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CONTENTS	PAGE
Report of registered independent auditors	3
Balance sheets	4
Statements of operations and comprehensive income	6
Statement of equity	7
Statements of cash flows	8
Notes to financial statements	9

 

 

		2008				2007
Current assets:
Cash and cash equivalents (Note 1)		$	114,148			$	45,034
Accounts receivable (Note 1)			429,379				767,689
Inventories (Note 1)			390,952				1,175,205
Other receivable			47				79,197
Prepaid expense			63,515				135,187
Total current assets			998,041				2,202,312
Net property and equipment (Notes 1 and 4)			11,345				150,819
Deposit			4,138				4,138
Total assets		$	1,013,524			$	2,357,269

 

		2008				2007
Current liabilities:
Accounts payable – trade		$	20,331			$	1,400,026
Accounts payable – other			31,310				66,633
Unearned revenue			135				73,059
Line of credit (Note 5)			139,000				436,200
Due to shareholders (Notes 3 and 6)			130,000				--
Notes payable, current (Note 6)			265,000				482,468
Total current liabilities			585,776				2,458,386
Long-term liability: Notes payable, net of current (Note 6)			310,000				170,000
Total liabilities			895,776				2,628,386
Commitments and contingencies (Note 9)
Shareholders’ equity (Note 2):
Convertible preferred stock, Series D, no par value - 3,658,536 shares authorized, 609,756 shares issued and outstanding			500,000				500,000
Convertible preferred stock, Series C, no par value - 4,200,000 shares authorized, 4,133,333 shares issued and outstanding			6,199,955				6,199,955
Convertible preferred stock, Series B, no par value - 1,964,668 shares authorized, 1,924,668 shares issued and outstanding			1,443,500				1,443,500
Convertible preferred stock, Series A, no par value - 5,334,643 shares authorized, 5,334,643 shares issued and outstanding			2,400,592				2,400,592
Common stock, no par value - 40,000,000 shares authorized, 3,373,833 shares issued and outstanding			35,850				35,850
Additional paid-in capital			12,817				7,034
Other comprehensive income			--				1
Accumulated deficit			(10,474,966	)			(10,858,049	)
Total shareholders’ equity (deficit)			117,748				(271,117	)
Total liabilities and shareholders’ deficit		$	1,013,524			$	2,357,269

 

		2008				2007
Sales (Note 1)		$	2,884,351			$	3,933,769
Cost of goods sold (Note 1)			1,922,243				2,308,170
Gross profits			962,108				1,625,599
Selling, general and administrative expenses			1,325,369				1,249,253
Income (Loss) from operations			(363,261	)			376,346
Other income (expense):
Gain on settlement (Note 3)			843,572				--
Service income			8,980				9,740
Net other expense			(77,743	)			(21,496	)
Net interest expense			(27,665	)			(25,051	)
Net other income (expense)			747,144				(36,807	)
Income before income taxes			383,883				339,539
Income taxes (Notes 1 and 7)			800				800
Net income			383,083				338,739
Other comprehensive loss:
Foreign currency translation adjustment			(1	)			(12	)
Total comprehensive income		$	383,082			$	338,727

 

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		For the years ended
		December 31, 2008								December 31, 2007
		Shares				Amount				Shares				Amount
Preferred stock Series D:
Balance at beginning of year			609,756			$	500,000				609,756			$	500,000
Balance at end of year			609,756			$	500,000				609,756			$	500,000
Preferred stock Series C:
Balance at beginning of year			4,133,333			$	6,199,955				4,133,333			$	6,199,955
Balance at end of year			4,133,333			$	6,199,955				4,133,333			$	6,199,955
Preferred stock Series B:
Balance at beginning of year			1,924,668			$	1,443,500				1,924,668			$	1,443,500
Balance at end of year			1,924,668			$	1,443,500				1,924,668			$	1,443,500
Preferred stock Series A:
Balance at beginning of year			5,334,643			$	2,400,592				5,334,643			$	2,400,592
Balance at end of year			5,334,643			$	2,400,592				5,334,643			$	2,400,592
Common stock
Balance at beginning of year			3,373,833			$	35,850				3,373,833			$	35,850
Balance at end of year			3,373,833			$	35,850				3,373,833			$	35,850
Additional paid-in capital
Balance at beginning of year						$	7,034							$	--
Stock-based compensation							5,783								7,034
Balance at end of year						$	12,817							$	7,034
Accumulated deficit:
Balance at beginning of year						$	(10,858,049	)						$	(11,196,788	)
Net income							383,083								338,739
Balance at end of year						$	(10,474,966	)						$	(10,858,049	)
Accumulated other comprehensive income (loss):
Balance at beginning of year						$	1							$	13
Foreign currency translation adjustment							(1	)							(12	)
Balance at end of year						$	--							$	1

 

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		2008				2007
Cash flows from operating activities:
Net income		$	383,083			$	338,739
Adjustments to reconcile net income to net cash used in operating activities:
Bad debt			--				12,453
Depreciation and amortization			140,140				3,638
Stock-based compensation			5,783				7,034
Decrease / (Increase) in operating assets:
Accounts receivable			338,310				(459,226	)
Inventory			784,253				(656,637	)
Other receivable			79,150				(68,378	)
Prepaid expense			71,672				25,858
Increase / (Decrease) in operating liabilities:
Accounts payable - trade			(1,379,695	)			180,850
Accrued payable - other			(35,323	)			37,039
Unearned revenue			(72,924	)			73,059
Net cash provided by (used in) operating activities			314,449				(505,571	)
Cash flows from investing activities:
Due to shareholders			130,000				--
Capital expenditures			(667	)			(741	)
Net cash used in investing activities			129,333				(741	)
Cash flows from financing activities:
Proceeds from (Payments on) line of credit			(297,200	)			436,200
Payments on notes payable			(77,468	)			(22,532	)
Net cash provided by (used in) financing activities			(374,668	)			413,668
Net increase (decrease) in cash and cash equivalents			69,114				(92,644	)
Cash and cash equivalents, beginning of year			45,034				137,599
Effects of foreign currency translation			--				79
Cash and cash equivalents, end of year		$	114,148			$	45,034
Supplemental information:
Cash paid during the years for:
Income taxes		$	1,251			$	800
Interest		$	27,675			$	53,942

 

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a)

Description of Business - Ambicom, Inc., is a leading designer and developer of wireless technologies which emphasize wireless medical and other wireless products. Ambicom, Inc., was formed in 1997, headquartered in San Jose CA, and has a branch operation in Taiwan.

b)

Segment Information - The Company follows SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” SFAS No. 131 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 respectively derives all significant revenues from 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, inventory valuation and warranty liability. 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.

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. As of December 31, 2008 and 2007, accounts receivable are shown net of an allowance for doubtful accounts of $11,831 and $12,453, 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.

g)

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. Major additions and betterments are capitalized and repairs and maintenance are charged to operations in the period incurred.

 

h)

Income Taxes - The Company accounts for income taxes pursuant to the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes", (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with SFAS No. 109.

i)

Revenue Recognition - Sales are recognized when persuasive evidence of an arrangement exists, product delivery has occurred, pricing is fixed or determinable and collection is reasonably assured. The Company analyzes sales returns in accordance with SFAS No. 48 “Revenue Recognition When Right of Return Exists”. The Company is able to make reasonable and reliable estimates of product returns for sales based on the Company’s past history. Sales, provisions for estimated sales returns and the cost of products sold are recorded at the time title transfers to customers. Actual product returns are charged against estimated sales return allowances.

j)

Shipping and Handling Costs – Shipping and handling costs are included in cost of sales.

k)

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

l)

Royalty Expense – The Company enters into license agreements from time to time that allow it to use certain trademarks and trade names on certain of its products. These agreements require the Company to pay royalties, generally based on the sales of such products, and may require guaranteed minimum royalties, a portion of which may be paid in advance. The Company’s accounting policy is to match royalty expense with revenue by recording royalties at the time of sale at the greater of the contractual rate or an effective rate calculated based on the guaranteed minimum royalty and its estimate of sales during the contract period. If a portion of the guaranteed minimum royalty is determined not to be recoverable, the unrecoverable portion is charged to expense at that time.

m)

Stock-Based Compensation - The Company adopted SFAS No. 123R “Share-Based Payment”. As permitted, the Company elected to adopt disclosure-only provisions of SFAS No. 123R and SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure – An Amendment of FASB Statement No. 123”. Under the provisions of SFAS 123R, compensation expense is recognized based on the fair value of options on the grant date.

 

n)

Fair Value of Financial Instruments - FASB Statement No. 157, “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. The carrying values of cash and cash equivalents and short-term trade receivables and payables approximate fair value due to their short-term nature.

o)

Translation of Foreign Currency - The Company accounts for its foreign operations in accordance with SFAS No. 52, “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. Remaining 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.

p)

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.

q)

Reclassification - Certain accounts were reclassified from the prior year. The purpose of the reclassification is to give a more accurate representation of the Company’s operation. The reclassifications did not effect the representation of the Company’s overall performance.

 

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r)

Recent Accounting Pronouncements – In September 2007, the FASB issued Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“SFAS 157”) which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS 157 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

-

$0.036 per share per annum on each outstanding share of Series A

-

$0.060 per share per annum on each outstanding share of Series B

-

$0.120 per share per annum on each outstanding share of Series C

-

$0.066 per share per annum on each outstanding share of Series D

-

$0.45 per outstanding share of Series A

-

$0.75 per outstanding share of Series B

-

$1.50 per outstanding share of Series C

-

$0.82 per outstanding share of Series D

-

$0.45 over conversion price for each share of Series A

-

$0.75 over conversion price for each share of Series B

-

$1.50 over conversion price for each share of Series C

-

$0.82 over conversion price for each share of Series D

1.

Each share of preferred stock has voting right equal to its equivalent common stock.

2.

Preferred stock is subject to mandatory conversion provisions if the Company consummates a qualified public offering, defined as an offering resulting in at least $10,000,000 of gross proceeds to the Company and with a per share issuance sales price of at least $5.00, subject to appropriate adjustment.

 

		Shares				Weighted Average Exercise Price
Outstanding at January 1, 2007			1,583,666			$	0.08
Granted			309,000				0.06
Forfeited			--				--
Cancelled			--				--
Outstanding at December 31, 2007			1,892,666				0.08
Granted			120,000				0.06
Forfeited			--				--
Cancelled			--				--
Outstanding at December 31, 2008			2,012,666			$	0.08

 

Note payable to a shareholder, bearing interest at 10% per annum. The principal and interest is due in March 2009.		$	100,000
Note payable to a shareholder, bearing interest at 10% per annum. The principal and interest is due in January 2009.			30,000
Total		$	130,000

Year ending December 31:
2008		$	90,000
2009			160,000
2010			130,000
2011			90,000
2012 and thereafter			90,000
Total		$	560,000

		2008				2007
Furniture and fixture		$	13,658			$	21,875
Machinery and equipment			20,373				102,025
Software			357,221				359,632
			391,252				483,532
Accumulated depreciation			(379,907	)			(332,713	)
Property and equipment, net		$	11,345			$	150,819

 

		2008				2007
Note payable to Ambeon Corporation, a related party by virtue of common ownership, bearing interest at 5% per annum. The principal and interest was due in 2003 but was disputed until settlement in August 2008.		$	470,000			$	482,468
Note payable to a shareholder, bearing interest at 10% per annum. The principal and interest is due in March 2009.			100,000				--
Note payable to a shareholder, bearing interest at 10% per annum. The principal and interest is due in January 2009.			30,000				--
Note payable to an employee, bearing interest at 10% per annum. The principal and interest is due in September 2009.			105,000				170,000
Total notes payable			705,000				652,468
Current portion			(395,000	)			(482,468	)
Total long-term notes payable		$	310,000			$	170,000

 

		2008				2007
Deferred tax assets
Net operating loss carryforwards		$	3,855,949			$	4,073,474
Valuation allowance			(3,855,949	)			(4,073,474	)
Deferred tax assets, net		$	--			$	--

Year ending December 31:
2009		$	57,750
2010			59,550
2011			5,100
Total		$	122,400

 

-

If traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities over the thirty –day period ending 3 days prior to the closing.

-

If actively traded over the counter, the value shall be deemed to be the average of the closing bid or sales price, whichever is applicable, over the thirty-day period ending 4 days prior to the closing.

-

If there is no active public market, the value will be mutually determined by the Board of Directors of the Company.

-

$0.45 per outstanding share of Series A

-

$0.75 per outstanding share of Series B

-

$1.50 per outstanding share of Series C

-

$0.82 per outstanding share of Series D