UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





[X]   QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended September 30, 2008





[   ]   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
transition period from _____________ to _____________







COMMISSION
FILE #333-30176





NEW
MEXICO SOFTWARE, INC.


(Exact
name of Registrant as specified in charter)





NEVADA
            91-1287406(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)





5021
      Indian School Road, Suite 100Albuquerque,
      New Mexico
            87110(Address
      of principal executive offices)
            (Zip
      Code)





(505)
255-1999


(Registrant’s
telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days.
            YES
      [X] NO [   ]





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company. See the definitions of “large accelerated filer,” “accelerated
      filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
      Act.Large
      accelerated filer   [  ]
            Accelerated
      filer  [  ]Non-accelerated
      filer  [  ]
            Smaller
      reporting company  [X]





Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).
            YES
      [   ] NO [X]





The
number of shares outstanding of each of the issuer’s classes of common stock at
November 12, 2008 was 125,381,608.










TABLE
OF CONTENTS











PART I
FINANCIAL INFORMATION





ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)


Consolidated Balance Sheet


Consolidated Statements of Operations


Consolidated Statements of Cash Flows


Notes to the Financial Statements




ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK


ITEM 4T.  CONTROLS AND PROCEDURES





PART II OTHER
INFORMATION





ITEM 1.  LEGAL PROCEEDINGS


ITEM 1A.  RISK FACTORS


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES


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


ITEM 5.  OTHER INFORMATION


ITEM 6.  EXHIBITS





SIGNATURES








2





ITEM 1.  FINANCIAL STATEMENTS








New
      Mexico Software, Inc.Balance Sheet(Rounded
      to the nearest thousand)September
      30,
            
            
            December
      31,2008
            
            
            2007Assets
            
            (unaudited)
            
            
            (audited)Current
      assets:Cash
      and cash equivalents
            
            $
            33,000
            
            
            $
            59,000Accounts
      receivable, net
            
            
            312,000
            
            
            
            129,000Inventory
            
            
            24,000
            
            
            
            22,000Prepaid
      expenses and other assets
            
            
            8,000
            
            
            
            2,000Total
      current assets
            
            
            377,000
            
            
            
            212,000Furniture,
      equipment and improvements, net
            
            
            106,000
            
            
            
            90,000Security
      deposits
            
            
            4,000
            
            
            
            4,000Total
      assets
            
            $
            487,000
            
            
            $
            306,000Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable
            
            $
            202,000
            
            
            $
            34,000Accrued
      expenses
            
            
            106,000
            
            
            
            44,000Deferred
      revenue
            
            
            29,000
            
            
            
            39,000Notes
      payable
            
            
            36,000
            
            
            
            -Capital
      Lease
            
            
            17,000
            
            
            
            -Total
      current liabilities
            
            
            390,000
            
            
            
            117,000Long-term
      liabilities:Capital
      lease - long-term portion
            
            
            13,000
            
            
            
            -Total
      long-term liabilities
            
            
            13,000
            
            
            
            -Total
      liabilities
            
            
            403,000
            
            
            
            117,000Stockholders'
      equity:Preferred
      stock, $0.001 par value, 500,000 sharesauthorized,
      no shares issued and outstanding as of September 30, 2008
            
            
            -
            
            
            
            -Common
      stock, $0.001 par value, 200,000,000 sharesauthorized,
      124,293,028 shares issued and outstandingas
      of September 30, 2008 and 106,770,480 at December 31, 2007
            
            
            124,000
            
            
            
            107,000Paid-in
      capital
            
            
            14,510,000
            
            
            
            14,212,000Subscriptions
      payable
            
            
            21,000
            
            
            
            31,000Deferred
      compensation
            
            
            (119,000
            )
            
            
            -Accumulated
      deficit
            
            
            (14,452,000
            )
            
            
            (14,161,000
            )Total
      stockholders' equity
            
            
            84,000
            
            
            
            189,000Total
      liabilities and stockholder's equity
            
            $
            487,000
            
            
            $
            306,000





The
accompanying notes are an integral part of these financial
statements.





3








New
      Mexico Software, Inc.Condensed Consolidated Statements of
    Operations(Rounded
      to the nearest thousand)(UNAUDITED)For
      the three months ended
            
            
            For
      the nine months endedSeptember
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007RevenueSoftware
      hosting and maintenance
            
            $
            74,000
            
            
            $
            101,000
            
            
            $
            206,000
            
            
            $
            357,000Software
      usage fees
            
            
            102,000
            
            
            
            95,000
            
            
            
            351,000
            
            
            
            288,000Radiological
      services
            
            
            336,000
            
            
            
            -
            
            
            
            357,000
            
            
            
            -Hardware
      sales
            
            
            1,000
            
            
            
            5,000
            
            
            
            11,000
            
            
            
            31,000Software
      sales and licenses
            
            
            2,000
            
            
            
            14,000
            
            
            
            16,000
            
            
            
            18,000Custom
      programming
            
            
            5,000
            
            
            
            18,000
            
            
            
            16,000
            
            
            
            23,000Scanning
      services
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            23,000Gross
      revenues
            
            
            520,000
            
            
            
            233,000
            
            
            
            957,000
            
            
            
            740,000Cost
      of services
            
            
            384,000
            
            
            
            115,000
            
            
            
            594,000
            
            
            
            292,000Gross
      Profit
            
            
            136,000
            
            
            
            118,000
            
            
            
            363,000
            
            
            
            448,000Operating
      costs and expenses:General
      and administrative
            
            
            163,000
            
            
            
            270,000
            
            
            
            579,000
            
            
            
            737,000Depreciation
      and amortization
            
            
            8,000
            
            
            
            11,000
            
            
            
            26,000
            
            
            
            34,000Research
      and development
            
            
            9,000
            
            
            
            11,000
            
            
            
            44,000
            
            
            
            95,000Total
      operating costs and expenses
            
            
            180,000
            
            
            
            292,000
            
            
            
            649,000
            
            
            
            866,000Net
      operating income (loss)
            
            
            (44,000
            )
            
            
            (174,000
            )
            
            
            (286,000
            )
            
            
            (418,000
            )Other
      income (expense):Interest
      (expense)
            
            
            (2,000
            )
            
            
            (3,000
            )
            
            
            (5,000
            )
            
            
            (10,000
            )Other
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Gain
      (loss) on disposal of fixed assets
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,000Total
      other income (expense)
            
            
            (2,000
            )
            
            
            (3,000
            )
            
            
            (5,000
            )
            
            
            (4,000
            )Net
      income (loss)
            
            $
            (46,000
            )
            
            $
            (177,000
            )
            
            $
            (291,000
            )
            
            $
            (422,000
            )Earnings
      per share - basic and fully diluted
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )Weighted
      average number of common sharesoutstanding
      - basic and fully diluted
            
            
            124,293,028
            
            
            
            101,776,542
            
            
            
            113,989,270
            
            
            
            96,157,662








The
accompanying notes are an integral part of these financial
statements.





4





New
      Mexico Software, Inc.Statements of Cash Flows(Rounded
      to the nearest thousand)(UNAUDITED)For
      the nine months endedSeptember
      30,2008
            
            
            2007Cash
      flows from operating activitiesNet
      loss
            
            $
            (291,000
            )
            
            $
            (422,000
            )Adjustments
      to reconcile net loss tonet
      cash used by operating activities:Common
      stock issued for salaries
            
            
            30,000
            
            
            
            353,000Common
      stock issued for services
            
            
            88,000
            
            
            
            104,000Common
      stock issued for interest
            
            
            -
            
            
            
            1,000Stock
      options issued for salaries
            
            
            -
            
            
            
            9,000Stock
      options issued for services
            
            
            -
            
            
            
            92,000Depreciation
            
            
            26,000
            
            
            
            34,000Depreciation
      allocated to cost of services
            
            
            6,000
            
            
            
            5,000Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (183,000
            )
            
            
            2,000Inventory
            
            
            (2,000
            )
            
            
            2,000Prepaid
      expenses and other assets
            
            
            (6,000
            )
            
            
            11,000Accounts
      payable
            
            
            168,000
            
            
            
            (43,000
            )Accrued
      expenses
            
            
            62,000
            
            
            
            (74,000
            )Deferred
      revenue
            
            
            (10,000
            )
            
            
            25,000Net
      cash (used) provided by operating activities
            
            
            (112,000
            )
            
            
            99,000Cash
      flows from investing activitiesAcquisition
      of fixed assets
            
            
            (14,000
            )
            
            
            (45,000
            )Net
      cash used by investing activities
            
            
            (14,000
            )
            
            
            (45,000
            )Cash
      flows from financing activitiesProceeds
      from notes payable
            
            
            36,000
            
            
            
            -Repayment
      of note payable
            
            
            -
            
            
            
            (41,000
            )Repayment
      of principal under capital lease
            
            
            (4,000
            )
            
            
            -Subscriptions
      payable
            
            
            -
            
            
            
            3,000Net
      proceeds from the issuance of common stock
            
            
            68,000
            
            
            
            25,000Net
      cash provided by financing activities
            
            
            100,000
            
            
            
            (13,000
            )Net
      increase (decrease) in cash equivalents
            
            
            (26,000
            )
            
            
            41,000Cash
      equivalents - beginning
            
            
            59,000
            
            
            
            21,000Cash
      equivalents - ending
            
            $
            33,000
            
            
            $
            62,000Supplemental
      disclosures:Interest
      paid
            
            $
            1,000
            
            
            $
            7,000Shares
      issued for exercise of warrants
            
            $
            10,000
            
            
            $
            -Assets
      acquired under capital lease
            
            $
            34,000
            
            
            $
            -





The
accompanying notes are an integral part of these financial
statements.





5


New
Mexico Software, Inc.


Condensed Consolidated Notes to the Financial
Statements


for the
period ended September 30, 2008


(Unaudited)





NOTE
1 – BASIS OF PRESENTATION





The
interim financial statements included herein, presented in accordance with
United States generally accepted accounting principles and stated in US dollars,
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.





These
statements reflect all adjustments, consisting of normal recurring adjustments,
which, in the opinion of management, are necessary for fair presentation of the
information contained therein.  It is suggested that these interim
financial statements be read in conjunction with the financial statements of the
Company for the year ended December 31, 2007 and notes thereto included in the
Company's Form 10-KSB.  The Company follows the same accounting
policies in the preparation of interim reports.





Results
of operations for the interim periods are not indicative of annual
results.





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Revenue
recognition:





Our
revenues are generally classified into five main categories: software hosting
and maintenance contracts; software usage fees; radiological services; the sale
of software licenses to end users; and hardware sales associated with sales of
our various software products. The Company also derives revenue from
customization or modification to our core software products, scanning services
and other services such as consulting, training and installation.  The
Company recognizes revenue in accordance with Statement of Position (SOP) 97-2
Software Revenue
Recognition as amended.





Revenue
from proprietary software sales that does not require further commitment from
the Company is recognized upon persuasive evidence of an arrangement as provided
by agreements executed by both parties, delivery of the software, and
determination that collection of a fixed or determinable fee is
probable.  These sales are generally direct purchases of a software
product and there is no other involvement by the Company.





The
Company offers with certain sales of its software products software maintenance
upgrade and support arrangements. These contracts may be elements in a
multiple-element arrangement or may be sold on a stand-alone basis. Revenues
from maintenance and support services are recognized ratably on a straight-line
basis over the term that the maintenance service is provided. The Company
typically charges 17% to 21% of the software purchase price for a 12-month
maintenance contract with discounts available for longer-term agreements. The
complexity of the software determines the percentage that is charged to any
individual customer, and that percentage remains consistent upon renewal unless
there is a change in the software or the terms of the agreement.





Charges
for hosting are likewise spread ratably over the term of the hosting agreement,
with the typical hosting agreement having a term of 12 months, with renewal on
an annual basis.  The Company sells some hosting contracts in
conjunction with the sale of software, and some hosting contracts without an
associated software sale.  When the hosting arrangement is sold in
conjunction with a software sale, the Company allocates a portion of the fee to
the software license.  Hostingservices do not require
the








6


New
Mexico Software, Inc.


Condensed
Consolidated Notes to the Financial Statements


for the
period ended September 30, 2008


(Unaudited)





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Revenue
recognition (continued):





customer
to purchase the software license, and for those hosting contracts that are sold
without an associated software sale, the customer does not have the right or the
ability to operate the software on its own.





Should
the sale of its software involve an arrangement with multiple elements (for
example, the sale of a software license along with the sale of maintenance and
support to be delivered over the contract period), the Company allocates revenue
to each component of the arrangement using the residual value method based on
the fair value of the undelivered elements. The Company defers revenue from the
arrangement equivalent to the fair value of the undelivered elements and
recognizes the remaining amount at the time of the delivery of the product or
when all other revenue recognition criteria have been met. Fair values for the
ongoing maintenance and support obligations are based upon separate sales of
renewals of maintenance contracts. Fair value of services, such as training or
consulting, is based upon separate sales of these services to other
customers.  The Company follows the guidance in SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts for custom
software development arrangements that require significant production,
customization or modification to its core software. Revenue is generally
recognized for such arrangements under the percentage-of-completion method.
Under percentage-of-completion accounting, both the product license and custom
software development revenue are recognized as work progresses based on specific
milestones in accordance with paragraphs 85 – 91 of SOP 97-2. The Company
believes that project milestones based on completion of specific tasks provide
the best approximation of progress toward the completion of the contract. At
September 30, 2008 and September 30, 2007, there were no custom software
development arrangements in progress.





The
Company also derives revenue from the sale of third party hardware, which is
billed as a separate deliverable under consulting or custom development
contracts.  Revenue from installation, training and consulting
services is recognized when the services are rendered. They include services
that are not essential to the functionality of the software.  If these
services are included in a software agreement with multiple elements, amounts
are allocated to these categories based on the estimated number of hours
required to complete the work, which is the same criteria used to bill for the
services separately.  License revenue is recognized ratably over the
term of the license. Revenue for all other services is recognized when the
services are rendered.





Amounts
collected prior to satisfying the above revenue recognition criteria are
included in deferred revenue.





The
application of SOP 97-2, as amended, requires judgment, including a
determination that collectibility is probable and the fee is fixed and
determinable. On occasion, the Company has approved extended payment
arrangements for certain customers. These arrangements generally do not exceed
120 days, therefore collectibility is considered probable at the time of
delivery. If an installment payment is allowed which exceeds twelve months,
revenue for that installment is recognized at the time payment is
received.





The
Company follows the guidance provided by SEC Staff Accounting Bulletin (SAB) No.
101, Revenue Recognition in
Financial Statements and SAB No. 104, Revenue Recognition, which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC.








7


New
Mexico Software, Inc.


Condensed
Consolidated Notes to the Financial Statements


for the
period ended September 30, 2008


(Unaudited)





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Revenue
recognition (continued):





Due to
uncertainties inherent in the estimation process it is at least reasonably
possible that completion costs for contracts in progress will be further revised
in the near-term.





The cost
of services, consisting of staff payroll, outside services, equipment rental,
communication costs and supplies, is expensed as incurred.





Cash and
cash equivalents:




The
Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents. At September 30, 2008, the Company
had no cash and cash equivalents that exceeded federally insured
limits.





Trade
Accounts Receivable:





The
Company extends unsecured credit to customers under normal trade agreements
which generally require payment within 25 - 45 days.  Accounts not
paid within 15 days after their original due date are considered delinquent.
Unless specified by the customer, payments are applied to the oldest unpaid
invoice.  Accounts receivable are presented at the amount
billed.





The
Company also estimates an allowance for doubtful accounts, which amounted to
$20,000 and $22,000 at September 30, 2008 and 2007, respectively.  The
estimate is based upon management’s review of all accounts and an assessment of
the Company’s historical evidence of collections.  Specific accounts
are charged directly to the reserve when management obtains evidence of a
customer’s insolvency.  Charge-offs, net of recoveries, for the
quarters ended September 30, 2008 and 2007 were $1,000 and $3,000,
respectively.





Inventory:





Inventory,
composed of component parts and finished goods, is valued at cost on a specific
identity basis for those items with serial numbers.  The remainder of
the inventory is valued at the lower of first-in-first-out (FIFO) cost or
market.  On a quarterly basis, management compares the inventory on
hand with our records to determine whether write-downs for excess or obsolete
inventory are required.





Furniture,
equipment and improvements:





Furniture,
equipment and improvements are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred. Depreciation is
charged against results of operations using the straight-line method over the
estimated economic useful life. Leasehold improvements are amortized on a
straight-line basis over the life of the related lease.





Income
taxes:





As of
September 30, 2008, the Company’s federal net operating loss carryforwards were
approximately $14,452,000.  The Company did not have a provision for
(benefit from) income taxes for the nine months ended September 30, 2008 and
2007.





8


New
Mexico Software, Inc.


Condensed
Consolidated Notes to the Financial Statements


for the
period ended September 30, 2008


(Unaudited)





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Per share
data:





The basic
per share data has been computed on the basis of the net loss available to
common stockholders for the period divided by the historic weighted average
number of shares of common stock.  All potentially dilutive securities
have been excluded from the computations since they would be antidilutive,
however, these dilutive securities could potentially dilute earnings per share
in the future. Options and warrants exercisable for 10,406,545 and 5,626,712
shares of common stock have been excluded from the basic loss per share
calculation for the periods ended September 30, 2008 and 2007, respectively,
because inclusion of such would be antidilutive.





Advertising
expenses:





The
Company expenses advertising costs which consist primarily of direct mailings,
promotional items and print media, as incurred. Advertising expenses amounted to
$0 and $9,000 for the quarters ended September 30, 2008 and 2007,
respectively.





Use of
estimates:





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.





Stock-based
compensation:





The
Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (SFAS 123R), effective January 1,
2006.  SFAS 123R requires the recognition of the fair value of
stock-based compensation in net income. Stock-based compensation primarily
consists of stock options. Stock options are granted to employees at exercise
prices equal to the fair market value of our stock at the dates of grant. The
Company now recognizes the stock-based compensation expense over the requisite
service period of the individual grantees, which generally equals the vesting
period. The Company provides newly issued shares to satisfy stock option
exercises.  There were 12,000,000 and 500,000 option awards granted to
employees and directors in the years ended December 31, 2006 and
2007.  Of these, 6,500,000 are vested and outstanding at September 30,
2008.  During the quarters ended September 30, 2008 and 2007, the
Company had $0 and $101,000 expense related to option grants to employees and
directors.





As of
September 30, 2008, the Company has reserved 1,000,000 shares of its common
stock for issuance upon exercise of stock options and warrants.











9


New
Mexico Software, Inc.


Condensed
Consolidated Notes to the Financial Statements


for the
period ended September 30, 2008


(Unaudited)





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Software
development:





The
Company accounts for computer software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed". As such, all costs
incurred prior to the product achieving technological feasibility are expensed
as research and development costs. Technological feasibility is generally
achieved upon satisfactory beta test results. Upon achieving technological
feasibility, programming costs are capitalized and amortized over the economic
useful live which is estimated to be two years. There were no capitalized
software development costs as of September 30, 2008 and 2007.





NOTE
3 – GOING CONCERN





The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred cumulative net losses
of approximately $14,452,000 since its inception and requires capital for its
contemplated operational and marketing activities to take place. The Company’s
ability to raise additional capital through the future issuances of the common
stock is unknown. The obtainment of additional financing, the successful
development of the Company’s contemplated plan of operations, and its
transition, ultimately, to the attainment of profitable operations are necessary
for the Company to continue operations. The ability to successfully resolve
these factors raise substantial doubt about the Company’s ability to continue as
a going concern. The financial statements of the Company do not include any
adjustments that may result from the outcome of these aforementioned
uncertainties.





NOTE
4 - FURNITURE, EQUIPMENT, AND IMPROVEMENTS





Furniture,
equipment, and improvements as of September 30, 2008 and December 31, 2007
consisted of the following:





9/30/08
            
            
            12/31/07Computers
            
            $
            410,000
            
            
            $
            362,000Furniture,
      fixtures and equipment
            
            
            122,000
            
            
            
            121,000Automobiles
            
            
            41,000
            
            
            
            41,000Leasehold
      improvements
            
            
            20,000
            
            
            20,000593,000
            
            
            
            544,000Accumulated
      depreciation
            
            
            (487,000
            )
            
            
            (454,000
            )$
            106,000
            
            
            $
            90,000





Depreciation
expense for the nine months ended September 30, 2008 and 2007 was $26,000 and
$34,000 respectively.








10


New
Mexico Software, Inc.


Condensed
Consolidated Notes to the Financial Statements


for the
period ended September 30, 2008


(Unaudited)





NOTE
5 - CAPITAL LEASE PAYABLE





During
the nine month period ended September 30, 2008, the Company leased computer
equipment valued at approximately $34,000.  Following is a summary of
the leases:





Lease
            Start
      date
            Term
            
            Interest
      rate
            
            
            Monthly
      paymentApple
      Lease #1
            3/25/2008
            24
      months
            
            
            15
            %
            
            $
            600Apple
      Lease #2
            9/11/2008
            24
      months
            
            
            15
            %
            
            $
            500Apple
      Lease #3
            9/29/2008
            24
      months
            
            
            15
            %
            
            $
            400





NOTE
6 – CAPITAL TRANSACTIONS





Common
stock:





During
the nine month period ended September 30, 2008, the Company effected the
following stock transactions:





The
Company issued a total of 1,425,840 shares of the Company’s $0.001 par value
common stock to employees in lieu of salary, which was valued at
$30,000.





The
Company issued a total of 11,706,707 shares the Company’s $0.001 par value
common stock to outside contractors in exchange for services rendered of
$88,000.





The
Company issued a total of 4,000,001 shares of the Company’s $0.001 par value
common stock in exchange for cash of $68,000.





Warrants:





During
the nine month period ended September 30, 2008, there were no warrants issued
and none were exercised.





The
following is a summary of warrants outstanding as of September 30,
2008:





Number of Warrants
            Exercise Price
            Expiration Date771,545
            $0.21
            July
      24, 2009700,000
            $0.15
            June
      29, 2011







Stock
options:




The
Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (SFAS 123R), effective January 1, 2006. SFAS
123R requires the recognition of the fair value of stock-based compensation in
net income. Stock-based compensation primarily consists of stock options. Stock
options are granted to employees at exercise prices equal to the fair market
value of our stock at the dates of grant.  The Company now recognizes
the stock-based compensation expense over the requisite service period of the
individual grantees, which generally equals the vesting
period.  Exercise prices and weighted-average contractual lives of
stock options outstanding as of September 30, 2008, are as follows:








11


New
Mexico Software, Inc.


Condensed
Consolidated Notes to the Financial Statements


for the
period ended September 30, 2008


(Unaudited)





NOTE
6 – CAPITAL TRANSACTIONS (CONTINUED)




Options
      Outstanding
            
            
            Options
      ExercisableWeighted
      Average
            
            
            Weighted
      Average
            
            
            
            
            
            Weighted
      AverageExercise
      Prices
            
            
            Number
      Outstanding
            
            
            Remaining
      Contractual Life
            
            
            Exercise
      Prices
            
            
            Number
      Exercisable
            
            
            Exercise
      Price$
            0.01-0.049
            
            
            
            12,500,000
            
            
            
            8.1
            
            
            $
            0.03
            
            
            
            6,500,000
            
            
            $
            0.03$
            0.05-0.30
            
            
            
            2,335,000
            
            
            
            4.1
            
            
            $
            0.06
            
            
            
            2,335,000
            
            
            $
            0.06$
            0.31-0.50
            
            
            
            100,000
            
            
            
            2.5
            
            
            $
            0.39
            
            
            
            100,000
            
            
            $
            0.39





Summary
of Options Granted and Outstanding:





For
      the nine months ended September 30,2008
            
            
            2007Shares
            
            
            Weighted
      Average Exercise Price
            
            
            Shares
            
            
            Weighted
      Average Exercise PriceOptions:Outstanding
      at beginning of year
            
            
            15,835,000
            
            
            $
            0.04
            
            
            
            16,085,000
            
            
            $
            0.04Granted
            
            
            -
            
            
            
            -
            
            
            
            500,000
            
            
            $
            0.04Cancelled
            
            
            (900,000
            )
            
            $
            0.06
            
            
            
            (750,000
            )
            
            $
            0.07Exercised
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Outstanding
      at end of period
            
            
            14,935,000
            
            
            $
            0.04
            
            
            
            15,835,000
            
            
            $
            0.04





In July
2008, the Company cancelled 110,000 warrants with an exercise price of $0.25 per
share because the warrants had expired.





Deferred
compensation:





During
the nine month period ended September 30, 2008, the Company issued a total of
8,000,000 shares of its $0.001 par value common stock to members of the Board of
Directors valued at $136,000 for services for 2008 and 2009.  At
September 30, 2008, 3,000,000 shares have been earned, and the remaining
5,000,000 shares are considered deferred compensation.  During the
nine months ended September 30, 2008, the Company has expensed $51,000 in
compensation expense for these shares.





During
the nine month period ended September 30, 2008, the Company issued a total of
3,000,000 shares of its $0.001 par value common stock to Mary Hansen valued at
$51,000 for services.  At September 30, 2008, 1,000,000 shares have
been earned, and the remaining 2,000,000 shares are considered deferred
compensation.  During the nine months ended September 30, 2008, the
Company has expensed $17,000 in compensation expense for these
shares.





12


New
Mexico Software, Inc.


Condensed
Consolidated Notes to the Financial Statements


for the
period ended September 30, 2008


(Unaudited)





NOTE
7 - MAJOR CUSTOMERS





During
the nine month period ended September 30, 2008, five customers accounted for 43%
or approximately $418,000 of the Company's revenue.





As of
September 30, 2008, balances due from three customers comprised 60% or
approximately $188,000 of total accounts receivable.





NOTE
8 – COMMITMENTS AND CONTINGENCIES





Leases:





The
Company leases office space in New Mexico expiring April 30,
2009.  The Company also leases an automobile expiring June 21, 2011
and computer equipment in three leases expiring March 24, 2010, September 11,
2010 and September 29, 2010.  Future minimum lease payments as of
September 30, 2008, are as follows:





Year
            
            Amount2008
            
            $  20,0002009
            
            $  42,0002010
            
            $  14,000





Rent
expense for the nine months ended September 30, 2008 and 2007 amounted to
$47,000 and $46,000, respectively.





Employment
agreement:





The
Company entered into an employment and non-competition agreement with a
stockholder to act in the capacity of President and Chief Executive Officer
(CEO). The term of the employment agreement is for three years commencing on
January 1, 2007. The agreement allows for a one-year renewal option unless
terminated by either party.  Base salary is $60,000 per annum with
available additional cash compensation as defined in the
agreement.  Compensation under this agreement of $46,000 is included
in general and administrative expenses for the nine months ended September 30,
2008.  The non-competition agreement commences upon the termination of
the employment agreement for a period of one year.   At September
30, 2008, there was a total of $0 in accrued payroll for this
executive.








13





ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS




OVERVIEW





Through
September 2008, we have realized revenues from six primary sources:




1.
            software
      hosting and maintenance services;


2.
            software
      usage fees;


3.
            radiological
      services;


4.
            hardware
      sales;


5.
            software
      sales and licenses;


6.
            custom
      programming services.





We also
occasionally realize revenues from scanning services and from other
services.





With each
sale of our enterprise-level products, the end user enters into a license
agreement for which an initial license fee is paid.  The license
agreement also provides that in order to continue the license, the licensee must
pay an annual software maintenance fee for which the party receives access to
product upgrades, bug fixes and product patches.  Software maintenance
consists primarily of hosting and managing our customers’ data on our servers,
as well as technical support programs for our products.  Software
usage comprises any charges for actual usage of our
software.  Currently, software usage consists of XR-EXpress report
fees, Business EXpress application minute fees and MedConEXpress case
fees.





Also,
during the quarter ended June 30, 2008, we began operating our new radiological
services business through our wholly owned subsidiary, Telerad Service, Inc.
(Telerad). Telerad provides radiological services to hospitals, mobile and
portable x-ray providers, prisons, urgent care facilities, and assisted living
facilities. Telerad utilizes our XR-EXpress software in providing the services.
At this time, we have eighteen licensed radiologists available to read and
report on radiological studies, which include x-ray films, ultrasounds, MRI’s
and various scanned images. Telerad provides professional liability insurance
for all radiologists on staff. Our services are available all day, every day of
the year.  This line of business is a direct outgrowth of our work
with the New Mexico Department of Health. Our teleradiology services are an
expansion beyond the original scope of this work.





Cost of
services consists primarily of engineering salaries and compensation-related
expenses, engineering supplies, inventory shipped to customers, hardware
depreciation, connectivity costs and shipping.  General and
administrative expenses consist primarily of salaries and benefits of personnel
responsible for business development and operating activities, and include
corporate overhead expenses.  Corporate overhead expenses relate to
salaries and benefits of personnel responsible for corporate activities,
including acquisitions, sales and marketing, administrative, and reporting
responsibilities.  We record these expenses when
incurred.  Fees to radiologists, a component of personnel-related
expenses, will become an increasing component of our cost of services in future
periods as our revenues from radiological services are expected to
increase.





In
general, our key indicator of operating progress is gross
revenue.  For the quarters ended September 30, 2008 and 2007,
personnel-related expenses have accounted for approximately 80% of our total
operating expenses, with fixed costs such as building and equipment rent,
utilities, insurance, communications and depreciation accounting for an
additional 10%.  The only personnel-related costs that are directly
variable with sales are those associated with custom programming and radiologist
fees.  This means that over 70% of our expenses are relatively
fixed.  All of the remaining expenses vary, but less than five percent
vary directly with sales.   Until we are consistently generating
net profit, gross revenue will remain the best gauge of our
progress.





14





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  As such, in accordance with the
use of accounting principles generally accepted in the United States of America,
our actual realized results may differ from management’s initial estimates as
reported.  A summary of our significant accounting policies is
detailed in the notes to the financial statements, which are an integral
component of this filing.





Revenue
Recognition





Our
software recognition policies are in accordance with the American Institute of
Certified Public Accountants’ Statement of Position (“SOP”) 97-2, Software Revenue Recognition
as amended.  Revenue is recognized when (a) persuasive evidence of an
arrangement exists, (b) delivery has occurred, (c) the fee is fixed or
determinable, and (d) collectibility is probable.  We follow the
guidance in SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts for custom
software development arrangements that require us to provide significant
production, customization or modification to our core
software.  Revenue is generally recognized for such arrangements under
the percentage of completion method.  Amounts collected prior to
satisfying the above revenue recognition criteria are included in deferred
revenue.





We follow
the guidance provided by SEC Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial
Statements and SAB No. 104 Revenue Recognitionwhich
provide guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC.





Income
Taxes




Management
evaluates the probability of the utilization of the deferred income tax
assets.  We have estimated a $4,977,000 deferred income tax asset at
December 31, 2007, related primarily to net operating loss carryforwards at
December 31, 2007.  Management determined that because we have not yet
generated taxable income it was not appropriate to recognize a deferred income
tax asset related to the net operating loss carryforward.  Therefore,
the fully deferred income tax asset is offset by an equal valuation
allowance.  If we begin to generate taxable income, we may determine
that some, if not all of the deferred income tax asset may be
recognized.  Recognition of the asset could increase after tax income
in the future.  Management is required to make judgments and estimates
related to the timing and utilization of net operating loss carryforwards,
utilization of other deferred income tax assets, applicable tax rates and
feasible tax planning strategies.





Stock
Based Compensation





We grant
stock awards and stock options to employees and non-employees as consideration
for services.  Management believes that the best indicator of value
for stock awards is the trading value of the shares of stock on the date the
Company enters into the agreements.  For non-employees, that date is
generally the date on which the company is committed to such an
agreement.  At times the Company may grant stock as payment for
accrued but unpaid payroll.  In these cases, the Company values the
shares at the trading price on the date they are granted and reduces the payroll
accrual by the same amount.  We have adopted SFAS 123(R) for stock
options granted to employees and non-employees by estimating the value of those
awards using the Black-Scholes option pricing model.





Contingencies





We are
subject to the possibility of various law contingencies arising in the ordinary
course of business.  We consider the likelihood of loss or impairment
of an asset or the incurrence of a liability, as well as our ability to
reasonably estimate the amount of the loss contingencies.





15





Software
Development Costs





We
account for software development costs in accordance with SFAS No. 86 Accounting for Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed.  Product
research and development expenses consist primarily of personnel, outside
consulting and related expenses for development, and systems personnel and
consultants and are charged to operations as incurred until technological
feasibility is established.  The Company considers technological
feasibility to be established when all planning, designing, coding and testing
have been completed to design specifications.  After technological
feasibility is established, costs are capitalized.  Historically,
product development has been substantially completed with the establishment of
technological feasibility and, accordingly, no costs have been
capitalized.





See Note
2 to the Company’s Financial Statements for a full discussion of the Company’s
critical accounting policies and estimates.





RESULTS
OF OPERATIONS





Revenues:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            520,000
            
            compared
      to
            
            $
            233,000
            
            an
      increase of $287,000 or 123.2%





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            957,000
            
            compared
      to
            
            $
            740,000
            
            an
      increase of $217,000 or 29.3%





These
changes are a result of the following factors:





1.  Software
hosting and maintenance:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            74,000
            
            compared
      to
            
            $
            101,000
            
            a
      decrease of $27,000 or 26.7%





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            206,000
            
            compared
      to
            
            $
            357,000
            
            a
      decrease of $151,000 or 42.3%





Substantially
all of the decrease in software hosting and maintenance revenues during the
first nine months of 2008 as compared to the same period in 2007 is due to the
loss of several customers that were using older versions of our software during
2007 and early 2008.  Revenue from hosting and maintenance for our
XR-Express and Business EXpress products remained relatively level for the first
half of 2008 as compared to the same period in 2007.  Software
maintenance consists mainly of revenues related to hosting and managing our
customers’ data on our systems and to a lesser extent includes revenues from
technical support programs associated with our products.





2.  Software
usage fees:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            102,000
            
            compared
      to
            
            $
            95,000
            
            an
      increase of $7,000 or 7.3%





16





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            351,000
            
            compared
      to
            
            $
            288,000
            
            an
      increase of $63,000 or 21.9%





The
increase in revenue from software usage fees is primarily due to a combination
of new XR-EXpress end users added plus a net increase in the volume of
XR-EXpress reports generated by existing customers during the first nine months
of 2008. Approximately 263,000 reports were generated during the first nine
months of 2008, as compared to approximately 226,000 reports during same period
in 2007.





3.  Radiological
services:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            336,000
            
            compared
      to
            
            $
            0
            
            an
      increase of $336,000





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            357,000
            
            compared
      to
            
            $
            0
            
            an
      increase of $357,000





Our
radiological services business began generating revenue in June,
2008.  Since beginning operations, we have added several new customers
per month and have provided almost 32,000 reports on combined reads of x-rays,
CT scans and ultrasounds.





4.  Hardware
revenue:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            1,000
            
            compared
      to
            
            $
            5,000
            
            a
      decrease of $4,000 or 80.0%





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            11,000
            
            compared
      to
            
            $
            31,000
            
            a
      decrease of $20,000 or 64.5%





The
decrease in hardware revenue during the first nine months of 2008 as compared to
the same period in 2007 is mainly due to the sale of a Business EXpress server
to one customer during the first quarter of 2007.  All hardware sales
are directly associated with sales of our XR-EXpress and Business EXpress
software.  We expect this category to remain flat or decrease slightly
in the coming year as we continue to focus on providing services rather than
sales of software.





5.  Software
sales and licenses:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            2,000
            
            compared
      to
            
            $
            14,000
            
            a
      decrease of $12,000 or 85.7%





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            16,000
            
            compared
      to
            
            $
            18,000
            
            a
      decrease of $2,000 or 11.1%





This
decrease is attributable to our continued focus on providing services as opposed
to sales of software.  As a result of this focus on building recurring
revenues from services, we have modified our policy to include the cost of the
XR-EXpress compression software with the setup for any new customers that have
at least ten end users.  As a result, we expect our revenues from
software sales and licenses to remain low during the coming year.





17





6.  Custom
programming revenue:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            5,000
            
            compared
      to
            
            $
            18,000
            
            a
      decrease of $13,000 or 72.2%





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            16,000
            
            compared
      to
            
            $
            23,000
            
            a
      decrease of $7,000 or 30.4%





Since we
have reduced our focus on sales of software, the number of custom programming
projects requested by customers with enterprise-level systems has been
inconsistent, resulting in the above decreases in custom programming revenue for
the first nine months of 2008 as compared to the same period in
2007.  We continue to offer programming services for database
integration and for other projects for our existing customers; however, we
expect our custom programming revenues to remain low during the coming
year.





Cost of
services:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            384,000
            
            compared
      to
            
            $
            115,000
            
            an
      increase of $269,000 or 233.9%





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            594,000
            
            compared
      to
            
            $
            292,000
            
            an
      increase of $302,000 or 103.4%





Substantially
all of the increases in cost of services are the result of costs related to our
new teleradiology services.  These costs consist of radiologist fees,
management fees, and professional credentialing and professional liability
insurance.





General
and administrative expenses:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            163,000
            
            compared
      to
            
            $
            270,000
            
            a
      decrease of 107,000 or 39.6%





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            579,000
            
            compared
      to
            
            $
            737,000
            
            a
      decrease of $158,000 or 21.4%





The
decrease in general and administrative expenses was due to two
factors:  marketing expenses decreased due to our participation in two
trade shows during the first nine months of 2007 as compared to only one in the
same period in 2008, and compensation expenses decreased due to the vesting of
options issued to directors during 2006.  The remaining decrease was
due to a variety of immaterial factors.





Depreciation
expense:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            8,000
            
            compared
      to
            
            $
            11,000
            
            a
      decrease of $3,000 or 27.3%





18





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            26,000
            
            compared
      to
            
            $
            34,000
            
            a
      decrease of $8,000 or 23.5%





The
decrease in depreciation expense was due to the maturation of our furniture and
fixtures and some of our computer equipment during the first nine months of
2008.





Research
and development costs:





For
      the Quarter Ended September 30,2008
            
            
            
            2007$
            9,000
            
            compared
      to
            
            $
            11,000
            
            a
      decrease of $2,000 or 18.2%





For
      the Nine Months Ended September 30,2008
            
            
            
            2007$
            44,000
            
            compared
      to
            
            $
            95,000
            
            a
      decrease of $51,000 or 53.7%





These
decreases are due to reduction in personnel costs as a result of the completion
of our DDS-EXpress product during 2007, as well as allocation of engineering
time during the second and third quarters of 2008 to integrating our XR-Express
product with our new radiology customers as opposed to research and
development.  We are not actively marketing DDS-EXpress at this time,
therefore we are not incurring any research and development costs related to
this product.  Our current research and development costs are
primarily associated with development of a new product related to our
MedConEXpress product.





During
2007 and 2008, over 90% of our research and development costs are directly
associated with staffing.  In the software industry it is common for
research and development costs to be ongoing, since development of the next
version of the software begins as soon as the current version is
completed.  In addition, we are constantly developing new applications
for our existing software that require modification.  Management
anticipates that research and development costs in the future will focus both on
the upgrading of our existing products and the continued development of new
products using our core technology; therefore, they will remain relatively
steady during the coming year.





LIQUIDITY
AND CAPITAL RESOURCES





As of September 30, 2008, cash and cash
equivalents totaled $33,000, representing a $26,000 decrease from December 31,
2007. The decrease in available cash was due to the following factors during the
period:





Operating
activities:





For
      the Nine Months Ended September 30,2008
            
            2007used
      $(112,000)
            compared
      to
            provided
      $99,000
            a
      decrease in available cash of
$211,000





The
decrease in available cash from operations during the first half of 2008 was
primarily due to two factors:  we stopped issuing options and shares
for salaries and reduced the issuance of shares for services, which resulted in
an increased use of cash for salaries and contractors of
$441,000.  This decrease was partially offset by the increase in
accounts payable and accrued expenses due to slow cash flow, which provided
$230,000 in cash flow.  This decrease in cash flow resulted in the
sale of equity securities during the second quarter of 2008 and short-term loans
during the third quarter of 2008 to augment our cash flow.  Beginning
in the fourth quarter of 2008, we anticipate improved cash flow as a result of
our new radiology services which began generating revenue in June
2008.





Investing
activities:





For
      the Nine Months Ended September 30,2008
            
            2007used
      $(14,000)
            compared
      to
            used
      $(45,000)
            an
      increase in available cash of
$31,000





19





During
the first nine months of 2008, we purchased $48,000 and leased $34,000 of
computer equipment, as compared to the purchase of a vehicle valued at $45,000
during the first quarter of 2007.





Financing
activities:





For
      the Nine Months Ended September 30,2008
            
            2007provided
      $100,000
            compared
      to
            used
      $(13,000)
            an
      increase in available cash of
$113,000





The
increase in available cash from financing activities was the result of stock
purchases of $68,000 by two investors during the second quarter of 2008 and
short-term loans of $36,000 during the third quarter of 2008.





Capital
expenditure commitments:





We do not
currently have material commitments for capital expenditures and do not
anticipate entering into any such commitments during the next twelve
months.  Our current commitments consist primarily of lease
obligations for office space.





Working
capital:





At
September 30, 2008, we had a working capital deficit of ($13,000) as opposed to
a working capital surplus of $95,000 at the beginning of the period, a decrease
of $108,000.  This decrease is primarily due to an increase in current
accounts payable and accrued expenses during the first nine months of 2008 as a
result of fees owed to radiologists associated with Telerad Service,
Inc.  Also, as of September 30, 2008, balances due from three
customers comprised 60% or approximately $188,000 of our total accounts
receivable, and we have one account valued at approximately $18,000 in
collections.  If we are not able to collect from these customers, it
could extend our cash flow shortage into the fourth quarter of
2008.  We have incurred operating losses and negative cash flows for
the past two fiscal years that have been funded through the issuance of equity
securities.  Our monthly recurring revenues increased from an average
of $65,000 per month at the beginning of 2007 to a current average of over
$200,000 per month.  We may also continue to sell equity securities
and incur debt as needed to meet our operating needs during 2008.





We
anticipate that our primary uses of cash in the next year will be for general
operating purposes.  Based on cash flow projections including Telerad,
our normal operating cash requirements for the next twelve months are estimated
to be approximately $2,500,000.  Our goal during 2007 was to be
funding our operating requirements entirely from revenues by the end of the
year, and we did achieve that goal toward the end of the year.  We are
currently generating cash flow from recurring revenues of over $200,000 per
month, and this amount has increased steadily since the beginning of
2006.  We also generate modest revenues from sales of software,
hardware, and custom programming projects.  This level of cash flow
will allow us to maintain our current level of operations.  Our goal
for 2008 at the beginning of the year was to begin generating a net profit and
positive cash flow by the end of the year.  At this time, we
anticipate reaching that goal by the end of the first quarter of
2009.  We expect the upward trend in recurring revenues to continue
through the remainder of 2008 and into mid-2009, although it is not possible to
predict the rate of increase until our new products have been established in the
market for a reasonable period of time.





OFF-BALANCE
SHEET ARRANGEMENTS





We have
no off-balance sheet arrangements.





FORWARD-LOOKING
STATEMENTS





This
report contains statements that plan for or anticipate the
future.  Forward-looking statements include statements about the
future of operations involving the marketing and maintenance of products which
manage large volumes of media or digital material, statements about our future
business plans and strategies, and most other statements that are not historical
in nature.  In this report forward-looking statements are generally
identified by the words “anticipate,” “plan,” “believe,” “expect,” “estimate,”
and the like.  Although management believes that any forward-looking
statements it makes in this report are reasonable, because forward-looking
statements involve future risks and uncertainties, there are factors that could
cause actual results to differ materially from those expressed or
implied.  For example, a few of the uncertainties that could affect
the accuracy of forward-looking statements include the
following:


20








·
            Rapid
      changes in technology relating to the
Internet


·
            Continued
      growth and use of the Internet


·
            Changes
      in government regulations


·
            Changes
      in our business strategies


·
            Hardware
      failure of a catastrophic
proportion


·
            Terrorist
      interference with the operation of the Internet or effects of terrorist
      activities on the economy


·
            Difficulty
      recruiting and retaining staff of sufficient technical caliber to provide
      adequate and on-going customer support and product maintenance and
      development


·
            Failure
      to successfully market our products through the Internet and our
      representatives


·
            Inability
      to locate sources to retire our line of credit or to obtain alternative
      lending sources


·
            Inability
      to solve cash flow problems





In light
of the significant uncertainties inherent in the forward-looking statements made
in this report, particularly in view of our early stage of operation, the
inclusion of this information should not be regarded as a representation by us
or any other person that our objectives and plans will be achieved.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.





Not
required.





ITEM 4T  CONTROLS AND PROCEDURES





307 –
Disclosure controls and procedures:  As of September 30, 2008, we
carried out an evaluation of the effectiveness of our disclosure controls and
procedures, with the participation of our principal executive and principal
financial officers.   Disclosure controls and procedures are
defined in Exchange Act Rule 15d–15(e) as “controls and other procedures of an
issuer that are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a
et seq.) is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms [and] include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Act is accumulated and
communicated to the issuer's management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.”  Based on our evaluation, our President/Chief Executive
Officer and Chief Financial Officer have concluded that, as of September 30,
2008, such disclosure controls and procedures were not effective.





308T(b) –
Changes in internal control over financial reporting: Based upon an
evaluation by our management of our internal control over financial reporting,
with the participation of our principal executive and principal financial
officers, there were no changes made in our internal control over financial
reporting during the quarter ended September 30, 2008 that have materially
affected or are reasonably likely to materially affect this
control.








21





Limitations
on the Effectiveness of Internal Control: Our management does
not expect that our disclosure controls and procedures or our internal control
over financial reporting will necessarily prevent all fraud and material
errors.  An internal 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 on all internal control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected.  These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake.  Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, and/or by management override of the control.  The design of
any system of internal control is also based in part upon certain assumptions
about risks and the likelihood of future events, and there is 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
circumstances and the degree of compliance with the policies and procedures may
deteriorate.  Because of the inherent limitations in a cost-effective
internal control system, financial reporting misstatements due to error or fraud
may occur and not be detected on a timely basis.





PART II





ITEM 1.  LEGAL PROCEEDINGS





We are
not engaged in any legal proceedings, and do not know of any threatened
litigation or claims.





ITEM 1A.  RISK FACTORS





During
the three month period ended September 30, 2008, there has not been any change
in or addition to the risk factors to which investment in our common stock is
subject.





ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS





There
were no securities issued in the current quarter.





ITEM 3.  DEFAULTS UPON SENIOR SECURITIES





Not
applicable.





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





Not
applicable.





ITEM 5.  OTHER INFORMATION





Not
applicable.





ITEM 6.  EXHIBITS





The
following exhibits are attached to this report:





31.1  Rule
15d-14 (a)  Certification by Principal Executive Officer


31.2  Rule
15d-14 (a)  Certification by Principal Financial
Officer




32  Section
1350 Certification of Principal Executive Officer and Principal Financial
Officer







22





SIGNATURES





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





NEW
MEXICO SOFTWARE, INC.








Date:  November
      14, 2008
            By  /s/  Richard F.
      GovatskiRichard
      F. Govatski, President





Date:  November
      14, 2008
            By  /s/  Teresa B.
      DickeyTeresa
      B. Dickey, Treasurer  (PrincipalFinancial
      Officer)





























23