UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

  

**FORM 10-Q**

 

  

Commission File No. 000-28745

 

**Cloud Medical Doctor SoftwareCorporation**

(Name of small business issueras specified in its charter)

(Formerly National Scientific Corporation)

 

                                                                                                         

**736 East Braeburn Drive, Phoenix,Arizona 85022**

(Address of principal executive offices)(Zip Code)

**(702) 818-9011**

Registrant’stelephone number, including area code

 

Indicate by check mark whether the Registrant(1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days:  

Yes  [ ]   No  [X]

 

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

 Yes[ ]     No [X]

 

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

 

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

 

  

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**CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION**

**INDEX TO FORM 10-Q FILING**

**FOR THE THREE AND NINE MONTHS ENDEDJUNE 30, 2009 AND 2008**

 

**TABLE OF CONTENTS**

 

 

**PART I**

**FINANCIAL INFORMATION**

 

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

 

THE COMPANY PREVIOUSLY HAD INSUFFICIENTWORKING CAPITAL TO PAY FOR THE PROFESSIONAL SERVICES REQUIRED TO PREPARE, AUDIT, AND FILE THE QUARTERLY AND ANNUAL REPORTS REQUIREDBY THE SECURITIES ACT OF 1934. AS A RESULT, THE AUDITORS WHO AUDITED THE SEPTEMBER 30, 2007 FINANCIAL STATEMENTS AND REVIEWEDTHE QUARTERLY REPORTS THROUGH JUNE 30, 2008 RESIGNED EFFECTIVE DECEMBER 13, 2011.

IN FEBRUARY 2010 THE BOARD OFDIRECTORS VOTED TO DISCONTINUE THE MOBILE DVR AND LOCATION PRODUCTS LINE OF BUSINESS REPORTED IN THESE FINANCIAL STATEMENTSDUE TO THE CUMULATIVE EFFECTS OF SEVERELY DECLINING REVENUES RESULTING FROM THE 2008 RECESSION. SINCE THIS DECISION WAS MADESUBSEQUENT TO THE YEARS ENDED SEPTEMBER 30, 2008 AND 2009, THE QUARTERLY AND YEAR END STATEMENTS FOR THOSE YEARS ARE BEINGREPORTED ON A GOING CONCERN BASIS RATHER THAN AS DISCONTINUED OPERATIONS. THEY WILL, HOWEVER, BE REPORTED AS DISCONTINUEDOPERATIONS COMMENCING WITH THE FISCAL 2010 FILINGS.

NEW MANAGEMENT HAS SUBSEQUENTLYINFUSED SUFFICIENT WORKING CAPITAL TO BRING THE 1934 ACT FILINGS CURRENT. ADDITIONALLY, A NEW LINE OF BUSINESS HAS ALSO COMMENCEDWHICH WILL BE REPORTED ON IN THE FISCAL 2011 AND 2012 FILINGS.

**ACCORDINGLY**,**THIS FILING IS BEING SUBMITTED ONLY TO COMPLY WITH SEC RULES AND REGULATIONS AND SHOULD NOT BE RELIED UPON FOR YOUR INVESTMENTDECISIONS**. **THE OPERATIONS REPORTED ON IN THIS DOCUMENT HAVE BEEN DISCONTINUED AS OF FEBRUARY 4, 2010. NEW MANAGEMENT ENCOURAGESTHE READERS OF THIS DOCUMENT TO SUSPEND ANY INVESTMENT DECISIONS PERTAINING TO THIS STOCK UNTIL THE FILINGS ARE BROUGHT CURRENT.**

The accompanying reviewed interim consolidated financialstatements have been prepared in accordance with the instructions to Form 10-Q.  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 December 31, 2007.  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 nine months ended June 30, 2009 are not necessarily indicativeof the results that can be expected for the year ending September 30, 2009.

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**CLOUD MEDICAL DOCTOR SOFTWARECORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THE THREE AND NINE MONTHS ENDEDJUNE 30, 2009 AND 2008**

 

**NOTE 1 - DESCRIPTION OFBUSINESS**

The Company was incorporated in Texason June 22, 1953 as American Mortgage Company. On May 16, 1996, the Company changed its name to National Scientific Corporation.On April 3, 2012, the Company changed its name to Cloud Medical Doctor Software Corporation. During 1996, the Company acquiredthe operations of Eden Systems, Inc. (Eden) as a wholly owned subsidiary. Eden was engaged in water treatment and the retailingof cleaning products. Eden’s operations were sold on October 1, 1997. From September 30, 1997 through the year ended September30, 2001, we aimed our efforts in the research and development of semiconductor proprietary technology and processes and in raisingcapital to fund its operations and research. Beginning in calendar 2002, we focused our efforts on the development, acquisition,enhancement and marketing of location device technologies. Our revenue is derived from sales of electronic devices, recognizedas the product is delivered.

 

In February 4, 2010 the prior Boardmembers Mr. Michael Grollman and Mr. Greg Szabo, decided to discontinue the operations and wind down the operation of the Companyand operate the Company assets in a Limited Liability Company named NSC Labs, LLC controlled and owned by Mr. Grollman. Mr. Grollmanand NSC Labs, LLC was to pay the Company 2% of revenues and $100,000. Mr. Grollman nor NSC Labs, LLC never paid consideration forthis transaction.

 

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

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

 

Basis of Presentation of InterimFinancial Statements

 

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

 

Use of Estimates and Assumptions

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

 

Revenue Recognition

 

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

 

Accounts Receivable and Allowancefor Uncollectible Accounts

 

Substantially all of the Company’saccounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount anddo not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable creditlosses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts for estimated losses resultingfrom the inability of its customers to make required payments for services. Accounts with known financial issues are first reviewedand specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the number ofdays the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history.Account balances are charged off against the allowance when it is probable the receivable will not be recovered. The Company hadno charge offs for year ended September 30, 2008.

 

Inventory

The Company’s inventory iscarried at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. The Company’sinventory is comprised of supplies and parts used in the Company’s operations. The Company evaluates the need to record adjustmentsfor obsolescence for inventory on a regular basis. At June 30, 2009 the Company’s inventory balancewas $0 and at September 30, 2008, the Company’s inventory balance was $660.

Cash and Cash Equivalents

The Company considers all highlyliquid investments with an original maturity of three months or less to be cash equivalents.  At June 30, 2009,cash and cash equivalents include cash on hand and cash in the bank and the FDIC insures these deposits up to $250,000.

Income Taxes

Deferred income taxes are providedto reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financialreporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expectedto affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expectedto be realized.

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

Share-Based Compensation

The Company measures the cost of servicesreceived in exchange for an award of an equity instrument based on the grant-date fair value of the award.  Compensation costis recognized over the vesting or requisite service period.  The Black-Scholes option-pricing model is used to estimate thefair value of options or warrants granted.

Basic and Diluted Net Loss Per Share

Basicincome (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average numberof common shares outstanding during the reporting period. The weighted average number of shares is calculated by takingthe number of shares outstanding and weighting them by the amount of time that they were outstanding.  Dilutedearnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issuecommon stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings ofthe Company. 

Diluted loss per share is thesame as basic loss per share during periods where net losses are incurred since the inclusion of the potential common stock equivalentswould be anti-dilutive as a result of the net loss.  

Concentrationof Credit Risk

All of the Company’s cash and cash equivalentsare maintained in regional and national financial institutions. The Company has exposure to credit risk to the extent that itscash and cash equivalents exceed amounts covered by the U.S. federal deposit insurance; however, the Company has not experiencedany losses in such accounts. In management’s opinion, the capitalization and operating history of the financial institutionsare such that the likelihood of material loss is remote.

Fair Value of Financial Instruments

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

The Company adopted ASC Topic820, *Fair Value Measurements* (“ASC Topic 820”), which defines fair value, establishes a framework for measuringfair value, and expands disclosures about fair value measurements.  The standard provides a consistent definition offair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date.  The standard also prioritizes, within the measurementof fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy forfair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The three-level hierarchy for fair value measurementsis defined as follows:

 

Recent Accounting Pronouncements

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

Reclassification of Prior YearAmounts

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

 

**NOTE 3 - GOING CONCERN ISSUES**

The accompanying financial statementshave been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplatecontinuation of the Company as a going concern. However, the Company has a net loss for the nine months ended June 30, 2009 of$273,947, an accumulated deficit of $25,765,031, cash flows provided by operating activities of $36,784 and needs additional cashto maintain its operations.

These factors raise doubt about theCompany’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments thatmight result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’sability to develop profitable operations, continued contributions from the Company’s executive officers to finance its operationsand the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and otherresources for the further development and marketing of the Company’s products and business.

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**NOTE 4- ACCOUNT RECEIVABLES**

Accounts receivables consist of the following:

 

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

Under the arrangement, we sell to UCFas absolute owner, invoices that we submit to UCF to be factored. Upon purchase, UCF assumes the risk of non-payment on purchasedinvoices, so long as the cause of non-payment is solely due to the occurrence of an insolvency event. As collateral securing theobligations, we grant UCF a continuing first priority security interest in all accounts and related inventory. Notwithstandingthe creation of the above security interest, our relationship with UCF is one of Seller and Purchaser of accounts, and not thatof lender and borrower. However, as there is certain recourse for non-payment, the accounts receivable are recorded at the estimatedrealizable value, net of allowances and the net advanced amount from UCF is recorded as an obligation at the end of fiscal 2007and 2006. The initial and periodic factoring fee is .45% of the face amount of factored invoices. The factoring period is fivedays and the purchase price is 80% of the face amount, excluding sales tax.

UCF typically advances to us 80% ofthe total amount of invoices factored, excluding sales tax. UCF retains 20% of the outstanding factored invoices as a reserve,which it holds until the customer pays the factored invoice to UCF.

**NOTE 5- INVENTORY**

 

Inventory, net consists of thefollowing:

 

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

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

** **

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**NOTE 7 – NOTES PAYABLE**

 

All long-term debt consisted ofthe following notes payable:

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

On February24, 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 fivebusiness days of a demand notice from Mr. Grollman, with interest of 6% compounded annually from June 1, 2005. These loans weresecured by an interest in the copyrights in the Company’s iBus software and designs.  During the quarter to September30, 2007, these loans were paid down by $11,000. As of September 30, 2007, these loans had a balance outstanding of $148,000 andthe interest rate going forward was adjusted to 8% compounded annually from October 1, 2007.  On September 30, 2007,the Company converted unpaid interest of $13,300 on demand notes payable to Michael Grollman into a new demand note of $13,300that provides for repayment within five business days of a demand notice from Mr. Grollman, with interest of 8% compounded annuallyon October 1st. The balance of the note at September 30, 2008 is $97,992 and the note was repaid in the amount of $50,000.The balance of the note at June 30, 2009 is $59,704 and the note was repaid in the amount of $38,288 for the nine months ended.

On April 27, 2006, we secureda short-term loan of $16,625 from a shareholder. The loan carries an origination/placement fee of $500 and has a perfectiblesecurity interest a) prior to delivery in any assets purchased for the fulfillment of a customer’s order dated March16, 2006, and b) in any receivable resulting from the fulfillment of the customer’s purchase order. The interest rateon the loan is 12%. The transaction also included 100,000 warrants to purchase our common stock at $0.036 at any timebefore April 27, 2009. The note had an approximate maturity date of June 15, 2006. Since September 30, 2006 this note was indefault. A partial payment towards principal and interest of $5,258 was made on October 6, 2006. As of June 30, 2009 andSeptember 30, 2008 $11,625 of this loan was in default.

On May31, 2006, we secured a short-term loan of $20,000 from a shareholder. The loan carries an origination/placement fee of $500 andhas a perfectible security interest a) prior to delivery in any assets purchased for the fulfillment of Clover Park, WA’sorder and b) in any receivable resulting from the fulfillment of the Clover Park purchase order. The interest rate on theloan is 12%. The transaction also included 100,000 warrants to purchase our common stock at $0.036 at any time before May 31, 2009.The note had a maturity date of July 10, 2006. At June 30, 2009 this note was in default.

On December27, 2006, we signed a loan agreement with an employee for $8,000. The loan is unsecured and carries an interest rate of 6%. Thenote is payable on demand with 30 days prior notice On February 27, 2007 we paid $2,000 towards the principal amount. During June30, 2009 $1,619 was paid towards the principal amount and the balance was $1,926 for nine months ended.

 

**NOTE 8 – COMMITMENT ANDCONTINGENCIES**

On August 27, 2004 the Companysigned a twenty-six month non-cancelable operating lease agreement for an office in Scottsdale, Arizona. The lease for theScottsdale facility expired October 31, 2006. On October 20, 2006 NSC executed a lease for 1,601 square feet of office/warehousespace at 8361 E. Evans Road, Suite 106 Scottsdale, Arizona 85260. The lease for this Scottsdale facility commenced onNovember 1, 2006 and expires October 31, 2008 and is at a base rental rate of $1,963 per month for the first twelve months and$ 2,028 per month for the final twelve months. In 2009 the Company lease was on a month to month basis.

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**NOTE 9– RELATED PARTY TRANSACTIONS**

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

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

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

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

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

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**NOTE 10 - EQUITY**

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As of June 30, 2009 the Company had 165,276,879 commonshares outstanding at a par value of $.01 and no preferred shares outstanding at a par value of $.01.

**2009**

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

**2008**

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

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**Common Stock**

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

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

**Preferred Stock**

The Company has authorized 4,000,000shares of preferred stock, at $.001 par value and zero are issued and outstanding as of September 30, 2008. The Corporation establishedand designates the rights and preferences of a Series A Convertible Preferred Stock, and reserves 4,000,000 shares of preferredstock against its issuance, such rights, preferences and designations. Each share of the Preferred Stock shall have 150 votes onall matters presented to be voted by the holders of our common stock. All 4,000,000 shares of preferred stock that have been issuedto our CEO & CF on April 11, 2011 valued at the trading price of the common stock of $0.0095 and recorded as an expense of$38,000.

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

**Warrants and Options**

**Options**

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

 

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

 

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

On October 9, 2007, 20,000 optionswere granted to Greg Szabo, a director, for board services. The weighted average grant date fair value of these options was $0.008.  Stockbased compensation of $158 was recognized in the financial statements using the Black-Scholes option pricing model value on thegrant date. The options have a life of ten years, an exercise price of $0.0212 and vested immediately.  

On November 14, 2007, 225,000options were granted to Graham Clark, a director. The compensation committee as an incentive to retain key staff members approvedthis grant. The weighted average grant date fair value of these options was $0.016.  Stock based compensation of $3,579was recognized in the financial statements using the Black-Scholes option pricing model value on the grant date. The options havea life of ten years, an exercise price of $0.03 and vested immediately. 

On November 14, 2007, 100,000options were granted to Greg Szabo, a director. The compensation committee approved this grant. The weighted average grant datefair value of these options was $0.016.  Stock based compensation of $1,591 was recognized in the financial statementsusing the Black-Scholes option pricing model value on the grant date. The options have a life of ten years, an exercise priceof $0.03 and vested immediately. 

On November 14, 2007, 100,000options were granted to Michael Grollman, a director. The compensation committee as an incentive to retain key staff members approvedthis grant. The weighted average grant date fair value of these options was $0.016.  Stock based compensation of $1,591was recognized in the financial statements using the Black-Scholes option pricing model value on the grant date. The options havea life of ten years, an exercise price of $0.03 and vested immediately. Also, on November 14, 2007, in lieu of taking a largergrant, 450,000 options granted to Michael Grollman on December 1, 2000 at an exercise price of $1.84 were canceled and exchangedfor 450,000 options having an exercise price of $0.03.The incremental cost of the modified award recognized in the financial statementswas $4,785. 

On January 14, 2008, 20,000 optionswere granted to Greg Szabo, a director, for board services. The weighted average grant date fair value of these options was $0.0189.  Stockbased compensation of $379 was recognized in the financial statements using the Black-Scholes option pricing model value on thegrant date. The options have a life of ten years, an exercise price of $0.019 and vested immediately.  

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

 

During the nine months ended June30, 2009, no options were exercised. 

TheCompany values all warrants using the Black-Scholes option-pricing model.  Critical assumptions for the Black-Scholesoption-pricing model include the market value of the stock price at the time of issuance, the risk-free interest rate correspondingto the term of the warrant, the volatility of the Company’s stock price, dividend yield on the common stock, as well as theexercise price and term of the warrant.  The warrants are not subject to any form of vesting schedule and, therefore,are exercisable by the holders anytime at their discretion during the life of the warrant.  No discounts were appliedto the valuation determined by the Black-Scholes option-pricing model for the nine months ended June 30, 2009:

 

 

The followingtable summarizes the stock option activity during the nine months ended June 30, 2009:

**Warrants**

During the nine months ended June30, 2009, no awards were granted, no share purchase warrants were exercised, and no warrants were forfeited.

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

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

The following assumptions wereutilized to value warrants during the fiscal nine months ended June 30, 2009:

 

The following table summarizesthe warrant activity during the three months ended June 30, 2009:

 

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

**Stock Option Plan**

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

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**NOTE 11– SUBSEQUENT EVENTS**

In accordance with the SubsequentEvents Topic of the FASB ASC 855, Management has evaluated subsequent events, and have determined that the following events arereasonably likely to impact the financial statements:

**2012**

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

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

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

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

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

**2011**

In September 30, 2011 the Companyissued 15,000,000 common shares at the trading price of the common stock of $0.007. The Stock was issued for compensation to newmanagement and recorded and expense of $105,000.

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

**2010**

No common stock was issued.

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**Software asset purchases:**

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

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

 

 

Theacquisitions terms are as follows:

 

 

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

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

 

 

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

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

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

1. Centralized management controlover medical supply and drug inventories