UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

**FORM 10-Q**

 

 

  

Commission File No. 000-28745

 

**Cloud Medical Doctor SoftwareCorporation**

(Name of small business issueras specified in its charter)

(formerly National ScientificCorporation) 

 

                                                                                                         

**736 East Braeburn Drive, Phoenix,Arizona 85022**

(Address of principal executive offices)(Zip Code)

**(702) 818-9011**

Registrant’stelephone number, including area code

 

Indicate by check mark whether the Registrant(1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days:  

Yes  [ ]   No [X]

 

Indicate by check mark whether theregistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).

 

Yes [ ]     No [X]

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b–2 of the Exchange Act). 

Yes  [ ]    No  [X]

 

Indicatethe number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

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**CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION**

**INDEX TO FORM 10-Q FILING**

**FOR THE THREE MONTHS ENDED DECEMBER31, 2009 AND 2008**

 

**TABLE OF CONTENTS**

 

 

**PART I**

**FINANCIAL INFORMATION**

 

**Item 1.****FinancialStatements**

 

THE COMPANY PREVIOUSLY HAD INSUFFICIENTWORKING CAPITAL TO PAY FOR THE PROFESSIONAL SERVICES REQUIRED TO PREPARE, AUDIT, AND FILE THE QUARTERLY AND ANNUAL REPORTS REQUIREDBY THE SECURITIES ACT OF 1934. AS A RESULT, THE AUDITORS WHO AUDITED THE SEPTEMBER 30, 2007 FINANCIAL STATEMENTS AND REVIEWED THEQUARTERLY REPORTS THROUGH JUNE 30, 2008 RESIGNED EFFECTIVE DECEMBER 13, 2011.

 

IN FEBRUARY 2010 THE BOARD OF DIRECTORS VOTED TODISCONTINUE THE MOBILE DVR AND LOCATION PRODUCTS LINE OF BUSINESS REPORTED IN THESE FINANCIAL STATEMENTS DUE TO THECUMULATIVE EFFECTS OF SEVERELY DECLINING REVENUES RESULTING FROM THE 2008 RECESSION. SINCE THIS DECISION WAS MADE SUBSEQUENTTO THE YEARS ENDED SEPTEMBER 30, 2008 AND 2009, THE QUARTERLY AND YEAR END STATEMENTS FOR THOSE YEARS ARE BEING REPORTED ON AGOING CONCERN BASIS RATHER THAN AS DISCONTINUED OPERATIONS. THEY WILL, HOWEVER, BE REPORTED AS DISCONTINUED OPERATIONSCOMMENCING WITH THE FISCAL 2010 FILINGS.

 

NEW MANAGEMENT HAS SUBSEQUENTLYINFUSED SUFFICIENT WORKING CAPITAL TO BRING THE 1934 ACT FILINGS CURRENT. ADDITIONALLY, A NEW LINE OF BUSINESS HAS ALSO COMMENCEDWHICH WILL BE REPORTED ON IN THE FISCAL 2011 AND 2012 FILINGS.

 

**ACCORDINGLY**,**THIS FILING IS BEING SUBMITTED ONLY TO COMPLY WITH SEC RULES AND REGULATIONS AND SHOULD NOT BE RELIED UPON FOR YOUR INVESTMENTDECISIONS**. **THE OPERATIONS REPORTED ON IN THIS DOCUMENT HAVE BEEN DISCONTINUED AS OF FEBRUARY 4, 2010. NEW MANAGEMENT ENCOURAGESTHE READERS OF THIS DOCUMENT TO SUSPEND ANY INVESTMENT DECISIONS PERTAINING TO THIS STOCK UNTIL THE FILINGS ARE BROUGHT CURRENT.**

The accompanying reviewed interim financialstatements have been prepared in accordance with the instructions to Form 10-Q.  Therefore, they do not include all informationand footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders'equity in conformity with generally accepted accounting principles.  Except as disclosed herein, there has been no materialchange in the information disclosed in the notes to the financial statements included in the Company's Annual Report on Form 10-Kfor the year ended September 30, 2009.  In the opinion of management, all adjustments considered necessary for a fairpresentation of the results of operations and financial position have been included and all such adjustments are of a normal recurringnature.  Operating results for the three months ended December 31, 2009 are not necessarily indicative of the resultsthat can be expected for the year ending September 30, 2010.

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CLOUD MEDICALDOCTOR SOFTWARE CORPORATION

**NOTES TO FINANCIAL STATEMENTS - UNAUDITED**

**FOR THE THREE MONTHS ENDED DECEMBER31, 2009 AND 2008**

 

**NOTE 1 - DESCRIPTION OFBUSINESS**

The Company was incorporated in Texason June 22, 1953 as American Mortgage Company. On May 16, 1996, the Company changed its name to National Scientific Corporation.On April 3, 2012, the Company changed its name to Cloud Medical Doctor Software Corporation. During 1996, the Company acquiredthe operations of Eden Systems, Inc. (Eden) as a wholly owned subsidiary. Eden was engaged in water treatment and the retailingof cleaning products. Eden’s operations were sold on October 1, 1997. From September 30, 1997 through the year ended September30, 2001, we aimed our efforts in the research and development of semiconductor proprietary technology and processes and in raisingcapital to fund its operations and research. Beginning in calendar 2002, we focused our efforts on the development, acquisition,enhancement and marketing of location device technologies. Our revenue is derived from sales of electronic devices, recognizedas the product is delivered.

 

In February 4, 2010 the prior Boardmembers Mr. Michael Grollman and Mr. Greg Szabo, decided to discontinue the operations and wind down the operation of the Companyand operate the Company assets in a Limited Liability Company named NSC Labs, LLC controlled and owned by Mr. Grollman. Mr. Grollmanand NSC Labs, LLC was to pay the Company 2% of revenues and $100,000. Since Mr. Grollman nor NSC Labs, LLC never paid considerationfor this transaction the transaction has not been recorded in the accounting records of the Company.

 

In November 19, 2010, the prior managementwas terminated and new management began working on operations related to the Company’s medical billing software. In fiscal2011, the year of termination of prior management, new management has deemed that the above transaction transferring prior operationsto NSC Labs, LLC was transacted in full and final settlement of the liabilities to former management including those captionedas “disputed accrued expenses – related party” on the Balance Sheet. Since the transaction was related to formermanagement who had the ability to affect the terms and outcomes of the liabilities, the transaction has been subsequently recordedas an increase to additional paid in capital.

 

**NOTE 2 – BASIS OF PRESENTATIONOF INTERIM FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES**

 

Basis of Presentation of InterimFinancial Statements

 

The Company prepares its financial statementsin accordance with accounting principles generally accepted in the United States of America.  The accompanying interim unauditedfinancial statements have been prepared in accordance with generally accepted accounting principles for interim financial informationin accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting ofnormal recurring adjustments) considered necessary for a fair presentation have been included.

 

Operating results for the three monthsended December 31, 2009 are not necessarily indicative of the results that may be expected for the year ending September 30, 2010.Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the auditedfinancial statements for fiscal year 2009 have been omitted; this report should be read in conjunction with the audited financialstatements and the footnotes thereto for the fiscal year ended September 30, 2009 included within its Form 10-K as filed with theSecurities and Exchange Commission.

 

Use of Estimates and Assumptions

 

The preparation of financial statementsin conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to makeestimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingentassets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amountof net revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates oftenrelate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherentin the preparation of financial statements; accordingly, actual results could differ from these estimates.

 

Revenue Recognition

 

Revenue includes provisionof services. The Company recognizes revenue from provision of services at the time evidence of an arrangement exists, fees arecontractually fixed or determinable, collection is reasonably assured through historical collection results and regular creditevaluations, and there are no uncertainties regarding customer acceptance.

 

Accounts Receivable and Allowancefor Uncollectible Accounts

 

Substantially all of the Company’saccounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount anddo not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable creditlosses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts for estimated losses resultingfrom the inability of its customers to make required payments for services. Accounts with known financial issues are first reviewedand specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the number ofdays the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history.Account balances are charged off against the allowance when it is probable the receivable will not be recovered. The Company hadno charge offs for quarter ended December 31 2009.

 

Cash and Cash Equivalents

The Company considers all highly liquid investments with an originalmaturity of three months or less to be cash equivalents.  At December 31, 2009, cash and cash equivalents include cashon hand and cash in the bank and the FDIC insures these deposits up to $250,000.

 

Income Taxes

Deferred income taxes are providedto reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financialreporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expectedto affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expectedto be realized.

 

The Company adopted the provisions of ASC Topic 740, *AccountingFor Uncertainty In Income Taxes-An Interpretation of ASC Topic 740*("ASC Topic 740"). ASC Topic 740 contains atwo-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position forrecognition by determining if the weight of available evidence indicates it is more likely than not, that the position willbe sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measurethe tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Companyconsiders many factors when evaluating and estimating the Company's tax positions and tax benefits, which may requireperiodic adjustments. At December 31, 2009, the Company did not record any liabilities for uncertain tax positions.

Share-Based Compensation

The Company measures the cost of servicesreceived in exchange for an award of an equity instrument based on the grant-date fair value of the award.  Compensation costis recognized over the vesting or requisite service period.  The Black-Scholes option-pricing model is used to estimate thefair value of options or warrants granted.

 

Basic and Diluted Net Loss Per Share

Basicincome (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average numberof common shares outstanding during the reporting period. The weighted average number of shares is calculated by takingthe number of shares outstanding and weighting them by the amount of time that they were outstanding.  Dilutedearnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issuecommon stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings ofthe Company. 

Diluted loss per share is thesame as basic loss per share during periods where net losses are incurred since the inclusion of the potential common stock equivalentswould be anti-dilutive as a result of the net loss.  

Concentrationof Credit Risk

All of the Company’s cash and cash equivalentsare maintained in regional and national financial institutions. The Company has exposure to credit risk to the extent that itscash and cash equivalents exceed amounts covered by the U.S. federal deposit insurance; however, the Company has not experiencedany losses in such accounts. In management’s opinion, the capitalization and operating history of the financial institutionsare such that the likelihood of material loss is remote.

 

Fair Value of Financial Instruments

The Company's financial instruments consistprimarily of cash, accounts payable and accrued expenses, and debt.  The carrying amountsof such financial instruments approximate their respective estimated fair value due to the short-term maturitiesand approximate market interest rates of these instruments.  

 

The Company adopted ASC Topic820, *Fair Value Measurements* (“ASC Topic 820”), which defines fair value, establishes a framework for measuringfair value, and expands disclosures about fair value measurements.  The standard provides a consistent definition offair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date.  The standard also prioritizes, within the measurementof fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy forfair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The three-level hierarchy for fair value measurements is definedas follows:

 

Reclassification of Prior YearAmounts

Certain amounts in the prior comparativeperiod may have been reclassified for consistency of presentation with the current period.

 

Recent Accounting Pronouncements

No accounting standards or interpretationsissued recently are expected to a have a material impact on the Company’s financial position, operations or cash flows.

 

**NOTE 3 - GOING CONCERN ISSUES**

The accompanying financial statementshave been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplatecontinuation of the Company as a going concern. However, the Company has a net loss for the three months ended December 31, 2009of $6,092, an accumulated deficit of $25,822,348, cash flows used in operating activities of $11,499 and needs additional cashto maintain its operations.

 

These factors raise doubt about theCompany’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments thatmight result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’sability to develop profitable operations, continued contributions from the Company’s executive officers to finance its operationsand the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and otherresources for the further development and marketing of the Company’s products and business.

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**NOTE 4- ACCOUNT RECEIVABLES**

Accounts receivables consist of the following at December31, 2009 and September 30, 2009:

 

 

On September 7, 2005, we entered into a factoring agreementwith United Capital Funding (UCF) of Florida. UCF is a specialized financial services firm offering Accounts Receivable Managementand working capital funding via factoring. We expect to improve our cash flow with this arrangement.

 

Under the arrangement, we sell to UCF as absolute owner, invoicesthat we submit to UCF to be factored. Upon purchase, UCF assumes the risk of non-payment on purchased invoices, so long as thecause of non-payment is solely due to the occurrence of an insolvency event. As collateral securing the obligations, we grantUCF a continuing first priority security interest in all accounts and related inventory. Notwithstanding the creation of the abovesecurity interest, our relationship with UCF is one of Seller and Purchaser of accounts, and not that of lender and borrower.However, as there is certain recourse for non-payment, the accounts receivable are recorded at the estimated realizable value,net of allowances and the net advanced amount from UCF is recorded as an obligation at the end of fiscal 2009 and 2008. The initialand periodic factoring fee is .45% of the face amount of factored invoices. The factoring period is five days and the purchaseprice is 80% of the face amount, excluding sales tax.

 

UCF typically advances to us 80% ofthe total amount of invoices factored, excluding sales tax. UCF retains 20% of the outstanding factored invoices as a reserve,which it holds until the customer pays the factored invoice to UCF.

 

**NOTE 5- DISPUTED ACCRUED EXPENSES – RELATEDPARTY**

Disputed accrued expenses from related parties consist of the followingat December 31, 2009 and September 30, 2009**:**

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**NOTE 6 – NOTES PAYABLE**

 

All long-term debt consisted of the following notespayable as of December 31, 2009 and September 30, 2009: