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NATIONAL SCIENTIFIC CORP/AZ - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 21, 2014

Forward-Looking Statements

Management's Discussion and Analysis contains various "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to "anticipates", "believes", "plans", "expects", "future" and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company's business, including but not limited to, reliance on key customers and competition in its markets, market demand, delayed payments of accounts receivables, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those identified in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended September 30, 2011, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.

Our Company



The Company was incorporated in Texas on 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 acquired the operations of Eden Systems, Inc. (Eden) as a wholly owned subsidiary. Eden was engaged in water treatment and the retailing of cleaning products. Eden's operations were sold on October 1, 1997. From September 30, 1997 through the year ended September 30, 2001, we aimed our efforts in the research and development of semiconductor proprietary technology and processes and in raising capital 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 was derived from sales of electronic devices, recognized as the product is delivered.

On February 4, 2010, the prior Board members Mr. Michael Grollman and Mr. Greg Szabo, voted to discontinue and wind down the operations of the Company's Mobile DVR and Location Products business and operate these remaining Company assets in a Limited Liability Company named NSC Labs, LLC, a company controlled and owned by Mr. Grollman. Mr. Grollman and NSC Labs, LLC entered into an agreement to pay the Company $100,000 plus 2% of revenues. As of this filing, neither Mr. Grollman nor NSC Labs, LLC have paid the specified consideration for this transaction. Accordingly, the transaction has not been recorded in the accounting records of the Company.

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On November 19, 2010, the prior management was terminated and new management began working on operations related to the Company's medical billing software. In fiscal 2011, the year of termination of prior management, new management deemed that the above transaction transferring prior operations to NSC Labs, LLC was transacted in full and final settlement of the liabilities to former management including those captioned as "disputed accrued expenses - related party" on the Balance Sheet Since the transaction was related to former management who had the ability to affect the terms and outcomes of the liabilities, the transaction has been subsequently recorded as an increase to additional paid in capital.

The Future for Cloud-MD™

Our business strategy includes the acquisition of successful billing companies in strategic markets, the acquisition or licensing of useful emerging technologies and the direct sale to physicians of Cloud-MD™ Office software licenses.

On the Medical Software and Billing Services side of the equation, Cloud-MD™ has already begun the sale of software licenses and the acquisition of billing companies with the purchase of Doctors Network of America, LLC and is currently in final negotiations with two others billing companies in Texas and we are currently in talks with another medical software company to acquire their software assets and customer base.

Our model is effective because we offer:

· Software For Life - Buy One Time · Evergreen Product - Support, Maintenance and Upgrades Included With User



License

· Physician Ownership Opportunity - Stock Award With Purchase Of License · Cloud-MD™ is Publicly Traded NSCT.PK · Patented Auto Post Feature - To Eliminate Need For Manual Posting of Electronic

Remittance Advice (835) By Staff · Multiple Opportunities to Recover Investment (Meaningful Use Dollars, Stock



Award Option, IRS Section 179, Lower Employee and Maintenance Cost) · State-Of-The-Art Claims Editing and Real-Time Eligibility - Increase

Collections and Reduce Days in A/R · Cloud Based Technology- IPAD, IPHONE, ANDROID, GOOGLE, WINDOWS for Anytime and Anywhere Availability and Eliminates Catastrophic Loss of Data



As we move forward building on our current platforms and strengths and gaining significant momentum in acquisitions, capabilities and revenue streams, it is important for Cloud-MD™ to augment its portfolio of capabilities with solutions that complement those offerings currently available. With the addition of a pending acquisition, we will add another dimension to our Cloud-MD™ Office and Billing Services offering that will offer a secure mechanism for providers to exchange patient PHI without the need to have all of the providers on a common EMR platform, but will integrate with our EMR in a manner that offers prospective large clients such as hospitals, ACO's, etc. the functionality of an Electronic Health Interchange without the huge costs and overhead. In addition, we have recently developed enhanced capabilities within our Cloud-MD™ Office product offering that will offer superior solutions to hospitalists, nursing home practitioners and providers of home health services.

The Future for CipherLoc™



The digital cipher and encryption market offers seemingly endless opportunity. Our CipherLoc™ Polymorphic Cipher Engine is a ground-breaking; state-of-the-art Polymorphic Key Progression Algorithm (PKPA) based digital encryption solution that has wide-spread applicability throughout the commercial computer, communications and broadcasting industries as well as significant applicability in the government arena.

Results of Operations for the Three Months Ended December 31, 2012 and December 31, 2011

Revenue increased to $149,357 from $0 for the three months ended December 31, 2012 and 2011, respectively. Our revenue increased due to the commencement of our operations in medical billing contracts to health care providers started in the second quarter of 2012.

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Cost of revenue increased to $60,005 from $0 for the three months ended December 31, 2012 and 2011, respectively. Our cost of sales increased due to the amortization of the software costs placed into service. As of December 31, 2011, the software had not been placed into service.

General and administrative expenses increased to $118,871 from $24,766 from the three months ended December 31, 2012 and 2011, respectively. The increase in our general and administrative expenses are related to the salaries of management of $46,148 in the three months ended December 31, 2012 compared to $0 in the three months ended December 31, 2011 as well as an increase in the cost of accounting.

Research and development costs increased to $40,000 from $21,000 for the three months ended December 31, 2012 and 2011, respectively. Our research and development increase is related to updated software required to be in compliance with Affordable Care Act updated and modifications.

Interest expenses decreased to $127 from $0 for the three months ended December 31, 2012 and 2011, respectively. Our interest expense decreased as the conversion of debt in October 20121 and the debt mitigation effects.

We recorded income from discontinued operations of $58,984 compared to a loss of $4,466 for the three months ended December 31, 2012 and 2011, respectively. The Company is currently engaged in the medical billing operations. Until October 1, 2009, the Company's sole sources of revenues were from GPS operational device business. The Company discontinued its GPS operational device business in February 2010 (See "Note 6 - Discontinued Operations" to the accompanying Financial Statements).

Liquidity and Capital Resources

We expect to incur substantial expenses and generate significant operating losses as we continue to grow our operations, as well as incur expenses related to operating as a public company and compliance with regulatory requirements.

We have an accumulated deficit at December 31, 2012 of $25,921,753 and need additional cash flows to maintain our operations. We depend on the continued contributions of our executive officers to finance our operations and need to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of our products and business. We expect our cash needs for the next 12 months to be $850,000 to fund our operations. The ability of the Company to continue its operations is dependent on the successful execution of management's plans, which include expectations of raiding debt or equity based capital until such time that funds from operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with related parties to sustain the Company's existence. There is no assurance that such funding, if required will be available to us or, if available, will be available upon terms favorable to us.

The Company has a revolving line of credit with Chase Bank with a balance as of December 31, 2012 in the amount of $0 and a borrowing limit of $50,000 and we have previously received advances from our Chief Executive Officer which we have used to help fund our operations.

Cash flows from operations. Our cash provided by operating activities were $16,973 and $12,103 for the three months ended December 31, 2012 and 2011, respectively. The increase in cash flows provided by operations was primarily attributable to the increase in revenues in 2012 as compared to the 2011 period.

Cash flows from financing activities. Cash (used in) provided by financing activities were ($16,354) and $54,419 for the three months ended December 31, 2012 and 2011, respectively. We received cash from the sale of our common stock of $31,000 and $55,000 for the three months ended December 31, 2012 and 2011, respectively. During the three months ended December 31, 2012, we repaid advances from our CEO of $25,591 and repaid our Chase Line of Credit of $21,763. During the three months ended December 31, 2011, we repaid advances from our CEO of $581.

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Off-Balance sheet arrangements

We have no off-balance sheet arrangements including arrangements that would affect the liquidity, capital resources, market risk support and credit risk support or other benefits.

WHERE YOU CAN FIND MORE INFORMATION



You are advised to read this Quarterly Report on Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC'sPublic Reference Room at 100 F. Street, N.E.Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.


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Source: Edgar Glimpses


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