NATIONAL SCIENTIFIC CORP/AZ - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements Management's Discussion and Analysis contains various "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to "anticipates", "believes", "plans", "expects", "future" and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company's business, including but not limited to, reliance on key customers and competition in its markets, market demand, delayed payments of accounts receivables, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company.

Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements.

Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those identified in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended September 30, 2008, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.

Our Company The Company was incorporated in Texas on June 22, 1953 as American Mortgage Company. On May 16, 1996, the Company changed its name to National Scientific Corporation. On April 3, 2012, the Company changed its name to Cloud Medical Doctor Software Corporation. During 1996, the Company acquired the operations of Eden Systems, Inc. (Eden) as a wholly owned subsidiary. Eden was engaged in water treatment and the retailing of cleaning products. Eden's operations were sold on October 1, 1997. From September 30, 1997 through the year ended September 30, 2001, we aimed our efforts in the research and development of semiconductor proprietary technology and processes and in raising capital to fund its operations and research. Beginning in calendar 2002, we focused our efforts on the development, acquisition, enhancement and marketing of location device technologies. Our revenue is derived from sales of electronic devices, recognized as the product is delivered.

In February 4, 2010 the prior Board members Mr. Michael Grollman and Mr. Greg Szabo, decided to discontinue and wind down the operations of the Company and operate the Company assets in a Limited Liability Company named NSC Labs, LLC controlled and owned by Mr. Grollman. Mr. Grollman and NSC Labs, LLC was to pay the Company 2% of revenues and $100,000. Mr. Grollman nor NSC Labs, LLC never paid consideration for this transaction.

Table of Contents -27- In November 19, 2010, the prior management was terminated and new management began working on operations related to the Company's medical billing software.

In fiscal 2011, the year of termination of prior management, new management has deemed that the above transaction transferring prior operations to NSC Labs, LLC was transacted in full and final settlement of the liabilities to former management including those captioned as "disputed accrued expenses - related party" on the Balance Sheet.

Since the transaction was related to former management who had the ability to affect the terms and outcomes of the liabilities, the transaction has been subsequently recorded as an increase to additional paid in capital.

Item 1. Description of Business Our Current Business of the Company - Cloud Doctor Medical Software Cloud-MD Software Solutions introduces the Cloud-MD Office, a "Cloud Based", 5010 and ICD-10 compliant, fully integrated and interoperable suite of medical software and services, designed by experienced healthcare analysts and programmers for healthcare providers, that produces "Actionable Information" to help Independent Physician Practices, New Care Delivery Models (ACO), Healthcare Systems and Billing Services optimize a wide range of business processes resulting in Increased Profits, Higher Quality, Greater Efficiency, Noticeable Cost Reductions and Better Patient Care. Current software product offerings include Practice Management, Electronic Medical Records, Revenue Management, Patient Financial Solutions, Medical and Pharmaceutical Supply Management, Claims Management and PHI Exchange.

Cloud-MD Billing Services provides: Management of Medical Claims from posting physician charges into our medical billing software to posting of payments; Continuous Insurance Claim Follow Up to track and research all rejected or denied medical claims; Comprehensive Reporting including monthly financial Statements sent to our clients so they can see how their practice is doing and a variety of detailed reports give our clients the important information and tools used to assist in the increased production which leads to more profit; Patient Account Inquiries & Support to assist patients with their billing and insurance questions.

Cloud-MD Medical and Pharmaceutical Supply Management Software Services provides: a ground breaking cloud-based Medical Supply Inventory Management System, specifically designed for small and medium Medical Practices, DME's, Home Health, Long-term Care, and Surgery Centers that offers: Centralized management control over your medical supply and drug inventory Real time utilization and financial inventory summary Low price notifications Par level/reorder tracking RX expiration tracking Auto supply re-ordering Based on a barcode scanning system, designed to reduce workloads by automating inventory control processes, the Cloud-MD® Inventory Management System requires no installation, on-site software or special hardware. The Cloud-MD® application suite is fully delivered via the Internet and requires no special computing environment at the end-user facility.

Cloud-MD Healthcare Systems Consulting Services specializes in the implementation of sustainable, comprehensive solutions that increase financial and operational performance in healthcare businesses. By partnering with clients, we deliver solutions across the healthcare enterprise that improve quality, increase revenue, reduce operational expenses and attract physicians, patients and employees. We bring resources, in-depth knowledge, and significantly deeper experience than most in the field.

Table of Contents -28- Cloud-MD Acquisition Services provides medical supply acquisition services that are fully integrated with Cloud-MD Office's Medical and Pharmaceutical Inventory Management software and offers a full range of medical, surgical, and laboratory supply products and equipment for medical offices and surgery centers. Cloud-MD Acquisition Services easy-to-use and seamless process makes supply purchasing quicker and more cost efficient.

Discontinued Operations of the Business up through February 4, 2010 Mobile DVR and Location Products Most of our customers require monitoring and or tracking of a person or object, and reporting this information back to a central location.

Our current MDVR technology has not been awarded any patents as of the date of this report and has been awarded trademark protection on one other. We use a combination of confidentiality agreements, copyright and other trade secret management techniques to protect our trade secrets.

Location Products [[Image Removed: GPS GRAPHIC]] Overview of This Technology We have developed a group of mobile products with the capability to record high quality digital video, determine location and identify individuals and concatenate this information into a homogeneous information stream that can be easily displayed on a remote computer. We use a technology called Global Positioning System or GPS to determine location. These products report the location information as well as other desired information back to the user through a radio network. The products typically contain a small computer to provide the overall control and data processing capacity for the device. The products can be thought of as having three distinct pieces or systems. These are the data collection system, the data control & processing system, and the data transport system. This design concept is the basis for our Mobile DVR products.

The diagram below shows in a general way how the system works with our products: Table of Contents -29- Data Collection System This system can be thought of as the "eyes and ears" of the product. It is comprised of two systems. One determines location of the product, while the other system records specific events that the customer may be interested in, such as a door opening on a school bus or the speed of the bus at a certain location. The location system determines the position of the product using a technology developed by the U.S. Government called the Global Positioning System, or GPS, as it is commonly known. The U.S. Government developed the system which consists of approximately 24 satellites that orbit the earth rapidly. It is a worldwide navigation support system that allows users of GPS receivers to determine their precise geographic locations to within a few meters in most cases. The network of satellites and their ground control and monitoring stations are maintained and operated by the United States Department of Defense, which maintains an ongoing satellite replenishment program to ensure continuous global system coverage. Access to the system for all users is currently provided free of charge by the U.S. Government.

GPS works by ranging and triangulating the product's position from a group of satellites. Of the 24 GPS satellites in orbit, a minimum of four is needed to reliably determine the product's three-dimensional position. A GPS receiver measures distance by calculating the amount of time it takes a navigation and time reference radio signal from the satellite to make a one-way trip to the GPS receiver.

GPS receivers typically are very compact; and it is not necessary to have a large dish antenna to receive GPS signals. Typical information that can be obtained from these GPS signals are latitude, longitude, elevation, speed, direction, date, and time.

The second part of this Data Collection System is customer specific. Many customers have additional types of data that they want to know or want collected relevant to a location. An example of this is, every time a child enters or leaves a school bus or the time and location that the bus stops. This data input system can therefore be customized to meet the exact needs of a customer.

Another kind of data collection technology we use in some of our products is called RFID, which stands for Radio Frequency Identification. RFID devices are small radios that could be used to track information about people or objects.

RFID provides a low-cost solution for certain kinds of tracking activities, especially short-range activities, typically less than a hundred feet. RFID devices are primarily used to determine if the object is close to a given location.

Another kind of data collection technology we use in some of our products is called MDVR, which stands for mobile digital video recorder. MDVR devices use a small digital camera that takes up to 30 pictures per second and then stores these images electronically. When these individual pictures are 'played back', you see a movie of the recorded event. Schools are particularly interested in this type of technology in conjunction with GPS to monitor what is happening on their buses.

Data Control & Processing System This system can be thought of as the "brains" of the product. A technical term for this system is an embedded system, meaning one that lives deep inside the overall product. An embedded system is a small special-purpose computer system built into a larger device. The reason we use an embedded system in our products is to keep cost to us low, so our products stay more competitive in price.

Simple embedded systems can cost us as little as a few dollars each and use very little power compared to the desktop computers that many people are familiar with, which usually cost much more. On our embedded systems there is typically no disk drive, operating system, keyboard, or screen. Our embedded systems instead communicate with other computers by radio. These other computers typically have a keyboard and screens, and they are used to display our information.

Table of Contents -30- The programs that we run on these systems are custom designed and built by our software engineers. These programs are called firmware. The firmware controls how the data is collected, what data should be collected and what events should be monitored and reported, what should be ignored, and how, when and what data should be sent back to the user. As mentioned above, the system is relatively easy to customize, and the firmware is also easy to customize as it has been written in a modular fashion that allows changes to one section to be implemented without the need to completely re-write the program. This also helps us keep costs down.

Data Transport System This system can be thought of as the "mouth" of the product. It communicates to the outside world where it is and what has happened. There are many different types of technology that can be used to transport this data back to the user, generally using some kind of wireless technology based on radios. We currently use cellular radios, satellite radios, Wi-Fi radios, and other special purpose radios.

We use a cellular radio based on GSM cellular technology. GSM, or Global System for Mobile Communications, is a second-generation digital mobile telephone standard. GSM was initially developed as pan-European collaboration, intended to enable mobile roaming between member countries.

The cellular radios typically operate in "real time." When an event occurs, the data is immediately transported back to a user at a remote location.

While cellular coverage and reception is good in urban areas, it is less effective in rural areas and is non-existent in most wilderness areas. Sometimes our products are used in areas where there is poor or no cellular coverage. To overcome this we sometimes use a special radio that communicates with satellites orbiting the earth. This form of communication has the advantage that our products can be used in very remote areas almost anywhere in the world. The major downside is that these radios are large and expensive and the airtime usage costs can be high. Another problem associated with this technology is that, like GPS, these satellite radios work best when there is a clear line of site to the satellites; as such they may not work well indoors, or under dense foliage or in deep valleys. The satellite radios typically operate in "real time." When an event occurs, the data is immediately transported back to the user. Some of our customers do not want to have the expense of a real time cellular or satellite connection, nor are they interested in having the data in real time. For this we use either a special purpose radio or a Wi-Fi radio.

The Wi-Fi radio operates in a very similar manner to cordless phones found in many households. These phones typically consist of a base station and handset.

Our system is very similar; it consists of a base station unit that receives data from the mobile unit that would be on the asset or vehicle being tracked.

The base station is typically attached to a personal computer that takes the raw data from the radio and re-formats it into information that can be displayed by other computers on the Internet. Wi-Fi stands for "Wireless Fidelity" and is a technology in very common use to wirelessly connect personal computers to other computer networks, including the Internet.

Our special purpose radios work in a very similar manner to the Wi-Fi radio, except that they can sometimes transmit data over longer distances.

Wi-Fi radios operate in an unlicensed part of the radio spectrum and as such do not have any special government licensing fees associated with them. Because they operate in a license-free spectrum, the Federal Communications Commission (FCC) imposes some restrictions on the use of these radios. One major restriction is that the radio signal range is limited to about 300 feet.

Table of Contents -31- Since most of the time our product operates well beyond 300 feet from the base station, all the collected data is stored within the device for later transmission when the product comes back into that range again. When the vehicle or asset comes back into base-station range, the mobile units automatically download their information. We call this mode of operation "near time." These "near time" products do not incur any special airtime usage charges. As such, they can be significantly cheaper to operate than the cellular or satellite equivalents.

Once the data is transmitted back to the user they can either display the information on our software or on some other computer application.

Results of Operations for the Three Months ended December 31, 2009 and December 31, 2008 Revenues decreased to $57,102 from $164,914 for the three months ended December 31, 2009 and 2008 respectively. This decrease is primarily attributable to a decrease in sales resulting from the recession. Cost of goods sold decreased to $23,929 from $93,057 for the three months ended December 31, 2009 and 2008, respectively. Our cost of goods sold is directly related to the decrease in revenue.

General and administrative expense decreased to $30,451 from $146,359 for the three months ended December 31, 2009 and 2008, respectively. The decrease in general and administrative expense was related to the decrease in research and development costs of the Company.

Interest Expense decreased to $8,814 from $12,045 for the three months ended December 31, 2009 and 2008, respectively. Interest expense also includes amortization of the discount related to the beneficial conversion feature pertaining to the convertible note.

Net loss for the three months ended December 31, 2009 and 2008 decreased to $6,092 from $86,517 respectively.

Liquidity and Capital Resources The Company has material notes, one from our prior Chief Executive Officer for approximately $59,704 , one convertible note with an investor relationship with Strategic Working Capital Fund, LP $164,744 net of discount and beneficial conversion feature of $10,256 with a total balance due of $175,000, and three notes with shareholders of $31,470.

Our cash (used in) provided by operating activities were ($11,499) and $28,390 for the three months ended December 31, 2009 and 2008, respectively. The decrease in cash flows provided by operations was primarily attributable to the decreases in amounts payable, in 2009 as compared to the 2008 period. As described below, the funds generated by allowing accounts payable to age were used to partially repay related party debt.

Cash (used in) financing activities was $0 and ($26,056) for the three months ended December 31, 2009 and 2008, respectively. We repaid related party notes of $0 compared to $26,056.

There is a strong possibility that, in attempting to accomplish the above, we may not be able to satisfy our cash requirements over the next twelve months and may be required to raise additional cash from outside sources.

In the event that we are required to raise additional cash from outside source, we may issue equity securities or incur additional debt. There is no assurance that such funding, if required will be available to us or, if available, will be available upon terms favorable to us.

Table of Contents -32- WHERE YOU CAN FIND MORE INFORMATION You are advised to read this Quarterly Report on Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC's Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.

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