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ABHI > SEC Filings for ABHI > Form 10-Q on 17-Mar-2014All Recent SEC Filings

Show all filings for AMBICOM HOLDINGS, INC

Form 10-Q for AMBICOM HOLDINGS, INC


17-Mar-2014

Quarterly Report


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

Forward Looking Statements

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

The following discussion and analysis of our plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contain forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those presented under the heading of "Risk Factors" and elsewhere in our annual report for the fiscal year ended July 31, 2013.

Overview

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

Results of Operations



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



                                              Three Months Ended January 31,            Six Months Ended January 31,
                                               2014                    2013               2014                2013

Sales                                               100.0 %                 100.0 %           100.0 %             100.0 %

Cost of sales                                        41.3 %                  43.0 %            46.5 %              46.4 %

Gross profits                                        58.7 %                  57.0 %            53.5 %              53.6 %

Operating Expenses
Depreciation                                          1.6 %                   0.2 %             0.9 %               0.2 %
Professional fees                                    33.6 %                   9.7 %            14.2 %               8.6 %
Selling and general expenses                         49.7 %                  27.5 %            37.6 %              26.4 %
Total operating expenses                             84.9 %                  37.4 %            52.7 %              35.2 %

Income (loss) from operations                       -26.2 %                  19.6 %             0.8 %              18.4 %

Other income (expense)
Other income and expense, net                         0.0 %                   0.0 %             0.0 %               0.0 %
Interest expense, net                                -0.2 %                   0.0 %            -0.1 %               0.0 %
Net other income (expense)                           -0.2 %                   0.0 %            -0.1 %               0.0 %

Total income (loss) before income taxes             -26.4 %                  19.6 %             0.7 %              18.4 %

Income taxes                                          0.0 %                   0.0 %             0.1 %               0.0 %

Revenue

Revenue is derived from sales of our wireless device products and non-recurring engineering project fees. The products consist of routers, Compact flash Adapters/Modules, USB Adapters/Modules, Mini PCI Modules, PCI Express Mini Modules and mobile wireless products. The Company operates in a market characterized by long term growth prospects as businesses adopt the convenience of wireless connectivity and switch from traditional wired solutions. We provide optimized wireless products to the medical industry which has concentrated on using wireless solutions as a way to reduce healthcare costs as a whole. Total revenue for the three months and six months ended January 31, 2014 and January 31, 2013 is summarized in the following table:

Three Months Ended January 31, Six Months Ended January 31,

2014 2013 Change in Dollars Change in Percent 2014 2013 Change in Dollars Change in Percent

$ 442,954 $ 785,717 $ (342,763 ) -44 % $ 1,242,435 $ 1,632,921 $ (390,486 ) -24 %

Our sales declined 44% in the three months ended January 31, 2014compared to the three months ended January 31, 2013. Our sales declined by 24% in the six months ended January 31, 2014 compared to the six months ended January 31, 2013. This decline is mainly as a result of a large portion of our products reaching the end of their product life cycle. We expect revenue to increase from introducing wireless device modules including new secure digital input output ("SDIO") cards, non-healthcare related wireless devices including solar toothbrushes that utilize LED light technology

Customer Concentration Information

Two customers accounted for more than 10% of total revenue for the three months ended January 31, 2014, and two customers accounted for more than 10% for the three months ended January 31, 2013. Three customers accounted for more than 10% of total revenue for the six months ended January 31, 2014, and three customers accounted for more than 10% for the six months ended January 31, 2013.

Cost of Sales

Our cost of sales consists primarily of the amounts paid to third-party manufacturers for the products we purchase for resale, related packaging costs, as well as labor and material costs associated with our NRE projects. Our cost of sales for the three and six months ended January 31, 2014and 2013 are summarized in the following table:

Three Months Ended January 31, Six Months Ended January 31, 2014 2013 Change in Dollars Change in Percent 2014 2013 Change in Dollars Change in Percent

$ 182,985 $ 337,825 $ (154,840 ) -46 % $ 578,258 $ 757,370 $ (179,112 ) -24 %

Our cost of sales declined by 46% in the three months ended January 31, 2014compared to the three months ended January 31, 2013.Our cost of sales declined by 24% in the six months ended January 31, 2014 compared to the six months ended January 31, 2013. The decrease in cost of sales matched the decrease in revenue for the period.

Gross Profit & Gross Margin

Our gross profit declined by 42% from $447,892 in the three months ended January 31, 2013to $259,969 in the three months ended January 31, 2014.Our gross profit declined by 24% from $875,551 in the six months ended January 31, 2013 to $664,177 in the six months ended January 31, 2014. The decrease in gross profit matched the decrease in revenue and cost of sales. Our gross margin will continue to be affected by a variety of factors, including the product mix that our customers demand, changes in supply costs, outsourcing costs for ongoing projects, the average sales prices on sales of our products, the stages of our product life cycle, and the introduction of new products.

Operating Expenses

Three Months Ended January 31, Six Months Ended January 31,
2014 2013 Change in Dollars Change in Percent 2014 2013 Change in Dollars Change in Percent

$ 375,894 $ 293,571 $ 82,323 28 % $ 654,836 $ 574,610 $ 80,226 14 %

Our operating expenses are categorized to include depreciation, professional fees and selling, general and administrative expenses. Overall operating expenses increased by $82,323 for the three months ended January 31, 2014 compared to the same period in 2013, an increase of 28%. Overall operating expenses increased by $80,226 for the six months ended January 31, 2014 compared to the same period in 2013, an increase of 14%.

Depreciation expense was $7,053 for the three months ended January 31, 2014and $1,576 for the three months ended January 31, 2013. Depreciation expense was $11,187 for the six months ended January 31, 2014and $3,120 for the six months ended January 31, 2013. Our depreciation rate policy remained unchanged. The increase was due to purchase new fixed assets during the year.

Our professional fees increased to $148,624 in the three months ended January 31, 2014from $76,005 in the three months ended January 31, 2013.Our professional fees increased to $467,731 in the six months ended January 31, 2014from $431,617 in the six months ended January 31, 2013. Professional fees are a significant part of our operating expenses as a direct result of our reporting and filing requirements as a public company since the merger in 2010. The majority of the increase in professional fees for the three months ended January 31, 2014 was due to increase in public relation service expenses.

Selling, general and administrative expenses consist primarily of salaries and associated costs for employees in finance, human resources, sales, information technology and administrative activities. In addition, selling, general and administrative expenses may from time to time include charges relating to insurance or stock-based compensation under Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment." Our selling, general and administrative expenses increased by $4,227 or 2% to $220,217 in the three months ended January 31, 2014from $215,990 in the three months ended January 31, 2013.Our selling, general and administrative expenses increased by $36,114 or 8% to $467,731 in the six months ended January 31, 2014from $431,617 in the six months ended January 31, 2013.

The increase was mainly due to increase in health Insurance expense, salary, public relations and Advisory fees.

Income (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 $154,321 in the three months ended January 31, 2013 to a net loss of $115,925 in the three months ended January 31, 2014.Our income from operations declined from an income of $300,941 in the six months ended January 31, 2013 to a net income of $9,341in the six months ended January 31, 2014, with decreases in revenue and gross profit accompanied by increases in selling, general and administrative expenses and professional fees.

Other Income and Expenses

Other income and expenses arise from non operating events and transactions, principally interest charges. We had a net expense of $894 for the three months ended January 31, 2014compared to a net income of $1 for the three months ended January 31, 2013.We had a net expense of $1,181 for the six months ended January 31, 2014compared to a net income of $2for the six months ended January 31, 2013.

Provision for Income Taxes

Our effective tax rate for the years ended July 31, 2013 and 2012 was 42.8%. We made no provisions for income taxes in either the first three months of 2012 or 2011 as we had significant NOL carry-forwards to cover our liability for the these periods.

Net Income



Net income for the three months and six months ended January 31, 2014and 2013 is
summarized in the following table:



                 Three Months Ended January 31,                                      Six Months Ended January 31,
                                                      Change in                                                         Change in
   2014          2013         Change in Dollars        Percent        2014         2013         Change in Dollars        Percent

$ (116,819 )   $ 154,322     $          (271,141 )          -176 %   $ 6,560     $ 300,943     $          (294,383 )           -98 %

For the three months ended January 31, 2014, the net loss was $116,819; a decrease of 176% compared to the three months ended January 31, 2013 with a net income of $154,322. For the six months ended January 31, 2014, the net income was $6,560; a decrease of 98% compared to the six months ended January 31, 2013 with a net income of $300,943. The decrease in net income for the three months and six month ended January 31, 2014was due to decreases in revenue and gross profit accompanied by increases in selling, general and administrative expenses and professional fees.

Capital Resources and Liquidity

Cash and cash equivalents were $407,989 at January 31, 2014 and $596,871 at July 31, 2013. The net decrease in cash over the period was mainly due to the decreases in revenue and gross profit accompanied by increases in selling, general and administrative expenses and professional fees. Our total current assets declined 23% to $809,878 at January 31, 2014from $1,045,712 at July 31, 2013 while our current liabilities decreased by 71% to $128,162 at January 31, 2014from $444,790 at July 31, 2013. Total working capital increased to $681,717 at January 31, 2014compared to a positive working capital of $600,922 at July 31, 2013, an increase of $80,795.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

The process of preparing financial statements requires the use of estimates on the part of our management. The estimates used by management are based on our historical experiences combined with management's understanding of current facts and circumstances. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial condition and results and require significant or complex judgment on the part of management. For a description of what we believe to be our most critical accounting policies and estimates, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K, for the year ended July 31, 2013, which was filed with the Securities and Exchange Commission on October 29, 2013.

Critical accounting policies affecting us, the critical estimates made when applying them, and the judgments and uncertainties affecting their application have not changed materially since July 31, 2013.

Recent Accounting Pronouncements

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

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