and in December 2004, it decided to focus on a new line of business in the area of providing insurance claims transaction solutions and related services through investment in Xeni Systems. In December 2004, MDwerks Global Holdings, Inc. loaned $250,000 to Xeni Systems in exchange for a promissory note and in early May 2005, MDwerks Global Holdings, Inc. invested another $200,000 into Xeni Systems in exchange for a promissory note. In late May 2005, the Xeni Companies and MDwerks Global Holdings, Inc. determined that a holding company structure with MDwerks Global Holdings, Inc. serving as a holding company and overseeing the business of the Xeni Companies provided certain strategic advantages to the Xeni Companies. In addition, it also provided the Xeni Companies with access to cash held by MDwerks Global Holdings, Inc. to continue to fund the business of the Xeni Companies. As a result, the Xeni Companies became wholly-owned subsidiaries of MDwerks Global Holdings, Inc., pursuant to share exchange agreements between MDwerks and each of the shareholders of the Xeni Companies. Each of the promissory notes issued by Xeni Systems to MDwerks Holding, Inc. was cancelled in connection with the share exchange.

MDwerks, Inc. (f/k/a Western Exploration, Inc.) was incorporated in the State of Delaware on July 22, 2003. From then, until November, 2005, it was a resource exploration stage company. In December, 2003 MDwerks, Inc. was presented with the opportunity to purchase a property that potentially contains a large resource of limestone. Based on such opportunity, MDwerks, Inc. carried out research on the limestone market in the province of British Columbia as well as the Pacific Northwest region of the United States. MDwerks, Inc. was unable to obtain adequate financing to continue its operations as they were conducted and determined to cease operations.

On October 12, 2005, MDwerks, Inc., MDwerks Global Holdings, Inc. and MDwerks Acquisition Corp., a Florida corporation (‘‘Acquisition Corp.’’), and wholly-owned subsidiary of MDwerks, Inc., entered into an Agreement of Merger and Plan of Reorganization (the ‘‘Merger Agreement’’) pursuant to which, on November 16, 2005, Acquisition Corp. was merged with and into MDwerks Global Holdings, Inc., with MDwerks Global Holdings, Inc. surviving as a wholly-owned subsidiary of MDwerks, Inc. (the ‘‘Merger’’). MDwerks, Inc. acquired all of the outstanding capital stock of MDwerks Global Holdings, Inc. in exchange for issuing shares of Common Stock of MDwerks, Inc. to MDwerks Global Holdings Inc.’s stockholders at a ratio of 0.158074 shares of Common Stock for each share of MDwerks Global Holdings, Inc. common stock outstanding at the effective time of the Merger. Upon the closing of the Merger, we changed our corporate name from ‘‘Western Exploration, Inc.’’ to ‘‘MDwerks, Inc.’’ and succeeded to the business of MDwerks Global Holdings, Inc. as our sole line of business under the direction of MDwerks Global Holdings, Inc.’s management.

In connection with the Merger described above, we completed the closing of a private offering of our securities in which, through December 31, 2005, we sold an aggregate of approximately 64 Units to accredited investors in the Private Placement, pursuant to the terms of a Confidential Private Placement Memorandum dated June 13, 2005, as supplemented. Each Unit consists of 10,000 shares of common stock and a warrant to purchase 10,000 shares of common stock. Each warrant entitles the holder to purchase 10,000 shares of common stock for $2.50 per share. The Units were offered by Brookshire Securities Corporation, as placement agent, pursuant to a placement agent agreement under which the placement agent, in addition to a percentage of gross proceeds of the Private Placement, received 96,000 shares of common stock and a warrant to purchase up to an aggregate of 64,000 shares of common stock. We realized gross proceeds from the Private Placement of $1,600,000, before payment of commissions and expenses.

On June 28, 2006 we completed a private placement offering of units, pursuant to the terms of a Confidential Private Placement Memorandum dated February 1, 2006. Each unit consists of one share of Series A Convertible Preferred Stock and a detachable three-year Series A Warrant to purchase twenty thousand (20,000) shares of our common stock at an exercise price of $3.00 per share (‘‘Series A Preferred Units’’). We sold an aggregate of 28.3 Series A Convertible Preferred Units to accredited investors in this private placement. As of December 31, 2006, 23.3 shares of Series A Convertible Preferred Stock had been converted into 466,667 shares of common stock. The Series A Preferred Units were offered by Brookshire Securities Corporation, as placement agent. The placement agent, in addition to a percentage of gross proceeds of the second private placement, received 170,000 shares of common stock and, for nominal consideration, a warrant to purchase up to

13

Table of Contents

an aggregate of 56,667 shares of common stock at an exercise price of $1.50 per share. We realized gross proceeds from the second private placement of $1,700,000, before payment of commissions and expenses.

Pursuant to the Private Placement Subscription documents, we agreed to file a registration statement with the Securities and Exchange Commission to register the shares and warrants held by the selling security holders for resale. That registration statement was declared effective on December 7, 2006. We have agreed to maintain the effectiveness of the registration statement from the effective date through and until the earlier of two years following December 31, 2005 (which was the termination date of the first private placement described above) or the earlier of two years following June 28, 2006 (which was the effective date of the termination of the second private placement described above) and such time as exempt sales pursuant to Rule144(k) under the Securities Act of 1933 (‘‘Rule 144(k)’’) may be permitted for purchasers of Units.

On August 24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566, after expenses) in connection with a financing provided by Mr. David Goldner, an unaffiliated accredited investor (the ‘‘Goldner Financing’’). In connection with the financing, we issued a secured promissory note to Mr. Goldner in the original principal amount of $250,000 (the ‘‘Goldner Note’’) and a three year warrant to purchase 111,111 shares of our common stock at a price of $2.25 per share (the ‘‘Class C Warrant’’) The Goldner Note bears interest at the rate of 7% per year, payable monthly in arrears. Subject to certain mandatory prepayment provisions, unpaid principal and interest due under the Goldner Note will become due and payable on August 24, 2007. At December 31, 2006, principal payments made under the mandatory prepayment provisions had reduced the Goldner Note balance to $238,366. Our obligations under the Goldner Note and the agreements entered into in connection with the financing are guaranteed by our subsidiary, Xeni Financial Services, Corp. pursuant to the terms of a guaranty agreement (the ‘‘Xeni Guaranty’’). The performance of our obligations and the obligations of Xeni Financial Services in connection with the Goldner Note, the Xeni Guaranty and the security agreement entered into in connection with the financing (the ‘‘Security Agreement’’) are secured by a security interest in the Revolving Line of Credit Loan Agreement, dated September 29, 2005, between Xeni Financial Services, Corp. and Mobile Diagnostic Imaging, Inc. (the ‘‘MDI Revolver Loan Agreement’’) and all other loan documents related to MDI Revolver Loan Agreement, including two promissory notes in the original principal amounts of $250,000 and $121,068 issued by Mobile Diagnostic Imaging, Inc. to Xeni Financial Services, Corp, which were consolidated into a single promissory note in the amount of $180,165 on December 5, 2006. We used the net proceeds of the financing for general working capital purposes. In connection with the financing described above, we issued the Goldner Note and the Class C Warrant to Mr. Goldner pursuant to the term of a Subscription Agreement. In the Subscription Agreement we granted Mr. Goldner ‘‘piggyback’’ registration rights. Pursuant to Mr. Goldner’s ‘‘piggyback’’ registration rights, we included the shares underlying his warrants in the registration statement that became effective on December 7, 2006. Mr. Goldner is an ‘‘accredited investor,’’ as defined in Regulation D under the Securities Act of 1933, as amended, or the Securities Act

On August 24, 2006, our subsidiary Xeni Financial Services, Corp. (Xeni Financial) received gross proceeds of $110,000 (net proceeds of $100,000, after expenses) in connection with a financing provided equally by Mr. Frank Grenier and Mr. Eugene Grenier, both unaffiliated accredited investors (the ‘‘Greniers’’). In connection with the financing, Xeni Financial issued two Promissory Notes to the Greniers each in the original amount of $55,000 (the ‘‘Grenier Notes’’) and 5,000 shares of Common Stock to each of Mr. Frank Grenier and Mr. Eugene Grenier. The Grenier Notes bear interest at 10% per year, and both interest and principal were paid on the January 21, 2007 Maturity Date. We used the net proceeds of the financing for general working capital purposes. In connection with the financing described above, we issued the Grenier Notes to the Greniers pursuant to the term of a Subscription Agreement. In the Subscription Agreement we granted the Greniers ‘‘piggyback’’ registration rights. Pursuant to the Greniers’ ‘‘piggyback’’ registration rights, we included the shares of common stock issued to the Greniers in our registration statement that was declared effective on December 7, 2006. The Greniers are ‘‘accredited investors,’’ as defined in Regulation D under the Securities Act of 1933, as amended, or the Securities Act.

14

---

Table of Contents

On each of October 20, 2006 and November 9, 2006 we received gross proceeds of $2,500,000 ($2,375,000 net proceeds) for a total of $5,000,000 in the aggregate ($4,750,000 net proceeds in the aggregate) in connection with a financing provided by Gottbetter Capital Master, Ltd., an unaffiliated accredited institutional investor (the ‘‘Investor’’). Pursuant to the terms of a Securities Purchase Agreement that we entered into with the Investor in connection with the financing, we issued two senior secured convertible promissory notes to the Investor, each in the original principal amount of $2,500,000 (each a ‘‘Senior Note’’ and collectively, the ‘‘Senior Notes’’), five year Series D Warrants to purchase 375,000 shares of our common stock at a price of $2.25 per share (‘‘Series D Warrants’’) and five year Series E Warrants to purchase 375,000 shares of our common stock at a price of $3.25 per share (‘‘Series E Warrants’’).

The Senior Notes bear interest at the rate of 8% per year, payable monthly in arrears, commencing December 1, 2006. Subject to certain mandatory prepayment provisions, and events of default, unpaid principal and interest due under the Senior Notes will become due and payable on October 18, 2009 with respect to the Senior Note sold on October 20, 2006 and on November 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 to adjustment for stock splits, stock dividends, or similar transactions, sales of our common stock at a price per share below the Conversion Price or the issuance of convertible securities or options or warrants to purchase shares of our common stock at an exercise price or conversion price that is less than the Conversion Price.

The Senior Notes provide for optional redemption by us at a redemption price equal to 110% of the face amount redeemed plus accrued interest.

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

The Senior Notes also provide that in the event of a Change of Control (as defined in the Senior Notes), the holder may require that such holder’s Senior Note be redeemed at the Change of Control Redemption Price (as defined in the Senior Notes). The Change of Control Redemption Price includes certain premiums in the event a Senior Note is redeemed in the event of a Change of Control.

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. The exercise price will be subject to adjustment in the event of subdivision or combination of shares of our common stock and similar transactions, distributions of assets, issuances of shares of common stock with a purchase price below the exercise price of the Series D Warrants, issuances of any rights, warrants or options to purchase shares of our common stock with an exercise price below the exercise price of the Series D Warrants, issuances of convertible securities with a conversion price below the exercise price of the Series D Warrants.

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. The exercise price will be subject to adjustment in the event of subdivision or combination of shares of our common stock and similar transactions, distributions of assets, issuances of shares of common stock with a purchase price below the exercise price of the Series E Warrants, issuances of any rights, warrants or options to purchase shares of our common stock with an exercise price below the exercise price of the Series E Warrants, issuances of convertible securities with a conversion price below the exercise price of the Series E Warrants.

We entered into a Security Agreement with the Investor. The Security Agreement provides for a lien in favor of the Investor on all of our assets.

Our subsidiaries entered into a Guaranty Agreement with the Investor, pursuant to which they have agreed to unconditionally guaranty our obligations under the Senior Notes and the documents entered into by us in connection the sale of the Senior Notes.

15

---

Table of Contents

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

Corporate Information Regarding the Company and its Subsidiaries

MDwerks, Inc. is a corporation, organized under the laws of the State of Delaware, originally formed on July 22, 2003.

MDwerks Global Holdings, Inc. is a corporation, organized under the laws of the State of Florida, originally formed on October 23, 2003.

Xeni Systems, Inc. is a corporation organized under the laws of the State of Delaware, originally formed on July 21, 2004.

Xeni Financial Services Corporation is a corporation organized under the laws of the State of Florida, originally formed on February 3, 2005.

Xeni Medical Billing Corp. is a corporation organized under the laws of the State of Delaware, originally formed on March 2, 2005.

Our principal executive office is located at Windolph Center, Suite I, 1020 NW 6th Street, Deerfield Beach, Florida 33442 and our telephone number is (954) 389-8300. Our website address is www.mdwerks.com.

Employees

We employ approximately 18 people who devote their full business time to our activities and 1 person who devotes some of their business time to our activities.

Intellectual Property

A United States business process patent application regarding certain aspects of our systems was filed by our predecessor, MEDwerks, LLC, on April 15, 2002. The US Patent Office has issued an initial office action indicating that it will not allow a patent based upon our initial application. Our patent counsel, DLA Piper Rudnick Gray Cary has modified our patent application based upon the US Patent Office’s action and has submitted a response to the office action. If the response from the US Patent Office to our modified application and our response is unfavorable or only partially successful, when compared to prior protected art, the process may be extended up to 3 years and we could incur substantial expenses in prosecuting the patent. We plan to undertake prosecution of the patent filing to conclusion, if practical and economical.

Properties

The Company sub-leases its facility, on a month-to-month basis, under a master lease expiring July 2008.

Government Regulation

See Risk Factors – ‘‘We are subject to substantial government regulations.’’

16

---

Table of Contents

Risk Factors

We have a very limited operating history, making it difficult to accurately forecast our revenues and appropriately plan our expenses.

We began operations as Xeni Systems, when, in October 2004, Xeni Systems acquired substantially all of the assets of MEDwerks, LLC. MEDwerks, LLC, commenced operations in 2000 and focused the majority of its capital and time developing software programs for the medical transaction system employed by us. From its inception, MEDwerks, LLC incurred substantial net losses in each fiscal year of operation. MEDwerks, LLC closed down its business operations in October 2003, before ever launching its products and services commercially. Xeni Financial was formed in February 2005 and currently provides its products and services only to customers of Xeni Systems. Xeni Billing was formed in March 2005 and currently provides its products and services only to customers of Xeni Systems. MDwerks Global Holdings, Inc. was originally formed in October 2003 for the purpose of operating a business as a provider of telecommunications products and services. In April 2004, MDwerks Global Holdings, Inc. discontinued its telecommunications business and in December 2004, it began to focus on developing the business of Xeni Systems. Pursuant to share exchange agreements, MDwerks Global Holdings, Inc. acquired Xeni Systems, Xeni Financial and Xeni Billing as wholly-owned subsidiaries. In November, 2005, we acquired MDwerks Global Holdings, Inc. as a wholly-owned subsidiary and we operate the businesses of MDwerks Global Holdings, Inc. and the Xeni Companies as our sole lines of business. Accordingly, we should be viewed as an entity with a very limited operating history.

Because we have had a limited operating history, it is difficult to accurately forecast our revenues and expenses. Additionally, our operations will continue to be subject to risks inherent in the establishment of a new business, including, among other things, efficiently deploying our capital, developing our product and services offerings, developing and implementing our marketing campaigns and strategies and developing awareness and acceptance of our products. Our ability to generate future revenues will be dependent on a number of factors, many of which are beyond our control, including the pricing of other services, overall demand for our products, market competition and government regulation. As with any investment in a company with a limited operating history, ownership of our securities may involve a high degree of risk and is not recommended if an investor cannot reasonably bear the risk of a total loss of his or her investment.

We have historically incurred net losses and may not be profitable in the future. In addition, we intend to continue to spend resources on maintaining and strengthening our business and this may cause our operating expenses to increase and operating results to decrease.

Our net loss attributable to common shareholders for the year ended December 31, 2006 was $10,775,667 and since our inception, our accumulated deficit as of December 31, 2006 was $26,548,514. We expect to continue to incur additional substantial operating and net losses for the foreseeable future. The profit potential of our business model is unproven, and, to be successful, we must, among other things, develop and market products and services that would be widely accepted by potential users of such products and services at prices that will yield a profit. If our products and services cannot be commercially developed and launched, and do not achieve or sustain broad market acceptance we will not achieve sufficient revenues to continue to operate our business.

If we continue to incur losses in future periods, we may be unable to retain employees or fund investments in our systems development, sales and marketing programs, research and development and business plan. There can be no assurance that we will ever obtain sufficient revenues to exceed our cost structure and achieve profitability. If we do achieve profitability, there can be no assurance that we may sustain or increase profitability in the future.

The report of our independent registered public accountants contains the following statement with which we concur: ‘‘The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern.’’

17

---

Table of Contents

We will need to raise additional capital in the future and may need to initiate other operational strategies to continue our operations.

As of December 31, 2006, we had a cash balance of $3,146,841. The amount of cash available to us will be insufficient for us to implement our business plan as anticipated and will require us to seek additional debt or equity financing in the near future, as we will be unable to generate positive cash flow as a result of our operations. As our business develops, we may need to raise capital through the incurrence of additional long-term or short-term indebtedness or the issuance of additional equity securities in private or public transactions in order to complete further investments. This could result in dilution of existing equity positions, increased interest expense, decreased net income and diminished shareholder’s value. In addition, significant capital requirements associated with such investments may impair our ability to pay dividends (although we do not anticipate paying any dividends on common stock in the foreseeable future) or interest on indebtedness or to meet our operating needs. There can be no assurance that acceptable financing for future investments can be obtained on suitable terms, if at all.

Competition from providers of similar products and services could adversely affect our revenues and financial condition.

We compete in a rapidly evolving, highly competitive and fragmented market. We expect competition to intensify in the future. There can be no assurance that we will be able to compete effectively. We believe that the main competitive factors in the medical transactions processing, billing, payment and financing industry include effective marketing and sales, brand recognition, product quality, product placement and availability, niche marketing and segmentation and value propositions. They also include benefits of one’s company, product and services, features and functionality, and cost. Many of our competitors are established, profitable and have strong attributes in many, most or all of these areas. They may be able to leverage their existing relationships to offer alternative products or services on more attractive terms or with better customer support. Other companies may also enter our markets with better products or services, greater financial and human resources and/or greater brand recognition. Competitors may continue to improve or expand current products and introduce new products. We may be perceived as relatively too small or untested to be awarded business relative to the competition. To be competitive, we will have to invest significant resources in business development, advertising and marketing. We may also have to rely on strategic partnerships for critical branding and relationship leverage, which partnerships may or may not be available or sufficient. We cannot assure that we will have sufficient resources to make these investments or that we will be able to make the advances necessary to be competitive. Increased competition may result in fee reductions, reduced gross margin and loss of market share. Failure to compete successfully against current or future competitors will result in less revenue and have a material adverse effect on our business, operating results and financial condition.

If our technology is not operational and usable it could adversely affect our business.

Xeni Financial and Xeni Billing rely almost exclusively on the technology of Xeni Systems. We believe that neither Xeni Financial nor Xeni Billing can operate as a stand-alone business, but will provide products and services that are ancillary to the products and services of Xeni Systems. As a result, the success of our business proposition is materially and substantially dependent on the technology of Xeni Systems (and the availability, operability and use of such technology in whole or in part). If the technology of Xeni Systems is not usable, we will be unable to operate, as our systems are dependent upon such technology.

Our products and services were designed and built using certain key technologies and licenses from a limited number of suppliers. We will depend on these other companies for software updates, technical support and possibly for system management or for new product development. Although we believe there might be alternative suppliers for some or all of these technologies, it would take a significant period of time and money to establish relationships with alternative suppliers and substitute their technologies for technologies currently being used. The loss of any of our relationships with

18

---

Table of Contents

these suppliers could result in system shut downs and/or the inability to offer services we offer, or intend to offer, which could result in a material adverse effect on our business, operating results and financial condition.

If our systems fail, it could interrupt operations and could adversely impact us.

Our operations are dependent upon our ability to support our highly complex network infrastructure and avoid damage from fires, earthquakes, floods, hurricanes, power losses, war, terrorist attacks, telecommunications failures and similar natural or manmade events. The occurrence of a natural disaster, intentional or unintentional human error or action, or other unanticipated problem could cause interruptions in the services that we provide. Additionally, the failure of our third-party backbone providers to provide the data communications capacity that we require, as a result of natural disaster, operational disruption or any other reason could cause interruptions in the services that we provide. Any damage or failure that causes interruptions in our operations could result in loss of revenues from clients, loss of clients, monetary damage, or increased costs of operations, any or all of which could have a material adverse effect on our business, operating results and financial condition.

If we do not protect our proprietary technology and intellectual property rights against infringement or misappropriation and defend against third parties assertions that we have infringed on their intellectual property rights, we may lose our competitive advantage, which could impair our ability to grow our revenues.

Our predecessor, MEDwerks, LLC filed a United States business process patent application regarding elements of the MDwerks System on April 15, 2002. The US Patent Office has issued an initial office action indicating that it will not allow a patent based upon our initial application. Our patent counsel, DLA Piper Rudnick Gray Cary (‘‘Piper Rudnick’’), Washington, DC, has modified our patent application based upon the US Patent Office’s action and has submitted a response to the office action. If the response from the US Patent Office to our modified application and our response is unfavorable or only partially successful, the process may be extended up to 3 years and we could incur substantial expenses in prosecuting the patent.

There is no assurance that the patent application will be successfully completed and if completed, there can be no assurance that the patent will afford meaningful protection of our intellectual property rights. Despite efforts to protect our intellectual property rights, unauthorized parties may attempt to copy aspects of our systems or our source code to software or to obtain or use information that is proprietary. The scope of any intellectual property rights that we have is uncertain and is not sufficient to prevent infringement claims against us or claims that we have violated the intellectual property rights of third parties. While we know of no basis for any claims of this type, the existence of and ownership of intellectual property can be difficult to verify and we have not made an exhaustive search of all patent filings. If any of our proprietary rights are misappropriated or we are forced to defend our intellectual property rights, we will have to incur substantial costs. We may not have the financial resources to prosecute any infringement claims that we may have or defend against any infringement claims that are brought against us, or choose to defend such claims. Even if we do, defending or prosecuting our intellectual property rights will divert valuable working capital and management’s attention from business and operational issues.

If we are unable to retain key personnel it will have an adverse effect on our business. We do not maintain ‘‘key man’’ life insurance policies on our key personnel.

Our operations have been and will continue be dependent on the efforts of Mr. Howard Katz, our Chief Executive Officer, Mr. Solon Kandel, our President and Mr. Vincent Colangelo, our Chief Financial Officer and Corporate Secretary. The commercialization of our products and the development of improvements to our products and systems, as well as the development of new products is dependent on retaining the services of certain technical personnel who were involved in the development of MDwerks’ products and services. The loss of key management, the inability to secure or retain such key legacy personnel with unique knowledge of our products and services and the technology and programming employed as part of our products and services, the failure to transfer

19

---

Table of Contents

knowledge from legacy personnel to current personnel, or an inability to attract and retain sufficient numbers of other qualified management personnel would adversely delay and affect our business, products and services and could have a material adverse effect on our business, operating results and financial condition.

We do not have ‘‘key man’’ life insurance policies for Mr. Katz, Mr. Kandel or Mr. Colangelo. Even if we were to obtain ‘‘key man’’ insurance for Mr. Katz, Mr. Kandel or Mr. Colangelo of which there can be no assurance, the amount of such policies may not be sufficient to cover losses experienced by us as a result of the loss of Mr. Katz, Mr. Kandel or Mr. Colangelo.

If we fail to attract skilled personnel it could adversely affect our business.

Our future success depends, in large part, on our ability to attract and retain highly skilled personnel. If we are unable to attract or retain qualified personnel in the future or there are any delays in hiring required personnel, particularly technical, sales, marketing and financial personnel, it could materially adversely affect our business, operating results and financial condition.

We will need to expand our sales operations and marketing operations in order to increase market awareness of our products and generate revenues. New sales personnel and marketing personnel will require training and it will take time to achieve full productivity. Competition for such personnel is intense. We cannot be certain that we will successfully attract and retain additional qualified personnel.

The use of independent sales representatives or distributors will subject us to certain risks.

We presently generate revenue from the efforts of independent sales representatives and we expect to generate a substantial portion of our revenue from independent sales representatives or distributors. Such representatives and distributors may not be required to meet sales quotas and our ability to manage independent sales representatives or distributors to performance standards is unknown. Failure to generate revenue from these sales representatives or distributors would have a negative impact on our business.

Our business may subject us to risks related to nationwide or international operations.

If we offer our products and services on a national, or even international, basis, distribution would be subject to a variety of associated risks, any of which could seriously harm our business, financial condition and results of operations.

These risks include:

	•	greater difficulty in collecting accounts receivable;

	•	satisfying import or export licensing and product certification requirements;

	•	taxes, tariffs, duties, price controls or other restrictions on out-of-state companies, foreign currencies or trade barriers imposed by states or foreign countries;

	•	potential adverse tax consequences, including restrictions on repatriation of earnings;

	•	fluctuations in currency exchange rates;

	•	seasonal reductions in business activity in some parts of the country or the world;

	•	unexpected changes in local, state, federal or international regulatory requirements;

	•	burdens of complying with a wide variety of state and foreign laws;

	•	difficulties and costs of staffing and managing national and foreign operations;

	•	different regulatory and political climates and/or political instability;

	•	the impact of economic recessions in and outside of the United States; and

	•	limited ability to enforce agreements, intellectual property and other rights in foreign territories.

20

---

Table of Contents

We are subject to substantial government regulation which may adversely affect the way we conduct our business and the costs of conducting our business.

The healthcare industry is highly regulated and is subject to changing political, economic and regulatory influences. Federal and state legislatures have periodically considered programs to reform or amend the U.S. healthcare system at both the federal and state level and to change healthcare financing and reimbursement systems, such as the Balanced Budget Act of 1997 and the Medicare Modernization Act of 2003. These programs may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. Current or future government regulations or healthcare reform measures may affect our business. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our products and services.

Our medical billing, lending and collection activities are governed by numerous federal and state civil and criminal laws. Federal and state regulators use these laws to investigate healthcare providers and companies that provide lending, billing and collection services. In connection with these laws, we may be subjected to federal or state government investigations and possible penalties may be imposed, false claims actions may have to be defended, private payors may file claims against us, and we may be excluded from Medicare, Medicaid or other government-funded healthcare programs. Some of these laws may carry strict liability provisions that impose responsibilities and liabilities on us without any wrongdoing or negligence on our part.

We may become the subject of false claims litigation or additional investigations relating to our lending, billing and collection activities, even when simply passing on claims originating from and edited by third parties for content. Any such proceeding or investigation could have a material adverse effect on our business, operating results and financial condition.

Under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, final rules were published regarding standards for electronic transactions as well as standards for privacy and security of individually identifiable health information. The HIPAA rules set new or higher standards for the healthcare industry in handling healthcare transactions and information, with penalties for noncompliance. We have incurred and we will continue to incur costs to comply with these rules. Compliance with these rules may prove to be more costly than we currently anticipate. Failure to comply with such rules may have a material adverse effect on our business and may subject us to civil and criminal penalties as well as loss of customers.

We will rely upon third parties to provide data elements to process electronic medical claims in a HIPAA compliant format. While we believe we will be fully and properly prepared to process electronic medical claims in a HIPAA-compliant format, there can be no assurance that third parties, including healthcare providers and payors, will likewise be prepared to supply all the data elements required to process electronic medical claims and make electronic remittance under HIPAA’s standards. We have made and expect to continue to make investments in product enhancements to support customer operations that are regulated by HIPAA. Responding to HIPAA’s impact may require us to make investments in new products or charge higher prices.

HIPAA, in part, governs the collection, use, storage and disclosure of health information for the purpose of safeguarding the privacy and security of such information. Persons who believe health information has been misused or disclosed improperly may file complaints against offending parties, which may lead to investigation and potential civil and criminal penalties from Federal or state governments.

The passage of HIPAA is part of a wider healthcare reform initiative. We expect that the debate on healthcare reform will continue. We also expect that the federal government as well as state governments will pass laws and issue regulations addressing healthcare issues and reimbursement of healthcare providers. We cannot predict whether the governmental-bodies regulators will enact new legislation and regulations, and, if enacted, whether such new developments will have an adverse affect our business, operating results or financial condition.

21

---

Table of Contents

The Gramm Leach Bliley Act may govern our lending practices as related to safeguarding personal customer information.

Many healthcare providers who are potential clients may have existing systems that do not generate electronic files in a HIPAA-compliant format, which will limit the amount of services we can provide to and the amount of revenues that can be generated from such healthcare providers.

Many healthcare providers have practice management systems that do not have electronic interfaces which produce a HIPAA compliant form. If the interface doesn’t exist, they must purchase a new system from a third party, which may be expensive and not a desirable business proposition for such healthcare providers. If claims cannot be submitted electronically, the claims data must be manually entered into our system, which can be time consuming and duplicative of work already done by a healthcare provider. Manually entering the data also subjects claims to greater risk of human error in the data entry process. While we believe we can provide solutions to healthcare providers to enable them to establish electronic interfaces to submit claims electronically in a HIPAA compliant manner, there can be no assurance healthcare providers will be willing to implement the solutions that we propose. If healthcare providers can not supply electronic medical claims and such claims are processed manually rather than electronically, services that we can provide will be greatly limited and our ability to generate revenues from such providers will be curtailed which could result in a material adverse affect on our business, operating results or financial condition.

We may make errors in processing information provided by our clients and, as a result, we may suffer losses.

We will receive detailed information provided by clients. Even if clients provide full and accurate disclosure of all material information to be submitted as part of a claim for payment, such information may be misinterpreted or incorrectly analyzed. Mistakes by our systems or personnel may cause us to incur liability to our clients in connection with such mistakes.

Solutions and services that we offer may subject us to product liability claims.

Solutions that we sell may fail to perform in a variety of ways, and services that we provide may not meet customer expectations, including shipping a product which is either late, does not meet customer requirements or expectations, or is lost, damaged, stolen or corrupted, or which faces frequent Internet service interruptions, which take it off-line. Such problems would seriously harm our credibility, market acceptance of our products and the value of our brands. In addition, such problems may result in liability for damages arising out of product liability of our products and services. The occurrence of some of these types of problems may seriously harm our business, operating results and financial condition.

Our systems are subject to certain security risks which can adversely affect our operations.

Despite the implementation of security measures, our systems may be vulnerable to unauthorized access, computer viruses and other disruptive problems. Companies have experienced, and may experience, interruptions in service as a result of the accidental or intentional actions of Internet users, current and former employees or others. Unauthorized access could also potentially jeopardize the security of customers’ and our confidential information stored in our computer systems, which may result in liability to customers and also may deter potential customers from using our products and services. Although we intend to continue to implement industry-standard security measures, such measures have been circumvented in the past, and there can be no assurance that measures that we implement will not be circumvented in the future. Eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service to our customers, such interruptions, delays or cessation of services may result in a loss of customers or subject us to potential liability for actions out of such interruptions, delays or cessation of services.

If we fail to enter into a banking relationship to offer our lending services it will limit our ability to provide funding services and it will adversely affect our business.

We will need to enter into agreements with financial institutions to enable us to offer sufficient funds for the lending services that we plan to offer customers. The lending services that we will offer

22

---

Table of Contents

will allow customers to utilize receivables to receive advance funding from such financial institutions through us. To date, we do not have any such agreement with any financial institution. There can be no assurance that we will be able to enter into such an agreement with a financial institution. If we fail to enter into such an agreement with a financial institution we may not generate sufficient funds to offer our lending services in a meaningful fashion which could result in a material adverse effect on our business, operating results and financial condition.

If we fail to recover the value of amounts that we lend to healthcare providers it will adversely affect our business.

With respect to loans made by us to providers, we expect to experience charge-offs in the future. A charge-off occurs when all or part of the principal of a particular loan is no longer recoverable and will not be repaid. If we were to experience material losses on our loan portfolio, it would have a material adverse effect on our ability to fund our business and to the extent the losses exceed our provision for loan losses, it could have a material adverse effect on our revenues, net income and assets.

Other commercial finance companies have experienced charge offs. In addition, like other commercial finance companies, we may experience missed and late payments, failures by clients to comply with operational and financial covenants in their loan agreements and client performance below that which it expected when we originated the loan. Any of the events described in the preceding sentence may be an indication that our risk of loss with respect to a particular loan has materially increased.

We intend to make loans to privately owned small and medium-sized companies, which present a greater risk of loss than larger companies.

Our loan portfolio will consist primarily of commercial loans to small and medium-sized, privately owned medical practices, and to vendors and suppliers, such as diagnostic companies. Compared to larger, publicly owned firms, these companies generally have more limited access to capital and higher funding costs, may be in a weaker financial position and may need more capital to expand or compete. These financial challenges may make it difficult for clients to make scheduled payments of interest or principal on loans. Accordingly, advances made to these types of clients entail higher risks than advances made to companies who are able to access traditional credit sources.

Numerous factors may affect a client’s ability to make scheduled payments on its loan, including the failure to meet its business plan or a downturn in its industry. In part because of their smaller size, our clients may:

	•	experience significant variations in operating results;

	•	depend on the management talents and efforts of a single individual or a small group of persons for their success, the death, disability or resignation of whom could materially harm the client’s financial condition or prospects;

	•	have less skilled or experienced management personnel than larger companies; or

	•	could be adversely affected by policy or regulatory changes and changes in reimbursement policies of insurance companies.

Accordingly, any of these factors could impair a client’s cash flow or result in other events, such as bankruptcy, which could limit that client’s ability to repay its obligations to us, and may lead to losses in our loan portfolio and a decrease in our revenues, net income and assets and result in a material adverse effect on our business, operating results and financial condition.

Our lack of operating history makes it difficult to accurately judge the credit performance of our loan portfolio and, as a result, increases the risk that the allowance for loan losses may prove inadequate.

Our lending services depend on the creditworthiness of our clients. While we will conduct general due diligence and a general review of the creditworthiness of each of our clients, this review requires the application of significant judgment by our management, which judgment may not be correct.

23

---

Table of Contents

We will maintain an allowance for loan losses on our consolidated financial statements in an amount that reflects our judgment concerning the potential for losses inherent in our loan portfolio. Because we have not yet recorded any loan charge-offs, our reserve rate was developed independent of the historical performance of our loan portfolio. Because our lack of operating history and the relative lack of seasoning of our loans make it difficult to judge the credit performance of our loan portfolio, there can be no assurance that the estimates and judgment with respect to the appropriateness of our allowance for loan losses are accurate. Our allowance may not be adequate to cover credit losses in our loan portfolio as a result of unanticipated adverse changes in the economy or events adversely affecting specific clients, industries or markets. If our allowance for loan losses is not adequate, our net income will suffer, and our financial performance and condition could be significantly impaired.

We may not have all of the material information relating to a potential client at the time that we make a credit decision with respect to that potential client, or at the time we advance funds to the client which may subject us to a greater risk of loss on loans that we make.

We may suffer losses on loans or make advances that we would not have made if we had all of the material information about clients.

There is generally no publicly available information about the privately owned companies to which we will typically lend. Therefore, we must rely on our clients and the due diligence efforts of our employees to obtain the information that we will consider when making credit decisions. To some extent, our employees depend and rely upon the management of these companies to provide full and accurate disclosure of material information concerning their business, financial condition and prospects. If our employees do not have access to all of the material information about a particular client’s business, financial condition and prospects, or if a client’s accounting records are poorly maintained or organized, we may not make a fully informed credit decision which may lead, ultimately, to a failure or inability to recover the loan in its entirety.

We may make errors in evaluating accurate information reported by our clients and, as a result, we may suffer losses on loans or advances that we would not have made if we had properly evaluated the information.

We intend to make loans primarily secured by claims receivable and not based on detailed financial information provided to us by our clients or personal creditworthiness or personal credit guarantees. Even if clients provide us with full and accurate disclosure of all material information concerning their businesses, and even if we require personal credit guarantees from our clients, we may misinterpret or incorrectly analyze credit performance related information. Mistakes by our staff may cause us to make loans that we otherwise would not have made, to fund advances that we otherwise would not have funded or result in losses on one or more existing loans.

A client’s fraud could cause us to suffer losses.

A client could defraud us by, among other things:

	•	directing the proceeds of collections of its accounts receivable to bank accounts other than established lockboxes or re-directing elsewhere governmental account sweeps that are supposed to go from client bank accounts to our lockboxes;

	•	creating and submitting false, inaccurate or misleading medical claims;

	•	failing to accurately record accounts receivable aging;

	•	overstating or falsifying records creating or showing accounts receivable; or

	•	providing inaccurate reporting of other financial information.

The failure of a client to accurately create and submit claims or report its financial position, compliance with loan covenants or eligibility for additional borrowings could result in the loss of some or the entire principal of a particular loan or loans including, in the case of revolving loans, amounts we may not have advanced had we possessed complete and accurate information.

24

---

Table of Contents

Our concentration of loans to a limited number of borrowers within a particular industry, such as the healthcare industry, could impair our revenues, if the industry were to experience economic difficulties.

Defaults by our clients may be correlated with economic conditions affecting particular industries. As a result, if the healthcare industry were to experience economic difficulties, the overall timing and amount of collections on our loans to clients may differ from what we expected and result in material harm to our revenues, net income and assets.

The dependence by our clients on reimbursement revenues could cause us to suffer losses in several instances:

	•	If clients fail to comply with operational covenants and other regulations imposed by these programs, they may lose their eligibility to continue to receive reimbursements under the program or incur monetary penalties, either of which could result in the client’s inability to make scheduled payments.

	•	If reimbursement rates do not keep pace with increasing costs of services to eligible recipients, or funding levels decrease as a result of increasing pressures from carriers to control healthcare costs, clients may not be able to generate adequate revenues to satisfy their obligations.

	•	If a healthcare client were to default on its loan, we may be unable to invoke our rights to pledged receivables directly as the law prohibits the initial payment of amounts owed to healthcare providers under the Medicare and Medicaid programs to be directed to any entity other than the actual providers. Consequently, a court order would be needed to enforce collection directly against these governmental payors or re-direction of accounts, set-offs or other disposition of payments received by providers on government claims that have not been forwarded to the lockbox. There is no assurance that we would be successful in obtaining this type of court order.

We may be unable to recognize or act upon an operational or financial problem with a client in a timely fashion so as to prevent a loss of our loan to that client.

Our clients may experience operational or financial problems that, if not timely addressed by us, could result in a substantial impairment or loss of the value of the loan to the client. We may fail to identify problems, because our client did not report them in a timely manner or, even if the client did report the problem, we may fail to address it quickly enough, adequately enough or at all. As a result, we could suffer loan losses, which could have a material adverse effect on our revenues, net income and results of operations.

The collateral securing a loan may not be sufficient to protect us from a partial or complete loss if the loan becomes non-performing, and we are required to foreclose.

While most of our loans will be secured by a lien on specified collateral of the client, there is no assurance that the collateral securing any particular loan will protect us from suffering a partial or complete loss if the loan becomes non-performing and we move to foreclose on the collateral. The collateral securing our loans is subject to inherent risks that may limit our ability to recover the principal of a non-performing loan. Risks that may affect the value of accounts receivable in which we may take a security interest include, among other things, the following:

	•	problems with the client’s underlying agreements with insurance carriers, which result in greater than anticipated, disputed accounts;

	•	unrecorded liabilities;

	•	the disruption or bankruptcy of key obligor who is responsible for material amounts of the accounts receivable;

	•	the client misrepresents, or does not keep adequate records of, claims or important information concerning the amounts and aging of its accounts receivable; or

	•	the client’s government claims that are being sent to a client controlled account and then ‘‘swept’’ (directed) to a lockbox are stopped by client from being swept or are re-directed by client, which may require judicial action or relief.

25

---

Table of Contents

Any one or more of the preceding factors could materially impair our ability to recover principal in a foreclosure on the related loan.

Our advance funding loans are not fully covered by the value of tangible assets or collateral of the client and, consequently, if any of these loans becomes non-performing, we could suffer a loss of some or all of our value in the loan.

The risks inherent in advance lending based upon receivables include, among other things, the following:

	•	reduced use of or demand for the client’s services and, thus, reduced cash flow of the client to service the loan as well as reduced value of the client as a going concern;

	•	poor accounting systems of the client, which adversely affect the ability to accurately predict the client’s cash flows;

	•	economic downturns, political events, regulatory changes, litigation or acts of terrorism that affect the client’s business, financial condition and prospects; and

	•	poor management performance.

Errors by or dishonesty of our employees could result in loan losses.

We will rely heavily on the performance and integrity of our employees in making initial credit decisions with respect to loans and in servicing the loans after they have closed. Because there is generally little or no publicly available information about the clients to whom we will lend, we cannot independently confirm or verify the information employees provide for use in making credit and funding decisions. Errors by employees in assembling, analyzing or recording information concerning clients could cause us to originate loans or fund subsequent advances that we would not otherwise originate or fund. This could result in losses. Losses could also arise if any employees were dishonest. A dishonest employee could collude with clients to misrepresent the creditworthiness of a prospective client or to provide inaccurate reports regarding the client’s compliance with the covenants in its loan agreement. If, based on an employee’s dishonesty, we made a loan to a client that was not creditworthy or failed to exercise our rights under a loan agreement against a client that was not in compliance with covenants in the agreement, we could lose some or the entire principal of the loan. Further, if we determine to pursue remedies against a dishonest employee, the costs of pursuing such remedies could be substantial and there can be no assurance that we will be able to obtain an adequate remedy against a dishonest employee to offset losses caused by such employee.

If interest rates rise, some of our existing clients may be unable to service interest on their loans.

Virtually all of our loans will bear interest at floating interest rates. To the extent interest rates increase, monthly interest obligations owed by clients will also increase. Some clients may not be able to make the increased interest payments, resulting in defaults on their loans.

Loans could be subject to equitable subordination by a court and thereby increase the risk of loss with respect to such loans.

Courts have, in some cases, applied the doctrine of equitable subordination to subordinate the claim of a lending institution against a borrower to claims of other creditors of the borrower, when the lending institution is found to have engaged in unfair, inequitable or fraudulent conduct. The courts have also applied the doctrine of equitable subordination when a lending institution or its affiliates are found to have exerted inappropriate control over a client, including control resulting from the ownership of equity interests in a client. Payments on one or more of our loans, particularly a loan to a client in which we also hold equity interests, may be subject to claims of equitable subordination. If, when challenged, these factors were deemed to give us the ability to control or otherwise exercise influence over the business and affairs of one or more of its clients, this control or influence could constitute grounds for equitable subordination. This means that a court may treat one or more of our loans as if it were common equity in the client. In that case, if the client were to liquidate, we would

26

---

Table of Contents

be entitled to repayment of its loan on an equal basis with other holders of the client’s common equity only after all of the client’s obligations relating to its debt and preferred securities had been satisfied. One or more successful claims of equitable subordination against us could have a material adverse effect on our business, operating results and financial condition.

We may incur lender liability as a result of our lending activities.

In recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed ‘‘lender liability.’’ Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. We may be subject to allegations of lender liability. There can be no assurance that these claims will not arise or that we will not be subject to significant liability if a claim of this type did arise. Such liability could result in a material adverse effect on our business, operating results and financial condition.

Our lending activities, as well as our claims management solutions, are subject to additional governmental regulations and future regulations may make it more difficult for us to operate on a profitable basis.

Our healthcare advance lending business, as well as our claims management solutions, is subject to numerous federal and state laws and regulations, which, among other things, may (i) require us to obtain and maintain certain licenses and qualifications, (ii) limit the interest rates, fees and other charges that we are permitted to collect, (iii) limit or prescribe certain other terms of our financed receivables arrangements with clients, and (iv) subject us to certain claims, defenses and rights of offset, or (v) change the way we process, send, secure, format, receive or otherwise use or interact with claims information or data. Although we believe that our current business plan is in compliance with statutes and regulations applicable to our business, there can be no assurance that we will be able to maintain such compliance without incurring significant expense. The failure to comply with such statutes and regulations could have a material adverse effect upon us. Furthermore, the adoption of additional statutes and regulations, changes in the interpretation and enforcement of current statutes and regulations, or the expansion of the business into jurisdictions that have adopted more stringent regulatory requirements than those in which we currently conduct business could have a material adverse effect upon our business, operating results and financial condition.

There can be no assurance that currently proposed or future healthcare legislation or other changes in the administration or interpretation of governmental provider payment programs (‘‘Government Programs’’) will not have an adverse effect on us or that payments under Government Programs will remain at levels comparable to present levels or will be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. Concern about the potential effects of the proposed reform measures has contributed to the volatility of prices of securities of companies in healthcare and related industries, and may similarly affect the price of our securities in the future.

In addition, certain private reform efforts have been instituted throughout the healthcare industry, including the capitation of certain healthcare expenditures. Capitation is the pre-payment of certain healthcare costs by third-party payors (typically health maintenance organizations and other managed healthcare concerns), based upon a predetermined monthly fee for the aggregate patient lives under any given healthcare provider’s care. The healthcare provider then provides healthcare to such patients when and as needed, and assumes the risk that its prepayments will cover its costs and provide a profit for all of such services rendered. Since capitation essentially reduces or eliminates clients’ need for claims management solutions and/or accounts receivable that are the primary source of payment for our financed receivables, capitation could materially adversely affect our business, operating results and financial condition.

27

---

Table of Contents

We have not paid dividends and do not expect to do so in the future.

We have not paid any cash dividends on our common stock. For the foreseeable future, it is anticipated that earnings, if any, which may be generated from operations will be used to finance our growth and that dividends will not be paid to holders of common stock.

Our certificate of incorporation, bylaws and state law contains provisions that preserve current management.

Provisions of state law, our articles of incorporation and by-laws may discourage, delay or prevent a change in our management team that stockholders may consider favorable. These provisions include:

	•	authorizing the issuance of ‘‘blank check’’ preferred stock without any need for action by stockholders;

	•	eliminating the ability of stockholders to call special meetings of stockholders;

	•	permitting stockholder action by written consent; and

	•	establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

These provisions could allow our Board of Directors to affect the investor’s rights as a stockholder since the Board of Directors can make it more difficult for preferred stockholders or common stockholders to replace members of the Board. Because the Board of Directors is responsible for appointing the members of the management team, these provisions could in turn affect any attempt to replace the current or future management team.

Our Common Stock is considered ‘‘penny stock’’ and may be difficult to trade.

The SEC has adopted regulations that generally define ‘‘penny stock’’ to be an equity security that has a market or exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and, therefore, subject to ‘‘penny stock’’ rules pursuant to Section 15(g) of the Exchange Act. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares. In addition, since our common stock is currently only quoted on the OTCBB, investors may find it difficult to obtain accurate quotations of our common stock and may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price.

A significant number of our shares are eligible for sale, and their sale could depress the market price of our stock.

Sales of a significant number of shares of our common stock in the public market pursuant to our registration statement which became effective on December 7, 2006, could harm the market price of our common stock. As additional shares of common stock may be sold in the public market, the supply of common stock will increase, which could decrease its price. Additionally, some or all of our shares of common stock may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a depressive effect on the market for shares of common stock. In general, a person who has held restricted shares for a period of one year may, upon filing with the SEC a notification on Form 144, sell into the market common stock in an amount equal to the greater of 1% of the outstanding shares or the average weekly number of shares sold in the last four weeks prior to such sale. Such sales may be repeated once each three months, and any amount of the restricted shares may be sold by a non-affiliate after they have been held two years.

There is no public market for our Common Stock other than OTCBB.

There is no public market for our common stock other than the market that exists in the common stock of the Company on the over-the-counter bulletin board market (‘‘OTCBB’’). There can be no

28

---

Table of Contents

assurance that any other trading market will develop in the common stock of the Company, or that the OTCBB market trading will be sustained.

Until November, 2005 we were a public shell company. There are certain risks associated with transactions with public shell companies generally, including increased SEC scrutiny and regulation and lack of analyst coverage of the Company.

In November 2005, we succeeded to the business of MDwerks Global Holdings, Inc. and the Xeni Companies pursuant to a merger of a wholly owned subsidiary of ours into MDwerks Global Holdings, Inc. (the ‘‘Merger’’). As a result of the Merger, MDwerks Global Holdings, Inc. became our wholly owned subsidiary and we began to operate its business and the businesses of the Xeni Companies as our sole line of business. Until such time, the Company was and had been effectively a public shell company with no material assets or operations whose only value was that it maintained current filings with the SEC and a class of securities that was offered for sale pursuant to the OTCBB. The Merger provided an immediate benefit for the then existing stockholders of the Company that might not have been readily available, or available at all, to other stockholders who either acquired their shares of stock in connection with the purchase of Units in this Offering or otherwise.

Substantial additional risks are associated with a public shell merger transaction such as absence of accurate or adequate public information concerning the public shell; undisclosed liabilities; improper accounting; claims or litigation from former officers, directors, employees or stockholders; contractual obligations; regulatory requirements and others. Although management performed due diligence on the Company, there can be no assurance that such risks do not occur. The occurrence of any such risk could materially adversely affect the Company’s results of operations, financial condition and stock price. In addition, the cost of operations of the Company has increased as a result of the Merger due to legal, regulatory, and accounting requirements imposed upon a company with a class of registered securities and based upon the acquisition by the Company of an operating company.

Additional risks may exist since the Merger involved a ‘‘reverse merger’’ or ‘‘reverse public offering.’’ Security analysts of major brokerage firms may not provide coverage of the Company since there is no incentive to brokerage firms to recommend the purchase of the common stock. No assurance can be given that brokerage firms will want to conduct any secondary public offerings on behalf of the Company in the future.

There has been a limited active public market for the Common Stock, and prospective investors may not be able to resell their shares at or above the price at which they purchase shares, if at all.

Shares of our common are traded on the Over the Counter Bulletin Board (‘‘OTCBB’’). We plan on seeking to retain the OTCBB status of the Company so that the registered securities of the Company will have the benefit of a trading market, but will likely be traded only in the OTCBB market for the foreseeable future, although listing on a national exchange such as the AMEX, or NASDAQ Small Cap market may be sought, but is not assured. There is no guarantee that if such listing is pursued the Company will meet the listing requirements or that such efforts to list the Company’s common stock on any national or regional exchange or the NASDAQ Small Cap market will be successful, or if successful, will be maintained, including but not limited to requirements associated with maintenance of a minimum net worth, minimum stock price and ability to establish a sufficient number of market makers. As a result, the reported prices for the Company’s securities may be: (i) arbitrarily determined, as a result of the valuation ascribed to the shares in transactions by the Company and adopted for purposes of securities offerings; and (ii) the result of market forces, and as such reported prices may not necessarily indicate the value of the traded shares or of the Company. Furthermore, there has been a limited to no public market for our common stock. An active public market for our common stock may not develop or be sustained.

The market price of our securities may fluctuate significantly in response to factors, some of which will be beyond our control, such as the announcement of new products or product enhancements by the Company or its competitors; developments concerning intellectual property rights and regulatory approvals; quarterly variations in our competitors’ results of operations; changes in earnings estimates or recommendations by securities analysts; developments in our industry; and general market conditions and other factors, including factors unrelated to our operations.

29

---

Table of Contents

The stock market in general may experience extreme price and volume fluctuations. In particular, market prices of securities of technology companies have experienced fluctuations that often have been unrelated or disproportionate to the operating results of these companies. Market fluctuations could result in extreme volatility in the price of the common stock, which could cause a decline in the value of the common stock. Prospective investors should also be aware that price volatility might be exacerbated if the trading volume of the common stock is low.

There are additional costs of being a public company and those costs may be significant.

We are a publicly traded company, and, accordingly, subject to the information and reporting requirements of the U.S. securities laws. The U.S. securities laws require, among other things, review, audit and public reporting of the Company’s financial results, business activities and other matters. The public company costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders, which we estimate will be approximately $250,000 per year, will cause our expenses to be higher than they would be if we were privately-held. In addition, the Company incurred expenses estimated to be approximately $100,000 in connection with the preparation of the registration statement and related documents with respect to the registration of the common stock required to be registered pursuant to the Company’s undertaking to file a registration statement as described herein. These increased costs may be material and may include the hiring of additional employees and/or the retention of additional consultants and professionals. Failure by the Company to comply with the federal or state securities laws could result in private or governmental legal action against the Company and/or its officers and directors, which could have a detrimental effect on the business and finances of the Company, the value of the Company’s stock and the ability of stockholders to resell their stock.

30

---

Table of Contents

CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING
STATEMENTS AND INDUSTRY DATA

This Annual Report on Form 10-KSB contains ‘‘forward-looking statements’’ that involve risks and uncertainties, many of which are beyond our control. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Annual Report on Form 10-KSB. Important factors that may cause actual results to differ from projections include, but are not limited to, for example:

	•	adverse economic conditions;

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

	•	intense competition, from providers of services similar to those offered by us;

	•	unexpected costs and operating deficits, and lower than expected sales and revenues;

	•	adverse results of any legal proceedings;

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

	•	the volatility of our operating results and financial condition;

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

	•	other specific risks that may be alluded to in this Annual Report on Form 10-KSB.

All statements, other than statements of historical facts, included in this Annual Report on Form 10-KSB regarding our strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans and objectives of management are forward-looking statements. When used in this Annual Report on Form 10-KSB, the words ‘‘will,’’ ‘‘may,’’ ‘‘believe,’’ ‘‘anticipate,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘project,’’ ‘‘plan’’ and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Annual Report on Form 10-KSB. We do not undertake any obligation to update any forward-looking statements or other information contained herein. Potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this Annual Report on Form 10-KSB are reasonable, no one can assure investors that these plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from expectations expressed herein are described under ‘‘Risk Factors’’ and elsewhere in this Annual Report on Form 10-KSB. These cautionary statements and risk factors qualify all forward-looking statements attributable to information provided in this Annual Report on Form 10-KSB and on behalf of us or persons acting on our behalf.

Information regarding market and industry statistics contained in this Annual Report on Form 10-KSB is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. We have no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. See ‘‘Risk Factors’’ for a more detailed discussion of uncertainties and risks that may have an impact on future results.

ITEM 2.    PROPERTY

The Company sub-leases its facility, on a month-to-month basis, under a master lease expiring July 2008.

31

---

Table of Contents

ITEM 3.    LEGAL PROCEEDINGS

We are not a party to any material pending legal proceedings.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise.

32

---

Table of Contents

PART II

ITEM 5.	MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Our Common Stock has been quoted on the OTC Bulletin Board since November 16, 2005 under the symbol MDWK.OB. Prior to that date, there was no active market for our Common Stock. As of March 16, 2007, there were approximately 218 holders of record of our Common Stock.

The following table sets forth the high and low sales prices for our Common Stock for the periods indicated as reported by the OTC Bulletin Board.

			High						Low
Fiscal Year 2005
First Quarter				$	N/A					$	N/A
Second Quarter					N/A						N/A
Third Quarter					N/A						N/A
Fourth Quarter					4.00						2.00
Fiscal Year 2006
First Quarter				$	4.25					$	2.40
Second Quarter					5.00						2.45
Third Quarter					4.25						2.60
Fourth Quarter					3.60						1.39
Fiscal Year 2007
First Quarter				$	1.45					$	0.47

The prices reported on the OTC Bulletin Board as high and low sales prices vary from inter-dealer bids which state inter-dealer quotations. Such inter-dealer bids (and reported high and low sales prices) do not include retail mark-ups, mark-downs or commissions. Such prices do not necessarily represent actual transactions.

We have not declared or paid any dividends on our Common Stock and do not anticipate declaring or paying any cash dividends in the foreseeable future. We currently expect to retain future earnings, if any, to finance the growth and development of our business. The holders of our Common Stock are entitled to dividends when and if declared by our Board from legally available funds.

Recent Sales of Unregistered Securities

The securities issued by the Company upon the consummation of the Merger discussed in the ‘‘BUSINESS – History of the Company’’ section of this Annual Report on Form 10-KSB were not registered under the Securities Act of 1933, as amended. At the effective time of the Merger, each outstanding share of common stock of MDwerks Global Holdings, Inc. was converted into the right to receive 0.158074 shares of the Company’s common stock. At the effective time of the Merger, approximately 59,162,000 shares of MDwerks Global Holdings, Inc. shares of common stock were outstanding and no options or warrants to purchase shares of MDwerks Global Holdings, Inc. common stock were outstanding. As a result of the Merger, the approximately 59,162,000 shares of common stock of MDwerks Global Holdings, Inc. that were outstanding were exchanged for approximately 9,352,000 shares of common stock of the Company. Set forth below is a list of shareholders who received shares of common stock in connection with such merger and the number of shares they received:

33

---

Table of Contents

Name			Number of Shares Received
Peter Dunne					39,519
Rosemarie Manchio					19,715
Steven Brandenburg IRA					11,903
Thomas Stephens					35,077
Ronald & Lydia Hankins JTWROS					13,478
Bernard O’Neil					17,319
Robert Bouvier					1,628
Arthur J. Ballinger					11,959
Roger Hermes					36,452
F. Bradford Wilson					19,805
John & Jeanie Garell JTWROS					62,236
Jai Gaur					988
Phil Dean					39,233
Joseph Morgillo					21,435
Solon Kandel & Vivian Kandel TEN ENT					1,018,310
73142 Corp.					113,813
Arrowhead Consultants, Inc.					294,308
Glenwood Capital, Inc.					294,308
Steven Brandenburg					9,726
Kay Garell Trust					28,041
Wesley Neal					11,856
Sol Bandiero					83,679
Stephen Katz					176,152
Gerard Maresca					71,713
Tonia Pfannenstiel					23,350
Stephen Weiss					65,809
Phil Margetts					33,483
Ronald Hankins					13,609
John Garell					16,666
Todd Adler					131,751
Leanne Kennedy					56,501
Jon Zimmerman					54,251
Howard Katz and Denise Katz TEN ENT					1,084,001
Harley Kane					102,334
Lauren Kluger					24,542
MedWerks, LLC					5,115,912
Larry Biggs					59,968
Peter Chung					38,750
Sparta Road, Ltd.					38,750
Todd Snyder					20,000
Frank Essner Trust					20,000
Jason Clark					20,000

These shares of our common stock issued in connection with the Merger qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance shares by us did not involve a public offering. The offering was not a ‘‘public offering’’ as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the shareholders listed above had the necessary investment intent as required by Section 4(2) since they agreed to and received a share certificate bearing a

34

---

Table of Contents

legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a ‘‘public offering.’’ Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction. Furthermore, each of the shareholders listed above is an ‘‘accredited investor’’ as defined in Regulation D of the Securities Act of 1933.

In connection with the Merger, we completed the closing of a private offering of our securities in which, through December 31, 2005, we sold an aggregate of approximately 64 Units to accredited investors, pursuant to the terms of a Confidential Private Placement Memorandum dated June 13, 2005, as supplemented. Each Unit consists of 10,000 shares of common stock and a warrant to purchase 10,000 shares of common stock. Each warrant entitles the holder to purchase 10,000 shares of common stock for $2.50 per share. The Units were offered by Brookshire Securities Corporation, as placement agent, pursuant to a placement agent agreement under which the placement agent, in addition to a percentage of gross proceeds of the Private Placement, received 96,000 shares of common stock and a warrant to purchase up to an aggregate of 64,000 shares of common stock. We realized gross proceeds from the Private Placement of $1,600,000, before payment of commissions and expenses. The private placement was made solely to ‘‘accredited investors,’’ as that term is defined in Regulation D under the Securities Act of 1933. The shares of common stock and warrants to purchase common stock were not registered under the Securities Act of 1933, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act of 1933 and corresponding provisions of state securities laws. Set forth below is a list of the purchasers in the Private Placement and the number of Units purchased:

Name			Amount Paid for Units						Number of Units Purchased
Arrowhead Consultants, Inc.				$	149,500						5	.98
Constantine G. Barbounis				$	50,000						2
Brookshire Securities Corp.				$	17,000						0	.68
Daniel R. Brown				$	25,000						1
Jason Clarke / Tanya Clarke (T/E)				$	25,000						1
Donia Hachem Revocable Trust				$	50,000						2
Ronald Hankins				$	22,000						0	.88
Philip J. Hempleman				$	100,000						4
Roger Hermes				$	25,000						1
Domenico Iannucci				$	250,000						10
Carlos A. Jimenez				$	25,000						1
Carlos A. Jimenez and Jason M. Beccaris				$	25,000						1
JTP Holdings, LLC				$	25,000						1
Dr. Irving Karten				$	25,000						1
Rosemarie Manchio				$	25,000						1
Daniel J. O’Sullivan				$	100,000						4
Eric W. Penttinen				$	25,000						1
Jonathan J. Rotella				$	25,000						1
SCG Capital LLC				$	300,000						12
Todd Snyder				$	50,000						2
Thomas S. Stephens				$	12,500						0	.5
Jamie Toddings				$	25,000						1
Alphonse Tribuiani				$	25,000						1
Roger Walker				$	25,000						1
Todd Wiseberg				$	50,000						2
Jon R. Zimmerman				$	50,000						2
Robert E. Zimmerman				$	75,000						3

35

---

Table of Contents

On June 28, 2006 we completed a private placement offering of Units consisting of one share of Series A Convertible Preferred Stock and a three-year warrant to purchase up to 20,000 shares of our common stock at a purchase price of $3.00 per share. We sold an aggregate of 28.3 Units to accredited investors pursuant to the terms of a confidential private placement memorandum, dated February 1, 2006, used in connection with this offering. As of December 31, 2006, 23.3 shares of Series A Convertible Preferred Stock had been converted into 466,667 shares of common stock. The Units were offered by Brookshire Securities Corporation as placement agent. The placement agent received $170,000 in cash and 170,000 shares of our common stock and, for nominal consideration, a warrant to purchase up to an aggregate of 56,667 shares of our common stock at a purchase price of $1.50 per share. We realized gross proceeds from this private placement of $1,700,000 before payment of commissions and expenses. The private placement was made solely to ‘‘accredited investors,’’ as that term is defined in Regulation D under the Securities Act of 1933. The shares of Series A Convertible Preferred Stock and warrants to purchase shares of common stock were not registered under the Securities Act of 1933, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration offered by Section 4(2) and Regulation D (Rule 506) under the Securities Act of 1933 and corresponding provisions of state securities laws. Set forth below is a list of purchasers in this private placement and the number of Units purchased:

Name			Amount Paid for Units						Number of Units Purchased
RAJ Investments Limited Liability Partnership				$	60,000						1
Daniel J. O’Sullivan				$	120,000						2
Kevin William Walker				$	60,000						1
Frank V. Cappo				$	120,000						2
Rick A. Bennett				$	60,000						1
Rion Needs				$	60,000						1
J. Joseph Levine				$	60,000						1
Terence Smith				$	60,000						1
Tim Johnson				$	60,000						1
Joe Sparieino				$	60,000						1
Scott McNair				$	50,000						0	.8333
Gerald F. Huepel, Jr.				$	50,000						0	.8333
Louise E. Rehling Tr. Dated 3/9/00				$	25,000						0	.4167
PH D Investments I, LP				$	150,000						2	.5
Kevin & Brenda Narcomey				$	50,000						0	.8333
Daniel Craig Sager				$	25,000						0	.4167
CH Medical PSP				$	75,000						1	.25
Joseph Lewin				$	60,000						1
Joe & Carolyn Hubbard, JTWROS				$	60,000						1
John R. Harrison				$	60,000						1
Melvin C. Sanders				$	60,000						1
Randy Bean Revocable Trust 2/21/05				$	30,000						0	.5
C. Edward White, Jr./Brenda R. Fortunate, JTWROS				$	60,000						1
James W. Lees				$	75,000						1	.25
M. Michael Anderson				$	60,000						1
Sharon Sootin				$	90,000						1	.50

Institutional Financing

On each of October 20, 2006 and November 9, 2006 we received gross proceeds of $2,500,000 ($2,375,000 net proceeds) for a total of $5,000,000 in the aggregate ($4,750,000 in the aggregate) in connection with a financing provided by Gottbetter Capital Master, Ltd., an unaffiliated accredited institutional investor (the ‘‘Investor’’). Pursuant to the terms of a Securities Purchase Agreement that we entered into with the Investor in connection with the financing, we issued two senior secured convertible promissory notes to the Investor, each in the original principal amount of $2,500,000 (each a ‘‘Senior Note’’ and collectively, the ‘‘Senior Notes’’), five year Series D Warrants to purchase

36

---

Table of Contents

375,000 shares of our common stock at a price of $2.25 per share (‘‘Series D Warrants’’) and five year Series E Warrants to purchase 375,000 shares of our common stock at a price of $3.25 per share (‘‘Series E Warrants’’).

The Senior Notes bear interest at the rate of 8% per year, payable monthly in arrears, commencing December 1, 2006. Subject to certain mandatory prepayment provisions, and events of default, unpaid principal and interest due under the Senior Notes will become due and payable on October 18, 2009 with respect to the Senior Note sold on October 20, 2006 and on November 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 to adjustment for stock splits, stock dividends, or similar transactions, sales of our common stock at a price per share below the Conversion Price or the issuance of convertible securities or options or warrants to purchase shares of our common stock at an exercise price or conversion price that is less than the Conversion Price.

The Senior Notes provide for optional redemption by us at a redemption price equal to 110% of the face amount redeemed plus accrued interest.

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

The Senior Notes also provide that in the event of a Change of Control (as defined in the Senior Notes), the holder may require that such holder’s Senior Note be redeemed at the Change of Control Redemption Price (as defined in the Senior Notes). The Change of Control Redemption Price includes certain premiums in the event a Senior Note is redeemed in the event of a Change of Control.

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. The exercise price will be subject to adjustment in the event of subdivision or combination of shares of our common stock and similar transactions, distributions of assets, issuances of shares of common stock with a purchase price below the exercise price of the Series D Warrants, issuances of any rights, warrants or options to purchase shares of our common stock with an exercise price below the exercise price of the Series D Warrants, issuances of convertible securities with a conversion price below the exercise price of the Series D Warrants.

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. The exercise price will be subject to adjustment in the event of subdivision or combination of shares of our common stock and similar transactions, distributions of assets, issuances of shares of common stock with a purchase price below the exercise price of the Series E Warrants, issuances of any rights, warrants or options to purchase shares of our common stock with an exercise price below the exercise price of the Series E Warrants, issuances of convertible securities with a conversion price below the exercise price of the Series E Warrants.

We entered into a Security Agreement with the Investor. The Security Agreement provides for a lien in favor of the Investor on all of our assets.

Our subsidiaries entered into a Guaranty Agreement with the Investor, pursuant to which they have agreed to unconditionally guaranty our obligations under the Senior Notes and the documents entered into by us in connection the sale of the Senior Notes.

37

---

Table of Contents

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

Investor is an ‘‘accredited investor,’’ as defined in Regulation D under the Securities Act of 1933, as amended, or the Securities Act. None of the Senior Note, the Series D Warrants, the Series E Warrants or the shares of our common stock underlying such securities were registered under the Securities Act, or the securities laws of any state and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws, which exempts transactions by an issuer not involving any public offering. We made this determination based on the representations of the Investor, which included, in pertinent part, that the Investor is an ‘‘accredited investor’’ within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, and that the Investor was acquiring the Senior Notes, the Series D Warrants and the Series E Warrants for investment purposes for its own account and not as nominee or agent, and not with a view to the resale or distribution, and that Investor understood such securities may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption there from.

Loans from Unaffiliated Third Parties

On August 24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566, after expenses) in connection with a financing provided by Mr. David Goldner, an unaffiliated accredited investor (the ‘‘Goldner Financing’’). In connection with the financing, we issued a secured promissory note to Mr. Goldner in the original principal amount of $250,000 (the ‘‘Goldner Note’’) and a three year warrant to purchase 111,111 shares of our common stock at a price of $2.25 per share (the ‘‘Class C Warrant’’) The Goldner Note bears interest at the rate of 7% per year, payable monthly in arrears. Subject to certain mandatory prepayment provisions, unpaid principal and interest due under the Goldner Note will become due and payable on August 24, 2007. At December 31, 2006, principal payments made under the mandatory prepayment provisions had reduced the Goldner Note balance to $238,366. Our obligations under the Goldner Note and the agreements entered into in connection with the financing are guaranteed by our subsidiary, Xeni Financial Services, Corp. pursuant to the terms of a guaranty agreement (the ‘‘Xeni Guaranty’’). The performance of our obligations and the obligations of Xeni Financial Services in connection with the Goldner Note, the Xeni Guaranty and the security agreement entered into in connection with the financing (the ‘‘Security Agreement’’) are secured by a security interest in the Revolving Line of Credit Loan Agreement, dated September 29, 2005, between Xeni Financial Services, Corp. and Mobile Diagnostic Imaging, Inc. (the ‘‘MDI Revolver Loan Agreement’’) and all other loan documents related to MDI Revolver Loan Agreement, including two promissory notes in the original principal amounts of $250,000 and $121,068 issued by Mobile Diagnostic Imaging, Inc. to Xeni Financial Services, Corp, which were consolidated into a single promissory note in the amount of $180,165 on December 5, 2006. We intend to use the net proceeds of the financing for general working capital purposes. In connection with the financing described above, we issued the Goldner Note and the Class C Warrant to Mr. Goldner pursuant to the term of a Subscription Agreement. In the Subscription Agreement we granted Mr. Goldner ‘‘piggyback’’ registration rights. Pursuant to Mr. Goldner’s ‘‘piggyback’’ registration rights, we included the shares underlying the Class C Warrant in our registration statement that was declared effective on December 7, 2006. Mr. Goldner is an ‘‘accredited investor,’’ as defined in Regulation D under the Securities Act of 1933, as amended, or the Securities Act.

On August 24, 2006, our subsidiary Xeni Financial Services, Corp. (Xeni Financial) received gross proceeds of $110,000 (net proceeds of $100,000, after expenses) in connection with a financing provided equally by Mr. Frank Grenier and Mr. Eugene Grenier, both unaffiliated accredited investors

38

---

Table of Contents

(the ‘‘Greniers’’). In connection with the financing, Xeni Financial issued two Promissory Notes to the Greniers each in the original amount of $55,000 (the ‘‘Grenier Notes’’) and 5,000 shares of common stock to each of Mr. Frank Grenier and Mr. Eugene Grenier. The Grenier Notes bear interest at 10% per year, and both interest and principal were paid on the January 21, 2007 Maturity Date. We used the net proceeds of the financing for general working capital purposes. In connection with the financing described above, we issued the Grenier Notes to the Greniers pursuant to the term of a Subscription Agreement. In the Subscription Agreement we granted the Greniers ‘‘piggyback’’ registration rights. Pursuant to the Greniers’ ‘‘piggyback’’ registration rights, we included the shares of common stock issued to the Greniers in our registration statement that was declared effective on December 7, 2006. The Greniers are ‘‘accredited investors,’’ as defined in Regulation D under the Securities Act of 1933, as amended, or the Securities Act.

ITEM 6.	MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

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

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

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

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

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

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

Because we have had a limited operating history, it is difficult to accurately forecast our revenues and expenses. Additionally, our operations will continue to be subject to risks inherent in the establishment of a new business, including, among other things, efficiently deploying our capital, developing our product and services offerings, developing and implementing our marketing campaigns

39

---

Table of Contents

and strategies and developing awareness and acceptance of our products. Our ability to generate future revenues will be dependent on a number of factors, many of which are beyond our control, including the pricing of other services, overall demand for our products, market competition and government regulation.

Critical Accounting Policies

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

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

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

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

Results of Operations

For the Year Ended December 31, 2006 Versus Year Ended December 31, 2005

Revenues

For the year ended December 31, 2006, we recorded total revenue of $427,778. Of this total, we recorded service fee revenue of $355,429, or 83.0% and financing income of $72,349 or 17.0%. In July 2005, we began processing claims for our first client and recorded total revenues of $57,824 during the six months ended December 31, 2005. Of this total, we recorded service fee revenue of $42,816, or 74.0% and financing income of $15,008 or 26.0%.

Operating Expenses

Our operating expenses significantly increased for the year ended December 31, 2006 from the year ended December 31, 2005 as a result of increased operations as we began to implement our business plan.

40

---

Table of Contents

For the year ended December 31, 2006, total operating expenses were $9,036,301 as compared to $2,038,449 for the year ended December 31, 2005, an increase of $6,997,852. Included in this increase for the year ended December 31, 2006 is the following:

	1.	We recorded compensation expense of $5,732,372 as compared to $364,248 for the year ended December 31, 2005. This $5,368,124 increase was attributable to the hiring of permanent sales, operations and executive staff, which began on September 26, 2005 and non-cash compensation expense for stock option grants during 2006 in the amount of $3,911,640. We expect cash and non-cash compensation expense to increase as we hire additional administrative, sales and technical personnel and record the expense of both current and future stock option grants; and

	2.	Consulting expense amounted to $943,500 as compared to $880,567 for the year ended December 31, 2005, an increase of $62,933, or 7.1%. For the year ended December 31, 2006, we paid consultants for business advisory services, temporary information technology support and various other services; and

	3.	Professional fees amounted to $358,969 as compared to $359,006 for the year ended December 31, 2005, a decrease of $37, or 0.0%. This expense was attributable to accounting fees for the audit of our financial statements and SEC filings and legal fees related to SEC filings, the Series A Convertible Preferred Stock offering, the Convertible Notes Payable and other corporate matters; and

	4.	Selling, general and administrative expenses were $2,001,460 as compared to $434,628 for the year ended December 31, 2005, an increase of $1,566,832, or 360.5%. This increase was attributable to growth in all of our general and administrative expenses as we began to implement our business plan and a loss of $180,736 on settlement of notes payable related to the issuance of common shares for debt conversion.

For the years ended December 31, 2006 and 2005, selling, general and administrative expenses consisted of the following:

			2006						2005
Sales commissions				$	201,674					$	2,064
Advertising and promotion					196,750						69,149
Employee benefits and payroll taxes					333,601						52,696
Other selling, general and administrative					1,269,435						310,719
				$	2,001,460					$	434,628

Other Income (Expenses)

For the year ended December 31, 2006, interest expense was $905,374 as compared to $5,242 for the year ended December 31, 2005, an increase of $900,132. This increase was due to an increase in borrowings and amortization of debt discount and deferred fees in connection with our notes payable. Additionally, in connection with the granting of 90,000 warrants related to certain notes payable, we recorded interest expense of $335,273.

During the year ended December 31, 2006, we recorded a loss on the revaluation of warrant liability of $192,914 related to the change in fair value of the warrants during this period. In accordance with Emerging Issues Task Force Issue 00-19 (‘‘EITF 00-19’’), ‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company’s Own Stock’’, we recorded a charge to operations of approximately $592,467 during the year ended December 31, 2005 to reflect the change in market value of the warrants.

Net Loss

As a result of these factors, we reported a net loss of $9,675,046 for the year ended December 31, 2006 as compared to a net loss of $2,576,938 for the year ended December 31, 2005.

41

---

Table of Contents

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

During the year ended December 31, 2006, we recorded a deemed dividend arising from a beneficial conversion feature of preferred stock of $913,777 which relates to our Series A Convertible Preferred Stock. This non-cash item is related to the beneficial conversion features on our Series A Convertible Preferred Stock. In addition, for the year ended December 31, 2006, we issued 76,000 shares of the Company’s common stock to certain shareholders pursuant to agreements to offset the effect of dilutive financings of the Xeni Companies. The shares issued were valued at the fair market value at the date of issuance of $246,240 and were treated as an additional charge to the loss attributable to common shareholders.

Net Loss Attributable to Common Shareholders

We reported a net loss attributable to common shareholders of $10,835,063 for the year ended December 31, 2006 as compared to net loss attributable to common shareholders of $2,576,938 for the year ended December 31, 2005. This translates to an overall per share loss available to shareholders of ($.91) for the year ended December 31, 2006 as compared to a per share loss of ($.27) for the year ended December 31, 2005.

Liquidity and Capital Resources

We used the proceeds from the sales of common stock through December 31, 2006 and proceeds from notes and loans payable for working capital purposes and to fund our notes receivable of which we have $473,693 owed to us at December 31, 2006. We will continue to advance funds under note agreements to providers that subscribe to our MDwerks financial services solutions.

From March 22, 2006 through June 28, 2006, we sold 28.3 units in a private placement to accredited investors pursuant to the terms of a Confidential Private Placement Memorandum, dated February 1, 2006, and private placement subscription agreements executed and delivered by each investor on or before the closing of the private placement. Each unit consists of one share of our Series A Convertible Preferred Stock, par value $.001 per share, and a detachable, transferable Series A Warrant to purchase 20,000 shares of our common stock, at a purchase price of $3.00 per share. In connection with the sale of the 28.3 units, we received net proceeds of $1,386,077.

On August 24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566, after expenses) in connection with a financing provided by an unrelated party. In connection with the financing, we issued a secured promissory note in the original principal amount of $250,000 (the ‘‘Note’’) and a three year warrant to purchase 111,111 shares of our common stock at a price of $2.25 per share. The Note bears interest at the rate of 7% per year, payable monthly in arrears and will become due and payable on August 24, 2007. This Note is subject to certain mandatory prepayment provisions as defined in the secured promissory note. At December 31, 2006, principal payments made under the mandatory prepayment provisions had reduced the Note balance to $238,366. In connection with this note, our subsidiary, Xeni Financial Services, Corp. (‘‘XENI’’), entered into a security and guaranty agreement whereby Xeni has agreed to guaranty repayment of the note and grant a security interest in a client Revolving Line of Credit Loan Agreement including two promissory notes in the original principal amounts of $250,000 and $121,068 issued by that client to Xeni, which were consolidated into a single promissory note in the amount of $180,165 on December 5, 2006.

On August 24, 2006, we received gross proceeds of $110,000 (net proceeds of $100,000, after expenses) in connection with a financing provided equally by two unrelated parties. These notes bear interest at 10% per year, and both interest and principal were paid on the January 21, 2007 maturity date. In connection with the financing, we issued 10,000 shares of common stock at fair market value at the date of issuance of $39,800 or $3.98 per share and recorded as debt discount to be amortized over the term of the note.

On each of October 20, 2006 and November 9, 2006 we received gross proceeds of $2,500,000 ($2,375,000 net proceeds) for a total of $5,000,000 in the aggregate ($4,750,000 net proceeds in the

42

---

Table of Contents

aggregate) in connection with a financing provided by Gottbetter Capital Master, Ltd., an unaffiliated accredited institutional investor (the ‘‘Investor’’).

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

We currently have no material commitments for capital expenditures.

Cash flows

At December 31, 2006, we had cash of $3,146,841.

Net cash used in operating activities was $3,614,120 for the year ended December 31, 2006 as compared to $1,777,562 for the year ended December 31, 2005, an increase of $1,836,558. This increase is primarily attributable to an increase in our net loss and:

	1.	Stock-based compensation of $4,334,140 is primarily related to issuance of stock options to employees and shares of our common stock to consultants, versus $250,000 for the year ended December 31, 2005;

	2.	Loss on valuation of warrant liability of $192,914 through September 30, 2006 due to the revaluation of our warrant liability to fair value, versus a loss of $529,467 for the year ended December 31, 2005;

	3.	Amortization of deferred compensation of $291,487, Gottbetter debt offering costs of $43,361 and Goldner and Grenier debt discount and debt issuance costs of $354,190 and $12,480, respectively, compared to no debt related costs during the year ended December 31, 2005;

	4	Settlement expense in the amount of $180,827 for the conversion of $40,000 of notes payable to common stock, versus no settlement expense for the year ended December 31, 2005;

	5.	Interest expense in connection with the grant of the 135,000 warrants in the amount of $460,572, versus $0 for the year ended December 31, 2005;

	6.	A net increase in notes receivable, accounts receivable and prepaid expenses aggregating $160,005 principally related to the increase in revenue and the funding of notes receivable to providers that subscribe to our MDwerks financial services solution;

	7.	An increase in accounts payable, accrued expenses and deferred revenues related to an increase in operating activities aggregating $316,244.

Net cash used in investing activities was $110,457 for the year ended December 31, 2006 as compared to $81,950 for the year ended December 31, 2005 and is principally related to the acquisition of computer and office equipment and furniture.

Net cash provided by financing activities was $6,104,954 for the year ended December 31, 2006 as compared to $2,358,588 for the year ended December 31, 2005. For the year ended December 31, 2006, we received: net proceeds of $4,750,000 from an institutional investor for Convertible Preferred Notes and $360,000 from three qualified investors for notes payable, all offset by placement fees of $263,264; proceeds from the sale of Series A Convertible Preferred Stock of $1,700,000 offset by placement fees and other expenses paid of $313,923; and made repayments of notes payable and loans payable of $101,634 and $26,225, respectively. During the year ended December 31, 2005, we received; net proceeds of $1,574,002 from the sale of common stock; capital contributions from the former stockholders of the Xeni Companies of $550,886; net proceeds from notes payable of $233,700.

43

---

Table of Contents

Off Balance Sheet Arrangements

We had no off balance sheet arrangements as of December 31, 2006.

ITEM 7.	FINANCIAL STATEMENTS

See our Financial Statements beginning on page F-1.

ITEM 8.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On December 18, 2006, we dismissed Goldstein Golub Kessler, LLP as our independent accountant. Goldstein Golub Kessler, LLP had been previously engaged as the principal accountant to audit our financial statements. We believe that it was in our best interests to engage Sherb & Co., LLP and to have Sherb & Co., LLP continue to work with our business. Sherb & Co., LLP is located at 805 Third Avenue, New York, NY 10022 and 1900 NW Corporate Blvd., Suite East 210, Boca Raton, Florida 33431.

As of December 18, 2006, Sherb & Co., LLP was engaged as our new independent public accountants. The appointment of Sherb & Co., LLP was recommended and approved by the Audit Committee of our Board of Directors. During our two most recent fiscal years, and the subsequent interim periods, prior to December 18, 2006, we did not consult Sherb & Co., LLP regarding either: (i) the application of accounting principles to a specified transaction, completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (ii) any matter that was either the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-B or a reportable event as described in Item 304(a)(1)(v) of Regulation S-B.

The reports of Goldstein Golub Kessler, LLP on our financial statements for the past two years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During our two most recent fiscal years, and the subsequent interim periods, prior to December 18, 2006, there were no disagreements with Goldstein Golub Kessler, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of Goldstein Golub Kessler, LLP, would have caused it to make reference to the matter in connection with its reports. There were no ‘‘reportable events’’ as that term is described in Item 304(a)(1)(v) of Regulation S-K.

A letter from Goldstein Golub Kessler, LLP regarding its agreement with the statements made by the Company in this Item 8 is filed herewith as Exhibit 16.1.

ITEM 8A.    CONTROLS AND PROCEDURES

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

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

44

---

Table of Contents

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

ITEM 8B.    OTHER INFORMATION

Not applicable.

45

---

Table of Contents

PART III

ITEM 9.    DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information regarding the members of our Board of Directors and our executive officers. The directors listed below will serve until the next annual meeting of our stockholders.

Name			Age			Position
Howard Katz			65			Chief Executive Officer and Director
Solon Kandel			46			President and Director
Vincent Colangelo			63			Chief Financial Officer and Secretary
Lila Sobel			48			Chief Operating Officer
Gerard Maresca			61			Vice President of Business Development
Stephen M. Weiss			53			Chief Technology Officer
David M. Barnes			64			Director
Peter Dunne			49			Director
Paul Kushner			60			Director

The principal occupation for the past five years (and, in some instances, for prior years) of each of our directors and officers are as follows:

Howard B. Katz became, effective as of November 16, 2005, our Chief Executive Officer and a Member of our Board of Directors. Mr. Katz is also the Chief Executive Officer and a Director of our wholly-owned subsidiary MDwerks Global Holdings, Inc., which positions he has held since June, 2005. Since July, 2004, Mr. Katz has been a Director and Chief Executive Officer of Xeni Medical Systems, Inc., and Mr. Katz has been the sole Director and Chief Executive Officer of Xeni Medical Billing Corp. since March 2005, and has been the sole Director and Chief Executive Officer of Xeni Financial Services, Corporation since February 2005. From December, 2002 until October, 2004, Mr. Katz was Chief Executive Officer of ViewPoint Exams International, Inc., a company that facilitated independent medical examinations in connection with insurance and litigation matters. From August 1998 to December, 2002, Mr. Katz was the Chief Executive Officer of Imagine Networks, Inc., a company based in New York City that engaged in prepaid telecommunications and financial services. Mr. Katz served on the Board of Directors of American United Global, Inc., a publicly traded company from April 1996 until August 2005. Mr. Katz has over 35 years of operating, financial and senior management experience, in both public and private companies. His responsibilities have included numerous progressive positions as CFO, President and CEO of ‘‘high tech’’, software development and other high growth businesses, including one involving banking transactions. Mr. Katz was President of National Fiber Network, Inc. which later became MetroMedia Fiber Network, Inc. and reached a peak public market capitalization of over $30 billion. Mr. Katz has been a principal in, or helped consummate, numerous public offerings and other successful business ventures. Mr. Katz received an MBA from New York University.

Solon L. Kandel became, effective as of November 16, 2005, our President and a member of our Board of Directors. Mr. Kandel is also the President and a Director of MDwerks Global Holdings, Inc., which positions he has held since June, 2005. Since July, 2004, Mr. Kandel has been a Director and President of Xeni Medical Systems, Inc., and Mr. Kandel has been President of Xeni Medical Billing Corp. since March 2005, and has been President of Xeni Financial Services, Corporation since February 2005. Since November 2000, Mr. Kandel has been the Chief Executive Officer and Managing Member of The Ashwood Group, L.L.C., a venture development and business consulting company based in Springfield, New Jersey. From April 1999 to October 2000, Mr. Kandel was the President, Chief Executive Officer of Independent Wireless One, Inc., a wireless voice, data and Internet company based in Albany, New York. From April 1999 to April 2002, Mr. Kandel also served as a member of the Board of Directors of Independent Wireless One, Inc. Mr. Kandel has enjoyed over 15 years of progressive and diverse operating and senior management experience, ranging from start-up to large, multi-billion dollar company environments. Prior to business management,

46

---

Table of Contents

Mr. Kandel performed corporate and banking transactions law for several years and was a Senior Attorney at McCaw Cellular Communications. Mr. Kandel received a JD from Rutgers University School of Law and is a Truman Scholar.

Vincent Colangelo became, effective as of November 16, 2005, our Chief Financial Officer. Since July, 2005, until becoming our Chief Financial Officer, Mr. Colangelo provided consulting services to us. Since March 2004, Mr. Colangelo was the President and Principal Consultant of Weston Business Advisors, Inc., a business consulting company based in Weston, Florida. From January 2003 to March 2004, Mr. Colangelo was the President of Cartridge World Florida in Weston, Florida, a master franchisee for the State of Florida for a world wide print cartridge refilling organization. From September 1995 to December 2002, Mr. Colangelo was the President and Principal Consultant of Birchwood Associates, Inc., a business consulting company based in Weston, Florida. Mr. Colangelo has over 35 years of financial executive and operational management experience. As a principal of the management consulting firms, Mr. Colangelo provided interim CFO, COO and general financial consulting services to clients ranging from small businesses to Fortune 100 companies. Mr. Colangelo brings to us a unique combination of financial management skills, industry experience and familiarity with our product line. Mr. Colangelo was also President of a start-up multi-national publishing company and worked at Xerox’ world headquarters as a consolidations and regulatory reporting manager and as a financial planning manager. Mr. Colangelo received an MBA and a BBA from Iona College and is a former New York State CPA.

Lila Sobel became, effective February 1, 2007, our Chief Operating Officer. From 2001 to the present, Ms. Sobel was Vice President Medical Operations of Geisinger Health Plan, Geisinger Health System, where she directed the medical operations departments. From 1992-2001, Ms. Sobel was with HCSC/Blue Cross Blue Shield of Texas where from 1996-2001, she was Vice President of Operations, responsible for the overall operations for HMO-PPO/Medicare Risk/Triwest/(Champus) products and developed strategies and implemented plans for statewide expansion to five geographical business areas. Ms. Sobel has sixteen years health operations experience plus eleven years intense clinical experience within a variety of hospital settings. Ms. Sobel received an M.A. Health Service management from Webster University, a B.S. Nursing from George Mason University and an R.N. Diploma Degree from Beth Israel Medical Center.

Stephen M. Weiss became, effective as of November 16, 2005, our Chief Technology Officer. Mr. Weiss has provided consulting services to us and served as acting Chief Technology Officer of MDwerks Global Holdings, Inc. since March 2005. From March 2002 to March 2005, Mr. Weiss was the Chief Technology Officer and Chief Operating Officer of Enterprise Technology Corporation, a financial software services consulting company that served many Fortune 500 clients. From September 1999 to November 2001, Mr. Weiss was the Chief Technology Officer at Imagine Networks, Inc., where he designed and managed the development of electronic payment systems linked to telecommunications pre-paid systems. Prior to joining Imagine Networks, Inc., he co-founded AstraTek, a software products and consulting firm that developed products and consulting services for financial and technology companies including Microsoft, IBM and Citrix. Mr. Weiss also served as Vice President at Bankers Trust Company for over 13 years, where he developed a number of advanced communication systems, including a global cryptography-based authentication system and links in Tokyo between the bank’s back office systems and the Bank of Japan’s money transfer and clearance systems. Mr. Weiss received a BA from Buffalo State College.

Gerard Maresca became, effective February 1, 2007, became our Vice President of Business Development. From February 14, 2006 to February 1, 2007, Mr. Maresca served as our Chief Operating Officer. From November 16, 2005 until February 14, 2006, Mr. Maresca was our Vice President of Business Development. Prior to joining us, since January 2004, Mr. Maresca has operated a technology and business consulting company called GMAR, Inc. From February 2000 to October 2003, Mr. Maresca was the Executive Vice President and Chief Technology Officer of MEDwerks, LLC, and was responsible for development of our products. Mr. Maresca has 28 years of technology, engineering, and program management experience, focused on hardware and software development of computer based products. Mr. Maresca has served as a hardware and software system architect, with experience in Internet and web applications. While Product Director at Intel Corp.

47

---

Table of Contents

(‘‘Intel’’) for 9 ½ years, he managed development of Intel’s i860 program parallel microprocessor, product marketing, manufacturing and R&D, as well as new business development and client support. Mr. Maresca was also Vice President at Diagnostic Retrieval Systems, Inc. for 8 years until he began working with MEDwerks, LLC. Mr. Maresca received a BSEC from Brooklyn Polytech, and a MSCS from Columbia University. He holds five U.S. patents and has published.

David M. Barnes became, effective as of November 16, 2005, a member of the Board of Directors and serves on our Audit Committee and our Compensation Committee. Mr. Barnes has also served as Chief Financial Officer of Neah Power Systems, Inc., (NPWS:OTCBB), since April 2006, Chief Financial Officer of Cyber Defense Systems, Inc., (CYDF:OTCBB), since August 2005 and was a Director and Chief Financial Officer of American United Global, Inc., now Solar Thin Films, Inc. (SLTN:OTCBB), from April 1996 through July 2006. Mr. Barnes is also a member of the Board of Directors, Audit Committee and Compensation Committee of Searchhelp, Inc. (SHLP:OTCBB) and Thinkpath,Inc. (THPHF:OTCBB).

Peter Dunne became, effective as of November 16, 2005, a member of our Board of Directors and serves on our Compensation Committee. Mr. Dunne has spent over 20 years in communications management. Currently he is President and partner of Franklin Communications, LLC, a full service graphic services company, a position he has held since July 2002. From March 2002 to July 2002 he was Regional General Manager for Kelmscott Communications, LLC overseeing Franklin Communications, Trade Litho, Little River Press, and Lauderdale Graphics. From to September 2000 to July 2002 he held the position of Regional Controller for the same companies. From September 1982 to September 2000 he was Vice President and Controller of Franklin Communications. Mr. Dunne’s other experiences include positions in Dataco, a national data entry service business, and Robertson Leasing Corp, an equipment leasing company, both formerly divisions of Robertson Financial Corporation. Mr. Dunne is on the Board of Directors of the Printing Association of Florida and on the CEO Advisory Board to the Printing Industries of America.

Paul Kushner became, effective June 22, 2006, a member of our Board of Directors and serves on our Audit Committee. Mr. Kushner has been President and Owner of Asset Indemnity Brokerage Corp., an insurance brokerage firm since July 1994. Mr. Kushner started his career in the surety industry in 1967 and has been world regional bond manager for American International Group (AIG) and special representative to Norway for the introduction of surety bonds in the United States. In 1987, he was the New York Manager of American International Group, Domestic and International Operations.

Board of Director Composition and Committees

Our Board of Directors is comprised of five directors, Messrs. Katz, Kandel, Barnes, Dunne and Kushner. David M. Barnes and Peter Dunne serve as members of our Compensation Committee and David M. Barnes and Paul Kushner serve as members of our Audit Committee. We have independent parties serving on each of the Audit Committee and the Compensation Committee.

Director Compensation

The following non-management directors received compensation from MDwerks, Inc. in the amounts set forth in the chart below for the twelve months ended December 31, 2006 and December 31, 2005. We intend to continue to compensate non-management directors through the issuance of stock awards including, without limitation, incentive stock options, restricted stock awards, stock grants and or stock appreciation rights. The value attributable to any Option Awards in the following chart is computed in accordance with FAS 123R. No other item of compensation was paid to any director of the Company other than reimbursement of expenses:

48

---

Table of Contents

DIRECTOR COMPENSATION

Name			Year						Fees Earned or Paid in Cash						Stock Awards						Option Awards						Non- Equity Incentive Plan Compen- sation						Change in Pension Value and Non- qualified Deferred Compen- sation Earnings						All Other Compen- sation						Total
David M. Barnes					2006					$	14,000					$	87,500	1				$	165,750	2					—						—						—					$	267,250
					2005					$	3,500						—						—						—						—						—					$	3,500
Peter Dunne					2006					$	14,000						—					$	342,800	3					—						—						—					$	356,800
					2005					$	3,500						—						—						—						—						—					$	3,500
Paul Kushner					2006					$	7,000						—					$	360,800	4					—						—						—					$	367,800
					2005						—						—						—						—						—						—						—

1

On June 19, 2006, the Company authorized the issuance of 75,000 shares of common stock to David M. Barnes in consideration for services rendered. On June 22, 2006, the Company issued 25,000 of these authorized shares of common stock at the fair value at the date of the issuance of $87,500 or $3.50 per share. For the year ended December 31, 2006, in connection with these shares, the Company recorded stock-based compensation of $87,500 for Mr. Barnes.  Prior to December 31, 2006, Mr. Barnes deferred to 2007, the issuance of 25,000 of the authorized shares, which were to be issued on November 15, 2006; these shares are still unissued. The remaining 25,000 shares of the 75,000 common stock issuance authorized on June 19, 2006 are to be issued on May 15, 2007.

2

Consists of Incentive Stock Options to purchase 44,000 shares of common stock and Non-qualified Stock Options to purchase 31,000 shares of common stock both at a price of $2.25 per share granted on October 11, 2006 and vesting in 1/3 increments starting on October 11, 2006 and on each of the next two anniversaries of the date of the grant.

3

Consists of Incentive Stock Options to purchase 25,000 shares of common stock and Non-qualified Stock Options to purchase 50,000 shares of common stock both at a price of $4.00 per share granted on June 19, 2006 and vesting in 1/3 increments on each anniversary of the grant, and Non-qualified Stock Options to purchase 25,000 shares of common stock at a price of $2.25 per share granted on October 11, 2006 and vesting in 1/3 increments starting on October 11, 2006 and on each of the next two anniversaries of the date of the grant.

4

Consists of Incentive Stock Options to purchase 23,500 shares of common stock and Non-qualified Stock Options to purchase 51,500 shares of common stock both at a price of $4.25 per share granted on June 22, 2006 and vesting in 1/3 increments on each anniversary of the grant, and Non-qualified Stock Options to purchase 25,000 shares of common stock at a price of $2.25 per share granted on October 11, 2006 and vesting in 1/3 increments starting on October 11, 2006 and on each of the next two anniversaries of the date of the grant.

Audit Committee Financial Expert

David M. Barnes serves on our Audit Committee as the audit committee financial expert. Mr. Barnes is independent (as such term is used in Item 7(d) (3) (iv) of Schedule 14A under the Exchange Act).

Executive Officer Employment Agreements

Effective January 1, 2006, each of Howard B. Katz, Solon L. Kandel, Vincent Colangelo, Gerard Maresca and Stephen W. Weiss entered into an employment agreement with us. The employment agreements with Messrs. Katz and Colangelo extend for a term expiring on December 31, 2008, and the employment agreements with Messrs. Kandel and Weiss extend to a term that expires on December 31, 2007. Effective February 1, 2007, Lila Sobel entered into an employment agreement with us. Her employment agreement extends for a term expiring on December 31, 2007. Pursuant to these employment agreements, Mr. Katz has agreed to devote substantially all of his time, attention and ability, and Messrs. Kandel, Colangelo and Weiss and Ms. Sobel have each agreed to devote all of their time, attention and ability, to our business as our Chief Executive Officer, President, Chief Financial Officer, Chief Technology Officer and Chief Operating Officer, respectively. The employment agreements provide that Messrs. Katz, Kandel, Colangelo, Weiss and Ms. Sobel will receive a base salary during calendar year 2007 at an annual rate of $225,000, $200,000, $175,000, $165,000 and $150,000, respectively, for services rendered in such positions. Mr. Kandel agreed to defer payment on

49

---

Table of Contents

his entire 2007 annual base salary increase of $25,000 and Mr. Colangelo agreed to defer payment of $15,000 of his 2007 annual base salary increase of $25,000. During calendar year 2008 under the employment agreements for Messrs. Katz and Colangelo, their annual base salaries will be increased to $300,000 for Mr. Katz, and $200,000 for Mr. Colangelo, respectively. In addition, each executive may be entitled to receive, at the sole discretion of our board of directors, cash bonuses based on the executive meeting and exceeding performance goals. The cash bonuses range from up to 25% of the executive’s annual base salary for Mr. Weiss and Ms. Sobel, up to 100% of the executive’s annual base salary for Messrs. Kandel and Colangelo, and up to 150% of the executive’s annual base salary for Mr. Katz. Messrs. Katz, Kandel, and Colangelo have agreed to defer payment on a portion of their 2006 bonuses, to which they were entitled. Each of our executive officers is entitled to participate in our 2005 Incentive Compensation Plan. We have also agreed to pay or reimburse each executive officer up to a specified monthly amount for the business use of his or her personal car and cell phone. Under Mr. Kandel’s employment agreement, we reimbursed him for expenses of $18,000 in connection with his relocation to Florida; under Ms Sobel’s employment agreement, we reimbursed her for expenses of $5,670 in connection with her relocation to Florida.

The employment agreements provide for termination by us upon death or disability (defined as 90 aggregate days of incapacity during any 365-consecutive day period) of the executive or upon conviction of a felony or any crime involving moral turpitude, or willful and material malfeasance, dishonesty or habitual drug or alcohol abuse by the executive, related to or affecting the performance of his duties. In the event any of the employment agreements are terminated by us without cause, such executive will be entitled to compensation for the balance of the term of his employment agreement or, if longer, for one year in the case of Mr. Kandel and two years in the case of Messrs. Katz and Colangelo. Messrs. Katz, Kandel and Colangelo also have the right, if terminated without cause, to accelerate the vesting of any stock options or other awards granted under our 2005 Incentive Compensation Plan. We intend to obtain commitments for key-man life insurance policies for our benefit on the lives of Messrs. Katz, Kandel and Colangelo equal to three times their respective annual base salary. In addition to the key-man life insurance policies, we have agreed to maintain throughout the term of each employment agreement 15-year term life insurance policies on the lives of Messrs. Katz, Kandel and Colangelo, with benefits payable to their designated beneficiaries, and to pay all premiums in connection with those policies.

In the event of a change of control of our company, Messrs. Katz, Kandel and Colangelo may terminate their employment with us within six months after such event and will be entitled to continue to be paid pursuant to the terms of their respective employment agreements. The employment agreements with Mr. Weiss and Ms. Sobel do not have any change of control provisions.

The employment agreements also contain covenants (a) restricting the executive from engaging in any activities competitive with our business during the terms of such employment agreements and one year thereafter, (b) prohibiting the executive from disclosure of confidential information regarding us at any time and (c) confirming that all intellectual property developed by the executive and relating to our business constitutes our sole and exclusive property.

The foregoing summaries of our employment agreements are qualified by reference to the full texts of the form of each of the Senior Executive Level Employment Agreement and Executive Level Employment Agreement, filed as Exhibits 10.1 and 10.2 to our Current Report on Form 8-K, filed with the SEC on January 5, 2006, respectively, and as Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on February 2, 2007, all of which are incorporated herein in their entirety.

Currently, we do not have an employment agreement with Gerard Maresca and, therefore, his employment is on an ‘‘at-will’’ basis.

Indemnification of Directors and Officers

As permitted by the provisions of the Delaware General Corporation Law (the ‘‘DGCL’’), we have the power to indemnify any person made a party to an action, suit or proceeding by reason of the fact that they are or were a director, officer, employee or agent of ours, against expenses,

50

---

Table of Contents

judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any such action, suit or proceeding if they acted in good faith and in a manner which they reasonably believed to be in, or not opposed to, our best interest and, in any criminal action or proceeding, they had no reasonable cause to believe their conduct was unlawful. Termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which they reasonably believed to be in or not opposed to our best interests, and, in any criminal action or proceeding, they had no reasonable cause to believe their conduct was unlawful.

We must indemnify a director, officer, employee or agent who is successful, on the merits or otherwise, in the defense of any action, suit or proceeding, or in defense of any claim, issue, or matter in the proceeding, to which they are a party because they are or were a director, officer, employee or agent, against expenses actually and reasonably incurred by them in connection with the defense.

We may provide to pay the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding as the expenses are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that they are not entitled to be indemnified.

The DGCL also permits a corporation to purchase and maintain liability insurance or make other financial arrangements on behalf of any person who is or was

	•	a director, officer, employee or agent of ours,

	•	or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprises.

Such coverage may be for any liability asserted against them and liability and expenses incurred by them in their capacity as a director, officer, employee or agent, or arising out of their status as such, whether or not the corporation has the authority to indemnify them against such liability and expenses.

Insofar as indemnification for liabilities arising under the Securities Act, as amended, may be permitted to officers, directors or persons controlling our company pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in such Act and is therefore unenforceable.

Code of Ethics

We adopted a code of ethics that applies to our officers, directors and employees, including our chief executive officer and chief financial officer.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, which requires executive officers and directors, and persons who beneficially own more than ten (10%) percent of the common stock of a company with a class of securities registered under the Securities Exchange Act of 1934, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission, is not currently applicable to us.

ITEM 10.    EXECUTIVE COMPENSATION

Incentive Compensation Plan

In November, 2005, we approved the MDwerks, Inc. 2005 Incentive Compensation Plan (the ‘‘Incentive Plan’’). The Incentive Plan covers grants of stock options, grants of equity securities, dividend equivalents and other customary items covered by such plans. Persons eligible to receive awards under the Incentive Plan are the officers, directors, employees, consultants and other persons who provide services to us or any Related Entity (as defined in the Incentive Plan).

51

---

Table of Contents

The Incentive Plan is administered by our Compensation Committee; however, the Board of Directors can exercise any power or authority granted to the Compensation Committee under the Incentive Plan, unless expressly provided otherwise in the Incentive Plan.

We will reserve between five to ten percent of our authorized Common Stock for issuance pursuant to grants under the Incentive Plan.

The following executives received grants of stock options from MDwerks, Inc. through December 31, 2006:

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

			Option Awards																														Stock Awards
Name and Principal Position			Number of Securities Underlying Unexercised Options Exercisable						Number of Securities Underlying Unexercised Options Unexercisable						Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options						Option Exercise Price						Option Expiration Date						Number of Shares or Units of Stock That Have Not Vested						Market Value of Shares or Units of Stock That Have Not Vested						Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested						Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
Howard Katz					8,333						16,6671						—					$	3.25						12/28/2015						—						—						—						—
PEO, Chief					—						425,0002						—					$	3.40						1/2/2016						—						—						—						—
Executive					—						250,0003						—					$	4.00						6/18/2016						—						—						—						—
Officer and					166,667						333,3334						—					$	2.25						10/10/2016						—						—						—						—
Director					50,000						—						—					$	1.39						12/26/2016						—						—						—						—
Vincent Colangelo					8,333						16,6671						—					$	3.25						12/28/2015						—						—						—						—
PFO, Chief					—						125,0002						—					$	3.40						1/2/2016						—						—						—						—
Financial					—						75,0003						—					$	4.00						6/18/2016						—						—						—						—
Officer and					25,000						50,0004						—					$	2.25						10/10/2016						—						—						—						—
Secretary					15,000						—						—					$	1.39						12/26/2016						—						—						—						—
Solon Kandel					8,333						16,6671						—					$	3.25						12/28/2015						—						—						—						—
President and					—						300,0002						—					$	3.40						1/2/2016						—						—						—						—
Director					—						75,0003						—					$	4.00						6/18/2016						—						—						—						—
					33,333						66,6674						—					$	2.25						10/10/2016						—						—						—						—
Gerard Maresca					8,333						16,6671						—					$	3.25						12/28/2015						—						—						—						—
Vice President,					—						5,0002						—					$	3.40						1/2/2016						—						—						—						—
Business					—						25,0003						—					$	4.00						6/18/2016						—						—						—						—
Development					8,333						16,6674						—					$	2.25						10/10/2016						—						—						—						—
Stephen M. Weiss					8,333						16,6671						—					$	3.25						12/28/2015						—						—						—						—
Chief Technology					—						5,0002						—					$	3.40						1/2/2016						—						—						—						—
Officer					—						25,0003						—					$	4.00						6/18/2016						—						—						—						—
					8,333						16,6674						—					$	2.25						10/10/2016						—						—						—						—
					5,000						10,0005						—					$	1.39						12/26/2016						—						—						—						—
Lila Sobel					10,000						20,0005						—					$	1.39						12/26/2016						—						—						—						—
Chief Operating
Officer (effective 2/1/07)

1	Consists of Options vesting ½ on December 28, 2007 and vesting ½ on December 28, 2008.

2	Consists of Options vesting 1/3 on January 2, 2007, vesting 1/3 on January 2, 2008 and vesting 1/3on January 2, 2009.

3	Consists of Options vesting 1/3 on June 18, 2007, vesting 1/3 on June 18, 2008 and vesting 1/3 on June 18, 2009.

52

---

Table of Contents

4	Consists of Options vesting ½ on October 10, 2007 and vesting ½ on October 10, 2008.

5	Consists of Options vesting ½ on December 26, 2007 and vesting ½ on December 26, 2008.

As of March 1, 2007, the following awards have been granted to the executive officers named in this Annual Report on Form 10-KSB under the Incentive Plan:

Name of Grantee			Incentive Stock Options						Non-Qualified Stock Options						Percentage of all Options Granted to Employees
Howard Katz					53,750	1					1,196,250	2			51.5%
Solon Kandel					53,750	1					446,250	3			20.6%
Vincent Colangelo					53,750	1					261,250	4			13.0%
Gerard Maresca					50,750	5					29,250	6			3.3%
Stephen Weiss					50,750	5					44,250	7			3.9%
Lila Sobel					30,000	8					—				1.2%

The following awards have been granted to the executive officers named in this Annual Report on Form 10-KSB under the Incentive Plan in the last fiscal year:

Name of Grantee			Incentive Stock Options						Non-Qualified Stock Options						Percentage of all Options Granted to Employees in Last Fiscal Year
Howard Katz					28,750	9					1,196,250	2					50.5	%
Solon Kandel					28,750	9					446,250	3					19.6	%
Vincent Colangelo					28,750	9					261,250	4					12.0	%
Gerard Maresca					25,750	10					29,250	6					2.3	%
Stephen Weiss					25,750	10					44,250	7					2.9	%
Lila Sobel					30,000	8					—						1.2	%

1

Consists of (i) options to purchase 25,000 shares of Common Stock at a price of $3.25 per share, granted on December 29, 2005, and vesting in 1/3 increments on each anniversary date of the date of grant, (ii) options to purchase 25,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006 and vesting in 1/3 increments on each anniversary date of the date of grant and (iii) options to purchase 3,750 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant.

2

Consists of (i) options to purchase 400,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006, and vesting in 1/3 increments on each anniversary date of the date of grant, (ii) options to purchase 246,250 shares of Common Stock at a price of 4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant, (iii) options to purchase 500,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant , and (iv) options to purchase 50,000 shares of Common Stock at a price of $1.39 per share, granted on December 27, 2006 and vesting on December 27, 2006. All Non-qualified Stock Options granted to Mr. Katz are owned with his spouse as Tenants in the Entireties.

3

Consists of (i) options to purchase 275,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006, and vesting in 1/3 increments on each anniversary date of the date of grant, (ii) options to purchase 71,250 shares of Common Stock at a price of 4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant, and (iii) options to purchase 100,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant. All Non-qualified Stock Options granted to Mr. Kandel are owned with his spouse as Tenants in the Entireties.

4

Consists of (i) options to purchase 100,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006, and vesting in 1/3 increments on each anniversary date of the date of grant, (ii) options to purchase 71,250 shares of Common Stock at a price of 4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant, (iii) options to purchase 75,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant, and (iv) options to purchase 15,000 shares of Common Stock at a price of $1.39 per share, granted on December 27, 2006 and vesting on December 27, 2006. All Non-qualified Stock Options granted to Mr. Colangelo are owned with his spouse as Tenants in the Entireties.

5

Consists of (i) options to purchase 25,000 shares of Common Stock at a price of $3.25 per share, granted on December 29, 2005, and vesting in 1/3 increments on each anniversary date of the date of grant, (ii) options to purchase 5,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006 and vesting in 1/3 increments on each anniversary date of the date of grant and (iii) options to purchase 20,750 shares of common stock at a price of 4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant.

53

---

Table of Contents

6

Consists of (i) options to purchase 4,250 shares of Common Stock at a price of 4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant, and (ii) options to purchase 25,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant.

7

Consists of (i) options to purchase 4,250 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006, and vesting in 1/3 increments on each anniversary date of the date of grant, (ii) options to purchase 25,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant, and (iii) options to purchase 15,000 shares of Common Stock at a price of $1.39 per share, granted on December 27, 2006 and vesting in 1/3 increments on December 27, 2006 and each subsequent anniversary date of the date of the grant.

8	Consists of options to purchase 30,000 shares of Common Stock at a price of $1.39 per share, granted on December 27, 2006 and vesting in 1/3 increments on December 27, 2006 and each subsequent anniversary date of the date of the grant.

9

Consists of (i) options to purchase 25,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006 and vesting in 1/3 increments on each anniversary date of the date of grant and (ii) options to purchase 3,750 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant.

10

Consists of (i) options to purchase 5,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006 and vesting in 1/3 increments on each anniversary date of the date of grant and (ii) options to purchase 20,750 shares of common stock at a price of 4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant.

Executive Compensation

The primary objective of our executive compensation program is to attract and retain qualified, energetic managers who are enthusiastic about our mission and culture. A further objective of our compensation program is to provide incentives and reward each manager for their contribution. In addition, we strive to promote an ownership mentality among key leadership and the Board of Directors.

Our Compensation Committee reviews and approves, or in some cases recommends for the approval of the full Board of Directors, the annual compensation for our Executive Officers. Regarding most compensation matters, including executive and director compensation, our management provides recommendations to the Compensation Committee; however, the Compensation Committee does not delegate any of its functions to others in setting compensation. Our Compensation Committee does not include any Executive Officers. We do not currently engage any consultant to advise on executive and/or director compensation matters.

In measuring our Executive Officers’ contributions, the Compensation Committee considers numerous factors including our growth, strategic business relationships and financial performance. Stock price performance has not been a factor in determining annual compensation because the price of our common stock is subject to a variety of factors outside of our control. We do not have an exact formula for allocating between cash and non-cash compensation.

Annual executive officer compensation generally consists of a base salary and annual bonus component, as well as periodic stock option grants. It is the Compensation Committee’s intention to set total executive cash compensation sufficiently high enough to attract and retain a strong motivated leadership team, but not so high that it creates a negative perception with our stakeholders. Each of our executive officers receives stock option grants under our 2005 Incentive Compensation Plan. Each executive’s current and prior compensation is considered in setting future compensation. In addition, we review the compensation practices of other companies. To some extent, our compensation plan is based on the market and the companies we compete against for executive management. The elements of our plan (e.g., base salary, bonus and stock options) are similar to the elements used by many companies.

Stock options are granted to include a long-term component to the Executive’s overall compensation package. The Company has no pension plan, non-equity incentive plan or deferred compensation arrangement. The number of stock options granted to each executive officer is made on a discretionary rather than a formula basis by the Compensation Committee. The Company does not have a specific program, plan or practice to time stock option grants. The pricing of stock option grants are based upon the stock’s opening price on the date of the grant.

Each of our executive officers, except for the VP of Business Development, has an employment agreement with the Company that outlines salary and benefit arrangements. These agreements have

54

---

Table of Contents

similar terms, which include, but are not limited to: base salaries; annual bonuses; reimbursements of certain expenses; group health, disability, and life insurances; and, termination provisions. These agreements have initial terms of one, two or three years.

The following executives received compensation from MDwerks, Inc., and Xeni Medical Systems, Inc. in the amounts set forth in the chart below for the twelve months ended December 31, 2006, December 31, 2005 and December 31, 2004. The value attributable to any Option Awards in the following chart is computed in accordance with FAS 123R. No other item of compensation was paid to any officer or director of the Company other than reimbursement of expenses:

SUMMARY COMPENSATION TABLE

Name and Principal Position			Year						Salary						Bonus						Stock Awards						Option Awards						Non- Equity Incentive Plan Compen- sation						Change in Pension Value and Non- qualified Deferred Compen- sation Earnings						All Other Compen- sation						Total
Howard Katz					2006					$	195,000					$	87,778	1					—					$	3,406,150	2					—						—					$	51,000	3				$	3,739,928
PEO, Chief Executive					2005					$	79,231						—						—					$	81,250	4					—						—					$	50,769	5				$	211,250
Officer and Director					2004						—						—					$	28,800	6					—						—						—						—					$	28,800
Vincent Colangelo					2006					$	150,000					$	44,100	7				$	81,000	8				$	848,600	9					—						—					$	12,000	10				$	1,135,700
PFO, Chief Financial					2005					$	50,385						—						—					$	81,250	4					—						—					$	25,500	11				$	157,135
Officer and Secretary					2004						—						—						—						—						—						—						—						—
Solon Kandel					2006					$	175,000					$	50,527	12					—					$	1,407,950	13					—						—					$	13,800	14				$	1,647,277
President and					2005					$	53,846						—						—					$	81,250	4					—						—					$	46,154	15				$	181,250
Director					2004						—						—					$	20,000	16					—						—						—						—					$	20,000
Gerard Maresca					2006					$	150,000						—						—					$	166,090	17					—						—					$	2,290	18				$	318,380
Vice President,					2005					$	40,296						—						—					$	81,250	4					—						—					$	90,185	19				$	211,731
Business Development					2004						—						—						—						—						—						—						—						—
Stephen M. Weiss					2006					$	150,000					$	20,828						—					$	186,640	20					—						—					$	4,800	21				$	362,268
Chief Technology					2005					$	33,391						—						—					$	81,250	4					—						—					$	67,000	22				$	181,641
Officer					2004						—						—						—						—						—						—						—						—
Lila Sobel					2006					$	12,500						—						—					$	41,100	23					—						—					$	150	24				$	53,750
Chief Operating					2005						—						—						—						—						—						—						—						—
Officer (effective 2/1/07)					2004						—						—						—						—						—						—						—						—

1	Consists of a $51,389 bonus paid during 2006 and $36,389 accrued as a Company obligation.

2

Consists of Incentive Stock Options to purchase: (i) 25,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006 and vesting in 1/3 increments on each anniversary date of the date of grant; and, (ii) 3,750 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant and Non-qualified Stock Options to purchase: (i) 400,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006, and vesting in 1/3 increments on each anniversary date of the date of grant, (ii) 246,250 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant, (iii) 500,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant, and (iv) 50,000 shares of Common Stock at a price of $1.39 per share, granted on December 27, 2006 and vesting on December 27, 2006. All Non-qualified Stock Options granted to Mr. Katz are owned with his spouse as Tenants in the Entireties.

3	Consists of an auto allowance of $23,000, a business use of home allowance of $25,000 and a contribution of $3,000 towards the Company’s medical Flexible Spending account.

4	Consists of incentive stock options granted on December 29, 2005, exercisable at a price of $3.25 per share, and vesting in 1/3 increments on each anniversary date of the date of grant.

55

---

Table of Contents

5

Prior to becoming an employee of the Company on September 26, 2005, Mr. Katz was compensated for his services to the Company in his capacity as a consultant. $18,333 was paid to Mr. Katz and $32,436 was paid to Greater Condor Evaluations, Inc., an entity owned and controlled by Mr. Katz for such services.

6	720,000 shares of Common Stock of MDwerks Global Holdings, Inc., were issued to 7/31/42 Corp., an entity controlled by Mr. Katz, for services rendered at a value of $0.04 per share. Such shares were exchanged for 113,813 shares of Class A Common Stock of the Company in connection with the Merger.

7	Consists of a $26,377 bonus paid during 2006 and $17,723 accrued as a Company obligation.

8	Consists of $81,000 for services rendered to the Company, paid as 25,000 shares of Common Stock issued on February 28, 2006.

9

Consists of Incentive Stock Options to purchase: (i) 25,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006 and vesting in 1/3 increments on each anniversary date of the date of grant; and, (ii) 3,750 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant and Non-qualified Stock Options to purchase: (i) 100,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006, and vesting in 1/3 increments on each anniversary date of the date of grant, (ii) 71,250 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant, (iii) 75,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant , and (iv) 15,000 shares of Common Stock at a price of $1.39 per share, granted on December 27, 2006 and vesting on December 27, 2006. All Non-qualified Stock Options granted to Mr. Colangelo are owned with his spouse as Tenants in the Entireties.

10	Consists of an auto allowance of $9,000 and a contribution of $3,000 towards the Company’s medical Flexible Spending account.

11	Prior to becoming an employee of the Company on September 26, 2005, Mr. Colangelo was compensated for his services to the Company in his capacity as a consultant. $25,500 was paid to Weston Business Advisors, Inc., a corporation owned and controlled by Mr. Colangelo for such services.

12	Consists of a $29,302 bonus paid during 2006 and $21,225 accrued as a Company obligation.

13

Consists of Incentive Stock Options to purchase: (i) 25,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006 and vesting in 1/3 increments on each anniversary date of the date of grant: and (ii) 3,750 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant and Non-qualified Stock Options to purchase: (i) 275,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006, and vesting in 1/3 increments on each anniversary date of the date of grant; (ii) 71,250 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant; and, (iii) 100,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant. All Non-qualified Stock Options granted to Mr. Kandel are owned with his spouse as Tenants in the Entireties.

14	Consists of an auto allowance of $10,800 and a contribution of $3,000 towards the Company’s medical Flexible Spending account.

15

Prior to becoming an employee of the Company on September 26, 2005, Mr. Kandel was compensated for his services to the Company in his capacity as a consultant. $33,333 was paid to Mr. Kandel as consulting fees and $12,821 was paid to The Ashwood Group, LLC, an entity owned and controlled by Mr. Kandel for such services.

16	500,000 shares of Common stock of MDwerks Global Holdings, Inc., were issued to Mr. Kandel for services rendered at a value of $0.04 per share. Such shares were exchanged for 79,037 shares of Class A Common Stock in connection with the Merger.

17

Consists of Incentive Stock Options to purchase: (i) 5,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006 and vesting in 1/3 increments on each anniversary date of the date of grant; and, (ii) 20,750 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant and Non-qualified Stock Options to purchase: (i) 4,250 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant; and, (ii) 25,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant

18	Consists of an auto allowance of $1,800 and a contribution of $490 towards the Company’s medical Flexible Spending account.

19	Prior to becoming an employee of the Company on September 26, 2005, Mr. Maresca was compensated for his services to the Company in his capacity as a consultant. $90,185 was paid to GMAR, Inc., a corporation owned and controlled by Mr. Maresca for such services.

20

Consists of Incentive Stock Options to purchase: (i) 5,000 shares of Common Stock at a price of $3.40 per share, granted on January 3, 2006 and vesting in 1/3 increments on each anniversary date of the date of grant; and, (ii) 20,750 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant and Non-qualified Stock Options to purchase: (i) 4,250 shares of Common Stock at a price of $4.00 per share, granted on June 19, 2006 and vesting in 1/3 increments on each anniversary date of the date of the grant; and, (ii) 25,000 shares of Common Stock at a price of $2.25 per share, granted on October 11, 2006 and vesting in 1/3 increments on October 11, 2006 and each subsequent anniversary date of the date of the grant; and (iii) options to purchase 15,000 shares of Common Stock at a price of $1.39 per share, granted on December 27, 2006 and vesting in 1/3 increments on December 27, 2006 and each subsequent anniversary date of the date of the grant.

21	Consists of an auto allowance of $1,800 and a contribution of $3,000 towards the Company’s medical Flexible Spending account.

56

---

Table of Contents

22	Prior to becoming an employee of the Company on September 26, 2005, Mr. Weiss was compensated for his services to the Company in his capacity as a consultant. $67,000 was paid to Argent Consulting Services, Inc., a corporation owned and controlled by Mr. Weiss for such services.

23	Consists of options to purchase 30,000 shares of Common Stock at a price of $1.39 per share, granted on December 27, 2006 and vesting in 1/3 increments on December 27, 2006 and each subsequent anniversary date of the date of the grant.

24	Consists of an auto allowance of $150.

ITEM 11.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the number of shares of Common Stock beneficially owned on March 16, 2007, by each person who is known by the Company to beneficially own 5% or more of the Company’s Common Stock, each of the Company’s directors and executive officers, and all of the Company’s directors and executive officers, as a group:

Name of Beneficial Owner			Common Shares Owned						Presently Exercisable Options or Options Exercisable Within 60 Days						Shares Beneficially Owned						Percentage of Class
Howard B. Katz					1,116,814	1					366,667						1,483,481	2					11.5	%
Solon Kandel					1,022,781						141,667						1,164,448	2					9.2	%
Vincent Colangelo					25,000						90,000						115,000	2					0.9	%
Stephen Weiss					65,809						23,334						89,143	2					0.7	%
Lila Sobel					—						10,000						10,000	2					0.1	%
Gerard Maresca					136,849						18,333						155,182	2					1.2	%
David M. Barnes					25,000						25,000						50,000	2					0.4	%
Peter Dunne					53,430						8,333						61,763	2					0.5	%
Paul Kushner					141,290						8,333						149,623	2					1.2	%
Directors and officers as a group (9 persons):					2,586,973						691,667						3,278,640						24.7	%
Persons known to beneficially own more than 5% of the outstanding Common Stock:
MEDwerks.com Corp3					2,139,316						0						2,139,316						17.0	%
Jacob Nudel3					429,026						0						429,026						3.4	%
AJKN Partnership3					710,472						0						710,472						5.6	%
AJLN Partnership3					710,472						0						710,472						5.6	%
AJMN Partnership3					710,472						0						710,472						5.6	%

1	Includes 113,813 shares of common stock owned by 73142 Corp., an entity controlled by Howard Katz as the sole officer and director. Mr. Katz is not a shareholder of 73142 Corp.

2	Includes presently exercisable options, as disclosed under Director Compensation and Executive Compensation; there are no options exercisable within 60 days of March 16, 2007.

3

Dr. Jacob Nudel, MDwerks’ former chairman, exercises investment and voting control of the shares beneficially owned by Medwerks.com Corp. Dr. Nudel is General Partner of and exercises dispositive voting control of the shares beneficially owned by AJKN Limited Partnership, AJLN Limited Partnership and AJMN Limited Partnership, but is only a 1% limited partner of each of these entities.

57

---

Table of Contents

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Stephen Katz, the son of Howard Katz, the Company’s Chief Executive Officer, is a partner at Peckar & Abramson, P.C., which is the Company’s outside legal counsel. The Company is charged Peckar & Abramson’s standard billing rates for legal services rendered. Stephen Katz owns: 176,152 restricted shares of the Common Stock of the Company; Incentive Stock Options to purchase 44,000 shares of Common Stock at a price of $2.25 per share granted on October 11, 2006 and vesting in 1/3 increments starting on October 11, 2006 and on each of the next two anniversaries of the date of the grant; and, Non-Qualified Stock Options to purchase 131,000 shares of Common Stock at a price of $2.25 per share granted on October 11, 2006 and vesting in 1/3 increments starting on October 11, 2006 and on each of the next two anniversaries of the date of the grant.

58

---

Table of Contents

ITEM 13.    EXHIBITS

EXHIBITS

Exhibit No.						Exhibits
	3	.1				Company Certificate of Incorporation1
	3	.2				Amendment to Company’ Certificate of Incorporation changing name to MDwerks, Inc. and amending terms of Blank Check Preferred Stock2
	3	.3				Certificate of Designations Designating Series A Convertible Preferred Stock.3
	3	.4				Bylaws of the Company.4
	4	.1				MDwerks, Inc. 2005 Incentive Compensation Plan.5
	4	.2				Form of Warrants to purchase shares of Common Stock at a price of $2.50 per share.6
	4	.3				Form of Warrants issued to Placement Agent (and sub-agents) to purchase shares of Common Stock at a price of $1.25 per share.7
	4	.4				Form of Series A Warrants to purchase shares of Common Stock at a price of $3.00 per share.8
	4	.5				Form of Series A Warrants issued to Placement Agent and sub-agents to purchase shares of Common Stock at a price of $1.50 per share.9
	4	.6				Promissory Note issued to David Goldner10
	4	.7				Class C Warrant to purchase shares of Common Stock at a price of $2.25 per share11
	4	.8				Promissory Note issued to Frank Grenier12
	4	.9				Promissory Note issued to Eugene Grenier13
	4	.10				Securities Purchase Agreement by and between Investor and MDwerks, Inc.14
	4	.11				Form of Series D Warrant to purchase shares of Common Stock at a price of $2.25 per share15
	4	.12				Form of Series E Warrant to purchase shares of Common Stock at a price of $3.25 per share16
	4	.13				Form of Senior Secured Convertible Note17
	4	.14				Registration Rights Agreement between MDwerks, Inc. and Investor18
	10	.1				Agreement of Merger and Plan of Reorganization among Western Exploration, Inc., MDwerks Acquisition Corp. and MDwerks Global Holdings, Inc.19
	10	.2				Placement Agent Agreement by and among the Company, MDwerks and Brookshire Securities Corporation.20
	10	.3				Form of Lock Up Agreement between the Company and executive officers and certain stockholders.21
	10	.4				Form of Private Placement Subscription Agreement.22
	10	.5				Form of Senior Executive Level Employment Agreement between MDwerks, Inc. and each of Howard B. Katz, Solon L. Kandel and Vincent Colangelo.23
	10	.6				Form of Executive Level Employment Agreement between MDwerks, Inc. and Stephen Weiss.24

59

---

Table of Contents

Exhibit No.						Exhibits
	10	.7				Executive Level Employment Agreement between MDwerks, Inc. and Lila K. Sobel25
	10	.8				Guaranty issued to David Goldner by Xeni Financial Services, Corp.26
	10	.9				Security Agreement between Xeni Financial Services, Corp. and David Goldner27
	10	.10				Subscription Agreement between MDwerks, Inc. and David Goldner28
	10	.11				Form of Subscription Agreement between MDwerks, Inc. and Frank Greiner and Eugene Grenier29
	10	.12				Guaranty issued to Investor by Xeni Financial Services, Corp., Xeni Medical Billing, Corp., MDwerks Global Holdings, Inc. and Xeni Medical Systems, Inc.30
	10	.13				Security Agreement by and among Investor, MDwerks, Inc., Xeni Financial Services, Corp., Xeni Medical Corp., Xeni Medical Billing, Corp., MDwerks Global Holdings, Inc. and Xeni Medical Systems, Inc.31
	10	.14				Closing Agreement by and between Investor and MDwerks, Inc. Modifying and Waiving Registration Rights Provisions32
	14	.1				Code of Ethics33
	16	.1				Letter from Goldstein Golub Kessler, LLP regarding change in Registrant’s Certifying Accountant34
	22	.1				Subsidiaries35
	23	.1				Consent of Sherb & Co., LLP36
	23	.2				Consent of Goldstein Golub Kessler LLP36
	31	.1				Section 302 Certification of Principal Executive Officer36
	31	.2				Section 302 Certification of Principal Executive Officer36
	32	.1				Section 906 Certification of Principal Executive Officer36
	32	.2				Section 906 Certification of Principal Executive Officer36
	99	.1				Audit Committee Charter37
	99	.2				Compensation Committee Charter38

1	Incorporated by reference to our Registration Statement on Form SB-2 filed with the SEC on August 12, 2004.

2	Incorporated by reference to Exhibit 3.1 included with our Current Report on Form 8-K filed with the SEC on November 18, 2005.

3	Incorporated by reference to Exhibit 3.3 to our Registration Statement on Form SB-2 originally filed with the Commission on March 9, 2006, as amended and supplemented.

4	Incorporated by reference to our Registration Statement on Form SB-2, filed with the SEC on August 12, 2004.

5	Incorporated by reference to Exhibit 4.1 included with our Current Report on Form 8-K, filed with the SEC on November 18, 2005.

6	Incorporated by reference to Exhibit 4.2 included with our Current Report on Form 8-K, filed with the SEC on November 18, 2005.

7	Incorporated by reference to Exhibit 4.3 included with our Current Report on Form 8-K, filed with the SEC on November 18, 2005.

8	Incorporated by reference to Exhibit 4.4 to our Registration Statement on Form SB-2 originally filed with the Commission on March 9, 2006, as amended and supplemented.

9	Incorporated by reference to Exhibit 4.5 to our Registration Statement on Form SB-2 originally filed with the Commission on March 9, 2006, as amended and supplemented.

60

---

Table of Contents

10	Incorporated by reference to Exhibit 4.1 included with our Current Report on Form 8-K, filed with the SEC on August 29, 2006.

11	Incorporated by reference to Exhibit 4.2 included with our Current Report on Form 8-K, filed with the SEC on August 29, 2006.

12	Incorporated by reference to Exhibit 4.8 to our Registration Statement on Form SB-2 originally filed with the Commission on March 9, 2006, as amended and supplemented.

13	Incorporated by reference to Exhibit 4.9 to our Registration Statement on Form SB-2 originally filed with the Commission on March 9, 2006, as amended and supplemented.

14	Incorporated by reference to Exhibit 4.1 included with our Current Report on Form 8-K filed with the SEC on October 23, 2006.

15	Incorporated by reference to Exhibit 4.2 included with our Current Report on Form 8-K filed with the SEC on October 23, 2006.

16	Incorporated by reference to Exhibit 4.3 included with our Current Report on Form 8-K filed with the SEC on October 23, 2006.

17	Incorporated by reference to Exhibit 4.4 included with our Current Report on Form 8-K filed with the SEC on October 23, 2006.

18	Incorporated by reference to Exhibit 4.5 included with our Current Report on Form 8-K filed with the SEC on October 23, 2006.

19	Incorporated by reference to Exhibit 10.1 included with our Current Report on Form 8-K, filed with the SEC on October 13, 2005.

20	Incorporated by reference to Exhibit 10.2 included with our Current Report on Form 8-K, filed with the SEC on November 18, 2005.

21	Incorporated by Reference to Exhibit 10.3 included with our Current Report on Form 8-K, filed with the SEC on November 18, 2005.

22	Incorporated by reference to Exhibit 10.4 included with our Current Report on Form 8-K, filed with the SEC on November 18, 2005.

23	Incorporated by reference to Exhibit 10.5 to our Registration Statement on Form SB-2 originally filed with the Commission on March 9, 2006, as amended and supplemented.

24	Incorporated by reference to Exhibit 10.6 to our Registration Statement on Form SB-2 originally filed with the Commission on March 9, 2006, as amended and supplemented.

25	Incorporated by reference to Exhibit 10.1 included with our Current Report on Form 8-K filed with the SEC on February 2, 2007.

26	Incorporated by reference to Exhibit 10.1 included with our Current Report on Form 8-K, filed with the SEC on August 29, 2006.

27	Incorporated by reference to Exhibit 10.2 included with our Current Report on Form 8-K, filed with the SEC on August 29, 2006.

28	Incorporated by reference to Exhibit 10.3 included with our Current Report on Form 8-K, filed with the SEC on August 29, 2006.

29	Incorporated by reference to Exhibit 10.10 to our Registration Statement on Form SB-2 originally filed with the Commission on March 9, 2006, as amended and supplemented.

30	Incorporated by reference to Exhibit 10.1 included with our Current Report on Form 8-K filed with the SEC on October 23, 2006.

31	Incorporated by reference to Exhibit 10.2 included with our Current Report on Form 8-K filed with the SEC on October 23, 2006.

32	Incorporated by reference to our Registration Statement on Form SB-2 filed with the SEC on November 13, 2006.

33	Incorporated by reference to Exhibit 14.1 included with our Current Report on Form 8-K filed with the SEC on November 18, 2005.

34	Filed herewith.

35	Incorporated by reference to our Registration Statement on Form SB-2 originally filed with the Commission on March 9, 2006, as amended and supplemented.

36	Filed herewith.

37	Incorporated by reference to Exhibit 99.2 included with our Current Report on Form 8-K, filed with the SEC on November 18, 2005.

38	Incorporated by reference to Exhibit 99.3 included with our Current Report on Form 8-K, filed with the SEC on November 18, 2005.

61

---

Table of Contents

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the fees billed by our principal independent accountants for each of our last two fiscal years for the categories of services indicated.

			Year Ended December 31,
Category			2006						2005
Audit Fees1				$	32,500					$	35,000
Audit Related Fees2					27,000						0
Tax Fees3					27,205						5,750
All Other Fees4					13,877						6,500

1	Consists of fees billed for the audit of our annual financial statements, review of our Form 10-KSB and services that are normally provided by the accountant in connection with year end statutory and regulatory filings or engagements.

2	Consists of fees billed for the review of our quarterly financial statements, review of our forms 10-QSB and 8-K and services that are normally provided by the accountant in connection with non year end statutory and regulatory filings on engagements.

3	Consists of professional services rendered by a company aligned with our principal accountant for tax compliance, tax advice and tax planning.

4	The services provided by our accountants within this category consisted of advice and other services relating to SEC matters, registration statement review, accounting issues and client conferences.

Goldstein Golub Kessler LLP was retained to audit our consolidated financial statements for the years ended December 31, 2005 and 2004. On December 18, 2006, we dismissed Goldstein Golub Kessler, LLP as our independent accountant and Sherb & Co., LLP was engaged as our new independent public accountants for the year ended December 31, 2006. Through September 30, 2005, Goldstein Golub Kessler LLP had a continuing relationship with American Express Tax and Business Services Inc. (‘‘TBS’’) from which it leased auditing staff who were full time, permanent employees of TBS and through which its partners provided non-audit services. Subsequent to September 30, 2005 this relationship ceased and Goldstein Golub Kessler LLP established a similar relationship with RSM McGladrey, Inc. (‘‘RSM’’). Goldstein Golub Kessler LLP has no full time employees, and, therefore, none of the audit services performed were provided by permanent, full-time employees of the Goldstein Golub Kessler LLP. Goldstein Golub Kessler LLP manages and supervises the audit and audit staff and is exclusively responsible for the opinion rendered in connection with its examination.

Audit Committee Pre-Approval Policy

In addition to retaining Sherb & Co., LLP to audit our consolidated financial statements for the year ended December 31, 2006, we retained Sherb & Co., LLP to provide other professional services to us in our 2006 and 2007 fiscal years. We understand the need for Sherb & Co., LLP to maintain objectivity and independence in its audit of our financial statements. To minimize relationships that could appear to impair the objectivity of Sherb & Co., LLP, our audit committee has restricted the non-audit services that Sherb & Co., LLP may provide to us primarily to tax services.

The audit committee also has adopted policies and procedures for pre-approving all non-audit work performed by Sherb & Co., LLP.

62

---

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MDwerks, INC.

By:   /s/ Howard B. Katz                                         Name:  Howard B. Katz         Title:    Chief Executive Officer         Date:    April 30, 2007

In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title		Date
/s/ Howard B. Katz		Chief Executive Officer and Director (Principal Executive Officer)		April 30, 2007
Howard B. Katz
/s/ Vincent Colangelo		Chief Financial Officer and Secretary (Principal Accounting and Financial Officer)		April 30, 2007
Vincent Colangelo
/s/ Solon Kandel		President and Director		April 30, 2007
Solon Kandel
/s/ Adam Friedman		Controller		April 30, 2007
Adam Friedman
/s/ David M. Barnes		Director		April 30, 2007
David M. Barnes
/s/ Peter Dunne		Director		April 30, 2007
Peter Dunne
/s/ Paul Kushner		Director		April 30, 2007
Paul Kushner

63

---

MDWERKS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

INDEX

			Pages
Reports of Independent Registered Public Accounting Firms			F-2 to F-3
Consolidated Balance Sheet as of December 31, 2006			F-4
Consolidated Statements of Operations for the Years Ended December 31, 2006 and 2005			F-5
Consolidated Statement of Changes in Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2006 and 2005			F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006 and 2005			F-7
Notes to Consolidated Financial Statements			F-8 to F-26

F-1

---

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee
MDwerks, Inc.

We have audited the accompanying consolidated balance sheet of MDwerks, Inc. and Subsidiaries as of December 31, 2006 and the related consolidated statements of operations, changes in stockholders’ equity (deficiency) and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MDwerks, Inc. and Subsidiaries as of December 31, 2006 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ SHERB & CO., LLP Certified Public Accountants

Boca Raton, Florida
February 9, 2007

F-2

---

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
MDwerks, Inc.

We have audited the accompanying consolidated statements of operations, changes in stockholders’ equity (deficiency) and cash flows of MDwerks, Inc. and Subsidiaries for the year then ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of MDwerks, Inc. for the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 1 to the financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ GOLDSTEIN GOLUB KESSLER LLP

New York, New York
January 25, 2006, except for the second paragraph in Note 6 to the financial statements, as to which the date is February 1, 2006 and the fifteenth paragraph of Note 6 to the financial statements, as to which the date is February 13, 2006

F-3

---

MDWERKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2006

ASSETS

Current assets:
Cash				$	3,146,841
Notes receivable					473,693
Accounts receivable					55,591
Prepaid expenses and other					73,797
Total current assets					3,749,922
Long-term assets:
Property and equipment, net of accumulated depreciation of $48,144					156,132
Debt issuance and offering costs, net					501,593
Total assets				$	4,407,647

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Notes payable, net				$	620,169
Loan payable					72,475
Accounts payable					267,922
Accrued expenses					378,759
Deferred revenue					27,913
Total current liabilities					1,367,238
Long-term liabilities:
Notes payable, net of discount of $4,027,012, less current portion					701,185
Deferred revenue, less current portion					28,046
Total liabilities					2,096,469
Stockholders’ equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized; no shares issued and outstanding					—
Series A convertible preferred stock, $0.001 par value, 1,000 shares authorized, 5 shares issued and outstanding					—
Common stock, $.001 par value, 100,000,000 shares authorized; 12,580,065 shares issued and outstanding					12,580
Additional paid-in capital					29,194,716
Accumulated deficit					(26,607,910	)
Deferred compensation					(288,208	)
Total stockholders’ equity					2,311,178
Total liabilities and stockholders’ equity				$	4,407,647

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

F-4

---

MDWERKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

			For the Years Ended December 31,
			2006						2005
Revenue:
Service fees				$	355,429					$	42,816
Financing income					72,349						15,008
Total revenue					427,778						57,824
Operating expenses:
Compensation					5,732,372						364,248
Consulting expenses					943,500						880,567
Professional fees					358,969						359,006
Selling, general and administrative					2,001,460						434,628
Total operating expenses					9,036,301						2,038,449
Loss from operations					(8,608,523	)					(1,980,625	)
Other income (expense):
Interest income					33,701						1,396
Interest expense					(905,374	)					(5,242	)
Loss on revaluation of warrant liability					(192,914	)					(592,467	)
Other expense, net					(1,936	)					—
Total other income (expense)					(1,066,523	)					(596,313	)
Net loss					(9,675,046	)					(2,576,938	)
Deemed preferred stock dividend					(913,777	)					—
Common stock issued in connection with anti-dilutive recalculation					(246,240	)					—
Net loss attributable to common shareholders				$	(10,835,063	)				$	(2,576,938	)
NET LOSS PER COMMON SHARE – basic and diluted				$	(0.91	)				$	(0.27	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING – basic and diluted					11,899,272						9,547,492

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

F-5

---

MDWERKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
For the Years Ended December 31, 2006 and 2005

			Series A Preferred Stock $.001  Par Value												Common Stock $.001 Par Value												Additional Paid-in Capital						Accumulated Deficit						Deferred Compensation						Total Stockholders’ Equity (Deficiency)
			Number of Shares						Amount						Number of Shares						Amount
Balance, December 31, 2004					—						—						9,246,339					$	9,247					$	14,250,211					$	(13,981,290	)				$	—					$	278,168
Common stock issued in recapitalization					—						—						1,350,000						1,350						(1,350	)					—						—						—
Capital contributions					—						—						—						—						550,886						—						—						550,886
Common stock issued for consulting fee					—						—						100,000						100						249,900						—						—						250,000
Sale of common stock, net					—						—						842,391						842						1,573,160						—						—						1,574,002
Warrant liability					—						—						—						—						(1,142,770	)					—						—						(1,142,770	)
Net loss					—						—						—						—						—						(2,576,938	)					—						(2,576,938	)
Balance, December 31, 2005					—						—						11,538,730						11,539						15,480,037						(16,558,228	)					—						(1,066,652	)
Common stock issued in connection with anti-dilutive recalculation					—						—						76,000						76						246,164						(246,240	)					—						—
Deemed preferred stock dividend					—						—						—						—						—						(913,777	)					—						(913,777	)
FAS 123R Stock Option Compensation					—						—						—						—						3,911,640						—						—						3,911,640
Amortization of deferred compensation — consultants					—						—						—						—						—						—						291,487						291,487
Cumulative effect of warrant liability adjustment					—						—						—						—						1,911,520						785,381						—						2,696,901
Issuance of warrants in connection with notes payable					—						—						—						—						460,572						—						—						460,572
Common stock issued for notes payable					—						—						92,685						92						226,985						—						—						227,077
Issuance of warrants in connection with offering					—						—						—						—						145,026						—						—						145,026
Debt discounts in connection with notes payable					—						—						—						—						4,091,402						—						—						4,091,402
Issuance of warrants to consultants					—						—						—						—						579,695						—						(579,695	)					—
Sales of preferred stock, net of placement fees					28						—						170,000						170						1,386,077						—						—						1,386,247
Conversion of Series A convertible preferred stock					(23	)					—						466,667						467						(467	)					—						—						—
Common stock issued in connection with notes payable					—						—						110,000						110						333,690						—						—						333,800
Common stock issued for services					—						—						125,983						126						422,375						—						—						422,501
Net loss					—						—						—						—						—						(9,675,046	)					—						(9,675,046	)
Balance, December 31, 2006					5					$	—						12,580,065					$	12,580					$	29,194,716					$	(26,607,910	)				$	(288,208	)				$	2,311,178

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

F-6

---

MDWERKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

			For the Years Ended December 31,
			2006						2005
Cash flows from operating activities:
Net loss				$	(9,675,046	)				$	(2,576,938	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation					34,716						13,256
Amortization of debt issuance costs					12,480						—
Amortization of debt discount					354,190						—
Amortization of deferred offering costs					43,361						—
Amortization of deferred compensation					291,487						—
Stock-based compensation					3,911,640						—
Settlement expense related to debt conversion					180,827						—
Loss on revaluation of warrant liability					192,914						592,467
Common stock issued for services					422,500						250,000
Interest expense in connection with grant of warrants					460,572						—
Changes in assets and liabilities:
Notes receivable					(109,848	)					(363,845	)
Accounts receivable					(45,176	)					—
Prepaid expenses and other					(4,981	)					(79,231	)
Accounts payable					56,405						211,517
Accrued expenses					212,627						166,465
Deferred revenue					47,212						8,747
Total adjustments					6,060,926						799,376
Net cash used in operating activities					(3,614,120	)					(1,777,562	)
Cash flows from investing activities:
Purchase of property and equipment					(110,457	)					(81,950	)
Net cash used in investing activities					(110,457	)					(81,950	)
Cash flows from financing activities:
Proceeds from notes payable					5,110,000						233,700
Repayment of loan payable					(26,225	)					—
Placement fees in connection with notes payable					(263,264	)					—
Repayment of notes payable					(101,634	)					—
Proceeds from sale of Series A preferred stock					1,700,000						—
Placement fees and other expenses paid					(313,923	)					—
Capital contributions					—						550,886
Net proceeds from sale of common stock					—						1,574,002
Net cash provided by financing activities					6,104,954						2,358,588
Net increase in cash					2,380,377						499,076
Cash – beginning of year					766,464						267,388
Cash – end of year				$	3,146,841					$	766,464
Supplemental disclosure of cash flow information:
Cash paid for:
Interest				$	77,355					$	1,429
Non-cash investing and financing activities:
Increase in warrant liability				$	—					$	1,142,770
Note payable contributed to additional paid in capital as part of recapitalization				$	—					$	250,000
Common stock issued for debt and accrued interest				$	5,208,358					$	—
Common stock issued in connection with notes payable				$	333,800					$	—

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

F-7

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

The acquisition was accounted for as a reverse merger because, on a post-merger basis, the MDwerks stockholders hold a majority of the outstanding common stock of the Company on a voting and fully diluted basis. As a result, MDwerks was deemed to be the acquirer for accounting purposes. Accordingly, the consolidated financial statements presented, beginning with the period ending December 31, 2005, are those of the Company for all periods prior to the acquisition, and the financial statements of the consolidated companies from the acquisition date forward. The historical stockholders’ deficit of the Company prior to the acquisition has been retroactively restated (a recapitalization) for the equivalent number of shares received in the acquisition after giving effect to any differences in the par value of the Company and MDwerks common stock, with an offset to additional paid-in capital. The restated consolidated accumulated deficit of the accounting acquirer (MDwerks) carried forward after the acquisition.

On June 7, 2005, MDwerks entered into and consummated Share Exchange Agreements with all of the shareholders 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 Share Exchange Agreements, MDwerks acquired 100% of the issued and outstanding shares of each of the Xeni Companies’ common stock.

The acquisition of the Xeni Companies by MDwerks was accounted for as a reverse merger because, on a post-merger basis, the former Xeni shareholders held a majority of the outstanding common stock of MDwerks on a voting and fully diluted basis. As a result, Xeni was deemed to be the acquirer for accounting purposes. Accordingly, the financial statements of MDwerks are those of Xeni for all periods presented.

XMS was incorporated under the laws of the state of Delaware on July 21, 2004. XMS provides a Web-based package of electronic claims solutions to the healthcare provider industry through Internet access to its ‘‘MDwerks’’ suite of proprietary products and services so that healthcare providers can significantly improve daily insurance claims transaction processing, administration and management.

XFS was incorporated under the laws of the state of Florida on February 3, 2005. XFS offers financing and advances to health care providers secured by claims processed through the MDwerks system.

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

Going concern

As reflected in the accompanying consolidated financial statements, the Company has a stockholders’ equity of $2,311,178 and a working capital surplus of $2,382,684 at December 31, 2006.

F-8

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

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

Going concern   (continued)

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

Basis of presentation

The consolidated statements include the accounts of the Company and its wholly owned subsidiaries, XMS, XFS and XMB. All significant intercompany balances and transactions have been eliminated.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Fair value of financial instruments

Statement of Financial Accounting Standards No. 107, ‘‘Disclosures about Fair Value of Financial Instruments,’’ requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.

The carrying amounts reported in the consolidated balance sheet for cash, notes receivable, accounts payable and accrued expenses, notes payable, loans payable and warrant liability approximate their fair market value based on the short-term maturity of these instruments.

Cash and cash equivalents

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

At various times, the Company has deposits in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses on these accounts.

Advertising

The Company expenses advertising costs as incurred. Advertising costs charged to operations were approximately $103,000 and $50,000 for the years ended December 31, 2006 and 2005, respectively.

F-9

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

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

Property and equipment

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

Revenue recognition

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

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

The Company provides advance funding services to unaffiliated healthcare providers (the Company’s ‘‘Customer’’). The Customer advances are typically collateralized by Security Agreements granting first position liens on the medical claims submitted by its Customers to third party payors (the ‘‘Payors’’). The advances are repaid through the remittance of payments of Customer medical claims, by Payors, directly to the Company. The Company can withhold from these advances interest, an administrative fee and other charges as well as any amount for prior advances that remain unpaid after a specified number of days. These interest charges, administrative fees and other charges are recognized as revenue when earned. There is no right of cancellation or refund provisions in these arrangements and the Company has no further obligations once the services are rendered.

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

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

Income taxes

Income taxes are accounted for under the asset and liability method of Statement of Financial Accounting Standards No. 109, ‘‘Accounting for Income Taxes’’ (‘‘SFAS 109’’). Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Loss per common share

Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net income by the weighted average number of shares of common stock, potential common stock and potentially dilutive securities outstanding during each period. As of December 31, 2006, the Company

F-10

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

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

Loss per common share   (continued)

had outstanding options to purchase an aggregate of 2,876,250 shares of common stock and warrants to purchase an aggregate of 2,566,345 shares of Common Stock, which could potentially dilute future earnings per share. Diluted loss per common share has not been presented for the year ended December 31, 2006 since the impact of the stock options and warrants would be antidilutive. As of December 31, 2005, the Company did not have any potential common stock.

Stock-based compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment (‘‘SFAS No. 123R’’) utilizing the modified prospective method. SFAS No. 123R establishes the financial accounting and reporting standards for stock-based compensation plans. As required by SFAS No. 123R, the Company recognizes the cost resulting from all stock-based payment transactions including shares issued under its stock option plans in the financial statements.

Prior to January 1, 2006, the Company accounted for stock-based employee compensation plans (including shares issued under its stock option plans) in accordance with APB Opinion No. 25 and followed the pro forma net income, pro forma income per share, and stock-based compensation plan disclosure requirements set forth in the Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (‘‘SFAS No. 123’’).

Recent accounting pronouncements

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

In May 2006, the SEC announced that the compliance date for non-accelerated filers pursuant to Section 404 of the Sarbanes-Oxley Act had been extended. Under the latest extension, a company that is not required to file its annual and quarterly reports on an accelerated basis must begin to comply with the internal control over financial reporting requirements for its first fiscal year ending on or after July 15, 2008, which, for us, is effective for fiscal 2008 beginning January 1, 2008. This is a one-year extension from the previously established July 15, 2007 compliance date established in September 2005. The SEC similarly extended the compliance date for these companies relating to requirements regarding evaluation of internal control over financial reporting and management certification requirements. We are currently evaluating the impact of Section 404 of the Sarbanes-Oxley Act on our results of operations, cash flows or financial condition.

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

F-11

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

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

Recent accounting pronouncements   (continued)

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

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

NOTE 2 — ACCOUNTS AND NOTES RECEIVABLE

Accounts receivable are recorded when revenue has been recognized but not yet collected. The Company has $55,591 of accounts receivable from implementation, processing, collection, and other fees, and disbursements not yet collected as of December 31, 2006.

At December 31, 2006, the Company advanced three healthcare providers under lines of credit and note agreements, respectively, aggregating $473,693. Advances under the lines of credit are due to be repaid out of providers’ claims collections, as defined in the agreement. The notes receivable under note agreements are payable as the provider collects certain receivables. The Company charged the health care providers interest and other charges as defined in the agreements. At December 31, 2006 no amounts were past due.

Accounts and notes receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates doubtful accounts based on historical bad debts, factors related to specific customers’ ability to pay and current economic trends. The Company writes off receivables against the allowance when a balance is determined to be uncollectible. At December 31, 2006 the Company has no allowance for doubtful accounts.

NOTE 3 — PROPERTY AND EQUIPMENT

At December 31, 2006, property and equipment consisted of the following:

			Estimated Life
Office furniture and equipment			5-7 Years				$	26,443
Computer equipment and software			3-5 Years					177,833
Total								204,276
Less: accumulated depreciation								(48,144	)
Property and equipment, net							$	156,132

NOTE 4 — NOTES PAYABLE

On August 24, 2006, we received gross proceeds of $250,000 (net proceeds of $236,566, after expenses) in connection with a financing provided by an unrelated party. In connection with the financing, we issued a secured promissory note in the original principal amount of $250,000 (the ‘‘Note’’) and a three year warrant to purchase 111,111 shares of the Company’s common stock at a price of $2.25 per share. The Note bears interest at the rate of 7% per year, payable monthly in arrears and will become

F-12

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 4 — NOTES PAYABLE (continued)

due and payable on August 24, 2007. This Note is subject to certain mandatory prepayment provisions as defined in the secured promissory note. At December 31, 2006, principal payments made under the mandatory prepayment provisions had reduced the Note balance to $238,366. In connection with this note, the Company’s subsidiary, Xeni Financial Services, Corp. (‘‘Xeni’’), entered into a security and guaranty agreement whereby Xeni has agreed to guaranty repayment of the note and grant a security interest in a client Revolving Line of Credit Loan Agreement including two promissory notes in the original principal amounts of $250,000 and $121,068 issued by that client to Xeni, which were consolidated into a single promissory note in the amount of $180,165 on December 5, 2006.

In connection with the 7% secured promissory note, the Company granted warrants to purchase 111,111 shares of its common stock at an exercise price of $2.25 per share which warrants expire on August 24, 2009. These warrants were treated as a discount on the secured promissory note and were valued at $250,000 to be amortized over the 12-month note terms. The fair market value of each stock warrant was estimated on the date of grant using the Black-Scholes option-pricing model in accordance with SFAS No. 123R using the following weighted-average assumptions: expected dividend yield 0%; risk-free interest rate of 4.80%; volatility of 142% and an expected term of 3 years. For the year ended December 31, 2006, amortization of the debt discount amounted to $83,333 and is included in interest expense.

At December 31, 2006, the balance of the $250,000 Promissory Note was $238,366.

On August 24, 2006, the Company received gross proceeds of $110,000 (net proceeds of $100,000, after expenses) in connection with a financing provided equally by two unrelated parties. These notes bear interest at 10% per year, and both interest and principal are due on January 21, 2007. The Company is entitled to one 60-day extension of the Maturity Date. In connection with the financing, the Company issued 10,000 shares of its common stock at a fair market value on the date of grant of $39,800 or $3.98 per share which was recorded as a discount on notes payable to be amortized over the term of the Notes. For the year ended December 31, 2006, amortization of this debt discount amounted to $31,840 and is included in interest expense. In addition, the Company paid a total cash fee of $23,434 in connection with the above promissory notes for placement agent fees and related expenses. Accordingly, these fees were treated as deferred issuance cost to be amortized over their respective note terms. For the year ended December 31, 2006, amortization of deferred issuance cost amounted to $12,480.

At December 31, 2006, the balance of the $110,000 Notes was $110,000.

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

Pursuant to the terms of a Securities Purchase Agreement that the Company entered into with the Investor in connection with the financing, the Company issued two senior secured convertible promissory notes to the Investor, each in the original principal amount of $2,500,000 (each a ‘‘Senior Note’’ and collectively, the ‘‘Senior Notes’’), five year Series D Warrants to purchase 375,000 shares of the Company’s common stock at a price of $2.25 per share (‘‘Series D Warrants’’) and five year Series E Warrants to purchase 375,000 shares of the Company’s common stock at a price of $3.25 per share (‘‘Series E Warrants’’). As security for the Company’s obligations, the Company, along with its subsidiaries, MDwerks Global Holdings, Inc., Xeni Medical Systems, Inc., Xeni Financial Services, Corp. and Xeni Medical Billing, Corp. (the ‘‘Subsidiaries’’) entered into a Security Agreement with the Investor, pursuant to which the Company granted a security interest in all of the Company’s assets to the Investor. The Company’s Subsidiaries are also parties to a Guaranty Agreement pursuant to

F-13

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 4 — NOTES PAYABLE (continued)

which they have agreed to unconditionally guaranty the Company’s obligations under the Senior Notes and the documents entered into by the Company in connection the sale of the Senior Notes. The Company also entered into a Registration Rights Agreement, as amended, pursuant to which the Company agreed to register for resale, shares of the Company common stock into which the Senior Notes are convertible.

The Senior Notes bear interest at the rate of 8% per year, payable monthly in arrears, commencing December 1, 2006. Subject to certain mandatory prepayment provisions, and events of default unpaid principal and interest due under the Senior Notes will become due and payable on October 18, 2009 with respect to the Senior Note sold on October 20, 2006 and on November 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 the Company’s common stock at a price of $2.25 per share (the ‘‘Conversion Price’’), subject to adjustment for stock splits, stock dividends, or similar transactions, sales of the Company’s common stock at a price per share below the Conversion Price or the issuance of convertible securities or options or warrants to purchase shares of the Company’s common stock at an exercise price or conversion price that is less than the Conversion Price.

The Senior Notes provide for optional redemption by us at a redemption price equal to 110% of the face amount redeemed plus accrued interest.

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

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

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. The exercise price will be subject to adjustment in the event of subdivision or combination of shares of the Company’s common stock and similar transactions, distributions of assets, issuances of shares of common stock with a purchase price below the exercise price of the Series D Warrants, issuances of any rights, warrants or options to purchase shares of the Company’s common stock with an exercise price below the exercise price of the Series D Warrants, issuances of convertible securities with a conversion price below the exercise price of the Series D Warrants.

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. The exercise price will be subject to adjustment in the event of subdivision or combination of shares of the Company’s common stock and similar transactions, distributions of assets, issuances of shares of common stock with a purchase price below the exercise price of the Series E Warrants, issuances of any rights, warrants or options to purchase shares of the Company’s common stock with an exercise price below the exercise price of the Series E Warrants, issuances of convertible securities with a conversion price below the exercise price of the Series E Warrants.

The Company also entered into a Registration Rights Agreement with the Investor. The Registration Rights Agreement, as amended, required us to file a registration statement covering the resale of the shares underlying the Senior Notes within 45 calendar days after the closing date. The Company was required to cause such registration statement to become effective on or before the date which is 105

F-14

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 4 — NOTES PAYABLE (continued)

calendar days after the closing date. In addition to it being an event of default under the Senior Notes, if the Company failed to file such registration statement in the time frame required, failed to cause it to become effective in the time frame required, or fails to maintain the effectiveness of the registration statement as required by the Registration Rights Agreement, the exercise price of the Series D and the Series E Warrants will immediately be reduced by $0.25 per share and then reduced by an additional $0.10 per share for each thirty day period thereafter that the registration statement is not filed or effective, as the case may be, up to a maximum reduction of $0.65. On December 7, 2006, the Company’s Registration Statement became effective satisfying the time filing requirements of the Registration Rights Agreement.

Investor is an ‘‘accredited investor,’’ as defined in Regulation D under the Securities Act of 1933, as amended, or the Securities Act. None of the Senior Notes, the Series D Warrants, the Series E Warrants or the shares of the Company’s common stock underlying such securities were registered under the Securities Act, or the securities laws of any state and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws, which exempts transactions by an issuer not involving any public offering. The Company made this determination based on the representations of the Investor, which included, in pertinent part, that the Investor is an ‘‘accredited investor’’ within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, and that the Investor was acquiring the Senior Notes, the Series D Warrants and the Series E Warrants for investment purposes for its own account and not as nominee or agent, and not with a view to the resale or distribution, and that Investor understood such securities may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

The promissory notes are as follows at December 31, 2006:

Notes payable				$	5,348,366
Less: unamortized discount on notes payable					(4,027,012	)
Notes payable, net				$	1,321,354
Less current portion					(620,169	)
Notes payable, net of discount of $4,027,012, less current portion				$	701,185

NOTE 5 — LOAN PAYABLE

The Company has a loan payable to an unrelated individual in the amount of $72,475. The loan bears interest at 8% per annum and is payable on a monthly basis, less fees. The loan shall be repaid proportionally upon repayment of certain of the Company’s notes receivable.

NOTE 6 — STOCKHOLDERS’ EQUITY

Preferred stock

The Company is authorized to issue 10,000,000 shares of preferred stock, $.001 par value, with such designations, rights and preferences as may be determined from time to time by the Board of Directors. As of December 31, 2006, there were no preferred shares issued and outstanding.

F-15

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

Preferred stock   (continued)

On February 1, 2006, the Board of Directors of the Company authorized the creation of 1,000 shares of $.001 par value Series A Convertible Preferred Stock with a liquidation value of $60,000 per share (subject to adjustment in the event of stock splits, combinations or similar events). The Series A Convertible Preferred Stock shall not be entitled to receive dividends or other distributions from the Company. Each holder of record of shares of the Series A Convertible Preferred Stock shall have the right at such holder’s option, at any time and from time to time, to convert any of such shares of Series A convertible preferred stock into fully paid shares of common stock. Each share of Series A Convertible Preferred Stock shall initially be convertible into 20,000 shares of common stock (the ‘‘Conversion Rate’’), subject to adjustment due to consolidation, merger or sale or common stock dividends. The holders of shares of Series A Convertible Preferred Stock shall be entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall have such number of votes equal to the number of shares of the Company’s common stock into which such holders’ shares of Series A Convertible Preferred Stock are convertible.

Between February 1, 2006 and June 30, 2006, the Company conducted a series of closings under private placement offering of Units consisting of one share of Series A Convertible Preferred Stock and a three-year warrant to purchase up to 20,000 shares of the Company’s Common Stock at a purchase price of $3.00 per share. The Company sold an aggregate of 28.3 Units to accredited investors pursuant to the terms of a confidential private placement memorandum, dated February 1, 2006, used in connection with this offering. The Company realized net proceeds from this private placement of $1,386,077 after payment of commissions and expenses. The private placement was made solely to ‘‘accredited investors,’’ as that term is defined in Regulation D under the Securities Act of 1933. The shares of Series A Preferred Stock and warrants to purchase shares of Common Stock were not registered under the Securities Act of 1933, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration offered by Section 4(2) and Regulation D (Rule 506) under the Securities Act of 1933 and corresponding provisions of state securities laws. Between August 11, 2006 and November 21, 2006, 23.3 shares of Series A Convertible Preferred Stock were converted into 466,667 shares of common stock leaving 5 Series A Convertible Preferred Shares outstanding as of December 31, 2006.

In accordance with Emerging Issues Task Force (‘‘EITF’’) 98-5 and EITF 00-27, the Series A Convertible Preferred Stock was considered to have an embedded beneficial conversion feature (ECF) because the conversion price was less than the fair value of the Company’s common stock. This Series A Convertible Preferred Stock was fully convertible at the issuance date, therefore a portion of proceeds allocated to the Series A Convertible Preferred Stock was determined to be the value of the beneficial conversion feature and was recorded as a deemed dividend.

In accordance with SFAS No. 133 and Emerging Issues Task Force Issue 00-19 (‘‘EITF 00-19’’), ‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company’s Own Stock’’, the Company is required to record the fair value of the ECF and warrants as a liability since the Company has to use its ‘‘best efforts’’ to file a registration statement and maintain its effectiveness for a period of two years from the effective date. In connection with the initial sales of the Series A Preferred Stock, the initial estimated fair values allocated to the ECF were $913,777 which was recorded as a deemed dividend. The initial fair value allocated to the warrants of $768,751 was allocated to warrant liability. For the year ended December 31, 2006, the Company revalued these warrants resulting in a loss on valuation of warrant liability of $192,914.

F-16

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

Preferred stock   (continued)

The assumptions used valuing the warrants include:

Risk free interest rate (annual)			4.70% and 4.75%
Expected volatility			147% and 154%
Expected life			5 Years
Assumed dividends			none

At December 31, 2006, in accordance with SFAS No. 133 and Emerging Issues Task Force Issue 00-19-2 (‘‘EITF 00-19-2’’), ‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company’s Own Stock’’, the Company’s warrant liability was eliminated from the accompanying consolidated balance sheet.

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

Common stock

Prior to the consummation of the Merger Agreement, former shareholders of the Xeni Companies contributed capital of $550,886.

In August and September 2005, the Company sold 105,991 shares of common stock for proceeds of $119,229 (net of placement fees of $13,250).

In November and December 2005, pursuant to a Confidential Private Placement Memorandum dated June 13, 2005, as amended, the Company commenced a private offering of up to $5,000,000 in units, each unit costing $25,000 and consisting of 10,000 shares of common stock and a warrant to purchase 10,000 shares of the Company’s common stock exercisable at $2.50 per share (the ‘‘Offering’’). Through December 31, 2005, the Company sold 64.04 units for net proceeds of $1,454,773 and issued 640,400 shares of common stock and issued warrants to purchase an aggregate of up to 640,400 shares of common stock at an exercise price of $2.50 per share.

Brookshire Securities Corporation (‘‘Brookshire’’), a NASD broker dealer, acted as selling agent in connection with the offering. The Company was to pay Brookshire a total of eight percent (8%) of the total proceeds resulting from the sale of the securities. The Company also was to reimburse Brookshire for its expenses in the amount of two percent (2%) of the selling price of the securities sold on a non-accountable basis. Through December 31, 2005, the Company paid placement agent fees of $80,000 in full satisfaction of all cash placement fees due. As additional compensation to Brookshire, the Company shall issue equity compensation in the form of up to 300,000 shares of the Company’s common stock determined on a pro rata basis by comparison of the gross proceeds raised compared to the maximum offering and, in the event of the exercise of the over-allotment option, up to an additional 275,000 shares of common stock determined on a pro rata basis by comparison of the gross proceeds raised in the over-allotment to the full amount of the over-allotment. As of December 31, 2005, the Company issued to Brookshire 96,000 shares of the Company’s common stock as a placement fee.

F-17

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

Common stock   (continued)

In November 2005, the Company issued 100,000 shares as consulting fees in connection with the merger. These shares were valued at $2.50 per share, which is the value of the shares in the offering described below. The Company recorded $250,000 in non-cash stock-based consulting expense during the year ended December 31, 2005.

On January 1, 2006, the Company issued 76,000 shares of the Company’s common stock to certain stockholders pursuant to agreements to offset the effect of dilutive financing of the Xeni Companies. The shares issued were valued at the fair value at the date of issuance of $246,240 and were treated as an additional charge to the loss available to common stockholders.

On February 13, 2006, $45,000 of notes payable plus accrued interest of $1,342 was converted into 92,685 shares of the Company’s common stock in full satisfaction of the notes 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 on recent trading price of the stock. Accordingly, in connection with the issuance of these shares, the Company reduced notes payable by $45,000, reduced interest payable by $1,342, and recorded settlement expenses related to the debt conversion of $180,827.

On February 28, 2006, the Company issued 25,000 shares of the common stock to the Chief Financial Officer of the Company in consideration for services rendered. The shares were issued at the fair value at the date of the issuance of $81,000 or $3.24 per share. For the year ended December 31 2006, in connection with these shares, the Company recorded stock-based compensation of $81,000.

On June 19, 2006, the Company authorized the issuance of 75,000 shares of common stock to a Director of the Company in consideration for services rendered.  On June 22, 2006, the Company issued 25,000 of these authorized shares of common stock at the fair value at the date of the issuance of $87,500 or $3.50 per share. For the year ended December 31, 2006, in connection with these shares, the Company recorded stock-based compensation of $87,500 for the Director. Prior to December 31, 2006, the Director deferred to 2007, the issuance of 25,000 of the authorized shares, which were to be issued on November 15, 2006; these shares are still unissued. The remaining 25,000 shares of the 75,000 common stock issuance authorized on June 19, 2006 are to be issued on May 15, 2007.

On June 29, 2006, the Company issued 3,483 shares of the common stock to consultants in consideration for services rendered. The shares were issued at the fair value at the date of the issuance of $14,000 or $4.02 per share. For the year ended December 31 2006, in connection with these shares, the Company recorded stock-based consulting fees of $14,000.

On August 9, 2006, the Company issued 22,500 shares of the common stock to consultants in consideration for services rendered. The shares were issued at the fair value at the date of the issuance of $90,000 or $4.00 per share. For the year ended December 31 2006, in connection with these shares, the Company recorded stock-based consulting fees of $90,000.

On August 24, 2006, the Company issued 10,000 shares of common stock in connection with a notes payable financing. The shares were 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 be amortized over the term of the note (see note 4).

F-18

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

Common stock   (continued)

On October 18, 2006 the Company issued 170,000 shares in connection with the private placement.

On October 18, 2006, the Company issued 50,000 shares of common stock to consultants for services rendered. The shares were issued at the fair value at the date of the issuance of $150,000 or $3.00 per share. For the year ended December 31 2006, in connection with these shares, the Company recorded stock-based consulting fees of $150,000.

On October 20, 2006, and November 9, 2006, the Company issued a total of 100,000 shares of common stock for consulting services rendered in connection with the financing provided by the unaffiliated accredited institutional investor. The shares were issued at the fair value at the date of issuance of $240,000, or $3.00 per share for 80,000 shares issued on October 20, 2006 and $49,000, or $2.45 per share for 20,000 shares issued on November 9, 2006. For the year ended December 31, 2006, in connection with these shares, the Company recorded deferred offering costs of $289,000.

Between August 11, 2006 and November 21, 2006, 23.3 shares of Series A Convertible Preferred Stock were converted into 466,667 shares of common stock.

Common stock options

In November 2005, the Company and its stockholders approved the MDwerks, Inc. 2005 Incentive Compensation Plan (the ‘‘Incentive Plan’’). The Incentive Plan covers grants of stock options, grants of equity securities, dividend equivalents and other customary items covered by such plans. Persons eligible to receive awards under the Incentive Plan are the officers, directors, employees, consultants and other persons who provide services to the Company or any related entity (as defined in the Incentive Plan). The Incentive Plan will be administered by the Company’s Compensation Committee; however, the Board of Directors can exercise any power or authority granted to the Compensation Committee under the Incentive Plan, unless expressly provided otherwise in the Incentive Plan. The Company will reserve between five to ten percent of the Company’s authorized common stock for issuance pursuant to grants under the Incentive Plan.

On December 29, 2005, the Company granted options to purchase 200,000 shares of common stock to employees of the Company under the Incentive Plan. The options are exercisable at $3.25 per share. The options vest over a three-year term and expire on December 29, 2015. The fair value of these options was approximately $598,000 using the Black-Scholes pricing model. The assumptions used were: interest free rate of 3.75%, 105% volatility, 10-year term and no expected dividends.

On January 3, 2006, the Company granted options to purchase 860,000 shares of common stock to employees of 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 on each of the first and second anniversaries of the date of grant and as to 33.34% of such shares on the third anniversary of the date of grant, and expire on January 3, 2016 or earlier due to employment termination. As of January 1, 2006, the Company accounts for stock options issued to employees in accordance with the provisions of SFAS 123(R) and related interpretations. The fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of 0%; expected volatility of 105%; risk-free interest rate of 3.75%; and, a term of 8 years. In connection with these options, the Company valued these options at a fair market value of approximately $2,578,445 and will record stock-based compensation expense over the vesting period.

On June 19, 2006, the Company granted options to purchase 606,250 shares of common stock to employees and a Director of the Company under the Incentive Plan. The options are exercisable at $4.00 per share. The options vest over a three-year term and expire on June 19, 2016. The fair value of these options was approximately $2,324,363 using the Black-Scholes pricing model. The assumptions used were: interest free rate of 4.83%, 142% volatility, 10-year term and no expected dividends.

F-19

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

Common stock options   (continued)

On October 11, 2006, the Company granted options to purchase 1,025,000 shares of common stock to employees and Directors of the Company under the Incentive Plan. The options are exercisable at $2.25 per share. The options vest 1/3 immediately and 1/3 each year over the next two years and expire on October 11, 2016. The fair value of these options was approximately $2,265,250 using the Black-Scholes pricing model. The assumptions used were: interest free rate of 4.75%, 147% volatility, 10-year term and no expected dividends.

On December 27, 2006, the Company granted options to purchase 125,000 shares of common stock to employees of the Company under the Incentive Plan. The options are exercisable at $1.39 per share. The options either vest immediately or vest 1/3 immediately and 1/3 each year over the next two years and expire on December 29, 2016. The fair value of these options was approximately $171,250 using the Black-Scholes pricing model. The assumptions used were: interest free rate of 4.70%, 154% volatility, 10-year term and no expected dividends.

A summary of the status of the Company’s outstanding stock options as of December 31, 2006 and changes during the period ending on that date is as follows:

			Shares						Weighted Average Exercise Price						Aggregate Intrinsic Value
Outstanding at December 31, 2005					200,000					$	3.25
Granted					2,691,250						3.03
Exercised					—						—
Forfeited					(15,000	)					3.50
Outstanding at December 31, 2006					2,876,250					$	3.04					$	0
Options exercisable at end of period					490,000						3.04
Weighted-average fair value of options granted during the period				$	2.87

The following information applies to options outstanding at December 31, 2006:

			Options Outstanding																		Options Exercisable
Range of Exercise Prices			Shares						Weighted Average Remaining Contractual Life (Years)						Weighted Average Exercise Price						Shares						Weighted Average Exercise Price
$1.39					125,000						10.00					$	1.39						85,000						1.39
$2.25					1,025,000						9.75					$	2.25						341,667						2.25
$3.25					190,000						9.00					$	3.25						63,333						3.25
$3.40					860,000						9.00					$	3.40						—						—
$4.00 – 4.25					676,250						9.50					$	4.03						—						—
					2,876,250											$	3.04						490,000					$	3.04

In connection with granted stock options, the Company recognized stock-based compensation expense of $3,911,640 for the year ended December 31, 2006. There was no stock-based compensation expense for the year ended December 31, 2005.

As of December 31, 2006, the total future compensation expense related to non-vested options not yet recognized in the consolidated statement of operations is approximately $4,075,368, which will be recognized through June 2009.

F-20

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

Common stock warrants

Between February 1, 2006 and June 30, 2006, the Company conducted a private placement to accredited investors pursuant to the terms of a Confidential Private Placement Memorandum, dated February 1, 2006, and private placement subscription agreements executed and delivered by each investor. Each unit consists of one share of the Company’s Series A Convertible Preferred Stock, par value $.001 per share, and a detachable, transferable warrant to purchase 20,000 shares of the Company’s common stock, at a purchase price of $3.00 per share. Pursuant to the Private Placement, the Company sold an aggregate of 28.33 units and issued to investors three-year warrants to purchase an aggregate of 566,667 shares of its common stock at an exercise price of $3.00 per share, which expire from March 22, 2009 to June 29, 2009. Brookshire Securities Corporation (‘‘Brookshire’’) served as the lead placement agent in connection with the private placement. Brookshire received five-year warrants to purchase 56,667 shares of the Company’s common stock at an exercise price of $1.50 per share on terms which are identical to those warrants included in the units except that they contain a cashless exercise provision. In addition, the warrants have registration rights that are the same as those afforded to investors in the private placement.

In connection with a 7% secured promissory note, the Company granted warrants to purchase 111,111 shares of its common stock at an exercise price of $2.25 per share which warrants expire on August 24, 2009. These warrants were treated as a discount on the secured promissory note and were valued at $250,000 to be amortized over the 12-month note terms. The fair market value of each stock warrants were estimated on the date of grant using the Black-Scholes option-pricing model in accordance with SFAS No. 123R using the following weighted-average assumptions: expected dividend yield 0%; risk-free interest rate of 4.80%; volatility of 142% and an expected term of 3 years (see note 4).

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

In connection with Gottbetter notes payable (see note 4), the Company granted to note holders Series D Warrants which 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. The exercise price will be subject to adjustment in the event of subdivision or combination of shares of the Company’s common stock and similar transactions, distributions of assets, issuances of shares of common stock with a purchase price below the exercise price of the Series D Warrants, issuances of any rights, warrants or options to purchase shares of the Company’s common stock with an exercise price below the exercise price of the Series D Warrants, issuances of convertible securities with a conversion price below the exercise price of the Series D Warrants.

Also in connection with the issuance of the Senior Notes (see note 4), the Company granted to note holders of the Senior Notes Series E Warrants which 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. The exercise price will be subject to adjustment in the event of subdivision or combination of shares of the Company’s common stock and similar transactions, distributions of

F-21

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

Common stock warrants   (continued)

assets, issuances of shares of common stock with a purchase price below the exercise price of the Series E Warrants, issuances of any rights, warrants or options to purchase shares of the Company’s common stock with an exercise price below the exercise price of the Series E Warrants, issuances of convertible securities with a conversion price below the exercise price of the Series E Warrants.

On October 18, 2006, the Company granted 225,000 Warrants to consultants which are exercisable at a price of $3.76 per share for a period of three years. On October 18, 2006, the Company granted 62,500 Warrants to brokers which are exercisable at prices between $1.25 and $4.00 per share for a period of three years.

A summary of the status of the Company’s outstanding stock warrants granted as of December 31, 2006 and changes during the period is as follows:

			Shares						Weighted-Average Exercise Price
Outstanding at December 31, 2005					704,400					$	2.39
Granted					1,861,945						2.78
Exercised					—						—
Forfeited					—						—
Outstanding at December 31, 2006					2,566,345					$	2.67
Common stock issuable upon exercise of warrants					2,566,345					$	2.67

Common Stock issuable upon exercise of warrants outstanding																					Common Stock issuable upon Warrants Exercisable
Range of Exercise Price			Number Outstanding at December 31, 2006						Weighted Average Remaining Contractual Life (Years)						Weighted Average Exercise Price						Number Exercisable at December 31, 2006						Weighted Average Exercise Price
$1.25					199,000						3.65					$	1.25						199,000					$	1.25
$1.50					56,667						4.50					$	1.50						56,667					$	1.50
$2.25					486,111						4.30					$	2.25						486,111					$	2.25
$2.50					640,400						1.90					$	2.50						640,400					$	2.50
$3.00					579,167						2.40					$	3.00						579,167					$	3.00
$3.25					375,000						4.80					$	3.25						375,000					$	3.25
$3.76					225,000						2.80					$	3.76						225,000					$	3.76
$4.00					5,000						2.80					$	3.00						5,000					$	3.00
					2,566,345											$	2.67						2,566,345					$	2.67

In accordance with Emerging Issues Task Force Issue 00-19 (‘‘EITF 00-19’’), ‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company’s Own Stock’’, the Company had initially accounted for the fair value of the warrants as a liability since the Company will incur penalties if the Company cannot comply with the warrant holders’ registration rights. As of the closing date of the private placement the fair value of the warrants was $1,142,770 calculated utilizing the Black-Scholes option pricing model. In addition, changes in the market value of the

F-22

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

Common stock warrants   (continued)

Company’s common stock from the closing date through the date of filing of the registration statement will result in non-cash charges or credits to operations to reflect the change in fair value of the warrants during this period. The Company recorded a charge to operations of $592,467 during the year ended December 31, 2005 to reflect the change in market value of the warrants. At the date the Company files the registration statement, the fair value of the warrants will be reclassified to equity.

At December 31, 2005, the assumptions used in valuing the warrants include:

Risk free interest rate (annual)			3.75
Expected volatility			105%
Expected life			3-5 years
Assumed dividends			none

At December 31, 2006, in accordance with SFAS No. 133 and Emerging Issues Task Force Issue 00-19-2 (‘‘EITF 00-19-2’’), ‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company’s Own Stock’’, the Company’s warrant liability was eliminated from the accompanying consolidated balance sheet.

Registration rights

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

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

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

F-23

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

Registration rights   (continued)

Pursuant to the February 1, 2006 Series A Convertible Preferred Private Placement Subscription documents, we agreed to file a registration statement with the Securities and Exchange Commission to register the shares and warrants held by the selling security holders for resale. That registration statement was declared effective on December 7, 2006. We have agreed to maintain the effectiveness of the registration statement from the effective date through and until the earlier of two years following December 31, 2005 (which was the termination date of the first private placement described above) or the earlier of two years following June 28, 2006 (which was the effective date of the termination of the second private placement described above) and such time as exempt sales pursuant to Rule144(k) under the Securities Act of 1933 (‘‘Rule 144(k)’’) may be permitted for purchasers of Units.

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

NOTE 7 — TAXES

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, ‘‘Accounting for Income Taxes’’ (‘‘SFAS 109’’). SFAS 109 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. SFAS 109 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to net operating loss carryforwards, are dependent upon future earnings, if any, of which the timing and amount are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.

The Company has net operating loss carryforwards for tax purposes totaling approximately $6,543,000 at December 31, 2006, expiring through the year 2026 subject to the Internal Revenue Code Section 382, which places a limitation on the amount of net operating losses that can offset by taxable income after a change in control (generally greater than a 50% change in ownership).

The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for fiscal 2006 and 2005:

			2006						2005
Computed ‘‘expected’’ tax benefit					(34.0	)%					(34.0	)%
State income taxes					(4.0	)%					(4.0	)%
Other permanent differences					9.5	%					10.0	%
Change in valuation allowance					28.5	%					28.0	%
Effective tax rate					0.0	%					0.0	%

F-24

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 7 — TAXES (continued)

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. Temporary differences, which give rise to a net deferred tax asset is as follows:

			2006
Tax benefit of net operating loss carryforward				$	2,486,000
Non-qualified stock options					1,164,000
					3,650,000
Valuation allowance					(3,650,000	)
Net deferred tax asset				$	—

After consideration of all the evidence, both positive and negative, management has recorded a valuation allowance at December 31, 2006, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance was increased by $1,855,000 from the prior year.

NOTE 8 — COMMITMENTS

Lease agreements

The Company sub-leases its facility, on a month-to-month basis, under a master lease expiring July 2008. Rent expense for the year ended December 31, 2006 was $32,939.

Employment agreements

Effective January 1, 2006, the Company entered into employment agreements with Howard B. Katz, Solon L. Kandel, Vincent Colangelo, Stephen W. Weiss and Gerard J. Maresca. The employment agreements with Messrs. Katz and Colangelo extend for a term expiring on December 31, 2008, and the employment agreements with Messrs. Kandel and Weiss extend for a term expiring on December 31, 2007. Mr. Maresca is currently an at-will employee. Pursuant to these employment agreements, Mr. Katz has agreed to devote substantially all of his time, attention and ability, and Messrs. Kandel, Colangelo, Weiss and Maresca have agreed to devote all of their time, attention and ability, to the Company’s business as the Company’s Chief Executive Officer, President, Chief Financial Officer, Chief Technology Officer, and Chief Operating Officer, respectively. The employment agreements provide that Messrs. Katz, Kandel, Colangelo, Weiss and Maresca will receive a base salary during calendar year 2006 at an annual rate of $195,000, $175,000, $150,000, $150,000 and $150,000, respectively, for services rendered in such positions. During calendar years 2007 and 2008 under the employment agreements for Messrs. Katz and Colangelo, the annual base salaries will be increased to $225,000 and $300,000 for Mr. Katz, and $175,000 and $200,000 for Mr. Colangelo, respectively. During calendar year 2007, under the employment agreement for Mr. Kandel and Mr. Weiss, the annual base salaries will be increased to $200,000 and $165,000, respectively. In addition, each executive may be entitled to receive, at the sole discretion of the Board of Directors, cash bonuses based on the executive meeting and exceeding performance goals of the Company. The cash bonuses range from up to 25% of the executive’s annual base salary for Messrs. Weiss, up to 100% of the executive’s annual base salary for Messrs. Kandel and Colangelo, and up to 150% of the executive’s annual base salary for Mr. Katz. Messrs. Katz, Kandel, and Colangelo have agreed to defer a portion of their 2006 bonuses, to which they were entitled. Messrs. Katz, Kandel, Colangelo, Weiss and Maresca are entitled to participate in the 2005 Incentive Compensation Plan.

The Company has also agreed to pay or reimburse each executive up to a specified monthly amount for the business use of his personal car and cell phone. Lastly, under Mr. Katz’s employment

F-25

---

Table of Contents

MDWERKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

NOTE 8 — COMMITMENTS (continued)

Employment agreements   (continued)

agreement, the Company agreed to reimburse him up to a specified monthly amount for the required business use of a home office and for the business use of a portion of his personal home for business guest lodging, meetings and entertainment, and under Mr. Kandel’s employment agreement, the Company agreed to reimburse him up to a fixed amount for expenses in connection with his relocation to Florida.

The employment agreements provide for termination by the Company upon death or disability (defined as 90 aggregate days of incapacity during any 365-consecutive-day period) of the executive or upon conviction of a felony or any crime involving moral turpitude, or willful and material malfeasance, dishonesty or habitual drug or alcohol abuse by the executive, related to or affecting the performance of his duties. In the event any of the employment agreements are terminated by the Company without cause, such executive will be entitled to compensation for the balance of the term of his employment agreement or, if longer, for one year in the case of Mr. Kandel, and two years in the cases of Messrs. Katz and Colangelo. Messrs. Katz, Kandel and Colangelo also have the right, if terminated without cause, to accelerate the vesting of any stock options or other awards granted to them under the Company’s 2005 Incentive Compensation Plan. The Company intends to obtain commitments for key-man life insurance policies for the Company’s benefit on the lives of Messrs. Katz, Kandel and Colangelo equal to three times their respective annual base salary. In addition to the key-man life insurance policies, the Company has agreed to maintain throughout the term of each employment agreement 15-year term life insurance policies on the lives of Messrs. Katz, Kandel and Colangelo, with benefits payable to their designated beneficiaries, and to pay all premiums in connection with those policies.

In the event of a change of control of the company, Messrs. Katz, Kandel and Colangelo may terminate their employment within six months after such event and will be entitled to continue to be paid pursuant to the terms of their respective employment agreements. The employment agreements with Messrs. Weiss and Maresca do not have any change of control provisions.

The employment agreements also contain covenants (a) restricting the executive from engaging in any activities competitive with the Company’s business during the terms of such employment agreements and one year thereafter, (b) prohibiting the executive from disclosure of confidential information regarding the Company at any time and (c) confirming that all intellectual property developed by the executive and relating to the Company constitutes the sole and exclusive property of the Company.

NOTE 9 — SUBSEQUENT EVENTS

On January 1, 2007, Mr. Kandel agreed to defer his entire 2007 annual base salary increase of $25,000 and Mr. Colangelo agreed to defer $15,000 of his 2007 annual base salary increase of $25,000.

On January 21, 2007 the Company paid the August 24, 2006 notes payable of $110,000, together with all accrued interest, to the two unrelated parties.

On February 1, 2007, the Company entered into an employment agreement with Lila K. Sobel to become the Company’s Chief Operating Officer at an annual salary of $150,000 for calendar year 2007. The agreement includes a cash bonus up to 25% of the executive’s annual base salary and executive is entitled to participate in the 2005 Incentive Compensation Plan. On the same date Gerard Maresca was reassigned to Vice President Business Development.

F-26

---