**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
      10-QSB**




(Mark
      One)




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




For
      the
      quarterly period ended September 30, 2007




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 small business issuer as specified in charter)




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




**Windolph
      Center, Suite I**


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


**Deerfield
      Beach, FL 33442**


(Address
      of principal executive offices)(Zip Code)




**(954)
      389-8300**


(Issuer's
      telephone number, including area code)




**N/A**


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




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




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




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: 12,940,065 shares at November 9,
      2007




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










**MDWERKS,
      INC.**


**FORM
      10-QSB**


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




**INDEX**




**Page****PART
                I - FINANCIAL INFORMATION**Item
                1 - Consolidated Financial StatementsConsolidated
                Balance Sheet As of September 30, 2007 (Unaudited)
            3Consolidated
                Statements of Operations (Unaudited) For the Three and Nine Months
                Ended
                September 30, 2007 and 2006
            4Consolidated
                Statements of Cash Flows (Unaudited) For the Nine Months Ended September
                30, 2007 and 2006
            5Notes
                to Unaudited Consolidated Financial Statements
            6-21Item
                2 - Management's Discussion and Analysis and Plan of
                Operations
            22-29Item
                3 - Controls and Procedures
            29-30**PART
                II - OTHER INFORMATION**Item
                1 - Legal Proceedings
            31Item
                2 - Unregistered Sales of Equity Securities and Use of
                Proceeds
            31Item
                3 - Defaults Upon Senior Securities
            31Item
                4 - Submission of Matters to a Vote of Security Holders
            31Item
                5 - Other Information
            31Item
                6 - Exhibits
            31




2


**MDWERKS,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEET**


**SEPTEMBER
      30, 2007**


(Unaudited)




**ASSETS**Current
                assets:Cash
            
            $
            1,771,111Notes
                receivable
            
            
            1,010,549Accounts
                receivable
            
            
            82,056Prepaid
                expenses and other
            
            
            48,017Total
                current assets
            
            
            2,911,733Long-term
                assets:Property
                and equipment, net of accumulated depreciation of $81,724
            
            
            127,173Debt
                issuance and offering costs, net of accumulated amortization of
                $200,295
            
            
            470,057Total
                assets
            
            $
            3,508,963**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY**Current
                liabilities:Current
                portion of notes payable, net
            
            $
            1,686,269Mandatory
                Redeemable Convertible Series B Preferred Stock, $.001 par value,
                250
                shares authorized;
              200
                shares issued and outstanding
            
            
            1,126,831Loans
                payable
            
            
            319,559Accounts
                payable
            
            
            461,569Accrued
                expenses
            
            
            468,295Deferred
                revenue
            
            
            10,996Total
                current liabilities
            
            
            4,073,519Long-term
                liabilities:Notes
                payable, net of discount of $2,829,535, less current
                portion
            
            
            391,809Deferred
                revenues, less current portion
            
            
            6,237Total
                liabilities
            
            
            4,471,565Stockholders'
                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
            
            
            —Common
                stock, $.001 par value, 100,000,000 shares authorized;
              12,940,065
                shares issued and outstanding
            
            
            12,940Additional
                paid-in capital
            
            
            32,980,978Accumulated
                deficit
            
            
            (33,867,842
            )Deferred
                compensation
            
            
            (88,678
            )Total
                stockholders' deficiency
            
            
            (962,602
            )Total
                liabilities and stockholders' deficiency
            
            $
            3,508,963




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




3


**MDWERKS,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**For
                the Three Months**
              **Ended
                September 30,**
            
            **For
                the Nine Months**
              **Ended
                September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****(Unaudited)**
            
            **(Unaudited)**
            
            **(Unaudited)**
            
            **(Unaudited)**Revenue:Service
                fees
            
            $
            119,820
            
            $
            147,726
            
            $
            356,540
            
            $
            262,292Financing
                income
            
            
            16,753
            
            
            10,387
            
            
            46,693
            
            
            36,558Total
                revenue
            
            
            136,573
            
            
            158,113
            
            
            403,233
            
            
            298,850Operating
                expenses:Compensation
            
            
            1,229,568
            
            
            1,730,160
            
            
            4,073,320
            
            
            3,193,895Consulting
                expenses
            
            
            158,360
            
            
            144,081
            
            
            562,798
            
            
            399,126Professional
                fees
            
            
            74,215
            
            
            153,782
            
            
            299,901
            
            
            277,906Selling,
                general and administrative
            
            
            372,161
            
            
            456,587
            
            
            1,260,775
            
            
            1,416,993Total
                operating expenses
            
            
            1,834,304
            
            
            2,484,610
            
            
            6,196,794
            
            
            5,287,920Loss
                from operations
            
            
            (1,697,731
            )
            
            (2,326,497
            )
            
            (5,793,561
            )
            
            (4,989,070
            )Other
                income (expense):Interest
                income
            
            
            13,492
            
            
            1,123
            
            
            60,201
            
            
            5,671Interest
                expense
            
            
            (500,601
            )
            
            (372,291
            )
            
            (1,526,737
            )
            
            (380,039
            )Gain
                (Loss) on revaluation of warrant liability
            
            
            —
            
            
            1,030,338
            
            
            —
            
            
            (192,914
            )Other
                income (expense)
            
            
            —
            
            
            (3,502
            )
            
            165
            
            
            (3,491
            )Total
                other income (expense)
            
            
            (487,109
            )
            
            655,668
            
            
            (1,466,371
            )
            
            (570,773
            )Net
                loss
            
            
            (2,184,840
            )
            
            (1,670,829
            )
            
            (7,259,932
            )
            
            (5,559,843
            )Deemed
                preferred stock dividend
            
            
            —
            
            
            —
            
            
            —
            
            
            (913,777
            )Common
                stock issued in connection with anti-dilutive
                recalculation
            
            
            —
            
            
            —
            
            
            —
            
            
            (246,240
            )Net
                loss attributable to common shareholders
            
            $
            (2,184,840
            )
            $
            (1,670,829
            )
            $
            (7,259,932
            )
            $
            (6,719,860
            )NET
                LOSS PER COMMON SHARE - basic and diluted
            
            $
            (0.17
            )
            $
            (0.14
            )
            $
            (0.57
            )
            $
            (0.57
            )WEIGHTED-AVERAGE
                COMMON SHARES OUTSTANDING - basic and diluted
            
            
            12,907,674
            
            
            11,777,818
            
            
            12,726,732
            
            
            11,728,751




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




4


**MDWERKS,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**For
                the Nine Months**
              **Ended
                September 30,****2007**
            
            **2006****(Unaudited)**
            
            **(Unaudited)**Cash
                flows from operating activities:Net
                loss
            
            $
            (7,259,932
            )
            $
            (5,559,843
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            34,168
            
            
            22,807Amortization
                of debt issuance cost
            
            
            10,954
            
            
            3,120Amortization
                of debt discount
            
            
            1,208,594
            
            
            28,793Amortization
                of deferred offering costs
            
            
            133,500
            
            
            —Amortization
                of deferred compensation
            
            
            199,530
            
            
            —Stock-based
                compensation
            
            
            2,506,281
            
            
            1,878,572Common
                stock issued for services
            
            
            150,000
            
            
            285,000Settlement
                expense related to debt conversion
            
            
            —
            
            
            180,827Loss
                on valuation of warrant liability
            
            
            —
            
            
            192,914Interest
                expense in connection with the grant of warrants
            
            
            —
            
            
            335,273Changes
                in assets and liabilities:Notes
                receivable
            
            
            (536,856
            )
            
            (1,628
            )Accounts
                receivable
            
            
            (26,465
            )
            
            (20,032
            )Prepaid
                expenses and other
            
            
            25,780
            
            
            20,080Accounts
                payable
            
            
            193,647
            
            
            211,535Accrued
                expenses
            
            
            89,536
            
            
            103,763Deferred
                revenues
            
            
            (38,726
            )
            
            48,425Total
                adjustments
            
            
            3,949,943
            
            
            3,289,449Net
                cash used in operating activities
            
            
            (3,309,989
            )
            
            (2,270,394
            )Cash
                flows from investing activities:Purchase
                of property and equipment
            
            
            (5,209
            )
            
            (71,728
            )Net
                cash used in investing activities
            
            
            (5,209
            )
            
            (71,728
            )Cash
                flows from financing activities:Proceeds
                from convertible notes payable
            
            
            250,000
            
            
            —Proceeds
                from loans payable
            
            
            250,000
            
            
            360,000Placement
                fees in connection with notes payable
            
            
            —
            
            
            (23,434
            )Repayment
                of convertible notes payable
            
            
            (250,000
            )
            
            —Repayment
                of notes payable
            
            
            (194,698
            )
            
            (25,000
            )Repayment
                of loan payable
            
            
            (2,916
            )
            
            (21,486
            )Proceeds
                from sale of Mandatory Redeemable Series B preferred stock
            
            
            2,000,000
            
            
            —Proceeds
                from sale of Series A preferred stock
            
            
            —
            
            
            1,700,000Placement
                fees and other expenses paid
            
            
            (112,918
            )
            
            (273,609
            )Net
                cash provided by financing activities
            
            
            1,939,468
            
            
            1,716,471Net
                decrease in cash
            
            
            (1,375,730
            )
            
            (625,651
            )Cash
                - beginning of period
            
            
            3,146,841
            
            
            766,464Cash
                - end of period
            
            $
            1,771,111
            
            $
            140,813Supplemental
                disclosure of cash flow information:Cash
                paid for:Interest
            
            $
            247,078
            
            $
            9,253Non-cash
                investing and financing activities:Common
                stock issued for debt and accrued interest
            
            $
            —
            
            $
            46,250




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




5


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**




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




**Organization**




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




The
      Company has four operating subsidiaries. Xeni Medical Systems, Inc. ("Xeni
      Medical") was incorporated under the laws of the state of Delaware on July
      21,
      2004.  Xeni Medical provides a Web-based package of electronic claims
      solutions to the healthcare provider industry through Internet access to 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 and advances to health care providers
      secured by claims processed through the MDwerks system. Xeni Medical Billing,
      Corp. ("Xeni Billing") was incorporated under the laws of the state of Florida
      on March 2, 2005. Xeni Billing offers health care providers billing services
      facilitated through the MDwerks system. Patient Payment Solutions, Inc. (“PPS”)
      was incorporated under the laws of the state of Florida on May 30, 2007. PPS
      will offer healthcare providers a payment improvement process for “out of
      network” claims.




**Going
      concern**




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




As
      reflected in the accompanying consolidated financial statements, the Company
      has
      stockholders’ deficiency of $962,602 and a working capital deficiency of
      $1,161,786 at September 30, 2007.




**Basis
      of presentation**




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





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





6


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**





**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. The Company has not experienced any losses on
      these
      accounts.




**Advertising**




The
      Company expenses advertising costs as incurred. Advertising costs charged to
      operations were approximately $93,593 and $103,816 for the nine months ended
      September 30, 2007 and 2006, respectively.




**Property
      and equipment**




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




**Revenue
      recognition**




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




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




7


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**





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




**Revenue
      recognition (continued)**




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 payors (the
‘‘Payors’’). The advances are repaid through the remittance of payments of
      customer medical claims, by Payors, directly to the Company. The Company can
      withhold from these advances interest, an administrative fee and other charges
      as well as any amount for prior advances that remain unpaid after a specified
      number of days. These interest charges, administrative fees and other charges
      are recognized as revenue when earned. There is no right of cancellation or
      refund provisions in these arrangements and the Company has no further
      obligations once the services are rendered.




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




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




**Income
      taxes**




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




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




**Loss
      per common share**




Basic
      loss per share is computed by dividing net loss by the weighted average number
      of shares of common stock outstanding during the period. Diluted loss per share
      is computed by dividing net income by the weighted average number of shares
      of
      common stock, potential common stock and potentially dilutive securities
      outstanding during each period. As of September 30, 2007, the Company had
      outstanding options to purchase an aggregate of 3,031,250 shares of common
      stock
      and warrants to purchase an aggregate of 5,566,345 shares of Common Stock,
      which
      could potentially dilute future earnings per share. Diluted loss per common
      share has not been presented for the nine months ended September 30, 2007 since
      the impact of the stock options and warrants would be antidilutive. As of
      September 30, 2006, the Company had outstanding options to purchase an aggregate
      of 1,726,250 shares of common stock, warrants to purchase an aggregate of
      1,439,085 shares of common stock, and 566,667 shares of common stock issuable
      upon conversion of preferred stock which could potentially dilute future
      earnings per share.




8


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**





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




**Stock-based
      compensation**




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




**Recent
      accounting pronouncements**




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




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




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




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




9


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**





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




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





On
      July
      25, 2007, the Securities and Exchange Commission unanimously approved the Public
      Company Accounting Oversight Board's (PCAOB) proposed Auditing Standard No.
      5, *An
      Audit of Internal Control Over Financial Reporting That is Integrated With
      An
      Audit of Financial Statement* .
      Auditing Standard No. 5 provides the new professional standards and related
      performance guidance for independent auditors to attest to, and report on,
      management's assessment of the effectiveness of internal control over financial
      reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX). We
      have
      engaged a qualified third-party to assist us with the preparations for
      management’s assessment of the effectiveness of internal controls over financial
      reporting required by the end of this fiscal year and with the documentation
      and
      procedures required for our external auditor attestation requirement, which
      becomes effective fiscal year ending 2008.




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




**NOTE
      2 — ACCOUNTS AND NOTES RECEIVABLE**




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





Accounts
      receivable are recorded when revenue has been recognized but not yet collected.
      At September 30, 2007, the Company had $82,056 of accounts receivable from
      implementation, processing, collection, and other fees, and disbursements not
      yet collected.




At
      September 30, 2007, the Company advanced funds to healthcare providers under
      lines of credit and note agreements, respectively, aggregating $1,010,549.
      Advances under the lines of credit are due to be repaid out
      of collections from insurance claims and other receivables. The Company
      charged the healthcare providers interest and other charges as defined in the
      agreements.





**NOTE
      3 — PROPERTY AND EQUIPMENT**




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




**Estimated
                Life**Office
                furniture and equipment
            
            5-7
                Years
            
            $
            27,077Computer
                equipment and software
            
            3-5
                Years
            
            
            181,820Total
            
            
            
            
            
            208,897Less:
                accumulated depreciation
            
            
            
            
            
            (81,724
            )Property
                and equipment, net
            
            
            
            
            $
            127,173




10


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**




**NOTE
      4 — NOTES PAYABLE**




On
      August
      24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566,
      after expenses) in connection with a financing provided by an unrelated party.
      In connection with the financing, we issued a secured promissory note in the
      original principal amount of $250,000 (the ‘‘Note’’) and a three year warrant to
      purchase 111,111 shares of the Company’s common stock at a price of $2.25 per
      share. The Note bears interest at the rate of 7% per year, payable monthly
      in
      arrears and was to become due and payable on August 24, 2007. In connection
      with
      an extension on repayment of this secured promissory note from August 24, 2007
      to October 1, 2007, the Company granted options to purchase 75,000 shares of
      its
      common stock at an exercise price of $0.67 per share which options expire on
      September 27, 2017. The fair market value of each stock option 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 10 years. These options, valued at $51,000, were recorded
      as
      deferred compensation and will be expensed monthly until September 2010.





At
      September 30, 2007, principal payments made under the mandatory prepayment
      provisions had reduced the Note balance to $153,664. On October 1, 2007 the
      Company paid the remaining unpaid principal of the $250,000 August 24, 2006
      notes payable, together with all accrued interest, to the unrelated
      party.




On
      August
      24, 2006, the Company received gross proceeds of $110,000 (net proceeds of
      $100,000, after expenses) in connection with a financing provided equally by
      two
      unrelated parties. These notes bear interest at 10% per year, and both interest
      and principal were due on January 21, 2007. In connection with the financing,
      the Company issued 10,000 shares of its common stock at a fair market value
      on
      the date of grant of $39,800 or $3.98 per share which was recorded as a discount
      on notes payable to be amortized over the term of the Notes. For the nine months
      ended September 30, 2007, amortization of this debt discount amounted to $7,960
      and is included in interest expense. In addition, the Company paid a total
      cash
      fee of $23,434 in connection with the above promissory notes for placement
      agent
      fees and related expenses. Accordingly, these fees were treated as deferred
      issuance cost to be amortized over their respective note terms. For the nine
      months ended September 30, 2007, amortization of deferred issuance cost amounted
      to $10,954. On January 21, 2007 the Company paid the August 24, 2006 notes
      payable of $110,000, together with all accrued interest, to the two unrelated
      parties.




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





In
      connection with an extension until February 1, 2008 of repayment of principal
      on
      the Senior Notes described above, the Company granted to Gottbetter an
      additional five year Series D warrants to purchase 500,000 shares of its common
      stock at an exercise price of $0.68 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 to be amortized over the 4-month extension.
      The
      fair market value of each stock option 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.




11


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**




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




For
      the
      nine months September 30, 2007, amortization of the debt discount amounted
      to
      $1,208,594.





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




Notes
                payable
            
            $
            5,153,665Less:
                unamortized discount on notes payable
            
            
            (3,075,587
            )Notes
                payable, net
            
            $
            2,078,078Less
                current portion
            
            
            (1,686,269
            )Notes
                payable, net of discount of $2,829,252, less current
                portion
            
            $
            391,809




On
      August
      31, 2007 we received gross proceeds of $250,000 in connection with a financing
      provided by Vicis Capital Master Fund, an unaffiliated accredited investor.
      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 Capital Master Fund, an unaffiliated accredited institutional
      investor (the “Investor”). 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, MDwerks, Xeni Medical, Xeni Financial, Xeni
      Billing and PPS 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
      Services, Corp., to the Investor.





Our
      subsidiaries, MDwerks, Xeni Medical, Xeni Financial, Xeni Billing and
      PPS are also parties to Guaranty Agreements, pursuant to which they have
      agreed to unconditionally guaranty our obligations under the Series B Preferred
      Stock and the documents entered into by us in connection the sale of the Series
      B Preferred Stock.





12


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**




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





In
      connection with the sale of the Series B Preferred Stock, we entered into a
      Registration Rights Agreement, pursuant to which 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 F
      Warrants and the Series G Warrants are exercisable.





In
      connection with the Sale of the Series B Preferred Stock the Company entered
      into an Amendment, Consent and Waiver agreement with Gottbetter Capital Master,
      Ltd. (the “Consent and Waiver Agreement”).





The
      following summary description of the material agreements entered into in
      connection with the transaction described above.





*Securities
      Purchase Agreement*





The
      Securities Purchase Agreement provides for the sale of (i) 200 shares of Series
      B Preferred Stock (ii) Series F Warrants to purchase an aggregate of 1,500,000
      shares of Common Stock and (iii) Series G Warrants to purchase an aggregate
      of
      1,000,000 shares of Common Stock. Pursuant to the Securities Purchase Agreement,
      the aggregate purchase price for the Series Preferred Stock, the Series F
      Warrants and the Series G Warrants was $2 million. Payment was made by 1,691,445
      in cash, the conversion of $251,555 in principal and interest of the 31-day
      Convertible Note, dated August 31, 2007, issued by the Company to the Purchaser
      in the original principal amount of $250,000 and deduction of certain closing
      expenses.





The
      Securities Purchase Agreement provides to the Investor, 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
      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 *parri
      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 Securities Purchase Agreement); (vi) amend our charter
      documents in a way that adversely affects the rights of the Investor; (vii)
      except through Xeni Financial, make loans to, or advances or guarantee the
      obligations of, third parties; (viii) make intercompany transfers; (ix) engage
      in transactions with officers, directors, employees or affiliates; (x) divert
      business to other business entities; (xi) make investments in securities or
      evidences of indebtedness (excluding of loans made by Xeni Financial) in excess
      of $250,000 in a calendar year; and (xii) file registration
      statements.





Events
      of
      default under the 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) failure to file,
      or cause to become effective, a registration statement covering the shares
      of
      Common Stock underlying the Series F Warrants, the Series G Warrants and the
      Series B Preferred Stock within the timeframes required by the Registration
      Rights Agreement or the failure to keep such registration effective as required
      by the Registration Rights Agreement; (iv) suspension from listing on the OTC
      Bulletin Board or other exchange for 10 consecutive trading days; (v) the
      failure to timely deliver shares of Common Stock upon conversion of the Series
      B
      Preferred Stock or exercise of the Series F Warrants or the Series G Warrants;
      (vi) default in the payment of indebtedness in excess of $250,000; (vii) a
      judgment entered against us in excess of $250,000; and (viii) insolvency,
      bankruptcy and similar circumstances.





The
      Securities Purchase Agreement also contains customary representations,
      warranties, covenants and indemnification provisions for transactions of the
      type entered into between the Company and Investor.





13


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**




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





*Series
      B Preferred Stock*





The
      Certificate of Designations, which designates the rights, preferences,
      privileges and terms of the Series B Preferred Stock (the “Certificate of
      Designations”) 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 8% 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 $2.25 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.





To
      the
      extent that any shares of Series B Preferred Stock remain outstanding on
      September 28, 2008, 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.





The
      Series B Preferred Stock also provides the holders thereof with 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).





The
      Series B Preferred Stock will 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.





*Series
      F Warrants*





The
      Series F Warrants are exercisable at a price of $2.25 per share for a period
      of
      seven years from the date of issuance. The Series F Warrants may be exercised
      on
      a cashless basis. The exercise price will be subject to adjustment in the event
      of subdivision or combination of shares of 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 F Warrants, 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 F Warrants, issuances
      of
      convertible securities with a conversion price below the exercise price of
      the
      Series F Warrants.





*Series
      G Warrants*





The
      Series G Warrants are exercisable at a price of $2.50 per share for a period
      of
      seven years from the date of issuance. The Series G Warrants may be exercised
      on
      a cashless basis. The exercise price will be subject to adjustment in the event
      of subdivision or combination of shares of 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 G Warrants, 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 G Warrants, issuances
      of
      convertible securities with a conversion price below the exercise price of
      the
      Series G Warrants.





14


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**




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





*Security
      Agreement*





We,
      along
      with our subsidiaries MDwerks, Xeni Medical, Xeni Financial, Xeni Billing,
      and
      PPS entered into Security Agreements with the Investor. The Security Agreements
      provide for liens in favor of the Investor on all of our assets, including
      the
      assets of each of our subsidiaries, except for the accounts receivable and
      certain contract rights of Xeni Financial Services, Corp.





*Guaranty
      Agreement*





Our
      subsidiaries, MDwerks, Xeni Medical, Xeni Financial, Xeni Billing, and
      PPS entered into Guaranty Agreements with the Investor, pursuant to which
      they have agreed to unconditionally guaranty our obligations under the Series
      B
      Preferred Stock and the documents entered into by us in connection with the
      sale
      of the Series B Preferred Stock.





*Registration
      Rights Agreement*





We
      entered into a Registration Rights Agreement with the Investor. The Registration
      Rights Agreement requires us to file a registration statement covering the
      resale of the shares underlying the Series B Preferred Stock, the Series F
      Warrants and the Series G Warrants within 365 calendar days after the closing
      date. We are required to cause such registration statement to become effective
      on or before the date which is 485 calendar days after the filing of such
      registration statement. In addition to it being an event of default under the
      Securities Purchase Agreement, if we fail to file such registration statement
      in
      the time frame required, fail to cause it to become effective in the time frame
      required, or fail to maintain the effectiveness of the registration statement
      as
      required by the Registration Rights Agreement, we will be required to pay a
      cash
      penalty in the amount of 2% of the aggregate stated value of the Series B
      Preferred Stock for each month, or part thereof, that the registration statement
      is not filed or effective, as the case may be. The cash penalty is limited
      to
      15% of the aggregate stated value of the Series B Preferred Stock.





The
      Registration Rights Agreement also provides for piggyback registration
      rights.





*Amendment,
      Consent & Waiver Agreement*





In
      connection with the transactions described above, we entered into the Consent
      and Waiver Agreement with Gottbetter Capital Master, Ltd. (“Gottbetter”),
      whereby, among other things: (i) Gottbetter consented to the transactions
      described above, (ii) Gottbetter agreed to delay, until February 1, 2008,
      principal payments under the Senior Secured Convertible Note issued by the
      Corporation to Gottbetter on October 19, 2006 (the “October Note”) and under the
      Senior Secured Convertible Note issued by the Corporation to Gottbetter on
      November 9, 2006 (the “November Note”), (iii) Gottbetter agreed that its right
      of first refusal with respect to subsequent financings will be on a *pro
      rata, pari passu* basis
      with Vicis and (v) Gottbetter released its security interest in certain
      collateral of Xeni Financial.





15


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**


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





*Series
      D Warrant*




In
      consideration of Gottbetter entering into the Consent and Waiver Agreement,
      we
      issued to Gottbetter a Series D Warrant to purchase 500,000 shares of our Common
      Stock. The Series D Warrant is exercisable at a price of $2.25 per share for
      a
      period of five years from the date of issuance. The Series D Warrant may be
      exercised on a cashless basis. The exercise price will be subject to adjustment
      in the event of subdivision or combination of shares of 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 D 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 D Warrant,
      issuances of convertible securities with a conversion price below the exercise
      price of the Series D Warrant.




*Amended
      & Restated Notes*




In
      order
      to memorialize the extension of the principal payment date to February 1, 2008
      in the October Note and the November Note, we issued to Gottbetter an amended
      and restated October Note and an amended and restated November Note.




In
      accordance with SFAS No. 133 and Emerging Issues Task Force Issue 00-19 (‘‘EITF
      00-19’’), ‘‘Accounting for Derivative Financial Instruments Indexed To, and
      Potentially Settled in, a Company's Own Stock’’, the Company is required to
      record the fair value of the embedded beneficial conversion feature (ECF) and
      warrants as a liability since the Company has to use its ‘‘best efforts’’ to
      file a registration statement and maintain its effectiveness for a period of
      two
      years from the effective date. In connection with the initial sales of the
      Series A Preferred Stock, the initial estimated fair values allocated to the
      ECF
      were $913,777 which was recorded as a deemed dividend. The initial fair value
      allocated to the warrants of $768,751 was allocated to warrant liability. For
      the nine months ended September 30, 2006, the Company revalued these warrants
      resulting in a loss on valuation of warrant liability of $192,914.





**NOTE
      5 — LOAN PAYABLE**




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





The
      Company also has a loan payable to a customer of the Company in the amount
      of
      $250,000. This customer has provided this non-interest bearing loan to assist
      with interim financing and to fund equipment purchases incurred on behalf of
      the
      customer. During October 2007, $210,000 of this loan payable has been repaid
      to
      the customer.




16


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**




**NOTE
      6 — STOCKHOLDERS’ DEFICIENCY**




**Common
      stock**  ****




The
      Company is authorized to issue 100,000,000 shares of Common stock, $.001 par
      value, with such designations, rights and preferences as may be determined
      from
      time to time by the Board of Directors. As of September 30, 2007, there are
      12,940,065 shares issued and outstanding.




During
      August, 2007, two shareholders converted a total of three shares of the
      Company’s Series A convertible preferred stock into 60,000 shares of common
      stock.




**Preferred
      stock**




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




The
      Company is authorized to issue 1,000 shares of Series A Convertible Preferred
      stock, $0.001 par value with such designations, rights and preferences as may
      be
      determined from time to time by the Board of Directors. Between February 1,
      2006
      and September 30, 2006, the Company sold 28.3 Units to accredited investors.
      Each unit consists of one share of our Series A Convertible Preferred Stock,
      par
      value $.001 per share, and a detachable, transferable Series A Warrant to
      purchase 20,000 shares of our common stock, at a purchase price of $3.00 per
      share. Between August 11, 2006 and September 30, 2007, 26.3 shares of Series
      A
      Convertible Preferred Stock were converted into 526,667 shares of common stock
      leaving 2 Series A Convertible Preferred Stock outstanding as of September
      30,
      2007.





The
      Company is authorized to issue 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 preferred stock were issued in connection with the
      Securities Purchase Agreement. As of September 30, 2007, there are 200 Series
      B
      Convertible Preferred Stock shares issued and outstanding.




**Common
      stock options**




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





**Shares**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Aggregate**
              **Intrinsic
                Value**Outstanding
                at December 31, 2006
            
            
            2,876,250
            
            $
            3.04Granted
            
            
            175,000
            
            
            0.67Exercised
            
            
            —
            
            
            —Forfeited
            
            
            (20,000
            )
            $
            1.39Outstanding
                at September 30, 2007
            
            
            3,031,250
            
            $
            2.91
            
            $
            0Options
                exercisable at end of period
            
            
            1,377,082
            
            $
            2.74Weighted-average
                fair value of options granted during the period
            
            $
            0.67




17


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**




**NOTE
      6 — STOCKHOLDERS’ DEFICIENCY**




**Common
      stock options (continued)**




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




**Options
                Outstanding**
            
            **Options
                Exercisable****Range
                of Exercise Prices**
            
            **Shares**
            
            **Weighted
                Average**
              **Remaining**
              **Contractual**
              **Life
                (Years)**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Shares**
            
            **Weighted
                Average**
              **Exercise
                Price**$0.67
            
            
            175,000
            
            
            10.00
            
            $
            0.67
            
            
            33,333
            
            $
            0.67$1.39
            
            
            105,000
            
            
            9.25
            
            $
            1.39
            
            
            85,000
            
            $
            1.39$2.25
            
            
            1,025,000
            
            
            9.00
            
            $
            2.25
            
            
            683,333
            
            $
            2.25$3.25
            
            
            190,000
            
            
            8.25
            
            $
            3.25
            
            
            63,333
            
            $
            3.25$3.40
            
            
            860,000
            
            
            8.25
            
            $
            3.40
            
            
            286,667
            
            $
            3.40$4.00
                - 4.25
            
            
            676,250
            
            
            8.75
            
            $
            4.03
            
            
            225,416
            
            $
            4.033,031,250
            
            
            
            
            $
            2.91
            
            
            1,377,082
            
            $
            2.74




In
      connection with previously granted stock options, the Company recognized
      stock-based compensation expense of $2,506,281 for the nine months ended
      September 30, 2007 and $1,878,572 for the nine months ended September 30,
      2006.




As
      of
      September 30, 2007, the total future compensation expense related to non-vested
      options not yet recognized in the consolidated statement of operations is
      approximately $1,787,604, 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 December
      31, 2006 and changes during the period is as follows:





**Shares**
            
            **Weighted**
              **Average**
              **Exercise
                Price**Outstanding
                at December 31, 2006
            
            
            2,566,345
            
            $
            2.67Granted
            
            
            3,000,000
            
            
            2.33Exercised
            
            
            —
            
            
            —Forfeited
            
            
            —
            
            
            —Outstanding
                at September 30, 2007
            
            
            5,566,345
            
            $
            2.49Common
                stock issuable upon exercise of warrants
            
            
            5,566,345
            
            $
            2.49




18


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**





**NOTE
      6 — STOCKHOLDERS’ DEFICIENCY**




**Common
      stock warrants (continued)**





**Common
                Stock issuable upon**
              **exercise
                of warrants outstanding**
            
            **Common
                Stock issuable upon**
              **Warrants
                Exercisable****Range
                of****Exercise
                Price**
            
            **Number**
              **Outstanding**
              **at
                September 30,**
              **2007**
            
            **Weighted
                Average**
              **Remaining**
              **Contractual**
              **Life
                (Years)**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Number**
              **Exercisable**
              **at
                September 30,**
              **2007**
            
            **Weighted
                Average**
              **Exercise
                Price**$1.25
            
            
            199,000
            
            
            2.88
            
            $
            1.25
            
            
            199,000
            
            $
            1.25$1.50
            
            
            56,667
            
            
            3.74
            
            $
            1.50
            
            
            56,667
            
            $
            1.50$2.25
            
            
            2,486,111
            
            
            5.93
            
            $
            2.25
            
            
            2,486,111
            
            $
            2.25$2.50
            
            
            1,640,400
            
            
            4.71
            
            $
            2.50
            
            
            1,640,400
            
            $
            2.50$3.00
            
            
            579,167
            
            
            1.62
            
            $
            3.00
            
            
            579,167
            
            $
            3.00$3.25
            
            
            375,000
            
            
            4.05
            
            $
            3.25
            
            
            375,000
            
            $
            3.25$3.76
            
            
            225,000
            
            
            2.05
            
            $
            3.76
            
            
            225,000
            
            $
            3.76$4.00
            
            
            5,000
            
            
            2.05
            
            $
            4.00
            
            
            5,000
            
            $
            4.005,566,345
            
            
            
            
            $
            2.49
            
            
            5,566,345
            
            $
            2.49




**Registration
      rights**




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




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




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




19


**MDWERKS,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**




**NOTE
      6 — STOCKHOLDERS’ DEFICIENCY**




**Registration
      rights (continued)**




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




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





We
      also
      entered into a Registration Rights Agreement with the Investor. The Registration
      Rights Agreement requires us to file a registration statement covering the
      resale of the shares underlying the Series B Preferred Stock, the Series F
      Warrants and the Series G Warrants within 365 calendar days after the closing
      date. We are required to cause such registration statement to become effective
      on or before the date which is 485 calendar days after the filing of such
      registration statement. In addition to it being an event of default under the
      Securities Purchase Agreement, if we fail to file such registration statement
      in
      the time frame required, fail to cause it to become effective in the time frame
      required, or fail to maintain the effectiveness of the registration statement
      as
      required by the Registration Rights Agreement, we will be required to pay a
      cash
      penalty in the amount of 2% of the aggregate stated value of the Series B
      Preferred Stock for each month, or part thereof, that the registration statement
      is not filed or effective, as the case may be. The cash penalty is limited
      to
      15% of the aggregate stated value of the Series B Preferred Stock.





The
      Registration Rights Agreement also provides for piggyback registration
      rights.





**NOTE 7
      — COMMITMENTS**




**Lease
      agreements**




The
      Company sub-leases its facility, on a month-to-month basis, under a master lease
      expiring July 2008. Rent expense for the nine months ended September 30, 2007
      was $70,626.





20


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




**Overview**




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




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




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




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




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




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




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




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




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




**Results
      of Operations**




***For
      the Nine Months Ended September 30, 2007 Versus the Nine Months Ended September
      30, 2006***




*Revenue*




For
      the
      nine months ended September 30, 2007, we recorded total revenue of $403,233.
      Of
      this total, we recorded service fee revenue of $356,540, or 88.4% and financing
      income of $46,693 or 11.6%. For the nine months ended September 30, 2006, we
      recorded total revenue of $298,850. Of this total, we recorded service fee
      revenue of $262,292, or 87.8% and financing income of $36,558 or
      12.2%.




*Operating
      Expenses*




Our
      operating expenses significantly increased for the nine months ended September
      30, 2007 from the nine months ended September 30, 2006 principally as a result
      of higher compensation and consulting expenses, offset by lower selling, general
      and administrative expenses.




For
      the
      nine months ended September 30, 2007, total operating expenses were $6,196,794
      as compared to $5,287,920 for the nine months ended September 30, 2006, an
      increase of $908,874 or 17.2%. Included in this increase for the nine months
      ended September 30, 2007 is the following:




1.
              We
                  recorded compensation expense of $4,073,320 as compared to $3,193,895
                  for
                  the nine months ended September 30, 2006. This $879,425 or 27.5%
                  increase
                  was attributable to the hiring of permanent sales, operations and
                  executive staff and the recording of stock-based compensation expense
                  under FAS 123R for previous period stock option grants. The increase
                  in
                  compensation expense related to the new and existing permanent
                  employees
                  was $251,716, or 7.9%. The stock-based compensation expense for
                  the nine
                  months ended September 30, 2007 was $2,506,281 as compared to $1,878,572
                  for the nine months ended September 30, 2006, an increase of $627,709,
                  or
                  19.6%. We expect cash and stock-based compensation expense to increase
                  as
                  we hire additional administrative, sales and technical personnel
                  and
                  record the expense of both current and future stock option grants;
                  and




22




2.
              Consulting
                  expense amounted to $562,798 as compared to $399,126 for the nine
                  months
                  ended September 30, 2006, an increase of $163,672, or 41.0%. For
                  the nine
                  months ended September 30, 2007 and 2006, we paid consultants for
                  business
                  advisory services, temporary information technology support and
                  various
                  other services; and
  3.
                Professional
                    fees amounted to $299,901 as compared to $277,906 for the nine
                    months
                    ended September 30, 2006, an increase of $21,995, or 7.9%. This
                    expense
                    was attributable to accounting fees for the audit of our financial
                    statements and SEC filings and legal fees related to SEC filings,
                    the
                    Series A and Series B Convertible Preferred Stock offerings,
                    the
                    Convertible Notes Payable and other corporate matters;
                    and
  4.
                  Selling,
                      general and administrative expenses were $1,260,775 as compared
                      to
                      $1,416,993 for the nine months ended September 30, 2006, a
                      decrease of
                      $156,218, or 11.0%. This decrease was principally attributable
                      to a loss
                      of $180,736 on settlement of notes payable related to the issuance
                      of
                      common shares for debt conversion that was recorded during
                      the nine months
                      ended September 30,
                      2006.




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





**2007**
            
            **2006**Sales
                commissions
            
            $
            64,422
            
            $
            140,807Advertising
                and promotion
            
            
            93,593
            
            
            103,816Employee
                benefits and payroll taxes
            
            
            316,502
            
            
            276,960Other
                selling, general and administrative
            
            
            786,258
            
            
            895,410$
            1,260,775
            
            $
            1,416,993




*Other
      Income (Expenses)*




** For the
      nine months ended September 30, 2007, interest income was $60,201 as compared
      to
      $5,671 for the nine months ended September 30, 2006, an increase of $54,530.
      This increase was due to an increase in interest-bearing cash
      deposits.




For
      the
      nine months ended September 30, 2007, interest expense was $1,526,737 as
      compared to $380,039 for the nine months ended September 30, 2006, an increase
      of $1,146,698. This increase was due to an increase in borrowings and
      amortization of debt discount and deferred fees in connection with our notes
      payable.




In
      accordance with Emerging Issues Task Force Issue 00-19 (‘‘EITF 00-19’’),
‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially
      Settled in, a Company's Own Stock’’, we recorded a loss on the revaluation of
      warrant liability of $192,914 related to the change in fair value of the
      warrants during nine months ended September 30, 2006.




*Net
      Loss*




As
      a
      result of these factors, we reported a net loss of $7,259,932 for the nine
      months ended September 30, 2007 as compared to a net loss of $5,559,843 for
      the
      nine months ended September 30, 2006.




23


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




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




*Net
      Loss Attributable to Common Shareholders*




We
      reported a net loss attributable to common shareholders of $7,259,932 for the
      nine months ended September 30, 2007 as compared to net loss attributable to
      common shareholders of $6,719,860 for the nine months ended September 30, 2006.
      This translates to an overall per share loss available to shareholders of ($.57)
      for the nine months ended September 30, 2007 as compared to a per share loss
      of
      ($.57) for nine months ended September 30, 2006.




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




*Revenue*




For
      the
      three months ended September 30, 2007, we recorded total revenue of $136,573.
      Of
      this total, we recorded service fee revenue of $119,820, or 87.7% and financing
      income of $16,753 or 12.3%. For the three months ended September 30, 2006,
      we
      recorded total revenue of $158,113. Of this total, we recorded service fee
      revenue of $147,726, or 93.4% and financing income of $10,387 or
      6.6%.




*Operating
      Expenses*




Our
      operating expenses significantly decreased for the three months ended September
      30, 2007 from the three months ended September 30, 2006 principally as a result
      of decreased compensation expense, professional fees and selling, general and
      administrative expenses.




For
      the
      three months ended September 30, 2007, total operating expenses were $1,835,304
      as compared to $2,484,610 for the three months ended September 30, 2006, a
      decrease of $649,306 or 26.1%. Included in this decrease for the three months
      ended September 30, 2007 compared to the three months ended September 30, 2006
      is the following:




1.
              We
                  recorded compensation expense of $1,229,568 as compared to $1,730,160
                  for
                  the three months ended September 30, 2006. This $500,592 or 28.9%
                  decrease
                  was principally attributable to the recording of lower stock-based
                  compensation expense under FAS 123R in the amount of $614,089,
                  offset by
                  $113,497 in higher salaries for employees. The stock-based compensation
                  expense for the three months ended September 30, 2007 was $710,847
                  as
                  compared to $1,324,936 for the three months ended September 30,
                  2006. We
                  expect cash and stock-based compensation expense to increase as
                  we hire
                  additional administrative, sales and technical personnel and record
                  the
                  expense of both current and future stock option grants;
                  and
  2.
                Consulting
                    expense amounted to $158,360 as compared to $144,081 for the
                    three months
                    ended September 30, 2006, an increase of $14,279, or 9.9%. For
                    the three
                    months ended September 30, 2007 and 2006, we paid consultants
                    for business
                    advisory services, temporary information technology support and
                    various
                    other services; and
  3.
                  Professional
                      fees amounted to $74,215 as compared to $153,782 for the three
                      months
                      ended September 30, 2006, a decrease of $79,567, or 51.7%.
                      This
                      expense reduction was principally attributable to
                      lower accounting fees for the audit of our financial statements and
                      SEC filings and legal fees related to SEC filings and stock
                      offerings for
                      the three months ended September 30, 2007 versus the three
                      months ended
                      September 30,
                      2006.




24




4.
              Selling,
                  general and administrative expenses were $372,161 as compared to
                  $456,587
                  for the three months ended September 30, 2006, a decrease of $84,426,
                  or
                  18.5%.




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





**2007**
            
            **2006**Sales
                commissions
            
            $
            18,440
            
            $
            35,378Advertising
                and promotion
            
            
            21,435
            
            
            23,783Employee
                benefits and payroll taxes
            
            
            99,889
            
            
            97,993Other
                selling, general and administrative
            
            
            232,397
            
            
            299,433$
            372,161
            
            $
            456,587




*Other
      Income (Expenses)*




** For the
      three months ended September 30, 2007, interest income was $13,492 as compared
      to $1,123 for the three months ended September 30, 2006, an increase of $12,369.
      This increase was due to an increase in interest-bearing cash
      deposits.




For
      the
      three months ended September 30, 2007, interest expense was $500,601 as compared
      to $372,291 for the three months ended September 30, 2006, an increase of
      $128,310. This increase was due to an increase in borrowings and amortization
      of
      debt discount and deferred fees in connection with our notes
      payable.




In
      accordance with Emerging Issues Task Force Issue 00-19 (‘‘EITF 00-19’’),
‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially
      Settled in, a Company's Own Stock’’, we recorded a loss on the revaluation of
      warrant liability of $0 compared to a gain of $1,030,338 related to the change
      in fair value of the warrants during three months ended September 30,
      2006.




*Net
      Loss*




As
      a
      result of these factors, we reported a net loss of $2,184,840 for the three
      months ended September 30, 2007 as compared to a net loss of $1,670,829 for
      the
      three months ended September 30, 2006.




*Net
      Loss Attributable to Common Shareholders*




We
      reported a net loss attributable to common shareholders of $2,184,840 for the
      three months ended September 30, 2007 as compared to net loss attributable
      to
      common shareholders of $1,670,829 for the three months ended September 30,
      2006.
      This translates to an overall per share loss available to shareholders of ($.17)
      for the three months ended September 30, 2007 as compared to a per share loss
      of
      ($.14) for three months ended September 30, 2006.




*Liquidity
      and Capital Resources*




We
      used
      the proceeds from the sales of common stock through September 30, 2007 and
      proceeds from notes and loans payable for working capital purposes and to fund
      our notes receivable of which we have $1,010,549 owed to us at September 30,
      2007. We will continue to advance funds under note agreements to providers
      that
      subscribe to our financial services lending solutions.




25


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




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




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





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





On
      August
      31, 2007 we received gross proceeds of $250,000 in connection with a financing
      provided by Vicis Capital Master Fund, an unaffiliated accredited investor.
      In
      connection with the financing, we issued a 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 less repayment of the $250,000 August 31, 2007 Vicis Capital Master
      Fund Convertible Note, interest and closing expenses) in connection with a
      financing provided by Vicis Capital Master Fund, an unaffiliated accredited
      institutional investor.





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




We
      currently have no material commitments for capital expenditures.




*Cash
      flows*




At
      September 30, 2007, we had cash of $1,771,111.




Net
      cash
      used in operating activities was $3,309,989 for the nine months ended September
      30, 2007 as compared to $2,270,394 for the nine months ended September 30,
      2006,
      an increase of $1,039,595. This increase is primarily attributable to an
      increase in our net loss and:




1.
              Gottbetter
                  debt offering costs of $133,500 and Gottbetter, Goldner and Grenier
                  debt
                  discount and debt issuance costs of $1,208,594 and $10,954, respectively,
                  compared to debt related costs during the nine months ended September
                  30,
                  2006 of $31,913;
  2.
                Stock-based
                    compensation of $2,506,281 versus stock-based compensation expense
                    of
                    $1,878,572 for the nine months ended September 30, 2006 primarily
                    related
                    to issuance of stock options to
                    employees;
  3.
                  No
                      settlement expense versus settlement expense in the amount
                      of $180,827 for
                      the conversion of $40,000 of notes payable to common stock
                      for the nine
                      months ended September 30,
                      2006;




26


4.
              No
                  loss on valuation of warrant liability versus loss on valuation
                  of warrant
                  liability of $192,914 through September 30, 2006 due to the revaluation
                  of
                  our warrant liability to fair
                  value;
  5.
                No
                    interest expense in connection with grant of warrants, versus
                    interest
                    expense of $335,273 through September
                    30,2006;
  6.
                  A
                      net increase in notes receivable, accounts receivable and prepaid
                      expenses
                      aggregating $537,541 principally related to the increase in
                      funding of
                      notes receivable to providers that subscribe to our MDwerks
                      financial
                      services solution;
  7.
                    An
                        increase in accounts payable, accrued expenses, and deferred
                        revenue
                        related to an increase in operating activities aggregating
                        $244,457.




Net
      cash
      used in investing activities was $5,209 for the nine months ended September 30,
      2007 as compared to $71,728 for the nine months ended September 30, 2006 and
      is
      principally related to the acquisition of computer and office equipment and
      furniture.




Net
      cash
      provided by financing activities was $1,939,468 due to the proceeds from the
      sale of Series B Preferred Stock for the nine months ended September 30, 2007
      as
      compared to net cash provided by financing activities of $1,716,471 due to
      net
      proceeds from the sale of Series A Convertible Preferred Stock for the nine
      months ended September 30, 2006.




***Off
      Balance Sheet Arrangements***




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




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




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




·
              adverse
                  economic conditions;




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




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




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




·
            adverse
                results of any legal proceedings;




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




·
            the
                volatility of our operating results and financial
                condition;




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




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




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




27


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





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




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




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




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




28


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




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




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




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




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




29


**PART
      II — OTHER INFORMATION**





**Item
      1 — Legal Proceedings**




None





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




During
      the three months ended September 30, 2007, two Series A preferred stockholders’
converted three shares of Series A Preferred Stock into 60,000 shares of common
      stock.





On
      September 28, 2007, the Company 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 Capital Master Fund, an unaffiliated accredited
      institutional investor. 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.




**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




30


**SIGNATURES**




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




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


November
                  13, 2007
              
              /s/ Vincent
                ColangeloVincent
                ColangeloChief
                    Financial Officer
  31