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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended January 31, 2013

 

OR

 

COMMISSION FILE NUMBER: 333-153402

 

AMBICOM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 26-2964607

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

500 Alder Drive. Milpitas, CA 95035 (408) 321-0822

(Address of principal executive offices)

 

(408) 321-0822

(Registrant’s Telephone Number, Including Area Code)

 

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

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 x     No ¨

 

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

 

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o 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  o No x 

 

Aggregate market value of common stock held by non-affiliates of the Registrant as of March 5, 2013: $863,261. As of March 5, 2013, the registrant had 10,790,760 shares of common stock, par value $0.008 per share, issued and outstanding.

  

1
 

 

TABLE OF CONTENTS

 

    PAGE
PART I FINANCIAL INFORMATION   4
     
ITEM 1. FINANCIAL STATEMENTS   4
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   17
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   21
     
ITEM 4. CONTROLS AND PROCEDURES   21
     
PART II OTHER INFORMATION   22
     
ITEM 1. LEGAL PROCEEDINGS   22
     
ITEM 1A. RISK FACTORS   22
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   22
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES   22
     
ITEM 4. (REMOVED AND RESERVED)   22
     
ITEM 5. OTHER INFORMATION   22
     
ITEM 6. EXHIBITS   22
     
SIGNATURES    
     
EXHIBIT 31.1    
     
EXHIBIT 31.2    
     
EXHIBIT 32.1    
     
EXHIBIT 32.2    

 

2
 

PART I

FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

    Page
Condensed Consolidated Balance Sheets as of January 31, 2013 (Unaudited) and July 31, 2012 (Audited)   4
     
Condensed Consolidated Statements of Operations for the Three and Six Months Ended January 31, 2013 and 2012 (Unaudited)   5
     
Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended January 31, 2013 and 2012 (Unaudited)   6
     
Notes to Condensed Consolidated Financial Statements for the Three and Six Months Ended January 31, 2013 and 2012 (Unaudited). For Interim, Comparison is Made to Both July 31, 2012 and January 31, 2013 (Unaudited)   7

  

3
 

 

 

AMBICOM HOLDINGS, INC. 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

         
   January 31,   July 31, 
ASSETS  2013   2012 
   (Unaudited)   (Audited) 
Current assets:          
Cash and cash equivalents  $693,780   $249,327 
Accounts receivable, net of allowance for doubtful accounts of $26 and $509 as of January 31, 2013, and July 31, 2012, respectively   111,058    215,921 
Inventory, net of reserve balances of $20,591 and $41,192 as of January 31, 2013, and July 31, 2012, respectively   135,038    178,104 
Prepaid expenses and other current assets   107,703    115,399 
Total current assets   1,047,579    758,751 
           
Property and equipment, net   18,159    20,313 
Deposit   20,695    20,695 
Total assets  $1,086,433   $799,759 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable and accrued liabilities  $103,457   $71,891 
Accounts payable - other   57,810    71,339 
Deferred revenue   567,998    595,004 
Notes payable - current portion   25,000    55,000 
Total current liabilities   754,265    793,234 
           
Total liabilities   754,265    793,234 
           
Commitment and contingency (Note 9)          
           
Stockholders’ equity:          
Common stock, $0.008 par value; 125,000,000 shares authorized; 10,790,760 and 9,790,760 shares issued and outstanding at January 31, 2013 and July 31, 2012, respectively   86,323    78,323 
Preferred stock, Series A, $0.001 per share; 9,400,000 shares authorized; 7,050,000 and 7,050,000 shares issued and outstanding at January 31, 2013 and July 31, 2012, respectively   7,050    7,050 
Preferred stock, Series B, $0.008 per share 325,000 shares authorized; 262,475 and 262,475 shares issued and outstanding at January 31, 2013 and July 31, 2012, respectively   2,100    2,100 
Additional paid in capital   11,418,158    11,401,458 
Accumulated deficit   (11,181,463)   (11,482,406)
Total stockholders’ equity   332,168    6,525 
   $1,086,433   $799,759 

 

 The accompanying notes are an integral part of these consolidated financial statements.

 

4
 

 

AMBICOM HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                 
   Three Months Ended January 31,   Six Months Ended January 31, 
   2013   2012   2013   2012 
                 
Sales  $785,717   $458,813   $1,632,921   $607,760 
                     
Cost of sales   337,825    189,763    757,370    263,709 
                     
Gross profits   447,892    269,050    875,551    344,051 
                     
Operating Expenses                    
Depreciation   1,576    1,602    3,120    3,393 
Professional fees   76,005    59,410    139,873    328,574 
Selling and general expenses   215,990    247,424    431,617    543,904 
Total operating expenses   293,571    308,436    574,610    875,871 
                     
Income (loss) from operations   154,321    (39,386)   300,941    (531,820)
                     
Other income (expense)                    
Other income and expense, net   -    -    -    2,696 
Interest income (expense), net   1    9    2    (3,084)
Net other income (expense)   1    9    2    (388)
                     
Total income (loss) before income taxes   154,322    (39,377)   300,943    (532,208)
                     
Income taxes   -    -    -    - 
                     
Net income (loss)  $154,322   $(39,377)  $300,943   $(532,208)
                     
Net income (loss) per share - basic  $0.015   $(0.006)  $0.029   $(0.078)
                     
Net income (loss) per share - diluted  $0.009   $(0.002)  $0.017   $(0.032)
                     
Weighted average shares outstanding — basic   10,590,760    7,010,000    10,233,617    6,799,202 
                     
Weighted average shares outstanding — diluted   17,903,235    16,672,488    17,546,092    16,461,690 

 

The accompanying notes are an integral part of these consolidated financial statements.

5
 

 

AMBICOM HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JANUARY 31,
   2013   2012 
   (Unaudited) 
Cash flows from operating activities:          
Net income (loss)  $300,943   $(532,208)
Net income items not affecting cash:          
Depreciation and amortization   3,120    3,393 
Stock-based compensation   4,700    5,413 
Issuance of stock to board member for advisory services   20,000    - 
Increase (reduction) in bad debt reserve   110    (2,256)
Decrease in reserve for inventory loss   (19,350)   (10,321)
           
Decrease / (Increase) in operating assets:          
Accounts receivable   104,752    (40,478)
Inventory   62,417    112,804 
Prepaid expense   7,697    16,904 
           
Increase / (Decrease) in operating liabilities:          
Accounts payable - trade   32,118    29,502 
Accrued payable - other   (14,081)   38,819 
Unearned revenue   (27,007)   154,956 
           
Net cash provided by (used in) operating activities   475,419    (223,472)
           
Cash flows from investing activities:          
Capital expenditures   (966)   - 
           
Net cash used in investing activities   (966)   - 
           
Cash flows from financing activities:          
Net payments on line of credit   -    (290,000)
Payments on notes payable   (30,000)   (30,000)
Issuance of stock to outside firms for services   -    244,501 
Net cash used in financing activities   (30,000)   (75,499)
           
Net increase (decrease) in cash and cash equivalents   444,453    (298,971)
Cash and cash equivalents, beginning of period   249,327    524,512 
           
Cash and cash equivalents, end of period  $693,780   $225,541 
           
Supplemental information:          
Income taxes paid  $-   $- 
Interest paid  $-   $3,084 

 

 The accompanying notes are an integral part of these consolidated financial statements.

6
 

 

AMBICOM HOLDINGS, INC.

NOTES TO CONSENSED CONSOLIDATED FINANCIAL STATEMENTS.

FOR INTERIM, COMPARISON IS MADE TO BOTH 07/31/12 AND 1/31/13(UNAUDITED)

 

NOTE 1 – Organization and Principal Activities

 

AmbiCom Holdings, Inc. (“AmbiCom Holdings” or the ‘Company”) was incorporated as Med Control, Inc. (“Med Control”) under the laws of the State of Nevada on July 1, 2008. Med Control was a development stage enterprise until January 15, 2010. All of Med Control’s activities prior to January 15, 2010 related to its organization, initial funding and share issuances. On January 15, 2010, Med Control Inc. changed its name to AmbiCom Holdings, Inc.

 

On January 15, 2010, Med Control, Inc. (the “Registrant”) authorized an amendment to its Articles of Incorporation (the “Amendment”) to change the Registrant’s name to AmbiCom Holdings, Inc., to increase the number of its authorized shares of capital stock from 75,000,000 to 1,050,000,000 shares of which 1,000,000,000 were designated common stock and 50,000,000 were designated preferred stock, par value $0.001 per share (the “Preferred Stock”) and to effect a forward-split such that 131.2335958 shares of Common Stock were issued for every 1 share of Common Stock issued and outstanding immediately prior to filing of the amendment (the “Forward Split”).

 

On January 15, 2010, the Company acquired AmbiCom Acquisition Corp. a privately owned Nevada corporation (“AmbiCom”), pursuant to an Agreement and Plan of Share Exchange (the “Exchange”). AmbiCom was organized under the laws of the State of Nevada on July 29, 2008. AmbiCom is a holding company whose operating company, AmbiCom, Inc., is a designer and developer of wireless products focusing on the wireless medical industry. AmbiCom’s wireless modules and devices are based on its innovative application software and Wi-Fi or Bluetooth technologies.

 

Pursuant to the terms of the Exchange, the Company acquired AmbiCom from the AmbiCom equity holders in exchange for an aggregate of 20,000,000 newly issued shares of Common Stock, 2,600,000 shares of Series B Preferred Stock, an option to purchase 5,500,000 shares of Common Stock and 2,350,000 shares of Series A Preferred Stock at the purchase price of $.01 per share, and warrants to purchase 500,000 shares of Common Stock at the exercise price of $0.50 per share (collectively, the “Exchange Shares”). As a result of the Exchange, the AmbiCom equity holders surrendered all of their issued and outstanding capital stock of AmbiCom in consideration for the Exchange Shares and AmbiCom became a wholly-owned subsidiary of the Company.

 

Simultaneously upon the Closing, the Company closed an offering (the “Offering”) of its Common Stock at a price of $0.40 per share for an aggregate of 1,250,000 shares of Common Stock for aggregate offering price of $500,000.

 

In addition, contemporaneously with the Closing, the Company and our former principal stockholder, Ms. Kato, split-off its wholly owned subsidiary, MCI Acquisition Corp., a newly-formed Nevada corporation (“MCAC”), whereby the Company assigned all of its previous operating assets to MCAC in consideration for the assumption of all of the Company’s liabilities to Ms. Kato, who is currently the principal shareholder of MCI and the retirement and cancellation of Ms. Kato’s 6,000,000 shares of Common Stock pursuant to the terms and conditions of a split-off agreement by and among the Company, Ms. Kato, and MCAC (the “Split-Off Agreement”).

 

Following the issuance of the Exchange Shares and the retirement of Ms. Kato’s shares pursuant to the Split-Off Agreement, the former stockholders of AmbiCom and/or their designees now beneficially own approximately fifty-five percent (55%) of the total outstanding shares of Common Stock, and after giving effect to the conversion of the Series B in accordance with their respective terms (and the satisfaction of certain conditions to the conversion of such shares) seventy-six percent (76%) of the total outstanding shares of Common Stock on a fully-diluted basis.  

7
 

 

Details of the Company’s subsidiary as of January 31, 2013 are as follows:

 

Name  

Place and Date of

Establishment/

Incorporation

  Relationships   Principal Activities
             
E-Care USA, Inc.  

Nevada

March 15, 2011

  Wholly-owned subsidiary of AmbiCom Holdings, Inc.   Designer and developer of wireless home medical devices
             

 

Inter-company accounts and transactions have been eliminated in consolidation.

 

NOTE 2 – Basis of Presentation

 

The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States for financial information. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Significant estimates made in preparing the financial statements include revenue recognition and costs of revenue, inventory valuations, and loss contingencies. In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the periods presented.

 

For financial accounting purposes, the acquisition was a reverse acquisition of the Company by AmbiCom, under the purchase method of accounting, and was treated as a recapitalization with AmbiCom as the acquirer.  Upon consummation of the Exchange, the Company adopted the business plan of AmbiCom.

 

NOTE 3 – Summary of Significant Accounting Policies

 

The summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.

 

a) Description of Business - The Company is a leading designer and developer of wireless technologies which emphasize wireless medical and other wireless products.

 

b) Segment Information - The Company follows ASC Topic 280, “Disclosures about Segments of an Enterprise and Related Information.” Topic 280 requires that a company report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker currently evaluates the Company’s operations from a number of different operational perspectives including but not limited to a client by client basis. The Company derives all significant revenues from a single reportable operating segment of business. Accordingly, the Company does not report more than one segment; nevertheless, management evaluates, at least annually, whether the Company continues to have one single reportable segment.

 

c) Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates, and the differences may be material to the financial statements. Estimates are used primarily in determining the depreciable lives of fixed assets, and inventory valuation. In addition, estimates form the basis for the reserves for sales allowances, accounts receivable and inventory. Various assumptions go into the determination of these estimates. The process of determining significant estimates requires consideration of factors such as historical experience and current and expected economic conditions.

  

8
 

 

d) Cash and Cash Equivalents - The Company considers all highly liquid investments and time deposits with original maturities of three months or less when purchased to be cash equivalents. All cash and cash equivalents are maintained with nationally recognized financial institutions.

 

e) Allowance for Doubtful Accounts - An allowance for doubtful accounts is computed based on the Company’s historical experience and management’s analysis of possible bad debts. Accounts receivable are shown net of an allowance for doubtful accounts of $26 as of January 31, 2013 and $509 as of July 31, 2012, respectively.

 

f) Inventories - Inventories are stated at the lower of cost or market on an average basis. Inventory reserves are recorded for damaged, obsolete, excess and slow-moving inventory. Market value of inventory is estimated based on the impact of market trends, an evaluation of economic conditions and the value of current orders relating to the future sales of this type of inventory. As of January 31, 2013 and July 31, 2012, the value of the inventory reserve was $20,591 and $41,192, respectively.

 

g) Income Taxes - The Company accounts for income taxes pursuant to the FASB ASC Topic 740, "Accounting for Uncertainty in Income Taxes", (“Topic 740”). Topic 740 clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with generally accepted accounting principles. The calculation of the Company's tax provision involves the application of complex tax rules and regulations within multiple jurisdictions. The Company's tax liabilities include estimates for all income-related taxes that the Company believes are probable and that can be reasonably estimated. To the extent that the Company’s estimates are understated, additional charges to the provision for income taxes would be recorded in the period in which the Company determines such understatement. If the Company's income tax estimates are overstated, income tax benefits will be recognized when realized. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Topic 740 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

 

h) Revenue Recognition - The majority of the Company's product revenues are recognized upon shipment or delivery and acceptance of products by customers, when pervasive evidence of a sales arrangement exists, the price is fixed or determinable, the title has transferred and collection of resulting receivables is reasonably assured. For merchandise products, the Company recognizes revenue upon shipment of products, when title is passed and the amount collectible can reasonably be determined. All amounts billed to a customer related to shipping and handling are classified as revenue, while all costs incurred by the Company for shipping and handling are classified as selling expenses. For non-recurring engineering (“NRE”) projects, revenue is recognized for the deliverable portions that meet the revenue recognition criteria that persuasive evidence that an agreement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured.

 

i) Research and Development Costs - Research and development costs are expensed as incurred.

 

j) Stock-Based Compensation - The Company adopted ASC Topic 718 “Share-Based Payment”. As permitted, the Company elected to adopt disclosure-only provisions of ASC 718 in accordance with generally accepted accounting principles. Under the provisions of Topic ASC 718, compensation expense is recognized based on the fair value of options on the grant date.

 

k) Fair Value of Financial Instruments - ASC Topic 820, “Fair Value Measurements”, requires disclosure of the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). The Company's financial instruments consist of cash and cash equivalents, short-term trade receivables and payables at January 31.

 

Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at:

9
 

 

   January 31, 2013   July 31, 2012 
   Carrying amount   Fair value   Carrying amount   Fair value 
Financial assets:                    
Cash and cash equivalents   693,780    693,780    249,327    249,327 
Accounts receivable   111,058    111,058    215,921    215,921 
                     
Financial liabilities:                    
Accounts payable and accrued liabilities   103,457    103,457    71,891    71,891 
Notes payable   25,000    24,807    55,000    54,045 

  

The fair values of the financial instruments shown in the above table represent the amounts that would be received when those assets are sold or that would be paid when those liabilities are transferred in an orderly transaction between market participants at the measurement date. Those fair value measurements maximize the use of observable inputs.

 

However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available observable and unobservable inputs.

 

The Company uses the following methods and assumptions in estimating the fair value disclosures for financial instruments:

 

Cash equivalents

The carrying amount reported in the balance sheets of cash equivalents approximate fair value because of the relatively short time to maturity.

 

Accounts receivable

The carrying amount reported in the balance sheets of accounts receivable approximate fair value because of the relatively short time to maturity.

 

Accounts payable and accrued liabilities

The carrying amount reported in the balance sheets of accrued payable and accrued liabilities approximate fair value because of the relatively short time to maturity.

 

Notes payable

The fair value of the Company’s notes payable are measured using quoted offer-side prices when quoted market prices are available. If quoted market prices are not available, the fair value is determined by discounting the future cash flows of each instrument at rates that reflect rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk. For long-term debt measurements, where there are no rates currently observable in publicly traded debt markets of similar terms with comparable credit, the Company uses market interest rates and adjusts that rate for all necessary risks, including its own credit risk.

 

Fair Value Hierarchy

 

The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis at:

10
 

  

     

Fair value measurements at

reporting date using

 

 

 

 

 

 

January 31, 2013

 

Quoted prices in active markets for identical assets

(Level 1)

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant unobservable inputs

(Level 3)

               
Notes payable 25,000       24,806

 

     

Fair value measurements at

reporting date using

 

 

 

 

 

 

July 31, 2012

 

Quoted prices in active

markets for identical assets

(Level 1)

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant unobservable inputs

(Level 3)

               
Notes payable 55,000           54,045

  

l) Translation of Foreign Currency - The Company accounts for its foreign operations in accordance with ASC Topic 830, “Foreign Currency Translation”. For the branch, non-monetary balance sheet items and related income statements items are translated at historical exchange rates, while monetary balance sheet items are translated at current exchange rates. Income statement items, other than monetary, are translated at the weighted average exchange rate during the year. Deferred taxes are not provided on translation gains and losses where the Company expects earnings of a foreign branch to be permanently reinvested.

 

m) Concentration - Financial instruments which potentially subject the Company to concentrations of credit risk are primarily accounts receivable. The Company performs ongoing credit evaluations of its customers’ financial condition. If the collection of the receivable becomes doubtful, the Company establishes a reserve in an amount determined appropriate for the perceived risk. The Company maintains its cash accounts at commercial banks. From time to time, cash balances maintained in such banks may exceed the insured amount by the Federal Deposit Insurance Corporation (FDIC). As of January 31, 2013 and July 31, 2012, management does not believe they are exposed to any significant risk on their cash balances. The Company’s products are primarily sold to global medical device companies. These customers can be significantly affected by changes in economic, competitive or other factors. The Company makes substantial sales to a relatively few, large customers, they are seeking to capture more business from other targeted medical device companies.

 

One customer accounted for $107,996 (97%) of receivables on January 31, 2013 while two customers accounted for $150,000 (69%) and $60,800 (28%) as of July 31, 2012.

 

Two customers accounted for $554,724 (71%) and $174,900 (22%) of revenue for the three months ended January 31, 2013 and two customers accounted for $216,600 (47%) and $195,780 (43%) of revenue for the three months ended January 31, 2012. Three customers accounted for $1,010,724 (62%), $300,000 (18%), and $174,900 (11%) of the revenues for the six months ended January 31, 2013 and three customers accounted for $216,600 (36%), $202,530 (33%), and $91,921 (15%) of the revenues for the six months ended January 31, 2012, respectively.

 

Three vendors accounted for $40,000 (39%), $28,764 (28%), and $15,531 (15%) of accounts payable as of January 31, 2013 and three vendors accounted for $30,000 (42%), $13,973 (20%), and $11,048 (16%) of accounts payable as of July 31, 2012, respectively.

  

One vendor accounted for $374,724 (97%) of the purchases for the three months ended January 31, 2013, and one vendor accounted for $94,338 (78%) of the purchases for the three months ended January 31, 2012. One vendor accounted for $680,724 (96%) of the purchases for the six months ended January 31, 2013, and three vendors accounted for $94,338 (56%), $39,000 (23%), and $20,000 (12%) of the purchases for the six months ended January 31, 2012, respectively.

 

11
 

NOTE 4 – Liquidity and Shareholders’ Equity

 

Cash and cash equivalents were $693,780 and $249,327 at January 31, 2013 and July 31, 2012, respectively. Our working capital was a positive balance of $293,314 and a negative balance of $34,483 at January 31, 2013 and July 31, 2012, respectively.

 

Preferred Stock 

 

The Company's Amended Articles of Incorporation authorizes the issuance of 50,000,000 shares of Preferred Stock, par value $0.001 per share, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series. Each such series of Preferred Stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the Company's board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

 

Series A Convertible Preferred Stock

 

The Company has authorized a total of 9,400,000 shares of Series A Convertible Preferred Stock (the “Series A”).  The Series A is convertible at any time into shares of the Company’s common stock at the conversion rate of one share of Common Stock per each share of Series A converted.  The Series A is treated on an “as converted” basis for both voting and liquidation rights. For the year-ended July 31, 2012, 7,050,000 shares of Series A were issued and outstanding. There are currently 7,050,000 shares of Series A outstanding as of January 31, 2013. In June 2011, an amendment was filed with the Secretary of State of Nevada whereby the conversion price of Series A would remain unchanged in event of stock split, stock dividend on the common stock, a reclassification of the common stock or distribution to holders of common stock. If the Company reports net income in two of the following four years following the Exchange, the Series A shall be convertible into Common Stock at the conversion rate of two shares of Common Stock per each share of Series A converted.  

 

Series B Convertible Preferred Stock

 

In September 2011, the Company Amended and Restated its Articles of Incorporation. Before the amendment, there were 2,600,000 shares of Series B Convertible Preferred Stock outstanding at $0.001 par value per share as of July 31, 2011. After the amendment, there were 325,000 shares of Series B Convertible Preferred Stock outstanding at $0.008 par value per share as of July 31, 2011.

 

For the year-ended July 31, 2012, there were 262,475 shares of Series B Convertible Preferred Stock outstanding. There are currently 262,475 shares of Series B outstanding as of January 31, 2013.

 

The Series B accrues annual dividends at the rate of 6% per year in shares of Common Stock at the dividend conversion rate of $1.00.  The Series B, together with any unpaid dividends, is convertible at any time into shares of the Company’s common stock at the conversion rate of one share of Common Stock per each share of Series B converted.  Following the second anniversary of the Exchange, the Series B, together with any unpaid dividends, shall be convertible into Common Stock at the conversion price of forty cents ($0.40) or seventy percent (70%) of the daily volume weighted average price of the Common Stock for the twenty trading days immediately prior to the conversion.  The Series B is redeemable by the Company, at any time prior to December 31, 2015, in cash at the redemption rate of $1.00 per share of Series B plus any accrued and unpaid dividends.  On December 31, 2015, all outstanding shares of Series B shall be redeemed by the Company at a per share redemption price equal to $1.00 per share of Series B plus an amount of Common Stock equal to the amount of the accrued and unpaid dividend thereon.  The Series B has a liquidation preference of $2,600,000 and ranks prior to the Series A and the Common Stock.  The Series B votes on an “as converted” basis.  

 

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Options

 

As of the Exchange date, there were fully vested options outstanding to purchase 5,500,000 shares of Common Stock and 2,350,000 shares of Series A Preferred Stock, both at a purchase price of $0.01 per share as well as 7,050,000 shares of Series A Preferred Stock as part of the Exchange.  On April 27, 2010 the Board granted a non cash bonus to Mr. Kenneth Cheng of $55,000 upon receipt of which, all 5,500,000 options for Common Stock were exercised. On July 20, 2011, Mr. Kenneth Cheng exercised all 2,350,000 options for Series A Preferred Stock. On June 1, 2011, all 7,050,000 shares for Series A Preferred Stock were issued to Mr. John Hwang as part of the Exchange agreement.

 

As of January 31, 2013, there were options issued and outstanding for the purchases of 360,667 shares of Common Stock.

 

2010 Equity Incentive Plan

 

On January 15, 2010, our Board and Stockholders approved and adopted the 2010 Equity Incentive Plan (the “2010 Plan”). A copy of the 2010 Plan was attached as Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2010.

 

The 2010 Plan is intended to promote the interests of the Company by attracting and retaining exceptional employees, consultants, directors, officers and independent contractors (collectively referred to as the “Participants”), and enabling such Participants to participate in the long-term growth and financial success of the Company. Under the 2010 Plan, the Company may grant stock options, which are intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Incentive Stock Options”), non-qualified stock options (the “Nonqualified Stock Options”), stock appreciation rights (“SARs”) and restricted stock awards (the “Restricted Stock Awards”), which are restricted shares of Common Stock (the Incentive Stock Options, the Nonqualified Stock Options, the SARs and the Restricted Stock Awards are collectively referred to as “Incentive Awards”). Incentive Awards may be granted pursuant to the 2010 Plan for 10 years from the Effective Date.

 

From time to time, the Company may issue Incentive Awards pursuant to the 2010 Plan.  Each of the awards will be evidenced by and issued under a written agreement. In accordance with the rules of the plan, the exercise price of options granted shall be not less than 110% of the average of the closing price for the 30 days preceding the grant date.

 

The Board reserved a total of 2,277,778 shares of our Common Stock for issuance under the 2010 Plan. If an incentive award granted under the 2010 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the Plan.

 

The number of shares subject to the 2010 Plan, any number of shares subject to any numerical limit in the 2010 Plan, and the number of shares and terms of any Incentive Award may be adjusted in the event of any change in our outstanding Common Stock by reason of any stock dividend, spin-off, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares, or similar transaction.

 

On September 1, 2010, 840,000 options were granted to eight employees at an exercise price of $0.20 per share. Using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 1.79%; volatility of 40%; expected life of 10 years; and, all option grants without payment of dividends, the Company recognized a non-cash stock compensation charge of $1,339 for the three months ended January 31, 2013 and $2,676 for the six months ended January 31, 2013 in connection with the issuance and vesting of these options.

 

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On May 1, 2012, 250,000 options were granted to two employees at an exercise price of $0.09 per share. Using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 1.79%; volatility of 40%; expected life of 10 years; and, all option grants without payment of dividends, the Company recognized a non-cash stock compensation charge of $733 for the three months ended January 31, 2013 and $1,466 for the six months ended January 31, 2013 in connection with the issuance and vesting of these options.

 

On September 1, 2012, 75,000 options were granted to two employees at an exercise price of $0.03 per share. Using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 1.79%; volatility of 40%; expected life of 10 years; and, all option grants without payment of dividends, the Company recognized a non-cash stock compensation charge of $336 for the three months ended January 31, 2013 and $560 for the six months ended January 31, 2013 in connection with the issuance and vesting of these options. At January 31, 2013, 1,112,778 options remain available for future grant under the Plan.

 

As of January 31, 2013, there were 360,667 options issued and outstanding under the terms of the 2010 Plan.

 

Common Stock

 

In September 2011, the Company Amended and Restated its Articles of Incorporation decreasing authorized shares for issuance from 1,000,000,000 shares of common stock, $0.001 par value per share to 125,000,000 shares of common stock, $0.008 par value per share. Before the amendment, there were 52,577,445 shares outstanding as of July 31, 2011. After the amendment, there were 10,790,760 shares and 9,790,760 shares outstanding as of January 31, 2013 and July 31, 2012, respectively.

 

NOTE 5 –Gain on Settlement

 

Litigation settlement

 

The Company had an ongoing litigation over accounts receivable and payable with Ambeon Corporation, a related party by virtue of common ownership. The dispute started in 2004 and was settled in favor of the Company under the Shih Lin District Court of Taiwan on August 20, 2008. The Company agreed to pay a sum of $560,000 and the remaining disputed payable balances were decreased in favor of the Company, and settlement income of $843,572 was realized in year 2008. As of January 31, 2013, the Company has paid $535,000 towards the settlement. The remaining minimum payments due under the settlement are as follows:

 

Year Ending July 31:

2013    25,000 
       
Total   $25,000 

 

NOTE 6 – Property and Equipment

 

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets: furniture and fixtures –seven years; machinery and equipment –five years; software – five years; leasehold improvements –the life of the current facility lease. Major additions and betterments are capitalized and repairs and maintenance are charged to operations in the period incurred. Depreciation expense for the three months ended January 31, 2013 and 2012 was $1,576 and $1,602, respectively. Depreciation expense for the six months ended January 31, 2013 and 2012 was $3,120 and $3,393, respectively.

 

   January 31, 2013   July 31, 2012 
Furniture and fixture  $27,634   $27,635 
Machinery and equipment   26,196    25,229 
Software   359,417    359,417 
Leasehold Improvements   5,985    5,985 
    419,232    418,266 
Accumulated depreciation   (401,073)   (397,953)
Property and equipment, net  $18,159   $20,313 

 

NOTE 7 - Notes Payable

 

Notes payable, which are unsecured, consist of the following as of January 31, 2013 and July 31, 2012:

  

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Notes Payable Consist of the Following at:

 

   January 31, 2013   July 31, 2012 
Note payable to Ambeon Corporation, a related party by virtue of common ownership, bearing interest at 5% per annum.  $25,000   $55,000 
           
Total notes payable   25,000    55,000 
           
Less current portion          
Due to third party   25,000    55,000 
    25,000    55,000 
           
Long-term notes payable  $-   $- 

 

NOTE 8 – Income Taxes

 

The consolidated income tax expenses for the years ended July 31, 2012 and 2011 was determined based upon estimates of the Company’s consolidated effective income tax rates for the years ended July 31, 2012 and 2011, respectively. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate is primarily attributable to state income taxes, and the effect of certain permanent differences.

 

FASB Topic 740, Accounting for Uncertainty in Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Generally accepted accounting principles require that the Company recognizes in the financial statements a liability for tax uncertainty if it is more likely than not that the position will be sustained on an audit, based on the technical merits of the position. They also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. The Company has not recorded any liability for unrecognized tax benefits as of July 31, 2012. There have been no material changes in unrecognized tax benefits on January 31, 2013.

 

The Company’s tax returns are subject to examination by federal, state and foreign taxing authorities. As of July 31, 2012, the statute of limitations for examining the Company’s federal income tax returns has not expired for the years ended July 31, 2007 through 2011. As of July 31, 2012, the statutes of limitation for tax examinations in the state of California have not expired for tax returns filed for the years ended July 31, 2007 through 2011.  As of July 31, 2012, the statute of limitation for tax examinations in Taiwan have not expired for tax returns filed for the years ended July 31, 2007 through 2011.

 

The Company did not make any provision for income taxes in the three months ended January 31, 2013. Our effective tax rate take into consideration federal and state minimum tax rates, foreign taxes and net operating loss (“NOL”) carry-forwards.   

 

The Company has accumulated NOLs of $1,940,000, which, if unutilized, will begin to expire in 2018. Future tax benefits, which may arise as a result of these losses, have not been recognized in these financial statements, and have been offset by a valuation allowance since there is no assurance that we will be able to utilize these NOLs. Details of future income tax assets are as follows:

 

NOTE 9 – Commitments and Contingencies

 

The Company leases its office and warehouse. The Company signed a new lease for its office and warehouse effective March 1, 2011 at a new location. The maturity date for the lease is May 2016. The minimum rental commitments under the lease are as follows:

 

15
 

 

Year Ending July 31: 

2013    27,866 
2014    56,570 
2015    58,007 
2016    49,537 
       
Total   $191,980 

 

The rent expense for the three months ended January 31, 2013 and 2012 was $13,419 and $14,010, respectively. The rent expense for the six months ended January 31, 2013 and 2012 was $26,837 and $29,204, respectively.

 

NOTE 10 – Subsequent Events

 

Management of the Company has evaluated all events that occurred after the balance sheet date through the date when these financial statements were issued to determine whether they must be reported. Management determined there were no subsequent events to disclose.

 

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ITEM 2. Management’s Discussion and Analysis of Plans of Operations

 

Forward Looking Statements

 

Statements in the following discussion and throughout this report that are not historical in nature are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify forward-looking statements by the use of words such as the words “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described as “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

 

The following discussion and analysis of our plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contain forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those presented under the heading of “Risk Factors” and elsewhere in this annual report.

 

Acquisition and Reorganization

 

On January 15, 2010, the acquisition of AmbiCom was completed, and the business of AmbiCom was adopted as our business. As such, the following Management Discussion is focused on the current and historical operations of AmbiCom, and excludes the prior operations of the Registrant.

 

Overview

 

AmbiCom is a designer and developer of wireless products focusing on Wi-Fi and Bluetoothâ applications for the medical and healthcare industry. AmbiCom purchases standard wireless products and designs and develops features and packaging to customize these products to their target original equipment manufacturer (“OEM”) markets including a new secure digital input output (“SDIO”) card to be sold to its OEM customers. The Company believes that there are unique opportunities as a result of the sheer size of the wireless healthcare market and the Company’s innovative approach and exemplary customer service. AmbiCom is also designing and developing wireless home medical devices for non-healthcare applications for the retail market that will be introduced during the next fiscal year which includes solar toothbrushes in general that utilize LED light technology. The Company will also continue to expand on its non-recurring engineering (NRE) project.

 

On August 9, 2012 the Company entered into a consulting agreement with one of its directors, Robert Radoff, for consulting services in exchange for 300,000 shares of restricted common stock.

 

Results of Operations

 

The following table sets forth, for the periods indicated, certain financial data as a percentage of total revenue:

 

   Three Months Ended January 31,   Six Months Ended January 31, 
   2013   2012   2013   2012 
                 
                 
Sales   100.0%   100.0%   100.0%   100.0%
                     
Cost of sales   43.0%   41.4%   46.4%   43.4%
                     
Gross profits   57.0%   58.6%   53.6%   56.6%
                     
Operating Expenses                    
Depreciation   0.2%   0.3%   0.2%   0.6%
Professional fees   9.7%   12.9%   8.6%   54.1%
Selling and general expenses   27.5%   53.9%   46.4%   89.5%
Total operating expenses   37.4%   67.1%   55.2%   144.2%
                     
Income (loss) from operations   19.6%   -8.5%   -1.6%   -87.6%
                     
Other income (expense)                    
Other income and expense, net   0.0%   0.0%   0.0%   0.4%
Interest expense, net   0.0%   0.0%   0.0%   -0.5%
Net other income (expense)   0.0%   0.0%   0.0%   -0.1%
                     
Total income (loss) before income taxes   19.6%   -8.5%   -1.6%   -87.7%
                     
Income taxes   0.0%   0.0%   0.0%   0.0%
                     
Net income (loss)   19.6%   -8.5%   -1.6%   -87.7%

 

Revenue

 

Revenue is derived from sales of our wireless device products and non-recurring engineering project fees. The products consist of routers, Compact flash Adapters/Modules, USB Adapters/Modules, Mini PCI Modules, PCI Express Mini Modules and mobile wireless products. The Company operates in a market characterized by long term growth prospects as businesses adopt the convenience of wireless connectivity and switch from traditional wired solutions. We provide optimized wireless products to the medical industry which has concentrated on using wireless solutions as a way to reduce healthcare costs as a whole. Total revenue for the three and six months ended January 31, 2013 and 2012 is summarized in the following table:

 

Three Months Ended January 31,   Six Months Ended January 31, 
2013   2012   Change in Dollars   Change in Percent   2013   2012   Change in Dollars   Change in Percent 
                                      
$785,717   $458,813   $326,904    71%  $1,632,921   $607,760   $1,025,161    169%

 

Our sales increased by 71% in the three months ended January 31, 2013 compared to the three months ended January 31, 2012. Our sales increased by 169% in the six months ended January 31, 2013 compared to the six months ended January 31, 2012. This increase was the result of increased demand by customers for some of the Company’s newer cards that are just being introduced. We expect revenue from these cards to continue to increase along with growth from other products including the Company’s SDIO card once it becomes available as well as continued growth from wireless home medical devices for the retail market including our solar toothbrushes that utilize LED light technology.

 

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Customer Concentration Information

 

Two customers accounted for more than 90% of total revenue for the three months ended January 31, 2013, and two customers accounted for more than 60% of total revenue for the three months ended January 31, 2012. Three customers accounted for more than 90% of total revenue for the six months ended January 31, 2013, and three customers accounted for more than 80% of total revenue for the six months ended January 31, 2012.

 

Cost of Sales

 

Our cost of sales consists primarily of the amounts paid to third-party manufacturers for the products we purchase for resale, related packaging costs, as well as labor and material costs associated with our NRE projects. Our cost of sales for the three and six months ended January 31, 2013 and 2012 are summarized in the following table:

 

Three Months Ended January 31,   Six Months Ended January 31, 
2013   2012   Change in Dollars   Change in Percent   2013   2012   Change in Dollars   Change in Percent 
                                      
$337,825   $189,763   $148,062    78%  $757,370   $263,709   $493,661    187%

 

Our cost of sales increased by 78% in the three months ended January 31, 2013 compared to the three months ended October 31, 2011. Our cost of sales increased by 187% in the six months ended January 31, 2013 compared to the six months ended January 31, 2012. The increase in cost of sales matched the increase in revenue for the period.

 

Gross Profit & Gross Margin

 

Our gross profit increased by 66% from $269,050 in the three months ended January 31, 2012 to $447,892 in the three months ended January 31, 2013. Our gross profit increased by 154% from $344,051 in the six months ended January 31, 2012 to $875,551 in the six months ended January 31, 2013. The increase in gross profit matched the increases in revenue and cost of sales. Our gross margin will continue to be affected by a variety of factors, including the product mix that our customers demand, changes in supply costs, outsourcing costs for ongoing projects, the average sales prices on sales of our products, the stages of our product life cycle, and the introduction of new products.

 

Operating Expenses

 

Three Months Ended January 31,   Six Months Ended January 31, 
2013   2012   Change in Dollars   Change in Percent   2013   2012   Change in Dollars   Change in Percent 
                                      
$293,571   $308,436   $(14,865)   -5%  $574,610   $875,871   $(301,261)   -34%

 

Our operating expenses are categorized to include depreciation, professional fees and selling, general and administrative expenses. Overall operating expenses decreased by $14,865 for the three months ended January 31, 2013 from the comparable period in 2012, a decrease of 5%. Operating expenses decreased by $301,261 for the six months ended January 31, 2013 compared to January 31, 2012, a decrease of 34%.

 

Depreciation expense was $1,576 for the three months ended January 31, 2013 and $1,602 for the three months ended January 31, 2012. Depreciation expense was $3,120 for the six months ended January 31, 2013 and $3,393 for the six months ended January 31, 2012.Our depreciation rate policy remained unchanged. The decrease was due some fixed assets becoming full depreciated during the year.

 

Our professional fees decreased to $76,005 in the three months ended January 31, 2013 from $59,410 in the three months ended January 31, 2012. Our professional fees decreased to $139,873 in the six months ended January 31, 2013 from $328,574 in the six months ended January 31, 2012. Professional fees are a significant part of our operating expenses as a direct result of our reporting and filing requirements as a public company since the merger in 2010. The majority of the decrease in professional fees for the three and six months ended January 31, 2013 was due to reductions in consulting expenses.

 

Selling, general and administrative expenses consist primarily of salaries and associated costs for employees in finance, human resources, sales, information technology and administrative activities. In addition, selling, general and administrative expenses may from time to time include charges relating to insurance or stock-based compensation under Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment.” Our selling, general and administrative expenses decreased by $31,434 or 13% to $215,990 in the three months ended January 31, 2013 from $247,424 in the three months ended January 31, 2012. Selling, general and administrative expenses decreased by $112,287 or 21% to $431,617 for the six months ended January 31, 2013 from $543,904 for the six months ended January 31, 2012.

 

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The decrease was mainly due to decreases in R&D expenditures, salary and headcount which were partly offset by the increased public relations fees.

 

Income (Loss) from Operations

 

Income (loss) from operations indicates the amount available from operating activities after we have deducted our operating expenses from our gross profit. Our income (loss) from operations increased from a loss of $39,377 in the three months ended January 31, 2012 to a net income of $154,322 in the three months ended January 31, 2013, with increases in revenue and gross profit accompanied by decreases in selling, general and administrative expenses and professional fees. Our income (loss) from operations increased from a loss of $532,208 in the six months ended January 31, 2012 to a net income of $300,943 in the six months ended January 31, 2013, with increases in revenue and gross profit accompanied by decreases in selling, general and administrative expenses and professional fees.

 

Other Income and Expenses

 

Other income and expenses arise from non operating events and transactions, principally interest charges. Other income and expenses, net, was a net income of $1 for the three months ended January 31, 2013 compared to a net income of $9 for the three months ended January 31, 2012. Other income and expenses, net, was a net income of $2 for the six months ended January 31, 2013 compared to a net expense of $388 for the six months ended January 31, 2012.

 

Provision for Income Taxes

 

Our effective tax rate for the years ended July 31, 2012 and 2011 was 42.8%. We made no provisions for income taxes in either the first three months of 2012 or 2011 as we had significant NOL carry-forwards to cover our liability for the these periods.

 

Net Income (Loss)

 

Net income (loss) for the three months ended January 31, 2013 and 2012 is summarized in the following table:

 

Three Months Ended January 31,   Six Months Ended January 31, 
2013   2012   Change in Dollars   Change in Percent   2013   2012   Change in Dollars   Change in Percent 
                                      
$154,322   $(39,377)  $193,699    492%  $300,943   $(532,208)  $833,151    157%

 

For the three months ended January 31, 2013, net income was $154,322, an increase of 492% compared to the three months ended January 31, 2012 net loss of $39,377. For the six months ended January 31, 2013, net income was $300,943, an increase of 157% compared to the six months ended January 31, 2012 net loss of $532,208. The increase in net income for the three months ended January 31, 2013 was due to increased revenue accompanied by decreases in selling and general expenses and professional fees mainly from decreases in salary and headcount and decreased usage of outside services.

 

Capital Resources and Liquidity

 

Cash and cash equivalents were $693,780 at January 31, 2013 and $249,327 at July 31, 2012. The net increase in cash over the period was mainly due to the increased sales volume accompanied with reductions in selling and general expenses and professional fees. Our total current assets increased 38% to $1,047,579 at January 31, 2013 from $758,751 at July 31, 2012 while our current liabilities decreased by 5% to $754,265 at January 31, 2013 from $793,234 at July 31, 2012. Total working capital increased to $293,314 at January 31, 2013 compared to a negative working capital of $34,483 at July 31, 2012, an increase of $327,797.

 

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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Critical Accounting Policies

 

The process of preparing financial statements requires the use of estimates on the part of our management. The estimates used by management are based on our historical experiences combined with management’s understanding of current facts and circumstances. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial condition and results and require significant or complex judgment on the part of management. For a description of what we believe to be our most critical accounting policies and estimates, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K, for the year ended July 31, 2012, which was filed with the Securities and Exchange Commission on November 1, 2012.

 

Critical accounting policies affecting us, the critical estimates made when applying them, and the judgments and uncertainties affecting their application have not changed materially since July 31, 2012.

 

Recent Accounting Pronouncements

 

See Note 3 “Summary of Significant Accounting Policies” in the Notes to the Unaudited Condensed Consolidated Financial Statements for a full description of relevant recent accounting pronouncements including the respective expected dates of adoption.

 

ITEM 3 . Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

ITEM 4 . Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s Principal Executive Officer and Principal Financial Officer,  has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”).  Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer, same person, has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls

 

There has been no change in the Company’s internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

Internal control systems, no matter how well designed and operated, have inherent limitations.  Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented.  Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.

 

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PART II

OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

The Company had an ongoing litigation over accounts receivable and payable with Ambeon Corporation, a related party by virtue of common ownership. The dispute started in 2004 and was settled in favor of the Company under the Shih Lin District Court of Taiwan on August 20, 2008. The Company agreed to pay a sum of $560,000 and the remaining disputed payable balances were decreased in favor of the Company, and settlement income of $843,572 was realized in year 2008. As of January 31, 2013, the Company has paid $535,000 towards the settlement. The remaining minimum payment due under the settlement is in the amount of $25,000 and is due on July 31, 2013.

 

The Company is not a party and its property is not subject to any other material pending legal proceedings nor is the Company aware of any threatened or contemplated proceeding by any governmental authority against the Company.

 

ITEM 1A. Risk Factors

 

Not required for smaller reporting companies.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

ITEM 3. Defaults Upon Senior Securities

 

None.

 

ITEM 4. Mine Safety Information

 

Not applicable

 

ITEM 5. Other Information

 

None.

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ITEM 6. Exhibits

 

Exhibit    
Number   Exhibit Title
     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934.
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934.
     
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

   

 

 

*   As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this quarterly report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of AmbiCom Holdings, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, including this quarterly report, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: March 5, 2013 By: /s/ John Hwang
    Name: John Hwang
   

Its: Chief Executive Officer, Chief Financial Officer and Director

(Principal Executive Officer and Principal Financial and Accounting Officer)

 

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