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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-QSB



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(Mark One)

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



For the quarterly period ended September 30, 2004



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



For the transition period from  to



Commission file number 0-50435



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MD Technologies Inc.

(Name of small business issuer in its charter)



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|                                                               |  |                                       
|-------------------------------------------------------------- |  | --------------------------------------
|DELAWARE                                                       |  | 72-1491921                            
|(State or other jurisdiction of incorporation or organization) |  | (I. R. S. Employer Identification No.)
|                                                               | 
|620 FLORIDA ST., SUITE 200 BATON ROUGE, LOUISIANA              |  | 70801                                 
|(Address of principal executive offices)                       |  | (Zip Code)                            



Issuers
telephone number (225) 343-7169



---



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



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS



Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.    Yes ̈No ̈Not applicable.



APPLICABLE ONLY TO CORPORATE ISSUERS



State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: Common Stock: 3,949,311
shares outstanding as of October 25, 2004.



Transitional Small
Business Disclosure Form (check one):    Yes  x    No ̈

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MD TECHNOLOGIES INC.



INDEX TO FORM 10-QSB



September 30,
2004



|                                                                                                                          |  |   
|------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I  FINANCIAL INFORMATION                                                                                           
|                                                                                                                         
|Item 1  Financial Statements (unaudited)                                                                                
|                                                                                                                          | 
|Consolidated Balance Sheets at September 30, 2004 and December 31, 2003                                                   |  | 3 
|                                                                                                                          | 
|Consolidated Statement of Operations For the Three Months and Nine Months Ended September 30, 2004 and September 30, 2003 |  | 4 
|                                                                                                                          | 
|Consolidated Statement of Cash Flows For the Nine Months Ended September 30, 2004 and September 30, 2003                  |  | 5 
|                                                                                                                          | 
|Notes to Consolidated Financial Statements                                                                                |  | 6 
|                                                                                                                          | 
|Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 7 
|                                                                                                                          | 
|Item 3  Controls and Procedures                                                                                          |  | 10
|                                                                                                                          | 
|PART II  OTHER INFORMATION                                                                                               |  | 11
|                                                                                                                          | 
|Item 6. Exhibits and Reports on Form 8-K                                                                                  |  | 11
|                                                                                                                          | 
|SIGNATURES                                                                                                                |  | 12
|                                                                                                                          | 
|EXHIBITS                                                                                                                  |  |   



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##### Table of Contents

PART I  FINANCIAL INFORMATION



Item 1. Financial Statements.



MD Technologies Inc.



BALANCE
SHEETS



|                                                                                                                        |  |                    |            |   |               |   |            |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ------------- | - | ---------- | -
|                                                                                                                        |  | September 30, 2004 |            |   | Dec. 31, 2003 |  
|ASSETS                                                                                                                  |  |                    |            |   |               |   |            |  
|Current Assets                                                                                                          |  |                    |            |   |               |   |            |  
|Cash and cash equivalents                                                                                               |  | $                  | 1,464,849  |   |               | $ | 2,923      |  
|Accounts receivable                                                                                                     |  |                    | 21,575     |   |               |   | 24,016     |  
|Deferred offering costs                                                                                                 |  |                    |           |   |               |   | 129,186    |  
|Prepaid expenses                                                                                                        |  |                    | 29,246     |   |               |   | 2,471      |  
|                                                                                                                        |  |                    |            |   |               |   |            |  
|Total current assets                                                                                                    |  |                    | 1,515,670  |   |               |   | 158,596    |  
|                                                                                                                        |  |                   
|Property and Equipment                                                                                                  |  |                    |            |   |               |   |            |  
|Computer equipment and software                                                                                         |  |                    | 152,223    |   |               |   | 45,059     |  
|Assets under capital lease                                                                                              |  |                    | 44,109     |   |               |   |           |  
|Furniture and fixtures                                                                                                  |  |                    | 25,820     |   |               |   | 4,792      |  
|                                                                                                                        |  |                    |            |   |               |   |            |  
|                                                                                                                        |  |                    | 243,638    |   |               |   | 49,851     |  
|Less: Accumulated depreciation                                                                                          |  |                    | 46,364     |   |               |   | 18,816     |  
|                                                                                                                        |  |                    |            |   |               |   |            |  
|                                                                                                                        |  |                    | 197,274    |   |               |   | 31,035     |  
|Other Assets                                                                                                            |  |                    |            |   |               |   |            |  
|Capitalized software costs held for sale, net                                                                           |  |                    | 272,717    |   |               |   | 189,969    |  
|                                                                                                                        |  |                    |            |   |               |   |            |  
|Total assets                                                                                                            |  |                    | 1,985,661  |   |               |   | 379,600    |  
|                                                                                                                        |  |                    |            |   |               |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                    |  |                    |            |   |               |   |            |  
|Current Liabilities                                                                                                     |  |                    |            |   |               |   |            |  
|Accounts payable                                                                                                        |  | $                  | 18,442     |   |               | $ | 167,216    |  
|Accrued expenses and interest                                                                                           |  |                    | 29,797     |   |               |   | 96,030     |  
|Notes payable and other term debt                                                                                       |  |                    | 34,791     |   |               |   | 228,025    |  
|Deferred revenue                                                                                                        |  |                    | 18,615     |   |               |   | 4,000      |  
|                                                                                                                        |  |                    |            |   |               |   |            |  
|Total current liabilities                                                                                               |  |                    | 101,645    |   |               |   | 495,271    |  
|                                                                                                                        |  |                   
|Long Term Liabilities                                                                                                   |  |                    | 33,117     |   |               |   | 13,153     |  
|                                                                                                                        |  |                   
|Stockholders Equity                                                                                                    |  |                    |            |   |               |   |            |  
|Preferred stock, no par value; 20,000 shares authorized, no shares issued or outstanding                                |  |                    |           |   |               |   |           |  
|Common stock, $0.0004 par value; 30,000,000 shares authorized, 4,905,561 shares issued and 3,949,311 shares outstanding |  |                    | 1,962      |   |               |   | 1,457      |  
|Additional paid-in capital                                                                                              |  |                    | 4,338,957  |   |               |   | 1,450,751  |  
|Treasury stock                                                                                                          |  |                    | (383       | ) |               |   | (383       | )
|Stock subscription receivable                                                                                           |  |                    |           |   |               |   | (863       | )
|Retained earnings                                                                                                       |  |                    | (2,489,637 | ) |               |   | (1,579,786 | )
|                                                                                                                        |  |                    |            |   |               |   |            |  
|                                                                                                                        |  |                    | 1,850,899  |   |               |   | (128,824   | )
|                                                                                                                        |  |                    |            |   |               |   |            |  
|Total liabilities and stockholders equity                                                                              |  | $                  | 1,985,661  |   |               | $ | 379,600    |  
|                                                                                                                        |  |                    |            |   |               |   |            |  



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



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MD Technologies Inc.



STATEMENTS
OF OPERATIONS



|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------- |  | ---------------------------------------- | ---------- | - | --------------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                             |  | For the three months ended September 30, |            |   | For the nine months ended September 30, |  
|                                             |  | 2004                                     |            |   | 2003                                    |   |            | 2004 |  |   | 2003       |  
|REVENUES                                     |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Sales and service revenue                    |  | $                                        | 169,359    |   |                                         | $ | 95,252     |      |  | $ | 433,983    |   |  | $ | 226,851    |  
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Total revenues                               |  |                                          | 169,359    |   |                                         |   | 95,252     |      |  |   | 433,983    |   |  |   | 226,851    |  
|                                             |  |                                          |            |  
|COSTS OF REVENUES                            |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Salaries direct                              |  |                                          | 25,439     |   |                                         |   | 9,332      |      |  |   | 60,739     |   |  |   | 27,065     |  
|Depreciation                                 |  |                                          | 25,170     |   |                                         |   | 12,653     |      |  |   | 54,626     |   |  |   | 36,455     |  
|Other cost of revenue                        |  |                                          | 15,848     |   |                                         |   | 3,443      |      |  |   | 37,369     |   |  |   | 15,460     |  
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Total cost of revenues                       |  |                                          | 66,457     |   |                                         |   | 25,428     |      |  |   | 152,734    |   |  |   | 78,980     |  
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Gross profit (loss)                          |  |                                          | 102,902    |   |                                         |   | 69,824     |      |  |   | 281,249    |   |  |   | 147,871    |  
|                                             |  |                                          |            |  
|OPERATING EXPENSES                           |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Compensation                                 |  |                                          | 278,519    |   |                                         |   | 170,130    |      |  |   | 685,350    |   |  |   | 298,955    |  
|Depreciation                                 |  |                                          | 9,960      |   |                                         |   | 11,964     |      |  |   | 34,245     |   |  |   | 26,386     |  
|Selling, general and administrative expenses |  |                                          | 156,433    |   |                                         |   | 43,746     |      |  |   | 468,830    |   |  |   | 102,163    |  
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                     |  |                                          | 444,912    |   |                                         |   | 225,840    |      |  |   | 1,188,425  |   |  |   | 427,504    |  
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Income from operations                       |  |                                          | (342,010   | ) |                                         |   | (156,016   | )    |  |   | (907,176   | ) |  |   | (279,633   | )
|                                             |  |                                          |            |  
|OTHER INCOME (EXPENSE)                       |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Interest income                              |  |                                          | 4,002      |   |                                         |   |           |      |  |   | 7,485      |   |  |   |           |  
|Interest expense                             |  |                                          | (1,414     | ) |                                         |   | (7,053     | )    |  |   | (10,160    | ) |  |   | (19,428    | )
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|                                             |  |                                          | 2,588      |   |                                         |   | (7,053     | )    |  |   | (2,675     | ) |  |   | (19,428    | )
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|NET LOSS                                     |  |                                          | (339,422   | ) |                                         |   | (163,069   | )    |  |   | (909,851   | ) |  |   | (299,061   | )
|Retained earnings, beginning of period       |  |                                          | (2,150,215 | ) |                                         |   | (1,368,510 | )    |  |   | (1,579,786 | ) |  |   | (1,232,518 | )
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Retained earnings, end of period             |  | $                                        | (2,489,637 | ) |                                         | $ | (1,531,579 | )    |  | $ | (2,489,637 | ) |  | $ | (1,531,579 | )
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Income per share: (Basic and diluted)        |  | $                                        | (0.09      | ) |                                         | $ | (0.06      | )    |  | $ | (0.26      | ) |  | $ | (0.11      | )
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Wtd. average number of shares outstanding    |  |                                          | 3,949,311  |   |                                         |   | 2,715,890  |      |  |   | 3,526,935  |   |  |   | 2,758,626  |  
|                                             |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  



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



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MD Technologies Inc.



STATEMENTS
OF CASH FLOWS



|                                                |  |                                         |            |   |      |   |         |  
|----------------------------------------------- |  | --------------------------------------- | ---------- | - | ---- | - | ------- | -
|                                                |  | For the nine months ended September 30, |           
|                                                |  | 2004                                    |            |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES            |  | $                                       | (1,045,706 | ) |      | $ | 1,219   |  
|                                                |  |                                        
|CASH FLOWS FROM INVESTING ACTIVITIES            |  |                                         |            |   |      |   |         |  
|Plant and equipment purchases                   |  |                                         | (149,680   | ) |      |   | (7,923  | )
|Capitalization of software development costs    |  |                                         | (144,070   | ) |      |   | (62,057 | )
|                                                |  |                                         |            |   |      |   |         |  
|Net cash flows used by investing activities     |  |                                         | (293,750   | ) |      |   | (69,980 | )
|                                                |  |                                        
|CASH FLOWS FROM FINANCING ACTIVITIES            |  |                                         |            |   |      |   |         |  
|Deferred offering costs                         |  |                                         | 129,186    |   |      |   | (73,238 | )
|Issuance of stock for cash                      |  |                                         | 2,888,712  |   |      |   | 119,979 |  
|Repayment of debt                               |  |                                         | (217,379   | ) |      |   | (12,140 | )
|Decrease in stock subscriptions receivable      |  |                                         | 863        |   |      |   |        |  
|                                                |  |                                         |            |   |      |   |         |  
|Net cash flows provided by financing activities |  |                                         | 2,801,382  |   |      |   | 34,601  |  
|                                                |  |                                         |            |   |      |   |         |  
|NET INCREASE IN CASH                            |  |                                         | 1,461,926  |   |      |   | (34,160 | )
|                                                |  |                                        
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  |  |                                         | 2,923      |   |      |   | 36,327  |  
|                                                |  |                                         |            |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD        |  | $                                       | 1,464,849  |   |      | $ | 2,167   |  
|                                                |  |                                         |            |   |      |   |         |  



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



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MD Technologies Inc.

NOTES TO FINANCIAL STATEMENTS

September 30, 2004



|1. | Managements Representation of Interim Financial Information
|-- | ------------------------------------------------------------



The accompanying financial statements have been prepared by MD Technologies Inc. without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by
such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These financial statements include all of the adjustments which, in the opinion of management, are necessary to a
fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the audited financial statements at December 31, 2003.



|2. | Stock Options and Warrants
|-- | --------------------------



The Company issued 50,000 employee stock options during the quarter exercisable at $2.40 each, vesting 1⁄2 in the year 2005 and the remainder in 2006.
The options expire five years from the vesting date. The options were issued at a price equal to the market value of the underlying stock on the date of grant. The Company applies APB # 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its plan. As such, no compensation costs were recorded, for options issued to employees, as of the date of grant.



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.



CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION



The discussion in this Quarterly Report on Form 10-QSB regarding MD Technologies Inc., its business and operations includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1996. This report and the information incorporated by reference in it contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. Such statements consist of
any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as may, expect, anticipate, estimate or continue or the
negative thereof or other variations thereon or comparable terminology. The reader is cautioned that all forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results
to differ materially from those referred to in such forward looking statements. We do not have a policy of updating or revising forward-looking statements and thus it should not be assumed that silence by us over time means that actual events are
bearing out as estimated in such forward looking statements.



When used in
this Quarterly Report, the terms  we, our, us, and MD Technologies refers to MD Technologies Inc., a Delaware corporation.



Certain statements contained in this Managements Discussion and Analysis are forward-looking statements. Actual
results could differ materially from those encompassed within such forward-looking statements as a result of various factors.



General



For an understanding of the significant factors that influenced our results during the past three fiscal years, you should read the following discussion
in conjunction with our consolidated financial statements and related notes.



The Quarter Ended September 30, 2004 Compared with the Quarter Ended September 30, 2003



| |  | Total revenue increased 78% in the quarter ended September 30, 2004 to $169,359 from $95,252 in the quarter ended September 30, 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| |  | Cost of Revenues increased 161% to $66,457.
| | - | -------------------------------------------



| |  | Operating Expenses increased 97% to $444,912.
| | - | ---------------------------------------------



| |  | Net Loss increased 108% to $339,422 ($.09/share.)
| | - | -------------------------------------------------



The Nine Months Ended September 30, 2004 Compared with the Nine Months Ended September 30, 2003



| |  | Total revenue increased 91% in the nine months ended September 30, 2004 to $433,983 from $226,851 in the nine months ended September 30, 2003.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  | Cost of Revenues increased 93% to $152,734.
| | - | -------------------------------------------



| |  | Operating Expenses increased 178% to $1,188,425.
| | - | ------------------------------------------------



| |  | Net Loss increased 204% to $909,851 ($.26/share.)
| | - | -------------------------------------------------



During the three months ended September 30, 2004 we completed our initial build-out phase of expanding the Companys operations that began in 2004 as
we continued to aggressively develop, market, and sell our products. As a result of the completion of the build-out phase, there were no new employees hired during the quarter ended September 30 2004. However, during the nine months ended September
30, 2004, we aggressively expanded the Companys operations with the proceeds of the public offering. During this period, we hired a total of twenty employees, including seven in administration, six in research and development, and seven in
sales and marketing. This mode of operations contrasts sharply with the first three months and first nine months of 2003 when we were focused mostly on increasing our net



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income with limited resources while we prepared for the public offering. We have also contributed significantly to
R&D during 2004 for the development of our next generation of products. Net increases in Operating Expenses, Cost of Revenues, and Net Loss are a direct result of our aggressive expansion in 2004.



Results of Operations



Revenues



Total revenues increased from $95,252 in the quarter ended September 30,
2003 to $169,359 in the quarter ended September 30, 2004, a 78% increase in total revenue. Total revenues increased from $226,851 in the nine months ended September 30, 2003 to $433,983 in the nine months ended September 30, 2004, a 91% increase in
total revenue.



These increases in total revenue for both the
three month period and the nine month period are due to continued success in the sale and implementation of our products and services, Medtopia Manager and Medtopia Expert. The Medtopia Manager revenue consists of one-time setup
and training fees and monthly subscription fees, while the Medtopia Expert revenue consists of monthly percentage-based revenue that is earned from customer billing and collection activity. Total revenue for the quarter ended September 30,
2004 for Medtopia Manager was $91,341 and total revenue for the same quarter for Medtopia Expert was $78,018. Total revenue for the nine months ended September 30, 2004 for Medtopia Manager was $244,405 and total revenue for the
same period for Medtopia Expert was $189,578. Revenue from each of these products and services has been growing consistently and can be attributed to the direct result of our expanded sales and marketing efforts. We expect this trend of
revenue growth to continue for the foreseeable future.



Costs of Revenues



The Cost of Revenues
for the three month period ended September 30, 2004 increased 161% from $25,428 in the quarter ended September 30, 2003 to $66,457 in the quarter ended September 30, 2004. This increase is mainly due to the deployment of new employees needed to
handle the increased customer base for our products and services. These additional expenses contributed specifically to an increase in the Cost of Revenues Direct Salaries from $9,332 in the quarter ended September 30, 2003 compared to $25,439 in
the quarter ended September 30, 2004, an increase of 173%.



The
remainder of the increase is a result of an increase in depreciation expense related to our capitalized software. Depreciation expense increased from $12,653 in the quarter ended September 30, 2003 compared to $25,170 in the quarter ended September
30, 2004, an increase of 99%. The increase in depreciation expense is a result of the increased amount of capitalized costs associated with the development of our new line of products.



The Other Cost of Revenues during this period increased due to nominal increases in each of the expenses comprising this
line item.



The Cost of Revenues for the nine month period
ended September 30, 2004 increased 93% from $78,980 in the nine months ended September 30, 2003 to $152,734 in the nine months ended September 30, 2004 as a result of the hiring of new personnel and moderate pay raises to existing employees. These
additional expenses contributed to an increase in the Cost of Revenues Direct Salaries from $27,065 in the nine months ended September 30, 2003 compared to $60,739 in the nine months ended September 30, 2004, an increase of 124%.



The Other Cost of Revenues during this period increased due to nominal
increases in each of the expenses comprising this line item.



Operating Expenses



Our operating expenses increased significantly from $225,840 in the quarter ended September 30, 2003 to $444,912 in the quarter ended September 30, 2004, an increase of 97%. This increase in operating expenses resulted in a greater loss
from operations of $342,010 in the quarter ended September 30, 2004 in comparison to $156,016 in the quarter ended September 30, 2003, an increase of 119%. The increase in operating expenses is a result of the new sales, marketing, programming, and
administration staff that were hired in the first half of the year. These additional employees contributed to an increase in Operating Expenses Compensation from $170,130 in the quarter ended September 30, 2003 to $278,519 in the quarter ended
September 30, 2004, an increase of 64%. The remainder of the increase in operating expenses is a result



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of increased selling, general, and administrative expense, which increased from $43,746 in the quarter ended September
30, 2003 to $156,433 in the quarter ended September 30, 2004, an increase of 258%. This increase in selling, general, and administrative expense is attributed primarily to the labor costs associated with our plan to aggressively increase sales.
While total revenues increased 78%, the increase in the cost of revenues coupled with the increase in operating expenses contributed to a greater net loss of $339,422 in the quarter ended September 30, 2004 in comparison to $163,069 in the quarter
ended September 30, 2003, an increase of 108%. We expect the net loss to continue in the near future. However, the net loss is also expected to decrease moderately from quarter to quarter as we have completed our initial build-out phase of hiring
new administrative and programming employees. New employees in these areas and the associated administrative expenses are expected to increase incrementally in the future as we add additional customers and potentially enter into new markets or
release new products.



Our operating expenses increased from
$427,504 in the nine months ended September 30, 2003 to $1,188,425 in the nine months ended September 30, 2004, an increase of 178%. As a result of the increase in operating expenses, the loss from operations increased to $907,176 in the nine months
ended September 30, 2004 from $279,633 in the nine months ended September 30, 2003, an increase of 224%. This increase in operating expenses results from the additional sales, marketing, programming, and administration staff that were hired and
deployed in the first six months of the year. These additional employees contributed to an increase in Operating Expenses Compensation from $298,955 in the nine months ended September 30, 2003 to $685,350 in the nine months ended September 30, 2004,
an increase of 129%. The remainder of the increase in operating expenses is a result of increased selling, general, and administrative expense, which increased from $102,163 in the nine months ended September 30, 2003 to $468,830 in the nine months
ended September 30, 2004, an increase of 359%. The increase in selling, general, and administrative expenses was a direct result of the additional costs required to implement our growth plan. While total revenues increased 91% in this nine month
period, the increase in the cost of revenues coupled with the increase in operating expenses contributed to a greater net loss of $909,851 in the nine months ended September 30, 2004 in comparison to $299,061 in the nine months ended September 30,
2003, an increase of 204%. This net loss is expected to decrease in the remainder of the year as revenue from expanded sales and marketing increases. The projected increase in revenue will be offset by our plan of only adding expenses incrementally
to support the expected additional revenues or to expand into new markets.



Liquidity and Capital Resources



Our
cash and cash equivalents increased by 50,015% from $2,923 at the beginning of the year to $1,464,849 at September 30, 2004 for a total cash increase of $1,461,926. This increase is a result of the $3,035,600 raised from the sale of stock during the
public offering, which closed on June 30, 2004, less the cash used to fund our operating loss and capital improvements in the first nine months of the year.



As of September 30, 2004, the Company had working capital and stockholders equity surpluses of $1,414,025 and $1,850,899 respectively. Prior to
2004, we have relied upon loans from management, issuance of common stock to consultants, the sale of common stock in private placements, and limited cash flow from the sales of our products and services in order to fund our activities. To fund
current and future activities, we raised $3,035,600 through a public offering of stock at $2.40 per share. The offering closed June 30, 2004. The proceeds of the offering are being used as working capital in order to fund sales and marketing,
operations, and the research and development of our products and services. In addition, portions of the proceeds have been used to retire almost all of the Company debt and purchase new equipment. $146,888 in costs of the initial public offering
were incurred, and have been charged to the proceeds of the offering in the accompanying financial statements. The cash infusion during the first six months of the year from the public offering is expected to satisfy our cash and working capital
requirements for the next several months.



Critical Accounting
Policies



The preparation of financial
statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions. Critical accounting policies are those policies that can have a significant impact on our financial position
and results of operations and require complex judgments and the most significant use of these subjective estimates and assumptions. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Specific risks
inherent in our application of these critical policies are described below. For all of these policies, we caution that future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment. These policies also often
require difficult judgments on complex matters that may be subject to multiple sources of authoritative guidance.



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Revenue



The Company recognizes revenue from the sale of third-party hardware and software products upon shipment from the Company.
Title transfers FOB shipping point. Revenue from professional services is recognized upon completion of the work and notification from the customer of their acceptance. Revenue from software licensing is recognized in accordance with Statement of
Position 97-2, Software Revenue Recognition. Revenue from software licensing is recognized when delivery of the software has occurred, a signed non-cancelable license agreement has been received from the customer, and any remaining obligations under
the license agreement are insignificant. Revenue associated with agreements to provide product support services is recognized as related services are provided. Revenue from annual or other renewals of maintenance contracts is deferred and recognized
on a straight-line basis over the term of the contracts.



Property and Equipment



Property and equipment are recorded at cost. Expenditures for renewals and improvements are capitalized while expenditures for repairs and maintenance are charged to operations as incurred. Depreciation and amortization of property and
equipment are computed by the straight-line method at rates adequate to allocate the cost of applicable assets over their estimated useful lives.



Costs of computer software developed for external uses and costs associated with technology under development are capitalized. Amortization is recorded
for each of the Companys products separately, using the greater of a) the amount calculated under the straight-line method over the remaining estimated economic life of each product, or b) the amount calculated using the ratio of current year
revenue to projected total revenue for each product. Capitalization of costs begins when conceptual and design activities have been completed, technological feasibility is assured, and when management has authorized and committed to fund a project.
Costs capitalized include external and internal costs of labor, materials, and services. Costs associated with training and general and administrative activities are expensed as incurred. The Company does not develop nor capitalize software for
internal purposes.



Item 3. Controls and Procedures.



The Companys management, including our Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule
13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended) as of the quarter ended September 30, 2004, the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures are effective for timely gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934, as amended.



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PART II  OTHER INFORMATION



Item 6. Exhibits and Reports on Form 8-K.



(a) Exhibits.



The following documents are
filed as a part of this report or are incorporated by reference to previous filings, if so indicated:



|               |  |                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                       
|               | 
|31.1           |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               | 
|31.2           |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               | 
|32.1           |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|               | 
|32.2           |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



(b) Reports on Form
8-K.



A Form 8-K was filed on August 2, 2004 regarding the
closing of initial stock offering and the start of trading. A Form 8-K was also filed on August 12, 2004 regarding the Companys earning announcement for the second quarter of 2004.



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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.



|                       |  |                      |  |                                              
|---------------------- |  | -------------------- |  | ---------------------------------------------
|                       |  | MD Technologies Inc.
|                       |  | (Registrant)        
|                       |  |                     
|Date: November 9, 2004 |  | By :                 |  | /s/ William D. Davis                         
|                       |  |                      |  | William D. Davis                             
|                       |  |                      |  | President & Chief Executive Officer, Director
|                       |  |                     
|                       |  | By:                  |  | /s/ William D. Eglin                         
|                       |  |                      |  | William D. Eglin                             
|                       |  |                      |  | Chief Financial Officer                      



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