UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form
10-Q


(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, 2009




o
            TRANSITION
      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 registrant 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


(Registrant's
telephone number, including area code)




N/A


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




Check
whether the registrant (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.            
Yes x   No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every interactive data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files).                             Yes
o  No o





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.


Large
      accelerated filer o
                Accelerated
      filer oNon-accelerated
      filer  o
                Smaller
      reporting company x





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: 17,990,208 shares at August 14,
2009










MDWERKS,
INC.


FORM
10-Q


FOR
THE PERIOD ENDED JUNE 30, 2009





INDEX




PagePART
      I - FINANCIAL INFORMATIONItem
      1 - Consolidated Financial StatementsConsolidated
      Balance Sheets As of June 30, 2009 (Unaudited) and December 31,
      2008
                3Consolidated
      Statements of Operations (Unaudited) For the Three and Six Months Ended
      June 30, 2009 and 2008
                4Consolidated
      Statements of Cash Flows (Unaudited) For the Six Months Ended June 30,
      2009 and 2008
                5Notes
      to Unaudited Consolidated Financial Statements
                6-20Item
      2 - Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                21-26Item
      3 - Quantitative and Qualitative Disclosures About Market
    Risk
                27Item
      4 - Controls and Procedures
                27PART
      II - OTHER INFORMATIONItem
      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
                29Item
      6 – Exhibits
                29


2


MDWERKS,
INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




June 30,
                                      2009
                                      (Unaudited)
                                    
                                    
                                    December 31,
                                      2008 (1)ASSETSCurrent
      assets:Cash
                                    $
                                    1,629,842
                                    
                                    
                                    $
                                    1,223,807Certificates
      of deposit
                                    
                                    501,945
                                    
                                    
                                    
                                    —Notes
      receivable
                                    
                                    1,418,717
                                    
                                    
                                    
                                    1,277,722Accounts
      receivable, net of allowances of $200,000 at June 30, 2009 and December
      31, 2008
                                    
                                    343,021
                                    
                                    
                                    
                                    188,048Leases
      receivable
                                    
                                    171,250
                                    
                                    
                                    
                                    85,000Prepaid
      expenses and other
                                    
                                    76,317
                                    
                                    
                                    
                                    132,160Total
      current assets
                                    
                                    4,141,092
                                    
                                    
                                    
                                    2,906,737Long-term
      assets:Notes
      receivable
                                    
                                    390,000
                                    
                                    
                                    
                                    —Leases
      receivable
                                    
                                    80,572
                                    
                                    
                                    
                                    —Available-for-sale
      securities, at fair market value
                                    
                                    148,200
                                    
                                    
                                    
                                    61,750Property
      and equipment, net of accumulated depreciation of $180,245 for June 30,
      2009 and $179,211 for December 31, 2008
                                    
                                    31,119
                                    
                                    
                                    
                                    48,120Debt
      issuance and offering costs, net of accumulated amortization of $712,489
      for June 30, 2009 and $505,478 for December 31, 2008
                                    
                                    838,926
                                    
                                    
                                    
                                    631,037Total
      assets
                                    $
                                    5,629,909
                                    
                                    
                                    $
                                    3,647,644LIABILITIES,
      TEMPORARY EQUITY AND STOCKHOLDERS' DEFICIENCYCurrent
      liabilities:Notes
      payable, net
                                    $
                                    386,882
                                    
                                    
                                    $
                                    1,290,870Accounts
      payable
                                    
                                    142,361
                                    
                                    
                                    
                                    161,516Accrued
      expenses
                                    
                                    903,790
                                    
                                    
                                    
                                    602,625Dividends
      payable
                                    
                                    1,548,222
                                    
                                    
                                    
                                    948,222Total
      current liabilities
                                    
                                    2,981,255
                                    
                                    
                                    
                                    3,003,233Long-term
      liabilities:Notes
      payable, net
                                    
                                    4,880,952
                                    
                                    
                                    
                                    —Total
      long-term liabilities
                                    
                                    4,880,952
                                    
                                    
                                    
                                    —Total
      liabilities
                                    
                                    7,862,207
                                    
                                    
                                    
                                    3,003,233Temporary
      equity:Mandatorily
      Redeemable Convertible Series B Preferred Stock, $.001 par value, 1,500
      shares authorized;1,000 shares issued and outstanding for June 30, 2009
      and December 31, 2008, net
                                    
                                    6,431,251
                                    
                                    
                                    
                                    4,052,083Total
      temporary equity
                                    
                                    6,431,251
                                    
                                    
                                    
                                    4,052,083Stockholders’
      deficiency:Preferred
      stock,  Series A preferred stock, $.001 par value, 10,000,000
      shares authorized; 1 share issued and outstanding at June, 30, 2009 and 2
      shares issued and outstanding at December 31, 2008
                                    
                                    —
                                    
                                    
                                    
                                    —Common stock, $.001 par value,
      200,000,000 shares authorized; 17,990,208 shares issued and
      outstanding for June 30, 2009 and 14,370,208 shares issued and outstanding
      for December 31, 2008
                                    
                                    17,990
                                    
                                    
                                    
                                    14,370Additional
      paid-in capital
                                    
                                    47,704,894
                                    
                                    
                                    
                                    47,240,654Accumulated
      deficit
                                    
                                    (55,479,833
                                    )
                                    
                                    
                                    (49,669,646
                                    )Accumulated
      other comprehensive loss
                                    
                                    (906,600
                                    )
                                    
                                    
                                    (993,050
                                    )Total
      stockholders' deficiency
                                    
                                    (8,663,549
                                    )
                                    
                                    
                                    (3,407,672
                                    )Total
      liabilities, temporary equity and stockholders' deficiency
                                    $
                                    5,629,909
                                    
                                    
                                    $
                                    3,647,644





(1)
Derived from audited financial statements


The
accompanying notes should be read in conjunction with the unaudited 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 30,2008
                                  
                                  
                                  
                                  
                                  
                                  20082009
                                  
                                  
                                  (As Restated)
                                  
                                  
                                  2009
                                  
                                  
                                  (As Restated)(Unaudited)
                                  
                                  
                                  (Unaudited)
                                  
                                  
                                  (Unaudited)
                                  
                                  
                                  (Unaudited)Revenue:Service
      fees
                                  
                                  $
                                  3,980
                                  
                                  
                                  $
                                  148,208
                                  
                                  
                                  $
                                  82,924
                                  
                                  
                                  $
                                  310,450Financing
      income
                                  
                                  
                                  107,360
                                  
                                  
                                  
                                  90,344
                                  
                                  
                                  
                                  190,059
                                  
                                  
                                  
                                  131,563Claims
      purchase revenue
                                  
                                  
                                  —
                                  
                                  
                                  
                                  23,697
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  23,697Total
      revenue
                                  
                                  
                                  111,340
                                  
                                  
                                  
                                  262,249
                                  
                                  
                                  
                                  272,983
                                  
                                  
                                  
                                  465,710Operating
      expenses:Compensation
                                  
                                  
                                  421,565
                                  
                                  
                                  
                                  2,408,892
                                  
                                  
                                  
                                  964,349
                                  
                                  
                                  
                                  3,310,994Consulting
      expenses
                                  
                                  
                                  284,463
                                  
                                  
                                  
                                  73,238
                                  
                                  
                                  
                                  379,488
                                  
                                  
                                  
                                  138,719Professional
      fees
                                  
                                  
                                  220,639
                                  
                                  
                                  
                                  165,263
                                  
                                  
                                  
                                  351,596
                                  
                                  
                                  
                                  329,951Selling,
      general and administrative
                                  
                                  
                                  212,341
                                  
                                  
                                  
                                  497,136
                                  
                                  
                                  
                                  536,002
                                  
                                  
                                  
                                  788,026Total
      operating expenses
                                  
                                  
                                  1,139,008
                                  
                                  
                                  
                                  3,144,529
                                  
                                  
                                  
                                  2,231,435
                                  
                                  
                                  
                                  4,567,690Loss
      from operations
                                  
                                  
                                  (1,027,668
                                  )
                                  
                                  
                                  (2,882,280
                                  )
                                  
                                  
                                  (1,958,452
                                  )
                                  
                                  
                                  (4,101,980
                                  )Other
      income (expense):Interest
      income
                                  
                                  
                                  13,110
                                  
                                  
                                  
                                  656,106
                                  
                                  
                                  
                                  37,373
                                  
                                  
                                  
                                  658,030Interest
      expense
                                  
                                  
                                  (534,863
                                  )
                                  
                                  
                                  (348,320
                                  )
                                  
                                  
                                  (909,939
                                  )
                                  
                                  
                                  (880,877
                                  )Other
      income
                                  
                                  
                                  —
                                  
                                  
                                  
                                  340
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  489Total
      other income (expense)
                                  
                                  
                                  (521,753
                                  )
                                  
                                  
                                  308,126
                                  
                                  
                                  
                                  (872,566
                                  )
                                  
                                  
                                  (222,358
                                  )Net
      loss
                                  
                                  
                                  (1,549,421
                                  )
                                  
                                  
                                  (2,574,154
                                  )
                                  
                                  
                                  (2,831,018
                                  )
                                  
                                  
                                  (4,324,338
                                  )Deemed
      preferred stock dividend
                                  
                                  
                                  (1,489,584
                                  )
                                  
                                  
                                  (1,489,584
                                  )
                                  
                                  
                                  (2,979,168
                                  )
                                  
                                  
                                  (1,796,830
                                  )Net
      loss attributable to common shareholders
                                  
                                  $
                                  (3,039,005
                                  )
                                  
                                  $
                                  (4,063,738
                                  )
                                  
                                  $
                                  (5,810,186
                                  )
                                  
                                  $
                                  (6,121,168
                                  )NET
      LOSS PER COMMON SHARE - basic and diluted
                                  
                                  $
                                  (0.19
                                  )
                                  
                                  $
                                  (0.31
                                  )
                                  
                                  $
                                  (0.38
                                  )
                                  
                                  $
                                  (0.47
                                  )WEIGHTED-AVERAGE
      COMMON SHARES OUTSTANDING - basic and diluted
                                  
                                  
                                  16,289,109
                                  
                                  
                                  
                                  12,940,065
                                  
                                  
                                  
                                  15,342,031
                                  
                                  
                                  
                                  12,940,065





(1)
Diluted loss per common share is not presented since the impact of stock options
and warrants would be antidilutive.




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


4


MDWERKS,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS




For
      the Six Months
                              Ended
      June 302009
                            
                            
                            2008(As
      Restated)(Unaudited)
                            
                            
                            (Unaudited)Cash
      flows from operating activities:Net
      loss
                            
                            $
                            (2,831,018
                            )
                            
                            $
                            (4,324,338
                            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                            
                            
                            17,001
                            
                            
                            
                            19,909Amortization
      of debt discount
                            
                            
                            570,246
                            
                            
                            
                            39,893Amortization
      of deferred offering and debt issuance costs
                            
                            
                            207,011
                            
                            
                            
                            129,261Amortization
      of deferred compensation
                            
                            
                            —
                            
                            
                            
                            22,168Bad
      debts
                            
                            
                            —
                            
                            
                            
                            100,000Certificate
      of deposit interest
                            
                            
                            (1,945
                            )
                            
                            
                            —Stock-based
      compensation
                            
                            
                            323,203
                            
                            
                            
                            1,916,722Changes
      in assets and liabilities:Notes
      receivable
                            
                            
                            (530,995
                            )
                            
                            
                            607,247Accounts
      receivable
                            
                            
                            (154,973
                            )
                            
                            
                            (801,715
                            )Leases
      receivable
                            
                            
                            (166,822
                            )
                            
                            
                            —Prepaid
      expenses and other
                            
                            
                            55,843
                            
                            
                            
                            38,434Accounts
      payable
                            
                            
                            (19,155
                            )
                            
                            
                            (31,654
                            )Accrued
      expenses
                            
                            
                            301,165
                            
                            
                            
                            (191,664
                            )Deferred
      revenue
                            
                            
                            —
                            
                            
                            
                            (5,648
                            )Total
      adjustments
                            
                            
                            600,579
                            
                            
                            
                            1,842,953Net
      cash used in operating activities
                            
                            
                            (2,230,439
                            )
                            
                            
                            (2,481,385
                            )Cash
      flows from investing activities:Purchase
      of property and equipment
                            
                            
                            —
                            
                            
                            
                            (10,276
                            )Investment
      in certificates of deposits
                            
                            
                            (500,000
                            )
                            
                            
                            (3,000,000
                            )Net
      cash used in investing activities
                            
                            
                            (500,000
                            )
                            
                            
                            (3,010,276
                            )Cash
      flows from financing activities:Proceeds
      from additional notes payable
                            
                            
                            3,851,375
                            
                            
                            
                            —Repayment
      of notes payable
                            
                            
                            (300,000
                            )
                            
                            
                            (1,269,445
                            )Repayment
      of loan payable
                            
                            
                            —
                            
                            
                            
                            (109,559
                            )Proceeds
      from sale of Mandatorily Redeemable Series B preferred
    stock
                            
                            
                            —
                            
                            
                            
                            8,000,000Placement
      fees and other expenses paid
                            
                            
                            (414,901
                            )
                            
                            
                            (196,870
                            )Net
      cash provided by financing activities
                            
                            
                            3,136,474
                            
                            
                            
                            6,424,126Net
      increase in cash
                            
                            
                            406,035
                            
                            
                            
                            932,465Cash
      - beginning of year
                            
                            
                            1,223,807
                            
                            
                            
                            320,903Cash
      - end of period
                            
                            $
                            1,629,842
                            
                            
                            $
                            1,253,368Supplemental
      disclosure of cash flow information:Cash
      paid for:Interest
                            
                            $
                            27,925
                            
                            
                            $
                            250,279




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


5


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009




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 subsidiaries. Xeni Medical Systems, Inc. ("Xeni Systems") was
incorporated under the laws of the state of Delaware on July 21, 2004.
 Through February 28, 2009, Xeni Systems provided 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 could improve daily insurance claims transaction
processing, administration and management.  Xeni Medical Billing,
Corp. ("Xeni Billing") was incorporated under the laws of the state of Florida
on March 2, 2005. Xeni Systems and Xeni Billing have both discontinued their
operations. Xeni Financial Services, Corp. ("Xeni Financial") was incorporated
under the laws of the state of Florida on February 3, 2005 and offers lending
solutions for digital pen leases.  Digital Pen Applications, Inc.
(“DPA”) was incorporated under the laws of the state of Florida on May 30, 2007,
originally formed as Patient Payment Solutions, Inc. and was renamed on March 2,
2009 to Xeni Patient Access Solutions, Inc. and subsequently renamed to DPA on
June 1, 2009. DPA sells D-PAS digital pen technology directly to healthcare
providers such as nursing homes and hospitals and other health care facilities
as well as other industries such as warehousing, shipping and
transportation.





Going
concern




The
accompanying unaudited 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 may need 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 new 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  institutional financing
described in Notes 5, 7, and  8, provide the opportunity for the
Company to continue as a going concern.




On April
20, 2009, we, along with our subsidiary Xeni Financial Services, Corp. (“XFS”),
entered into a Loan and Securities Purchase Agreement (the “Loan Agreement”)
with Vicis Capital Master Fund (“Vicis”), dated April 15, 2009 pursuant to which
Vicis loaned the Company $3,851,375 (the “Vicis Note”) comprised of the current
loan of $3,200,000, a prior advance including the $300,000 loaned to us by Debt
Opportunity Fund, LLLP(DOF) on November 14, 2008, and accrued interest, and
professional and other fees of $351,375 relative to prior loans and
commitments.





As
reflected in the accompanying unaudited consolidated financial statements, the
Company has a stockholders’ deficiency of $8,663,549 and a working capital of
$1,159,837 at June 30, 2009.




Basis
of presentation




The
accompanying unaudited consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Item
310(b) of Regulation S-K. 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, 2008 and notes thereto and other
pertinent information contained in the Form 10-K of the Company for the year
ended December 31, 2008 as filed with the Securities and Exchange Commission
(the ‘‘Commission’’). The results of operations for the six months ended June
30, 2009 are not necessarily indicative of what the results will be for the
full fiscal year ending December 31, 2009.


6


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Consolidation
policy




The
accompanying unaudited consolidated financial statements include the accounts of
MDwerks, Inc. and its subsidiaries.  All material intercompany
balances and transactions have been eliminated in consolidation.





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




Included
in various investment related line items in the financial statements are certain
financial instruments carried at fair value.  Other financial
instruments are periodically measured at fair value, such as when impaired, or,
for preferred stock when carried at the lower of cost or market.





The fair
value of an asset is the amount at which that asset could be bought or sold in a
current transaction between willing parties, that is, other than in a forced or
liquidation sale.  The fair value of a liability is the amount at
which that liability could be incurred or settled in a current transaction
between willing parties, that is, other than in a forced or liquidation
sale.





Fair
values are based on quoted market prices when available.  When market
prices are not available, fair value is generally estimated using discounted
cash flow analyses, incorporating current market inputs for similar financial
instruments with comparable terms and credit quality.  In instances
where there is little or no market activity for the same or similar instruments,
the Company estimates fair value using methods, models and assumptions that
management believes market participants would use to determine a current
transaction price.  These valuation techniques involve some level of
management estimation and judgment which becomes significant with increasingly
complex instruments or pricing models.  Where appropriate, adjustments
are included to reflect the risk inherent in a particular methodology, model or
input used.





The
Company's financial assets and liabilities carried at fair value have been
classified, for disclosure purposes, based on a hierarchy defined by SFAS No.
157, Fair Value
Measurements.   The hierarchy gives the highest ranking to
fair values determined using unadjusted quoted prices in active markets for
identical assets and liabilities (Level 1) and the lowest ranking to fair values
determined using methodologies and models with unobservable inputs (Level 3). An
asset’s or a liability’s classification is based on the lowest level input that
is significant to its measurement.  For example, a Level 3 fair value
measurement may include inputs that are both observable (Levels 1 and 2) and
unobservable (Level 3).   The levels of the fair value hierarchy
are as follows:





Level 1 - Values are
unadjusted quoted prices for identical assets and liabilities in active markets
accessible at the measurement date.





Level 2 –  Inputs
include quoted prices for similar assets or liabilities in active markets,
quoted prices from those willing to trade in markets that are not active, or
other inputs that are observable or can be corroborated by market data for the
term of the instrument.  Such inputs include market interest rates and
volatilities, spreads and yield curves.





Level 3– Certain inputs are
unobservable (supported by little or no market activity) and significant to the
fair value measurement.  Unobservable inputs reflect the Company’s
best estimate of what hypothetical market participants would use to determine a
transaction price for the asset or liability at the reporting
date.


7


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)





Financial
assets and liabilities measured at fair value on a recurring basis





The
following table provides information as of June 30, 2009 about the Company’s
financial assets and liabilities measured at fair value on a recurring
basis.





Level
      1
                                
                                
                                Level
      2
                                
                                
                                Level
      3
                                
                                
                                TotalAssets at fair value:Cash
      and Cash Equivalents – Certificates of Deposit
                                
                                $
                                —
                                
                                
                                $
                                501,945
                                
                                
                                $
                                —
                                
                                
                                $
                                501,945Notes
      receivable
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                1,808,717
                                
                                
                                
                                1,808,717Leases
      receivable
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                251,822
                                
                                
                                
                                251,822Available-for-sale
      securities
                                
                                
                                148,200
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                148,200Total
      assets at fair value
                                
                                $
                                148,200
                                
                                
                                $
                                501,945
                                
                                
                                $
                                2,060,539
                                
                                
                                $
                                2,710,684Liabilities at fair value:Notes
      payable
                                
                                $
                                —
                                
                                
                                $
                                —
                                
                                
                                $
                                5,267,834
                                
                                
                                $
                                5,267,834Total
      liabilities at fair value
                                
                                $
                                —
                                
                                
                                $
                                —
                                
                                
                                $
                                5,267,834
                                
                                
                                $
                                5,267,834





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. At June 30, 2009, the Company was approximately
$10,000 in excess of the $250,000 per company 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 $0 for the six months ended June 30, 2009 and 2008.




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.


8


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Revenue
recognition




The
Company follows the guidance of the Securities and Exchange Commission’s
(‘‘SEC’’) Staff Accounting Bulletin (“SAB”) 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 collectibility is reasonably
assured. The following policies reflect specific criteria for the various
revenue streams of the Company.




Revenue
derived from term loans or lease purchases to unaffiliated companies are
generally recognized as revenue when earned.  Revenue from term loans
and lease purchases can include interest, administrative fees and other
charges.




Revenue
derived from claims purchased from unaffiliated healthcare providers are
generally recognized when the claims are paid and the funds are
collected.





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 net income
(loss) 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 loss by the weighted average number of shares of
common stock and potentially dilutive securities outstanding during each period.
For the six months ended  June 30, 2009 and 2008, the Company had
outstanding options to purchase an aggregate of  4,793,834 and
5,632,530 shares of common stock, respectively, warrants to purchase an
aggregate of 60,402,421 and 57,566,346 shares of common stock, respectively,
20,000 and 40,000 shares of common stock, respectively, issuable upon conversion
of Series A preferred stock, 13,333,334 and 13,333,334 shares of common stock,
respectively, issuable upon conversion of Series B preferred stock, and
1,474,074 and 1,913,580 shares of common stock, respectively, issuable upon
conversion of notes payable which could potentially dilute future earnings per
share. Diluted loss per common share has not been presented for the three and
six months ended June 30, 2009 and 2008 since the impact of the stock options
and warrants would be antidilutive.


9


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Concentration
of Credit Risk




The
Company had three customers that accounted for all of total notes receivable for
the six months ended June 30, 2009.  These customers accounted for
66%, 22%, and 12% of such notes, respectively.  The Company did not
have any significant concentrations in revenue.





Stock-based
compensation





The fair
value of stock options granted to employees, directors and others, is estimated
at the date of grant using the Black-Scholes option-pricing model, which takes
into consideration the share price at the date of grant, the exercise price of
the option, the expected life of the option, expected interest rates and the
expected volatility. The value of stock options, as noted, is recognized as
compensation expense on a straight-line basis, over the requisite service period
of the entire award.  The fair value of shares of common stock granted
to employees, directors and others is estimated at the date of grant using the
share price at the date of the grant.





Through
December 31, 2008, due to the lack of adequate history of its own stock
volatility, the Company estimated its own expected stock volatility based on the
historical stock volatility of three other comparable publicly held companies.
During 2008, as the Company accumulated its own volatility history over longer
periods of time, the Company’s assumptions about its stock price volatility were
based on a rate that was derived by taking into consideration the volatility
rates of the aforesaid comparable publicly held companies as well as its own
historical volatility rates. Beginning in 2009, the Company will estimate its
expected stock volatility based on its own historical stock volatility
rates.





Valuation
Assumptions for Stock Options





The fair
value for each stock option granted to employees and directors during the year
ended December 31, 2008, was estimated at the date of grant using the
Black-Scholes option-pricing model, assuming no dividends using 2.66% for the
calculated risk-free interest rate, 10 years contractual life and 117.43%
volatility.  No stock options were granted during the three and six
months ended June 30, 2009.





The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant for periods corresponding with the expected life of the
option.





The
contractual life represents the period of time that options granted are
outstanding.  Options and their terms including required service
period, contractual terms or vesting conditions are granted based upon
recommendations of management and Board approval and vest based upon time and
continuous service with the company.  As of August 14, 2009, there are
15,000,000 common shares authorized for stock option and common stock grants to
employees, directors and others and there are approximately 6,600,000 common
shares available for future issuances.





Recent
accounting pronouncements





In
May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion
No. 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP
clarifies the accounting for convertible debt instruments that may be settled in
cash (including partial cash settlement) upon conversion. The FSP requires
issuers to account separately for the liability and equity components of certain
convertible debt instruments in a manner that reflects the issuer’s
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized. The FSP requires bifurcation of a component of the debt,
classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as part of interest expense in our
consolidated statement of operations. The FSP requires retrospective application
to the terms of instruments as they existed for all periods presented. The
Company adopted this FSP as of January 1, 2009.


10


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)





Recent accounting pronouncements
(continued)





In
May 2008, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 162, The Hierarchy of Generally Accepted Accounting
Principles. This standard is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with generally accepted accounting principles in the United States
for non-governmental entities. SFAS No. 162 is effective 60 days following
approval by the U.S. Securities and Exchange Commission ("SEC") of the Public
Company Accounting Oversight Board's amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles. SFAS No. 162 will have no effect on the Company’s financial
position, results of operations or cash flows.





In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an
Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF
07-5). EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument’s contingent
exercise and settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. We do not expect EITF 07-5 to have a
material impact on the preparation of our consolidated financial
statements.





In April
2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies (“FSP FAS 141(R)-1”). This pronouncement amends SFAS No.
141-R to clarify the initial and subsequent recognition, subsequent accounting,
and disclosure of assets and liabilities arising from contingencies in a
business combination. FSP SFAS No. 141(R)-1 requires that assets acquired and
liabilities assumed in a business combination that arise from contingencies be
recognized at fair value, as determined in accordance with SFAS No. 157, if the
acquisition-date fair value can be reasonably estimated. If the acquisition-date
fair value of an asset or liability cannot be reasonably estimated, the asset or
liability would be measured at the amount that would be recognized in accordance
with FASB Statement No. 5, “Accounting for Contingencies” (SFAS No. 5), and FASB
Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss.” FSP SFAS
No. 141(R)-1 became effective for Companies as of January 1, 2009. As the
provisions of FSP FAS 141(R)-1 are applied prospectively to business
combinations with an acquisition date on or after the guidance became effective,
the impact to the Company cannot be determined until the transactions occur. No
such transactions occurred during 2009.




In April
2009, the FASB issued FSP FAS No. 107-1 and Accounting Principles Board
(“APB”) 28-1, Interim
Disclosures about Fair Value of Financial Instruments, which amends SFAS
No. 107, Disclosures
about Fair Value of Financial Instruments, (“SFAS No. 107”) and APB
Opinion No. 28, “Interim Financial Reporting,” respectively, to require
disclosures about fair value of financial instruments in interim financial
statements, in addition to the annual financial statements as already required
by SFAS No. 107. FSP FAS 107-1 and APB 28-1 will be required for interim
periods ending after June 15, 2009. As FSP FAS 107-1 and APB 28-1 provide
only disclosure requirements, the application of this standard will not have a
material impact on the Company’s results of operations, cash flows or financial
position.





In May
2009, Statement of Financial Accounting Standards No. 165 – Subsequent Events
was issued.  The objective of this Statement is to establish general
standards of accounting for disclosure of events that occur after the balance
sheet date but before financial statements are issued or are available to be
issued.  In accordance with this Statement, an entity should apply the
requirements to interim or annual financial periods ending after June 15,
2009.  Management intends to adopt this new standard with the filing
of this Quarterly Report on Form 10-Q.  The adoption of this new
standard is expected to impact disclosure and therefore is not expected to have
a material impact on the financial statements of the Company.





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.





Reclassifications





For
comparability, certain June 30, 2008 amounts have been reclassified, where
appropriate, to conform to the financial statement presentation used at June 30,
2009.


11


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009




NOTE
2 — ACCOUNTS AND NOTES RECEIVABLE




Accounts
receivable are recorded when revenue has been recognized but not yet collected.
The Company had net $343,021 of accounts receivable as of June 30, 2009 and
$188,048 as of December 31, 2008.




At June
30, 2009, the Company had advanced funding to three customers under lines of
credit and note agreements aggregating $1,808,717. Advances under the lines of
credit are due to be repaid under the specific payment terms of the
agreements.  The Company charges the customers interest and other
charges as defined in the agreements.   At December 31, 2008, the
Company had advanced funding to two healthcare providers under lines of credit
and note agreements aggregating $1,277,722.





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 December 31, 2008 and June 30, 2009, certain
amounts were in excess of 90 days, therefore, the Company maintained a $200,000
allowance for doubtful accounts that was recorded at December 31, 2008 for
receivables due from one customer.





NOTE
3 — AVAILABLE-FOR-SALE SECURITIES





On June 16, 2008, the Company
restructured one healthcare provider’s notes receivable which were due and
payable to the Company on June 15, 2008.  Notes receivable of $175,000
were paid off and the remaining balance was consolidated into a new promissory
note totaling $395,835 with a new maturity date of September 30,
2009.  As consideration for the changes to the terms of these notes,
among other fees, the Company was given 920,000 shares of the healthcare
provider’s common stock when the stock was valued at $0.69 per share, 1,000,000
shares when the stock was valued at $0.31 per share and 550,000 shares when the
stock was valued at $0.20 per share as quoted on the OTC Bulletin
Board.  These stock receipts were recorded as interest income of
$1,054,800 at December 31, 2008.  At June 30, 2009, the stock price
was $0.06 per share resulting in a $906,600 decrease in the value of the
Available-for-sale securities.  The Company will revalue these
securities on a quarterly basis.  These revaluations will
correspondingly adjust the Accumulated other comprehensive income/loss reported
in the Stockholders’ Deficiency section of the Balance Sheet.  The
Company does not plan to sell these securities within the next twelve months and
has recorded such securities as a long-term asset.




NOTE
4 — PROPERTY AND EQUIPMENT




Property
and equipment consisted of the following:




Estimated Life
                    
                    June
      30,
                      2009
                    
                    
                    December
      31,
                      2008Office
      furniture and equipment
                    5-7
      Years
                    
                    $
                    30,174
                    
                    
                    $
                    30,174Computer
      equipment and software
                    3-5
      Years
                    
                    
                    181,190
                    
                    
                    
                    197,157Total
                    
                    
                    
                    211,364
                    
                    
                    
                    227,331Less:
      accumulated depreciation
                    
                    
                    
                    (180,245
                    )
                    
                    
                    (179,211
                    )Property
      and equipment, net
                    
                    
                    $
                    31,119
                    
                    
                    $
                    48,120




Depreciation
expense for the six months ending June 30, 2009 and 2008 was $17,001 and
$19,909, respectively.   The Company lowered the estimated life
for computer equipment to three years in December 2008.


12


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
5 — NOTES PAYABLE




On
each of October 19, 2006 and November 9, 2006 we received gross proceeds of
$2,500,000 for a total of $5,000,000 in connection with a financing provided by
Gottbetter Capital Master, Ltd. (in liquidation) “Gottbetter”, an unaffiliated
accredited institutional investor.  Pursuant to the terms of a
Securities Purchase Agreement, we issued two senior secured convertible
promissory notes to Gottbetter, each in the original principal amount of
$2,500,000 at an initial conversion price of $2.25 per share (each a ‘‘Senior
Note’’ and collectively, the ‘‘Senior Notes’’), five-year Series D Warrants to
purchase 375,000 shares of our common stock at a price of $2.25 per share
(‘‘Series D Warrants’’) and five-year Series E Warrants, as amended, to purchase
541,666 shares of our common stock at a price of $2.25 per share (‘‘Series E
Warrants’’).




On
November 14, 2008, the Company received $300,000 as part of a potential funding
with Debt Opportunity Fund LLLP (“DOF”). This funding was not consummated and a
portion of the funds escrowed were used in the April 20, 2009 transaction
described below and this $300,000 loan was included in April 20, 2009 Note
described below.




The
Company valued the Notes Payable at their face value and calculated the
beneficial conversion feature of the warrants using Black Scholes in deriving a
discount that is being amortized over the term of the Notes as interest expense
using a straight line method.




On
November 6, 2008, the Company temporarily reduced the conversion price set forth
in the Senior Note issued to Gottbetter on October 19, 2006 (the “October Note”)
from $2.25 per share to $0.303 per share with respect to a one-time conversion
of  $433,334 of Conversion Amount (as defined in the October Note). 
After the conversion price was reduced, Gottbetter converted $433,334 of
Conversion Amount into 1,430,143 shares of Common Stock of the Company. 
The Company recorded a debt conversion expense of $371,265 for the difference
between the original conversion price of $2.25 per share and the one-time
conversion price of $0.303 per share.  In connection with the
reduction in the conversion price of the October Note, both Gottbetter and Vicis
waived all anti-dilution adjustments to which they would have been entitled
under the terms of the securities that they hold as result of the reduction
of the conversion price of the October Note.   The remaining principal
balance of these Notes at June 30, 2009 and December 31, 2008 was $3,316,666
which is convertible to purchase shares of our common stock, at the original
conversion price of $2.25 per share.




On
November 6, 2008, pursuant to a Securities Purchase Agreement by and between
Vicis and Gottbetter, Vicis  purchased from Gottbetter, for a purchase
price of $2,250,000, all of Gottbetter's rights, title and interest in and
to:




(i) that
certain Securities Purchase Agreement, dated as of October 19, 2006, by and
between the Company and Gottbetter pursuant to which the Company issued to
Gottbetter: (A) the Senior Notes, (B) Series D Warrants to purchase an aggregate
of 375,000 shares of Common Stock; and (C) Series E Warrants to purchase an
aggregate of 541,667 shares of Common Stock of the Issuer (the “Series E
Warrants”),




(ii) the
Senior Notes;




(iii)
Series D Warrants to purchase an aggregate of 875,000 shares of Common Stock at
and exercise price of $0.75 per share;


13


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
5 — NOTES PAYABLE (continued)




(iv)
Series E Warrants to purchase an aggregate of 541,667 shares of Common Stock at
and exercise price of $0.75 per share;




(v) the
Security Agreement, dated as of October 19, 2006, by and between the Company and
Gottbetter;




(vi) the
Guaranty Agreement, dated as of October 19, 2006, by and among the Company,
MDwerks Global Holdings, Inc., Xeni Medical Systems, Inc., Xeni Financial
Services, Corp., Xeni Medical Billing Corp. and Gottbetter; and




(vii) the
Registration Rights Agreement, dated as of October 19, 2006, by and between the
Company and Gottbetter.




On April
20, 2009, we, along with our subsidiary Xeni Financial Services, Corp. (“XFS”),
entered into a Loan and Securities Purchase Agreement (the “Loan Agreement”)
with Vicis Capital Master Fund (“Vicis”), dated April 15, 2009 pursuant to which
Vicis loaned the Company $3,200,000, subject to a deduction for an original
issue discount of 2%. The proceeds from the loan from Vicis are being used for
our corporate operations.





The Loan
Agreement amount of  $3,851,375 (the “Vicis Note”) comprised of the
current loan of $3,200,000, and prior advances including the $300,000 loaned to
us by DOF on November 14, 2008, accrued interest, and professional and other
fees of $351,375 relative to prior loans and commitments. The Vicis Note bears
interest at the rate of 13% per annum and is payable monthly, in arrears on the
first day of each month, commencing on October 15, 2009. Principal payments in
the monthly amount of $40,000 commence on October 15, 2009 and, subject to
events of default specified in the Loan Agreement, the entire amount of
principal and accrued but unpaid interest due under the note becomes due and
payable on October 15, 2011.





In
connection with the Loan Agreement and the financing provided under the Loan
Agreement, we, XFS and each of our other subsidiaries, and Vicis entered into
security agreements, dated April 15, 2009, pursuant to which we, XFS and our
other subsidiaries granted a security interest to Vicis in substantially all of
our assets. Each of our subsidiaries (other than XFS) also entered into a
guaranty agreement to guaranty all obligations under the Loan Agreement and
documents entered into in connection with the Loan Agreement.





As
partial consideration for the loan provided by Vicis on April 20, 2009, the
Company adjusted the Series J Warrant held by Vicis to reflect a decrease in the
exercise price to $0.35 per share and a reduction in the number of shares
underlying the Series J Warrant to 493,142 (the “Series J Warrant”) and issued a
ten-year Series K Warrant to purchase 2,550,000 shares of our common stock at a
price of $.35 per share (the “Series K Warrant”).





In
connection with the issuance of the Series K Warrant, we and Vicis entered into
a registration rights agreement, dated April 15, 2009, pursuant to which, among
other things, we granted “piggyback” registration rights to Vicis for the Series
K Warrant.





In
addition, we also entered into an agreement with Vicis pursuant to which Vicis
agreed to defer the principal and interest installment amounts with respect to
the loans in the original aggregate principal amount of $5,000,000, $3,316,666
at June 30, 2009, issued by us in favor of Vicis as assignee of Gottbetter
Capital Master Fund Ltd. Vicis agreed to defer the payment of each installment
amount commencing with the installment due April 1, 2009 and ending with the
installment amount due January 1, 2010.  On January 1, 2010, in
addition to the regular installment amount due on January 1, 2010, we are
required to pay all deferred amounts in full, in one lump sum.


The
promissory notes are as follows:
  June
      30,
                            2009
                          
                          
                          December
      31,
                            2008Notes
      payable
                          
                          $
                          9,151,375
                          
                          
                          $
                          5,300,000Less
      principal repayments
                          
                          
                          (1,550,000
                          )
                          
                          
                          (1,250,000
                          )Less
      issuance of common stock in connection with debt
conversion
                          
                          
                          (433,334
                          )
                          
                          
                          (433,334
                          )Notes
      payable outstanding
                          
                          
                          7,168,041
                          
                          
                          
                          3,616,666Less:
      unamortized discount on notes payable
                          
                          
                          (1,900,207
                          )
                          
                          
                          (2,325,796
                          )Notes
      payable, net
                          
                          
                          5,267,834
                          
                          
                          
                          1,290,870Less
      current portion
                          
                          
                          (386,882
                          )
                          
                          
                          (1,290,870
                          )Notes
      payable, net of discount of $1,900,207 at June 30, 2009 and $2,325,796 at
      December 31, 2008, less current portion
                          
                          $
                          4,880,952
                          
                          
                          $
                          —




NOTE
6 — DIVIDENDS PAYABLE





Each
share of Series B Preferred Stock (as further described in Note 7) is entitled
to cumulative dividends at the annual rate of 8% of the stated value of the
Series B Preferred Stock for the September 28, 2007 and January 18, 2008
financings and 12% of the stated value of the Series B Preferred Stock for the
March 31, 2008 financing.  The stated value of each share of Series B
Preferred Stock is $10,000.  Dividends are payable in cash or
additional shares of Series B Preferred Stock.  Dividends of
$1,548,222 and $948,222 have been accrued as of June 30, 2009 and December 31,
2008, respectively, but are not payable until there are profits, surplus or
other funds available for the payment of such dividends.








14


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
7 — TEMPORARY EQUITY





On
September 28, 2007 we received gross proceeds of $2,000,000 (net proceeds of
$1,691,445 after repayment of a $250,000 31-day August 31, 2007 Convertible
Note, interest and closing expenses) from Vicis.  In connection with
the financing, pursuant to the terms of a Securities Purchase Agreement, we
issued 200 shares of Series B Convertible Preferred Stock (a “Series B Preferred
Stock”), a seven year Series F Warrant to purchase 1,500,000 shares of our
common stock at a price of $2.25 per share and a seven year Series G Warrant to
purchase 1,000,000 shares of our common stock at a price of $2.50 per
share.  As security for our obligations, we, along with our
subsidiaries entered into Security Agreements with the Investor, pursuant to
which we granted a security interest in all of our assets, except for the
accounts receivable and certain contract rights of Xeni Financial, to Vicis. 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 4.23%; volatility of 116% and an expected term of 7
years.





On
December 3, 2007 we received gross proceeds of $575,000 from Vicis and in
connection with the financing, we issued a Convertible Note to Vicis which
bore interest at the rate of 8% per year.  Subject to certain
prepayment provisions, unpaid principal and interest due under the Convertible
Note was due and payable on December 2, 2008.  On March 31, 2008, both
interest and principal on this Note were paid in full as part of the March
Securities Purchase Agreement described below.





On
January 18, 2008, we received net proceeds of $500,000 from Vicis.  In
connection with the financing, we and Vicis entered into a Securities Purchase
Agreement, dated January 18, 2008 (the “January Securities Purchase Agreement”),
pursuant to which we issued 50 shares of Series B Preferred Stock, a seven year
Series F Warrant to purchase 375,000 shares of our common stock at a price of
$2.25 per share and a seven year Series G Warrant to purchase 250,000 shares of
our common stock at a price of $2.50 per share. 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 4.75%; volatility of 118% and an expected term of 7 years.





On March
31, 2008, we received net proceeds of $6,809,794 from Vicis.  In
connection with this $7,500,000 Note Payable to Vicis, we and Vicis entered into
a Securities Purchase Agreement, dated March 31, 2008 (the “March Securities
Purchase Agreement”), pursuant to which we issued 750 shares of Series B
Convertible Preferred Stock, par value $0.001 ( “Series B Preferred Stock”), a
ten year Series H Warrant to purchase 53,333,334 shares of our common stock at a
price of $0.75 per share (the “Series H Warrant”), and pursuant to which Vicis
Surrendered for cancellation all Series F Warrants and all Series G Warrants
held by Vicis, which warrants were exercisable in the aggregate for 3,125,000
shares of our common stock. 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 2.46%; volatility of 117%
and an expected term of 7 years.







15


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
7 — TEMPORARY EQUITY (continued)





The
conversion price is subject to adjustment for stock splits, dividends,
subdivisions, distributions, reorganizations and similar
transactions.  Furthermore, the conversion price is also subject to
adjustment in the event of the issuance of securities for a price below the
conversion price then in effect or the issuance of convertible securities with
an exercise or conversion price that is less than the then current conversion
price for the shares of Series B Preferred Stock.





Since the
redeemable preferred stock contains substantive conversion rights that remain
with the holder until maturity, this preferred stock is required to be recorded
as “temporary equity” according to ASR 268 and Topic No. D-98.





To the
extent that any shares of Series B Preferred Stock remain outstanding on March
31, 2010, each holder thereof shall have the option to either require us to
redeem such holder’s shares of Series B Preferred Stock or convert such holder’s
shares of Series B Preferred Stock into shares of Common Stock at the conversion
price then in effect.  Since the redemption is contingent upon the
holder’s not exercising their option to convert into a fixed number of shares,
the Series B Preferred Stock is classified as temporary equity.





As of
June 30, 2009 and December 31, 2008, there were 1,000 shares of Series B
Preferred Stock issued and outstanding.





The
mandatorily redeemable convertible Series B preferred stock has been recorded as
follows:





June
      30,
                    2009
                  
                  
                  December
      31,
                    2008Mandatorily
      redeemable convertible Series B preferred stock
                  
                  $
                  10,000,000
                  
                  
                  $
                  10,000,000Less:
      unamortized discount on preferred stock
                  
                  
                  (3,568,749
                  )
                  
                  
                  (5,947,917
                  )Mandatorily
      redeemable convertible Series B preferred stock, net
                  
                  $
                  6,431,251
                  
                  
                  $
                  4,052,083





For the
six months ended June 30, 2009 and June 30, 2008, amortization of the debt
discount amounted to $570,246 and $39,893, respectively.  For the
three months ended June 30, 2009 and June 30, 2008 amortization of the debt
discount amounted to $291,150 and ($378,867) respectively.


16


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
8 — STOCKHOLDERS’ EQUITY




Common stock




The
Company is authorized to issue 200,000,000 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, 2009, there are
17,990,208 shares issued and outstanding.





On May
14, 2009, the Company issued 3,600,000 shares, at a price of $0.05 per share, of
unregistered common stock to three employees, three directors and one consultant
in connection with Restricted Stock Agreement awards under the MDwerks, Inc.
(the “Company”) 2005 Incentive Compensation Plan.  All shares were
issued pursuant to the terms and conditions of the Company Restricted Stock
Agreement and all shares of the restricted stock vested
immediately.





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, of which 1,000 shares are designated
Series A Convertible Preferred stock and 1,500 shares are designated Series B
Convertible Preferred stock.




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 set
forth in the Certificate of Designations Designating Series A Convertible
Preferred stock. Between February 1, 2006 and September 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 June 30, 2009, 27.3 shares of Series A Convertible Preferred Stock were
converted into 546,667 shares of common stock leaving one (1) Series A
Convertible Preferred Stock outstanding as of June 30, 2009.





The
Company is authorized to issue 1,500 shares of Series B Convertible Preferred
stock, $0.001 par value with such designations, rights and preferences as set
forth in the Certificate of Designations Designating Series B Convertible
Preferred stock.  On September 28, 2007, 200 shares of Series B
convertible preferred stock were issued with the September Securities Purchase
Agreement.  On January 18, 2008, 50 shares of Series B convertible
preferred stock were issued with the January Securities Purchase
Agreement.  On March 31, 2008, 750 shares of Series B convertible
preferred stock shares were issued with the March Securities Purchase
Agreement.  As of June 30, 2009 and December 31, 2008, there are 1,000
issued and outstanding shares of Series B convertible preferred
stock  (See Note 7).





Common
stock options




A summary
of the status of the Company's outstanding stock options as of June 30, 2009 and
changes during the period ending on that date is as follows:




Shares
                
                
                Weighted
                  Average
                  Exercise
      Price
                
                
                Aggregate
                  Intrinsic
      ValueOutstanding
      at December 31, 2008
                
                
                5,405,080
                
                
                $
                1.82
                
                
                $
                —Granted
                
                
                —
                
                
                
                —
                
                
                
                —Exercised
                
                
                —
                
                
                
                —
                
                
                
                —Forfeited
                
                
                (611,246
                )
                
                
                2.44
                
                
                
                —Outstanding
      at June 30, 2009
                
                
                4,793,834
                
                
                $
                1.74
                
                
                $
                —Options
      exercisable at end of period
                
                
                4,707,167
                
                
                $
                1.76
                
                
                $
                —Weighted-average
      fair value of options granted during the period
                
                
                —


17


MDWERKS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
8 — STOCKHOLDERS’ EQUITY (continued)


Common
stock options (continued)




The
following information applies to options outstanding at June 30,
2009:




Options Outstanding
                        
                        Options ExercisableRange of Exercise Prices
                        
                        Shares
                        
                        Weighted
                          Average
                          Remaining
                          Contractual
                          Life (Years)
                        
                        Weighted
                          Average
                          Exercise Price
                        
                        Shares
                        
                        Weighted
                          Average
                          Exercise Price$0.38
                        
                        483,000
                        
                        8.50
                        
                        $
                        0.38
                        
                        483,000
                        
                        $
                        0.38$0.60
                        
                        113,334
                        
                        8.75
                        
                        $
                        0.60
                        
                        76,667
                        
                        $
                        0.60$0.67
                        
                        75,000
                        
                        8.25
                        
                        $
                        0.67
                        
                        25,000
                        
                        $
                        0.67$0.75
                        
                        1,925,000
                        
                        8.75
                        
                        $
                        0.75
                        
                        1,925,000
                        
                        $
                        0.75$1.39
                        
                        95,000
                        
                        7.50
                        
                        $
                        1.39
                        
                        95,000
                        
                        $
                        1.39$2.25
                        
                        900,000
                        
                        7.25
                        
                        $
                        2.25
                        
                        900,000
                        
                        $
                        2.25$3.25
                        
                        95,000
                        
                        6.50
                        
                        $
                        3.25
                        
                        95,000
                        
                        $
                        3.25$3.40
                        
                        555,000
                        
                        6.50
                        
                        $
                        3.40
                        
                        555,000
                        
                        $
                        3.40$4.00
      - 4.25
                        
                        552,500
                        
                        7.00
                        
                        $
                        4.03
                        
                        552,500
                        
                        $
                        4.034,793,834
                        
                        
                        
                        $
                        1.74
                        
                        4,707,167
                        
                        $
                        1.76




In
connection with previously granted stock options and the issuance of common
stock to certain employees, consultants and directors in May 2009, the Company
recognized stock-based compensation expense of $323,203 for the six months ended
June 30, 2009 and $1,916,722 for the six months ended June 30,
2008.  The Company recognized stock-based compensation expense of
$245,726 for the three months ended June 30, 2009 and $1,535,217 for the three
months ended June 30, 2008.




As of
June 30, 2009, the total future compensation expense related to non-vested
options not yet recognized in the consolidated statement of operations is
approximately $17,000, which will be recognized through September
2010.




Common
stock warrants




A summary
of the status of the Company's outstanding stock warrants granted as of June 30,
2009 and changes during the period is as follows:




Shares
                
                
                Weighted
                  Average
                  Exercise
      PriceOutstanding
      at December 31, 2008
                
                
                57,925,946
                
                
                $
                0.80Granted
                
                
                3,043,142
                
                
                
                0.35Exercised
                
                
                —
                
                
                
                —Forfeited
                
                
                (566,667
                )
                
                
                2.50Outstanding
      at June 30, 2009
                
                
                60,402,421
                
                
                $
                0.75Common
      stock issuable upon exercise of warrants
                
                
                60,402,421
                
                
                $
                0.75


18




MDWERKS, INC. AND
SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
8 — STOCKHOLDERS’ EQUITY (continued)


Common
stock warrants (continued)





Common Stock issuable upon
                    exercise of warrants outstanding
                  
                  Common Stock issuable upon
                    Warrants ExercisableRange of Exercise Price
                  
                  Number
                    Outstanding
                    at
                    June 30, 2009
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Life (Years)
                  
                  Weighted
                    Average
                    Exercise Price
                  
                  Number
                    Exercisable
                    at
                    June 30, 2009
                  
                  Weighted
                    Average
                    Exercise Price$0.35
                  
                  
                  3,043,142
                  
                  9.75
                  
                  $
                  0.35
                  
                  3,043,142
                  
                  $
                  0.35$0.75
                  
                  
                  56,750,001
                  
                  8.50
                  
                  $
                  0.75
                  
                  56,750,001
                  
                  $
                  0.75$1.25
                  
                  
                  199,000
                  
                  1.00
                  
                  $
                  1.25
                  
                  199,000
                  
                  $
                  1.25$1.50
                  
                  
                  56,667
                  
                  2.00
                  
                  $
                  1.50
                  
                  56,667
                  
                  $
                  1.50$2.25
                  
                  
                  111,111
                  
                  0.25
                  
                  $
                  2.25
                  
                  111,111
                  
                  $
                  2.25$3.00
                  
                  
                  12,500
                  
                  0.25
                  
                  $
                  3.00
                  
                  12,500
                  
                  $
                  3.00$3.76
                  
                  
                  225,000
                  
                  0.25
                  
                  $
                  3.76
                  
                  225,000
                  
                  $
                  3.76$4.00
                  
                  
                  5,000
                  
                  0.25
                  
                  $
                  4.00
                  
                  5,000
                  
                  $
                  4.0060,402,421
                  
                  
                  
                  $
                  0.75
                  
                  60,402,421
                  
                  $
                  0.75




During
the quarter ended June 30, 2009, and as partial consideration for the loan
provided by Vicis on April 20, 2009, the Company adjusted the Series J Warrant
held by Vicis to reflect a decrease in the exercise price to $0.35 per share and
a reduction in the number of shares underlying the Series J Warrant to 493,142
(the “Series J Warrant”) and issued a ten-year Series K Warrant to purchase
2,550,000 shares of common stock at a price of $0.35 per share (the “Series K
Warrant”).





NOTE
9 - RESTATEMENT





The
Company has effected a restatement of its financial results for the period ended
June 30, 2008 (the “Restatement”).  After reviewing certain accounting
principles the Company had applied in previously issued financial statements,
management determined that the Company’s accounting for Mandatorily Redeemable
Convertible Series B Preferred Stock should have been recorded as Temporary
Equity and not Debt and that previously issued Mandatorily Redeemable
Convertible Series B Preferred Stock should not have been recorded as an
extinguishment of debt when new Mandatorily Redeemable Convertible Series B
Preferred Stock was issued on March 31, 2008. Consequently, management is
restating its quarterly financial statements for the three and six months ending
June 30, 2008. For the three months ended June 30, 2008, these changes decreased
net loss by $1,550,000 due to a decrease in interest expense. For the six months
ended June 30, 2008, these changes decreased net loss by $2,444,204 due to a
decrease in interest expense of $1,784,082 and due to the elimination of the
loss on extinguishment of debt of $660,122.  These changes also
decreased accrued expenses $348,222, increased dividends payable $1,796,830,
increased temporary equity $422,915 and decreased stockholder’s equity
$1,871,525.  These changes in presentation of the Company’s
Mandatorily Redeemable Convertible Series B Preferred Stock did not impact the
cash balance at the end of the period.


19




MDWERKS, INC. AND
SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009





NOTE
10 — COMMITMENTS




Lease
agreements




On
February 1, 2008, the Company was assigned a master lease on its facility and a
5-year lease option was exercised which extends the master lease until July
2013.  Rent expense for the six months ended June 30, 2009 and June
30, 2008 was $37,444 and $50,780, respectively.





Future
minimum operating lease commitments as of June 30, 2009 are as
follows:





Year Ending
                    December 31
                  
                  Amount2009
                  
                  
                  24,4372010
                  
                  
                  50,2912011
                  
                  
                  52,8052012
                  
                  
                  55,4462013
                  
                  
                  33,267$
                  216,246




NOTE
11 – SUBSEQUENT EVENTS
  On August
11, 2009, the Company received Shad Stastney’s resignation, effective August 6,
2009, as Director of MDwerks, Inc., a position he has held since April 24,
2008.  There were no disagreements with the registrant on any matter
relating to the registrant’s operations, policies, or
practices.


20


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.




Overview




During
2008, we shifted our focus from the electronic medical claims processing,
funding and collection solutions and began focusing our efforts on purchasing
leases and directly sellling digital medical equipment and services that provide
a lower cost solution to physicians for converting medical records to a digital
format as well as being able to create EMR with original intake
forms.  The Company will also begin selling the digital medical
equipment leases directly to the healthcare facilities as part of our licensing
arrangement with the outside vendor that we are currently purchasing the leases
from.  To date we have not sold any digital medical equipment; however
since December 2008, we have financed six leases of such equipment and expect to
derive approximately $410,000 in revenue from such financing activities over 36
to 48 month periods.  The digital pen and associated services can
improve billing time and accuracy and allows for substantial savings on paper
and record storage versus traditional EMR.





We also
can provide term loans and purchase medical equipment to improve our client’s
cash flows and to finance certain leases.





Through
March 31, 2009, all of our revenue was derived from our prior line of business,
the electronic medical claims processing, funding and collection solution
business.  This part of our business was not deemed viable any longer
and was closed down on February 27, 2009.





Our
present operations will continue to be subject to risks inherent in the
establishing and acquiring of new businesses, 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 revenue 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.


21


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,
revenue 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
collectibility is reasonably assured. We have identified the policy below as
critical to our business operations and understanding of our financial
results:




Through
February 2009, the Company, through its subsidiaries, provided advance funding
for medical claims and term loan services to unaffiliated healthcare providers
that were customers of the Company. The customer advances were typically
collateralized by Security Agreements granting first position liens on the
medical claims submitted by its customers to third party payers (the
‘‘Payers’’). The advances were repaid through the remittance of payments of
customer medical claims, by Payers, directly to the Company. The Company could
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
were recognized as revenue when earned. There was no right of cancellation or
refund provisions in these arrangements and the Company had no further
obligations once the services are rendered.





The
Company, through its subsidiaries, also provided notes and claims purchasing for
medical claims to unaffiliated healthcare providers that are customers of the
Company. The customer advances were repaid through the remittance of payments of
customer medical claims, by Payers.  The Company could charge
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 were recognized as
revenue when earned. Under certain circumstances, there are warranties and
refund provisions in these arrangements and the agreements are non-cancellable
without our consent.





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





The
Company, through its subsidiaries, now provides purchasing medical equipment and
software leases from an unaffiliated healthcare customer. The customer assigns
the rights to these leases and the Company is repaid directly from the monthly
lease payments from the lessees.  The Company can receive interest, an
administrative fee and other charges. These interest charges, administrative
fees and other charges are recognized as revenue when earned. There is currently
no right of cancellation or refund provisions in these arrangements and the
Company currently has no further obligations once the services are
rendered.  The underlying equipment contains a warranty from the
manufacturer.


22


Results
of Operations





For the Six
Months Ended June 30, 2009 Versus the Six Months Ended June 30,
2008




Revenue




For the
six months ended June 30, 2009, we recorded total revenue of
$272,983.  Of this total, we recorded service fee revenue of $82,924,
accounting for 30.4% of total revenue, and financing income of $190,059,
accounting for 69.6% of total revenue.  For the six months ended June
30, 2008, we recorded total revenue of $465,710. Of this total, we recorded
service fee revenue of $310,450, accounting for 66.7% of total revenue,
financing income of $131,563, accounting for 28.2% of total revenue, and claims
purchase revenue of $23,697, accounting for 5.1% of total
revenue.   The decrease in revenue from 2008 resulted primarily
from the closing down of our advance funding and claims processing, billing and
collecting business.




Operating
Expenses





For the
six months ended June 30, 2009, total operating expenses were $2,231,435 as
compared to $4,567,690 for the six months ended June 30, 2008, a net decrease of
$2,336,255 or 51.1%. Included in this net decrease for the six months ended June
30, 2009 is the following:




1.
            We recorded compensation expense
      of $964,349 as compared to $3,310,994 for the six months ended June 30,
      2008. This $2,346,645 or 70.9% decrease was primarily attributable to
      amortization of stock options of $241,954 and executive bonuses of $92,500
      paid during the six months ended June 30, 2009 versus amortization of
      stock options of $1,916,722 and executive bonuses of $394,381 during the
      six months ended June 30, 2008 and to lower salaries due to fewer
      employees needed for the digital pen business;
  and





2.
            Consulting expense amounted to
      $379,488 as compared to $138,719 for the six months ended June 30, 2008,
      an increase of $240,769, or 173.6%. This increase resulted from the
      addition of outside business development consultants;
      and





3.
            Professional fees amounted to
      $351,596 as compared to $329,951 for the six months ended June 30, 2008,
      an increase of $21,645, or 6.6%. This increase was attributable to
      amortization of deferred offering costs and legal fees related to SEC
      filings and general corporate matters;
  and





4.
            Selling, general and
      administrative expenses were $536,002 as compared to $788,026 for the six
      months ended June 30, 2008, a decrease of $252,024, or 32.0%. This
      decrease resulted from lower bad debt expense and lower salaries, employee
      benefits and payroll taxes for the six months ended June 30, 2009 as
      compared to the six months ended June 30,
  2008.




For the
six months ended June 30, 2009 and 2008, selling, general and administrative
expenses consisted of the following:




June
      30,
                  2009
                
                
                June
      30,
                  2008Employee
      benefits and payroll taxes
                
                $
                169,707
                
                
                $
                232,770Information
      technology
                
                
                66,331
                
                
                
                81,662Occupancy
      and office expenses
                
                
                79,788
                
                
                
                113,575Other
      selling, general and administrative
                
                
                220,176
                
                
                
                360,019$
                536,002
                
                
                $
                788,026




Other
Income (Expenses)




For the
six months ended June 30, 2009, interest income was $37,373 as compared to
$658,030 for the six months ended June 30, 2008, a decrease of $620,657. This
decrease was principally due to the restructuring of notes receivable during the
six months ended June 30, 2008.




For the
six months ended June 30, 2009, interest expense was $909,939 as compared to
$880,877 for the six months ended June 30, 2008, an increase of $29,062. This
increase was primarily due to higher non-cash interest amortization of debt
discount in connection with our notes payable.


23


Net
Loss





We
reported a net loss of $2,831,018 for the six months ended June 30, 2009 as
compared to a net loss of $4,324,338 for the six months ended June 30,
2008.





Deemed
Preferred Stock Dividend





During
the six months ended June 30, 2009 and 2008, we recorded $2,979,168 and
$1,796,830, respectively for a deemed preferred stock dividend arising from a
beneficial conversion feature for warrants attached to Series B Convertible
Preferred Stock issued and from dividends accrued on the Series B Convertible
Preferred Stock.  Dividends are payable in cash or additional shares
of Series B Preferred Stock and are not payable until there are profits, surplus
or other funds available for the payment of such dividends.





Net
Loss Attributable to Common Shareholders





We
reported a net loss attributable to common shareholders of $5,810,186, or $0.38
per common share for the six months ended June 30, 2009 as compared to net loss
attributable to common shareholders of $6,121,168, or $0.47 per common share for
the six months ended June 30, 2008.





For
the Three Months Ended June 30, 2009 Versus the Three Months Ended June 30,
2008




Revenue




For the
three months ended June 30, 2009, we recorded total revenue of $111,340. Of this
total, we recorded service fee revenue of $3,980, accounting for 3.6% of total
revenue, and financing income of $107,360, accounting for 96.4% of total
revenue.  For the three months ended June 30, 2008, we recorded total
revenue of $262,249. Of this total, we recorded service fee revenue of $148,208,
accounting for 56.5% of total revenue, financing income of $90,344, accounting
for 34.4% of total revenue, and claims purchase revenue of $23,697, accounting
for 9.1% of total revenue.   The decrease in revenue from 2008
resulted primarily from the closing down of our advance funding and claims
processing, billing and collecting business.





Operating
Expenses





For the
three months ended June 30, 2009, total operating expenses were $1,139,008 as
compared to $3,144,529 for the three months ended June 30, 2008, a net decrease
of $2,005,521 or 63.8%. Included in this net decrease for the three months ended
June 30, 2009 is the following:




1.
            We recorded compensation expense
      of $421,565 as compared to $2,408,892 for the three months ended June 30,
      2008. This $1,987,327 or 82.5% decrease was primarily attributable to
      amortization of stock options of $164,483 and executive bonuses of $78,750
      paid during the three months ended June 30, 2009 versus amortization of
      stock option of $1,535,217 and executive bonuses of $339,381 during the
      three months ended June 30, 2008 and lower salaries due to fewer employees
      needed for the digital pen business;
and





2.
            Consulting expense amounted to
      $284,463 as compared to $73,238 for the three months ended June 30, 2008,
      an increase of $211,225 or 288.4%. This increase resulted from the
      addition of outside business development consultants;
      and





3.
            Professional fees amounted to
      $220,639 as compared to $165,263 for the three months ended June 30, 2008,
      an increase of $55,376, or 33.5%. This expense was attributable to an
      increase in amortization of deferred offering costs and legal fees related
      to SEC filings and general corporate matters;
  and





4.
            Selling, general and
      administrative expenses were $212,341 as compared to $497,136 for the
      three months ended June 30, 2008, a decrease of $284,795, or 57.3%. This
      decrease resulted from lower bad debt expense, lower information
      technology expenses, and lower salaries, employee benefits and payroll
      taxes for the three months ended June 30, 2009 as compared to the three
      months ended June 30,
2008.


24


For the
three months ended June 30, 2009 and 2008, selling, general and administrative
expenses consisted of the following:




June
      30,
                  2009
                
                
                June
      30,
                  2008Employee
      benefits and payroll taxes
                
                
                53,414
                
                
                
                121,145Information
      technology
                
                
                9,953
                
                
                
                75,402Occupancy
      and office expenses
                
                
                38,513
                
                
                
                66,866Other
      selling, general and administrative
                
                
                110,461
                
                
                
                233,723$
                212,341
                
                
                $
                497,136




Other
Income (Expenses)




For the
three months ended June 30, 2009, interest income was $13,110 as compared to
$656,106 for the three months ended June 30, 2008, a decrease of $642,996. This
decrease was principally due to restructuring of notes receivable during the
three months ended June 30, 2008.




For the
three months ended June 30, 2009, interest expense was $534,863 as compared to
$348,320 for the three months ended June 30, 2008, an increase of $186,543. This
increase was primarily due to lower non-cash interest amortization of debt
discount in connection with our notes payable.





Net
Loss





We
reported a net loss of $1,549,421 for the three months ended June 30, 2009 as
compared to a net loss of $2,574,154 for the three months ended June 30,
2008.





Deemed
Preferred Stock Dividend





During
the three months ended June 30, 2009 and 2008, we recorded $1,489,584,
respectively for a deemed preferred stock dividend arising from a beneficial
conversion feature for warrants attached to Series B Convertible Preferred Stock
issued and from dividends accrued on the Series B Convertible Preferred
Stock.  Dividends are payable in cash or additional shares of Series B
Preferred Stock and are not payable until there are profits, surplus or other
funds available for the payment of such dividends.





Net
Loss Attributable to Common Shareholders





We
reported a net loss attributable to common shareholders of $3,039,005, or $0.19
per common share for the three months ended June 30, 2009 as compared to net
loss attributable to common shareholders of $4,063,738, or $0.31 per common
share for the three months ended June 30, 2008.





Liquidity
and Capital Resources




Historically
we used the proceeds from the sales of preferred stock through June 30, 2009 and
proceeds from notes and loans payable for working capital purposes and to fund
our gross notes, accounts and leases receivable of $2,603,560 owed to us at June
30, 2009. We will continue to advance funds under note agreements to providers
that subscribe to our financial services lending solutions.





On April
20, 2009, we, along with our subsidiary Xeni Financial Services, Corp. (“XFS”),
entered into a Loan and Securities Purchase Agreement (the “Loan Agreement”)
with Vicis Capital Master Fund (“Vicis”), dated April 15, 2009 pursuant to which
Vicis loaned the Company $3,200,000, less a deduction for an original issue
discount of 2%. The proceeds from the loan from Vicis are being used for our
corporate operations.





The Loan
Agreement amount of of $3,851,375 (the “Vicis Note”) comprised of the current
loan of $3,200,000, and prior advances including the $300,000 loaned to us by
DOF on November 14, 2008, accrued interest, and professional and other fees of
$351,375 relative to prior loans and commitments. The Vicis Note bears interest
at the rate of 13% per annum and is payable monthly, in arrears on the first day
of each month, commencing on October 15, 2009. Principal payments in the monthly
amount of $40,000 commence on October 15, 2009 and, subject to events of default
specified in the Loan Agreement, the entire amount of principal and accrued but
unpaid interest due under the note becomes due and payable on October 15,
2011.





We
believe we have sufficient funds and prospective business activity to conduct
our business and operations as they are currently undertaken for remainder of
2009.   We currently have no material commitments for capital
expenditures.


25


Cash
flows




At June
30, 2009, we had cash of $1,629,842.  On April 21, 2009, we received
cash of approximately $3,100,000, in connection with a loan from
Vicis.  The cash proceeds are being used for our corporate
operations.




Net cash
used in operating activities was $2,230,439 for the six months ended June 30,
2009 as compared to $2,481,385 for the six months ended June 30, 2008, an
decrease of $250,946. This decrease is primarily attributable to a decrease in
the net loss and the following:




1.
            Gottbetter and Vicis debt
      offering costs of $207,011 and debt discount costs of $570,246, as
      compared to debt related costs during the six months ended June 30, 2008
      of $169,154;





2.
            Stock-based compensation of
      $323,203 versus stock-based compensation expense of $1,916,722 for the six
      months ended June 30, 2008;





3.
            A net increase in notes
      receivable, accounts receivable, leases receivable, and prepaid expenses
      aggregating $796,947 principally related to the increases in notes
      receivables, as compared to a net increase of  $156,034 for the
      six months ended June 30,
2008;





4.
            A net increase in accounts
      payable, accrued expenses, and deferred revenue related to an increase in
      operating activities aggregating $282,010, as compared to a decrease of
      $228,966 for the six months ended June 30,
  2008.




Net cash
used in investing activities was $500,000, as compared to $3,010,276 for the six
months ended June 30, 2008.  For the six months ended June 30, 2008,
$500,000 was invested in certificates of deposit compared to $3,000,000 for the
six months ended June 30, 2008.





Net cash
provided by financing activities was $3,136,474 for the six months ended June
30, 2009 as compared to net cash provided by financing activities of $6,424,126
for the six months ended June 30, 2009.  During the six months
ended  June 30, 2009, proceeds  of $3,851,375 was received
from a new Note, offset by note repayments of a previous $300,000 note loaned to
us by DOF and note placement and other note related costs totaling
$414,901.  During the six months ended June 30, 2008 proceeds of
$8,000,000 was received from the sale of Series B Preferred Stock, offset by
repayments of notes and loans payable totaling $1,379,004 and note placement and
other note related costs totaling $196,870.




Off
Balance Sheet Arrangements




We had no
off balance sheet arrangements as of June 30, 2009.


26




ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





Not applicable





ITEM 4. CONTROLS AND
PROCEDURES




(a)
            Evaluation of
      Disclosure Controls and
Procedures




The Company has established
disclosure controls and procedures to ensure that material information relating
to the Company, including its consolidated subsidiaries, is made known on a
timely basis to the officers who certify its financial reports and to other
members of senior management and the Company’s board of directors. Based on
their evaluation as of June 30, 2009, the principal executive officer and
principal financial officer of the Company have concluded that the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective to ensure that the
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms.




(b) 
 Changes in
Internal Control over Financial Reporting




There were no changes to internal
controls over financial reporting that occurred during the three months ended
June 30, 2009, that have materially affected, or are reasonably likely to
materially impact our internal controls over financial
reporting.


27


PART
II — OTHER INFORMATION




Item
1 — Legal Proceedings




The
Company has initiated litigation with Watertower Surgicenter, LLC filed in the
US District Court, Southern District of Florida and Mobile Diagnostic Imaging,
Inc. in the Circuit Court of the 17th Judicial Circuit, Broward County, Florida
to recuperate amounts loaned and not repaid.  The impact of the final
resolution of this matter on our results of operations in a particular reporting
period is not known.  However, we believe that the ultimate outcome of this
matter will not have a material adverse effect on our financial condition
or liquidity.





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




On April
20, 2009 we issued a Senior Secured Promissory Note in the original principal
amount of $3,851,375 and a ten year Series K warrant to purchase 2,550,000
shares of our common stock at a price of $.35 per share to Vicis Capital Master
Fund.  None of the Note, the Warrant, or the shares of our common
stock underlying the Warrant 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) under the Securities Act of
1933 and corresponding provisions of state securities laws, which exempts
transactions by an issuer not involving any public offering. The offering was
not a public offering as defined in Section 4 (2) of the Securities Act of 1933
because the offer and sale was made to an insubstantial number of persons and
because of the manner of the offering. We made this determination based on the
representations of Vicis, which included, in pertinent part, that Vicis is an
“accredited investor” under the Securities Act of 1933, and that Vicis had the
necessary investment intent since it  represented that it was
acquiring the securities for investment purposes for its own account and not as
nominee or agent, and not with a view to the resale or distribution, that Vicis
understood such securities may not be sold or otherwise disposed of without
registration under the Securities Act or an applicable exemption therefrom and
Vicis agreed to and received securities bearing a legend stating that such
securities are restricted.   This offering was done with no general
solicitation or advertising by us.  Based on an analysis of the above
factors, we have met the requirements to qualify for exemption under Section
4(2) of the Securities Act of 1933.





Item
3 — Defaults Upon Senior Securities




None.




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




On June
1, 2009, MDwerks, Inc. (the “Company”) held the Annual Meeting of the
Stockholders of the Company (the “Annual Meeting”) for all
stockholders of record as of May 1, 2009. At the Annual Meeting,
stockholders representing 20,038,425 shares or 72.28% of 14,390,208 shares of
Common Stock and 1,000 shares of Series B Convertible Preferred Stock entitled
to vote as 13,333,334 shares of Common stock, constituted a quorum and a
majority of all outstanding shares voted their shares approving the
following:





The
stockholders present at the Annual Meeting voted 15,045,302 shares for,
4,642,259 shares against, and 350,864 shares abstained approving an amendment to
increase the number of shares in the Company’s 2005 Incentive Compensation
Plan.





The
stockholders present at the Annual Meeting voted 20,038,425 shares for, 0 shares
against, and 0 shares abstained and approving the change of the corporation’s
name from MDwerks, Inc, to a new name more appropriate for the current business
of the Corporation.




The
stockholders present at the Annual Meeting voted 20,038,425 shares for, 0 shares
against, and 0 shares abstained and approving the  election of the
following people to continue to serve on the Board of Directors of the Company
and on the committees designated next to their name:





David M.
Barnes, Chairman of the Board of Directors


Peter
Dunne, Director and Compensation Committee Member


Paul
Kushner, Director and Audit Committee Member


Shad
Stastney, Director


Chris
Phillips, Director


Sheldon
Steiner, Director, Audit Committee Chairman and Compensation Committee
Chairman





The
stockholders present at the Annual Meeting voted 15,396,166 shares for, 0 shares
against, and 4,642,259 shares abstained ratifying the appointment of Sherb &
Co., LLP as the independent registered public accounting firm for the Company
for the fiscal year ended December 31, 2009 and for the 2010 quarterly SEC
reports.


28


PART
II — OTHER INFORMATION (continued)





Item 5 — Other
Information




On August
11, 2009, the Company received Shad Stastney’s resignation, effective August 6,
2009, as Director of MDwerks, Inc., a position he has held since April 24,
2008.  There were no disagreements with the registrant on any matter
relating to the registrant’s operations, policies, or practices.


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


29


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
      14, 2009
              
              /s/ David M. BarnesDavid
      M. BarnesChief
      Executive OfficerAugust
      14, 2009
              
              /s/ Adam FriedmanAdam
      FriedmanChief
      Financial Officer