a going concern warning. While strategic initiatives like WaaS and MSDS show potential, their positive impact is not yet reflected in financial results, and the company's liquidity is heavily reliant on continuous capital raises. Ineffective disclosure controls add to the negative sentiment.

Positives

• Cash balance significantly increased to $181,278 as of September 30, 2025, from $11,159 at December 31, 2024, primarily due to successful capital raises.
• Launched the Whiskey-as-a-Service (WaaS) business model, securing new contracts for the deployment of Spirits Rapid Aging Systems (SRAS) with two customers.
• Signed an agreement with an international spirits investment fund for limited exclusivity to deploy SRAS units in three countries outside the U.S., requiring annual deployment to retain exclusivity.
• Completed testing and deployed the first Molecular Sawdust Drying System (MSDS), utilizing proprietary molecular energy wave technology.
• Introduced 'Uplifting Spirits,' a new product line from Two Trees Beverage Company, with 'Land of the Sky' bourbon supporting Hurricane Helene relief efforts by donating 10% of sales.
• Appointed David Stephens as Chief Financial Officer, effective March 1, 2025, strengthening the management team.

Negatives

• Net loss for the nine months ended September 30, 2025, significantly widened to $2,984,683 from $909,480 in the prior year period.
• Revenue decreased by $300,581 to $1,714,680 for the nine months ended September 30, 2025, compared to $2,015,261 in the same period of 2024.
• The company reported a gross loss of $30,495 for the nine months ended September 30, 2025, a substantial reversal from a gross profit of $956,173 in the prior year.
• Operating expenses increased by $1,104,106 to $2,904,054 for the nine months ended September 30, 2025, largely due to higher payroll and stock-based compensation.
• Accumulated deficit grew to $5,345,188 as of September 30, 2025, from $2,360,505 at December 31, 2024.
• Cash used in operating activities increased to $1,194,182 for the nine months ended September 30, 2025, from $662,693 in the prior year, indicating higher cash burn.
• The company recognized an inventory impairment of $61,897 during the three months ended September 30, 2025, related to barrel inventory.
• An amount of $112,500 due under a license agreement with Shine Time, LLC by April 1, 2024, remains unpaid as of the filing date, and 300,000 shares agreed to be issued have not been issued.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern, dependent on raising additional capital and achieving profitable operations.
• The company's disclosure controls and procedures were not effective as of September 30, 2025, indicating potential weaknesses in financial reporting and compliance.
• Reliance on third-party financing and capital raises to meet future liquidity needs, with no assurances of availability on favorable terms or at all.
• Significant increase in operating expenses, particularly payroll and stock-based compensation, which could continue to impact profitability if revenue growth does not materialize as expected.
• Dependence on the successful deployment and adoption of SRAS units and other new technologies to generate recurring revenue streams.
• Potential for further inventory impairments if market prices for barrel inventory fall below carrying values.
• Unpaid obligations and unissued shares related to the Shine Time, LLC license agreement could lead to disputes or impact future business relationships.

Future Outlook

The company anticipates significant growth in revenue and gross profit from its Two Trees Distilling business due to the new Whiskey-as-a-Service (WaaS) revenue stream. The first two SRAS units are expected to be installed at a large U.S. distillery by Q1 2026, and a third unit at a U.S. bulk spirits broker by H1 2026. An additional SRAS unit is being deployed at the Two Trees facility in Q3 2025 to quintuple existing production capacity. The international exclusivity agreement with a spirits investment fund is expected to lead to multiple additional SRAS deployments within the next twelve months. However, the company requires additional funding to meet ongoing obligations and fund anticipated operating losses, and there are no assurances regarding the availability of such financing.

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."
• "These contracts not only validate the economic and sustainability benefits of our SRAS units but also are expected to provide us with attractive recurring revenue streams through licensing agreements and ancillary fees for ongoing machine servicing and maintenance."
• "Our upfront investment in these units will begin to pay off as they go live, 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."
• "Management has expressed substantial doubt about our ability to continue as a going concern."

Industry Context

MDwerks operates in two distinct but technologically linked sectors: rapid-aging craft spirits and sustainable radio frequency (RF) applications. The spirits industry is seeing increasing demand for efficiency and sustainability, which MDwerks aims to address with its proprietary Spirits Rapid Aging System (SRAS). The launch of the Whiskey-as-a-Service (WaaS) model and international expansion efforts position the company to capitalize on these trends. In the RF applications sector, the deployment of the Molecular Sawdust Drying System (MSDS) highlights the company's focus on green energy and industrial efficiency. While these innovations are promising, the company's current financial performance, marked by significant losses and a going concern warning, suggests challenges in commercializing these technologies and achieving profitability in competitive markets.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• No material legal proceedings were reported for the period.

Related Party Transactions

• Received $150,000 in proceeds from shareholders (advances) during the nine months ended September 30, 2025, and repaid $105,500 of principal and $276 of accrued interest. The balance owed on these advances was $167,500 as of September 30, 2025.
• Employment agreements with CEO Steve Laker and Executive Chairman James Cassidy include performance-based bonuses and stock awards, with 500,000 shares issued to each, vesting over time. An additional 3,000,000 performance shares for each were not deemed probable of vesting.
• Independent Director Agreements with Mr. Timothy Brocopp and Mr. Richard Blackstone include quarterly cash compensation, initial common stock issuance (100,000 shares each), and additional quarterly shares worth $10,000. Some shares remain unissued.

Stakeholder Impact

• **Shareholders**: Significant dilution from ongoing common stock sales and stock-based compensation. Increased accumulated deficit and going concern warning pose substantial risk to investment value. Potential for future value if strategic initiatives succeed, but current financial performance is poor.
• **Employees**: New employment agreements for executives and directors include substantial compensation packages, including stock-based awards, which could boost morale and retention. Awarding of Stock Appreciation Rights (SARs) to employees provides direct incentives.
• **Customers**: New WaaS contracts and SRAS deployments indicate growing customer base and validation of technology, potentially leading to improved service and product offerings.
• **Creditors**: The going concern warning and working capital deficit indicate increased credit risk. Related party advances provide some short-term liquidity but highlight reliance on internal funding sources.
• **Suppliers**: Potential for delays in payments or renegotiation of terms due to the company's financial condition, as evidenced by the unpaid license fee to Shine Time, LLC.

Next Steps

• Install the first two SRAS units at a large U.S. distillery in the first quarter of 2026.
• Deploy the third SRAS unit at a U.S. broker of bulk spirits in the first half of 2026.
• Deploy an additional SRAS unit at the Two Trees facility during the third quarter of 2025 to quintuple existing production capacity.
• Provide updates as new orders take hold in the three international countries under the exclusivity agreement with the spirits investment fund.
• Continue efforts to raise additional capital through equity or debt financing and advances from related parties to address liquidity needs and fund business plans.
• Evaluate the impact of the pending adoption of ASU 2024-03, Disaggregation of Income Statement Expenses (DISE), on consolidated financial statements.

Key Dates

Recommendation

The company's financial results for the nine months ended September 30, 2025, are severely negative, marked by a substantial increase in net loss, a shift from gross profit to gross loss, and a significant increase in operating expenses. The explicit 'going concern' warning from management, coupled with the admission of ineffective disclosure controls, signals fundamental operational and financial instability. While strategic initiatives like WaaS and MSDS offer future potential, they are currently capital-intensive and have not yet translated into profitability. The reliance on continuous capital raises for liquidity, alongside unfulfilled obligations (e.g., Shine Time, LLC), indicates a high-risk investment profile. A seasoned investor would prioritize the immediate and severe financial distress and governance issues over speculative future growth, leading to a strong sell recommendation.

Keywords

MDwerks, Two Trees Beverage Co., RF Specialties, Spirits Rapid Aging System, SRAS, Whiskey-as-a-Service, WaaS, Molecular Sawdust Drying System, MSDS, SEC 10-Q, Quarterly Report, Financial Performance, Net Loss, Going Concern, Capital Raise, Alcoholic Beverages, Radio Frequency Technology, Corporate Governance, Disclosure Controls