**Index**

----

**U.S.      SECURITIES AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-QSB**

**June      30, 2006**

**000-28745**

**NATIONAL      SCIENTIFIC CORPORATION**

| **Texas**                                                     |   | **86-0837077**                                      |
|---------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                of Incorporation)                       |   | (I.R.S.                Employer Identification No.) |
|                                                          |   |                                                |
|  **14505                North Hayden Road, Suite 305**   |   |                                                |
| **Scottsdale,                AZ**                             |   | **85260-6951**                                 |
|  (Address                of Principal Executive Offices) |   | (Zip                Code)                      |

**(480)      948-8324**

**Preferred      Stock, $0.10 par value**

**Common      Stock, $0.01 par value**

----

**Index**

**NATIONAL      SCIENTIFIC CORPORATION**

**FORM      10-QSB**

**INDEX**

|                                                                                                       |                                                                                                                                                                                                                              |   |  **Page** |
|------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|
|                                                                                                       |                                                                                                                                                                                                                              |   |           |
| Part                I                                                                                      | Financial                Information                                                                                                                                                                                              |   | 3              |
|                                                                                                       |                                                                                                                                                                                                                              |   |           |
| Item                1.                                                                                     | Financial                Statements (unaudited)                                                                                                                                                                                   |   | 3              |
|                                                                                                       |                                                                                                                                                                                                                              |   |           |
|                                                                                                       | Unaudited                Condensed Balance Sheets - June 30, 2006 and                September 30, 2005                                                                                                                           |   | 3              |
|                                                                                                       | Unaudited                Condensed Statements of Operations - Three                and Nine Months ended June 30, 2006, 2005, and Cumulative from October                1,                1997 (Inception) through June 30, 2006 |   | 4              |
|                                                                                                       | Unaudited                Condensed Statements of Cash Flows - Nine                Months ended June 30, 2006, 2005, and Cumulative from October 1,                1997                (Inception) through June 30, 2006           |   | 5              |
|                                                                                                       | Unaudited                Condensed Statement of Changes in Shareholders’                Equity (Deficit) - Nine Months Ended June 30, 2006 and Development                Stage                                             |   | 7              |
|                                                                                                       | Notes                to Financial Statements                                                                                                                                                                                      |   | 8              |
|                                                                                                       |                                                                                                                                                                                                                              |   |           |
| Item                2.                                                                                     | Management’s                Discussion and Analysis of Financial Condition                and Results of Operations                                                                                                         |   | 18             |
| Item                3.                                                                                     | Controls                and Procedures                                                                                                                                                                                            |   | 22             |
|                                                                                                       |                                                                                                                                                                                                                              |   |           |
| Part                II                                                                                     | Other                Information                                                                                                                                                                                                  |   | 23             |
|                                                                                                       |                                                                                                                                                                                                                              |   |           |
| Item                1.                                                                                     | Legal                Proceedings                                                                                                                                                                                                  |   | 23             |
| Item                2.                                                                                     | Changes                in Securities and Use of                Proceeds                                                                                                                                                           |   | 23             |
| Item                3.                                                                                     | Defaults                Upon Senior Securities                                                                                                                                                                                    |   | 23             |
| Item                4.                                                                                     | Submission                of Matters to a Vote of Security                Holders                                                                                                                                                 |   | 23             |
| Item                5.                                                                                     | Other                Information                                                                                                                                                                                                  |   | 23             |
| Item                6.                                                                                     | Exhibits                and Reports on Form 8-K                                                                                                                                                                                   |   | 23             |
|                                                                                                       |                                                                                                                                                                                                                              |   |           |
| Signatures                                                                                                 |                                                                                                                                                                                                                              | 24     |
|                                                                                                       |                                                                                                                                                                                                                              |   |
| Exhibit                31 - Certification Pursuant to Section 302 of the Sarbanes-Oxley                Act |                                                                                                                                                                                                                              |   |
| Exhibit                32 - Certification Pursuant to Section 906 of the Sarbanes-Oxley                Act |                                                                                                                                                                                                                              |   |

----

**Index**

**PART      1 - FINANCIAL INFORMATION**

| **Item              1.** |  **Financial                Statements** |
|--------------------------|-----------------------------------------------|

**NATIONAL      SCIENTIFIC CORPORATION**

**(A      Development Stage Company)**

**Unaudited      Condensed Balance Sheets**

**June      30, 2006 and September 30, 2005**

|                                                                                                                                                                                                                                        |   | **June                30,****2006** |        | **September                30, 2005** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|-------------|---------------------------------------|--------|
|                                                                                                                                                                                                                                        |   | **(Unaudited)**                     |        | **(Audited)**                         |   |
| **ASSETS**                                                                                                                                                                                                                                  |   |                                |        |                                  |   |
| Current              Assets:                                                                                                                                                                                                                |   |                                |        |                                  |   |   |   |
| Cash                and cash equivalents                                                                                                                                                                                                    |   | $                                   | 1,069       |                                  | $      | 1,616 |   |
| Trade                receivables, net                                                                                                                                                                                                       |   |                                | 1,875       |                                  |   | 9,968 |   |
| Inventory,                net                                                                                                                                                                                                               |   |                                | 19,853      |                                  |   | 23,735 |   |
| Other                assets                                                                                                                                                                                                                 |   |                                | 25,478      |                                  |   | 68 |   |
| Total                current assets                                                                                                                                                                                                         |   |                                | 48,275      |                                  |   | 35,387 |   |
|                                                                                                                                                                                                                                        |   |                                |             |                                  |   |   |   |
| Property                and equipment, net                                                                                                                                                                                                  |   |                                | 2,698       |                                  |   | 7,680 |   |
| Deposits                                                                                                                                                                                                                                    |   |                                | 2,000       |                                  |   | 2,000 |   |
| Deferred                offering costs, net                                                                                                                                                                                                 |   |                                | 20,800      |                                  |   | — |   |
| Investment                                                                                                                                                                                                                                  |   |                                | 289,100     |                                  |   | 289,100 |   |
|                                                                                                                                                                                                                                        |   | $                                   | 362,873     |                                  | $      | 334,167 |   |
|                                                                                                                                                                                                                                        |   |                                |             |                                  |   |  |   |
| **LIABILITIES                AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                                                                                                     |   |                                |             |                                  |   |   |   |
| Current                Liabilities:                                                                                                                                                                                                         |   |                                |             |                                  |   |   |   |
| Accounts                payable - related parties                                                                                                                                                                                           |   | $                                   | 96,160      |                                  | $      | 72,914 |   |
| Accounts                payable - other                                                                                                                                                                                                     |   |                                | 197,883     |                                  |   | 183,664 |   |
| Accrued                expenses                                                                                                                                                                                                             |   |                                | 755,511     |                                  |   | 519,132 |   |
| Notes                payable - related party                                                                                                                                                                                                |   |                                | 159,000     |                                  |   | 159,000 |   |
| Notes                payable - other                                                                                                                                                                                                        |   |                                | 83,375      |                                  |   | 60,150 |   |
| Total                current liabilities                                                                                                                                                                                                    |   |                                | 1,291,929   |                                  |   | 994,860 |   |
|                                                                                                                                                                                                                                        |   |                                |             |                                  |   |   |   |
| Notes                payable, net of current portion                                                                                                                                                                                        |   |                                | 121,671     |                                  |   | — |   |
| Total                liabilities                                                                                                                                                                                                            |   |                                | 1,413,600   |                                  |   | 994,860 |   |
|                                                                                                                                                                                                                                        |   |                                |             |                                  |   |   |   |
| Commitments                and contingencies                                                                                                                                                                                                |   |                                | —     |                                  |   | — |   |
|                                                                                                                                                                                                                                        |   |                                |             |                                  |   |  |   |
| Shareholders’                equity (deficit):                                                                                                                                                                                        |   |                                |             |                                  |   |   |   |
| Preferred                stock, par value $0.10; 4,000,000 shares authorized, and no shares                issued                and outstanding                                                                                            |   |                                | —     |                                  |   | — |   |
| Common                stock, par value $0.01; 187,000,000 shares authorized, and shares                issued                and outstanding 98,446,888 and 94,095,459 at June 30, 2006 and September                30, 2005, respectively |   |                                | 984,469     |                                  |   | 940,955 |   |
| Additional                paid-in capital                                                                                                                                                                                                   |   |                                | 22,377,112  |                                  |   | 22,248,814 |   |
| Accumulated                deficit prior to the development stage                                                                                                                                                                           |   |                                | (2,394,680  | )                                     |   | (2,394,680 | ) |
| Accumulated                deficit during the development stage                                                                                                                                                                             |   |                                | (22,017,628 | )                                     |   | (21,455,782 | ) |
| Total                shareholders’ equity (deficit)                                                                                                                                                                                   |   |                                | (1,050,727  | )                                     |   | (660,693 | ) |
|                                                                                                                                                                                                                                        |   | $                                   | 362,873     |                                  | $      | 334,167 |   |
|                                                                                                                                                                                                                                        |   |                                |             |                                  |   |  |   |

*See      accompanying notes to financial statements, which are an integral part of the      financial statements.*

----

**Index**

**NATIONAL      SCIENTIFIC CORPORATION**

**(A      Development Stage Company)**

**Unaudited      Condensed Statements of Operations**

**For      the Three and Nine Months Ended June 30, 2006, 2005, and Development      Stage**

|                                                           |   | **Three                  Months Ended****June                  30,****2006** |       |  **Three                  Months Ended****June                  30,****2005** |   | **Nine                  Months Ended****June                  30,****2006** |   |  **Nine                  Months Ended****June                  30,****2005** |       |  **Development                  Stage** |   |
|----------------------------------------------------------------|--------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|------------|----------------------------------------------|--------|
|                                                           |   |                                                                    |       |                                                                          |   |                                                                   |   |                                                                         |       |                                    |   |
| Revenues                                                       |   | $                                                                            | 8,920      |                                                                               | $      | 24,157                                                                      |   | $                                                                                 | 96,751     |                                         | $      | 29,629 |   | $ | 1,197,179 |   |
|                                                           |   |                                                                         |       |                                                                               |   |                                                                        |   |                                                                              |       |                                         |   |   |   |   |   |   |
| Cost                  of Sales                                 |   |                                                                         | 7,224      |                                                                               |   | 14,680                                                                      |   |                                                                              | 64,183     |                                         |   | 17,911 |   |   | 1,066,047 |   |
|                                                           |   |                                                                         |       |                                                                               |   |                                                                        |   |                                                                              |       |                                         |   |   |   |   |   |   |
| Gross                  profit                                  |   |                                                                         | 1,696      |                                                                               |   | 9,477                                                                       |   |                                                                              | 32,568     |                                         |   | 11,718 |   |   | 131,132 |   |
|                                                           |   |                                                                         |       |                                                                               |   |                                                                             |   |                                                                              |       |                                         |   |  |   |   |   |   |
| Costs                  and expenses                            |   |                                                                         |       |                                                                               |   |                                                                             |   |                                                                              |       |                                         |   |  |   |   |   |   |
| Salaries                  and benefits                         |   |                                                                         | 64,057     |                                                                               |   | 86,847                                                                      |   |                                                                              | 193,746    |                                         |   | 251,761 |   |   | 3,101,558 |   |
| Research                  and development                      |   |                                                                         | 42,166     |                                                                               |   | 96,795                                                                      |   |                                                                              | 176,709    |                                         |   | 294,329 |   |   | 4,534,692 |   |
| Stock                  compensation                            |   |                                                                         | 5,723      |                                                                               |   | 4,668                                                                       |   |                                                                              | 5,723      |                                         |   | 9,105 |   |   | 3,148,011 |   |
| Consulting                  fees, related party                |   |                                                                         | —    |                                                                               |   | —                                                                     |   |                                                                              | —    |                                         |   | — |   |   | 8,175,973 |   |
| Other                                                          |   |                                                                         | 61,249     |                                                                               |   | 97,497                                                                      |   |                                                                              | 148,436    |                                         |   | 214,179 |   |   | 3,072,078 |   |
| Inventory                  obsolescence charge                 |   |                                                                         | —    |                                                                               |   | 32,282                                                                      |   |                                                                              | —    |                                         |   | 32,282 |   |   | 46,775 |   |
| Total                  costs and expenses                      |   |                                                                         | 173,195    |                                                                               |   | 318,089                                                                     |   |                                                                              | 524,614    |                                         |   | 801,656 |   |   | 22,079,087 |   |
|                                                           |   |                                                                         |       |                                                                               |   |                                                                        |   |                                                                              |       |                                         |   |   |   |   |   |   |
| Loss                  from operations                          |   |                                                                         | (171,499   | )                                                                                  |   | (308,612                                                                    | )      |                                                                              | (492,046   | )                                            |   | (789,938 | ) |   | (21,947,955 | ) |
|                                                           |   |                                                                         |       |                                                                               |   |                                                                        |   |                                                                              |       |                                         |   |   |   |   |   |   |
| Other                  income (expense)                        |   |                                                                         |       |                                                                               |   |                                                                        |   |                                                                              |       |                                         |   |   |   |   |   |   |
| Interest                  and other income                     |   |                                                                         | —    |                                                                               |   | —                                                                     |   |                                                                              | —    |                                         |   | — |   |   | 178,972 |   |
| Gain                  on settlement                            |   |                                                                         | —    |                                                                               |   | —                                                                     |   |                                                                              | —    |                                         |   | — |   |   | 89,403 |   |
| Interest                  expense                              |   |                                                                         | (29,700    | )                                                                                  |   | (6,720                                                                      | )      |                                                                              | (66,600    | )                                            |   | (14,690 | ) |   | (148,357 | ) |
| Amortization                  of deferred offering costs       |   |                                                                         | (1,200     | )                                                                                  |   | —                                                                     |   |                                                                              | (3,200     | )                                            |   | — |   |   | (3,200 | ) |
| Loss                  on disposal of assets                    |   |                                                                         | —    |                                                                               |   | —                                                                     |   |                                                                              | —    |                                         |   | — |   |   | (30,960 | ) |
| Loss                  on impairment of investment              |   |                                                                         | —    |                                                                               |   | —                                                                     |   |                                                                              | —    |                                         |   | — |   |   | (91,344 | ) |
| Loss                  on impairment of equipment               |   |                                                                         | —    |                                                                               |   | —                                                                     |   |                                                                              | —    |                                         |   | — |   |   | (64,187 | ) |
|                                                           |   |                                                                         | (30,900    | )                                                                                  |   | (6,720                                                                      | )      |                                                                              | (69,800    | )                                            |   | (14,690 | ) |   | (69,673 | ) |
|                                                           |   |                                                                         |       |                                                                               |   |                                                                        |   |                                                                              |       |                                         |   |   |   |   |   |   |
| Loss                  before income taxes                      |   |                                                                         | (202,399   | )                                                                                  |   | (315,332                                                                    | )      |                                                                              | (561,846   | )                                            |   | (804,628 | ) |   | (22,017,628 | ) |
| Income                  tax expense                            |   |                                                                         | —    |                                                                               |   | —                                                                     |   |                                                                              | —    |                                         |   | — |   |   | — |   |
| Net                  lo Net loss                               |   | $                                                                            | (202,399   | )                                                                                  | $      | (315,332                                                                    | )      | $                                                                                 | (561,846   | )                                            | $      | (804,628 | ) | $ | (22,017,628 | ) |
|                                                           |   |                                                                         |       |                                                                               |   |                                                                        |   |                                                                              |       |                                         |   |   |   |   |   |   |
| Net                  loss per common share, basic and diluted  |   | $                                                                            | (0.00      | )                                                                                  | $      | (0.00                                                                       | )      | $                                                                                 | (0.01      | )                                            | $      | (0.01 | ) |   |   |   |
| Weighted                  average number of shares outstanding |   |                                                                         | 97,247,987 |                                                                               |   | 91,518,361                                                                  |   |                                                                              | 96,068,682 |                                         |   | 88,283,373 |   |   |   |   |

*See        accompanying notes to financial statements, which are an integral part of        the        financial statements.*

----

**Index**

**NATIONAL      SCIENTIFIC CORPORATION**

**(A      Development Stage Company)**

**Unaudited      Condensed Statements of Cash Flows**

**For      the Nine Months Ended **
**June      30,**
**      2006, 2005, and Development Stage**

|                                                                                                      |   |  **Nine                Months Ended****June                30,****2006** |     |  **Nine                Months Ended****June                30,****2005** |   |  **Development** **Stage** |   |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|----------|-------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                                                      |   |                                                                          |     |                                                                          |   |                                 |   |   |   |   |
| Cash                flows from operating activities:                                                      |   |                                                                          |     |                                                                          |   |                                 |   |   |   |   |
| Net                loss                                                                                   |   | $                                                                             | (561,846 | )                                                                             | $      | (804,628                             | )      | $ | (22,017,628 | ) |
| Adjustments                to reconcile net loss to net cash used in operating                activities: |   |                                                                          |          |                                                                          |   |                                      |   |   |  |   |
| Depreciation                                                                                              |   |                                                                          | 4,982    |                                                                          |   | 10,161                               |   |   | 96,653 |   |
| Loss                on disposal of assets                                                                 |   |                                                                          | —  |                                                                          |   | —                              |   |   | 30,960 |   |
| Impairment                loss on equipment                                                               |   |                                                                          | —  |                                                                          |   | —                              |   |   | 64,187 |   |
| Stock                and options issued for services, net                                                 |   |                                                                          | 5,723    |                                                                          |   | 9,105                                |   |   | 11,645,339 |   |
| Impairment                of inventory                                                                    |   |                                                                          | —  |                                                                          |   | —                              |   |   | 46,775 |   |
| Impairment                of investment                                                                   |   |                                                                          | —  |                                                                          |   | —                              |   |   | 91,344 |   |
| Warrant                expense                                                                            |   |                                                                          | 5,256    |                                                                          |   | —                              |   |   | 9,947 |   |
| Amortization                of deferred offering costs                                                    |   |                                                                          | 3,200    |                                                                          |   | —                              |   |   | 3,200 |   |
| Amortization                of debt discount                                                              |   |                                                                          | 6,880    |                                                                          |   | —                              |   |   | 6,880 |   |
| Amortization                of beneficial conversion feature                                              |   |                                                                          | 1,324    |                                                                          |   | —                              |   |   | 1,324 |   |
| Changes                in assets and liabilities:                                                         |   |                                                                          |          |                                                                          |   |                                      |   |   |  |   |
| Decrease                (increase) in inventory                                                           |   |                                                                          | 3,882    |                                                                          |   | 33,868                               |   |   | (66,628 | ) |
| (Increase)                decrease in deferred offering costs                                             |   |                                                                          | —  |                                                                          |   | —                              |   |   | (85,171 | ) |
| Decrease                (increase) in receivables                                                         |   |                                                                          | 8,093    |                                                                          |   | 4,469                                |   |   | 129,756 |   |
| Decrease                (increase) in other assets                                                        |   |                                                                          | (25,410  | )                                                                             |   | 15,730                               |   |   | (18,538 | ) |
| Increase                (decrease) in accounts payable and accrued expenses                               |   |                                                                          | 363,144  |                                                                          |   | 156,965                              |   |   | 1,445,500 |   |
| Net                cash (used in) operating activities                                                    |   |                                                                          | (184,772 | )                                                                             |   | (574,330                             | )      |   | (8,616,100 | ) |
|                                                                                                      |   |                                                                          |          |                                                                          |   |                                      |   |   |  |   |
| Cash                flows from investing activities:                                                      |   |                                                                          |     |                                                                          |   |                                 |   |   |   |   |
| Acquisition                of property and equipment                                                      |   |                                                                          | —  |                                                                          |   | —                              |   |   | (155,766 | ) |
| Repayment                of loans                                                                         |   |                                                                          | —  |                                                                          |   | —                              |   |   | 200,000 |   |
| Proceeds                from the sale of furniture and equipment                                          |   |                                                                          | —  |                                                                          |   | —                              |   |   | 6,050 |   |
| Loans                issued                                                                               |   |                                                                          | —  |                                                                          |   | —                              |   |   | (400,000 | ) |
| Net                cash (used in) provided by investing activities                                        |   |                                                                          | —  |                                                                          |   | —                              |   |   | (349,716 | ) |
|                                                                                                      |   |                                                                          |          |                                                                          |   |                                      |   |   |  |   |
| Cash                flows from financing activities:                                                      |   |                                                                          |     |                                                                          |   |                                 |   |   |   |   |
| Proceeds                from notes payable                                                                |   |                                                                          | 215,125  |                                                                          |   | 189,500                              |   |   | 479,625 |   |
| Loan                from (to) officer, related party                                                      |   |                                                                          | —  |                                                                          |   | —                              |   |   | 65,079 |   |
| Draws                on the line of credit                                                                |   |                                                                          | —  |                                                                          |   | —                              |   |   | 430,000 |   |
|                                                                                                      |   |                                                                          |          |                                                                          |   |                                      |   |   |  |   |
| **(Continued)**                                                                                           |

*See      accompanying notes to financial statements, which are an integral part of the      financial statements.*

----

**Index**

**NATIONAL      SCIENTIFIC CORPORATION**

**(A      Development Stage Company)**

**Unaudited      Condensed Statements of Cash Flows**

**For      the Nine Months Ended **
**June      30,**
**      2006, 2005, and Development Stage**

**(Continued)**

|                                                             |   |  **Nine                    Months Ended****June                    30,****2006** |    |  **Nine                    Months Ended****June                    30,****2005** |   |  **Development** **Stage** |   |
|------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                             |   |                                                                                  |    |                                                                                  |   |                                 |   |
| Repayment                    of notes payable                    |   |                                                                                  | (16,900 | )                                                                                     |   | —                              |   |   | (225,500 | ) |
| Repayment                    of line of credit                   |   |                                                                                  | — |                                                                                  |   | —                              |   |   | (430,000 | ) |
| Repayment                    of capital lease obligations        |   |                                                                                  | — |                                                                                  |   | —                              |   |   | (1,819 | ) |
| Proceeds                    from the exercise of options         |   |                                                                                  | — |                                                                                  |   | —                              |   |   | 208,265 |   |
| Proceeds                    from the exercise of warrants        |   |                                                                                  | — |                                                                                  |   | —                              |   |   | 92,460 |   |
| Proceeds                    from equity line of credit           |   |                                                                                  | — |                                                                                  |   | —                              |   |   | 414,824 |   |
| Proceeds                    from the issuance of preferred stock |   |                                                                                  | — |                                                                                  |   | —                              |   |   | 482,500 |   |
| Payment                    of financing costs                    |   |                                                                                  | (24,000 | )                                                                                     |   | —                              |   |   | (24,000 | ) |
| Proceeds                    from securities exchange agreement   |   |                                                                                  | — |                                                                                  |   | 240,000                              |   |   | 240,000 |   |
| Proceeds                    from issuance of common stock        |   |                                                                                  | 10,000  |                                                                                  |   | —                              |   |   | 7,231,833 |   |
| Net                    cash provided by financing activities     |   |                                                                                  | 184,225 |                                                                                  |   | 429,500                              |   |   | 8,963,267 |   |

|                                                                         |   |   |    |   |   |     |   |
|------------------------------------------------------------------------------|--------|--------|---------|--------|--------|----------|--------|
| Net                (decrease) increase in cash and cash equivalents          |   |   | (547    | )      |   | (144,830 | )      |   | (2,549 | ) |
| Cash                and cash equivalents, beginning of period                |   |   | 1,616   |   |   | 160,214  |   |   | 3,618 |   |
|                                                                         |   |   |         |   |   |          |   |   |  |   |
| Cash                and cash equivalents, end of period                      |   | $      | 1,069   |   | $      | 15,384   |   | $ | 1,069 |   |
|                                                                         |   |   |         |   |   |          |   |   |  |   |
| Supplementary                Disclosure of Cash Flow Information             |   |   |    |   |   |     |   |   |   |   |
| Cash                paid for interest                                        |   | $      | 8,737   |   | $      | 145      |   | $ | 45,450 |   |
| Cash                paid for income taxes                                    |   | $      | — |   |   | —  |   | $ | 50 |   |
| Conversion                of accounts payable and accrued expenses to equity |   | $      | 89,300  |   | $      | —  |   | $ | 171,490 |   |
| Common                stock exchanged for investment                         |   |   | — |   |   | —  |   |   | 289,100 |   |
| Debt                discount and beneficial conversion feature               |   | $      | 86,172  |   | $      | —  |   | $ | 86,172 |   |
|                                                                         |   |   |         |   |   |          |   |   |  |   |

*See      accompanying notes to financial statements, which are an integral part of the      financial statements.*

----

**Index**

**NATIONAL      SCIENTIFIC CORPORATION**

**(A      Development Stage Company)**

**Unaudited      Condensed Statement of Changes in Shareholders’ Equity      (Deficit)**

**For      the Nine Months Ended June 30, 2006 and Development Stage**

|                                                                                                                             |   | **Common                Stock**     |       | **Preferred                Stock** |   |                                |   |                         |    |                                 |   |                                                                                |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|------------------------------------|--------|-------------------------------------|--------|------------------------------|---------|--------------------------------------|--------|-------------------------------------------------------------------------------------|--------|
|                                                                                                                             |   | **Number                of Shares** |       | **Par                Value**       |   | **Number                of Shares** |   | **Par                Value** |    | **Additional****Paid-In****Capital** |   | **Accumulated                Deficit****Prior                to Development Stage** |   | **Accumulated                Deficit****During                the Development Stage** |   | **Total** |   |
|                                                                                                                             |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |
| Balance,                September 30, 2005                                                                                       |   |                                | 94,095,459 |                               | $      | 940,955                             |   |                         | — |                                 | $      | —                                                                             |   | $ | 22,248,814 |   | $ | (2,394,680 | ) | $ | (21,455,782 | ) | $ | (660,693 | ) |
|                                                                                                                             |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of common stock as part of financing program                                                             |   |                                | 1,200,000  |                               |   | 12,000                              |   |                         | — |                                 |   | —                                                                             |   |   | 49,533 |   |   | — |   |   | — |   |   | 61,533 |   |
|                                                                                                                             |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of common stock in exchange for accounts payable and accrued expenses.                Shares issued for: |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $0.036                                                                                                                           |   |                                | 500,000    |                               |   | 5,000                               |   |                         | — |                                 |   | —                                                                             |   |   | 13,000 |   |   | — |   |   | — |   |   | 18,000 |   |
| $0.035                                                                                                                           |   |                                | 430,000    |                               |   | 4,300                               |   |                         | — |                                 |   | —                                                                             |   |   | 10,750 |   |   | — |   |   | — |   |   | 15,050 |   |
| $0.032                                                                                                                           |   |                                | 500,000    |                               |   | 5,000                               |   |                         | — |                                 |   | —                                                                             |   |   | 11,000 |   |   | — |   |   | — |   |   | 16,000 |   |
| $0.035                                                                                                                           |   |                                | 1,150,000  |                               |   | 11,500                              |   |                         | — |                                 |   | —                                                                             |   |   | 28,750 |   |   | — |   |   | — |   |   | 40,250 |   |
|                                                                                                                             |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Private                placement of common stock Shares issued for: $0.0175                                                      |   |                                | 571,429    |                               |   | 5,714                               |   |                         | — |                                 |   | —                                                                             |   |   | 4,286 |   |   | — |   |   | — |   |   | 10,0000 |   |
|                                                                                                                             |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                stock options issued, net                                                                                  |   |                                | —    |                               |   | —                             |   |                         | — |                                 |   | —                                                                             |   |   | 5,723 |   |   | — |   |   | — |   |   | 5,723 |   |
|                                                                                                                             |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Warrants                issued with debt                                                                                         |   |                                | —    |                               |   | —                             |   |                         | — |                                 |   | —                                                                             |   |   | 5,256 |   |   | — |   |   | — |   |   | 5,256 |   |
|                                                                                                                             |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                                                                                          |   |                                | —    |                               |   | —                             |   |                         | — |                                 |   | —                                                                             |   |   | — |   |   | — |   |   | (561,846 | ) |   | (561,846 | ) |
|                                                                                                                             |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                June 30, 2006                                                                                            |   |                                | 98,446,888 |                               | $      | 984,469                             |   |                         | — |                                 | $      | —                                                                             |   | $ | 22,377,112 |   | $ | (2,394,680 | ) | $ | (22,017,628 | ) | $ | (1,050,727 | ) |
|                                                                                                                             |   |                                |       |                               |   |                                |   |                         |    |                                 |   |                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |

*See      accompanying notes to financial statements, which are an integral part of the      financial statement.*

----

**Index**

**NATIONAL      SCIENTIFIC CORPORATION**

**(A      Development Stage Company)**

**NOTES      TO FINANCIAL STATEMENTS**

**June      30,**
**      2006**

**(Unaudited)**

| **1.** | **Basis                of Presentation** |
|--------|------------------------------------------|

| **2.** | **Issuance                of Common Stock** |
|--------|---------------------------------------------|

**Development      Stage Operations**

----

**Index**

| **4.** | **Stock                Options and Warrants** |
|--------|-----------------------------------------------|

**Stock      Options**

|                                                   |   |       |      | **Weighted** |   | **Weighted** |   |
|--------------------------------------------------------|--------|------------|-----------|--------------|--------|--------------|--------|
|                                                   |   | **Number** |      | **Average**  |   | **Average**  |   |
|                                                   |   | **of**     |      | **Exercise** |   | **Fair**     |   |
|                                                   |   | **Shares** |      | **Price**    |   | **Value**    |   |
|                                                   |   |       |      |         |   |         |   |
| Options                Outstanding, September 30, 2005 |   |       | 3,789,257 |         | $      | 0.81         |   | $ | 0.02 |   |
| Granted                                                |   |       | 152,358   |         |   | 0.04         |   |   | 0.04 |   |
| Exercised                                              |   |       | —   |         |   | —      |   |   | — |   |
| Canceled                                               |   |       | —   |         |   | —      |   |   | — |   |
| Options                Outstanding, June 30, 2006      |   |       | 3,941,615 |         | $      | 0.78         |   | $ | 0.02 |   |

----

**Index**

**Stock      Based Compensation**

*Accounting      for Stock Issued to Employees*
*“Accounting      for Stock-Based Compensation”*

|                                        |   | **Stock                Options Outstanding** |      | **Stock                Options Exercisable** |   |
|---------------------------------------------|--------|----------------------------------------------|-----------|----------------------------------------------|--------|
|                                        |   |                                         |      | **Weighted**                                 |   |   |   |   |   |   |   |
|                                        |   |                                         |      | **Average**                                  |   |   |   |   |   |   |   |
|                                        |   |                                         |      | **Remaining**                                |   | **Weighted** |   |   |   | **Weighted** |   |
|                                        |   |                                         |      | **Contractual**                              |   | **Average** |   |   |   | **Average** |   |
|                                        |   | **Number**                                   |      | **Life**                                     |   | **Exercise** |   | **Number** |   | **Exercise** |   |
| **Range                of Exercise Prices** |   | **of                Shares**                 |      | **(In                Years)**                |   | **Price** |   | **of                Shares** |   | **Price** |   |
|                                        |   |                                         |      |                                         |   |   |   |   |   |   |   |
| $0.04                to $0.04               |   |                                         | 152,358   |                                         |   | 9.99 |   | $ | 0.04 |   |   | 152,358 |   | $ | 0.04 |   |
| $0.05                to $0.46               |   |                                         | 2,479,257 |                                         |   | 6.80 |   | $ | 0.18 |   |   | 2,479,257 |   | $ | 0.18 |   |
| $0.47                to $1.84               |   |                                         | 1,000,000 |                                         |   | 4.42 |   | $ | 1.84 |   |   | 1,000,000 |   | $ | 1.84 |   |
| $1.85                to $3.00               |   |                                         | 310,000   |                                         |   | 4.56 |   | $ | 2.49 |   |   | 310,000 |   | $ | 2.49 |   |
| Total                                       |   |                                         | 3,941,615 |                                         |   |   |   |   |   |   |   | 3,941,615 |   |   |   |   |
|                                        |   |                                         |           |                                         |   |  |   |   |  |   |   |  |   |   |  |   |

----

**Index**

|                                                                                                                                              |   | **Nine                    Months Ended** |     | **Nine                    Months Ended** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|----------|------------------------------------------|--------|
|                                                                                                                                              |   | **June                    30, 2006**     |     | **June                    30, 2005**     |   |
|                                                                                                                                              |   |                                     |     |                                     |   |
| Net                    loss as reported                                                                                                           |   | $                                        | (561,846 | )                                        | $      | (804,628 | ) |
| Deduct:                    Total stock based compensation expense as determined under the                    fair value                    method |   |                                     | (11,818  | )                                        |   | (14,705 | ) |
| Add:                    Total stock based compensation recorded in the statement of                    operations                                 |   |                                     | 5,723    |                                     |   | 9,105 |   |
|                                                                                                                                              |   |                                     |     |                                     |   |   |   |
| Pro                    forma net loss                                                                                                             |   | $                                        | (567,941 | )                                        | $      | (810,228 | ) |
|                                                                                                                                              |   |                                     |     |                                     |   |   |   |
| Loss                    per share as reported                                                                                                     |   |                                     | (0.01    | )                                        |   | (0.01 | ) |
|                                                                                                                                              |   |                                     |     |                                     |   |   |   |
| Loss                    per share, pro forma                                                                                                      |   |                                     | (0.01    | )                                        |   | (0.01 | ) |

**Warrants      **

|                                                    |   | **Warrants                Outstanding**         |       |  **Warrants                Exercisable**                                               |   |
|---------------------------------------------------------|--------|-------------------------------------------------|------------|---------------------------------------------------------------------------------------------|--------|
|   **Range                of Exercise Prices** |   |   **Number                of Shares** |       | **Weighted                Average Remaining Contractual Life****(In                Years)** |   | **Weighted                Average****Exercise                Price** |   |   **Number                of Shares** |   | **Weighted                Average Exercise Price** |   |
|                                                    |   |                                            |       |                                                                                        |   |   |   |   |   |   |   |
| $0.036                to $0.036                         |   |                                            | 200,000    |                                                                                        |   | 2.88 |   | $ | 0.036 |   |   | 200,000 |   | $ | 0.036 |   |
| $0.050                to $0.050                         |   |                                            | 200,000    |                                                                                        |   | 3.00 |   | $ | 0.050 |   |   | 200,000 |   | $ | 0.050 |   |
| $0.062                to $0.062                         |   |                                            | 135,000    |                                                                                        |   | 1.99 |   | $ | 0.062 |   |   | 135,000 |   | $ | 0.062 |   |
| $0.090                to $0.090                         |   |                                            | 50,000     |                                                                                        |   | 2.22 |   | $ | 0.090 |   |   | 50,000 |   | $ | 0.090 |   |
| $0.100                to $0.100                         |   |                                            | 3,108,497  |                                                                                        |   | 4.35 |   | $ | 0.100 |   |   | 3,108,497 |   | $ | 0.100 |   |
| $0.110                to $0.110                         |   |                                            | 7,750,700  |                                                                                        |   | 2.78 |   | $ | 0.110 |   |   | 7,750,700 |   | $ | 0.110 |   |
| $0.130                to $0.130                         |   |                                            | 640,000    |                                                                                        |   | 0.52 |   | $ | 0.130 |   |   | 640,000 |   | $ | 0.130 |   |
| $0.350                to $0.350                         |   |                                            | 1,000,000  |                                                                                        |   | 1.00 |   | $ | 0.350 |   |   | 1,000,000 |   | $ | 0.350 |   |
| $0.500                to $0.500                         |   |                                            | 1,275,000  |                                                                                        |   | 1.00 |   | $ | 0.500 |   |   | 1,275,000 |   | $ | 0.500 |   |
| $0.750                to $0.750                         |   |                                            | 275,000    |                                                                                        |   | 1.00 |   | $ | 0.075 |   |   | 275,000 |   | $ | 0.075 |   |
|                                                    |   |                                            | 14,634,197 |                                                                                        |   |  |   |   |  |   |   | 14,634,197 |   |   |  |   |

----

**Index**

----

**Index**

| **5.** | **Notes                Payable and Long Term Debt** |
|--------|-----------------------------------------------------|

|                                                                                 |   | **June                  30, 2006** |     | **September                  30, 2005** |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------|----------|-----------------------------------------|--------|
|                                                                                 |   | **(Unaudited)**                    |     | **(Audited)**                           |   |
|                                                                                 |   |                               |     |                                    |   |
| Note                  payable to shareholder; unsecured; non-interest                |   |                               |          |                                    |   |  |   |
| Bearing;                  matures in June 2006; repayment may be made by the         |   |                               |          |                                    |   |  |   |
| Company                  with either cash or its restricted common stock             |   |                               |          |                                    |   |  |   |
| or                  a combination of cash and stock.                                 |   | $                                  | 43,250   |                                    | $      | 43,250 |   |
| Note                  payable to an Officer of the Company; interest                 |   |                               |          |                                    |   |  |   |
| at                  6%; principal and interest payable on demand; unsecured.         |   |                               | 159,000  |                                    |   | 159,000 |   |
| Note                  payable to shareholder; unsecured; non-interest bearing        |   |                               | —  |                                    |   | 3,000 |   |
| Note                  payable to shareholder; unsecured; interest at 6%              |   |                               | —  |                                    |   | 5,000 |   |
| Note                  payable to an employee; interest at 6%; principal and interest |   |                               |          |                                    |   |  |   |
| at                  6%; principal and interest payable on demand; unsecured.         |   |                               | —  |                                    |   | 8,900 |   |
| Note                  payable to shareholder; unsecured; non-interest bearing        |   |                               | 1,000    |                                    |   | — |   |
| Note                  payable to shareholder; unsecured; non-interest bearing        |   |                               | 1,500    |                                    |   | — |   |
| Note                  payable to shareholder; unsecured; non-interest bearing        |   |                               | 1,000    |                                    |   | — |   |
| Note                  payable to shareholder; unsecured; interest at 12%             |   |                               | 16,625   |                                    |   | — |   |
| Note                  payable to shareholder; unsecured; interest at 12%             |   |                               | 20,000   |                                    |   | — |   |
| Note                  payable to an investment fund; payable in full in              |   |                               |          |                                    |   |  |   |
| November                  2010; interest at 8% payable semi-annually in May          |   |                               |          |                                    |   |  |   |
| and                  November; unsecured.                                            |   |                               | 175,000  |                                    |   | — |   |
|                                                                                 |   |                               | 417,375  |                                    |   | 219,150 |   |
| Less:                                                                                |   |                               |          |                                    |   |  |   |
| Current                  portion of long term debt                                   |   |                               | (242,375 | )                                       |   | (219,150 | ) |
| Discount                                                                             |   |                               | (44,720  | )                                       |   | — |   |
| Beneficial                  conversion feature                                       |   |                               | (8,609   | )                                       |   | — |   |
| Long-term                  debt, net of current portion                              |   | $                                  | 121,671  |                                    | $      | — |   |

----

**Index**

| 2006   |   | $      | 242,375 |   |
|--------|--------|--------|---------|--------|
| 2007   |   |   | — |   |
| 2008   |   |   | — |   |
| 2009   |   |   | — |   |
| 2010   |   |   | 175,000 |   |
|   |   | $      | 417,375 |   |

| **6.** | **Investment** |
|--------|----------------|

----

**Index**

| **7.** | **Inventory,                net** |
|--------|-----------------------------------|

|                                          |   |  **June                30, 2006** |    |  **September                30, 2005** |   |
|-----------------------------------------------|--------|----------------------------------------|---------|---------------------------------------------|--------|
|                                          |   |  **(Unaudited)**                  |    |  **(Audited)**                         |   |
|                                          |   |                                   |    |                                        |   |
| Inventory,                gross               |   | $                                      | 66,628  |                                        | $      | 70,510 |   |
| Less:                reserve for obsolescence |   |                                   | (46,775 | )                                           |   | (46,775 | ) |
| Inventory,                net                 |   | $                                      | 19,853  |                                        | $      | 23,735 |   |

----

**Index**

| **8.** | **Accrued                Expenses** |
|--------|-------------------------------------|

|                                                                      |   |  **June                30, 2006** |    |  **September                30, 2005** |   |
|---------------------------------------------------------------------------|--------|----------------------------------------|---------|---------------------------------------------|--------|
|                                                                      |   |  **(Unaudited)**                  |    |  **(Audited)**                         |   |
|                                                                      |   |                                   |    |                                        |   |
| Salaries                & vacation pay - current management and staff |   | $                                      | 519,769 |                                        | $      | 332,391 |   |
| Salaries                & vacation pay - former employee              |   |                                   | 29,375  |                                        |   | 29,375 |   |
| Payroll                taxes for back pay                                 |   |                                   | 32,254  |                                        |   | 27,952 |   |
| Interest                                                                  |   |                                   | 92,135  |                                        |   | 48,189 |   |
| Employee                stock retainage pool                              |   |                                   | 50,250  |                                        |   | 50,250 |   |
| Other                liabilities                                          |   |                                   | 31,728  |                                        |   | 30,975 |   |
|                                                                      |   | $                                      | 755,511 |                                        | $      | 519,132 |   |

| **9.** | **Earnings                Per Share** |
|--------|---------------------------------------|

|                                                                    |   | **June                30,****2006** |       | **June                30,****2005** |   |
|-------------------------------------------------------------------------|--------|-------------------------------------|------------|-------------------------------------|--------|
|                                                                    |   |                                |       |                                |   |
| Net                (loss)                                               |   | $                                   | (561,846   | )                                   | $      | (804,628 | ) |
| Weighted                average shares:                                 |   |                                |       |                                |   |   |   |
| Average                shares outstanding                               |   |                                | 96,068,682 |                                |   | 88,283,373 |   |
| Effect                of diluted shares                                 |   |                                | —    |                                |   | — |   |
|                                                                    |   |                                |            |                                |   |  |   |
| Average                shares outstanding, adjusted for dilutive effect |   |                                | 96,068,682 |                                |   | 88,283,373 |   |
|                                                                    |   |                                |            |                                |   |  |   |
| (Loss)                per share - basic                                 |   | $                                   | (0.01      | )                                   | $      | (0.01 | ) |
|                                                                    |   |                                |            |                                |   |  |   |
| (Loss)                per share - diluted                               |   | $                                   | (0.01      | )                                   | $      | (0.01 | ) |

----

**Index**

|                                        |   | **June                30,****2006** |       | **June                30,****2005** |   |
|---------------------------------------------|--------|-------------------------------------|------------|-------------------------------------|--------|
|                                        |   |                                |       |                                |   |
| Options                                     |   |                                | 3,941,615  |                                |   | 3,789,257 |   |
| Warrants                                    |   |                                | 14,634,197 |                                |   | 14,049,197 |   |
|                                        |   |                                |            |                                |   |  |   |
| Potential                common equivalents |   |                                | 18,575,812 |                                |   | 17,838,454 |   |
|                                        |   |                                |            |                                |   |  |   |

| **10.** | **Subsequent                Events** |
|---------|--------------------------------------|

----

**Index**

| **Item              2.** | **Management’s                Discussion and Analysis of Financial Condition and Results of                Operations** |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------|

**SAFE      HARBOR STATEMENT**

**Three      Months Ended June 30, 2006 Compared to Three Months Ended June 30,      2005**

----

**Index**

**Nine      Months Ended June 30, 2006 Compared to Nine Months Ended June 30,      2005**

----

**Index**

**Liquidity      and Capital Resources**

----

**Index**

**Other      Subsequent Events **

----

**Index**

| **Item              3.** | **Controls                and Procedures** |
|--------------------------|--------------------------------------------|

----

**Index**

**PART      II - OTHER INFORMATION**

| **Item              1.** | **Legal                Proceedings** |
|--------------------------|--------------------------------------|

| **Item              2.** | **Changes                in Securities and Use of                Proceeds** |
|--------------------------|-----------------------------------------------------------------------------|

| **Item              3.** | **Defaults                Upon Senior Securities.** |
|--------------------------|-----------------------------------------------------|

| **Item              4.** | **Submission                of Matters to a Vote of Security                Holders.** |
|--------------------------|----------------------------------------------------------------------------------------|

| **Item              5.** | **Other                Information.** |
|--------------------------|---------------------------------------|

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

|  | **(a)** | **Exhibits** |
|--|---------|--------------|

| **Exhibit                Number** |   | **Description**                                                                               |
|-----------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                              |   |                                                                                          |
| 31                                |   | Certification                Pursuant to Section 302 of the Sarbanes-Oxley Act                |
| 32                                |   | Certification                Pursuant to Section 906 of the Sarbanes-Oxley                Act |

|  | **(b)** | **Reports                on Form 8-K** |
|--|---------|----------------------------------------|

----

**Index**

**SIGNATURES**

|                                 |                                                                                                                                           |                                   |
|--------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|
|                                 | **NATIONAL                SCIENTIFIC CORPORATION**                                                                                             |
|                                 |                                                                                                                                           |                                   |
| Date:                August 18, 2006 | By:                                                                                                                                            | /s/                Michael A. Grollman |
|                                 | Michael                A. GrollmanDirector,                Chief Executive Officer, Acting Chief Financial                Officer and Chairman |

|                                       |                                                                            |                               |
|--------------------------------------------|---------------------------------------------------------------------------------|------------------------------------|
|                                       |                                                                            |                               |
|  Date:                August 18, 2006 | By:                                                                             | /s/                Graham L. Clark |
|                                       | Graham                L. ClarkDirector,                President, and Secretary |

|                                       |                                 |                             |
|--------------------------------------------|--------------------------------------|----------------------------------|
|                                       |                                 |                             |
|  Date:                August 18, 2006 | By:                                  | /s/                Gregory Szabo |
|                                       | Gregory                SzaboDirector |

----