================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

                                   (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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
             For the Transition Period from ________ to ___________

                          Commission File No.: 0-32523

                        DOBI MEDICAL INTERNATIONAL, INC.
                        --------------------------------
                 (Name of small business issuer in its charter)


             DELAWARE                                    98-0222710
----------------------------------------   ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)


          1200 MACARTHUR BLVD.
               MAHWAH, NJ                                  07430
----------------------------------------   ------------------------------------
(Address of principal executive offices)                (Zip Code)

                                 (201) 760-6464
                           ---------------------------
                           (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $.0001 per share


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. [ X ] Yes [ ] No

As of October 29, 2004, 37,748,292 shares of the issuer's Common Stock were
outstanding.

Transitional Small Business Disclosure Format (check one):  Yes       No  X
                                                                ----    -----


DOCUMENTS INCORPORATED BY REFERENCE:  None.
================================================================================

<PAGE>

                 DOBI Medical International, Inc. and Subsidiary
                          (A Development Stage Company)
                   Condensed Consolidated Financial Statements
                               September 30, 2004
                                   (unaudited)

<TABLE>
<CAPTION>

                                      Index

Part I - Financial Information

   Item 1.  Financial Statements                                                                          Page

<S>                                                                                                      <C>
         Condensed Consolidated Balance Sheet at September 30, 2004                                         3

         Condensed Consolidated Statements of Operations for the Three and Nine Month
                  Periods ended September 30, 2004 and 2003 and for the Period from
                  September 7, 1999 (Inception) to September 30, 2004                                       4

         CondensedConsolidated Statements of Cash Flows for the Nine Month
                  Periods Ended September 30, 2004 and 2003 and for the Period
                  from
                  September 7, 1999 (Inception) to September 30, 2004                                     5-6

         Notes to Condensed Consolidated Financial Statements                                            7-10

   Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                                                   11-16

   Item 3.  Controls and Procedures                                                                        17

Part II -  Other Information

   Item 1.  Legal Proceedings                                                                              18

   Item 2.  Changes in Securities                                                                          18

   Item 3.  Defaults Upon Senior Securities                                                                18

   Item 4.  Submission of Matters to a Vote of Security Holders                                            18

   Item 5.  Other Information                                                                              18

   Item 6.  Exhibits and Reports on Form 8-K                                                               18

   Signatures                                                                                              19

</TABLE>

                                       2
<PAGE>


Part I - Financial Information

Item 1 - Financial Statements

<TABLE>
<CAPTION>
                 DOBI Medical International, Inc. and Subsidiary
                          (A Development Stage Company)
                      Condensed Consolidated Balance Sheet
                               September 30, 2004
                                   (Unaudited)

ASSETS
Current assets:
<S>                                                                                    <C>
     Cash and cash equivalents                                                 $         1,626,289
     Prepaid expenses and other current assets                                             418,611
     Inventory                                                                             364,431
                                                                              ------------------------
Total current assets                                                                    2,409,331

Property and equipment, net                                                                505,674
Intangible assets, net                                                                      17,364
Other assets                                                                                45,529
                                                                              ------------------------
Total assets                                                                   $         2,977,898
                                                                              ========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                          $          541,021
     Accrued expenses                                                                     455,726
     Deferred revenue                                                                     147,290
                                                                              ------------------------
Total current liabilities                                                               1,144,037

Stockholders' Equity
     Preferred stock, $.0001 par value, 10,000,000 shares
        authorized, 206.45 shares issued and outstanding                                       --
     Common stock, $.0001 par value, 140,000,000 shares
        authorized, 37,737,073 issued and outstanding                                       3,775
     Additional paid-in capital                                                        23,417,998
     Deficit accumulated during development stage                                     (21,587,912)
                                                                              ------------------------
Total stockholders' equity                                                              1,833,861
                                                                              ------------------------
Total liabilities and stockholders' equity                                     $        2,977,898
                                                                              ========================

See notes to condensed consolidated financial statements
</TABLE>

                                       3
<PAGE>

<TABLE>
<CAPTION>
                 DOBI Medical International, Inc. and Subsidiary
                          (A Development Stage Company)

                 Condensed Consolidated Statements of Operations
                                   (Unaudited)



                                                             Three months ended
                                                                September 30,
                                            ------------------------------------------------------
                                                      2004                        2003
                                            --------------------------  --------------------------
<S>                                          <C>                          <C>                           <C>

Research and development expenses            $        527,371             $       273,414
General and administrative expenses                   566,195                     507,081
Clinical program expenses                             235,311                      90,273
Sales and marketing expenses                          568,752                      84,852
Interest expense                                        2,632                     370,901
Interest income                                        (4,478)                        (48)
                                            --------------------------  --------------------------
Net loss                                           (1,895,783)                 (1,326,473)

Deemed dividend on preferred stock                   (645,167)           -

Preferred Stock Dividends                            (103,227)           -
                                            --------------------------  --------------------------
Net loss applicable to common stock          $     (2,644,177)              $  (1,326,473)
                                            ==========================  ==========================

Basic and diluted loss per common share      $          (0.07)              $       (0.07)
                                            ==========================  ==========================

Weighted average common shares,
     basic and diluted                             37,737,073                  18,802,410
                                            ==========================  ==========================



                                                                                                             Period from
                                                                                                             September 7,
                                                                                                                 1999
                                                              Nine months ended                             (inception) to
                                                                 September 30,                               September 30,
                                            -------------------------------------------------------
                                                      2004                         2003                          2004
                                            --------------------------  ---------------------------  -----------------------------
Research and development expenses             $    1,497,352              $      851,471              $       8,399,606
General and administrative expenses                1,558,986                   1,082,992                      5,926,212
Clinical program expenses                            512,064                     251,418                      2,228,134
Sales and marketing expenses                       1,281,182                     318,633                      3,051,725
Interest expense                                       6,772                   1,078,301                      2,172,428
Interest income                                       (8,968)                       (330)                      (190,193)
                                            --------------------------  ---------------------------  -----------------------------
Net loss                                          (4,847,388)                 (3,582,485)                   (21,587,912)

Deemed dividend on preferred stock                  (645,167)                                 -                (645,167)

Preferred Stock Dividends                           (103,227)                                 -                (103,227)
                                            --------------------------  ---------------------------  -----------------------------
Net loss applicable to common stock             $ (5,595,782)              $  (3,582,485)               $   (22,336,306)
                                            ==========================  ===========================  =============================

Basic and diluted loss per common share     $          (0.15)          $           (0.19)
                                            ==========================  ===========================

Weighted average common shares,
     basic and diluted                            37,670,271                  18,801,021
                                            ==========================  ===========================

</TABLE>

See notes to condensed consolidated financial statements

                                        4
<PAGE>

<TABLE>
<CAPTION>

                 DOBI Medical International, Inc. and Subsidiary
                          (A Development Stage Company)
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                                                                   Nine months ended
                                                                                                      September 30,
                                                                                 -----------------------------------------------
                                                                                            2004              2003
                                                                                 --------------------  --------------------------  -
Operating activities
Net loss                                                                               (4,847,388)       $(3,582,485)
Adjustments to reconcile net loss to net cash used in operating activities:
<S>                                                                                         <C>                <C>
   Depreciation and amortization                                                            56,896             36,526
   Amortization of financing costs                                                               -            408,539
   Loss on sale of equipment                                                                     -                  -
   Write-off of purchased in-process research and development costs                              -                  -
   Interest receivable in connection with share subscription
      notes charged to equity                                                                    -                  -
   Stock based compensation                                                                 46,539             38,207
   Accrued interest converted to equity                                                          -                  -
   Accretion of discount on Series 1and 2 convertible notes                                      -            465,118
   Common stock warrants in connection with
      the conversion of notes payable                                                            -                  -
   Changes in assets and liabilities:
      (Increase) decrease in other current assets                                           84,251          (255,729)
      (Increase) in other assets                                                          (81,692)           (64,501)
      Increase in accounts payable                                                         276,959            443,706
      Increase (decrease) in accrued expenses                                            (199,926)            459,387
      Increase in deferred revenue                                                         103,645             43,645
                                                                                 ------------------  -----------------             -
Net cash used in operating activities                                                  (4,560,716)        (2,007,587)

Investing activities
Purchase of business, net of cash received                                                       -                  -
Purchase of property and equipment                                                       (521,604)           (12,642)
Patent costs                                                                                     -                  -
Proceeds from sale of equipment                                                                  -                  -
                                                                                 ------------------  -----------------
Net cash used in investing activities                                                    (521,604)           (12,642)

Financing activities
Proceeds from founding members                                                                   -                  -
Cash paid for transaction costs associated with equity transactions                              -                  -
Cash paid for transaction costs associated with debt transactions                                -           (361,231)
Deferred offering costs                                                                          -                  -
Proceeds from subscriptions receivable - Class A preferred shares                                -                  -
Dividends - Class A redeemable convertible preferred units                                       -           (44,229)
Proceeds from share subscription note - related party                                            -                  -
Proceeds (payments) Series 1 and Series 2 Convertible Notes - net                        (170,000)          2,513,500
Proceeds from notes payable, net                                                                 -            142,500
Proceeds from sale of Class A Preferred Stock                                            4,250,722                  -
Proceeds from sale of common stock                                                               -                  -
Repayment of notes payable                                                                       -           (25,000)
                                                                                 ------------------  -----------------
Net cash provided by financing activities                                                4,080,722          2,225,540

Increase (decrease) in cash and cash equivalents                                       (1,001,598)            205,311
Cash and cash equivalents at beginning of period                                         2,627,887            628,407
                                                                                 ------------------  -----------------
Cash and cash equivalents at end of period                                              $1,626,289           $833,718
                                                                                 ==================  =================




                                                                                          Period from
                                                                                       September 7,1999
                                                                                        (inception) to

                                                                                      September 30, 2004
                                                                               ----------------------------------
Operating activities
Net loss                                                                             $   (21,587,912)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization                                                              261,216
   Amortization of financing costs                                                            854,343
   Loss on sale of equipment                                                                      334
   Write-off of purchased in-process research and development costs                         1,023,525
   Interest receivable in connection with share subscription
      notes charged to equity                                                                (14,625)
   Stock based compensation                                                                   425,386
   Accrued interest converted to equity                                                       340,454
   Accretion of discount on Series 1and 2 convertible notes                                   808,113
   Common stock warrants in connection with
      the conversion of notes payable                                                          61,806
   Changes in assets and liabilities:
      (Increase) decrease in other current assets                                           (729,684)
      (Increase) in other assets                                                             (10,140)
      Increase in accounts payable                                                            806,496
      Increase (decrease) in accrued expenses                                                     894
      Increase in deferred revenue                                                            147,290
                                                                               ----------------------------------
Net cash used in operating activities                                                    (17,612,504)

Investing activities
Purchase of business, net of cash received                                                  (500,000)
Purchase of property and equipment                                                          (637,708)
Patent costs                                                                                 (43,022)
Proceeds from sale of equipment                                                                   250
                                                                               -----------------------------------
Net cash used in investing activities                                                     (1,180,480)

Financing activities
Proceeds from founding members                                                                525,000
Cash paid for transaction costs associated with equity transactions                        (2,008,107)
Cash paid for transaction costs associated with debt transactions                            (719,485)
Deferred offering costs                                                                      (75,000)
Proceeds from subscriptions receivable - Class A preferred shares                             940,020
Dividends - Class A redeemable convertible preferred units                                  (132,689)
Proceeds from share subscription note - related party                                         239,625
Proceeds (payments) Series 1 and Series 2 Convertible Notes - net                           4,386,000
Proceeds from notes payable, net                                                            3,113,799
Proceeds from sale of Class A Preferred Stock                                               4,250,722
Proceeds from sale of common stock                                                         10,128,688
Repayment of notes payable                                                                  (229,300)
                                                                               -----------------------------------
Net cash provided by financing activities                                                  20,419,273

Increase (decrease) in cash and cash equivalents                                            1,626,289
Cash and cash equivalents at beginning of period                                                    -
                                                                               -----------------------------------
Cash and cash equivalents at end of period                                                 $1,626,289
                                                                               ===================================

See notes to condensed consolidated financial statements
</TABLE>

                                        5
<PAGE>


<TABLE>
<CAPTION>

                 DOBI Medical International, Inc. and Subsidiary
                          (A Development Stage Company)

           Condensed Consolidated Statements of Cash Flows (continued)
                                   (unaudited)


                                                                                         Nine months ended
                                                                                            September 30,
                                                                       -------------------------------------------------------
                                                                                  2004                         2003
                                                                       ---------------------------  --------------------------
Supplemental disclosures of cash flow information
<S>                                                                                        <C>                         <C>
Cash paid during the period for interest                                                   $6,770                      $1,189
                                                                       ===========================  ==========================

Income taxes paid                                                                               -                           -
                                                                       ===========================  ==========================
Purchase of business, net of cash received:
   Fair value of assets purchased                                                               -                           -
   Acquisition of in-process research and development costs                                     -                           -
   Assumption of promissory notes                                                               -                           -
   Transaction costs                                                                            -                           -
   Issuance of shares                                                                           -                           -
                                                                       ---------------------------  --------------------------
Net cash used to acquire business                                                               -                           -
                                                                       ===========================  ==========================

Non-cash investing and financing activities:
   Conversion of notes payable and accrued interest to common stock                             -                           -
                                                                       ===========================  ==========================
   Conversion of Class A preferred shares to common stock                                       -                           -
                                                                       ===========================  ==========================
   Preferred stock dividends                                                             $103,227                           -
                                                                       ===========================  ==========================
   Deemed dividend to preferred shareholders                                             $645,167                           -
                                                                       ===========================  ==========================
   Share subscription note                                                                      -                           -
                                                                       ===========================  ==========================
   Transaction costs in accrued expenses in connection with
      sale of common stock                                                                      -                           -
                                                                       ===========================  ==========================
   Issuance of common warrants for consulting                                                   -                     $17,138
                                                                       ===========================  ==========================
   Accretion of Class A redeemable convertible preferred shares                                 -                     $99,473
                                                                       ===========================  ==========================

See notes to condensed consolidated financial statements


                                                                                   Period from
                                                                                September 7,1999
                                                                                 (inception) to

                                                                               September 30, 2004
                                                                      -------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the period for interest                                                           $97,380
                                                                      =====================================

Income taxes paid                                                                                       $-
                                                                      =====================================
Purchase of business, net of cash received:
   Fair value of assets purchased                                                               $(109,693)
   Acquisition of in-process research and development costs                                    (1,023,525)
   Assumption of promissory notes                                                                  417,877
   Transaction costs                                                                                56,250
   Issuance of shares                                                                              159,091
                                                                      -------------------------------------
Net cash used to acquire business                                                               $(500,000)
                                                                      =====================================

Non-cash investing and financing activities:
   Conversion of notes payable and accrued interest to common stock                             $8,026,451
                                                                      =====================================
   Conversion of Class A preferred shares to common stock                                       $1,307,846
                                                                      =====================================
   Preferred stock dividends                                                                      $103,227
                                                                      =====================================
   Deemed dividend to preferred shareholders                                                      $645,167
                                                                      =====================================
   Share subscription note                                                                        $239,625
                                                                      =====================================
   Transaction costs in accrued expenses in connection with
      sale of common stock                                                                         $27,500
                                                                      =====================================
   Issuance of common warrants for consulting                                                     $326,348
                                                                      =====================================
   Accretion of Class A redeemable convertible preferred shares                                   $364,334
                                                                      =====================================

See notes to condensed consolidated financial statements
</TABLE>


                                       6
<PAGE>

                 DOBI Medical International, Inc. and Subsidiary
                          (A Development Stage Company)

              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

1.  Organization of Business

The consolidated financial statements include the accounts of DOBI Medical
International, Inc. and its wholly-owned subsidiary, DOBI Medical Systems, Inc.
All significant inter-company balances and transactions have been eliminated.

The Company was formed to acquire and further develop a new technology for
imaging of the human body, referred to as Dynamic Optical Breast Imaging,
("DOBI" (R)).

2. Basis of Presentation

The accompanying interim unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for all periods presented have been made. The results of operations
for the three and nine month periods ended September 30, 2004 are not
necessarily indicative of the operating results that may be expected for the
year ending December 31, 2004.

These consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-KSB/A filed on May 17, 2004 with the Securities and
Exchange Commission.

The Company's principal activities to date have been in the research and
development of a medical diagnostic system known as the ComfortScan (TM) system,
which is an optically-based medical device for improved diagnosis of breast
cancer as an adjunct to screening mammography. The accompanying financial
statements have been prepared in accordance with Statement of Financial
Accounting Standards No. 7, Development Stage Enterprises, since planned
principal operations have not yet commenced.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is currently a development
stage enterprise and its continued existence is dependent upon its ability to
resolve its liquidity problems, principally by obtaining additional debt and/or
equity financing. The Company has yet to generate a positive internal cash flow,
and until meaningful sales of our product begin, we are totally dependent upon
debt and equity funding.

In the event that the Company is unable to obtain debt or equity financing or
unable to obtain such financing on terms and conditions that are acceptable to
the Company, we may have to cease or severely curtail our operations. This would
materially impact the Company's ability to continue as a going concern.
Management has been able to raise the capital necessary to reach this stage of
product development and has been able to obtain funding for operating
requirements to date. There is no assurance that, if and when FDA premarket
approval is obtained, the ComfortScan system will achieve market acceptance or
that the Company will achieve a profitable level of operations. The accompanying
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.

3.  Summary of Significant Accounting Policies

Equity-Based Compensation

As permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation
("FAS 123"), which establishes a fair value based method of accounting for
equity-based compensation plans, the Company has

                                       7
<PAGE>

                 DOBI Medical International, Inc. and Subsidiary
                          (A Development Stage Company)

              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

elected to follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25") for recognizing equity-based compensation
expense for financial statement purposes. Under APB 25, no compensation expense
is recognized at the time of option grant if the exercise price of the employee
stock option is fixed and equals or exceeds the fair market value of the
underlying common stock on the date of grant and the number of shares to be
issued pursuant to the exercise of such options are known and fixed at the grant
date.

The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of FAS 123 and the Emerging Issues Task Force in
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or In Conjunction with Selling, Goods or Services which
require that such equity instruments are recorded at their fair value on the
measurement date, which is typically the date the services are performed.

In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure ("FAS 148"). This standard amends the
disclosure requirements of FAS 123 for fiscal years ending after December 15,
2002 to require prominent disclosure in both annual and interim financial
statements about the method used and the impact on reported results. The Company
follows the disclosure-only provisions of FAS 123 which require disclosure of
the pro forma effects on net income (loss) as if the fair value method of
accounting prescribed by FAS 123 had been adopted, as well as certain other
information.

Option valuation models require the input of highly subjective assumptions
including the expected life of the option. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

During nine months ended September 30, 2004, the Board of Directors granted
1,017,000 options. These options have various exercise prices from $1.48 to
$3.30 per share. They expire from 5 to 10 years from the date of grant. Options
granted to non-employees are accounted for under SFAS No. 123, whereby
compensation measurement of equity awards is based on their fair value. The fair
market value per share of these options was estimated to be $1.06 to $1.94 per
share at the date of grant using the Black-Scholes option pricing model.
Compensation expense generally must be recorded based on the fair value of the
stock options over the vesting period. The expenses recorded for the three
months ended September 30, 2004 and 2003 were $24,169 and $ 8,569 respectively,
and the expenses recorded for the nine months ended September 30, 2004 and 2003
were $46,537 and $25,706 respectively.

                                       8
<PAGE>

                 DOBI Medical International, Inc. and Subsidiary
                          (A Development Stage Company)

              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)


The following table summarizes relevant information as to reported results under
the Company's intrinsic value method of accounting for stock awards, with
supplemental information as if the fair value recognition provisions of FAS 123
had been applied for the following six months ended September 30:

<TABLE>
<CAPTION>

                                                                                2004                2003
                                                                         ------------------- --------------------

<S>                                                                           <C>                  <C>
Net loss applicable to common stock, as reported                              $ (5,595,782)        $ (3,582,487)

Add total stock-based compensation, as reported                                      46,537               25,706
Deduct total stock-based compensation determined
   under fair value based method for all awards                                                         (75,109)
                                                                                  (217,691)
                                                                         ------------------- --------------------
Pro forma net loss applicable to common stock                                 $ (5,766,936)        $ (3,631,890)
                                                                         =================== ====================
Basic and diluted loss per common share - as reported                           $   ( 0.15)          $    (0.19)
                                                                         =================== ====================
Pro forma loss per share basic and diluted                                      $   ( 0.15)          $    (0.19)
                                                                         =================== ====================
</TABLE>

Net Loss Per Common share

Basic net loss per common share is computed using the weighted average number of
common shares outstanding during the periods presented. There were no common
stock equivalents consisting of options, warrants and convertible preferred
shares which were required to be included in the calculation of diluted loss per
share for the periods presented since their inclusion would be antidilutive. The
total number of stock options, warrants and convertible preferred shares
outstanding as of September 30, 2004 were 3,640,500, 19,294,219 and 2,580,667,
respectively.

Recently issued Accounting Standards

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional financial support from other parties. In December 2003, the FASB
revised certain elements of FIN 46 ("FIN 46-R"). The FASB also modified the
effective date of FIN 46. This interpretation applies immediately to variable
interest entities created after January 31, 2003 and variable interest entities
in which the Company obtains an interest after January 31, 2003. For variable
interest entities in which a company obtained an interest before February 1,
2003, the interpretation applies to periods ending after December 15, 2004. The
adoption of this pronouncement did not have a material effect on the Company's
financial statements.

4. Class A Preferred Stock

On July 30, 2004, the Company completed a private placement financing in which
it sold 206.45 Series A Preferred shares, which are convertible into 2,580,667
shares of common stock, for $25,000 per share. Gross proceeds of the transaction
were $5,161,333. Since the issuance of the preferred stock was sold at an
effective common stock conversion price, which was less than the common stock
price at the date of issuance, the

                                       9
<PAGE>

                 DOBI Medical International, Inc. and Subsidiary
                          (A Development Stage Company)

              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

Company was required to record a discount. This discount was recorded as a
deemed dividend and charged to the Company's statement of operations in the
amount of $645,167, in accordance with Emerging Issue Task Force ("EITF)
98-5.The Company also issued 2,580,667 4-year investor warrants to purchase
common stock at a price of $3.00 per share.

The Company incurred cash transaction costs totaling approximately $911,000,
which included placement agent commissions and non-accountable expenses totaling
approximately $671,000. In addition, the Company issued 770,450 4-year placement
agent warrants to purchase common stock at a price of $2.00 per share.

The holders of Series A Preferred Stock shall be entitled to receive a quarterly
cumulative dividend at the end of each calendar quarter, commencing October 1,
2004 (the "Dividend") calculated at a rate of 8% per annum of the issue price of
any outstanding share of Series A Preferred Stock, commencing July 1, 2004 and
continuing for the first three years after the closing of this Offering, 10% per
annum for the following two years, and 12% per annum for any additional year in
which any share of Series A Preferred Stock remains outstanding. At the option
of the Company, the Dividend may be paid in either cash or registered shares of
Common Stock. In the case of payment in stock, this stock will be valued at 95%
of the average of the closing trading price of the Common Stock for the 20
trading days ending on the day prior to the day on which such payment is due.
For the quarter ended September 30, 2004, the Company recorded preferred stock
dividends of $103,227.

                                       10
<PAGE>


Item 2  Management's Discussion and Analysis or Plan of Operation

         Please read the following discussion together with the consolidated
financial statements and related notes appearing elsewhere in this report. This
Item 2 contains forward-looking statements that involve risks and uncertainties.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. Actual results may
differ materially from those included in such forward-looking statements.
Factors which could cause actual results to differ materially include those set
forth at the end of this Item 2 under the heading "Cautionary Statement For
Forward-Looking Statements", as well as those discussed in this report and
elsewhere, and in our 2003 Annual Report on Form 10-KSB/A filed on May 17, 2004
and our Registration Statement on Form SB-2 declared effective on September 27,
2004. Unless otherwise specified or the context requires otherwise, the terms
"we", "us", "our" and the "Company" refer to DOBI Medical International, Inc.
and its subsidiary, DOBI Medical Systems, Inc.

OVERVIEW

         We completed a reverse merger transaction on December 9, 2003 with
Lions Gate Investment Limited, a Nevada corporation formed on October 29, 1999.
Until the merger, Lions Gate engaged in oil and gas exploration activities,
which Lions Gate discontinued following the merger and succeeded to the business
of DOBI Medical Systems. The directors and management of DOBI Medical Systems
thereupon became the directors and management of Lions Gate.

         On January 30, 2004, we changed our corporate name to DOBI Medical
International, Inc. and our state of incorporation to Delaware pursuant to an
Agreement and Plan of Merger, dated as of January 29, 2004, between Lions Gate
and DOBI Medical International. This transaction was approved by the holders of
a majority of the outstanding common stock of Lions Gate by written consent in
lieu of a special meeting of the shareholders of Lions Gate, all as more fully
described in Lions Gate's Definitive Information Statement on Schedule 14C,
which was filed with the SEC on January 9, 2004. DOBI Medical Systems continues
as a wholly-owned, operating subsidiary of DOBI Medical International, Inc.

         DOBI Medical Systems was formed initially as a Delaware limited
liability company on October 26, 1999. In December 1999, DOBI Medical Systems
acquired substantially all the assets of Dynamics Imaging, Inc., including a
number of patents and trade secrets that form the basis for its current
proprietary technology position.

         Since our future business will be that of DOBI Medical only, and the
former DOBI Medical Systems stockholders control the merged companies, the
information in this Annual Report is that of DOBI Medical as if DOBI Medical
Systems had been the registrant for all the periods presented in this Report.
Management's Discussion and Analysis or Plan of Operation presented in this Item
2. and consolidated financial statements presented in Item 1. of this Report are
also those of DOBI Medical Systems, as these provide the most relevant
information about us on a continuing basis.

         For accounting purposes, DOBI Medical Systems was the acquirer in the
December 2003 reverse merger transaction, and consequently the transaction is
treated as a recapitalization of the company. DOBI Medical's financial
statements are the historical financial statements of the post-merger entity.

         We are a development-stage company with no revenue. Our goal is to
establish the ComfortScan system as the new standard of imaging-based diagnostic
care in the United States and international medical community. The first steps
in attaining this goal are to receive Federal Food and Drug Administration
("FDA") approval for the ComfortScan system as an adjunct to mammography and
establish the ComfortScan system outside the United States as a recognized and
widely utilized technology to aid physicians in the effective diagnosis of
breast cancer.

         We will continue to aggressively seek distribution alliances in
international markets. We have entered into distribution agreements in select
countries in Latin America, Europe and the Asia-Pacific regions. We expect to
begin shipping commercial versions of our ComfortScan system to these
international markets pursuant to FDA export regulations in 2004 under our CE
Marking where FDA or similar governmental approval is not required.

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We have successfully completed four of the five required steps in the pre market
approval ("PMA") process. In September, 2004 the FDA completed its comment
process concerning our PMA protocol. In September, 2004 we shipped ComfortScan
systems to the first two active PMA clinical sites and commenced training. We
continue to recruit PMA clinical sites pursuant to our PMA FDA accepted
protocol, which the FDA may subsequently unilaterally modify. A clinical test
involving 120 malignancies will be the final step to complete the fifth module
of our PMA. We expect it to take approximately six to nine months to complete
after it begins. We plan to submit Module 5 to the FDA in mid-2005 with FDA
review expected to take approximately six months. If the FDA determines within
this anticipated time period that the submission meets the regulatory and
statutory requirements, FDA approval to market the device as an adjunct to
mammography in the United States could issue in the fourth quarter of 2005.

         In August, 2004, we were granted a FDA export license, which may
require passing a comprehensive inspection of our facility. Production tooling
has been completed, required manufacturing personnel have been hired, and we
executed pilot production runs in August, 2004 and September, 2004. In November,
2004, we released the first production level version of the ComfortScan system
for sale to international distributors in connection with local marketing or
regulatory approval clinical trials. We have recruited the necessary personnel
and have developed and are updating training programs and documentation for
distributors, technicians, physicians and end users, and our expenses have
increased accordingly. While we believe that we will meet our goals as specified
above, we cannot be certain that we will do so.

         During the third quarter, we signed distributorship agreements to serve
markets in Canada, Italy and Russia. To date, we have shipped pre-production
devices to locations in Europe, South America, and India to commence local
clinical trials and obtain local regulatory approvals to sell the ComfortScan
system commercially. We continue to recruit distributors in countries that do
not require FDA approval in order to market the ComfortScan system.

         We believe that we are currently meeting our 2004 business plan goals
to execute the commercialization of the ComfortScan system. While we believe
that we will continue to meet our business plan goals in the future, we cannot
be certain that we will do so.

         The accompanying financial statements in Item 1. of this filing have
been prepared assuming that the Company will continue as a going concern. The
Company is currently a development stage enterprise and, as such, its continued
existence is dependent upon its ability to resolve our liquidity problems,
principally by obtaining additional debt and/or equity financing. The Company
has yet to generate a positive internal cash flow, and until meaningful sales of
our product begin, we are totally dependent upon debt and equity funding.

         In July 2004, we completed the private placement of approximately $5.16
million in shares of our Series A Preferred stock and associated warrants. We
believe that the amounts available to Company pursuant to the July 2004 private
placement, plus the $3 million tranche 2 of the private placement closed in
December 2003, are sufficient to fund our operations through the end of 2004 and
beyond. While we believe that we will achieve the milestones required by tranche
2 of the December 2003 private placement during 2004, we cannot be certain that
we will do so. These matters are more fully discussed in "Liquidity and Capital
Resources" below.

            In the event that the Company is unable to obtain debt or equity
financing or we are unable to obtain such financing on terms and conditions that
are acceptable to the Company, we may have to cease or severely curtail our
operations. This would materially impact the Company's ability to continue as a
going concern. We have been able to raise the capital necessary to reach this
stage of product development and have been able to obtain funding for operating
requirements to date. There is no assurance that, if and when FDA premarket
approval is obtained, the ComfortScan system will achieve market acceptance or
that the Company will achieve a profitable level of operations. The accompanying
financial statements in Item 1. of this filing do not include any adjustments
that might be necessary should the Company be unable to continue as a going
concern.

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RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

         Research and development expenses increased approximately $254,000, or
93%, from $273,000 to approximately $527,000 for the three months ended
September 30, 2004 compared to the prior year. Approximately $134,000 of this
increase was attributed to the increased number of personnel recruited to
finalize the upgrading and documentation of our investigational prototypes of
the ComfortScan system for developmental testing and for refining the
engineering of the hardware and software. In addition, approximately $118,000 in
material purchases was expended substantially to upgrade previously built
prototypes, modify initial tooling for pre-production units and other research
and development purposes.

         General and administrative expenses increased approximately $59,000, or
12%, from $507,000 to approximately $566,000 for the three months ended
September 30, 2004 compared to the prior year. This increase was substantially
due to the higher insurance costs of approximately $56,000, consulting costs of
approximately $82,000 and investor relation costs of approximately $59,000. This
was offset by costs in the prior year for unsuccessful attempts to raise capital
of approximately $175,000. Many of these additional costs relate to company
having additional requirements as a public entity.

         Clinical program expenses increased approximately $145,000, to $235,000
for the three months ended September 30, 2004 compared to the prior year due to
the commencement of the PMA clinical trials. These additional costs included
device costs, site costs, personnel costs, and travel expenses.

         Sales and marketing expenses increased approximately $484,000 over the
prior year quarter to $569,000 for the three months ended September 30, 2004.
..The increase includes $304,000 in consulting costs to initiate a capital
markets program for the Company and its products, $95,000 in additional
personnel costs, and $48,000 product exhibit and show costs.

         Interest expense for the three months ended September 30, 2004
consisted of minor financing of operational costs. For the three months ended
September 30, 2003, interest expense of $370,000 was primarily for Series 1 and
Series 2 Convertible Promissory Notes, most of which were converted into common
stock in December 2003.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

         Research and development expenses increased approximately $646,000, or
76%, from $851,000 to approximately $1,497,000 for the nine months ended
September 30, 2004 compared to the prior year. Substantially all of this
increase was attributed to the increased number of personnel and consultants
recruited to finalize the upgrading and documentation of our investigational
prototypes of the ComfortScan system for developmental testing and for refining
the engineering of the hardware and software.

         General and administrative expenses increased approximately $476,000 to
approximately $1,559,000 for the nine months ended September 30, 2004 compared
to the prior year. This increase was mainly due to the additional cost
associated with the addition of administrative personnel of approximately
$112,000, higher insurance costs of approximately $167,000, consulting costs of
approximately $187,000 and investor relations costs of approximately $97,000.
Many of these additional costs relate to company having additional requirements
as a public entity. This was offset by costs incurred in the prior year for
unsuccessful attempts to raise capital.

         Clinical program expenses increased approximately $261,000, to $512,000
for the nine months ended September 30, 2004 compared to the prior year due to
the increased number of personnel recruited to manage clinical programs in the
US and abroad. These additional costs included site costs, personnel costs, and
travel expenses.

         Sales and marketing expenses of approximately $1,281,000 for the nine
months ended September 30, 2004 reflect an increase of approximately $963,000,
primarily in consulting costs to initiate a capital markets program for the
purpose of creating an awareness of the Company and its products, totaling
approximately

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<PAGE>

$706,000, additional personnel costs of approximately $178,000 and participation
in various exhibits and shows of approximately $74,000, compared to the prior
year.

         Interest expense for the nine months ended September 30, 2004 consisted
of minor financing of operational costs. For the nine months ended September 30,
2003, interest expense of $1,078,000 was primarily for Series 1 and 2
Convertible Promissory Notes, most of which were converted into common stock in
December 2003.

LIQUIDITY AND CAPITAL RESOURCES

         We have financed our operations since inception through the issuance of
equity and debt securities, generating approximately $25,000,000 in gross
proceeds to date, described chronologically as follows.

         During the year 2000, DOBI Medical completed its first private
placement of shares, issuing 3,170,069 common shares at an issuance price of
$2.31 per share, generating gross proceeds of approximately $7,316,000. In 2001,
DOBI Medical Systems completed a private placement of 2,211,491 units of its
class A convertible preferred shares at an issue price of $1.00 per lot (each
lot consisting of one unit of class A convertible preferred shares and one
warrant to purchase common shares), generating gross proceeds of approximately
$2,211,000. In 2003, DOBI Medical completed the sale of its series 1 convertible
8% notes and warrants in the amount of $3,373,000. Later in 2003, the Company
completed the sale of its series 2 convertible 12% notes and warrants in the
amount of $1,680,000. Class A convertible shares and series 1 and series 2 notes
were exchanged for DOBI Medical shares in connection with the December 2003
transaction described below.

         In December, 2003, DOBI Medical merged into a publicly listed company
in which it was the surviving entity and simultaneously completed the first
tranche of a two tranche private placement in which we issued 5,500,000 shares
of common stock at a price of $1.00 per share and 2,750,000 three-year warrants
to purchase common stock at an exercise price of $1.54 per share, generating
gross proceeds of $5,500,000. Gross proceeds from the second tranche are
expected to be $3,000,000, and are collateralized by shares issued in the first
tranche. The closing of the second tranche is conditioned on the achievement of
the following milestones by not later than 18 months after the closing of the
private placement:

o    completion of at least 20 patient clinical test scans after the
     commencement of FDA Module 5;

o    shipment of at least 10 revenue-producing and production level ComfortScan
     systems; and

o    our loss from operations for the two complete fiscal quarters ending
     immediately following the closing of the merger, not exceeding
     approximately $3,400,000. This milestone was achieved on June 30, 2004.

         In July 2004, we completed the private placement of approximately $5.16
million in shares of our Series A Preferred stock and associated warrants. The
shares of Series A Preferred stock sold in the private placement carry a
dividend of 8% per year and are convertible into 2,580,667 shares of common
stock. We also issued 2,580,667 four-year investor warrants to purchase shares
of common stock at a price of $3.00 per share.

         As of September 30, 2004, we had working capital of approximately
$1,265,000. Net cash used in operating activities during the nine months ended
September 30, 2004 totaled approximately $4,560,000, and capital expenditures
totaled approximately $521,000. We have no significant capital commitments, and
have largely completed our capital expenditure plans for 2004.

         The year 2004 will mark DOBI Medical's transformation from a
development stage company into a commercial enterprise. We expect to begin to
ship the first revenue producing and production level version of the ComfortScan
system to select international markets in 2004 and commence the final FDA
clinical trial in 2004. While we believe that we will achieve the two remaining
milestones required to close the $3 million second tranche of the private
placement by the end of 2004, we cannot be certain that we will do so.

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On the basis of the foregoing, and subject to the risk factors more fully
discussed below, we believe that cash on hand and resources available are
sufficient to fund our working capital requirements through 2004 and beyond.

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

Statements contained in this "Management's Discussion and Analysis or Plan of
Operation" may contain information that includes or is based upon certain
"forward-looking statements" relating to our business. These forward-looking
statements represent management's current judgment and assumptions, and can be
identified by the fact that they do not relate strictly to historical or current
facts. Forward-looking statements are frequently accompanied by the use of such
words as "anticipates," "plans," "believes," "expects," "projects," "intends,"
and similar expressions. Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors, including, while it is not
possible to predict or identify all such risks, uncertainties, and other
factors, those relating to:

o    our ability to timely and successfully complete our patient clinical
     trials;

o    our ability to timely and successfully complete and submit our premarket
     approval application to the FDA;

o    the timely and final approval by the FDA of our ComfortScan system as a
     adjunct to mammography, which approval and commercial availability in the
     U.S. cannot be assured (note: other medical device imaging companies have
     recently experienced delays in seeking FDA final approval);

o    our ability to secure the additional financing adequate to execute our
     business plan;

o    the continued success of our product development and research efforts,
     including, but not limited to, continued successful validation and
     verification testing of future produce releases and upgrades of our
     ComfortScan system, including without limitation, our ComfortView reader
     software;;

o    our ability to timely meet United States and foreign government
     regulations, and related industry regulations and standards;

o    delays in the manufacturing process caused by our inabilities or the
     inabilities of our subcontractors to timely meet our specifications and
     timely delivery to us component parts;

o    our ability to establish and maintain international and domestic
     distribution networks;

o    our ability to meet the quality standards and requirement to maintain our
     CE Mark and ISO certifications, and successfully pass periodic FDA
     inspections of our facilities and the ComfortScan system;

o    our ability to timely ship and export our products to certain international
     markets;

o    the acceptance and use of our ComfortScan system by physicians, imaging
     clinics, and patients both in international and domestic markets;

o    existing or new competitors developing superior diagnostic imaging
     technologies;

o    our ability to meet the performance milestones and obtain the funding to
     close on the second tranche of the private placement we completed in
     December, 2003;

o    the success of our investor relations program to create and sustain
     interest and liquidity in our stock, which is thinly traded over the
     counter;

o    our ability to obtain third party reimbursement from government and private
     payers; and

o    our ability to compete on price and quality.

Any one of these or other risks, uncertainties, other factors, or any inaccurate
assumptions may cause actual results to be materially different from those
described herein or elsewhere by us. We caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
they were made. Certain of these risks, uncertainties, and other factors may be
described in greater detail in our filings from time to time with the Securities
and Exchange Commission, which we strongly urge you to read and consider,
including our 2003 Annual Report on Form 10-KSB which may be accessed from our
website at www.dobimedical.com. Subsequent written and oral forward-looking
statements attributable to us or to persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements set forth above and
elsewhere in our reports filed with the Securities and Exchange Commission. We
expressly disclaim any intent or obligation to update any forward-looking
statements.

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ITEM 3  CONTROLS AND PROCEDURES

         Evaluation of disclosure, controls and procedures. At the period end of
this Quarterly Report on Form 10-QSB, the Company's management, including the
Company's Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's Chief Executive Officer
and Chief Financial Officer have concluded, as of the end of the quarter covered
by this report, that:

         The Company's disclosure controls and procedures are designed to ensure
that information required to be disclosed by the Company in the reports it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified.

         That Company's disclosure controls and procedures are effective to
ensure that such information is accumulated and communicated to the Company's
management, and made known to the Company's Chief Executive Officer and Chief
Financial Officer, to allow timely decision regarding the required disclosure.

         There have been no changes in the Company's internal controls over
financial reporting that have materially affected, or is reasonably likely to
materially affect the Company's internal controls over financial reporting
during the period covered by this Quarterly Report.

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Part II - Other Information

Item 1.   Legal Proceedings.

          We are not a party to any  litigation.

Item 2.   Changes in Securities.

          None

Item 3.   Defaults Upon Senior Securities

          None

Item 4.   Submission of Matters to a Vote of Security Holders

          None

Item 5.   Other Information

          None

Item 6.   Exhibits and Reports on Form 8-K

         a) Exhibits

                    31.1 Certification of C.E.O. Pursuant to Section 302 of the
                         Sarbanes-Oxley Act of 2002

                    31.2 Certification of C.F.O. Pursuant to Section 302 of the
                         Sarbanes-Oxley Act of 2002

                    32.1 Certificate Pursuant To 10 U.S.C. Section 1350, Section
                         906 of the Sarbanes-Oxley Act of 2002

         b) Reports on Form 8-K

                  1. We filed a Form 8-K on August 5, 2004, announcing our
financial results for the second quarter of fiscal 2004.

                  2. We filed a Form 8-K on October 1, 2004 announcing that
effective September 30, 2004, Angelo Secci, M.D., resigned as Vice President of
Clinical Research.

                  3. We filed a Form 8-K on October 12, 2004 announcing that
effective October 7, 2004, Brian Vodicka was appointed to the board of directors
of our company.

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                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.


Dated:  November 15, 2004            DOBI MEDICAL INTERNATIONAL, INC.



                                     By: /s/ Phillip C. Thomas
                                         --------------------------------------
                                         Phillip C. Thomas
                                         Chief Executive Officer


                                     By: /s/ Michael R. Jorgensen
                                         --------------------------------------
                                          Michael R. Jorgensen
                                          EVP, Chief Financial Officer

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