Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - AMBICOM HOLDINGS, INCv381178_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - AMBICOM HOLDINGS, INCv381178_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - AMBICOM HOLDINGS, INCv381178_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - AMBICOM HOLDINGS, INCv381178_ex32-2.htm
EXCEL - IDEA: XBRL DOCUMENT - AMBICOM HOLDINGS, INCFinancial_Report.xls

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended April 30, 2014

 

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

 

As of June 16, 2014, the Registrant had 26,061,287 shares of common stock, par value $0.008 per share, issued and outstanding.

 

 
 

 

TABLE OF CONTENTS

 

    PAGE
PART I FINANCIAL INFORMATION   3
     
ITEM 1. FINANCIAL STATEMENTS   3
     
ITEM 2. MANAGEMNT’S DISCUSSION AND ANALYSIS OF PLANS 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. MINE SAFETY DISCLOSURES   22
     
ITEM 5. OTHER INFORMATION   22
     
ITEM 6. EXHIBITS   22
     
SIGNATURES   23
     
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 April 30, 2014 (Unaudited) and July 31, 2013 (Audited)   4
     
Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended April 30, 2014 and 2013 (Unaudited)   5
     
Condensed Consolidated Statements of Cash Flows for the Three Months and Nine Months Ended April 30, 2014 and 2013 (Unaudited)   6
     
Notes to Condensed Consolidated Financial Statements for the Three Months and Nine Months Ended April 30, 2014. For Interim, Comparison is Made to Both July 31, 2013 and April 30, 2013 (Unaudited)   7

 

3
 

 

AMBICOM HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   April 30,   July 31, 
   2014   2013 
   (Unaudited)   (Audited) 
ASSETS          
           
Current assets:          
Cash and cash equivalents  $249,212   $596,871 
Accounts receivable, net of allowance for doubtful accounts of $26 and $26 as of April 30, 2014 and July 31, 2013, respectively   445,640    191,835 
Inventory, net of reserve balances of $7,551 and $10,360 as of April 30, 2014 and July 31, 2013, respectively   72,556    89,732 
Prepaid expenses and other current assets   85,406    167,274 
Total current assets   852,814    1,045,712 
           
Property and equipment, net   104,039    15,201 
Deposit   20,695    20,695 
Total assets  $977,548   $1,081,608 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable and accrued liabilities  $69,167   $39,077 
Accounts payable - other   25,791    23,733 
Deferred revenue   11,880    381,980 
Notes payable - current portion   15,688    - 
Total current liabilities   122,526    444,790 
           
Notes payable, net of current   62,206    - 
           
Total liabilities   184,732    444,790 
           
Stockholders’ equity:          
Common stock, $0.008 par value; 125,000,000 shares authorized; 11,442,473 and 10,806,520 shares issued and outstanding at April 30, 2014 and July 31, 2013, respectively   91,537    86,449 
Preferred stock, Series A, $0.001 per share; 10,000,000 shares authorized; 10,000,000 and 7,050,000 shares issued and outstanding at April 30, 2014 and July 31, 2013, respectively   10,000    7,050 
Preferred stock, Series B, $0.008 per share 325,000 shares authorized; 262,475 and 262,475 shares issued and outstanding at April 30, 2014 and July 31, 2013, respectively   2,100    2,100 
Additional paid in capital   11,620,594    11,493,738 
Accumulated deficit   (10,931,415)   (10,952,519)
Total stockholders’ equity   792,816    636,818 
Total liabilities and stockholders’ equity  $977,548   $1,081,608 

 

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 April 30,   Nine Months Ended April 30, 
   2014   2013   2014   2013 
                 
Sales  $476,684   $698,570   $1,719,120   $2,331,492 
                     
Cost of sales   196,886    312,208    775,144    1,070,312 
                     
Gross profits   279,798    386,362    943,976    1,261,180 
                     
Operating Expenses                    
Depreciation   6,488    1,578    17,675    4,698 
Professional fees   38,470    36,385    214,389    176,259 
Selling and general expenses   221,386    261,804    689,117    692,686 
Total operating expenses   266,344    299,767    921,181    873,643 
                     
Income from operations   13,454    86,595    22,795    387,537 
                     
Other income (expense)                    
Other income and expense, net   2,000    -    2,000    - 
Interest income (expense), net   (785)   1    (1,965)   3 
Net other income   1,215    1    35    3 
                     
Total income before income taxes   14,669    86,596    22,830    387,540 
                     
Income taxes   -    -    1,600    - 
                     
Net income  $14,669   $86,596   $21,230   $387,540 
                     
Net income per share  - basic  $0.001   $0.008   $0.002   $0.037 
                     
Net income per share  - diluted  $0.001   $0.005   $0.001   $0.022 
                     
Weighted average shares outstanding — basic   11,382,377    10,806,520    11,099,146    10,366,195 
                     
Weighted average shares outstanding — diluted   22,068,948    18,118,995    19,524,301    17,678,670 

 

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

 

5
 

 

AMBICOM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED APRIL 30,

 

   2014   2013 
   (Unaudited)   (Unaudited) 
Cash flows from operating activities:          
Net income  $21,230   $387,540 
Net income items not affecting cash:          
Depreciation and amortization   17,675    4,698 
Stock-based compensation   9,818    7,106 
Issuance of stock to board member for advisory services   47,000    20,000 
Issuance of stock to investment firm   50,000    - 
Issuance of Preferred A stock to officer   2,950    - 
Increase in bad debt reserve   -    483 
Increase in reserve for inventory loss   5,471    7,754 
           
Increase / (Decrease) in operating assets:          
Accounts receivable   (253,805)   216,255 
Inventory   11,706    89,296 
Prepaid expense   81,868    (29,212)
           
Decrease / (Increase) in operating liabilities:          
Accounts payable - trade   45,434    28,211 
Accrued payable - other   (13,286)   (23,080)
Unearned revenue   (370,100)   (215,004)
           
Net cash provided by (used in) operating activities   (344,039)   494,047 
           
Cash flows from investing activities:          
Capital expenditures   (106,514)   (1,075)
           
Net cash used in investing activities   (106,514)   (1,075)
           
Cash flows from financing activities:          
Proceeds from sale of common stock   25,000    - 
Proceeds from notes payable   77,894    - 
Payments on notes payable   -    (54,000)
           
Net cash provided by (used in) financing activities   102,894    (54,000)
           
Net increase (decrease) in cash and cash equivalents   (347,659)   438,972 
           
Cash and cash equivalents, beginning of period   596,871    249,327 
           
Cash and cash equivalents, end of period  $249,212   $688,299 
           
Supplemental information:          
Income taxes paid  $-   $- 
Interest paid  $1,965   $- 

 

6
 

 

AMBICOM HOLDINGS, INC.

NOTE TO CONSENSED CONSOLIDATED FINANCIAL STATEMENTS.

FOR INTERIM, COMPARISON IS MADE TO BOTH 07/31/13 AND 1/31/14(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 changed its name to AmbiCom Holdings, Inc.

 

On January 15, 2010, Med Control, Inc. (the “Registrant”) authorized its Articles of Incorporation (the “Amendment”) to change its 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 $0.01 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 its 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 April 30, 2014 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, long-lived and intangible asset 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 April 30, 2014 and $26 as of July 31, 2013, 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 April 30, 2014 and July 31, 2013, the value of the inventory reserve was $7,551 and $10,360, 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 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 Topic 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 April 30, 2014.

 

9
 

 

Fair Value of Financial Instruments

 

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

 

   April 30, 2014   July 31, 2013 
   Carrying
amount
   Fair value   Carrying
amount
   Fair value 
                 
Financial assets:                    
Cash and cash equivalents  $249,212   $249,212   $596,871   $596,871 
Accounts receivable  $445,640   $445,640   $191,835   $191,835 
                     
Financial liabilities:                    
Accounts payable and accrued liabilities  $94,958   $94,958   $62,810   $62,810 
Auto loan  $77,894   $71,651    0    0 

 

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.

 

10
 

 

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:

 

       Fair value measurements at
reporting date using
 
   April 30,
2014
   Quoted prices
in active
markets for
identical
assets
(Level 1)
   Significant
other
observable
inputs
(Level 2)
   Significant
unobservable
inputs
(Level 3)
 
                 
Notes payable   77,894              71,650 

 

       Fair value measurements at
reporting date using
 
   July 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   0              0 

 

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 April 30, 2014 and July 31, 2013, 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, where company is seeking to capture more business from other targeted medical device companies.

 

Two customers accounted for $294,000 (66%) and $150,000 (34%) of receivables at April 30, 2014 while one customer accounted for $190,000 (99%) of receivables at July 31, 2013.

 

Two customers accounted for $294,000 (62%) and $150,000 (31%) of revenue for the three months ended April 30, 2014 and two customers accounted for $418,000 (60%) and $198,000 (28%) of revenue for the three months ended April 30, 2013. Three customers accounted for $1,070,200 (62%), $206,250 (12%), and $184,995 (11%) of the revenues for the nine months ended April 30, 2014 and two customers accounted for $1,428,724 (61%) and $300,000 (13%) of the revenues for the nine months ended April 30, 2013, respectively.

 

11
 

 

Two vendors accounted for $52,000 (75%) and $8,791 (13%) of accounts payable as of April 30, 2014 and three vendors accounted for $20,000 (53%), $5,054 (13%), and $4,400 (12%) of accounts payable as of July 31, 2013, respectively.

 

One vendor accounted for $178,360 (97%) of the purchases for the three months ended April 30, 2014, and three vendors accounted for $158,485 (52%), $83,800 (28%), and $47,200 (16%) of the purchases for the three months ended April 30, 2013. One vendor accounted for $708,927 (95%) of the purchases for the nine months ended April 30, 2014, and one vendor accounted for $839,209 (83%) of the purchases for the nine months ended April 30, 2013, respectively.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

FASB ASC Topic 220, “Compressive Income” - New authoritative accounting guidance under ASC Topic 220, “Compressive Income,” amends prior guidance to require all non-owner changes in stockholders' equity to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The pronouncement should be applied retrospectively and effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Company's financial statements.

 

FASB ASC Topic 350, “Intangible and Other Assets” - New authoritative accounting guidance under ASC Topic 350, “Intangible and Other Assets,”, which allows for an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Under new guidance, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The pronouncement is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Company's financial statements.

 

Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying consolidated financial statements.

 

NOTE 4 – Liquidity and Shareholders’ Equity

 

Cash and cash equivalents were $249,212 and $596,871 at April 30, 2014 and July 31, 2013, respectively. Our working capital was a positive balance of $730,288 and a positive balance of $600,922 at April 30, 2014 and July 31, 2013, 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.

 

12
 

 

Series A Convertible Preferred Stock

 

The Company has authorized a total of 10,000,000 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, 2013, 7,050,000 shares of Series A were issued and outstanding. There are currently 10,000,000 shares of Series A outstanding as of April 30, 2014. 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. In December 2013, an amendment was filed with the Secretary of State of Nevada whereby the total of Series A Convertible Preferred Shares authorized increased to 10,000,000 shares.

 

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, 2013, there were 262,475 shares of Series B Convertible Preferred Stock outstanding. There are currently 262,475 shares of Series B outstanding as of April 30, 2014.

 

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.

 

Options

 

As of April 30, 2014, there were options issued and outstanding for the purchases of 343,000 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 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.

 

13
 

 

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. By 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 for the three months ended April 30, 2014 and $446 for the nine months ended April 30, 2014 in connection with the issuance and vesting of these options.

 

On May 1, 2012, 250,000 options were granted to two employees at an exercise price of $0.09 per share. By 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 $732 for the three months ended April 30, 2014 and $2,196 for the nine months ended April 30, 2014 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. By using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 1.59%; volatility of 67%; expected life of 10 years; and all option grants without payment of dividends, the Company recognized a non-cash stock compensation charge of $381 for the three months ended April 30, 2014 and $1,144 for the nine months ended April 30, 2014 in connection with the issuance and vesting of these options.

 

On January 15, 2014, 305,000 options were granted to four employees at an exercise price of $0.16 per share. By using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.87%; volatility of 72%; expected life of 10 years; and, all option grants without payment of dividends, the Company recognized a non-cash stock compensation charge of $4,524 for the three months ended April 30, 2014 and $6,032 for the nine months ended April 30, 2014 in connection with the issuance and vesting of these options. At April 30, 2014, 807,778 options remain available for future grant under the Plan.

 

As of April 30, 2014, there were options outstanding under the 2010 Plan to purchase 250,000 shares of Common Stock at a purchase price of $0.20 per share, 250,000 shares of Common Stock at a purchase price of $0.09 per share, 75,000 shares of Common Stock at a purchase price of $0.03 per share and 305,000 shares of Common Stock at a purchase price of $0.16 per share.

 

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 11,442,473 shares and 10,806,520 shares outstanding as of April 30, 2014 and July 31, 2013, respectively.

 

14
 

 

NOTE 5 – 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 April 30, 2014 and 2013 were $6,488 and $1,578, respectively. Depreciation expense for the nine months ended April 30, 2014 and 2013 were $17,675 and $4,698, respectively.

 

   April 30, 2014   July 31, 2013 
Furniture and fixture  $27,634   $27,634 
Machinery and equipment   27,540    26,305 
Software   359,417    359,417 
Leasehold Improvements   5,985    5,985 
Vehicle   105,278    - 
    525,854    419,341 
Accumulated depreciation   (421,815)   (404,140)
Property and equipment, net  $104,039   $15,201 

 

NOTE 6 – Revolving Line of Credit

 

On May 9, 2011, advances under the credit line were secured with substantially all of the Company’s assets, were subject to interest at 1% above the Wall Street Journal prime rate index, and were subject to the following restrictive covenants: (i) the current ratio shall not be less than 1.2 times; (ii) the debt to tangible net worth ratio shall not exceed 2.5 times; and (iii) the quarterly EBITDA shall not be less than $30,000 on a rolling four quarter basis.

 

As of July 2013, the Company chose not to renew this credit line and did not have a balance as of April 30, 2014.

 

NOTE 7 - Note Payable

 

Note payable, which is unsecured, consists of the following as of April 30, 2014 and July 31, 2013:

 

Note Payable Consist of the Following at:

   April 30, 2014   July 31, 2013 
Note payable to Bank of America, Auto Loan  $77,894   $- 
Total note payable   77,894    - 
Less current portion   15,688      
Long-term note payable  $62,206   $- 

 

15
 

 

NOTE 8 – Income Taxes

 

The consolidated income tax expense for the 6 months ended April 30, 2014 and 2013 was determined based upon estimates of the Company’s consolidated effective income tax rates for the years ending July 31, 2014 and 2013, 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 April 30, 2014. There have been no material changes in unrecognized tax benefits at April 30, 2014.

 

The Company’s tax returns are subject to examination by federal, state and foreign taxing authorities. As of April 30, 2014, the statute of limitations for examining the Company’s federal income tax returns has not expired for the years ended July 31, 2010 through 2012. As of April 30, 2014, 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, 2009 through 2012.

 

The Company did not make any provision for income taxes in the three months ended April 30, 2014. 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 $2.16 million, 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.

 

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:

 

Year Ending July 31:     
2014  $14,352 
2015   58,007 
2016   49,537 
      
Total  $121,896 

 

The rent expense for the three months ended April 30, 2014 and 2013 was $13,419 and $13,419, respectively. The rent expense for the nine months ended April 30, 2014 and 2013 was $40,256 and $40,256, respectively.

 

NOTE 10 – Subsequent Events

 

Management has evaluated all events that occurred after the balance sheet date through the date when these financial statements were issued to determine if they must be reported. The management of the Company has determined that there was a reportable subsequent event to be disclosed as follows:

 

On May 1, 2014 (the “Effective Date”), the Company executed an Asset Purchase Agreement with Veloxum Corp., a Delaware corporation (“Veloxum”) to acquire all of Veloxum’s assets for hares of the Company’s common stock, par value $0.008 per share (the “Common Stock”), equal to three million dollars ($3,000,000) calculated based on the average closing price of the Common Stock during the thirty (30) trading days preceding February 25, 2014. On May 29, 2014, the Company consummated the closing of the acquisition (the “Closing”) and issued 13,100,437 shares of Common Stock to Veloxum (the “Issuance”). In connection with the Closing, Veloxum’s former CEO and co-founder, Kevin Cornell, was appointed as the President of the Company. and Veloxum’s CTO and co-founder, Michael Lazar, was appointed its CTO.

 

16
 

 

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 our annual report for the fiscal year ended July 31, 2013.

 

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 OEM markets including a new 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.

 

17
 

 

Results of Operations

 

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

 

   Three Months Ended April 30,   Nine Months Ended April 30, 
   2014   2013   2014   2013 
                 
Sales   100.0%   100.0%   100.0%   100.0%
                     
Cost of sales   41.3%   44.7%   45.1%   45.9%
                     
Gross profits   58.7%   55.3%   54.9%   54.1%
                     
Operating Expenses                    
Depreciation   1.4%   0.2%   1.0%   0.2%
Professional fees   8.1%   5.2%   12.5%   7.6%
Selling and general expenses   46.4%   37.5%   40.1%   29.7%
Total operating expenses   55.9%   42.9%   53.6%   37.5%
                     
Income from operations   2.8%   12.4%   1.3%   16.6%
                     
Other income (expense)                    
Other income and expense, net   0.4%   0.0%   0.1%   0.0%
Interest expense, net   -0.2%   0.0%   -0.1%   0.0%
Net other income   0.2%   0.0%   0.0%   0.0%
                     
Total income  before income taxes   3.0%   12.4%   1.3%   16.6%
                     
Income taxes   0.0%   0.0%   0.1%   0.0%
                     
Net income   3.0%   12.4%   1.2%   16.6%

 

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 months and nine months ended April 30, 2014 and April 30, 2013 is summarized in the following table:

 

Three Months Ended April 30,   Nine Months Ended April 30, 
2014   2013   Change in Dollars   Change in Percent   2014   2013   Change in Dollars   Change in Percent 
                              
$476,684   $698,570   $(221,886)   -32%  $1,719,120   $2,331,492   $(612,372)   -26%

 

Our sales declined 32% in the three months ended April 30, 2014 compared to the three months ended April 30, 2013. Our sales declined by 26% in the nine months ended April 30, 2014 compared to the nine months ended April 30, 2013. This decline is mainly as a result of a large portion of our products reaching the end of their product life cycle. We expect revenue to increase from the acquisition of Assets of Veloxum Corporation, a performance management company that specialized in optimizing complex IT environments.

 

Customer Concentration Information

Two customers accounted for more than 10% of total revenue for the three months ended April 30, 2014, and two customers accounted for more than 10% of total revenue for the three months ended April 30, 2013. Three customers accounted for more than 10% of total revenue for the nine months ended April 30, 2014, and two customers accounted for more than 10% for the nine months ended April 30, 2013.

 

18
 

 

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 nine months ended April 30, 2014 and 2013 are summarized in the following table:

 

Three Months Ended April 30,   Nine Months Ended April 30, 
2014   2013   Change in Dollars   Change in Percent   2014   2013   Change in Dollars   Change in Percent 
                              
$196,886   $312,208   $(115,322)   -37%  $775,144   $1,070,312   $(295,168)   -28%

 

Our cost of sales declined by 37% in the three months ended April 30, 2014 compared to the three months ended April 30, 2013. Our cost of sales declined by 28% in the nine months ended April 30, 2014 compared to the nine months ended April 30, 2013. The decrease in cost of sales matched the decrease in revenue for the period.

 

Gross Profit & Gross Margin

 

Our gross profit declined by 28% from $386,362 in the three months ended April 30, 2013 to $279,798 in the three months ended April 30, 2014. Our gross profit declined by 25% from $1,261,180 in the nine months ended April 30, 2013 to $943,976 in the nine months ended April 30, 2014. The decrease in gross profit matched the decrease 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 April 30,   Nine Months Ended April 30, 
2014   2013   Change in Dollars   Change in Percent   2014   2013   Change in Dollars   Change in Percent 
                              
$266,344   $299,767   $(33,423)   -11%  $921,181   $873,643   $47,538    5%

 

Our operating expenses are categorized to include depreciation, professional fees and selling, general and administrative expenses. Overall operating expenses declined by $33,423 for the three months ended April 30, 2014 compared to the same period in 2013, a decrease of 11%. Overall operating expenses increased by $47,538 for the nine months ended April 30, 2014 compared to the same period in 2013, an increase of 5%.

 

Depreciation expense was $6,488 for the three months ended April 30, 2014 and $1,578 for the three months ended April 30, 2013. Depreciation expense was $17,675 for the nine months ended April 30, 2014 and $4,698 for the nine months ended April 30, 2013. Our depreciation rate policy remained unchanged. The increase was due to purchase new fixed assets during the year.

 

Our professional fees increased to $38,470 in the three months ended April 30, 2014 from $36,385 in the three months ended April 30, 2013. Our professional fees increased to $214,389 in the nine months ended April 30, 2014 from $176,259 in the nine months ended April 30, 2013. 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 increase in professional fees for the three months ended April 30, 2014 was due to increase in public relation service expenses.

 

19
 

 

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 declined by $40,418 or 15% to $221,386 in the three months ended April 30, 2014 from $261,804 in the three months ended April 30, 2013. Our selling, general and administrative expenses declined by $3,569 or 1% to $689,117 in the nine months ended April 30, 2014 from $692,686 in the nine months ended April 30, 2013.

 

The increase was mainly due to decline in public relations and Advisory fees.

 

Income from Operations

 

Income from operations indicates the amount available from operating activities after we have deducted our operating expenses from our gross profit. Our income from operations declined from an income of $86,595 in the three months ended April 30, 2013 to a net income of $13,454 in the three months ended April 30, 2014. Our income from operations declined from an income of $387,537 in the nine months ended April 30, 2013 to a net income of $22,795 in the nine months ended April 30, 2014, with decreases in revenue and gross profit accompanied by increases 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. We had a net income of $1,215 for the three months ended April 30, 2014 compared to a net income of $1 for the three months ended April 30, 2013. We had a net income of $35 for the nine months ended April 30, 2014 compared to a net income of $3 for the nine months ended April 30, 2013.

 

Provision for Income Taxes

 

Our effective tax rate for the years ended July 31, 2013 and 2012 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

 

Net income for the three months and nine months ended April 30, 2014 and 2013 is summarized in the following table:

 

Three Months Ended April 30,   Nine Months Ended April 30, 
2014   2013   Change in Dollars   Change in
Percent
   2014   2013   Change in Dollars   Change in
Percent
 
                              
$14,669   $86,596   $(71,927)   -83%  $21,230   $387,540   $(366,310)   -95%

 

For the three months ended April 30, 2014, the net income was $14,669; a decrease of 83% compared to the three months ended April 30, 2013 with a net income of $86,596. For the nine months ended April 30, 2014, the net income was $21,230; a decrease of 95% compared to the nine months ended April 30, 2013 with a net income of $387,540. The decrease in net income for the three months and nine month ended April 30, 2014 was due to decreases in revenue and gross profit accompanied by increases in selling, general and administrative expenses and professional fees.

 

Capital Resources and Liquidity

 

Cash and cash equivalents were $249,212 at April 30, 2014 and $596,871 at July 31, 2013. The net decrease in cash over the period was mainly due to the decreases in revenue and gross profit accompanied by increases in selling, general and administrative expenses and professional fees. Our total current assets declined 21% to $827,815 at April 30, 2014 from $1,045,712 at July 31, 2013 while our current liabilities decreased by 72% to $122,526 at April 30, 2014 from $444,790 at July 31, 2013. Total working capital increased to $730,288 at April 30, 2014 compared to a positive working capital of $600,922 at July 31, 2013, an increase of $104,366.

 

20
 

 

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, 2013, which was filed with the Securities and Exchange Commission on October 29, 2013.

 

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, 2013.

 

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.

 

21
 

 

PART II

OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

None.

 

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 Disclosures

 

Not applicable.

 

ITEM 5. Other Information

 

None.

 

ITEM 6. Exhibits

 

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

 

22
 

 

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: June 16, 2014 By: /s/ John Hwang
    Name: John Hwang
   

Its: Chief Executive Officer and Director

(Principal Executive Officer)

     
Date: June 16, 2014 By: /s/ John Hwang
    Name: John Hwang
   

Its: Chief Financial Officer

(Principal Financial and Accounting Officer)

 

23