Attached files

file filename
EX-31.2 - EXHIBIT 31.2 - CAMBRIDGE HOLDINGS LTDex31x2.htm
EX-31.1 - EXHIBIT 31.1 - CAMBRIDGE HOLDINGS LTDex31x1.htm
EX-32 - EXHIBIT 32 - CAMBRIDGE HOLDINGS LTDex32x1.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

      For the transition period from _____________ to ______________

Commission file number 0-12962

CAMBRIDGE HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)

Colorado
84-0826695
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

106 S. University Blvd., #14 Denver, Colorado 80209
(Address of principal executive offices) (Zip Code)

(303) 722-4008
(Registrant's telephone number, including area code)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
Yes  o    No  x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one)
 
Large accelerated filer o  Accelerated filer o      
   
 Non-accelerated filer o
(do not check is a smaller
reporting company)
  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
 
The number of shares of the registrant’s $.025 par value common stock outstanding as of November 15, 2011 was 3,509,877.
 
 
 

 
 
CAMBRIDGE HOLDINGS, LTD.
 
   Page
 PART 1— Financial Information  
     
 Item 1.  Financial Statements  
     
   Balance Sheet as of September 30, 2011 (unaudited) and June 30, 2011  3
     
   Statements of Operations for the Three Months Ended September 30, 2011 and 2010 (unaudited)  4
     
   Statements of Cash Flows for the Three Months Ended September 30, 2011 and 2010 (unaudited)  5
     
   Notes to Unaudited Financial Statements  6
     
 Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations  12
     
 Item 3.  Quantitative and Qualitative Disclosures About Market Risk  13
     
 Item 4.  Controls and Procedures  14
     
 PART II - Other Information  
     
 Item 1.  Legal Proceedings  14
     
 Item 1A.  Risk Factors  14
     
 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  15
     
 Item 3.  Defaults Upon Senior Securities  15
     
 Item 4.  Submission of Matters to a Vote of Security Holders  15
     
 Item 5.  Other Information  15
     
 Item 6.  Exhibits  15
     
   Signatures  16
 
 

2

 
 

 

Part I.  Financial Information

CAMBRIDGE HOLDINGS, LTD.
CONDENSED BALANCE SHEETS
 
     
September 30, 
2011
(Unaudited)
     
June 30, 2011
(Derived from
2011 
audited financial
statements)
 
 ASSETS                
CURRENT ASSETS:                
 
Cash and cash equivalents
  $ 11,519     $ 13,944  
 
Investment securities
    8,586       9,296  
 
Notes receivable and accrued interest
    8,000       8,000  
                   
 
Total current and total assets
  $ 28,105     $ 31,240  
                   
 
                 
LIABILITIES AND CAPITAL DEFICIT
               
                   
CURRENT LIABILITIES:
               
 
Accounts payable and accrued expenses
  $ 5,278     $ 297  
 
Notes payable and accrued interest:
               
 
Related parties
    532,157       524,483  
 
Other
    793,619       782,111  
 
Other unsecured liability
    8,000       8,000  
 
 
               
 
Total current liabilities
    1,339,054       1,314,891  
                   
COMMITMENTS AND CONTINGENCIES:
               
                   
CAPITAL DEFICIT:
               
 
Common Stock - $.025 par value, 15,000,000 shares
               
 
     authorized; 3,509,877 shares issued and outstanding
    87,747       87,747  
 
Additional paid-in capital
    1,510,845       1,510,845  
 
Accumulated (deficit)
    (2,909,541 )     (2,882,243 )
 
                 
 
Total capital (deficit)
    (1,310,949 )     (1,283,651 )
 
                 
      $ 28,105     $ 31,240  
 
 

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 
 
3
 
 

 
CAMBRIDGE HOLDINGS, LTD.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)


      Three months ended September 30,  
      2011       2010   
INCOME (LOSSES):
               
Net unrealized (loss)
  $ (711 )   $ (6,754 )
Interest and dividend income
    2       -  
                 
Total income (losses)
    (709 )     (6,754 )
 
               
OPERATING EXPENSES:
               
Operating, general, and administrative
    7,408       14,844  
 
               
Operating loss
    (8,117 )     (21,598 )
                 
OTHER (INCOME) EXPENSE:
               
Interest income, net of impairment
    -       (3,046 )
Interest expense
    19,181       8,460  
                 
Interest, net
    19,181       5,414  
                 
NET (LOSS) BEFORE INCOME TAX
    (27,298 )     (27,012 )
 
               
Income Tax (Benefit)
    -       -  
                 
NET (LOSS)
  $ (27,298 )   $ (27,012 )
                 
NET (LOSS) PER COMMON SHARE, basic and diluted
  $ (0.01 )   $ (0.01 )
 
               
Weighted average number of common shares outstanding
    3,509,877       3,509,877  
 


SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 
4
 
 

 

CAMBRIDGE HOLDINGS, LTD.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
   
Three months ended September 30,
 
   
2011
   
2010
 
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
           
 Net (loss)
  $ (27,298 )   $ (27,012 )
     Adjustments to reconcile net (loss) to cash
               
          provided (used) by operating activities:
               
               Amortization
    -       5,287  
               Deferred income taxes
    -       2,000  
               Unrealized losses on trading investment securities
    711       6,754  
               Changes in:
               
                   Other assets
    -       (3,837 )
                   Accrued interest payable     19,181       -  
                   Accrued expenses and other
    4,981       8,761  
 
               
Cash flows (used) by operating activities
    (2,425 )     (8,047 )
 
               
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
               
    Investments in notes receivable
    -       (1,025,000 )
 
               
Cash flows (used) by operating activities
    -       (1,025,000 )
 
               
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
               
    Proceeds from issuance of notes payable
    -       1,076,421  
    Fees paid for issuance of debt
    -       (50,231 )
 
               
Cash flows provided by financing activities
    -       1,026,190  
 
               
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
    (2,425 )     (6,857 )
                 
CASH AND CASH EQUIVALENTS, beginning of period
    13,944       8,596  
                 
CASH AND CASH EQUIVALENTS, end of period
  $ 11,519     $ 1,739  
                 
Supplemental disclosure of cash flow information:                
    Cash paid during the period for interest
  $ -     $ -  
    Cash paid during the period for income taxes
  $ -     $  -  

 

SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


5
 
 

 


Cambridge Holdings, Ltd.
Notes to Unaudited Condensed Financial Statements


INTERIM FINANCIAL STATEMENTS
 
The accompanying condensed financial statements of Cambridge Holdings, Ltd. (the “Company,” “we,” “us,” or “our”) have been prepared in accordance with the instructions to quarterly reports on Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in financial position at September 30, 2011, and for all periods presented, have been made. Certain information and footnote data necessary for a fair presentation of financial position and results of operations in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. It is therefore suggested that these financial statements be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended June 30, 2011. The results of operations for the period ended September 30, 2011 are not necessarily an indication of operating results for the full year.
 
Note 1 – Significant Accounting Policies
 
Loss per share
 
ASC 260 (formerly - SFAS No. 128), Earnings Per Share, requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Basic earnings (loss) per share includes no dilution and is computed by dividing net earnings (loss) available to stockholders by the weighted average  number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the Company’s earnings (loss). The effect of the inclusion of the dilutive shares would have resulted in a decrease in loss per share. Accordingly, the weighted average shares outstanding have not been adjusted for dilutive shares. Outstanding stock options and warrants are not considered in the calculation, as the impact of the potential common shares (totaling approximately 250,000 shares as of September 30, 2011 and 2010, plus the number of warrants that would be issuable under the Convertible Bridge Offering as discussed in Note 2) would be anti-dilutive.
 
Recently Issued and Adopted Accounting Pronouncements
 
In October 2009, the FASB issued ASU 2010-13, “Revenue Recognition (Topic 605)Multiple-Deliverable Revenue Arrangements.” This ASU eliminates the requirement that all undelivered elements must have objective and reliable evidence of fair value before a company can recognize the portion of the consideration that is attributable to items that already have been delivered. This may allow some companies to recognize revenue on transactions that involve multiple deliverables earlier than under the current requirements. Additionally, under the new guidance, the relative selling price method is required to be used in allocating consideration between deliverables and the residual value method will no longer be permitted. This ASU is effective prospectively for revenue arrangements entered into or materially modified beginning in fiscal year 2011. A company may elect, but will not be required, to adopt the amendments in this ASU retrospectively for all prior periods. The adoption of this ASU did not have a material impact on the Company’s financial statements.
 
6
 
 
 

 
In April 2010, the FASB issued ASU 2010-17, “Revenue Recognition – Milestone Method (Topic 605):  Milestone Method of Revenue Recognition.”   The adoption of this ASU did not have a material impact on the Company’s financial statements.

On September 15, 2011, the FASB issued (ASU 2011-08), “Testing Goodwill for Impairment” which amends the guidance in ASC 350-20. The amendments in ASU 2011-08 provide entities with the option of performing a qualitative assessment before performing the first step of the two-step impairment test. If entities determine, on the basis of qualitative factors, it is not more likely than not that the fair value of the reporting unit is less than the carrying amount, then performing the two-step impairment test would be unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. ASU 2011-08 also provides entities with the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the first step of the two-step impairment test. ASU 2011-08 will apply to the 2012 fiscal year.  The Company does not expect material financial statement implications relating to the adoption of this ASU.
 
Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred operating losses, has negative working capital and a capital deficit, which raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans with regard to these matters are discussed below. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. While we expect the recent agreement with Prescient Medical, Inc. (“Prescient”), if successfully completed, which at present is uncertain, to create opportunities for additional funding, there can be no assurance of that. The Company's ability to continue as a going concern depends on the success of management's plans to bridge such cash shortfalls in the year ending June 30, 2012, including the following:
 
 
1.
Pursuing the completion of the Prescient merger and relating funding activities or acceptable alternative arrangements;

 
2.
Aggressively pursuing additional fund raising activities; and

 
3.
Continuing to monitor and implement other cost control initiatives to conserve cash
 
Note 2 – Letter of Intent for Merger and Related Funding Transactions

Letter of Intent -
Effective July 2, 2010, the Company signed a letter of intent with Prescient for a reverse merger with privately held Prescient.  The letter of intent is non-binding and contains a number of conditions and requirements, including the negotiation and execution of a definitive agreement as well as certain funding requirements to advance to and complete the merger. As of September 30, 2011 there is no current activity between the Company and Prescient in advancing on a definitive agreement or funding discussions.  There can be no assurance that a definitive agreement will be agreed to and executed between the parties or that the conditions required to close such a transaction will be achieved. During the year ended June 30, 2011, Prescient advanced $8,000 to the Company for working capital.  The advance is unsecured and contains no repayment conditions or interest.

7
 
 

 
Convertible Bridge Offering -
On September 15, 2010 (“Initial Closing Date”), the Company and certain investors executed and delivered a Purchase Agreement pursuant to which the Company offered (the “Bridge Offering”) to sell to eligible investors units of the Company’s securities (“Bridge Units”) comprised of (i) 6% Convertible Promissory Notes (the “Convertible Notes”), and (ii) warrants (the “Bridge Warrants”) to purchase shares of the Company’s common stock (“Common Stock”). The number of common shares issuable under the Convertible Notes and Bridge Warrants are to be determined based upon the terms of a contemplated subsequent offering, as further discussed below.  In addition, on the Initial Closing Date, the Company conducted the Initial Closing of the Bridge Offering under the Purchase Agreement.  The aggregate original principal amount of the Convertible Notes sold at the Initial Closing equaled $1,075,937, prior to expenses which totaled $50,231. Subsequent to the initial September 2010 closing, an additional $175,000 in convertible bridge loans was issued by Cambridge to a consultant who performed consulting services for Prescient.   As consideration for these bridge loans, Prescient issued to Cambridge $225,715 in secured promissory notes as further discussed below. The number of shares of Common Stock into which the Bridge Warrants issued at the Initial Closing are exercisable is described below.  Included in the $1,325,776 total bridge notes and accrued interest payable outstanding as of June 30, 2011 is $532,157 that is payable to related parties who own approximately 20% of the Company’s outstanding common stock.

Unless converted in accordance with their terms and conditions, the Convertible Notes will mature upon the earlier to occur of (i) June 30, 2011 and (ii) an Event of Default (as defined below).  Interest of 6% per annum accrues and compounds annually on the Convertible Notes and will be payable upon conversion or maturity of the Convertible Notes.  The outstanding principal amount of the Convertible Notes, plus accrued and unpaid interest thereon, shall automatically convert into units of the Company’s securities (“Related Offering Units”), at a conversion price equal to a 33% discount to the price at which such Related Offering Units are sold in a prospective private placement offering in an anticipated minimum amount of $6 million and a maximum amount of $12 million (the “Related Offering”).  The Related Offering is anticipated to close simultaneously with the closing of the proposed Merger.  As of the date hereof, the terms and conditions of the Related Offering have not been finalized, including with respect to the type and price of offered securities.  At the June 30, 2011 maturity date, the notes have not been converted or repaid and accordingly, under their terms a default rate of interest of 10% accrues commencing July 1, 2011.

The conversion price of the Convertible Notes may be adjusted in certain circumstances.  The conversion price of the Convertible Notes are subject to a full-ratchet anti-dilution adjustment in the event that the Company issues Common Stock or common stock equivalents at a price per share less than the then-applicable conversion price of the Convertible Notes.

If the Related Offering and the Merger are consummated and the Company issues warrants as part of the Related Offering Units (the “Related Offering Warrants”), each Bridge Warrant will be exchanged for a Related Offering Warrant to purchase a number of shares of Common Stock equal to the quotient obtained by dividing (i) 40% of the aggregate principal amount of the Convertible Notes purchased by the holder, by (ii) a per share price equal to 66.7% of the per Related Offering Unit offering price of the Related Offering Units sold in the Related Offering.  If the Company does not issue Related Offering Warrants in connection with the Related Offering, each Bridge Warrant will be exercisable for a number of shares of Common Stock equal to the quotient obtained by dividing (i) an amount equal to the aggregate principal amount of the Convertible Notes purchased by the holder divided by $2.50, by (ii) 150% of the per share price of the shares of Common Stock sold in the Related Offering.  If the Company does not consummate the Related Offering and the Merger is terminated, each Bridge Warrant will be exercisable for a number of shares of Common Stock equal to the quotient obtained by dividing (i) an amount equal to the aggregate principal amount of the Convertible Notes purchased by the holder divided by $2.50, by (ii) 150% of the average five-day closing price of the Common Stock at the time of the Merger termination.
 
8
 
 

 
If at any time commencing 30 days after the closing of the Related Offering, the bid price of the Common Stock equals 200% or more of the per share price of the Common Stock sold in the Related Offering for each of the preceding 10 consecutive trading days, the Company will have a right, exercisable for 2 trading days after such 10-day period, to call all or any portion of the Bridge Warrants at a per share call price of $0.01 per share of Common Stock cancelled under the Bridge Warrant in connection with the exercise of the Company’s call right; provided, however, the holder of the Bridge Warrant will have the right to exercise the portion of the Bridge Warrant subject to the call during the period ending 30 days after such holder receives notice of the Company’s exercise of the call right.

The exercise price and number of shares of Common Stock issuable on exercise of the Bridge Warrants may be adjusted in certain circumstances, including in the event of a stock split, stock dividend or recapitalization, reorganization, merger or consolidation.

The Company ascribed a value of $120,093 to the Bridge Warrants, which was recorded as additional paid-in capital and a corresponding discount to the notes payable upon closing.  The fair value ascribed to the Bridge Warrants was estimated using the Black-Scholes pricing model with the following assumptions:  risk-free interest rate of 1.46%; expected life being the five year life of the Bridge Warrants; expected volatility of 196%; and expected dividend yield of 0%.   The values ascribed to the Bridge Warrants follow the guidance of FSP EITF Issue No. 98-5,“Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustment Conversion Ratios,” and FSP EITF Issue No. 00-27, “Application of Issue No. 98-5 to Certain Convertible Instrument” of the FASB’s Emerging Issues Task Force.  The $120,093, fair value of the Bridge Warrants was amortized to interest expense over the term of the notes, which ended as of June 30, 2011. 

As of September 30, 2011 the Convertible Notes and accrued interest, which were due as of June 30, 2011 have not been repaid or converted into equity.
 
Secured Loan to Prescient -
On September 15, 2010 (the “Initial Closing Date”), (i) the Company made a loan (the “PMI Loan”) totaling $1,025,000 to Prescient Medical, Inc. (“PMI”) in consideration for PMI’s issuance to the Company of a 6% Senior Secured Promissory Note (“PMI Note”) in an original principal amount equal to the amount of such PMI Loan, and (ii) PMI and the Company entered into a Security Agreement pursuant to which PMI granted the Company a continuing security interest in all of PMI’s assets and any and all proceeds and products there from for the purpose of securing the payment and performance of PMI’s obligations under the PMI Note and any other agreements, instruments and documents executed in connection therewith, including any Subsequent PMI Notes (as defined below).

The original principal amount of the PMI Note equals the aggregate net proceeds from the sale of Bridge Units (as defined below) by the Company on the Initial Closing Date in connection with the initial closing (the “Initial Closing”) under that certain Securities Purchase Agreement, dated as of the Initial Closing Date, by and among the Company and certain investors named therein (the “Purchase Agreement”).  The Company also agreed, pursuant to the Purchase Agreement, to disburse subsequent loans to PMI equal to the net proceeds from the sale of Bridge Units by the Company at subsequent closings under the Purchase Agreement in consideration for the issuance of additional PMI Notes by PMI (“Subsequent PMI Notes”). Subsequent to the initial September 2010 closing, an additional $175,000 in convertible bridge loans was issued by Cambridge on behalf of Prescient.   As consideration for these bridge loans, Prescient issued to Cambridge $225,715 in secured promissory notes.   These subsequently issued secured promissory notes included the $175,000 in consulting services and $50,715 in reimbursement by Prescient to Cambridge for the original closing costs.
 
Based upon an analysis of Prescient’s financial condition a reserve of approximately $1.3 million has been recorded against the carrying value of the secured notes and accrued interest due from Prescient.  As of September 30, 2011 the PMI Note and the Subsequent PMI Notes, which were due as of June 30, 2011 have not been repaid.  Cambridge has been in contact with Prescient concerning possible steps to resolve the notes.

9
 
 

 
Note 3 – Investment Securities

The Company accounts for investment securities under the provisions of Financial Accounting Standards Board Accounting Standards Codification ("ASC") 820 (formerly – Statement of Financial Accounting Standard ("SFAS") No. 157), “Fair Value Measurements” ("ASC 820").  ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  Under accounting principles generally accepted in the United States of America ("GAAP"), fair value of such securities is determined based upon a hierarchy that prioritizes the inputs to valuation techniques used to measure fair values into three broad levels. Inputs generally are summarized as: (i) Level I are available quoted prices in active markets, (ii) Level II are other than available quoted market prices that are observable for the investment and (iii) Level III are unobservable inputs for the investment. The Company has valued its investment assets using quoted prices in active markets for identical assets (Level 1).  There were no purchases or sales during the period and unrealized gains and losses are as reported in the statement of operations for the period.

In December 2009, the Company completed a dividend distribution to its shareholders consisting of 245,524 shares of AspenBio Pharma, Inc., (“AspenBio”) common stock which had been held as an investment. The transaction for financial reporting purposes was recorded by the Company as a return of capital at the AspenBio shares’ then estimated fair value of $412,480.   Additionally, 13,700 shares of AspenBio common stock valued at $23,016 were transferred to pay administrative costs incurred for processing the distribution and 20,000 shares of AspenBio common stock valued at $33,600 for financial reporting purposes was transferred to an officer as a bonus.

At September 30, 2011, the Company's market value of trading securities consisted primarily of securities with a fair market value of approximately $8,600 and a cost of approximately $20,700. Included were 2,853 common shares of AspenBio, at a cost of approximately $11,500 and a fair market value of approximately $8,600. Also included were 3,004 common shares (“PBAL”) of PepperBall Technologies, Inc. ("PepperBall") at a cost of $9,200 and a fair market value of $30.

At June 30, 2011, the Company's market value of trading securities consisted primarily of securities with a fair market value of approximately $9,300 and a cost of approximately $20,700. Included were 2,853 common shares of AspenBio, at a cost of approximately $11,500 and a fair market value of approximately $9,300. Also included were 3,004 PBAL shares at a cost of $9,200 and a fair market value of virtually nil.

Note 4 – Stockholders’ Equity and Stock Options

Stockholders’ equity

As discussed in Note 2 above, the Company ascribed a value of $120,093 to the Bridge Warrants issued in connection with the Convertible Bridge Notes, which was recorded as additional paid-in capital and a corresponding discount to the notes payable upon closing. 
 
During December 2009, the Company completed a dividend distribution to its shareholders.  The distribution consisted of 245,524 shares of AspenBio common stock which had been held as an investment.  The distribution was made on the basis of .07 shares of AspenBio common stock for each share of the Company’s common stock as of the November 30, 2009 record date. As of the date the distribution was authorized, the fair market value for financial reporting purposes of this distribution was estimated to be $412,480 and the dividend was accrued.   The Company determined that this distribution was a return of capital and therefore it has been recorded as a reduction of additional paid-in capital.

2001 Stock Option Plan
 
The Company currently provides stock-based compensation to employees, directors and consultants, under the Plan that has been approved by the Company’s shareholders, providing for up to 650,000 common shares to be reserved for issuance under the Plan. Stock options granted under the Plan generally vest over periods of up to three years from the date of grant, as specified in the Plan or by the compensation committee of the Company’s board of directors, and are exercisable for a period of up to ten years from the date of grant.
 
10
 
 

 
The Company accounts for stock-based compensation under ASC 718 (formerly -SFAS No. 123 (revised 2004)), “Share-Based Payment” ("ASC 718"), using the modified prospective method. ASC 718 requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. ASC 718 also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (generally the vesting period). The Company estimated the fair value of each stock option at the grant date by using the Black-Scholes option pricing model.
 
During 2008, options to purchase a total of 250,000 shares of the Company’s common stock under the Company's 2001 Stock Option Plan (the “Plan”) were issued to the Company’s directors. The options were vested upon their grant, and options to purchase 150,000 shares of common stock are exercisable at $0.42 and expire in ten years.  Options to purchase 100,000 shares of common stock are exercisable at $0.462 and expire in five years. These options to purchase 250,000 shares of common stock had a weighted average fair value at the grant date of $0.38 per option exercisable at an average of $0.44 per share.
 
A summary of stock option activity of options to employees, directors and advisors, for the three months ended September 30, 2011 is presented below:

 
Shares
Under
Option
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
 
Outstanding at June 30, 2011
250,000
 
$
0.44
           
     Granted
   
           
     Exercised
   
           
     Forfeited
   
           
                 
Outstanding and exercisable
     at September 30, 2011
250,000
 
$
0.44
 
5.0
 
$
 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing stock price on September 30, 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to and in fact, had exercised their options on September 30, 2011.
 
As of September 30, 2011, based upon options granted to that point, there was no additional unrecognized compensation cost related to stock options that will be recorded in future periods.
 
Note 5 - Subsequent Events:

The Company has evaluated subsequent events in accordance with ASC Topic 855 and has determined that there are no reportable subsequent events.



11
 
 

 

 
Item 2:                 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cambridge Holdings, Ltd. (the "Company," “we,” “us,” “our”), was incorporated under the laws of the State of Colorado on June 23, 1980 under the name Jones Optical Company. The Company's name was changed to Cambridge Holdings, Ltd. in August 1988.
 
Results of Operations

Three-month Period Ended September 30, 2011 compared to Three-month Period Ended
September 30, 2010

The Company's revenues for the three-month period ended September 30, 2011 was a negative $700 resulting primarily from unrealized losses from the decline in value of marketable securities.

The Company's revenues for the three-month period ended September 30, 2010 was a negative $6,800 resulting primarily from unrealized losses from the decline in value of marketable securities.

Operating, general and administrative expenses totaled $7,400 in the 2011 period and $14,800 in the 2010 period with the decrease related to reduction in legal expenses. The Company incurred net interest expense of $19,200 in the 2011 period and $8,400 in the 2010 period associated with the Bridge Loans.

During the three-month periods ended September 30, 2011 and 2010 no income tax benefit was recorded.

Liquidity and Capital Resources

At September 30, 2011, the Company had cash and cash equivalents of $11,500 and a working capital deficit of $1,310,900.

The Company has signed a letter of intent with Prescient for a reverse merger with privately held Prescient.  The letter of intent is non-binding and contains a number of conditions and requirements, including the negotiation and execution of a definitive agreement, as well as certain funding requirements to advance to and complete the merger. As of September 30, 2011 there is no current activity between the Company and Prescient in advancing on a definitive agreement or funding discussions.   In advance of an anticipated merger between the companies, on September 15, 2010 a bridge loan closing occurred in which the Company received a total of $1,075,937 in bridge loans from accredited investors and $50,231 was incurred in offering expenses.  Of this net amount, $1,025,000 was thereupon loaned to Prescient under 6% secured promissory notes.  Subsequent to the initial September 2010 closing, an additional $175,000 in bridge loans was issued by Cambridge to a consultant who performed consulting services for Prescient.  As consideration for these bridge loans, Prescient issued to Cambridge $225,715 in secured promissory notes.  These subsequently issued secured promissory notes included the $175,000 in consulting services and $50,715 in reimbursement by Prescient to Cambridge for the original closing costs. There can be no assurance that a definitive agreement will be agreed upon and executed between the parties or that the conditions required to close such a transaction will be achieved. Certain of the conditions include, among several other conditions, execution of a definitive agreement, approval by both companies’ shareholders and closing on additional funding amounts.  The note receivable from Prescient and the notes payable to investors, in each case including accrued interest, matured on June 30, 2011. As of September 30, 2011, a reserve of approximately $1.3 million has been recorded against the carrying value of the secured notes due from Prescient, based upon an analysis of Prescient’s financial condition. Cambridge has been in contact with Prescient concerning possible steps to resolve the notes.

12
 
 

 
Due to recent market events that have adversely affected all industries and the economy as a whole, management has placed increased emphasis on monitoring the risks associated with the current environment, particularly the investment parameters of the investments securities, the fair value of assets, and the Company’s liquidity.
 
Management will continue to monitor the risks associated with the current environment and their impact on the Company’s assets.
 
For the three-month period ended September 30, 2011 operating activities used cash of $2,400. The loss of $27,000 was reduced by $700 of unrealized losses on trading investment securities. An increase of $5,000 in accounts payable and accrued expenses and accrued interest payable of $19,200 associated with the Bridge Loans also offset the net loss.

For the three-month period ended September 30, 2010 operating activities used cash of $8,000. The loss of $27,000 was reduced by non-cash expenses totaling $7,300 for amortization and deferred income taxes and $6,800 in unrealized losses on trading investment securities. An increase of $8,800 in accounts payable and accrued expenses provided cash.

For the three-month period ended September 30, 2010 investing activities used cash of $1,025,000 related to the investments in notes receivable to Prescient.

For the three-month period ended September 30, 2010 financing activities provided cash of $1,026,000 related to the net proceeds from the bridge loans.

There was no cash used by investing or financing during the three-month periods ended September 30, 2011.


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
 
Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements or our industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or other comparable terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
 
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
 
Not applicable to smaller reporting companies.
 
13
 
 

 
Item 4.   Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures.
 
Our management, including our chief executive officer and our chief financial officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the last day of the period of the accompanying financial statements (the “Evaluation Date”). Based on that review and evaluation, our chief executive officer and our chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were ineffective to ensure that material information relating to us would be made known to them by others within the Company in a timely manner, particularly during the period in which this quarterly report on Form 10-Q was being prepared. The evaluation of our disclosure controls and procedures and the conclusion as to their adequacy and effectiveness, included consideration of the deficiencies noted below.

The Company did not maintain an effective control environment based on criteria established in the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework. Specifically, the Company did not adequately design in an effective manner the procedures necessary to support on a timely basis the requirements of the financial reporting and closing process.

Our evaluation concluded that, although policies and procedures appropriate for operating control activities were designed, and in large part instituted, the Company has not been successful in designing and implementing polices for the control environment. The control environment sets the tone of an organization, influences the control consciousness of its people, and is the foundation of all other components of internal control over financial reporting. A material weakness in the control environment affects all other internal control components.

We have also identified conditions as of September 30, 2011 that we believe are significant deficiencies in internal controls that include: 1) a lack of segregation of duties in accounting and financial reporting activities and 2) the lack of a sufficient number of qualified accounting personnel. We do not believe that these deficiencies constitute material weaknesses because of the use of temporary controllers, the review by our chief executive officer of accounting information and reconciliations, and the use of outside consultants.

Management believes these deficiencies in internal control did not result in material inaccuracies or omissions of material fact and, to the best of its knowledge, believes that the financial statements for the three months ended September 30, 2011 fairly present in all material respects the financial condition and results of operations for the Company in conformity with GAAP. There is, however, a reasonable possibility that a material misstatement of the annual or interim financial statements would not have been prevented or detected as a result of the control environment weaknesses.

Changes in Internal Control Over Financial Reporting
There was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in connection with the evaluation described in the preceding paragraph that occurred during the Company’s current fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II   OTHER INFORMATION

Item 1.   Legal Proceedings
 
None.
 
Item 1A.   Risk Factors
 
The Company’s business, financial condition, operating results and cash flows can be impacted by a number of factors, any one of which could cause the Company’s actual results to vary materially from recent results or from the Company’s anticipated future results.  See Form 10-K for the year ended June 30, 2011 for the Company’s Risk Factors.
 
 
14
 
 

 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3.   Defaults Upon Senior Securities
 
None.
 
Item 4.   (Removed and Reserved)

Item 5.   Other Information
 
None.
 
Item 6.  Exhibits
 
 
31.1
Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 (1)
 
31.2
Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 (1)
 
32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2)

(1) Filed herewith.
(2) Furnished.

15

 
 

 
 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
CAMBRIDGE HOLDINGS, LTD.
 
       
November 17, 2011
By:
/s/ Gregory Pusey  
    Gregory Pusey  
    Chief Executive Officer, President, Treasurer and Director  
       
     
       
November 17, 2011
By:
/s/ Jeffrey G. McGonegal  
    Jeffrey G. McGonegal  
   
Senior Vice President-Finance,
Chief Financial Officer and Director
 
       

 
 
16