UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended June 30, 2013

 

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT   For the transition period from N/A to N/A

  

Commission File No. 000-28745

 

 

Cloud Medical Doctor Software Corporation

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

(formerly National Scientific Corporation)

 

Texas	86-0837077
( State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

  

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  o   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 o     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.

Large accelerated filer	¨	Accelerated filer	¨
Non–Accelerated filer	¨	Smaller reporting company	x

 

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.

 

Class		Outstanding at  February 26, 2014
Common stock, $0.01 par value		215,159,216

 

 

 

 

 

CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION

INDEX TO FORM 10-Q FILING

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2013 AND 2012

 

TABLE OF CONTENTS

 

				PAGE
PART I - FINANCIAL INFORMATION
Item 1.		Consolidated Financial Statements (Unaudited)		3
		Balance Sheets		4
		Statements of Operations		5
		Statements of Cash Flows		6
		Notes to Consolidated Financial Statements		7
Item 2.		Management Discussion & Analysis of Financial Condition and Results of Operations		20
Item 3		Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.		Controls and Procedures		23
PART II - OTHER INFORMATION
Item 1.		Legal Proceedings		23
Item 1A.		Risk Factors		24
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		24
Item 3.		Defaults Upon Senior Securities		27
Item 4.		Mining Safety Disclosures		27
Item 5		Other information		27
Item 6.		Exhibits		27
CERTIFICATIONS

 

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.2	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying interim 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 financial statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2012.  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 nine months ended June 30, 2013 are not necessarily indicative of the results that can be expected for the year ending September 30, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION
(Formerly National Scientific Corporation)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
		June 30, 2013				September 30, 2012
ASSETS
CURRENT ASSETS:
Cash		$	99,812			$	51,356
Accounts receivable			4,756				4,888
Assets attributable to discontinued operations			16,701				—
Total current assets			121,269				56,244
Proprietary technology, net			879,076				1,022,591
TOTAL ASSETS		$	1,000,345			$	1,078,835
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		$	327,508			$	229,736
Advances from officers			—				25,591
Liabilities attributable to discontinued operations			15,601				—
Line of credit			5,000				21,763
Total current liabilities			348,109				277,090
TOTAL LIABILITIES			348,109				277,090
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 4,000,000 shares authorized;
4,000,000 shares issued and outstanding			40,000				40,000
Common stock, $0.01 par value, 650,000,000 shares authorized;
214,334,216 and 211,991,212 shares issued and outstanding, respectively			2,143,342				2,119,912
Additional paid-in capital			24,736,436				24,556,607
Accumulated deficit			(26,267,542	)			(25,914,774	)
Total stockholders' equity			652,236				801,745
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,000,345			$	1,078,835
The accompanying notes are an integral part of these unaudited financial statements.

 

 

 

 

 

 

 

 

CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION
(Formerly National Scientific Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2013				2012				2013				2012
REVENUES		$	137,941			$	243,480			$	461,512			$	460,165
COST OF REVENUES			61,155				61,729				182,315				121,734
GROSS PROFIT			76,786				181,751				279,197				338,431
OPERATING EXPENSES:
Selling, general and administrative			202,005				78,612				537,830				153,045
Research and development			58,044				55,000				153,044				97,000
Impairment of assets			6,000				4,000				6,000				4,000
Total operating expenses			266,049				137,612				696,874				254,045
OPERATING INCOME (LOSS)			(189,263	)			44,139				(417,677	)			84,386
OTHER INCOME (EXPENSE)
Interest expense			(15	)			(181	)			(211	)			(1,283	)
Gain on the disposal of assets			—				—				1,353				—
Total other income (expense)			(15	)			(181	)			1,142				(1,283	)
INCOME (LOSS) FROM CONTINUING OPERATIONS			(189,278	)			43,958				(416,535	)			83,103
INCOME FROM DISCONTINUED OPERATIONS			1,138				—				60,084				323,868
NET INCOME (LOSS)		$	(188,140	)		$	43,958			$	(356,451	)		$	406,971
NET INCOME (LOSS) PER COMMON SHARE:
Basic and diluted
Continuing operations		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00
Discontinued operations		$	0.00			$	0.00			$	0.00			$	0.00
Total		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic and diluted			214,211,293				210,980,411				213,052,263				209,237,211
The accompanying notes are an integral part of these unaudited financial statements.

 

 

 

 

 

 

 

 

CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION
(Formerly National Scientific Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
		Nine Months Ended June 30,
		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(356,451	)		$	406,971
Income from discontinued operations			60,084				323,868
Income (loss) from continuing operations			(416,535	)			83,103
Adjustments to reconcile income (loss) from continuing operations to net cash from operating activities:
Depreciation and amortization			182,315				120,010
Impairment of assets			6,000				4,000
Gain on the disposal of assets			(1,353	)			—
Stock issued for compensation			31,829				204
Stock issued for license agreements			12,313				9,251
Changes in operating assets and liabilities:
Accounts receivable			132				(2,300	)
Accounts payable and accrued liabilities			145,256				11,474
Net cash (used in) provided by operating activities			(40,043	)			225,742
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets			1,353				—
Purchase of intangible asset			(11,500	)			—
Net cash (used in) investing activities			(10,147	)			—
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from officer			—				33,462
Repayment of advances from officer			(25,591	)			(148,654	)
Proceeds from line of credit			5,664				—
Repayment of line of credit			(22,427	)			(22,512	)
Common stock issued for cash			141,000				68,000
Net cash provided by (used in) financing activities			98,646				(69,704	)
INCREASE IN CASH			48,456				156,038
CASH, BEGINNING OF PERIOD			51,356				11,016
CASH, END OF PERIOD		$	99,812			$	167,054
SUPPLEMENTAL DISCLOSURES:
CASH PAID FOR:
Interest		$	—			$	—
Taxes		$	—			$	—
NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Common stock issued for purchase of intangible assets		$	21,800			$	4,000
Accrual of software acquisition costs		$	11,500			$	—
Reclass from discontinued operations to accounts payable		$	—			$	213,779
Write-off of debt - related parties		$	—			$	1,222,812
Common stock issued for settlement of debt		$	—			$	1,200,106
The accompanying notes are an integral part of these unaudited financial statements.

CLOUD MEDICAL DOCTOR SOFTWARE CORPORATION

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

 

NOTE 1- DESCRIPTION OF BUSINESS

Cloud Medical Doctor Software Corporation (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. 

 

In the year ended September 30, 2011, Cloud-MD introduced the Cloud-MD Office, a “Cloud Based”, 5010 ready 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.

 

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

 

NOTE 2 – BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS

 

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America.  The accompanying interim unaudited 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 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 June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending September 30, 2013. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended September 30, 2012 have been omitted; this report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended September 30, 2012 included within the Company’s Form 10-K as filed with the Securities and Exchange Commission.

 

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 an accumulated deficit at June 30, 2013 of $26,267,542 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 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

 

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. The Company’s most significant estimates relate to the valuation of its proprietary technology and its valuation of its common stock.

 

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 June 30, 2013, 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

 

Long-lived assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The acquired software technologies are reviewed annually for impairment.

 

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.  

 

Fair value is focused 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.  Within the measurement of fair value, the use of market-based information is prioritized over entity specific information and a three-level hierarchy for fair value measurements is used 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:

 

•			Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;
•		Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;
•			Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The following table summarizes fair value measurements by level at June 30, 2013 and September 30, 2012 for assets measured at fair value on a recurring basis:

		Level 1				Level 2				Level 3				Total
At June 30, 2013
Proprietary Technology		$	—			$	—			$	879,076			$	879,076
Total Proprietary Technology		$	—			$	—			$	879,076			$	879,076
At September 30, 2012
Proprietary Technology		$	—			$	—			$	1,022,591			$	1,022,591
Total Proprietary Technology		$	—			$	—			$	1,022,591			$	1,022,591

 

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 against the allowance when it is probable the receivable will not be recovered. As of June 30, 2013 and 2012, the Company had no valuation allowance for the Company’s accounts receivable.

 

Income Taxes

 

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

 

The Company uses the two-step approach 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 June 30, 2013, the Company did not record any liabilities for uncertain tax positions.

 

Revenue Recognition

 

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

 

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

 

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

 

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

 

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

 

·

Electronic Remittance Advise $0.35 Electronic remittance transaction fee;

·

Paper Claims $1.00 Paper claim fee;

·

Carrier Direct $0.16 Carrier direct fee;

·

Fast Forward $0.35 Fast forward transaction fee; and,

·

Patient Credit $2.50 Automatic Debit processing per transaction paid by the patient

 

The Company had not received any transaction revenues in the nine months ended June 30, 2013.

 

Cost of License, and Subscriptions Revenues

 

 

Cost of license revenue is primarily comprised of the license-based royalties to third parties and production and distribution costs for initial product licenses. No costs were incurred for license-based royalties during the nine months ended June 30, 2013 and 2012.

 

Cost of subscription revenue is primarily comprised of the costs associated with the customer support personnel that provide maintenance, enhancement and support services to customers. No costs were incurred for customer support during the nine months ended June 30, 2013 and 2012.

 

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

 

Sales Commissions

 

The Company pays commissions, including sales bonuses, to the direct sales force related to revenue transactions under sales compensation plans which are established annually. The commission payments are typically paid in full in the month or quarter following execution of the customer contracts. The Company paid commissions of $10,000 and $28,028 for the three months ended June 30, 2013 and 2012, respectively. The Company paid commissions of $50,260 and $53,205 for the nine months ended June 30, 2013 and 2012, respectively.

Research and Development and Software Development Costs

Capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on our product development process, technological feasibility is established upon the completion of a working model. To date, costs incurred by us from the completion of the working model to the point at which the product is ready for general release have been insignificant. Accordingly, we have charged all such costs to research and development expense in the period incurred. The Company recorded research and development costs of $58,044 and $55,000 for the three months ended June 30, 2013 and 2012, respectively. The Company recorded research and development costs of $153,044 and $97,000 for the nine months ended June 30, 2013 and 2012, respectively.

 

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.

 

Basic and Diluted Net Income (Loss) per Common 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. As of June 30, 2013 and 2012, the Company had no potentially dilutive instruments outstanding.

 

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.

 

Subsequent Events

 

The Company has evaluated all transactions occurring between the nine months ended June 30, 2013, through the date of issuance of the financial statements for subsequent event disclosure.

 

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 5 – SOFTWARE

 

The following is a detail of software at June 30, 2013 and September 30, 2012:

 

		June 30, 2013				September 30, 2012
Source Code License		$	2,500			$	2,500
Software License			1,200,106				1,200,106
EMR Certification			23,000				—
Encryption Software Code			15,800				—
Acquisition of Doctor’s Network of America			10,000				4,000
Total intangible assets			1,251,406				1,206,106
Accumulated amortization of intangible assets			(362,330	)			(180,015	)
Impairment of assets			(10,000	)			(4,000	)
Total intangible assets		$	879,076			$	1,022,591

 

The Company’s software was placed into service starting in the second quarter of fiscal year ended September 30, 2012. The amortization expense was $182,315 and $120,010 for the nine months ended June 30, 2013 and 2012, respectively. The Company recognized a $6,000 and $4,000 impairment of Doctors Network of America (“DNA”) operating in Flowood, Mississippi during the nine months ended June 30, 2013 and the year ended September 30, 2012, respectively. The Company is currently in litigation with the sellers of DNA relating to the collection of certain medical billings owed to the Company. As a result of the litigation, the Company deemed the investment to be impaired.

 

Source Code License

 

On August 14, 2012, the Company, through a comprehensive agreement with MediSouth, LLC, (“MediSouth”) has purchased a complete source code license and will integrate and enhance this feature set as part of its Cloud-MD Office product suite.

 

The License Agreement requires the following:

 

a)		That MediSouth will provide the Company with all software updates for the license within 5 working days of MediSouth implementing those same software updates in its own production version of the license.
b)		The Company has the right to modify the software contained in the license to meet its operational needs.
c)		The Company shall provide to MediSouth, with the permission of each affected Company client, the de-identified purchasing data which is any data that would identify a patient such as social security numbers, date of birth, health condition, among others that it collects as a result of the Company’s clients utilizing the embedded Medical Supplies and Pharmaceutical Inventory Management functionality provided by the license.
e)		MediSouth shall receive 100,000 shares of the Company’s non-dilutable, common stock with a one (1) year trading restriction.
f)		The Company 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 the Company’s products in which the license is embedded.

 

The fair value of the consideration and the assets acquired is based on the aggregate value of the 100,000 shares of common stock issued in exchange for the software. The total fair value on August 14, 2012 was $2,500.

 

Software License

 

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

 

The Company issued a $1,200,106 convertible promissory note with an 8% interest rate and convertible into common stock of the Company at a price to be determined later in exchange for the purchase of the software. The note matures on April 30, 2021.

 

In October 2011, the Company issued Absolute Medical Software Systems, LLC an entity owned by MDLG, 30,000,000 shares of common stock in full payment of this promissory note and interest accrued as of the date of conversion. The market price per share on the date of grant was $0.008 per share. No gain or loss was recorded on the conversion of the convertible promissory note.

 

 

The Company has determined that due to the voting rights of the Preferred A shares owned by MDLG, that the transaction occurred between parties under common control. Accordingly, the Company has determined that the cost basis of the software acquired should become the cost basis of the Company.

 

Cost basis for assets acquired  under Common Control		Cost Basis
Cost basis of Consideration:
Absolute Medical Software Systems LLC development costs from inception		$	1,011,222
Impairment of software on September 10, 2008 to value			(11,222	)
Total Value at September 10, 2008		$	1,000,000
Software Update to Operate on Cloud Based Platform
Absolute Medical Software Systems LLC development costs		$	200,106
Total Cost Basis at January 1, 2011		$	1,200,106

 

Encryption Software Code

 

On November 21, 2012, the Company purchased from CipherSmith, LLC 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. The Company issued 500,004 shares of its common stock as payment for the acquisition. The fair value of the consideration and the assets acquired is based on the aggregate fair value of the common stock issued in exchange for the software. The total fair value of the shares of common stock issued on the date of grant was $15,800.

 

Doctors Network of America

 

On June 22, 2012, the Company entered into an acquisition agreement that closed on March 16, 2013. The Company agreed to acquire DNA in Flowood, Mississippi from Krooss Medical Management Systems, LLC (“Krooss”) for 500,000 shares of common stock. As of September 30, 2012, only 200,000 shares of common stock were issued as a deposit, which was valued at $4,000 based on the market value on the date of grant. At the closing of the transaction on March 16, 2013, the Company issued an additional 300,000 shares of common stock which were valued at $6,000 based on the market value on the date of grant.

 

Subsequent to the transaction closing on March 16, 2013, the sellers refused to pay for medical billing process transaction fees in accordance with their contracts in the amount of approximately $200,000. The Company and the sellers are currently in litigation over the disputed transaction fees of $200,000. The Company has recorded an impairment of the acquired asset in the amount of $6,000 and $4,000 for the nine months ended June 30, 2013 and the year ended September 30, 2012, respectively.

 

NOTE 6- 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, a company owned by the Company’s prior CEO, by prior management in which the Company’s former CEO was to pay $100,000 plus 2% of revenues for that technology. The former officer never paid the required compensation.

 

Accordingly, the Company reclassified the assets, liabilities and operations related to its GPS operational device business as discontinued operations.  Consequently, the accompanying 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 results from discontinued operations.

 

The Company closed the acquisition with the final payment for DNA on March 16, 2013. Subsequent to the transaction closing, the sellers refused to pay the transaction fees for medical billing contracts that were processed. The Company filed a lawsuit against the sellers for Breach of Contract among other things in June of 2013. During that time, the Company believes the sellers began contacting all billing contract holders and interfered with the acquisition of all the assets from the transaction. Consequently, the accompanying consolidated financial statements reflect the assets, liabilities and operations of DNA as net assets of discontinued operations, net liabilities of discontinued operations and results from discontinued operations.

 

Details of the classifications for net assets, liabilities and operations are shown below.

 

		June 30, 2013				September 30, 2012
Net assets of discontinued operations:
Accounts receivable		$	16,701			$	—
Net assets of discontinued operations		$	16,701			$	—

 

		June 30, 2013				September 30, 2012
Net liabilities of discontinued operations:
Accounts payable		$	15,601			$	—
Net liabilities of discontinued operations		$	15,601			$	—

 

		Three Months Ended June 30,
		2013				2012
Discontinued operations:
Revenues		$	266,246			$	—
Cost of sales			—				—
Operating expenses			265,108				—
Interest expense			—				(4,467	)
Gain from write-off of debt			—				4,467
Income from discontinued operations		$	1,138			$	—

 

		Nine Months Ended June 30,
		2013				2012
Discontinued operations:
Revenues		$	267,146			$	—
Cost of sales			—				—
Operating expenses			(266,046	)			—
Interest expense			—				(13,401	)
Gain from write-off of debt			58,984				337,269
Income from discontinued operations		$	60,084			$	323,868

 

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

 

On November 1, 2005, the Company entered into a financing program with Strategic Working Capital Fund, LP. The terms of this program included a five-year note payable at maturity in November 2010 for $175,000, at an annual interest rate of 8%. Interest was 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 included weighted average anti-dilution provisions, as well as piggyback registration rights. Additionally, the note had 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 were amortized over term of the note, which is approximately 60 months, and are included in the statement of operations as offering costs. Management received a legal opinion and determined that this note is unenforceable and has been written off during the fiscal year ended September 30, 2012 (See Note 7 – Debt Mitigation Program).

 

On February 24, 2005, March 28, 2005, May 2, 2005, and May 27, 2005 the Company’s former Chairman Michael Grollman made personal loans to the Company totaling $159,000 to assist it 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 three months ended 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 provided for repayment within five business days of a demand notice from Mr. Grollman, with interest of 8% compounded annually on October 1^st. Management received a legal opinion and determined this note is unenforceable and has been written off during the fiscal year ended September 30, 2012 (See Note 7 – Debt Mitigation Program).

 

On April 27, 2006, the Company 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 was 12%. The transaction also included 100,000 warrants to purchase our common stock at $0.036 at any time before April 27, 2009 which have expired unexercised. The note had an approximate maturity date of June 15, 2006. Management received a legal opinion and determined this note is unenforceable and has been written off during the fiscal year ended September 30, 2012 (See Note 7 – Debt Mitigation Program).

 

On May 31, 2006, we secured a short-term loan of $20,000 from a shareholder. The loan carried 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 was 12%. The transaction also included 100,000 warrants to purchase our common stock at $0.036 at any time before May 31, 2009 which expired unexercised. The note had a maturity date of July 10, 2006. Management received a legal opinion and determined this note is unenforceable and has been written off during the fiscal year ended September 30, 2012 (See Note 7 – Debt Mitigation Program).

 

NOTE 7 – DEBT MITIGATION PROGRAM

 

The Company determined that the statute of limitations for certain of the Company’s creditors to enforce collection of any amounts they might be owed has now elapsed. Based on the determinations and findings, during nine months ended June 30, 2013 and year ended September 30, 2012, the Company recognized a gain on the write-off of liabilities in the amount of $58,984 and $410,482 from third party liabilities, respectively, which was recorded in income from discontinued operations, and additional paid-in capital of $0 and $1,163,109 for related party liabilities, respectively. The Company will continue to conduct this analysis going forward and write-off obligations when such obligations are no longer enforceable based on applicable law.

 

The following liabilities, through the opinion of legal counsel, were determined by the Company as unenforceable.

 

		June 30,				September 30,
		2013				2012
Debt Mitigation Program:
Accounts payable and accrued expenses		$	58,984			$	66,281
Disputed salaries & vacation of former officers			—				968,645
Disputed salary – former employee			—				20,256
Disputed payroll taxes for back pay of former officers			—				84,701
Disputed interest			—				227,083
Shareholders demand note payable at 12%			—				11,625
Shareholders demand note payable at 12%			—				20,000
Unsecured note payable at 8% interest due in November 2010, interest payments in default			—				175,000
Total debt mitigation program		$	58,984			$	1,573,591
Gain on write-off of debt		$	(58,984	)		$	(410,483	)
Additional paid-in capital (1)		$	—			$	(1,163,108	)

 

(1)

All amounts that were owed to related parties in prior years were recorded to paid-in-capital.

 

NOTE 8 – COMMITMENT AND CONTINGENCIES

 

Rent expense for the nine months ended June 30, 2013 and 2012 was $0 for both periods.

 

The Company has issued shares to new investors since January 2, 2011, that have an anti-reverse common stock split clause if the Company reverse splits the common stock. The reverse split of common stock is determined by management but must be approved by Financial Industry Regulation Authority (“FINRA”). Presently FINRA has denied the Company the right to reverse

 

split the common stock until all Securities and Exchange Commission filings are current and at that point and time the Company will submit a request to FINRA to execute a reverse split of the common stock of the Company. The current investors holding anti-reverse split stock will have the right to hold the same number of shares of common stock as status quo after the reverse split. The anti-reverse split common stock protection is only for stock subject to reverse split and once the Company declares a reverse split and it is completed, the anti-reverse split protection will be terminate and shareholders that received anti-reverse split stock will be held with regular stockholders as the Company proceeds forward. In accordance with the anti-reverse split provision, no further shares will be issued to the anti-reverse split shareholders once the reverse split is approved and completed.

 

As discussed in Note 7, the Company has written off $58,984 and $1,573,591 in accounts payable, accrued liabilities and notes payable based on the opinion of legal counsel for the nine months ended June 30, 2013 and the year ended September 30, 2012. However, the related creditors could make a claim in the future in regards to these liabilities.

 

NOTE 9– RELATED PARTY TRANSACTIONS

 

On October 15, 2011, the Company issued 30,000,000 shares of common stock to Absolute Medical Software Systems, LLC, an entity owned by MDLG, in full payment of the promissory note and interest accrued in the principal amount of $1,200,106, as of the date of conversion. The market price per share on the date of grant was $0.008 per share. No gain or loss was recorded on the conversion of the convertible promissory note.

 

The Company repaid $25,591 and $148,654of the advances from the Company’s CEO in the nine months ended June 30, 2013 and 2012, respectively. The advances from the CEO are due on demand and do not accrue interest. As of June 30, 2013 and September 30, 2012, the amount owed to the CEO for advances was $0 and $25,591, respectively.

  

NOTE 10 - EQUITY

 

As of June 30, 2013, the Company was authorized to issue 650,000,000 common shares and 4,000,000 preferred shares at a par value of $0.01.

 

Nine Months Ended June 30, 2013

 

Stock Issued for Cash

 

During the nine months ended June 30, 2013, the Company issued 197,500 shares of common stock for $141,000 in net cash proceeds as follows:

 

Date				Number of Shares				Proceeds
	October 14, 2012				20,000			$	20,000
	October 14, 2012				15,000				3,000
	October 14, 2012				18,750				2,500
	October 14, 2012				18,750				2,500
	December 6, 2012				15,000				3,000
	March 12, 2013				20,000				20,000
	March 12, 2013				20,000				20,000
	March 31, 2013				50,000				50,000
	March 27, 2013				20,000				20,000
	Total				197,500			$	141,000

 

Stock Issued in Connection with Software Licensing and Subscription Agreements

 

During the nine months ended June 30, 2013, the Company issued 400,000 shares of common stock valued at $12,313 based on the market price on the date of grant, to customers, in regards to the purchase of software from the Company in accordance with the Software Licensing and Subscription Agreements. The fair values of the shares issued were recorded as a reduction of software revenue recognized during the three months ended June 30, 2013.

 

 

Date				Number of Shares				Fair Value
	October 14, 2012				50,000			$	1,300
	December 6, 2012				100,000				2,800
	March 12, 2013				50,000				1,750
	March 21, 2013				50,000				1,750
	March 21, 2013				50,000				1,750
	April 17, 2013				25,000				838
	April 17, 2013				50,000				1,675
	June 26, 2013				25,000				450
	Total				400,000			$	12,313

 

Stock Issued for Services

 

During the nine months ended June 30, 2013, the Company issued 945,500 shares of common stock as compensation. The fair values of the shares were a total of $31,829 and were recorded at the market price on the date of grant. The issuances of stock were as follows:

 

Date				Number of Shares				Fair Value				Description of Services
	October 14, 2012				10,000			$	260			Commission
	December 6, 2012				100,000				2,800			Compensation
	March 12, 2013				50,000				1,750			Consulting
	March 21, 2013				167,000				5,845			Compensation
	March 21, 2013				500,000				17,500			Compensation
	April 17, 2013				78,500				2,630			Compensation
	May 1, 2013				20,000				522			Programming
	May 10, 2013				20,000				522			Programming
	Total				945,500			$	31,829

 

Stock Issued for Assets Acquisition

 

On April 17, 2013, the Company issued 300,000 shares of common stock valued at $6,000, based on the market price on the date of grant, to Krooss Family Trust LLP for the acquisition of Doctors Network of America in Flowood, Mississippi and all of the assets of that company.

 

During the nine months ended June 30, 2013, the Company issued 500,004 shares of common stock for the acquisition of CipherSmith software. Those shares were valued at $15,800 based on the market price on the dates of grant.

 

Nine Month Ended June 30, 2012

 

Stock Issued for Cash

 

During the nine months ended June 30, 2012, the Company issued 190,000 shares of common stock for proceeds of $68,000 as follows:

 

Date				Number of Shares				Proceeds
	October 15, 2011				25,000			$	5,000
	December 29, 2011				100,000				50,000
	June 21, 2012				65,000				13,000
	Total				190,000			$	68,000

  

Stock Issued in Connection with Software Licensing and Subscription Agreements

 

During the nine months ended June 30, 2012, the Company issued 606,333 shares of common stock valued at $9,251 based on the market price on the date of grant, to customers, in regards to the purchase of software from the Company in accordance with the Software Licensing and Subscription Agreements. The fair values of the shares issued were recorded as a reduction of software revenue recognized during the nine months ended June 30, 2012.

 

 

 

Date				Number of Shares				Fair Value
	December 29, 2011				100,000			$	1,150
	May 29, 2012				25,000				400
	May 29, 2012				50,000				800
	May 29, 2012				100,000				1,600
	May 29, 2012				150,000				2,400
	May 29, 2012				181,333				2,901
	Total				606,333			$	9,251

  

Stock Issued for Services

 

During the nine months ended June 30, 2012, the Company issued 19,000 shares of common stock for compensation. The fair values of the shares were a total of $204 and were recorded at the market price on the date of grant. The issuances of stock were as follows:

 

Date				Number of Shares				Fair Value				Description of Services
	December 5, 2011				8,000			$	82			Legal services
	December 5, 2011				10,000				102			Advisory service
	June 21, 2012				1,000				20			Commission
	Total				19,000			$	204

 

Stock Issued for Debt Settlement

 

On October 15, 2011, the Company issued 30,000,000 shares of common stock for the conversion of debt from our CEO in the principal amount of $1,200,106.

 

Stock Issued for Assets Acquisition

 

The Company issued 200,000 shares of common stock on June 21, 2012 to Krooss Medical Management in accordance with the acquisition agreement for Doctors Network of America and recorded it at the market price of the common shares of $0.02 and as an investment in Krooss Medical Management of $4,000.

 

Preferred Stock

 

The Company has authorized 4,000,000 shares of preferred stock, at $0.01 par value and 4,000,000 are issued and outstanding as of September 30, 2013. 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 have been granted to our CEO & CFO on November 30, 2010 and issued on April 11, 2012 which was valued at the trading price of the common stock of $0.0095 and recorded as an expense of $38,000.

 

NOTE 11 – SUBSEQUENT EVENTS

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

 

In November 2013, the Company entered into a revolving line of credit with Mutual of Omaha for a line of credit in the amount of $65,000 at 4.00% interest rate which renews annually. As of January 10, 2014, the Company had borrowed $36,500.

 

On December 17, 2013, the Company amended its Articles of Incorporation that gave the right to the holders of Preferred A shares to convert 1 share of Convertible Preferred A shares to 150 Common Shares of the Company. The holders of the Preferred A shares can convert the shares upon proper notice and approval of the Board of Directors. Presently, the holders of the Preferred A shares have not sent notice to the Board of Directors.

 

Stock issuances

 

 

Period from July 1, 2013 to September 30, 2013

 

Stock Issued for Cash

 

During the three months ended September 30, 2013, the Company issued 20,000 shares of common stock for $2,000 in net proceeds as follows:

 

Date				Number of Shares				Proceeds
	August 26, 2013				20,000			$	2,000
	Total				20,000			$	2,000

 

Stock Issued in Connection with Software Licensing and Subscription Agreements

 

During the three months ended September 30, 2013, the Company issued 50,000 shares of common stock valued at $1,250 based on the market price on the date of grant, to customers, in regards to the purchase of software from the Company in accordance with the Software Licensing and Subscription Agreements. The fair values of the shares issued were recorded against software revenue recognized during the year ended September 30, 2013.

 

Date				Number of Shares				Fair Value
	September 30, 2013				50,000			$	1,250
	Total				50,000			$	1,250

 

Stock Issued for Services

 

During the three months ended September 30, 2013, the Company issued 220,000 shares of common stock as compensation. The fair values of the shares were a total of $4,800 and were recorded at the market price on the date of grant. The issuances of stock were as follows:

 

Date				Number of Shares				Fair Value				Description of Services
	August 26, 2013				100,000			$	1,800			Software Sales
	September 30, 2013				60,000				1,500			Programming
	September 30, 2013				60,000				1,500			Programming
	Total				220,000			$	4,800

 

Fiscal Year Ending September 30, 2014

 

In October 2013, the Company issued 25,000 shares of common stock for net cash proceeds of $5,000.

 

In October 2013, the Company issued 200,000 shares of common stock for purchase of assets from Antree Systems Limited. These shares were valued at $6,000 based on the market price on the date of grant.

 

In November 2013, the Company issued 180,000 shares of common stock as replacement shares for the 160,000 shares of common stock issued to Antree Systems Limited and 20,000 shares of common stock to Kimberly Ilicerl. The Company intends to cancel the original shares because the shares were lost during delivery to Antree Systems. The Company replaced those lost shares and canceled the shares that were lost when delivered to Ireland the office of Antree Systems.

 

On December 4, 2013, the Company issued 120,000 shares of common stock valued at $3,600 based on the market price on the date of grant, for the purchase of the software licensing and subscription agreements.

 

On January 12, 2014, the Company issued 10,000 shares of common stock for net cash proceeds of $10,000. 

 

Employment Agreements

 

The Company entered into an employment agreement with its Chief Executive Officer on January 1, 2013.  The employment agreement will expire on 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:

 

 

 

i.		A monthly salary of $20,833 subject to an annual increase of 10% and consistent with the Company policy applicable to other senior executives and officers and approval by the Board of Directors.
ii.		A cash bonus of 25% of his annual base salary each year if the Company reaches the following milestones (none of which were attained in 2013):
a.				The Company posts annual gross revenues on a consolidated basis of at least $5,000,000;
b.				The Company's earnings before the deduction of income taxes and amortization expenses (“EBITA”), including cash extraordinary items but before officer's bonuses, on a consolidated basis for any year is at least $1,000,000; or the completion of the delinquent SEC filings for five (5) years through September 30, 2013 or the Company obtains FINRA approval for any reverse stock splits.
iii.		The issuance of shares equal to greater of 3,000,000 restricted common shares, or 1% of the outstanding shares.
iv.		The issuance of common stock on each anniversary date of the employment agreement of 5,000,000 shares and issuance of common stock for every acquisition granting 5,000,000 shares for DNA, 5,000,000 shares for CipherSmith, LLC, and 1,000,000 shares for MediSouth, LLC.
v.		An automobile allowance of $1,500 per month.
vi.		A medical insurance allowance of $1,500 per month.
vii.		In the event the Executive's employment is terminated without cause, he will receive the entire contract remaining on the agreement.

The Company entered into an employment agreement with its Chief Financial Officer on January 1, 2013.  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:

 

i.		A monthly salary of $12,500 per month subject to an annual increase of 10% per year and consistent with the Company policy applicable to other senior executives and officers and approval by the Board of Directors.
ii.		A cash bonus of 25% of her annual base salary each year if the Company reaches the following milestones (none of which were attained in 2013):
a.				The Company posts annual gross revenues on a consolidated basis of at least $5,000,000;
b.				The Company's EBITA, including cash extraordinary items but before officer's bonuses, on a consolidated basis for any year is at least $1,000,000; or the completion of the delinquent SEC filings for five (5) years through September 30, 2013 or the Company obtains FINRA approval for any reverse stock splits.
iii.		The issuance of shares equal to greater of 3,000,000 restricted common shares, or 1% of the outstanding shares.
iv.		The issuance of common stock on each anniversary date of the employment agreement of 5,000,000 shares and issuance of common stock for every acquisition granting 3,000,000 shares for DNA, 3,000,000 shares for CipherSmith, LLC, and 750,000 shares for MediSouth, LLC.
v.		An automobile allowance of $1,000 per month.
vi.		A medical insurance allowance of $1,500 per month.
vii.		In the event the Executive's employment is terminated without cause, she will receive the entire contract remaining on the agreement.

 

* * * * * * * * * * * *

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, 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.

 

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 and Nine Months Ended June 30, 2013 and June 30, 2012

 

Revenue decreased to $137,941 from $243,480 for the three months ended June 30, 2013 and 2012, respectively. Our revenues decreased as a result of lower sales activity during the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Revenue increased to $461,512 from $460,165 for the nine months ended June 30, 2013 and 2012, respectively. The increase is a result of sales activity occurring for the full nine months during the nine month ended June 30, 2013, compared to the commencement of sales activity in January 2012 for the nine months ended June 30, 2012.

 

Cost of revenue decreased to $61,155 from $61,729 for the three months ended June 30, 2013 and 2012, respectively. Our cost of revenue increased to $182,315 from $121,734 for the nine months ended June 30, 2013 and 2012, respectively. Our cost of revenue increased during the nine months period due to the amortization of the software costs placed into service. The software was placed into service during the three months ended March 31, 2012.

 

Selling, general and administrative expenses increased to $202,005 from $78,612 for the three months ended June 30, 2013 and 2012, respectively, and $537,830 from $153,045 for the nine months ended June 30, 2013 and 2012, respectively. The increase in our selling, general and administrative expenses are related to the salaries of management of $232,148 in the nine months ended June 30, 2013 compared to $30,000 in the nine months ended June 30, 2012 as well as an increase in the cost of accounting.

 

Research and development costs increased to $58,044 from $55,000 for the three months ended June 30, 2013 and 2012, respectively, and $153,044 from $97,000 for the nine months ended June 30, 2013 and 2012, respectively. Our research and development costs increase is related to increased salary costs for programmers to update software required to be in compliance with the updates and modifications to the Affordable Care Act.

 

Impairment of assets increased to $6,000 from $4,000 for the nine months ended June 30, 2013 and 2012, respectively. We impaired the purchase of the DNA operations in Mississippi that was discontinued in 2013 due to the pending litigation with Krooss.

 

 

Interest expenses decreased to $15 from $181 for the three months ended June 30, 2013 and 2012, respectively, and $211 from $1,283 for the nine months ended June 30, 2013 and 2012, respectively. Our interest expense decreased as a result of the conversion of debt in October 2012 and the debt mitigation effects.

 

We recorded income from discontinued operations of $1,138 compared to $0 for the three months ended June 30, 2013 and 2012, respectively, as compared to income of 60,084 and $323,868 for the nine months ended June 30, 2013 and 2012, 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 June 30, 2013 of $26,267,542 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 June 30, 2013 in the amount of $5,000 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 (used in) provided by operating activities was ($40,043) and $225,742 for the nine months ended June 30, 2013 and 2012, respectively. It was primarily attributable to the increase of general and administrative expenses in 2013 as compared to the 2012 period.

 

Cash flows from investing activities. Our cash used in investing activities was $10,147 and $0 for the nine months ended June 30, 2013 and 2012, respectively. The increase in cash flows used in investing activities was primarily from the purchase of our EMR Certification for our medical billing software.

 

Cash flows from financing activities. Cash provided by (used in) financing activities was $98,646 and ($69,704) for the nine months ended June 30, 2013 and 2012, respectively. We received cash from the sale of our common stock of $141,000 and $68,000 for the nine months ended June 30, 2013 and 2012, respectively. During the nine months ended June 30, 2013, we repaid the Chase line of credit of $22,427, received $5,664 from the Chase line of credit, and repaid advances from our CEO of $25,591. During the nine months ended June 30, 2012, we received $33,462 from our CEO, repaid advances from our CEO of $148,654 and repaid our Chase Line of Credit of $22,512.

 

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

 

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 June 30, 2013. 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:

 

a.

The inability of the Company to prepare and file its financial statements timely due to its limited financial and personnel resources and delays in the Company’s ability to respond to SEC inquiries regarding financial and accounting presentation. Further, the Company is delinquent in filings its quarterly reports for June 30, 2013 and December 31, 2014.

b.

There were no changes in our internal control over financial reporting that occurred during the nine months ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

c.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. 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 our company, our common stock, any of our subsidiaries or of our company’s or our company’s 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 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 for the collection of $200,000 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 Complaint includes causes of action Breach of the PTAPA, Breach of Billing and Collections Contracts, Negligence, Breach of the Duty of Good Faith and Fair Dealing, Tortious Interference with Business Relations, Fraud, among other causes of action.

 

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 (Breach of the Permanent Transfer Asset Purchase Agreement (“PTAPA”), Rescission of the PTAPA, Breach of Billing and Collections Contracts, Negligence, Quantum Meruit, Restitution, and Estoppel, Breach of the Duty of Good Faith and Fair Dealing, Tortious Interference with Business Relations, among other causes of action) 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. However, the Company has reduced operations in DNA-Cloud in Mississippi as the sellers have interfered with the billing contracts purchased which is one of the causes of action in Complaint, among others. Many of the contracts have been terminated due to the interference by the sellers, and DNA-Cloud has not been able to expand the business because of the reputation of the sellers in Jackson, Mississippi and the surrounding area.

 

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, 2012 during our three months ended June 30, 2013.

 

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

 

Fiscal Year Ending September 30, 2014

 

In October 2013, the Company issued 25,000 shares of common stock for net cash proceeds of $5,000.

 

In October 2013, the Company issued 200,000 shares of common stock for purchase of assets from Antree Systems Limited. These shares were valued at $6,000 based on the market price on the date of grant.

 

In November 2013, the Company issued 180,000 shares of common stock as replacement shares for the 160,000 shares of common stock issued to Antree Systems Limited and 20,000 shares of common stock to Kimberly Ilicerl. The Company intends to cancel the original shares because the shares were lost during delivery to Antree Systems. The Company replaced those lost shares and canceled the shares that were lost when delivered to the Ireland office of Antree Systems.

 

On December 4, 2013, the Company issued 120,000 shares of common stock valued at $3,600 based on the market price on the date of grant, for the purchase of the software licensing and subscription agreements.

 

On January 12, 2014, the Company issued 10,000 shares of common stock for net cash proceeds of $10,000. 

 

Fiscal Year Ended September 30, 2013

 

Stock Issued for Cash

 

During the year ended September 30, 2013, the Company issued 217,500 shares of common stock for $143,000 in net proceeds as follows:

 

 

 

Date				Number of Shares				Proceeds
	October 14, 2012				20,000			$	20,000
	October 14, 2012				15,000				3,000
	October 14, 2012				18,750				2,500
	October 14, 2012				18,750				2,500
	December 6, 2012				15,000				3,000
	March 12, 2013				20,000				20,000
	March 12, 2013				20,000				20,000
	March 31, 2013				50,000				50,000
	April 17, 2013				20,000				20,000
	August 26, 2013				20,000				2,000
	Total				217,500			$	143,000

 

Stock Issued in Connection with Software Licensing and Subscription Agreements

 

During the year ended September 30, 2013, the Company issued 450,000 shares of common stock valued at $13,563 based on the market price on the date of grant, to customers, in regards to the purchase of software from the Company in accordance with the Software Licensing and Subscription Agreements. The fair values of the shares issued were recorded against software revenue recognized during the year ended September 30, 2013.

 

Date				Number of Shares				Fair Value
	October 14, 2012				50,000			$	1,300
	December 6, 2012				100,000				2,800
	March 12, 2013				50,000				1,750
	March 21, 2013				50,000				1,750
	March 21, 2013				50,000				1,750
	April 17, 2013				25,000				838
	April 17, 2013				50,000				1,675
	June 26, 2013				25,000				450
	September 30, 2013				50,000				1,250
	Total				450,000			$	13,563

 

Stock Issued for Services

 

During the year ended September 30, 2013, the Company issued 1,165,500 shares of common stock as compensation. The fair values of the shares were a total of $36,629 and were recorded at the market price on the date of grant. The issuances of stock were as follows:

 

Date				Number of Shares				Fair Value				Description of Services
	October 14, 2012				10,000			$	260			Commission
	December 6, 2012				100,000				2,800			Compensation
	March 12, 2013				50,000				1,750			Consulting
	March 21, 2013				167,000				5,845			Compensation
	March 21, 2013				500,000				17,500			Compensation
	April 17, 2013				78,500				2,630			Compensation
	May 1, 2013				20,000				522			Programming
	May 10, 2013				20,000				522			Programming
	August 26, 2013				100,000				1,800			Software Sales
	September 30, 2013				60,000				1,500			Programming
	September 30, 2013				60,000				1,500			Programming
	Total				1,165,500			$	36,629

 

Stock Issued for Assets Acquisition

 

On April 17, 2013, the Company issued 300,000 shares of common stock valued at $6,000, based on the market price on the date of grant, to Krooss Family Trust LLP for the acquisition of Doctors Network of America in Flowood, Mississippi and all of the assets of that company.

 

During year ended September 30, 2013, the Company issued 500,004 shares of common stock for the acquisition of CipherSmith software. Those shares were valued at $15,800 based on the market price on the dates of grant.

Fiscal Year Ended September 30, 2012

 

Stock Issued for Cash

 

During year ended September 30, 2012, the Company issued 190,000 shares of common stock for proceeds of $68,000 as follows:

 

Date				Number of Shares				Proceeds
	October 15, 2011				25,000			$	5,000
	December 29, 2011				100,000				50,000
	June 21, 2012				65,000				13,000
	Total				190,000			$	68,000

  

Stock Issued in Connection with Software Licensing and Subscription Agreements

 

During the year ended September 30, 2012, the Company issued 941,333 shares of common stock valued at $19,301 based on the market price on the date of grant, to customers, in regards to the purchase of software from the Company in accordance with the Software Licensing and Subscription Agreements. The fair values of the shares issued were recorded against software revenue recognized during the year ended September 30, 2012.

 

Date				Number of Shares				Fair Value
	December 29, 2011				100,000			$	1,150
	May 29, 2012				25,000				400
	May 29, 2012				50,000				800
	May 29, 2012				100,000				1,600
	May 29, 2012				150,000				2,400
	May 29, 2012				181,333				2,901
	August 9, 2012				300,000				9,000
	August 9, 2012				35,000				1,050
	Total				941,333			$	19,301

  

Stock Issued for Services

 

During the year ended September 30, 2012, the Company issued 33,000 shares of common stock for compensation. The fair values of the shares were a total of $624 and were recorded at the market price on the date of grant. The issuances of stock were as follows:

 

Date				Number of Shares				Fair Value				Description of Services
	December 5, 2011				8,000			$	82			Legal services
	December 5, 2011				10,000				102			Advisory service
	June 21, 2012				1,000				20			Commission
	August 9, 2012				14,000				420			Commission
	Total				33,000			$	624

 

Stock Issued for Debt Settlement

 

On October 15, 2011, the Company issued 30,000,000 shares of common stock for the conversion of debt from our CEO in the principal amount of $1,200,106.

 

Stock Issued for Assets Acquisition

 

The Company issued 200,000 shares of common stock on June 21, 2012 to Krooss Medical Management in accordance with the acquisition agreement for Doctors Network of America and recorded it at the market price of the common shares of $0.020 and as an investment in Krooss Medical Management of $4,000.

 

The Company issued 100,000 shares of common stock to MediSouth LLC in accordance with the acquisition agreement and recorded it at the market price of the common shares of $0.025 and as an investment in MediSouth LLC of $2,500.

 

The offer and sale of such shares of our common stock were effected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Rule 506 promulgated under the Securities Act of 1933 (the “Securities Act”) and in Section 4(2) of the Securities Act, based on the following: (a) the investors confirmed to us that they were “accredited investors,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and had such background, education and experience

 

in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (b) there was no public offering or general solicitation with respect to the offering; (c) the investors were provided with certain disclosure materials and all other information requested with respect to our company; (d) the investors acknowledged that all securities being purchased were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act; and (e) a legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequent registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

  

There were no defaults upon senior securities during the nine months period ended June 30, 2013.

 

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

3.1	Articles of Incorporation(1)
3.2	Bylaws(2)
10.1	Employment Agreement between National Scientific Corporation and Michael A. Grollman dated January 2001(4)
10.2	Employment Agreement between National Scientific Corporation and Graham L. Clark dated January 2003(6)
10.3	NSC Consulting Agreement dated August 2001, and Amendments dated August 2002 and July 2003, with Dr. El-Badawy El-Sharawy(6)
10.4	Amended and Restated 2000 Stock Option Plan(3)
10.5	Form of 2004 Stock Retainage Plan Agreement(6)
10.6	Agreement Regarding Management Consulting Services with Stanton Walker of New York dated May 2003(6)
10.7	Agreement Regarding Distribution and Marketing of Gotcha!® Child Safety Product and other products dated December 2002 with FutureCom Global, Inc. (6)
10.8	Purchase Order from Verify Systems, Inc, dated March 2003 for IBUS™ School Child Tracking Systems(5)
10.9	Letter of Understanding and Agreement dated April 2004 Regarding Sales and Distribution of Verify School safety products, and an Unlimited Software License with Anthony Grosso and CIS Services, LLC(6)
10.10	Letter of Intent from Positus, Inc. dba Bike & Cycle Trak, dated February 2003 for Design of Power Sports Tracking System(6)
10.11	Purchase Order from Positus, Inc. dba Bike & Cycle Trak, for Design of Power Sports Tracking System dated March 2003(6)
10.12	Employment agreement of Michael De La Garza(8)
10.13	Employment agreement of Pamela Thompson(8)
14	Code of Ethics(7)
31	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

____________

		(1)	Incorporated by reference to the Registrant’s Form 10-SB filed on or about January 3, 2000.
		(2)	Incorporated by reference to the Registrant’s Form 10-QSB for the quarter ended March 31, 2001 and filed on or about May 15, 2001.
		(3)	Incorporated by reference to the Registrant’s Form 10-QSB for the quarter ended December 31, 2000 and filed on or about February 14, 2001.
		(4)	Incorporated by reference to the Registrant’s Form 10-KSB for the year ended September 30, 2000 and filed on or about December 19, 2000.
	(5)		Incorporated by reference to the Registrant’s Form S-8 filed on or around June 3, 2003.
	(6)		Incorporated by reference to the Registrant’s Form SB2 filed on or around June 24, 2004.
	(7)		Incorporated by reference to the Registrant’s Form 10-QSB for the quarter ended June 30, 2004 and filed on or about August 16, 2004.
	(8)		Incorporated by reference to the Registrant’s Form 10-K for the year ended September 30, 2011 and filed on or about October 10, 2013.

 

 

 

 

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.

 

Registrant   Date: March 3, 2014		Cloud Medical Doctor Software Corporation   By: /s/ Michael De La Garza
		Michael De La Garza
		Chief Executive Officer (Principal Executive Officer)

 

 

 

Registrant   Date: March 3, 2014		Cloud Medical Doctor Software Corporation   By: /s/ Pamela Thompson
		Pamela Thompson
		Principal Financial Officer