**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 September 30, 2008
  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 is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting
        company.
 Large
                  accelerated filero
              
              Accelerated
                  fileroNon-accelerated
                  filero
              
              Smaller
                  reporting companyx
 
 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: 14,370,208 shares at November 11,
        2008
  Transitional
        Small Business Disclosure Format (Check one): Yes o No x
  
 
  **MDWERKS,
        INC.**
 **FORM
        10-Q**
 **FOR
        THE PERIOD ENDED SEPTEMBER 30, 2008**
  **INDEX**
  **Page****PART
                  I - FINANCIAL INFORMATION**Item
                  1 - Consolidated Financial StatementsConsolidated
                  Balance Sheets As of September 30, 2008 (Unaudited) and December
                  31,
                  2007
              3Consolidated
                  Statements of Operations (Unaudited) For the Three and Nine months
                  Ended
                  September 30, 2008 and 2007
              4Consolidated
                  Statements of Cash Flows (Unaudited) For the Nine months Ended
                  September
                  30, 2008 and 2007
              5Notes
                  to Unaudited Consolidated Financial Statements
              6-21Item
                  2 - Management's Discussion and Analysis of Financial Condition and
                  Results of Operations
              22-27Item
                  3 - Quantitative and Qualitative Disclosures About Market
                  Risk
              28Item
                  4 - Controls and Procedures
              28**PART
                  II - OTHER INFORMATION**Item
                  1 - Legal Proceedings
              29Item
                  2 - Unregistered Sales of Equity Securities and Use of
                  Proceeds
              29Item
                  3 - Defaults Upon Senior Securities
              29Item
                  4 - Submission of Matters to a Vote of Security Holders
              29Item
                  5 - Other Information
              29Item
                  6 - Exhibits
              29
  2
 
 **MDWERKS,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
  **September 30,**
                **2008**
                **(Unaudited)**
              
              **December 31,**
                **2007 (1)****ASSETS**Current
                  assets:Cash
              
              $
              664,605
              
              $
              320,903Certificates
                  of deposit
              
              
              2,000,000
              
              
              —Notes
                  receivable
              
              
              1,466,977
              
              
              1,652,079Accounts
                  receivable, net of allowances of $100,000 at September 30, 2008
                  and 0 at
                  December 31, 2007
              
              
              741,887
              
              
              66,985Prepaid
                  expenses and other
              
              
              202,816
              
              
              215,073Total
                  current assets
              
              
              5,076,285
              
              
              2,255,040Long-term
                  assets:Available-for-sale
                  securities, at fair market value
              
              
              358,150
              
              
              —Property
                  and equipment, net of accumulated depreciation of $123,765 for
                  September
                  30, 2008 and $92,995 for December 31, 2007
              
              
              103,566
              
              
              115,902Debt
                  issuance and offering costs, net of accumulated amortization of
                  $458,821
                  for September 30, 2008 and $273,997 for December 31, 2007
              
              
              412,270
              
              
              400,246Total
                  assets
              
              $
              5,950,271
              
              $
              2,771,188**LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIENCY)**Current
                  liabilities:Notes
                  payable, net
              
              $
              1,500,202
              
              $
              2,942,842Mandatorily
                  Redeemable Convertible Series B Preferred Stock, $.001 par value,
                  1,250
                  shares authorized;1,000 shares issued and outstanding at September
                  30,
                  2008 and 250 shares authorized; 200 shares issued and outstanding
                  at
                  December 31, 2007, net
              
              
              2,500,000
              
              
              1,346,326Loans
                  payable
              
              
              —
              
              
              109,559Accounts
                  payable
              
              
              308,449
              
              
              351,482Accrued
                  expenses
              
              
              1,287,641
              
              
              686,917Deferred
                  revenue
              
              
              4,437
              
              
              11,296Total
                  current liabilities
              
              
              5,600,729
              
              
              5,448,422Long-term
                  liabilities:Notes
                  payable, net of discount of $2,566,395 at December 31, 2007, less
                  current
                  portion
              
              
              —
              
              
              65,763Deferred
                  revenue, less current portion
              
              
              —
              
              
              1,613Total
                  liabilities
              
              
              5,600,729
              
              
              5,515,798Stockholders'
                  equity (deficiency):Preferred
                  stock, $.001 par value, 10,000,000 shares authorized;
                no
                  shares issued and outstanding
              
              
              —
              
              
              —Series
                  A preferred stock, $.001 par value, 1,000 shares authorized;
                2
                  shares issued and outstanding at September 30, 2008 and December
                  31,
                  2007
              
              
              —
              
              
              —Common
                  stock, $.001 par value, 100,000,000 shares authorized;
                12,940,065
                  shares issued and outstanding
              
              
              12,940
              
              
              12,940Additional
                  paid-in capital
              
              
              46,897,544
              
              
              33,732,690Accumulated
                  deficit
              
              
              (45,864,292
              )
              
              (36,490,240
              )Accumulated
                  other comprehensive income(loss)
              
              
              (696,650
              )
              
              —Total
                  stockholders' equity (deficiency)
              
              
              349,542
              
              
              (2,744,610
              )Total
                  liabilities and stockholders' equity (deficiency)
              
              $
              5,950,271
              
              $
              2,771,188
 
 (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 September 30,**
                
                **For the Nine months**
                  **Ended September 30,****2008**
                
                **2007**
                
                **2008**
                
                **2007****(Unaudited)**
                
                **(Unaudited)**
                
                **(Unaudited)**
                
                **(Unaudited)**Revenue:Service
                    fees
                
                $
                109,762
                
                $
                119,820
                
                $
                420,212
                
                $
                356,540Financing
                    income
                
                
                63,901
                
                
                16,753
                
                
                195,464
                
                
                46,693Claims
                    purchase revenue
                
                
                62,987
                
                
                —
                
                
                86,684
                
                
                —Total
                    revenue
                
                
                236,650
                
                
                136,573
                
                
                702,360
                
                
                403,233Operating
                    expenses:Compensation
                
                
                833,555
                
                
                1,229,568
                
                
                4,144,549
                
                
                4,073,320Consulting
                    expenses
                
                
                29,630
                
                
                158,360
                
                
                168,349
                
                
                562,798Professional
                    fees
                
                
                162,950
                
                
                74,215
                
                
                492,901
                
                
                299,901Selling,
                    general and administrative
                
                
                343,788
                
                
                372,161
                
                
                1,131,814
                
                
                1,260,775Total
                    operating expenses
                
                
                1,369,923
                
                
                1,834,304
                
                
                5,937,613
                
                
                6,196,794Loss
                    from operations
                
                
                (1,133,273
                )
                
                (1,697,731
                )
                
                (5,235,253
                )
                
                (5,793,561
                )Other
                    income (expense):Interest
                    income
                
                
                425,901
                
                
                13,492
                
                
                1,083,931
                
                
                60,201Interest
                    expense
                
                
                (1,898,138
                )
                
                (500,601
                )
                
                (4,563,097
                )
                
                (1,526,737
                )Loss
                    on extinguishment of debt
                
                
                —
                
                
                —
                
                
                (660,122
                )
                
                —Other
                    income
                
                
                —
                
                
                —
                
                
                489
                
                
                165Total
                    other income (expense)
                
                
                (1,472,237
                )
                
                (487,109
                )
                
                (4,138,799
                )
                
                (1,466,371
                )Net
                    loss
                
                $
                (2,605,510
                )
                $
                (2,184,840
                )
                $
                (9,374,052
                )
                $
                (7,259,932
                )NET
                    LOSS PER COMMON SHARE - basic and diluted (1)
                
                $
                (0.20
                )
                $
                (0.17
                )
                $
                (0.72
                )
                $
                (0.57
                )WEIGHTED-AVERAGE
                    COMMON SHARES OUTSTANDING – basic and diluted
                
                
                12,940,065
                
                
                12,907,674
                
                
                12,940,065
                
                
                12,726,732
 
 (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 Nine months**
                  **Ended
                    September 30,****2008**
                
                **2007****(Unaudited)**
                
                **(Unaudited)**Cash
                    flows from operating activities:Net
                    loss
                
                $
                (9,374,052
                )
                $
                (7,259,932
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                
                
                30,770
                
                
                34,168Amortization
                    of debt issuance cost
                
                
                —
                
                
                10,954Amortization
                    of debt discount
                
                
                4,276,609
                
                
                1,208,594Amortization
                    of deferred offering costs
                
                
                184,824
                
                
                133,500Amortization
                    of deferred compensation
                
                
                22,168
                
                
                199,530Bad
                    debts
                
                
                100,000
                
                
                —Stock-based
                    compensation
                
                
                2,197,482
                
                
                2,506,281Common
                    stock issued for services
                
                
                —
                
                
                150,000Changes
                    in assets and liabilities:Notes
                    receivable
                
                
                (869,698
                )
                
                (536,856
                )Accounts
                    receivable
                
                
                (774,902
                )
                
                (26,465
                )Prepaid
                    expenses and other
                
                
                12,257
                
                
                25,780Accounts
                    payable
                
                
                (43,033
                )
                
                193,647Accrued
                    expenses
                
                
                600,724
                
                
                89,536Deferred
                    revenue
                
                
                (8,472
                )
                
                (38,726
                )Total
                    adjustments
                
                
                5,728,729
                
                
                3,949,943Net
                    cash used in operating activities
                
                
                (3,645,323
                )
                
                (3,309,989
                )Cash
                    flows from investing activities:Purchase
                    of certificates of deposit
                
                
                (2,000,000
                )
                
                —Purchase
                    of property and equipment
                
                
                (18,434
                )
                
                (5,209
                )Net
                    cash used in investing activities
                
                
                (2,018,434
                )
                
                (5,209
                )Cash
                    flows from financing activities:Proceeds
                    from notes payable
                
                
                —
                
                
                250,000Proceeds
                    from loans payable
                
                
                —
                
                
                250,000Repayment
                    of notes payable
                
                
                (1,686,112
                )
                
                (444,698
                )Repayment
                    of loan payable
                
                
                (109,559
                )
                
                (2,916
                )Proceeds
                    from sale of Mandatorily Redeemable Series B preferred
                    stock
                
                
                8,000,000
                
                
                2,000,000Placement
                    fees and other expenses paid
                
                
                (196,870
                )
                
                (112,918
                )Net
                    cash provided by financing activities
                
                
                6,007,459
                
                
                1,939,468Net
                    increase (decrease) in cash
                
                
                343,702
                
                
                (1,375,730
                )Cash
                    - beginning of period
                
                
                320,903
                
                
                3,146,841Cash
                    - end of period
                
                $
                664,605
                
                $
                1,771,111Supplemental
                    disclosure of cash flow information:Cash
                    paid for:Interest
                
                $
                300,285
                
                $
                251,595
  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**
 **SEPTEMBER
        30, 2008**
  **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 three operating subsidiaries; Xeni Medical Systems, Inc. ("Xeni
        Medical"), Xeni Financial Services, Corp. ("Xeni Financial"), and Xeni Medical
        Billing, Corp. ("Xeni Billing"). Xeni Medical which was incorporated under
        the
        laws of the state of Delaware on July 21, 2004, provides a Web-based package
        of
        electronic claims solutions to the healthcare provider industry through Internet
        access to it’s ‘‘MDwerks’’ suite of proprietary products and services so that
        healthcare providers can significantly improve daily insurance claims
        transaction processing, administration and management. Xeni Financial, which
        was
        incorporated under the laws of the state of Florida on February 3, 2005,
        offers
        financing, advances and claims purchasing to health care providers secured
        by
        claims processed through the MDwerks system. Xeni Billing, which was
        incorporated under the laws of the state of Florida on March 2, 2005, offers
        health care providers billing services facilitated through the MDwerks system.
        Patient Payment Solutions, Inc. (“PPS”), which was incorporated under the laws
        of the state of Florida on May 30, 2007, is a dormant entity.
  **Going
        concern**
  The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. The Company has suffered losses
        that raise substantial doubt about its ability to continue as a going concern.
        While the Company is attempting to attain revenue growth and profitability,
        the
        growth has not been significant enough to support the Company’s daily
        operations. Management 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 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 Note 5,
        provide
        the opportunity for the Company to continue as a going concern.
  The
        Company raised $8 million in gross proceeds in the first quarter of 2008
        through
        the sale of Mandatorily Redeemable Series B Convertible Preferred Stock.
        As
        reflected in the accompanying consolidated financial statements, the Company
        has
        stockholders’ equity of $349,542 and a working capital deficiency of $524,444 at
        September 30, 2008. See Note 9.
  **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-B. Accordingly, the financial statements do not include
        all of the information and footnotes required by generally accepted accounting
        principles for complete financial statements. In the opinion of management,
        all
        adjustments considered necessary for a fair presentation have been included
        and
        such adjustments are of a normal recurring nature. These consolidated financial
        statements should be read in conjunction with the consolidated financial
        statements for the year ended December 31, 2007 and notes thereto and other
        pertinent information contained in the Form 10-K of the Company for the year
        ended December 31, 2007 as filed with the Securities and Exchange Commission
        (the ‘‘Commission’’). The results of operations for the three and nine months
        ended September 30, 2008 are not necessarily indicative of what the results
        will
        be for the full fiscal year ending December 31, 2008.
  6
 
 **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
 
 **NOTE
        1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (continued)**
  **Use
        of estimates**
  The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect certain reported amounts and disclosures. Accordingly, actual results
        could differ from those estimates.
  **Fair
        value of financial instruments**
  Statement
        of Financial Accounting Standards No. 107, ‘‘Disclosures about Fair Value of
        Financial Instruments,’’ requires disclosures of information about the fair
        value of certain financial instruments for which it is practicable to estimate
        the value. For purpose of this disclosure, the fair value of a financial
        instrument is the amount at which the instrument could be exchanged in a
        current
        transaction between willing parties, other than in a forced sale or
        liquidation.
  The
        carrying amounts reported in the consolidated balance sheet for cash,
        certificates of deposit, notes receivable, accounts receivable, accounts
        payable
        and accrued expenses, notes payable and loans payable approximate their fair
        market value as of September 30, 2008 based on the short-term maturity of
        these
        instruments.
  **Cash
        and cash equivalents**
  For
        purposes of the consolidated statements of cash flows, the Company considers
        all
        highly liquid instruments purchased with a maturity of three months or less
        and
        money market accounts to be cash equivalents.
  At
        various times, the Company has deposits in excess of the Federal Deposit
        Insurance Corporation limit. At September 30, 2008, the Company was
        approximately $2,300,000 in excess of the $100,000 per bank, per company
        limit.
        The Company has not experienced any losses on these accounts.
 
 **Certificates
        of deposit**
  At
        September 30, 2008, the Company had four certificates of deposit totaling
        $2,000,000. Each certificate of deposit, bearing interest at 2.85%, has a
        9-month maturity date and may be redeemed without penalty.
  **Advertising**
  The
        Company expenses advertising costs as incurred. Advertising costs charged
        to
        operations were $0 and $93,593 for the nine months ended September 30, 2008
        and
        2007, respectively.
  **Property
        and equipment**
  Property
        and equipment are stated at cost. Depreciation and amortization are provided
        using the straight-line method over the estimated useful life.
  7
  **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
 
 **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 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 fees related to claims and contract management services are
        generally recognized when services are provided to the customer.
  The
        Company and its subsidiaries provide advance funding for medical claims and
        term loan services to unaffiliated healthcare providers that are customers
        of
        the Company.  The customer advances are typically collateralized by
        Security Agreements granting first position liens on the medical claims
        submitted by its customers to third party payers (the ‘‘Payers’’). The advances
        are repaid through the remittance of payments of customer medical claims,
        by
        Payers, directly to the Company. The Company can withhold from these advances
        interest, an administrative fee and other charges as well as any amount for
        prior advances that remain unpaid after a specified number of days. These
        interest charges, administrative fees and other charges are recognized as
        revenue when earned.
 
 Revenue
        derived from term loans to unaffiliated companies are generally recognized
        as
        revenue when earned. Revenue from term loans can include interest,
        administrative fees and other charges.
  Revenue
        derived from fees related to billing and collection services are generally
        recognized when the customer’s accounts receivable are collected.
  Revenue
        from implementation fees are generally recognized over the term of the
        customer’s agreement. Revenue derived from maintenance, administrative and
        support fees are generally recognized at the time the services are provided
        to
        the customer.
 
 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 nine months ended September 30, 2008 and 2007, the Company had
        outstanding options to purchase an aggregate of 5,632,530 and 3,031,250 shares
        of common stock, respectively, warrants to purchase an aggregate of 57,566,346
        and 5,566,345 shares of common stock, respectively, 40,000 and 40,000 shares
        of
        common stock, respectively, issuable upon conversion of Series A preferred
        stock, 13,333,334 and 888,889 shares of common stock, respectively, issuable
        upon conversion of Series B preferred stock, and 1,913,580 and 2,222,222
        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 nine months ended September 30, 2008
        and
        2007 since the impact of the stock options and warrants would be antidilutive.
  8
 
 **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
 
 **NOTE
        1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (continued)**
  **Stock-based
        compensation**
  In
        January 2006, the Company adopted Statement of Financial Accounting Standards
        No. 123 (revised 2004), Share Based Payment (‘‘SFAS No. 123R’’)
        utilizing the modified prospective method. SFAS No. 123R establishes the
        fair value based method as the financial accounting and reporting standards
        for
        stock-based compensation plans. As required by SFAS No. 123R, the Company
        recognizes the cost resulting from all stock-based payment transactions
        including shares issued under its stock option plans in the consolidated
        financial statements.
  **Recent
        accounting pronouncements**
  In
        February 2007, the FASB issued SFAS No. 159 *The
        Fair Value Option for Financial Assets and Financial Liabilities - including
        an
        Amendment of SFAS No. 115* ,
        (‘‘SFAS 159’’), which permits an entity to measure many financial assets and
        financial liabilities at fair value that are not currently required to be
        measured at fair value. Entities that elect the fair value option will report
        unrealized gains and losses in earnings at each subsequent reporting date.
        The
        fair value option may be elected on an instrument-by-instrument basis, with
        few
        exceptions. SFAS 159 amends previous guidance to extend the use of the fair
        value option to available-for-sale and held-to-maturity securities. The
        Statement also establishes presentation and disclosure requirements to help
        financial statement users understand the effect of the election. SFAS No.
        159 is
        effective as of the beginning of the first fiscal year beginning after November
        15, 2007. The Company adopted SFAS 159 effective January 1, 2008.
  In
        December 2007, the FASB issued two new pronouncements, SFAS No. 160,
        Noncontrolling Interests in Consolidated Financial Statements- an amendment
        of
        ARB No. 51 and SFAS No. 141 (revised 2007) Business Combinations. Both
        pronouncements call for prospective reporting only and would not effect any
        current (or currently contemplated) transactions by the Company.
 
 In
        March
        2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
        and
        Hedging Activities-an amendment of FASB Statement No. 133. We do not expect
        SFAS
        No. 161 to have a material impact on the preparation of our consolidated
        financial statements as the Company does not currently have derivative
        instruments and hedging activities.
 
 In
        May 2008, the Financial Accounting Standards Board ("FASB") issued FASB
        Staff Position ("FSP") APB 14-1, Accounting for Convertible Debt Instruments
        That May Be Settled in Cash upon Conversion (Including Partial Cash
        Settlement). FSP APB 14-1 clarifies that convertible debt instruments that
        may
        be settled in cash upon either mandatorily or optional conversion (including
        partial cash settlement) are not addressed by paragraph 12 of APB Opinion
        No. 14, Accounting for Convertible Debt and Debt issued with Stock Purchase
        Warrants. Additionally, FSP APB 14-1 specifies that issuers of such instruments
        should separately account for the liability and equity components in a manner
        that will reflect the entity's nonconvertible debt borrowing rate when interest
        cost is recognized in subsequent periods. FSP APB 14-1 is effective for
        financial statements issued for fiscal years beginning after December 15,
        2008, and interim periods within those fiscal years. We are evaluating the
        impact the adoption of FSP APB 14-1 will have on our consolidated financial
        position and results of operations.
  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. We do not expect SFAS No. 162 to have a material impact on the
        preparation of our consolidated financial statements.
  9
  **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
  **NOTE
        1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (continued)**
 
 **Recent
        accounting pronouncements (continued)**
 
 In
        June
        2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff
        Position ("FSP") EITF 03-6-1for Determining Whether Instruments Granted in
        Share-Based Payment Transactions are Participating Securities. We do not
        expect
        EITF 03-6-1 to have a material impact on the preparation of our consolidated
        financial statements as the Company does not currently issue affected
        payments.
 
 In
        October 2008, the FASB issued FASB Staff Position ("FSP") FAS 157-3 Determining
        the Fair Value of a Financial Asset When Market for That Asset Is Not Active,
        which clarifies the application of FASB Statement No. 157, Fair Value
        Measurements, in a market that is not active, it does not require any new
        fair
        value measurements. We do not expect FAS 157-3 to have a material impact
        on the
        preparation of our consolidated financial statements as the Company does
        not
        currently have any investments affected by this guidance
 
 The
        Company does not believe that any other recently issued, but not yet effective
        accounting standards will have a material effect on the Company’s consolidated
        financial position, results of operations or cash flows.
 
 **NOTE
        2 — ACCOUNTS AND NOTES RECEIVABLE**
  Accounts
        receivable are recorded when revenue has been recognized but not yet collected.
        The Company had net $741,887 of accounts receivable as of September 30, 2008
        and
        $66,985 as of December 31, 2007 from claims purchased, implementation,
        processing, collection, and other fees, and disbursements not yet collected.
  At
        September 30, 2008, the Company had advanced funding to five healthcare
        providers under lines of credit and note agreements aggregating $1,466,977.
        Advances under the lines of credit are due to be repaid out
        of providers’ claims collections, as defined in the agreement. The notes
        receivable under note agreements are payable as the provider collects certain
        receivables. The Company charges the healthcare providers interest and other
        charges as defined in the agreements. At December 31, 2007, the Company had
        $1,652,079 of notes receivable.
 
 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
        September 30, 2008, no amounts were past due 90 days; however, the Company
        recorded a $100,000 allowance for doubtful accounts 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 June 15, 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 September 30, 2008, the stock
        price decreased to $0.145 per share resulting in a $696,650 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 Equity section
        of the Balance Sheet. The Company does not plan to sell these securities
        within
        the next twelve months and has recorded this as a long-term
        asset.
  10
  **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
  **NOTE
        4 — PROPERTY AND EQUIPMENT**
  Property
        and equipment consisted of the following:
  **Estimated Life**
              
              **September 30,**
                **2008**
              
              **December 31,**
                **2007**Office furniture and
                  equipment
              
              5-7
                Years
              
              $
              30,174
              
              $
              27,077Computer
                  equipment and software
              
              3-5
                Years
              
              
              197,157
              
              
              181,820Total
              
              
              
              
              
              227,331
              
              
              208,897Less:
                  accumulated depreciation
              
              
              
              
              
              (123,765
              )
              
              (92,995
              )Property
                  and equipment, net
              
              
              
              
              $
              103,566
              
              $
              115,902
  **NOTE
        5 — NOTES PAYABLE**
  On
        each of October 19, 2006 and November 9, 2006 we received gross proceeds
        of
        $2,500,000 ($2,375,000 net proceeds) for a total of $5,000,000 in the aggregate
        ($4,750,000 net proceeds in the aggregate) in connection with a financing
        provided by Gottbetter Capital Master, Ltd. (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’’).
  In
        connection with an extension of repayment of principal until February 1,
        2008 on
        the Senior Notes described above, the Company granted to Gottbetter additional
        five year Series D warrants to purchase 500,000 shares of its common stock
        at an
        exercise price of $2.25 per share which warrants expire on September 27,
        2012.
        These warrants were treated as a discount on the secured promissory note
        and
        were valued at $252,361 amortized over the 4-month extension. 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 5
        years.
 
 Upon
        extending the principal payment date to February 1, 2008, we issued to
        Gottbetter an amended and restated version of the Senior Note that we issued
        to
        Gottbetter on October 20, 2006 and an amended and restated version of the
        Senior
        Note that we issued to Gottbetter on November 9, 2006.
 
 In
        connection with obtaining the consent and waiver of Gottbetter to the financing
        provided by Vicis Capital Master Fund, an unaffiliated accredited investor
        (“Vicis”) described below, we entered into the Gottbetter Consent Agreement,
        pursuant to which Gottbetter agreed to waive its anti-dilution rights under
        the
        Series D Warrants, Series E Warrants and promissory notes that we previously
        issued to Gottbetter and Gottbetter consented to the financing provided by
        Vicis.
  On
        August
        31, 2007 we received gross proceeds of $250,000 from Vicis and issued a 31-day
        Convertible Note.
 
 On
        September 28, 2007 we received gross proceeds of $2,000,000 (net proceeds
        of
        $1,691,445 after repayment of the $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 the Investor. 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.
  11
  **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
  **NOTE
        5 — NOTES PAYABLE (continued)**
  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 17, 2008 we filed an amended and restated Certificate of Designations
        (as amended and restated, the “Certificate of Designations”) with the Secretary
        of State of the State of Delaware, to, among other things, increase the number
        of authorized shares of Series B Preferred Stock from 250 shares to 325
        shares.
 
 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 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.
 
 The
        January Securities Purchase Agreement provides that our obligations to Vicis
        under the Series B Preferred Stock, the January Securities Purchase Agreement
        and the various transaction documents entered into in connection with the
        January Securities Purchase Agreement (the “January Transaction Documents”) are
        secured by a lien on all of our assets pursuant to the Security Agreement,
        dated
        September 28, 2007, between us and Vicis . The
        January Securities Purchase Agreement further provides that our obligations
        under the Series B Preferred Stock, the January Securities Purchase Agreement
        and the January Transaction Documents are guaranteed by each of our subsidiaries
        pursuant to the terms of the Guaranty Agreements, dated September 28, 2007,
        between Vicis and each of our subsidiaries in September 2007. The January
        Securities Purchase Agreement are secured by the liens on all of the assets
        of
        each our subsidiaries, except for the accounts receivable and certain contract
        rights of Xeni Financial Services, Corp., created pursuant to the Security
        Agreements, previously entered into by and between our subsidiaries and Vicis
        in
        September 2007 .
 
 We
        amended the Registration Rights Agreement, previously entered into, by and
        between Vicis and us in September 2007. We agreed, in addition to registering
        the securities previously covered by such Registration Rights Agreement,
        to
        register for resale, the common stock relating to convertible shares of our
        preferred stock and the Series F Warrants and the Series G Warrants that
        are
        exercisable pursuant to the January Securities Purchase Agreement.
 
 On
        March
        1, 2008, the Company and Gottbetter amended the Senior Notes to extend the
        maturity date of the Senior Notes to January 1, 2011 and to delay principal
        payments until March 1, 2008 In consideration of the amendment to the Senior
        Notes, the Company issued to Gottbetter 1,000,000 Series I warrants. The
        Series
        I Warrants are exercisable at a price of $0.75 per share for a period of
        five
        years from the date of issuance.
  12
  **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
  **NOTE
        5 — NOTES PAYABLE (continued)**
 
 March
        Securities Purchase Agreement
 
 On
        March
        31, 2008, we received net proceeds of $6,809,794 from Vicis. In connection
        with
        the financing, 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.
 
 In
        connection with the sale of the Series B Preferred Stock, we amended and
        restated the Registration Rights Agreement, dated September 28, 2007, by
        and
        between Vicis and us (as amended and restated, the “Amended and Restated
        Registration Rights Agreement”), pursuant to which, among other things, we
        agreed, to register for resale all of the shares of our common stock into
        which
        the outstanding Series B Preferred Stock is convertible and all of the shares
        of
        our common stock for which the Series H is exercisable.
 
 In
        connection with obtaining the consent and waiver of Gottbetter to the financing
        provided by Vicis, we entered into an Amendment, Consent and Waiver Agreement
        (the “Gottbetter Consent Agreement”), pursuant to which (i) we issued to
        Gottbetter a five year Series I warrant to purchase 1,000,000 shares of our
        common stock at an exercise price of $0.75 per share; (ii) Gottbetter agreed
        to
        waive its anti-dilution rights under the Series D Warrants, Series E Warrants
        and Promissory Notes that we previously issued to Gottbetter and (iii)
        Gottbetter consented to the financing provided by Vicis. The Series I Warrant
        may be exercised on a cashless basis to the extent that the resale of shares
        of
        common stock underlying the Series I Warrant is not covered by an effective
        registration statement. The exercise price will be subject to adjustment
        in the
        event of subdivision or combination of shares of our common stock and similar
        transactions, distributions of assets, issuances of shares of common stock
        with
        a purchase price below the exercise price of the Series I Warrant, issuances
        of
        any rights, warrants or options to purchase shares of our common stock with
        an
        exercise price below the exercise price of the Series I Warrant and issuances
        of
        convertible securities with a conversion price below the exercise price of
        the
        Series I Warrant. 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 5 years.
 
 The
        March
        Securities Purchase Agreement provided for the sale by us to Vicis of (i)
        750
        shares of Series B Preferred Stock (ii) and a Series H Warrant to purchase
        an
        aggregate of 53,333,334 shares of our common stock at a price of $0.75 per
        share. Pursuant to the March Securities Purchase Agreement, the aggregate
        gross
        purchase price for the Series B Preferred Stock and the Series H Warrant
        was
        $7,500,000, which was paid by wire transfer of immediately available funds
        and
        the surrender for cancellation of a promissory note that we issued to Vicis
        in
        the principal amount of $575,000. Principal and accrued interest under the
        promissory note and $100,000 of Vicis’ expenses were applied against the
        purchase price. The Vicis expenses are being amortized over
 
 The
        March
        Securities Purchase Agreement provides to Vicis, for a period of eighteen
        months
        after the closing date, a right of first refusal with respect to subsequent
        placements of equity or equity equivalent securities by us. The right of
        first
        refusal is on a pro rata basis (based upon the amount invested) with
        Gottbetter.
  13
 
 **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
  **NOTE
        5 — NOTES PAYABLE (continued)**
 
 The
        March
        Securities Purchase Agreement contains certain restrictions on our ability
        to:
        (i) declare dividends; (ii) reclassify, combine or reverse split our Common
        Stock; (iii) incur liens; (iii) incur certain types of indebtedness; (iv)
        issue
        classes of securities senior to, or pari passu with, the Series B Preferred
        Stock; (v) liquidate or sell a substantial portion of our assets; (vi) enter
        into transactions that would result in a Change of Control (as defined in
        the
        January Securities Purchase Agreement); (vii) amend our charter documents
        in a
        way that adversely affects the rights of Vicis; (viii) except through Xeni
        Financial Services, Corp., make loans to, or advances or guarantee the
        obligations of, third parties; (ix) make intercompany transfers; (x) engage
        in
        transactions with officers, directors, employees or affiliates; (xi) divert
        business to other business entities; (xii) make investments in securities
        or
        evidences of indebtedness (excluding loans made by Xeni Financial Services,
        Corp.) in excess of $250,000 in a calendar year; and (xiii) file registration
        statements.
 
 Events
        of
        default under the March Securities Purchase Agreement include: (i) default
        in
        the payment of dividends on or the failure to redeem the Series B Preferred
        Stock when due; (ii) failure to perform the covenants contained in the
        Securities Purchase Agreement or the related transaction documents; (iii)
        suspension from listing on the OTC Bulletin Board or other exchange for 10
        consecutive trading days; (iv) the failure to timely deliver shares of common
        stock upon conversion of the Series B Preferred Stock or exercise of the
        Series
        H Warrant ; (v) default in the payment of indebtedness in excess of $250,000;
        (vi) a judgment entered against us in excess of $250,000; and (vii) insolvency,
        bankruptcy and similar circumstances.
 
 The
        March
        Securities Purchase Agreement further provides that our obligations to Vicis
        under the Series B Preferred Stock, the March Securities Purchase Agreement
        and
        the various transaction documents entered into in connection with the March
        Securities Purchase Agreement (the “March Transaction Documents”) are secured by
        a lien on all of our assets pursuant to the Security Agreement, dated September
        28, 2007, between us and Vicis (the “Company Security Agreement”).
 
 Series
        B
        Preferred Stock
 
 On
        March
        31, 2008 we filed an amended and restated Certificate of Designations (as
        amended and restated, the “Certificate of Designations”) with the Secretary of
        State of the State of Delaware to, among other things, increase the number
        of
        authorized shares of Series B Preferred Stock from 325 shares to 1,250 shares
        to
        provide additional preferred shares for the March Securities Purchase Agreement
 
 The
        Certificate of Designations, which designates the rights, preferences,
        privileges and terms of the Series B Preferred Stock, provides that the Series
        B
        Preferred Stock will rank senior to other classes of Common Stock and Preferred
        Stock that are currently outstanding as to distributions of assets upon
        liquidation, dissolution or winding up and as to payment of dividends on
        shares
        of equity securities.
 
 Each
        share of Series B Preferred Stock is entitled to cumulative dividends at
        the
        annual rate of 12% of the stated value of the Series B Preferred Stock. 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.
 
 Each
        share of Series B Preferred Stock is convertible, at any time, at the option
        of
        the holder, into the number of shares of Common Stock determined by dividing
        the
        stated value of the Series B Preferred Stock by the conversion price. The
        initial conversion price of the Series B Preferred Stock is $0.75 per
        share.
 
 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.
  14
 
 **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
 
 **NOTE
        5 — NOTES PAYABLE (continued)**
 
 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.
 
 Holders
        of Series B Preferred Stock have the option to require us to redeem shares
        of
        Series B Preferred Stock in the event of a Change of Control (as defined
        in the
        Certificate of Designations).
 
 Holders
        of Series B Preferred Stock are entitled to vote on matters submitted to
        our
        stockholders as if the Series B Preferred Stock had been converted into shares
        of Common Stock pursuant to the terms of the Certificate of Designations.
        To the
        extent the holders of Series B Preferred Stock are required to vote separately,
        as a class, the affirmative vote of the holders of a majority of the outstanding
        shares of Series B Preferred Stock will be required to approve the matter
        to be
        voted upon.
 
 As
        of
        September 30, 2008, there were 1,000 shares of Series B Preferred Stock issued
        and outstanding.
 
 Series
        H
        Warrant
  The
        Series H Warrant is exercisable at a price of $0.75 per share for a period
        of
        ten years from the date of issuance. The Series H Warrant may be exercised
        on a
        cashless basis to the extent that the resale of shares of common stock
        underlying the Series H Warrant is not covered by an effective registration
        statement. The exercise price will be subject to adjustment in the event
        of
        subdivision or combination of shares of our common stock and similar
        transactions, distributions of assets, issuances of shares of common stock
        with
        a purchase price below the exercise price of the Series H Warrant, issuances
        of
        any rights, warrants or options to purchase shares of our common stock with
        an
        exercise price below the exercise price of the Series H Warrant, issuances
        of
        convertible securities with a conversion price below the exercise price of
        the
        Series H Warrant.
  As
        of
        September 30, 2008, the outstanding Series H Warrant is exercisable for an
        aggregate of 53,333,334 shares or our common stock.
  Company
        Security Agreement
  Pursuant
        to the terms of the March Securities Purchase Agreement, we agreed that the
        lien
        granted pursuant to the Company Security Agreement would provide for a lien
        on
        all of our assets in favor of Vicis.
  Guaranty
        Agreements
  Pursuant
        to the terms of the March Securities Purchase Agreement, we agreed that the
        Guaranty Agreements would, in addition to applying to the obligations previously
        guaranteed thereby, apply to our obligations in connection with the March
        Securities Purchase Agreement, the March Transaction Documents and the Series
        B
        Preferred Stock issued pursuant to the January Securities Purchase Agreement.
        The Guaranty Agreements provide for unconditional guaranties of the obligations
        guaranteed thereunder.
  15
 
 **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
 
 **NOTE
        5 — NOTES PAYABLE (continued)**
 
 Guarantor
        Security Agreements
  Pursuant
        to the terms of the March Securities Purchase Agreement, we agreed that the
        security interests granted by our subsidiaries pursuant to the Guarantor
        Security Agreements would, in addition to securing the obligations previously
        secured thereunder, secure the obligations of our subsidiaries under the
        Guaranty Agreements insofar as those obligations related to the January
        Securities Purchase Agreement, the March Transaction Documents and the Series
        B
        Preferred Stock issued pursuant to March Securities Purchase Agreement. The
        Guarantor Security Agreements provide for liens in favor of Vicis on all
        of the
        assets of each of our subsidiaries, except for the accounts receivable and
        certain contract rights of Xeni Financial Services, Corp.
 
 Amended
        and Restated Registration Rights Agreement
  Pursuant
        to the Amended and Restated Registration Rights Agreement, we agreed to register
        for resale, the shares of our common stock into which the Series B Preferred
        Stock is convertible and the shares of our common stock for which the Series
        H
        Warrant is exercisable.
  The
        Registration Rights Agreement requires us to file a registration statement
        covering the resale of the shares underlying the Series B Preferred Stock
        and
        the Series H warrant within 60 days after the closing date. We are only required
        to register up to thirty percent of the number of outstanding shares of common
        stock in such registration statement and then file subsequent registration
        statements after the later of (i) sixty days following the sale of the
        securities covered by the initial registration statement or any subsequent
        registration statement and (ii) six months following the effective date of
        the
        initial registration statement or any subsequent registration statement.
        We are
        required to cause the initial registration statement to become effective
        on or
        before the date which is 150 calendar days after the closing date if the
        Securities and Exchange Commission (the “SEC”) does not review the registration
        statement or 180 calendar days after the closing if the registration statement
        receives a full review by the SEC. If we fail to file a registration statement
        in the time frame required, fail to file a request for acceleration in the
        time
        frame required, or fail to maintain the effectiveness of a registration
        statement as required by the Registration Rights Agreement, we will be required
        to pay a cash penalty in the amount of 1.5% of the aggregate stated value
        of the
        Series B Preferred Stock for each month, or part thereof, that such registration
        statement is not filed or effective, as the case may be. The cash penalty
        is
        limited to 9% of the aggregate stated value of the Series B Preferred
        Stock. The cash penalty will not apply to the registration of shares of common
        stock underlying the Series H Warrant. The Registration Rights Agreement
        also
        provides for piggyback registration rights. On May 23, 2008, the Company
        filed
        the required Form S-1 registration statement with the SEC. On July 16, 2008,
        the
        Company filed Amendment Number 1 to the Form S-1 in response to comments
        from
        the SEC. On August 25, 2008, the Company filed Amendment Number 2 to the
        Form
        S-1 in response to comments from the SEC.
  For
        the
        three and nine months ended September 30, 2008, amortization of the debt
        discount on notes payable amounted to $255,933 and $930,627,
        respectively.
  16
  **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
  **NOTE
        5 — NOTES PAYABLE (continued)**
  The
        promissory notes are as follows:
 **September 30,**
                  **2008**
                
                **December 31,**
                  **2007**Notes
                    payable
                
                $
                5,000,000
                
                $
                5,575,000Less
                    principal repayments
                
                
                (1,111,111
                )
                
                —Notes
                    payable outstanding
                
                
                3,888,889
                
                
                5,575,000Less:
                    unamortized discount on notes payable
                
                
                (2,388,687
                )
                
                (2,566,395
                )Notes
                    payable, net
                
                
                1,500,202
                
                
                3,008,605Less
                    current portion
                
                
                (1,500,202
                )
                
                (2,942,842
                )Notes
                    payable, net of discount of $2,388,687 at September 30, 2008
                    and
                    $2,566,395 at December 31, 2007, less current portion
                
                $
                —
                
                $
                65,763
  For
        the
        three and nine months ended September 30, 2008, amortization of the debt
        discount on mandatorily redeemable convertible Series B preferred stock amounted
        to $1,250,000 and $3,345,982, respectively.
 
 The
        mandatorily redeemable convertible Series B preferred stock has been recorded
        as
        follows:
 
 **September 30,**
                **2008**
              
              **December 31,**
                **2007**Mandatorily
                  redeemable convertible Series B preferred stock
              
              $
              10,000,000
              
              $
              2,000,000Less:
                  unamortized discount on preferred stock
              
              
              (7,500,000
              )
              
              (653,674
              )Mandatorily
                  redeemable convertible Series B preferred stock, net
              
              $
              2,500,000
              
              $
              1,346,326
  **NOTE
        6 — LOAN PAYABLE**
  The
        Company had a loan payable to an unrelated individual in the amount of $69,559
        at December 31, 2007. During June 2008, per agreement with the unrelated
        individual, this loan was offset against receivables owed from the unrelated
        individual.
 
 The
        Company also had a net loan payable at December 31, 2007 to a customer of
        the
        Company in the amount of $40,000. During March 2008, the remaining $40,000
        of
        this loan payable was paid in full to the customer.
  17
  **MDWERKS,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2008**
  **NOTE
        7 — STOCKHOLDERS’ EQUITY**
  **Common
        stock**  ****
  The
        Company is authorized to issue 100,000,000 shares of Common stock, $.001
        par
        value, with such designations, rights and preferences as may be determined
        from
        time to time by the Board of Directors. As of September 30, 2008, there are
        12,940,065 shares issued and outstanding. See Note 9.
  **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.
  The
        Company is authorized to issue 1,000 shares of Series A Convertible Preferred
        stock, $0.001 par value with such designations, rights and preferences as
        may be
        determined from time to time by the Board of Directors. Between February
        1, 2006
        and 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 September 30, 2008, 26.3 shares of Series
        A
        Convertible Preferred Stock were converted into 526,667 shares of common
        stock
        leaving 2 Series A Convertible Preferred Stock outstanding as of September
        30,
        2008.
 
 The
        Company is authorized to issue 1,250 shares of Series B Convertible Preferred
        stock, $0.001 par value with such designations, rights and preferences as
        may be
        determined from time to time by the Board of Directors. 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 September 30, 2008, there are 1,000 issued and outstanding shares of
        Series B convertible preferred stock.
  **Common
        stock options**
  A
        summary
        of the status of the Company's outstanding stock options as of September
        30,
        2008 and changes during the period ending on that date is as
        follows:
 **Shares**
                
                **Weighted**
                  **Average**
                  **Exercise Price**
                
                **Aggregate**
                  **Intrinsic Value**Outstanding at
                    December 31, 2007
                
                
                3,514,250
                
                $
                2.57
                
                $
                120,750Granted
                
                
                2,145,000
                
                
                0.73
                
                
                6,200Exercised
                
                
                —
                
                
                —
                
                
                —Forfeited
                
                
                (45,055
                )
                
                2.45
                
                
                —Outstanding
                    at September 30, 2008
                
                
                5,614,195
                
                $
                1.87
                
                $
                126,950Options
                    exercisable at end of period
                
                
                4,502,166
                
                $
                2.00
                
                $
                126,950Weighted-average
                    fair value of options granted during the period
                
                
                0.73
  18




**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2008**




**NOTE
      7 — STOCKHOLDERS’ EQUITY**


**Common
      stock options (continued)**




The
      following information applies to options outstanding at September 30, 2008:




**Options Outstanding**
            
            **Options Exercisable****Range of Exercise Prices**
            
            **Shares**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life (Years)**
            
            **Weighted**
              **Average**
              **Exercise Price**
            
            **Shares**
            
            **Weighted**
              **Average**
              **Exercise Price**$0.38
            
            
            483,000
            
            
            9.25
            
            $
            0.38
            
            
            483,000
            
            $
            0.38$0.60
            
            
            206,666
            
            
            9.50
            
            $
            0.60
            
            
            73,333
            
            $
            0.60$0.67
            
            
            175,000
            
            
            9.00
            
            $
            0.67
            
            
            91,666
            
            $
            0.67$0.75
            
            
            1,925,000
            
            
            9.50
            
            $
            0.75
            
            
            1,925,000
            
            $
            0.75$1.39
            
            
            105,000
            
            
            8.25
            
            $
            1.39
            
            
            95,000
            
            $
            1.39$2.25
            
            
            1,016,650
            
            
            8.00
            
            $
            2.25
            
            
            683,333
            
            $
            2.25$3.25
            
            
            178,316
            
            
            7.25
            
            $
            3.25
            
            
            126,667
            
            $
            3.25$3.40
            
            
            858,330
            
            
            7.25
            
            $
            3.40
            
            
            573,333
            
            $
            3.40$4.00
                - 4.25
            
            
            666,233
            
            
            7.75
            
            $
            4.03
            
            
            450,834
            
            $
            4.085,614,195
            
            
            
            
            $
            1.59
            
            
            4,502,166
            
            $
            2.02




In
      connection with previously granted stock options, the Company recognized
      stock-based compensation expense of $2,197,482 for the nine months ended
      September 30, 2008 and $2,506,281 for the nine months ended September 30,
      2007.




As
      of
      September 30, 2008, the total future compensation expense related to non-vested
      options not yet recognized in the consolidated statement of operations is
      approximately $366,000, 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
      September 30, 2008 and changes during the period is as follows:





**Shares**
            
            **Weighted**
              **Average**
              **Exercise Price**Outstanding
                at December 31, 2007
            
            
            5,733,012
            
            $
            2.42Granted
            
            
            54,333,334
            
            
            0.75Exercised
            
            
            —
            
            
            —Forfeited
            
            
            (2,500,000
            )
            
            (2.35
            )Outstanding
                at September 30, 2008
            
            
            57,566,346
            
            $
            0.85Common
                stock issuable upon exercise of warrants
            
            
            57,566,346
            
            $
            0.85


19





**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2008**





**NOTE
      7 — STOCKHOLDERS’ EQUITY**


**Common
      stock warrants (continued)**




**Common Stock issuable upon**
                  **exercise of warrants outstanding**
                
                **Common Stock issuable upon**
                  **Warrants Exercisable****Range of****Exercise Price**
                
                **Number**
                  **Outstanding**
                  **at**
                  **September 30,**
                  **2008**
                
                **Weighted**
                  **Average**
                  **Remaining**
                  **Contractual**
                  **Life (Years)**
                
                **Weighted**
                  **Average**
                  **Exercise Price**
                
                **Number**
                  **Exercisable**
                  **at**
                  **September 30,**
                  **2008**
                
                **Weighted**
                  **Average**
                  **Exercise Price**$0.75
                
                
                54,333,334
                
                
                9.41
                
                $
                0.75
                
                
                54,333,334
                
                $
                0.75$1.25
                
                
                199,000
                
                
                1.72
                
                $
                1.25
                
                
                199,000
                
                $
                1.25$1.50
                
                
                56,667
                
                
                2.74
                
                $
                1.50
                
                
                56,667
                
                $
                1.50$2.25
                
                
                1,527,778
                
                
                3.38
                
                $
                2.25
                
                
                1,527,778
                
                $
                2.25$2.50
                
                
                640,400
                
                
                0.13
                
                $
                2.50
                
                
                640,400
                
                $
                2.50$3.00
                
                
                579,167
                
                
                0.62
                
                $
                3.00
                
                
                579,167
                
                $
                3.00$3.76
                
                
                225,000
                
                
                1.05
                
                $
                3.76
                
                
                225,000
                
                $
                3.76$4.00
                
                
                5,000
                
                
                1.05
                
                $
                4.00
                
                
                5,000
                
                $
                4.0057,566,346
                
                
                
                
                $
                0.85
                
                
                57,566,346
                
                $
                0.85





**NOTE
      8 — 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 nine months ended September 30, 2008 and September
      30, 2007 was $74,555 and $62,419, respectively.





Future
      minimum operating lease commitments as of September 30, 2008 are as
      follows:





**Year Ending**
              **December 31**
            
            **Amount**2008
            
            $
            11,7302009
            
            
            47,8962010
            
            
            50,2912011
            
            
            52,8052012
            
            
            55,4462013
            
            
            33,267$
            251,435


20





**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2008**





**NOTE
      9 — SUBSEQUENT EVENTS**





On
      October 29, 2008, MDwerks, Inc. (the “Company”) held a special meeting of the
      stockholders of the Company (the “Special Meeting”). At the Special Meeting, the
      stockholders approved an amendment to Article 4 of the Certificate of
      Incorporation of the Company to increase the authorized number of shares of
      common stock, par value $0.001 per share, of the Company from 100 million shares
      to 200 million shares. The stockholders also approved an amendment to Section
      1
      of Article I of the Company’s Bylaws to appropriately change the name in the
      Company’s Articles from “Western Exploration, Inc.” to “MDwerks, Inc.” and an
      amendment to Section 2 of Article II of the Company’s Bylaws to change the date
      of the annual meeting of the Company to May 31 of each year or such other date
      as the Board of Directors determines. At the Special Meeting, the stockholders
      of the Company also elected the Board of Directors of the Company and ratified
      the appointment of Sherb & Co., LLP as the independent registered public
      accounting firm for the Company for the fiscal year ended December 31, 2008
      and
      for the 2009 quarterly SEC reports.




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  $433,333.33 of Conversion Amount (as defined in the October
      Note).  After the conversion price was reduced, Gottbetter converted
      $433,333.33 of Conversion Amount into 1,430,143 shares of Common Stock of the
      Company.  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.   In connection with the waiver by Vicis of the
      anti-dilution adjustments to which Vicis was entitled as described above, the
      Company agreed to pay Vicis $250,000.




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;




(iv)
      Series E Warrants to purchase an aggregate of 541,667 shares of Common
      Stock;




(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




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


21




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




**Overview**




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




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




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




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




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




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





We
      also
      provide term loans and purchase claims to improve our client’s cash
      flows.




Our
      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.





On
      March
      12, 2008, the Company announced a three-year Claims Purchase Agreement with
      Deutsche Medical Services, Inc. a large California based processor of medical
      compound prescriptions. This agreement anticipated significant revenue to the
      Company that has not materialized as Deutsche Medical Services, Inc. has
      breached the Agreement by not submitting the required monthly minimum of $1.5
      million of valid claims. The Company intends to pursue legal remedies under
      the
      contract to collect amounts owed to the Company under the contract. The Company
      has correspondingly recorded a $100,000 allowance for doubtful accounts for
      these accounts receivable.


22





**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:




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





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




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





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




**Results
      of Operations**




***For
      the Nine months Ended September 30, 2008 Versus the Nine months Ended September
      30, 2007***




*Revenue*




For
      the
      nine months ended September 30, 2008, we recorded total revenue of $702,360.
      Of
      this total, we recorded service fee revenue of $420,212, accounting for 59.8%
      of
      total revenue, financing income of $195,464, accounting for 27.8% of total
      revenue and claims purchase revenue of $86,684, accounting for 12.4% of total
      revenue. For the nine months ended September 30, 2007, we recorded total revenue
      of $403,233. Of this total, we recorded service fee revenue of $356,540,
      accounting for 88.4% of total revenue and financing income of $46,693,
      accounting for 11.6% of total revenue. The increases in revenue from 2007
      resulted primarily from additional funding to and claims purchased from new
      and
      existing clients.




*Operating
      Expenses*




For
      the
      nine months ended September 30, 2008, total operating expenses were $5,937,613
      as compared to $6,196,794 for the nine months ended September 30, 2007, a
      decrease of $259,181 or 4.2%. Included in this net decrease for the nine months
      ended September 30, 2008 is the following:




1.
            We
                recorded compensation expense of $4,144,549 as compared to $4,073,320
                for
                the nine months ended September 30, 2007. This $71,229 or 1.7% increase
                was mainly attributable to stock options granted of $2,197,482 and
                executive bonuses of $453,131 paid during the nine months ended September
                2008 versus amortization of prior year stock option grants of $2,506,281
                and executive bonuses of $137,813 during the nine months ended September
                2007; and


23





2.
            Consulting
                expense amounted to $168,349 as compared to $562,798 for the nine
                months
                ended September 30, 2007, a decrease of $394,449, or 70.1%. This
                decrease
                resulted primarily from a decrease of $229,859 related to consultants
                used
                to assist with obtaining financing for the company, and a decrease
                of
                $105,400 for the hiring of information technology consultants in
                the
                current year; and




3.
            Professional
                fees amounted to $492,901 as compared to $299,901 for the nine months
                ended September 30, 2007, an increase of $193,000, or 64.4%. This
                expense
                was attributable to an increase in legal fees related to additional
                SEC
                filings, and Series B Convertible Preferred Stock offerings, new
                client
                agreements and other corporate matters;
                and




4.
            Selling,
                general and administrative expenses were $1,131,814 as compared to
                $1,260,775 for the nine months ended September 30, 2007, a decrease
                of
                $128,961, or 10.2%. This decrease resulted from a reduction of outside
                sales consultants, advertising, sales travel, trade shows and investor
                relation expenses, partially offset by bad debt
                expense.




For
      the
      nine months ended September 30, 2008 and 2007, selling, general and
      administrative expenses consisted of the following:





**September 30,**
              **2008**
            
            **September 30,**
              **2007**Employee
                benefits and payroll taxes
            
            $
            337,994
            
            $
            316,504Information
                technology
            
            
            169,352
            
            
            137,460Occupancy
                and office expenses
            
            
            167,534
            
            
            145,067Other
                selling, general and administrative
            
            
            456,934
            
            
            661,744$
            1,131,814
            
            $
            1,260,775




*Other
      Income (Expenses)*




For
      the
      nine months ended September 30, 2008, interest income was $1,083,931 as compared
      to $60,201 for the nine months ended September 30, 2007, an increase of
      $1,023,730. This increase was principally due to restructuring the notes
      receivable described below.




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 June 15, 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 September 30, 2008, the stock
      price decreased to $0.145 per share resulting in a $696,650 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 Equity section
      of the Balance Sheet.





For
      the
      nine months ended September 30, 2008, interest expense was $4,563,097 as
      compared to $1,526,737 for the nine months ended September 30, 2007, an increase
      of $3,036,360. This increase was primarily due to non-cash interest amortization
      of debt discount and deferred fees related to our notes payable as well as
      an
      increase in borrowings.





On
      March
      31, 2008, the Company received net proceeds of $6,809,794 from Vicis. Along
      with
      this financing, the Mandatorily Redeemable Convertible Series B Preferred Stock
      issued in connection with the September 28, 2007 financing of $2,000,000 and
      the
      January 18, 2008 financing of $500,000 were returned and considered debt
      extinguishment and a new Note Payable to Vicis for $10,000,000 was recorded.
      The
      transaction resulted in a change to the debt discount which was recorded as
      a
      non-cash $660,122 loss on extinguishment of debt.





*Net
      Loss*




We
      reported a net loss of $9,374,052 for the nine months ended September 30, 2008
      as compared to net loss of $7,259,932 for the nine months ended September 30,
      2007. The loss per share was $.72 for the nine months ended September 30, 2008
      as compared to a per share loss of $.57 for the nine months ended September
      30,
      2007.


24





***For
      the Three Months Ended September 30, 2008 Versus the Three Months Ended
      September 30, 2007***




*Revenue*




For
      the
      three months ended September 30, 2008, we recorded total revenue of $236,650.
      Of
      this total, we recorded service fee revenue of $109,762, accounting for 46.4%
      of
      total revenue, financing income of $63,901, accounting for 27.0% of total
      revenue, and claims purchase revenue of $62,987, accounting for 26.6% of total
      revenue. For the three months ended September 30, 2007, we recorded total
      revenue of $136,573. Of this total, we recorded service fee revenue of $119,820,
      accounting for 87.7% of total revenue and financing income of $16,753,
      accounting for 12.3% of total revenue. The increases in revenue from 2007
      resulted primarily from additional funding to and claims purchased from new
      and
      existing clients.




*Operating
      Expenses*





For
      the
      three months ended September 30, 2008, total operating expenses were $1,369,923
      as compared to $1,834,304 for the three months ended September 30, 2007, a
      decrease of $464,381 or 25.3%. Included in this decrease for the three months
      ended September 30, 2008 is the following:




1.
            We
                recorded compensation expense of $833,555 as compared to $1,229,568
                for
                the three months ended September 30, 2007. This $396,013 or 32.2%
                decrease
                was primarily attributable to stock options of $280,760 and executive
                bonuses of $58,750 paid during the three months ended September 2008
                versus amortization of prior year stock option grants of $710,838
                and
                executive bonuses of $45,938 during the three months ended September
                2007;
                and




2.
            Consulting
                expense amounted to $29,630 as compared to $158,360 for the three
                months
                ended September 30, 2007, a decrease of $128,730, or 81.3%. This
                decrease
                resulted from lower financing costs and outside business development
                and
                information technology consultants expense;
                and




3.
            Professional
                fees amounted to $162,950 as compared to $74,215 for the three months
                ended September 30, 2007, an increase of $88,735, or 119.6%. This
                expense
                was attributable to an increase in legal fees related to additional
                SEC
                filings, and Series B Convertible Preferred Stock offerings, higher
                accounting fees for SEC filings and other corporate matters;
                and




4.
            Selling,
                general and administrative expenses were $343,788 as compared to
                $372,161
                for the three months ended September 30, 2007, a decrease of $28,373,
                or
                7.6%. This decrease resulted from a reduction in advertising, sales
                travel, trade shows and investor relation
                expenses.




For
      the
      three months ended September 30, 2008 and 2007, selling, general and
      administrative expenses consisted of the following:




**September 30,**
              **2008**
            
            **September 30,**
              **2007**Employee
                benefits and payroll taxes
            
            
            105,223
            
            
            99,891Information
                technology
            
            
            84,568
            
            
            41,970Occupancy
                and office expenses
            
            
            53,959
            
            
            45,800Other
                selling, general and administrative
            
            
            100,038
            
            
            184,500$
            343,788
            
            $
            372,161




*Other
      Income (Expenses)*




For
      the
      three months ended September 30, 2008, interest income was $425,901 as compared
      to $13,492 for the three months ended September 30, 2007, an increase of
      $412,409. This increase was principally due to restructuring the notes
      receivable described below.




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 June 15, 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 September 30, 2008, the stock
      price decreased to $0.145 per share resulting in a $696,650 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 Equity section
      of the Balance Sheet.


25





*Other
      Income (Expenses) (continued)*





For
      the
      three months ended September 30, 2008, interest expense was $1,898,138 as
      compared to $500,601 for the three months ended September 30, 2007, an increase
      of $1,397,537. This increase was primarily due to non-cash interest amortization
      of debt discount and deferred fees in connection with our notes payable as
      well
      as an increase in borrowings





*Net
      Loss*




We
      reported a net loss of $2,605,510 for the three months ended September 30,
      2008
      as compared to net loss of $2,184,840 for the three months ended September
      30,
      2007. The loss per share was $.20 for the three months ended September 30,
      2008
      as compared to a per share loss of $.17 for three months ended September 30,
      2007.





*Liquidity
      and Capital Resources*




We
      used
      the proceeds from the sales of preferred stock through September 30, 2008 and
      proceeds from notes and loans payable for working capital purposes and to fund
      our notes receivable of $1,466,977 and accounts receivable of $841,887 owed
      to
      us at September 30, 2008. We will continue to advance funds under note
      agreements to providers that subscribe to our financial services lending
      solutions.





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.





On
      March
      31, 2008, we received net proceeds of $6,809,794 from Vicis. In connection
      with
      the financing, 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 **.**





We
      believe we have sufficient funds and prospective business activity to conduct
      our business and operations as they are currently undertaken for the next 12
      months.





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 business plan and generate revenue. The financial
      statements do not include any adjustments that might be necessary if the Company
      becomes 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 Note 5, will
      provide the opportunity for the Company to continue as a going
      concern.




We
      currently have no material commitments for capital
      expenditures.


26





*Cash
      flows*




At
      September 30, 2008, we had cash of $664,605.




Net
      cash
      used in operating activities was $3,645,323 for the nine months ended September
      30, 2008 as compared to $3,309,943 for the nine months ended September 30,
      2007,
      an increase of $335,380. This increase is primarily attributable to an increase
      in our net loss and the following:




1.
            Gottbetter
                and Vicis debt offering costs of $184,824 and debt discount costs
                of
                $4,276,609, compared to debt related costs during the nine months
                ended
                September 30, 2007 of $1,342,094;




2.
            Stock-based
                compensation of $2,197,482 versus stock-based compensation expense
                of
                $2,506,281 for the nine months ended September 30,
                2007;





3.
            A
                net increase in notes receivable, accounts receivable, allowance
                for
                doubtful accounts and prepaid expenses aggregating $1,632,343 principally
                related to the increases in customer receivables;




4.
            An
                increase in accounts payable, accrued expenses, and deferred revenue
                related to an increase in operating activities aggregating
                $549,219.




Net
      cash
      used in investing activities was $2,018,434 for the nine months ended September
      30, 2008 as compared to $5,209 for the nine months ended September 30, 2007
      primarily due to the purchase of certificates of deposit.




Net
      cash
      provided by financing activities was $6,007,459 due to the proceeds from the
      sale of Series B Preferred Stock for the nine months ended September 30, 2008
      as
      compared to net cash provided by financing activities of $1,939,468 for the
      nine
      months ended September 30, 2007.




***Off
      Balance Sheet Arrangements***




We
      had no
      off balance sheet arrangements as of September 30, 2008.


27




**ITEM
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





Our
      Company has financial instruments that are subject to interest rate risk,
      principally fixed-rate debt obligations and customer financing assets.
      Historically, we have not experienced material gains or losses on these
      instruments due to interest rate changes.





**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 September 30, 2008, 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 September 30, 2008, that have materially affected,
      or are reasonably likely to materially impact our internal controls over
      financial reporting.


28





**PART
      II — OTHER INFORMATION**





**Item
      1 — Legal Proceedings**




None





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




None




**Item
      3 — Defaults Upon Senior Securities**




None.





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




None.





**Item
      5****—
      Other Information**




None





**Item
      6 — Exhibits**




31.1
            Section
                302 Certification of Principal Executive
                Officer




31.2
                Section
                    302 Certification of Principal Financial
                    Officer




32.1
            Section
                906 Certification of Principal Executive
                Officer




32.2
            Section
                906 Certification of Principal Financial
                Officer





99.1
            Amendment
                No. 2 to Gottbetter Senior Note Issued October 19,
                2006


99.2
            Consent
                and Waiver of Gottbetter, dated November 6,
                2008


99.3
            Consent
                and Waiver of Vicis, dated November 6,
                2008


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.**November
                12, 2008
            
            /s/
                Howard B. KatzHoward
                B. KatzChief
                Executive OfficerNovember
                12, 2008
            
            /s/
                Vincent ColangeloVincent
                ColangeloChief
                Financial Officer