**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
      10-Q**


(Mark
      One)




x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      quarterly period ended June 30, 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 filer o     Accelerated
      filer o


Non-accelerated
      filer o      Smaller
      reporting company x





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




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: 12,940,065 shares at August 13,
      2008




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












**MDWERKS,
      INC.**


**FORM
      10-Q**


**FOR
      THE PERIOD ENDED JUNE 30, 2008**




**INDEX**




**Page****PART
                I - FINANCIAL INFORMATION**Item
                1 - Consolidated Financial StatementsConsolidated
                Balance Sheets As of June 30, 2008 (Unaudited) and December 31,
                2007
            3Consolidated
                Statements of Operations (Unaudited) For the Three and Six Months
                Ended
                June 30, 2008 and 2007
            4Consolidated
                Statements of Cash Flows (Unaudited) For the Six Months Ended June
                30,
                2008 and 2007
            5Notes
                to Unaudited Consolidated Financial Statements
            6-20Item
                2 - Management's Discussion and Analysis of Financial Condition and
                Results of Operations
            21-26Item
                3 - Quantitative and Qualitative Disclosures About Market
                Risk
            27Item
                4 - Controls and Procedures
            27**PART
                II - OTHER INFORMATION**Item
                1 - Legal Proceedings
            28Item
                2 - Unregistered Sales of Equity Securities and Use of
                Proceeds
            28Item
                3 - Defaults Upon Senior Securities
            28Item
                4 - Submission of Matters to a Vote of Security Holders
            28Item
                5 - Other Information
            28Item
                6 - Exhibits
            28




2





**MDWERKS,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**June 30,**
                **2008**
                **(Unaudited)**
              
              **December 31,**
                **2007 (1)****ASSETS**Current
                  assets:Cash
              
              $
              1,253,368
              
              $
              320,903Certificates
                  of deposit
              
              
              3,000,000
              
              
              —Notes
                  receivable
              
              
              1,044,832
              
              
              1,652,079Accounts
                  receivable, net of allowance of $100,000 for June 30, 2008
              
              
              768,700
              
              
              66,985Prepaid
                  expenses and other
              
              
              176,639
              
              
              215,073Total
                  current assets
              
              
              6,243,539
              
              
              2,255,040Long-term
                  assets:Available-for-sale
                  securities, at fair market value
              
              
              717,600
              
              
              —Property
                  and equipment, net of accumulated depreciation of $112,904 for
                  June 30,
                  2008 and $92,995 for December 31, 2007
              
              
              106,269
              
              
              115,902Debt
                  issuance and offering costs, net of accumulated amortization of
                  $403,264
                  for June 30, 2008 and $273,997 for December 31, 2007
              
              
              467,844
              
              
              400,246Total
                  assets
              
              $
              7,535,252
              
              $
              2,771,188**LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIENCY)**Current
                  liabilities:Notes
                  payable, net
              
              $
              1,660,938
              
              $
              2,942,842Mandatory
                  Redeemable Convertible Series B Preferred Stock, $.001 par value,
                  1,250
                  shares authorized;1,000 shares issued and outstanding at June 30,
                  2008 and
                  250 shares authorized; 200 shares issued and outstanding at December
                  31,
                  2007, net
              
              
              1,250,000
              
              
              1,346,326Loans
                  payable
              
              
              —
              
              
              109,559Accounts
                  payable
              
              
              319,828
              
              
              351,482Accrued
                  expenses
              
              
              843,475
              
              
              686,917Deferred
                  revenue
              
              
              7,261
              
              
              11,296Total
                  current liabilities
              
              
              4,081,502
              
              
              5,448,422Long-term
                  liabilities:Notes
                  payable, net of discount of $2,566,395 at December 31, 2007, less
                  current
                  portion
              
              
              —
              
              
              65,763Deferred
                  revenues, less current portion
              
              
              —
              
              
              1,613Total
                  liabilities
              
              
              4,081,502
              
              
              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 June 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
              
              
              46,616,792
              
              
              33,732,690Accumulated
                  deficit
              
              
              (43,258,782
              )
              
              (36,490,240
              )Accumulated
                  other comprehensive income/gain
              
              
              82,800
              
              
              —Total
                  stockholders' equity (deficiency)
              
              
              3,453,750
              
              
              (2,744,610
              )Total
                  liabilities and stockholders' equity (deficiency)
              
              $
              7,535,252
              
              $
              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
                        June 30,**
                    
                    **For
                        the Six Months**
                      **Ended
                        June 30,****2008**
                    
                    **2007**
                    
                    **2008**
                    
                    **2007****(Unaudited)**
                    
                    **(Unaudited)**
                    
                    **(Unaudited)**
                    
                    **(Unaudited)**Revenue:Service
                        fees
                    
                    $
                    148,208
                    
                    $
                    116,812
                    
                    $
                    310,450
                    
                    $
                    236,720Financing
                        income
                    
                    
                    90,344
                    
                    
                    15,963
                    
                    
                    131,563
                    
                    
                    29,940Claims
                        purchase revenue
                    
                    
                    23,697
                    
                    
                    —
                    
                    
                    23,697
                    
                    
                    —Total
                        revenue
                    
                    
                    262,249
                    
                    
                    132,775
                    
                    
                    465,710
                    
                    
                    266,660Operating
                        expenses:Compensation
                    
                    
                    2,408,892
                    
                    
                    1,426,431
                    
                    
                    3,310,994
                    
                    
                    2,843,752Consulting
                        expenses
                    
                    
                    73,238
                    
                    
                    241,741
                    
                    
                    138,719
                    
                    
                    404,438Professional
                        fees
                    
                    
                    165,263
                    
                    
                    100,139
                    
                    
                    329,951
                    
                    
                    225,686Selling,
                        general and administrative
                    
                    
                    497,136
                    
                    
                    479,595
                    
                    
                    788,026
                    
                    
                    888,614Total
                        operating expenses
                    
                    
                    3,144,529
                    
                    
                    2,247,906
                    
                    
                    4,567,690
                    
                    
                    4,362,490Loss
                        from operations
                    
                    
                    (2,882,280
                    )
                    
                    (2,115,131
                    )
                    
                    (4,101,980
                    )
                    
                    (4,095,830
                    )Other
                        income (expense):Interest
                        income
                    
                    
                    656,106
                    
                    
                    18,470
                    
                    
                    658,030
                    
                    
                    46,709Interest
                        expense
                    
                    
                    (1,898,320
                    )
                    
                    (508,638
                    )
                    
                    (2,664,959
                    )
                    
                    (1,026,136
                    )Loss
                        on extinguishment of debt
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (660,122
                    )
                    
                    —Other
                        income
                    
                    
                    340
                    
                    
                    165
                    
                    
                    489
                    
                    
                    165Total
                        other income (expense)
                    
                    
                    (1,241,874
                    )
                    
                    (490,003
                    )
                    
                    (2,666,562
                    )
                    
                    (979,262
                    )Net
                        loss
                    
                    $
                    (4,124,154
                    )
                    $
                    (2,605,134
                    )
                    $
                    (6,768,542
                    )
                    $
                    (5,075,092
                    )NET
                        LOSS PER COMMON SHARE - basic and diluted
                    
                    $
                    0.32
                    
                    $
                    0.21
                    
                    $
                    0.52
                    
                    $
                    0.40WEIGHTED-AVERAGE
                        COMMON SHARES OUTSTANDING - basic and diluted
                    
                    
                    12,940,065
                    
                    
                    12,688,856
                    
                    
                    12,940,065
                    
                    
                    12,634,761




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


4





**MDWERKS,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For the Six Months**
                **Ended June 30,****2008**
              
              **2007****(Unaudited)**
              
              **(Unaudited)**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (6,768,542
              )
              $
              (5,075,092
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
              
              
              19,909
              
              
              22,691Amortization
                  of debt issuance cost
              
              
              —
              
              
              8,720Amortization
                  of debt discount
              
              
              2,135,875
              
              
              814,858Amortization
                  of deferred offering costs
              
              
              129,261
              
              
              89,000Amortization
                  of deferred compensation
              
              
              22,168
              
              
              133,020Stock-based
                  compensation
              
              
              1,916,722
              
              
              1,795,443Common
                  stock issued for services
              
              
              —
              
              
              150,000Changes
                  in assets and liabilities:Certificates
                  of deposit
              
              
              (3,000,000
              )
              
              —Notes
                  receivable
              
              
              607,247
              
              
              (308,678
              )Accounts
                  receivable
              
              
              (801,715
              )
              
              29,450Allowance
                  for doubtful accounts
              
              
              100,000
              
              
              —Prepaid
                  expenses and other
              
              
              38,434
              
              
              4,505Accounts
                  payable
              
              
              (31,654
              )
              
              (64,743
              )Accrued
                  expenses
              
              
              156,558
              
              
              7,127Deferred
                  revenues
              
              
              (5,648
              )
              
              (40,102
              )Total
                  adjustments
              
              
              1,287,157
              
              
              2,641,291Net
                  cash used in operating activities
              
              
              (5,481,385
              )
              
              (2,433,801
              )Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (10,276
              )
              
              (4,652
              )Net
                  cash used in investing activities
              
              
              (10,276
              )
              
              (4,652
              )Cash
                  flows from financing activities:Repayment
                  of notes payable
              
              
              (1,269,445
              )
              
              (134,514
              )Repayment
                  of loan payable
              
              
              (109,559
              )
              
              (2,916
              )Proceeds
                  from sale of Mandatory Redeemable Series B preferred stock
              
              
              8,000,000
              
              
              —Placement
                  fees and other expenses paid
              
              
              (196,870
              )
              
              —Net
                  cash provided by (used in) financing activities
              
              
              6,424,126
              
              
              (137,430
              )Net
                  increase (decrease) in cash
              
              
              932,465
              
              
              (2,575,883
              )Cash
                  - beginning of period
              
              
              320,903
              
              
              3,146,841Cash
                  - end of period
              
              $
              1,253,368
              
              $
              570,958Supplemental
                  disclosure of cash flow information:Cash
                  paid for:Interest
              
              $
              250,279
              
              $
              208,115




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


5




**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 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") was incorporated under the laws of the state of Delaware on July
      21,
      2004.  Xeni Medical provides a Web-based package of electronic claims
      solutions to the healthcare provider industry through Internet access to 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 Services, Corp. ("Xeni
      Financial") was incorporated under the laws of the state of Florida on February
      3, 2005. Xeni Financial offers financing, advances and claims purchasing to
      health care providers secured by claims processed through the MDwerks system.
      Xeni Medical Billing, Corp. ("Xeni Billing") was incorporated under the laws
      of
      the state of Florida on March 2, 2005. Xeni Billing offers health care providers
      billing services facilitated through the MDwerks system. Patient Payment
      Solutions, Inc. (“PPS”) was incorporated under the laws of the state of Florida
      on May 30, 2007. PPS planned to offer healthcare providers a payment improvement
      process for “out of network” claims, but never became operational and 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 4, provide
      the opportunity for the Company to continue as a going concern.




The
      Company has raised $8 million in gross proceeds in the first quarter of 2008
      through the sale of Mandatory Redeemable Series B Convertible Preferred Stock.
      As reflected in the accompanying consolidated financial statements, the Company
      has stockholders’ equity of $3,453,750 and working capital of $2,162,037 at June
      30, 2008.




**Basis
      of presentation**




The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      information and with the instructions to Form 10-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 six months ended
      June 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**


**JUNE
      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, notes
      receivable, accounts receivable, accounts payable and accrued expenses, notes
      payable and loans payable approximate their fair market value based on the
      short-term maturity of these instruments.




**Cash
      and cash equivalents**




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




At
      various times, the Company has deposits in excess of the Federal Deposit
      Insurance Corporation limit. At June 30, 2008, the Company was approximately
      $3,846,000 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
      June
      30, 2008, the Company had six certificates of deposit totaling $3,000,000.
      Each
      certificate of deposit, bearing interest at 2.85%, has a 9-month maturity date
      and may be redeemed without penalty.




**Available-for-sale
      securities**




The
      Company records available-for sale securities at the fair market value based
      upon stock prices as quoted on the OTC Bulletin Board. At June 30, 2008, the
      Company recorded $717,600 which represented 920,000 shares at a price of $0.78
      per share.





**Advertising**




The
      Company expenses advertising costs as incurred. Advertising costs charged to
      operations were $0 and $26,639 for the six months ended June 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**


**JUNE
      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, through its subsidiaries, provides 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. There is no right of cancellation or
      refund provisions in these arrangements and the Company has no further
      obligations once the services are rendered.




Revenue
      derived from 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 income in
      the
      period that includes the enactment date.




**Loss
      per common share**




Basic
      loss per share is computed by dividing net loss by the weighted average number
      of shares of common stock outstanding during the period. Diluted loss per share
      is computed by dividing net loss by the weighted average number of shares of
      common stock and potentially dilutive securities outstanding during each period.
      For the three months ended June 30, 2008 and 2007, the Company had outstanding
      options to purchase an aggregate of 5,632,530 and 2,856,250 shares of common
      stock, respectively, and warrants to purchase an aggregate of 57,566,346 and
      2,566,345 shares of common stock, respectively, 40,000 and 100,000 shares of
      common stock, respectively, issuable upon conversion of Series A preferred
      stock, 13,333,334 and 0 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 six months ended June 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**


**JUNE
      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
      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 has 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
      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 mandatory 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.




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.





9




**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**


**NOTE
      2 — ACCOUNTS AND NOTES RECEIVABLE**




Accounts
      receivable are recorded when revenue has been recognized but not yet collected.
      The Company had $868,700 of accounts receivable as of June 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
      June
      30, 2008, the Company advanced five healthcare providers under lines of credit
      and note agreements aggregating $1,044,832. 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 charged 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
      June
      30, 2008, no amounts were past due, 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. Certain notes were
      paid off and the remaining balance was consolidated into a new promissory note
      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
      restricted shares of the healthcare provider’s common stock when the stock was
      valued at $0.69 per share as quoted on the OTC Bulletin Board. This was recorded
      as interest income of $634,800. At June 30, 2008, the stock price increased
      to
      $0.78 per share resulting in an $82,800 increase 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/gain reported in the Equity section of the Balance
      Sheet.





**NOTE
      4 — PROPERTY AND EQUIPMENT**




Property
      and equipment consisted of the following:


**Estimated Life**
              
              **June
                  30,**
                **2008**
              
              **December
                  31,**
                **2007**Office
                  furniture and equipment
              
              
              5-7
                  Years
              
              $
              27,077
              
              $
              27,077Computer
                  equipment and software
              
              
              3-5
                  Years
              
              
              192,096
              
              
              181,820Total
              
              
              
              
              
              219,173
              
              
              208,897Less:
                  accumulated depreciation
              
              
              
              
              
              (112,904
              )
              
              (92,995
              )Property
                  and equipment, net
              
              
              
              
              $
              106,269
              
              $
              115,902





**NOTE
      5 — NOTES PAYABLE**




On
      August
      24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566,
      after expenses) in connection with a financing provided by an unrelated party.
      These notes bore interest at 7% per year, and both interest and principal were
      paid in full on October 1, 2007.





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




10




**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      5 — NOTES PAYABLE (continued)**




On
      each
      of October 20, 2006 and November 9, 2006 we received gross proceeds of
      $2,500,000 ($2,375,000 net proceeds) for a total of $5,000,000 in the aggregate
      ($4,750,000 net proceeds in the aggregate) in connection with a financing
      provided by Gottbetter Capital Master, Ltd. (in liquidation) “Gottbetter’’, an
      unaffiliated accredited institutional investor. Pursuant to the terms of a
      Securities Purchase Agreement that we entered into with Gottbetter in connection
      with the financing, 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 until February 1, 2008 of repayment of principal
      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.





In
      order
      to memorialize the extension of 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
      December 3, 2007 we received gross proceeds of $575,000 in connection with
      a
      financing provided by Vicis. In connection with the financing, we issued a
      Convertible Note to Vicis in the original principal amount of $575,000 (the
      “Note”). The Note bears interest at the rate of 8% per year. Subject to certain
      prepayment provisions, unpaid principal and interest due under the 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.




11




**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      5 — NOTES PAYABLE (continued)**




On
      August
      31, 2007 we received gross proceeds of $250,000 in connection with a financing
      provided by Vicis. In connection with the financing, we issued a 31-day
      Convertible Note to Vicis in the original principal amount of
      $250,000.





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) in connection with a financing provided
      by
      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.





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 in connection with a
      financing provided by 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
      Securities Purchase Agreement, dated January 18, 2008, by and between Vicis
      and
      us (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 also provides that the guaranty
      obligations of our subsidiaries in connection with the January Securities
      Purchase Agreement and the January Transaction Documents 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**


**JUNE
      30, 2008**




**NOTE
      5 — NOTES PAYABLE (continued)**





On
      March
      31, 2008, we received net proceeds of $6,809,794 in connection with a financing
      provided by 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.





March
      Securities Purchase Agreement





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
      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**


**JUNE
      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.





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**


**JUNE
      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 the
      June 30, 2008, there are 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
      June 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**


**JUNE
      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 and on July 16, 2008
      filed Amendment Number 1 to the Form S-1 in response to comments from the SEC.
      The Company is preparing a response to comments on Amendment Number 1 to the
      Form S-1 received on July 25, 2008.




For
      the
      six months ended June 30, 2008, amortization of the debt discount on notes
      payable amounted to $674,694.




16





**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      5 — NOTES PAYABLE (continued)**


The
      promissory notes are as follows:




**June 30,**
              **2008**
            
            **December 31,**
              **2007**Notes
                payable
            
            $
            5,000,000
            
            $
            5,575,000Less
                principal repayments
            
            
            (694,444
            )
            
            —Notes
                payable outstanding at June 30, 2008
            
            
            4,305,556
            
            
            5,575,000Less:
                unamortized discount on notes payable
            
            
            (2,644,618
            )
            
            (2,566,395
            )Notes
                payable, net
            
            
            1,660,938
            
            
            3,008,605Less
                current portion
            
            
            (1,660,938
            )
            
            (2,942,842
            )Notes
                payable, net of discount of $2,644,618, less current
                portion
            
            $
            —
            
            $
            65,763




For
      the
      six months ended June 30, 2008, amortization of the debt discount on mandatory
      redeemable convertible Series B preferred stock amounted to $1,435,861.





The
      mandatory redeemable convertible Series B preferred stock is as
      follows:





**June 30,**
              **2008**
            
            **December 31,**
              **2007**Mandatory
                redeemable convertible Series B preferred stock
            
            $
            10,000,000
            
            $
            2,000,000Less:
                unamortized discount on preferred stock
            
            
            (8,750,000
            )
            
            (653,674
            )Mandatory
                redeemable convertible Series B preferred stock, net
            
            $
            1,250,000
            
            $
            1,346,326




**NOTE
      6 — LOAN PAYABLE**




The
      Company had a loan payable to an unrelated individual in the amount of $0 at
      June 30, 2008 and $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**


**JUNE
      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 June 30, 2008, there are
      12,940,065 shares issued and outstanding.




**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 issued 1,000 shares of Series A Convertible Preferred stock, $0.001
      par
      value with such designations, rights and preferences as may be determined from
      time to time by the Board of Directors. Between February 1, 2006 and June 30,
      2006, the Company sold 28.3 Units to accredited investors. Each unit consists
      of
      one share of our Series A Convertible Preferred Stock, par value $.001 per
      share, and a detachable, transferable Series A Warrant to purchase 20,000 shares
      of our common stock, at a purchase price of $3.00 per share. Between August
      11,
      2006 and June 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 June 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 in connection
      with the September Securities Purchase Agreement. On January 18, 2008, 50 shares
      of Series B convertible preferred stock were issued in connection with the
      January Securities Purchase Agreement. On March 31, 2008, 750 shares of Series
      B
      convertible preferred stock shares were issued in connection with the March
      Securities Purchase Agreement. As of June 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 June 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
                
                $
                0Granted
                
                
                2,145,000
                
                
                0.73
                
                
                —Exercised
                
                
                —
                
                
                —
                
                
                —Forfeited
                
                
                (26,720
                )
                
                3.18
                
                
                —Outstanding
                    at June 30, 2008
                
                
                5,632,530
                
                $
                1.87
                
                $
                106,260Options
                    exercisable at end of period
                
                
                4,443,833
                
                $
                2.02
                
                $
                106,260Weighted-average
                    fair value of options granted during the period
                
                
                0.73




18




**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      7 — STOCKHOLDERS’ EQUITY**


**Common
      stock options (continued)**




The
      following information applies to options outstanding at June 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
              
              
              9.50
              
              $
              0.38
              
              
              483,000
              
              $
              0.38$0.60
              
              
              220,000
              
              
              9.75
              
              $
              0.60
              
              
              73,333
              
              $
              0.60$0.67
              
              
              175,000
              
              
              9.25
              
              $
              0.67
              
              
              33,333
              
              $
              0.67$0.75
              
              
              1,925,000
              
              
              9.75
              
              $
              0.75
              
              
              1,925,000
              
              $
              0.75$1.39
              
              
              105,000
              
              
              8.50
              
              $
              1.39
              
              
              95,000
              
              $
              1.39$2.25
              
              
              1,016,650
              
              
              8.25
              
              $
              2.25
              
              
              683,333
              
              $
              2.25$3.25
              
              
              181,650
              
              
              7.50
              
              $
              3.25
              
              
              126,667
              
              $
              3.25$3.40
              
              
              858,330
              
              
              7.50
              
              $
              3.40
              
              
              573,333
              
              $
              3.40$4.00
                  - 4.25
              
              
              667,900
              
              
              8.00
              
              $
              4.03
              
              
              450,834
              
              $
              4.085,632,530
              
              
              
              
              $
              1.59
              
              
              4,443,833
              
              $
              2.02




In
      connection with previously granted stock options, the Company recognized
      stock-based compensation expense of $1,916,722 for the six months ended June
      30,
      2008 and $1,795,443 for the six months ended June 30, 2007.




As
      of
      June 30, 2008, the total future compensation expense related to non-vested
      options not yet recognized in the consolidated statement of operations is
      approximately $633,000, which will be recognized through September
      2010.




**Common
      stock warrants**




A
      summary
      of the status of the Company's outstanding stock warrants granted as of June
      30,
      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 June 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**


**JUNE
      30, 2008**





**NOTE
      7 — STOCKHOLDERS’ EQUITY**


**Common
      stock warrants (continued)**





**Common
                  Stock issuable upon****exercise
                  of warrants outstanding**
              
              **Common Stock issuable upon**
                **Warrants0Exercisable****Range
                  of****Exercise
                  Price**
              
              **Number**
                **Outstanding**
                **at
                  June 30,**
                **2008**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual**
                **Life
                  (Years)**
              
              **Weighted**
                **Average**
                **Exercise Price**
              
              **Number**
                **Exercisable**
                **at
                  June 30,**
                **2008**
              
              **Weighted**
                **Average**
                **Exercise Price**$0.75
              
              
              54,333,334
              
              
              9.66
              
              $
              0.75
              
              
              54,333,334
              
              $
              0.75$1.25
              
              
              199,000
              
              
              1.97
              
              $
              1.25
              
              
              199,000
              
              $
              1.25$1.50
              
              
              56,667
              
              
              2.99
              
              $
              1.50
              
              
              56,667
              
              $
              1.50$2.25
              
              
              1,527,778
              
              
              3.64
              
              $
              2.25
              
              
              1,527,778
              
              $
              2.25$2.50
              
              
              640,400
              
              
              0.38
              
              $
              2.50
              
              
              640,400
              
              $
              2.50$3.00
              
              
              579,167
              
              
              0.87
              
              $
              3.00
              
              
              579,167
              
              $
              3.00$3.76
              
              
              225,000
              
              
              1.30
              
              $
              3.76
              
              
              225,000
              
              $
              3.76$4.00
              
              
              5,000
              
              
              1.30
              
              $
              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 six months ended June 30, 2008 and June 30, 2007
      was
      $47,147 and $46,222, respectively.





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





**Year
                Ending**
              **December
                31**
            
            **Amount**2008
            
            $
            23,2732009
            
            
            47,8962010
            
            
            50,2912011
            
            
            52,8052012
            
            
            31,683$
            205,948




20




**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
      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
      can provide term loans and can 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 revenues will
      be
      dependent on a number of factors, many of which are beyond our control,
      including the pricing of other services, overall demand for our products, market
      competition and government regulation.




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.


21




**Critical
      Accounting Policies**




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




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




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




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.




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





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 Six Months Ended June 30, 2008 Versus the Six Months Ended June 30,
      2007***




*Revenue*




For
      the
      six months ended June 30, 2008, we recorded total revenue of $465,710. Of this
      total, we recorded service fee revenue of $310,450, accounting for 66.7% of
      total revenue, financing income of $131,563, accounting for 28.2% of total
      revenue and claims purchase revenue of $23,697, accounting for 5.1% of total
      revenue. For the six months ended June 30, 2007, we recorded total revenue
      of
      $266,660 of total revenue. Of this total, we recorded service fee revenue of
      $236,720, accounting for 88.8% of total revenue and financing income of $29,940,
      accounting for 11.2% of total revenue.




*Operating
      Expenses*




For
      the
      six months ended June 30, 2008, total operating expenses were $4,567,690 as
      compared to $4,362,490 for the six months ended June 30, 2007, an increase
      of
      $205,200 or 4.7%. Included in this increase for the six months ended June 30,
      2008 is the following:




1.
            We
                recorded compensation expense of $3,310,994 as compared to $2,843,752
                for
                the six months ended June 30, 2007. This $467,242 or 16.4% increase
                was
                mainly attributable to stock options granted in April 2008 of $1,916,722
                and executive bonuses of $394,381 paid during the six months ended
                June
                2008 versus amortization of prior year stock option grants of $1,795,443
                and executive bonuses of $91,875 during the six months ended June
                2007;
                and


22




2.
            Consulting
                expense amounted to $138,719 as compared to $404,438 for the six
                months
                ended June 30, 2007, a decrease of $265,719, or 65.7%. This decrease
                resulted from lower financing costs and outside business development
                and
                information technology consultants expense;
                and




3.
            Professional
                fees amounted to $329,951 as compared to $225,686 for the six months
                ended
                June 30, 2007, an increase of $104,265, or 46.2%. 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 $788,026 as compared to
                $888,614
                for the six months ended June 30, 2007, a decrease of $100,588, or
                11.3%.
                This decrease resulted from a reduction of outside sales consultants,
                advertising, sales travel, trade shows and investor relation expenses,
                partially offset by bad debts
                expense.




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





**June 30,**
              **2008**
            
            **June 30,**
              **2007**Employee
                benefits and payroll taxes
            
            $
            232,770
            
            $
            216,613Information
                technology
            
            
            81,662
            
            
            116,974Occupancy
                and office expenses
            
            
            113,575
            
            
            99,266Other
                selling, general and administrative
            
            
            360,019
            
            
            455,761$
            788,026
            
            $
            888,614




*Other
      Income (Expenses)*




For
      the
      six months ended June 30, 2008, interest income was $658,030 as compared to
      $46,709 for the six months ended June 30, 2007, an increase of $611,321.
      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. Certain notes were
      paid off and the remaining balance was consolidated into a new promissory note
      with a new maturity date of June 15, 2009. As consideration for the changes
      to
      the terms of these notes, the Company was given 920,000 restricted shares of
      the
      healthcare provider’s common stock when the stock was valued at $0.69 per share
      as quoted on the OTC Bulletin Board. This was recorded as interest income of
      $634,800. At June 30, 2008, the stock price increased to $0.78 per share
      requiring an $82,800 increase 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/ gain reported in the Equity section of the Balance Sheet.





For
      the
      six months ended June 30, 2008, interest expense was $2,664,959 as compared
      to
      $1,026,136 for the six months ended June 30, 2007, an increase of $1,638,823.
      This increase was due to an increase in borrowings and amortization of debt
      discount and deferred fees in connection with our notes payable.





On
      March
      31, 2008, the Company received net proceeds of $6,809,794 in connection with
      a
      financing provided by Vicis. Along with this financing, the Mandatory 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 $660,122 loss on extinguishment of debt.





*Net
      Loss*




We
      reported a net loss of $6,768,542 for the six months ended June 30, 2008 as
      compared to net loss of $5,075,092 for the six months ended June 30, 2007.
      This
      translates to an overall per share loss of ($.52) for the six months ended
      June
      30, 2008 as compared to a per share loss of ($.40) for the six months ended
      June
      30, 2007.


23





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




*Revenue*




For
      the
      three months ended June 30, 2008, we recorded total revenue of $262,249. Of
      this
      total, we recorded service fee revenue of $148,208, accounting for 56.5% of
      total revenue, financing income of $90,344, accounting for 34.4% of total
      revenue, and claims purchase revenue of $23,697, accounting for 9.1% of total
      revenue. For the three months ended June 30, 2007, we recorded total revenue
      of
      $132,775. Of this total, we recorded service fee revenue of $116,812, accounting
      for 88.0% of total revenue and financing income of $15,963, accounting for
      12.0%
      of total revenue.




*Operating
      Expenses*





For
      the
      three months ended June 30, 2008, total operating expenses were $3,144,529
      as
      compared to $2,247,906 for the three months ended June 30, 2007, an increase
      of
      $896,623 or 39.9%. Included in this increase for the three months ended June
      30,
      2008 is the following:




1.
            We
                recorded compensation expense of $2,408,892 as compared to $1,426,431
                for
                the three months ended June 30, 2007. This $982,461 or 68.9% increase
                was
                mainly attributable to stock options granted in April 2008 of $1,535,211
                and executive bonuses of $339,381 paid during the three months ended
                June
                2008 versus amortization of prior year stock option grants of $884,794
                and
                executive bonuses of $54,375 during the three months ended June 2007;
                and




2.
            Consulting
                expense amounted to $73,238 as compared to $241,741 for the three
                months
                ended June 30, 2007, a decrease of $168,503, or 69.7%. This decrease
                resulted from lower financing costs and outside business development
                and
                information technology consultants expense;
                and




3.
            Professional
                fees amounted to $165,263 as compared to $100,139 for the three months
                ended June 30, 2007, an increase of $65,124, or 65.0%. 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 $497,136 as compared to
                $479,595
                for the three months ended June 30, 2007, an increase of $17,541,
                or 3.7%.
                This increase resulted from an increase in bad debts offset by a
                reduction in advertising, sales travel, trade shows and investor
                relation
                expenses.




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




**June 30,**
              **2008**
            
            **June 30,**
              **2007**Employee
                benefits and payroll taxes
            
            
            121,145
            
            
            107,686Information
                technology
            
            
            75,402
            
            
            54,906Occupancy
                and office expenses
            
            
            66,866
            
            
            54,335Other
                selling, general and administrative
            
            
            233,723
            
            
            262,668$
            497,136
            
            $
            479,595




*Other
      Income (Expenses)*




For
      the
      three months ended June 30, 2008, interest income was $656,106 as compared
      to
      $18,470 for the three months ended June 30, 2007, an increase of $637,636.
      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. Certain notes were
      paid off and the remaining balance was consolidated into a new promissory note
      with a new maturity date of June 15, 2009. As consideration for the changes
      to
      the terms of these notes, the Company was given 920,000 restricted shares of
      the
      healthcare provider’s common stock when the stock was valued at $0.69 per share
      as quoted on the OTC Bulletin Board. This was recorded as interest income of
      $634,800. At June 30, 2008, the stock price increased to $0.78 per share
      requiring an $82,800 increase 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/ gain reported in the Equity section of the Balance Sheet.





24




*Other
      Income (Expenses) (continued)*





For
      the
      three months ended June 30, 2008, interest expense was $1,898,320 as compared
      to
      $508,638 for the three months ended June 30, 2007, an increase of $1,389,682.
      This increase was due to an increase in borrowings and amortization of debt
      discount and deferred fees in connection with our notes payable.





*Net
      Loss*




We
      reported a net loss of $4,124,154 for the three months ended June 30, 2008
      as
      compared to net loss of $2,605,134 for the three months ended June 30, 2007.
      This translates to an overall per share loss of ($.32) for the three months
      ended June 30, 2008 as compared to a per share loss of ($.21) for three months
      ended June 30, 2007.





*Liquidity
      and Capital Resources*




We
      used
      the proceeds from the sales of preferred stock through June 30, 2008 and
      proceeds from notes and loans payable for working capital purposes and to fund
      our notes receivable of $1,044,832 and accounts receivable of $768,700 owed
      to
      us at June 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 in connection with a
      financing provided by 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.





On
      March
      31, 2008, we received net proceeds of $6,809,794 in connection with a financing
      provided by 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
      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 4, provide the
      opportunity for the Company to continue as a going concern.




We
      currently have no material commitments for capital expenditures.




25




*Cash
      flows*




At
      June
      30, 2008, we had cash of $1,253,368.




Net
      cash
      used in operating activities was $5,481,385 for the six months ended June 30,
      2008 as compared to $2,433,801 for the six months ended June 30, 2007, an
      increase of $3,047,584. This increase is primarily attributable to an
      increase in our net loss and the purchasing of $3 million in certificates of
      deposit:




1.
            Gottbetter
                and Vicis debt offering costs of $129,261 and debt discount costs
                of
                $2,135,875, compared to debt related costs during the six months
                ended
                June 30, 2007 of $903,858;




2.
            Stock-based
                compensation of $1,916,722 versus stock-based compensation expense
                of
                $1,795,443 for the six months ended June 30, 2007 primarily related
                to
                issuance of stock options in 2008 to
                employees;




3.
            A
                net increase in certificates of deposit, notes receivable, accounts
                receivable, allowance for doubtful accounts and prepaid expenses
                aggregating $3,056,034 principally related to the increase in certificates
                of deposit.




4.
            An
                increase in accounts payable, accrued expenses, and deferred revenue
                related to an increase in operating activities aggregating
                $119,256.




Net
      cash
      used in investing activities was $10,276 for the six months ended June 30,
      2008
      as compared to $4,652 for the six months ended June 30, 2007.




Net
      cash
      provided by financing activities was $6,424,126 due to the proceeds from the
      sale of Series B Preferred Stock for the six months ended June 30, 2008 as
      compared to net cash used by financing activities of $137,430 due to repayments
      of notes and loan payable for the six months ended June 30, 2007.




***Off
      Balance Sheet Arrangements***




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





26




**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)**
            **Disclosure
                Controls and
                Procedures**




Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of the effectiveness of the design and operation of our disclosure
      controls and procedures, as defined in Rules 13a-15(e) under the Securities
      Exchange Act of 1934, as amended, as of the end of the period covered by this
      report (the “Evaluation Date”). Based on this evaluation, our principal
      executive officer and principal financial officer concluded as of the Evaluation
      Date that our disclosure controls and procedures were effective such that the
      information relating to MDwerks, Inc., including our consolidated subsidiaries,
      required to be disclosed in our Securities and Exchange Commission (“SEC”)
      reports (i) is recorded, processed, summarized and reported within the time
      periods specified in SEC rules and forms and (ii) is accumulated and
      communicated to MDwerks, Inc. management, including our principal executive
      officer and principal financial officer, as appropriate, to allow timely
      decisions regarding required disclosure.




Our
      disclosure controls and procedures are designed to provide reasonable assurance
      of achieving their objectives and our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures are
      effective at that reasonable assurance level. Further, the design of a control
      system must reflect the fact that there are resource constraints and the
      benefits of controls must be considered relative to their costs. Our evaluation
      of controls provides a reasonable assurance that control issues and instances
      of
      fraud, if any, within MDwerks, Inc. can be detected.  Our
      management, including our Chief Executive Officer and Chief Financial Officer,
      does not expect that our disclosure controls and procedures or our internal
      controls will prevent all errors and all fraud.




**(b)**
            **Management’s
                Report on Internal Control over Financial
                Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting (as defined in Rule 13a-15(f) under the
      Securities Exchange Act, as amended). Our management assessed the effectiveness
      of our internal control over financial reporting as of December 31, 2007. In
      making this assessment, our management used the criteria set forth by the
      Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in *Internal
      Control-Integrated Framework* .
      Our
      management has concluded that, as of December 31, 2007, our internal control
      over financial reporting is effective based on these criteria.




**(c)
      Changes in Internal Control over Financial Reporting**




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





This
      annual report does not include an attestation report of our public accounting
      firm regarding internal control over financial reporting. Our management’s
      report was not subject to attestation by our registered public accounting firm
      pursuant to temporary rules of the Securities and Exchange Commission that
      permit us to provide only management’s report in this annual
      report.





There
      have been no changes in our internal control over financial reporting during
      our
      fourth fiscal quarter that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.


27





**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


28





**SIGNATURES**




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




**MDWERKS,
                INC.**August
                14, 2008
            
            /s/
                Howard B. KatzHoward
                B. KatzChief
                Executive OfficerAugust
                14, 2008
            
            /s/
                Vincent ColangeloVincent
                ColangeloChief
                Financial Officer