UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

**FORM 10-Q**

 

 

 

  

Commission File No. 000-28745

 

 

**Cloud Medical Doctor SoftwareCorporation**

(Name of small business issueras specified in its charter)

(formerly National ScientificCorporation)

 

                                                                                                         

**1291 Galleria Drive, Suite 200**

**Henderson, NV 89014**

(Address of principal executive offices)(Zip Code)

**(702) 818-9011**

Registrant’stelephone number, including area code

 

Indicate by check mark whether theRegistrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subjectto such filing requirements for the past 90 days:  

Yes  [ ] No [x]

 

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

 Yes [ ] No[x]

 

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

 

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b–2 of the Exchange Act). Yes [ ] No [x]

 

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

 

 **CLOUDMEDICAL DOCTOR SOFTWARE CORPORATION**

**INDEX TO FORM 10-Q FILING**

**FOR THE THREE MONTHS ENDED DECEMBER31, 2011 AND 2010**

 

**TABLEOF CONTENTS**

 

 

 **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 REVIEWEDTHE QUARTERLY REPORTS THROUGH JUNE 30, 2008 RESIGNED EFFECTIVE DECEMBER 13, 2011.

 

IN FEBRUARY 2010 THE BOARD OF DIRECTORSVOTED TO DISCONTINUE THE MOBILE DVR AND LOCATION PRODUCTS LINE OF BUSINESS REPORTED IN THESE FINANCIAL STATEMENTS DUE TO THECUMULATIVE EFFECTS OF SEVERELY DECLINING REVENUES RESULTING FROM THE 2008 RECESSION. SINCE THIS DECISION WAS 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,and stockholders' 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 September 30, 2011.  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, 2011 are notnecessarily indicative of the results that can be expected for the year ending September 30, 2012.

**CLOUD MEDICAL DOCTOR SOFTWARECORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**FOR THE THREE MONTHS ENDED DECEMBER31, 2011 AND 2010**

 

**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 considerationfor this transaction.

 

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

** **

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

 

Basis of Presentation of InterimFinancial Statements

 

The Company prepares its 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.Operating results for the nine months ended December 31, 2011 are not necessarily indicative of the results that may be expectedfor the year ending September 30, 2012. Notes to the unaudited interim consolidated financial statements that would substantiallyduplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2011 have been omitted; thisreport should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscalyear ended September 30, 2011 included within its Form 10-K as filed with the Securities and Exchange Commission.

 

Use of Estimates and Assumptions

 

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

Revenue Recognition

 

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

  

Accounts Receivable and Allowance for UncollectibleAccounts

 

Substantially all of the Company’s accountsreceivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bearinterest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses inits existing accounts receivable. The Company will maintain allowances for doubtful accounts for estimated losses resulting fromthe 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. 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investmentswith an original maturity of three months or less to be cash equivalents.  At September 30, 2011, cash and cash equivalentsinclude cash on hand and cash in the bank and the FDIC insures these deposits up to $250,000.

** **

**Deferred Revenue**

 

Deferredrevenue result from fees billed to customers for which revenue has not yet been recognized or for which the conditions of thearrangement have been modified. The Company recognizes revenue to provide up-front capitalization to Cloud-MD for eachprovider added to the solution set. Based on a 48-month lease, Cloud-MD would amortize the revenue over the life of the agreementof 48 months. In addition, it features incremental monthly revenue, for the duration of the lease (48 months) based on small usagefees assessed for transactions such as eligibility, claims processing, etc.

  

The Company has current deferred revenueof $12,213 and noncurrent deferred revenue of $36,637 as of December 31, 2011.

 

We have adopted the Securitiesand Exchange Commission’s Staff Accounting Bulletin (SAB) No. 104, which provides guidance on the recognition, presentationand disclosure of revenue in financial statements.

 

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, 2011,cash and cash equivalents include cash on hand and cash in the bank and the FDIC insures these deposits up to $250,000.

 

Impairment of Long-Lived Assets

 

Property and equipment are reviewedfor impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscountedfuture cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cashflows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the estimated fair valueof the asset. Management has not impaired the value of its long lived assets.

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 record any liabilities for uncertain tax positions.

 

Share-Based Compensation

 

The Company measures the cost of servicesreceived in exchange for an award of an equity instrument based on the grant-date fair value of the award.  Compensationcost is recognized over the vesting or requisite service period.  The Black-Scholes option-pricing model is used to estimatethe fair 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 the same asbasic loss per share during periods where net losses are incurred since the inclusion of the potential common stockequivalents would 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 Topic 820, *FairValue Measurements* (“ASC Topic 820”), which defines fair value, establishes a framework for measuring fairvalue, and expands disclosures about fair value measurements.  The standard provides a consistent definition of fairvalue 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:

 

 

The following table summarizes fair value measurementsby level at December 31, 2011 and September 30, 2011 for assets measured at fair value on a recurring basis:

 

 

Recent Accounting Pronouncements

 

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

 

**NOTE 3 - GOING CONCERN ISSUES**

 

The accompanying financial statementshave been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplatecontinuation of the Company as a going concern. However, the Company has a net loss for the three months ended December 31, 2011of $52,564, an accumulated deficit of $26,282,534, cash flows provided in operating activities of $62,103 and needs additionalcash to 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- DISCONTINUED OPERATIONS**

 

The Company’s former Board ofDirectors believed that it was in the best interest of the Company to discontinue the business operation of the GPS operationaldevice business. In 2011, this business was transferred to National Scientific, LLC by prior management in which he was to pay$100,000 for that technology the former officer never paid the required compensation. The Company discontinued these operationsand began selling Medical Business Software and is the current operation of the Company.

 

Accordingly, the Company reclassifiedthe assets, liabilities and operations related to its GPS operational device business as discontinued operations.  Consequently,the accompanying consolidated financial statements reflect the assets, liabilities and operations of the GPS operational devicebusiness as net assets of discontinued operations, net liabilities of discontinued operations and operations from discontinuedoperations in accordance with ASC Topic 360,* Accounting for the Impairment or Disposal of Long Lived Assets*.

 

Details of those classifications are shown below.