**Table      of Contents**

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

**Washington,      D.C. 20549**

**FORM      10-QSB**

**December      31, 2006**

**000-28745**

**NATIONAL      SCIENTIFIC CORPORATION**

| **Texas**                                                     |   | **86-0837077**                                      |
|---------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                of Incorporation)                       |   | (I.R.S.                Employer Identification No.) |
|                                                          |   |                                                |
|  **8361                E. Evans Road, Suite 106**        |   |                                                |
| **Scottsdale,                AZ**                             |   | **85260-3617**                                 |
|  (Address                of Principal Executive Offices) |   | (Zip                Code)                      |

**(480)      948-8324**

**Preferred      Stock, $0.10 par value**

**Common      Stock, $0.01 par value**

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**Table          of Contents**

**NATIONAL      SCIENTIFIC CORPORATION**

**FORM      10-QSB**

**TABLE      OF CONTENTS**

|                                                                                                       |                                                                                                                                           |   |  **Page** |
|------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|
|                                                                                                       |                                                                                                                                           |   |           |
| Part                I                                                                                      | Financial                Information                                                                                                           |   | 3              |
|                                                                                                       |                                                                                                                                           |   |           |
| Item                1.                                                                                     | Financial                Statements (unaudited)                                                                                                |   | 3              |
|                                                                                                       |                                                                                                                                           |   |           |
|                                                                                                       | Unaudited                Condensed Balance Sheets - December                31, 2006 and September 30, 2006                               |   | 3              |
|                                                                                                       | Unaudited                Condensed Statements of Operations -                Quarters ended December 31, 2006 and 2005                    |   | 4              |
|                                                                                                       | Unaudited                Condensed Statements of Cash Flows - Quarters                ended December 31, 2006 and 2005                         |   | 5              |
|                                                                                                       | Unaudited                Condensed Statement of Changes in Shareholders’                (Deficit) - Three Months Ended December 31, 2006 |   | 6              |
|                                                                                                       | Notes                to Financial Statements                                                                                                   |   | 7              |
|                                                                                                       |                                                                                                                                           |   |           |
| Item                2.                                                                                     | Management’s                Discussion and Analysis of Financial Condition                and Results of Operations                      |   | 17             |
| Item                3.                                                                                     | Controls                and Procedures                                                                                                         |   | 19             |
|                                                                                                       |                                                                                                                                           |   |           |
| Part                II                                                                                     | Other                Information                                                                                                               |   | 21             |
|                                                                                                       |                                                                                                                                           |   |           |
| Item                1.                                                                                     | Legal                Proceedings                                                                                                               |   | 21             |
| Item                2.                                                                                     | Changes                in Securities and Use of                Proceeds                                                                        |   | 21             |
| Item                3.                                                                                     | Defaults                Upon Senior Securities                                                                                                 |   | 21             |
| Item                4.                                                                                     | Submission                of Matters to a Vote of Security                Holders                                                              |   | 21             |
| Item                5.                                                                                     | Other                Information                                                                                                               |   | 21             |
| Item                6.                                                                                     | Exhibits                and Reports on Form 8-K                                                                                                |   | 21             |
|                                                                                                       |                                                                                                                                           |   |           |
| Signatures                                                                                                 |                                                                                                                                           | 22     |
|                                                                                                       |                                                                                                                                           |   |
| Exhibit                31 - Certification Pursuant to Section 302 of the Sarbanes-Oxley                Act |                                                                                                                                           |   |
| Exhibit                32 - Certification Pursuant to Section 906 of the Sarbanes-Oxley                Act |                                                                                                                                           |   |

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**Table          of Contents**

**PART      1 - FINANCIAL INFORMATION**

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

**NATIONAL      SCIENTIFIC CORPORATION**

**Unaudited      Condensed Balance Sheets**

**December      31, 2006 and September 30, 2006**

|                                                                                                                                                                                                                                           |   | **December                  31, 2006****(Unaudited)** |        | **September                  30, 2006****(Audited)** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|-------------|------------------------------------------------------|--------|
| **ASSETS**                                                                                                                                                                                                                                     |   |                                                  |        |                                                 |   |
| Current                  Assets:                                                                                                                                                                                                               |   |                                                  |        |                                            |   |
| Cash                  and cash equivalents                                                                                                                                                                                                     |   | $                                                     | 5,799       |                                                 | $      | 43,899 |   |
| Trade                  receivables, net                                                                                                                                                                                                        |   |                                                  | 183,785     |                                                 |   | 141,498 |   |
| Inventory,                  net                                                                                                                                                                                                                |   |                                                  | 685         |                                                 |   | 6,020 |   |
| Other                  assets                                                                                                                                                                                                                  |   |                                                  | 2,025       |                                                 |   | 5,570 |   |
| Total                  current assets                                                                                                                                                                                                          |   |                                                  | 192,294     |                                                 |   | 196,987 |   |
|                                                                                                                                                                                                                                           |   |                                                  |             |                                                 |   |   |   |
| Property                  and equipment, net                                                                                                                                                                                                   |   |                                                  | 933         |                                                 |   | 1,037 |   |
| Deposits                                                                                                                                                                                                                                       |   |                                                  | 2,340       |                                                 |   | 2,000 |   |
| Deferred                  financing costs                                                                                                                                                                                                      |   |                                                  | 18,400      |                                                 |   | 19,600 |   |
| Total                  assets                                                                                                                                                                                                                  |   | $                                                     | 213,967     |                                                 | $      | 219,624 |   |
|                                                                                                                                                                                                                                           |   |                                                  |             |                                                 |   |  |   |
| **LIABILITIES                  AND SHAREHOLDERS’ (DEFICIT)**                                                                                                                                                                             |   |                                                  |             |                                                 |   |   |   |
| Current                  Liabilities:                                                                                                                                                                                                          |   |                                                  |             |                                                 |   |   |   |
| Accounts                  payable - related parties                                                                                                                                                                                            |   | $                                                     | 57,666      |                                                 | $      | 83,584 |   |
| Accounts                  payable - other                                                                                                                                                                                                      |   |                                                  | 171,299     |                                                 |   | 165,593 |   |
| Accrued                  expenses                                                                                                                                                                                                              |   |                                                  | 935,538     |                                                 |   | 848,446 |   |
| Due                  to factors                                                                                                                                                                                                                |   |                                                  | 135,757     |                                                 |   | 104,400 |   |
| Notes                  payable - related party                                                                                                                                                                                                 |   |                                                  | 159,000     |                                                 |   | 159,000 |   |
| Notes                  payable - other                                                                                                                                                                                                         |   |                                                  | 136,375     |                                                 |   | 133,375 |   |
| Total                  current liabilities                                                                                                                                                                                                     |   |                                                  | 1,595,635   |                                                 |   | 1,494,398 |   |
|                                                                                                                                                                                                                                           |   |                                                  |             |                                                 |   |   |   |
| Notes                  payable, net of current portion                                                                                                                                                                                         |   |                                                  | 127,825     |                                                 |   | 124,748 |   |
| Total                  liabilities                                                                                                                                                                                                             |   |                                                  | 1,723,460   |                                                 |   | 1,619,146 |   |
|                                                                                                                                                                                                                                           |   |                                                  |             |                                                 |   |   |   |
| Commitments                  and contingencies                                                                                                                                                                                                 |   |                                                  | –     |                                                 |   | – |   |
|                                                                                                                                                                                                                                           |   |                                                  |             |                                                 |   |  |   |
| Shareholders’                  (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 of 99,108,039                  at                  December 31, 2006 and September 30, 2006 |   |                                                  | 991,081     |                                                 |   | 991,081 |   |
| Additional                  paid-in capital                                                                                                                                                                                                    |   |                                                  | 22,417,824  |                                                 |   | 22,405,152 |   |
| Accumulated                  deficit                                                                                                                                                                                                           |   |                                                  | (24,918,398 | )                                                    |   | (24,795,755 | ) |
| Total                  shareholders’ (deficit)                                                                                                                                                                                           |   |                                                  | (1,509,493  | )                                                    |   | (1,399,522 | ) |
| Total                  liabilities and shareholder’s (deficit)                                                                                                                                                                           |   | $                                                     | 213,967     |                                                 | $      | 219,624 |   |
|                                                                                                                                                                                                                                           |   |                                                  |             |                                                 |   |  |   |

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

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**Table          of Contents**

**NATIONAL      SCIENTIFIC CORPORATION**

**Unaudited      Condensed Statements of Operations**

**For      the Quarters Ended December 31, 2006 and 2005**

|                                                             |       | **Three                    Months **      | ** ** | **Three                    Months **      | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                       | ** ** | **Ended **                                | ** ** | **Ended **                                | ** ** |
|                                                             | ** ** | **December                    31, 2006 ** | ** ** | **December                    31, 2005 ** |       |
|                                                             |       |                                           |       |                                           |       |   |   |
| Revenues                                                         |       | $                                              | 138,216    |                                           | $          | 77,679 |   |
| Cost                    of Sales                                 |       |                                           | 71,975     |                                           |       | 52,839 |   |
|                                                             |       |                                           |            |                                           |       |  |   |
| Gross                    profit                                  |       |                                           | 66,241     |                                           |       | 24,840 |   |
|                                                             |       |                                           |            |                                           |       |   |   |
| Costs                    and expenses                            |       |                                           |            |                                           |       |   |   |
| Salaries                    and benefits                         |       |                                           | 71,322     |                                           |       | 83,127 |   |
| Research                    and development                      |       |                                           | 43,453     |                                           |       | 88,078 |   |
| Stock                    compensation                            |       |                                           | 3,000      |                                           |       | – |   |
| Other                                                            |       |                                           | 34,943     |                                           |       | 42,818 |   |
| Total                    costs and expenses                      |       |                                           | 152,718    |                                           |       | 214,023 |   |
|                                                             |       |                                           |            |                                           |       |  |   |
| Loss                    from operations                          |       |                                           | (86,477    | )                                              |       | (189,183 | ) |
|                                                             |       |                                           |            |                                           |       |   |   |
| Other                    income (expense)                        |       |                                           |            |                                           |       |   |   |
| Other                    income                                  |       |                                           | 740        |                                           |       | – |   |
| Interest                    expense                              |       |                                           | (35,706    | )                                              |       | (16,409 | ) |
| Amortization                    of deferred financing costs      |       |                                           | (1,200     | )                                              |       | (800 | ) |
|                                                             |       |                                           | (36,166    | )                                              |       | 17,209 | )  |
| Loss                    before income taxes                      |       |                                           | (122,643   | )                                              |       | (206,392 | ) |
| Income                    tax (expense)                          |       |                                           | –    |                                           |       | – |   |
|                                                             |       |                                           |            |                                           |       |   |   |
| Net                    loss                                      |       | $                                              | (122,643   | )                                              | $          | (206,392 | ) |
|                                                             |       |                                           |            |                                           |       |  |   |
| Net                    loss per common share, basic and diluted  |       | $                                              | (0.00      | )                                              | $          | (0.00 | ) |
|                                                             |       |                                           |            |                                           |       |  |   |
| Weighted                    average number of shares outstanding |       |                                           | 99,108,039 |                                           |       | 95,090,024 |   |
|                                                             |       |                                           |            |                                           |       |  |   |

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

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**Table            of Contents**

**NATIONAL      SCIENTIFIC CORPORATION**

**Unaudited      Condensed Statements of Cash Flows**

**For      the Quarters Ended December 31**
**,**
**      2006 and 2005**

|                                                                                                              |   | **Three                    Months****Ended****December                    31, 2006** |     |  **Three                    Months****Ended****December                    31, 2005** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|----------|--------------------------------------------------------------------------------------------|--------|
| Cash                    flows from operating activities:                                                          |   |                                                                                 |     |                                                                                       |   |   |   |
| Net                    loss                                                                                       |   | $                                                                                    | (122,643 | )                                                                                          | $      | (206,392 | ) |
| Adjustments                    to reconcile net loss to net cash used in operating                    activities: |   |                                                                                 |          |                                                                                       |   |  |   |
| Depreciation                                                                                                      |   |                                                                                 | 104      |                                                                                       |   | 1,661 |   |
| Stock                    options issued for services                                                              |   |                                                                                 | 3,000    |                                                                                       |   | – |   |
| Warrant                    expense                                                                                |   |                                                                                 | 9,672    |                                                                                       |   | – |   |
| Amortization                    of deferred financing costs                                                       |   |                                                                                 | 1,200    |                                                                                       |   | 800 |   |
| Amortization                    of debt discount                                                                  |   |                                                                                 | 2,580    |                                                                                       |   | 1,720 |   |
| Amortization                    of beneficial conversion feature                                                  |   |                                                                                 | 497      |                                                                                       |   | 331 |   |
| Changes                    in assets and liabilities:                                                             |   |                                                                                 |          |                                                                                       |   |  |   |
| Decrease                    (increase) in inventory, net                                                     |   |                                                                                 | 5,335    |                                                                                       |   | 5,546 |   |
| Decrease                    (increase) in receivables, net                                                        |   |                                                                                 | (42,287  | )                                                                                          |   | 5,607 |   |
| Decrease                    (increase) in other assets and deposits                                               |   |                                                                                 | 3,205    |                                                                                       |   | (13,837 | ) |
| Increase                    (decrease) in accounts payable and accrued expenses                                   |   |                                                                                 | 66,880   |                                                                                       |   | 84,562 |   |
| Net                    cash used in operating activities                                                          |   |                                                                                 | (72,457  | )                                                                                          |   | (120,002 | ) |
|                                                                                                              |   |                                                                                 |          |                                                                                       |   |  |   |
| Cash                    flows from financing activities:                                                          |   |                                                                                 |     |                                                                                       |   |   |   |
| Proceeds                    from notes payable                                                                    |   |                                                                                 | 8,000    |                                                                                       |   | 175,000 |   |
| Repayment                    of notes payable                                                                     |   |                                                                                 | (5,000   | )                                                                                          |   | (16,900 | ) |
| Net                    proceeds from factors                                                                      |   |                                                                                 | 31,357   |                                                                                       |   | – |   |
| Payment                    of financing costs                                                                     |   |                                                                                 | –  |                                                                                       |   | (24,000 | ) |
| Net                    cash provided by financing activities                                                      |   |                                                                                 | 34,357   |                                                                                       |   | 134,100 |   |
|                                                                                                              |   |                                                                                 |     |                                                                                       |   |   |   |
| Net                    (decrease) increase in cash and cash equivalents                                           |   |                                                                                 | (38,100  | )                                                                                          |   | 14,098 |   |
| Cash                    and cash equivalents, beginning of period                                                 |   |                                                                                 | 43,899   |                                                                                       |   | 1,616 |   |
|                                                                                                              |   |                                                                                 |          |                                                                                       |   |  |   |
| Cash                    and cash equivalents, end of period                                                       |   | $                                                                                    | 5,799    |                                                                                       | $      | 15,714 |   |
| Supplementary                    Disclosure of Cash Flow Information                                              |   |                                                                                 |     |                                                                                       |   |   |   |
| Cash                    paid for interest                                                                         |   | $                                                                                    | 10,343   |                                                                                       | $      | 556 |   |
| Conversion                    of accounts payable and accrued expenses to equity                                  |   | $                                                                                    | –  |                                                                                       | $      | 18,000 |   |
| Debt                    discount and beneficial conversion feature                                                |   | $                                                                                    | –  |                                                                                       | $      | 61,533 |   |

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

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**Table          of Contents**

**NATIONAL      SCIENTIFIC CORPORATION**

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

**For      the Three Months Ended December 31, 2006**

|                                          |       | **Common                  Stock**        | ** ** | **Preferred                  Stock** | ** ** |                                     | ** ** | ** **                     | ** ** | ** **                           | ** ** | ** **                 |
|-----------------------------------------------|------------|------------------------------------------|------------|--------------------------------------|------------|------------------------------------------|------------|--------------------------------|------------|--------------------------------------|------------|----------------------------|
| ** **                                    | ** ** | **Number                  of****Shares** | ** ** | **Par                  Value**       | ** ** | **Number                  of****Shares** | ** ** | **Par                  Value** | ** ** | **Additional****Paid-In****Capital** | ** ** | **Accumulated****Deficit** | ** ** | **Total** |   |
|                                          |       |                                     |       |                                 |       |                                     |       |                           |       |                                 |       |                       |   |   |   |   |   |   |   |   |   |   |
| Balance,                  September 30, 2006  |       |                                     | 99,108,039 |                                 | $          | 991,081                                  |       |                           | –    |                                 | $          | –                    |   | $ | 22,405,152 |   | $ | (24,795,755 | ) | $ | (1,399,522 | ) |
|                                          |       |                                     |            |                                 |       |                                          |       |                           |            |                                 |       |                            |   |   |  |   |   |  |   |   |  |   |
| Common                  stock options granted |       |                                     | –    |                                 |       | –                                  |       |                           | –    |                                 |       | –                    |   |   | 3,000 |   |   | – |   |   | 3,000 |   |
|                                          |       |                                     |       |                                 |       |                                     |       |                           |       |                                 |       |                       |   |   |   |   |   |   |   |   |   |   |
| Warrants                  issued with debt    |       |                                     | –    |                                 |       | –                                  |       |                           | –    |                                 |       | –                    |   |   | 9,672 |   |   | – |   |   | 9,672 |   |
|                                          |       |                                     |            |                                 |       |                                          |       |                           |            |                                 |       |                            |   |   |  |   |   |  |   |   |  |   |
| Net                  loss                     |       |                                     | –    |                                 |       | –                                  |       |                           | –    |                                 |       | –                    |   |   | – |   |   | (122,643 | ) |   | (122,643 | ) |
|                                          |       |                                     |            |                                 |       |                                          |       |                           |            |                                 |       |                            |   |   |  |   |   |  |   |   |  |   |
| Balance,                  December 31, 2006   |       |                                     | 99,108,039 |                                 | $          | 991,081                                  |       |                           | –    |                                 | $          | –                    |   | $ | 22,417,824 |   | $ | (24,918,398 | ) | $ | (1,509,493 | ) |
|                                          |       |                                     |            |                                 |       |                                          |       |                           |            |                                 |       |                            |   |   |  |   |   |  |   |   |  |   |

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

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**Table          of Contents**

**NATIONAL      SCIENTIFIC CORPORATION**

**NOTES      TO FINANCIAL STATEMENTS**

**December      31, 2006**

**(Unaudited)**

| **1.** | **Summary                  of Significant Accounting Policies and Use of                  Estimates:** |
|--------|--------------------------------------------------------------------------------------------------------|

***Basis        of Presentation and Going Concern:***

***Use        of Estimates:***

***Revenue        Recognition:***

***Earnings        per Share:***

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**Table            of Contents**

***Stock-Based        Compensation:***

| ·   | Expected                  term is determined using a weighted average of the contractual                  term and                  vesting period of the award; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Expected                  volatility is measured using the weighted average of historical                  daily                  changes in the market price of the Company’s common stock over two years                  prior to the award; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Risk-free                  interest rate is equivalent to the implied yield on U.S. Treasury                  bills                  with a remaining maturity equal to the expected term of the awards;                  and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Forfeitures                  are based on the history of cancellations of similar awards granted                  by the                  Company and management’s analysis of potential                  forfeitures. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **2.** | **Stock-Based                  Compensation:** |
|--------|------------------------------------------------|

***Stock        Options:***

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**Table              of Contents**

|                                                     |   |       |      | **Weighted** |   | **Weighted**  |   |          |    |          |   |
|----------------------------------------------------------|--------|------------|-----------|--------------|--------|---------------|--------|---------------|---------|---------------|--------|
|                                                     |   | **Number** |      | **Average**  |   | **Average**   |   | **Aggregate** |    | **Aggregate** |   |
|                                                     |   | **of**     |      | **Exercise** |   | **Fair**      |   | **Intrinsic** |    | **Fair**      |   |
|                                                     |   | **Shares** |      | **Price**    |   | **Value**     |   | **Value**     |    | **Value**     |   |
|                                                     |   |       |      |         |   |          |   |          |    |          |   |
| Options                  Outstanding, September 30, 2006 |   |       | 4,159,938 |         | $      | 0.74          |   | $             | 0.01    |          |   | – |   | $ | 60,673 |   |
| Granted                                                  |   |       | 170,117   |         |   | 0.03          |   |          | 0.02    |          |   | – |   |   | 3,931 |   |
| Exercised                                                |   |       | –   |         |   | –       |   |          | – |          |   | – |   |   | – |   |
| Canceled                                                 |   |       | –   |         |   |  – |   |          | – |          |   | – |   |   | – |   |
| Options                  Outstanding, December 31, 2006  |   |       | 4,330,055 |         | $      | 0.71          |   | $             | 0.01    |          |   | – |   | $ | 64,604 |   |

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**Table              of Contents**

|                                          |   | **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** |   |
|                                          |   |                                           |      |                                           |   |   |   |   |   |   |   |
| $0.02                  to $0.03               |   |                                           | 150,117   |                                           |   | 9.94 |   | $ | 0.03 |   |   | 150,117 |   | $ | 0.03 |   |
| $0.05                  to $0.46               |   |                                           | 390,681   |                                           |   | 9.68 |   | $ | 0.04 |   |   | 390,681 |   | $ | 0.04 |   |
| $0.05                  to $0.46               |   |                                           | 2,479,257 |                                           |   | 6.29 |   | $ | 0.18 |   |   | 2,479,257 |   | $ | 0.18 |   |
| $0.47                  to $1.84               |   |                                           | 1,000,000 |                                           |   | 3.92 |   | $ | 1.84 |   |   | 1,000,000 |   | $ | 1.84 |   |
| $1.85                  to $3.00               |   |                                           | 310,000   |                                           |   | 4.06 |   | $ | 2.49 |   |   | 310,000 |   | $ | 2.49 |   |
| Total                                         |   |                                           | 4,330,055 |                                           |   | 6.78 |   | $ | 0.71 |   |   | 4,330,055 |   | $ | 0.71 |   |

| Risk-free                  interest rate   |  4.46%                  to 4.61%  |
|------------------------------------------------------|----------------------------------------|
| Expected                  life (years)               | 10                                     |
| Expected                  volatility                 |  91.4%                  to 147.6% |
| Expected                  dividends                  | None                                   |
| Forfeitures                assumed                   | None                                   |

|                                                                                                                                        |   | **December                  31, 2005** |     |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|----------|
|                                                                                                                                        |   |                                   |     |   |
| Net                  loss as reported                                                                                                       |   | $                                      | (206,392 | ) |
| Deduct:                  Total stock based compensation expense as determined under the                  fair value                  method |   |                                   | –  |   |
| Add:                  Total stock based compensation recorded in the statement of                  operations                               |   |                                   | –  |   |
|                                                                                                                                        |   |                                   |          |   |
| Pro                  forma net loss                                                                                                         |   | $                                      | (206,392 | ) |
| Loss                  per share as reported                                                                                                 |   |                                   | (0.00    | ) |
| Loss                  per share, pro forma                                                                                                  |   |                                   | (0.00    | ) |

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**Table              of Contents**

***Warrants:***

|                                                      |   |       |       | **Weighted** |   | **Weighted** |   |
|-----------------------------------------------------------|--------|------------|------------|--------------|--------|--------------|--------|
|                                                      |   | **Number** |       | **Average**  |   | **Average**  |   |
|                                                      |   | **of**     |       | **Exercise** |   | **Fair**     |   |
|                                                      |   | **Shares** |       | **Price**    |   | **Value**    |   |
|                                                      |   |       |       |         |   |         |   |
| Warrants                  Outstanding, September 30, 2006 |   |       | 15,384,197 |         | $      | 0.15         |   | $ | 0.01 |   |
| Granted                                                   |   |       | 500,000    |         |   | 0.04         |   |   | 0.02 |   |
| Exercised                                                 |   |       | –    |         |   | –      |   |   | – |   |
| Canceled                                                  |   |       | –    |         |   | –      |   |   | – |   |
| Warrants                  Outstanding, December 31, 2006  |   |       | 15,884,197 |         | $      | 0.15         |   | $ | 0.01 |   |

|                                                      |   | **Warrants                  Outstanding**         |       |  **Warrants                  Exercisable**      |   |
|-----------------------------------------------------------|--------|---------------------------------------------------|------------|------------------------------------------------------|--------|
|   **Range                  of Exercise Prices** |   |   **Number                  of Shares** |       | **Weighted                  Average Exercise Price** |   | **Weighted                  Average Remaining Contractual Life (Years)** |   |   **Number                  of Shares** |   | **Weighted                  Average Exercise Price** |   |
|                                                      |   |                                              |       |                                                 |   |   |   |   |   |   |   |
| $0.035                  to $0.035                         |   |                                              | 1,000,000  |                                                 |   | 0.035 |   |   | 4.67 |   |   | 1,000,000 |   |   | 0.035 |   |
| $0.036                  to $0.036                         |   |                                              | 200,000    |                                                 |   | 0.036 |   |   | 2.37 |   |   | 200,000 |   |   | 0.036 |   |
| $0.050                  to $0.050                         |   |                                              | 450,000    |                                                 |   | 0.050 |   |   | 2.59 |   |   | 450,000 |   |   | 0.050 |   |
| $0.062                  to $0.062                         |   |                                              | 135,000    |                                                 |   | 0.062 |   |   | 1.48 |   |   | 135,000 |   |   | 0.062 |   |
| $0.090                  to $0.090                         |   |                                              | 50,000     |                                                 |   | 0.090 |   |   | 1.72 |   |   | 50,000 |   |   | 0.090 |   |
| $0.100                  to $0.100                         |   |                                              | 3,108,497  |                                                 |   | 0.100 |   |   | 3.85 |   |   | 3,108,497 |   |   | 0.100 |   |
| $0.110                  to $0.110                         |   |                                              | 7,750,700  |                                                 |   | 0.110 |   |   | 2.27 |   |   | 7,750,700 |   |   | 0.110 |   |
| $0.130                  to $0.130                         |   |                                              | 640,000    |                                                 |   | 0.130 |   |   | 0.01 |   |   | 640,000 |   |   | 0.130 |   |
| $0.350                  to $0.350                         |   |                                              | 1,000,000  |                                                 |   | 0.350 |   |   | 0.50 |   |   | 1,000,000 |   |   | 0.350 |   |
| $0.500                  to $0.500                         |   |                                              | 1,275,000  |                                                 |   | 0.500 |   |   | 0.50 |   |   | 1,275,000 |   |   | 0.500 |   |
| $0.750                  to $0.750                         |   |                                              | 275,000    |                                                 |   | 0.750 |   |   | 0.50 |   |   | 275,000 |   |   | 0.075 |   |
|                                                      |   |                                              | 15,884,197 |                                                 |   |   |   |   |   |   |   | 15,884,197 |   |   |   |   |

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**Table              of Contents**

| Risk-free                  interest rate | 4.57%   |
|------------------------------------------|---------|
| Expected                  life (years)   | 5       |
| Expected                  volatility     | 162.90% |
| Expected                  dividends      | None    |
| Forfeitures                assumed       | None    |

| **3.** | **Trade                  Receivables** |
|--------|----------------------------------------|

|                                 |   | **December                    31, 2006****(Unaudited)** |    | **September                    30, 2006****(Audited)** |   |
|--------------------------------------|--------|---------------------------------------------------------|---------|--------------------------------------------------------|--------|
|                                 |   |                                                    |    |                                                   |   |   |   |
| Trade                    receivables |   | $                                                       | 183,785 |                                                   | $      | 141,498 |   |
| Less:                    reserves    |   |                                                    | – |                                                   |   | – |   |
|                                 |   | $                                                       | 183,785 |                                                   | $      | 141,498 |   |

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**Table              of Contents**

| **4.** | **Inventory,                  net** |
|--------|-------------------------------------|

|                                              |   | **December                    31, 2006****(Unaudited)** |    | **September                    30, 2006****(Audited)** |   |
|---------------------------------------------------|--------|---------------------------------------------------------|---------|--------------------------------------------------------|--------|
|                                              |   |                                                    |    |                                                   |   |
| Inventory,                    gross               |   | $                                                       | 65,287  |                                                   | $      | 70,622 |   |
| Less:                    reserve for obsolescence |   |                                                    | (64,602 | )                                                      |   | (64,602 | ) |
| Inventory,                    net                 |   | $                                                       | 685     |                                                   | $      | 6,020 |   |

| **5.** | **Accrued                  Expenses** |
|--------|---------------------------------------|

**:**

|                                                                        |   | **December                    31, 2006****(Unaudited)** |    | **September                    30, 2006****(Audited)** |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------------------------|---------|--------------------------------------------------------|--------|
|                                                                        |   |                                                    |    |                                                   |   |   |   |
| Salaries                    and vacation pay - current management and staff |   | $                                                       | 654,243 |                                                   | $      | 585,678 |   |
| Salaries                    and vacation pay - former employee              |   |                                                    | 29,375  |                                                   |   | 29,375 |   |
| Payroll                    taxes for back pay                               |   |                                                    | 42,393  |                                                   |   | 37,342 |   |
| Interest                                                                    |   |                                                    | 114,277 |                                                   |   | 101,698 |   |
| Employee                    stock retainage pool                            |   |                                                    | 50,250  |                                                   |   | 50,250 |   |
| Other                    liabilities                                        |   |                                                    | 45,000  |                                                   |   | 44,103 |   |
|                                                                        |   | $                                                       | 935,538 |                                                   | $      | 848,446 |   |

| **6.** | **Notes                  payable and Long-Term debt** |
|--------|-------------------------------------------------------|

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**Table              of Contents**

|                                                                                                                                    |   | **December                  31, 2006** |     | **September                  30, 2006** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|----------|-----------------------------------------|--------|
|                                                                                                                                    |   | **(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; payable                  on                  demand      |   |                                   | 1,000    |                                    |   | 1,000 |   |
| Note                  payable to shareholder; unsecured; non-interest bearing; payable                  on                  demand      |   |                                   | 1,500    |                                    |   | 1,500 |   |
| Note                  payable to shareholder; unsecured; non-interest bearing; payable                  on                  demand      |   |                                   | 1,000    |                                    |   | 1,000 |   |
| Note                  payable to shareholder; secured; interest at 12%; payable on                  demand                              |   |                                   | 11,625   |                                    |   | 16,625 |   |
| Note                  payable to shareholder; secured; interest at 12%; payable on                  demand                              |   |                                   | 20,000   |                                    |   | 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  |                                    |   | 175,000 |   |
| Note                  payable to shareholder; secured; interest at 12%; payable on                  demand                              |   |                                   | 50,000   |                                    |   | 50,000 |   |
| Note                  payable to an employee; unsecured; interest at 6%; payable on                  demand                             |   |                                   | 8,000    |                                    |   | – |   |
|                                                                                                                                    |   |                                   | 470,375  |                                    |   | 467,375 |   |
| Less:                                                                                                                                   |   |                                   |          |                                    |   |  |   |
| Current                  portion of long term debt                                                                                      |   |                                   | (295,375 | )                                       |   | (292,375 | ) |
| Discount                                                                                                                                |   |                                   | (39,560  | )                                       |   | (42,140 | ) |
| Beneficial                  conversion feature                                                                                          |   |                                   | (7,615   | )                                       |   | (8,112 | ) |
| Long-term                  debt, net of current portion                                                                                 |   | $                                      | 127,825  |                                    | $      | 124,748 |   |

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**Table            of Contents**

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**Table            of Contents**

| 2007   |   | $      | 295,375 |   |
|--------|--------|--------|---------|--------|
| 2008   |   |   | – |   |
| 2009   |   |   | – |   |
| 2010   |   |   | – |   |
| 2011   |   |   | 175,000 |   |
|   |   | $      | 470,375 |   |

| **7.** | **Earnings                Per Share** |
|--------|---------------------------------------|

|                                                                     |   | **December                  31, 2006** |       |  **December                  31, 2005** |   |
|--------------------------------------------------------------------------|--------|----------------------------------------|------------|----------------------------------------------|--------|
|                                                                     |   |                                   |       |                                    |   |
| Net                  (loss)                                              |   | $                                      | (122,643   | )                                            | $      | (206,392 | ) |
| Weighted                  average shares:                                |   |                                   |       |                                         |   |   |   |
| Average                  shares outstanding                              |   |                                   | 99,108,039 |                                         |   | 95,090,024 |   |
| Effect                  of diluted shares                                |   |                                   | –    |                                         |   | – |   |
| Average                  shares outstanding adjusted for dilutive effect |   |                                   | 99,108,039 |                                         |   | 95,090,024 |   |
| (Loss)                  per share - basic                                |   | $                                      | (0.00      | )                                            | $      | (0.00 | ) |
| (Loss)                  per share - diluted                              |   | $                                      | (0.00      | )                                            | $      | (0.00 | ) |

|                                          |   | **December                  31,****2006** |       | **December                  31,****2005** |   |
|-----------------------------------------------|--------|-------------------------------------------|------------|-------------------------------------------|--------|
|                                          |   |                                      |       |                                      |   |   |   |
| Options                                       |   |                                      | 4,330,055  |                                      |   | 3,789,257 |   |
| Warrants                                      |   |                                      | 15,884,197 |                                      |   | 15,434,197 |   |
|                                          |   |                                      |            |                                      |   |  |   |
| Potential                  common equivalents |   |                                      | 20,214,252 |                                      |   | 19,223,454 |   |

| **8.** | **Subsequent                  Events** |
|--------|----------------------------------------|

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**Table          of Contents**

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

**SAFE        HARBOR STATEMENT**

**Three        Months Ended December 31, 2006 Compared to Three Months Ended December 31,        2005**

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**Table              of Contents**

**Liquidity        and Capital Resources**

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**Table                of Contents**

**Other        Subsequent Events**

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

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**Table                of Contents**

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**Table          of Contents**

**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** |
|--|---------|----------------------------------------|

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**Table          of Contents**

**SIGNATURES**

|                                         |                                                                                                                                           |                                   |
|----------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|
|                                         | **NATIONAL                SCIENTIFIC CORPORATION**                                                                                             |
|                                         |                                                                                                                                           |                                   |
| Date:                 February 20, 2006 | By:                                                                                                                                            | /s/                Michael A. Grollman |
|                                         | Michael                A. GrollmanDirector,                Chief Executive Officer, Acting Chief Financial                Officer and Chairman |

|   |                                                                            |                               |
|--------|---------------------------------------------------------------------------------|------------------------------------|
|   |                                                                            |                               |
|   | By:                                                                             | /s/                Graham L. Clark |
|   | Graham                L. ClarkDirector,                President, and Secretary |

|   |                                 |                             |
|--------|--------------------------------------|----------------------------------|
|   |                                 |                             |
|   | By:                                  | /s/                Gregory Szabo |
|   | Gregory                SzaboDirector |

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