UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended April 30, 2015

 

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 ¨

Accelerated Filer ¨

Non-Accelerated Filer ¨

Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.  Yes  ¨ No x 

 

As of June 15, 2015, the Registrant had 52,598,682 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. MANAGEMENT’S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		25
ITEM 4. CONTROLS AND PROCEDURES		25
PART II OTHER INFORMATION		26
ITEM 1. LEGAL PROCEEDINGS		26
ITEM 1A. RISK FACTORS		26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		27
ITEM 4. MINE SAFETY DISCLOSURES		27
ITEM 5. OTHER INFORMATION		27
ITEM 6. EXHIBITS		27
SIGNATURES		28
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

		Page
Condensed Consolidated Balance Sheets		4
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		7

 

 

AMBICOM HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		April 30,				July 31,
		2015				2014
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	56,649			$	523,540
Accounts receivable, net of allowance for doubtful accounts of $270 and $26 as of April 30, 2015, and July 31, 2014, respectively			7,496				490
Inventory, net of allowance of $6,856 and $7,352 as of April 30, 2015, and July 31, 2014, respectively			24,691				64,120
Prepaid expenses and other current assets			37,573				9,839
Total current assets			126,409				597,989
Property and equipment, net			166,343				97,563
Deposit			20,695				20,695
Intangible assets, net			4,520,928				5,082,375
Total assets		$	4,834,375			$	5,798,622
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	331,197			$	143,105
Accounts payable - other			-				-
Deferred revenue			41,730				1,980
Capital lease obligations - current portion			20,952				-
Note payable (Auto Loan) - current portion			15,688				15,735
Correctable debt net of debt discount - current portion			56,406				-
Total current liabilities			465,973				160,820
Capital lease obligations - net of current portion			61,811				-
Note payable (Auto Loan) - net of current portion			49,071				58,978
Convertible debt - net of debt discount - net of current portion			25,556				-
Derivative liabilities			579,021				-
Total liabilities			1,181,432				219,798
Commitments and contingencies (Note 5)
Convertible redeemable preferred stock, Series B, $0.008 par value 325,000 shares authorized; 262,475 shares issued and outstanding at April 30, 2015 and July 31, 2014. (Liquidation preference $2,600,000) - (Note 11)			262,475				262,475
Stockholders’ equity:
Preferred stock, Series A, $0.001 par value; 10,000,000 shares authorized; 0 shares and 10,000,000 shares issued and outstanding at April 30, 2015 and July 31, 2014, respectively			-				10,000
Common stock, $0.008 par value; 125,000,000 shares authorized; 50,448,682 and 26,162,093 shares issued and outstanding at April 30, 2015 and July 31, 2014, respectively			403,587				209,297
Additional paid in capital			17,137,061				16,517,448
Accumulated deficit			(14,150,180	)			(11,420,396	)
Total stockholders’ equity			3,390,468				5,316,349
		$	4,834,375			$	5,798,622

 

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

 

 

AMBICOM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended April 30,								Nine Months Ended April 30,
		2015				2014				2015				2014
Sales		$	38,947			$	476,684			$	177,752			$	1,719,120
Cost of sales			13,814				196,886				134,828				775,144
Gross profit			25,133				279,798				42,924				943,976
Operating Expenses
Selling and general expenses			367,627				192,906				1,223,425				603,537
Amortization of acquisition-related intangible			187,149				-				561,447				-
Research and development			120,812				28,480				357,837				85,580
Professional fees			90,579				38,470				394,476				214,389
Depreciation			11,054				6,488				28,870				17,675
Total operating expenses			777,221				266,344				2,566,055				921,181
Income (Loss) from operations			(752,088	)			13,454				(2,523,131	)			22,795
Other income (expense)
Other income (expense), net			(186,112	)			2,000				(141,725	)			2,000
Interest (expense), net			(54,559	)			(785	)			(63,328	)			(1,965	)
Net other income (expense)			(240,671	)			1,215				(205,053	)			35
Total income (loss) before income taxes			(992,759	)			14,669				(2,728,184	)			22,830
Income taxes			-				-				1,600				1,600
Net income (loss)		$	(992,759	)		$	14,669			$	(2,729,784	)		$	21,230
Net income (loss) per share - basic		$	(0.020	)		$	0.001			$	(0.069	)		$	0.002
Net income (loss) per share - diluted		$	(0.020	)		$	0.001			$	(0.069	)		$	0.001
Weighted average shares outstanding — basic			48,968,504				11,382,377				39,817,640				11,099,146
Weighted average shares outstanding — diluted			48,968,504				22,068,948				39,817,640				19,524,301

 

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

 

 

AMBICOM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended April 30,
		2015				2014
Cash flows from operating activities:
Net income (loss)		$	(2,729,784	)		$	21,230
Adjustment to reconcile net income (loss) to net cash used in operating activities:
Amortization of intangibles			561,447				-
Change in fair value of derivative liabilities			139,819				-
Issuance of stock to advisors			234,600				47,000
Issuance of stock to employee			4,780				-
Issuance of stock to investor as a commitment fee			95,000				-
Stock based compensation			195,024				9,818
Issuance of stock to investor relation firm			87,500				50,000
Depreciation			28,870				17,675
Amortization of discount and issuance cost on convertible debt			47,581
Change in bad debt reserve			244				-
Issuance of Preferred A stock to Officer			-				2,950
Change in inventory allowance			(496	)			5,471
Decrease/ (increase) in operating assets and liabilities:
Accounts receivable			(7,250	)			(253,805	)
Inventory			39,924				11,706
Prepaid expenses and other current assets			(11,151	)			81,868
Accounts payable and accrued liabilities			188,091				32,148
Deferred revenue			39,750				(370,100	)
Net cash used in operating activities			(1,086,051	)			(344,039	)
Cash flows from investing activities:
Capital expenditures			-				(106,514	)
Net cash used in investing activities			-				(106,514	)
Cash flows from financing activities:
Proceeds from issuance of convertible debt			499,000				-
Proceeds from sale of common stock			145,000				25,000
Payment on capital Lease			(14,886	)			-
Proceeds/ (Payment) for note payable ( Auto Loan)			(9,954	)			77,894
Net cash provided by financing activities			619,160				102,894
Net decrease in cash and cash equivalents			(466,891	)			(347,659	)
Cash and cash equivalents, beginning of period			523,540				596,871
Cash and cash equivalents, end of period		$	56,649			$	249,212
Supplemental information:
Income taxes paid		$	-			$	-
Interest paid		$	8,769			$	1,965
Noncash investing and financing activities:
Fixed assets acquired pursuant to capital leases		$	97,650			$	-
Embedded derivative liabilities issued in connection with convertible debt		$	439,202			$	-
Issuance of common stock in connection with convertible debt		$	137,000			$	-
Conversion of preferred stock, series A, to common stock		$	10,000			$	-
6% dividend for preferred stock Series B holders issued in common stock		$	126			$	-

 

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

 

 

AMBICOM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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, the Company authorized an amendment 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, par value $0.001 per share (the “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”).

 

Also 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 Holdings 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 former 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.

 

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.

 

On May 29, 2014, the Company acquired all of the assets of Veloxum Corporation, a Delaware corporation (“Veloxum”) in consideration for the issuance of 13,100,437 shares of the Company’s Common Stock. Following the Company’s acquisition of all of Veloxum’s assets, the Company has focused its operations as an optimizer of server’s infrastructure configuration settings.

 

Details of the Company’s subsidiary as of April 30, 2015 are as follows:

 

Name		Place and Date of Establishment/ Incorporation		Relationships		Principal Activities
Lagranger, Inc.		Nevada April 21, 2015		Wholly-owned subsidiary of AmbiCom Holdings, Inc.		Designer and developer of optimizer of gaming infrastructure configuration settings.

 

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

 

 

Note 2 – Basis of Presentation

 

The accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The condensed balance sheet at July 31, 2014 has been derived from the audited financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements. 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.

 

The unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of the Company’s management, reflect all adjustments of a normal recurring nature considered necessary to present fairly its financial position as of April 30, 2015 and results of its operations and cash flows for the three months and nine months ended April 30, 2015 and 2014. The interim results are not necessarily indicative of the results for any future interim period or for the entire year.

 

Certain prior period amounts have been reclassified to conform to current period presentation. The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended July 31, 2014 included in the Company’s Form 10-K.

 

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) 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.

 

b) 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, valuation of stock based compensation, valuation of convertible instruments and derivative liability, 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.

 

c) Cash and Cash Equivalents - The Company considers all highly liquid investments and 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.

 

d) 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 $270 as of April 30, 2015 and $26 as of July 31, 2014, respectively.

 

e) Inventory - Inventory is stated at the lower of cost or market on an average cost basis. Inventory allowances 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, 2015 and July 31, 2014, the value of the inventory allowance was $6,856 and $7,352 respectively, and the inventory was comprised of finished goods.

 

 

f) 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.

 

g) Intangible Assets – Developed technology and trade names were acquired as part of the Veloxum transaction in May 2014. Acquisition related intangibles are amortized over their estimated useful lives based on expected future benefit.

 

The carrying amounts of the intangible assets as of April 30, 2015 and July 31, 2014 are as follows:

 

		Intangible Assets, Gross												Accumulated Amortization												Intangible Assets, Net								Weighted
		July 31, 2014				Additions				April 30, 2015				July 31, 2014				Expense				April 30, 2015				July 31, 2014				April 30, 2015				Useful Life (Years)
Developed technology		$	4,423,375			$	-			$	4,423,375			$	(133,203	)		$	(473,933	)		$	(607,136	)		$	4,290,172			$	3,816,239				7
Trade names			816,800								816,800				(24,597	)			(87,514	)			(112,111	)			792,203				704,689				7
Total intangible assets, net		$	5,240,175			$	-			$	5,240,175			$	(157,800	)		$	(561,447	)		$	(719,247	)		$	5,082,375			$	4,520,928

 

Total amortization expense for intangible assets was $187,149 and $561,447 for the three months and nine months ended April 30, 2015, all of which was recorded in operating expenses. As of April 30, 2015, the amortization expense related to identifiable intangible assets in future periods is expected to be as follows:

 

										Total
		Developed				Trade				intangible
Year ending July 31,		technology				names				assets
2015		$	157,978			$	29,172			$	187,150
2016			631,911				116,686				748,597
2017			631,911				116,686				748,597
2018			631,911				116,686				748,597
2019			631,911				116,686				748,597
Thereafter			1,130,617				208,773				1,339,390
Total intangible assets subject to amortization			3,816,239			$	704,689			$	4,520,928

 

Developed technology and trade names are tested for impairment based on the guidelines in Accounting Standards Codification Topic 360-10-35, Impairment or Disposal of Long-Lived Assets

 

A long-lived asset or asset group that is held and used should be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount for the long-live asset or asset group might not be recoverable. As a result, a company is not required to perform an impairment analysis if indicators of impairment are not present. Instead, a company would assess the need for an impairment write-down only if an indicator of impairment (also referred to as a triggering event) is present. As of April 30, 2015, no triggering events have occurred which would indicate that the acquired Veloxum developed technology and trade name values may not be recoverable. The strategy and plans that had been put in place at the original acquisition date were still effective and progressing as planned.

 

 

h) Revenue Recognition - 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 service and development projects, the company recognizes revenue upon the completion of the service and records costs incurred by the company for service and development under the project as cost of sales expenses.

 

i) Research and Development Costs -Research and development costs are charged to operations as incurred. Research and development expenses consist primarily of compensation and related costs for personnel responsible for the research and development activities relating to new and existing products.

 

j) Stock-Based Compensation - The Company accounts for its stock-based compensation expense based on the fair value of the stock-based awards that are ultimately expected to vest. The fair value of an employee stock option grant is estimated on the date of grant using the Black-Scholes option pricing model, and is recognized as expense on a straight-line basis over the employee’s requisite service period (generally the vesting period), net of estimated forfeitures. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from the prior estimates.

 

The Company records the expense attributed to non-employee services paid with stock-based awards based on the estimated fair value of the awards determined using the Black-Scholes option pricing model. The measurement of stock-based compensation for non-employees is subject to re-measurement as the options vest, and the expense is recognized over the period during which services are received.

 

k) Fair Value of Financial Instruments - The Company records its financial assets and liabilities at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting guidance for fair value establishes a three-level hierarchy for disclosure of fair value measurements, as follows:

 

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2—Inputs (other than quoted market prices included in Level 1) that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument’s anticipated life.

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The carrying values of certain financial assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The carrying value of the Company’s note payable (Auto loan) approximates its fair value as the terms of the borrowing are consistent with current market rates that the Company could obtain for debt with similar terms and maturities.

 

The fair value measurement of the derivative liabilities for the conversion features associated with convertible debt are based on significant inputs that are unobservable and thus represent a Level 3 measurement. The Company’s estimated fair value of the derivative liabilities are calculated using the Black-Scholes valuation model. Key assumptions include the volatility of the Company’s stock, the Company’s stock price, expected dividend yield and risk-free interest rates. The Level 3 estimates are based, in part, on subjective assumptions.

 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instruments as follows:

 

		Debt Conversion Feature
Balance at August 1, 2014		$	-
Issuance			439,202
Change in fair value recorded in other income (expense), net			139,819
Balance at April 30, 2015		$	579,021

 

l) 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, 2015 management does not believe it was exposed to any significant risk on 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.

 

 

Four customers accounted for 84% of revenue for the three months ended April 30, 2015 and two customers accounted for 93% of revenue for the three months ended April 30, 2014. One customer accounted for 17% of revenue for the nine months ended April 30, 2015 and three customers accounted for 85% of revenue for the nine months ended April 30, 2014.

 

One vendor accounted for 100% of purchases for the three months ended April 30, 2015 and one vendor accounted for 97% of purchases for the three months ended April 30, 2014. One vendor accounted for 96% of purchases for the nine months ended April 30, 2015 and one vendor accounted for 95% of purchases for the nine months ended April 30, 2014.

 

m) Convertible Instruments – The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives and Hedging.”ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract,(b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional (as that term is described in the implementation guidance to ASC 815).

 

The Company applies the accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion options.

 

Derivative financial liabilities are initially recorded at fair value, with gains and losses arising from changes in fair value recognized in other income (expense), net in the consolidated statements of operations at each period end while such instruments are outstanding.

 

The terms of the conversion features associated with the convertible debt do not explicitly limit the potential number of shares issuable upon conversion and accordingly could result in the Company’s obligation to deliver a potentially unlimited number of shares upon settlement. As such, share settlement is not considered to be within the control of the Company.

 

Under ASC 815-40-35, the Company adopted a sequencing policy that reclassifies contracts, with the exception of stock options, from equity to assets or liabilities for those with the latest inception date first. Future issuance of securities will be evaluated as to reclassification as a liability under our sequencing policy of latest inception date.

 

In accordance with the guidance under ASC 815-40-25, we have evaluated that we have a sufficient number of authorized and unissued shares as of April 30, 2015, to settle all existing commitments.

 

Note 4 -Liquidity and Management’s Plan

 

As of April 30, 2015, the Company had cash and cash equivalents of $56,649 and an accumulated deficit of $14,150,180. The Company also incurred a net loss of $2,729,784 and had net cash used in operating activities of $1,086,051 for the nine months ended April 30, 2015. Given the Company’s negative cash flow from operations management anticipated its cash constraints and, therefore, took measures to meet its obligations.

 

On May 21, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of $43,000 of the Company’s original issue discount convertible note. The note, in the principal amount of $43,000, was issued on May 21, 2015 (Note 12- Subsequent Events).

 

On April 24, 2015, the Company entered into a Series of transactions with Kodiak Capital Group, LLC. (“Kodiak”). On that date the Company entered into an Equity Purchase Agreement pursuant to which the Company may “put” to Kodiak up to $1,000,000 of shares of our Common Stock in amounts up to $25,000 per put upon effectiveness of a registration statement that may be filed for such purpose. The Company issued 500,000 shares of Common Stock as a commitment fee and executed a Registration Rights Agreement to register the Shares to be sold under the line. Also on that date, the Company entered into a Securities Purchase Agreement with Kodiak for the purchase and sale of original issue discount debentures for a borrowing amount of up to $500,000. The first note, a 15% Senior Secured Convertible Debenture, in the principal amount of $115,000 with proceeds of $100,000 was executed on April 24, 2015 and is due on the first anniversary thereof. Principal and interest under the note is convertible at any time at the option of Kodiak into shares of the Company’s Common Stock at a conversion price equal to the lesser of $0.10 or 65% of the lowest closing bid price for the 30 trading days immediately prior to conversion. Thereafter, the Company shall sell and Kodiak shall purchase an additional debenture in the principal amount of $460,000 at the purchase price of $400,000, within 30 days following the effectiveness of a registration statement to be filed for the registration of the Shares underlying both debentures. On April 24, 2015, the Company issued Kodiak a 1% Convertible Redeemable Note in the amount of $50,000 whereby a pre-existing obligation to an unrelated third-party in the amount of $50,000 was assigned to Kodiak and exchanged for such note. Principal and interest under the note are convertible at any time at the option of Kodiak, into shares of Common Stock at the conversion price equal to 70% of the lowest closing bid price for the 30 trading days immediately prior to conversion.

 

 

Management expects its new business for automated optimization of software applications will start generating revenue in the quarter ending July 31, 2015 and continue to grow. There can be no assurances that management will be able to successfully implement a long-term solution, and accordingly, the Company continues to explore debt and equity financing options. These conditions raise substantial doubt about the Company's ability to continue as a going concern through April 30, 2016.

 

The Company believes in the viability of its strategy to increase revenue, cash flows, and profitability and in its ability to raise additional funds, and believes that the actions presently being taken by the Company will provide the Company with sufficient liquidity to continue to finance its operations.

 

Note 5 –Commitments and Contingencies

 

Office lease

 

The Company leases its office and warehouse subject to an agreement that expires in May 2016. Rent expense was $13,419 for the three months ended April 30, 2015 and April 30, 2014. Rent expense was $40,256 for the nine months ended April 30, 2015 and April 30, 2014.

 

Capital leases

 

On October 31, 2014, the Company leased $93,294 of servers and network switches to increase production capacity for the OEM project with PC Driver Headquarters LP. The leases are payable in 60 monthly installments through fiscal year 2019. On March 31, 2015, the Company leased $4,356 of drivers to increase production capacity for the OEM project with PC Driver Headquarters LP. The leases are payable in 36 monthly installments through fiscal year 2018. The Company determined that the leases qualified as capital leases because the company will own the equipment at the end of the leasing term subject to a bargain purchase option. The Company allocated $20,952 to short-term capital lease obligations and $61,811 to long-term capital lease obligations at April 30, 2015.

 

Note 6–Series B Convertible Redeemable 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 authorized at $0.001 par value per share. After the amendment, the authorized number of shares of Series B Convertible Preferred Stock was changed to 325,000 at $0.008 par value per share.

 

As of April 30, 2015 and July 31, 2014, there were 262,475 shares of Series B Convertible Preferred Stock outstanding.

 

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 eight shares of Common Stock for 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 divided by the greater 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 has priority over the Series A Preferred Stock and the Common Stock.  The Series B votes on an “as converted” basis.

 

 

 

Note7 – Shareholders’ Equity

 

Preferred Stock 

 

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

 

Series A Convertible Preferred Stock

 

The Company has authorized a total of 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 two shares 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. On November 20, 2014, the CEO of the Company converted 10,000,000 shares of preferred Series A to 20,000,000 shares of common stock. There are no shares of Series A preferred stock outstanding as of April 30, 2015.  

 

Options

 

As of April 30, 2015, there were options issued and outstanding for the purchase of 1,800,000 shares of common stock under the 2010 Equity Incentive Plan and 2,500,000 shares of common stock under the 2014 Equity Incentive Plan.

 

2010 Equity Incentive Plan

 

On January 15, 2010, the Board and Stockholders approved and adopted the 2010 Equity Incentive Plan (the “2010 Plan”).

 

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

 

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

 

No options were granted under the 2010 Plan during the three and nine months ended April 30, 2015 and April 30, 2014 

 

At April 30, 2015, 477,778 options remain available for future grant under the 2010 Plan.

 

As of April 30, 2015, there were options outstanding under the 2010 Plan to purchase 200,000 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, 275,000 shares of common stock at a purchase price of $0.16 per share and 1,000,000 shares of common stock at a purchase price of $0.24 per share. No options have been exercised since the Plan was created.

 

The Company recognized a non-cash stock compensation expense of $30,477 and $92,125 for the three months and the nine months ended April 30, 2015, respectively in connection with options issued under the 2010 Plan.

 

 

2014 Equity Incentive Plan

 

On June 2, 2014, the Board and Stockholders approved and adopted the 2014 Equity Incentive Plan (the “2014 Plan”).

 

The 2014 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 2014 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 2014 Plan for 10 years from the Effective Date.

 

From time to time, the Company may issue Incentive Awards pursuant to the 2014 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 10,000,000 shares of Common Stock for issuance under the 2014 Plan. If an incentive award granted under the 2014 Plan expires, terminates, is unexercised, or is forfeited, or if any shares are surrendered 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 2014 Plan, any number of shares subject to any numerical limit in the 2014 Plan, and the number of shares and terms of any Incentive Award may be adjusted in the event of any change in the Company 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 August 11, 2014, 1,750,000 options were granted to two employees at an exercise price of $0.24 per share. By using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.48%; volatility of 49%; expected life of 6.5 years; and zero dividend yield; the Company recognized a non-cash stock compensation charge of $27,129 and $81,387 for the three months and the nine months ended April 30, 2015 respectively in connection with the issuance and vesting of these options.

 

On September 5, 2014, 750,000 options were granted to one employee at an exercise price of $0.24 per share. By using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.48%; volatility of 43%; expected life of 6.5 years; and zero dividend yield, the Company recognized a non-cash stock compensation charge of $8,067 and $21,512 for the three months and the nine months ended April 30, 2015, respectively in connection with the issuance and vesting of these options.

 

As of April 30, 2015, there were options outstanding under the 2014 Plan to purchase 2,500,000 shares of Common Stock at a purchase price of $0.24 per share. No options have been exercised since the Plan was created.

 

All non-cash stock compensation expenses for the nine months ended April 30, 2015 and 2014 were allocated to selling and general expenses.

 

Common Stock

 

In September 2011, the Company amended and restated its Articles of Incorporation to effectuate a 1 for 8 reverse stock split by decreasing the 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. On June 8, 2015, a majority of the Company’s shareholders, ant its Board of Directors, approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock to 200,000,000. There were 50,448,682 and 26,162,093 shares of common stock outstanding as of April 30, 2015 and July 31, 2014, respectively.

 

During the nine months ended April 30, 2015, the Company issued the following shares of common stock:

 

The CEO of the Company converted his 10,000,000 shares of preferred Series A stock to 20,000,000 shares of common stock.

 

The Company issued 15,760 shares of common stock to its preferred Series B shareholders for accrued annual dividends at the rate of 6% per year.

 

The Company issued a total of 1,858,118 shares of common stock to service providers in exchange for services provided.

 

The Company issued a total of 1,475,953 shares of common stock to an investor, Kodiak Capital Group, LLC, pursuant to an investment agreement entered into in October, 2011.

 

The Company issued 236,758 shares of common stock in connection with employee and consultant.

 

The Company issued 200,000 shares of common stock in connection with convertible debt (Note 10- Convertible debt).

 

The Company issued 500,000 shares of common stock as a commitment fee for entering into a new investment agreement with Kodiak on April 20, 2015.

 

 

Kodiak Capital Group LLC Investment Agreement

 

On October 31, 2011, we entered into an Investment Agreement and a Registration Rights Agreement with Kodiak Capital Group, LLC (the “Investor”) to purchase up to $1,000,000 of the Company’s Common Stock. In accordance with these Equity Line Transaction agreements, the Company filed a registration statement on Form S-1, which was declared effective on January 25, 2013. The Investment Agreement allows the Company to sell Common Stock in increments of $25,000 at a per share purchase price equal to 80% of the volume weighted average price of the Common Stock over five consecutive trading days. The agreements provide for the Company to exercise put options that obligate the Investor to purchase common stock shares valued at $25,000 per each put option.

 

Pursuant to the agreement, the Company issued the following common stock to the Investor, each in exchange for a $25,000 investment: 120,193 shares on March 25, 2014; 208,333 shares on May 12, 2014; 100,806 shares on May 27, 2014; 148,810 shares on September 23, 2014; 168,919 shares on October 3, 2014; 219,491 shares on October 13, 2014; 223,215 shares on October 22, 2014; and 215,518 shares on November 4, 2014.

 

On April 20, 2015, we entered into a new Investment Agreement and a Registration Rights Agreement with the same investor to purchase up to $1,000,000 of the Company’s Common Stock. The Investment Agreement allows the Company to sell Common Stock in increments of $25,000 at a per share purchase price equal to 80% of the volume weighted average price of the Common Stock over five consecutive trading days. The agreements provide for the Company to exercise put options that obligate the Investor to purchase common stock shares valued at $25,000 per each put option. The Company issued 500,000 shares of common stock to Kodiak as a commitment fee on the date of the transaction and recorded $95,000 as other expense on the statement of operations to account for the value of the issued shares based on the trading price of the Company’s stock on the issuance date.

 

Pursuant to the 2015 agreement with the investor, the Company issued 500,000 shares on April 24, 2015 in exchange for a $25,000 investment.

 

Note 8 – Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation and amortization. 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 and the nine months ended April 30, 2015 and 2014 was $11,054 and $6,488, $28,870 and $17,675, respectively. The assets under capital leases as of April 30, 2015 and July 31, 2014 were $97,649 and $0, respectively. Accumulated depreciation related to assets under capital leases as of these dates was $9,914 and $0, respectively.

 

		April 30, 2015				July 31, 2014
Furniture and fixture		$	27,634			$	27,634
Machinery and equipment			125,190				27,540
Software			359,417				359,417
Leasehold Improvements			5,985				5,985
Vehicle			105,278				105,278
			623,504				525,854
Accumulated depreciation			(457,161	)			(428,291	)
Property and equipment, net		$	166,343			$	97,563

 

 

Note 9 - Note Payable (Auto loan)

 

The note payable (auto loan) consists of the following as of April 30, 2015 and July 31, 2014:

 

Note Payable Consists of the Following at:
		April 30, 2015				July 31, 2014
Note payable (Auto Loan)			64,759			$	74,713
Less current portion			15,688				15,735
Long-term note payable		$	49,071			$	58,978

 

The note payable, secured by an automobile, bears interest at 3.99% per annum and has a maturity date of October 9, 2019.

 

Note 10 – Convertible Debt and Derivative Liability

 

On December 18, 2014, the Company effectuated a convertible Note Agreement with an investor for the purchase and sale of up to $285,000 of the Company’s original issue discount convertible debentures with a term of 3 years. The first debenture, in the principal amount of $160,000, was issued on December 18, 2014.

 

In connection with the agreement, the Company provided the lender with 200,000 shares of common stock. The Company used the trading price of its common stock on December 18, 2014 to determine the value of the common stock. The Company recorded a debt discount of $42,000 attributed to the issuance of the common stock.

 

Per the agreement, the holder may convert the notes into common stock at 70% of the lowest trading price in a 20 day trading window prior to the conversion. The Company has determined that the right to convert the notes at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on December 18, 2014 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $102,000 on the issuance date. The debt discount attributed to the convertible note, the issuance of the common stock, and the derivative liability is being amortized over the term of the note of 3 years and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value of the derivative liability has increased to $191,122 and accordingly recorded $89,122 to capture the change in fair value as other expense in the statements of operations.

 

On February 20, 2015, the Company effectuated a convertible Note Agreement with an investor for the purchase and sale of up to $66,667 of the Company’s original issue discount convertible notes with a term of 2 years.

 

Per the agreement, the holder may convert the notes into common stock at the lesser of $0.15 per share or 60% of the lowest trading price in a 25 day trading window prior to the conversion. The note does not bear interest if repaid within 90 day of the borrowing date while a 12% one-time interest fee will be charged on the 91^st day if the note is still outstanding. The Company has determined that the right to convert the notes at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on February 20, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $60,667 on the issuance date. The debt discount attributed to the convertible note, and the derivative liability is being amortized over the term of the note of 2 years and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value of the derivative liability has increased to $80,355 and accordingly recorded $20,355 to capture the change in fair value as other expense in the statements of operations.

 

On March 4, 2015, the Company effectuated a convertible Note Agreement with an investor for a principal balance of $100,000 of convertible note with a term of 1 year.

 

 

Per the agreement, the holder may convert the notes into common stock at the 60% of the lowest trading price in a 15 day trading window prior to the conversion. The debt accrues interest at a rate of 8% per annum, payable in common stock at the conversion rate. The Company has determined that the right to convert the notes at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on March 4, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $89,672 on the issuance date. The debt discount attributed to the derivative liability is being amortized over the term of the note of 1 year and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value of the derivative liability has declined to $86,562 and accordingly recorded $3,110 to capture the change in fair value as other income in the statements of operations.

 

On April 1, 2015, the Company effectuated a convertible promissory note with an investor for a total principal balance of $64,000 of with a term of 1 year.

 

Per the agreement, the holder may convert the note into common stock at 61% of the lowest 3 trading prices in a 10 day trading window prior to the conversion after 180 days. The note accrues interest at a rate of 8% per annum. The Company has determined that the right to convert the note at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on April 1, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $60,000 on the issuance date. The debt discount attributed to the derivative liability is being amortized over the term of the note of 1 year and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value has declined to $54,619 and accordingly recorded $1,339 to capture the change in fair value as other income in the statements of operations.

 

On April 24, 2015, the Company effectuated a convertible Note Agreement with an investor for a total principal of up to $115,000 with a term of 1 year. The debenture, in the principal amount of $115,000, was issued on April 24, 2015.

 

Per the agreement, the holder may convert the note into common stock at the lesser of $0.10 or 65% of the lowest trading price in a 30 day trading window preceding the date of conversion. The note accrues interest at a rate of 15% per annum. The Company has determined that the right to convert the note at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on April 24, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $100,000 on the issuance date. The debt discount attributed to the convertible note and the derivative liability is being amortized over the term of the note of 1 year and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value has increased to $135,388 and accordingly recorded $35,388 to capture the change in fair value as other expense in the statements of operations.

 

On April 24, 2015, the Company effectuated a convertible note agreement with an investor for the purchase and sale of $50,000 of the Company’s original issue discount convertible note with a term of 8 months.

 

Per the agreement, the holder may convert the notes into common stock at 70% of the lowest trading price in a 30 day trading window prior to the conversion. The note accrues an interest of 1% per annum. The Company has determined that the right to convert the notes at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on April 24, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $31,572 on the issuance date. The debt discount attributed to the convertible note, and the derivative liability is being amortized over the term of the note of 7 months and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value of the derivative liability has declined to $30,975 and accordingly recorded $597 to capture the change in fair value as other income in the statements of operations.

 

 

As of April 30, 2015, amounts outstanding under the Company’s debentures were as follows:

 

Principal balance		$	555,667
Debt discount			(473,705	)
Net carrying value of debt		$	81,962
Less current portion			56,406
Long-term net carrying value of debt		$	25,556

 

Note 11 – Revision of Prior Period Amounts

 

It was determined during the preparation of the interim financial statements for the three months ended April 30, 2015, that adjustments were required relating to periods preceding August 1, 2014. These adjustments resulted from the Company’s re-evaluation of the accounting treatment of the Series B Convertible Redeemable Preferred Stock (the “Series B”), which was originally recorded in stockholders’ equity upon issuance. Management determined that the Series B meets the definition of a temporary equity instrument in accordance with ASC Topic 480-10-S99“Accounting for Redeemable Equity Instruments”. Accordingly, the Company determined that the Series B should be classified as temporary equity and recorded at its redemption value.

 

Management has evaluated the effect of this prior period adjustment and determined that it was immaterial to each of the reporting periods affected and, therefore, amendment of previously filed reports was not required. In accordance with guidelines issued in SEC Staff Accounting Bulletin, we have recorded adjustments to correct and reclassify the current year’s beginning Convertible Redeemable Preferred Stock Series B and Additional paid in capital amounts to correct these immaterial prior period errors. We also plan to revise in future filings of our 10-Q and 10-K, the previously reported quarterly and annual financial statements during the year ended July 31, 2014 for these immaterial amounts.

 

The following table sets forth the revised prior period balances reported in our comparative financial statements:

 

		Previously reported				Adjustment				Revised
Balance sheet items at July 31, 2014:
Preferred Stock, Series B			2,100				260,375				262,475
Additional paid in capital			16,777,826				(260,375	)			16,517,448
Total stockholders’ equity			5,578,824				(262,475	)			5,316,349

 

Note 12 – Subsequent Events

 

Management of the Company performed an evaluation of all subsequent events that occurred as of the date these financial statements were issued to determine if they must be reported. Management of the Company has determined that the following subsequent events are required to be disclosed:

 

On May 21, 2015, the Company effectuated a Convertible Note Agreement (the “Agreement”) with an investor (the “Investor”) a total principal of $43,000. The Note bears interest at a rate of 8% per annum and is convertible into shares of common stock at a conversion price equal 61% of the lowest trade price in the 10 trading days prior to the conversion. The principal and accrued interest balances are due on February 26,2016.

 

On June 8, 2015, holders of a majority of the Company’s issued and outstanding common stock and its Board of Directors approved an amendment to its Articles of Incorporation increasing the Company’s Authorized Capital to 250,000,000 shares, of which 200,000,000 will be common stock, par value $0.008 per share, and 50,000,000 shares will be preferred stock, par value $0.001 per share.

 

  

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, 2014.

 

Acquisition and Reorganization

 

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

 

On May 15, 2014, the Company acquired intangible assets of Veloxum Corp., a privately held Delaware corporation, in the form of developed technology and trade names in exchange for 13,100,437 shares of the Company’s common stock.

 

Overview

 

AmbiCom is a designer and developer of wireless products focusing on Wi-Fi and Bluetoothâ applications for the medical and healthcare industry. AmbiCom purchases standard wireless products and designs and develops features and packaging to customize these products to their target original equipment manufacturer (“OEM”) markets including a new secure digital input output (“SDIO”) card to be sold to its OEM customers. The Company believes that there are unique opportunities as a result of the sheer size of the wireless healthcare market and the Company’s innovative approach and exemplary customer service. The Company will also attempt to continue to expand its non-recurring engineering (“NRE”) project. Following the Company’s acquisition of the assets of Veloxum, the Company has focused its operations as an optimizer of server infrastructure configuration settings using its patented Active Continuous Optimization (“ACO”) which helps realize the full potential of both visualized and physical IT infrastructure.

 

 

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,
		2015				2014				2015				2014
Sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales			35.5	%			41.3	%			75.9	%			45.1	%
Gross profits			64.5	%			58.7	%			24.1	%			54.9	%
Operating Expenses
Selling and general expenses			943.9	%			40.5	%			688.3	%			35.1	%
Amortization of acquisition-related intangible			480.5	%			0.0	%			315.9	%			0.0	%
Research and development			310.2	%			6.0	%			201.3	%			5.0	%
Professional fees			232.6	%			8.1	%			221.9	%			12.5	%
Depreciation			28.4	%			1.4	%			16.2	%			1.0	%
Total operating expenses			1995.6	%			56.0	%			1443.6	%			53.6	%
Income (loss) from operations			-1931.1	%			2.7	%			-1419.5	%			1.3	%
Other income (expense)
Other income (expense), net			-477.9	%			0.4	%			-79.7	%			0.1	%
Interest (expense), net			-140.1	%			-0.2	%			-35.6	%			-0.1	%
Net other income (expense)			-618.0	%			0.2	%			-115.3	%			0.0	%
Total income (loss) before income taxes			-2549.1	%			2.9	%			-1534.8	%			1.3	%
Income taxes			0.0	%			0.0	%			0.9	%			0.1	%
Net income (loss)			-2549.1	%			2.9	%			-1535.9	%			1.2	%

 

Revenue

 

Revenue is derived from sales of our wireless device products and service and development project fees along with home healthcare products. The products consist of routers, Compact flash Adapters/Modules, USB Adapters/Modules, Mini PCI Modules, PCI Express Mini Modules, mobile wireless products and optimization service. 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, 2015 and 2014 is summarized in the following table:

 

Three Months Ended April 30,																Nine Months Ended April 30,
2015				2014				Change in Dollars				Change in Percent				2015				2014				Change in Dollars				Change in Percent
$	38,947			$	476,684			$	(437,737	)			-92	%		$	177,752			$	1,719,120			$	(1,541,368	)			-90	%

 

Our sales declined 92% in the three months ended April 30, 2015 compared to the three months ended April 30, 2014.Our sales declined 90% in the nine months ended April 30, 2015 compared to the nine months ended April 30, 2014, mainly as a result of a large portion of our products reaching the end of their product life cycle which result in a decrease in revenue. We anticipate demand to increase once the lease of the automated optimization software application for servers, virtual machines and PCs is launched in the United States under the OEM project with PC Driver Headquarters LP and in Korea and India via distributors.

 

 

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 service and development projects. Our cost of sales for the three months and the nine months ended April 30, 2015 and 2014 are summarized in the following table:

 

Three Months Ended April 30,																Nine Months Ended April 30,
2015				2014				Change in Dollars				Change in Percent				2015				2014				Change in Dollars				Change in Percent
$	13,814			$	196,886			$	(183,072	)			-93	%		$	134,828			$	775,144			$	(640,316	)			-83	%

 

Our cost of sales declined by 93% in the three months ended April 30, 2015 compared to the three months ended April 30, 2014. Our cost of sales declined by 83% in the nine months ended April 30, 2015 compared to the nine months ended April 30, 2014. The decrease in cost of sales was largely a result of the decrease in revenue for the period.

 

Gross Profit & Gross Margin

 

Three Months Ended April 30,																Nine Months Ended April 30,
2015				2014				Change in Dollars				Change in Percent				2015				2014				Change in Dollars				Change in Percent
$	25,133			$	279,798			$	(254,665	)			-91	%		$	42,924			$	943,976			$	(901,052	)			-95	%

 

Our gross profit declined by $254,665 or 91% to $25,133 in the three months ended April 30, 2015 from $279,798 in the three months ended April 30, 2014. Our gross profit declined by $901,052 or 95% to $42,924 in the nine months ended April 30, 2015 from $943,976 in the nine months ended April 30, 2014.We do not necessarily expect gross margins to remain at this level in 2015 and our gross margin will continue to be affected by a variety of factors that include the cost of outsourcing support for project demands, the speed and extent to which new products (including Automated Optimization Software Application) are adopted by customers, the success of our retail market products (such as our solar toothbrushes that utilize light into negatively-charged ions and automated optimization software application for PCs), the amount of service and development projects we take on, average sales prices realized on sales of our products, fluctuations in the cost of our purchased components, and the stage of our product life cycle.

 

Operating Expenses

 

Three Months Ended April 30,																Nine Months Ended April 30,
2015				2014				Change in Dollars				Change in Percent				2015				2014				Change in Dollars				Change in Percent
$	777,221			$	266,344			$	510,877				192	%		$	2,566,055			$	921,181			$	1,644,874				179	%

 

 

Our operating expenses consist primarily of research and development, salaries and associated costs for employees in finance, human resources, sales, information technology and administrative activities. In addition, operating expenses may, from time to time, include charges relating to accounting, legal, insurance or stock-based compensation. Overall operating expenses increased by $510,877 in the three months ended April 30, 2015 compared to the three months ended April 30, 2014, an increase of 192%. Our operating expenses increased by $1,644,874 for the nine months ended April 30, 2015 compared to the nine months ended April 30, 2014, an increase of 179%. The increase in operating expenses is mainly due to the increase in amortization of acquisition –related intangibles, R&D expenses for our newly acquired automated optimization software application, stock based compensation expense and professional fees.

 

Selling, general and administrative expense increased by $174,721 or 91% for the three months ended April 30, 2015 compared to the three months ended April 30, 2014. Selling, general and administrative expense increased by $619,888 or 103% for the nine months ended April 30, 2015 compared to the nine months ended April 30, 2014. The increase was primarily due to higher office and salary expenses (increase of approximately $229,000), stock compensation expenses (increase of approximately $182,000), travel expenses for developing software overseas (increase of approximately $79,000) and investor relation expenses (increase of approximately $81,000) for the nine months ended April 30, 2015.

 

Amortization of acquisition-related intangibles increased by $187,149 for the three months ended April 30, 2015 compared to zero for the three months ended April 30, 2014. Amortization of acquisition-related intangibles increased by $561,447 for the nine months ended April 30, 2015 compared to zero for the nine months ended April 30, 2014. The increase was due to the amortization of intangibles from the acquisition date in May 2014.

 

Research and development spending increased by $92,332 or 324% for the three months ended April 30, 2015 compared to the three months ended April 30, 2014. Research and development spending increased by $272,257 or 318% for the nine months ended April 30, 2015 compared to the nine months ended April 30, 2014. The increase was driven by development expenses for our server optimization solution

 

Professional fees increased by $52,109, or 135% for the three months ended April 30, 2015 compared to the three months ended April 30, 2014. Professional fees increased by $180,087, or 84% for the nine months ended April 30, 2015 compared to $214,389 for the nine months ended April 30, 2014. The increase was caused primarily by professional services engaged for server optimization solution.

 

Income and Loss 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 $13,454 for the three months ended April 30, 2014 to a loss of $752,088 for the three months ended April 30, 2015. Our income from operations declined from an income of $22,795 for the nine months ended April 30, 2014 to a loss of $2,523,131 for the nine months ended April 30, 2015.

 

The losses for the three months and the nine months ended April 30, 2015, were largely a result of the increase in amortization for intangible assets, R&D expenses for our newly developed automated optimization software applications and the decrease in demand for our wireless device products from our customers who are upgrading their products with new interface wireless device. We anticipate demand to increase once new wireless device products including the Company’s SDIO card become available and introduce automated optimization software applications for servers, virtual machines and PCs.

 

Other Income and Expenses

 

Other income and expenses arise from non operating events and transactions, principally interest charges. We had a net other expenses of $240,671 for the three months ended April 30, 2015 compared to a net other income of $1,215 for the three months ended April 30, 2014. We had a net other expense of $205,053 for the nine months ended April 30, 2015 compared to a net other income of $35 for the nine months ended April 30, 2014. The decline in other income for the three and nine months ended April 30, 2015 is attributed to the amortization of the debt discount associated with the Company’s convertible notes as well as the change in fair value of the derivative liability.

 

 

Capital Resources and Liquidity

 

		April 30,				July 31,
		2015				2014
		(Unaudited)
Cash and cash equivalents		$	56,649			$	523,540
Short-term and long-term debt		$	146,721			$	74,713
Debt as percentage of stockholders' equity			4.33	%			1.41	%

 

In summary, the cash flows for each period were as follows:

 

		Nine Months Ended April 30,
		2015				2014
Net cash used for operating activities		$	(1,086,051	)		$	(344,039	)
Net cash used for investing activities			-				(106,514	)
Net cash provided by financing activites			619,160				102,894
Net decrease in cash and cash equivalents		$	(466,891	)		$	(347,659	)

 

Operating Activities

 

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.

 

Our total current assets declined 79% to $126,409 as of April 30, 2015 from $597,989 as of July 31, 2014 while our current liabilities increased 19% to $465,973 as of April 30, 2015 from $160,820 as of July 31, 2014. Our overall working capital decreased by 178% to a negative working capital of $339,564 as of April 30, 2015 from a positive working capital of $437,169 as of July 31, 2014.

 

Investing Activities

 

Investing cash flows consist primarily of capital expenditures.

 

There was no cash used for investing activity for the nine months ended April 30, 2015 compared to $106,514 for the nine months ended April 30, 2014.

 

Financing Activities

 

Financing cash flows consist primarily of borrowings and payments for long-term debt, payment of capital leases and proceeds from the sales of shares subject to the Company’s investment agreement.

 

Liquidity

 

Cash generated from financing activities is currently our primary source of liquidity. Cash and cash equivalents were $56,649 at April 30, 2015 compared to $523,540 at July 31, 2014. The net decrease in cash over the period was primarily due to the net loss incurred by the Company during the period.

 

Given our negative cash flow from operations and in order to meet our expected cash needs for the next twelve months, we will need to secure additional liquidity sources. We expect that our new business for automated optimization software application will start generating revenue in the quarter ending July 31, 2015 and continue to grow. There can be no assurances that we will be able to successfully implement a long-term solution, and accordingly, we continue to explore debt and equity financing options.

 

 

On April 24, 2015, the Company entered into a Series of transactions with Kodiak Capital Group, LLC. (“Kodiak”). On that date the Company entered into an Equity Purchase Agreement pursuant to which the Company may “put” to Kodiak up to $1,000,000 of shares of our Common Stock in amounts up to $25,000 per put upon effectiveness of a registration statement that may be filed for such purpose. The Company issued 500,000 shares of Common Stock as a commitment fee and executed a Registration Rights Agreement to register the Shares to be sold under the line. Also on that date, the Company entered into a Securities Purchase Agreement with Kodiak for the purchase and sale of original issue discount debentures in the maximum aggregate amount of $600,000 for a maximum purchase price of $500,000. The first note, a 15% Senior Secured Convertible Debenture, in the principal amount of $115,000 with proceeds of $100,000, is due on the first anniversary thereof. Principal and interest under the note is convertible at any time at the option of Kodiak into shares of the Company’s Common Stock at a conversion price equal to the lesser of $0.10 or 65% of the lowest closing bid price for the 30 trading days immediately prior to conversion. Thereafter, the Company shall sell and Kodiak shall purchase an additional debenture in the principal amount of $460,000 at the purchase price of $400,000, within 30 days following the effectiveness of a registration statement to be filed for the registration of the Shares underlying both debentures. On April 24, 2015, the Company issued Kodiak a 1% Convertible Redeemable Note in the amount of $50,000 whereby a pre-existing obligation to an unrelated third-party in the amount of $50,000 was assigned to Kodiak and exchanged for such note. Principal and interest under the note are convertible at any time at the option of Kodiak, into shares of Common Stock at the conversion price equal to 70% of the lowest closing bid price for the 30 trading days immediately prior to conversion.

 

On May 21, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of $43,000 of the Company’s original issue discount convertible note. The note, in the principal amount of $43,000, was issued on May 21, 2015 (Note 12- Subsequent Events).

 

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, 2014, which was filed with the Securities and Exchange Commission on November 13, 2014.

 

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, 2014.

  

  

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

 

We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.

 

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 this evaluation, our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

 

In connection with the audit of the financial statements for the year ended July 31, 2014, we concluded that there were material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses were identified:

 

Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting. 

 

Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures..

 

Lack of Audit Committee: We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.

 

The Company is committed to improving the internal controls and will (1) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing additional outside directors and audit committee members in the future. Notwithstanding the material weaknesses that existed as of July 31, 2014, management has concluded that the condensed financial statements included elsewhere in this quarterly report present fairly, in all material respects, our financial position, results of operation and cash flows in conformity with GAAP. 

 

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.

 

 

PART II

OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

  

ITEM 1A. Risk Factors

 

We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.

  

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

 

On February 20, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of up to $400,000 of the Company’s original issue discount convertible notes. The first note, in the principal amount of $66,667, was issued on February 20, 2015.

 

On March 4, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of up to $100,000 of the Company’s original issue discount convertible note. The note, in the principal amount of $100,000, was issued on March 4, 2015.

 

On April 1, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of $64,000 of the Company’s original issue discount convertible note. The note, in the principal amount of $64,000, was issued on April 1, 2015.

 

On April 24, 2015, the Company entered into a Series of transactions with Kodiak Capital Group, LLC. (“Kodiak”). On that date the Company entered into an Equity Purchase Agreement pursuant to which the Company may “put” to Kodiak up to $1,000,000 of shares of our Common Stock in amounts up to $25,000 per put upon effectiveness of a registration statement that may be filed for such purpose. The Company issued 500,000 shares of Common Stock as a commitment fee and executed a Registration Rights Agreement to register the Shares to be sold under the line. Also on that date, the Company entered into a Securities Purchase Agreement with Kodiak for the purchase and sale of original issue discount debentures in the maximum aggregate amount of $600,000 for a maximum purchase price of $500,000. The first note, a 15% Senior Secured Convertible Debenture, in the principal amount of $115,000 with proceeds of $100,000, is due on the first anniversary thereof. Principal and interest under the note is convertible at any time at the option of Kodiak into shares of the Company’s Common Stock at a conversion price equal to the lesser of $0.10 or 65% of the lowest closing bid price for the 30 trading days immediately prior to conversion. Thereafter, the Company shall sell and Kodiak shall purchase an additional debenture in the principal amount of $460,000 at the purchase price of $400,000, within 30 days following the effectiveness of a registration statement to be filed for the registration of the Shares underlying both debentures. On April 24, 2015, the Company issued Kodiak a 1% Convertible Redeemable Note in the amount of $50,000 whereby a pre-existing obligation to an unrelated third-party in the amount of $50,000 was assigned to Kodiak and exchanged for such note. Principal and interest under the note are convertible at any time at the option of Kodiak, into shares of Common Stock at the conversion price equal to 70% of the lowest closing bid price for the 30 trading days immediately prior to conversion.

 

On May 21, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of $43,000 of the Company’s original issue discount convertible note. The note, in the principal amount of $43,000, was issued on May 21, 2015 (Note 12- Subsequent Events).

 

  

No solicitation was made and no underwriting discounts were given or paid in connection with these transactions. The Company believes that the issuance of the shares as described above was exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933, as amended.

 

ITEM 3. Defaults Upon Senior Securities

 

None.

 

ITEM 4. Mine Safety Disclosures

 

Not applicable. 

 

ITEM 5. Other Information

 

On February 20, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of up to $400,000 of the Company’s original issue discount convertible notes. The first note, in the principal amount of $66,667, was issued on February 20, 2015.

 

On March 4, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of up to $100,000 of the Company’s original issue discount convertible note. The note, in the principal amount of $100,000, was issued on March 4, 2015.

 

On April 1, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of $64,000 of the Company’s original issue discount convertible note. The note, in the principal amount of $64,000, was issued on April 1, 2015.

 

On April 24, 2015, the Company entered into a Series of transactions with Kodiak Capital Group, LLC. (“Kodiak”). On that date the Company entered into an Equity Purchase Agreement pursuant to which the Company may “put” to Kodiak up to $1,000,000 of shares of our Common Stock in amounts up to $25,000 per put upon effectiveness of a registration statement that may be filed for such purpose. The Company issued 500,000 shares of Common Stock as a commitment fee and executed a Registration Rights Agreement to register the Shares to be sold under the line. Also on that date, the Company entered into a Securities Purchase Agreement with Kodiak for the purchase and sale of original issue discount debentures in the maximum aggregate amount of $600,000 for a maximum purchase price of $500,000. The first note, a 15% Senior Secured Convertible Debenture, in the principal amount of $115,000 with proceeds of $100,000, is due on the first anniversary thereof. Principal and interest under the note is convertible at any time at the option of Kodiak into shares of the Company’s Common Stock at a conversion price equal to the lesser of $0.10 or 65% of the lowest closing bid price for the 30 trading days immediately prior to conversion. Thereafter, the Company shall sell and Kodiak shall purchase an additional debenture in the principal amount of $460,000 at the purchase price of $400,000, within 30 days following the effectiveness of a registration statement to be filed for the registration of the Shares underlying both debentures. On April 24, 2015, the Company issued Kodiak a 1% Convertible Redeemable Note in the amount of $50,000 whereby a pre-existing obligation to an unrelated third-party in the amount of $50,000 was assigned to Kodiak and exchanged for such note. Principal and interest under the note are convertible at any time at the option of Kodiak, into shares of Common Stock at the conversion price equal to 70% of the lowest closing bid price for the 30 trading days immediately prior to conversion.

 

On May 21, 2015, the Company effectuated a Convertible Note Agreement with an investor for the purchase and sale of $43,000 of the Company’s original issue discount convertible note. The note, in the principal amount of $43,000, was issued on May 21, 2015 (Note 12- Subsequent Events).

 

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.

  

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 15, 2015	By:	/s/ John Hwang
		Name: John Hwang
		Its: Chief Executive Officer and Director (Principal Executive Officer)

 

Date: June 15, 2015	By:	/s/ John Hwang
		Name: John Hwang
		Its: Chief Financial Officer (Principal Financial and Accounting Officer)