FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended AUGUST 31, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period to
Commission file number 0-6933
CAMBEX CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04 244 2959
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
360 Second Avenue 02154
Waltham, Massachusetts (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: 617 890-6000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
An Exhibit Index setting forth the exhibits filed herewith or incorporated
by reference herein is included herein at Page A-1.
The aggregate market value of the voting stock held by non-affiliates of
Cambex Corporation as of November 20, 1995 was $53,481,479, based on the
closing price of the common stock on the Nasdaq National Market reporting
system on that date.
The number of shares of Cambex Corporation's common stock outstanding as of
November 20, 1995: 8,914,027.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement filed not later than 120 days
after the fiscal year ended August 31, 1995 are incorporated by reference
into Items 11 and 12 of this report on Form 10-K.
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PART I
Item 1. Business.
General
The Company is engaged in the design, development, manufacture, lease and
sale of direct access storage products used with IBM mainframe and client
server computers.
Products
The Company offers direct access storage products for use with IBM mainframe
and client/server computers. The products include memory, disk, RAID disk
arrays and tape storage systems. All products are priced for under $10,000
to approximately $200,000. The Company also sells or leases trade-in memory
which it acquires from its customers when this memory is replaced by new
memory. In most transactions, when the Company upgrades a computer system
with its memory, the customer pays the Company in whole or in part with memory
already resident on the machine. On certain occasions, the memory already
resident on the customer's machine is more valuable than the Company's memory,
and in those cases, the Company pays the difference to the customer, net of a
customary gross profit for the Company.
Maintenance
The Company arranges for maintenance of its products at the time of lease or
sale on a monthly or lifetime fee per system basis. It normally provides this
maintenance through its own maintenance personnel or through authorized
maintenance companies supported by the Company's personnel.
Research and Development and New Products
The Company maintains a research and development program directed to the
development of new products and systems, to the improvement and refinement of
its present products and systems and to the expansion of their uses and
applications. The new products include a cached high availability disk array
and a RAID-5 based array. The dollar amount spent by the Company during each
of its last three fiscal years on such activities was approximately $6,345,000
in fiscal 1995, $6,417,000 in fiscal 1994, and $4,999,000 in fiscal 1993.
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Manufacturing
The production of the Company's products involves primarily electronics
assembly and testing. These operations are performed primarily at the
Company's plant in Waltham, Massachusetts. The Company also subcontracts some
of its assembly operations to several circuit board assembly companies. Most
of the electronic components used in the Company's products are purchased from
outside suppliers and are either standard items or custom manufactured to the
Company's design and specifications and are generally available from several
sources.
Marketing
In the United States, Europe, the Far East and Canada, the Company has its
own marketing organization, sales representatives and distributors. Sales are
made to end users, original equipment manufacturers and distributors. The
Company established European sales and marketing subsidiaries in the
Netherlands, the United Kingdom and Germany during fiscal 1991 and in France
during fiscal 1993.
Competition
The market for the Company's memory products is dominated by International
Business Machines Corporation (IBM). In the disk storage market, the Company's
current competitors include several large companies in addition to IBM. IBM
announcements concerning new systems, improved performance characteristics of
existing systems and price reductions have had adverse effects on the markets
for the Company's products in the past.
The Company believes that its success in competing with IBM is dependent upon
its ability to offer products with substantially better cost/performance
characteristics than those provided by IBM. In relation to other independent
companies with which it competes, the Company believes that the most important
competitive factors are non-price factors such as product quality, reliability
and product features, as well as service and support capability.
Competition in the IBM-compatible markets is intense. The industry is one
characterized by rapid technological advances resulting in the frequent
introduction of new products and services and by price reductions in
established product categories. A number of other companies, some of which
are substantially larger and have substantially greater resources than the
Company, are engaged in the manufacture and marketing of products similar to
those manufactured and marketed by the Company.
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Backlog
As of August 31, 1995, the dollar amount of the Company's firm backlog was
approximately $750,000. On the same date of the preceding year, the
comparable amount was approximately $500,000. All such backlog was
deliverable within a year. Such backlog has no material seasonal
characteristics. All equipment ordered by customers is subject to acceptance
and satisfactory performance as well as the Company's ability to meet delivery
schedules. The Company believes that backlog is not a meaningful indication
of future business.
Patents
Although the Company owns 26 patents, it does not consider its patent
position to be significant from a competitive standpoint.
Significant Customers
No single customer accounted for 10% or more of sales during fiscal 1995 and
fiscal 1994. During fiscal 1993, sales to Storage Technology accounted for 22%
of the Company's sales.
Employees
On November 20, 1995, the Company employed 140 persons.
Item 2. Properties
The Company leases approximately 68,000 square feet of floor space in
Waltham, Massachusetts, under a lease for a term ending May 31, 2003. This
facility consists of office, manufacturing and R & D space. The Company also leases
additional sales and support offices throughout the United States, Europe and
Canada.
Item 3. Legal Proceedings
The Company is involved in certain legal proceedings arising in the ordinary
course of business. The Company believes that the outcome of these
proceedings will not have a material adverse effect on the Company's financial
condition.
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Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters.
The Company's common stock is traded on the Nasdaq Stock Market. The
approximate number of shareholders of record at November 20, 1995 was 782.
The high and low sales prices for the Company's stock for each quarter during
the years ended August 31, 1995 and 1994 are as follows:
1995 1994
High Low High Low
First Quarter 4-7/8 3-1/2 7-1/4 4
Second Quarter 4-1/2 3-3/8 6-1/4 3-7/8
Third Quarter 6-3/4 3-1/2 4-3/4 3-3/8
Fourth Quarter 13 6-1/8 5-23/32 3-3/4
The Company has not paid dividends on its common stock in the past and does
not expect to do so in the foreseeable future. Further, the payment of such
dividends is prohibited under the Company's $10 million Revolving Credit
Agreement (see Note 5 to the financial statements).
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K.
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Year Ended August 31,
1995 1994 1993 1992 1991
(In thousands, except per share amounts)
Revenues $35,152 $40,549 $46,160 $52,083 $40,216
Net income (loss) ( 9,899) 590 ( 2,407) 9,847 5,761
Per share data:
Net income (loss):
Primary ( 1.14) 0.07 ( 0.28) 1.13 .70
Weighted Average
Common and Common
Equivalent Shares
Outstanding 8,700 8,550 8,650 8,680 8,250
Total assets $32,027 $38,048 $36,119 $45,754 $34,965
Long-term debt ------- 3,900 2,050 ------- -------
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Fiscal 1995 as compared with Fiscal 1994
The Company's revenues decreased 13% to $35,200,000 in fiscal 1995 as
compared to $40,500,000 in fiscal 1994 due to lower mainframe memory product
revenues, partially offset by an increase in revenues in the Company's
client/server products.
During fiscal 1995, there was an unprecedented slowdown and price erosion in
the ES/9000 mainframe computer market, resulting in decreased revenues and a
significant devaluation in the value of the Company's inventory of trade-in
IBM memories. The lower memory prices impacted revenues for the entire year,
but most significantly in the fourth quarter. As a result, the Company
recorded a decline in the value of its IBM trade-in memory of $4,600,000 in
the fourth quarter. The Company believes the market has stabilized, but is
unable to predict whether or when the market will return to its former
position.
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Gross profit, before the recognition of the decline in value of IBM trade in
memory, decreased 40% to $11,700,000 (33% of revenues) in fiscal 1995 from
$19,500,000 (48% of revenues) in fiscal 1994. The degradation in the gross
profit percentage is due primarily to reduced volume and price erosion plus a
$1,900,000 inventory valuation reduction which was provided in fiscal 1995.
There were no write-downs or reserves in fiscal 1994.
Operating expenses increased 2% to $17,200,000 in fiscal 1995 from
$16,900,000 in fiscal 1994 and as a percent of revenues, increased to 49% from
42% in fiscal 1994. Selling expenses increased 6% to $8,200,000 in fiscal
1995 from $7,800,000 in fiscal 1994 due to increased staffing in Europe.
Research and development expenses and general and administrative expenses
decreased slightly from fiscal 1994.
Interest expense increased to $254,000 in fiscal 1995 from from $203,000 in
fiscal 1994 due to higher bank borrowings and higher interest rates. Interest
income increased to $108,000 in fiscal 1995 from $96,000 in fiscal 1994.
Other expense in both fiscal 1995 and 1994 included $1,700,000 in
amortization expenses related to a technology acquisition.
The Company's effective tax rate was 43% in fiscal 1994. The Company
recorded a credit for income taxes in fiscal 1995. The Company's prepaid tax
asset is realizable through carrybacks against taxes paid in prior years.
Total accounts receivable decreased to $5,000,000 in fiscal 1995 from
$6,900,000 in fiscal 1994 due to a decrease in orders shipped near the end of
fiscal 1995. Obligations for trade-in memory increased to $2,700,000 in
fiscal 1995 from $700,000 in fiscal 1994 due to the purchase of certain IBM
trade-in memory, which was subsequently sold. Inventories decreased to
$11,600,000 in fiscal 1995 from $14,200,000 in fiscal 1994 due to lower levels
of IBM trade-in memory.
Prepaid expenses decreased to $200,000 in fiscal 1995 from $800,000 in fiscal
1994 due to higher prepayments to customers for IBM trade-in memory in 1994.
Property and equipment (net) decreased to $1,600,000 in fiscal 1995 from
$1,900,000 in fiscal 1994 since total purchases amounted to $500,000 while
depreciation and amortization was $800,000.
Fiscal 1994 as compared with Fiscal 1993
The Company's revenues decreased 12% to $40,500,000 in fiscal 1994 as
compared to $46,200,000 in fiscal 1993 due to lower mainframe memory product
revenues, partially offset by an increase in revenues in the Company's
client/server products.
During fiscal 1993, there was an unprecedented slowdown and price erosion in
the mainframe computer market, resulting in decreased revenues and a signifi-
cant devaluation in the value of the Company's inventory of trade-in IBM
memories.
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The gross profit margin increased 22% to $19,500,000 (48% of revenues) in
fiscal 1994 from $15,900,000 (34% of revenues) in fiscal 1993. The
improvement in gross profit percentage is due primarily to the $7,600,000
decline in value of IBM trade-in memory and a $1,600,000 inventory valuation
reserve which was provided in fiscal 1993, partially offset by lower average
selling prices and consequently, lower gross margins, on the Company's
mainframe memory products in fiscal 1994. There were no write-downs or
reserves in fiscal 1994.
Operating expenses decreased 10% to $16,900,000 in fiscal 1994 from
$18,700,000 in fiscal 1993 and as a percent of revenues, increased to 42% from
41% in fiscal 1993. Selling expenses decreased 30% to $7,800,000 in fiscal
1994 from $11,100,000 in fiscal 1993 due to lower commissions and reduced
staffing required to support lower revenues. Research and development expenses
increased 28% to $6,400,000 in fiscal 1994 from $5,000,000 in fiscal 1993 due
to an accelerated effort to develop mainframe memory products and a complete
line of storage products.
Interest expense increased to $203,000 in fiscal 1994 from $76,000 in fiscal
1993 due to higher bank borrowings. Interest income decreased to $96,000 in
fiscal 1994 from $340,000 in fiscal 1993 due to lower cash balances in
interestbearing accounts.
Other expense increased to $1,400,000 in fiscal 1994 from $750,000 in fiscal
1993. Other expense in both fiscal 1994 and 1993 included $1,700,000 in
amortization expenses related to a technology acquisition. Other income
(expense) in fiscal 1993 included a $2,500,000 gain on the sale of marketable
securities which was partially offset by a provision for the settlement of a
legal dispute.
The Company's effective tax rate was 43% in fiscal 1994. The Company
recorded a credit for income taxes in fiscal 1993. The Company's prepaid tax
asset is realizable through carrybacks against taxes paid in prior years or
future profitability.
Total accounts receivable increased to $6,900,000 in fiscal 1994 from
$3,300,000 in fiscal 1993 due to larger cash memory orders shipped near the
end of fiscal 1994. Obligations for trade-in memory decreased to $700,000 in
fiscal 1994 from $3,100,000 in fiscal 1993 due to the Company's decision not
to purchase trade-in memory. Inventories increased to $14,200,000 in fiscal
1994 from $13,100,000 in fiscal 1993 due to higher levels of IBM trade-in
memory acquired through memory upgrades.
Prepaid expenses increased to $800,000 in fiscal 1994 from $100,000 in fiscal
1993 due to prepayments to customers for IBM trade-in memory.
Property and equipment (net) decreased to $1,900,000 in fiscal 1994 from
$2,400,000 in fiscal 1993 since total purchases amounted to $300,000 while
depreciation and amortization was $800,000.
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Inflation
The Company did not experience any material adverse effects in 1995, 1994 and
1993 due to general inflation.
Liquidity and Capital Resources
The Company's present operating plans indicate that available cash and invest-
ments and the expected cash flow generated from operations will be adequate to
meet its obligations to creditors and will be sufficient to fund operations
for the coming fiscal year. The Company's cash and marketable securities were
$3,200,000 and $6,100,000 at August 31, 1995 and 1994, respectively. Working
capital was $10,900,000 at August 31, 1995 compared with $21,600,000 at August
31, 1994. During 1995, the Company expended $500,000 for capital equipment to
support its growth. During fiscal 1996, the Company expects to acquire
approximately $400,000 of capital equipment.
The Company has obtained a $10 million unsecured, revolving line of bank
credit, bearing interest at the prime rate plus one-half percent. The
commitment fee is 3/8 of 1% per year on the unused portion. The Company is
required to repay any borrowings under this revolving credit line on March 29,
1996. As of August 31, 1995 and 1994, approximately $3.85 million and $3.9
million, respectively, was outstanding under this line and as of November 20,
1995, approximately $3.0 million was outstanding. The Company is negotiating
with the bank to receive a waiver for certain provisions, with which the
Company was not in compliance as of August 31, 1995. In conjunction
therewith, it is expected that the bank will obtain security for the bank line
of credit consisting of the Company's assets. (See Note 5 to the accompanying
financial statements.)
Item 8. Financial Statements and Supplementary Data.
See financial statements, beginning at page F-2, incorporated herein by
reference.
Unaudited quarterly financial data pertaining to the results of operations
for 1995 and 1994 are as follows:
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Q1 Q2 Q3 Q4
(In thousands, except per share amounts)
1995
Revenues $10,167 $10,511 $11,167 $ 3,307
Gross Profit (Loss) 4,750 4,619 4,870 ( 7,149)
Net Income (Loss) 156 156 93 (10,304)
Earnings (Loss)
Per Share .02 .02 .01 ( 1.19)
Q1 Q2 Q3 Q4
(In thousands, except per share amounts)
1994
Revenues $ 9,088 $10,060 $11,245 $10,156
Gross Profit 4,733 4,776 5,193 4,760
Net Income 128 91 259 112
Earnings Per Share .02 .01 .03 .01
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
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PART III
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Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers of the Company are as follows:
Positions and Offices with the Company:
Name Business Experience During Last Five Years
Joseph F. Kruy President and a Director from incorporation in
Age: 64 1968 to December, 1975 and from June, 1976 to date;
Chairman of the Board of Directors from December,
1975 to date. Treasurer from June, 1985 to April,
1987 and January, 1988 to April, 1988.
Philip C. Hankins Director since 1979. President, Charter
Age: 64 Information Corporation (Information Processing).
C. V. Ramamoorthy Director since 1968. Professor of Electrical
Age: 69 Engineering and Computer Sciences, University of
California at Berkeley.
Robert Spain Director since 1995. President, CFC, Inc.
Age: 58 (Electronic Components Manufacturing)
Sheldon M. Schenkler Vice President of Finance and Chief Financial
Age: 44 Officer from April, 1988 to date; Treasurer from
April, 1988 to June, 1991.
Robert Norton Executive Vice President, Technical Operations from
Age: 50 August, 1995 to date; Consultant to Cambex from May,
1995 to August, 1995; Industry Consultant from April,
1993 to May, 1995; President and CEO of IPL Systems
from September, 1985 to March, 1993.
Fay Elassy-Bortcosh Vice President of Engineering from October, 1995
Age: 41 to date; Senior Consultant, Electronic Data Systems
from October, 1994 to October, 1995; Group
Engineering Manager, Digital Equipment Corporation
from September, 1979 to September, 1994.
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Item 11. Executive Compensation.
The Company will file with the Securities and Exchange Commission a
definitive Proxy Statement (the "Proxy Statement") not later than 120 days
after the close of the fiscal year ended August 31, 1995. The information
required by this item is incorporated herein by reference to the section
titled Remuneration in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated herein by reference in
the section titled Election of Directors in the Proxy Statement.
Solely for the purpose of calculating the aggregate market value of voting
stock held by non-affiliates of the Company as set forth on the Cover Page, it
was assumed that only directors and executive officers on the calculation date
together with spouses and dependent children of such persons constituted
affiliates.
Item 13. Certain Relationships and Related Transactions.
None.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) The financial statements listed in the index to financial
statements appearing at page F-1 of this report, which
index is incorporated in this item by reference.
(2) The financial statement schedules as set forth in the
above-mentioned index to financial statements.
(3) See the exhibit index following on page A-1.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
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EXHIBIT INDEX
The following exhibits are filed herewith or incorporated by reference
herein.
Exhibit
3.1 Articles of Organization of Cambex Corporation, as amended
(incorporated herein by reference to Exhibit 1.1 to Form 10-K for
the fiscal year ended August 31, 1981).
3.1.1 Articles of Amendment to Articles of Organization filed with the
Massachusetts Secretary of State on December 11, 1987 (incorporated
herein by reference to Exhibit 3.1.1 to Form 10-K for the fiscal
year ended August 31, 1987).
3.1.2 Articles of Amendment to Articles of Organization filed with the
Massachusetts Secretary of State on June 8, 1988 (incorporated
herein by reference to Exhibit 3.1.2 to Form 10-K for the fiscal
year ended August 31, 1988).
3.1.3 Articles of Amendment to Articles of Organization filed with the
Massachusetts Secretary of State on January 23, 1992 (incorporated
herein by reference to Exhibit 3.1.3 to Form 10-K for the fiscal
year ended August 31, 1993).
3.2 By-Laws of Cambex Corporation, as amended (incorporated herein by
reference to Exhibit 1.2 to Form 10-K for the fiscal year ended
August 31, 1981).
10.1 Employment Agreement between Joseph F. Kruy and Cambex Corporation,
dated as of April 22, 1987 (incorporated herein by reference to
Exhibit 10.1.1 to Form 10-K for the fiscal year ended August 31,
1987).
10.2 Incentive Bonus Plan (incorporated herein by reference to Exhibit
10.3 to Form 10-K for the fiscal year ended August 31, 1983).
10.4 1985 Non-Qualified Stock Option Plan (incorporated herein by
reference to Exhibit 10.6 to Form 10-K for the fiscal year ended
August 31, 1985).
10.6 1987 Combination Stock Option Plan (incorporated herein by
reference to Exhibit 10.8 to Form 10-K for the fiscal year ended
August 31, 1987).
10.8 9021 Memory Products Business Acquisition Agreement dated January
10, 1992 between the Company and EMC Corporation (incorporated
herein by reference to Exhibit 1 to Form 8-K dated January 14,
1992).
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Exhibit Index - Continued
Exhibit - Continued
10.9 Cambex Corporation Employee Stock Purchase Plan (incorporated
herein by reference to Exhibit 10.9 to Form 10-K for the fiscal
year ended August 31, 1994).
10.10 Revolving Credit Agreement dated April 15, 1993 between the Company
and the First National Bank of Boston (incorporated herein by
reference to Exhibit 10.10 to Form 10-K for the fiscal year ended
August 31, 1994).
23. Consent of Independent Public Accountants.
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CAMBEX CORPORATION AND SUBSIDIARIES
(Information required by Part II, Item 8 and
Part IV, Item 14 of Form 10-K)
FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F - 2
Consolidated Balance Sheets - August 31, 1995 and 1994 F - 3
Consolidated Statements of Operations for the Three Years
Ended August 31, 1995 F - 4
Consolidated Statements of Stockholders' Investment
for the Three Years Ended August 31, 1995 F - 5
Consolidated Statements of Cash Flows for the
Three Years Ended August 31, 1995 F - 6
Notes to Consolidated Financial Statements F - 7
SUPPLEMENTARY SCHEDULE
FOR THE THREE YEARS ENDED AUGUST 31, 1995
Schedule Number
II Valuation and Qualifying Accounts F-19
Schedules other than those referred to above have been omitted, as they are
not required or the information is included elsewhere in the financial
statements or the notes thereto.
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F-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders of Cambex Corporation:
We have audited the accompanying consolidated balance sheets of Cambex
Corporation (a Massachusetts corporation) and subsidiaries as of August 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended August 31, 1995. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cambex Corporation and
subsidiaries as of August 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
the financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly state, in all material respects, the financial data required
to be set forth therein in relation to the basic financial statements taken as
a whole.
ARTHUR ANDERSEN & CO.
Boston, Massachusetts,
October 27, 1995
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F-2
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CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 and 1994
ASSETS
1995 1994
CURRENT ASSETS: ----------- ----------
Cash and cash equivalents $ 3,246,353 $ 6,126,289
Accounts receivable, less reserves of $135,000
in 1995 and $138,000 in 1994 5,144,976 6,853,233
Current portion of investment in sales-type
leases, net of unearned interest income of
$38,000 in 1995 and $45,000 in 1994 445,214 404,622
Inventories 11,568,072 14,153,739
Prepaid taxes 6,505,029 2,946,025
Prepaid expenses 242,881 757,072
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Total current assets 27,152,525 $31,240,980
------------ ------------
LONG-TERM INVESTMENT IN SALES-TYPE LEASES,
net of unearned interest income of $27,000
in 1995 and $35,000 in 1994 $ 477,030 $ 475,900
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LEASED EQUIPMENT, at cost, net of
accumulated depreciation of $193,000
in 1995 and $167,000 in 1994 $ 351,768 $ 302,410
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment $ 7,221,473 $ 7,932,084
Furniture and fixtures 266,612 240,239
Leasehold improvements 606,454 357,796
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$ 8,094,539 $ 8,530,119
Less- Accumulated depreciation and amortization 6,495,460 6,647,467
------------ ------------
$ 1,599,079 $ 1,882,652
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OTHER ASSETS
Technology License/Marketing Agreement,
net of accumulated amortization of $6,092,000
in 1995 and $4,392,000 in 1994 $ 2,408,339 $ 4,108,343
Other 37,895 37,958
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Total Assets $32,026,636 $38,048,243
=========================
The accompanying notes are an integral part of these consolidated financial
statements.
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CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' INVESTMENT
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1995 1994
CURRENT LIABILITIES: ------------ ------------
Revolving Credit Agreement $ 3,850,000 $ -
Notes payable - 159,152
Accounts payable 5,633,185 4,408,747
Obligations for trade-in memory 2,712,317 662,067
Accrued expenses -
Payroll and related 1,562,496 2,349,162
Income and other taxes 2,305,649 948,724
Other 213,079 1,076,216
------------ ------------
Total current liabilities $16,276,726 $ 9,604,068
------------ ------------
REVOLVING CREDIT AGREEMENT $ - $ 3,900,000
DEFERRED REVENUE $ 1,323,417 $ 1,431,311
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT
Preferred Stock, $1.00 par value per share -
Authorized--3,000,000 shares
Issued--None $ $ -
Common Stock, $.10 par value per share -
Authorized--25,000,000 shares
Issued- 10,420,283 shares in 1995 and
10,157,064 shares in 1994 1,042,028 1,015,706
Capital in excess of par value 15,161,980 14,154,516
Cumulative translation adjustment 247,614 68,862
Retained earnings (deficit) (1,170,363) 8,728,546
Less - Cost of shares held in treasury--
1,534,356 shares in 1995 and
1,534,356 shares in 1994 (854,766) (854,766)
------------ ------------
Total Stockholders' Investment $14,426,493 $23,112,864
------------ ------------
Total Liabilities and Stockholders'
Investment $32,026,636 $38,048,243
============ ============
The accompanying notes are in integral
part of these consolidated financial statements.
F-3 -20-
</TABLE>
<PAGE>
<TABLE>
<S>
CAMBEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED AUGUST 31, 1995
<C> <C> <C>
1995 1994 1993
----------- ----------- -----------
REVENUES
Sales $ 28,038,337 $33,041,745 $39,474,112
Maintenance and operating leases 7,013,674 7,407,619 6,585,752
License fees 100,000 100,000 100,000
------------- ------------ ------------
Total revenues $ 35,152,011 $40,549,364 $46,159,864
COST OF SALES 23,414,676 21,087,303 22,663,739
DECLINE IN VALUE OF IBM TRADE-IN MEMORY 4,647,499 - 7,578,000
------------ ----------- -----------
Gross profit $ 7,089,836 $19,462,061 $15,918,125
------------- ------------ ------------
OPERATING EXPENSES:
Research and development $ 6,345,165 $ 6,417,053 $ 4,999,489
Selling 8,242,981 7,794,597 11,104,162
General and administrative 2,606,476 2,685,990 2,634,699
------------ ----------- -----------
$ 17,194,622 $16,897,640 $18,738,350
------------ ----------- -----------
OPERATING INCOME (LOSS) $(10,104,786) $ 2,564,421 $(2,820,225)
OTHER INCOME (EXPENSE):
Interest expense (253,747) (202,533) (76,256)
Interest income 107,559 96,222 343,849
Other expense (1,426,935) (1,426,057) (749,486)
------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $(11,677,909) $ 1,032,053 $(3,302,118)
Credit (Provision) for income taxes 1,779,000 (442,000) 895,000
------------- ------------ ------------
NET INCOME (LOSS) $ (9,898,909) $ 590,053 $(2,407,118)
============= ============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (1.14) $ $0.07 $(0.28)
===== ===== =====
Weighted Average Common and
Common Equivalent Shares Outstanding 8,700,000 8,550,000 8,650,000
========== ========= =========
The accompanying notes are an integral
part of these consolidated financial statements.
</TABLE>
F-4 -21-
<PAGE>
<TABLE>
<S>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE THREE YEARS ENDED AUGUST 31, 1995
<C> <C> <C> <C> <C>
Common Stock Capital in Cumulative Retained Cost of
$.10 Excess of Translation Earnings Shares Held
Par Value Par Value Adjustment (Deficit) in Treasury
------------ ------------ --------- ------------- -------------
BALANCE AT AUGUST 31, 1992 $ 978,358 $12,439,282 $ 66,986 $ 10,545,611 $ (739,185)
ADD:
Net loss $ - $ - $ - $ (2,407,118) $ -
Exercise of employee stock options 18,668 143,147 - -
401(k) Employer match 3,667 418,038 - -
Purchase of Treasury Stock - - - (115,581)
Tax benefits related to stock options - 744,881 - -
Translation adjustment - - (254,209) - -
------------ ------------ --------- ------------- -------------
BALANCE AT AUGUST 31, 1993 $ 1,000,693 $13,745,348 $(187,223) $ 8,138,493 $ (854,766)
ADD:
Net income $ - $ - $ - $ 590,053 $ -
Exercise of employee stock options 1,515 11,969 - - -
401(k) Employer match 5,457 219,660 - - -
Stock Purchase Plan Shares 4,291 146,323 - - -
Exercise of Warrants 3,750 10,313 - - -
Tax benefits related to stock options - 20,903 - - -
Translation adjustment - - 256,085 - -
------------ ------------ --------- ------------- -------------
BALANCE AT AUGUST 31, 1994 $ 1,015,706 $14,154,516 $ 68,862 $ 8,728,546 $ (854,766)
ADD:
Net loss $ - $ - $ - $ (9,898,909) $ -
Exercise of employee stock options 12,524 230,985 - - -
401(k) Employer match 4,354 202,456 - - -
Stock Purchase Plan Shares 9,444 274,166 - - -
Tax benefits related to stock options - 299,857 - - -
Translation adjustment - - 178,752 - -
------------ ------------ --------- ------------- -------------
BALANCE AT AUGUST 31, 1995 $ 1,042,028 $15,161,980 $ 247,614 $ (1,170,363) $ (854,766)
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
F-5 -22-
<PAGE>
<TABLE>
<S>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE YEARS ENDED AUGUST 31, 1995
<C> <C> <C>
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES: ------------- ------------- -------------
Net income (loss) $ (9,898,909) $ 590,053 $ (2,407,118)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation $ 879,659 $ 1,012,998 $ 792,446
Amortization 1,700,004 1,700,004 1,700,004
Provision for losses on accounts receivable - (150,000) (90,000)
Provision for losses on inventory 1,881,428 - 1,725,000
Amortization of prepaid expenses 23,135 25,934 31,023
Common stock/warrants issued in lieu of cash 206,810 225,117 421,705
Gain on sale of marketable securities - - (2,527,220)
Decline in value of IBM trade-in memory 4,647,499 - 7,578,000
Change in assets and liabilities:
Decrease (increase) in accounts receivable 1,708,257 (3,399,325) 3,481,134
Increase in inventory (3,943,260) (1,087,588) (10,812,206)
Decrease (increase) in investment in sales-type leases (41,722) 41,720 1,142,810
Decrease (increase) in prepaid taxes (3,559,004) 1,517,880 (1,962,549)
Decrease (increase) in prepaid expenses 491,056 (695,406) (2,511)
Decrease in other assets 63 64 64
Increase (decrease) in accounts payable 1,224,438 (138,500) (439,850)
Increase (decrease) in obligations for trade-in memory 2,050,250 (2,406,567) 1,784,788
Increase (decrease) in accrued liabilities (292,878) 1,980,316 (1,305,476)
Decrease in deferred revenue (107,894) (359,295) (4,301,340)
------------ ------------- -------------
Total adjustments $ 6,867,841 $ (1,732,648) $ (2,784,178)
------------ ------------- -------------
Net cash used in operating activities $ (3,031,068) $ (1,142,595) $ (5,191,296)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities $ - $ - $ 3,927,220
Purchases of equipment, net (645,444) (596,947) (1,545,642)
Acquisition of technology license/marketing agreement - - (2,500,000)
----------- ------------- -------------
Net cash used in investing activities $ (645,444) $ (596,947) $ (118,422)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable $ (159,152) $ (266,991) $ (3,475,094)
Proceeds from sale of common stock 826,976 199,064 906,696
Payments for purchase of treasury stock - - (115,581)
Net borrowings (repayments) under revolving credit agreement (50,000) 1,850,000 2,050,000
--------- ------------ -------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Net cash provided by (used in) financing activities $ 617,824 $ 1,782,073 $ (633,979)
Effect of exchange rate changes on cash 178,752 256,085 (254,209)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents $ (2,879,936) $ 298,616 $ (6,197,906)
Cash and cash equivalents at beginning of year 6,126,289 5,827,673 12,025,579
------------ ------------- -------------
Cash and cash equivalents at end of year $ 3,246,353 $ 6,126,289 $ 5,827,673
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for: Interest $ 241,491 $ 188,274 $ 61,301
Income Taxes 34,941 55,123 290,759
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE YEARS ENDED AUGUST 31, 1995
<TABLE>
<S> <C>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In January 1992, the Company acquired technology rights and a related
marketing agreement for a total of $8.5 million. Concurrently, the Company
acquired related inventory for $3 million. The Company issued promissory
notes with maturities through March, 1993 totaling $11.5 million to finance
the acquisition of these technology and marketing rights and inventory. A
portion of these notes, $1.5 million, was satisfied by offsetting the payables
with existing receivables. The Company paid $4.5 million during fiscal 1992
in satisfaction of an additional portion of these notes.
F - 6
- 23 -
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Cambex Corporation and its wholly-owned subsidiaries (the
Company). All material intercompany transactions and balances have
been eliminated in consolidation.
Revenue Recognition
The Company manufactures equipment for sale or lease. Revenue from
product sales is recognized at the time the hardware and software are
shipped. The Company accepts memory in trade as consideration in
certain revenue transactions. Revenue is recorded at the estimated
net realizable value of the memory received plus the net cash
received. If the memory is subsequently sold at a price in excess of
the estimated net realizable value, the excess is recorded as revenue.
Service and other revenues are recognized ratably over the
contractual period or as the services are provided. Under certain
equipment leases which qualify as sales type leases, the present value
of noncancelable payments is currently included in revenues as sales,
and all related costs, exclusive of the residual value of the
equipment, are currently included in cost of sales. The unearned
interest is recognized over the noncancelable term of the lease. The
Company has deferred revenue associated with the sale of certain
products that have future performance obligations.
For equipment leased under operating lease agreements, revenue is
recognized over the lease term and the equipment is depreciated over
its estimated useful life.
License fees are amortized over the useful life of the technologies
being licensed.
Gains and Losses From Marketable Securities
Marketable securities are carried at the lower of cost or market. All
marketable securities were sold in fiscal 1993 and the gain on their
sale of $2,527,000 was credited to other income.
- 24 -
F-7
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(1) Summary of Significant Accounting Policies - Continued
Inventories
Inventories, which include materials, labor and manufacturing
overhead, are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
1995 1994
Raw materials $ 2,402,345 $ 2,192,939
Work-in-process 760,399 790,892
Finished goods 4,573,200 3,593,472
Trade-in memory 3,832,128 7,576,436
$11,568,072 $14,153,739
Property and Equipment
The Company provides for depreciation and amortization on a straight-
line basis to amortize the cost of property and equipment over their
estimated useful lives as follows:
Leasehold improvements 2-10 Years
Machinery and equipment 3- 8 Years
Furniture and fixtures 3- 8 Years
Leased equipment 3- 5 Years
Maintenance and repair items are charged to expense when incurred;
renewals or betterments are capitalized.
If property is sold or otherwise disposed of, the Company's policy
is to remove the related cost and accumulated depreciation from the
accounts and to include any resulting gain or loss in income.
Net Income (Loss) Per Common Share
Income (loss) per share amounts are based on the weighted average
number of common shares and common share equivalents outstanding
during each year. Common share equivalents consist of dilutive
stock options and warrants, in certain circumstances, under the
modified treasury stock method.
- 25 -
F-8
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(1) Summary of Significant Accounting Policies - Continued
Cash and Cash Equivalents
Cash and cash equivalents are recorded at cost which approximates
market value. Cash equivalents include certificates of deposit,
government securities and money market instruments purchased with
maturities of less than three months.
Stock Options and Employee Stock Purchase Plan
Proceeds from the sale of newly issued stock to employees under the
Company's stock option plans and Employee Stock Purchase Plan are
credited to common stock to the extent of par value and the excess to
capital in excess of par value. Income tax benefits attributable to
stock options are credited to capital in excess of par value.
(2) Business, Operations and Segment Information
The Company is in the business of developing and manufacturing
hardware and software for use with a variety of IBM computer systems.
The Company's principal products include memory storage systems for
large-scale IBM mainframe computers and storage subsystems for client
server platforms.
The Company sells its equipment to both end users and to distributors
who, in turn, sell the equipment to their customers. The Company's
principal customers operate in a wide variety of industries and in a
broad geographical area. No single customer or distributor accounted
for 10% or more of total sales in fiscal 1995 and fiscal 1994. During
fiscal 1993, one customer accounted for 22% of total revenues. Export
sales were less than 10% of total revenues in fiscal 1995 and 1993 and
17% in fiscal 1994.
- 26 -
F-9
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(3) Income Taxes
Effective the beginning of fiscal 1994, the Company adopted Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
for Income Taxes." Under SFAS 109, the Company must compute the
impact upon its future income tax payments, using current tax rates,
of temporary differences resulting from the difference in carrying
amounts of assets and liabilities for tax and financial reporting
purposes. SFAS 109 requires deferred tax assets and liabilities to be
adjusted when the tax rates or other provisions of the income tax law
change.
Adopting SFAS 109 has not caused a significant change in the Company's
provision for income taxes, reconciliation of the effective tax rate
with the statutory rate or significant components of the income tax
provision.
The following table presents the components of income (loss) before
income taxes:
1995 1994 1993
Domestic $( 8,552,000) $ 262,000 $(2,415,000)
Foreign
( 3,126,000) 770,000 ( 887,000)
$ 11,678,000) $1,032,000 $(3,302,000)
- 27 -
F-10
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(3) Income Taxes - Continued
The following table presents a reconciliation between taxes provided
at the statutory federal income tax rate and the actual tax provision
recorded for 1995, 1994 and 1993:
1995 1994 1993
Provision (credit) at
federal statutory
rate $(3,970,000) $ 351,000 $(1,123,000)
State tax provision
(credit), net of federal
tax benefit ( 700,000) 43,000 33,000
Foreign and other losses
for which no benefits have
been recorded 973,000 147,000 302,000
Change in valuation
allowances 1,976,000 ( 250,000) ----
Other ( 58,000) ( 151,000) ( 107,000)
$(1,779,000) $ 442,000 $( 895,000)
The 1995 tax benefit recognized is primarily for current federal and
foreign tax refunds receivable.
The 1994 provision includes a deferred provision of approximately
$130,000, offset by a reduction of a previously established valuation
allowance of approximately $250,000. The 1993 provision for income
taxes is primarily for current Federal and state taxes.
- 28 -
F-11
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(3) Income Taxes - Continued
Prepaid federal and state income taxes result primarily from reserves
and expenses that are not currently deductible for income tax purposes
and from certain revenues recognized for income tax purposes in advance
of financial reporting recognition. Also included in prepaid taxes as
of August 31, 1995 is approximately $6,500,000 of federal and foreign
income taxes refundable as a result of taxable losses incurred during
fiscal 1995, 1994 and 1993.
The tax effects of the significant items which comprise the deferred
tax liability and tax asset, as of fiscal 1995 and 1994 are as follows:
1995 1994
Assets
Reserves not currently deductible
for tax purposes $ 1,290,000 $ 448,000
State tax net operating loss
carryforward 700,000 - - -
Employee benefits 152,000 124,000
Other 166,000 133,000
Total deferred tax assets $ 2,308,000 $ 705,000
Liabilities
Fixed asset basis difference $( 145,000) $( 96,000)
Other ( 187,000) ( 304,000)
Total deferred tax liabilities $( 332,000) $( 400,000)
Net deferred tax asset $ 1,976,000 $ 305,000
Valuation allowance (1,976,000) - - -
Tax asset $ 0 $ 305,000
Tax refunds receivable 6,505,000 2,642,000
Total tax asset $ 6,505,000 $ 2,947,000
- 29 -
F-12
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(3) Income Taxes - Continued
The implementation of SFAS 109 requires the Company to consider the
future realizability of deferred tax assets. Due to the uncertainty
that the future tax benefits may be utilized, the Company has
established a valuation allowance for the net deferred tax asset as of
August 31, 1995. In fiscal 1994, the total of deferred tax assets, net
of deferred tax liabilities, has been included with tax refunds
receivable in prepaid taxes in the accompanying consolidated balance
sheets.
(4) Technology/Marketing Agreement
During the second quarter of fiscal 1992, the Company acquired from EMC
Corporation technology rights, inventory, and other assets associated
with EMC's IBM 3090 and ES/9000, Model 9021 compatible mainframe memory
products. The purchase price of $11,500,000 was paid in fiscal 1992 and
1993. The use of the technology is exclusive to Cambex for five years.
The financial statement impact included the recording of inventory in
the amount of $3,000,000, a marketing agreement in the amount of
$7,500,000 and a technology license amounting to $1,000,000. The
marketing agreement and technology license are being amortized over a
five-year period. Annual amortization of $1,700,000 related to the
technology license and marketing agreement was recognized as other
expense in each of fiscal 1995, 1994 and 1993.
(5) Notes Payable and Revolving Credit Agreement
During fiscal 1993, the Company obtained an unsecured, revolving credit
agreement with a bank for borrowings of up to $10,000,000 bearing
interest at the prime rate plus one-half percent. The commitment fee
is 3/8 of 1% per year on the unused portion. The Company is required
to repay any borrowings under this revolving credit line on March 29,
1996. At August 31, 1995 and 1994, the Company had outstanding
borrowings under this agreement of $3,850,000 and $3,900,000.
- 30 -
F-13
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST_31,_1995
(Continued)
(5) Notes Payable and Revolving Credit Agreement - Continued
The Revolving Credit Agreement (loans) includes covenants requiring the
maintenance of minimum current ratio, ratio of liabilities to net
worth, cash flow coverage and quarterly profitability. Further, the
Agreement restricts the Company's ability to incur additional
indebtedness, provide guarantees, enter into certain leases or
sale/leaseback transactions, pledge or encumber certain assets, sell
additional common stock or pay dividends.
As of August 31, 1995, the Company was not in compliance with certain
of the covenants included in the Revolving Credit Agreement relating to
cash flows and profitability. The Company is negotiating with the bank
to receive a waiver for all instances of noncompliance. In conjunction
therewith, it is expected that the bank will obtain security,
consisting of the Company's assets.
The Company's debt consists of the following at August 31, 1995 and
1994:
1995 1994
Revolving Credit Agreement,
interest at prime plus one-
half percent (9.25% at
August 31, 1995 and 8.25%
at August 31, 1994) $3,850,000 $3,900,000
Obligations under capital leases ---------- $ 159,152
$3,850,000 $4,059,152
- 31 -
F-14
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(6) Commitments and Contingencies
At August 31, 1995, the Company had minimum rental commitments under
long-term, noncancelable operating leases for facilities and other
equipment as follows:
Due during Fiscal Year
1996 $ 821,839
1997 $ 813,912
1998 $ 417,923
1999 $ 381,924
2000-2003 $1,432,215
$3,867,813
Total rental expense, including the cost of short-term equipment
leases, real estate taxes and insurance paid to the landlord and
charged to operations approximated $1,733,000 in fiscal 1995,
$1,934,000 in 1994, and $1,668,000 in 1993.
During the second quarter of fiscal 1993, the Company settled all
outstanding disputes between the Company and Allen Myland, Inc. Since
the receipt of certain marketable securities was related to the
disputes, the $2,500,000 gain on the fiscal 1993 sales of these
securities has been partially offset by a provision recorded in 1993
for the settlement.
The Company is involved in certain legal proceedings arising in the
ordinary course of business. The Company believes that the outcome of
these proceedings will not have a material adverse effect on the
Company's financial condition.
(7) Stock Options and Warrants
At August 31, 1995, the Company had two stock option plans for officers
and certain employees under which 737,198 shares were reserved and
options for 299,690 shares were available for future grants. Options
are granted at not less than 85%, or in certain cases, not less than
100%, of the fair market value of the common stock on the date of
grant. Options have a term of five or ten years and become exercisable
in installments as determined by the Board of Directors.
- 32 -
F-15
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(7) Stock Options and Warrants - Continued
Stock option activity for the three years ended August 31, 1995 was as
follows:
Option Shares Number Option Price
Outstanding at August 31, 1992 590,866 $ .25 - $16.15
Granted 104,500 3.40 - 11.69
Exercised, cancelled or
expired (220,978) .25 - 10.20
Outstanding at August 31, 1993 474,388 .25 - 16.15
Granted 199,950 3.40 - 4.68
Exercised, cancelled or
expired ( 98,250) .29 - 16.15
Outstanding at August 31, 1994 576,088 .25 - 16.15
Granted 138,250 3.19 - 10.41
Exercised, cancelled or
expired (276,830) .27 - 16.15
Outstanding at August 31, 1995 437,508 .25 - 16.15
As of August 31, 1995 and 1994, options for 145,138 and 249,028 shares
were exercisable at aggregate option prices of $579,000 and $906,000,
respectively.
As of August 31, 1993, warrants to purchase 37,500 shares of common stock
at $0.38 per share were outstanding and an equal number of shares were
reserved for issuance. These warrants were exercised in fiscal 1994.
- 33 -
F-16
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(8) Incentive Bonus Plan and 401(k) Profit Sharing Retirement Plan
The Company has an incentive bonus plan under which certain key
employees as a group are entitled to receive additional compensation up
to a maximum of 15% of the Company's pre-tax income, as defined. The
provision for incentive bonus amounted to approximately $55,000,
$138,000, and $191,000 in fiscal years 1995, 1994 and 1993,
respectively.
On September 1, 1988, the Company established the Cambex Corporation
401(k) Profit Sharing Retirement Plan (the Plan). Under the Plan,
employees are allowed to make pre-tax retirement contributions. In
addition, the Company may provide matching contributions based on
pre-established rates as determined by the Board of Directors. The
Company provided approximately $400,000, and $500,000 in fiscal years
1994 and 1993, respectively, for matching contributions. In fiscal
1995, the Company recorded a net reversal of prior accruals of
approximately $200,000. The Company's fiscal 1995, 1994, and 1993
contributions are in the form of Cambex common stock.
The Company offers virtually no post-retirement benefits other than
those provided under the Plan.
(9) Employee Stock Purchase Plan
On December 20, 1993, the Company established the Cambex Corporation
Employee Stock Purchase Plan (the Plan), which was approved by the
shareholders. Under the Plan, employees may elect to have a specified
percentage of their wages withheld through payroll deduction and
purchase common stock shares at 85% of the lower of the fair market
value of Common Stock on the first or last trading day of each Purchase
Period. There are two (2) Purchase Periods each year - the first six
months and the last six months of each calendar year. During fiscal
1995, there were 94,440 shares issued under the Plan. At August 31,
1995, there were 62,650 shares reserved for issuance under the Plan.
- 34 -
F-17
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
(10) Decline in Value of IBM Trade-In Memory
During the third quarter of fiscal 1993, the Company was negatively
impacted by adverse business conditions in the IBM 3090 mainframe
market. The price erosion due to the mainframe industry slowdown
during that period had a significant impact on resale values of IBM
trade-in memory. During the fourth quarter of fiscal 1995, the Company
was negatively impacted by the decreasing demand and rapidly declining
prices in the ES/9000 mainframe memory market. Consequently, the
Company wrote down the value of its IBM 3090 trade-in memory by
$7,578,000 in fiscal 1993 and its ES/9000 trade-in memory by $4,647,000
in fiscal 1995, respectively, to levels that were expected to be
realized in light of the changes in market conditions. These charges
have been shown separately in the financial statements as "Decline in
Value of IBM Trade-In Memory."
- 35 -
</TABLE>
F-18
<PAGE>
<TABLE>
<S>
CAMBEX CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED AUGUST 31, 1995
<C> <C> <C> <C>
Additions
Charged To
Balance at (Recovered Balance
Beginning From) Writeoffs/ at End
of Year Income Deductions of Year
----------- ----------- ------------ -----------
YEAR ENDED AUGUST 31, 1993:
Reserve for doubtful accounts $ 464,000 $ (90,000) $ (50,000) $ 324,000
YEAR ENDED AUGUST 31, 1994:
Reserve for doubtful accounts $ 324,000 $ (150,000) $ (36,000) $ 138,000
YEAR ENDED AUGUST 31, 1995:
Reserve for doubtful accounts $ 138,000 $ - $ (3,000) $ 135,000
</TABLE>
F-19
-36-
<PAGE>
SIGNATURES
<TABLE>
<S> <C>
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CAMBEX CORPORATION
By: /s/Joseph F. Kruy
Joseph F. Kruy, President November 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated as of November 18, 1994.
By: /s/ Joseph F. Kruy
Joseph F. Kruy, Chairman of the Board, President and Director
(Principal Executive Officer)
By: /s/ Sheldon M. Schenkler
Sheldon M. Schenkler, Vice President of Finance
(Principal Financial and Accounting Officer)
By: /s/ Myron A. Angier
Myron A. Angier, Director
By: /s/ Philip C. Hankins
Philip C. Hankins, Director
By: /s/ C.V. Ramamoorthy
C. V. Ramamoorthy, Director
- 37 -
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (file Nos. 2-77667 and 33-18072).
Boston, Massachusetts
November 20, 1995
</TABLE>
- 38 -
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0
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