UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.  20549





Form 10-K


(Mark One)





x
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934





For the fiscal year ended June 30, 2011


or





o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934





For the transition period from _____________ to ______________





Commission file number 0-12962





CAMBRIDGE HOLDINGS, LTD.


(Exact Name of Registrant as Specified in its Charter)





Colorado
84-0826695(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)





106 S. University Blvd. #14

Denver, Colorado
80209(Address of principal executive offices)
(Zip Code)





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





Securities registered pursuant to Section 12(b) of the Act:   None





Securities Registered Under Section 12(g) of the Act:





Common stock, $.025 par value


(Title of Class)





Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes x    No o





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act:      Yes o    No x





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes o    Nox





Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer,"  "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:





Large accelerated filer o



Non-accelerated filer o

(Do not check if smaller reporting company)
Accelerated filer o



Smaller reporting company x





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





The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2011, computed by reference to the closing price on that date was $98,200.





The number of shares outstanding of the registrant’s common stock at August 20, 2011 was 3,509,877.

















CAMBRIDGE HOLDINGS, LTD.

INDEX TO ANNUAL REPORT ON FORM 10-KPART I


PageItem 1.
Business



3Item 1A.
Risk Factors



5Item 1B.
Unresolved Staff Comments



6Item 2.
Properties



6Item 3.
Legal Proceedings



6Item 4.
(Removed and Reserved)



6PART IIItem 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



7Item 6.
Selected Financial Data



7Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations



7Item 7A.
Quantitative and Qualitative Disclosures About Market Risk



10Item 8.
Financial Statements and Supplementary Data



10Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures



10Item 9A.
Controls and Procedures



10Item 9B.
Other Information



11PART IIIItem 10.
Directors, Executive Officers and Corporate Governance



12Item 11.
Executive Compensation



13Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



15Item 13.
Certain Relationships and Related Transactions and Director Independence



17Item 14.
Principal Accounting Fees and Services



17PART IVItem 15.
Exhibits, Financial Statement Schedules



18Signatures



19





1











DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS





Certain statements contained in this report that are not historical facts constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbors created by that act. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which may cause actual results, performance, or achievements to differ materially from those expressed or implied. Any forward-looking statement speaks only as of the date made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which they are made.








Statements concerning the establishment of reserves and adjustments for dated and obsolete products, expected financial performance, on-going business strategies and possible future action which we intend to pursue to achieve strategic objectives constitute forward-looking information. The sufficiency of such charges, implementation of strategies and the achievement of financial performance are each subject to numerous conditions, uncertainties, and risk factors. Factors which could cause actual performance to differ materially from these forward-looking statements, include, without limitation, the ability to complete the Prescient merger under acceptable terms, the management of our assets, liabilities and operations to advance the Company, problems in converting our investments into cash and difficulties in obtaining financing in sufficient amounts and on an as-needed basis.















Part I





Item 1.   BUSINESS.





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





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





Commencing in December 2001, the Company made a series of investments in AspenBio Pharma, Inc. ("AspenBio").  At June 30, 2011 the Company owned 2,853 common shares of AspenBio. Effective July 29, 2011, AspenBio completed a 5-for-1 reverse stock split.   All references herein to AspenBio common shares have been revised to reflect the effect of this reverse split. Greg Pusey, president of the Company, serves on AspenBio’s board of directors and as a vice president and Jeffrey G. McGonegal, chief financial officer of the Company, serves as AspenBio’s chief financial officer.





Commencing in March 2002, the Company made a series of investments in PepperBall Technologies, Inc. ("PepperBall").  PepperBall, a public company, develops and markets non-lethal and personal protection devices. As of June 30, 2011 the Company owns 3,003 common shares of PepperBall’s common stock.   Greg Pusey, president of the Company, served until April 2011 on PepperBall’s board of directors and Jeffrey G. McGonegal, chief financial officer of the Company, served until December 2010 on a limited part-time basis as PepperBall’s chief financial officer.





In September 2002, the Company completed a pro rata distribution to its shareholders of 99,259 shares of the AspenBio common stock, which was recorded by the Company as a dividend at the shares’ then estimated fair value of $150,000.  In March 2005, the Company’s board of directors approved a distribution of 106,455 shares of the then remaining total AspenBio common stock owned by the Company at that time.  This distribution was made on a pro rata basis to all shareholders of record as of the close of business on March 24, 2005 and was recorded as a dividend at the shares’ estimated value for financial reporting purposes of approximately $475,000.  The Company’s board of directors made the decision to distribute this investment based upon the following considerations: 1) to begin the process of reducing the Company’s level of investment assets and 2) the board of directors did not believe that the market value of the shares of the Company reflected to value of the underlying investments and therefore to increase the value to its shareholders.





In December 2005, a cash dividend of $0.1825 per common share (approximate total of $651,500) was paid to shareholders of record as of November 22, 2005.  Included in that dividend distribution were approximately 462,500 shares of common stock of PepperBall and approximately 420,500 shares of common stock of Bactolac Pharmaceutical, Inc., with a combined cost basis of approximately $755,500.





In December 2009, the Company completed a pro rata distribution to its shareholders of 49,105 shares of AspenBio common stock, which for financial reporting purposes was recorded by the Company as a dividend at the shares’ then estimated fair value of $412,480.  This distribution represented the liquidation of substantially all of the then remaining assets of the Company.










Management of the Company is currently evaluating the most prudent methods and timing of managing / disposing of the remaining non-Prescient related minimal investments held by the Company. The evaluation includes consideration of the possible reverse merger with Prescient Medical, Inc. and perceived current and future value of each holding and the most effective disposal method.





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





1.
Pursuing the completion of the Prescient merger and relating funding activities;





2.
Aggressively pursuing additional fund raising activities; and





3.
Continuing to monitor and implement other cost control initiatives to conserve cash





COMPETITION. As a result of the Company’s plan to liquidate, the Company’s position as a competitor in the real estate industry is no longer applicable.





EMPLOYEES. The Company has no fulltime employees.  Mr. Pusey and Mr. McGonegal serve the Company on a limited part-time basis, currently for no cash compensation.





Item 1A. RISK FACTORS.





An investment in our common stock involves a high degree of risk. Prospective investors should consider carefully the following factors and other information in this report before deciding to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition, results of operations and prospects for growth would likely suffer. As a result, the trading price of our common stock could decline and you could lose all or part of your investment.





Risks Related to Our Business




No assurance of completion or potential future success of the merger with Prescient Medical, Inc.





Although the board of directors of the Company has determined that a merger with Prescient is in the best interest of the Company and its stockholders and has signed a letter of intent to proceed with the reverse merger, there can be no assurance that the merger will be completed as there are substantial terms and conditions that must be completed, including the finalization and execution of a definitive agreement and the approval by both companies’ shareholders. The non-binding letter of intent that has been signed also includes conditions regarding the closings of certain future funding. The terms of the Prescient common and preferred stock require a majority vote of Prescient's outstanding shares entitled to vote to approve the merger.  The Company and Prescient can make no assurance that the required consents will be obtained by Prescient.










In the event that the merger with Prescient is able to be completed, there are substantial risks that Prescient will not be able to successfully execute its business plan which requires not only substantial additional funding, but also the successful completion of development of its products and regulatory approval to commercialize such products in markets in which it may choose to launch such products.





An investment in the Company involves a high degree of business and financial risk that can result in a loss of your entire investment.





We have limited operations and may require additional capital in the future, and we cannot assure you that capital will be available on reasonable terms, if at all, or on terms that would not cause substantial dilution to your stock holdings.





We have liquidated or distributed substantially all of the Company's cash and investment assets and as such have limited operations. We have historically generated capital from operating and investment activities and periodically raised capital to fund our operating losses. We expect to continue to incur operating losses into the fiscal year ending June 30, 2012. Depending upon our capital requirements and the ability to advance and complete the merger with Prescient, we will require additional capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us, if at all, especially in light of the state of the current financial markets. Any sale of a substantial number of additional shares may cause dilution to your investment and could also cause the market price of our common stock to decline.





We depend upon the services of our key executives.





We depend upon the services of our key executives, including Gregory Pusey, a director and our president, and Jeff McGonegal, our chief financial officer.  We are aware that Mr. Pusey serves as a director and vice president, and Mr. McGonegal serves as chief financial officer, of AspenBio Pharma, Inc., a publicly held emerging bio-pharmaceutical company. We are aware that Mr. Pusey previously served as a director, and previously served as chairman, and Mr. McGonegal previously served as chief financial officer, on a limited part-time basis, of PepperBall, a publicly held provider of non-lethal projectiles, launchers and security related products.  A loss of their services for a prolonged period could potentially have an adverse affect on the conduct of our business.





Our Independent Registered Public Accounting Firm added an emphasis paragraph to their audit report describing an uncertainty related to our ability to continue as a going concern.





Due to our continued losses and limited capital resources our Independent Registered Public Accounting Firm has issued a report that describes an uncertainty related to our ability to continue as a going concern. The auditors’ report discloses that the Company has incurred operating losses since inception and has signed a letter of intent for a reverse merger, which raises substantial doubt about its ability to continue as a going concern.  Management’s plan in regard to these matters is also discussed in Note 1 to the accompanying financial statements.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.





Risks Related to Our Securities





We may require additional capital in the future and we cannot assure you that capital will be available on reasonable terms, if at all, or on terms that would not cause substantial dilution to your stock holdings.





We have historically generated capital from operating and investment activities and periodically raised capital to fund our operating losses. We expect to continue to incur operating losses into the fiscal year ending June 30, 2012. Depending upon our ability to advance with the Prescient reverse merger and our capital requirements, we believe we will require additional capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us, if at all, especially in light of the state of the current financial markets. Any sale of a substantial number of additional shares may cause dilution to your investment and could also cause the market price of our common stock to decline.










Our stock price, like that of many micro-cap companies, is volatile.





The market prices for securities of micro-cap companies in general have been highly volatile and may continue to be highly volatile in the future, particularly in light of the current financial markets. In addition, the market price of our common stock has been and may continue to be volatile.  An investment in the Company involves a high degree of business and financial risk that can result in a loss of your entire investment.





There is not an active market for the Company's common stock.





Although our common stock is currently eligible for quotation on the OTC Bulletin Board, the volume of trading in our common stock has been extremely sporadic.  As a result, the ability to purchase or sell our common stock over the OTC Bulletin Board is limited, with volume trading creating wide shifts in price.  An investor may find it difficult to obtain accurate quotations as to the market value of our common stock.  In addition, if we failed to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors.  Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect its liquidity.  This would also make it more difficult for us to raise additional capital in the future.





Often stock traded on the OTC Bulletin Board experiences extremely sporadic trading. For example, historically several weeks have passed between trades of shares of our common stock.  There can be no assurance that, assuming that our common stock becomes so quoted on the OTC Bulletin Board, a more active market for our common stock will develop and/or continue.  Accordingly, investors must assume they may have to bear the potential loss of their entire investment in our common stock.





Item 1B.  UNRESOLVED STAFF COMMENTS.





None.





Item 2.   PROPERTIES.





The Company's administrative activities are conducted at the Company's corporate headquarters located in Denver, Colorado in a space shared by the Company with an affiliate, Livingston Capital, Ltd. ("Livingston"). The Company paid Livingston a monthly fee of $500 for rent and certain overhead administrative expenses through June 30, 2010, when the payment arrangement was terminated.





Item 3.   LEGAL PROCEEDINGS.





The Company is not involved in any material, pending legal proceedings.





Item 4.   (REMOVED AND RESERVED).













PART II





Item 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





The Company's common stock trades on the OTC Bulletin Board under the symbol "CDGD.OB". Trading in the Company's common stock in the over-the-counter market has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. Further, these prices reflect inter-dealer prices without retail mark-up, markdown, or commission and may not necessarily reflect actual transactions. The high and low bid prices for the common stock for each quarter of the fiscal years ended June 30, 2011 and 2010 are as follows:





Quarter Ended

High Bid


Low BidJune 30, 2011

$
.11


$
.11March 31, 2011

$
.12


$
.08December 31, 2010

$
.26


$
.12September 30, 2010

$
2.00


$
.03June 30, 2010

$
.065


$
.02March 31, 2010

$
.065


$
.06December 31, 2009

$
.10


$
.05September 30, 2009

$
.42


$
.09





At August 17, 2011, the number of record holders of the Company's common stock was approximately 930.





The closing price of our common stock on August 17, 2011 was $0.13 per share. During the fiscal year ended June 20, 2010 we paid a dividend to the Company’s common shareholders of record on November 30, 2009.  The dividend consisted of an aggregate of 49,105 shares of AspenBio, which the Company had held as an investment.  The dividend was made to the Company's shareholders at the rate of .014 shares of AspenBio common stock for each share of the Company's common stock a shareholder owned. We currently do not anticipate any cash dividends will be paid to shareholders.





Item 6.   SELECTED FINANCIAL DATA.





Not applicable to smaller reporting companies.





Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.





LIQUIDITY AND CAPITAL RESOURCES.





At June 30, 2011, the Company had cash and cash equivalents of $13,900 and a working capital deficit of $(1,283,700).





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











For the year ended June 30, 2011, operating activities consumed cash of $3,400 as compared to cash consumed of $51,500 for the year ended June 30, 2010. Net losses totaled $1,427,100 for the year ended June 30, 2011 including noncash expenses for a $1,298,400 reserve on notes and interest receivable and $120,100 in amortization of interest expense. Accrued interest receivable of $55,600 and accrued interest payable of $55,200 in the year ended June 30, 2011, were associated with the Prescient offering.  Net losses totaled $212,800 for the year ended June 30, 2010, including noncash realized gains of $243,500 from the disposal of investment securities and unrealized gains from trading securities totaling $57,200.





The Company consumed cash in investing activities of $1,025,000 during the year ended June 30, 2011 for amounts advanced to Prescient under secured promissory notes. There were no investing activities during the year ended June 30, 2010.





The Company generated cash of $1,033,700 from financing activities during the year ended June 30, 2011 from the sale of $1,025,700 in convertible notes payable and $8,000 from an unsecured cash advance from Prescient.  There were no financing activities during the year ended June 30, 2010.




RESULTS OF OPERATIONS.





Our Independent Registered Public Accounting Firms’ reports on our financial statements as of June 30, 2011 and 2010, and for each of the years in the two-year period then ended, includes a “going concern” explanatory paragraph, that describes factors that raise substantial doubt about our ability to continue as a going concern.





COMPARISON OF THE YEAR ENDED JUNE 30, 2011 TO YEAR ENDED JUNE 30, 2010





The Company had total revenues (losses) of $(4,800) in 2011 and $(300,700) in 2010. The losses (negative revenues) in 2010 arose from a realized loss of $243,500 and an unrealized loss of $57,200, respectively, on investment securities.  Losses in 2011 arose from unrealized losses on investment securities of $4,800.
 
 Operating, general and administrative expenses for the years ended June 30, 2011 and 2010 totaled approximately $27,600 and $152,300, respectively.  The approximate $124,700 reduction in 2011 related primarily to no compensation or bonuses were paid during the year ended June 30 2011.
 
 Other expenses in 2011 totaled $1,418,000 as compared to none in 2010.   The 2011 expenses related to Prescient transactions with the interest expense of $175,300 recorded on the convertible notes payable and warrants, and a valuation reserve of $1,242,700 recorded in the fourth quarter of 2011 against the Prescient secured notes receivable.


The Company had losses before taxes of $1,450,400 for the year ended June 30, 2011 as compared with losses of $453,000 for the year ended June 30, 2010. The increase in the loss arose primarily from the reserves recorded against the Prescient secured notes receivable and the interest expenses recorded on the convertible notes payable.





The income tax benefit of $23,300 for the year ended June 30, 2011 arose from refunds from a carry back of net operating losses to recover income taxes previously paid and $240,200 in the year ended June 30, 2010 resulted primarily due to the deferred tax effects associated with the unrealized decrease in market value of investments. No income tax benefit was recorded on the net operating loss carry-forward as of June 30, 2011, as management of the Company was unable to determine that it was more likely than not that such benefit would be realized. At June 30, 2011, the Company had a net operating loss carry-forward for income tax purposes of approximately $32,000, and other loss carry-forwards of approximately $1,254,000, expiring in various years through 2030.








CRITICAL ACCOUNTING POLICIES





The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect both the recorded values of assets and liabilities at the date of financial statements and the revenues recognized and expenses incurred during the reporting period. Our financial position, results of operations and cash flows are impacted by the accounting policies we have adopted. The Company evaluates the reasonableness of these estimates and assumptions as part of the process of preparing its financial statements based upon a combination of historical information and other information that comes to our attention that may vary our outlook for the future. Actual results may differ from these estimates under different assumptions or conditions. A summary of our critical accounting policies follows:





Investments





Prior to selling the Company’s assets in accordance with its plan of liquidation, the Company invested its excess working capital in investments that the Company believed had the ability to grow in value at rates in excess of traditional money market type investments. While such investments are generally more risky than money market or mutual fund investments, the Company has experienced what it believes to be acceptable higher net returns for the additional risk. At June 30, 2011, $9,300 of the Company's assets consisted of such investments.





Deferred Income Taxes





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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If the tax law or tax rates change in the future it could impact the available amount of loss carry-forwards and/or the recorded deferred tax amounts.





Revenue Recognition





Our revenues consisting of gains and losses on investment securities fluctuate based on market value.  These unrealized gains and losses on sales of investment securities accounted for a material portion of total revenues during the years ended June 30, 2011 and 2010. The SEC's Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition" (“SAB No. 104”) provides guidance on the application of generally accepted accounting principles ("GAAP") to select revenue recognition issues.  We concluded that our revenue recognition policy is appropriate and in accordance with SAB No. 104.





Stock-Based Compensation





Statement of Financial Accounting Standards ASC 718 (formerly - SFAS No. 123 (revised 2004)), "Share-Based Payment", defines the fair-value-based method of accounting for stock-based employee compensation plans and transactions used by the Company to account for its issuances of equity instruments to record compensation cost for stock-based employee compensation plans at fair value as well as to acquire goods or services from non-employees. Transactions in which the Company issues stock-based compensation to employees, directors and advisors and for goods or services received from non-employees are accounted for based on the fair value of the equity instruments issued. The Company utilizes pricing models in determining the fair values of options and warrants issued as stock-based compensation. These pricing models utilize the market price of the Company’s common stock and the exercise price of the option or warrant, as well as time value and volatility factors underlying the positions.










Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





Not applicable to smaller reporting companies.





Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.





See financial statements commencing on page F-1.





Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.





None.




Item 9A.  CONTROLS AND PROCEDURES.





Evaluation of Disclosure Controls and Procedures.





Management’s Annual Report on Internal Control Over Financial Reporting





Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Internal control over financial reporting is the process designed by, or under the supervision of, our chief executive officer and chief financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.





All internal control systems, no matter how well designed, have inherent limitations, including the possibility of the circumvention or overriding of controls. Therefore, even a system determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, internal control effectiveness may vary over time.





Management conducted an assessment of the effectiveness of the Company’s internal control system as of June 30, 2011. In making this assessment, management used the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that internal control over financial reporting was not effective as of June 30, 2011.





A material weakness is a deficiency, or a combination of deficiencies, that result in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management identified the following material weaknesses in our internal control over financial reporting as of June 30, 2011.





Ineffective Control Environment





The Company did not maintain an effective control environment based on criteria established in the COSO framework. Specifically, the Company did not adequately design in an effective manner the procedures necessary and accounting software sufficient to support the requirements of the financial reporting and closing process.





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










We have also identified conditions as of June 30, 2011 that we believe are significant deficiencies in internal controls that include a lack of segregation of duties in accounting and financial reporting activities. We have been able to mitigate this deficiency by other management personnel reviewing bank accounts and transactions, financial reports and other information, but believe that the only effective long-term solution to our accounting needs is to hire additional personnel. Due to our very limited resources, we are uncertain as to when or if we will be able to accomplish this.





We do not believe that these deficiencies constitute material weaknesses because of the secondary reviews of information that are employed.





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





Changes in Internal Control Over Financial Reporting





There were no changes in the Company’s internal control over financial reporting as of June 30, 2011 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.





Management is continuing to consider corrective action to remedy the internal control weaknesses described above. See “Remediation of Material Weaknesses in Internal Control over Financial Reporting” described below.





Remediation of Material Weaknesses in Internal Control over Financial Reporting





Management is committed to remediating each of the material weaknesses identified above by implementing changes to the Company’s internal control over financial reporting. Management continues to implement changes to the Company’s internal control systems and procedures to ensure additional controls and timely reviews of information are improving.





Management is committed to creating and implementing an effective internal control system for each of the five internal control components set forth in the Internal Control — Integrated Framework issued by COSO. In this regard, we, along with our outside professional advisors work to evaluate the internal controls that are used in our business.





This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to current regulations that permit the Company to provide only management’s report in this annual report.





There have been no significant changes made in our internal controls or in other factors that have significantly affected internal controls subsequent to the evaluation date.





Item 9B.   OTHER INFORMATION.





None.









PART III





Item 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.





Executive officers of the Company are elected by the board of directors, and serve for a term of one year and until their successors have been elected and qualified or until their earlier resignation or removal by the board of directors. There are no family relationships among any of the directors and executive officers of the Company. Further, there is no arrangement or understanding between any director and the Company pursuant to which he was selected as a director.  There are no employment agreements in place with the Company with respect to any of the officers or directors.





Date First

Elected

Director
Name
Principal Occupation and Employment


1982
Greg Pusey
President, treasurer and director. Mr. Pusey is a director of Bactolac Pharmaceutical, Inc., a privately-held manufacturer of nutraceuticals. Mr. Pusey is also a director and a vice president of AspenBio Pharma, Inc., a publicly held emerging bio-pharmaceutical company, and until April 2011, served on the board of directors of PepperBall Technologies, Inc. Mr. Pusey graduated from Boston College in 1974 with a BS in finance.





1993
Scott Menefee
Director. Mr. Menefee is president of Delphi Real Estate Advisors, L.L.C., a real estate consulting firm.  Mr. Menefee has been involved in the development of over 3.5 million square feet of commercial real estate, including office buildings, high-rise residential condominiums, land development shopping centers and industrial properties while previously working as vice president of real estate development with Opus Northwest, L.L.C. and numerous lease transactions prior to his tenure with Opus. Mr. Menefee graduated from Southern Methodist University with an MBA in 1989 and the University of Denver with a BSBA in 1988.








2000
Jeffrey McGonegal
Senior vice president-finance, secretary and director. Mr. McGonegal has also served as the chief financial officer of AspenBio Pharma, Inc., since 2003.  Mr. McGonegal also served until December 2010 on limited part-time basis as chief financial officer for PepperBall Technologies, Inc., a position he had held since 2003 and he served as PepperBall's chief executive officer from October 2007 until September 2008.  Since 2005 Mr. McGonegal also has served on the board of Imagenetix, Inc., a publicly held company in the nutritional supplements industry. In September 2008 he was appointed to serve on the board of Smart Move, Inc., a publicly held company in the transportation industry until his resignation in January 2009.   He received a BA degree in accounting from Florida State University. Mr. McGonegal is a certified public accountant licensed in the state of Colorado.





12








QUALIFICATIONS, ATTRIBUTES AND SKILLS OF OUR BOARD OF DIRECTORS





The full board of directors screens director candidates and evaluates the qualification and skills applicable to the Company of the existing members of the board.  In overseeing the nomination of candidates for election, and the qualifications and skills of incumbent directors, the board seeks qualified individuals with outstanding records of success in their chosen careers, the skills to perform the role of director, and the time and motivation to perform as a director.  Directors are expected to bring specialized talents to the board that add value to the board’s deliberative process and advance the business goals of the Company.  The board has determined that experience in small public companies as well as corporate transactions and financial and investment experience are generally useful qualifications for directors, and the composition of the board reflects such assessment.  All of the incumbent directors exhibit outstanding records of success in their chosen careers and have demonstrated their ability to devote the time and energy necessary to serve on the board and to advance the business goals and strategies of the Company. Mr. Menefee was selected for his experience in business and specifically real estate at a time when the Company was engaged in real estate activities. Mr. Pusey was selected for his years of experience in business and extensive history of working with public companies.  Mr. McGonegal was selected based upon his accounting and financial reporting experience and extensive history of working with public companies.





INDEPENDENCE OF THE BOARD OF DIRECTORS





Our board of directors currently consists of Messrs. Pusey, Menefee and McGonegal. The Company defines “independent” as that term is defined in Rule 5605(a)(2) of the Nasdaq listing standards. Mr. Menefee has been determined to qualify as independent and has no material relationship with the Company that might interfere with his exercise of independent judgment.  There have been no separate committees designated by the board. The full board serves in all committee functions and Gregory Pusey and Jeff McGonegal have been determined to not be independent.





SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section 16(a) of the Exchange Act, requires the Company’s officers and directors and persons who own more than 10% of the Company’s outstanding common stock to file reports of ownership with the Securities and Exchange Commission (“SEC”). Directors, officers, and greater than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.





Based solely on a review of Forms 3, 4 and 5, and amendments thereto furnished to the Company during and for the Company’s year ended June 30, 2011, there were no directors, officers or more than 10% shareholders of the Company who failed to timely file a Form 3, 4 or 5.





The Company has not adopted a code of ethics or a whistle blower policy and does not have a separately designated audit committee or audit committee financial expert. Based upon the Company’s very limited operations and no full time employees, no code of ethics has been adopted.  The entire board serves as the audit committee and compensation committee.  Mr. McGonegal has been designated as the financial expert.





If security holders wish to communicate with the board of directors or with an individual director, they may direct such communications in care of the president, Cambridge Holdings, Ltd., 106 S. University Blvd, #14 Denver, CO 80209. The communication must be clearly addressed to the board of directors or to a specific director. The board of directors has instructed the president to review and forward any such correspondence to the appropriate person or persons for response.





Item 11.  EXECUTIVE COMPENSATION.





The Company’s compensation philosophy is to manage its resources prudently by paying minimal compensation for management’s routine annual services.  It incents its executives with stock options and pays additional incentive payments for achieving specific objectives and results.  The entire board of directors considers compensation matters.










COMPENSATION.





The compensation of our named executive officers consists primarily of cash compensation which may be in the form of bonuses and long term incentive awards generally in the form of stock options granted under the Company’s stock option plan. The following table sets forth the compensation paid by the Company during the fiscal year ended June 30, 2011 and in the two prior fiscal years of the Company to the Company’s named executive officers.





SUMMARY COMPENSATION TABLE





Name and

Principal

Position
Year

Salary

($)


Bonus

($)


Option

Awards

($)


All Other

Compensation

($) (1)


Total

($)Gregory S. Pusey
2011

$
—


$
—


$
—


$
—


$
—Chairman, President and
2010

$
50,000


$
—


$
—


$
6,000


$
56,000Director (1)
2009

$
46,000


$
—


$
35,500


$
20,000


$
101,500Jeffrey G. McGonegal,
2011

$
—


$
—


$
—


$
—


$
—Chief Financial
2010

$
—


$
33,600


$
—


$
—


$
33,600Officer and Director (2)
2009

$
—


$
—


$
40,400


$
—


$
40,400





(1) Mr. Pusey, who serves on a part-time basis, historically has been compensated for his services in cash and through the issuance of periodic stock options under the Company’s stock option plan.  Mr. Pusey does not have an employment agreement with the Company.  During the quarter ended June 30, 2010, Mr. Pusey’s cash compensation was terminated due to the Company’s limited financial resources and Mr. Pusey has waived his right to such payments.  Other annual compensation includes $500 per month ($6,000 per year) paid to an entity affiliated with Mr. Pusey for shared office space and facility services in 2010 and 2009 and in 2009 included $20,000 in cash payments taken as contract income in lieu of salary. These payments have been terminated.  On September 5, 2008 (FYE 2009), Mr. Pusey was granted options to acquire 100,000 shares of common stock exercisable at $0.462 each, vested upon issuance and expiring in five years.  The options had a value based upon the Black-Scholes formula under assumptions as included with the accompanying financial statements of $35,500.   The Company considers option awards as compensation received in his capacity as a director and all other compensation was received in his capacity as an officer.





(2) Mr. McGonegal, who serves on a part-time basis, historically has been compensated for his services in cash and through the issuance of periodic stock options under the Company’s stock option plan. During the year ended June 30, 2010, a bonus payment was made to Mr. McGonegal for his services with the payment consisting of the issuance of 4,000 shares of the common stock of AspenBio, which the Company held as an investment.  These shares were valued at $33,600.  Mr. McGonegal does not have an employment agreement with the Company.  On September 5, 2008 (FYE 2009), Mr. McGonegal was granted options to acquire 100,000 shares of common stock exercisable at $0.42 each, vested upon issuance and expiring in ten years.  The options had a value based upon the Black-Scholes formula under assumptions as included with the accompanying financial statements of $40,400.  The Company considers option awards as compensation received in his capacity as a director and all other compensation was received in his capacity as an officer.




Other than the periodic grant of stock options and bonus payments as described above, the Company does not have any plan based awards. The Company does not have any post employment benefits.











OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END





At June 30, 2011, each of our named executive officers had options, issued under our 2001 Stock Incentive Plan (the "2001 Plan") to purchase 100,000 shares of our common stock.  Mr. Pusey’s options are exercisable at a price of $0.462 each and are 100% vested and expire September 5, 2013. Mr. McGonegal’s options are exercisable at a price of $0.42 each and are 100% vested and expire September 5, 2018.





DIRECTOR COMPENSATION





Independent directors do not receive cash compensation for service on our board. Directors typically receive a stock option grant upon joining the board and periodically additional stock option grants, for service on the board.  During the year ended June 30, 2011 no options were granted to our directors.   The directors are reimbursed for any expenses incurred by them in attending board meetings.





Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.





PRINCIPAL SHAREHOLDERS





The following table sets forth as of August 17, 2011 the beneficial ownership of our common stock, by (i) each person or group of persons known to us to beneficially own more than 5% of the outstanding shares of our voting stock, (ii) each of our director and executive officers, and (iii) all of our executive officers and directors as a group.





Except as indicated in the footnotes to the table below, each shareholder named in the table has sole voting and investment power with respect to the shares shown as beneficially owned by such shareholder.





Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. In computing the number of shares beneficially owned by a person or a group and the percentage ownership of that person or group, shares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days after the date hereof are deemed outstanding, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. As of August 17, 2011, we had 3,509,877 shares of common stock outstanding. Unless otherwise indicated, the address of each individual named below is the address of the Company, 106 S. University Blvd., #14, Denver, CO 80209.





Name of Beneficial Owner

Amount and

Nature of

Beneficial

Ownership


Percent

of ClassExecutive Officers and DirectorsGregory Pusey (1)


1,422,418



39.4
%Jeffrey G. McGonegal (2)


591,075



16.4
%Scott Menefee (3)


152,430



4.3
%All executive officers and directors as a group (three

persons) (4)


2,165,923



60.1
%





5% ShareholdersThe Peierls Foundation, Inc. (5)

c/o John Kennedy

US Trust Company

114 West 47th Street

New York, NY 10036


701,048

20.0
%















(1)
Includes 100,000 shares of common stock issuable at $0.462 per share upon the exercise of stock options that expire in September 2013. Also includes 36,000 shares of common stock owned by Mr. Pusey’s IRA. Includes 7,600 shares of common stock owned by his wife and 39,709 held in his wife’s IRA. Mr. Pusey disclaims beneficial ownership of the shares held by his wife except to the extent of his pecuniary interest therein.(2)
Includes 100,000 shares of common stock issuable at $0.42 per share upon the exercise of stock options that expire in September 2018.(3)
Includes 50,000 shares of common stock issuable at $0.42 per share upon the exercise of stock options that expire in September 2018.(4)
Includes footnotes 1 to 3.(5)
Includes 14,400 shares of common stock beneficially owned by E. Jeffrey Peierls and 219,011 shares of common stock beneficially owned by Brian Eliot Peierls, E. Jeffrey Peierls’ brother.





CHANGES IN CONTROL





There are no arrangements known to the Company which may result in a change in control of the Company.





Equity Compensation Plan Information





The Company currently has one equity compensation plan. The Company currently provides stock-based compensation to employees, directors and consultants, under the 2001 Stock Option Plan (the “Plan”). The Plan has been approved by the Company’s shareholders and provides for up to 650,000 common shares to be reserved for issuance. Stock options granted under the Plan generally vest over periods of up to three years from the date of grant, as specified in the Plan or by the compensation committee which function is fulfilled by the full board of the Company’s board of directors, and are exercisable for a period of up to ten years from the date of grant.  The Plan is scheduled to terminate on October 4, 2011, except as to any options previously granted under the Plan and outstanding as of that time.





The following table gives information about the Company’s common stock that may be issued upon the exercise of options and rights under the Company’s compensation plan as of June 30, 2011.





EQUITY COMPENSATION PLAN INFORMATION


Plan Category
Number of securities

to be issued

upon exercise

of outstanding

options

(a)

Weighted average

exercise

price of

outstanding

options

(b)

Number of

securities

remaining

available for

future issuance under equity compensation plans (excluding securities reflected in column (a)

(c)Equity compensation plans approvedby security holders
250,000

$
0.44

400,000Equity compensation plans notapproved by security holders
—


—

—Total
250,000

$
0.44

400,000










Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.





Pursuant to an oral agreement with Livingston, which is an affiliate of Gregory Pusey, the Company paid $500 per month to Livingston for rent and certain administrative expenses through June 30, 2010.  The Company believes that these arrangements were at least as favorable as could be obtained with a non-affiliated party.  These payments were discontinued as of July 1, 2010.





The Company paid a dividend to the Company’s common shareholders of record on November 30, 2009.  The dividend consisted of an aggregate of 49,105 shares of AspenBio, which the Company had held as an investment.  The dividend was made to the Company's shareholders at the rate of .014 shares of AspenBio, common stock for each share of the Company's common stock a shareholder owned. The Company’s directors and officers received their pro-rata share of AspenBio common shares from this dividend.  Additionally, 4,000 shares of AspenBio common stock valued at $33,600 for financial reporting purposes were transferred to Mr. McGonegal as a bonus.  At June 30, 2011 the Company owned 2,853 common shares of AspenBio.





Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.





(a) Audit Fees. During the fiscal years ended June 30, 2011 and 2010, the aggregate fees billed by the Company's auditors, Cordovano and Honeck, LLP., for services rendered for the audit of our annual financial statements and the review of the financial statements included in our quarterly reports on Form 10-Q for services provided in connection with the statutory and regulatory filings or engagements for those fiscal years, were $11,700 and $9,700 per year, respectively.





(b) Audit-Related Fees. During fiscal years ended June 30, 2011 and 2010 our auditors did not receive any fees for any audit-related services other than as set forth in paragraph (a) above.





(c) Tax Fees. Our auditors did not provide tax compliance or tax planning advice during the fiscal years ended June 30, 2011 and 2010.





(d) All Other Fees – describe (if any) – none.





All of the services performed by the independent registered public accounting firm were approved by the Company’s board prior to performance. The board has determined that the payments made to its independent accountants for these services are compatible with maintaining such auditors’ independence.










PART IV








Item 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.





(a) EXHIBITS.





The exhibits listed on the accompanying index to exhibits are filed as part of this Annual Report.





Exhibit No.
Description3.1
Articles of Incorporation, as amended, filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1990 are incorporated herein by this reference.3.2
Amended and Restated Bylaws as of September 13, 2010. (2)4.1
Specimen Certificate of Common Stock. (2)10.1
Securities Purchase Agreement, dated September 15, 2010, by and among the Company and the Buyers named therein. (3)10.2
Form of 6% Convertible Promissory Note. (3)10.3
Form of Warrant. (3)10.4
Senior Secured Convertible Promissory Note, dated September 15, 2010, issued by PMI to the Company. (3)10.5
Security Agreement, dated September 15, 2010, by and between PMI and the Company. (3)10.6
2001 Stock Option Plan (4)31.1
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)31.2
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)32.1
CEO and CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (5)(1) Filed herewith.

(2) Filed as an exhibit to the Registrant's Form 10-K for the year ended June 30, 2010 are incorporated herein by this reference.

(3) Filed as an exhibit to the Registrant's Form 8-K filed September 20, 2010 are incorporated herein by this reference.

(4) Filed as an exhibit to the Registrant's Form 10-KSB for the year ended June 30, 2001 are incorporated herein by this reference.

(5) Furnished.











SIGNATURES








Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





CAMBRIDGE HOLDINGS, LTD.Date: August 25, 2011
By:
/s/ Gregory PuseyGregory PuseyPresident, Treasurer and Director





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.





Date: August 25, 2011
By
/s/ Gregory PuseyGregory PuseyPresident, Treasurer and Director





Date: August 25, 2011
By
/s/ Jeffrey G. McGonegalJeffrey G. McGonegalSenior Vice President-Finance, Secretary and Director








Date: August 25, 2011
By
/s/ Scott MenefeeScott Menefee, Director








19








Index to Financial StatementsPageReport of Independent Registered Public Accounting Firm
F-2Report of Independent Registered Public Accounting Firm
F-3Balance Sheets
F-4Statements of Operations
F-5Statements of Changes in Stockholders’ Equity
F-6Statements of Cash Flows
F-7Notes to Financial Statements
F-8














F-1




















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors and Shareholders


Cambridge Holdings, Ltd.:




We have audited the accompanying balance sheet of Cambridge Holdings, Ltd. as of June 30, 2011 and the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the year ended June 30, 2011.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.





We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cambridge Holdings, Ltd. as of June 30, 2011, and the results of its operations and its cash flows for the year ended June 30, 2011 in conformity with accounting principles generally accepted in the United States of America.





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in the notes to the financial statements, the Company has incurred operating losses since inception and has negative working capital and a stockholders’ deficit, which raises substantial doubt about its ability to continue as a going concern.  Management’s plan in regard to these matters is also discussed in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.











/s/ Schumacher & Associates, Inc.


Schumacher & Associates, Inc.


Littleton, Colorado


August 24, 2011








F-2
































REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














To the Board of Directors and Shareholders


Cambridge Holdings, Ltd.:





We have audited the accompanying balance sheet of Cambridge Holdings, Ltd. as of June 30, 2010, and the related statements of operations, changes in stockholders’ equity and cash flows for the year ended June 30, 2010.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.





We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cambridge Holdings, Ltd. as of June 30, 2010, and the results of its operations and its cash flows for the year ended June 30, 2010 in conformity with accounting principles generally accepted in the United States of America.





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in the notes to the financial statements, the Company has incurred operating losses since inception and has signed a letter of intent for a reverse merger, which raises substantial doubt about its ability to continue as a going concern.  Management’s plan in regard to these matters is also discussed in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.











/s/ Cordovano and Honeck LLP Cordovano and Honeck LLP


Englewood, Colorado


September 27, 2010

















F-3











CAMBRIDGE HOLDINGS, LTD.


BALANCE SHEETS


JUNE 30, 2011 AND 2010





2011


2010ASSETSCURRENT ASSETS:Cash and cash equivalents
$
13,944


$
8,596Investment securities (Note 2)

9,296



14,073Notes receivable and accrued interest (Note 3)

8,000



-Prepaid and other assets

-



3,804Total current and total assets
$
31,240


$
26,473LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable and accrued expenses
$
297


$
585Notes payable and accrued interest (Note 3):Related parties

544,960



-Other

761,634



-Other unsecured liability

8,000



-Deferred income tax liability (Note 4)

-



2,500Total current liabilities

1,314,891



3,085COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS’ EQUITY (DEFICIT) (Notes 3 and 6):Common Stock - $.025 par value, 15,000,000 sharesauthorized:  3,509,877 shares issued and outstanding

87,747



87,747Additional paid-in capital

1,510,845



1,390,752Accumulated (deficit)

(2,882,243
)


(1,455,111
)Total stockholders’ equity (deficit)

(1,283,651
)


23,388Total liabilities and stockholders’ equity (deficit)
$
31,240


$
26,473





SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





F-4










CAMBRIDGE HOLDINGS, LTD.


STATEMENTS OF OPERATIONS




For the Years Ended June 30,2011



2010INCOME (LOSSES):Net unrealized (losses)

$
(4,777
)

$
(57,219
)Net realized (losses)


-



(243,478
)Interest income


-



1Total income (losses)


(4,777
)


(300,696
)EXPENSES:Operating, general and administrative


27,629



152,285Operating (loss)


(32,406
)


(452,981
)OTHER EXPENSES (Note 3):Valuation reserve on notes receivable


1,242,716



-Interest income, net of impairment (Note 3)


-



-Interest expense


175,267



-Total other expenses


1,417,983



-Income (loss) before income taxes


(1,450,389
)


(452,981
)Income Tax Benefit (Note 4)


23,257



240,216NET (LOSS)

$
(1,427,132
)

$
(212,765
)NET (LOSS) PER COMMON SHARE, BASIC AND DILUTED

$
(0.41
)

$
(0.06
)Weighted average number of basic anddiluted common shares outstanding


3,509,877



3,509,877





SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





F-5








CAMBRIDGE HOLDINGS, LTD.


STATEMENTS OF CHANGES IN STOCKHOLDER' EQUITY (DEFICIT)


FOR THE YEARS ENDED JUNE 30, 2011 AND 2010





Common Stock


Additional

Paid-in


Accumulated


Total

Stockholders'Shares


Amount


Capital


(Deficit)


Equity (Deficit)Balances, June 30, 2009


3,509,877


$
87,747


$
1,803,232


$
(1,242,346
)

$
648,633Dividend (Note 5)


-



-



(412,480
)


-



(412,480
)Net (loss) for the year


-



-



-



(212,765
)


(212,765
)Balances, June 30, 2010


3,509,877



87,747



1,390,752



(1,455,111
)


23,388Proceeds from debt issuance allocated to warrants (Note 5)


-



-



120,093



-



120,093Net (loss) for the year


-



-



-



(1,427,132
)


(1,427,132
)Balances, June 30, 2011


3,509,877


$
87,747


$
1,510,845


$
(2,882,243
)

$
(1,283,651
)








SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.








F-6









CAMBRIDGE HOLDINGS, LTD.


STATEMENTS OF CASH FLOWS




For the Years Ended June 30,2011


2010CASH FLOWS FROM (TO) OPERATING ACTIVITIES:Net (loss)

$
(1,427,132
)

$
(212,765
)Adjustments to reconcile net (loss) to net cashprovided (used) by operating activities:Reserve on notes receivable


1,242,716



-Amortization of interest


120,093



-Depreciation and amortization


-



1,152Realized losses on trading investment securities


-



243,478Unrealized losses on trading investment securities


4,777



57,219Decrease in deferred income tax expense


(2,500
)


(212,500
)Non cash charges


-



56,616Realized loss on fixed asset disposal


-



3,098Changes in:Prepaid and other assets


3,804



13,412Accrued interest payable


55,174



-Accounts payable and accrued expenses


(288
)


(1,223
)Cash Flows (Used) By Operating Activities


(3,357
)


(51,513
)CASH FLOWS FROM (TO) INVESTING ACTIVITIES:Investment in notes receivable


(1,025,000
)


-Cash Flows (Used) By Investing Activities


(1,025,000
)


-CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of notes payable


1,025,705



-Proceeds from unsecured liability


8,000



-Cash Flows Provided (Used) By Investing Activities


1,033,705



-NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


5,348



(51,513
)CASH AND CASH EQUIVALENTS, beginning of year


8,596



60,109CASH AND CASH EQUIVALENTS, end of year

$
13,944


$
8,596SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the year for:Interest

$
-


$
-Income taxes

$
-


$
-Noncash financing transactions:Notes receivable and payable exchanged with Prescient

$
175,000


$
-Note receivable issued by Prescient

$
50,715


$
-





SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




F-7









NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Organization and Business





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





During the late 1990’s and into the early 2000’s the Company engaged in commercial real estate development and transaction activities.  Commencing in the early 2000’s the Company’s focus changed to providing services to and making minority investments in other small companies, that the Company believed constituted opportunities for value enhancement.  Periodically the Company would distribute such investments that generally had increased in value, as dividends to its stockholders. As a result of the Company’s limited asset base, these activities have been substantially curtailed.





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





1.
Pursuing the completion of the Prescient merger and relating funding activities;





2.
Aggressively pursuing additional fund raising activities; and





3.
Continuing to monitor and implement other cost control initiatives to conserve cash.





Use of Estimates





The preparation of financial statements in conformity with generally accepted accounting principles 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 could differ from those estimates and assumptions.





Cash and Cash Equivalents





The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents.





Fair Value of Financial Instruments and Investment Securities





Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value should be based on assumptions that market participants would use, including a consideration of non-performance risk. Unless otherwise specified, the Company believes the carrying value of financial instruments approximates their fair value.





In determining fair value, we use various valuation methodologies and prioritize the use of observable inputs. The availability of observable inputs varies by instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.










The Company partially accounts for investment securities under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 820 (formerly – Statement of Financial Accounting Standard ("SFAS") No. 157), “Fair Value Measurements” ("ASC 820").  ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  Under accounting principles generally accepted in the United States of America, fair value of such securities is determined based upon a hierarchy that prioritizes the inputs to valuation techniques used to measure fair values into three broad levels. Inputs generally are summarized as: (i) Level I are available quoted prices in active markets, (ii) Level II are other than available quoted market prices that are observable for the investment and (iii) Level III are unobservable inputs for the investment. The Company has valued its investment assets using quoted prices in active markets for identical assets (Level 1).  As permitted by ASC 820, the Company elected to defer the adoption of the nonrecurring fair value measurement disclosure of nonfinancial assets and liabilities.  The partial adoption of ASC 820 did not have a material impact on the Company’s results of operations, cash flows or financial position.





Other than the distribution of AspenBio common shares in December 2009, there were no purchases or sales during the period and unrealized gains and losses are as reported in the statements of operations for the period.





Investment securities classified as trading are those securities that are bought and held principally for the purpose of selling them in the near term with the objective of generating profits. These securities are reported at fair value with unrealized gains and losses reported as an element of current period earnings.





Investment securities classified as available for sale are those securities that the Company does not have the positive intent to hold to maturity or does not intend to trade actively. These securities are reported at fair value with unrealized gains and losses reported as a net amount (net of applicable income taxes) as a separate component of stockholders' equity.





Notes Receivable and Accrued Interest





Notes receivable and accrued interest are carried at the lower of cost or market. Interest income is recorded as it is earned under the terms of the notes. As of June 30, 2011 notes receivable and accrued interest had a cost basis of approximately $1,251,000 and $55,700, respectively.  Based upon an evaluation of Prescient’s ability to repay the loans made as of June 30, 2011 a valuation reserve of approximately $1,298,400 was recorded against the cost basis of the notes and accrued interest receivable. The $1,298,400 reserve was recorded as other expense in the period ended June 30, 2011.  Interest income recognized through June 30, 2011 of $55,700 was netted against the reserve.  No cash has been collected on the notes and accrued interest receivable. Future interest income accrued on the notes receivable will be reserved and income for the notes receivable will be accounted for effectively on the cash basis.





Concentration of Credit Risk





From time to time the Company’s cash position has, historically exceeded the federally insured limits, but no losses have been experienced.  The Company’s notes receivable and accrued interest are concentrated from one debtor and the balance as of June 30, 2011 has been substantially reserved. The Company’s investment in marketable securities is concentrated in one company.





Income Recognition





Interest and dividend income is recorded on the accrual basis.  Gains and losses on changes in the value of securities are recognized as income as they occur.










Income (loss) per share





ASC 260 (formerly - SFAS No. 128),Earnings Per Share, requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Basic earnings (loss) per share includes no dilution and is computed by dividing net earnings (loss) available to stockholders by the weighted average  number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the Company’s earnings (loss). The effect of the inclusion of the dilutive shares would have resulted in a decrease in loss per share. Accordingly, the weighted average shares outstanding have not been adjusted for dilutive shares. Outstanding stock options and warrants are not considered in the calculation, as the impact of the potential common shares (totaling approximately 250,000 shares as of June 30, 2011 and 2010, plus as of June 30, 2011 the number of warrants that would be issuable under the Convertible Bridge Offering as discussed in Note 3) would be anti-dilutive.





Recently Issued and Adopted Accounting Pronouncements





In October 2009, the FASB issued ASU 2010-13, “Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements.” This ASU eliminates the requirement that all undelivered elements must have objective and reliable evidence of fair value before a company can recognize the portion of the consideration that is attributable to items that already have been delivered. This may allow some companies to recognize revenue on transactions that involve multiple deliverables earlier than under the current requirements. Additionally, under the new guidance, the relative selling price method is required to be used in allocating consideration between deliverables and the residual value method will no longer be permitted. This ASU is effective prospectively for revenue arrangements entered into or materially modified beginning in fiscal year 2011. A company may elect, but will not be required, to adopt the amendments in this ASU retrospectively for all prior periods. The adoption of this ASU did not have a material impact on the Company’s financial statements.





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




There were various other accounting standards and interpretations issued during 2011 and 2010, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.




NOTE 2 - INVESTMENT SECURITIES





The Company classifies its investment securities as trading securities. Investment securities held for trading are reported at their fair market value. Unrealized gains on trading investments are reported in earnings. Gains and losses from investment securities are determined from quoted market prices based upon the specific identification method.





At June 30, 2011, the Company's market value of trading securities consisted primarily of securities with a fair market value of approximately $9,300 and a cost of approximately $20,700. Included were 2,853 common shares of AspenBio Pharma, Inc., at a cost of approximately $11,500 and a fair market value of approximately $9,300.  During the year ended June 30, 2011 unrealized losses include $4,777 in losses from the trading securities held as of June 30, 2011. During the year ended June 30, 2010, the trading securities total valuation allowance decreased by $544,145, primarily as a result of the December 2009 dividend distribution of AspenBio shares.  The market value of AspenBio common shares have historically been volatile and are expected to continue that trend in the future. As of June 30, 2011, each AspenBio common share had a market price of $3.25 and at August 18, 2011 a value of $2.55. Effective July 29, 2011, AspenBio completed a 5-for-1 reverse stock split.   All references herein to AspenBio common shares have been revised to reflect the affect of this reverse split. Also included in investment securities were 3,003 common shares of PepperBall Technologies, Inc. at a total cost of $9,200 and a fair market value of virtually nil.










In December 2009, the Company completed a dividend distribution to its shareholders consisting of 49,105 shares of AspenBio common stock which had been held as an investment. The transaction for financial reporting purposes was recorded by the Company as a return of capital at the AspenBio shares’ then estimated fair value of $412,480.   Additionally, 2,740 shares of AspenBio common stock valued at $23,016 were transferred to pay administrative costs incurred for processing the distribution and 4,000 shares of AspenBio common stock valued at $33,600 for financial reporting purposes was transferred to an officer as a bonus.




NOTE 3 – TRANSACTIONS ASSOCIATED WITH PRESCIENT MEDICAL





Letter of Intent -


Effective July 2, 2010, the Company signed a letter of intent with Prescient for a reverse merger with privately held Prescient.  The letter of intent is non-binding and contains a number of conditions and requirements, including the negotiation and execution of a definitive agreement as well as certain funding requirements to advance to and complete the merger.  There can be no assurance that a definitive agreement will be agreed to and executed between the parties or that the conditions required to close such a transaction will be achieved.





Convertible Bridge Offering -


On September 15, 2010 (“Initial Closing Date”), the Company and certain investors executed and delivered a Purchase Agreement pursuant to which the Company offered (the “Bridge Offering”) to sell to eligible investors units of the Company’s securities (“Bridge Units”) comprised of (i) 6% Convertible Promissory Notes (the “Convertible Notes”), and (ii) warrants (the “Bridge Warrants”) to purchase shares of the Company’s common stock (“Common Stock”). The number of common shares issuable under the Convertible Notes and Bridge Warrants are to be determined based upon the terms of a contemplated subsequent offering, as further discussed below.  In addition, on the Initial Closing Date, the Company conducted the Initial Closing of the Bridge Offering under the Purchase Agreement.  The aggregate original principal amount of the Convertible Notes sold at the Initial Closing equaled $1,075,937, prior to expenses which totaled $50,231. Subsequent to the initial September 2010 closing, an additional $175,000 in convertible bridge loans was issued by Cambridge to a consultant who performed consulting services for Prescient.   As consideration for these bridge loans, Prescient issued to Cambridge $225,715 in secured promissory notes as further discussed below. The number of shares of Common Stock into which the Bridge Warrants issued at the Initial Closing are exercisable is described below.  Included in the $1,306,594 total bridge notes and accrued interest payable outstanding as of June 30, 2011 is $544,960 that is payable to related parties who own approximately 20% of the Company’s outstanding common stock.





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





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





If the Related Offer


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












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





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





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




Secured Loan to Prescient -


On September 15, 2010 (the “Initial Closing Date”), (i) the Company made a loan (the “PMI Loan”) totaling $1,025,000 to Prescient Medical, Inc. (“PMI”) in consideration for PMI’s issuance to the Company of a 6% Senior Secured Promissory Note (“PMI Note”) in an original principal amount equal to the amount of such PMI Loan, and (ii) PMI and the Company entered into a Security Agreement pursuant to which PMI granted the Company a continuing security interest in all of PMI’s assets and any and all proceeds and products there from for the purpose of securing the payment and performance of PMI’s obligations under the PMI Note and any other agreements, instruments and documents executed in connection therewith, including any Subsequent PMI Notes (as defined below).





The original principal amount of the PMI Note equals the aggregate net proceeds from the sale of Bridge Units (as defined below) by the Company on the Initial Closing Date in connection with the initial closing (the “Initial Closing”) under that certain Securities Purchase Agreement, dated as of the Initial Closing Date, by and among the Company and certain investors named therein (the “Purchase Agreement”).  The Company also agreed, pursuant to the Purchase Agreement, to disburse subsequent loans to PMI equal to the net proceeds from the sale of Bridge Units by the Company at subsequent closings under the Purchase Agreement in consideration for the issuance of additional PMI Notes by PMI (“Subsequent PMI Notes”). Subsequent to the initial September 2010 closing, an additional $175,000 in convertible bridge loans was issued by Cambridge on behalf of Prescient.   As consideration for these bridge loans, Prescient issued to Cambridge $225,715 in secured promissory notes.   These subsequently issued secured promissory notes included the $175,000 in consulting services and $50,715 in reimbursement by Prescient to Cambridge for the original closing costs.










Based upon an analysis of Prescient’s financial condition as of June 30, 2011, a reserve of approximately $1.3 million has been recorded against the carrying value of the secured notes due from Prescient.





NOTE 4 - INCOME TAX EXPENSE (BENEFIT)





Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes.
  At June 30, 2011 and 2010 the Company had recorded a deferred tax liability of $0 and $2,500, respectively, related to the difference in financial and income tax reporting of the unrealized gains of the trading investment securities. As of June 30, 2011 the deferred tax assets consisted primarily of the tax benefit from the note receivable valuation reserve and the net operating loss carry-forward, the totals of which were fully offset by a valuation allowance due to the uncertainty of the realization of the carry-forwards.  The net operating loss and other loss carry-forwards if not used, will expire in various years through 2030, and is severely restricted as per the Internal Revenue code if there is a change in ownership. The carry-forwards may be further limited by other provisions of the tax laws.
  The Company's deferred tax assets, valuation allowance, and change in valuation allowance are as follows:
  Period Ending

Estimated

NOL

Carry-

forward


Estimated

Other

Temporary

Differences


Expires


Estimated

Tax

Benefit


Valuation

Allowance


Change in

Valuation

Allowance


Net Tax

BenefitJune 30, 2010

$
5,000



6,000



2029



4,100



(4,100
)


(4,100
)


-June 30, 2011

$
27,000



1,248,000



2030



472,500



(472,500
)


(472,500
)


-
  Income taxes at the statutory rate are reconciled to the Company's actual income taxes as follows:
 
 Statutory Rate ReconciliationFederal Rate


34.00
%State Rate


4.63
%Federal benefit of State Rate


(1.57
)%37.06
%Less Valuation Allowance


(37.06
)%Net Effective Rate


--
%


Income tax expense (benefit) consisted of:





For the Years Ended June 30,2011


2010Current income taxes (benefit)

$
(20,257
)

$
(242,700
)Deferred income taxes (benefit)


(3,000)



2,500Income tax (benefit) expense

$
(23,257
)

$
(240,200
)





During the period ended March 31, 2011 the Company received a federal tax refund benefit of $23,352 arising from the carry back of federal net operating losses to recover income taxes previously paid.  The income tax benefit for the years ended June 30, 2011 and 2010 was different from the federal statutory rate as a result of the benefit arising from the prior years’ income taxes recovered as a result of the carry back of net operating losses to such prior years combined with, in the year ended June 30, 2010, the change in the investment securities distributed.





NOTE 5 – STOCKHOLDERS’ EQUITY (DEFICIT) AND STOCK OPTIONS





Stockholders’ equity





As discussed in Note 3 above, the Company ascribed a value of $120,093 to the Bridge Warrants issued in connection with the Convertible Bridge Notes, which was recorded as additional paid-in capital and a corresponding discount to the notes payable upon closing.





As discussed in Note 2 above, in December 2009, the Company completed a dividend distribution to its shareholders consisting of 49,105 shares of AspenBio common stock which had been held as an investment. The transaction for financial reporting purposes was recorded by the Company as a return of capital at the AspenBio shares’ then estimated fair value of $412,480.





The distribution of the AspenBio common shares was made on a pro rata basis to all of the Company's shareholders and accordingly, the officers and directors of the Company received a distribution of the AspenBio common shares, based upon their holdings of the Company's common shares, which would have amounted to approximately 50% of the total.












2001 StockOption Plan





The Company currently provides stock-based compensation to employees, directors and consultants, under the Plan. The Plan has been approved by the Company’s shareholders and provides for up to 650,000 common shares to be reserved for issuance. Stock options granted under the Plan generally vest over periods of up to three years from the date of grant, as specified in the Plan or by the compensation committee which function is currently fulfilled by the full board of the Company’s board of directors, and are exercisable for a period of up to ten years from the date of grant. The Plan is scheduled to terminate on October 4, 2011, except as to any options previously granted under the Plan and outstanding as of that time.





The Company accounts for stock-based compensation ASC 718 (formerly - SFAS No. 123 (revised 2004)), “Share-Based Payment”, using the modified prospective method. ASC 718 requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. ASC 718 also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (generally the vesting period). The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model.





During the year ended June 30, 2009, options to purchase a total of 250,000 shares of the Company’s common stock under the Company's 2001 Stock Option Plan (the “Plan”) were issued to the Company’s directors. The options were fully vested upon their grant, and options to purchase 150,000 shares of common stock are exercisable at $0.42 and expire in ten years.  Options to purchase 100,000 shares of common stock are exercisable at $0.462 and expire in five years.





A summary of stock option activity of options to employees, directors and advisors, for the year ended June 30, 2011 is presented below:




Shares

Under

Option

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Contractual

Life (Years)

Aggregate

Intrinsic

ValueOutstanding at June 30, 2010
250,000

$
0.44Granted
—


—Exercised
—


—Forfeited
—


—Outstanding at June 30, 2011
250,000

$
0.44

5.2

$
—Exercisable at June 30, 2011
250,000

$
0.44

5.2

$
—





The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing stock price on June 30, 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to and in fact, had exercised their options on June 30, 2011.





During the year ended June 30, 2009, there were options to purchase 250,000 shares of common stock granted to directors under the Plan with a weighted average fair value at the grant date of $0.38 per option exercisable at an average of $0.44 per share.  As of June 30, 2011, based upon employee, advisor and consultant options granted to that point, there was no additional unrecognized compensation cost related to stock options that will be recorded in future periods.












NOTE 6 – RELATED PARTY TRANSACTIONS





Pursuant to an oral agreement with Livingston, which is an affiliate of Gregory Pusey, the Company paid $500 per month to Livingston for rent and certain administrative expenses through June 2010.  The Company believes that these arrangements have been at least as favorable as could be obtained with a non-affiliated party.  These payments have been discontinued as of July 1, 2010.





At June 30, 2011 the Company owned 2,852 common shares of AspenBio. Greg Pusey, president of the Company, serves as a vice president of AspenBio and a member of its board of directors and Jeffrey G. McGonegal, chief financial officer of the Company, serves as AspenBio's chief financial officer.





At June 30, 2011 the Company owned 3,003 shares of PepperBall Technologies, Inc. at a total cost of $9,200 and a fair market value of virtually nil.




See Note 3 for additional related party transactions.