****INDEX****
 **U.S.
SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 **_____________**
 
 **FORM
10-QSB**
 **_____________**
****
****
 QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For the
quarterly period ended **March 31, 2005**
 
 **000-28745**
 (Commission
File No.)
 
 ______________
 
 **NATIONAL
SCIENTIFIC CORPORATION**
 (Name of
Small Business Issuer in its Charter)
 ______________
  **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**
 (Issuers
Telephone Number, Including Area Code)
 
 Securities
registered under Section 12(b) of the Exchange Act:
 **Preferred
Stock, $0.10 par value**
 
 Securities
registered under Section 12(g) of the Exchange Act:
 **Common
Stock, $0.01 par value**
  Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.   Yes x
No o
 
 There
were 91,500,657 shares of Common Stock, par value $.01 per share, outstanding at
May 10, 2005.
 
 Transitional
Small Business Disclosure Format (Check One):  Yes o No x
 **INDEX**
 ****
 **NATIONAL SCIENTIFIC CORPORATION**
 **FORM
10-QSB**
 **INDEX**
 PagePart I
    Financial Information
    3Item 1.
    Financial Statements (unaudited)
    3Unaudited Condensed Balance Sheet - March 31,
      2005
    3Unaudited Condensed Statements of Operations - Three
      and Six Months ended March 31, 2005, 2004, and Cumulative from October 1,
      1997 (Inception) through March 31, 2005
    4Unaudited Condensed Statements of Cash Flows - Six
      Months ended March 31, 2005, 2004, and Cumulative from October 1, 1997
      (Inception) through March 31, 2005
    5Unaudited Condensed Statement of Changes in
      Shareholders’ Equity (Deficit) - Six Months Ended March 31,
      2005
    6Notes to Financial Statements
    7Item 2.
    Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
    12Item 3.
    Controls and Procedures
    16Part II
    Other Information
    18Item 1.
    Legal Proceedings
    18Item 2.
    Unregistered Sales of Equity Securities and Use of
      Proceeds
    18Item 3.
    Defaults Upon Senior Securities
    18Item 4.
    Submission of Matters to a Vote of Security
      Holders
    18Item 5.
    Other Information
    18Item 6.
    Exhibits
    18Signatures
    19Exhibit
      31 - Certification Pursuant to Section 302 of the Sarbanes-Oxley
    ActExhibit
      32 - Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act
 
 2
 **INDEX**
 **PART I - FINANCIAL INFORMATION**
****
**Item 1.**
    **Financial
      Statements**

**NATIONAL SCIENTIFIC CORPORATION**
**(A
Development Stage Company)**

**Unaudited
Condensed Balance Sheet**
**March
31, 2005**

**ASSETS**Current
      Assets:Cash
      and cash equivalents
    
    $
    25,410Trade
      receivables, net
    
    
    26,819Other
      receivables, net
    
    
    30,093Inventory
      (includes goods on consignment, in Canada, on March 31, 2005 of
      $27,444)
    
    
    66,072Other
      assets
    
    
    6,873Total
      current assets
    
    
    155,267Property
      and equipment, net
    
    
    14,350Deposits
    
    
    2,000Acquired
      investment
    
    
    289,100$
    460,717**LIABILITIES
      AND SHAREHOLDERS’ EQUITY (DEFICIT)**Current
      Liabilities:Accounts
      payable
    
    $
    157,319Accrued
      expenses
    
    
    379,626Note
      payable, related party
    
    
    100,000Total
      current liabilities
    
    
    636,945Note
      payable
    
    
    43,250Total
      liabilities
    
    
    680,195Commitments
      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; 120,000,000 shares authorized, and 91,500,657
      shares issued and outstanding
    
    
    915,007Additional
      paid-in capital
    
    
    22,064,491Accumulated
      deficit
    
    
    (23,198,976
    )Total
      shareholders’ equity (deficit)
    
    
    (219,478
    )$
    460,717
*See
accompanying notes to financial statements, which are an integral part of the
financial statements.*
3
**INDEX**

**NATIONAL SCIENTIFIC CORPORATION**
**(A
Development Stage Company)**

**Unaudited
Condensed Statements of Operations**
**For
the Three and Six Months Ended March 31, 2005, 2004, and Development
Stage**

**Three
      Months**
      **Ended**
      **March
      31, 2005**
    
    **Three
      Months**
      **Ended**
      **March
      31, 2004**
    
    **Six
      Months**
      **Ended**
      **March
      31,****2005**
    
    **Six
      Months**
      **Ended**
      **March
      31, 2004**
    
    **Development**
      **Stage**Revenues
    
    $
    3,609
    
    $
    36,308
    
    $
    5,472
    
    $
    74,538
    
    $
    1,032,674Cost
      of Sales
    
    
    2,118
    
    
    24,856
    
    
    3,231
    
    
    55,998
    
    
    956,315Gross
      profit
    
    
    1,491
    
    
    11452
    
    
    2,241
    
    
    18,540
    
    
    76,359Costs
      and expensesSalaries
      and benefits
    
    
    61,113
    
    
    112,346
    
    
    164,914
    
    
    257,395
    
    
    2,735,018Research
      and development
    
    
    124,051
    
    
    4,440
    
    
    197,534
    
    
    9,398
    
    
    4,163,926Stock
      compensation
    
    
    —
    
    
    22,290
    
    
    4,437
    
    
    28,293
    
    
    3,130,552Consulting
      fees, related party
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    8,175,973Other
    
    
    60,694
    
    
    72,446
    
    
    116,682
    
    
    131,170
    
    
    2,784,634Total
      costs and expenses
    
    
    245,858
    
    
    211,522
    
    
    483,567
    
    
    426,256
    
    
    20,990,103Loss
      from operations
    
    
    (244,367
    )
    
    (200,070
    )
    
    (481,326
    )
    
    (407,716
    )
    
    (20,913,
      744
    )Other
      income (expense)Interest
      and other income
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    178,972Gain
      on settlement
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    89,403Interest
      expense
    
    
    (4,253
    )
    
    (7,342
    )
    
    (7,970
    )
    
    (10,474
    )
    
    (63,780
    )Loss
      on disposal of assets
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    (30,960
    )Loss
      on impairment of equipment
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    (64,187
    )(4,253
    )
    
    (7,342
    )
    
    (7,970
    )
    
    (10,474
    )
    
    109,448Loss
      before income taxes
    
    
    (248,620
    )
    
    (207,412
    )
    
    (489,296
    )
    
    (418,190
    )
    
    (20,804,296
    )Income
      tax expense
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    —Net
      loss
    
    $
    (248,620
    )
    $
    (207,412
    )
    $
    (489,296
    )
    $
    (418,190
    )
    $
    (20,804,296
    )Net
      loss per common share, basic and diluted
    
    $
    (0.00
    )
    $
    (0.00
    )
    $
    (0.01
    )
    $
    (0.01
    )Weighted
      average number of shares outstanding
    
    
    89,037,879
    
    
    73,581,446
    
    
    86,665,878
    
    
    72,263,939

*See
accompanying notes to financial statements, which are an integral part of the
financial statements.*
4
**INDEX**
**NATIONAL SCIENTIFIC CORPORATION**
**(A
Development Stage Company)**

**Unaudited
Condensed Statements of Cash Flows**
**For
the Six Months Ended March 31, 2005, 2004, and Development
Stage**

**2005**
    
    **2004**
    
    **Development** **Stage**Cash
      flows from operating activities:Net
      loss
    
    $
    (489,296
    )
    $
    (418,190
    )
    $
    (20,804,296
    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Non
      cash transactionsDepreciation
    
    
    6,671
    
    
    6,463
    
    
    85,001Loss
      on disposal of assets
    
    
    —
    
    
    —
    
    
    30,960Impairment
      loss on equipment
    
    
    —
    
    
    —
    
    
    64,187Stock
      and options issued for services, net
    
    
    4,437
    
    
    28,293
    
    
    11,632,570Other
      adjustments for non-cash items
    
    
    (25,000
    )
    
    —
    
    
    (25,000
    )Decrease
      (increase) in inventory
    
    
    78
    
    
    (50,674
    )
    
    (66,072
    )(Increase)
      decrease in deferred offering costs
    
    
    —
    
    
    —
    
    
    (85,171
    )Decrease
      (increase) in trade and other receivables
    
    
    (31,115
    )
    
    (1,800
    )
    
    104,812Decrease
      (increase) in other assets
    
    
    11,647
    
    
    (20,499
    )
    
    (30,026
    )Increase
      (decrease) in accounts payable and accrued expenses
    
    
    47,774
    
    
    172,252
    
    
    786,401Net
      cash (used in) operating activities
    
    
    (474,804
    )
    
    (284,155
    )
    
    (8,306,634
    )Cash
      flows from investing activities:Acquisition
      of property and equipment
    
    
    —
    
    
    —
    
    
    (155,766
    )Repayment
      of loans
    
    
    —
    
    
    —
    
    
    200,000Proceeds
      from the sale of furniture and equipment
    
    
    —
    
    
    —
    
    
    6,050Loans
      issued
    
    
    —
    
    
    —
    
    
    (400,000
    )Net
      cash (used in) provided by investing activities
    
    
    —
    
    
    —
    
    
    (349,716
    )Cash
      flows from financing activities:Increase
      in notes payable
    
    
    —
    
    
    196,000
    
    
    —Draws
      on the line of credit
    
    
    —
    
    
    —
    
    
    430,000Loan
      from (to) officer, related party, net
    
    
    100,000
    
    
    —
    
    
    165,079Repayment
      of notes payable
    
    
    —
    
    
    (5,000
    )
    
    (120,000
    )Repayment
      of line of credit
    
    
    —
    
    
    —
    
    
    (430,000
    )Repayment
      of capital lease obligations
    
    
    —
    
    
    —
    
    
    (1,819
    )Proceeds
      from the exercise of options
    
    
    —
    
    
    —
    
    
    208,265Proceeds
      from the exercise of warrants
    
    
    —
    
    
    —
    
    
    92,460Proceeds
      from equity line of credit
    
    
    —
    
    
    —
    
    
    414,824Proceeds
      from the issuance of preferred stock
    
    
    —
    
    
    —
    
    
    482,500Deposits
      from private placement
    
    
    —
    
    
    (20,000
    )
    
    —Proceeds
      from securities exchange agreement
    
    
    240,000
    
    
    —
    
    
    240,000Proceeds
      from issuance of common stock
    
    
    —
    
    
    644,691
    
    
    7,196,833Net
      cash provided by financing activities
    
    
    340,000
    
    
    815,691
    
    
    8,678,142Net
      (decrease) increase in cash and cash equivalents
    
    
    (134,804
    )
    
    531,536
    
    
    21,792Cash
      and cash equivalents, beginning of period
    
    
    160,214
    
    
    17,903
    
    
    3,618Cash
      and cash equivalents, end of period
    
    $
    25,410
    
    $
    549,439
    
    $
    25,410Supplementary
      Disclosure of Cash Flow Information:Cash
      paid for interest
    
    $
    11
    
    $
    5,211
    
    $
    35,978Cash
      paid for income taxes
    
    $
    —
    
    $
    —
    
    $
    50
*See
accompanying notes to financial statements, which are an integral part of the
financial statements.*
**
5
**INDEX**
**
**NATIONAL SCIENTIFIC CORPORATION**
**(A
Development Stage Company)**

**Unaudited
Condensed Statement of Changes in Shareholders' Equity
(Deficit)**
**For
the Six Months Ended March 31, 2005**

**Common
      Stock**
    
    **Preferred
      Stock****Number**
    
    
    
    **Number**
    
    
    
    **Additional****of**
    
    **Par**
    
    **of**
    
    **Par**
    
    **Paid-In**
    
    **Accumulated****Shares**
    
    **Value**
    
    **Shares**
    
    **Value**
    
    **Capital**
    
    **Deficit**
    
    **Total**Balance,
      September 30, 2004
    
    
    84,330,669
    
    $
    843,307
    
    
    —
    
    $
    —
    
    $
    21,627,654
    
    $
    (22,709,680
    )
    $
    (238,719
    )Stock
      Issued for servicesPrice
      per share ranged$0.1608
    
    
    6,218
    
    
    62
    
    
    —
    
    
    —
    
    
    838
    
    
    —
    
    
    900$0.145
    
    
    13,770
    
    
    138
    
    
    —
    
    
    —
    
    
    1,659
    
    
    —
    
    
    1,797Common
      stock options granted, net
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    1,740
    
    
    —
    
    
    1,740Securities
      Exchange Agreement ofcommon
      stock shares for $0.074
    
    
    7,150,000
    
    
    71,500
    
    
    —
    
    
    —
    
    
    432,600
    
    
    —
    
    
    504,100Net
      loss
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    (489,296
    )
    
    (489,296
    )Balance,
      March 31, 2005
    
    
    91,500,657
    
    $
    915,007
    
    
    —
    
    $
    —
    
    $
    22,064,491
    
    $
    (23,198,976
    )
    $
    (219,478
    )

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

6
**INDEX**

**NATIONAL SCIENTIFIC CORPORATION**
**(A
Development Stage Company)**

**NOTES
TO FINANCIAL STATEMENTS**


**1.**
    **Basis
      of Presentation**

The
accompanying financial statements have been prepared by National Scientific
Corporation (“NSC” or the “Company” or “We”), without audit, and reflect all
adjustments that are, in the opinion of management, necessary for a fair
statement of the results for the interim periods. The statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.

In the
opinion of management, the financial statements reflect all adjustments (of a
normal and recurring nature) that are necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The results of operations for the six months ended March 31, 2005 are
not necessarily indicative of the results to be expected for the entire fiscal
year.

These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual report on Form 10-KSB for the
fiscal year ended September 30, 2004 and the Company’s quarterly report on Form
10-QSB for the fiscal period ended December 31, 2004.

**2.**
    **Issuance
      of Common Stock**

On
January 28, 2005, we entered into a Securities Exchange Agreement with
TurboWorx, Inc., a Delaware corporation (“Turbo”) that provided for the exchange
of 360,000 shares of the common stock of Turbo plus $240,000 in cash in exchange
for 7,150,000 shares of NSC Common Stock (the “Exchange”). NSC and Turbo
consummated the Exchange on February 1, 2005, and we filed an 8-K report with
the Commission regarding this Agreement on February 2, 2005, which included the
full text of the Agreement. We recorded the cash of $240,000 and the 7,150,000
shares at an average market price of $.074 less the placement agent’s fee of
$25,000. We also will receive reimbursement from Turbo for all our legal and
accounting expenses associated with this transaction, up to a maximum of
$150,000.

**3.**
    **Development
      Stage Operations**

Although
we have been in operation since 1996, management considers NSC to be in the
development stage. From September 30, 1997 through the year ended September 30,
2001, we engaged our efforts in the research and development of semiconductor
proprietary technology and processes and in raising capital to fund its
operations and research. Beginning calendar 2002, we focused our efforts toward
the development, acquisition, enhancement, and marketing of location device
technologies. Since its initiation of operations in 1996, we have not realized
significant revenue, except for approximately $882,000 generated through the
export of electronic equipment, an isolated event, which occurred in fiscal
2001.

We
experienced significant operating losses during fiscal 2004 and 2003, of
$951,708 and $952,564, respectively, which raise substantial doubt about the
Company’s ability to continue as a going concern. Of the total net operating
losses, approximately $45,000 and $292,000 are related to stock issued for
services and compensation in fiscal 2004 and 2003, respectively. Management
believes that our current cash position including cash funds arising from the
exercise of outstanding options, equity private placement, loans from officers,
product sales, and continued aggressive expense management to be sufficient to
continue operations for the next twelve months. We also believe that we may be
able to reduce outstanding liabilities through negotiations with our creditors,
or possibly negotiate to extend the payment schedule for these debts. In the
event these approaches do not provide us with adequate working capital, we may
be required to further curtail or reduce our development activities, seek
alternative funding sources, or seek protection under reorganization
laws.

The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of the recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue in existence.

7
**INDEX**

**4.**
    **Stock
      Options and Warrants**

**Stock
Options**

As of
March 31, 2005, we have a stock-based compensation plan initially adopted in
2000 wherein officers and employees were granted stock options. We apply APB 25
and related interpretations in accounting for the plan. Accordingly,
compensation expense is equal to the difference between the exercise price of
the options granted and the fair value of the common stock at the date of the
grant.

Under the
above-mentioned 2000 Stock Option Plan, the purchase price must be at least 100%
of the fair market value of our common stock (if the option is an incentive
stock option), or at least 25% of the fair market value of our common stock at
the time the option is granted (if the option is a nonqualified grant), or such
higher price as may be determined by the Board of Directors at the time of
grant. If however, an incentive stock option is granted to an individual who
would, immediately before the grant, directly or indirectly own more than 10% of
the total combined voting power of all our classes of stock, the purchase price
of the shares of common stock covered by such incentive stock option may not be
less than 110% of the fair market value of such shares on the day the incentive
stock option is granted. As the price of the Company’s common stock is currently
quoted on the OTC Bulletin Board, the fair market value of the common stock
underlying options granted under the 2000 Stock Option Plan shall be the last
closing sale price of the common stock on the day the options are granted. If
there is no market price for the common stock, then our Board of Directors may,
after taking all relevant facts into consideration, determine the fair market
value of our common stock.

The
following is a summary of the total number of outstanding stock options and
related transactions for the six months ended March 31, 2005:

**Weighted**
    
    **Weighted****Number**
    
    **Average**
    
    **Average****of**
    
    **Exercise**
    
    **Fair****Shares**
    
    **Price**
    
    **Value**Options
      Outstanding, September 30, 2004
    
    
    3,709,257
    
    $
    0.82
    
    $
    0.02Granted
    
    
    40,000
    
    
    0.12
    
    
    0.03Exercised
    
    
    —
    
    
    —
    
    
    —Canceled
    
    
    —
    
    
    —
    
    
    —Expired
    
    
    —
    
    
    —
    
    
    —Options
      Outstanding, March 31, 2005
    
    
    3,749,257
    
    $
    0.82
    
    $
    0.01

40,000
stock options were granted to Gregory Szabo, a director, for board services on
October 25, 2004. The weighted average grant date fair value of these was
$0.044. The options were recorded in stock compensation at the Black-Scholes
value on the grant date.

During
the quarter ended March 31, 2005, no stock options were granted.

During
the six months ended March 31, 2005, no stock options were exercised or canceled
and no stock options expired.

The
weighted average fair value of our options was calculated using the
Black-Scholes option-pricing model.

Our board
of directors adopted the 2000 Stock Option Plan effective January 1, 2001. Our
stockholders formally approved the 2000 Stock Option Plan on February 14, 2001.
We have reserved the right to issue a total of 7,000,000 shares of our common
stock for issuance under the 2000 Stock
Option Plan, although our Board currently plans to limit issuances of options to
4,000,000 for the immediate future.

8
**INDEX**

The
following table summarizes the status of stock options outstanding at March 31,
2005:

**Stock
      Options Outstanding**
    
    **Stock
      Options Exercisable****Weighted****Average****Remaining**
    
    **Weighted**
    
    
    
    **Weighted****Contractual**
    
    **Average**
    
    
    
    **Average****Number**
    
    **Life**
    
    **Exercise**
    
    **Number**
    
    **Exercise****Range
      of Exercise Prices**
    
    **Outstanding**
    
    **(In
      Years)**
    
    **Price**
    
    **Outstanding**
    
    **Price**$0.05
      to $0.46
    
    
    2,439,257
    
    
    7.9
    
    $
    0.18
    
    
    2,439,257
    
    $
    0.18$0.47
      to $1.84
    
    
    1,000,000
    
    
    5.7
    
    $
    1.84
    
    
    1,000,000
    
    $
    1.84$1.85
      to $3.00
    
    
    310,000
    
    
    5.8
    
    $
    2.49
    
    
    310,000
    
    $
    2.49Total
    
    
    3,749,257
    
    
    6.6
    
    $
    1.43
    
    
    3,749,257
    
    $
    1.43
**Stock
Based Compensation**

The
Company applies Accounting Principles Board Opinion No. 25, “*Accounting
for Stock Issued to Employees*” and
related interpretations as permitted by SFAS 123*“Accounting
for Stock-Based Compensation”*as
amended in accounting for its employee stock options. Under APB 25, compensation
expense is measured as the excess, if any, of the quoted market price of the
Company’s stock at the date of grant over the exercise price.

During
the quarters ended March 31, 2005 and March 31, 2004, the Company had no stock
based compensation expense.

**Warrants**

The
warrants outstanding as of March 31, 2005 were as follows:

****
    
    ****
    
    **Weighted****Number**
    
    ****
    
    **Average****of**
    
    **Exercise**
    
    **Grant
      Date****Shares**
    
    **Price**
    
    **Fair
      Value**1,000,000
    
    $
    0.35
    
    $
    24,0001,000,000
    
    
    0.50
    
    
    13,100275,000
    
    
    0.50
    
    
    5,590275,000
    
    
    0.75
    
    
    2,690640,000
    
    
    0.13
    
    
    41,600500,000
    
    
    0.10
    
    
    50,6504,414,739
    
    
    0.11
    
    
    463,1063,335,961
    
    
    0.11
    
    
    349,9421,808,497
    
    
    0.10
    
    
    215,573800,000
    
    
    0.10
    
    
    46,08014,049,197
    
    
    
    
    $
    1,212,331

On
January 27, 2005 the Company granted Casimir Capital LP, placement agents,
forthe
Securities Exchange Agreement between TurboWorx, Inc., and National Scientific
Corporation800,000
cashless exercise warrants of five-year term, for professional fees, at an
exercise price of $0.10.The
weighted average grant date fair value of these warrants was
$46,080.


9
 **INDEX**
 
 During
the quarter ended March 31, 2005, 5,000,000 warrants expired. The warrants were
granted by the Company during fiscal year 2003 pursuant to the private offering,
commenced in November 2002, of restricted common stock and common stock purchase
warrants. 4,800,000 of the expired warrants were granted to purchase common
stock at a strike price of $0.30 per share and 200,000 warrants were granted to
purchase common stock at a strike price of $0.50 per share.
 
 On March
31, 2005 there were 14,049,197 outstanding warrants. The weighted average grant
date fair value of the warrants was $1,212,331.
 
 **5.**
    **Net
      Loss Per Share**
 
 Basic and
diluted loss per common share is calculated by dividing net loss by the weighted
average number of outstanding common shares. The following table reconciles
weighted average shares outstanding to amounts used to calculate basic and
diluted earnings per share for the six months ended March 31, 2005 and March 31,
2004.
  **2005**
    
    **2004**Net
      (loss)
    
    $
    (489,296
    )
    $
    (418,190
    )Weighted
      average shares:Average
      shares outstanding
    
    
    86,665,878
    
    
    72,263,939Effect
      of diluted shares
    
    
    —
    
    
    —Average
      Shares outstanding, adjusted for dilutive effect
    
    
    86,665,878
    
    
    72,263,939(Loss)
      per share - basic
    
    $
    (0.01
    )
    $
    (0.01
    )(Loss)
      per share - diluted
    
    $
    (0.01
    )
    $
    (0.01
    )
 
 The
following are incremental common shares (not included in denominator of diluted
earnings per share because of their anti-dilutive nature):
 
 **2005**
    
    **2004**Employee
      options
    
    
    3,749,257
    
    
    3,249,757Warrants
    
    
    14,049,197
    
    
    13,516,940Potential
      common equivalents
    
    
    17,798,454
    
    
    16,766,697
 
 **6.**
    **Borrowings**
 
 On June
11, 2003, the Company issued a three-year interest free convertible note of
$43,250, with no payments required of the Company until the end of the
three-year period, to its then-Director Mr. Lou Ross for past services rendered
(See 10-KSB report for the year ended September 30, 2003). The Company can pay
this note at any time before the three-year period elapses with either cash or
its common restricted stock or a combination of cash and stock, at its sole
discretion. Currently this note represents the only long-term debt of the
Company. Mr. Ross retired from the Company’s board on September 30,
2003.
 
 10
 **INDEX**
 
 In
December 2004, our Chairman Michael Grollman made personal loans to the Company
in the amount of $65,000 to assist us with short-term cash requirements. The
loan is evidenced by an unsecured promissory note that provides for repayment
within 90 days or less, at no interest. The promissory note also provides that
if repayment takes longer than 90 days, then interest accrues at a rate of 6
percent per year until paid in full. We paid this Note in full in February of
2005.
 
 On
February 24, 2005 and March 28, 2005, our Chairman Michael Grollman made
personal loans to the Company in the amount of approximately $100,000 to assist
us with working capital needs. The loans are evidenced by an unsecured
promissory note that provides for repayment within 90 days or less, at no
interest. The promissory note also provides that if repayment takes longer than
90 days, then interest accrues at a rate of 6 percent per year until paid in
full.
 
 **7.**
    **Subsequent
      Events**
 
 On April
28, 2005, our Chairman Michael Grollman made additional personal loans to the
Company in the amount of approximately $50,000 to assist us with working capital
needs. The loans are evidenced by an unsecured promissory note that provides for
repayment within 90 days or less, at no interest. The promissory note also
provides that if repayment takes longer than 90 days, then interest accrues at a
rate of 6 percent per year until paid in full. This brings total indebtedness of
the Company to Mr. Grollman of approximately $150,000 excluding miscellaneous
expenses, as of the date of this report.
 
 11
 **INDEX**
 
 **Item 2.**
    **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**
  **SAFE
HARBOR STATEMENT**
 
 Statements
contained herein that are not historical fact may be forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We use words and
phrases such as “should be,” “will be,” “believes,” “expects,” “anticipates,”
“plans,” “intends,” “may” and similar expressions to identify forward-looking
statements. Forward-looking statements are made based upon our belief as of the
date that such statements are made. These forward-looking statements are based
largely on our current expectations and are subject to a number of risks and
uncertainties, many of which are beyond our control. You should not place undue
reliance on these forward-looking statements, which apply only as of the date of
such documents. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by us described above and elsewhere in this report.
 
 **Three
Months Ended March 31, 2005 Compared to the Three Months Ended March 31,
2004**
 
 Revenue
was $3,609 for the three months ended March 31, 2005 compared to $36,308 for the
quarter ended March 31, 2004. This decrease in revenue was partly attributable
to a consignment shipment of our Gotcha!® product sent in November to Canada,
with a planned selling price of $34,200, that had been expected to invoice out
of consignment before the end of March 2005, but did not. This inventory remains
on consignment in Canada as of the date of this report and is available for
immediate sale by the distributor as needed. An additional factor has been the
increase in the Company’s focus on its newer business-oriented products, which
are just entering the market in 2005, such as Travado IBUSTM, and a small
decrease in focus on its consumer products, such as Gotcha!®, which had revenues
for the three months ended March 31, 2005 of $2,109 compared to $34,979 for the
three months ended March 31, 2004. Revenue for the three months ended March 31,
2005 included approximately $1,500 for our first Travado IBUSTM video recorder
installed on a Scottsdale Unified School District school bus in March
2005.
 
 NSC has
recently initiated product-marketing efforts after several years of research and
development and has negative operational cash flow and has never been
profitable.
 
 Our
operating expenses for the three months ended March 31, 2005 were approximately
$245,858 compared to $211,522 for the same period ended March 31, 2004. The
increase in the three months ended March 31, 2005 compared to the corresponding
periods ended March 31, 2004 was primarily attributable to our focus on research
and development as explained below.
 
 Salaries
and benefits were approximately $61,113 for the three months ended March 31,
2005 compared to approximately $112,346 for the three months ended March 31,
2004. Salaries of engineers totaling approximately $87,864 were classified as
research and development in the three months ended March 31, 2005. In the three
months ended March 31, 2004 engineers’ salaries of approximately $59,231 were
classified as salaries and benefits.
 
 There was
no stock based compensation for the three months ended March 31, 2005, compared
to $22,290 for the three months ended March 31, 2004. The decrease in fiscal
2005 is mainly because we did not pay any contractors with stock grants during
the six months ended March 31, 2005.
 
 Research
and development expenditures increased to $124,051 for the three months ended
March 31, 2005, compared to approximately $4,440 for the three months ended
March 31, 2004. The increases in research and development expenditures are
primarily because the Company continued to engineer and develop new location
tools. The Company has also spent and plans to spend resources on the
development of strategic partnerships with other technology firms to assist in
taking its products to market. The Company will continue to explore innovative
ways to take its technology expertise and products to market, across its entire
portfolio of semiconductor and location electronics related devices. All
expenses incurred during the research and development stage are expensed as
incurred.
 12
 **INDEX**
 
 Other
costs and expenses were approximately $60,694 during the three months ended
March 31, 2005 compared to $72,446 during the three months ended March 31, 2004.
The decrease in the three months ended March 31, 2005 is partly due to lower
rental expense, for the Scottsdale office, resulting from the twenty-six month
lease agreement signed on August 27, 2004 and lower annual shareholder meeting
expenses because the 2005 meeting was held in April 2005 whereas the meeting in
2004 was held in March. The expense reductions were offset in part by slightly
higher business liability insurance premiums for Gotcha!® and slightly higher
marketing and selling expenses as a result of our continued effort to develop
new sales channels and customers.
 
 Other
Receivables of $30,093 at March 31, 2005, represent expenses and professional
fees incurred by NSC, in connection with the registration of the Securities
Exchange Agreement with TurboWorx, Inc., which are recoverable from
TurboWorx.
 
 **Six
Months Ended March 31, 2005 Compared to the Six Months Ended March 31,
2004**
 
 Revenue
was $5,472 for the six months ended March 31, 2005 compared to $74,538 for the
six months ended March 31, 2004. This decrease in revenue was partly
attributable to a consignment shipment of our Gotcha!® product sent in November
to Canada, with a planned selling price of $34,200, that had been expected to
invoice out of consignment before the end of March 2005, but did not. This
inventory remains on consignment in Canada as of the date of this report and is
available for immediate sale by the distributor as needed. An additional factor
has been the increase in the Company’s focus on its newer business-oriented
products, which are just entering the market in 2005, such as Travado IBUSTM, and
a small decrease in focus on its consumer products, such as Gotcha!®, which had
revenues for the six months ended March 31, 2005 of $3,972 compared to $74,538
for the six months ended March 31, 2004.
 
 Our
operating expenses for the six months ended March 31, 2005, were $483,567
compared to $426,256 in the comparable period ended March 31, 2004. The increase
in the six months ended March 31, 2005 compared to the corresponding periods
ended March 31, 2004 was primarily attributable to our focus on research and
development as explained below.
 
 Salaries
and benefits were approximately $164,914 compared to $257,395 for the six months
ended March 31, 2004. Salaries of engineers totaling approximately $175,705 were
classified as research and development in the six months ended March 31, 2005.
In the six months ended March 31, 2004 engineers’ salaries of approximately
$122,947 were classified as salaries and benefits.
 
 Stock
based compensation decreased to approximately $4,437 for the six months ended
March 31, 2005 compared to $28,293 for the six months ended March 31, 2004. The
decrease in fiscal 2005 is mainly because we did not pay any contractors with
stock grants during the six months ended March 31, 2005.
 
 Research
and development expenditures were $197,534 for the six months ended March 31,
2005, compared to $9,398 for the six months ended March 31, 2004. The increases
in research and development expenditures are primarily because the Company
continued to engineer and develop new location tools. The Company has also spent
and plans to spend resources on the development of strategic partnerships with
other technology firms to assist in taking its products to market. The Company
will continue to explore innovative ways to take its technology expertise and
products to market, across its entire portfolio of semiconductor and location
electronics related devices. All expenses incurred during the research and
development stage are expensed as incurred.
 
 Other
costs and expenses were approximately $116,682 during the six months ended March
31, 2005 compared to $131,170 during the six months ended March 31, 2005. The
decrease in fiscal 2005 is partly due to lower rental expense, for the
Scottsdale office, resulting from the twenty-six month lease agreement signed on
August 27, 2004 and lower annual shareholder meeting expenses because the 2005
meeting was held in April 2005 whereas the meeting in 2004 was held in March.
The expense reductions were offset in part by slightly higher business liability
insurance premiums for Gotcha!® and slightly higher marketing and selling
expenses as a result of our continued effort to develop new sales channels and
customers.
 13
 **INDEX**
 
 As of
March 31, 2005, the Company has a note payable of $100,000 and long-term debt of
$43,250.
 
 Total
liabilities at March 31, 2005 of $680,195 included accounts payable of $157,319,
accrued expenses of $379,626, and notes payable of $143,250. The accrued
expenses included approximately $302,885 for accruals of salaries, vacation pay,
and interest on deferred wages.
 
 The
Company expects to continue to increase its focus on sales and marketing of its
Location ToolsTM products for the foreseeable future. This includes significantly
increased attendance at trade shows and other product marketing events, as well
as recent additional investment in product promotion through new outreach
programs with the trade press, using new outside public relations resources.
Partly as a result of these efforts and others, revenues have begun to be
generated from operations. It is thus possible that the Company may emerge from
its development stage status at sometime during the coming year.
 
 **Liquidity
and Capital Resources**
 
 At March
31, 2005, we had cash and cash equivalents of $25,410 compared to $160,214 at
September 30, 2004. Our total cash used in operating activities from
developmental stage inception in 1997 through March 31, 2005 was $8,306,634. We
have an accumulated deficit of $23,198,976 and expect operating losses in the
foreseeable future as we continue our efforts to develop and market commercial
products. We expect to generate future revenues by entering into strategic joint
venture licensing relationships, manufacturing agreements, development
agreements, and other relationships with manufacturing firms and/or entities
that will incorporate our technologies into their products and overall
solutions. We have financed our operations primarily through the sale of common
stock, through personal loans from officers and directors and to a very limited
extent and only just recently, through the sale of our products.
 
 During
the six months ended March 31, 2005, cash used in operations was approximately
$474,804 compared to approximately $284,155 for the six months ended March 31,
2004. The increase in cash used in operations in the 2005 period resulted from
fewer salary deferrals, the addition of new permanent employees and contractors
to support the Company’s drive in the area of sales, marketing, product
engineering, and development to take its technology expertise and products to
market.
 
 During
the six months ended March 31, 2005, cash provided by financing activities of
$340,000 resulted from net personal loans of $100,000 from our Chairman, Michael
Grollman (See Borrowings above), and $240,000 from the Securities Exchange
Agreement with TurboWorx, Inc. (See Issuance of Common Stock
above).
 
 During
the six months ended March 31, 2004, financing activities generated $840,691 in
cash. A financing program with a U.S. investment fund entity raised $160,000,
and an Officer of the Company raised approximately $36,000 using his personal
credit from a group of shareholders in consideration of short-term personal
promissory notes to assist the Company with very short-term cash requirements.
Private offerings of our restricted common stock units raised
$644,691.
 
 We
believe that our current cash position as of March 31, 2005, including cash
funds arising from the exercise of outstanding options, and secured plant assets
from legal settlements, from equity placement sales, preferred stock sales, and
other capital raising efforts, loans from officers, product sales, and
aggressive expense management to be sufficient to continue operations for the
next twelve months. We also believe that we may be able to reduce outstanding
liabilities through negotiations with our creditors, or possibly negotiate to
extend the payment schedule for these debts. In the event these approaches do
not provide us with adequate working capital, we may be required to further
curtail or reduce our development activities, seek alternative funding sources,
or seek protection under reorganization laws.
 14
 **INDEX**
 ****
 **Other
Results of Operations**
 
 January
19-21, 2005, our distribution partner, KidMapper, exhibited our Gotcha!® child
safety device at the Annual Wisconsin Education Convention held in Milwaukee,
WI. This conference was attended by Wisconsin school teachers, administrators,
and officials.
 
 January
27-28, 2005, our distribution partner, KidMapper, exhibited our Gotcha!® child
safety device at the Annual Illinois Education Conference held in Chicago, IL.
This conference was attended by Illinois school teachers, administr ators,
and officials.
 
 On
January 28, 2005, we entered into a material agreement, the Securities Exchange
Agreement (the "Agreement") with TurboWorks, Inc., a Delaware corporation
("Turbo") that provides for the exchange of 360,000 shares of the common stock
of Turbo plus $240,000 in cash in exchange for 7,150,000 shares of NSC common
stock (the "Exchange"). NSC and Turbo consummated the Exchange on February 1,
2005.
 
 NSC has
agreed to distribute at least 180,000 of the shares of Turbo stock it received
in the Exchange to NSC shareholders of record on a pro rata basis as soon as
practicable after the effective date of a registration statement on Form SB-2
registering the Turbo shares to be distributed to NSC shareholders. Turbo has
agreed to file such registration statement, and has agreed to use its best
efforts to have such filed registration statement declared effective no later
than 90 days following the filing date. The parties have also granted each other
certain "piggyback" registration rights regarding the exchanged shares. The
registration rights terminate on December 31, 2007. The foregoing summary of the
Agreement is qualified in its entirety by the Securities Exchange Agreement
incorporated herein as Exhibit 10.1. The Exchange is a further development
resulting from the Memorandum of Understanding entered into between NSC and
Turbo on October 29, 2004 regarding the joint development of technology and
joint marketing.
 
 In
February 2005, after announcing our new TravadoTM line of video tracking system,
we received a purchase order from Auto Safety House (ASH) for 25 units
of our Travado
IBUSTM Digital Video Recording (DVR) and location aware system in response to an
order ASH received from a school district for 25 school buses equipped with
NSC’s IBUSTM system. ASH is a leading distributor of Thomas Built Buses. The
order is scheduled to be delivered to ASH starting in May of 2005. We are
working on a further strategic relationship with ASH for the development of
channel sales for our Travado IBUSTM product.
 
 On
February 8, 2005, the Scottsdale Unified School District Governing Board
authorized the award of Bid #5183 for 22 new Thomas school buses to its Arizona
distributor ASH for summer 2005 delivery, using voter-approved funds from a 2004
bond issue. The specification for these new buses includes the requirement that
each be equipped with an NSC Travado IBUSTM system. We expect to gain additional
orders for this technology throughout the coming year.
 
 March
6-9, 2005, together with strategic partner Geotechnologies, Inc., we exhibited
our TravadoTM technology platform at the Geospatial Information and Technology
Association (GITA) Annual Conference and Exhibition held in Denver, CO. This is
a highly regarded educational event for geospatial professionals.
 
 On March
15, 2005, we exhibited our Travado IBUSTM product at the National Conference and
Exhibition on Transporting Students with Disabilities and Preschoolers held in
Phoenix, AZ. This conference was attended by more than 500 buyers of school bus
and transportation products and services.
 
 On March
19, 2005, we exhibited our Travado IBUSTM product at the California Association
of School Transportation Officials (CASTO) Annual Conference and Exhibition held
in Sacramento, CA. Several hundred California school transportation officials
were in attendance.
 
 Also in
March, we began a pilot program in the nuclear power industry of creating
enhancements to security and safety through the use of a new product of ours
tentatively called Asset Location Tool (ALT)-100, which is based on the same
core active RFID technology as Gotcha®, only with a much longer battery
life.
 15
 **INDEX**
 
 Throughout
the quarter ended March 31, 2005 our sales and marketing staff spent many hours
following up with trade show leads with sales calls, marketing materials,
product demonstrations, and product proposals. This sales cycle activity
continues as of the date of this report and is expected to continue the
remainder of the current fiscal and calendar years.
 
 **Other
Subsequent Events**
 
 April
13-14, 2005, we exhibited our Travado IBUSTM product at the Colorado Association
of School Business Officials (CASBO) / Colorado School Pupil Transportation
Association (CSPTA) Vendor Show held in Colorado Springs, CO. More than 200
Colorado school business and transportation officials were in
attendance.
 
 On April
27, 2005, after proper notice, we held our Annual Meeting of Shareholders at the
Wingate Inn & Suites in Scottsdale, AZ. Three proposals were before the
shareholders for consideration and approval. Proposal one called for majority
shareholder election of three members of the Board of Directors of the Company,
Michael Grollman, Graham Clark, and Greg Szabo. Proposal two called for majority
shareholder ratification to appoint Epstein Weber & Conover, PLC as the
independent auditor for the Company. Proposal three called for two-thirds
majority shareholder approval to amend the Articles of Incorporation to increase
the number of authorized shares of common stock from 120,000,000 to 187,000,000.
A quorum was present. All three proposals passed, although it should be noted
that the Company has not made a decision yet on audit services for the current
fiscal year.
 
 We plan
to exhibit our Travado IBUSTM product at additional trade shows later this year
including the Transportation Administrators of Arizona’s Annual Summer
Conference to be held in Flagstaff, AZ, June 21-23, 2005 where we plan to
demonstrate the product on a school bus and the School Transportation News 12th
Annual North American School Bus Expo to be held in Reno, NV, July 30, 2005
through August 3, 2005.
 
 In May
2005, in conjunction with cooperating technology firms SAP and Ekahau, we began
a successful series of field tests on a new NSC product dubbed the Mini-Travado
or the “Mini-T100.” Testing is being done at a citywide WiFi-mesh
network based in Texas, developed by a team from Tropas with support from Intel.
Our Mini-T100 unit was designed to provide the GPS telemetry functions and WiFi
functions of Travado, but in a much smaller package. The target market for this
new product, which we expect to formally launch this summer, includes police,
fire, and ambulance, as well as certain segments of the education
market.
  As of the
date of this report, we have quotations for our IBUSTM
system pending at 5 separate school transportation organizations, and proposals
have been presented to approximately two dozen more over the last few months.
Our primary focus as a Company this year is to develop and sell this product
into the education and related markets.
 **Item 3.**
    **Controls
      and Procedures**
 
 Our
management has responsibility for establishing and maintaining adequate internal
control over financial reporting for us. Our management uses a framework for
establishing these internal controls. This framework includes review of
accounting detailed records on at least a quarterly basis by multiple senior
officers of National Scientific, at least one of whom operates outside of the
corporate finance and accounting area, and one of whom operates within the area
of corporate finance and accounting. This review process includes review of
significant accounting records and source documents, such as general journal
entry records, accounts payable records, and monthly bank statement
reconciliations. Documentary records are kept of this review
process.
 
 16
 **INDEX**
 
 The
Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including its Chief Executive Officer
and Acting Chief Financial Officer and its President, of the effectiveness, as
of March 31, 2005, of the design and operation of the Company’s disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, the Chief Executive Officer and Acting Chief Financial Officer and
its President concluded that the Company’s disclosure controls and procedures
are effective.
 
 There
have been no significant changes in our internal control over financial
reporting during the quarter ended March 31, 2005 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
 
 The
controls and procedures for our disclosure as well as our internal controls over
financial reporting are processes designed by, or under the supervision of, the
principal executive and principal financial officers, and effected by the board
of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. We believe that a control system, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the control system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected. However, our Chief Executive Officer and Acting
Chief Financial Officer and its President have concluded that the Company’s
disclosure controls and procedures and its internal controls and procedures are
effective at providing that reasonable level of assurance.
 
 Our
management believes that upon significant future growth in the number of
accounting transactions we process, perhaps within the next year, additional
review and enhancement of internal controls will be required. Our management is
planning to assign additional staff resources to assist with support for growth
in the internal controls area when the increase in transaction velocity dictates
this as a prudent step in order to maintain our effective level of internal
controls.
 
 Our
external auditors, for the fiscal year ended September 30, 2004, Hurley and
Company, have not issued an attestation report on management’s assessment of the
Company’s internal control over financial reporting, as it is not yet required
since the Company has less than $75 million in “public float.”
  17
 **INDEX**
 
 **PART II - OTHER INFORMATION**
 
 **Item 1.**
    **Legal
      Proceedings.**
 The
Company is involved in legal actions in the ordinary course of its business,
including those outlined in the Company's annual report on Form 10-KSB for the
fiscal year ended September 30, 2004. Although the outcome of any such legal
actions cannot be predicted, in the opinion of management, there are no legal
proceedings pending or asserted against or involving the Company the net outcome
of which are likely to have a material adverse effect upon the financial
position or results of operations of the Company.
 
 **Item 2.**
    **Unregistered
      Sales of Equity Securities and Use of
Proceeds.**
 
 During
the six months ended March 31, 2005, 19,988 restricted common shares were issued
for board services at average market prices ranging from $0.145 to $0.1608 per
share.
 
 **Item 3.**
    **Defaults
      Upon Senior Securities.**
 
 Not
applicable.
  **Item 4.**
    **Submission
      of Matters to a Vote of Security
Holders.**
 
 Not
applicable.
  **Item 5.**
    **Other
      Information.**
 
 Not
applicable.
  **Item 6.**
    **Exhibits.**
   **Exhibit****Number**
    
    **Description**10.1
    
    Share
      Exchange Agreement between NSC and TurboWorx *31
    
    Certification
      Pursuant to Section 302 of the Sarbanes-Oxley Act32
    
    Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act__________*  
      Incorporated by reference from the Company’s Form 8-K filing of February
      2, 2005.
  18
 **INDEX**
 
 **SIGNATURES**
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
  **NATIONAL
      SCIENTIFIC CORPORATION**Date:  May 14, 2005
    By:
    /s/  Michael A.
      GrollmanMichael
      A. Grollman
      Director,
      Chairman, Chief Executive Officer, and
      Acting
      Chief Financial Officer
  ****Date:  May 14, 2005
    By:
    /s/  Graham L.
  ClarkGraham
      L. Clark
      Director,
      President, and
Secretary
  ****Date:  May 14, 2005
    By:
    /s/  Gregory
  SzaboGregory
      Szabo
      Director
 19