UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.  20549





Form 10-Q


(Mark One)





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





For the quarterly period ended December 31, 2010





OR





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





For the transition period from _____________ to ______________





Commission file number 0-12962





CAMBRIDGE HOLDINGS, LTD.


(Exact name of registrant as specified in its charter)





Colorado
84-0826695(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer Identification No.)





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





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








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





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


Yes  o    No  o





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





Large accelerated filer o             Accelerated filer o             Non-accelerated filer o             Smaller reporting company x





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





The number of shares of the registrant’s $.025 par value common stock outstanding as of February 11, 2011 was 3,509,877.




















CAMBRIDGE HOLDINGS, LTD.





PagePART 1— Financial InformationItem 1.
Financial StatementsBalance Sheets as of December 31, 2010 (unaudited) and June 30, 2010
2Statements of Operations for the Three and Six Months Ended December 31, 2010 and 2009 (unaudited)
3Statements of Cash Flows for the Six Months Ended December 31, 2010 and 2009 (unaudited)
4Notes to Unaudited Financial Statements
5Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
10Item 3.
Quantitative and Qualitative Disclosures About Market Risk
12Item 4.
Controls and Procedures
12PART II - Other InformationItem 1.
Legal Proceedings
13Item 1A.
Risk Factors
13Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
13Item 3.
Defaults Upon Senior Securities
13Item 4.
(Removed and Reserved)
13Item 5.
Other Information
13Item 6.
Exhibits
13Signatures
14











1











Part I.  Financial Information





CAMBRIDGE HOLDINGS, LTD.


CONDENSED BALANCE SHEETS





June 30,2010December 31,

2010

(Unaudited)


(Derived from audited financial statements)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
23,641


$
8,596Investment securities


8,657



14,073Notes receivable and accrued interest


1,043,763



-Loan origination fees, net


31,569



-Prepaid and other assets


3,095



3,804Total current and total assets

$
1,110,725


$
26,473LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses

$
692


$
585Notes payable and accrued interest


1,095,615



-Other unsecured liability


8,000



-Deferred income tax liability


3,000



2,500Total current liabilities


1,107,307



3,085COMMITMENTS AND CONTINGENCIES:STOCKHOLDERS’ EQUITYCommon Stock - $.025 par value, 15,000,000 Sharesauthorized:  3,509,877 shares issued and outstanding


87,747



87,747Additional paid-in capital


1,390,752



1,390,752Accumulated (deficit)


(1,475,081
)


(1,455,111
)Total stockholders’ equity


3,418



23,388$
1,110,725


$
26,473








SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS








2








CAMBRIDGE HOLDINGS, LTD.


STATEMENTS OF OPERATIONS


(UNAUDITED)





Three months ended


Six months endedDecember 31


December 31,2010


2009


2010


2009Revenues:Net unrealized gains (losses) on  investment securities

$
1,338


$
138,543


$
(5,415
)

$
(46,308
)Net realized gains (losses) on investment securities


-



(243,478
)


-



(243,478
)Interest and dividend income


15,717



-



18,762



2Total revenues


17,055



(104,935
)


13,347



(289,784
)Expenses:Operating, general and administrative


3,485



96,256



18,329



118,457Operating income (loss)


13,570



(201,191
)


(4,982
)


(408,241
)Interest expense


29,880



-



38,340



-Income (loss) before income taxes


(16,310
)


(201,191
)


(43,322
)


(408,241
)Income tax (benefit) expense (Note 4)


(23,352
)


(160,716
)


(23,352
)


(238,716
)Net income (loss)

$
7,042


$
(40,475
)

$
(19,970
)

$
(169,525
)Basic and diluted income (loss) per common share:

$
Nil


$
(.01
)

$
(.01
)

$
(.05
)Weighted average number of common

shares outstanding


3,509,877



3,509,877



3,509,877



3,509,877





SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS








3














CAMBRIDGE HOLDINGS, LTD.


CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)





Six months ended December 31,2010


2009CASH FLOWS FROM (TO) OPERATING ACTIVITIES:Net (loss)

$
(19,970
)

$
(169,525
)Adjustments to reconcile net (loss) to cashprovided (used) by operating activities:Depreciation and amortization


18,662



1,152Noncash charges


-



56,616Deferred income taxes


500



(213,500
)Unrealized losses on trading investment securities


5,415



46,308Realized losses on trading investment securities


-



243,478Realized losses on fixed asset disposal


-



3,098Changes in:Accrued interest receivable


(18,763
)


-Other assets


709



17,121Accounts payable and accrued expenses


108



866Accrued interest payable


19,195



-Cash flows provided (used) by operating activities


5,856



(14,386
)CASH FLOWS FROM (TO) INVESTING ACTIVITIES:Investments in notes receivable


(1,025,000
)


-Cash flows (used) by operating activities


(1,025,000
)


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


1,076,420



-Proceeds from unsecured liability


8,000



-Fees paid for issuance of debt


(50,231
)


-Cash flows provided by financing activities


1,034,189



-NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


15,045



(14,386
)CASH AND CASH EQUIVALENTS, beginning of period


8,596



60,109CASH AND CASH EQUIVALENTS, end of period

$
23,641


$
45,723Supplemental disclosure of cash flow information:Cash paid during the period for interest

$
-


$
-Cash paid during the period for income taxes

$
-


$
-Noncash financing – dividend distribution

$
-


$
(412,480
)








SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS








4





Cambridge Holdings, Ltd.


Notes to Unaudited Condensed Financial Statements








INTERIM FINANCIAL STATEMENTS





The accompanying condensed financial statements of Cambridge Holdings, Ltd. (the “Company,” “we,” “us,” or “our”) have been prepared in accordance with the instructions to quarterly reports on Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in financial position at December 31, 2010, and for all periods presented, have been made. Certain information and footnote data necessary for a fair presentation of financial position and results of operations in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. It is therefore suggested that these financial statements be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended June 30, 2010. The results of operations for the period ended December 31, 2010 are not necessarily an indication of operating results for the full year.





Loss per share





Loss per share of common stock is computed based on the weighted average number of common shares outstanding during the period. Stock options are not considered in the calculation, as the impact of the potential common shares (totaling 250,000 shares at December 31, 2010 and 2009) would be to decrease loss per share. Therefore, diluted loss per share is equivalent to basic loss per share.





Recently Issued and Adopted Accounting Pronouncements





In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification was effective for the Company beginning September 15, 2009, and impacts the Company’s financial statements, as all future references to authoritative accounting literature are now referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the year ended June 30, 2010.





As a result of the Company’s implementation of the Codification during the year ended June 30, 2010, previous references to new accounting standards and literature are no longer applicable. In these financial statements, the Company has provided reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.





In October 2009, the FASB issued ASC 605 (formerly - ASU 2009-13), “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 2011. A company may elect, but will not be required, to adopt the amendments in this ASU retrospectively for all prior periods. The Company is currently evaluating the requirements of this ASU and does not expect its provisions to have a material effect on the financial statements.








5











In April 2010, the FASB issued ASC 605 (formerly -ASU 2009-13), “Revenue Recognition – Milestone Method (Topic 605):  Milestone Method of Revenue Recognition.”  This ASU is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010.  Early adoption is permitted.  If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption.  The Company does not expect the provisions of this ASC to have a material effect on the financial statements.





In December 2007, the FASB issued ASC 805 (formerly - SFAS No. 141 (R)), “Business Combinations” which become effective for fiscal periods beginning after December 15, 2008. The standard changes the accounting for business combinations, including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs, and the recognition of changes in the acquirer’s income tax valuation allowance. ASC 805 became effective for the Company in 2010. The Company will apply the provisions of ASC 805 to any future business combinations.





Going Concern





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred operating losses, has 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, 2011, 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





Note 1 – Letter of Intent for Merger and Related Funding Transactions





During July 2010, the Company signed a letter of intent with Prescient for a reverse merger with privately held Prescient Medical, Inc., (“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.





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”).  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 $1,076,420, prior to expenses which totaled $50,231.  At December 31, 2010 accrued interest payable on the Convertible Notes totaled $19,195.  The closing expenses are being amortized as additional interest expense over the life of the loans.  The number of shares of Common Stock into which the Bridge Warrants issued at the Initial Closing are exercisable is described below.





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.





6





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.





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).  At December 31, 2010 accrued interest receivable on the PMI Note totaled $18,763.





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”).





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





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.





During the three months ended December 31, 2010, Prescient advanced $8,000 to the Company for working capital.   The advance is unsecured and contains no repayment conditions or interest.





7











Note 2 – Investment Securities





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





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





At December 31, 2010, the Company's market value of trading securities consisted primarily of securities with a fair market value of approximately $8,700 and a cost of approximately $20,700. Included were 14,263 common shares of AspenBio, at a cost of approximately $11,500 and a fair market value of approximately $8,600. Also included were 3,004 common shares (“PBAL”) of PepperBall Technologies, Inc. ("PepperBall") at a cost of $9,200 and a fair market value of $50.





At June 30, 2010, the Company's market value of trading securities consisted primarily of securities with a fair market value of approximately $14,100 and a cost of approximately $20,700. Included were 14,263 common shares of AspenBio, at a cost of approximately $11,500 and a fair market value of approximately $14,000. Also included were 3,004 PBAL shares and 5,000 PBALW warrants of PepperBall at a cost of $9,200 and a fair market value of $100, with such warrants having expired in July 2010.





Note 3 – Stockholders’ Equity and Stock Options





Stockholders’ equity





During December 2009, the Company completed a dividend distribution to its shareholders.  The distribution consisted of 245,524 shares of AspenBio common stock which had been held as an investment.  The distribution was made on the basis of .07 shares of AspenBio common stock for each share of the Company’s common stock as of the November 30, 2009 record date. As of the date the distribution was authorized, the fair market value for financial reporting purposes of this distribution was estimated to be $412,480 and the dividend was accrued.   The Company determined that this distribution was a return of capital and therefore it has been recorded as a reduction of additional paid-in capital.





2001 Stock Option Plan





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





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





8











During 2008, options to purchase a total of 250,000 shares of the Company’s common stock under the Company's 2001 Stock Option Plan (the “Plan”) were issued to the Company’s directors. The options were vested upon their grant, and options to purchase 150,000 shares of common stock are exercisable at $0.42 and expire in ten years.  Options to purchase 100,000 shares of common stock are exercisable at $0.462 and expire in five years. These options to purchase 250,000 shares of common stock had a weighted average fair value at the grant date of $0.38 per option exercisable at an average of $0.44 per share.





A summary of stock option activity of options to employees, directors and advisors, for the six months ended December 31, 2010 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 December 31, 2010
250,000

$
0.44

5.7

$
—Exercisable at December 31, 2010
250,000

$
0.44

5.7

$
—





The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing stock price on December 31, 2010 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 December 31, 2010.





As of December 31, 2010, based upon options granted to that point, there was no additional unrecognized compensation cost related to stock options that will be recorded in future periods.





Note 4 - Income Tax (Benefit)





At December 31, 2010, the Company had deferred taxes of $3,000, related primarily to the unrealized loss on investment securities available for sale.





Income tax (benefit) consisted of:





Six Months EndedDecember 31,2010


2009Current income tax (benefit):Federal

$
(23,852
)

$
(25,216
)State


-



-Deferred income tax  (benefit):Federal


500



(187,000
)State


-



(26,500
)Total income tax (benefit)

$
(23,352
)

$
(238,716
)





During the six month period ended December 31, 2010 the Company received a federal tax refund of $23,352 arising from the carry back of federal net operating losses to recover income taxes previously paid.





9







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





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





Results of Operations





Going Concern





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred operating losses, has 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, 2011, 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




Three-month Period Ended December 31, 2010 Compared to Three-month Period Ended December 31, 2009





The Company's revenue for the three-month period ended December 31, 2010 was $17,100 resulting from $1,300 of unrealized gains in the value of marketable securities and interest income of $15,700 arising from the loan to Prescient.





The Company's revenue for the three-month period ended December 31, 2009 was a negative $104,900 resulting from a  $138,500 reduction in the unrealized losses in value of marketable securities net of a $243,500 realized loss on the marketable securities from the distribution of the marketable securities.





Operating, general and administrative expenses totaled $3,500 for the three-month period ended December 31, 2010 and $96,300 for the three-month period ended December 31, 2009.  The decrease is related primarily to no compensation being paid in 2010 and fees in 2009 associated with the dividend distribution.





The Company had interest expense of $29,900 in the 2010 period associated with the Bridge Loans that closed during the period.





Six-month Period Ended December 31, 2010 Compared to Six-month Period Ended December 31, 2009





The Company's revenue for the six-month period ended December 31, 2010 was $13,300 resulting from $18,800 in interest income arising from the loan to Prescient, net of $5,400 in unrealized losses from the decline in value of marketable securities.





The Company's revenue for the six-month period ended December 31, 2009 was a negative $289,800 resulting from $46,300 in unrealized losses from the decline in value of marketable securities net of a $243,500 realized loss on the marketable securities from the distribution of the marketable securities.





Operating, general and administrative expenses totaled $18,300 for the six-month period ended December 31, 2010 and $118,500 for the six-month period ended December 31, 2009.  The decrease is related primarily to no compensation being paid in 2010 and fees in 2009 associated with the dividend distribution.





The company had interest expense of $38,300 in the 2010 period associated with the Bridge Loans that closed during the period.





10







During the six-month period ended December 31, 2010 an income tax benefit of $23,400 was recorded as compared to an income tax benefit of $238,700 during the six-month period ended December 31, 2009. The income tax benefit in 2010 arises from tax refunds received from the carry back of operating losses to recover federal taxes previously paid and changes in the differences in investment securities amounts recorded for financial reporting and income tax purposes.





Liquidity and Capital Resources





At December 31, 2010, the Company had cash and cash equivalents of $23,600 and a working capital of $3,400.





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.  In advance of an anticipated merger between the companies, on September 15, 2010 a bridge loan closing occurred in which the Company received a total of $1,076,420 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.  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, mature on June 30, 2011.





Due to recent market events that have adversely affected all industries and the economy as a whole, management has placed increased emphasis on monitoring the risks associated with the current environment, particularly the investment parameters of the investments securities, the fair value of assets, and the Company’s liquidity.





Management will continue to monitor the risks associated with the current environment and their impact on the Company’s assets.





For the six-month period ended December 31, 2010 operating activities provided cash of $5,900. The loss of $20,000 was reduced by non-cash expenses totaling $18,700 for amortization expenses on the deferred loan costs and $5,400 in unrealized losses on trading investment securities. Accrued interest receivable and payable on the Prescient related notes netted to approximately $400.





For the six-month period ended December 31, 2009 operating activities used cash of $14,400. Unrealized and realized losses on trading investment securities totaled $289,800. Deferred income taxes resulted in a benefit of $213,500.





For the six-month period ended December 31, 2010 investing activities used cash of $1,025,000 related to the investments in notes receivable to Prescient.





For the six-month period ended December 31, 2010 financing activities provided cash of $1,034,000 related to the net proceeds from the bridge loans and $8,000 in unsecured advances received from Prescient.





There was no cash used by investing or financing during the six-month periods ended December 31, 2009.





CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS





Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements or our industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or other comparable terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.








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Item 3.   Quantitative and Qualitative Disclosures About Market Risk





Not applicable to smaller reporting companies.





Item 4.   Controls and Procedures





Evaluation of Disclosure Controls and Procedures.





Our management, including our chief executive officer and our chief financial officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the last day of the period of the accompanying financial statements (the “Evaluation Date”). Based on that review and evaluation, our chief executive officer and our chief financial officer concluded that, as of the Evaluation Date and except as described below, our disclosure controls and procedures were adequate and effective to ensure that material information relating to us would be made known to them by others within the Company in a timely manner, particularly during the period in which this quarterly report on Form 10-Q was being prepared, and that no changes are required at this time, except as described below.





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





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





We have also identified conditions as of December 31, 2010 that we believe are significant deficiencies in internal controls that include: 1) a lack of segregation of duties in accounting and financial reporting activities and 2) the lack of a sufficient number of qualified accounting personnel. We do not believe that these deficiencies constitute material weaknesses because of the use of temporary controllers, the review by our chief executive officer of accounting information and reconciliations, and the use of outside consultants.





Management believes these deficiencies in internal control did not result in material inaccuracies or omissions of material fact and, to the best of its knowledge, believes that the financial statements for the six months ended December 31, 2010 fairly present in all material respects the financial condition and results of operations for the Company in conformity with GAAP. There is, however, a reasonable possibility that a material misstatement of the annual or interim financial statements would not have been prevented or detected as a result of the control environment weaknesses.





Changes in Internal Control Over Financial Reporting





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






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PART II   OTHER INFORMATION





Item 1.   Legal Proceedings





None.





Item 1A.   Risk Factors





The Company’s business, financial condition, operating results and cash flows can be impacted by a number of factors, any one of which could cause the Company’s actual results to vary materially from recent results or from the Company’s anticipated future results.  See Form 10-K for the year ended June 30, 2010 for the Company’s Risk Factors.





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





None.





Item 3.   Defaults Upon Senior Securities





None.





Item 4.   (Removed and Reserved)





Item 5.   Other Information





None.





Item 6.  Exhibits





31.1
Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 (1)31.2
Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 (1)32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2)





(1) Filed herewith.


(2) Furnished.














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SIGNATURES





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











CAMBRIDGE HOLDINGS, LTD.February 11, 2011
By:
/s/ Gregory S. PuseyGregory S. PuseyChief Executive Officer, President, Treasurer and DirectorFebruary 11, 2011
By:
/s/ Jeffrey G. McGonegalJeffrey G. McGonegalSenior Vice President-Finance,

Chief Financial Officer and Director











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