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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSIONWashington, D.C.20549

Form10-QSB

(MarkOne)

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

For thequarterly period ended September  30,2006

|        |                                                                           |
|--------|---------------------------------------------------------------------------|
|   | TRANSITION REPORT UNDER SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT |

For thetransition period from                     to                        

Commission FileNumber:    333-118155

MDWERKS,INC.

(Exact name of small business issuer asspecified incharter)

|                                                              |  |  |                                     |
|--------------------------------------------------------------|--|--|-------------------------------------|
| Delaware                                                     |  |  | 33-1095411                          |
| (Stateor other jurisdiction of incorporation ororganization) |  |  | (I.R.S.Employer Identification No.) |
|                                                              |

WindolphCenter, Suite I1020 N.W. 6th StreetDeerfield Beach, FL33442

(Address of principal executiveoffices)(Zip Code)

(954)389-8300(Issuer's telephone number,including areacode)

N/A(Former name,former address and former fiscal year, if changed since lastreport)

Check whether the issuer (1) filed allreports required to be filed by Section 13 or 15(d) of the Exchange Actduring the past 12 months or for such shorter period that theregistrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days.Yes    No 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).    Yes     No 

State the number ofshares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date: 12,393,398 shares atNovember 13, 2006

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

|  |
|--|
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MDWERKS,INC.FORM 10-QSBFOR THE PERIOD ENDED SEPTEMBER 30,2006

INDEX

|                                                                                                                          |  |  |        |
|--------------------------------------------------------------------------------------------------------------------------|--|--|--------|
|                                                                                                                     |  |  | Page   |
| PARTI – FINANCIALINFORMATION                                                                                       |  |  |   |
| Item1 – Condensed Consolidated FinancialStatements                                                                 |  |  |   |
| Condensed ConsolidatedBalance Sheets As of September 30, 2006 (Unaudited)and December31,2005                             |  |  | 3      |
| CondensedConsolidated Statements of Operations (Unaudited) For the Threeand Nine Months Ended September 30, 2006 and2005 |  |  | 4      |
| Condensed ConsolidatedStatements of Cash Flows (Unaudited) For the Nine Months EndedSeptember 30, 2006 and 2005          |  |  | 5      |
| Notesto Unaudited Condensed Consolidated FinancialStatements                                                             |  |  | 6-19   |
| Item 2 –Management's Discussion and Analysis or Plan ofOperation                                                   |  |  | 20-29  |
| Item 3 –Controls and Procedures                                                                                    |  |  | 29     |
| PART II– OTHER INFORMATION                                                                                         |  |  |   |
| Item 1– Legal Proceedings                                                                                          |  |  | 30     |
| Item 2– Unregistered Sales of Equity Securities and Use ofProceeds                                                 |  |  | 30     |
| Item 3 – DefaultsUpon Senior Securities                                                                            |  |  | 30     |
| Item 4– Submission of Matters to a Vote of SecurityHolders                                                         |  |  | 30     |
| Item 5 – OtherInformation                                                                                          |  |  | 30     |
| Item 6 –Exhibits                                                                                                   |  |  | 30     |
|                                                                                                                          |

2

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MDWERKS,INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCESHEETS

|                                                                                                                                                                                               |  |  |                   |   |             |                  |  |  |  |   |             |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------------|---|-------------|------------------|--|--|--|---|-------------|---|
|                                                                                                                                                                                          |  |  | September30, 2006 |   |             | December 31,2005 |
|                                                                                                                                                                                          |  |  | (Unaudited)       |   |             |             |
| ASSETS                                                                                                                                                                                        |  |  |                   |   |        |                  |  |  |  |   |        |   |
| Currentassets:                                                                                                                                                                                |  |  |                   |   |        |                  |  |  |  |   |        |   |
| Cash                                                                                                                                                                                          |  |  |                   | $ | 140,812     |                  |  |  |  | $ | 766,464     |   |
| Notesreceivable                                                                                                                                                                               |  |  |                   |   | 365,473     |                  |  |  |  |   | 363,845     |   |
| Accountsreceivable                                                                                                                                                                            |  |  |                   |   | 30,447      |                  |  |  |  |   | 10,415      |   |
| Debtissuance cost,net                                                                                                                                                                         |  |  |                   |   | 20,314      |                  |  |  |  |   | —     |   |
| Prepaid expensesandother                                                                                                                                                                      |  |  |                   |   | 48,736      |                  |  |  |  |   | 68,816      |   |
| Totalcurrentassets                                                                                                                                                                            |  |  |                   |   | 605,782     |                  |  |  |  |   | 1,209,540   |   |
| Propertyand equipment, net of accumulated depreciation of $36,235 forSeptember  30,  2006 and $13,428 for December31,2005                                                                     |  |  |                   |   | 129,312     |                  |  |  |  |   | 80,391      |   |
| Totalassets                                                                                                                                                                                   |  |  |                   | $ | 735,094     |                  |  |  |  | $ | 1,289,931   |   |
| LIABILITIESAND STOCKHOLDERS'DEFICIENCY                                                                                                                                                        |  |  |                   |   |        |                  |  |  |  |   |        |   |
| Currentliabilities:                                                                                                                                                                           |  |  |                   |   |        |                  |  |  |  |   |        |   |
| Notes payable,net                                                                                                                                                                             |  |  |                   | $ | 163,993     |                  |  |  |  | $ | 135,000     |   |
| Loanpayable                                                                                                                                                                                   |  |  |                   |   | 77,214      |                  |  |  |  |   | 98,700      |   |
| Accountspayable                                                                                                                                                                               |  |  |                   |   | 423,052     |                  |  |  |  |   | 211,517     |   |
| Accruedexpenses                                                                                                                                                                               |  |  |                   |   | 269,895     |                  |  |  |  |   | 167,382     |   |
| Deferredrevenues                                                                                                                                                                              |  |  |                   |   | 17,868      |                  |  |  |  |   | 5,357       |   |
| Warrantliability                                                                                                                                                                              |  |  |                   |   | 2,696,901   |                  |  |  |  |   | 1,735,237   |   |
| Totalcurrentliabilities                                                                                                                                                                       |  |  |                   |   | 3,648,923   |                  |  |  |  |   | 2,353,193   |   |
| Long-termliabilities:                                                                                                                                                                         |  |  |                   |   |        |                  |  |  |  |   |        |   |
| Deferred revenues,less currentportion                                                                                                                                                         |  |  |                   |   | 39,304      |                  |  |  |  |   | 3,390       |   |
| Totalliabilities                                                                                                                                                                              |  |  |                   |   | 3,688,227   |                  |  |  |  |   | 2,356,583   |   |
| Stockholders'deficiency:                                                                                                                                                                      |  |  |                   |   |        |                  |  |  |  |   |        |   |
| Preferred stock, $.001par value, 10,000,000 shares authorized; no shares issued andoutstanding                                                                                                |  |  |                   |   | —     |                  |  |  |  |   | —     |   |
| SeriesA preferred stock, $.001 par value, 1,000 shares authorized; 15.33shares issued andoutstanding                                                                                          |  |  |                   |   | —     |                  |  |  |  |   | —     |   |
| Commonstock, $.001 par value, 100,000,000 shares authorized; 12,053,398shares issued and outstanding at September  30,  2006 and11,538,730 shares issued and outstanding at December  31,2005 |  |  |                   |   | 12,053      |                  |  |  |  |   | 11,539      |   |
| Additionalpaid-incapital                                                                                                                                                                      |  |  |                   |   | 20,312,903  |                  |  |  |  |   | 15,480,037  |   |
| Accumulateddeficit                                                                                                                                                                            |  |  |                   |   | (23,278,089 | )                |  |  |  |   | (16,558,228 | ) |
| Totalstockholders'deficiency                                                                                                                                                                  |  |  |                   |   | (2,953,133  | )                |  |  |  |   | (1,066,652  | ) |
| Totalliabilities and stockholders'deficiency                                                                                                                                                  |  |  |                   | $ | 735,094     |                  |  |  |  | $ | 1,289,931   |   |
|                                                                                                                                                                                               |

Theaccompanying notes should be read in conjunction with the condensedconsolidated financial statements

3

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MDWERKS, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OFOPERATIONS

|                                                                    |  |  |                                         |   |            |                                       |  |  |             |   |           |             |  |  |  |   |            |   |  |  |  |   |            |   |
|--------------------------------------------------------------------|--|--|-----------------------------------------|---|------------|---------------------------------------|--|--|-------------|---|-----------|-------------|--|--|--|---|------------|---|--|--|--|---|------------|---|
|                                                               |  |  | Forthe Three Months Ended September 30, |   |            | For the NineMonths Ended September30, |
|                                                               |  |  | 2006                                    |   |            | 2005                                  |  |  | 2006        |   |           | 2005        |
|                                                               |  |  | (Unaudited)                             |   |            | (Unaudited)                           |  |  | (Unaudited) |   |           | (Unaudited) |
| Revenue:                                                           |  |  |                                         |   |       |                                       |  |  |             |   |      |             |  |  |  |   |       |   |  |  |  |   |       |   |
| Servicefees                                                        |  |  |                                         | $ | 147,726    |                                       |  |  |             | $ | 9,407     |             |  |  |  | $ | 262,292    |   |  |  |  | $ | 14,907     |   |
| Financingincome                                                    |  |  |                                         |   | 10,387     |                                       |  |  |             |   | 3,770     |             |  |  |  |   | 36,558     |   |  |  |  |   | 8,246      |   |
| Totalrevenue                                                       |  |  |                                         |   | 158,113    |                                       |  |  |             |   | 13,177    |             |  |  |  |   | 298,850    |   |  |  |  |   | 23,153     |   |
| Operatingexpenses:                                                 |  |  |                                         |   |       |                                       |  |  |             |   |      |             |  |  |  |   |       |   |  |  |  |   |       |   |
| Compensation                                                       |  |  |                                         |   | 1,730,160  |                                       |  |  |             |   | 22,500    |             |  |  |  |   | 3,193,895  |   |  |  |  |   | 22,500     |   |
| Consultingexpenses and outsideservices                             |  |  |                                         |   | 144,081    |                                       |  |  |             |   | 338,159   |             |  |  |  |   | 399,126    |   |  |  |  |   | 627,157    |   |
| Professionalfees                                                   |  |  |                                         |   | 153,782    |                                       |  |  |             |   | 145,536   |             |  |  |  |   | 277,906    |   |  |  |  |   | 265,248    |   |
| Selling,general andadministrative                                  |  |  |                                         |   | 453,468    |                                       |  |  |             |   | 73,662    |             |  |  |  |   | 1,233,047  |   |  |  |  |   | 168,288    |   |
| Totaloperatingexpenses                                             |  |  |                                         |   | 2,481,491  |                                       |  |  |             |   | 579,857   |             |  |  |  |   | 5,103,974  |   |  |  |  |   | 1,083,193  |   |
| Lossfromoperations                                                 |  |  |                                         |   | (2,323,378 | )                                     |  |  |             |   | (566,680  | )           |  |  |  |   | (4,805,124 | ) |  |  |  |   | (1,060,040 | ) |
| Otherincome(expense):                                              |  |  |                                         |   |       |                                       |  |  |             |   |      |             |  |  |  |   |       |   |  |  |  |   |       |   |
| Interestincome                                                     |  |  |                                         |   | 1,123      |                                       |  |  |             |   | —   |             |  |  |  |   | 5,671      |   |  |  |  |   | —    |   |
| Interestexpense                                                    |  |  |                                         |   | (372,291   | )                                     |  |  |             |   | (447      | )           |  |  |  |   | (380,039   | ) |  |  |  |   | (447       | ) |
| Amortizationof debt issuancecosts                                  |  |  |                                         |   | (3,120     | )                                     |  |  |             |   | —   |             |  |  |  |   | (3,120     | ) |  |  |  |   | —    |   |
| Settlementexpense related to debtconversion                        |  |  |                                         |   | —    |                                       |  |  |             |   | —   |             |  |  |  |   | (180,827   | ) |  |  |  |   | —    |   |
| Gain(loss) on valuation of warrantliability                        |  |  |                                         |   | 1,030,338  |                                       |  |  |             |   | —   |             |  |  |  |   | (192,914   | ) |  |  |  |   | —    |   |
| Otherexpense                                                       |  |  |                                         |   | (3,502     | )                                     |  |  |             |   | —   |             |  |  |  |   | (3,502     | ) |  |  |  |   | —    |   |
| Otherincome                                                        |  |  |                                         |   | —    |                                       |  |  |             |   | —   |             |  |  |  |   | 11         |   |  |  |  |   | —    |   |
| Totalother income(expense)                                         |  |  |                                         |   | 652,548    |                                       |  |  |             |   | (447      | )           |  |  |  |   | (754,720   | ) |  |  |  |   | (447       | ) |
| Netloss                                                            |  |  |                                         |   | (1,670,830 | )                                     |  |  |             |   | (567,127  | )           |  |  |  |   | (5,559,844 | ) |  |  |  |   | (1,060,487 | ) |
| Deemedpreferred stockdividend                                      |  |  |                                         |   | —    |                                       |  |  |             |   | —   |             |  |  |  |   | (913,777   | ) |  |  |  |   | —    |   |
| Commonstock issued in connection with anti-dilutiverecalculation   |  |  |                                         |   | —    |                                       |  |  |             |   | —   |             |  |  |  |   | (246,240   | ) |  |  |  |   | —    |   |
| Netloss attributable to commonshareholders                         |  |  |                                         | $ | (1,670,830 | )                                     |  |  |             | $ | (567,127  | )           |  |  |  | $ | (6,719,861 | ) |  |  |  | $ | (1,060,487 | ) |
| NETLOSS PER COMMON SHARE – basic anddiluted                  |  |  |                                         | $ | (0.14      | )                                     |  |  |             | $ | (0.06     | )           |  |  |  | $ | (0.57      | ) |  |  |  | $ | (0.11      | ) |
| WEIGHTEDAVERAGE COMMON SHARES OUTSTANDING – basic anddiluted |  |  |                                         |   | 11,777,821 |                                       |  |  |             |   | 9,352,328 |             |  |  |  |   | 11,728,751 |   |  |  |  |   | 9,352,328  |   |
|                                                                    |

Theaccompanying notes should be read in conjunction with the condensedconsolidated financial statements

4

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MDWERKS, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS

|                                                                           |  |  |                                        |   |            |             |  |  |  |   |            |   |
|---------------------------------------------------------------------------|--|--|----------------------------------------|---|------------|-------------|--|--|--|---|------------|---|
|                                                                      |  |  | Forthe Nine Months Ended September 30, |
|                                                                      |  |  | 2006                                   |   |            | 2005        |
|                                                                      |  |  | (Unaudited)                            |   |            | (Unaudited) |
| Cash flows from operatingactivities:                                      |  |  |                                        |   |       |             |  |  |  |   |       |   |
| Netloss                                                                   |  |  |                                        | $ | (5,559,844 | )           |  |  |  | $ | (1,060,487 | ) |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities: |  |  |                                        |   |       |             |  |  |  |   |       |   |
| Depreciation                                                              |  |  |                                        |   | 22,807     |             |  |  |  |   | 13,524     |   |
| Amortizationof debt issuancecost                                          |  |  |                                        |   | 3,120      |             |  |  |  |   | —    |   |
| Amortizationof debtdiscount                                               |  |  |                                        |   | 28,793     |             |  |  |  |   | —    |   |
| Stock-basedcompensation andconsulting                                     |  |  |                                        |   | 2,163,572  |             |  |  |  |   | —    |   |
| Settlementexpense related to debtconversion                               |  |  |                                        |   | 180,827    |             |  |  |  |   | —    |   |
| Interestexpense in connection with grant ofwarrants                       |  |  |                                        |   | 335,273    |             |  |  |  |   |       |   |
| Loss on valuation ofwarrantliability                                      |  |  |                                        |   | 192,914    |             |  |  |  |   | —    |   |
| Changesin assets and liabilities:                                         |  |  |                                        |   |       |             |  |  |  |   |       |   |
| Notesreceivable                                                           |  |  |                                        |   | (1,628     | )           |  |  |  |   | (172,213   | ) |
| Accountsreceivable                                                        |  |  |                                        |   | (20,032    | )           |  |  |  |   | —    |   |
| Prepaidexpenses andother                                                  |  |  |                                        |   | 20,080     |             |  |  |  |   | (35,384    | ) |
| Accountspayable                                                           |  |  |                                        |   | 211,535    |             |  |  |  |   | 313,062    |   |
| Accruedexpenses                                                           |  |  |                                        |   | 103,763    |             |  |  |  |   | 26,096     |   |
| Deferredrevenues                                                          |  |  |                                        |   | 48,425     |             |  |  |  |   | —    |   |
| Totaladjustments                                                          |  |  |                                        |   | 3,289,449  |             |  |  |  |   | 145,085    |   |
| Netcash used in operatingactivities                                       |  |  |                                        |   | (2,270,395 | )           |  |  |  |   | (915,402   | ) |
| Cashflows from investingactivities:                                       |  |  |                                        |   |       |             |  |  |  |   |       |   |
| Purchase of property andequipment                                         |  |  |                                        |   | (71,728    | )           |  |  |  |   | (75,324    | ) |
| Netcash used in investingactivities                                       |  |  |                                        |   | (71,728    | )           |  |  |  |   | (75,324    | ) |
| Cashflows from financingactivities:                                       |  |  |                                        |   |       |             |  |  |  |   |       |   |
| Capitalcontributions                                                      |  |  |                                        |   | —    |             |  |  |  |   | 550,886    |   |
| Proceedsfrom loanspayable                                                 |  |  |                                        |   | —    |             |  |  |  |   | 80,000     |   |
| Proceedsfrom notespayable                                                 |  |  |                                        |   | 360,000    |             |  |  |  |   | 135,000    |   |
| Placementfees in connection with notespayable                             |  |  |                                        |   | (23,434    | )           |  |  |  |   | —    |   |
| Repaymentof notepayable                                                   |  |  |                                        |   | (25,000    | )           |  |  |  |   | —    |   |
| Repaymentof loanpayable                                                   |  |  |                                        |   | (21,486    | )           |  |  |  |   | —    |   |
| Netproceeds from sale of commonstock                                      |  |  |                                        |   | —    |             |  |  |  |   | 119,229    |   |
| Proceedsfrom sale of Series A preferredstock                              |  |  |                                        |   | 1,700,000  |             |  |  |  |   | —    |   |
| Placementfees and other expensespaid                                      |  |  |                                        |   | (273,609   | )           |  |  |  |   | —    |   |
| Netcash provided by financingactivities                                   |  |  |                                        |   | 1,716,471  |             |  |  |  |   | 885,115    |   |
| Netdecrease incash                                                        |  |  |                                        |   | (625,652   | )           |  |  |  |   | (105,611   | ) |
| Cash– beginning ofyear                                              |  |  |                                        |   | 766,464    |             |  |  |  |   | 267,388    |   |
| Cash– end ofperiod                                                  |  |  |                                        | $ | 140,812    |             |  |  |  | $ | 161,777    |   |
| Supplementaldisclosure of cash flowinformation:                           |  |  |                                        |   |       |             |  |  |  |   |       |   |
| Cash paidfor:                                                             |  |  |                                        |   |       |             |  |  |  |   |       |   |
| Interest                                                                  |  |  |                                        | $ | 9,253      |             |  |  |  | $ | —    |   |
| Noncashinvesting and financingactivities:                                 |  |  |                                        |   |       |             |  |  |  |   |       |   |
| Common stock issued fordebt and accruedinterest                           |  |  |                                        | $ | 46,250     |             |  |  |  | $ | —    |   |
| Commonstock issued in connection with notespayable                        |  |  |                                        | $ | 39,800     |             |  |  |  | $ | —    |   |
| Detachablewarrants accounted for as debt discount on notepayable          |  |  |                                        | $ | 250,000    |             |  |  |  | $ | —    |   |
|                                                                           |

Theaccompanying notes should be read in conjunction with the condensedconsolidated financialstatements

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MDWERKS,INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS SEPTEMBER 30,2006

|                     |                                                                     |
|---------------------|---------------------------------------------------------------------|
| NOTE1 —  | BASIS OF PRESENTATION AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES |

Basis ofpresentation

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with generallyaccepted accounting principles for interim financial information andwith the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.Accordingly, the financial statements do not include all of theinformation and footnotes required by generally accepted accountingprinciples for complete financial statements. In the opinion ofmanagement, all adjustments considered necessary for a fairpresentation have been included and such adjustments are of a normalrecurring nature. These consolidated financial statements should beread in conjunction with the consolidated financial statements for theyear ended December  31,  2005 and notes thereto and otherpertinent information contained in the Form 10-KSB of MDwerks, Inc.(the ‘‘Company’’) as filed with theSecurities and Exchange Commission (the‘‘Commission’’). The results of operationsfor the nine months ended September  30,  2006 are notnecessarily indicative of the results for the full fiscal year endingDecember  31,  2006.

Organization

OnNovember  16,  2005, a wholly-owned subsidiary of MDwerks,Inc. (f/k/a Western Exploration, Inc., and hereinafter referred to asthe ‘‘Company’’) was merged with and intoMDwerks Global Holdings, Inc., a Florida corporation(‘‘MDwerks’’), with MDwerks surviving. TheCompany acquired all of the outstanding capital stock of MDwerks inexchange for issuing 9,352,328 shares of the Company’s commonstock, par value $0.001 per share to MDwerks’ stockholders,which at closing of the Merger Agreement represented approximately87.4% of the issued and outstanding shares of theCompany’s common stock. In connection with the Merger, theCompany changed its corporate name to MDwerks, Inc.

Theacquisition was accounted for as a reverse merger because, on apost-merger basis, the MDwerks stockholders hold a majority of theoutstanding common stock of the Company on a voting and fully dilutedbasis. As a result, MDwerks was deemed to be the acquirer foraccounting purposes. Accordingly, the consolidated financial statementspresented, beginning with the period ending December  31,2005, are those of the Company for all periods prior to theacquisition, and the financial statements of the consolidated companiesfrom the acquisition date forward. The historical stockholders’deficit of the Company prior to the acquisition has been retroactivelyrestated (a  recapitalization) for the equivalent number ofshares received in the acquisition after giving effect to anydifferences in the par value of the Company and MDwerks common stock,with an offset to additional paid-in capital. The restated consolidatedaccumulated deficit of the accounting acquirer MDwerks carried forwardafter the acquisition.

On June  7,  2005, MDwerksentered into and consummated Share Exchange Agreements with all of theshareholders of each of the Xeni Companies: Xeni Medical Systems, Inc.(‘‘XMS’’); Xeni Financial Services, Corp.(‘‘XFS’’); and Xeni Medical Billing, Corp.(‘‘XMB’’). Pursuant to each of the ShareExchange Agreements, MDwerks acquired 100% of the issued andoutstanding shares of each of the Xeni Companies’ commonstock.

The acquisition of the Xeni Companies by MDwerks wasaccounted for as a reverse merger because, on a post-merger basis, theformer Xeni shareholders held a majority of the outstanding commonstock of MDwerks on a voting and fully diluted basis. As a result, Xeniwas deemed to be the acquirer for accounting purposes. Accordingly, thefinancial statements of MDwerks are those of Xeni for all periodspresented.

XMS was incorporated under the laws of the state ofDelaware on July  21,  2004. XMS provides a Web-basedpackage of electronic claims solutions to the healthcare providerindustry through Internet 

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MDWERKS,INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS SEPTEMBER 30,2006

|                     |                                                                                      |
|---------------------|--------------------------------------------------------------------------------------|
| NOTE1 —  | BASIS OF PRESENTATION AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES (continued) |

access to its MDwerks’ suite ofproprietary products and services so that healthcare providers cansignificantly improve daily insurance claims transaction processing,administration and management.

XFS was incorporated under thelaws of the state of Florida on February  3,  2005. XFSoffers financing and advances to health care providers secured byclaims processed through the MDwerks system.

XMB was incorporatedunder the laws of the state of Florida on March  2,  2005.XMB offers health care providers billing services facilitated throughthe MDwerks system.

Going concern

The accompanyingfinancial statements have been prepared assuming that the Company willcontinue as a going concern. The Company has suffered losses that raisesubstantial doubt about its ability to continue as a going concern.While the Company is attempting to attain revenue growth andprofitability, the growth has not been significant enough to supportthe Company’s daily operations. Management intends to attempt toraise additional funds by way of a public or private offering and makestrategic acquisitions. While the Company believes in the viability ofits strategy to improve sales volume and in its ability to raiseadditional funds, there can be no assurances to that effect. Theability of the Company to continue as a going concern is dependent onthe Company’s ability to further implement its business plan andgenerate revenue. The financial statements do not include anyadjustments that might be necessary if the Company is unable tocontinue as a going concern. Management believes that the actionspresently being taken to further implement its business plan andgenerate revenue, including the institutional financing described inNote 7 provide the opportunity for the Company to continue as a goingconcern.

Basis of presentation

The consolidated financialstatements are prepared in accordance with generally acceptedaccounting principles in the United States of America(‘‘US GAAP’’). The consolidated statementsinclude the accounts of the Company and its wholly-owned subsidiaries,XMS, XFS and XMB. All significant intercompany balances andtransactions have been eliminated.

Use of estimates

Thepreparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimatesand assumptions that affect certain reported amounts and disclosures.Accordingly, actual results could differ from thoseestimates.

Cash and cash equivalents

For purposes of theconsolidated statements of cash flows, the Company considers all highlyliquid instruments purchased with a maturity of three months or lessand money market accounts to be cash equivalents.

At varioustimes, the Company has deposits in excess of the Federal DepositInsurance Corporation limit. The Company has not experienced any losseson these accounts.

Accounts and notes receivable

Accountsand notes receivable are reported at their outstanding unpaid principalbalances reduced by an allowance for doubtful accounts. The Companyestimates doubtful accounts based on 

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|                     |                                                                                      |
|---------------------|--------------------------------------------------------------------------------------|
| NOTE1 —  | BASIS OF PRESENTATION AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES (continued) |

historical bad debts, factors related tospecific customers’ ability to pay and current economic trends.The Company writes off receivables against the allowance when a balanceis determined to be uncollectible. At September  30,  2006the Company has no allowance for doubtful accounts.

Property andequipment

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

Loss per commonshare

Basic loss per share is computed by dividing net loss bythe weighted average number of shares of common stock outstandingduring the period. Diluted loss per share is computed by dividing netloss by the weighted average number of shares of common stock,potential common stock and potentially dilutive securities outstandingduring each period. As of September  30,  2006, the Companyhad outstanding options to purchase an aggregate of 1,726,250 shares ofcommon stock, warrants to purchase an aggregate of 1,439,085 shares ofcommon stock, and 566,667 shares of common stock issuable uponconversion of preferred stock which could potentially dilute futureearnings per share. Diluted loss per common share has not beenpresented for the three and nine month periods ended September30,  2006 since the impact of the stock options and warrantswould be antidilutive. At September  30,  2005 the Companydid not have any potential dilutive common stock.

Revenuerecognition

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

Revenue derived from fees related to claims and contractmanagement services are generally recognized when services are providedto the customer.

The Company provides advance funding services tounaffiliated healthcare providers (the Company's‘‘Customers’’). The Customers advances aretypically collateralized by Security Agreements granting first positionliens on the medical claims submitted by its Customers to third partypayors (the ‘‘Payors’’). The advances arerepaid through the remittance of payments of Customers medical claims,by Payors, directly to the Company. The Company withholds from theseadvances interest, accrued on a daily basis, and an administrative feeand other charges as well as any amount for prior advances that remainunpaid after a specified number of days. These interest charges,administrative fees and other charges are recognized as revenue whenearned. There is no right of cancellation or refund provisions in thesearrangements and the Company has no further obligations once theservices are rendered.

Revenue derived from fees related torebilling and collection services are generally recognized when thecustomer's accounts receivable are collected.

Revenue fromimplementation fees are generally recognized over the term of thecustomer's agreement. Revenue derived from maintenance,administrative and support fees are generally recognized at the timethe services are provided to the customer.

Stock-basedcompensation

Effective January  1,  2006, theCompany adopted Statement of Financial Accounting StandardsNo. 123 (revised 2004), Share Based Payment(‘‘SFAS No. 123R’’) utilizingthe modified prospective 

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|                     |                                                                                      |
|---------------------|--------------------------------------------------------------------------------------|
| NOTE1 —  | BASIS OF PRESENTATION AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES (continued) |

method. SFAS No. 123R establishes thefinancial accounting and reporting standards for stock-basedcompensation plans. As required by SFAS No. 123R, the Companyrecognizes the cost resulting from all stock-based payment transactionsincluding shares issued under its stock option plans in the financialstatements.

Prior to January  1,  2006, the Companyaccounted for stock-based employee compensation plans (including sharesissued under its stock option plans) in accordance with APB OpinionNo. 25 and followed the pro forma net income, pro forma incomeper share, and stock-based compensation plan disclosure requirementsset forth in the Statement of Financial Accounting StandardsNo. 123, Accounting for Stock-Based Compensation(‘‘SFAS No. 123’’).

IncomeTaxes

Income taxes are accounted for under the asset andliability method of Statement of Financial Accounting StandardsNo. 109, ‘‘Accounting for IncomeTaxes’’ (‘‘SFAS 109’’). UnderSFAS 109, deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilitiesand their respective tax bases. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income inthe years in which those temporary differences are expected to berecovered or settled. Under SFAS 109, the effect on deferred tax assetsand liabilities of a change in tax rates is recognized in income in theperiod that includes the enactment date.

The Company has netoperating loss carryforwards for tax purposes totaling approximately$5,516,000 at September  30,  2006 expiring at varioustimes through the year 2026 subject to the Internal Revenue CodeSection 382, which places a limitation on the amount of net operatinglosses that can offset by taxable income after a change in control(generally greater than a 50% change in ownership). The Companyrecorded a deferred tax asset of approximately $2,096,000 offset by afull valuation allowance since it is more likely than not that thedeferred tax asset will not be realized.

Recent accountingpronouncements

In February  2006, the Financial AccountingStandards Board issued Statement No. 155 (‘‘SFAS No155’’), ‘‘Accounting for Certain HybridInstruments: An Amendment of FASB Statements No. 133 and140’’. Management does not believe that this statementwill have a significant impact as the Company does not use suchinstruments.

In May 2006, the SEC announced that the compliancedate for non-accelerated filers pursuant to Section 404 of theSarbanes-Oxley Act had been extended.   Under the latestextension, a company that is not required to file its annual andquarterly reports on an accelerated basis must begin to comply with theinternal control over financial reporting requirements for its firstfiscal year ending on or after July 15, 2008, which, for us, iseffective for fiscal 2008 beginning January 1, 2008.   This is aone-year extension from the previously established July 15, 2007compliance date established in September 2005.   The SECsimilarly extended the compliance date for these companies relating torequirements regarding evaluation of internal control over financialreporting and management certification requirements.   We arecurrently evaluating the impact of Section 404 of the Sarbanes-OxleyAct on our results of operations, cash flows or financialcondition.

In July 2006, the Financial AccountingStandards Board (‘‘FASB’’) issued FASBInterpretation No. 48, ‘‘Accounting forUncertainty in Income Taxes, an interpretation of FASB StatementNo. 109’’ (‘‘FIN48’’), which provides criteria for the recognition,measurement, presentation and disclosure of uncertain tax positions. Atax benefit from an uncertain position may be recognized only ifit is ‘‘more 

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|---------------------|--------------------------------------------------------------------------------------|
| NOTE1 —  | BASIS OF PRESENTATION AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES (continued) |

likely than not’’ that theposition is sustainable based on its technical merits. The provisionsof FIN 48 are effective for fiscal years beginning afterDecember 15, 2006. The Company does not expect FIN 48 will havea material effect on its consolidated financial condition or results ofoperations.

In September 2006, the SEC issued Staff AccountingBulletin (‘‘SAB’’) 108 which providesinterpretive guidance on how the effects of the carryover or reversalof prior year misstatements should be considered in quantifying acurrent year misstatement.   SAB 108 is effective for the firstinterim period following the first fiscal year ending after November15, 2006, which, for us, is effective for fiscal 2007 beginning January1, 2007.   We believe that the adoption of SAB 108 will not havea material impact on our results of operations, cash flows or financialcondition.

Reclassifications

For comparability, certainSeptember  30,  2005 amounts have been reclassified, whereappropriate, to conform to the financial statement presentation used atSeptember  30,  2006.

|                     |                  |
|---------------------|------------------|
| NOTE 2—  | NOTES RECEIVABLE |

At September30,  2006, the Company advanced three healthcare providers underlines of credit and note agreements, respectively, aggregating$365,473. Advances under the line of credit are due to be repaid out ofproviders’ claims collections, as defined in the agreement. Thenote receivable under a note agreement is payable as the providercollects certain receivables. The Company charged the health careproviders interest and other charges as defined in the agreements. AtSeptember  30,  2006, no amounts were past due.

|                      |                        |
|----------------------|------------------------|
| NOTE 3 —  | PROPERTY AND EQUIPMENT |

AtSeptember  30,  2006, property and equipment consisted ofthefollowing:

|                                |  |  |               |  |  |        |   |         |   |
|--------------------------------|--|--|---------------|--|--|--------|---|---------|---|
|                           |  |  | EstimatedLife |  |  |   |
| Office furnitureandequipment   |  |  | 5-7Years      |  |  |        | $ | 15,027  |   |
| Computer equipment andsoftware |  |  | 3-5Years      |  |  |        |   | 150,520 |   |
|                           |  |  |          |  |  |        |   | 165,547 |   |
| Less:accumulateddepreciation   |  |  |          |  |  |        |   | (36,235 | ) |
|                           |  |  |          |  |  |        | $ | 129,312 |   |
|                                |

|                     |               |
|---------------------|---------------|
| NOTE4 —  | NOTES PAYABLE |

At September30,  2006, the Company has notes payable of $65,000 to unrelatedparties that bear interest at 8%. The outstanding principal andall accrued and unpaid interest is due and payable on November30,  2006. At the Company’s option, all or any part of theoutstanding principal balance and accrued interest may be prepaid. Inthe event the Company raises $2.5  million or more in a financingtransaction involving the sale of equity securities, the notes shallbecome due and payable at the closing of such transaction.Additionally, in such event, the Company shall grant to the noteholders four-year warrants to purchase an aggregate of 90,000 shares ofthe Company’s common stock or the Company’s successorparent company at $1.25 per share. On July  5,  2006, theCompany granted the 90,000 warrants to the note holders (see note 6).In February, 2006, $45,000 of these notes payable plus accrued interestof $1,342 were converted into 92,685 shares of the Company’scommon stock in full satisfaction of a portion the notes payable (seenote 6).

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|                     |                                |
|---------------------|--------------------------------|
| NOTE4 —  | NOTES PAYABLE (continued) |

On August  24,  2006, theCompany received gross proceeds of $250,000 (net proceeds of $236,566,after expenses) in connection with a financing provided by an unrelatedparty. In connection with the financing, the Company issued a 7%Secured Promissory Note in the original principal amount of $250,000(the ‘‘7% Secured Note’’) and athree year warrant to purchase 111,111 shares of our common stock at aprice of $2.25 per share. The 7% Secured Note bears interest atthe rate of 7% per year, payable monthly in arrears and willbecome due and payable on August  24,  2007. This7% Secured Note is subject to certain mandatoryprepayment provisions as defined in the Secured Promissory Note. Inconnection with this 7% Secured Note, the Company’ssubsidiary, Xeni Financial Services, Corp.(‘‘XENI’’), entered into a security andguaranty agreement whereby Xeni has agreed to guaranty for therepayment of the 7% Secured Note and grant a security interestin the Revolving Line of Credit and Note Agreements (see Note 2).

    In connection with the 7% secured promissorynote, the Company granted warrants to purchase 111,111 shares of itscommon stock at an exercise price of $2.25 per share which warrantsexpire on August  24,  2009. These warrants were treated asa discount on the secured promissory note and were valued at $250,000to be amortized over the 12-month note terms. The fair market value ofeach stock warrant were estimated on the date of grant using theBlack-Scholes option-pricing model in accordance with SFAS No. 123Rusing the following weighted-average assumptions: expected dividendyield 0%; risk-free interest rate of 4.80%; volatility of142% and an expected term of 3 years. For the nine months endedSeptember  30,  2006, amortization of the debt discountamounted to $20,833 and is included in interest expense.

OnAugust  24,  2006, the Company received gross proceeds of$110,000 (net proceeds of $100,000, after expenses) in connection witha financing provided equally by two unrelated parties. These notes bearinterest at 10% per year, and both interest and principal aredue on January  21,  2007. The Company is entitled to one60-day extension of the Maturity Date. In connection with thefinancing, the Company issued 10,000 shares of its common stock at afair market value on the date of grant of $39,800 or $3.98 per sharewhich was recorded as a discount on notes payable to be amortized overthe term of the Notes. For the nine months ended September30,  2006, amortization of this debt discount amounted to $7,960and is included in interest expense. In addition, the Company paid atotal cash fee of $23,434 in connection with the above promissory notesfor placement agent fees and related expenses. Accordingly, these feeswere treated as deferred issuance cost to be amortized over theirrespective note terms. For the nine months ended September30,  2006, amortization of deferred issuance cost amounted to$3,120.

The promissory notes are as follows at September30,2006:

|                                           |  |  |  |   |          |   |
|-------------------------------------------|--|--|--|---|----------|---|
| Notespayable                              |  |  |  | $ | 425,000  |   |
| Less: unamortized discounton notespayable |  |  |  |   | (261,007 | ) |
| Notespayable,net                          |  |  |  | $ | 163,993  |   |
|                                           |

|                     |              |
|---------------------|--------------|
| NOTE5 —  | LOAN PAYABLE |

The Company has aloan payable to an unrelated individual in the amount of $77,214. Theloan bears interest at 8% per annum and is payable on a monthlybasis, less fees. The loan shall be repaid proportionally uponrepayment of certain of the Company’s notesreceivable.

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|                     |                               |
|---------------------|-------------------------------|
| NOTE6 —  | STOCKHOLDERS’DEFICIENCY |

Preferred stock

The Company is authorized toissue 10,000,000 shares of preferred stock, $.001 par value, with suchdesignations, rights and preferences as may be determined from time totime by the Board of Directors.

On February  1,2006, the Board of Directors of the Company authorized the creation of1,000 shares of $.001 par value Series A Convertible Preferred Stockwith a liquidation value of $60,000 per share (subject to adjustment inthe event of stock splits, combinations or similar events). The SeriesA Convertible Preferred Stock shall not be entitled to receivedividends or other distributions from the Company. Each holder ofrecord of shares of the Series A Convertible Preferred Stock shall havethe right at such holder’s option, at any time and from time totime, to convert any of such shares of Series A convertible preferredstock into fully paid shares of common stock. Each share of Series AConvertible Preferred Stock shall initially be convertible into 20,000shares of common stock (the ‘‘ConversionRate’’), subject to adjustment due to consolidation,merger or sale or common stock dividends. The holders of shares ofSeries A Convertible Preferred Stock shall be entitled to vote on allmatters submitted to a vote of the stockholders of the Company andshall have such number of votes equal to the number of shares of theCompany’s common stock into which such holders’ shares ofSeries A Convertible Preferred Stock are convertible.

BetweenFebruary  1,  2006 and June  30,  2006, theCompany conducted a series of closings under private placement offeringof Units consisting of one share of Series A Convertible PreferredStock and a three-year warrant to purchase up to 20,000 shares of ourCommon Stock at a purchase price of $3.00 per share. The Company soldan aggregate of 28.33 Units to accredited investors pursuant to theterms of a confidential private placement memorandum, datedFebruary  1,  2006, used in connection with this offering.The Company realized net proceeds from this private placement of$1,426,391 after payment of commissions and expenses. The privateplacement was made solely to ‘‘accreditedinvestors,’’ as that term is defined in Regulation Dunder the Securities Act of 1933. The shares of Series A PreferredStock and warrants to purchase shares of Common Stock were notregistered under the Securities Act of 1933, or the securities laws ofany state, and were offered and sold in reliance on the exemption fromregistration offered by Section 4(2) and Regulation D (Rule 506) underthe Securities Act of 1933 and corresponding provisions of statesecurities laws.

In accordance with Emerging Issues Task Force(‘‘EITF’’) 98-5 and EITF 00-27, the SeriesA Convertible Preferred Stock was considered to have an embeddedbeneficial conversion feature (ECF) because the conversion price wasless than the fair value of the Company’s common stock. ThisSeries A Convertible Preferred Stock was fully convertible at theissuance date, therefore a portion of proceeds allocated to the SeriesA Convertible Preferred Stock was determined to be the value of thebeneficial conversion feature and was recorded as a deemeddividend.

In accordance with SFAS No. 133 and Emerging IssuesTask Force Issue 00-19 (‘‘EITF 00-19’’),‘‘Accounting for Derivative Financial Instruments IndexedTo, and Potentially Settled in, a Company's OwnStock’’, the Company is required to record the fair valueof the ECF and warrants as a liability since the Company has to use its‘‘best efforts’’ to file a registrationstatement and maintain its effectiveness for a period of two years fromthe effective date. In accordance with SFAS No. 133, the Company isrequired to record the fair value of the ECF and warrants as aliability. In connection with the initial sales of the Series APreferred Stock, the initial estimated fair values allocated to the ECFwere $913,777 which was recorded as a deemed dividend. The initial fairvalue allocated to the warrants of $768,751 was allocated to warrantliability. At September  30,  2006, the Company revaluedthese warrants resulting in a loss on valuation of warrant liability of$581,198 for the nine months ended September  30,  2006. AtSeptember  30,  2006, the fair value of these warrants was$1,349,949 and is reflected as a warrant liability on the accompanyingconsolidated balance sheet.

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|                     |                                                |
|---------------------|------------------------------------------------|
| NOTE6 —  | STOCKHOLDERS’DEFICIENCY (continued) |

The assumptions used valuing the warrantsinclude:

|                                 |  |  |                                                              |
|---------------------------------|--|--|--------------------------------------------------------------|
| Riskfree interest rate (annual) |  |  | 4.74% and4.83%                 |
| Expectedvolatility              |  |  | 105% and145%         |
| Expectedlife                    |  |  | 3Years                              |
| Assumeddividends                |  |  | none                 |
|                                 |

BrookshireSecurities Corporation, (‘‘Brookshire’’),served as the lead placement agent in connection with the privateplacement. Brookshire received a cash fee in the aggregate of $170,000,and is entitled to receive 170,000 shares of the Company’scommon stock, and five-year warrants to purchase 56,667 shares of theCompany’s common stock at an exercise price of $1.50 per shareon terms which are identical to those warrants included in the unitsexcept that they contain a cashless exercise provision. In addition,the warrants have registration rights that are the same as thoseafforded to investors in the private placement.

CommonStock

On January  1,  2006, the Company issued76,000 shares of the Company’s common stock to certainstockholders pursuant to agreements to offset the effect of dilutivefinancing of the Xeni Companies. The shares issued were valued at thefair value at the date of issuance of $246,240 and were treated as anadditional charge to the loss available to commonstockholders.

On January  3,  2006, the Companygranted options to purchase 860,000 shares of common stock to employeesof the Company under the Incentive Plan. The options are exercisable at$3.40 per share. The options vest as to 33.33% of such shares oneach of the first and second anniversaries of the date of grant and asto 33.34% of such shares on the third anniversary of the date ofgrant, and expire on January  3,  2016 or earlier due toemployment termination. As of January  1,  2006, theCompany accounts for stock options issued to employees in accordancewith the provisions of SFAS 123(R) and related interpretations.The fair value of this option grant was estimated on the date of grantusing the Black-Scholes option-pricing model with the followingweighted-average assumptions: dividend yield of 0%; expectedvolatility of 105%; risk-free interest rate of 3.75%;and, a term of 8 years. In connection with these options, the Companyvalued these options at a fair market value of approximately $2,578,445and will record stock-based compensation expense over the vestingperiod.

On February  13,  2006, $45,000 of notespayable plus accrued interest of $1,342 was converted into 92,685shares of the Company’s common stock in full satisfaction of thenotes payable. The common shares were valued at a fair market value of$2.45 per share for an aggregate fair market value of $227,077 based onrecent trading price of the stock. Accordingly, in connection with theissuance of these shares, the Company reduced notes payable by $45,000,reduced interest payable by $1,342, and recorded settlement expensesrelated to the debt conversion of $180,827.

On February28,  2006, the Company issued 25,000 shares of the common stockto the Chief Financial Officer of the Company in consideration forservices rendered. The shares were issued at the fair value at the dateof the issuance of $81,000 or $3.24 per share. For the nine monthsended September  30  2006, in connection with these shares,the Company recorded stock-based compensation of $81,000.

OnJune  29,  2006, the Company issued 28,483 shares of thecommon stock to consultants in consideration for services rendered. Theshares were issued at the fair value at the date of the issuance of$114,000 or $4.00 per share. For the nine months ended September30  2006, in connection with these shares, the Company recordedstock-based consulting fees of $114,000.

In June  2006, theCompany granted options to purchase 681,250 shares of common stock toemployees of the Company under the Incentive Plan. The options areexercisable at $4.00 to $4.25 per 

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|                     |                                                |
|---------------------|------------------------------------------------|
| NOTE6 —  | STOCKHOLDERS’DEFICIENCY (continued) |

share. The options vest as to 33.33%of such shares on each of the first and second anniversaries of thedate of grant and as to 33.34% of such shares on the thirdanniversary of the date of grant, and expire on June  19,2016 or earlier due to employment termination. The fair value of thisoption grant was estimated on the date of grant using the Black-Scholesoption-pricing model with the following weighted-average assumptions:dividend yield of 0%; expected volatility of 105%;risk-free interest rate of 3.75%; and, an estimated holdingperiod of 8 years. In connection with these options, the Company valuedthese options at a fair market value of approximately $2,629,973 andwill record stock-based compensation expense over the vestingperiod.

On August  9,  2006, the Company issued22,500 shares of the common stock to consultants in consideration forservices rendered. The shares were issued at the fair value at the dateof the issuance of $90,000 or $4.00 per share. For the nine monthsended September  30  2006, in connection with these shares,the Company recorded stock-based consulting fees of $90,000.

OnAugust  24,  2006, the Company issued 10,000 shares ofcommon stock in connection with a notes payable financing. The shareswere valued at fair market value at date of issuance of $39,800 or$3.98 per share and recorded as a discount on notes payable to beamortized over the term of the note (see note 4).

During thethree months ended September  30,  2006, Series A preferredstockholders’ converted 13 shares of Series A Preferred Stockinto 260,000 shares of common stock.

A summary of the status ofthe Company's outstanding stock options as of September30,  2006 and changes during the period ending on that date is asfollows:

|                                                                |  |  |        |   |           |                               |  |  |                          |   |         |  |  |  |  |   |               |  |
|----------------------------------------------------------------|--|--|--------|---|-----------|-------------------------------|--|--|--------------------------|---|---------|--|--|--|--|---|---------------|--|
|                                                           |  |  | Shares |   |           | WeightedAverageExercise Price |  |  | Aggregate IntrinsicValue |
| Outstanding at December  31,2005                               |  |  |        |   | 200,000   |                               |  |  |                          | $ | 3.25    |  |  |  |  |   |          |  |
| Granted                                                        |  |  |        |   | 1,541,250 |                               |  |  |                          |   | 3.66    |  |  |  |  |   |          |  |
| Exercised                                                      |  |  |        |   | —   |                               |  |  |                          |   | — |  |  |  |  |   |          |  |
| Forfeited                                                      |  |  |        |   | (15,000   | )                             |  |  |                          |   | 3.50    |  |  |  |  |   |          |  |
| Outstandingat September  30,2006                               |  |  |        |   | 1,726,250 |                               |  |  |                          | $ | 3.63    |  |  |  |  | $ |   0 |  |
| Optionsexercisable at end ofperiod                             |  |  |        |   | —   |                               |  |  |                          |   | — |  |  |  |  |   |          |  |
| Weighted-averagefair value of options granted during theperiod |  |  |        | $ | 3.66      |                               |  |  |                          |   |    |  |  |  |  |   |          |  |
|                                                                |

Thefollowing information applies to options outstanding atSeptember  30,2006:

|                       |  |  |                                            |  |           |                                                  |  |  |                                                                  |  |        |                                            |  |  |                              |   |      |  |  |  |  |  |         |  |  |  |  |  |         |  |
|-----------------------|--|--|--------------------------------------------|--|-----------|--------------------------------------------------|--|--|------------------------------------------------------------------|--|--------|--------------------------------------------|--|--|------------------------------|---|------|--|--|--|--|--|---------|--|--|--|--|--|---------|--|
|                  |  |  | OptionsOutstanding                         |  |           | OptionsExercisable                               |
| RangeofExercisePrices |  |  |    Shares    |  |           | WeightedAverageRemaining ContractualLife (Years) |  |  | WeightedAverage   ExercisePrice    |  |        |    Shares    |  |  | WeightedAverageExercisePrice |
| $3.25                 |  |  |                                            |  | 190,000   |                                                  |  |  |                                                                  |  | 9.25   |                                            |  |  |                              | $ | 3.25 |  |  |  |  |  | — |  |  |  |  |  | — |  |
| $3.40                 |  |  |                                            |  | 860,000   |                                                  |  |  |                                                                  |  | 9.25   |                                            |  |  |                              | $ | 3.40 |  |  |  |  |  | — |  |  |  |  |  | — |  |
| $4.00-4.25            |  |  |                                            |  | 676,250   |                                                  |  |  |                                                                  |  | 9.73   |                                            |  |  |                              | $ | 4.03 |  |  |  |  |  | — |  |  |  |  |  | — |  |
|                  |  |  |                                            |  | 1,726,250 |                                                  |  |  |                                                                  |  |   |                                            |  |  |                              | $ | 3.63 |  |  |  |  |  |    |  |  |  |  |  |    |  |
|                       |

Inconnection with granted stock options, the Company recognizedcompensation expense of $1,878,572 for the nine months endedSeptember  30,  2006. There was no stock-based compensationexpense for the nine months ended September  30,2005.

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|                     |                                                |
|---------------------|------------------------------------------------|
| NOTE6 —  | STOCKHOLDERS’DEFICIENCY (continued) |

As of September  30,  2006,the total future compensation expense related to non-vested options notyet recognized in the consolidated statement of operations isapproximately $3,585,000, which will be recognized through June2009.

Common Stock Warrants

Between February1,  2006 and June  30,  2006, the Company conducted aprivate placement to accredited investors pursuant to the terms of aConfidential Private Placement Memorandum, dated February1,  2006, and private placement subscription agreements executedand delivered by each investor. Each unit consists of one share of ourSeries A Convertible Preferred Stock, par value $.001 pershare, and a detachable, transferable warrant to purchase 20,000 sharesof our common stock, at a purchase price of $3.00 per share. Pursuantto the Private Placement, the Company sold an aggregate of 28.33 unitsand issued to investors three-year warrants to purchase an aggregate of566,667 shares of its common stock at an exercise price of $3.00 pershare, which expire from March  22,  2009 to June29,  2009. Brookshire Securities Corporation(‘‘Brookshire’’) served as the leadplacement agent in connection with the private placement. Brookshirereceived five-year warrants to purchase 56,667 shares of ourcommon stock at an exercise price of $1.50 per share on terms which areidentical to those warrants included in the units except that theycontain a cashless exercise provision. In addition, the warrants haveregistration rights that are the same as those afforded to investors inthe private placement.

In connection with a 7% securedpromissory note, the Company granted warrants to purchase 111,111shares of its common stock at an exercise price of $2.25 per sharewhich warrants expire on August  24,  2009. These warrantswere treated as a discount on the secured promissory note and werevalued at $250,000 to be amortized over the 12-month note terms. Thefair market value of each stock warrants were estimated on the date ofgrant using the Black-Scholes option-pricing model in accordance withSFAS No. 123R using the following weighted-average assumptions:expected dividend yield 0%; risk-free interest rate of4.80%; volatility of 142% and an expected term of 3 years(see note 4).

On July  5,  2006, inconnection with terms of certain notes payable (see note 4), theCompany granted to note holders four-year warrants to purchase anaggregate of 90,000 shares of the Company’s common stock at$1.25 per share. The fair market value of these stock warrants wereestimated on the date of grant using the Black-Scholes option-pricingmodel in accordance with SFAS No. 123R using the followingweighted-average assumptions: expected dividend yield 0%;risk-free interest rate of 4.83%; volatility of 142% andan expected term of 4 years. In connection with these warrants, theCompany recorded interest expense of $335,273.

A summary of thestatus of the Company's outstanding stock warrants granted as ofSeptember  30,  2006 and changes during the period is asfollows:

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MDWERKS,INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS SEPTEMBER 30,2006

|                     |                                                |
|---------------------|------------------------------------------------|
| NOTE6 —  | STOCKHOLDERS’DEFICIENCY (continued) |

|                                                    |  |  |        |   |           |                                |  |  |  |   |         |  |
|----------------------------------------------------|--|--|--------|---|-----------|--------------------------------|--|--|--|---|---------|--|
|                                               |  |  | Shares |   |           | Weighted-AverageExercise Price |
| Outstanding at December31,2005                     |  |  |        |   | 704,440   |                                |  |  |  | $ | 2.25    |  |
| Granted                                            |  |  |        |   | 824,444   |                                |  |  |  |   | 2.60    |  |
| Exercised                                          |  |  |        |   | —   |                                |  |  |  |   | — |  |
| Forfeited                                          |  |  |        |   | —   |                                |  |  |  |   | — |  |
| Outstandingat September  30,2006                   |  |  |        |   | 1,528,884 |                                |  |  |  | $ | 2.50    |  |
| Commonstock issuable upon exercise ofwarrants      |  |  |        |   | 1,528,884 |                                |  |  |  | $ | 2.50    |  |
| Weighted-averagefair value of common stockissuable |  |  |        | $ | 2.50      |                                |  |  |  |   |    |  |
|                                                    |

|                                                            |  |  |                                            |  |           |                                                  |  |  |                               |  |        |                                      |  |  |                               |   |      |  |  |  |  |  |           |  |  |  |  |   |      |  |
|------------------------------------------------------------|--|--|--------------------------------------------|--|-----------|--------------------------------------------------|--|--|-------------------------------|--|--------|--------------------------------------|--|--|-------------------------------|---|------|--|--|--|--|--|-----------|--|--|--|--|---|------|--|
| CommonStock issuable upon exercise of warrants outstanding |  |  | CommonStockissuableuponWarrantsExercisable |  |           |                                             |
| RangeofExercise Price                                      |  |  | NumberOutstanding atSeptember 30,2006      |  |           | Weighted AverageRemainingContractual Life(Years) |  |  | WeightedAverageExercise Price |  |        | NumberExercisableatSeptember 30,2006 |  |  | Weighted AverageExercisePrice |
| $1.25                                                      |  |  |                                            |  | 154,040   |                                                  |  |  |                               |  | 4.15   |                                      |  |  |                               | $ | 1.25 |  |  |  |  |  | 154,040   |  |  |  |  | $ | 1.25 |  |
| $1.50                                                      |  |  |                                            |  | 56,666    |                                                  |  |  |                               |  | 4.65   |                                      |  |  |                               | $ | 1.50 |  |  |  |  |  | 56,666    |  |  |  |  | $ | 1.50 |  |
| $2.25                                                      |  |  |                                            |  | 111,111   |                                                  |  |  |                               |  | 2.90   |                                      |  |  |                               | $ | 2.25 |  |  |  |  |  | 111,111   |  |  |  |  | $ | 2.25 |  |
| $2.50                                                      |  |  |                                            |  | 640,400   |                                                  |  |  |                               |  | 2.20   |                                      |  |  |                               | $ | 2.50 |  |  |  |  |  | 640,400   |  |  |  |  | $ | 2.50 |  |
| $3.00                                                      |  |  |                                            |  | 566,667   |                                                  |  |  |                               |  | 2.65   |                                      |  |  |                               | $ | 3.00 |  |  |  |  |  | 566,667   |  |  |  |  | $ | 3.00 |  |
|                                                       |  |  |                                            |  | 1,528,884 |                                                  |  |  |                               |  |   |                                      |  |  |                               | $ | 2.50 |  |  |  |  |  | 1,528,884 |  |  |  |  | $ | 2.50 |  |
|                                                            |

Registrationrights

The Company has agreed to use its best efforts to file a‘‘resale’’ registration statement with theSEC covering all shares of common stock and shares of common stockunderlying the warrants (including shares of common stock andunderlying warrants issued to the Placement Agent) issued in connectionwith the June  13,  2005 Private Placement. The Company hasagreed that it will maintain the effectiveness of the‘‘resale’’ registration statement from theeffective date through and until the earlier of two years and the timeat which exempt sales pursuant to Rule 144(k) may be permitted. TheCompany will use its best efforts to respond to any SEC comments to the‘‘resale’’ registration statement on orprior to the date which is 20 business days from the date such commentsare received, but in any event not later than 30 business days from thedate such comments are received. The Company has agreed to use its bestefforts to have such ‘‘resale’’registration statement declared effective by the SEC as soon aspossible after the initial filing date.

In the event the‘‘resale’’ registration statement is notfiled with the SEC on or prior to the date which is 180 days after thelast closing date of the Private Placement, each investor in thePrivate Placement will receive as liquidating damages an additionalnumber of shares of common stock equal to 2% of the total numberof shares of common stock purchased by the investor in the PrivatePlacement for each month (or portion thereof) that the RegistrationStatement is not so filed, provided that the aggregate increase in suchshares of common stock as a result of the delinquent filing will in noevent exceed 20% of the original number of shares of commonstock purchased in the Private Placement.

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MDWERKS,INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS SEPTEMBER 30,2006

|                     |                                                |
|---------------------|------------------------------------------------|
| NOTE6 —  | STOCKHOLDERS’DEFICIENCY (continued) |

In the event that the Company fails torespond to SEC comments to the Registration Statement within 30business days, each investor in the Private Placement will receive anadditional number of shares of common stock equal to 2% of thetotal number of shares of common stock purchased by the investor in thePrivate Placement for each month (or portion thereof) that a responseto the comments to the Registration Statement has not been submitted tothe SEC, provided that the aggregate increase in such shares shall inno event exceed 20% of the original number of shares of commonstock purchased in the Private Placement.

In accordance withEmerging Issues Task Force Issue 00-19 (‘‘EITF00-19’’), ‘‘Accounting for DerivativeFinancial Instruments Indexed To, and Potentially Settled in, aCompany’s Own Stock’’, the Company initiallyaccounted for the fair value of the warrants associated with itsJune  13,  2005 Private Placement as aliability since the Company will incur penalties if the Companycannot comply with the warrant holders’ registration rights. Asof the closing date of the private placement the fair value of thewarrants was $1,142,770 calculated utilizing the Black-Scholes optionpricing model. In addition, changes in the market value of theCompany’s common stock from the closing date through the date offiling of the registration statement will result in non-cash charges orcredits to operations to reflect the change in fair value of thewarrants during this period. The Company recorded a charge tooperations of $592,467 during the year ended December  31,2005 to reflect the change in market value of the June13,  2005 Private Placement warrants. For the nine months endedSeptember  30,  2006, the Company recorded a change in fairvalue of warrants of $388,284 which was recognized as a gain onvaluation of warrant liability on the accompanying statement ofoperations. At September  30,  2006, the fair value ofthese warrants was $1,346,952 and is reflected as a warrant liabilityon the accompanying consolidated balancesheet.

|                     |                  |
|---------------------|------------------|
| NOTE7 —  | SUBSEQUENTEVENTS |

On each of October  20,  2006 andNovember 9, 2006 the Company received gross proceeds of $2,375,000($4,750,000 in the aggregate) in connection with a financing providedby Gottbetter Capital Master, Ltd., an unaffiliated accreditedinstitutional investor (the‘‘Investor’’).

Pursuant to the termsof a Securities Purchase Agreement that the Company entered into withthe Investor in connection with the financing, the Company issued twosenior secured convertible promissory notes to the Investor, each inthe original principal amount of $2,500,000 (each a‘‘Senior Note’’ and collectively, the‘‘Senior Notes’’), five year Series DWarrants to purchase 375,000 shares of our common stock at a price of$2.25 per share (‘‘Series D Warrants’’) andfive year Series E Warrants to purchase 375,000 shares of our commonstock at a price of $3.25 per share (‘‘Series EWarrants’’). As security for our obligations, we, alongwith our subsidiaries, MDwerks Global Holdings, Inc., Xeni MedicalSystems, Inc., Xeni Financial Services, Corp. and Xeni Medical Billing,Corp. entered into a Security Agreement with the Investor, pursuant towhich the Company granted a security interest in all of our assets tothe Investor. Our subsidiaries, MDwerks Global Holdings, Inc., XeniMedical Systems, Inc., Xeni Financial Services, Corp. and Xeni MedicalBilling, Corp. are also parties to a Guaranty Agreement pursuant towhich they have agreed to unconditionally guaranty our obligationsunder the Senior Notes and the documents entered into by us inconnection the sale of the Senior Notes. The Company also entered intoa Registration Rights Agreement, pursuant to which the Company agreedto register for resale, the shares of our common stock into which theSenior Notes are convertible and the shares of our common stock forwhich the Series D Warrants and the Series E Warrants areexercisable.

The Senior Notes bear interest at the rate of8% per year, payable monthly in arrears, commencingDecember  1,  2006. Subject to certain mandatory prepaymentprovisions, and events of default unpaid principal and interest dueunder the Notes will become due and payable on 

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MDWERKS,INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS SEPTEMBER 30,2006

|                     |                                   |
|---------------------|-----------------------------------|
| NOTE7 —  | SUBSEQUENTEVENTS (continued) |

October  18,  2009 with respectto the Senior Note sold on October  20,  2006 and onNovember 9, 2009 with respect to the Senior Note sold on November 9,2006. The Senior Notes are convertible, at the option of the holder,into shares of our common stock at a price of $2.25 per share (the‘‘Conversion Price’’), subject toadjustment for stock splits, stock dividends, or similar transactions,sales of our common stock at a price per share below the ConversionPrice or the issuance of convertible securities or options or warrantsto purchase shares of our common stock at an exercise price orconversion price that is less than the Conversion Price.

TheSenior Notes provide for optional redemption by us at a redemptionprice equal to 110% of the face amount redeemed plus accruedinterest.

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

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

The Series D Warrants are exercisable at a price of$2.25 per share for a period of five years from the date of issuance.The Series D Warrants may be exercised on a cashless basis. Theexercise price will be subject to adjustment in the event ofsubdivision or combination of shares of our common stock and similartransactions, distributions of assets, issuances of shares of commonstock with a purchase price below the exercise price of the Series DWarrants, issuances of any rights, warrants or options to purchaseshares of our common stock with an exercise price below the exerciseprice of the Series D Warrants, issuances of convertible securitieswith a conversion price below the exercise price of the Series DWarrants.

The Series E Warrants are exercisable at a price of$3.25 per share for a period of five years from the date of issuance.The Series E Warrants may be exercised on a cashless basis. Theexercise price will be subject to adjustment in the event ofsubdivision or combination of shares of our common stock and similartransactions, distributions of assets, issuances of shares of commonstock with a purchase price below the exercise price of the Series EWarrants, issuances of any rights, warrants or options to purchaseshares of our common stock with an exercise price below the exerciseprice of the Series E Warrants, issuances of convertible securitieswith a conversion price below the exercise price of the Series EWarrants.

We, along with our subsidiaries MDwerks GlobalHoldings, Inc., Xeni Medical Systems, Inc., Xeni Financial Services,Corp. and Xeni Medical Billing, Corp., entered into a SecurityAgreement with the Investor. The Security Agreement provides for a lienin favor of the Investor on all of our assets, including the assets ofeach of our subsidiaries.

Our subsidiaries, MDwerks GlobalHoldings, Inc., Xeni Medical Systems, Inc., Xeni Financial Services,Corp. and Xeni Medical Billing, Corp. entered into a Guaranty Agreementwith the Investor, pursuant to which they have agreed tounconditionally guaranty our obligations under the Senior Notes and thedocuments entered into by us in connection the sale of the SeniorNotes.

The Company also entered into a Registration RightsAgreement with the Investor. The Registration Rights Agreement requiresus to file a registration statement covering the resale of the sharesunderlying the Senior Notes, the Series D Warrants and the Series EWarrants within 

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MDWERKS,INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS SEPTEMBER 30,2006

|                     |                                   |
|---------------------|-----------------------------------|
| NOTE7 —  | SUBSEQUENTEVENTS (continued) |

45  calendar days after the closingdate. The Company is required to cause such registration statement tobecome effective on or before the date which is 105 calendar days afterthe closing date. In addition to it being an event of default under theSenior Notes, if the Company fail to file such registration statementin the time frame required, fail to cause it to become effective in thetime frame required, or fail to maintain the effectiveness of theregistration statement as required by the Registration RightsAgreement, the exercise price of the Series D and the Series E Warrantswill immediately be reduced by $0.25 per share and then reduced by anadditional $0.10 per share for each thirty day period thereafter thatthe registration statement is not filed or effective, as the case maybe, up to a maximum reduction of $0.65.

Investor is an‘‘accredited investor,’’ as defined inRegulation D under the Securities Act of 1933, as amended, or theSecurities Act. None of the Senior Note, the Series D Warrants, theSeries E Warrants or the shares of our common stock underlying suchsecurities were registered under the Securities Act, or the securitieslaws of any state and were offered and sold in reliance on theexemption from registration afforded by Section 4(2) and Regulation D(Rule 506) under the Securities Act and corresponding provisions ofstate securities laws, which exempts transactions by an issuer notinvolving any public offering. The Company made this determinationbased on the representations of the Investor, which included, inpertinent part, that the Investor is an ‘‘accreditedinvestor’’ within the meaning of Rule 501 of Regulation Dpromulgated under the Securities Act, and that the Investor wasacquiring the Senior Notes,the Series D Warrants and the Series EWarrants for investment purposes for its own account and not as nomineeor agent, and not with a view to the resale or distribution, and thatInvestor understood such securities may not be sold or otherwisedisposed of without registration under the Securities Act or anapplicable exemption therefrom.

In connection with the SecurityPurchase Agreement, the Company, along with the Company’ssubsidiaries, MDwerks Global Holdings, Inc., Xeni Medical Systems,Inc., Xeni Financial Services, Corp. and Xeni Medical Billing, Corp.(the ‘‘Subsidiaries’’) granted a securityinterest in all of the Company’s assets to the Investor.Additionally, the subsidiaries entered into a Guaranty Agreement whichunconditionally guaranties the Company’s obligations under theSenior Note and the agreements entered into by the Company inconnection with the sale of the Senior Note.

The Company enteredinto a Registration Rights Agreement which requires the Company to filea registration statement covering the resale of the shares underlyingthe Senior Note, the Series D Warrants and the Series E Warrants within45 calendar days after the closing date. The Company is required tocause such registration statement to become effective on or before thedate which is 105  calendar days after the closing date. In theevent of failure to file such registration statement within 45 calendardays after closing date, failure to cause it to become effective within105 days after the closing date, or failure to maintain theeffectiveness of the registration statement as required by theRegistration Rights Agreement, the exercise price of the Series D andthe Series E Warrants will immediately be reduced by $0.25 per shareand then reduced by an additional $0.10 per share for each thirty daysperiod thereafter that the registration statement is not filed oreffective up to a maximum reduction of $0.65.

The number ofshares of common stock outstanding at September 30, 2006 was12,053,398. An additional 340,000 shares of common stock were issuedbetween October 1, 2006 and November 9, 2006 bringing the number ofshares outstanding at November 9, 2006 to 12,393,398 as follows:170,000 shares were issued as placement agent compensation for theSeries A Convertible Preferred Stock; 100,000 shares were issued to anon-affilated entity in consideration of services rendered inconnection with the October 20, 2006 and November 9, 2006 institutionalfinancing; 50,000 shares were issued to a non-affiliated entity forconsulting services; and 20,000 shares were issued for the conversionof one unit of the Company's Series A Convertible Preferred Stockto common stock.

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Item2.     MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OFOPERATIONS

Overview

On November  16,  2005,we acquired all of the outstanding capital stock of MDwerks GlobalHoldings, Inc. in connection with the merger of a wholly ownedsubsidiary of the Company with and into MDwerks Global Holdings, Inc.(the ‘‘Merger’’), with the formerstockholders of MDwerks being issued approximately 9,352,000 shares ofcommon stock of the Company in exchange for all their shares of commonstock of MDwerks Global Holdings, Inc. In connection with the Merger,we changed our name to MDwerks, Inc. Simultaneously with the closing ofthe Merger, we completed the closing of a private placement of units,with each unit consisting of 10,000 shares of our common stock and awarrant to purchase 10,000 shares of our common stock at an exerciseprice of $2.50 per share, with gross proceeds of $1,600,000 and netproceeds to us, after deduction of offering expenses and commissionspaid at the closing, of $1,310,000 (the ‘‘PrivatePlacement’’). As we have ceased our prior miningoperations we will operate the business of MDwerks Global Holdings,Inc. and the Xeni Companies as our sole line of business of MDwerksGlobal Holdings, Inc. and the Xeni Companies. The following discussionand analysis should be read in conjunction with the financialstatements, including footnotes, and other information presented inthis prospectus. For purposes of the following discussion and analysis,references to ‘‘we’’,‘‘our’’, ‘‘us’’or the ‘‘Company’’ refers to MDwerks, Inc.and includes MDwerks Global Holdings, Inc. as its wholly-ownedsubsidiary and the Xeni Companies as indirect wholly-ownedsubsidiaries.

MDwerks Global Holdings, Inc. was incorporatedunder the laws of the state of Florida on October  23,2003. It was originally formed to provide internationaltelecommunications products and services. In April  2004, MDwerksGlobal Holdings, Inc. decided not to pursue the telecommunicationsbusiness. In December  2004, it decided to focus on a new line ofbusiness involving healthcare provider claims processing, funding andrelated services. On May  25,  2005, MDwerks GlobalHoldings, Inc. changed its name from Global IP Communications, Inc, toMDwerks Global Holdings, Inc.

On June  7,  2005,MDwerks Global Holdings, Inc. entered into and consummated ShareExchange Agreements with all of the stockholders of each of the XeniCompanies (Xeni Medical, Xeni Financial and Xeni Billing). Pursuant toeach of the Share Exchange Agreements, MDwerks Global Holdings, Inc.acquired 100% of the issued and outstanding shares of commonstock of each of the Xeni Companies, in exchange for approximately52,623,000 shares of common stock of MDwerks Global Holdings, Inc.(which shares, together with the shares of the holders of common stockof MDwerks Global Holdings, Inc. prior to the share exchanges wereexchanged for approximately 9,352,000 shares of our common stock inconnection with the Merger). As a result of the share exchanges, eachof the Xeni Companies became a wholly-owned subsidiary of MDwerksGlobal Holdings, Inc.

The acquisition of the Xeni Companies wasaccounted for as a reverse merger, because, after giving effect to theshare exchanges, the former stockholders of the Xeni Companies held amajority of the outstanding common stock of MDwerks Global Holdings,Inc. on a voting and fully diluted basis. As a result of the shareexchanges, Xeni Medical was deemed to be the acquirer for accountingpurposes. Accordingly, the financial statements presented are those ofXeni Medical for all periods prior to the acquisition of the XeniCompanies on June  7,  2005, and the financial statementsof the consolidated companies from the acquisition date forward. Thehistorical stockholders' deficiency of the Xeni Companies priorto their acquisition has been retroactively restated for the equivalentnumber of shares received in the acquisition. The restated consolidatedstockholders' deficiency of the accounting acquirer is carriedforward after the acquisition.

Xeni Medical provides a web-basedpackage of electronic claims solutions to the healthcare providerindustry. Through internet access to our‘‘MDwerks’’ suite of proprietary products andservices, healthcare providers can significantly improve dailyinsurance claims transaction processing, administration, funding andmanagement.

Xeni Financial offers advance funding to healthcareproviders secured by claims processed through the MDwerkssystem.

Xeni Billing offers healthcare providers billing servicesfacilitated through the MDwerks suite of products andservices.

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We plan, initially, to sell to physicianand clinical service group practices, hospitals, rehabilitationcenters, nursing homes and certain related practice vendors, includingdiagnostic testing companies, by using internal and external resources.Internal resources will consist mainly of specialized sales executiveswith industry knowledge and/or a portfolio of contacts. Externalresources will consist primarily of independent sales representativesas well as channel associates such as vendors of practice managementsystems and medical industry specific sales groups such as officemanagement consultants. These sales resources can leverage an existingcustomer base and contacts. Our marketing is based on prioritizingpotential subscribers by size, location and density, need for ourproducts and services and distribution opportunities. Accordingly, weexpect to focus our initial marketing efforts in geographic areas suchas California, Florida and New York, which contain high concentrationsof prospective clients.

Because we have had a limited operatinghistory, it is difficult to accurately forecast our revenues andexpenses. Additionally, our operations will continue to be subject torisks inherent in the establishment of a new business, including, amongother things, efficiently deploying our capital, developing our productand services offerings, developing and implementing our marketingcampaigns and strategies and developing awareness and acceptance of ourproducts. Our ability to generate future revenues will be dependent ona number of factors, many of which are beyond our control, includingthe pricing of other services, overall demand for our products, marketcompetition and government regulation.

Critical AccountingPolicies

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

We apply the Securities and ExchangeCommission's Staff Accounting Bulletin 104 for revenuerecognition. In general, we record revenue when persuasive evidence ofan arrangement exists, services have been rendered or product deliveryhas occurred, the sales price to the customer is fixed or determinable,and collectability is reasonably assured. We have identified the policybelow as critical to our business operations and understanding of ourfinancial results:

Revenues derived from fees related to claimsand contract management services are generally recognized when servicesare provided to the customer. We provide funding services tounaffiliated healthcare providers. These arrangements typically requireus to advance funds to these unaffiliated healthcare providers (ourcustomers) in exchange for liens on the receivables related to invoicesremitted to their clients for services performed. The advances arerepaid through the remittance of payments of receivables by theirclients directly to us. We withhold from these advances interest, anadministrative fee and other charges as well as the amount ofreceivables relating to prior advances that remain unpaid after aspecified number of days. These interest charges, administrative feesand other charges are recognized as revenue when earned and arecalculated on a daily basis.

Revenues derived from fees relatedto billing and collection services are generally recognized when thecustomer's accounts receivable are collected. Revenues fromimplementation fees are generally recognized upon over the term of thecustomer agreement. Revenues derived from maintenance, administrativeand support fees are generally recognized at the time the services areprovided to the customer.

Effective January  1,2006, we adopted Statement of Financial Accounting StandardsNo. 123 (revised 2004), Share Based Payment(‘‘SFAS No. 123R’’) utilizing themodified prospective method. SFAS No. 123R establishes thefinancial accounting and reporting standards for stock-based

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compensation plans. As required by SFASNo. 123R, we recognize the cost resulting from all stock-basedpayment transactions including shares issued under our stock optionplans in the financial statements.

For the Nine Months EndedSeptember  30,  2006 Versus Nine Months EndedSeptember  30,  2005

Revenue

InJuly  2005, we began processing claims on our MDwerks suite ofproducts for our first client. We recorded total revenue of $298,850during the nine months ended September  30,  2006 ascompared to $23,153 for the nine months ended September30,  2005, an increase of $275,697. For the nine months endedSeptember  30,  2006, we recorded service fee revenue of$262,292, or 87.8% of total revenue and financing income of$36,558, or 12.2% of total revenue. For the nine months endedSeptember  30,  2005, we recorded service fee revenue of$14,907, or 64.4% of total revenue and financing income of$8,246, or 35.6% of total revenue.

OperatingExpenses

Our operating expenses significantly increased for thenine months ended September  30,  2006 from the nine monthsended September  30,  2005 as a result of increasedoperations as we began to implement our business plan.

For thenine months ended September  30,  2006, total operatingexpenses were $5,103,974 as compared to $1,083,193 for the nine monthsended September  30,  2005, an increase of $4,020,781.Included in this increase for the nine months ended September30,  2006 is the following:

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 1.  | We recordedcompensation expense of $3,193,895 for the nine months endedSeptember  30,  2006 as compared to $22,500 for the ninemonths ended September  30,  2005. This increase wasattributable to the hiring of permanent sales, operations and executivestaff, which began on September  26,  2005. We expectcompensation expense to increase as we hire additional administrative,sales and technical personnel. In addition, for the nine months endedSeptember  30,  2006, we recorded $81,000 of compensationexpense related to the issuance of 25,000 shares to our chief financialofficer and $1,878,572 of compensation expense related to issuance ofstock options to employees; |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 2.  | Consulting expenseand outside services amounted to $399,126 for the nine months endedSeptember  30,  2006 as compared to $627,157 for the ninemonths ended September  30,  2005, a decrease of $228,031.During the nine months ended September  30,  2006, weissued 50,983 shares of our common stock to consultants and recordedconsulting expense of $204,000. For the nine months endedSeptember  30,  2005, we paid consultants for substantiallyall of our sales, operations and executive functions prior to thehiring of permanent staff on September  26,2005. |

|  |          |                                                                                                                                                                                                                                                                                                                                                        |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 3.  | Professional fees amounted to $277,906for the nine months ended September  30,  2006 as comparedto $265,248 for the nine months ended September  30  2005,an increase of $12,658 or 4.77%. This increase was attributableto accounting fees for the audit of our financial statements and SECfilings and legal fees related to other corporatematters. |

|  |          |                                                                                                                                                                                                                                                                                                                                                      |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 4.  | Selling, general and administrativeexpenses were $1,233,047 for the nine months ended September30,  2006 as compared to $168,288 for the nine months endedSeptember  30,  2005, an increase of $1,064,759 or632.7%. This increase was attributable to an increase in all ofour general and administrative expenses as we implement our businessplan. |

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For the nine months ended September30,  2006 and 2005, selling, general and administrative expensesconsisted of thefollowing:

|                                         |  |  |      |   |           |      |  |  |  |   |         |  |
|-----------------------------------------|--|--|------|---|-----------|------|--|--|--|---|---------|--|
|                                    |  |  | 2006 |   |           | 2005 |
| Salescommissions                        |  |  |      | $ | 140,807   |      |  |  |  | $ | — |  |
| Advertisingandpromotion                 |  |  |      |   | 103,816   |      |  |  |  |   | — |  |
| Employeebenefits and payrolltaxes       |  |  |      |   | 276,960   |      |  |  |  |   | — |  |
| Otherselling, general andadministrative |  |  |      |   | 711,464   |      |  |  |  |   | 166,288 |  |
|                                    |  |  |      | $ | 1,233,047 |      |  |  |  | $ | 166,288 |  |
|                                         |

OtherIncome (Expenses)

For the nine months ended September30,  2006, interest income was $5,671 as compared to $0 for thenine months ended September  30,  2005, an increase of$5,671. This increase was due to an increase in interest-bearing cashdeposits.

For the nine months ended September  30,2006, interest expense was $380,039 as compared to $447 for the ninemonths ended September  30,  2005, an increase of $379,592.This increase was due to an increase in borrowings and amortization ofdebt discount and deferred fees in connection with our notes payable.Additionally, in connection with the granting of 90,000 warrantsrelated to certain notes payable, we recorded interest expense of$335,273.

For the nine months ended September  30,2006, we recorded a loss on settlement of notes payable related to theissuance of common shares for debt conversion of $180,827 as comparedto $0 for the nine months ended September  30,2005.

For the nine months ended September  30,  2006,we recorded a loss on the valuation of a warrant liability of $192,914as compared to $0 for the nine months ended September  30,2005. We are required to revalue our warrant liability to fair value atthe end of each reporting period until our registration statement hasbeen effective for two years.

Net Loss

As a result ofthese factors, we reported a net loss of $5,559,844 for the nine monthsended September  30,  2006 as compared to a net loss of$1,060,487 for the nine months ended September  30,2005.

Deemed Dividend arising from beneficial conversion onPreferred Stock and Other Charges

During the nine months endedSeptember  30,  2006, we recorded a deemed dividend arisingfrom a beneficial conversion feature of preferred stock of $913,777which relates to our Series A Convertible Preferred Stock. Thisnon-cash item is related to the beneficial conversion features on ourSeries A preferred stock offering. In addition, for the nine monthsended September  30,  2006, we issued 76,000 shares of theCompany's common stock to certain shareholders pursuant toagreements to offset the effect of dilutive financings of the XeniCompanies. The shares issued were valued at the fair market value atthe date of issuance of $246,240 and were treated as an additionalcharge to the loss attributable to common shareholders.

Net LossAttributable to Common Shareholders

We reported a net lossattributable to common shareholders of $6,719,861 for the nine monthsended September  30,  2006 as compared to net lossattributable to common shareholders of $1,060,487 for the nine monthsended September  30,  2005. This translates to an overallper share loss available to shareholders of ($.57) for the nine monthsended September  30,  2006 as compared to a per share lossof ($.11) for the nine months ended September  30,2005.

For the Three Months Ended September  30,2006 Versus Three Months Ended September  30,2005

Revenue

In July  2005, we beganprocessing claims on our MDwerks suite of products for our first clientand recorded total revenue of $158,113 for the three months endedSeptember  30,  2006 as compared 

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to $13,177 for the three months endedSeptember  30,  2005, an increase of $144,936. For thethree months ended September  30,  2006, we recordedservice fee revenue of $147,726, or 93.4% of total revenue andfinancing income of $10,387, or 6.6% of total revenue. For thethree months ended September  30,  2005, we recordedservice fee revenue of $9,407, or 71.4% of total revenue andfinancing income of $3,770, or 28.6% of totalrevenue.

Operating Expenses

Our operating expensessignificantly increased for the three months ended September30,  2006 from the three months ended September  30,2005 as a result of increased operations as we began to implement ourbusiness plan.

For the three months ended September30,  2006, total operating expenses were $2,481,491 as comparedto $579,857 for the three months ended September  30,2005, an increase of $1,901,634. Included in this increase for thethree months ended September  30,  2006 is thefollowing:

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 1.  | We recorded compensation expense of$1,730,160 for the three months ended September  30,  2006as compared to $22,500 for the three months ended September30,  2005. This increase was attributable to the hiring ofpermanent sales, operations and executive staff, which began onSeptember  26,  2005. We expect compensation expense toincrease as we hire additional administrative, sales and technicalpersonnel. In addition, for the three months ended September30,  2006, we recorded $884,156 of compensation expense relatedto issuance of stock options toemployees; |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 2.  | Consulting expense and outsideservices amounted to $144,081 for the three months endedSeptember  30,  2006 as compared to $338,159 for the threemonths ended September  30,  2005, a decrease of $194,078.During the three months ended September  30,  2006, weissued 22,500 shares of our common stock to consultants and recordedconsulting expense of $90,000. For the three months endedSeptember  30,  2005, we paid consultants for substantiallyall of our sales, operations and executive functions prior to thehiring of permanent staff on September  26,2005. |

|  |          |                                                                                                                                                                                                                                                                                                                                                        |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 3.  | Professional fees amounted to $153,782for the three months ended September  30,  2006 as comparedto $145,536 for the three months ended September  30,2005, an increase of $8,246 or 5.7%. This increase wasattributable to accounting fees for the audit of our financialstatements and SEC filings and legal fees related to other corporatematters. |

|  |          |                                                                                                                                                                                                                                                                                                                                                   |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 4.  | Selling, general and administrativeexpenses were $453,468 for the three months ended September30,  2006 as compared to $73,662 for the three months endedSeptember  30,  2005, an increase of $379,806 or515.6%. This increase was attributable to an increase in all ofour general and administrative expenses as we implement our businessplan. |

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

|                                         |  |  |      |   |         |      |  |  |  |   |         |  |
|-----------------------------------------|--|--|------|---|---------|------|--|--|--|---|---------|--|
|                                    |  |  | 2006 |   |         | 2005 |
| Salescommissions                        |  |  |      | $ | 35,378  |      |  |  |  | $ | — |  |
| Advertisingandpromotion                 |  |  |      |   | 23,783  |      |  |  |  |   | — |  |
| Employeebenefits and payrolltaxes       |  |  |      |   | 97,993  |      |  |  |  |   | — |  |
| Other selling,general andadministrative |  |  |      |   | 296,314 |      |  |  |  |   | 73,662  |  |
|                                    |  |  |      | $ | 453,468 |      |  |  |  | $ | 73,662  |  |
|                                         |

OtherIncome (Expenses)

For the three months ended September30,  2006, interest income was $1,123 as compared to $0 for thethree months ended September  30,  2005, an increase of$1,123. This increase was due to an increase in interest-bearing cashdeposits.

For the three months ended September  30,2006, interest expense was $372,291 as compared to $447 for the threemonths ended September  30,  2005, an increase of $371,844.This increase was due 

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to an increase in borrowings and amortizationof debt discount in connection with our notes payable. Additionally, inconnection with the granting of 90,000 warrants related to certainnotes payable, we recorded interest expense of $335,273.

For thethree months ended September  30,  2006, we recorded a gainon the valuation of a warrant liability of $1,030,338 as compared to $0for the three months ended September  30,  2005. We arerequired to revalue our warrant liability to fair value at the end ofeach reporting period until our registration statement has beendeclared effective and for a period of two years.

Net Loss andNet Loss Attributable to Common Shareholders

As a result ofthese factors, we reported a net loss of $1,670,830 for the threemonths ended September  30,  2006 as compared to a net lossof $567,127 for the three months ended September  30,2005. This translates to an overall per share loss attributable toshareholders of ($0.14) for the three months ended September30,  2006 as compared to a per share loss of ($0.06) for thethree months ended September  30,  2005.

Liquidityand Capital Resources

We used the proceeds from the sales ofcommon stock through December  31,  2005 and proceeds fromnotes and loans payable for working capital purposes and to fund ournotes receivable of which we have $365,473 owed to us atSeptember  30,  2006. We will continue to advance fundsunder note agreements to providers that subscribe to our MDwerksfinancial services solution.

During 2006, we sold 28.33 units ina private placement to accredited investors pursuant to the terms of aConfidential Private Placement Memorandum, dated February1,  2006, and private placement subscription agreements executedand delivered by each investor on or before the closing of the privateplacement. Each unit consists of one share of our Series A ConvertiblePreferred Stock, par value $.001 per share, and a detachable,transferable Class A Warrant to purchase 20,000 shares of our commonstock, at a purchase price of $3.00 per share. In connection with thesale of the 28.33 units, we received net proceeds of$1,426,391.

On August  24,  2006, we received grossproceeds of $250,000 (net proceeds of $236,566, after expenses) inconnection with a financing provided by an unrelated party. Inconnection with the financing, we issued a secured promissory note inthe original principal amount of $250,000 (the‘‘Note’’) and a three year warrant topurchase 111,111 shares of our common stock at a price of $2.25per share. The Note bears interest at the rate of 7% per year,payable monthly in arrears and will become due and payable onAugust  24,  2007. This Note is subject to certainmandatory prepayment provisions as defined in the secured promissorynote. In connection with this note, our subsidiary, Xeni FinancialServices, Corp. (‘‘XENI’’), entered into asecurity and guaranty agreement whereby Xeni has agreed to guaranty forthe repayment of the note and grant a security interest in theRevolving Line of Credit Loan Agreement including two promissory notesin the original principal amounts issued by certain healthcareproviders to Xeni.

On August  24,  2006, we receivedgross proceeds of $110,000 (net proceeds of $100,000, after expenses)in connection with a financing provided equally by two unrelatedparties. These notes bear interest at 10% per year, and bothinterest and principal are due on January  21,  2007. Weare entitled to one 60 day extension of the Maturity Date. Inconnection with the financing, we issued 10,000 shares of common stockat fair market value at the date of issuance of $39,800 or $3.98 pershare and recorded as debt discount to be amortized over the term ofthe note.

On each of October  20,  2006 andNovember  9,  2006 we received gross proceeds of $2,375,000($4,750,000 in the aggregate) in connection with a financing providedby Gottbetter Capital Master, Ltd., an unaffiliated accreditedinstitutional investor (the‘‘Investor’’).

Pursuant to the termsof a Securities Purchase Agreement that we entered into with theInvestor in connection with the financing, we issued two senior securedconvertible promissory notes to the Investor, each in the originalprincipal amount of $2,500,000 (each a ‘‘SeniorNote’’ and collectively, 

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the ‘‘SeniorNotes’’), five year Series D Warrants to purchase 375,000shares of our common stock at a price of $2.25 per share(‘‘Series D Warrants’’) and five yearSeries E Warrants to purchase 375,000 shares of our common stock at aprice of $3.25 per share (‘‘Series EWarrants’’). As security for our obligations, we, alongwith our subsidiaries, MDwerks Global Holdings, Inc., Xeni MedicalSystems, Inc., Xeni Financial Services, Corp. and Xeni Medical Billing,Corp. entered into a Security Agreement with the Investor, pursuant towhich we granted a security interest in all of our assets to theInvestor. Our subsidiaries, MDwerks Global Holdings, Inc., Xeni MedicalSystems, Inc., Xeni Financial Services, Corp. and Xeni Medical Billing,Corp. are also parties to a Guaranty Agreement pursuant to which theyhave agreed to unconditionally guaranty our obligations under theSenior Notes and the documents entered into by us in connection thesale of the Senior Notes. We also entered into a Registration RightsAgreement, pursuant to which we agreed to register for resale, theshares of our common stock into which the Senior Notes are convertibleand the shares of our common stock for which the Series D Warrants andthe Series E Warrants are exercisable.

The Senior Notes bearinterest at the rate of 8% per year, payable monthly in arrears,commencing December  1,  2006. Subject to certain mandatoryprepayment provisions, and events of default unpaid principal andinterest due under the Notes will become due and payable onOctober  18,  2009 with respect to the Senior Note sold onOctober  20,  2006 and on November  9,  2009with respect to the Senior Note sold on November  9,  2006.The Senior Notes are convertible, at the option of the holder, intoshares of our common stock at a price of $2.25 per share (the‘‘Conversion Price’’), subject to adjustmentfor stock splits, stock dividends, or similar transactions, sales ofour common stock at a price per share below the Conversion Price or theissuance of convertible securities or options or warrants to purchaseshares of our common stock at an exercise price or conversion pricethat is less than the Conversion Price.

The Senior Notes providefor optional redemption by us at a redemption price equal to110% of the face amount redeemed plus accruedinterest.

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

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

The Series D Warrants are exercisable at a price of$2.25 per share for a period of five years from the date of issuance.The Series D Warrants may be exercised on a cashless basis. Theexercise price will be subject to adjustment in the event ofsubdivision or combination of shares of our common stock and similartransactions, distributions of assets, issuances of shares of commonstock with a purchase price below the exercise price of the Series DWarrants, issuances of any rights, warrants or options to purchaseshares of our common stock with an exercise price below the exerciseprice of the Series D Warrants, issuances of convertible securitieswith a conversion price below the exercise price of the Series DWarrants.

The Series E Warrants are exercisable at a price of$3.25 per share for a period of five years from the date of issuance.The Series E Warrants may be exercised on a cashless basis. Theexercise price will be subject to adjustment in the event ofsubdivision or combination of shares of our common stock and similartransactions, distributions of assets, issuances of shares of commonstock with a purchase price below the exercise price of the Series EWarrants, issuances of any rights, warrants or options to purchaseshares of our common stock with an exercise price below the exerciseprice of the Series E Warrants, issuances of convertible securitieswith a conversion price below the exercise price of the Series EWarrants.

We, along with our subsidiaries MDwerks GlobalHoldings, Inc., Xeni Medical Systems, Inc., Xeni Financial Services,Corp. and Xeni Medical Billing, Corp., entered into a SecurityAgreement 

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with the Investor. The Security Agreementprovides for a lien in favor of the Investor on all of our assets,including the assets of each of our subsidiaries.

Oursubsidiaries, MDwerks Global Holdings, Inc., Xeni Medical Systems,Inc., Xeni Financial Services, Corp. and Xeni Medical Billing, Corp.entered into a Guaranty Agreement with the Investor, pursuant to whichthey have agreed to unconditionally guaranty our obligations under theSenior Notes and the documents entered into by us in connection thesale of the Senior Notes.

We also entered into a RegistrationRights Agreement with the Investor. The Registration Rights Agreementrequires us to file a registration statement covering the resale of theshares underlying the Senior Notes, the Series D Warrants and theSeries E Warrants within 45 calendar days after the closing date. Weare required to cause such registration statement to become effectiveon or before the date which is 105 calendar days after the closingdate. In addition to it being an event of default under the SeniorNotes, if we fail to file such registration statement in the time framerequired, fail to cause it to become effective in the time framerequired, or fail to maintain the effectiveness of the registrationstatement as required by the Registration Rights Agreement, theexercise price of the Series D and the Series E Warrants willimmediately be reduced by $0.25 per share and then reduced by anadditional $0.10 per share for each thirty day period thereafter thatthe registration statement is not filed or effective, as the case maybe, up to a maximum reduction of $0.65.

Investor is an‘‘accredited investor,’’ as defined inRegulation D under the Securities Act of 1933, as amended, or theSecurities Act. None of the Senior Note, the Series D Warrants, theSeries E Warrants or the shares of our common stock underlying suchsecurities were registered under the Securities Act, or the securitieslaws of any state and were offered and sold in reliance on theexemption from registration afforded by Section 4(2) and Regulation D(Rule 506) under the Securities Act and corresponding provisions ofstate securities laws, which exempts transactions by an issuer notinvolving any public offering. We made this determination based on therepresentations of the Investor, which included, in pertinent part,that the Investor is an ‘‘accreditedinvestor’’ within the meaning of Rule 501 of Regulation Dpromulgated under the Securities Act, and that the Investor wasacquiring the Senior Notes, the Series D Warrants and the Series EWarrants for investment purposes for its own account and not as nomineeor agent, and not with a view to the resale or distribution, and thatInvestor understood such securities may not be sold or otherwisedisposed of without registration under the Securities Act or anapplicable exemption therefrom.

While we have sufficient funds toconduct our business and operations as they are currently undertakenfor the near term, our ability to continue to implement our revenue andprofit growth strategy could be adversely affected if we are unable toconsummate additional private placement transactions or debt financing,which we are currently pursuing.

We currently have no materialcommitments for capital expenditures.

Cash flows

AtSeptember  30,  2006, we had cash of $140,812.

Netcash used in operating activities was $2,270,395 for the nine monthsended September  30,  2006 as compared to $915,402 for thenine months ended September  30,  2005, an increase of$1,354,993. This increase is primarily attributable to an increase inour net loss and:

|  |          |                                                                                                                                       |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------|
|  | 1.  | Stock based compensation of$2,163,572 related to issuance of stock options to employees and sharesof our common stock to consultants; |

|  |          |                                                                                                                                                                                                                                                                      |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 2.  | Loss onvaluation of warrant liability of $192,914 in connection to therevaluation of our warrant liability to fair value at the end of eachreporting period until our registration statement has been declaredeffective and for a period of two years from thatdate; |

|  |          |                                                                                                                                                                                                                                             |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 3.  | An net increase in notes receivable,accounts receivable and prepaid expenses aggregating $1,580 related tothe increase in revenue and the funding of notes receivable toproviders that subscribe to our MDwerks financial servicessolution; |

|  |          |                                                                                                                                            |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------|
|  | 4.  | An increase in accounts payable,accrued expenses and deferred revenues related to an increase inoperating activities aggregating $363,723. |

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Net cash used in investing activities was$71,728 for the nine months ended September  30,  2006 ascompared to $75,324 for the nine months ended September30,  2005 and is related to the acquisition of computer andoffice equipment and furniture.

Net cash provided by financingactivities was $1,716,471 for the nine months ended September30,  2006 as compared to $885,115 for the nine months endedSeptember  30,  2005. For the nine months endedSeptember  30,  2006, we received proceeds from the sale ofSeries A preferred stock of $1,700,000 offset by placement fees andother expenses paid of $273,609 related to the preferred stock offeringand repayment of loans payable and notes payable of $21,486 and$25,000, respectively. We also received net proceeds from notes payableof $336,566. During the nine months ended September  30,2005, we received capital contributions from the former stockholders ofthe Xeni Companies of $550,886 and proceeds from notes payable of$135,000. We also received proceeds of $119,229 from the sale of commonstock and $80,000 from loans payable.

Off Balance SheetArrangements

We had no off balance sheet arrangements as ofSeptember  30,  2006.

Cautionary LanguageRegarding Forward-Looking Statements and Industry Data

Thisreport contains ‘‘forward-lookingstatements’’ within the meaning of the Private SecuritiesLitigation Reform Act of 1995 that involve risks and uncertainties,many of which are beyond our control. Our actual results could differmaterially and adversely from those anticipated in such forward-lookingstatements as a result of certain factors, including those set forthbelow and elsewhere in this report. Important factors that may causeactual results to differ from projections include, but are not limitedto, for example:

|  |              |                             |
|--|--------------|-----------------------------|
|  | •  | adverseeconomic conditions; |

|  |              |                                                                                |
|--|--------------|--------------------------------------------------------------------------------|
|  | •  | inabilityto raise sufficient additional capital to implement our businessplan; |

|  |              |                                                                                      |
|--|--------------|--------------------------------------------------------------------------------------|
|  | •  | intense competition,including entry of newly-developed alternative drugtechnologies; |

|  |              |                                                                                   |
|--|--------------|-----------------------------------------------------------------------------------|
|  | •  | unexpected costsand operating deficits, and lower than expected sales andrevenue; |

|  |              |                                         |
|--|--------------|-----------------------------------------|
|  | •  | adverse results ofany legalproceedings; |

|  |              |                                                                              |
|--|--------------|------------------------------------------------------------------------------|
|  | •  | inability tosatisfy government and commercial customers using ourtechnology; |

|  |              |                                                                |
|--|--------------|----------------------------------------------------------------|
|  | •  | the volatility ofour operating results and financialcondition; |

|  |              |                                                                                                                                 |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------|
|  | •  | inability toattract or retain qualified senior management personnel, includingsales and marketing, and technology personnel;and |

|  |              |                                                            |
|--|--------------|------------------------------------------------------------|
|  | •  | other specific risks thatmay be alluded to in this report. |

All statements, other thanstatements of historical facts, included in this report regarding ourstrategy, future operations, financial position, estimated revenue orlosses, projected costs, prospects and plans and objectives ofmanagement are forward-looking statements. When used in this report,the words ‘‘will,’’‘‘may,’’‘‘believe,’’‘‘anticipate,’’‘‘intend,’’‘‘estimate,’’‘‘expect,’’‘‘project,’’‘‘plan’’ and similar expressions areintended to identify forward-looking statements, although not allforward-looking statements contain such identifying words. Allforward-looking statements speak only as of the date of this report. Wedo not undertake any obligation to update any forward-lookingstatements or other information contained herein. Potential investorsshould not place undue reliance on these forward-looking statements.Although we believe that our plans, intentions and expectationsreflected in or suggested by the forward-looking statements in thisreport are reasonable, no one can assure investors that these plans,intentions or expectations will be achieved.

Informationregarding market and industry statistics contained in this report isincluded based on information available to us that we believe isaccurate. It is generally based on academic and other publications thatare not produced for purposes of securities offerings or economicanalysis. We have 

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not reviewed or included data from allsources, and we cannot assure investors of the accuracy or completenessof the data included in this report. Forecasts and otherforward-looking information obtained from these sources are subject tothe same qualifications and the additional uncertainties accompanyingany estimates of future market size, revenue and market acceptance ofproducts and services. We have no obligation to update forward-lookinginformation to reflect actual results or changes in assumptions orother factors that could affect those statements.

ITEM3.    CONTROLS AND PROCEDURES

We maintain‘‘disclosure controls and procedures,’’ as suchterm is defined in Rule 13a-15(e) under the Securities Exchange Act of1934 (the ‘‘Exchange Act’’), that are designedto ensure that information required to be disclosed in our Exchange Actreports is recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission rules andforms, and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure. We conducted an evaluation (the‘‘Evaluation’’), under the supervision and withthe participation of our Chief Executive Officer(‘‘CEO’’) and Chief Financial Officer(‘‘CFO’’), of the effectiveness of the designand operation of our disclosure controls and procedures(‘‘Disclosure Controls’’) as of the end of theperiod covered by this report pursuant to Rule 13a-15 of the ExchangeAct. Based on this Evaluation, our CEO and CFO concluded that ourDisclosure Controls were effective as of the end of the period coveredby this report.

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

Our management, including our CEO and CFO, does not expect that ourDisclosure Controls and internal controls will prevent all errors andall fraud. A control system, no matter how well conceived and operated,can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, the design of acontrol system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relativeto their costs. Because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within the Companyhave been detected. These inherent limitations include the realitiesthat judgments in decision-making can be faulty, and that breakdownscan occur because of a simple error or mistake. Additionally, controlscan be circumvented by the individual acts of some persons, bycollusion of two or more people, or by management or board override ofthe control. The design of any system of controls also is based in partupon certain assumptions about the likelihood of future events, andthere can be no assurance that any design will succeed in achieving itsstated goals under all potential future conditions; over time, controlsmay become inadequate because of changes in conditions, or the degreeof compliance with the policies or procedures may deteriorate. Becauseof the inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and not be detected. CEOand CFO Certifications appearing immediately following the signaturessection of this report are Certifications of the CEO and the CFO. TheCertifications are required in accordance with Section 302 of theSarbanes-Oxley Act of 2002 (the Section 302 Certifications). This itemof this report, which you are currently reading is the informationconcerning the Evaluation referred to in the Section 302 Certificationsand this information should be read in conjunction with the Section 302Certifications for a more complete understanding of the topicspresented.

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PARTII — OTHER INFORMATION

Item 1 — LegalProceedings

None

Item 2 — UnregisteredSales of Equity Securities and Use of Proceeds

OnAugust  9,  2006, we issued 22,500 shares of common stockto consultants in consideration for services rendered.

On August  24,  2006, we issued 10,000 sharesof common stock in connection with a notes payable financing.

During the three months ended September  30,2006, Series A preferred stockholders’ converted 13 shares ofSeries A Preferred Stock into 260,000 shares of common stock.

Item 3 — Defaults Upon SeniorSecurities

None.

Item 4 — Submissions of Mattersto a Vote of Security Holders

None.

Item 5.     OtherInformation

None

Item 6.    Exhibits

|  |    |    |  |  |  |                                                         |
|--|----|----|--|--|--|---------------------------------------------------------|
|  | 31 | .1 |  |  |  | Section302 Certification of Principal ExecutiveOfficer  |
|  | 31 | .2 |  |  |  | Section 302 Certification ofPrincipal Financial Officer |
|  | 32 | .1 |  |  |  | Section 906Certification of Principal ExecutiveOfficer  |
|  | 32 | .2 |  |  |  | Section 906 Certification ofPrincipal FinancialOfficer  |
|  |

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SIGNATURES

Inaccordance with the requirements of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

|                  |  |  |                                         |
|------------------|--|--|-----------------------------------------|
|             |  |  | MDWERKS,INC.                            |
| November14,2006  |  |  | /s/Howard B. Katz                       |
|             |  |  | Howard B. KatzChiefExecutiveOfficer     |
|             |  |  |                                    |
| November 14,2006 |  |  | /s/ VincentColangelo                    |
|             |  |  | Vincent ColangeloChiefFinancial Officer |
|                  |

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