SideChannel, Inc. - Quarter Report: 2011 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Commission File No. 000-28745

Cloud Medical Doctor Software Corporation

(Name of small business issuer as specified in its charter)

(formerly National Scientific Corporation)

1291 Galleria Drive, Suite 200

Henderson, NV 89014

(Address of principal executive offices) (Zip Code)

(702) 818-9011

Registrant’s telephone 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 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  [ ] No [x]

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

 Yes [ ] No [x]

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

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

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

 CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION

INDEX TO FORM 10-Q FILING

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

TABLE OF CONTENTS

 PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

NEW MANAGEMENT HAS SUBSEQUENTLY INFUSED SUFFICIENT WORKING CAPITAL TO BRING THE 1934 ACT FILINGS CURRENT. ADDITIONALLY, A NEW LINE OF BUSINESS HAS ALSO COMMENCED WHICH 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 INVESTMENT DECISIONS. THE OPERATIONS REPORTED ON IN THIS DOCUMENT HAVE BEEN DISCONTINUED AS OF FEBRUARY 4, 2010. NEW MANAGEMENT ENCOURAGES THE READERS OF THIS DOCUMENT TO SUSPEND ANY INVESTMENT DECISIONS PERTAINING TO THIS STOCK UNTIL THE FILINGS ARE BROUGHT CURRENT.

The accompanying reviewed interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q.  Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles.  Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2011.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.  Operating results for the three months ended December 31, 2011 are not necessarily indicative of the results that can be expected for the year ending September 30, 2012.

CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

NOTE 1- DESCRIPTION OF BUSINESS

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 is derived from sales of electronic devices, recognized as the product is delivered.

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

In 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 has 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.

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

Basis of Presentation of Interim Financial Statements

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.  The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with the instructions to Form 10-Q/A and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended December 31, 2011 are not necessarily indicative of the results that may be expected for the year ending September 30, 2012. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2011 have been omitted; this report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended September 30, 2011 included within its Form 10-K as filed with the Securities and Exchange Commission.

Use of Estimates and Assumptions

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

Revenue Recognition

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

Accounts Receivable and Allowance for Uncollectible Accounts

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

Cash and Cash Equivalents

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

Deferred Revenue

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

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

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  At December 31, 2011, cash and cash equivalents include cash on hand and cash in the bank and the FDIC insures these deposits up to $250,000.

Impairment of Long-Lived Assets

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

Income Taxes

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

The Company adopted the provisions of 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 evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic 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 services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.  Compensation cost is recognized over the vesting or requisite service period.  The Black-Scholes option-pricing model is used to estimate the fair value of options or warrants granted.

Basic and Diluted Net Loss Per Share

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

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

Concentration of Credit Risk

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

Fair Value of Financial Instruments

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

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

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

Recent Accounting Pronouncements

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

NOTE 3 - GOING CONCERN ISSUES

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has a net loss for the three months ended December 31, 2011 of $52,564, an accumulated deficit of $26,282,534, cash flows provided in operating activities of $62,103 and needs additional cash to maintain its operations.

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

NOTE 4- DISCONTINUED OPERATIONS

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

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

Details of those classifications are shown below.

Commitments and contingencies that were discontinued as a result of the transfer of the assets to National Scientific LLC as follows:

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

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

UCF typically advances to us 80% of the 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.

On November 1, 2005, as an important phase 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 interest rate of 8%. Interest is due and payable semi-annually on May 1st and November 1st for each year in which the note is outstanding The transaction also included 1,200,000 restricted common shares and a conversion/exchange option to convert the principal amount and any unpaid interest of the Note into common shares at a per share conversion price of $0.0525. These shares include weighted average 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 recorded at $0.043, which was the five-day average market closing price of our stock. The note and common stock were issued with a debt discount of $51,600 and a beneficial conversion feature of $9,933. The discount and beneficial conversion feature are being amortized to interest expense over the term of the note, which is approximately 60 months. The issuance of the shares resulted in deferred financing costs of $24,000. The deferred financing costs are being amortized over term of the note, which is approximately 60 months, and are included in the statement of operations as offering costs.

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. These loans were secured by an interest in the copyrights in the Company’s iBus software and designs.  During the quarter to September 30, 2007, these loans were paid down by $11,000. As of September 30, 2007, these loans had a balance outstanding of $148,000 and the 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 $13,300 that provides for repayment within five business days of a demand notice from Mr. Grollman, with interest of 8% compounded annually on October 1^st. The balance of the note at December 31, 2011 is $59,704. On April 27, 2006, we secured a short-term loan of $16,625 from a shareholder. The loan carries an origination/placement fee of $500 and has a perfectible security interest a) prior to delivery in any assets purchased for the fulfillment of a customer’s order dated March 16, 2006, and b) in any receivable resulting from the fulfillment of the customer’s purchase order. The interest rate on the loan is 12%. The transaction also included 100,000 warrants to purchase our common stock at $0.036 at any time before April 27, 2009. The note had an approximate maturity date of June 15, 2006. At September 30, 2006 and September 30, 2007 this note was in default. A partial payment towards principal and interest of $5,258 was made on October 6, 2006. As of December 31, 2011 and September 30, 2011 $11,625 of this loan was in default.

On May 31, 2006, we secured a short-term loan of $20,000 from a shareholder. The loan carries an origination/placement fee of $500 and has a perfectible security interest a) prior to delivery in any assets purchased for the fulfillment of Clover Park, WA’s order and b) in any receivable resulting from the fulfillment of the Clover Park purchase order. The interest rate on the loan 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 December 31, 2011 this note was in default.

NOTE 5 – COMMITMENT AND CONTINGENCIES

Rent expense for the three months ended December 31, 2011 and 2010 was approximately $0.00.

NOTE 6– RELATED PARTY TRANSACTIONS

The CEO advanced $180,214 for the three months ended December 31, 2011.

In September 30, 2009 the Company issued 28,000,000 common shares at the trading price of the common stock of $0.0012785. The Stock was issued for unpaid compensation to officers and reduced accrued compensation by $35,800.

On July 19, 2010 the Company assumed the line of credit of new management from Chase Bank of $36,000 to fund transitional expenses of which the net advance totaled $44,535.

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

In April 2011 the Company issued 4,000,000 common shares at the trading price of the common stock of $0.0095. The stock was issued for compensation to new management and recorded and expense of $38,000.

On October 15, 2011 the Company issued 30,000,000 common shares for there the reduction of debt from our CEO and reduced debt of the company by $1,200,106. The Company also issued 19,000 common shares for services rendered by professionals and recorded the expenses based upon the trading price of the common shares of $0.0102 and expensed $204 as consulting fees. The Company issued 706,333 common shares to third parties that have purchased our medical billing software at the trading price of the common stock of $0.0160 and recorded a revenue contra account of $10,401.

The Company entered into an employment agreement with its Chief Executive Officer (the “Executive’) on January 1, 2013 (the “Employment Agreement”).  The Employment Agreement will expire January 1, 2018 and shall automatically renew for another 5 years unless terminated in accordance with the provisions of the Employment Agreement. The Employment Agreement provides for:

For the three months ended December 31, 2011 and 2010, the Company paid $0.00 compensation.

The Company entered into an employment agreement with its Chief Financial Officer (the “Executive’) on January 1, 2013 (the “Employment Agreement”).  The Employment Agreement will expire January 1, 2018 and shall automatically renew for another 5 years unless terminated in accordance with the provisions of the Employment Agreement. The Employment Agreement provides for:

For the three months ended December 31, 2011 and 2010, the Company paid $0.00 compensation.

NOTE 7 - EQUITY

On April 11, 2011 the Company amended its articles of incorporation to increase the authorized common shares to 650,000,000, at $0.01 par value and 211,991,212 are issued and outstanding as of December 31, 2011 and 4,000,000 preferred shares outstanding at a par value of $.01.

The Common stock holders have right to vote one share for every share that is issued.

The Preferred stockholders have designated rights and preferences of a Series A Convertible Preferred Stock, and reserved 4,000,000 shares of preferred stock against its issuance, such rights, preferences and designations. Each share of the Preferred Stock shall have 150 votes on all matters presented to be voted by the holders of our common stock.

2013

The Company issued 177,500 common shares for $121,000 in cash.

The Company issued 560,000 common shares in conjunction with the sale of medical software valued at 16,623.

The Company issued 700,000 common shares for the acquisition of CipherSmith software

In March 21, 2013 the Company issued 500,000 to Krooss Family Trust LLP for the acquisition of Doctors Network of America in Flowood, Mississippi and all of the assets of that company. Also on April 17, 2013 the Company issued 167,000 for compensation for the salaries for the entire year of 2013 those shares were issued to Krooss Family Trust LLP in accordance with the Agreement. On April 17, 2013 the Company issued 378,500 to Krooss Family Trust LLP in accordance with the Agreement with total shares issued to William and Marie Krooss of 1,045,500 common shares.

April 17, 2013 the Company cancelled the 200,000 common shares issued to for the acquisition and reissued 220,004 common shares for the acquisition of CipherSmith software.

The Company issued 330,004 common shares to sales personnel valued at $7,954.

2012

During the ten months ended July 31, 2012 the Company issued 30,000,000 common shares for there the reduction of debt from our CEO and reduced debt of the company by $1,200,106. The Company also issued 33,000 common shares for services rendered by professionals and recorded the expenses based upon the trading price of the common shares of $0.0102 and expensed $624 as consulting fees. The Company issued 941,333 common shares to third parties that have purchased our medical billing software at the trading price of the common stock of $0.0160 and recorded a revenue contra account of $19,301.

The Company issued 190,000 common shares for $68,000 in cash.

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

In August of 2012 the Company issued 100,000 shares to MediSouth LLC for the acquisition of its software. The stock was valued at $2,500 (See MediSouth LLC software acquisition below).

Common Stock

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

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

Preferred Stock

The Company has authorized 4,000,000 shares of preferred stock, at $.001 par value and all are issued and outstanding as of December 31, 2011. The Corporation established and designated the rights and preferences of a Series A Convertible Preferred Stock, and reserved 4,000,000 shares of preferred stock against its issuance, such rights, preferences and designations. Each share of the Preferred Stock has 150 votes on all matters presented to be voted by the holders of our common stock. All 4,000,000 shares of preferred stock that have been issued to our CEO & CFO 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 issuance of 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. See “Risk Factors” in our 10-K for September 30, 2011, above.

NOTE 8 – STOCK-BASED COMPENSATION

Options

The Prior 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. The 2000 Stock Option plan terminated in accordance with the plan provisions on December 1, 2010. The Current Board of Directors did not extend the Stock Option Plan, allowing it to terminate.

Under the 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 was 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 was 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 was granted. As the price of the Company’s common stock was quoted on the OTC Bulletin Board, the fair market value of the common stock underlying options granted under the 2000 Stock Option Plan was the last closing sale price of the common stock on the day the options were granted. If there was no market price for the common stock, then our Board of Directors may, after taking all relevant facts into consideration, determined the fair market value of our common stock.

According to Section 10. Of the agreement captioned “Exercise of Options Upon Termination”

“(a)   Subject to Section 10(c), upon the termination of a Grantee’s relationship with the Company and its Subsidiaries, the period during which such Grantee may exercise any outstanding exercisable installments of his Options that were exercisable at the date of termination of his relationship with the Company shall not exceed (i) if such termination is due to death or permanent and total disability, one year from the date of such termination, and (ii) in all other cases, three months (six months for Nonemployee Directors) from the date of such termination, provided, however, that in no event shall the period extend beyond the expiration of the Option term. Notwithstanding the foregoing, all Options shall immediately terminate upon a termination of a Grantee’s employment if the Committee determines, in its sole discretion, that such termination is for Cause.

(b)   In no event shall any Option be exercisable for more than the maximum number of shares that the Grantee was entitled to purchase at the date of termination of the relationship with the Company and its Subsidiaries.

(c)   The Committee may, in its discretion, extend the period of exercisability set forth in clauses (i) and (ii) in paragraph (a) above; provided, however, that such period may not be extended for Options granted to Nonemployee Directors or for ISOs.”

Accordingly, upon termination of employment with the Company, whether through dismissal or resignation, the options granted to former management expired. All remaining options expired three months after the resignation of Mr. Grollman in 2010. Additionally, current management did not extend the options of any prior management.

A summary of Options activity for the three months ended December 31, 2011 is presented below:

The Company values all warrants using the Black-Scholes option-pricing model.  Critical assumptions for the Black-Scholes option-pricing model include the market value of the stock price at the time of issuance, the risk-free interest rate corresponding to the term of the warrant, the volatility of the Company’s stock price, dividend yield on the common stock, as well as the exercise 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 applied to the valuation determined by the Black-Scholes option-pricing model.

Warrants

During the three months ended December 31, 2011, no awards were granted, no share purchase warrants were exercised, and no warrants were forfeited. All remaining warrants shown in the table below expired on April 1, 2011.

Summary of warrant activity for the three months ended December 31, 2011 is presented below:

The Company values all warrants using the Black-Scholes option-pricing model.  Critical assumptions for the Black-Scholes option-pricing model include the market value of the stock price at the time of issuance, the risk-free interest rate corresponding to the term of the warrant, the volatility of the Company’s stock price, dividend yield on the common stock, as well as the exercise 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 applied to the valuation determined by the Black-Scholes option-pricing model.

Stock Option Plan

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. The 2000 Stock Option plan terminates in accordance with the term on December 1, 2010. The Current Board of Directors has not approved nor extended the Stock Option Plan therefore it is terminated.

NOTE 9 – SOFTWARE ACQUISITION: TRANSACTION BETWEEN ENTITIES UNDER COMMON CONTROL

On January 2, 2011 the Company entered into an asset purchase agreement with certain private companies owned by Michael de la Garza (“MDLG”) whereby NSC acquired the rights to proprietary medical billing and practice management software developed by the private companies.

The Office of the Chief Accountant (OCA) of the Securities and Exchange Commission was consulted by Company management to insure that the transaction was recorded correctly on the books of NSC. The OCA considered the facts and circumstances as described below in their deliberations.

January 1, 2011 Acquisition Of Software A Business Combination Under Common Control

On August 24, 2010 –National Scientific Corporation (“NSC”) signed a letter of intent for NSC to acquire the Private Companies’ assets.

On November 19, 2010 – NSC and MDLG signed a revised letter of intent with the Private Companies.

In accordance with the revised LOI the following occurred and on December 1, 2010 the NSC reported that change on Form 8-K:

On January 18, 2011 the prior CEO of NSC resigned from the Board of Directors and a Form 8-K was filed on February 8, 2011.

On October 5, 2011 the Company issued Absolute Medical Software Systems, LLC 30,000,000 common shares in full payment of this promissory note.

On January 3, 2013 the Company engaged a valuation expert to assess the value of the software for impairment purposes at September 30, 2011 and 2012. The Company valued the software and source code on the development cost of the software provided by Absolute Medical Software Systems, LLC of $4,296,000 for September 30, 2011 and September 30, 2012. This valuation was done by an independent Certified Valuation Analysis.

Prior Public Company Transaction

Michael de la Garza (“MDLG”) is the owner of three related private companies, Absolute, PayMed, and MedPay (“the private companies”) who own and operate medical billing software. On September 10, 2008 the private company entered into an asset purchase agreement with a prior public company. On September 10, 2008 prior publicly traded companies, purchased all the private companies’ assets, for 10,000,000 shares of common stock per the purchase agreements. On the date of that sale, September 10, 2008, the stock was trading at $.10 which valued the transaction at $1,000.000. This value was based on the software before the update to operate on a Cloud based platform. Management considers the price to represent the fair value of the software at that point in time.

This transaction was an arms-length value since MDLG was not a shareholder, officer or director of this prior public company. On June 9, 2009 the transaction was rescinded and the assets returned to The Private Companies. The private companies impaired the GAAP basis software development cost to the value of the prior public company transaction value of $1,000,000.

During the period of 2009 through 2010 the software was updated to operate on a Cloud based platform and had additional software development costs of $200,106.

The Office of Chief Accountant (“OCA”) has determined that due to the voting rights of the Preferred A shares that the transaction occurred between parties under common control. Accordingly, they have determined that the GAAP basis software development cost of the private entity sellers should become the cost basis of NSC.

Since these costs ($1,011,223) exceeded the transaction price ($1,000,000) with the prior public company, the prior costs incurred have been impaired to the September 10, 2008 value of the share received in the prior transaction.

The related convertible note which was subsequently converted to common shares has been discounted to the cost basis used to value the transaction which is less than the fair value of the software as determined by independent appraisal.

The cost basis was determined as follows:

NOTE 10– SUBSEQUENT EVENTS

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

2013

The Company issued 177,500 common shares for $121,000 in cash.

The Company issued 560,000 common shares in conjunction with the sale of medical software valued at 16,623.

The Company issued 700,000 common shares for the acquisition of CipherSmith software

In March 21, 2013 the Company issued 500,000 to Krooss Family Trust LLP for the acquisition of Doctors Network of America in Flowood, Mississippi and all of the assets of that company. Also on April 17, 2013 the Company issued 167,000 for compensation for the salaries for the entire year of 2013 those shares were issued to Krooss Family Trust LLP in accordance with the Agreement. On April 17, 2013 the Company issued 378,500 to Krooss Family Trust LLP in accordance with the Agreement with total shares issued to William and Marie Krooss of 1,045,500 common shares.

April 17, 2013 the Company cancelled the 200,000 common shares issued to for the acquisition and reissued 220,004 common shares for the acquisition of CipherSmith software.

The Company issued 330,004 common shares to sales personnel valued at $7,954.

2012

During the ten months ended July 31, 2012 the Company issued 30,000,000 common shares for there the reduction of debt from our CEO and reduced debt of the company by $1,200,106. The Company also issued 33,000 common shares for services rendered by professionals and recorded the expenses based upon the trading price of the common shares of $0.0102 and expensed $624 as consulting fees. The Company issued 941,333 common shares to third parties that have purchased our medical billing software at the trading price of the common stock of $0.0160 and recorded a revenue contra account of $19,301.

The Company issued 190,000 common shares for $68,000 in cash.

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

In August of 2012 the Company issued 100,000 shares to MediSouth LLC for the acquisition of its software. The stock was valued at $2,500 (See MediSouth LLC software acquisition below).

Software asset purchases:

On June 22, 2012

The Company acquired Doctors Network of America in Flowood, Mississippi for 500,000 common shares and the acquisition was valued at $10,000.

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

The acquisitions terms are as follows:

On August 14, 2012

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

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

2.4. Principal Conditions and Consideration. Subject to all of the terms and conditions set forth in this Agreement, and in consideration of the sale, assignment, transfer and delivery of the Purchased Assets by Licensor to Licensee, as of the Effective Date of this agreement Licensee and Licensor agree to the following (the "Purchase Consideration"):

a) MediSouth will provide Cloud-MD with the software source code for the License, expertise to install and integrate the License into Cloud-MD product offerings and deliver the MediSouth software source code to Cloud-MD.

b) For as long as Licensee makes use of the License, Licensor agrees to provide Licensee with all software updates for the License within 5 working days of Licensor implementing those same software updates in its own production version of the License.

c) Licensor agrees that Licensee shall have the right to modify the software contained in the License to meet Licensee's operational needs.

d) Cloud-MD shall provide back to MediSouth, with the permission of each affected Cloud-MD client, the de-identified purchasing data it collects as a result of Cloud-MD clients utilizing the embedded Medical Supplies and Pharmaceutical Inventory Management functionality provided by the License.

e) MediSouth shall receive 100,000 shares of non-diluteable, Class 144, Cloud-MD stock with a one (1) year trading restriction if this agreement is executed prior to Licensee's planned stock roll-back. If this agreement is executed after the Licensee's stock roll-back, the stock award shall equal $300,000/then current share price of Licensee's publicly traded stock. MediSouth shall complete the Subscription Agreement.

f) MediSouth will grant Cloud-MD all necessary rights to use the License and related patents and those rights shall be transferable to any Licensee who may purchase Cloud-MD and its assets.

g) In the event that Cloud-MD is acquired by another entity, the use of the License shall transfer to the acquiring entity with the provision that the License may be used only within the Cloud-MD software application as it was used at the time of the acquisition.

h) Other than 2.4.g above, Cloud-MD may not sell the License, transfer the License, allow any other entity to use the License as part of that entity's software application or transfer any rights to another party to use the License separately from Cloud-MD products in which the License is embedded.

i) If from the Effective Date of this agreement through the end of the 1st year following the Permanent Transfer, Licensee discovers any misrepresentations on the part of Licensor to Licensee or Licensor, Licensee or Licensor will have the right to dissolve this agreement. Should this occur, Licensor will be required to forfeit the stock awarded to it as described in item 2.4.e above with that stock having an established per share value equal to the value of a share of Licensee's stock as officially recorded on the date of Licensee's stock rollback and any assets from the original acquisition that still remain under the control of Licensee will be returned to Licensor and in their then current condition or status and both parties will exit the relationship holding each other harmless in all matters.

j) Licensor agrees to provide a software device in the licensed software that will offer an automatic logon from Licensee's software.

k) Licensor agrees to provide software operations, communications and hosting services for the licensed software in same computing facility as Licensee has its operational software until Licensee and Licensor mutually agree that this service is no longer necessary,

1) Licensee and Licensor agree to execute sales agreements for each other's products and services.

m) Licensee agrees that if due to Licensee modifications to the Licensed software, data from the modified Licensed software cannot be processed by Licensor, Licensee shall provide data in original Licensed software format and make that data available to Licensor as in 2.4.d.

n) Licensee shall have the right to copy and use all forms of documentation, marketing information and data related to the License.

o) Licensee shall have the right to brand the License with a product name selected by the Licensee and Licensor.

p) Licensor shall change the appearance of the License's end-user computer display screens to match the appearance of the Licensee's computer application's end-user computer displays, including the branding described in 2.4.0 above.

q) In the event that Licensor should cease doing business, Licensee shall have the right to continue usage of the License and all associated documentation and related marketing material without recourse from Licensor or any entity representing Licensor's interests.

r) The "powered by MediScan" text or graphic must always be displayed on modules and application web pages provided by Licensor.

2.5 Holdback Stock. Pursuant to the terms and subject to the conditions of this Agreement, no provisions shall be made for the purpose of withholding previously awarded stock by Licensee to Licensor other than those already cited in section 2.4 of this Agreement.

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

1. Centralized management control over medical supply and drug inventories 
2. Real time utilization and financial inventory summary 
3. Low price notifications 
4. Par level/reorder tracking 
5. RX expiration tracking 
6. Auto supply re-ordering from a practices established suppliers

Based on a barcode scanning technology, Cloud-MD Inventory Management is designed to reduce workloads by automating inventory control processes. The Cloud-MD's Inventory Management System requires no installation, on-site software or special hardware. The new Cloud-MD Office application suite, of which Cloud-MD Inventory Management is a part, is fully delivered via the Internet and requires no special computing environment at the end-user facility.

Manual inventory is time consuming, labor intensive and leaves room for error. Benefiting healthcare professionals across the country, Cloud-MD's Inventory Management System is a low-cost, low-maintenance, easy to use automated system that can provide effective solutions.

On November 21, 2012

The Company through a comprehensive agreement with CipherSmith, LLC, has purchased a complete source code, intellectual property rights, all computer software or algorithm licensed or sold under CipherSmith, and appropriate copy rights, patents, mask works, trademarks,, service marks, internet domain names or world wide web URS. This security software will be part of its ever expanding Cloud-MD Office product suite.

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

In this Quarterly Report on Form 10-Q, “Company,” “our company,” “us,” and “our” refer to Cloud Medical Doctor Software Corporation and its subsidiaries, unless the context requires otherwise.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2008, 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 is derived from sales of electronic devices, recognized as the product is delivered.

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

In 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 has 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.

Item 1. Description of Business

Our Current Business of the Company – Cloud Doctor Medical Software

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

Cloud-MD Billing Services provides: Management of Medical Claims from posting physician charges into our medical billing software to posting of payments; Continuous Insurance Claim Follow Up to track and research all rejected or denied medical claims; Comprehensive Reporting including monthly financial Statements sent to our clients so they can see how their practice is doing and a variety of detailed reports give our clients the important information and tools used to assist in the increased production which leads to more profit; Patient Account Inquiries & Support to assist patients with their billing and insurance questions.

Cloud-MD Medical and Pharmaceutical Supply Management Software Services provides: a ground breaking cloud-based Medical Supply Inventory Management System, specifically designed for small and medium Medical Practices, DME’s, Home Health, Long-term Care, and Surgery Centers that offers:

Centralized management control over your medical supply and drug inventory

Real time utilization and financial inventory summary

Low price notifications

Par level/reorder tracking

RX expiration tracking

Auto supply re-ordering

Based on a barcode scanning system, designed to reduce workloads by automating inventory control processes, the Cloud-MD® Inventory Management System requires no installation, on-site software or special hardware. The Cloud-MD® application suite is fully delivered via the Internet and requires no special computing environment at the end-user facility.

Cloud-MD Healthcare Systems Consulting Services specializes in the implementation of sustainable, comprehensive solutions that increase financial and operational performance in healthcare businesses. By partnering with clients, we deliver solutions across the healthcare enterprise that improve quality, increase revenue, reduce operational expenses and attract physicians, patients and employees. We bring resources, in-depth knowledge, and significantly deeper experience than most in the field.

Cloud-MD Acquisition Services provides medical supply acquisition services that are fully integrated with Cloud-MD Office’s Medical and Pharmaceutical Inventory Management software and offers a full range of medical, surgical, and laboratory supply products and equipment for medical offices and surgery centers. Cloud-MD Acquisition Services easy-to-use and seamless process makes supply purchasing quicker and more cost efficient.

The following summarizes and provides additional detail regarding the primary software solutions comprising the proprietary software:

Practice Management (“PM”) - The PM solution addresses many of the critical needs of healthcare providers, from specialists to general practitioners. The system incorporates the operational and managerial requirements of any size practice and fully integrates innovative and proven revenue management tools to enhance revenue and profit while lowering expenses. The PM solution allows the user to instantaneously track, control, record and share patient medical information-throughout every phase of care.

The practice management solution has the following features:

- Scheduling

- Revenue Management

- Billing

- Procedure and Charge Entry

- Claims Creation, Editing, and Submission

- Collections & Accounts Receivable Management

- Standard and Automated Payments, Receipts Processing

- Reporting

Electronic Health Records (“EHR”) - The EHR solution offers a complete answer to the medical record-keeping needs of a practice, and facilitates compliance with governmental requirements for meaningful use. The fully-integrated EHR system allows users to instantaneously track, control, record and share patient medical information throughout every phase of care in real time via the internet. The system also attempts to bridge a communication gap that may exist between primary care physicians and additional specialists, consultants and laboratory and radiology personnel involved in a single patient’s care.

The electronic medical records solution has the following features:

- Multi-Office or Multi-Doctor Patient Scheduling

- Patient Encounters

- Encounter Template

- Prescriptions

- Diagnostic Exams

- Patient Monitoring

- Automated Assistants

- Document Management

- Messaging

- Security

Revenue Cycle Management (“RCM”) - The revenue management solution facilitates the efficient performance of a number of financial and administrative transaction processes through its real time access to electronically accessible insurance plans.

The revenue cycle management solution has the following features:

- Real-Time insurance Eligibility

- Real-Time Claims Editing and Submission Management

- Patient Credit/Self-Pay Collections

- Patient Finance

- Electronic Payment Processing

Patient Financial Services - The patient financial services solution shifts the burden of lost revenue from the healthcare provider to the patient by utilizing a system for collection process from the moment debt exists through the final payment. Such financial services also enable lower merchant fees as credit, debit or check transactions can be processed through a virtual e-terminal.

The patient financial services solution has the following benefits:

- Increased Collections

- Reduced Accounts Receivable

- Reduced Patient Bad Debt

- Reduced Patient Billing Expenses

- No Collection Calls

- Expedites Cash Flow

Healthcare Inventory Management - The healthcare inventory management solution provides a medical supply inventory management system specifically designed for small and medium-sized medical practices, home health, long-term care, and surgery centers. Based on a barcode scanning system, the inventory management system has been designed to reduce workloads by automating inventory control processes. The management system is cloud-based, and therefore requires no installation, on-site software or special hardware as it is fully delivered over the internet.

The medical and pharmaceutical supply management solution has the following features:

- Centralized Management Control over Medical Supply and Drug Inventory

- Real Time Utilization and Financial Inventory Summary

- Low Price Notifications

- Par Level and Reorder Tracking

- RX Expiration Tracking

- Auto Supply Re-Ordering

Such services can facilitate a seamless and cost efficient process for purchasing items as they provide access to a full range of medical, surgical, and laboratory supply products and equipment for both medical offices and surgery centers.

Medical Billing Services - The medical billing software is also available on a cloud basis and does not require any sort of special computing environment at the user’s facility. One service provided by the billing software includes the management of medical claims through the tracking of charges from their posting to their payment. The software is additionally capable of monitoring and researching all rejected or denied medical claims. Monthly financial statements can also be generated by the medical billing software, and the patient inquiry and support feature assists patients with billing and insurance questions.

The billing software has the following features:

- Use of full PM, RCM and EHR software suite by client physician offices and Company Medical Billing Service Personnel

- HIPAA Security

- Patient Balance Cash-Flow Enhancement Processes

- Claims Processing, Submission, Follow-Up, and Work-Flow Enhancement

- Collections and Automated Posting

- Coding

- Patient Statement Management

- Account Reconciliation

- Delinquency Management

- Reporting

- Performance Monitoring

Personal Health Information (“PHI”) Exchange - PHI exchange involves referrals management and communication between physicians, and between physician and patient. With HIPAA compliant security, the Software is able to securely transmit and secure information through the help of tools like EHR.

MARKETING AND DISTRIBUTION

The marketing strategy for the web-based software owned by Cloud Medical Doctor Software Corporation includes communicating the Software’s advantages as they relate to the needs of target customers. A primary competitive advantage is the ability to provide software services at little or no start-up cost with free online training and support. CMDS has used, or plans on using, brochures, public relations, advertising, customer loyalty programs, strategic partnerships, and trade shows to generate attention to the Software.

The Software can be acquired by the client based on the following three different models:

- Leasing plus Transactions

- Subscription plus Transactions

- Percentage of Collected Revenue (Billing Services only)

Leasing plus Transactions

This model is designed to provide up-front capitalization to Cloud-MD for each provider added to the solution set. Based on a 48-month lease, Cloud-MD would realize approximately $50,000 in gross revenue on day 1 of the lease. In addition, it features incremental monthly revenue, for the duration of the lease (48 months) based on small usage fees assessed for transactions such as eligibility, claims processing, etc.

Based on an estimate of 600 patient visits per month per provider, management estimates incremental revenue would be approximately $100 per month per provider for a total of $4,800 over the 48- month lease duration.

Subscription plus Transactions

The subscription plus transactions model provides no up-front capitalization to Cloud-MD and is a 12-month contract with low upfront costs. This model has no discount on capital nor does it have any carry-forward liabilities each year, it is a profitable model with a low threshold for entry and adoption.

Based on a 600 patient visit per month metric and $2.50 per office visit, this model would yield $1,500 per month in revenue or a total of $72,000 over 48 months. The addition of EHR would yield an additional $28,800 for a combined total of $98,800. Clients are also charged for long-term record storage and based on the 600 patient visits per month metric; this could yield as much as $20,000 over the same 48 month period.

Percentage of Collected Revenue

This model is based on acquisition of smaller billing companies that have a client base of at least 20 physician offices. It provides no upfront capitalization to Cloud-MD and is a 12- month contract with low upfront costs and use of Cloud-MD Office. It has no transaction costs. Revenue is generated on a % of gross practice income. According to management, since this model has no discount on capital nor does it have any carry-forward liabilities each year, it is a profitable model with a low threshold for entry and adoption.

Based on a solo practitioner seeing 600 patients per month, an 8% service fee and assuming that the average office visit is $125, this model would yield $4,800 ($125 X 80% collection rate X 8% X 600 patients) per month in gross revenue per provider or a total of $230,400 over 48 months. This is a more cost-effective and more profitable model for the provider as Cloud-MD has technology and business processes that can increase the net income for providers at no additional cost to them.

COMPETITION

Although other medical software vendors are in operation, relatively few currently provide products or services on a cloud basis with a billing services component. Management considers Athenahealth, Inc. to be its most direct competitor, with additional competition coming from McKesson Corporation.

The following is a brief summary of the identified companies with competing software products:

Athenahealth, Inc. (Nasdaq: “ATHN”) - Athenahealth, Inc., a business services company, provides ongoing billing, clinical-related, and other related services to medical group practices primarily in the United States. The company provides services through the AthenaNet, a proprietary Internetbased practice management application. It offers AthenaCollector, a revenue cycle management service that automates and manages billing-related functions for physician practices, and includes a practice management platform. The AthenaCollector assists its physician clients with the handling of claims and billing processes to help manage reimbursement.

The company also provides Anodyne Analytics, a business intelligence application, which offers physicians and practice managers with insight into practice performance. In addition, it provides Athena- Clinicals, an electronic health record service that automates and manages medical-record management- related functions for practices, as well as assists medical groups with the handling of physician documentation, orders, and related inbound and outbound communications.

Further, the company offers AthenaCommunicator that allows practices to manage patient communication tasks electronically, including the use of automated reminder calls; the creation of a self-service patient portal for registration, appointment requests, bill payments, and general communication; automatic generation of emails to patients; and patient education tools. Additionally, it provides AthenaCoordinator, a referral cycle management tool that helps streamline the disorganized system of patient care coordination. ATHN sells its products through a direct sales force, as well as through channel partners.

The company was formerly known as Athenahealth.com, Inc. and changed its name to Athenahealth, Inc. in November 2000. ATHN was incorporated in 1997 and is headquartered in Watertown, Massachusetts.

McKesson Corporation (NYSE: “MCK”) - McKesson Corporation, together with its subsidiaries, delivers pharmaceuticals, medical supplies, and health care information technologies to the healthcare industry primarily in the United States. It operates in two segments, McKesson Distribution Solutions and McKesson Technology Solutions.

The McKesson Distribution Solutions segment distributes ethical and proprietary drugs, medical surgical supplies and equipment, and health and beauty care products in North America. The McKesson Technology Solutions segment delivers enterprise-wide clinical, patient care, financial, supply chain, and strategic management software solutions, as well as pharmacy automation solutions for hospitals; and connectivity, outsourcing, and other services, including remote hosting and managed services to healthcare organizations. This segment also includes Payer group of businesses, which include InterQual clinical criteria solution, medical management tools, claims payment solutions, network performance tools, and care management programs. This segment’s customers include hospitals, physicians, homecare providers, retail pharmacies, and payers in North America, the United Kingdom, Ireland, other European countries, and Israel. MCK was founded in 1833 and is headquartered in San Francisco, California.

Discontinued Operations

Our former line of business pertaining to Mobile DVR and Location Products was discontinued on February 4, 2010.

Results of Operations for the Three months ended December 31, 2011 and December 31, 2010

The Company generated $48,850 in sales of our medical billing software on December 29, 2013. The sales are recognized over a 48 month lease agreement.

General and administrative expenses increased to $51,414 from $17,790 for the three months ended December 31, 2011 and 2010, respectively. Our General and administrative expenses are related to the new medical billing company operations.

We recorded a loss from discontinued operations for the three months ended December 31, 2011 of $4,466 of $2,751 for three months ended December 31, 2010. 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 4 - Discontinued Operations” to the accompanying Financial Statements).

Liquidity and Capital Resources

The Company has material notes, one from our prior Chief Executive Officer for approximately $59,704, one convertible note with an investor relationship with Strategic Working Capital Fund, LP $175,000 net of discount and beneficial conversion feature of $0.00 with a total balance due of $175,000, and three notes with shareholders of $31,625. As of December 31, 2011 the Company was in default on all notes since the Company has not paid the required quarterly interest payments. In July 2010 our new CEO advanced $180,214.

Our cash provided (used in) by operating activities were $12,103 and ($38,194) for the three months ended December 31, 2011 and 2010, respectively. The increase in cash flows used in operations was primarily attributable to the changes in operating assets and liabilities, primarily related to decreases in amounts payable, in 2011 as compared to the 2010 period.

Cash provided by financing activities was $54,419 and $37,794 for the three months ended December 31, 2011 and 2010, respectively. We received cash from the sale of common stock of $55,000 and advances from affiliate of $10,505 and advances from our line of credit of $27,289 and repaid advances from affiliates of ($581).

There is a strong possibility that we may not be able to satisfy our cash requirements over the next twelve months and may be required to raise additional cash from outside sources.

In the event that we are required to raise additional cash from outside source, we may issue equity securities or incur additional debt. 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.

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’s Public 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.

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our business is currently conducted principally in the United States. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. We do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although if the geographical scope of our business broadens, we may do so in the future.

We do not hold any derivative instruments and do not engage in any hedging activities.

ITEM 4.          CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and Principal Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective since the Company has been ineffective in filing timely.

Our Chief Executive Officer and Principal Financial Officer are responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has used the framework set forth in the report entitled Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our Chief Executive Officer and Principal Financial Officer have concluded that our internal control over financial reporting was not effective as of December 31, 2011. There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. The Company has been ineffective in the timely filing of the company’s quarterly filings.

The Company’s material weaknesses in financial reporting were:

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are currently not involved in any litigation except noted below that we believe could have a material adverse effect on our financial condition or results of operations. Other than described below, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting the Company, our common stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

On July 5, 2013 the Company filed a complaint for the collection of $150,000 of unpaid medical billing fees that were seriously delinquent. After many attempts by the Company to begin collections, the Defendants refused to pay the outstanding balances, however expected the Company to continue to bill for them. The Company’s complaint was filed against Krooss Medical Management Systems, LLC, William F. Krooss and Marie W. Krooss in the United States District Court, District of Nevada Case No. 2013-CV-01187-ABG-VCF.

On August 13, 2013 Krooss Medical Management Systems et al filed a Complaint in Chancery Court of Rankin County, Mississippi Case No. 13-1372 as a strategy to keep the collection matter in Mississippi Chancery Court.

Case No. 13-1372 was remanded to the United States District Court, Southern District of Mississippi Jackson Division Case No. 3:13CV507-HTW-LRA.

This litigation is a collection matter of unpaid fees by the Defendants and the Company vehemently denies the allegations filed in Mississippi Chancery Court related to this collection matter. The Company does not expect the cost to litigate this matter to adversely affect the Company’s operations.

ITEM 1A - RISK FACTORS

There were no material changes from the risk factors previously disclosed in Part II, Item 1A, “Risk Factors” in our  Annual Report on Form 10-K for the year ended September 30, 2011 during our nine months ended December 31, 2011.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES

2013

The Company issued 177,500 common shares for $121,000 in cash.

The Company issued 560,000 common shares in conjunction with the sale of medical software valued at 16,623.

The Company issued 700,000 common shares for the acquisition of CipherSmith software

In March 21, 2013 the Company issued 500,000 to Krooss Family Trust LLP for the acquisition of Doctors Network of America in Flowood, Mississippi and all of the assets of that company. Also on April 17, 2013 the Company issued 167,000 for compensation for the salaries for the entire year of 2013 those shares were issued to Krooss Family Trust LLP in accordance with the Agreement. On April 17, 2013 the Company issued 378,500 to Krooss Family Trust LLP in accordance with the Agreement with total shares issued to William and Marie Krooss of 1,045,500 common shares.

April 17, 2013 the Company cancelled the 200,000 common shares issued to for the acquisition and reissued 220,004 common shares for the acquisition of CipherSmith software.

The Company issued 330,004 common shares to sales personnel valued at $7,954.

2012

During the ten months ended July 31, 2012 the Company issued 30,000,000 common shares for there the reduction of debt from our CEO and reduced debt of the company by $1,200,106. The Company also issued 33,000 common shares for services rendered by professionals and recorded the expenses based upon the trading price of the common shares of $0.0102 and expensed $624 as consulting fees. The Company issued 941,333 common shares to third parties that have purchased our medical billing software at the trading price of the common stock of $0.0160 and recorded a revenue contra account of $19,301.

The Company issued 190,000 common shares for $68,000 in cash.

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

In August of 2012 the Company issued 100,000 shares to MediSouth LLC for the acquisition of its software. The stock was valued at $2,500 (See MediSouth LLC software acquisition below).

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the period ended December 31, 2011.

ITEM 4. MINING SAFETY DISCLOSURES 

N/A

ITEM 5.  OTHER INFORMATION

There is no information with respect to which information is not otherwise called for by this form.

ITEM 6.  EXHIBITS

Exhibits filed herein for December 31, 2011

Exhibits

____________

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.