UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

**FORM 10-Q**

 

 

 

  

Commission File No. 000-28745

 

 

**Cloud Medical Doctor Software Corporation**

**(Formerly, National Scientific Corporation)**

(Name of small business issuer as specified in its charter)

(Formerly National Scientific Corporation)

 

 

                                                                                                         

**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 the registranthas submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files).

Yes [ ]     No [X]

 

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

 

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

 

 

 

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1.****Financial Statements**

 

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 OFDIRECTORS VOTED TO DISCONTINUE THE MOBILE DVR AND LOCATION PRODUCTS LINE OF BUSINESS REPORTED IN THESE FINANCIAL STATEMENTSDUE TO THE CUMULATIVE EFFECTS OF SEVERELY DECLINING REVENUES RESULTING FROM THE 2008 RECESSION. SINCE THIS DECISION WAS MADESUBSEQUENT TO THE YEARS ENDED SEPTEMBER 30, 2008 AND 2009, THE QUARTERLY AND YEAR END STATEMENTS FOR THOSE YEARS ARE BEINGREPORTED ON A GOING CONCERN BASIS RATHER THAN AS DISCONTINUED OPERATIONS. THEY WILL, HOWEVER, BE REPORTED AS DISCONTINUEDOPERATIONS COMMENCING 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 consolidatedfinancial statements have been prepared in accordance with the instructions to Form 10-Q.  Therefore, they do not includeall information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, andstockholders' equity in conformity with generally accepted accounting principles.  Except as disclosed herein, therehas been no material change in the information disclosed in the notes to the consolidated financial statements included in theCompany's Annual Report on Form 10-K for the year ended December 31, 2007.  In the opinion of management, all adjustmentsconsidered necessary for a fair presentation of the results of operations and financial position have been included and all suchadjustments are of a normal recurring nature.  Operating results for the three months ended December 31, 2008 are notnecessarily indicative of the results that can be expected for the year ending September 30, 2009.

 

 

 

**CLOUD MEDICAL DOCTOR SOFTWARECORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THE THREE MONTHS ENDED DECEMBER31, 2008 AND 2007**

 

**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. Mr. Grollman nor NSC Labs, LLC never paid consideration forthis transaction.

 

In November 19, 2010, the prior managementwas terminated and changed management and began working on operations related to the Company’s medical billing software.

** **

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

 

Basis of Presentation of InterimFinancial Statements

 

The Company prepares its consolidatedfinancial statements in accordance with accounting principles generally accepted in the United States of America.  The accompanyinginterim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principlesfor interim financial information in accordance with the instructions to Form 10-Q/A and Article 8 of Regulation S-X. In our opinion,all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operatingresults for the three months ended December 31, 2008 are not necessarily indicative of the results that may be expected for theyear ending September 30, 2009. Notes to the unaudited interim consolidated financial statements that would substantially duplicatethe disclosures contained in the audited consolidated financial statements for fiscal year 2008 have been omitted; this reportshould be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal yearended September 30, 2008 included within its Form 10-K as filed with the Securities and Exchange Commission.

 

Use of Estimates and Assumptions

The preparation of financialstatements in conformity with accounting principles generally accepted in the United States (“GAAP”) requiresmanagement to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities,(ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements arepublished, and (iii) the reported amount of net revenues and expenses recognized during the periods presented.Adjustments made with respect to the use of estimates often relate to improved information not previously available.Uncertainties with respect to such estimates and assumptions are inherent in 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 year ended September 30, 2008.

 

Inventory

The Company’s inventoryis carried at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. The Company’sinventory is comprised of supplies and parts used in the Company’s operations. The Company evaluates the need to record adjustmentsfor obsolescence for inventory on a regular basis. At December 31, 2008, the Company’s inventorybalance was $662 and at September 30, 2008, the Company’s inventory balance was $660.

Cash and Cash Equivalents

The Company considers all highlyliquid investments with an original maturity of three months or less to be cash equivalents.  At December 31, 2008, cashand cash equivalents include cash on 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 provisionsof ASC Topic 740, *Accounting For Uncertainty In Income Taxes-An Interpretation of ASC Topic 740*("ASC Topic 740").ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluatethe tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, thatthe position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second stepis to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement.The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may requireperiodic adjustments. At September 30, 2008, the Company did not recordany 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 measurementsis defined as follows:

- Level 1 – inputs to the valuationmethodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
- Level 2 – inputs to the valuationmethodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for theasset or liability other than quoted prices, either directly or indirectly, including inputs in the markets that are not consideredto be active; or
- Level 3 – inputs to the valuationmethodology are unobservable and significant to the fair value measurement

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.

Reclassification of Prior YearAmounts

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

 

**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, 2008of $86,517, an accumulated deficit of $25,577,601, cash flows used in operating activities of $28,390 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.

** **

**NOTE 4- ACCOUNT RECEIVABLES**

Accounts receivables consist of the following:

 

On September 7, 2005, we entered intoa factoring agreement with United Capital Funding (UCF) of Florida. UCF is a specialized financial services firm offering AccountsReceivable Management and working capital funding via factoring. We expect to improve our cash flow with this arrangement.

 

 

 

Under the arrangement, we sell toUCF as absolute owner, invoices that we submit to UCF to be factored. Upon purchase, UCF assumes the risk of non-payment onpurchased invoices, so long as the cause of non-payment is solely due to the occurrence of an insolvency event. As collateralsecuring the obligations, we grant UCF a continuing first priority security interest in all accounts and related inventory.Notwithstanding the creation of the above security interest, our relationship with UCF is one of Seller and Purchaser ofaccounts, and not that of lender and borrower. However, as there is certain recourse for non-payment, the accounts receivableare recorded at the estimated realizable value, net of allowances and the net advanced amount from UCF is recorded as anobligation at the end of fiscal 2007 and 2006. The initial and periodic factoring fee is .45% of the face amount of factoredinvoices. The factoring period is five days and the purchase price 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- INVENTORY**

 

Inventory, net consists of the following:

 

 

**NOTE 6- DISPUTED ACCRUED EXPENSES – RELATEDPARTY**

Disputed accrued expenses fromrelated parties consist of the following**:**

 

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****

****

** **

**NOTE 7 – NOTES PAYABLE**

 

All long-term debt consisted of the following notespayable:

On November 1, 2005, as an importantphase in the current year’s financing plan, we entered into a financing program with Strategic Working Capital Fund, LP.The terms of this program include a five-year Note payable at maturity in November 2010 for $175,000, at an effective annual interestrate of 8%. Interest is due and payable semi-annually on May 1st and November 1st for each year in which the note is outstandingThe transaction also included 1,200,000 restricted common shares and a conversion/exchange option to convert the principal amountand any unpaid interest of the Note into common shares at a per share conversion price of $0.0525. These shares include weightedaverage anti-dilution provisions, as well as piggyback registration rights. Additionally, the Note has various put and call rights,and has a right to early payment under certain conditions after 2 years. The 1,200,000 restricted common shares were recorded at$0.043, which was the five-day average market closing price of our stock. The note and common stock were issued with a debt discountof $51,600 and a beneficial conversion feature of $9,933. The discount and beneficial conversion feature are being amortized tointerest expense over the term of the note, which is approximately 60 months. The issuance of the shares resulted in deferred financingcosts of $24,000. The deferred financing costs are being amortized over term of the note, which is approximately 60 months, andare included in the statement of operations as offering costs.

OnFebruary 24, 2005, March 28, 2005, May 2, 2005, and May 27, 2005 our Chairman Michael Grollman made new personal loans to theCompany totaling $159,000 to assist us with working capital needs. The loans are evidenced by a demand note that provides forrepayment within five business days of a demand notice from Mr. Grollman, with interest of 6% compounded annually from June 1,2005. These loans were secured by an interest in the copyrights in the Company’s iBus software and designs.  Duringthe quarter to September 30, 2007, these loans were paid down by $11,000. As of September 30, 2007, these loans had a balanceoutstanding of $148,000 and the interest rate going forward was adjusted to 8% compounded annually from October 1, 2007.  OnSeptember 30, 2007, the Company converted unpaid interest of $13,300 on demand notes payable to Michael Grollman into a new demandnote of $13,300 that provides for repayment within five business days of a demand notice from Mr. Grollman, with interest of 8%compounded annually on October 1st. The balance of the note at September 30, 2008 is $97,992 and the note was repaidin the amount of $50,000. The balance of the note at December 31, 2008 is $72,636 and the note was repaid in the amount of $25,356.

 

On April27, 2006, we secured a short-term loan of $16,625 from a shareholder. The loan carries an origination/placement fee of $500 andhas a perfectible security interest a) prior to delivery in any assets purchased for the fulfillment of a customer’s orderdated March 16, 2006, and b) in any receivable resulting from the fulfillment of the customer’s purchase order. The interestrate on the loan is 12%. The transaction also included 100,000 warrants to purchase our common stock at $0.036 at any time beforeApril 27, 2009. The note had an approximate maturity date of June 15, 2006. Since September 30, 2006 this note was in default.A partial payment towards principal and interest of $5,258 was made on October 6, 2006. As of December 31, 2008 and September 30,2008 $11,625 of this loan was in default.

On May31, 2006, we secured a short-term loan of $20,000 from a shareholder. The loan carries an origination/placement fee of $500 andhas a perfectible security interest a) prior to delivery in any assets purchased for the fulfillment of Clover Park, WA’sorder and b) in any receivable resulting from the fulfillment of the Clover Park purchase order. The interest rate on theloan is 12%. The transaction also included 100,000 warrants to purchase our common stock at $0.036 at any time before May 31, 2009.The note had a maturity date of July 10, 2006. At December 31, 2008 this note was in default.

On December27, 2006, we signed a loan agreement with an employee for $8,000. The loan is unsecured and carries an interest rate of 6%. Thenote is payable on demand with 30 days prior notice On February 27, 2007 we paid $2,000 towards the principal amount. During December31, 2008 $699 was paid towards the principal amount and the balance was $2,845 for three months ended.

**NOTE 8 – COMMITMENT ANDCONTINGENCIES**

On August27, 2004 the Company signed a twenty-six month non-cancelable operating lease agreement for an office in Scottsdale, Arizona.The lease for the Scottsdale facility expired October 31, 2006. On October 20, 2006 NSC executed a lease for 1,601 square feetof office/warehouse space at 8361 E. Evans Road, Suite 106, Scottsdale, Arizona 85260. The lease for this Scottsdalefacility commenced on November 1, 2006 and expires October 31, 2008 and is at a base rental rate of $1,963 per month for the firsttwelve months and $ 2,028 per month for the final twelve months. In 2009 the Company lease was on a month to month basis.

**NOTE 9– RELATED PARTY TRANSACTIONS**

On July 14, 2008, Mr. Grollmanagreed to convert approximately $25,000 of his back pay to 5,000,000 shares of our restricted common stock, at the rate of theaverage market price per share of $0.005.

On July 14, 2008, Mr. Clark agreedto convert approximately $25,000 of his back pay to 5,000,000 shares of our restricted common stock, at the rate of the averagemarket price per share of $0.005.

On September 8, 2008, Mr. Clarkagreed to convert approximately $10,000 of his back pay to 5,000,000 shares of our restricted common stock, at the rate of theaverage market price per share of $0.002.

During September 30, 2008 theCompany issued 281,044 for services provided by the Board of Directors to the Company valued at a weighted trading price of $.02valued at $3,000. 

In September 30, 2009 the Companyissued 28,000,000 common shares at the trading price of the common stock of $0.001. The Stock was issued for unpaid compensationto officers and reduced accrued compensation by $35,800.

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**NOTE 10 - EQUITY**

As of December 31, 2008 the Companyhad 147,276,879 common shares outstanding at a par value of $.01 and no preferred shares outstanding at a par value of $.01.

**2009**

In September 30, 2009 the Companyissued 28,000,000 common shares at the trading price of the common stock of $0.001. The Stock was issued for unpaid compensationto officers and reduced accrued compensation by $35,800.

**2008**

In September 30, 2008 the Companyissued 15,193,966 common shares at the trading price of the common stock of $0.001. The Stock was issued for unpaid compensationto officers and reduced accrued compensation by $63,000.

**Common Stock**

The holdersof our common stock are entitled to receive such dividends, if any, as may be declared by our board of directors from time to timeout of legally available funds. The dividend rights of our common stock are junior to any preferential dividend rights of any outstandingshares of preferred stock. The holders of our common stock also are entitled to receive distributions upon our liquidation, dissolutionor winding up of our assets that are legally available for distribution, after payment of all debt and other liabilities and distributionin full of preferential amounts, if any, to be distributed to holders of our preferred stock.

The holdersof our common stock are not entitled to preemptive, subscription, redemption or conversion rights. The rights, preferences andprivileges of holders of our common stock are subject to, and may be adversely affected by, the rights of any series of preferredstock that we may designate and issue in the future.

**Preferred Stock**

****The Company has authorized4,000,000 shares of preferred stock, at $.001 par value and zero are issued and outstanding as of December 31, 2008. The Corporationestablished and designates the rights and preferences of a Series A Convertible Preferred Stock, and reserves 4,000,000 sharesof preferred stock against its issuance, such rights, preferences and designations. Each share of the Preferred Stock shall have150 votes on all matters presented to be voted by the holders of our common stock. All 4,000,000 shares of preferred stock thathave been issued to our CEO & CF on April 11, 2011 valued at the trading price of the common stock of $0.0095 and recordedas an expense of $38,000.

Theissuance of preferred stock by our board of directors could adversely affect the rights of holders of the common stock by, amongother things, establishing preferential dividends, liquidation rights or voting powers. 

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**Warrants and Options**

**Options**

The Prior boardof directors adopted the 2000 Stock Option Plan effective January 1, 2001. Our stockholders formally approved the 2000 Stock OptionPlan on February 14, 2001. The Current Board of Directors has terminated the Stock Option Plan.

 

Under the 2000Stock Option Plan, the purchase price must be at least 100% of the fair market value of our common stock (if the option is an incentivestock option), or at least 25% of the fair market value of our common stock at the time the option is granted (if the option isa nonqualified grant), or such higher price as may be determined by the Board of Directors at the time of grant. If however, anincentive stock option is granted to an individual who would, immediately before the grant, directly or indirectly own more than10% of the total combined voting power of all our classes of stock, the purchase price of the shares of common stock covered bysuch incentive stock option may not be less than 110% of the fair market value of such shares on the day the incentive stock optionis granted. As the price of the Company’s common stock is currently quoted on the OTC Bulletin Board, the fair market valueof the common stock underlying options granted under the 2000 Stock Option Plan shall be the last closing sale price of the commonstock on the day the options are granted. If there is no market price for the common stock, then our Board of Directors may, aftertaking all relevant facts into consideration, determine the fair market value of our common stock.

 

As of September30, 2008, we have granted options to purchase an aggregate of 5,271,756 shares of our common stock, under the plan, leaving a balanceof 1,728,244 available for grant. Also as of September 30, 2008, 5,271,756 options are exercisable and 5,271,756 are vested. Wehave reserved the right to issue a total of 7,000,000 shares of our common stock for issuance under the 2000 Stock Option Plan.

 

On October9, 2007, 20,000 options were granted to Greg Szabo, a director, for board services. The weighted average grant date fair valueof these options was $0.008.  Stock based compensation of $158 was recognized in the financial statements using the Black-Scholesoption pricing model value on the grant date. The options have a life of ten years, an exercise price of $0.0212 and vested immediately.

 

On November14, 2007, 225,000 options were granted to Graham Clark, a director. The compensation committee as an incentive to retain key staffmembers approved this grant. The weighted average grant date fair value of these options was $0.016.  Stock based compensationof $3,579 was recognized in the financial statements using the Black-Scholes option pricing model value on the grant date. Theoptions have a life of ten years, an exercise price of $0.03 and vested immediately.

 

On November14, 2007, 100,000 options were granted to Greg Szabo, a director. The compensation committee approved this grant. The weightedaverage grant date fair value of these options was $0.016.  Stock based compensation of $1,591 was recognized in thefinancial statements using the Black-Scholes option pricing model value on the grant date. The options have a life of ten years,an exercise price of $0.03 and vested immediately.

 

On November14, 2007, 100,000 options were granted to Michael Grollman, a director. The compensation committee as an incentive to retain keystaff members approved this grant. The weighted average grant date fair value of these options was $0.016.  Stock basedcompensation of $1,591 was recognized in the financial statements using the Black-Scholes option pricing model value on the grantdate. The options have a life of ten years, an exercise price of $0.03 and vested immediately. Also, on November 14, 2007, in lieuof taking a larger grant, 450,000 options granted to Michael Grollman on December 1, 2000 at an exercise price of $1.84 were canceledand exchanged for 450,000 options having an exercise price of $0.03.The incremental cost of the modified award recognized in thefinancial statements was $4,785.

 

 

On January14, 2008, 20,000 options were granted to Greg Szabo, a director, for board services. The weighted average grant date fair valueof these options was $0.0189.  Stock based compensation of $379 was recognized in the financial statements using theBlack-Scholes option pricing model value on the grant date. The options have a life of ten years, an exercise price of $0.019 andvested immediately.

 

On April 11,2008, 20,000 options were granted to Greg Szabo, a director, for board services. The weighted average grant date fair value ofthese options was $0.0118.  Stock based compensation of $236 was recognized in the financial statements using the Black-Scholesoption pricing model value on the grant date. The options have a life of ten years, an exercise price of $0.016 and vested immediately.

 

During thethree months ended December 31, 2008, no options were exercised.

 

TheCompany values all warrants using the Black-Scholes option-pricing model.  Critical assumptions for the Black-Scholesoption-pricing model include the market value of the stock price at the time of issuance, the risk-free interest rate correspondingto the term of the warrant, the volatility of the Company’s stock price, dividend yield on the common stock, as well as theexercise price and term of the warrant.  The warrants are not subject to any form of vesting schedule and, therefore,are exercisable by the holders anytime at their discretion during the life of the warrant.  No discounts were appliedto the valuation determined by the Black-Scholes option-pricing model for the three months ended December 31, 2008:

 

 

The following table summarizesthe stock option activity during the three months ended December 31, 2008: 

 

**Warrants**

During the three months ended December31, 2008, no awards were granted, no share purchase warrants were exercised, and no warrants were forfeited.

 

On June 24, 2008, three year warrantspreviously issued to purchase 135,000 shares of common stock with an exercise price of $0.062 expired.

 

On June 25, 2008, our board of directorsresolved to instruct management to extend the expiration date of 2,550,000 warrants previously set to expire on September 30, 2008.  Thewarrants, issued to purchase 2,550,000 shares of common stock exercisable at prices ranging from $0.35 to $0.75 per share wereissued between July  2003 and March 2004 in connection with the June 2003 Private Placement Memorandum.  Thefair value of these warrants, on September 30, 2008, determined to be $9,099 was expensed as stock based compensation.

 

The following assumptions were utilizedto value warrants during the fiscal three months ended December 31, 2008:

 

 

 

The following table summarizesthe warrant activity during the three months ended December 31, 2008:

 

 

 

(1) Remaining contract term is presented in years

(2) The aggregate intrinsic value is calculated as the difference between the exerciseprice of the underlying awards and the closing price of our common stock as of September 30, 2008, for those awards that havean exercise price currently below the closing price as of September 30, 2008. Awards with an exercise price above the closingprice as of September 30, 2008 of $0.015 are considered to have no intrinsic value.

 

Currently all warrants and optionsissued have expired as of the filing of this 10K.

All warrants and options issuedhave expired.

**Stock Option Plan**

Our boardof directors adopted the 2000 Stock Option Plan effective January 1, 2001. Our stockholders formally approved the 2000 Stock OptionPlan on February 14, 2001. The 2000 Stock Option plan terminates in accordance with the term on December 1, 2010. The Current Boardof Directors has not approved nor extended the Stock Option Plan therefore it is terminated.

**NOTE 11 – SUBSEQUENT EVENTS**

In accordance with the Subsequent EventsTopic of the FASB ASC 855, Management has evaluated subsequent events, and has determined that the following events are reasonablylikely to impact the financial statements:

**2012**

The Company issued 30,000,000 commonshares for there the reduction of debt from our CEO and reduced debt of the company by $3,325,949.

 

The Company issued 19,000 common sharesfor services rendered by professionals and recorded the expenses based upon the trading price of the common shares of $0.0102 andexpensed $204 as consulting fees.

 

The Company issued 1,055,333 commonshares to third parties that have purchased our medical billing software at the trading price of the common stock of $0.0160 andrecorded a revenue contra account of $20,871.

 

The Company issued 90,000 common sharesfor $18,000 in cash.

 

The Company issued 200,000 common sharesto Kroos Medical Management in accordance with the acquisition agreement and recorded it at the trading price of the common sharesof $0.020 and recorded an investment in Kroos Medical Management of $4,000.

 

** **

**2011**

In September 30, 2011 the Company issued15,000,000 common shares at the trading price of the common stock of $0.007. The Stock was issued for compensation to new managementand recorded and expense of $105,000.

 

The Company issued 250,000 in commonstock for $25,000 in cash.

** **

**2010**

No common stock was issued.

**Software asset purchases:**

**OnJune 22, 2012** the Company acquired Doctors Network of America in Flowood, Mississippi for 500,000 common shares and theacquisition was valued at $10,000.

The fair value of the considerationand the assets acquired is based on the aggregate value of the common stock issued in exchange for the software as shown below:

 

 

 

The acquisitionsterms are as follows:

 

 

 

**OnAugust 14, 2012** The Company through a comprehensive agreement with MediSouth, LLC, has purchased a complete source codelicense and will integrate and enhance this feature set as part of its ever expanding Cloud-MD Office product suite.

The fair value of the considerationand the assets acquired is based on the aggregate value of the common stock issued in exchange for the software as shown below:

 

PrincipalConditions and Consideration.Subject to all of the terms and conditions set forth inthis Agreement,and in consideration of the sale, assignment,transfer and delivery of the Purchased Assetsby Licensor to Licensee,as of the Effective Date of this agreement Licenseeand Licensor agree to the following (the *"PurchaseConsideration")**:*

 

2.5HoldbackStock. Pursuant tothe terms and subject to the conditions of this Agreement,no provisionsshall be made for the purpose of withholding previously awardedstock by Licenseeto Licensorother than those alreadycited in section 2.4of this Agreement.

 

Cloud-MDInventory Management System is a ground breaking Cloud-based Medical Supply Inventory Management System, specifically designedfor small and medium Medical Practices, DME's, Home Health, Long-term Care, and Surgery Centers that will offer:

1. Centralized management controlover medical supply and drug inventories