UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

  

**FORM 10-Q/A**

 

 

  

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  [x]  No [ ]

 

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 [x]    No [ ]

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 a shellcompany (as defined in Rule 12b–2 of the Exchange Act). Yes   ̈    No  x

 

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

 

 **EXPLANATORY NOTE**

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This Amendment No. 1 on Form 10-Q/A amends the Quarterly reporton Form 10-Q for the period ended December 31, 2014, filed on February 15, 2015, (the “Original Report”) filed byCloud Medical Doctor Software Corporation (the “Company”) in response to an internal review by the company. The Companyis amending disclosures in our Consolidated Balance Sheet and our Consolidated Statement of Operations for typographical errors.We also made adjustments to the Notes to Consolidated Financial Statements, specifically, Notes 2, 3, 4, and 11 to provide moredetailed disclosure.

 

This amendment also contains changes to Part II – Otherinformation. These changes are as follows:

 

**Item 2**. **Management’sDiscussion and analysis of financial condition and results of operations**has been amended by removing verbiage that is nolonger relevant. 

**Liquidity and Capital Resource** has been amended toinclude our working capital deficit.

**Item 4.****Legal Proceedings** has been rewrittento further comply with applicable rules.

**Item 6. Exhibits** has been expanded to include filingsduring and subsequent to this period.

**  **

**CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION**

**INDEX TO FORM 10-Q/A FILING**

**FOR THE THREE MONTHS ENDED DECEMBER31, 2014 AND 2013**

 

**TABLE OF CONTENTS**

 

 

** PARTI**

**FINANCIAL INFORMATION**

 

 

The accompanying interim consolidated financial statementshave been prepared in accordance with the instructions to Form 10-Q/A.  Therefore, they do not include all informationand footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders'equity in conformity with generally accepted accounting principles.  Except as disclosed herein, there has been no materialchange in the information disclosed in the notes to the consolidated financial statements included in the Company's Annual Reporton Form 10-K for the year ended September 30, 2014.  In the opinion of management, all adjustments considered necessaryfor a fair presentation of the results of operations and financial position have been included and all such adjustments are ofa normal recurring nature.  Operating results for the three months ended December 31, 2014 are not necessarily indicativeof the results that can be expected for the year ending September 30, 2014.

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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 The accompanying notes are an integralpart of these unaudited consolidated financial statements.

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** **The accompanyingnotes are an integral part of these unaudited consolidated financial statements.

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**CLOUD MEDICAL DOCTOR SOFTWARECORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THE THREE MONTHS ENDED DECEMBER31, 2014 AND 2013**

**(Unaudited)**

 

**NOTE 1- DESCRIPTION OFBUSINESS**

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Cloud Medical Doctor Software Corporation(the “Company”) was incorporated in Texas on June 22, 1953 as American Mortgage Company. On May 16, 1996, the Companychanged its name to National Scientific Corporation. On April 3, 2012, the Company changed its name to Cloud Medical Doctor SoftwareCorporation. 

 

In the year ended September 30, 2011,the Company introduced the Cloud-MD Office, a “Cloud Based”, 5010 ready and ICD-10 compliant, fully integrated andinteroperable suite of medical software and services, designed by experienced healthcare analysts and programmers for healthcareproviders, that produces “Actionable Information” to help Independent Physician Practices, New Care Delivery Models(ACO), Healthcare Systems and Billing Services optimize a wide range of business processes resulting in Increased Profits, HigherQuality, Greater Efficiency, Noticeable Cost Reductions and Better Patient Care. Current software product offerings include PracticeManagement, Electronic Medical Records, Revenue Management, Patient Financial Solutions, Medical and Pharmaceutical Supply Management,Claims Management and PHI Exchange.

 

During the year ended September 30, 2012,the Company launched Cloud-MD Billing Services which provides management of medical claims from posting physician charges andpayments into our medical billing software. The software uses a continuous insurance claim follow-up system to track and researchall rejected or denied medical claims; a Comprehensive Reporting module that includes monthly financial statements sent to ourclients so they can see how their practice is performing and a variety of detailed reports giving our clients the necessary informationand tools used to assist in the increased production which leads to more profit; and patient account inquiries and support toassist patients with their billing and insurance questions.

 

On November 21, 2012, the Company purchasedfrom CipherSmith, LLC a complete source code, intellectual property rights, all computer software or algorithm licensed or soldunder CipherSmith, and appropriate copy rights, patents, mask works, trademarks, service marks, internet domain names or worldwide web URS. Since 2012, the Company has tested the software application and created a commercial product for distribution ofits encryption technology. The Company is presently developing more applications for consumer usage in the future.

 

On September 1, 2014, the company purchasedEvolve Software for $25,000, which is a front office interface that complements our back office medical billing software. TheCompany has bridged the software to provide a more user friendly medical billing package for our customers.

 

**NOTE 2 – BASIS OF PRESENTATIONOF INTERIM CONSOLIDATED FINANCIAL STATEMENTS**

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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, 2014 are not necessarily indicative of the results that may be expected for theyear ending September 30, 2015. Notes to the unaudited interim consolidated financial statements that would substantially duplicatethe disclosures contained in the audited consolidated financial statements for the year ended September 30, 2014have been omitted; this report should be read in conjunction with the audited consolidated financial statements and the footnotesthereto for the fiscal year ended September 30, 2014 included within the Company’s Form 10-K as filed with the Securitiesand Exchange Commission.

 

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**Segment reporting change**

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With the placement into serviceof the Company’s encryption technology, the Company began a segment reporting structure to match the new operating structureand how the Company’s management views the business and allocates resources. Reclassifications of prior period financialinformation have been made to conform to the current period presentation. This change does not impact previously reported consolidatedfinancial statements of the Company. See Note 12 for additional information on our segment reporting change.

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**NOTE 3 - GOING CONCERN**

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The accompanying consolidated financialstatements have been prepared in conformity with accounting principles generally accepted in the United States of America, whichcontemplate continuation of the Company as a going concern. However, the Company has incurred losses from operations, has an accumulateddeficit at December 31, 2014 of $28,518,859 and needs additional cash to maintain its operations.

 

These factors raise substantial doubtabout the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not includeany adjustments that might result from the outcome of this uncertainty. The Company’s continued existence is dependent uponmanagement’s ability to develop profitable operations, continued contributions from the Company’s executive officersto finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships andto provide capital and other resources for the further development and marketing of the Company’s products and business.The Company has no definitive agreements in place to fund its future capital requirements and can provide no assurance that suchfunds, if found, would be with terms acceptable to the Company.

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**NOTE 4 – SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

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The Company prepares its consolidatedfinancial statements in accordance with accounting principles generally accepted in the United States of America. Significantaccounting policies are as follows:

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**Use of Estimates and Assumptions**

 

The preparation of consolidated financialstatements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires managementto make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosureof contingent assets and liabilities known to exist as of the date the consolidated financial statements are published, and (iii) thereported amount of net revenues and expenses recognized during the periods presented. Adjustments made with respect to the useof estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptionsare inherent in the preparation of consolidated financial statements; accordingly, actual results could differ from these estimates.The Company’s most significant estimates relate to the valuation of its proprietary technology and its valuation of itscommon stock.

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**Cash and Cash Equivalents**

 

The Company considers all highly liquid investments withan original maturity of three months or less to be cash equivalents.  At December 31, 2014 and 2013, cash and cash equivalentsinclude cash on hand and cash in the bank. The Company maintains its cash in accounts held by large, globally recognized bankswhich, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (FDIC). The FDICinsures these deposits up to $250,000. At December 31, 2014, approximately $294,927 of the Company’s cash balance was uninsured.The Company has not experienced any losses in such accounts.

 

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**Long-Lived Assets**

 

Long-lived assets are evaluated forimpairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fullyrecoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparisonof the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written downto its estimated fair value.

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**Fair Value of Financial Instruments**

 

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

 

Fair value is focused on an exit price thatwould be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.  Within the measurement of fair value, the use of market-based information is prioritized overentity specific information and a three-level hierarchy for fair value measurements is used based on the nature of inputs usedin 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 measurements bylevel at December 31, 2014 and September 30, 2014 for assets measured at fair value on a recurring basis:

 

**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 against the allowance when it is probable the receivable will not be recovered. As of December 31,2014 and 2013, the Company had no valuation allowance for the Company’s accounts receivable.

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**Income Taxes**

 

The Company utilizes the asset and liabilitymethod in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating lossand tax credit carry-forwards and for the future tax consequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to berecovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the resultsof operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amountsof deferred tax assets unless it is more likely than not that the value of such assets will be realized.

 

The Company uses the two-step approach torecognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determiningif the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, includingresolution of related appeals or litigation processes, if any. The second step is 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 andestimating the Company's tax positions and tax benefits, which may require periodic adjustments. At December 31, 2014, the Companydid not record any liabilities for uncertain tax positions for the three months ended December 31, 2014.

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**Revenue Recognition**

 

**Medical Licensing Agreement**

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Licenserevenue consists principally of revenue earned under software license agreements. The Company sells its software to a medicalpractitioner for direct payment or through a third party leasing company for direct payment to the Company. The third party leaseagreement is a non-recourse debt and the Company is not responsible for the default of the medical practitioner. Licenserevenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software hasbeen electronically delivered, the license fee is fixed or is measured on a paid user basis; and collection of the resulting receivableis probable. When contracts contain multiple elements wherein Vendor-Specific Objective Evidence (“VSOE”) exists forall undelivered elements, we account for the delivered elements in accordance with the “Residual Method.”

 

VSOE of fair value for maintenanceand support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alonesales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecifiedfuture products and maintenance, is recognized ratably over the term of the subscription period.

 

Provided all other revenue criteria are met, the upfront,minimum, non-refundable license fees from customers are generally recognized upon delivery and on-going royalty fees are generallyrecognized upon reports of new licenses issued. If there is significant uncertainty about the project completion or receipt ofpayment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. VSOE of fair value of servicesis based upon stand-alone sales of those services.

Subscription revenue is generatedfrom bandwidth and information storage. In the first year and each year thereafter, the software is purchased and installed thepurchaser will pay an annual fee of $1,200, $1,500, $1,800, and $2,400, respectively. Subscription revenue is recognized ratablyover the term of the agreement.

 

Transaction revenue is generated from thefollowing services and recognized when a transaction occurs:

 

 

The Company had not receivedany transaction revenues in the three months ended December 31, 2014.

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**CipherLoc Licensing Agreement**

License revenue also consistsof revenue earned under a CipherLoc License Agreement. License revenue is generally recognized whena signed contract or other persuasive evidence of an arrangement exists, the software has been electronically delivered, the licensefee is fixed or is measured on a paid user basis; and collection of the resulting receivable is probable. When contracts containmultiple elements wherein Vendor-Specific Objective Evidence (“VSOE”) exists for all undelivered elements, we accountfor the delivered elements in accordance with the “Residual Method.”

 

VSOE of fair value for maintenanceand support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alonesales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecifiedfuture products and maintenance, is recognized ratably over the term of the subscription period.

Provided all other revenue criteriaare met, the upfront, minimum, non-refundable license fees from customers are generally recognized upon delivery and on-goingroyalty fees are generally recognized upon reports of new licenses issued. If there is significant uncertainty about the projectcompletion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved.VSOE of fair value of services is based upon stand-alone sales of those services.

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**Cost of License and Subscriptions Revenue**

 

Cost of license revenue is primarilycomprised of the license-based royalties to third parties and production and distribution costs for initial product licenses.No costs were incurred for license-based royalties during the three months ended December 31, 2014 and 2013.

 

Cost of subscription revenue is primarilycomprised of the costs associated with the customer support personnel that provide maintenance, enhancement and support servicesto customers. No costs were incurred for customer support during the three months ended December 31, 2014 and 2013.

 

The amortizationof acquired technology for products acquired through business combinations are considered as the cost of revenues. Theacquired software technologies are amortized over their useful lives of five (5) years

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**Deferred Revenue**

 

Deferred revenue result from fees billedto customers for which revenue has not yet been recognized or for which the conditions of the arrangement have been modified. TheCompany recognizes revenue to provide up-front capitalization to Cloud-MD for each provider added to the solution set. The Companyalso recognizes annual subscription fees for virtual servers and subscription and small usage fees and those revenues are basedon a 48-month lease, Cloud-MD would amortize the revenue over the life of the agreement of 48 months. In addition, it featuresincremental monthly revenue, for the duration of the lease (48 months) based on fees assessed for transactions such as eligibilityclaims processing.

  

The Company has deferred revenue of$0 as of December 31, 2014.

 

**Sales Commissions**

 

The Company pays commissions, includingsales bonuses, to the direct sales force related to revenue transactions under sales compensation plans which are establishedannually. The commission payments are typically paid in full in the month or quarter following execution of the customer contracts.The Company paid commissions of $0 and $37,000 for the three months ended December 31, 2014 and 2013.

**Researchand Development and Software Development Costs**

Capitalization of certain softwaredevelopment costs subsequent to the establishment of technological feasibility. Based on our product development process, technologicalfeasibility is established upon the completion of a working model. To date, costs incurred by us from the completion of the workingmodel to the point at which the product is ready for general release have been insignificant. Accordingly, we have charged allsuch costs to research and development expense in the period incurred. The Company recorded research and development costs of$17,430 and $30,000 for the three months ended December 31, 2014 and 2013

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**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 estimate thefair value of options or warrants granted. There were no options or warrants issued by the Company during the three months endedDecember 31, 2014 and 2013.

 

**Basic and Diluted Net Income (Loss) perCommon Share**

 

Basic income (loss) per share is computedby dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding duringthe reporting period. The weighted average number of shares is calculated by taking the number of shares outstanding andweighting them by the amount of time that they were outstanding.  Diluted earnings per share reflects the potential dilutionthat could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vestresulting in the issuance of common stock that could share in the earnings of the Company. As of September 30, 2014 and 2013,the Company had no potentially dilutive instruments outstanding.

 

The Company has 4,000,000 preferred sharesthat can be converted subject to the limitation of the Company’s authorized shares at 1 preferred share for 150 common shares.The Company analyzed the conversion feature in the preferred stock to determine if it was a derivative and determined that theconversion can only take place with the approval of the Board of Directors. Accordingly, no derivative was determined to exist.At December 31, 2014, the preferred shares could be converted into 600,000,000 common shares resulting in dilution of common shareholders.The preferred shares are anti-dilutive since the losses the Company has incurred for the periods ended December 31, 2014 and 2013.

 

Diluted loss per share is the same as basicloss per share during periods where net losses are incurred since the inclusion of the potential common stock equivalents wouldbe anti-dilutive as a result of the net loss.  

 

**Concentration of 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.

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**Subsequent Events**

 

The Companyhas evaluated all transactions occurring from the end of three months, December 31, 2014, through the date of issuance of thefinancial statements for subsequent event disclosure consideration.

 

**Recent Accounting Pronouncements**

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

 

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**NOTE 5 – SOFTWARE**

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The following is a detail of softwareat December 31, 2014 and September 30, 2013:

 

 

The Company’s software was placedinto service starting in the second quarter of fiscal year ended September 30, 2012. The amortization expense was $63,320 and$61,155 for the three months ended December 31, 2014 and 2013, respectively.

 

**Source Code License**

 

In October 2013, the Company througha purchase agreement with Antree Systems Limited has purchased a complete source code, intellectual property rights, all computersoftware, patents, or formulas, algorithm licensed or sold under a project known as Compass Rose and appropriate copyrights, patents,mask works, trademarks, service marks, internet domain names and world wide web uniform resource locators (“URLs”)from Antree Systems Limited. The Company issued 200,000 shares of its common stock as consideration for the purchase. The fairvalue of the consideration and the assets acquired is based on the fair value of the common stock issued in exchange for the software.The total fair value, based on the market price on the date of grant, was $6,000. The Company evaluated this acquisition and determinedthat it did not meet the definition of a significant business acquisition.

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During the three months ended December 31, 2014, the Companyand Antree agreed to unwind the acquisition of the software by the Company. Accordingly, the Company gave up all its rights forthe use of the Compass Rose Code and all associated intellectual property rights, all computer software, patents, or formulas,algorithms licensed or sold under the project known as Compass Rose and the appropriate copyrights, patents, mask works, trademarks,service marks, internet domain names and world wide web uniform resource locators. In exchange for the Company giving up its rightsto the Compass Rose Code, Antree agreed to the rescission and cancellation of the shares issued for the purchase. The Companycancelled the 200,000 shares issued to Antree and recorded a reduction to its capitalized intangible assets of $6,000 and a correspondingreduction of equity.

 

**NOTE 6- DISCONTINUED OPERATIONS**

 

*GPS Operational Device Business*

 

The Company’s former Board of Directorsbelieved that it was in the best interest of the Company to discontinue the former business operation of the GPS operational devicebusiness. In 2011, this business was transferred to National Scientific, LLC, a company owned by the Company’s prior CEO,by prior management in which the Company’s former CEO was to pay $100,000 plus 2% of revenues for that technology. The formerofficer never paid the specific consideration for this transaction.