Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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in the section titled "Risk Factors" included in this Quarterly Report on Form 10-Q, as may be amended, supplemented or superseded from time to time by other reports we file with the SEC.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. . 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.

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. 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. 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.

Recent Developments

Whiskey-as-a-Service

Among our accomplishments to start the year, we successfully launched our "Whiskey-as-a-Service" ("WaaS") business model, signing new contracts with two companies for the construction and deployment of our proprietary Spirits Rapid Aging Systems ("SRAS") at their facilities. We also began aging tanker loads of distillate for one of these customers to fill immediate demand for aged spirits. We are currently installing a new higher capacity SRAS at our Two Trees facility in order to increase existing production by the end of the year.

The first two units are scheduled to be installed at the facilities of one of the largest distilleries in the U.S. in the first quarter of 2026. Additionally, we anticipate deploying the third SRAS unit at the facilities of a U.S. broker of bulk spirits in the first half of 2026. 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. We are currently building units, and an additional unit to be deployed on our premises during the third quarter of 2025 to quintuple existing production capacity at our Two Trees facility. We are also currently providing aging services for tanker loads of single malt at our facility while the customer's SRAS units are under construction.

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.

Leveraging patented energy wave technology, our SRAS units swiftly, sustainably and cost-effectively mature spirits to create high quality final product with traditional flavor profiles. We see excellent potential for multiple additional SRAS deployments by both customers within the next twelve months as well as by other third parties.

Building on the momentum of our first two WaaS contracts, we signed a separate new agreement with an international spirits investment fund (the "Fund") providing the Fund with limited exclusivity for the deployment of our SRAS units in three countries outside of the United States. To retain exclusivity, the Fund is required to deploy at least one SRAS unit annually in each of the three countries. We will provide updates as new orders take hold in these countries.

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.

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.

Two Trees Beverage Company - New Uplifting Spirits Product Line

In July 2025, our award-winning subsidiary, Two Trees Beverage Company, launched Uplifting Spirits, a new product line focused on supporting community and charitable causes, debuting with Land of the Sky, a limited-edition straight bourbon whiskey aiding Hurricane Helene relief efforts. We are proud of this initiative 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.

RF Specialties, LLC - Molecular Sawdust Drying Machine Update

We completed testing and deployed our first Molecular Sawdust Drying System ("MSDS"), which utilizes a proprietary molecular energy wave technology to adjust the moisture content of sawdust for production of wood pellets, an alternative green energy source.

Results of Operations

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

		For the Three Months ended September 30,
		2025				2024
Revenue
Two Trees Distilling		$	480,086			$	402,368
RF Specialties			300,055				656,339
Total		$	780,141			$	1,058,707
Cost of Sales
Two Trees Distilling		$	375,405			$	179,717
RF Specialties			286,466				146,122
Total		$	661,871			$	325,839
Gross profit
Two Trees Distilling		$	104,681			$	222,651
RF Specialties			13,589				510,217
Total		$	118,270			$	732,868

Revenue. Revenue for the three months ended September 30, 2025 was $780,141 compared to $1,058,707 for the three months ended September 30, 2024. The $278,566 decrease in revenue was primarily attributable to significant non-recurring service revenue from RF Specialties during the three months ended September 30, 2024 totaling $520,000. This was partially offset by increased WaaS revenue which contributed $153,900 of revenue during the three months ended September 30, 2025, and increased RFS product revenue as a result of the MSDS in the current period.

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 September 30, 2025 was $661,871 compared to $325,839 for three months ended September 30, 2024. Cost of sales for the Company's Two Trees Distilling operations was $375,405 in 2025 compared to $179,717 in 2024, with the increase driven by increased input costs, an inventory impairment of $61,897 and new costs associated with our WaaS revenue. The Company's RF Specialties business incurred costs of sales of $286,466 in 2025 compared to $146,122 in 2024 due to the costs associated with the MSDS contract ongoing since November 2024. Gross profit for the three months ended September 30, 2024 benefitted significantly from one-time service revenue of $520,000 in the RF Specialties business.

Operating Expenses. We reported total operating expenses of $1,110,518 consisting primarily of legal, accounting, payroll, and general business related expenses for the three months ended September 30, 2025 compared to $569,938 for the three months ended September 30, 2024. The $540,580 increase in operating expenses was primarily attributable to increased payroll costs from new officer and director contracts, increased stock-based compensation of $490,808 from those new contracts. Operating expenses included depreciation and amortization expense of $84,817 and $58,969 for the three months ended September 30, 2025 and 2024, respectively.

Total Other Expenses. Total other expense was $26,189 for the three months ended September 30, 2025 compared to $5,906 for the three months ended September 30, 2024. Other expense for the three months ended September 30, 2025 primarily consisted of interest expense of $26,189. Other expense for the three months ended September 30, 2024 primarily consisted of interest expense of $7,806 and interest income of $1,900.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

		For the Nine Months ended September 30,
		2025				2024
Revenue
Two Trees Distilling		$	982,489			$	1,091,260
RF Specialties			732,191				924,001
Total		$	1,714,680			$	2,015,261
Cost of Sales
Two Trees Distilling		$	764,758			$	637,025
RF Specialties			980,417				422,063
Total		$	1,745,175			$	1,059,088
Gross profit
Two Trees Distilling		$	217,731			$	454,235
RF Specialties			(248,226	)			501,938
Total		$	(30,495	)		$	956,173

Revenue. Revenue for the nine months ended September 30, 2025 was $1,714,680 compared to $2,015,261 for the nine months ended September 30, 2024. The $108,771 decrease in revenue for Two Trees Distilling was primarily attributable to decreased liquor sale volumes in the current period primarily from lower bulk alcohol sales, partially offset by new revenues from the WaaS that began in May 2025, which contributed $188,100 of revenue in the current period. The decrease in revenue in our RF Specialties division is primarily attributable to significant non-recurring service revenue from RF Specialties during the nine months ended September 30, 2024 totaling $550,000. This was partially offset by increased product revenue as a result of the MSDS in the current period.

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 nine months ended September 30, 2025 was $1,745,175 compared to $1,059,088 for nine months ended September 30, 2024. Cost of sales for the Company's Two Trees Distilling operations was $764,758 in 2025 compared to $637,025 in 2024, with the increase driven by increased input costs, an inventory impairment of $61,897 and additional costs associated with the WaaS revenue. The Company's RF Specialties business incurred costs of sales of $980,417 in 2025 compared to $422,063 in 2024. The increase is due to the costs associated with the MSDS contract ongoing since November 2024.

Operating Expenses.We reported operating expenses of $2,904,054 consisting primarily of legal, accounting, payroll, and general business related expenses for the nine months ended September 30, 2025 compared to $1,799,948 for the nine months ended September 30, 2024. The $1,104,106 increase in operating expenses was primarily attributable to a $519,882 increase in payroll costs from new officer and director contracts and increased stock-based compensation of $581,904 from those new contracts and additional awards to employees, and higher legal and other professional fees, partially offset by decreases in insurance costs. Operating expenses included depreciation and amortization expense of $236,012 and $212,063 for the nine months ended September 30, 2025 and 2024, respectively.

Total Other Expenses. Total other expense was $50,134 for the nine months ended September 30, 2025 compared to $65,705 for the nine months ended September 30, 2024. Other expense for the nine months ended September 30, 2025 primarily consisted of interest expense of $50,334, and interest income of $200. Other expense for the nine months ended September 30, 2024 primarily consisted of $54,000 of losses on disposal of assets, interest expense of $17,405 and interest income of $5,700.

Liquidity and Capital Resources

As of September 30, 2025, and December 31, 2024, we had $181,278 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 September 30, 2025, we have incurred losses since inception of $5,345,188. At September 30, 2025, we had working capital deficit of $922,197.

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.

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 nine months ended September 30, 2025, we raised $2,339,400 in cash proceeds from the sale of common stock. We continue to need significant cash to execute our business plan, including funds needed to complete construction of the contracted SRAS units and expand our on-site production capacity. 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 nine months ended September 30, 2025 and 2024 was $1,194,182 and $662,693. 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 nine months ended September 30, 2025 and 2024 was $778,082 and $6,990, respectively, related to purchases of equipment in developing our SRAS units for its customer, and a new system to expand production capacity.

Cash Provided by Financing Activities. Net cash provided by financing activities for the nine months ended September 30, 2025 and 2024 was $2,142,383 and $617,050, respectively. The cash provided by financing activities for the nine months ended September 30, 2025 was attributable to proceeds from the sale of common stock of $2,339,400, including subscription payable of $60,000, proceeds from related party notes payable of $150,000, partially offset by repayments of notes payable of $241,517. The cash provided by financing activities for the nine months ended September 30, 2024 was attributable to proceeds from subscriptions agreements of $640,000, proceeds from notes payable of $120,500, partially offset by repayments of notes payable of $143,450.

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.

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 liquor products are 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. We also perform aging services for certain customers, with revenue recognized upon completion of the aged product. 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.