**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
      10-QSB**




(Mark
      One)


x  
QUARTERLY
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
  For
        the
        quarterly period ended June 30, 2007
  oTRANSITION
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT


For
      the
      transition period from _______ to _________




**Commission
      File Number: 333-118155**




**MDWERKS,
      INC.**


(Exact
      name of small business issuer as specified in charter)




**Delaware**
            **33-1095411**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                No.)




**Windolph
      Center, Suite I**


**1020
      N.W. 6th Street**


**Deerfield
      Beach, FL 33442**


(Address
      of principal executive offices)(Zip Code)




**(954)
      389-8300**


(Issuer's
      telephone number, including area code)




**N/A**


(Former
      name, former address and former fiscal year, if changed since last
      report)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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. Yes
x  No
o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes
o  No
x




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: 12,880,065 shares at August 13,
      2007




Transitional
      Small Business Disclosure Format (Check one): Yes o No
x












**MDWERKS,
      INC.**


**FORM
      10-QSB**


**FOR
      THE PERIOD ENDED JUNE 30, 2007**




**INDEX**




**Page****PART
                I - FINANCIAL INFORMATION**Item
                1 - Consolidated Financial StatementsConsolidated
                Balance SheetAs
                of June 30, 2007 (Unaudited)
            3Consolidated
                Statements of Operations (Unaudited)For
                the Three and Six Months Ended June 30, 2007 and 2006
            4Consolidated
                Statements of Cash Flows (Unaudited)For
                the Six Months Ended June 30, 2007 and 2006
            5Notes
                to Unaudited Consolidated Financial Statements
            6-18Item
                2 - Management's Discussion and Analysis and Plan of
                Operation
            19-26Item
                3 - Controls and Procedures
            26-27**PART
                II - OTHER INFORMATION**Item
                1 - Legal Proceedings
            28Item
                2 - Unregistered Sales of Equity Securities and Use of
                Proceeds
            28Item
                3 - Defaults Upon Senior Securities
            28Item
                4 - Submission of Matters to a Vote of Security Holders
            28Item
                5 - Other Information
            28Item
                6 - Exhibits
            28




2




**MDWERKS,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEET**


**JUNE
      30, 2007**


(Unaudited)




**ASSETS**Current
                assets:Cash
            
            $
            570,958Notes
                receivable
            
            
            782,371Accounts
                receivable
            
            
            26,141Prepaid
                expenses and other
            
            
            69,292Total
                current assets
            
            
            1,448,762Long-term
                assets:Property
                and equipment, net of accumulated depreciation of $70,248
            
            
            138,093Debt
                issuance and offering costs, net of accumulated amortization of
                $143,561
            
            
            403,873Total
                assets
            
            $
            1,990,728**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY**Current
                liabilities:Notes
                payable, net
            
            $
            1,690,045Loan
                payable
            
            
            69,559Accounts
                payable
            
            
            203,179Accrued
                expenses
            
            
            385,886Deferred
                revenues
            
            
            9,496Total
                current liabilities
            
            
            2,358,165Long-term
                liabilities:Notes
                payable, net of discount of $3,212,152, less current
                portion
            
            
            311,653Deferred
                revenues, less current portion
            
            
            6,361Total
                liabilities
            
            
            2,676,179Stockholders'
                deficiency:Preferred
                stock, $.001 par value, 10,000,000 shares authorized;
              no
                shares issued and outstanding
            
            
            —Series
                A preferred stock, $.001 par value, 1,000 shares authorized;
              5
                shares issued and outstanding
            
            
            —Common
                stock, $.001 par value, 100,000,000 shares authorized;
              12,880,065
                shares issued and outstanding
            
            
            12,880Additional
                paid-in capital
            
            
            31,139,859Accumulated
                deficit
            
            
            (31,683,002
            )Deferred
                compensation
            
            
            (155,188
            )Total
                stockholders' deficiency
            
            
            (685,451
            )Total
                liabilities and stockholders' deficiency
            
            $
            1,990,728




The
      accompanying notes should be read in conjunction with the consolidated financial
      statements




3




**MDWERKS,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**For
                the Three Months**
              **Ended
                June 30,**
            
            **For
                the Six Months**
              **Ended
                June 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****(Unaudited)**
            
            **(As********Restated)**
              **(Unaudited)**
            
            **(Unaudited)**
            
            **(As********Restated)**
              **(Unaudited)**Revenue:Service
                fees
            
            $
            116,812
            
            $
            61,982
            
            $
            236,720
            
            $
            114,566Financing
                income
            
            
            15,963
            
            
            9,823
            
            
            29,940
            
            
            26,171Total
                revenue
            
            
            132,775
            
            
            71,805
            
            
            266,660
            
            
            140,737Operating
                expenses:Compensation
            
            
            1,426,431
            
            
            703,788
            
            
            2,843,752
            
            
            1,463,735Consulting
                expenses
            
            
            241,741
            
            
            211,925
            
            
            404,438
            
            
            255,045Professional
                fees
            
            
            100,139
            
            
            64,153
            
            
            225,686
            
            
            124,124Selling,
                general and administrative
            
            
            479,595
            
            
            388,158
            
            
            888,614
            
            
            960,406Total
                operating expenses
            
            
            2,247,906
            
            
            1,368,024
            
            
            4,362,490
            
            
            2,803,310Loss
                from operations
            
            
            (2,115,131
            )
            
            (1,296,219
            )
            
            (4,095,830
            )
            
            (2,662,573
            )Other
                income (expense):Interest
                income
            
            
            18,470
            
            
            2,094
            
            
            46,709
            
            
            4,548Interest
                expense
            
            
            (508,638
            )
            
            (3,682
            )
            
            (1,026,136
            )
            
            (7,748
            )Loss
                on revaluation of warrant liability
            
            
            —
            
            
            (1,085,807
            )
            
            —
            
            
            (1,223,252
            )Other
                income
            
            
            165
            
            
            —
            
            
            165
            
            
            11Total
                other income (expense)
            
            
            (490,003
            )
            
            (1,087,395
            )
            
            (979,262
            )
            
            (1,226,441
            )Net
                loss
            
            
            (2,605,134
            )
            
            (2,383,614
            )
            
            (5,075,092
            )
            
            (3,889,014
            )Deemed
                preferred stock dividend
            
            
            —
            
            
            (754,823
            )
            
            —
            
            
            (913,777
            )Common
                stock issued in connection with anti-dilutive
                recalculation
            
            
            —
            
            
            —
            
            
            —
            
            
            (246,240
            )Net
                loss attributable to common shareholders
            
            $
            (2,605,134
            )
            $
            (3,138,437
            )
            $
            (5,075,092
            )
            $
            (5,049,031
            )NET
                LOSS PER COMMON SHARE - basic and diluted
            
            $
            (0.21
            )
            $
            (0.27
            )
            $
            (0.40
            )
            $
            (0.43
            )WEIGHTED-AVERAGE
                COMMON SHARES OUTSTANDING - basic and diluted
            
            
            12,688,856
            
            
            11,735,475
            
            
            12,634,761
            
            
            11,702,853




The
      accompanying notes should be read in conjunction with the consolidated financial
      statements




4




**MDWERKS,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**For
                the Six Months**
              **Ended
                June 30,****2007**
            
            **2006****(Unaudited)**
            
            **(As********Restated)**
              **(Unaudited)**Cash
                flows from operating activities:Net
                loss
            
            $
            (5,075,092
            )
            $
            (3,889,014
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            22,691
            
            
            15,205Amortization
                of debt issuance cost
            
            
            8,720
            
            
            —Amortization
                of debt discount
            
            
            814,858
            
            
            —Amortization
                of deferred offering costs
            
            
            89,000
            
            
            —Amortization
                of deferred compensation
            
            
            133,020
            
            
            —Stock-based
                compensation
            
            
            1,795,443
            
            
            553,636Common
                stock issued for services.
            
            
            150,000
            
            
            195,000Settlement
                expense related to debt conversion
            
            
            —
            
            
            180,827Loss
                on valuation of warrant liability
            
            
            —
            
            
            1,223,252Changes
                in assets and liabilities:Notes
                receivable
            
            
            (308,678
            )
            
            (78,825
            )Accounts
                receivable
            
            
            29,450
            
            
            (149,770
            )Prepaid
                expenses and other
            
            
            4,505
            
            
            (15,698
            )Accounts
                payable
            
            
            (64,743
            )
            
            103,699Accrued
                expenses
            
            
            7,127
            
            
            51,973Deferred
                revenues
            
            
            (40,102
            )
            
            154,380Total
                adjustments
            
            
            2,641,291
            
            
            2,233,679Net
                cash used in operating activities
            
            
            (2,433,801
            )
            
            (1,655,335
            )Cash
                flows from investing activities:Purchase
                of property and equipment
            
            
            (4,652
            )
            
            (71,728
            )Net
                cash used in investing activities
            
            
            (4,652
            )
            
            (71,728
            )Cash
                flows from financing activities:Repayment
                of note payable
            
            
            (134,514
            )
            
            —Repayment
                of loan payable
            
            
            (2,916
            )
            
            (12,031
            )Proceeds
                from sale of Series A preferred stock
            
            
            —
            
            
            1,700,000Placement
                fees and other expenses paid
            
            
            —
            
            
            (273,609
            )Net
                cash (used in) provided by financing activities
            
            
            (137,430
            )
            
            1,414,360Net
                decrease in cash
            
            
            (2,575,883
            )
            
            (312,703
            )Cash
                - beginning of period
            
            
            3,146,841
            
            
            766,464Cash
                - end of period
            
            $
            570,958
            
            $
            453,761Supplemental
                disclosure of cash flow information:Cash
                paid for:Interest
            
            $
            208,115
            
            $
            5,112Non-cash
                investing and financing activities:Common
                stock issued for debt and accrued interest
            
            $
            —
            
            $
            46,250




The
      accompanying notes should be read in conjunction with the consolidated financial
      statements




5




**MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2007**




**NOTE
      1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**




**Organization**




On
      November 16, 2005, a wholly-owned subsidiary of MDwerks, Inc. (f/k/a Western
      Exploration, Inc., and hereinafter referred to as the ‘‘Company’’) was merged
      with and into MDwerks Global Holdings, Inc., a Florida corporation
      (‘‘MDwerks’’), with MDwerks surviving. The Company acquired all of the
      outstanding capital stock of MDwerks in exchange for issuing 9,246,339 shares
      of
      the Company’s common stock, par value $0.001 per share to MDwerks’ stockholders,
      which at closing of the Merger Agreement represented approximately 87.4% of
      the
      issued and outstanding shares of the Company’s common stock. In connection with
      the Merger, the Company changed its corporate name to MDwerks, Inc.




The
      Company has four operating subsidiaries. Xeni Medical Systems, Inc. ("Xeni
      Medical") was incorporated under the laws of the state of Delaware on July
      21,
      2004.  Xeni Medical provides a Web-based package of electronic claims
      solutions to the healthcare provider industry through Internet access to its
      ‘‘MDwerks’’ suite of proprietary products and services so that healthcare
      providers can significantly improve daily insurance claims transaction
      processing, administration and management. Xeni Financial Services, Corp. ("Xeni
      Financial") was incorporated under the laws of the state of Florida on February
      3, 2005. Xeni Financial offers financing and advances to health care providers
      secured by claims processed through the MDwerks system. Xeni Medical Billing,
      Corp. ("Xeni Billing") was incorporated under the laws of the state of Florida
      on March 2, 2005. Xeni Billing offers health care providers billing services
      facilitated through the MDwerks system. Patient Payment Solutions, Inc. (“PPS”)
      was incorporated under the laws of the state of Florida on May 30, 2007. PPS
      will offer healthcare providers a payment improvement process for “out of
      network” claims.




**Going
      concern**




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. The Company has suffered losses
      that raise substantial doubt about its ability to continue as a going concern.
      While the Company is attempting to attain revenue growth and profitability,
      the
      growth has not been significant enough to support the Company’s daily
      operations. Management intends to attempt to raise additional funds by way
      of a
      public or private offering and make strategic acquisitions. While the Company
      believes in the viability of its strategy to improve sales volume and in its
      ability to raise additional funds, there can be no assurances to that effect.
      The ability of the Company to continue as a going concern is dependent on the
      Company’s ability to further implement its business plan and generate revenue.
      The financial statements do not include any adjustments that might be necessary
      if the Company is unable to continue as a going concern. Management believes
      that the actions presently being taken to further implement its business plan
      and generate revenue, including the institutional financing described in Note
      4
      provide the opportunity for the Company to continue as a going
      concern.




As
      reflected in the accompanying consolidated financial statements, the Company
      has
      stockholders’ deficiency of $685,451 and a working capital deficiency of
      $909,403 at June 30, 2007.




**Basis
      of presentation**




The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      information and with the instructions to Form 10-QSB and Item 310(b) of
      Regulation S-B. Accordingly, the financial statements do not include all of
      the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements. In the opinion of management, all adjustments
      considered necessary for a fair presentation have been included and such
      adjustments are of a normal recurring nature. These consolidated financial
      statements should be read in conjunction with the consolidated financial
      statements for the year ended December 31, 2006 and notes thereto and other
      pertinent information contained in the Form 10-KSB of the Company as filed
      with
      the Securities and Exchange Commission (the ‘‘Commission’’). The results of
      operations for the six months ended June 30, 2007 are not necessarily indicative
      of the what results will be for the full fiscal year ending December
      31, 2007.




6


**MDWERKS,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2007**
 NOTE
        1 — ORGANIZATION AND SUMMARY OF
        SIGNIFICANT ACCOUNTING POLICIES (continued)


Certain
      amounts previously reported for in 2006 have been reclassified to conform with
      the classifications used in 2007. Such reclassifications have no effect on
      the
      reported net loss.




**Use
      of estimates**




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect certain reported amounts and disclosures. Accordingly, actual results
      could differ from those estimates.




**Fair
      value of financial instruments**




Statement
      of Financial Accounting Standards No. 107, ‘‘Disclosures about Fair Value of
      Financial Instruments,’’ requires disclosures of information about the fair
      value of certain financial instruments for which it is practicable to estimate
      the value. For purpose of this disclosure, the fair value of a financial
      instrument is the amount at which the instrument could be exchanged in a current
      transaction between willing parties, other than in a forced sale or
      liquidation.




The
      carrying amounts reported in the consolidated balance sheet for cash, notes
      receivable, accounts payable and accrued expenses, notes payable and loans
      payable approximate their fair market value based on the short-term maturity
      of
      these instruments.




**Cash
      and cash equivalents**




For
      purposes of the consolidated statements of cash flows, the Company considers
      all
      highly liquid instruments purchased with a maturity of three months or less
      and
      money market accounts to be cash equivalents.




At
      various times, the Company has deposits in excess of the Federal Deposit
      Insurance Corporation limit. The Company has not experienced any losses on
      these
      accounts.




**Advertising**




The
      Company expenses advertising costs as incurred. Advertising costs charged to
      operations were approximately $72,158 and $80,033 for the six months ended
      June
      30, 2007 and 2006, respectively.




**Property
      and equipment**




Property
      and equipment are stated at cost. Depreciation and amortization are provided
      using the straight-line method over the estimated useful life.




**Revenue
      recognition**




The
      Company follows the guidance of the Securities and Exchange Commission’s
      (‘‘SEC’’) Staff Accounting Bulletin 104 for revenue recognition. In
      general, the Company records revenue when persuasive evidence of an arrangement
      exists, services have been rendered or product delivery has occurred, the sales
      price to the customer is fixed or determinable, and collectability is reasonably
      assured. The following policies reflect specific criteria for the various
      revenue streams of the Company.




Revenue
      derived from fees related to claims and contract management services are
      generally recognized when services are provided to the customer.




7


**MDWERKS,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
            30, 2007**
 NOTE
          1 — ORGANIZATION AND SUMMARY OF
          SIGNIFICANT ACCOUNTING POLICIES (continued)


**Revenue
      recognition (continued)**




The
      Company, through its subsidiaries, provides advance funding services to
      unaffiliated healthcare providers that are customers of the Company.  The
      customer advances are typically collateralized by Security Agreements granting
      first position liens on the medical claims submitted by its customers to third
      party payors (the ‘‘Payors’’). The advances are repaid through the remittance of
      payments of customer medical claims, by Payors, directly to the Company. The
      Company can withhold from these advances interest, an administrative fee and
      other charges as well as any amount for prior advances that remain unpaid after
      a specified number of days. These interest charges, administrative fees and
      other charges are recognized as revenue when earned. There is no right of
      cancellation or refund provisions in these arrangements and the Company has
      no
      further obligations once the services are rendered.




Revenue
      derived from fees related to billing and collection services are generally
      recognized when the customer’s accounts receivable are collected.




Revenue
      from implementation fees are generally recognized over the term of the
      customer’s agreement. Revenue derived from maintenance, administrative and
      support fees are generally recognized at the time the services are provided
      to
      the customer.




**Income
      taxes**




Income
      taxes are accounted for under the asset and liability method of Statement of
      Financial Accounting Standards No. 109, ‘‘Accounting for Income Taxes’’ (‘‘SFAS
      109’’). Under SFAS 109, deferred tax assets and liabilities are recognized for
      the future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax bases.




Deferred
      tax assets and liabilities are measured using enacted tax rates expected to
      apply to taxable income in the years in which those temporary differences are
      expected to be recovered or settled. Under SFAS 109, the effect on deferred
      tax
      assets and liabilities of a change in tax rates is recognized in income in
      the
      period that includes the enactment date.




**Loss
      per common share**




Basic
      loss per share is computed by dividing net loss by the weighted average number
      of shares of common stock outstanding during the period. Diluted loss per share
      is computed by dividing net income by the weighted average number of shares
      of
      common stock, potential common stock and potentially dilutive securities
      outstanding during each period. As of June 30, 2007, the Company had outstanding
      options to purchase an aggregate of 2,856,250 shares of common stock and
      warrants to purchase an aggregate of 2,566,345 shares of Common Stock, which
      could potentially dilute future earnings per share. Diluted loss per common
      share has not been presented for the six months ended June 30, 2007 since the
      impact of the stock options and warrants would be antidilutive. As of June
      30,
      2006, the Company had outstanding options to purchase an aggregate of 1,060,000
      shares of common stock and warrants to purchase an aggregate of 804,400 shares
      of Common Stock, which could potentially dilute future earnings per
      share.




8


**MDWERKS,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
            30, 2007**
 NOTE
          1 — ORGANIZATION AND SUMMARY OF
          SIGNIFICANT ACCOUNTING POLICIES (continued)


**Stock-based
      compensation**




The
      Company adopted Statement of Financial Accounting Standards No. 123
      (revised 2004), *Share
      Based Payment* (‘‘SFAS
      No. 123R’’) utilizing the modified prospective method. SFAS No. 123R
      establishes the financial accounting and reporting standards for stock-based
      compensation plans. As required by SFAS No. 123R, the Company recognizes
      the cost resulting from all stock-based payment transactions including shares
      issued under its stock option plans in the consolidated financial
      statements.




**Recent
      accounting pronouncements**




In
      February 2006, the Financial Accounting Standards Board issued Statement No.
      155
      (‘‘SFAS No 155’’), ‘‘Accounting for Certain Hybrid Instruments: An Amendment of
      FASB Statements No. 133 and 140’’. Management does not believe that this
      statement will have a significant impact as the Company does not use such
      instruments.




In
      May
      2006, the SEC announced that the compliance date for non-accelerated filers
      pursuant to Section 404 of the Sarbanes-Oxley Act had been extended. Under
      the
      latest extension, a company that is not required to file its annual and
      quarterly reports on an accelerated basis must begin to comply with the internal
      control over financial reporting audit requirements for its first fiscal
      year ending on or after December 15, 2008, which, for us, is effective for
      fiscal 2008 beginning January 1, 2008. This is a one-year extension from the
      previously established July 15, 2007 compliance date established in September
      2005. The SEC similarly extended the compliance date for these companies
      relating to requirements regarding evaluation of internal control over financial
      reporting and management certification requirements. We are currently evaluating
      the impact of Section 404 of the Sarbanes-Oxley Act on our results of
      operations, cash flows or financial condition.




In
      July 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB
      Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No. 109’’ (‘‘FIN 48’’), which provides
      criteria for the recognition, measurement, presentation and disclosure of
      uncertain tax positions. A tax benefit from an uncertain position may be
      recognized only if it is ‘‘more likely than not’’ that the position is
      sustainable based on its technical merits. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006. The Company
      does not expect FIN 48 will have a material effect on its consolidated financial
      condition or results of operations.




In
      September 2006, the SEC issued Staff Accounting Bulletin (‘‘SAB’’) 108 which
      provides interpretive guidance on how the effects of the carryover or reversal
      of prior year misstatements should be considered in quantifying a current year
      misstatement. SAB 108 is effective for the first interim period following the
      first fiscal year ending after November 15, 2006, which, for us, is effective
      for fiscal 2007 beginning January 1, 2007. We believe that the adoption of
      SAB
      108 will not have a material impact on the Company’s results of operations, cash
      flows or financial condition.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157 (‘‘SFAS 157’’), Fair Value Measurements. SFAS 157 provides guidance for
      measuring the fair value of assets and liabilities. It requires additional
      disclosures related to the extent to which companies measure assets and
      liabilities at fair value, the information used to measure fair value, and
      the
      effect of fair value measurements on earnings. SFAS 157 is effective for fiscal
      years beginning after November 15, 2007. The Company is in the process of
      determining what effect, if any, the adoption of SFAS 157 will have on its
      consolidated results of operations and financial condition.




9


**MDWERKS,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
            30, 2007**
 NOTE
          1 — ORGANIZATION AND SUMMARY OF
          SIGNIFICANT ACCOUNTING POLICIES (continued)


In
      February 2007, the FASB issued SFAS No. 159 *The
      Fair Value Option for Financial Assets and Financial Liabilities - including
      an
      Amendment of SFAS No. 115* ,
      (‘‘SFAS
      159’’), which permits an entity to measure many financial assets and financial
      liabilities at fair value that are not currently required to be measured at
      fair
      value. Entities that elect the fair value option will report unrealized gains
      and losses in earnings at each subsequent reporting date. The fair value option
      may be elected on an instrument-by-instrument basis, with few exceptions. SFAS
      159 amends previous guidance to extend the use of the fair value option to
      available-for-sale and held-to-maturity securities. The Statement also
      establishes presentation and disclosure requirements to help financial statement
      users understand the effect of the election. SFAS No. 159 is effective as of
      the
      beginning of the first fiscal year beginning after November 15, 2007. The
      Company is currently evaluating the impact of adopting SFAS 159.




The
      Company does not believe that any other recently issued, but not yet effective
      accounting standards will have a material effect on the Company’s consolidated
      financial position, results of operations or cash flows.




**NOTE
      2 — ACCOUNTS AND NOTES RECEIVABLE**




Accounts
      receivable are recorded when revenue has been recognized but not yet collected.
      The Company has $26,141 of accounts receivable from implementation, processing,
      collection, and other fees, and disbursements not yet collected as of June
      30,
      2007.




At
      June
      30, 2007, the Company advanced healthcare providers under lines of credit and
      note agreements, respectively, aggregating $782,371. Advances under the lines
      of
      credit are due to be repaid out of collections. The Company charged
      the healthcare providers interest and other charges as defined in the
      agreements. At June 30, 2007, no amounts were past due.




Accounts
      and notes receivable are reported at their outstanding unpaid principal balances
      reduced by an allowance for doubtful accounts. The Company estimates doubtful
      accounts based on historical bad debts, factors related to specific customers’
ability to pay and current economic trends. The Company writes off receivables
      against the allowance when a balance is determined to be uncollectible. At
      June
      30, 2007, the Company has no allowance for doubtful accounts.




**NOTE
      3 — PROPERTY AND EQUIPMENT**




At
      June
      30, 2007, property and equipment consisted of the following:




**Estimated
                Life**Office
                furniture and equipment
            
            
            5-7
                Years
            
            $
            26,443Computer
                equipment and software
            
            
            3-5
                Years
            
            
            181,898Total
            
            
            
            
            
            208,341Less:
                accumulated depreciation
            
            
            
            
            
            (70,248
            )Property
                and equipment, net
            
            
            
            
            $
            138,093




10


**MDWERKS,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
          30, 2007**


**NOTE
      4 — NOTES PAYABLE**




On
      August
      24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566,
      after expenses) in connection with a financing provided by an unrelated party.
      In connection with the financing, we issued a secured promissory note in the
      original principal amount of $250,000 (the ‘‘Note’’) and a three year warrant to
      purchase 111,111 shares of the Company’s common stock at a price of $2.25 per
      share. The Note bears interest at the rate of 7% per year, payable monthly
      in
      arrears and will become due and payable on August 24, 2007. This Note is subject
      to certain mandatory prepayment provisions as defined in the secured promissory
      note. At June 30, 2007, principal payments made under the mandatory prepayment
      provisions had reduced the Note balance to $213,850. In connection with this
      note, the Company’s subsidiary, Xeni Financial Services, Corp. entered into
      a security and guaranty agreement whereby Xeni Financial Services, Corp has
      agreed to guaranty repayment of the note and grant a security interest in a
      client Revolving Line of Credit Loan Agreement including two promissory notes
      in
      the original principal amounts of $250,000 and $121,068 issued by that client
      to
      Xeni Financial Services Corp, which were consolidated into a single promissory
      note in the amount of $180,165 on December 5, 2006.




In
      connection with the 7% secured promissory note, the Company granted warrants
      to
      purchase 111,111 shares of its common stock at an exercise price of $2.25 per
      share which warrants expire on August 24, 2009. These warrants were treated
      as a
      discount on the secured promissory note and were valued at $250,000 to be
      amortized over the 12-month note terms. The fair market value of each stock
      warrant was estimated on the date of grant using the Black-Scholes
      option-pricing model in accordance with SFAS No. 123R using the following
      weighted-average assumptions: expected dividend yield 0%; risk-free interest
      rate of 4.80%; volatility of 142% and an expected term of 3 years.




On
      August
      24, 2006, the Company received gross proceeds of $110,000 (net proceeds of
      $100,000, after expenses) in connection with a financing provided equally by
      two
      unrelated parties. These notes bear interest at 10% per year, and both interest
      and principal were due on January 21, 2007. In connection with the financing,
      the Company issued 10,000 shares of its common stock at a fair market value
      on
      the date of grant of $39,800 or $3.98 per share which was recorded as a discount
      on notes payable to be amortized over the term of the Notes. For the six months
      ended June 30, 2007, amortization of this debt discount amounted to $7,960
      and
      is included in interest expense. In addition, the Company paid a total cash
      fee
      of $23,434 in connection with the above promissory notes for placement agent
      fees and related expenses. Accordingly, these fees were treated as deferred
      issuance cost to be amortized over their respective note terms. For the six
      months ended June 30, 2007, amortization of deferred issuance cost amounted
      to
      $8,720. On January 21, 2007 the Company paid the August 24, 2006 notes payable
      of $110,000, together with all accrued interest, to the two unrelated
      parties.




On
      each
      of October 20, 2006 and November 9, 2006 the Company received gross proceeds
      of
      $2,500,000 ($2,375,000 net proceeds) or $5,000,000 ($4,750,000 net proceeds)
      in
      the aggregate in connection with a financing provided by Gottbetter Capital
      Master, Ltd., an unaffiliated accredited institutional investor (the
‘‘Investor’’).




Pursuant
      to the terms of a Securities Purchase Agreement that the Company entered into
      with the Investor in connection with the financing, the Company issued two
      senior secured convertible promissory notes to the Investor, each in the
      original principal amount of $2,500,000 (each a ‘‘Senior Note’’ and
      collectively, the ‘‘Senior Notes’’), five year Series D Warrants to purchase
      375,000 shares of the Company’s common stock at a price of $2.25 per share
      (‘‘Series D Warrants’’) and five year Series E Warrants to purchase 375,000
      shares of the Company’s common stock at a price of $3.25 per share (‘‘Series E
      Warrants’’). As security for the Company’s obligations, the Company, along with
      its subsidiaries, MDwerks Global Holdings, Inc., Xeni Medical Systems, Inc.,
      Xeni Financial Services, Corp., Xeni Medical Billing, Corp., and Patient Payment
      Solutions, Inc. (the ‘‘Subsidiaries’’) entered into a Security Agreement with
      the Investor, pursuant to which the Company granted a security interest in
      all
      of the Company’s assets to the Investor. The Company’s Subsidiaries are also
      parties to a Guaranty Agreement pursuant to which they have agreed to
      unconditionally guaranty the Company’s obligations under the Senior Notes and
      the documents entered into by the Company in connection with the sale of the
      Senior Notes. The Company also entered into a Registration Rights Agreement,
      as
      amended, pursuant to which the Company agreed to register for resale, shares
      of
      the Company common stock into which the Senior Notes are
      convertible.




11


**MDWERKS,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
            30, 2007**


NOTE
      4 — NOTES
      PAYABLE (continued)




The
      Senior Notes bear interest at the rate of 8% per year, payable monthly in
      arrears, commencing December 1, 2006. Subject to certain mandatory prepayment
      provisions, and events of default unpaid principal and interest due under the
      Senior Notes will become due and payable on October 18, 2009 with respect to
      the
      Senior Note sold on October 20, 2006 and on November 9, 2009 with respect to
      the
      Senior Note sold on November 9, 2006. The Senior Notes are convertible, at
      the
      option of the holder, into shares of the Company’s common stock at a price of
      $2.25 per share (the ‘‘Conversion Price’’), subject to adjustment for stock
      splits, stock dividends, or similar transactions, sales of the Company’s common
      stock at a price per share below the Conversion Price or the issuance of
      convertible securities or options or warrants to purchase shares of the
      Company’s common stock at an exercise price or conversion price that is less
      than the Conversion Price.




The
      Senior Notes provide for optional redemption by us at a redemption price equal
      to 110% of the face amount redeemed plus accrued interest.




Events
      of
      default will result in a default rate of interest of 15% per year and the holder
      may require that the Senior Note be redeemed at the Event of Default Redemption
      Price (as defined in the Senior Notes). The Event of Default Redemption Price
      includes various premiums depending on the nature of the event of
      default.




The
      Senior Notes also provide that in the event of a Change of Control (as defined
      in the Senior Notes), the Holder may require that such Holder’s Senior Note be
      redeemed at the Change of Control Redemption Price (as defined in the Senior
      Notes). The Change of Control Redemption Price includes certain premiums in
      the
      event a Senior Note is redeemed in the event of a Change of
      Control.




The
      Series D Warrants are exercisable at a price of $2.25 per share for a period
      of
      five years from the date of issuance. The Series D Warrants may be exercised
      on
      a cashless basis. The exercise price will be subject to adjustment in the event
      of subdivision or combination of shares of the Company’s common stock and
      similar transactions, distributions of assets, issuances of shares of common
      stock with a purchase price below the exercise price of the Series D Warrants,
      issuances of any rights, warrants or options to purchase shares of the Company’s
      common stock with an exercise price below the exercise price of the Series
      D
      Warrants, issuances of convertible securities with a conversion price below
      the
      exercise price of the Series D Warrants.




The
      Series E Warrants are exercisable at a price of $3.25 per share for a period
      of
      five years from the date of issuance. The Series E Warrants may be exercised
      on
      a cashless basis. The exercise price will be subject to adjustment in the event
      of subdivision or combination of shares of the Company’s common stock and
      similar transactions, distributions of assets, issuances of shares of common
      stock with a purchase price below the exercise price of the Series E Warrants,
      issuances of any rights, warrants or options to purchase shares of the Company’s
      common stock with an exercise price below the exercise price of the Series
      E
      Warrants, issuances of convertible securities with a conversion price below
      the
      exercise price of the Series E Warrants.




12


**MDWERKS,
              INC. AND SUBSIDIARIES**
 **NOTES
              TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
              30, 2007**
 NOTE
        4 — NOTES
        PAYABLE (continued)


For
      the
      six months June 30, 2007, amortization of the debt discount amounted to
      $814,858.




The
      Company also entered into a Registration Rights Agreement with the Investor.
      The
      Registration Rights Agreement, as amended, required us to file a registration
      statement covering the resale of the shares underlying the Senior Notes within
      45 calendar days after the closing date. The Company was required to cause
      such
      registration statement to become effective on or before the date which is 105
      calendar days after the closing date. In addition to it being an event of
      default under the Senior Notes, if the Company failed to file such registration
      statement in the time frame required, failed to cause it to become effective
      in
      the time frame required, or fails to maintain the effectiveness of the
      registration statement as required by the Registration Rights Agreement, the
      exercise price of the Series D and the Series E Warrants will immediately be
      reduced by $0.25 per share and then reduced by an additional $0.10 per share
      for
      each thirty day period thereafter that the registration statement is not filed
      or effective, as the case may be, up to a maximum reduction of $0.65. On
      December 7, 2006, the Company’s Registration Statement became effective
      satisfying the timely filing requirements of the Registration Rights
      Agreement.




Investor
      is an ‘‘accredited investor,’’ as defined in Regulation D under the Securities
      Act of 1933, as amended, or the Securities Act. None of the Senior Notes, the
      Series D Warrants, the Series E Warrants or the shares of the Company’s common
      stock underlying such securities were registered under the Securities Act,
      or
      the securities laws of any state and were offered and sold in reliance on the
      exemption from registration afforded by Section 4(2) and Regulation D (Rule
      506)
      under the Securities Act and corresponding provisions of state securities laws,
      which exempts transactions by an issuer not involving any public offering.
      The
      Company made this determination based on the representations of the Investor,
      which included, in pertinent part, that the Investor is an ‘‘accredited
      investor’’ within the meaning of Rule 501 of Regulation D promulgated under the
      Securities Act, and that the Investor was acquiring the Senior Notes, the Series
      D Warrants and the Series E Warrants for investment purposes for its own account
      and not as nominee or agent, and not with a view to the resale or distribution,
      and that Investor understood such securities may not be sold or otherwise
      disposed of without registration under the Securities Act or an applicable
      exemption therefrom.




The
      promissory notes are as follows at June 30, 2007:




Notes
                payable
            
            $
            5,213,850Less:
                unamortized discount on notes payable
            
            
            (3,212,152
            )Notes
                payable, net
            
            $
            2,001,698Less
                current portion
            
            
            (1,690,045
            )Notes
                payable, net of discount of $3,212,152, less current
                portion
            
            $
            311,653




**NOTE
      5 — LOAN PAYABLE**




The
      Company has a loan payable to an unrelated individual in the amount of $69,559.
      The loan bears interest at 8% per annum and is payable on a monthly basis.
      The
      loan shall be repaid proportionally upon repayment of certain of the Company’s
      notes receivable.




13


**MDWERKS,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
            30, 2007**


**NOTE
      6 — STOCKHOLDERS’ DEFICIENCY**




**Common
      stock** ****




The
      Company is authorized to issue 100,000,000 shares of Common stock, $.001 par
      value, with such designations, rights and preferences as may be determined
      from
      time to time by the Board of Directors. As of June 30, 2007, there are
      12,880,065 shares issued and outstanding.




On
      May
      29, 2007, the Company issued
      150,000 shares of common stock to consultants for services rendered. The shares
      were issued at the fair value at the date of the issuance of $75,000 or $0.50
      per share. For the six months ended June 30, 2007, in connection with these
      shares, the Company recorded stock-based consulting expense of $75,000.




On
      May
      29, 2007, the Company issued 50,000 shares of common stock to a Director of
      the
      Company in consideration for services rendered. The shares were issued at the
      fair value at the date of the issuance of $25,000 or $0.50 per share. For the
      six months ended June 30, 2007, in connection with these shares, the Company
      recorded stock-based consulting expense of $25,000.




On
      May
      29, 2007, the Company issued 100,000 shares of common stock to consultants
      for
      services rendered. The shares were issued at the fair value at the date of
      the
      issuance of $50,000 or $0.50 per share. For the six months ended June 30, 2007,
      in connection with these shares, the Company recorded investor relation expenses
      of $50,000.




**Preferred
      stock**




The
      Company is authorized to issue 10,000,000 shares of preferred stock, $.001
      par
      value, with such designations, rights and preferences as may be determined
      from
      time to time by the Board of Directors. As of June 30, 2007, there are no
      preferred stock shares issued and outstanding.




The
      Company is authorized to issue 1,000 shares of Series A Convertible Preferred
      stock, $0.001 par value with
      such designations, rights and preferences as may be determined from time to
      time
      by the Board of Directors. Between February 1, 2006 and June 30, 2006, the
      Company sold 28.3 Units to accredited investors. Each unit consists of one
      share
      of our Series A Convertible Preferred Stock, par value $.001 per share, and
      a
      detachable, transferable Series A Warrant to purchase 20,000 shares of our
      common stock, at a purchase price of $3.00 per share. Between August 11, 2006
      and November 21, 2006, 23.3 shares of Series A Convertible Preferred Stock
      were
      converted into 466,667 shares of common stock leaving 5 Series A Convertible
      Preferred Stock outstanding as of June 30, 2007.




In
      accordance with SFAS No. 133 and Emerging Issues Task Force Issue 00-19 (‘‘EITF
      00-19’’), ‘‘Accounting for Derivative Financial Instruments Indexed To, and
      Potentially Settled in, a Company's Own Stock’’, the Company is required to
      record the fair value of the embedded beneficial conversion feature (ECF) and
      warrants as a liability since the Company has to use its ‘‘best efforts’’ to
      file a registration statement and maintain its effectiveness for a period of
      two
      years from the effective date. In connection with the initial sales of the
      Series A Preferred Stock, the initial estimated fair values allocated to the
      ECF
      were $913,777 which was recorded as a deemed dividend. The initial fair value
      allocated to the warrants of $768,751 was allocated to warrant liability. For
      the six months ended June 30, 2006, the Company revalued these warrants
      resulting in a loss on valuation of warrant liability of
      $1,223,252.




**Common
      stock options**




A
      summary
      of the status of the Company's outstanding stock options as of June 30, 2007
      and
      changes during the period ending on that date is as follows:




**Shares**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Aggregate**
              **Intrinsic
                Value**Outstanding
                at December 31, 2006
            
            
            2,876,250
            
            $
            3.04Granted
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Forfeited
            
            
            (20,000
            )
            $
            1.39Outstanding
                at June 30, 2007
            
            
            2,856,250
            
            $
            3.05
            
            $
            0Options
                exercisable at end of period
            
            
            1,002,083
            
            $
            2.97Weighted-average
                fair value of options granted during the period
            
            
            —




14


**MDWERKS,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
            30, 2007**


**Common
        stock options (continued)**


The
      following information applies to options outstanding at June 30,
      2007:




**Options
                Outstanding**
            
            **Options
                Exercisable****Range
                of Exercise Prices**
            
            **Shares**
            
            **Weighted
                Average**
              **Remaining**
              **Contractual**
              **Life
                (Years)**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Shares**
            
            **Weighted
                Average**
              **Exercise
                Price**$1.39
            
            
            105,000
            
            
            9.50
            
            $
            1.39
            
            
            85,000
            
            
            1.39$2.25
            
            
            1,025,000
            
            
            9.75
            
            $
            2.25
            
            
            341,667
            
            
            2.25$3.25
            
            
            190,000
            
            
            8.50
            
            $
            3.25
            
            
            63,333
            
            
            3.25$3.40
            
            
            860,000
            
            
            8.50
            
            $
            3.40
            
            
            286,667
            
            
            3.40$4.00
                - 4.25
            
            
            676,250
            
            
            9.00
            
            $
            4.03
            
            
            225,416
            
            
            4.032,856,250
            
            
            
            
            $
            3.05
            
            
            1,002,083
            
            $
            2.97




In
      connection with previously granted stock options, the Company recognized
      stock-based compensation expense of $1,795,443 for the six months ended June
      30,
      2007 and $553,636 for the six months ended June 30, 2006.




As
      of
      June 30, 2007, the total future compensation expense related to non-vested
      options not yet recognized in the consolidated statement of operations is
      approximately $2,339,985, which will be recognized through June
      2009.




**Common
      stock warrants**




A
      summary
      of the status of the Company's outstanding stock warrants granted as of December
      31, 2006 and changes during the period is as follows:




**Shares**
            
            **Weighted-Average**
              **Exercise
                Price**Outstanding
                at December 31, 2006
            
            
            2,566,345
            
            $
            2.67Granted
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Forfeited
            
            
            —
            
            
            —Outstanding
                at June 30, 2007
            
            
            2,566,345
            
            $
            2.67Common
                stock issuable upon exercise of warrants
            
            
            2,566,345
            
            $
            2.67




15


**MDWERKS,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
            30, 2007**
  **Common
      stock warrants (continued)**





**Common
                Stock issuable upon**
              **exercise
                of warrants outstanding**
            
            **Common
                Stock issuable upon**
              **Warrants
                Exercisable****Range
                of****Exercise
                Price**
            
            **Number**
              **Outstanding**
              **at
                June 30,**
              **2007**
            
            **Weighted
                Average**
              **Remaining**
              **Contractual**
              **Life
                (Years)**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Number**
              **Exercisable**
              **at
                June 30,**
              **2007**
            
            **Weighted
                Average**
              **Exercise
                Price**$1.25
            
            
            199,000
            
            
            3.13
            
            $
            1.25
            
            
            199,000
            
            $
            1.25$1.50
            
            
            56,667
            
            
            3.99
            
            $
            1.50
            
            
            56,667
            
            $
            1.50$2.25
            
            
            486,111
            
            
            3.81
            
            $
            2.25
            
            
            486,111
            
            $
            2.25$2.50
            
            
            640,400
            
            
            1.38
            
            $
            2.50
            
            
            640,400
            
            $
            2.50$3.00
            
            
            579,167
            
            
            1.87
            
            $
            3.00
            
            
            579,167
            
            $
            3.00$3.25
            
            
            375,000
            
            
            4.31
            
            $
            3.25
            
            
            375,000
            
            $
            3.25$3.76
            
            
            225,000
            
            
            2.30
            
            $
            3.76
            
            
            225,000
            
            $
            3.76$4.00
            
            
            5,000
            
            
            2.30
            
            $
            4.00
            
            
            5,000
            
            $
            4.002,566,345
            
            
            
            
            $
            2.67
            
            
            2,566,345
            
            $
            2.67




**Registration
      rights**




The
      Company filed a ‘‘resale’’ registration statement with the SEC covering all
      shares of common stock and shares of common stock underlying the warrants
      (including shares of common stock and underlying warrants issued to the
      Placement Agent) issued in connection with the June 13, 2005 Private Placement.
      The Company agreed that it will maintain the effectiveness of the ‘‘resale’’
registration statement from the effective date through and until the earlier
      of
      two years and the time at which exempt sales pursuant to Rule 144(k) may be
      permitted. The Company agreed to use its best efforts to respond to any SEC
      comments to the ‘‘resale’’ registration statement on or prior to the date which
      is 20 business days from the date such comments were received, but in any event
      not later than 30 business days from the date such comments were received.
      The
‘‘resale’’ registration statement became effective on December 7,
      2006.




In
      the
      event the ‘‘resale’’ registration statement had not been filed with the SEC on
      or prior to the date which is 180 days after the last closing date of the
      Private Placement, each investor in the Private Placement would have received
      as
      liquidating damages an additional number of shares of common stock equal to
      2%
      of the total number of shares of common stock purchased by the investor in
      the
      Private Placement for each month (or portion thereof) that the Registration
      Statement was not filed, provided that the aggregate increase in such shares
      of
      common stock as a result of the delinquent filing would in no event exceed
      20%
      of the original number of shares of common stock purchased in the Private
      Placement.




In
      the
      event that the Company had failed to respond to SEC comments to the Registration
      Statement within 30 business days, each investor in the Private Placement would
      have received an additional number of shares of common stock equal to 2% of
      the
      total number of shares of common stock purchased by the investor in the Private
      Placement for each month (or portion thereof) that a response to the comments
      to
      the Registration Statement has not been submitted to the SEC, provided that
      the
      aggregate increase in such shares shall in no event exceed 20% of the original
      number of shares of common stock purchased in the Private
      Placement.




16


**MDWERKS,
              INC. AND SUBSIDIARIES**
 **NOTES
              TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
              30, 2007**
  **Registration
        rights (continued)**


Pursuant
      to the February 1, 2006 Series A Convertible Preferred Private Placement
      Subscription documents, we agreed to file a registration statement with the
      Securities and Exchange Commission to register the shares and warrants held
      by
      the selling security holders for resale. That registration statement was
      declared effective on December 7, 2006. We have agreed to maintain the
      effectiveness of the registration statement from the effective date through
      and
      until the earlier of two years following December 31, 2005 (which was the
      termination date of the first private placement described above) or the earlier
      of two years following June 28, 2006 (which was the effective date of the
      termination of the second private placement described above) and such time
      as
      exempt sales pursuant to Rule 144(k) under the Securities Act of 1933 (‘‘Rule
      144(k)’’) may be permitted for purchasers of Units.




We
      also
      entered into a Registration Rights Agreement and amendment thereto with the
      Investor. The amended Registration Rights Agreement required us to file a
      registration statement covering the resale of 2,777,778 shares of common stock
      underlying the Senior Notes. The registration statement covering the resale
      of
      the shares of common stock underlying the Senior Notes became effective on
      December 7, 2006. In addition to it being an event of default under the Senior
      Notes, if we fail to maintain the effectiveness of the registration statement
      as
      required by the Registration Rights Agreement, the exercise price of the Series
      D and the Series E Warrants will immediately be reduced by $0.25 per share
      and
      then reduced by an additional $0.10 per share for each thirty day period
      thereafter that the registration statement is not filed or effective, as the
      case may be, up to a maximum reduction of $0.65.




**NOTE
      7 — RESTATEMENT**




The
      Company has effected a restatement of its financial results for the period
      ended
      June 30, 2006 (the ‘‘Restatement’’). After reviewing certain accounting
      principles the Company had applied in previously issued financial statements,
      management has determined that the Company’s ‘‘Accounting for Derivative
      Financial Instruments Indexed To, and Potentially Settled in, a Company’s Own
      Stock’’, should have resulted in a liability on the balance sheet at June 30,
      2006 and certain charges to expense and a deemed preferred stock dividend on
      the
      accompanying consolidated statements of operations for the three and
      six month periods then ended, in accordance with SFAS No. 133 and EITF
      00-19. Consequently, management restated its quarterly financial statements
      as
      of June 30, 2006. The change in presentation of the Company’s embedded
      derivative feature associated with its Series A Convertible Preferred shares
      and
      related warrants had the effect of increasing warrant liability by $1,403,317,
      increasing paid-in capital by $121,026 and increasing the accumulated deficit
      by
      $1,524,343 as of June 30, 2006, increasing the Company’s net loss by $460,465
      for the three months ended June 30, 2006 and by $634,566 for the six months
      ended June 30, 2006, increasing the calculated deemed preferred stock dividend
      by $760,513 for the three months ended June 30, 2006 and by $889,777 for the
      six
      months ended June 30, 2006, and increasing the Company’s net loss available to
      common shareholders by $1,221,078 for the three months ended June 30, 2006
      and
      by $1,524,343 for the six months ended June 30, 2006. This change in
      presentation of the Company’s embedded derivative feature affected did not
      impact the cash balance at the end of the period.




17


**MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH 31,
        2007**


**NOTE
      8 — COMMITMENTS**




**Lease
      agreements**




The
      Company sub-leases its facility, on a month-to-month basis, under a master
      lease
      expiring July 2008. Rent expense for the six months ended June 30, 2007 was
      $46,222.




**Employment
      agreements**




On
      May
      24, 2007 ,
      Lila K.
      Sobel tendered her resignation from the position of Chief Operating Officer
      of
      MDwerks, Inc. (the “Company”). On May 29, 2007, the Board of Directors of the
      Company accepted Ms. Sobel’s resignation.




On
      May
      29, 2007, Stephen M. Weiss was reassigned from the position of Chief Technology
      Officer and appointed by the Board of Directors of the Company to serve as
      Chief
      Operating Officer of the Company. Mr. Weiss has an Employment Agreement which
      became effective January 1, 2007 and extends for a term that expires on December
      31, 2007. The employment agreement provides that Mr. Weiss will receive a base
      salary during calendar year 2007 at an annual rate of $165,000. The agreement
      includes a cash bonus up to 25% of the executive’s annual base salary and
      executive is entitled to participate in the 2005 Incentive Compensation
      Plan.





18





**Item
      2.** **MANAGEMENT'S
      DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS**




**Overview**




We
      offer
      a comprehensive technology-based selection of electronic medical claims
      processing, funding and collection solutions to the healthcare provider industry
      through an Internet Web browser. Our services help doctors, hospital based
      practices, and other healthcare providers and their vendors to significantly
      improve daily insurance claims transaction administration and
      management.




Our
      Xeni
      Medical Systems, Inc. ("Xeni Medical") CLAIMwerksTM solutions can provide actual
      contract based, insurance company comparable screening and analysis of medical
      claims directly from a client’s practice management system, so that deficiencies
      and errors can be corrected before they are submitted to insurance companies
      for
      electronic payment. Further, the matching, settlement and posting of
      private insurance company claims payments is electronically performed for
      clients, minimizing the bookkeeping and investigation necessary to determine
      payment status and collection actions.




Since
      the
      system has the capability of analyzing value and risk of claims payment, clients
      may also qualify for pre-approved revolving line of credit advances on claims
      processed by our Xeni Financial Services, Corp. ("Xeni Financial") FUNDwerksTM
solution. FUNDwerksTM can electronically manage loans, loan repayments and
      the movement of funds through linked bank accounts administered by us for banks
      or finance companies; clients can receive electronic advance funding on claims
      they select within five business days on favorable terms.




Additionally,
      clients may choose to complete the claims management cycle by subscribing to
      the
      Xeni Medical Billing, Inc. ("Xeni Billing") BILLwerksTM services, which can
      include patient billing and collections and/or managing third party appeals
      on
      the provider’s behalf.




There
      is
      no major hardware or software investment required to use the Company’s Web-based
      systems. All transactions are designed to comply with the Health Insurance
      Portability and Accountability Act of 1996 (‘‘HIPAA’’).




On
      May
      30, 2007, we incorporated a new subsidiary Patient Payment Solutions, Inc.
      ("PPS") to improve collections for heath care providers that perform services
      “out-of-network”. As of June 30, 2007, PPS has not begun to generate revenue and
      has incurred minimal expenses.




We
      offer
      our services to physician and clinical service group practices, hospitals,
      rehabilitation centers, nursing homes and certain related practice vendors,
      by
      using internal and external resources. Internal resources consist mainly of
      specialized sales executives with industry knowledge and/or a portfolio of
      contacts. External resources consist primarily of independent sales
      representatives as well as channel associates such as vendors of practice
      management systems and medical industry specific sales groups such as office
      management consultants. These sales resources can leverage an existing customer
      base and contacts. Our marketing is based on prioritizing potential subscribers
      by size, location and density, need for our products and services and
      distribution opportunities. Accordingly, we are focusing our initial marketing
      efforts in geographic areas such as California, Florida, Texas, New York and
      New
      Jersey, which contain high concentrations of prospective clients.




Because
      we have had a limited operating history, it is difficult to accurately forecast
      our revenues and expenses. Additionally, our operations will continue to be
      subject to risks inherent in the establishment of a new business, including,
      among other things, efficiently deploying our capital, developing our product
      and services offerings, developing and implementing our marketing campaigns
      and
      strategies and developing awareness and acceptance of our products. Our ability
      to generate future revenues will be dependent on a number of factors, many
      of
      which are beyond our control, including the pricing of other services, overall
      demand for our products, market competition and government
      regulation.




19




**Critical
      Accounting Policies**




The
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these consolidated financial statements requires us to make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosure of contingent assets and
      liabilities. On an on-going basis, we evaluate our estimates based on historical
      experience and on various other assumptions that are believed to be reasonable
      under the circumstances, the results of which form the basis for making
      judgments about the carrying values of assets and liabilities that are not
      readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions.




We
      apply
      the Securities and Exchange Commission's Staff Accounting Bulletin 104 for
      revenue recognition. In general, we record revenue when persuasive evidence
      of
      an arrangement exists, services have been rendered or product delivery has
      occurred, the sales price to the customer is fixed or determinable, and
      collectability is reasonably assured. We have identified the policy below as
      critical to our business operations and understanding of our financial
      results:




Revenues
      derived from fees related to claims and contract management services are
      generally recognized when services are provided to the customer. We provide
      advance funding for medical claims and term loan services to unaffiliated
      healthcare providers. These arrangements typically require us to advance funds
      to these unaffiliated healthcare providers (our customers) in exchange for
      liens
      on the receivables related to invoices remitted to their clients for services
      performed. The advances are generally repaid through the remittance of payments
      of receivables by their payors directly to us. We may withhold from these
      advances interest, a fee charged in consideration of administration of advance
      funding and loans and other charges as well as the amount of receivables
      relating to prior advances that remain unpaid after a specified number of days.
      These interest charges, administrative fees and other charges are recognized
      as
      revenue when earned and are calculated on a daily basis.




Revenues
      derived from fees related to billing and collection services are generally
      recognized when the customer's accounts receivable are collected. Revenues
      from
      implementation fees are generally recognized over the term of the customer
      agreement. Revenues derived from maintenance, administrative and support fees
      are generally recognized at the time the services are provided to the
      customer.




**Results
      of Operations**




***For
      the Six Months Ended June 30, 2007 Versus the Six Months Ended June 30,
      2006***




*Revenue*




For
      the
      six months ended June 30, 2007, we recorded total revenue of $266,660. Of this
      total, we recorded service fee revenue of $236,720, or 88.8% and financing
      income of $29,940 or 11.2%. For the six months ended June 30, 2006, we recorded
      total revenue of $140,737. Of this total, we recorded service fee revenue of
      $114,566, or 81.4% and financing income of $26,171 or 18.6%.




*Operating
      Expenses*




Our
      operating expenses significantly increased for the six months ended June 30,
      2007 from the six months ended June 30, 2006 as a result of increased operations
      as we further implement our business plan.




For
      the
      six months ended June 30, 2007, total operating expenses were $4,362,490 as
      compared to $2,803,310 for the six months ended June 30, 2006, an increase
      of
      $1,599,180 or 55.6%. Included in this increase for the six months ended June
      30,
      2007 is the following:




1.
            We
                recorded compensation expense of $2,843,752 as compared to $1,463,735
                for
                the six months ended June 30, 2006. This $1,380,017 or 94.3% increase
                was
                attributable to the hiring of permanent sales, operations and executive
                staff and the recording of stock-based compensation expense under
                FAS 123R
                for previous period stock option grants. The stock-based compensation
                expense for the six months ended June 30, 2007 was $1,795,443. We
                expect
                cash and stock-based compensation expense to increase as we hire
                additional administrative, sales and technical personnel and record
                the
                expense of both current and future stock option grants;
                and




20




2.
            Consulting
                expense amounted to $404,438 as compared to $255,045 for the six
                months
                ended June 30, 2006, an increase of $149,393, or 58.6%. For the six
                months
                ended June 30, 2007 and 2006, we paid consultants for business advisory
                services, temporary information technology support and various other
                services; and




3.
            Professional
                fees amounted to $225,686 as compared to $124,124 for the six months
                ended
                June 30, 2006, an increase of $101,562, or 81.8%. This expense was
                attributable to accounting fees for the audit of our financial statements
                and SEC filings and legal fees related to SEC filings, the Series
                A
                Convertible Preferred Stock offering, the Convertible Notes Payable
                and
                other corporate matters; and




4.
            Selling,
                general and administrative expenses were $888,614 as compared to
                $960,406
                for the six months ended June 30, 2006, a decrease of $71,792, or
                7.5%.
                This decrease was attributable to a loss of $180,736 on settlement
                of
                notes payable related to the issuance of common shares for debt
                conversion.




For
      the
      six months ended June 30, 2007 and 2006, selling, general and administrative
      expenses consisted of the following:




**2007**
            
            **2006**Sales
                commissions
            
            $
            45,982
            
            $
            105,429Advertising
                and promotion
            
            
            72,158
            
            
            80,033Employee
                benefits and payroll taxes
            
            
            216,613
            
            
            178,967Other
                selling, general and administrative
            
            
            553,861
            
            
            595,977$
            888,614
            
            $
            960,406




*Other
      Income (Expenses)*




** For
      the
      six months ended June 30, 2007, interest income was $46,709 as compared to
      $4,548 for the six months ended June 30, 2006, an increase of $42,161. This
      increase was due to an increase in interest-bearing cash deposits.




For
      the
      six months ended June 30, 2007, interest expense was $1,026,136 as compared
      to
      $7,748 for the six months ended June 30, 2006, an increase of $1,018,388. This
      increase was due to an increase in borrowings and amortization of debt discount
      and deferred fees in connection with our notes payable.




In
      accordance with Emerging Issues Task Force Issue 00-19 (‘‘EITF 00-19’’),
‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially
      Settled in, a Company's Own Stock’’, we recorded a loss on the revaluation of
      warrant liability of $1,223,252 related to the change in fair value of the
      warrants during six months ended June 30, 2006.




*Net
      Loss*




As
      a
      result of these factors, we reported a net loss of $5,075,092 for the six months
      ended June 30, 2007 as compared to a net loss of $3,889,014 for the six months
      ended June 30, 2006.




21




*Deemed
      Dividend arising from beneficial conversion on Preferred Stock and Other
      Charges*




During
      the six months ended June 30, 2006, we recorded a deemed dividend arising from
      a
      beneficial conversion feature of preferred stock of $913,777 which relates
      to
      our Series A Convertible Preferred Stock. This non-cash item is related to
      the
      beneficial conversion features on our Series A Convertible Preferred Stock.
      In
      addition, for the six months ended June 30, 2006, we issued 76,000 shares of
      the
      Company's common stock to certain shareholders pursuant to agreements to offset
      the effect of dilutive financings of Xeni Medical, Xeni Billing and Xeni
      Financial. The shares issued were valued at the fair market value at the date
      of
      issuance of $246,240 and were treated as an additional charge to the loss
      attributable to common shareholders.




*Net
      Loss Attributable to Common Shareholders*




We
      reported a net loss attributable to common shareholders of $5,075,092 for the
      six months ended June 30, 2007 as compared to net loss attributable to common
      shareholders of $5,049,031 for the six months ended June 30, 2006. This
      translates to an overall per share loss available to shareholders of ($.40)
      for
      the six months ended June 30, 2007 as compared to a per share loss of ($.43)
      for
      six months ended June 30, 2006.




***For
      the Three Months Ended June 30, 2007 Versus the Three Months Ended June 30,
      2006***




*Revenue*




For
      the
      three months ended June 30, 2007, we recorded total revenue of $132,775. Of
      this
      total, we recorded service fee revenue of $116,812, or 88.0% and financing
      income of $15,963 or 12.0%. For the three months ended June 30, 2006, we
      recorded total revenue of $71,805. Of this total, we recorded service fee
      revenue of $61,982, or 86.3% and financing income of $9,823 or
      13.7%.




*Operating
      Expenses*




Our
      operating expenses significantly increased for the three months ended June
      30,
      2007 from the three months ended June 30, 2006 as a result of increased
      operations as we further implemented our business plan.




For
      the
      three months ended June 30, 2007, total operating expenses were $2,247,906
      as
      compared to $1,368,024 for the three months ended June 30, 2006, an increase
      of
      $879,882 or 64.3%. Included in this increase for the three months ended June
      30,
      2007 compared to the three months ended June 30, 2006 is the
      following:




1.
            We
                recorded compensation expense of $1,426,431 as compared to $703,788
                for
                the three months ended June 30, 2006. This $722,643 or 102.7% increase
                was
                attributable to the hiring of permanent sales, operations and executive
                staff and the recording of stock-based compensation expense under
                FAS 123R
                for previous period stock option grants. The stock-based compensation
                expense for the three months ended June 30, 2007 was $884,790. We
                expect
                cash and stock-based compensation expense to increase as we hire
                additional administrative, sales and technical personnel and record
                the
                expense of both current and future stock option grants;
                and




2.
            Consulting
                expense amounted to $241,741 as compared to $211,925 for the three
                months
                ended June 30, 2006, an increase of $29,816, or 14.1%. For the three
                months ended June 30, 2007 and 2006, we paid consultants for business
                advisory services, temporary information technology support and various
                other services; and




3.
            Professional
                fees amounted to $100,139 as compared to $64,153 for the three months
                ended June 30, 2006, an increase of $35,986, or 56.1%. This expense
                was
                attributable to accounting fees for the audit of our financial statements
                and SEC filings and legal fees related to SEC filings, the Series
                A
                Convertible Preferred Stock offering, the Convertible Notes Payable
                and
                other corporate matters; and




22




4.
            Selling,
                general and administrative expenses were $479,595 as compared to
                $388,158
                for the three months ended June 30, 2006, an increase of $91,437,
                or
                23.6%.




For
      the
      three months ended June 30, 2007 and 2006, selling, general and administrative
      expenses consisted of the following:




**2007**
            
            **2006**Sales
                commissions
            
            $
            18,397
            
            $
            42,871Advertising
                and promotion
            
            
            37,865
            
            
            32,960Employee
                benefits and payroll taxes
            
            
            107,686
            
            
            87,811Other
                selling, general and administrative
            
            
            315,647
            
            
            224,516$
            479,595
            
            $
            388,158




*Other
      Income (Expenses)*




** For
      the
      three months ended June 30, 2007, interest income was $18,470 as compared to
      $2,094 for the three months ended June 30, 2006, an increase of $16,376. This
      increase was due to an increase in interest-bearing cash deposits.




For
      the
      three months ended June 30, 2007, interest expense was $508,638 as compared
      to
      $3,682 for the three months ended June 30, 2006, an increase of $504,956. This
      increase was due to an increase in borrowings and amortization of debt discount
      and deferred fees in connection with our notes payable.




In
      accordance with Emerging Issues Task Force Issue 00-19 (‘‘EITF 00-19’’),
‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially
      Settled in, a Company's Own Stock’’, we recorded a loss on the revaluation of
      warrant liability of $0 compared to $1,085,807 related to the change in fair
      value of the warrants during three months ended June 30, 2006.




*Net
      Loss*




As
      a
      result of these factors, we reported a net loss of $2,605,134 for the three
      months ended June 30, 2007 as compared to a net loss of $2,383,614 for the
      three
      months ended June 30, 2006.




*Deemed
      Dividend arising from beneficial conversion on Preferred Stock and Other
      Charges*




During
      the three months ended June 30, 2006, we recorded a deemed dividend arising
      from
      a beneficial conversion feature of preferred stock of $754,823 which relates
      to
      our Series A Convertible Preferred Stock. This non-cash item is related to
      the
      beneficial conversion features on our Series A Convertible Preferred
      Stock.




*Net
      Loss Attributable to Common Shareholders*




We
      reported a net loss attributable to common shareholders of $2,605,134 for the
      three months ended June 30, 2007 as compared to net loss attributable to common
      shareholders of $3,138,437 for the three months ended June 30, 2006. This
      translates to an overall per share loss available to shareholders of ($.21)
      for
      the three months ended June 30, 2007 as compared to a per share loss of ($.27)
      for three months ended June 30, 2006.




*Liquidity
      and Capital Resources*




We
      used
      the proceeds from the sales of common stock through June 30, 2007 and proceeds
      from notes and loans payable for working capital purposes and to fund our notes
      receivable of which we have $782,371 owed to us at June 30, 2007. We will
      continue to advance funds under note agreements to providers that subscribe
      to
      our financial services lending solutions.




23




From
      March 22, 2006 through June 28, 2006, we sold 28.3 units in a private placement
      to accredited investors pursuant to the terms of a Confidential Private
      Placement Memorandum, dated February 1, 2006, and private placement subscription
      agreements executed and delivered by each investor on or before the closing
      of
      the private placement. In connection with the sale of the 28.3 units, we
      received net proceeds of $1,426,391.




On
      August
      24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566,
      after expenses) in connection with a financing provided by an unrelated party.
      In connection with the financing, we issued a secured promissory note in the
      original principal amount of $250,000 (the ‘‘Note’’) and a three year warrant to
      purchase 111,111 shares of our common stock at a price of $2.25 per share.
      The
      Note bears interest at the rate of 7% per year, payable monthly in arrears
      and
      will become due and payable on August 24, 2007. This Note is subject to certain
      mandatory prepayment provisions as defined in the secured promissory note.
      At
      June 30, 2007, principal payments made under the mandatory prepayment provisions
      had reduced the Note balance to $213,850. In connection with this note, our
      subsidiary, Xeni Financial, entered into a security and guaranty agreement
      whereby Xeni Financial has agreed to guaranty repayment of the note and grant
      a
      security interest in a client Revolving Line of Credit Loan Agreement including
      two promissory notes in the original principal amounts of $250,000 and $121,068
      issued by that client to Xeni Financial, which were consolidated into a single
      promissory note in the amount of $180,165 on December 5, 2006.




On
      August
      24, 2006, we received gross proceeds of $110,000 (net proceeds of $100,000,
      after expenses) in connection with a financing provided equally by two unrelated
      parties. These notes bear interest at 10% per year, and both interest and
      principal were paid on the January 21, 2007 maturity date.




On
      each
      of October 20, 2006 and November 9, 2006 we received gross proceeds of
      $2,500,000 ($2,375,000 net proceeds) for a total of $5,000,000 in the aggregate
      ($4,750,000 net proceeds in the aggregate) in connection with a financing
      provided by Gottbetter Capital Master, Ltd., an unaffiliated accredited
      institutional investor (the ‘‘Investor’’).




While
      we
      have sufficient funds to conduct our business and operations as they are
      currently undertaken into the next quarter, our ability to continue to implement
      our revenue and profit growth strategy beyond the next quarter will be adversely
      affected if we are unable to consummate additional private placement
      transactions or debt financing, which we are currently pursuing.




We
      currently have no material commitments for capital expenditures.




*Cash
      flows*




At
      June
      30, 2007, we had cash of $570,958.




Net
      cash
      used in operating activities was $2,433,801 for the six months ended June 30,
      2007 as compared to $1,655,335 for the six months ended June 30, 2006, an
      increase of $778,466. This increase is primarily attributable to an increase
      in
      our net loss and:




1.
            Gottbetter
                debt offering costs of $89,000 and Gottbetter, Goldner and Grenier
                debt
                discount and debt issuance costs of $814,858 and $8,720, respectively,
                compared to no debt related costs during the six months ended June
                30,
                2006;




2.
            Stock-based
                compensation of $1,795,443 versus stock-based compensation expense
                of
                $553,636 for the six months ended June 30, 2006 primarily related
                to
                issuance of stock options to
                employees;




3.
            No
                settlement expense versus settlement expense in the amount of $180,827
                for
                the conversion of $40,000 of notes payable to common stock for the
                six
                months ended June 30, 2006;




24




4.
            No
                loss on valuation of warrant liability versus loss on valuation of
                warrant
                liability of $1,223,252 through June 30, 2006 due to the revaluation
                of
                our warrant liability to fair
                value;




5.
            A
                net increase in notes receivable, accounts receivable and prepaid
                expenses
                aggregating $274,723 principally related to the increase in funding
                of
                notes receivable to providers that subscribe to our MDwerks financial
                services solution;




6.
            A
                decrease in accounts payable, accrued expenses and deferred revenue
                related to an increase in operating activities aggregating
                $97,718.




Net
      cash
      used in investing activities was $4,652 for the six months ended June 30, 2007
      as compared to $71,728 for the six months ended June 30, 2006 and is principally
      related to the acquisition of computer and office equipment and
      furniture.




Net
      cash
      used for financing activities was $137,430 due to repayment of notes payable
      for
      the six months ended June 30, 2007 as compared to net cash provided by financing
      activities of $1,414,360 due to net proceeds from the sale of Series A
      Convertible Preferred Stock for the six months ended June 30, 2006.




***Off
      Balance Sheet Arrangements***




We
      had no
      off balance sheet arrangements as of June 30, 2007.




***Cautionary
      Language Regarding Forward-Looking Statements and Industry
      Data***




This
      report contains ‘‘forward-looking statements’’ within the meaning of the Private
      Securities Litigation Reform Act of 1995 that involve risks and uncertainties,
      many of which are beyond our control. Our actual results could differ materially
      and adversely from those anticipated in such forward-looking statements as
      a
      result of certain factors, including those set forth below and elsewhere in
      this
      report. Important factors that may cause actual results to differ from
      projections include, but are not limited to, for example:




· adverse
      economic conditions;




·inability
      to
      raise sufficient additional capital to implement our business plan;




·intense
      competition, including entry of newly-developed alternative drug
      technologies;




·unexpected
      costs and operating deficits, and lower than expected sales and
      revenue;




·adverse
      results of any legal proceedings;




·inability
      to
      satisfy government and commercial customers using our technology;




·the
      volatility of our operating results and financial condition;




·inability
      to
      attract or retain qualified senior management personnel, including sales and
      marketing, and technology personnel; and




·other
      specific risks that may be alluded to in this report.




All
      statements, other than statements of historical facts, included in this report
      regarding our strategy, future operations, financial position, estimated revenue
      or losses, projected costs, prospects and plans and objectives of management
      are
      forward-looking statements. When used in this report, the words ‘‘will,’’
‘‘may,’’ ‘‘believe,’’ ‘‘anticipate,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘expect,’’
‘‘project,’’ ‘‘plan’’ and similar expressions are intended to identify
      forward-looking statements, although not all forward-looking statements contain
      such identifying words. All forward-looking statements speak only as of the
      date
      of this report. We do not undertake any obligation to update any forward-looking
      statements or other information contained herein. Potential investors should
      not
      place undue reliance on these forward-looking statements. Although we believe
      that our plans, intentions and expectations reflected in or suggested by the
      forward-looking statements in this report are reasonable, no one can assure
      investors that these plans, intentions or expectations will be
      achieved.




25




Information
      regarding market and industry statistics contained in this report is included
      based on information available to us that we believe is accurate. It is
      generally based on academic and other publications that are not produced for
      purposes of securities offerings or economic analysis. We have not reviewed
      or
      included data from all sources, and we cannot assure investors of the accuracy
      or completeness of the data included in this report. Forecasts and other
      forward-looking information obtained from these sources are subject to the
      same
      qualifications and the additional uncertainties accompanying any estimates
      of
      future market size, revenue and market acceptance of products and services.
      We
      have no obligation to update forward-looking information to reflect actual
      results or changes in assumptions or other factors that could affect those
      statements.




**ITEM
      3.** **CONTROLS
      AND PROCEDURES**




We
      maintain ‘‘disclosure controls and procedures,’’ as such term is defined in Rule
      13a-15(e) under the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’), that
      are designed to ensure that information required to be disclosed in our Exchange
      Act reports is recorded, processed, summarized and reported within the time
      periods specified in the Securities and Exchange Commission rules and forms,
      and
      that such information is accumulated and communicated to our management,
      including our Chief Executive Officer and Chief Financial Officer, as
      appropriate, to allow timely decisions regarding required disclosure. We
      conducted an evaluation (the ‘‘Evaluation’’), under the supervision and with the
      participation of our Chief Executive Officer (‘‘CEO’’) and Chief Financial
      Officer (‘‘CFO’’), of the effectiveness of the design and operation of our
      disclosure controls and procedures (‘‘Disclosure Controls’’) as of the end of
      the period covered by this report pursuant to Rule 13a-15 of the Exchange Act.
      Based on this Evaluation, our CEO and CFO concluded that our Disclosure Controls
      were effective as of the end of the period covered by this report.




We
      have
      also evaluated our internal controls for financial reporting, and there have
      been no significant changes in our internal controls or in other factors that
      could significantly affect those controls subsequent to the date of their last
      evaluation.




Our
      management, including our CEO and CFO, does not expect that our Disclosure
      Controls and internal controls will prevent all errors and all fraud. A control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the control system are met.
      Further, the design of a control system must reflect the fact that there are
      resource constraints, and the benefits of controls must be considered relative
      to their costs. Because of the inherent limitations in all control systems,
      no
      evaluation of controls can provide absolute assurance that all control issues
      and instances of fraud, if any, within the Company have been detected. These
      inherent limitations include the realities that judgments in decision-making
      can
      be faulty, and that breakdowns can occur because of a simple error or mistake.
      Additionally, controls can be circumvented by the individual acts of some
      persons, by collusion of two or more people, or by management or board override
      of the control. The design of any system of controls also is based in part
      upon
      certain assumptions about the likelihood of future events, and there can be
      no
      assurance that any design will succeed in achieving its stated goals under
      all
      potential future conditions; over time, controls may become inadequate because
      of changes in conditions, or the degree of compliance with the policies or
      procedures may deteriorate. Because of the inherent limitations in a
      cost-effective control system, misstatements due to error or fraud may occur
      and
      not be detected. CEO and CFO Certifications appearing immediately following
      the
      signatures section of this report there are Certifications of the CEO and the
      CFO. The Certifications are required in accordance with Section 302 of the
      Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this
      report, which you are currently reading is the information concerning the
      Evaluation referred to in the Section 302 Certifications and this information
      should be read in conjunction with the Section 302 Certifications for a more
      complete understanding




26




**Evaluation
      of disclosure controls and procedures and remediation**




In
      connection with the Restatement, under the direction of the Company’s
      management, we have reevaluated certain disclosure controls and procedures
      and
      internal control over financial reporting. In connection with the Restatement,
      we identified a material weakness in our internal controls and procedures
      relating to the accounting treatment of our series A preferred stock and related
      warrants.




To
      our
      knowledge, as of the date of this filing, we have remediated such material
      weakness in our internal controls and procedures.




In
      connection with this Form 10-QSB, under the direction of our Chief Executive
      Officer, we have evaluated our disclosure controls and procedures as of June
      30,
      2007, including the remedial actions discussed above, and we have concluded
      that, as of June 30, 2007, our disclosure controls and procedures are
      effective.




It
      should
      be noted that while our management believe our disclosure controls and
      procedures provide a reasonable level of assurance, they do not expect that
      our
      disclosure controls and procedures or internal controls will prevent all error
      and all fraud. A control system, no matter how well conceived or operated,
      can
      provide only reasonable, not absolute, assurance that the objectives of the
      control system are met. Further, the design of a control system must reflect
      the
      fact that there are resource constraints, and the benefits of controls must
      be
      considered relative to their costs. Because of the inherent limitations in
      all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, within the Company have
      been
      detected. These inherent limitations include the realities that judgments,
      in
      decision making can be faulty, and that breakdowns can occur because of simple
      error or mistake. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people, or by management
      override of the controls. The design of any system of internal control is based
      in part upon certain assumptions above the likelihood of future events, and
      there can be no assurance that any design will succeed in achieving its stated
      goals under all potential future conditions. Over time, controls may become
      inadequate because of changes in conditions, or the degree of compliance with
      the policies or procedures may deteriorate. Because of the inherent limitations
      in a cost-effective control system, misstatements due to error or fraud may
      occur and not be detected.




27




**PART
      II — OTHER INFORMATION**




**Item
      1 — Legal Proceedings**




None




**Item
      2 — Unregistered Sales of Equity Securities and Use of
      Proceeds**




On
      May
      29, 2007, the Company issued 150,000 shares of common stock to consultants
      for
      services rendered. The shares were issued at the fair value at the date of
      the
      issuance of $75,000 or $0.50 per share.




On
      May
      29, 2007, the Company issued 50,000 shares of common stock to a Director of
      the
      Company in consideration for services rendered. The shares were issued at the
      fair value at the date of the issuance of $25,000 or $0.50 per share.




On
      May
      29, 2007, the Company issued 100,000 shares of common stock to consultants
      for
      services rendered. The shares were issued at the fair value at the date of
      the
      issuance of $50,000 or $0.50 per share.




The
      recipients of all of the shares issued above were accredited or otherwise
      sophisticated investors and the transactions were exempt from registration
      under
      the Securities Act of 1933 in reliance on an exemption provided by Section
      4(2)
      of that act. The recipients had access to information concerning our
      company.




**Item
      3 — Defaults Upon Senior Securities**




None.




**Item
      4 — Submissions of Matters to a Vote of Security Holders**




None.




**Item
      5.** **Other
      Information**




None




**Item
      6.** **Exhibits**




31.1  Section
      302 Certification of Principal Executive Officer




31.2  Section
      302 Certification of Principal Financial Officer




32.1  Section
      906 Certification of Principal Executive Officer




32.2  Section
      906 Certification of Principal Financial Officer




28




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


**MDWERKS,
                INC.**August
                13, 2007
            
            /s/
                Howard B. KatzHoward
                B. KatzChief
                Executive Officer


August
                13, 2007
            
            /s/
                Vincent ColangeloVincent
                ColangeloChief
                Financial Officer