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					                          Equity Initiation
                              Report


                        AmbiCom Holdings, Inc. (OTCQB: ABHI)
                        Rating:                                                                      Speculative Buy
                        Price Target:                                                                $0.35
                        Date:                                                                        March 7, 2011
                        Analyst:                                                                     Kipley J. Lytel, CFA
                                                                     Share Statistics
                                            Symbol (OTCQB)                           ABHI
                                            Last Trade (3/7/11)                     $0.09
PRIME EQUITY RESEARCH




                                            Low/High 52 weeks                    $0.02-$0.65
                                            Average Volume (3Mo)                    72,029
                                            Market Capitalization                 $4.66 mn
                                            Shares Outstanding                     51.8 mn
                                                      Source: BigCharts.com, SEC Filings

                        Analyst summary
                        We Initiate Coverage on AmbiCom Holdings, Inc. (“ABHI”, “AmbiCom” or “the Company”) with a
                        Speculative Buy rating and assign a FY12 $0.35 per share price target. AmbiCom is a leading wireless
                        device solution provider specializing in WiFi, Bluetooth, and ISM. The Company is the number one (#1)
                        supplier of wireless compact flash cards to the medical diagnostics, gaming and auto markets and has also been
                        awarded the “Zero Defect” over the past consecutive four years by industry giant, Carefusion. AmbiCom
                        successfully serves healthcare, retail/commerce and industrial applications markets.

                        Since the year 2000 AmbiCom has sold over one million devices to customers worldwide. According to an
                        ABI Research study, industry experts expect the wireless medical device and module category to be one of the
                        fastest growing categories within the medical industry, growing at approximately 57.8% per year through
                        2011. AmbiCom has been growing sales both organically and through acquisitions, such as the pending E-
                        Care Technology acquisition.

                        The Company obtained credit accounts receivable financing for $1,000,000 with East West Bank, one of the
                        largest independent commercial banks headquartered in California; the July 2010 agreed financing is a
                        demonstration of the strength of AmbiCom‟s product and underlying business. This credit facility enables
                        AmbiCom to continue to ramp-up sales among the healthcare, automotive and gaming industries.

                        What is remarkable is that Fortune 100 companies of the likes of Carefusion, Roche, and Siemens must turn to
                        this small cap company for wireless products and solutions, given other larger players are not serving many
                        segments within this dynamic market. Further, the quality of products with “Zero Defect” and more recently,
                        an “A” delivery access rating from Roche, demonstrates high credibility with these leading companies.
                        AmbiCom is also leveraging its current customer base to drive order flow and capitalize on its competitive
                        advantage of propriety software to expand sales and reach, while also exploiting the growing need for cost
                        reduction across the healthcare industry.

                        The term Speculative was assigned due to the Company‟s liquidity constraints, early business stage, lack of
                        visible funding, the OTCBB exchange in which ABHI trades and the history of erratic, spotty volume. We
                        view the historical stock weakness to be selling pressure related to the reverse merger, of which the negative
                        volume has largely stabilized this calendar year.

                        Prime Equity Research                                 1 Refer to Disclosure & Disclaimer at the end of the report
  Equity Initiation
      Report


Company Background
AmbiCom is headquartered in Milpitas, California, and is a leading designer and developer of wireless
products focusing on the wireless medical industry. The Company's wireless modules and devices are based
on their innovative application software for both Wi-Fi and Bluetooth technologies.
AmbiCom was organized under the laws of the State of Nevada on July 29, 2008. AmbiCom is a holding
company whose operating company is AmbiCom, Inc. AmbiCom purchases standard wireless products and
designs and develops features and packaging to customize these products to their target OEM markets. The
Company sells its products through multi-channel distribution and original equipment manufacturer channels
primarily to medical device companies. AmbiCom believes that there are unique opportunities as a result of
the sheer size of the wireless healthcare market and the Company‟s innovative approach, niche products and
exemplary customer service.




AmbiCom‟s business strategy targets and prioritizes areas of need and problems that could be improved or
solved via the application of wireless capabilities. It then attempts to develop solutions that combine existing
hardware and new software applications which AmbiCom develops to customize a device. AmbiCom‟s
wireless device solutions and applications include infusion pumps, patient monitoring machines, and glucose
meters.

AmbiCom has expertise in Windows 7/Vista/XP, WinCE and Linux software development. The Company
delivers its medical device modules to OEM companies such as Cardinal Health/Carefusion and Roche.
AmbiCom sells the following products through multi-channel distribution and original equipment
manufacturer (“OEM”) channels.


Prime Equity Research                                  2 Refer to Disclosure & Disclaimer at the end of the report
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    Wi-Fi Solutions
    Bluetooth
    GPS Solutions

The Company is headquartered in the heart of the Silicon Valley, Milpitas, California, where all corporate and
design operations are based. AmbiCom‟s manufacturing operations and capacity are highly scalable and cost
effective via several manufacturing partners in Asia.

Production Capabilities
     ISO9001/14001 certified
     ISO 13845:2003 approved for Medical Device manufacturing
     RoHS compliant and lead free
     Provide both Turn-Key and Consignment Services

The Company’s mission is to become the leading provider of integrated wireless solutions to the healthcare
industry, advancing from providing components and software to providing complete wireless solutions that
includes embedded systems.
Key Management
John Hwang, 48 Chief Executive Officer, Director. From 2002 through 2007, Mr. Hwang was a member of
the office of the Chairman of Techno Concepts, Inc., a developer and manufacturer of wireless
communications devices. Mr. Hwang also has over twenty years corporate and entrepreneurial leadership
experience in semiconductor technology and consumer electronics. Mr. Hwang was President of Osicom, a
fiber optic and network technologies manufacturer from 1996 through 1998, Executive Vice-President of
Relialogic from 1992 to 1996, and Vice-President and Corporate Manager of Samsung America, Inc. from
1985 to 1991, where he helped launch its new computer and monitor division. Mr. Hwang has a Bachelor of
Science Degree in Economics from Rutgers University.

Kenneth Cheng, 57 President, Director. Mr. Cheng has over 23 years of computer industry experience in Data
Communication and VLSI design, including roles as a VLSI Design Engineer and Project Leader in industry
pioneers including Lucent Technologies, Chips & Technologies and LSI Corporation. Prior thereto, Mr. Cheng
was President and CEO of AmbiCom, Inc.

Robert Radoff, 42 Director. Mr. Radoff has created and managed a national broker network, monitoring sales,
distribution, packaging and setting up logistics of new and existing products, setting objectives and goals for
the sales force and creating presentations to major accounts. He has also helped develop and sell national brand
and private label and other brands to major accounts in the U.S. and international markets.


Investment Merits
Market Leadership
AmbiCom is the number one supplier of wireless compact flash cards to the medical diagnostics, gaming and
auto markets. AmbiCom has also been awarded the “Zero Defect” the past years in a row by Carefusion,
which is one of the largest players in the infusion pump market. Additionally, the Company has received an
“A” delivery access rating by Roche. For example, the FDA blood glucose meters with the Roche could bring
up to US $10 million or more to AmbiCom during the four year if approved.


Prime Equity Research                                  3 Refer to Disclosure & Disclaimer at the end of the report
     Equity Initiation
         Report


What is unique about AmbiCom is that it delivers both hardware and software wireless solutions that are
largely unserved by competition. AmbiCom benefits from its high R&D advancements with new products
such as the Wi-Fi 802.11N-Products that enables obsolescence of older technologies, including their own, to
drive new sales.

AmbiCom‟s quality of products and industry leadership demonstrates considerable credibility with medical
clients. Further, the Company has been capitalizing on its competitive advantage of propriety software and
leveraging its current customer base to drive order flow.

History of Sales Growth & Profitability
AmbiCom‟s sales grew by 56% from $2,272,261 in the year ended July 31, 2009 to $3,540,104 in the year
ended July 31, 2010, partly as a result of gaining a new customer, partly due to an approximate 10% across the
board price increase. More importantly, however, the top-line growth was a result of the market growth trend
which the Company expects to continue into 2011 and beyond. Both prior fiscal years also reported
profitability in the form of net income, but income from operations increased to $58,691 in the year ended July
31, 2010 from a loss of $569,615 in the year ended July 31, 2009 As a result of an increase in AmbiCom‟s
existing business and expected growth once the previously announced acquisition of E-Care Technology is
completed, the Company has signed a lease for larger facilities.

Stellar Industry Potential
The wireless home health market is $304 million, according to CTIA. 1 CTIA stated that the market is expected
to grow to $4.4 billion by 2013, with estimated annual growth rate of 96% in 2010, 126% in 2011, 95% in
2012, and 68% in 2013.

Healthcare providers and insurers are seeking increased out-patient services. Wireless applications have the
ability to provide “virtual nurse” services such as condition monitoring and alerts. Further, wireless
applications may eliminate or reduce the need for certain services that previously required a person, such as
nurses, physicians, and billing positions. ABI Research estimates that revenue from worldwide sales of WiFi-
enabled healthcare products, a specific sub category of wireless health that probably includes medical devices
inside care facilities, will reach nearly $5 billion in 2014.

Successful Growth through Acquisitions
The Company has entered into a definitive agreement to acquire 100% of E-Care Technology Co., Ltd., a
Taiwan Corporation. The transaction offers AmbiCom a complement of products (e.g. line of thermometers)
which provides the Company with manufacturing capability and expertise in Taiwan that enables AmbiCom to
also expand customer and products diversity. According to research published by Global Industry Analysts,
Inc., the market for temperature monitoring devices is forecast to exceed $694.4 million by 2015

World Class Partners
Currently, AmbiCom is working with Broadcom Corp., the largest wireless communications semiconductor
company to design embedded wireless modules. The Company is also healthcare partners with CareFusion
(infusion pump accounts for 30% of the market),2 Roche, Siemens, and Zoll Advanced Resuscitation.
AmbiCom‟s industrial partners include Bosch, Webdyn, TeckPro and Mettler (the world‟s largest




1
    Citing Parks Associates research
2
According to 1888PressRelease.com
Prime Equity Research                                 4 Refer to Disclosure & Disclaimer at the end of the report
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manufacturer and marketer of weighing instruments for use in laboratories, industrial and food retailing
applications).3

Product Solutions Lowers Client Operational Cost
AmbiCom is poised to exploit the growing need for cost reduction across the healthcare industry. The
Company operates in a market characterized by long-term growth prospects as businesses adopt the lower cost
applications of wireless connectivity and switch from traditional wired solutions. For example, Verizon
Wireless recently estimated that mobile broadband solutions improved U.S. health care productivity at a
savings of almost $6.9 billion. That figure is expected to increase to $27.2 billion by 2016. This trend is a
material positive industry-wide tailwind for the Company to grow within.

New Government Sponsored Wireless Funding Initiatives
President Obama recent announced funding for internet and wireless expansion, outlining his plan for
expanding high speed wireless internet service to 98% of Americans. The President is investing $5 billion into
a fund that will ensure fast wireless technology is made available to rural areas across the country and will put
$3 billion from those proceeds toward "research and development of emerging wireless technologies and
applications.

Low Cost Outsource Manufacturing
AmbiCom currently outsources production primarily to manufacturers in Asia. The Company is partnered
with leading Asian sub-contracting manufacturers, Foxconn/Cybertan Inc. and Gemtek Ltd, to provide
competitive production costs. Further, many of the key components and sub-components are purchased from
affordable, quality third party suppliers.

Experienced Management Team
The CEO and President both have over 20 years experience, with John Hwang having corporate and
entrepreneurial leadership experience in semiconductor technology and consumer electronics and Kenneth
Cheng having leadership in Data Communication and VLSI design ranging from firms like Lucent and LSI.
(detailed descriptions provided in Company Background)

Investment Risks
Additional Funding Requirements
Additional financing will likely be required for the Company to meet its operational requirements. There can
be no assurances that the Company will be able to obtain such financing on terms acceptable to the Company
and at times required by the Company, if at all. In such event, the Company may be required to materially
alter its business plan or curtail all or a part of its operational plans as detailed further in Management's
Discussion and Analysis in this Form 10-K.

Any new securities issued may have greater rights, preferences or privileges than our existing common stock
which may adversely affect the market price of our common stock and our stock price may decline
substantially

Customer Concentration
Three customers accounted for 51%, 12% and 10% of receivables at October 31, 2010. Two customers
accounted for 62% and 11% of the revenues for the three months ended October 31, 2010. Should AmbiCom


3
    According to Mettler
Prime Equity Research                                  5 Refer to Disclosure & Disclaimer at the end of the report
  Equity Initiation
      Report


lose one of its primary revenue customers, the Company‟s financial viability would be impaired. Furthermore,
should one of the concentrated receivables from a primary customer become impaired, AmbiCom‟s financial
going concern could be in jeopardy.

Highly Competitive Market
There is significant competition in the healthcare industry with more established companies. AmbiCom is not
only competing with other wireless device providers but also with companies offering traditional medical
products, which are usually more established and have greater resources to devote to research and
development, manufacturing and marketing. In addition, the Company competes with large companies such as
Cisco which have advantages of global marketing capabilities and substantially greater resources to devote to
research and development and marketing.

Cyclical Business
A significant amount of medical device purchases are related to the budgets and purchasing of medical
facilities in general and hospitals, in particular. A reduction in spending and budgets would likely cause a
reduction in the demand for our products. If these facilities have less funds budgeted as a result of general
economic conditions, sales of our wireless medical products for which they have budgeted would likely be
influenced by general economic downturns.

Short History & Higher Costs for a Public Company
On October 6, 2010, AmbiCom Inc. was merged into AmbiCom Acquisition Corp., and on October 11, 2010
AmbiCom Acquisition Corp. was merged into AmbiCom Holdings Inc. The Company is only recently
publicly-traded and, accordingly, is now subject to the information and reporting requirements of the U.S.
securities laws. U.S. securities laws require, among other things, review, audit, and public reporting of the
Company‟s financial results, business activities, and other matters. Recent SEC regulation, including
regulation enacted as a result of the Sarbanes-Oxley Act of 2002, has also substantially increased the
accounting, legal, and other costs related to becoming and remaining an SEC reporting Company. The public
company costs of preparing and filing annual and quarterly reports, and other information with the SEC, and
furnishing audited reports to stockholders will cause the Company‟s expenses to be higher than if privately-
held.

Insufficient Resources: an inadequate number of personnel with requisite expertise in the key functional areas
of finance and accounting.
Inadequate Segregation of Duties: an inadequate number of personnel to properly implement control
procedures.
Lack of Audit Committee: do not have a functioning audit committee, yet the Company does have an outside
director.

Further Dilution
Growth is often funded with equity, debt or convertible debentures. However, with start-up companies, the
financial resources and assets are typically not in place to fund through debt financing, and we would expect
equity to be the currency of choice for funding. The cost of equity for start-up enterprises is high since the
Company‟s stock valuation often remains substantially lower than future prices, assuming the business model
is successful over time.

The Company has authorized a total of 9,400,000 shares of Series A Convertible Preferred Stock (the “Series
A”). The Series A is convertible at any time into shares of the Company‟s common stock at the conversion
rate of one share of Common Stock per each share of Series A converted. If the Company reports net income
Prime Equity Research                                 6 Refer to Disclosure & Disclaimer at the end of the report
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in two of the four years following the Exchange, the Series A shall be convertible into Common Stock at the
conversion rate of two shares of Common Stock per each share of Series A converted. The Series A is treated
on an “as converted” basis for both voting and liquidation rights. There are options to acquire 2,350,000 shares
of Series A issued and outstanding.

The Company has authorized a total of 2,600,000 shares of 6% Series B Convertible, Redeemable Preferred
Stock (the “Series B”). The Series B accrues annual dividends at the rate of 6% per year in shares of Common
Stock at the dividend conversion rate of $1.00. The Series B, together with any unpaid dividends, is
convertible at any time into shares of the Company‟s common stock at the conversion rate of one share of
Common Stock per each share of Series B converted

As of October 31, 2010, there were warrants outstanding to purchase 500,000 shares of Common Stock at the
exercise price of $0.50. There are also fully vested options outstanding to purchase 5,500,000 shares of
Common Stock and 2,350,000 shares of Series A Preferred Stock, both at a purchase price of $.01 per share.

Finally, at October 15, 2010, shareholders of the Company had approximately 25,500,000 shares of restricted
stock, or 49.2% of the outstanding common stock. If AmbiCom were to file a registration statement including
all of these shares, and the registration is allowed by the SEC, these shares would be freely tradable upon the
effectiveness of the registration statement. If investors holding a significant number of freely tradable shares
decide to sell them in a short period of time following the effectiveness of a registration statement, such sales
could contribute to significant downward pressure on the price of our stock.

Liquidity and Capital Resources
The Company anticipates that they will have to address the cash shortfall through additional equity and/or debt
financings in the future. However, they can offer no assurance that such financings will be available on terms
acceptable to the Company. That said, the Company believes that it has access to sufficient working capital to
serve its business needs over the next twelve months.

The Company negotiated a $1 million secured line of bank credit as of July 14, 2010, and at July 31, 2010, the
balance outstanding under this facility was $100,000. The covenants relating to the line of credit include
monthly unaudited, and annual audited compliance certifications requiring a minimum current asset to current
liability ratio of 1:2, a maximum debt to tangible net worth ratio of 2.5:1, and a minimum quarterly EBITDA
of at least $25,000.

Penny Stock status and limited stock liquidity
ABHI‟s shares trade at under $2 and thus are subject to Penny Stock rules, which may limit its market
liquidity. In addition, trading in the Company‟s stock is quite thin, with 50-day average volume at just 0.002%
of the total number of outstanding shares.4




4
    Source: http://www.bigcharts.com.
Prime Equity Research                                  7 Refer to Disclosure & Disclaimer at the end of the report
     Equity Initiation
         Report


Financial Overview
AmbiCom is a development stage company with short operating history, and its financial statements are
available only for periods since 2008.

Income Statement
During FY105, the Company registered $3.5 million in revenues, 56% more than a year ago, and AmbiCom
attributes this revenue growth to “a new customer gain, partly due to an approximate 10% across the board
price increase, but mainly as a result of the market growth trend”. During Q1-FY11, revenue increased by 20%
year-on-year and amounted to $935 thousand, also as a result of a new customer gain and market growth.

Profitability indicators:
    4,000                                                                                           60%
             $thousands
    3,500                                                                                           50%
    3,000                                                                                           40%
    2,500
                                                                                                    30%
    2,000
                                                                                                    20%
    1,500
                                                                                                    10%
    1,000
                                                                                                    0%
      500

        0                                                                                           -10%

     -500      FY09         FY10              Q1-FY10    Q2-FY10   Q3-FY10      Q4-FY10   Q1-FY11   -20%

    -1,000                                                                                          -30%
             Sales                    Gross profits          Operating income         Net income
             Gross margin             Operating margin       Net margin
Source: SEC filings, analyst calculations.

Gross margin added 22 percentage points (pps) during FY10, mainly due to more favourable pricing terms
obtained from current vendors. However, the Company does not expect to maintain the same level of margins
in FY11, as these might be affected by a number of factors such as outsourcing costs, average selling prices,
fluctuations in the cost of purchases, products life cycle, and others. In Q1-FY11, gross margin remained flat
compared to one year ago at 47%.

Operating margin was in the red during FY09 due to high selling, general and administrative (SG&A)
expenses, which totalled 47% of total revenues. Operating margin barely broke even in FY10 despite the
improvement in the gross margin, as revenue growth was more than offset by merger-related costs. During Q1-
FY11, operating margin decreased by 14.9 pps year-on-year, settling at breakeven, which still was much better
than the previous quarter. The operating margin decline during Q1-FY11 is mainly related to 11.5 pps increase
in SG&A (as percentage of revenues) as a result of increased headcount and salary costs, higher research and
development expenses, and increased marketing and travel expenses.




5
    The Company‟s financial year ends on July, 31.
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Net margin was 10.3% during FY09 despite negative operating margin as the Company registered income
from a legal settlement which amounted to $843 thousand. During FY10 and Q1-FY11, the net margin
converged with operating margin and was at breakeven.


Selected income statement indicators:
$’000                  FY09       FY10       Q1-        Q2-         Q3-          Q4-         Q1-
                                             FY10       FY10        FY10         FY10        FY11
Sales                    2,272      3,540    777        870         855          1,038       935
 Year-on-year growth n/a            55.8%    12.4%      28.2%       80.1%        142.8%      20.2%
Gross profits            640        1,776    377        437         424          538         441
Operating income         -570       59       44         75          0            -60         9
Net income               235        49       41         52          -17          -27         14
EPS diluted, $           0.01       0.00     0.01       0.00        0.00         0.00        0.00
Gross margin             28.2%      50.2%    48.3%      50.2%       49.7%        57.8%       47.1%
Operating margin         -25.1% 1.7%         6.0%       8.7%        0.0%         -5.8%       1.0%
Net margin               10.3%      1.4%     5.3%       5.9%        -2.0%        -2.6%       1.5%
Source: SEC filings, analyst calculations.


It is worth noting that AmbiCom‟s revenue is quite concentrated, with one customer accounting for 63% and
53% of total revenues registered during FY10 and FY09, respectively. During H1-FY10 (first half), two
customers accounted for 73% of revenues (62% and 11%).


Balance Sheet
Accounts receivable represented 48.5% of total assets as of October 31, 2010, and amounted to $630 thousand,
staying flat during the quarter. Three customers accounted for 73% of total receivables at the end of Q1-FY11
(51%, 12% and 10%), which is to be expected, given the customer concentration mentioned above. Cash and
cash equivalents accounted for 35% of total assets as of October 31, 2010, and amounted to $449 thousand,
increasing from $166 thousand during the quarter due to a $250 thousand inflow from a bank credit line and
$44 thousand generated from operating activities. Inventories accounted for 14% of total assets as of October
31, 2010, increasing by 13% compared to the end of FY10.




Prime Equity Research                                9 Refer to Disclosure & Disclaimer at the end of the report
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Selected balance sheet items:
$’000                                       31-Jul-     31-Oct-10
                                                 10
   Cash and cash equivalents                    166            449
   Accounts receivable                          640            630
   Inventory                                    162            184
   Other current assets                          13             20
Total current assets                            980          1,282
   Property and equipment                        16             12
   Other non- current assets                      4              4
Total assets                                  1,001          1,298
   Accounts payable and accrued                  89            137
liabilities
   Due to related party                         100            100
   Line of credit payable                       100            350
   Notes payable - current portion              115            125
   Other current liabilities                     46             31
Total current liabilities                       451            742
   Notes payable                                120            100
Total liabilities                               571            842
Total stockholders‟ equity                      430            456
Total liabilities and equity                  1,001          1,298
Source: SEC filings.

Debt & leverage
As of October 31, 2010, the Company had $675 thousand in debt which financed 52% of total assets, up from
43% of total assets at the end of FY10. Most of the debt is due in the next twelve months.
Breakdown of debt:
$’000                                      Amount payable                   Interest               Maturity
                                           as of 31-Oct-10
  Line of credit payable                         350             1% + WSJ6 prime rate index          Jul-11
  Note payable to Ambeon Corporation             225                        5%                     2011-2013
  Note payable to a shareholder                   30                       10%                       Jan-11
  Note payable to an employee                     70                       10%                       Sep-11
Total debt                                       675
Source: SEC filings.

Gearing ratio increased to 2.8 during Q1-FY11, reflecting increasing indebtedness as the Company is ramping
up its operations.




6
    WSJ – Wall Street Journal
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Leverage indicators:
                                   31-Jul-     31-Jul-     31-Oct-10
                                        09          10
Total liabilities to total assets  128.2%       57.0%          64.9%
Total debt to equity              -455.0%      132.7%         184.8%
Financial gearing ratio                -3.6        2.3            2.8
Source: SEC filings, analyst calculations.

Liquidity
Since the Company has a short operating history, it is difficult to spot a trend in liquidity indicators, however
both current and acid test ratios decreased as of October 31, 2010, to 1.7 and 1.5 respectively due to an
increase in short-term line of credit and increased trade receivables and cash position compared to the end of
FY10. Net working capital increased slightly during Q1-FY11 to $540 thousand.

Liquidity indicators:
                             31-Jul-      31-Jul-     31-Oct-10
                             09           10
Current ratio                1.1          2.2         1.7
Acid test ratio              0.9          1.8         1.5
Net working capital,         64           530         540
$‟000
Source: SEC filings, analyst calculations.
Cash Flows
Cash flows from operating activities went into the red during FY10 due to lower net income and negative
changes in working capital. During Q1-FY11, cash flows from operating activities amounted to $44 thousand
as modest net income was accompanied by positive changes in non-cash working capital. During FY09, the
Company received $165 thousand in notes payable to related parties, of which it repaid $65 thousand in
FY2010 (reported under investing cash flows). Cash flows from financing activities reflect inflows from credit
lines, payment of notes payable and proceeds from sales of common stock. During FY09, the Company repaid
$482 thousand of notes payable, offset by $150 thousand of proceeds from a credit line. During FY10,
AmbiCom sold $500 thousand worth of common stock, received another $100 thousand from the credit line
and repaid $150 thousand of notes payable. During Q1-FY11, the Company received another $250 thousand in
proceeds from the credit line.
Key cash flow indicators:
$’000           FY09 FY10         Q1-FY10     Q2-FY10        Q3-FY10     Q4-FY10      Q1-FY11
CFO             227     -252      -153        2              -19         -83          44
CFI             161     -73       -38         -3             0           -32          -1
CFF             -323    354       175         164            -109        124          240
Net cash flow 65        30        -15         147            -128        26           283
Source: SEC filings.

Stock dilution
As is common with development stage companies, AmbiCom has issued a large number of stock options and
warrants. As of October 31, 2010, there were 12 million of convertible preferred shares, 7.9 million options
and 0.5 million warrants outstanding, which, if exercised, would represent 40% of currently outstanding shares
(51.8 million as of December 13, 2010). With the current stock price of around $0.076, most of these securities
are out of the money, although all the options (7.9 million) are in the money with exercise price of $0.01.

Prime Equity Research                                    11Refer to Disclosure & Disclaimer at the end of the report
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Valuation

DCF valuation

Our DCF model is shown below.
FY ends Jul 31
millions                                   2010 2011 2012 2013 2014 2015 2016              2017      2018      2019      2020      2021      2022
Revenue                                     3.5   5.0  7.9 12.1 18.0 24.0 32.0             40.0      55.0      80.0     105.0     120.0    122.4
  Revenue growth                                 42% 58% 52% 49% 33% 33%                    28%       23%       18%       12%        7%        2%
EBIT                                        0.1   0.5  1.2   2.3   3.3   4.1   4.5           5.7       7.8     11.3      14.8      17.0      17.3
  EBIT margin                              1.7% 9.6% 14.5% 19.4% 18.1% 17.0% 14.1%        14.1%     14.1%     14.1%     14.1%     14.1%    14.1%
EBIT*(1-tax)                                0.1   0.3  0.7   1.5   2.0   2.5   2.8           3.5       4.8       7.0       9.2     10.5      10.7
(+) Dep & Amort                              0.0   0.0  0.0   0.0   0.0   0.0   0.0           0.0       0.0       0.0       0.0      0.0       0.0
(+) Stock-based compensation                 0.0   0.0  0.0   0.0   0.0   0.0   0.0           0.0       0.1       0.1       0.1      0.1       0.1
(+) CapEx                                    0.0   0.0  0.0   0.0   0.0   0.0   0.0           0.0       0.0       0.0       0.0      0.0       0.0
(+) Decrease in non-cash working capital    -0.4 -0.4 -0.6 -0.9 -1.0 -0.9 -0.5               -0.5      -0.9      -1.4      -1.4     -0.9      -0.1
= Free Cash Flow (FCFF)                     -0.3 -0.1   0.1   0.6   1.1   1.7   2.4           3.1       4.0       5.6       7.8      9.7     10.7
Terminal value                                                                                                                              173.0
Discounted cash flow                        -0.3     -0.1   0.1   0.5   0.8   1.2   1.6      1.9       2.3       3.0       3.8       4.4       4.4
Discounted terminal value                                                                                                                     72.0

(+) Net Debt Movement
= Free Cash Flow to Equity (FCFE)           -0.3     -0.1   0.1   0.6   1.1   1.7   2.4      3.1       4.0       5.6       7.8       9.7    10.7
Terminal value                                                                                                                             171.2
Discounted cash flow                        -0.3     -0.1   0.1   0.5   0.8   1.2   1.6      1.9       2.3       3.0       3.8       4.4     4.4
Discounted terminal value                                                                                                                   70.8
FY ends on July 31, Source: analyst estimates.

Assumptions:
Stock Price, $                                       0.09
Shares Outstanding, 000s                           51,800
Market cap, $ 000s                                  4,662
Book Value of Net Debt, $ 000s                        128
Enterprise value, $ 000s                            4,790
Beta                                                 0.96
Market premium                                      5.0%
Risk-free Rate                                      3.6%
Cost of Equity                                      8.4%
Long-term Equity Weight                            97.0%
Cost of Debt                                10.0%
Long-term Tax rate                          38.0%
Tax Effected Cost of Debt                    6.2%
Long-term Debt Weight                        3.0%
WACC                                         8.3%
Terminal growth                              2.0%
Forward diluted shares, 000s              157,014
Source: Reuters, SEC filings, US Treasury, analyst estimates.


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DCF valuation:

 DCF valuation - FCFF           $ millions
 DCF stream                        24.1
 DC terminal value                 71.9
 Total DC Enterprise Value         96.0
 (Less) Net Debt                    0.1
 Equity Value                      95.9
 Price target, $                   0.61
Source: analyst estimates.

The sensitivity of DCF valuation to WACC and terminal growth rate estimates is as follows:
                                   WACC
   LT Growth ↓           6.3%       8.3%     10.3%
          1.0%           0.84       0.54     0.38
          2.0%           1.00       0.61     0.42
          3.0%           1.27       0.70     0.46



Relative Valuation Approaches:

For relative valuation we chose the following peer companies:
     CardioNet, Inc.
     MASIMO CORP
     Boston Scientific Corp
     St. Jude Medical

While there are other publicly traded peers on the market, they lack analyst consensus data.
$ millions, except per Price           Market         EV        TTM       FY2012 EV/Sales       FY2012      P/E
share amounts                           Cap                     sales     revenue      2012      EPS       2012
CardioNet, Inc.              4.82       117.1        106.5      124.5      132.4        0.8      -0.02      n/m
Masimo Corp                  29.88     1,779.5      1,813.2     405.4      519.8        3.5      1.47       20.3
Boston Scientific Corp       7.04     10,724.5 15,949.5 7,806.0           7,874.9       2.0      0.45       15.6
St. Jude Medical             46.76 15,397.9 16,718.1 5,018.3              6,050.1       2.8      3.65       12.8
Median multiple                                                                        2.93                15.64
Source: Reuters, SEC filings, analyst calculations.

Peers generally are not expected to experience revenue and EPS growth rates comparable to AmbiCom‟s (and
AmbiCom is expected to continue growing beyond the consensus forecast horizon), so we contend that adding
premiums to peers‟ median multiples was appropriate: 100% to EV/Sales and 100% to P/E.



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EV/Sales valuation                    $ millions
Sales FY2012e                              7.9
Peers' multiple (median), 2012             2.4
Premium assumed                           100%
Target multiple                            4.8
Enterprise Value                          38.1
(Less) Net Debt                            0.1
Equity value                              37.9
Price target, $                           0.24




P/E valuation                            $
EPS FY2012e                             0.01
Peers' multiple (median), 2012          15.6
Premium assumed                        100%
Target multiple                         31.3
Price target, $                         0.20

The equal weighted blended FY12 price per share valuation for ABHI is $0.35 per share.

 Valuation metric                 Weight         $ Target
 DCF valuation - FCFF              33%             0.61
 EV/Sales valuation                33%             0.24
 P/E valuation                     33%             0.20
 Weighted average target
 price                             100%            0.35



Robust Market Opportunity

Verizon Wireless recently estimated that mobile broadband solutions improved U.S. health care productivity at
a savings of almost $6.9 billion. That figure is expected to increase to $27.2 billion by 2016. And it's not just
the carriers predicting big numbers: According to one survey conducted by Cambridge Consultants, 75 percent
of healthcare providers, patients, payers and technology enablers believe that connected health preventative
services could cut healthcare expenses by 40 percent.




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The wireless home health market is $304 million, according to CTIA. 7 CTIA stated that the market is expected
to grow to $4.4 billion in 2013, with estimated annual growth rates of 96 percent in 2010, 126 percent in 2011,
95 percent in 2012, and 68 percent in 2013. Both Vodafone Group and Verizon, the two owners of Verizon
Wireless (45 percent and 55 percent, respectively), launched healthcare focused business units during the
fourth quarter of the year. “I personally believe that the mobile phone has a very significant role to play in the
provision of healthcare,” Vodafone Group CEO Vittorio Colao told attendees at the Mobile Healthcare
Industry Summit in London this December. Colao explained that key use cases for mobile in healthcare
include: the simplification of clinical work flows, statistical analysis of record keeping, supporting the
chronically ill at home as well as reaching under-resourced and geographically dispersed


ABI Research also estimates that revenue from worldwide sales of WiFi-enabled healthcare products, a
specific sub category of wireless health that probably includes medical devices inside care facilities, will reach
nearly $5 billion in 2014.


               Estimated Worldwide Revenue of WiFi-enabled
                        Healthcare Devices products
                                  (According the ABI Research)

          5
                                                                               $ In Billions
          0
                 2010 2011 2012 2013
Some 78 percent of the US is interested in mobile health solutions, according to a survey conducted by CTIA
and Harris Interactive. About 15 percent of the US is extremely or very interested in learning more about
mobile health solutions, according to the survey.

Further, consumer demand is intact with some 78% of the US is interested in mobile health solutions,
according to a survey conducted by CTIA and Harris Interactive. PricewaterhouseCoopers conducted a similar
survey that found 73% of consumers would use biometric electronic remote monitoring services to track their
chronic condition or vital signs.

Sales in the wireless medical device industry have grown at a rapid pace in the last three years. AmbiCom
believes the reason for this growth and its strategy to focus on this industry includes:

          Healthcare providers and insurers are seeking increased out-patient services. Wireless applications
          have the ability to provide “virtual nurse” services such as condition monitoring and alerts.

          Wireless applications may eliminate or reduce the need for certain services that previously required a



7
    Citing Parks Associates research
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        person, such as nurses, physicians, and billing positions.

        Automated monitoring and alerts may produce improved patient outcomes and enable medical care
        providers to “virtually” monitor patients around the clock.



Price Chart: ABHI (OTCBB), one year




Source: http://bigcharts.marketwatch.com/


CONCLUSION
AmbiCom is committed to wireless design and development of software and hardware, and to bringing new
and innovative products to the wireless medical markets and other sectors. AmbiCom plans to grow
organically, and to augment that growth by selectively acquiring complementary products and technologies via
acquisition opportunities deemed to be of strategic value.

The Company‟s business strategy is to:
     Grow both organically and through acquisitions.
     Leverage current customer base to drive order flow.
     Capitalize on competitive advantage of propriety software.
     Exploit the growing need for cost reduction across the healthcare industry.
     Expand sales and marketing activities to extend our reach.




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The most dramatic change on the horizon for AmbiCom is perhaps the migration up the medical device “food-
chain” to evolve from providing components and software to providing complete wireless solutions, where
AmbiCom does not just provide product modules to end users, but rather a total solution that includes
proprietary embedded systems.

The relationship and pending transaction with E-Care offers AmbiCom unique and valuable intellectual
property rights to products with high growth potential. For example, the Company‟s aim is to move into the
home consumer WiFi bluetooth wireless market that is set for explosive growth in North America and South
America.

The FDA blood glucose meters with the Roche could bring up to US $10 million or more to AmbiCom during
the four year if approved. Analyst firm Frost & Sullivan sees a bright future for remote patient monitoring, but
the key for the industry is reimbursement. The market for remote patient monitoring is set to achieve double
digit growth in North America, according to the firm, so long as successful payment strategies are
implemented. Last year the remote patient monitoring market made more than $98.2 million, but the market
could top $428.6 million by 2015. Frost points to direct reimbursement as one type of payment strategy that
needs to mature for the market to grow at this rate: “At present, it seems very unlikely that any significant
progress will be made toward direct reimbursement in the next two to five years,” Zachary Bujnoch, industry
analyst, Frost & Sullivan.

During the course of 2009, MobiHealthNews chronicled 73 business deals between two or more companies or
organizations active in the emerging industry. We defined a deal as an acquisition, pilot, program, joint
venture, or product or service launch in conjunction with another Company.

According to Investment firm TripleTree's research director Chris Hoffmann told MobiHealthNews. “This
consolidation may not come in the same flurry as we‟ve seen in enterprise software, but some thoughtful
strategic deals will begin to occur. Because many of the questions surrounding mHealth and Wireless Health
solutions center on „who pays for them‟, early M&A activity may be focused on those solutions demonstrating
recurring revenue growth or meaningful end user (or patient) retention.”

There were 15 venture capital investments announced during 2009 and 11 of them were for wireless remote
patient monitoring start-ups. The remainder included a start-up working on a converged platform for
physician-patient communications, a smartphone app developer focused on fitness games, a call-in physician
consultation service, and a tablet-based patient check-in device for physician offices.

In September MedMarket Diligence noted that investments and other financings in the medical device sector
topped $400 million in July and August. The $22 million round that wireless health start-up CardioMEMS
secured, led the pack. MedMarket predicted another $400 million in investments in medtech for the month of
September alone.

The takeaway is that both AmbiCom‟s existing and new growth drivers should increase interest in new capital
inflows for R&D and expansion, while investors should also be privy to the fact of the high M&A interest in
this space; over the next several years, AmbiCom would appear to be an attractive takeout candidate as the
Company builds out into a more proprietary embedded solutions model. Finally, whiles sales are still small on
a relative peer group scale, we see accelerated growth in the coming years.




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Disclaimer
The opinions expressed in this research report are analyst‟s personal views about the Company. Opinions and
recommendations contained in this report are submitted solely for information purposes and are not intended as an
offering or a solicitation to buy or sell the securities mentioned above. Neither the analyst nor Prime Equity
Research owns any equity or debt securities in the analyzed Company. The analyst is paid in advance to ensure
independent and objective opinions are rendered without conflict. Ambicom Holdings paid Prime Equity Research
$5,500 for independent equity coverage.




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