UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549



AMENDMENT
NO. 2 TO FORM 10-QSB



(Mark
One)

[X]

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



For
the quarter ended September 30, 2004



[
  ]

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



NMXS.COM,
INC.

(Exact
name of Registrant as specified in charter)



DELAWARE

(STATE
OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)



91-1287406

(IRS
EMPLOYER IDENTIFICATION NUMBER)



5021
Indian School Road, Suite 100

Albuquerque,
New Mexico 87110

(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)



(505)
255-1999

(REGISTRANT'S
TELEPHONE NO., INCLUDING AREA CODE)





(FORMER
NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,

IF
CHANGED SINCE LAST REPORT)



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 [   ]



<R>

NUMBER
OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF APRIL 1, 2005 IS:
  36,280,782.



TRANSFER
AGENT AS OF APRIL 1, 2005:  Interwest Transfer Company, Inc., 1981 East
Murray Holladay Road, Suite 100, Salt Lake City, Utah 84117.

</R>









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PART I

FINANCIAL INFORMATION



ITEM 1.

FINANCIAL STATEMENTS





|NMXS.com, Inc. and Subsidiaries           
|------------------------------------------
|Consolidated Balance Sheet                
|(unaudited)                               
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|Assets                                    
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|Current assets:                           
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|Furniture, equipment and improvements, net
|Security deposits                         
|Goodwill, net                             
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|Liabilities and Stockholders' Equity      
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|Current liabilities:                      
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|Stockholders' equity:                     
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|NMXS.com, Inc. and Subsidiaries                      
|-----------------------------------------------------
|Consolidated Statements of Operations                
|(unaudited)                                          
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|Revenue                                              
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|Operating costs and expenses:                        
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|Net operating profit (loss)                          
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|Other (expense):                                     
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|Net income (loss)                                    
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|Weighted average number of                           
|                                                     
|                                                     
|Net income (loss) per share - basic and fully diluted







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|NMXS.com, Inc. and Subsidiaries          
|-----------------------------------------
|Consolidated Statements of Cash Flows    
|(unaudited)                              
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|Cash flows from operating activities     
|Net (loss)                               
|Adjustments to reconcile net (loss) to   
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|Changes in:                              
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|Net cash (used) by operating activities  
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|Cash flows from investing activities     
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|Net cash (used) by investing activities  
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|Cash flows from financing activities     
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|Net cash provided by financing activities
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|Net increase in cash and equivalents     
|Cash and equivalents - beginning         
|Cash and equivalents - ending            
|                                         
|Supplemental disclosures:                
|                                         
|                                         







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NMXS.com, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements





NOTE A - BASIS OF PRESENTATION



The interim consolidated 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 consolidated financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2003 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 B - FURNITURE, EQUIPMENT, AND IMPROVEMENTS



Furniture, equipment, and improvements as of September 30, 2004 consisted of the following:



|Computers                         |  | $   275,000
|--------------------------------- |  | -----------
|Furniture, fixtures and equipment |  | 105,000    
|Leasehold improvements            |  | 10,000     
|                                  |  | 390,000    
|Accumulated depreciation          |  | (290,000)  
|                                  |  | $   100,000



NOTE C - NOTE PAYABLE



During January 2001, the Company borrowed $300,000. The loan is collateralized by substantially all of the Company's assets and personally guaranteed by an officer of the Company. Additional collateral was provided by a letter of credit issued by a then unrelated third party. The letter of credit expired on January 19, 2002. The note was renewed with a due date of July 24, 2002 at a current interest rate of 7%. On July 24, 2002, the Company paid $50,000 of principal and $10,525 of interest. The remaining $250,000 of principal was extended to October 24, 2002 at a current interest rate of 7%. On October 24, 2002 the Company paid $25,000 of principal and $4,555 of interest. The remaining $225,000 of principal was extended until April 24, 2003 at a current interest rate of 7%.  On April 24, 2003, the Company paid $12,224 of principal and $12,768 of interest.  The remaining $212,776 of principal was extended until October 15, 2003 at a current interest rate of 7%.  On October 20, 2003, the Company has negotiated a payment of $25,000 in principal and $7,500 in interest and extended the note to April 23, 2004.  On April 5, 2004, the Company paid $25,000 of principal and $6,000 in interest.  The remaining $163,240 was extended to October 15, 2004.  On October 8, 2004, the Company paid $25,000 of principal and $6,000 of interest.  The remaining $138,168 was extended until April 15, 2005.  As of September 30, 2004, the Company had a balance due of $163,000 plus accrued interest of $5,000.



On April 22, 2002, the Company borrowed $50,000.  The loan was due on April 23, 2003 at a current interest rate of 10% per annum.  This note is secured by 500,000 shares of the Company's $0.001 par value common stock.  As of September 30, 2004, the Company is in default and is negotiating with the note holder.  As of September 30, 2004, the total amount owed was $62,000 of which $50,000 is principal and $12,000 is interest.



In April 2002, the Company borrowed $12,500.  The loan is due on demand and bears no interest.  As of September 30, 2004, the Company had a balance due of $12,500.







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NMXS.com, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements





On March 1, 2003, the Company borrowed $25,000. The loan was due on September 30, 2003 at a current interest rate of 7% per annum.  On August 29, 2003, the note was extended to December 31, 2003.   On December 31, 2003, the note was extended to April 15, 2004.  As of September 30, 2004, the Company had a balance due of $27,000.  On April 15, 2004, the note was extended to September 30, 2004.  On May 21, 2004, the borrowed an additional $50,000.  The loan was due on demand at a current interest rate of 8% per annum.  As of September 30, 2004, the total amount owed was $79,000 of which $75,000 is principal and $4,000 is interest.



On September 2, 2004, the Company borrowed $25,000.  The loan is due on demand and bears no interest.  As of September 30, 2004, the Company had a balance due of $25,000.



On September 3, 2004, the Company borrowed $30,000 from a director of the Company.  The loan is due on demand and bears no interest.  As of September 30, 2004, the Company had a balance due of $30,000.



NOTE D - CAPITAL TRANSACTIONS



Common stock:



During the nine month period ended September 30, 2004, the Company effected the following stock transactions:



On January 7, 2004, the Company issued a total of 250,000 shares of its $0.001 par value common stock to a shareholder of the Company as part of a five year consulting agreement in the amount of $15,000.  The entire amount is considered prepaid compensation.



On February 9, 2004, the Company issued a total of 75,000 shares of its $0.001 par value common stock to a shareholder of the Company as part of a five year consulting agreement in the amount of $4,500.  The entire amount is considered prepaid compensation.



On March 7, 2004, the Company issued a total of 275,000 shares of its $0.001 par value common stock to a shareholder of the Company as part of a five year consulting agreement in the amount of $16,500.  The entire amount is considered prepaid compensation.



On March 8, 2004, the Company issued a total of 127,723 shares of the Company's $0.001 par value common stock to an employee in lieu of salary which was valued at $16,000.



During the three months ended March 31, 2004, the Company received cash totaling $116,000.  The Company has an offering open and raised a total of $56,000 related to the sale of 223,000 shares of the Company's $0.001 par value common stock.  The remaining amount of $60,000 is due to the exercise of warrants from individuals to purchase a total of 285,000 shares of the Company's $0.001 par value common stock.  As of September 30, 2004, the Company has not issued any of the shares mentioned and the entire balance of $116,000 is considered subscriptions payable and will be adjusted upon the issuance of the shares.



On March 31, 2004, the Company adjusted prepaid compensation in the amount of $15,000.



On April 6, 2004, the Company cancelled 22,500 shares of its $0.001 par value common stock that was erroneously issued to an employee as a bonus on December 10, 2003.



On June 7, 2004, the Company issued a total of 210,000 shares of the Company's $0.001 par value common stock which was part of the equity offering and reduced the subscriptions payable balance by







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NMXS.com, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements





$52,500.  In addition, the Company issued a total of 185,000 shares of the Company's $0.001 par value common stock which were related to the exercise of warrants and reduced the subscriptions payable balance by $38,850.



On June 22, 2004, the Company issued a total of 275,000 shares of its $0.001 par value common stock to a shareholder of the Company as part of a five year consulting agreement in the amount of $16,500.  The entire amount is considered prepaid compensation.



On June 29, 2004, the Company received cash totaling $47,000.  The Company sold 275,000 shares of its $0.001 par value common stock to one of its directors.  The entire balance of $47,000 is considered subscriptions payable and will be adjusted upon the issuance of the shares.

On June 30, 2004, the Company received cash totaling $6,600 for options from an individual to purchase a total of 60,000 shares of the Company's $0.001 par value common stock.



On June 30, 2004, the Company adjusted prepaid compensation in the amount of $15,000.



On August 1, 2004, the Company issued a total of 59,658 shares of the Company's $0.001 par value common stock to employees in lieu of salary which was valued at $20,277.



On August 16, 2004, the Company issued a total of 59,658 shares of the Company's $0.001 par value common stock to employees in lieu of salary which was valued at $20,277.



On August 31, 2004, the Company issued a total of 32,000 shares of the Company's $0.001 par value common stock to various individuals in exchange for cash of $5,000 and subscriptions receivable of $3,250.



On August 31, 2004, the Company authorized to issue 40,000 shares the Company's $0.001 par value common stock to an individual in exchange for services rendered of $10,000.  The entire amount is considered subscriptions payable and will be adjusted upon the issuance of the shares.



On September 1, 2004, the Company issued a total of 59,658 shares of the Company's $0.001 par value common stock to employees in lieu of salary which was valued at $20,277.



On September 23, 2004, the Company issued a total of 275,000 shares of its $0.001 par value common stock to a shareholder of the Company as part of a five year consulting agreement in the amount of $16,500.  The entire amount is considered prepaid compensation.



On September 29, 2004, the Company issued a total of 50,000 shares of its $0.001 par value common stock to their attorneys in exchange for legal services totaling $12,000.



On September 30, 2004, the Company issued a total of 99,338 shares of the Company's $0.001 par value common stock to employees in lieu of salary which was valued at $21,854.13.



On September 30, 2004, the Company adjusted prepaid compensation in the amount of $15,000.



Warrants:



During the nine month period ended September 30, 2004 there were no warrants issued and 345,000 warrants exercised.





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NMXS.com, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements





Stock options:



Disclosures required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), including pro forma operating results had the Company prepared its financial statements in accordance with the fair value based method of accounting for stock- based compensation prescribed therein are shown below. Exercise prices and weighted-average contractual lives of stock options outstanding as of September 30, 2004 are as follows:



|Options Outstanding |  | Options Exercisable
|------------------- |  | -------------------
|                    |  |                    
|Exercise Prices     |  | Number Outstanding 
|$0.05-$0.30         |  | 7,832,320          
|$0.31-$0.50         |  | 160,000            
|$0.54-$0.83         |  | 60,000             



Summary of Options Granted and Outstanding:



|                                 |  | For the nine months ended September 30,
|-------------------------------- |  | ---------------------------------------
|                                 |  | 2004                                   
|                                 |  | Shares                                 
|Options:                         |  |                                        
|Outstanding at beginning of year |  | 6,042,824                              
|Granted                          |  | -                                      
|Cancelled                        |  | (337,049)                              
|Outstanding at end of year       |  | 5,705,775                              



The following table summarizes the pro forma operating results of the Company for September 30, 2004 had compensation costs for the stock options granted to employees been determined in accordance with the fair value based method of accounting for stock based compensation as prescribed by SFAS No. 123.



Proforma net income (loss) available to common stockholders   $         0

Proforma basic and diluted loss per share                               
$    0.00



NOTE E - RELATED PARTY TRANSACTIONS



Consulting agreement:



The Company entered into a consulting agreement with Mr. Brian McGowan, a stockholder, to advise the CEO on business strategy, formulate marketing ideas and plans, and introduce the Company to companies and individuals in various markets with regard to the Company's business, products, and services. The term of the employment agreement is for approximately five years commencing on July 1, 2003 and terminating on December 31, 2008.  Mr. McGowan will receive a total of 5,500,000 shares of the Company's $0.001 par value common stock valued at $330,000.  As of September 30, 2004, he was paid a total of 3,900,000 shares of common stock, but he has earned only 1,250,000 shares and the difference of 2,650,000 shares is considered prepaid compensation.  During the nine month period ended September 30, 2004, the Company has expensed $45,000 in consulting fees.





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NMXS.com, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements







NOTE F- MAJOR CUSTOMERS



During the nine month period ended September 30, 2004, three customers accounted for 38% of the Company's revenue (Stampede Entertainment 15%, Universal Studios 13%, and MPG Systems 10%).  The Company recognized $0 as revenue and $0 as expense from barter agreements for the nine month period ended September 30, 2004.



As of September 30, 2004, balances due from five customers comprised 82% of total accounts receivable (Forbes.com 24%, Stampede Entertainment 19%, MPG Systems 18%, CompUSA 11%, and Sun Healthcare 10%).



NOTE G - REPORTABLE SEGMENTS



Management has identified the Company's reportable segments based on separate legal entities. NMS derives revenues from the development and marketing proprietary internet technology-based software and WKI provides data maintenance services related to NMS digital asset management system. Information related to the Company's reportable segments for the nine months ended September 30, 2004 is as follows:



|                           |  | NMS         |  | WKI          |  | Total      
|-------------------------- |  | ----------- |  | ------------ |  | -----------
|Revenue                    |  | $   964,000 |  | $     21,000 |  | $   985,000
|                           |  |             |  |              |  |            
|Cost of services           |  | 258,000     |  | 28,000       |  | 286,000    
|Cost of hardware           |  | 25,000      |  | -            |  | 25,000     
|General and administrative |  | 581,000     |  | 119,000      |  | 700,000    
|Research and development   |  | 91,000      |  | -            |  | 91,000     
|                           |  |             |  |              |  |            
|Operating income (loss)    |  | 9,000       |  | (126,000)    |  | (117,000)  
|                           |  |             |  |              |  |            
|Total assets               |  | $823,000    |  | $    29,000  |  | $   852,000



WKI revenue consists primarily of software maintenance and scanning services.



A reconciliation of the segments' operating loss to the consolidated net loss/comprehensive loss is as follows:



Segment's operating income

($   117,000)

Other income



(       19,000)

Consolidated net loss/comprehensive loss

($   136,000)



Prior to acquisition of Working Knowledge, Inc., in April 2000, the Company operated within one business segment.



For the nine months ended September 30, 2004, amortization and depreciation expense amounted to $41,000 and $17,000 for NMS and WKI, respectively.  Also, total fixed asset additions amounted to $17,000 and $0 for NMS and WKI, respectively, while fixed asset disposals amounted to $0 and $0 for NMS and WKI, respectively.







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NMXS.com, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements





NOTE H - COMMITMENTS AND CONTINGENCIES



Leases:



The Company leases office space in New Mexico and California.  Future minimum lease payments as of September 30, 2004 are as follows:



|Year |  | Amount   
|---- |  | ---------
|2004 |  | $  62,000
|2005 |  | $  82,000
|2006 |  | $  82,000
|2007 |  | $  82,000
|2008 |  | $  82,000



Rent expense for office space in New Mexico and California for the nine months ended September 30, 2004 amounted to $27,000 and $27,000, 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, 2003. The agreement allows for a one year renewal option unless terminated by either party.  Base salary is $44,000 per annum with available additional cash compensation as defined in the agreement.  Compensation under this agreement of $33,000 is included in general and administrative expenses for the nine month period ended September 30, 2004.  The non-competition agreement commences upon the termination of the employment agreement for a period of one year.   As of September 30, 2004, there was a total of $107,000 in accrued payroll.



Outstanding Payroll Taxes:



The Company has unpaid Federal and State payroll taxes totaling $277,000 as of September 30, 2004, including estimated penalties and interest. The penalties and interest associated with this liability is estimated to be in excess of 10% of the total payroll taxes due, and the Company has accrued $30,000 in penalties and interest.



On June 1, 2003, the Company settled with the State of New Mexico and agreed to pay $1,000 per month of past due payroll taxes plus the current amount due.  During the nine months ended September 30, 2004, the Company paid a total of $9,000 of past due payroll taxes.



On October 17, 2003, the Company settled with the IRS and agreed to pay $5,000 per month of past due payroll taxes plus the current amount due.  During the nine months ended September 30, 2004, the Company paid a total of $50,000 of past due payroll taxes.





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NMXS.com, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements





NOTE I - LEGAL PROCEEDINGS



Kurt Paul Grossman and Ann Grossman filed a complaint for Breach of Contract on a Promissory Note against the Company on November 25, 2003, in the Superior Court of California, Orange County Division, case # 03CC14074.  There was a question of whether the complaint was properly served and whether the California courts have jurisdiction over the Company.  The Grossmans filed an Application for Writ of Attachment which was denied on January 30.  The Grossmans asked for $55,000 ($50,000 on the promissory note plus $5,000 interest); $304.40 in costs; and $24,000 in attorney's fees.  The Grossmans, through a separate entity, Doctors Telehealth Network, purchased software from the Company, and it has not been paid for.  The Company filed a motion to quash the service of summons for lack of personal jurisdiction and to vacate a default judgment against us.  The court tentatively ruled in favor of the Grossmans.  However, after the Company's oral argument on April 23, 2004, the court withdrew its tentative ruling and ruled in favor of the Company.  Specifically, the court ruled that the Company does not have sufficient contact with California to warrant the exercise of personal jurisdiction.  Based on this ruling, there is no action pending against the Company at this time.



In October 2003, the Company entered into an interim agreement with the Internal Revenue Service concerning the repayment of federal tax deposits which the Company failed to pay for the six operating quarters ended September 30, 2003.  The Company has agreed to pay $5,000 per month beginning November 1, 2003.  During this interim period the IRS has agreed to withhold the filing of a federal tax lien.  Consideration of filing a lien in the future will be based upon a determination of how long it may take to pay the taxes.  Also, the Company's failure to make timely federal tax deposits will default this interim agreement and necessitate the filing of the lien.  The Company's unpaid tax returns for these quarters are being assessed by the IRS, and the Company expects to receive an assessment notice for each period upon completion of this assessment.  The Company estimates that these assessments will total approximately $300,000, plus interest and penalties.  Since the end of the third quarter 2003, the Company has made on-time payments of current payroll taxes for both the state and federal agencies.



On March 9, 2004, the Company's legal counsel received a letter from an attorney representing Manhattan Scientifics.  The letter threatened litigation against the Company for alleged breach of contract and against Richard Govatski, president of the Company, for alleged tortious interference with contract.  This is based on the fact that the Company was alleged to have declined to honor Manhattan Scientifics' alleged request for a cashless exercise of 150,000 of the Company's Common Stock Purchase Warrants (the "Warrants") allegedly issued to Manhattan Scientifics.  It is the Company's position that the Warrants, among other things, were issued in a transaction that was not an arms-length transaction and therefore, the Warrants should be cancelled, and that in any event, the alleged cashless exercise was not properly done and itself is a nullity.  In May 2004, Manhattan Scientifics filed a suit in Federal Court in New York against the Company and Mr. Govatski for damages in this matter.  The case was dismissed by the Federal Court due to a lack of diversity jurisdiction.  On June 25, 2004, the Company was served with a complaint filed in the Supreme Court of the State New York, County of New York, Index No. 601793/04, asserting the same claims.  Manhattan Scientifics seeks damages against the Company for an alleged breach of contract for failure to allow the alleged cashless exercise, in an amount of $1.5 million, and alleges a tortious interference claim against Mr. Govatski.  The Company served their Answer to the Complaint on August 16, 2004.  Mr. Govatski is seeking dismissal of the claim against him for lack of personal jurisdiction and for failure to state a claim.  Along with the Company's Answer, they are asserting Counterclaims against Manhattan Scientifics for monies owed by Manhattan Scientifics and for a declaratory judgment, and against a former Company Director, Marvin Maslow for fraud and breach of fiduciary duty due to his persuading the Company to enter into the Warrant transaction with Manhattan Scientifics, which they contend was done for the benefit of Maslow and Manhattan Scientifics, and not for the benefit of the Company as Mr. Maslow then knowingly falsely claimed.  The Company believes that due to the fact that Mr. Maslow and a second former Company director (Scott Bach), were also Directors of Manhattan Scientifics at the time of the transactions in dispute, and constituted two of the Company's three Directors at the time, Mr. Maslow and Mr. Bach should have excused themselves from participating in negotiating and voting on the issue of whether to approve the Warrants. Messrs. Maslow and Bach resigned as the Company's Directors in December 2002.  The Company believes that Mr. Maslow had other financial conflicts in connection with the transaction in dispute, which further underscored that the transaction was not arms-length.  It is the Company's position that such financial conflicts include Mr. Maslow's causing the Company to pay for third-party consulting services provided to Manhattan Scientifics, while falsely contending that such services would be provided to, and were needed by, the Company purportedly as part of the transaction.  It is the Company's position that Mr. Maslow also misrepresented the fairness of the transaction in dispute at the time to the Company, which they contend was being done for the benefit of Mr. Maslow and Manhattan Scientifics, to the detriment of the Company, despite Mr. Maslow's knowingly false advise to the Company that the transaction would benefit the Company.  In the Company's counterclaims, they are seeking, among other relief, a determination that the Warrants should be declared null and void from inception, plus damages against Mr. Maslow.  It is further the Company's position that even if the Warrants were properly issued (the Company contends they were not), the Warrants were never properly exercised by Manhattan Scientifics.





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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS



The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with our financial statements and notes thereto appearing in this prospectus. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward- looking statements.



OVERVIEW



New Mexico Software develops digital lifecycle management systems.  The digital lifecycle is the strategy that associates database information with both paper and digital files including text, email, images, audio, graphics, video and animation files, and coordinates access to a common repository of these processes and files.  The digital lifecycle encompasses creation, approval, sharing, storage, retrieval, usage, capture and archiving of the database information.  It is appropriate for a wide variety of industries, including government, medical, entertainment, and IT markets, providing a significant opportunity for market penetration.  Our core product, Roswell, is an enterprise-level platform that manages digital files.  It manages assets by creating folders, or groups of files, catalog hierarchies, users, user groups, and user permissions.  The files are managed by our database that maintains both the membership of the file in a folder(s) and information about the file.  Roswell's main user interface is a web browser, which makes it accessible and more intuitive to a greater number of users.  It can be run on Windows or Linux operating systems.



In addition to our core product, Roswell, we have launched three new products this fall.  The three products, Santa Fe, White Sands, and Taos, further extend our document and image management capabilities, as well as the potential for market penetration.  The three new products are prepackaged software ranging in price from $39.95 to $249.95.  When combined with our Roswell enterprise system and our mid-level Digital Filing Cabinet (DFC) package, they give us a broader range of revenue sources with a balanced combination of sales from high volume retail business and more specialized enterprise systems.



Some challenges we face in the next year are developing a sales force and distribution channels in order to market our products, and educating potential customers about the benefits of digital management systems.  We have hired several independent sales agents to help sell our products.  We have also designated a manager to focus on providing education about our products to potential customers, and we provide demo software on the Internet for this purpose, so that customers can better understand how the digital lifecycle works.  One possible opportunity for our business was discussed in a May 10, 2004 article in Business Week Online entitled
"Software Shift".  According to this article, software products using open source programming are now expanding beyond the Linux operating system to include databases, search engines, programming tools and desktop PC software.  Since our products have all been developed with open source code, we may be in a position to take advantage of this expansion by identifying opportunities to integrate our software with some of the newly emerging open source products.







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Another new marketing area that we are developing is the need for customers to hire our engineers to connect our software to existing software owned by the customer. We now have several contracts in which we are
"welding" different databases to our database with good success. This could be a very important growth area for us in the future.



We presently realize revenues from four primary sources:  (i) software sales, maintenance and hosting; (ii) custom programming services; (iii) license fees; and (iv) scanning and other services.  We also occasionally realize revenues from hardware sales when the hardware is sold together with the software, and occasionally from other services.  To date, license fees and software sales have been directly related.  With each sale of our 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 and bug fixes or product patches.  Software maintenance consists primarily of hosting and managing our customers' data on our servers.  This structure will continue with our Roswell product; therefore, we anticipate a positive impact on license fees, software maintenance, and custom programming revenues from Roswell sales.  However, according to an article in Forbes magazine on March 29, 2004 entitled
"A Hard Landing for Software", software companies are gradually relying less on the software license for revenues and more on professional services such as programming and consulting.  Management believes this trend applies to our revenues as well, since Roswell is our only product that will use this licensing structure.  Therefore, although we expect a positive impact on license fees from Roswell, we believe software sales, custom programming, and professional services will provide a greater portion of our revenues in the coming years.



With the marketing of the new prepackaged products, management anticipates that revenues for direct software sales and technical support will increase as those products are sold and the associated technical support programs are purchased.  The change in focus to include our newer products reflects management's belief that a broader range of products and customers will provide greater stability in revenues.



Scanning services are performed principally by Working Knowledge at its site in Santa Monica, California.   To date, management has anticipated that these services will be reserved in the future primarily for existing customers and customers of our core products, although revenue could be generated from unsolicited customers.  Accordingly, in 2004 management has not focused on developing this segment of our business, but we are currently assessing the importance of scanning services as part of an overall focus on client services during the coming year.



Cost of services consists primarily of engineering salaries, engineering supplies, compensation-related expenses, hardware purchases and equipment rental.  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, administrative, and reporting responsibilities.  We record these expenses when incurred.



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



The Company derives revenues from five general activities; the sale of software licenses to end users, software maintenance contracts, third party hardware and software sales, consulting services and software licenses that require us to provide significant production, customization or modification to our core software product.



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.



The Company sells software licenses directly to its end user customers.  These sales do not require further commitment from the Company and are 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 reasonably assured.



In connection with the sales of software licenses, we sell maintenance contracts that vary in terms.  Maintenance contract revenue is recognized on a straight-line basis over the life of the respective contracts.



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.  Revenue is generally recognized for such arrangements under the percentage of completion method.  Under percentage of completion accounting, both the product license and consulting services revenue are recognized as work progresses based on labor hours incurred.  At December 31, 2003 and June 30, 2004, there were no custom software development arrangements in progress.



The sale of third party hardware and software generally is billed as a separate deliverable under consulting or custom development contracts.



Consulting revenue is recognized as the services are rendered.



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



The Company follows 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.



The application of SOP 97-2, as amended, requires judgment, including a determination that collectibility is reasonably assured and the fee is fixed and determinable.



Income Taxes

Management evaluates the probability of the utilization of the deferred income tax assets.  The Company has estimated a $8,917,000 deferred income tax asset at December 31, 2003, related primarily to net operating loss carryforwards at December 31, 2003.  Management determined that because the Company has 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 full deferred income tax asset is offset by an equal valuation allowance.  If the Company begins to generate taxable income, Management 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.







---



Goodwill



Goodwill was recognized in the Company's acquisition of Working Knowledge, Inc.  Management believes that there is no impairment of the carrying value of $75,000 at December 31, 2003 and June 30, 2004.  Management believes that there is sufficient evidence that the Company will eventually generate operating income and positive operating cash flows related to the Working Knowledge products.  Also, management believes that there is substantial value in its proprietary software.



Stock Based Compensation



The Company grants 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 elected to apply the intrinsic value method prescribed in APB No. 25 for stock options granted to employees.  For options granted to non-employees, we estimate 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 assets or the incurrence of a liability, as well as our ability to reasonably estimate the amount of the loss contingencies.



<R>

At
September 30, 2004, the Company is involved in litigation related to a dispute
over the validity of the issuance of 150,000 of the Company's common stock
warrants.  The plaintiff has made a claim of damages of $1,500,000 against
the Company.  We believe that we have adequate defenses and counter claims
and therefore we have not accrued for any potential loss on this case nor are
the 150,000 warrants included in the number of our potentially dilutive
securities at December 31, 2003.

</R>



The
Company is paying past due payroll taxes of approximately $300,000 at a rate of
$5,000 per month.  The Company has accrued its estimate of interest and
penalties of $30,000 on this past due amount.  However, the Company has
received notices from the IRS reflecting interest and penalty amounts greater
than $30,000.  We believe that the Company will negotiate a final
settlement with the IRS of approximately $30,000 for those penalties and
interest.  However, the final settlement may vary from our estimate.



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.







---





RESULTS
OF OPERATIONS



A
summary of operating results for the three months ended September 30, 2004 and
2003 is as follows:



<R>



2004

2003

%
of

%
of

Amount

Revenue

Amount

Revenue

Revenues

$
 208,000

100.0%

$
 377,000

100.0%

Cost
of service

136,000

56.3%

80,000

21.2%



Gross
profit

72,000

43.7%

297,000

78.8%



General
& administrative

260,000

118.8%

158,000

41.9%

Research
& development

32,000

15.4%

28,000

7.5%

Bad
Debt Expense

0

0.0%

0

0.0%



Net
operating (loss)

(220,000)

(90.4)%

111,000

29.4%



Other
income (expense)

(12,000)

(5.8)%

(5,000)

(1.3)%



Net
income (loss)

(232,000)

(96.2)%

106,000

28.1%



Earnings
(loss) per share

$
   (0.01)

$
 0.00





A
summary of operating results for the nine months ended September 30, 2004 and
2003 is as follows:





2004

2003

%
of

%
of

Amount

Revenue

Amount

Revenue

Revenues

$
 985,000

100.0%

$
 1,004,000

100.0%

Cost
of service

311,000

29.6%

245,000

24.4%



Gross
profit

674,000

70.4%

759,000

75.6%



General
& administrative

700,000

69.8%

716,000

71.3%

Research
& development

91,000

9.2%

90,000

9.0%

Bad
Debt Expense

0

0.0%

501,000

49.9%



Net
operating (loss)

(117,000)

(8.6)%

(548,000)

(54.6)%



Other
income (expense)

(19,000)

(2.0)%

(19,000)

(1.9)%



Net
income (loss)

(136,000)

(10.6)%

(567,000)

(56.5)%



Earnings
(loss) per share

$
   (0.00)

$
 (0.02)



</R>





---



<R>

Revenues:
 Total revenues decreased 44.8%, or $169,000, for the quarter ended
September 30, 2004, as compared to the same period in the prior year (the "comparable prior year period").  These revenues were primarily
generated from the following four revenue streams:

</R>



<R>

1.
 Revenues generated by software sales and maintenance decreased 10.1%, or
$16,000, for the quarter ended September 30, 2004, as compared to the comparable
prior year period.  This decrease is attributable to a combination of
factors.  Sales of DFC and Roswell products decreased 87.7% or $58,000 as
compared to the comparable prior year period, but sales of Santa Fe, Taos, and
White Sands increased by 100% or $61,000 for the same period.  We completed
the development phase of DFC approximately one year ago; we completed Roswell
approximately six months ago; and we completed our three prepackaged products in
September 2004.  As a result, sales of these products have only recently
begun to impact our revenues and their sales growth is still inconsistent.
 We anticipate that sales of Roswell will increase gradually over the next
two years; however, since it is a high-level enterprise system, its sales are
characterized by a small number of contracts with much higher revenues than our
other products.  As a result, growth of Roswell's sales will most likely
be inconsistent from one quarter to the next.  Sales of this enterprise
product, however, will be balanced by sales of our new prepackaged products.
 Development was completed on the prepackaged products in the third quarter
2004, and we made our first shipment in September.  These prepackaged
products range in price from $39.95 to $249.95, so they will have a much lower
margin than DFC and Roswell. Revenues from these products will be driven more by
volume, providing balance for the more expensive enterprise products which
provide only a few contracts per year. We are not current emphasizing sales of
our DFC product, although we will continue to sell it as customers request it.
 We also occasionally sell upgrades to current DFC customers.

</R>



<R>

Revenues
from software maintenance decreased 23.1% or $21,000 for the third quarter 2004
as compared to the comparable prior year period.  This decrease is due to
the termination of the hosting agreement for one customer.  Software
maintenance consists mainly of hosting and managing our customers' data on our
systems.  We will continue hosting for various existing clients and for our
Roswell product, in addition to focusing new marketing efforts on the sale of
our standard products.  We have four projects currently in negotiations
that will involve on-going software maintenance.  Based on these projects
in addition to our current contracts, management anticipates that revenues from
software maintenance will increase in the coming year.

</R>



<R>

2.
 Custom programming revenue decreased 96.7%, or $146,000, for the quarter
ended September 30, 2004, as compared to the comparable prior year period.
 This decrease was due to the fact that we recognized revenue on two custom
programming contracts of $72,000 and $75,000 respectively during the third
quarter of 2003, and we had no major custom programming contracts during the
third quarter of 2004.  Approximately 10% of the customers that purchase
our standard products will require customization, and we continue to offer this
service.  In addition, our Roswell product is offered chiefly as a
customizable package, so we anticipate that custom programming projects
associated with new product purchases will continue to provide revenues in this
category.  We also continue to offer programming services for customer
database integration.  Therefore, we anticipate that this revenue source
will continue to increase in the coming year, with about 50% of the revenue
coming from Roswell customers and 50% from database integration projects.

</R>



<R>

3.
 Revenues generated by license fees remained steady for the quarter ended
September 30, 2004, as compared to the comparable prior year period.  Although
our products have been developed using open source code, we have added
additional code that is considered proprietary technology, particularly in our
Roswell and Santa Fe products.  This additional technology can be licensed,
however we anticipate generating license fees only from these two products in
the future.  As a result, management believes that this category may be a
less significant portion of future revenues.  We anticipate that most
revenues will be generated from sales of our software products.

</R>



<R>

4.
 Revenue generated by scanning services decreased 16.0%, or $8,000, for the
quarter ended September 30, 2004, as compared to the comparable prior year
period.  Approximately half of the decrease is due to a slight decrease in
the volume of work performed during the current quarter on a long-term scanning
project with a major movie studio. This studio has committed to scan over 5,000
titles for this project.  At the current rate of progress, we expect the
project to continue for approximately three to five years.  The other half
of the decrease is due to additional scanning projects for other customers
during the third quarter 2003.  We had no additional scanning projects
during the third quarter of 2004.  In general, management is currently
assessing the importance of scanning services as part of an overall focus on
client services during the coming year.  Although we are not emphasizing
scanning services at this time, we anticipate that this revenue source will
continue to increase slightly this year due to the long-term project mentioned
above.

</R>



<R>

We
also generated other revenue from hardware sales and the sale of other
miscellaneous items and services.  Revenue generated by these other
services increased 50.0% or $1,000, for the quarter ended September 30, 2004, as
compared to the comparable prior year period.  Sales of hardware associated
with our Digital Filing Cabinet system accounted for 100% of this revenue.
 The Digital Filing Cabinet system may be sold as software only, or as a
complete system of software and hardware.  We provide the option including
hardware for customers who need the complete system, but we do not emphasize
hardware sales, therefore we do not consider it a significant part of our
business on an on-going basis.

</R>



<R>

Cost
of Services.  Cost of services increased 70.0%, or $56,000, for the quarter
ended September 30, 2004, as compared to the comparable prior year period.
 Approximately $33,000 (59%) of this increase is attributable to the cost
of inventory and test fees related to manufacturing and preparing our
prepackaged software products for shipment.  The remaining $23,000 (41%) of
the increase is due to increased compensation-related expenses due to the hiring
of a technical writer and graphics designer.  Cost of services as a
percentage of revenues increased to 65.4% for the quarter ended September 30,
2004, up from 21.2% for the comparable prior year period.  During the
current quarter, approximately 68% of our cost of sales consists of engineering
salaries and compensation-related expenses.  We consider these salaries to
be directly associated with our ability to generate revenues, however, they do
not vary with revenues in that much of those costs are fixed.  As a result,
the gross margin percent will vary as sales vary.  During the current
quarter, revenues decreased 44.8% as compared to the same quarter last year,
while engineering salaries increased slightly, resulting in a higher ratio of
cost of sales to revenues.

</R>



<R>

For
the nine months ended September 30, 2004, cost of services as a percentage of
revenues was 31.6%, as compared with 24.4% for the comparable prior year period.
 Management anticipates that as revenues increase in the coming year, the
cost of goods and services required to support those revenues will continue to
increase, and engineering salaries will also increase as we hire additional
staff to support a greater number of products and customers.  However, we
expect that revenues will increase at a greater rate than cost of services,
since most of our costs are relatively fixed.  We believe this range of
percentages over the last two years is more indicative of the percentage of
costs associated with future revenues, but until we have been in the active
marketing phase for a longer period, management is unable to yet determine to
what extent this percentage may change in the future.

</R>





---



<R>

General
and Administrative.  General and administrative expenses increased 64.6%,
or $102,000, for the quarter ended September 30, 2004, as compared to the
comparable prior year period.  We have made a dedicated effort in the last
year to reduce our general and administrative expenses.  Several one-time
adjustments during the third quarter of 2003 are primarily responsible for the
apparent increase in general and administrative expenses during the current
quarter.  During the third quarter of 2003, we incurred a ($90,000)
adjustment in salaries pursuant to a new employment agreement, a ($79,000)
adjustment in accounting fees to our previous accounting firm, and a $84,000
adjustment for advertising used in the barter transaction with Forbes.com.
 The net result of these adjustments was an $85,000 decrease in general and
administrative expenses for the third quarter of 2003.  Without these
adjustments, general and administrative expenses increased $17,000 (10.7%) for
the current quarter as compared to the comparable prior year period.  This
increase relates to marketing expenses incurred in preparation for sales of our
new prepackaged products.  General and administrative expenses as a
percentage of revenues were 125.0% for the quarter ended September 30, 2004, as
compared to 41.9% for the comparable prior year period.  General and
administrative expenses for the third quarter 2003 without the adjustments were
64.5%.

</R>



<R>

For
the nine months ended September 30, 2004, general and administrative expenses as
a percentage of revenues was 71.1%, as compared with 71.3% for the comparable
prior year period.  Management believes the ratio of general and
administrative costs to revenues will decrease in the future because revenues
will increase at a greater rate than general and administrative costs, but until
we have been in the active marketing phase for a longer period, management is
unable to yet determine to what extent this percentage may change in the future.

</R>



<R>

Research
and Development.  Research and development expenses increased 14.3%, or
$4,000, for the quarter ended September 30, 2004, as compared to the comparable
prior year period.  This increase is primarily attributable to
management's focus on completing the development phase of the first version of
our three new prepackaged products.  However, 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.  Management anticipates that research and development costs in
the future will focus on the upgrading of our existing products; therefore they
will remain relatively steady for the remainder of the year.

</R>



<R>

Other
Income.  Interest expense increased 140.0%, or $7,000 for the quarter ended
September 30, 2004, as compared to the comparable prior year period.  The
increase in interest expense was associated with interest on new notes payable
incurred during the last year.  There was no loss on disposal of fixed
assets in the third quarter of 2004.

</R>





---



<R>

In
general, our key indicator of operating progress is gross revenue.  For the
nine-month periods ending September 30, 2004 and 2003, personnel-related
expenses have accounted for approximately 59% of our operating expenses, with
fixed costs such as building and equipment rent, utilities, insurance,
communications and depreciation accounting for an additional 24%.  The only
personnel-related costs that are directly variable with sales are those
associated with custom programming, because they are directly billable.  This
means that over 80% of our expenses are relatively fixed.  All of the
remaining expenses vary, but less than 5% varies directly with sales.  We
will incur more definite variable costs associated with our new pre-packaged
products beginning in the fourth quarter of 2004, so in 2005 we may be able to
use some other indicators such as gross margins to help analyze performance, but
for 2003 and 2004 gross revenue is our primary indicator of when we will achieve
profitability and break-even cash flow.

</R>



REPORTABLE
SEGMENTS



<R>

Management
has identified the Company's reportable segments based on the two distinct
product lines and the two separate legal entities. New Mexico Software (NMS)
derives revenues from the development and marketing proprietary internet
technology-based software and Working Knowledge, Inc. (WKI) provides data
maintenance services related to the NMS digital asset management system.
Information related to the Company's reportable segments for the nine months
ended September 30, 2004 is as follows:



Nine
months Ended

2004

2003

|                                 |  | NMS               |  | WKI                |  | NMS               |  | WKI             
|-------------------------------- |  | ----------------- |  | ------------------ |  | ----------------- |  | ----------------
|Revenue                          |  | $
        964,000 |  | $
          21,000 |  | $
        979,000 |  | $
        25,000
|                                 |  |                   |  |                    |  |                   |  |                 
|Cost
      of services           |  | 283,000           |  | 28,000             |  | 199,000           |  | 46,000          
|General
      and administrative |  | 581,000           |  | 119,000            |  | 597,000           |  | 91,000          
|Research
      and development   |  | 91,000            |  | -                  |  | 90,000            |  | -               
|Bad
      debt expense           |  | -                 |  | -                  |  | 500,000           |  | 1,000           
|Impairment
      of goodwill     |  | -                 |  | -                  |  | -                 |  | -               
|                                 |  |                   |  |                    |  |                   |  |                 
|Operating
      income (loss)    |  | 9,000             |  | (126,000)          |  | (407,000)         |  | (113,000)       
|                                 |  |                   |  |                    |  |                   |  |                 
|Total
      assets               |  | $823,000          |  | $
         29,000  |  | $
       753,000  |  | $
       106,000



</R>



Generally,
New Mexico Software develops and markets the software, and therefore, software
sales and maintenance, licensing and custom programming are considered revenue
streams for that entity.  Working Knowledge, Inc. provides services that
are necessary to prepare, enter, and maintain the customer's data on our image
management system.  These include web design, database development, image
scanning, asset uploading, and database support.  In addition, Working
Knowledge is able to serve the customer by utilizing the stored images to
produce compact discs, digital prints, and large poster formats.  These
revenue streams, usually classified as scanning and other revenue, are
considered revenue streams for that entity.  These complementary services
allow us to complete our cycle of comprehensive image management.









---



<R>

LIQUIDITY
AND CAPITAL RESOURCES



As
of September 30, 2004, cash and cash equivalents totaled $89,000, representing a
$78,000 increase from the beginning of the period.  The increase in
available cash was due to a combination of several factors during the year, but
the primary factors were the issuance of common stock for cash and three new
notes payable.  These are discussed in financing activities below.



Operating
activities used $170,000 of cash for the nine months ended September 30, 2004,
as compared to $139,000 for the comparable prior year period.  The increase
in the use of cash for operating activities was mainly due to our emphasis on
continuing to pay down our accrued expenses and to maintain current accounts
payable, even though we had no significant increase in operating cash receipts.
 During the nine months ended September 30, 2004, we used $108,000 to pay
down accrued expenses and trade accounts payable, as opposed to using $15,000
during the same period in 2003.  These payments resulted in an increase in
the use of cash for operating purposes of $93,000 for the current period as
compared to the comparable prior year period.  They also resulted in total
accrued expenses and trade accounts payable of $479,000 as of September 30,
2004, as compared with $587,000 at September 30, 2003, a decrease of $108,000.
 The payments on accrued expenses are all payments toward past-due tax
obligations.



The
increased use of cash toward accrued expenses and accounts payable was
accompanied by issuance of common stock for salaries and services of $146,000
during the nine months ended September 30, 2004 as compared with $176,000 for
the comparable prior year period.  In addition, we recognized deferred
revenue of $55,000 during the current year as compared with deferring revenue of
$25,000 during the prior period, which represents increased use of cash of
$80,000 during the nine months ended September 30, 2004.  These factors
increased the use of cash for operating purposes by a total of $110,000 for the
current period as compared with the prior period.



The
increases in cash used for operating purposes were balanced by the change in
accounts receivable.  During the nine months ended September 30, 2004,
accounts receivable increased $57,000, as compared with an increase of $307,000
during the comparable prior year period.  This change represents a decrease
in the use of cash for operating purposes of $250,000.  The large increase
in 2003 is due to several large contracts completed near the end of the quarter.



Trade
accounts payable were $67,000 at September 30, 2004 as compared to $122,000 at
December 31, 2003, reflecting our emphasis on keeping our payables current.
 We continue to accrue the salary of our president, Richard Govatski, which
at September 30, 2004, was an aggregate of $107,000.  This amount
represents 95% of the accrued payroll balance at September 30, 2004.  This
obligation will only be paid when there is available cash, therefore it will
have no material adverse effect on our liquidity.  The remainder of the
accrued payroll will be paid in common shares, therefore it also will have no
material adverse effect on our liquidity.  Payroll taxes due as of
September 30, 2004, are approximately $277,000, including penalties and
interest.







---



The
following table shows current balances and payment details of our obligations as
of September 30, 2004:



|                                               | Sept
      30 | Negotiated                            | Payment     
|---------------------------------------------- | ------------- | ------------------------------------- | ------------
|                                               | Balance       | Payment                               | Frequency   
|Notes
      Payable:                           |               |                                       |             
|Los
      Alamos National Bank note + interest | 168,000       | 25,000                                | semiannually
|Grossman
      + interest                      | 62,000        | In
      negotiations                 |             
|First
      Mirage + interest                  | 79,000        | No
      payment plan established yet
|Demand
      Notes                             | 68,000        |                                       |             
|                                               |               |                                       |             
|Past
      due Accounts Payable:               |               |                                       |             
|New
      Mexico payroll taxes                 | 19,000        | 1,000                                 | monthly     
|IRS
      + estimated penalties & interest     | 258,000       | 5,000                                 | monthly     
|Attorney
      fee                             | 6,000         | No
      payment plan established yet
|                                               |               |                                       |             
|Other
      payables (current)                 | 58,000        |                                       |             
|Accrued
      Payroll and Deferred Revenue     | 132,000       |                                       |             
|                                               |               |                                       |             
|Total
      Liabilities per Balance Sheet      | 785,000       |                                       |             





Accounts
receivable increased from $450,000 at December 31, 2003 to $507,000 at September
30, 2004, primarily due to new sales during the current and prior quarter, some
of which have extended payment plans.  Five customers account for $453,000
(81%) of the outstanding balance.  One customer represents the first
shipment of our prepackaged products shipped near the end of the third quarter.
 Two of the balances are for contracts with extended payment plans
completed near the end of the prior quarter totaling $153,000.  One is an
existing customer on a payment plan with a current balance of $104,000, and the
other $135,000 is an agreement for advertising still owed to us, which will be
used during 2004 or 2005.  The advertising agreement was a barter
transaction, so this receivable will not directly generate cash.  However,
it will allow us to generate advertising in the coming year without expending
cash.



Investing
activities used $17,000 for the nine months ended September 30, 2004, as
compared to $6,000 for the comparable prior year period.  The increase in
the cash used for investing activities for the current period was due to the
purchase of leasehold improvements associated with our office relocation
(approximately $12,000) and the purchase of equipment to manufacture our new
prepackaged products (approximately $5,000).



Financing
activities provided $265,000 in cash for the nine months ended September 30,
2004, as compared to $176,000 for the comparable prior year period.  The
increase in cash provided by financing activities was primarily attributable to
two factors: the issuance of common stock and new notes payable.  During
the year we issued 488,000 shares of common stock for gross proceeds of $107,000
and we received gross proceeds of $78,000 for common stock that has not yet been
issued.  We also received gross proceeds of $105,000 in the form of three
new notes payable during the year.



Management
anticipates that our primary uses of cash in the next year will be allocated to
continue to satisfy delinquent obligations and for general operating purposes.
 Our business strategy is to increase working capital by internal growth
through continued hosting of our existing customers, sale of licenses for our
Roswell products, maintenance of these licenses, and sales of our prepackaged
products, as well as externally through the sale of potentially dilutive
securities.  We may also continue to incur debt as needed to meet our
operating needs.  In addition, we may be forced to issue additional equity
compensation to employees and outside consultants to meet payroll and pay for
needed legal and other services.





---





At
September 30, 2004, we had an outstanding balance on a line of credit with Los
Alamos National Bank (LANB) which was originally due on July 24, 2002.  The
outstanding principal amount due at that date was $300,000, plus interest of
$10,545.  We negotiated a three month extension on the repayment of the
outstanding balance of the line of credit by reducing the principal amount of
the debt with the payment of $50,000 and the payment of the interest due on July
24, 2002.  We were able to negotiate an extension of the amount due on the
line of credit until April 24, 2003, by paying $25,000 of the principal amount
due and $4,555 in interest due at October 24, 2002.  On April 24, 2003, we
paid $12,224 of principal and $12,768 of interest, and we negotiated another
six-month extension to October 20, 2003. On October 20, 2003 we negotiated an
extension of the amount due until April 23, 2004 by paying $25,000 in principal
and $7,500 in interest.  On March 27, 2004, we received a letter from LANB
extending the note until October 15, 2004, with payment of $25,000 of principal
and approximately $6,000 of interest due on April 15, 2004.  On April 5,
2004, we paid the $25,000 of principal and $6,000 of interest as agreed.  The
principal balance due for this line of credit was $163,168 as of September 30,
2004.  On October 4, 2004, we received a letter from LANB extending the
note until April 15, 2005 upon payment of $25,000 of principal and approximately
$6,000 of interest, which we paid on October 8, 2004.  The company has the
necessary cash to continue to reduce the note under these circumstances.  Our
inability to retire this debt, negotiate an extension of the payment amount
and/or date, or obtain an alternative loan would likely have a material negative
impact on our business, and could impair our ability to continue operations if
the bank foreclosed on the note.  However, the bank has continued to extend
the note six months at a time, providing we pay an agreed-upon amount of
principal and interest at the time of the extension.  We believe that LANB
will continue to work with us in this manner.



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.



Management
anticipates that the capital requirements for operations for the next twelve
months will be approximately $1,200,000 - $1,500,000, based on cash flow
projections.  The company currently has contracts which provide for
recurring revenues of approximately $600,000 over the next twelve months.  Although
one annual contract for software maintenance for 2004 was prepaid at the end of
2003, the remaining software maintenance contracts provide a monthly cash flow
of approximately $40,000.  Based on the prior year licensing and custom
programming revenue, we can expect these services to generate an additional
$300,000 - $400,000 over the next twelve months.  We have four projects in
process (combined maintenance and custom programming) that will generate
additional cash flow of approximately $30,000 per month plus initial custom
programming fees of approximately $300,000.  We anticipate that new clients
and our new products will provide the remaining necessary cash flow for the next
year.



We
have received a non-binding letter of intent from a fiduciary trust, In God We
Trust, to invest up to $500,000 in New Mexico Software over the next six months,
which will provide working capital necessary for operations over the next twelve
months and to retire long-term debt and past-due payroll taxes. The letter of
intent does not require the investor to fund.  However, we have had a
long-term relationship with this investor and believe that the investor has the
willingness and wherewithal to provide funds should our cash requirements exceed
our abilities to generate cash elsewhere.  Through a combination of
increased marketing efforts and continued reduction of expenses, management
anticipates continued positive working cash flow during 2004.

</R>







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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:



o

Rapid
changes in technology relating to the Internet

o

Continued
growth and use of the Internet

o

Changes
in government regulations

o

Changes
in our business strategies

o

Hardware
failure of a catastrophic proportion

o

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

o

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

o

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

o

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

o

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.

CONTROLS
AND PROCEDURES



(a)
Evaluation of disclosure controls and procedures



<R>

Our
Chief Executive Officer and Chief Financial Officer (collectively the
"Certifying Officers") maintain a system of disclosure controls and
procedures that is designed to provide reasonable assurance that information,
which is required to be disclosed, is accumulated and communicated to management
timely. The Certifying Officers have concluded that the disclosure controls and
procedures are effective at the "reasonable assurance" level. Under the
supervision and with the participation of management, as of September 30, 2004,
the Certifying Officers evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule
[13a-15(e)/15d-15(e)] under the Exchange Act). Furthermore, the Certifying
Officers concluded that our disclosure controls and procedures in place were
designed to ensure that information required to be disclosed by us, including
our consolidated subsidiaries, in reports that we file or submit under the
Exchange Act is (i) recorded, processed, summarized and reported on a timely
basis in accordance with applicable Commission rules and regulations; (ii)
accumulated and communicated to our management, including our Certifying
Officers and other persons that perform similar functions, if any, to allow us
to make timely decisions regarding required disclosure in our periodic filings.

</R>



(b)
Changes in internal controls



<R>

Our
Certifying Officers have indicated that there were no significant changes in our
internal controls or other factors that could significantly affect such controls
during the quarter ending September 30, 2004, and there were no such control
actions taken during the quarterly period ending September 30, 2004.

</R>





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PART
II



ITEM
1.

LEGAL
PROCEEDINGS



<R>

Grossman
Lawsuit:  Kurt Paul Grossman and Ann Grossman filed a complaint for Breach
of Contract on a Promissory Note against us on November 25, 2003, in the
Superior Court of California, Orange County Division, case # 03CC14074. There
was a question of whether the complaint was properly served and whether the
California courts have jurisdiction over us. The Grossmans filed an Application
for Writ of Attachment which was denied on January 30. The Grossmans asked for
$55,000  ($50,000 on the promissory note plus $5,000 interest); $304.40 in
costs; and $24,000 in attorney's fees. The Grossmans, through a separate
entity, Doctors Telehealth Network, purchased software from us, and it has not
been paid for.  We filed a motion to quash the service of summons for lack
of personal jurisdiction and to vacate a default judgment against us.  The
court tentatively ruled in favor of the Grossmans.  However, after our oral
argument on April 23, 2004, the court withdrew its tentative ruling and ruled in
favor of us.  Specifically, the court ruled that we do not have sufficient
contact with California to warrant the exercise of personal jurisdiction.  Based
on this ruling, there is no action pending against us at this time.



Internal
Revenue Service Payments:  In October 2003 we entered into an interim
agreement with the Internal Revenue Service concerning the repayment of federal
tax deposits that  we failed to pay for the six operating quarters ended
September 30, 2003.  We have agreed to pay $5,000 per month beginning
November 1, 2003.  During this interim period the IRS has agreed withhold
the filing of a federal tax lien.  Consideration of filing a lien in the
future will be based upon a determination of how long it may take to pay the
taxes.  Also, our failure to make timely federal tax deposits will default
this interim agreement and necessitate the filing of the lien.  Our unpaid
tax returns for these quarters are being assessed by the IRS, and we expect to
receive an assessment notice for each period upon completion of this assessment.
 We estimate that these assessments will total approximately $300,000,
including penalties and interest.



Manhattan
Scientifics Lawsuit:  On March 9, 2004, our legal counsel received a letter
from an attorney representing Manhattan Scientifics.  The letter threatened
litigation against us for alleged breach of contract and against Richard
Govatski for alleged tortious interference with contract.  This is based on
the fact that we were alleged to have declined to honor Manhattan Scientifics'
alleged request for a cashless exercise of 150,000 of our Common Stock Purchase
Warrants (the "Warrants") allegedly issued to Manhattan Scientifics. 
It is our position that the Warrants, among other things, were issued in a
transaction that was not an arms-length transaction and therefore, the Warrants
should be cancelled, and that in any event, the alleged cashless exercise was
not properly done and itself is a nullity.  In May 2004, Manhattan
Scientifics filed a suit in Federal Court in New York against us and Mr.
Govatski for damages in this matter.  The case was dismissed by the Federal
Court due to a lack of diversity jurisdiction.  On June 25, 2004, we were
served with a complaint filed in the Supreme Court of the State New York, County
of New York, Index No. 601793/04, asserting the same claims.  Manhattan
Scientifics seeks damages against us for an alleged breach of contract for
failure to allow the alleged cashless exercise, in an amount of $1.5 million,
and alleges a tortious interference claim against Mr. Govatski.



We
served our Answer to the Complaint on August 16, 2004.  Mr. Govatski is
seeking dismissal of the claim against him for lack of personal jurisdiction and
for failure to state a claim.  Along with our Answer, we are asserting
Counterclaims against Manhattan Scientifics for monies owed by Manhattan
Scientifics and for a declaratory judgment, and against a former Company
Director, Marvin Maslow for fraud and breach of fiduciary duty due to his
persuading the Company to enter into the Warrant transaction with Manhattan
Scientifics, which we contend was done for the benefit of Maslow and Manhattan
Scientifics, and not for the benefit of the Company as Mr. Maslow then knowingly
falsely claimed.  We believe that due to the fact that Mr. Maslow and a
second former Company director (Scott Bach), were also Directors of Manhattan
Scientifics at the time of the transactions in dispute, and constituted two of
the Company's three Directors at the time, Mr. Maslow and Mr. Bach should have
excused themselves from participating in negotiating and voting on the issue of
whether to approve the Warrants. Messrs. Maslow and Bach resigned as our
Directors in December 2002. We believe that Mr. Maslow had other financial
conflicts in connection with the transaction in dispute, which further
underscored that the transaction was not arms-length.  It is our position
that such financial conflicts include Mr. Maslow's causing the Company to pay
for third-party consulting services provided to Manhattan Scientifics, while
falsely contending that such services would be provided to, and were needed by,
the Company purportedly as part of the transaction.  It is our position
that Mr. Maslow also misrepresented the fairness of the transaction in dispute
at the time to us, which we contend was being done for the benefit of Mr. Maslow
and Manhattan Scientifics, to the detriment of the Company, despite Mr.
Maslow's knowingly false advise to the us that the transaction would benefit
the Company.  In our counterclaims, we are seeking, among other relief, a
determination that the Warrants should be declared null and void from inception,
plus damages against Mr. Maslow.  It is further our position that even if
the Warrants were properly issued (we contend they were not), the Warrants were
never properly exercised by Manhattan Scientifics.

</R>





---



Other
than listed above, neither our parent company nor any of its subsidiaries, or
any of their properties, is a party to any pending legal proceeding.  We
are not aware of any contemplated proceeding by a governmental authority.  Also,
we do not believe that any director, officer, or affiliate, any owner of record
or beneficially of more than five percent of the outstanding common stock, or
security holder, is a party to any proceeding in which he or she is a party
adverse to us or has a material interest adverse to us.



ITEM
2.  CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES



<R>

During
the quarter ended September 30, 2004, the following securities were sold by us
without registering the securities under the Securities Act:



In
August 2004, we issued 33,000 shares of our common stock to five investors for
gross proceeds of $8,250.00.  These securities were issued without
registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4 (2) thereof, as a
transaction by an issuer not involved in a public offering.  Each of the
investors acknowledged the investment nature of the securities issued and
consented to the imposition of restrictive legends upon the certificates
evidencing the shares.  The investors did not enter into the transaction as
a result of or subsequent to any advertisement, article, notice, or other
communication published in any newspaper, magazine, or similar media or
broadcast on television or radio, or presented at any seminar or meeting.  The
investors were afforded the opportunity to ask questions of our management and
to receive answers concerning the terms and conditions of the transaction.
 No underwriting discounts or commissions were paid in connection with such
issuance.

</R>



ITEM
3.

DEFAULTS
UPON SENIOR SECURITIES



<R>

During
the quarter ended September 30, 2004, we were delinquent in the payment of
interest and principal on a $50,000 promissory note payable to Kurt and Ann
Grossman.  The note was due and payable on April 23, 2003, and bears
interest of $5,000.  As of the filing date of this report, the total amount
due on the note is $55,000.  We have continued to accrue interest at an
imputed annual rate of 10%.  The total amount of interest accrued as of
September 30, 2004 is $12,000.







---



During
the quarter ended September 30, 2004, we were delinquent in the payment of
interest and principal on a $25,000 promissory note payable to First Mirage,
Inc.  The note was due and payable on June 30, 2003, and bears interest at
the rate of 7% per annum.  As of the filing date of this report, the total
amount due on the note is approximately $27,775.  On August 29, 2003, First
Mirage granted an extension of the maturity date of the note to December 31,
2003.  On December 31, 2003, First Mirage granted an extension of the
maturity date of the note to April 15, 2004.  On April 15, 2003, First
Mirage granted an extension of the maturity date to June 30, 2004.

</R>



ITEM
6.

EXHIBITS
AND REPORTS ON FORM 8-K

<R>

(a)   
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



(a)   
Reports.  The following reports on Form 8-K were filed during the quarter
ended September 30, 2004: None.

</R>













---





SIGNATURES



Pursuant
to the requirements of the Securities and Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.



NMXS.com,
INC.









Date:

April
4, 2005

By
 /s/  Richard Govatski

Richard
Govatski, Chief Executive Officer and President

(Principal Executive Officer)







Date:
 April 4, 2005

By
/s/  Teresa Dickey

Teresa
Dickey, Treasurer  (Principal Financial

Officer/Principal Accounting Officer)



















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