**INDEX**
 **U.S.
          SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
          D.C. 20549**
 **FORM
          10-QSB**
 
 QUARTERLY
            REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
          EXCHANGE ACT OF 1934
  For
          the
          quarterly period ended **June 30, 2005**
  **000-28745**
 (Commission
          File No.)
 ______________
 
 **NATIONAL
          SCIENTIFIC CORPORATION**
 (Name
          of
          Small Business Issuer in its Charter)
 ______________
  **Texas**
                  
                  **86-0837077**(State
                      of Incorporation)
                  
                  (I.R.S.
                      Employer Identification
                      No.)**14505
                      North Hayden Road, Suite 305**
                  ****
                  ******Scottsdale,
                      AZ**
                  ****
                  **85260-6951**(Address
                      of Principal Executive
                      Offices)
                  
                  (Zip
                      Code)
  **(480)
            948-8324**
 (Issuers
          Telephone Number, Including Area Code)
 
 Securities
          registered under Section 12(b) of the Exchange Act:
 **Preferred
          Stock, $0.10 par value**
  Securities
          registered under Section 12(g) of the Exchange Act:
 **Common
          Stock, $0.01 par value**
  Indicate
          by check mark whether the Registrant (1) has filed all reports required
          to be
          filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
          the
          preceding 12 months (or for such shorter period that the registrant was
          required
          to file such reports) and (2) has been subject to such filing requirements
          for
          the past 90 days.   Yes x No o
 
 There
          were 91,536,459 shares of Common Stock, par value
          $.01 per share, outstanding at August 9, 2005.
  Transitional
          Small Business Disclosure Format (Check One):  Yes o No x
 **INDEX**
 **NATIONAL
          SCIENTIFIC CORPORATION**
 **FORM
          10-QSB**
 **INDEX**
 PagePart
                I
              Financial
                Information
              3Item
                1.
              Financial
                Statements (unaudited)
              3Unaudited
                  Condensed Balance Sheet - June 30,
                  2005
              3Unaudited
                    Condensed Statements of Operations - Three
                    and Nine Months ended June 30, 2005, 2004, and Cumulative from
                    October 1,
                    1997 (Inception) through June 30, 2005
              4Unaudited
                    Condensed Statements of Cash Flows - Nine
                    Months ended June 30, 2005, 2004, and Cumulative from October
                    1, 1997
                    (Inception) through June 30, 2005
              5Unaudited
                    Condensed Statement of Changes in
                    Shareholders’ Equity (Deficit) - Nine Months Ended June 30,
                    2005
              6Notes
                  to Financial Statements
              7Item
                2.
              Management’s
                  Discussion and Analysis of Financial
                  Condition and Results of Operations
              13Item
                3.
              Controls
                and Procedures
              18Part
                II
              Other
                Information
              20Item
                1.
              Legal
                Proceedings
              20Item
                2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              20Item
                3.
              Defaults
                Upon Senior Securities
              20Item
                4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              20Item
                5.
              Other
                Information
              20Item
                6.
              Exhibits
              20Signatures
              21Exhibit
                31 - Certification Pursuant to Section 302 of the Sarbanes-Oxley
                ActExhibit
                32 - Certification Pursuant to Section 906 of the Sarbanes-Oxley
                Act
  2
 **INDEX**
  **PART
        I - FINANCIAL INFORMATION**
  **Item
                1.**
              **Financial
                  Statements**
 
 **NATIONAL
        SCIENTIFIC CORPORATION**
 **(A
        Development Stage Company)**
 
 **Unaudited
        Condensed Balance Sheet**
 **June
        30, 2005**
 **ASSETS**Current
                    Assets:Cash
                    and cash equivalents
                
                $
                15,384Trade
                    receivables, net
                
                
                21,328Inventory,
                    net of obsolescence reserve of $32,282
                
                
                32,282Other
                    assets
                
                
                2,790Total
                    current assets
                
                
                71,784Property
                    and equipment, net
                
                
                10,860Deposits
                
                
                2,000Investment
                    in common stock
                
                
                289,100$
                373,744**LIABILITIES
                    AND SHAREHOLDERS’ EQUITY (DEFICIT)**Current
                    Liabilities:Accounts
                    payable
                
                $
                194,920Accrued
                    expenses
                
                
                476,216Note
                    payable, related party
                
                
                159,000Other
                    notes payable and advance
                
                
                73,750Total
                    current liabilities
                
                
                903,886Note
                    payable
                
                
                —Total
                    liabilities
                
                
                903,886Commitments
                    and contingencies
                
                
                —Shareholders’
                    equity (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 91,536,459
                    shares issued and outstanding
                
                
                915,365Additional
                    paid-in capital
                
                
                22,068,801Accumulated
                    deficit
                
                
                (23,514,308
                )Total
                    shareholders’ equity (deficit)
                
                
                (530,142
                )$
                373,744
 *See
          accompanying notes to financial statements, which are an integral part
          of the
          financial statements.*
 3
 **INDEX**
 
 **NATIONAL
        SCIENTIFIC CORPORATION**
 **(A
        Development Stage Company)**
 
 **Unaudited
        Condensed Statements of Operations**
 **For
        the Three and Nine Months Ended June 30, 2005, 2004, and Development
        Stage**
 **Three
                      Months**
                    **Ended**
                    **June
                      30, 2005**
                  
                  **Three
                      Months**
                    **Ended**
                    **June
                      30, 2004**
                  
                  **Nine
                      Months**
                    **Ended**
                    **June
                      30, 2005**
                  
                  **Nine****Months**
                    **Ended**
                    **June
                      30,****2004**
                  
                  **Development**
                    **Stage**Revenues
                  
                  $
                  24,157
                  
                  $
                  4,031
                  
                  $
                  29,629
                  
                  $
                  78,569
                  
                  $
                  1,056,831Cost
                      of Sales
                  
                  
                  14,680
                  
                  
                  2,719
                  
                  
                  17,911
                  
                  
                  58,717
                  
                  
                  970,995Gross
                      profit
                  
                  
                  9,477
                  
                  
                  1,312
                  
                  
                  11,718
                  
                  
                  19,852
                  
                  
                  85,836Costs
                      and expensesSalaries
                      and benefits
                  
                  
                  86,847
                  
                  
                  183,290
                  
                  
                  251,761
                  
                  
                  440,685
                  
                  
                  2,821,865Research
                      and development
                  
                  
                  96,795
                  
                  
                  8,652
                  
                  
                  294,329
                  
                  
                  18,050
                  
                  
                  4,260,721Stock
                      compensation
                  
                  
                  4,668
                  
                  
                  22,178
                  
                  
                  9,105
                  
                  
                  50,471
                  
                  
                  3,135,220Consulting
                      fees, related party
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  8,175,973Other
                  
                  
                  97,497
                  
                  
                  78,774
                  
                  
                  214,179
                  
                  
                  209,944
                  
                  
                  2,882,131Inventory
                      obsolescence charge
                  
                  
                  32,282
                  
                  
                  —
                  
                  
                  32,282
                  
                  
                  —
                  
                  
                  32,282Total
                      costs and expenses
                  
                  
                  318,089
                  
                  
                  292,894
                  
                  
                  801,656
                  
                  
                  719,150
                  
                  
                  21,308,192Loss
                      from operations
                  
                  
                  (308,612
                  )
                  
                  (291,582
                  )
                  
                  (789,938
                  )
                  
                  (699,298
                  )
                  
                  (21,222,356
                  )Other
                      income (expense)Interest
                      and other income
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  178,972Gain
                      on settlement
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  89,403Interest
                      expense
                  
                  
                  (6,720
                  )
                  
                  (8,178
                  )
                  
                  (14,690
                  )
                  
                  (18,652
                  )
                  
                  (70,500
                  )Loss
                      on disposal of assets
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (30,960
                  )Loss
                      on impairment of equipment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (64,187
                  )(6,720
                  )
                  
                  (8,178
                  )
                  
                  (14,690
                  )
                  
                  (18,652
                  )
                  
                  102,728Loss
                      before income taxes
                  
                  
                  (315,332
                  )
                  
                  (299,760
                  )
                  
                  (804,628
                  )
                  
                  (717,950
                  )
                  
                  (21,119,628
                  )Income
                      tax expense
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Net
                      loss
                  
                  $
                  (315,332
                  )
                  $
                  (299,760
                  )
                  $
                  (804,628
                  )
                  $
                  (717,950
                  )
                  $
                  (21,119,628
                  )Net
                      loss per common share, basic and diluted
                  
                  $
                  (0.00
                  )
                  $
                  (0.00
                  )
                  $
                  (0.01
                  )
                  $
                  (0.01
                  )Weighted
                      average number of shares outstanding
                  
                  
                  91,518,361
                  
                  
                  83,921,036
                  
                  
                  88,283,373
                  
                  
                  76,149,638
 
 *See
            accompanying notes to financial statements, which are an integral part
            of the
            financial statements.*
 4
 **INDEX**
 **NATIONAL
        SCIENTIFIC CORPORATION**
 **(A
        Development Stage Company)**
 
 **Unaudited
        Condensed Statements of Cash Flows**
 **For
        the Nine Months Ended June 30, 2005, 2004, and Development
        Stage**
 **2005**
                  
                  **2004**
                  
                  **Development** **Stage**Cash
                      flows from operating activities:Net
                      loss
                  
                  $
                  (804,628
                  )
                  $
                  (717,950
                  )
                  $
                  (21,119,628
                  )Adjustments
                      to reconcile net loss to net cash used in operating
                      activities:Non
                      cash transactionsDepreciation
                  
                  
                  10,161
                  
                  
                  9,789
                  
                  
                  88,491Loss
                      on disposal of assets
                  
                  
                  —
                  
                  
                  —
                  
                  
                  30,960Impairment
                      loss on equipment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  64,187Stock
                      and options issued for services, net
                  
                  
                  9,105
                  
                  
                  50,471
                  
                  
                  11,637,238Other
                      adjustments for non-cash items
                  
                  
                  (25,000
                  )
                  
                  —
                  
                  
                  (25,000
                  )Decrease
                      (increase) in inventory
                  
                  
                  33,868
                  
                  
                  (55,524
                  )
                  
                  (32,282
                  )(Increase)
                      decrease in deferred offering costs
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (85,171
                  )Decrease
                      (increase) in trade and other receivables
                  
                  
                  4,469
                  
                  
                  13,200
                  
                  
                  110,303Decrease
                      (increase) in other assets
                  
                  
                  15,730
                  
                  
                  14,029
                  
                  
                  4,150Increase
                      (decrease) in accounts payable and accrued expenses
                  
                  
                  181,965
                  
                  
                  67,050
                  
                  
                  920,592Net
                      cash (used in) operating activities
                  
                  
                  (574,330
                  )
                  
                  (618,935
                  )
                  
                  (8,406,160
                  )Cash
                      flows from investing activities:Acquisition
                      of property and equipment
                  
                  
                  —
                  
                  
                  (2,074
                  )
                  
                  (155,766
                  )Repayment
                      of loans
                  
                  
                  —
                  
                  
                  —
                  
                  
                  200,000Proceeds
                      from the sale of furniture and equipment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  6,050Loans
                      issued
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (400,000
                  )Net
                      cash (used in) provided by investing activities
                  
                  
                  —
                  
                  
                  (2,074
                  )
                  
                  (349,716
                  )Cash
                      flows from financing activities:Increase
                      in notes payable
                  
                  
                  30,500
                  
                  
                  —
                  
                  
                  30,500Draws
                      on the line of credit
                  
                  
                  —
                  
                  
                  —
                  
                  
                  430,000Loan
                      from (to) officer, related party, net
                  
                  
                  159,000
                  
                  
                  —
                  
                  
                  224,079Repayment
                      of notes payable
                  
                  
                  —
                  
                  
                  (7,500
                  )
                  
                  (120,000
                  )Repayment
                      of line of credit
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (430,000
                  )Repayment
                      of capital lease obligations
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,819
                  )Proceeds
                      from the exercise of options
                  
                  
                  —
                  
                  
                  9,675
                  
                  
                  208,265Proceeds
                      from the exercise of warrants
                  
                  
                  —
                  
                  
                  —
                  
                  
                  92,460Proceeds
                      from equity line of credit
                  
                  
                  —
                  
                  
                  —
                  
                  
                  414,824Proceeds
                      from the issuance of preferred stock
                  
                  
                  —
                  
                  
                  —
                  
                  
                  482,500Deposits
                      from private placement
                  
                  
                  —
                  
                  
                  (20,000
                  )
                  
                  —Proceeds
                      from securities exchange agreement
                  
                  
                  240,000
                  
                  
                  —
                  
                  
                  240,000Proceeds
                      from issuance of common stock
                  
                  
                  —
                  
                  
                  1,045,044
                  
                  
                  7,196,833Net
                      cash provided by financing activities
                  
                  
                  429,500
                  
                  
                  1,027,219
                  
                  
                  8,767,642Net
                      (decrease) increase in cash and cash equivalents
                  
                  
                  (144,830
                  )
                  
                  406,210
                  
                  
                  11,766Cash
                      and cash equivalents, beginning of period
                  
                  
                  160,214
                  
                  
                  17,903
                  
                  
                  3,618Cash
                      and cash equivalents, end of period
                  
                  $
                  15,384
                  
                  $
                  424,113
                  
                  $
                  15,384Supplementary
                      Disclosure of Cash Flow Information:Cash
                      paid for interest
                  
                  $
                  145
                  
                  $
                  10,493
                  
                  $
                  36,112Cash
                      paid for income taxes
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  50
 *See
            accompanying notes to financial statements, which are an integral part
            of the
            financial statements.*
 5
 **INDEX**
  **NATIONAL
        SCIENTIFIC CORPORATION**
 **(A
        Development Stage Company)**
 
 **Unaudited
        Condensed Statement of Changes in Shareholders' Equity
        (Deficit)**
 **For
        the Nine Months Ended June 30, 2005**
 **Common
                    Stock**
                
                **Preferred
                    Stock****Number**
                
                
                
                **Number**
                
                
                
                **Additional****of**
                
                **Par**
                
                **of**
                
                **Par**
                
                **Paid-In**
                
                **Accumulated****Shares**
                
                **Value**
                
                **Shares**
                
                **Value**
                
                **Capital**
                
                **Deficit**
                
                **Total**Balance,
                    September 30, 2004
                
                
                84,330,669
                
                $
                843,307
                
                
                —
                
                $
                —
                
                $
                21,627,654
                
                $
                (22,709,680
                )
                $
                (238,719
                )Stock
                    Issued for servicesPrice
                    per share ranged$0.1608
                
                
                6,218
                
                
                62
                
                
                —
                
                
                —
                
                
                838
                
                
                —
                
                
                900$0.145
                
                
                13,770
                
                
                138
                
                
                —
                
                
                —
                
                
                1,659
                
                
                —
                
                
                1,797$0.0711
                
                
                10,373
                
                
                104
                
                
                
                
                
                
                
                
                560
                
                
                
                
                
                664$0.088
                
                
                25,429
                
                
                254
                
                
                
                
                
                
                
                
                1,760
                
                
                
                
                
                2,014Common
                    stock options granted, net
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                3,730
                
                
                —
                
                
                3,730Securities
                            exchange agreement of common stock shares for
                            $0.074
                
                
                7,150,000
                
                
                71,500
                
                
                —
                
                
                —
                
                
                432,600
                
                
                —
                
                
                504,100Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (804,628
                )
                
                (804,628
                )Balance,
                    June 30, 2005
                
                
                91,536,459
                
                $
                915,365
                
                
                —
                
                $
                —
                
                $
                22,068,801
                
                $
                (23,514,308
                )
                $
                (530,142
                )
 *See
          accompanying notes to financial statements, which are an integral part
          of the
          financial statements.*
 
 6
 **INDEX**
 
 **NATIONAL
        SCIENTIFIC CORPORATION**
 **(A
        Development Stage Company)**
  **NOTES
        TO FINANCIAL STATEMENTS**
  **1.**
              **Basis
                  of Presentation**
 
 The
          accompanying financial statements have been prepared by National Scientific
          Corporation (“NSC” or the “Company” or “We”), without audit, and reflect all
          adjustments that are, in the opinion of management, necessary for a fair
          statement of the results for the interim periods. The statements have been
          prepared in accordance with generally accepted accounting principles for
          interim
          financial reporting and Securities and Exchange Commission regulations.
          Certain
          information and footnote disclosures normally included in financial statements
          prepared in accordance with generally accepted accounting principles have
          been
          condensed or omitted pursuant to such rules and regulations.
 
 In
          the
          opinion of management, the financial statements reflect all adjustments
          (of a
          normal and recurring nature) that are necessary for a fair presentation
          of the
          financial position, results of operations and cash flows for the interim
          periods. The results of operations for the nine months ended June 30, 2005
          are
          not necessarily indicative of the results to be expected for the entire
          fiscal
          year.
 
 These
          financial statements should be read in conjunction with the financial statements
          and notes thereto included in the Company's annual report on Form 10-KSB
          for the
          fiscal year ended September 30, 2004 and the Company’s quarterly report on Form
          10-QSB for the fiscal periods ended December 31, 2004 and March 31, 2005.
 **2.**
              **Issuance
                  of Common Stock**
 
 During
          the three months ended June 30, 2005, the Company issued an aggregate of
          35,802
          shares of common stock, to Gregory Szabo, a director, for board services
          during
          the period from October 1, 2004 to April 27, 2005. The stock issuances
          were
          recorded using the prior quarter’s average closing market price of the Company’s
          common stock. Stock-based compensation of $2,678 was recognized in the
          financial
          statements for the three months ended June 30, 2005.
 
 On
          April
          27, 2005, at our Annual Meeting of Shareholders, we obtained the approval
          of our
          shareholders to amend our Articles of Incorporation to increase the number
          of
          authorized shares of common stock from 120,000,000 to 187,000,000. On May
          26,
          2005, the Office of the Secretary of State of the State of Texas issued
          a
          Certificate of Amendment recording the change to our Articles of
          Incorporation.
 
 On
          January 28, 2005, the Company entered into a securities exchange agreement
          with
          TurboWorx, Inc., a Delaware corporation (“Turbo”) that provided for the exchange
          of 360,000 shares of the common stock of Turbo plus $240,000 in cash in
          exchange
          for 7,150,000 shares of NSC Common Stock (the “Exchange”). NSC and Turbo
          consummated the Exchange on February 1, 2005, and we filed an 8-K report
          with
          the Commission regarding this Agreement on February 2, 2005, which included
          the
          full text of the Agreement. We recorded the cash of $240,000 and the 7,150,000
          shares at an average market price of $.074 less the placement agent’s fee of
          $25,000. The agreement provides the Company to receive reimbursement from
          Turbo
          for all our legal and accounting expenses associated with this transaction,
          up
          to a maximum of $150,000. Our claims to date for reimbursement of expenses
          totaling approximately $38,200 were paid in May 2005.
 7
 **INDEX**
  **3.**
                **Development
                    Stage Operations**
 
 Although
            we have been in operation since 1996, management considers NSC to be
            in the
            development stage. From September 30, 1997 through the year ended September
            30,
            2001, we engaged our efforts in the research and development of semiconductor
            proprietary technology and processes and in raising capital to fund its
            operations and research. Beginning calendar 2002, we focused our efforts
            toward
            the development, acquisition, enhancement, and marketing of location
            device
            technologies. Since its initiation of operations in 1996, we have not
            realized
            significant revenue, except for approximately $882,000 generated through
            the
            export of electronic equipment, an isolated event, which occurred in
            fiscal
            2001.
 We
          experienced significant operating losses during fiscal 2004 and 2003, of
          $951,780 and $952,564, respectively, which raise substantial doubt about
          the
          Company’s ability to continue as a going concern. Of the total net operating
          losses, approximately $45,000 and $292,000 are related to stock issued
          for
          services and compensation in fiscal 2004 and 2003, respectively. Management
          believes that our current cash position including cash funds arising from
          the
          exercise of outstanding options, equity private placement, loans from officers,
          product sales, and continued aggressive expense management to be sufficient
          to
          continue operations for the next twelve months. We also believe that we
          may be
          able to reduce outstanding liabilities through negotiations with our creditors,
          or possibly negotiate to extend the payment schedule for these debts, or
          swap
          some debt for equity. In the event these approaches do not provide us with
          adequate working capital, we may be required to further curtail or reduce
          our
          development activities, seek alternative funding sources, or seek protection
          under reorganization laws.
 
 The
          accompanying financial statements do not include any adjustments relating
          to the
          recoverability and classification of the recorded asset amounts or the
          amounts
          and classification of liabilities that might be necessary should the Company
          be
          unable to continue in existence.
 **4.**
              **Stock
                  Options and Warrants**
 **Stock
          Options**
 
 As
          of
          June 30, 2005, we have a stock-based compensation plan initially adopted
          in 2000
          wherein officers and employees were granted stock options. We apply APB
          25 and
          related interpretations in accounting for the plan. Accordingly, compensation
          expense is equal to the difference between the exercise price of the options
          granted and the fair value of the common stock at the date of the grant.
 
 Under
          the
          above-mentioned 2000 Stock Option Plan, the purchase price must be at least
          100%
          of the fair market value of our common stock (if the option is an incentive
          stock option), or at least 25% of the fair market value of our common stock
          at
          the time the option is granted (if the option is a nonqualified grant),
          or such
          higher price as may be determined by the Board of Directors at the time
          of
          grant. If however, an incentive stock option is granted to an individual
          who
          would, immediately before the grant, directly or indirectly own more than
          10% of
          the total combined voting power of all our classes of stock, the purchase
          price
          of the shares of common stock covered by such incentive stock option may
          not be
          less than 110% of the fair market value of such shares on the day the incentive
          stock option is granted. As the price of the Company’s common stock is currently
          quoted on the OTC Bulletin Board, the fair market value of the common stock
          underlying options granted under the 2000 Stock Option Plan shall be the
          last
          closing sale price of the common stock on the day the options are granted.
          If
          there is no market price for the common stock, then our Board of Directors
          may,
          after taking all relevant facts into consideration, determine the fair
          market
          value of our common stock.
 8
 **INDEX**
  The
          following is a summary of the total number of outstanding stock options
          and
          related transactions for the nine months ended June 30, 2005:
  **Weighted**
                  
                  **Weighted****Number**
                  
                  **Average**
                  
                  **Average****of**
                  
                  **Exercise**
                  
                  **Fair****Shares**
                  
                  **Price**
                  
                  **Value**Options
                      Outstanding, September 30, 2004
                  
                  
                  3,709,257
                  
                  $
                  0.82
                  
                  $
                  0.02Granted
                  
                  
                  80,000
                  
                  
                  0.10
                  
                  
                  0.03Exercised
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Canceled
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Expired
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Options
                      Outstanding, June 30, 2005
                  
                  
                  3,789,257
                  
                  $
                  0.81
                  
                  $
                  0.01
 40,000
          stock options were granted to Gregory Szabo, a director, for board services
          on
          October 25, 2004. The weighted average grant date fair value of these options
          was $0.044. Stock based compensation of $1,740 was recognized in the financial
          statements for the three months ended March 31, 2005 using the Black-Scholes
          option pricing model value on the grant date. The options have a life of
          ten
          years.
 
 40,000
          stock options were granted to Gregory Szabo, a director, for board services
          on
          May 17, 2005. The weighted average grant date fair value of these options
          was
          $0.05. Stock based compensation of $1,990 was
          recognized in the accompanying financial statements for the three months
          ended
          June 30, 2005 using the Black-Scholes option pricing model value on the
          grant
          date. The options have a life of ten years.
  During
          the nine months ended June 30, 2005, no stock options were exercised or
          canceled
          and no stock options expired.
 
 The
          weighted average fair value of our options was calculated using the
          Black-Scholes option-pricing model.
 
 Our
          board
          of directors adopted the 2000 Stock Option Plan effective January 1, 2001.
          Our
          stockholders formally approved the 2000 Stock Option Plan on February 14,
          2001.
          We have reserved the right to issue a total of 7,000,000 shares of our
          common
          stock for issuance under the 2000 St ock
          Option Plan, although our Board currently plans to limit issuances of options
          to
          4,000,000 for the immediate future.


9
 **INDEX**
 The
            following table summarizes the status of stock options outstanding at
            June 30,
            2005:
  **Stock
                        Options Outstanding**
                    
                    **Stock
                        Options Exercisable****Weighted****Average****Remaining**
                    
                    **Weighted**
                    
                    
                    
                    **Weighted****Contractual**
                    
                    **Average**
                    
                    
                    
                    **Average****Number**
                    
                    **Life**
                    
                    **Exercise**
                    
                    **Number**
                    
                    **Exercise****Range
                        of Exercise Prices**
                    
                    **Outstanding**
                    
                    **(In
                        Years)**
                    
                    **Price**
                    
                    **Outstanding**
                    
                    **Price**$0.05
                        to $0.46
                    
                    
                    2,479,257
                    
                    
                    7.8
                    
                    $
                    0.18
                    
                    
                    2,479,257
                    
                    $
                    0.18$0.47
                        to $1.84
                    
                    
                    1,000,000
                    
                    
                    5.4
                    
                    $
                    1.84
                    
                    
                    1,000,000
                    
                    $
                    1.84$1.85
                        to $3.00
                    
                    
                    310,000
                    
                    
                    5.6
                    
                    $
                    2.49
                    
                    
                    310,000
                    
                    $
                    2.49Total
                    
                    
                    3,789,257
                    
                    
                    6.6
                    
                    $
                    0.81
                    
                    
                    3,789,257
                    
                    $
                    0.81
 **Stock
              Based Compensation**
 The
            Company applies Accounting Principles Board Opinion No. 25, “ *Accounting
            for Stock Issued to Employees* ”
            and
            related interpretations as permitted by SFAS 123 *“Accounting
            for Stock-Based Compensation”* as
            amended in accounting for its employee stock options. Under APB 25, compensation
            expense is measured as the excess, if any, of the quoted market price
            of the
            Company’s stock at the date of grant over the exercise price.
 
 During
            the quarters ended June 30, 2005 and June 30, 2004, the Company had no
            employee
            stock-based compensation awards.
 
 **Warrants**
 
 The
            warrants outstanding as of June 30, 2005 were as follows:
  ****
                    ****
                    ****
                    **Weighted****Number**
                    ****
                    ****
                    ****
                    **Average****of**
                    ****
                    **Exercise**
                    ****
                    **Grant
                        Date****Shares**
                    ****
                    **Price**
                    ****
                    **Fair
                        Value**1,000,000
                    
                    $
                    0.35
                    
                    $
                    24,0001,000,000
                    
                    
                    0.50
                    
                    
                    13,100275,000
                    
                    
                    0.50
                    
                    
                    5,590275,000
                    
                    
                    0.75
                    
                    
                    2,690640,000
                    
                    
                    0.13
                    
                    
                    41,600500,000
                    
                    
                    0.10
                    
                    
                    50,6504,414,739
                    
                    
                    0.11
                    
                    
                    463,1063,335,961
                    
                    
                    0.11
                    
                    
                    349,9421,808,497
                    
                    
                    0.10
                    
                    
                    215,573800,000
                    
                    
                    0.10
                    
                    
                    46,080135,000
                    
                    
                    0.062
                    
                    
                    3,05114,184,197
                    
                    
                    
                    
                    $
                    1,215,382
 10
 **INDEX**
  On
        June 24, 2005, the Company granted warrants to
        purchase 135,000 shares of the Company’s common stock at an exercise price of
        $0.062 in conjunction with a financing program (See Borrowings below). The
        weighted average grant date fair value of these warrants was $3,051. 
 On
          June
          30, 2005 there were 14,184,197 outstanding warrants. The weighted average
          grant
          date fair value of the warrants was $1,215,382.
 
 **5.**
                **Net
                    Loss Per Share**
  Basic
            and
            diluted loss per common share is calculated by dividing net loss by the
            weighted
            average number of outstanding common shares. The following table reconciles
            weighted average shares outstanding to amounts used to calculate basic
            and
            diluted earnings per share for the nine months ended June 30, 2005 and
            June 30,
            2004.
  **2005**
                  
                  **2004**Net
                      (loss)
                  
                  $
                  (804,628
                  )
                  $
                  (717,950
                  )Weighted
                      average shares:Average
                      shares outstanding
                  
                  
                  88,283,373
                  
                  
                  76,149,638Effect
                      of diluted shares
                  
                  
                  —
                  
                  
                  —Average
                      Shares outstanding, adjusted for dilutive effect
                  
                  
                  88,283,373
                  
                  
                  76,149,638(Loss)
                      per share - basic
                  
                  $
                  (0.01
                  )
                  $
                  (0.01
                  )(Loss)
                      per share - diluted
                  
                  $
                  (0.01
                  )
                  $
                  (0.01
                  )
 The
            following are incremental common shares (not included in denominator
            of diluted
            earnings per share because of their anti-dilutive nature):
 
 **2005**
                  
                  **2004**Stock
                      options
                  
                  
                  3,789,257
                  
                  
                  3,312,257Warrants
                  
                  
                  14,049,197
                  
                  
                  18,249,197Potential
                      common equivalents
                  
                  
                  17,838,454
                  
                  
                  21,561,454
 11
 **INDEX**
  **6.**
                  **Borrowings**
  On
            June
            11, 2003, the Company issued a three-year interest free convertible note
            of
            $43,250, with no payments required of the Company until the end of the
            three-year period, to its then-Director Mr. Lou Ross for past services
            rendered
            (See 10-KSB report for the year ended September 30, 2003). The Company
            can pay
            this note at any time before the three-year period elapses with either
            cash or
            its common restricted stock or a combination of cash and stock, at its
            sole
            discretion. Mr. Ross retired from the Company’s board on September 30, 2003.
            Based on the maturity date of the note, this note was classified as non-current
            liabilities at March 31, 2005 and as current liabilities at June 30,
            2005.
 On
              February 24, 2005, March 28, 2005, May 2, 2005, and May 27, 2005 our
              Chairman
              Michael Grollman made new personal loans to the Company totaling $159,000
              to
              assist us with working capital needs. The loans are evidenced by a
              demand note
              that provides for repayment within five business days of a demand notice
              from
              Mr. Grollman, with interest of 6% compounded annually from June 1,
              2005.
 
 In
              June
              2005 the Company entered into a financing program with an unrelated
              party to
              assist us with working capital needs. The program, evidenced by a promissory
              note, allows the Company to borrow in two traunches, each of $22,500
              payable in
              seventy-five days. The transaction provides the note holder with a
              security
              interest prior to delivery in any assets purchased for the fulfillment
              of Auto
              Safety House (ASH) and Scottsdale Unified School District orders and
              a security
              interest in any receivable from the fulfillment of such orders. The
              program also
              required support from Mr. Grollman. Interest at 13% APR is payable
              if
              payment is extended past maturity. The agreement also required the
              Company to
              grant the note holder a warrant to purchase 135,000 shares of the Company’s
              common stock at an exercise price of $0.062. The Company received the
              first
              traunch on June 24, 2005.
 
 On
              June
              24, 2005, an Officer of the Company raised approximately $3,000 using
              his
              personal credit from a shareholder to assist the Company with short-term
              cash
              requirements in consideration of a verbal promise to repay.
  On
              June
              25, 2005, Officers of the Company raised approximately $5,000 using
              their
              personal credit from a shareholder in consideration of short-term personal
              promissory notes to assist the Company with very short-term cash requirements.
              The note carried effective annual interest rates of less than 6% and
              is payable
              in 90 days.
 **7.**
                **Subsequent
                    Events**
  On
            July
            7, 2005, our Chairman Michael Grollman made an additional personal loan
            to the
            Company in the amount of $45,000 to assist us with working capital needs.
            The
            loan is evidenced by an unsecured promissory note that provides for repayment
            within 90 days or less, at no interest. The promissory note also provides
            that
            if repayment takes longer than 90 days, then interest accrues at a rate
            of 6
            percent per year until paid in full. This brings total indebtedness of
            the
            Company to Mr. Grollman of approximately $358,000 including miscellaneous
            expenses, as of the date of this report. Collateral to support this debt
            will
            likely be provided by the Company in the form of equity, such as common
            or
            preferred stock or both, at some future date.
 As
              of the
              date of this report, the Company is negotiating a financing program
              with a U.S.
              investment fund entity that wants to remain confidential. The draft
              terms of
              this program include a one-year Note for approximately $190,000, payable
              at
              maturity. The transaction will include warrants to purchase the Company’s
              restricted stock during the warrants lifetime. The warrants will include
              anti-dilution provisions, as well as registration rights in the event
              that the
              Company was to file an appropriate registration statement with the
              SEC during
              the next five years. Collateral to support this Note will be provided
              by the
              Company in the form of equity and an officer of the company will provide
              personal collateral, which would be forfeited in the event of non-payment
              of the
              Note.
 
 12
 **Item
                2.**
              **Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations**
  **Safe
            Harbor Statement**
 
 Statements
            contained herein that are not historical fact may be forward-looking
            statements
            within the meaning of Section 27A of the Securities Act of 1933, as amended,
            and
            Section 21E of the Securities Exchange Act of 1934, as amended. We use
            words and
            phrases such as “should be,”“will
            be,”“believes,”“expects,”“anticipates,”“plans,”“intends,”“may,” and similar
            expressions to identify forward-looking statements. Forward-looking statements
            are made based upon our belief as of the date that such statements are
            made.
            These forward-looking statements are based largely on our current expectations
            and are subject to a number of risks and uncertainties, many of which
            are beyond
            our control. You should not place undue reliance on these forward-looking
            statements, which apply only as of the date of such documents. Our actual
            results could differ materially from those anticipated in these forward-looking
            statements for many reasons, including the risks faced by us described
            above and
            elsewhere in this report.
 
 **Three
            Months Ended June 30, 2005 Compared to the Three Months Ended June 30,
            2004**
 
 We
            incurred a net loss of $315,332 for the three months ended June 30, 2005,
            as
            compared to a net loss of $299,760 for the three months ended June 30,
            2004, as
            explained below.
 
 Revenue
            was $24,157 for the three months ended June 30, 2005 compared to $4,031
            for the
            quarter ended June 30, 2004. This revenue increase is attributable to
            the
            delivery in June, 2005, of 18 Travado IBUSTM video recorders, to Auto Safety
            House, Inc. (ASH) a leading
            distributor of Thomas Built Buses for use by the Scottsdale Unified School
            District. These 18 units were part of an overall shipment of 47 Travado
            IBUSTM
            units due to ASH, which are scheduled for delivery in August 2005. This
            shift in product sales follows the Company’s increased focus on its newer
            business-oriented products, which entered the market in March 2005 combined
            with
            a small decrease in focus on its consumer products such as Gotcha!®, which had
            revenues for the three months ended June 30, 2005 of $2,941 compared
            to $4,031
            for the three months ended June 30, 2004.
 
 We
            marked
            down our inventory of Gotcha!® products at June 30, 2005 by $32,282 or fifty
            percent of its original cost, for estimated obsolescence based on assumptions
            about age of the inventory and future demand.
 
 NSC
            has
            recently initiated product-marketing efforts after several years of research
            and
            development and has negative operational cash flow and has never been
            profitable.
 
 Our
            operating expenses for the three months ended June 30 , 2005
            were
            approximately $285,807 compared to $292,894 for the same period ended
            June
            30 , 2004.
            Explanations for this are below.
 
 Salaries
            and benefits were approximately $86,847 for the three months ended June
            30, 2005
            compared to approximately $183,290 for the three months ended June 30,
            2004.
            Salaries of engineers totaling approximately $86,100 were classified
            as research
            and development in the three months ended June 30, 2005. In the three
            months
            ended June 30, 2004 engineers’ salaries of approximately $76,405 were classified
            as salaries and benefits.
 13
 **INDEX**
 Stock-based
          compensation for the three months ended June 30, 2005 was $4,668 compared
          to
          $22,178 for the three months ended June 30, 2004. The decrease in fiscal
          2005
          was mainly because we did not pay any contractors with stock grants during
          the
          three months ended June 30, 2005.
 Research
            and development expenditures increased to $96,795 for the three months
            ended
            June 30, 2005, compared to approximately $8,652 for the three months
            ended June
            30, 2004. The increases in research and development expenditures are
            primarily
            because the Company continued to engineer and develop new location tools
            such as
            Travado. The Company has also spent and plans to spend resources on the
            development of strategic partnerships with other technology firms to
            assist in
            taking its products to market. The Company will continue to explore innovative
            ways to take its technology expertise and products to market, across
            its entire
            portfolio of semiconductor and location electronics related devices.
            All
            expenses incurred during the research and development stage are expensed
            as
            incurred.
 
 Other
            costs and expenses were approximately $97,497 during the three months
            ended June
            30, 2005 compared to $78,774 during the three months ended June 30, 2004.
            Expenses increased in the three months ended June 30, 2005 because costs
            related
            to the annual shareholders’ meeting held in April 2005 were reflected in the
            quarter ended June 30, 2005 whereas the meeting in 2004 was held in March,
            the
            2004 software expense was lower due to a credit for an old accrued expense,
            and
            the bad debt reserve charge in 2005 was higher than the reserve in 2004.
            The
            increased expenses were partially offset by lower rental expense for
            the
            Scottsdale office, and lower marketing and selling expenses compared
            to the
            2004-quarter which included the costs of a radio commercial. Other costs
            and
            expenses consist primarily of office related costs, insurance, legal
            and
            accounting fees, investor relations and shareholders meeting expenses,
            selling
            and marketing costs, and occupancy costs.
 
 In
            September of 2004, we signed a contract with KidMapper Inc. of Elmhurst,
            IL.
            KidMapper is a privately owned company and concentrates on marketing
            and
            distribution of a full array of child safety products into schools, youth
            groups, and parent-teacher associations (PTAs). The material terms of
            the
            contract include a two year term, exclusive marketing rights of Gotcha!® into
            schools and PTAs using KidMapper’s national sales representatives. The Company
            is concerned with the lack of sales by KidMapper since we signed the
            contract,
            and is renegotiating the terms of the agreement. During the quarter ended
            June
            30, 2005, the Company has fully reserved for the balance of $25,200 owed
            by
            KidMapper.
 
 **Nine
            Months Ended June 30, 2005 Compared to the Nine Months Ended June 30,
            2004**
 
 We
            incurred a net loss of $804,628 for the nine months ended June 30, 2005,
            as
            compared to a net loss of $717,950 for the nine months ended June 30,
            2004, as
            explained below.
 
 Revenue
            was $29,629 for the nine months ended June 30, 2005 compared to $78,569
            for the
            nine months ended June 30, 2004. This decrease in revenue was partly
            attributable to a consignment shipment of our Gotcha!® product sent to Canada in
            November, with a planned selling price of $34,200, that had been expected
            to
            invoice out of consignment before the end of June 2005, but did not.
            This
            inventory remains on consignment in Canada and is available for sale
            as needed.
            An additional factor has been the increase in the Company’s focus on its newer
            business-oriented products, which entered the market in March 2005, such
            as
            Travado IBUSTM, and a small decrease in focus on its consumer products, such as
            Gotcha!®, which had revenues for the nine months ended June 30, 2005 of $6,913
            compared to $75,801 for the nine months ended June 30, 2004. Revenues
            from our
            Travado IBUSTM products in the four months to June 30, 2005 totaled $22,716 and
            are projected to increase as we deliver our open orders during the remainder
            of
            this calendar year.
 14
 **INDEX**
  We
          marked
          down our inventory of Gotcha!® products at June 30, 2005 by $32,282 or fifty
          percent of its original cost, for estimated obsolescence based on assumptions
          about age of the inventory and current demand.
 
 Our
          operating expenses for the nine months ended June 30, 2005, were $769,374
          compared to $719,150 in the comparable period ended June 30, 2004. The
          increase
          in the nine months ended June 30, 2005 compared to the corresponding period
          ended June 30, 2004 was primarily attributable to our focus on research
          and
          development as explained below.
  Salaries
          and benefits were $251,761 compared to $440,685 for the nine months ended
          June
          30, 2004. Salaries of engineers totaling approximately $262,000 were classified
          as research and development in the nine months ended June 30, 2005. In
          the nine
          months ended June 30, 2004 engineers’ salaries of approximately $211,000 were
          classified as salaries and benefits.
 Stock
            based compensation decreased to $9,105 for the  nine
            months ended June 30, 2005 compared to $50,471 for the nine months ended
            June
            30, 2004. The decrease in fiscal 2005 is mainly because we did not pay
            any
            contractors with stock grants during the nine months ended June 30,
            2005.
 
 Research
            and development expenditures were $294,329 for the nine months ended
            June 30,
            2005, compared to $18,050 for the  nine
            months ended June 30, 2004. The increases in research and development
            expenditures are primarily because the Company continued to engineer
            and develop
            new location tools. The Company has also spent and plans to spend resources
            on
            the development of strategic partnerships with other technology firms
            to assist
            in taking its products to market. The Company will continue to explore
            innovative ways to take its technology expertise and products to market,
            across
            its entire portfolio of semiconductor and location electronics related
            devices.
            All expenses incurred during the research and development stage are expensed
            as
            incurred.
 
 Other
            costs and expenses were $214,179 during the nine months ended June 30,
            2005
            compared to $209,944 during the nine months ended June 30, 2005. Business
            liability insurance premiums for Gotcha!® were slightly higher in 2005, the 2004
            software expense was lower due to a credit for an old accrued expense,
            and the
            bad debt reserve charge in 2005 was higher than the reserve in 2004.
            The
            increased expenses in fiscal 2005 were offset by lower rental expenses
            for the
            Scottsdale office and lower marketing costs as the radio spots of 2004
            were not
            repeated in 2005. Other costs and expenses consist primarily of office
            related
            costs, insurance, legal and accounting fees, investor relations and shareholders
            meeting expenses, selling and marketing costs, and occupancy costs.
 
 As
            of
            June 30, 2005, the Company had a note payable of $43,250 to Mr. Lou Ross,
            a
            former director, a note payable of $159,000 to our Chairman Michael Grollman,
            and other notes and an advance totaling $30,500 (See Borrowings above).
 
 Total
            liabilities at June 30, 2005 of $903,886 included accounts payable of
            $194,920,
            accrued expenses of $476,216, and notes payable and an advance of $232,750.
            Accrued expenses included approximately $396,000 for accruals of salaries,
            vacation pay, and interest on deferred wages.
 15
 **INDEX**
  The
          Company expects to continue to increase its focus on sales and marketing
          of its
          Location ToolsTM products for the foreseeable future. This includes significantly
          increased attendance at trade shows and other product marketing events,
          as well
          as recent additional investment in product promotion through outreach programs
          with the trade press, using public relations resources. Partly as a result
          of
          these efforts and others, revenues have begun to be generated from operations.
          It is thus possible that the Company may emerge from its development stage
          status at sometime during the coming year.
 
 **Liquidity
          and Capital Resources**
 
 At
          June
          30, 2005, we had cash and cash equivalents of $15,384. Our total cash used
          in
          operating activities from developmental stage inception in 1997 through
          June 30,
          2005 was $8,406,160. We have an accumulated deficit of $23,514,308 and
          expect
          operating losses in the foreseeable future as we continue our efforts to
          develop
          and market commercial products. We expect to generate future revenues by
          entering into strategic joint venture licensing relationships, manufacturing
          agreements, development agreements, and other relationships with manufacturing
          firms and/or entities that will incorporate our technologies into their
          products
          and overall solutions. We have financed our operations primarily through
          the
          sale of common stock, through personal loans from officers and directors,
          and to
          a very limited extent and only just recently, through the sale of our
          products.
 During
            the nine months ended June 30, 2005, cash used in operations was approximately
            $574,330 compared to approximately $618,935 for the nine months ended
            June 30,
            2004. The decrease in cash used in operations in the 2005 period resulted
            from
            salary deferrals, and shorter hours worked by part-time employees.
 
 During
            the nine months ended June 30, 2005, cash provided by financing activities
            of
            $429,500 resulted from personal loans of $159,000 from our Chairman,
            Michael
            Grollman, other loans of $30,500 (See Borrowings above), and $240,000
            from the
            securities exchange agreement with TurboWorx, Inc. that was consummated
            on
            February 1, 2005.
  During
            the nine months ended June 30, 2004, financing activities generated $1,054,719
            in cash. Private offerings of our restricted common stock units raised
            $1,045,044 and proceeds from the exercise of stock options generated
            $9,675.
 
 We
            believe that our current cash position as of June 30, 2005, including
            cash funds
            arising from the exercise of outstanding options, and secured plant assets
            from
            legal settlements, from equity placement sales, preferred stock sales,
            debt to
            equity swaps, and other capital raising efforts, loans from officers,
            product
            sales, and aggressive expense management to be sufficient to continue
            operations
            for the next twelve months.  We
            also
            believe that we may be able to reduce outstanding liabilities through
            negotiations with our creditors, or possibly negotiate to extend the
            payment
            schedule for these debts. In the event these approaches do not provide
            us with
            adequate working capital, we may be required to further curtail or reduce
            our
            development activities, seek alternative funding sources, or seek protection
            under reorganization laws.
 
 **Other
            Results of Operations**
 
 April
            13-14, 2005, we exhibited our Travado IBUSTM product at the Colorado Association
            of School Business Officials (CASBO) / Colorado School Pupil Transportation
            Association (CSPTA) Vendor Show held in Colorado Springs, CO. More than
            200
            Colorado school business and transportation officials were in attendance.
            From
            this show we identified a number of potential distributors and customers
            with
            whom the sales group is following up.
 16
 **INDEX**
  On
          April
          26, 2005, we were granted U.S. Patent number 6,885,853 by the U.S. Patent
          and
          Trademark Office for a communications receiver with integrated IF filter
          and
          method therefor. The application for this patent was submitted in April
          of 2001
          in conjunction with our Bluetooth research and development conducted by
          our
          former San Jose, CA office.
 
 In
          May
          2005, in conjunction with technology firms SAP, Intel, and Ekahau, we began
          a
          successful series of tests on a new NSC product dubbed the Mini-Travado
          or the
“Mini-T100.” The units were designed to provide real time location and telemetry
          data of government and first responder vehicles. Testing was undertaken
          in
          Corpus Christi, Texas, on a citywide WiFi-mesh network developed by a team
          from
          Tropos with support from Intel. Our Mini-T unit successfully completed
          the
          evaluation stage and representatives from SAP and Intel made a presentation
          about the project at SAP’s Sapphire Boston event on May 17, 2005. The Mini-T100
          provides GPS location and sends this information in real-time over a WiFi
          network. The target market for this new product, which we expect to formally
          launch later this year, includes fire, police and ambulance, as well as
          the
          education market.
  On
          May
          18, 2005, we received a purchase order from Auto Safety House (ASH) for 22
          units
          of our Travado
          IBUSTM Digital Video Recording (DVR) and location aware system in response to
          an
          order ASH received from the
          Scottsdale Unified School District for 22
          school buses equipped with NSC’s IBUSTM system. The
          specification for these new buses includes the requirement that each be
          equipped
          with an NSC Travado IBUSTM system. We
          delivered 18 Travado IBUSTM units to ASH in June 2005.  Labor to install the
          units is provided by ASH. We
          expect
          to gain additional orders for this technology throughout the coming year. ASH
          is a
          leading distributor of Thomas Built Buses. We are working on a further
          strategic
          relationship with ASH for the development of channel sales for our Travado
          IBUSTM
          product.
 NSC
            has
            agreed to distribute at least 180,000 of the shares of TurboWorx stock
            it
            received in the Exchange to NSC shareholders of record on a pro rata
            basis as
            soon as practicable after the effective date of a registration statement
            on Form
            SB-2 registering the TurboWorx shares to be distributed to NSC shareholders.
            TurboWorx has agreed to file such registration statement, and has agreed
            to use
            its best efforts to have such filed registration statement declared effective
            no
            later than 90 days following the filing date. TurboWorx filed a registration
            statement or Form SB-2 with the SEC on June 6, 2005. The parties have
            also
            granted each other certain "piggyback" registration rights regarding
            the
            exchanged shares. The registration rights terminate on December 31, 2007.
            The
            foregoing summary of the Agreement is qualified in its entirety by the
            securities exchange agreement previously filed. The Exchange is a further
            development resulting from the Memorandum of Understanding entered into
            between
            NSC and Turbo on October 29, 2004 regarding the joint development of
            technology
            and joint marketing.
 
 On
            June
            22, 2005 we exhibited our Travado IBUSTM product at the Transportation
            Administrators of Arizona’s Annual Summer Conference held in Flagstaff, AZ,
            where we demonstrated the product on a school bus configured for Scottsdale
            Unified School District and provided by our partner, ASH. The conference
            was
            attended by more than 250 buyers of school bus and transportation products
            and
            services.
 
 Throughout
            the quarter ended June 30, 2005 our sales and marketing staff spent many
            hours
            following up the leads obtained at tradeshows with sales calls, marketing
            materials, product demonstrations, and product proposals. This sales
            cycle
            activity continues as of the date of this report and is expected to continue
            the
            remainder of the current fiscal and calendar years.
 17
 **INDEX**
  **Other
            Subsequent Events**
 
 On
            July
            7, 2005, TurboWorx received a comments letter from the U.S. Securities
            and
            Exchange Commission in response to its first filing of Form SB-2 on June
            6,
            2005. To the best of our knowledge, TurboWorx plans to address the SEC’s
            comments fully and file an amended registration statement or Form SB-2/A
            likely
            during the month of August.
 
 On
            July
            29, 2005 we received a purchase order from the City of Corpus Christi,
            Texas for
            Mini-Travado's for delivery in August 2005. This order is a result of
            the
            successful testing program with select Corpus Christi First Responders
            conducted
            in May 2005. We believe these new units will be used to further the Intel
            Digital Cities and Communities Initiative that includes Intel, SAP, and
            others.
            Upon successfully completing this phase we would expect an opportunity
            for
            additional orders as the town integrates these units into their significant
            fleet of vehicles.
  On
            August
            1-2, 2005, we exhibited our Travado IBUSTM product at the School Transportation
            News 12th Annual North American School Bus Expo in Reno, NV. More than
            450
            school transportation officials and school district buyers from all over
            the
            country were in attendance. Prior to and during the exhibition we ran
            a number
            of promotional events that generated a significant number of leads from
            qualified school districts.
  Additional
              Travado IBUS(tm) units were delivered to ASH in August 2005.
 
 As
            of the
            date of this report, we have ongoing discussions with potential distributors
            in
            California, New York, Colorado, New Mexico, and Texas. Our product is
            listed in
            now listed on the Mohave Educational Services Co-operative through our
            Arizona
            and Nevada distribution partner, Auto Safety House (ASH). This Co-operative
            allows us to sell our products directly to the school districts in Arizona
            without going through a formal bid process. We also have a number of
            quotations
            for our IBUSTM
            system pending at various school districts throughout the Southwest that
            we
            expect to convert to purchase orders during the coming weeks. Our primary
            focus
            as a Company this year is to develop and sell this product into the education
            and related markets.
 **Item
                  3.**
                **Controls
                    and Procedures**
  Our
            management has responsibility for establishing and maintaining adequate
            internal
            control over financial reporting for us. Our management uses a framework
            for
            establishing these internal controls. This framework includes review
            of
            accounting detailed records on at least a quarterly basis by multiple
            senior
            officers of National Scientific, at least one of whom operates outside
            of the
            corporate finance and accounting area, and one of whom operates within
            the area
            of corporate finance and accounting. This review process includes review
            of
            significant accounting records and source documents, such as general
            journal
            entry records, accounts payable records, and monthly bank statement
            reconciliations. Documentary records are kept of this review
            process.
 
 The
            Company carried out an evaluation, under the supervision and with the
            participation of the Company’s management, including its Chief Executive Officer
            and Acting Chief Financial Officer and its President, of the effectiveness,
            as
            of June 30, 2005, of the design and operation of the Company’s disclosure
            controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon
            that
            evaluation, the Chief Executive Officer and Acting Chief Financial Officer
            and
            its President concluded that the Company’s disclosure controls and procedures
            are effective.
 18
 **INDEX**
  There
          have been no significant changes in our internal control over financial
          reporting during the quarter ended June 30, 2005 that have materially affected,
          or are reasonably likely to materially affect, the Company’s internal control
          over financial reporting.
 
 The
          controls and procedures for our disclosure as well as our internal controls
          over
          financial reporting are processes designed by, or under the supervision
          of, the
          principal executive and principal financial officers, and effected by the
          board
          of directors, management and other personnel, to provide reasonable assurance
          regarding the reliability of financial reporting and the preparation of
          financial statements for external purposes in accordance with generally
          accepted
          accounting principles. We believe that a control system, no matter how
          well
          designed and operated, cannot provide absolute assurance that the objectives
          of
          the control system are met, and no evaluation of controls can provide absolute
          assurance that all control issues and instances of fraud, if any, within
          a
          company have been detected. However, our Chief Executive Officer and Acting
          Chief Financial Officer and its President have concluded that the Company’s
          disclosure controls and procedures and its internal controls and procedures
          are
          effective at providing that reasonable level of assurance.
 
 Our
          management believes that upon significant future growth in the number of
          accounting transactions we process, perhaps within the next year, additional
          review and enhancement of internal controls will be required. Our management
          is
          planning to assign additional staff resources to assist with support for
          growth
          in the internal controls area when the increase in transaction velocity
          dictates
          this as a prudent step in order to maintain our effective level of internal
          controls.
 
 Our
          external auditors, for the fiscal year ended September 30, 2004, Hurley
          and
          Company, have not issued an attestation report on management’s assessment of the
          Company’s internal control over financial reporting, as it is not yet required
          since the Company has less than $75 million in “public
          float.”
 19
  **PART
        II - OTHER INFORMATION**
 
 **Item
                  1.**
                **Legal
                    Proceedings.**
 The
          Company is involved in legal actions in the ordinary course of its business,
          including those outlined in the Company's annual report on Form 10-KSB
          for the
          fiscal year ended September 30, 2004. Although the outcome of any such
          legal
          actions cannot be predicted, in the opinion of management, there are no
          legal
          proceedings pending or asserted against or involving the Company the net
          outcome
          of which are likely to have a material adverse effect upon the financial
          position or results of operations of the Company.
 
 **Item
                2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds.**
 
 On
          October 25, 2004, the Company issued 19,988 restricted common shares to
          Gregory
          Szabo, a director, for board services at average market prices ranging
          from
          $0.145 to $0.1608 per share.
 
 On
          May
          17, 2005, the Company issued 35,802 restricted common shares to Gregory
          Szabo, a
          director, for board services at average market prices ranging from $0.711
          to
          $0.088 per share.
 
 **Item
                3.**
              **Defaults
                  Upon Senior Securities.**
 
 Not
        applicable.
  **Item
                4.**
              **Submission
                  of Matters to a Vote of Security
                  Holders.**
 
 Not
        applicable.
  **Item
                5.**
              **Other
                  Information.**
 
 Not
        applicable.
  **Item
                6.**
              **Exhibits.**
  **Exhibit****Number**
              
              **Description**31
              
              Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act32
              
              Certification
                Pursuant to Section 906 of the Sarbanes-Oxley
                Act
  20
 **INDEX**
  **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the Registrant caused this report to be signed on its behalf by the
        undersigned, thereunto duly authorized.
  **NATIONAL
                    SCIENTIFIC CORPORATION**Date: 
                    August
                    12, 2005
                  By:
                  /s/ 
                    Michael A.
                    GrollmanMichael
                      A. Grollman
                    Director,
                      Chairman, Chief Executive Officer, and
                    Acting
                      Chief Financial Officer
  Date: 
                      August
                      12, 2005
                    By:
                    /s/ 
                      Graham L.
                      ClarkGraham
                          L. Clark
                        Director,
                          President, and
                          Secretary
  Date: 
                      August
                      12, 2005
                    By:
                    /s/ 
                      Gregory
                      SzaboGregory
                          Szabo
                        Director
 21