FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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 December 31, 1996
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
<PAGE>
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 March 27, 1997 was $10,256,577, 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
March 27, 1997: 9,080,683.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement filed not later than 120 days
after the fiscal year ended December 31, 1996 are incorporated by reference
into Items 11 and 12 of this report on Form 10-K.
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<PAGE>
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. Under the terms of a manufacturing agreement
entered into in July, 1996, the Company also manufactures and distributes frame
relay access devices developed by Jupiter Technology, Inc.
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 memory and cached high availability
RAID disk array products. The dollar amount spent by the Company during each of
its last three fiscal years on such activities was approximately $3,433,000
in 1996, $1,659,000 in the four months ended December 31, 1995 and
$6,345,000 and $6,417,000 in fiscal years ended August 31, 1995 and 1994.
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<PAGE>
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
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 and disk array 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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<PAGE>
Backlog
As of December 31, 1996, the dollar amount of the Company's firm backlog was
approximately $163,000. On the same date of the preceding year, the comparable
amount was approximately $267,000. 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 years ended
August 31, 1995 and August 31, 1994, and for the four month period ended
December 31, 1995. During fiscal 1996, sales to one customer accounted for 14%
of the Company's sales.
Employees
On March 27, 1997, the Company employed 67 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 subleases 8,000
square feet of this space to Jupiter Technology for a term ending
December 31, 1998. 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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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
On December 18, 1996, the Company announced that it has entered into an
agreement to acquire privately held Jupiter Technology, Inc., a supplier of
multiprotocol frame relay access devices (FRADs) and network integration
systems.
The acquisition will involve the issuance of Cambex common stock to Jupiter
Technology shareholders and is subject to approval by the shareholders of both
companies and the receipt of a fairness opinion from an independent investment
bank. Joseph F.Kruy, Chairman of Cambex, and members of his family are holders
of the controlling interest in Jupiter, and for this reason the transaction has
been negotiated and will be under the supervision of a committee of independent
Directors of Cambex chaired by Phillip C. Hankins.
Under terms of the acquisition, 9,000,000 shares of Cambex common stock will be
issued for shares of Jupiter Technology. The proxy statement soliciting the
approval of Cambex shareholders will contain detailed information about Jupiter
as well as information on the proforma effect of the merger.
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<PAGE>
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 March 27, 1997 was 708. The
high and low sales prices for the Company's stock for each quarter during the
years ended December 31, 1996 and August 31, 1995 are as follows:
1996 1995
High Low High Low
First Quarter 8-1/8 5-1/8 4-7/8 3-1/2
Second Quarter 7-1/8 5-3/8 4-1/2 3-3/8
Third Quarter 5-3/4 3 6-3/4 3-1/2
Fourth Quarter 3-7/8 1-11/16 13 6-1/8
The Company has not paid dividends on its common stock in the past and does not
expect to do so in the foreseeable future.
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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<PAGE>
Year Four Year Year Year Year
Ended Months Ended Ended Ended Ended
December December August August August August
1996 1995 1995 1994 1993 1992
(In thousands, except per share amounts)
Revenues $ 22,917 $8,509 $35,152 $40,549 $ 46,160 $52,083
Net income (loss)( 8,632) ( 2,855) ( 9,899) 590 ( 2,407) 9,847
Per share data:
Net income(loss) ( 0.96) ( 0.32) ( 1.14) 0.07 ( 0.28) 1.13
Weighted Average
Common and Common
Equivalent Shares
Outstanding 9,000 8,920 8,700 8,550 8,650 8,680
Total assets $ 13,033 $26,212 $32,027 $38,048 $ 36,119 $45,754
Long-term debt ------ ------- ------ 3,900 2,050 ------
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Fiscal 1996 as compared with Fiscal 1995
The year to year comparisons as they relate to the results of operations are
being made between the twelve months ended December 31, 1996 and the twelve
months ended August 31, 1995. The balance sheet comparisons are between
December 31, 1996 and December 31, 1995.
The Company's revenues decreased 35% to $22,900,000 in 1996 as compared to
$35,200,000 in 1995 due to lower mainframe memory and client/server product
revenues and the delay in the development of the cost-reduced Cascade expanded
disk array product. During 1995, there was an unprecedented slowdown and price
erosion in the ES/9000 mainframe computer market. This slowdown continued
throughout 1996 and the Company is unable to predict whether or when the market
will return to its former position. The Company was unable to gain significant
market share with its mainframe and client server disk storage products to
offset the slowdown.
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Gross profit decreased 53% to $5,600,000 (24% of revenues) in 1996 from
$11,700,000(33% of revenues),before the recognition of the decline in value of
IBM trade-in memory as described in the next section, in 1995. The decrease in
the gross profit percentage in 1996 is due to inventory write-downs and in-
crease in reserves approximating $3,000,000 in the aggregate, lower margins
on the Company's mainframe disk storage products and significantly lower
which volume prevented the full absorption of manufacturing overhead.
Operating expenses decreased 28% to $12,400,000 in 1996 from $17,200,000 in
1995 due principally to cost savings achieved through several expense control
actions. Research and development expenses decreased 46% due to completion of
major projects in 1995 in addition to the expense control actions.
Interest expense decreased to $244,000 in 1996 from $254,000 in 1995 due to
lower bank borrowings. Interest income decreased to $92,000 in 1996 from
$108,000 in 1995. Other expense included $1,842,000 in 1996 and $1,700,000 in
1995 in amortization expenses related to a technology acquisition.
The Company recorded a credit for income taxes in both 1996 and 1995. The
Company's prepaid tax asset is realizable through carrybacks against taxes paid
in prior years. The full amount of the prepaid taxes, as it related to the
United States portion, was received from the Internal Revenue Service subsequent
to the end of 1996.Total accounts receivable decreased to $1,900,000 in 1996
from $2,600,000 in 1995 due to lower revenues. Inventories decreased to
$6,200,000 in 1996 from $12,000,000 in 1995 due to decreased purchases,
significantly lower levels of IBM trade-in memory and an additional $3,000,000
in inventory writedowns and reserves in 1996. Property and equipment (net)
decreased to $1,000,000 in 1996 from $1,500,000 in 1995 since total purchases
amounted to $100,000 while depreciation and amortization was $600,000.
Four months ended December 31, 1995 as compared with four months ended
December 31, 1994.
Revenues for the four months ended December 31, 1995 decreased 26% from the
comparable four months of the prior year due principally to decreased sales of
the Company's STOR/9000 memory products for the IBM ES/9000 computers.
Operating expenses for the four months ended December 31, 1995 increased 6%
from the comparable four months of the prior year. Selling and general and
administrative expenses increased 16% due to expansion in Europe. Research and
development expenses decreased 12% due to completion of major projects in
fiscal 1995.
Other expense in the four months ended December 31, 1995 and December 31, 1994
included approximately $567,000 in amortization expenses relating to the
Company's technology license/marketing agreement.
Accounts receivable decreased due to a lower volume of sales.
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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.
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 $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.
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<PAGE>
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.
Inflation
The Company did not experience any material adverse effects in 1996, 1995 and
1994 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. As discussed more fully in Note 1 to the financial
statements, the Company has suffered recurring losses from operations that
raises substantial doubt about its ability to continue as a going concern. The
Company's management believes it has taken the appropriate corrective actions
to reduce expenses through consolidation of the workforce and to increase
revenue through new strategic alliances and selling products with improved
gross margins. The Company's cash and marketable securities were $616,000 and
$588,000 at December 31, 1996 and December 31, 1995, respectively.
Working capital was $3,160,000 at December 31, 1996 compared with $8,812,000
at December 31, 1995. During 1996, the Company expended $140,000 for capital
equipment to support its growth. During fiscal 1997, the Company expects to
acquire approximately $100,000 of capital equipment.
During 1993, the Company obtained a $10 million unsecured, revolving line of
bank credit, bearing interest at the prime rate plus one-half percent with a
commitment fee of 3/8 of 1% per year on the unused portion. The Company was
required to repay any borrowings under this revolving credit line on March 29,
1996.
During the second quarter of 1996, the Company agreed with its bank to extend
and modify its Revolving Credit Agreement. Under the terms of the Modification
Agreement, the outstanding balance at that time, $3,020,000 would be repaid,
after an initial payment of $320,000, over a period of twenty four (24) months
at $120,000 per month, with interest at the prime rate plus one percent. The
Company granted to its bank a security interest in the Company's accounts
receivable, inventory and general intangibles. In addition, the Company agreed
to apply its anticipated refund from the Internal Revenue Service of not less
than $1,900,000 to the outstanding balance upon receipt.
As of December 31, 1996, $1,800,000 remained outstanding under this Agreement.
Subsequent to the end of the year, the Company received its refund from the
Internal Revenue Service and repaid its bank in full and the agreement was
terminated. Consequently, the bank released its security interest in the
Company's accounts receivables, inventory and general intangibles.
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<PAGE>
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
1996 and 1995 are as follows:
Q1 Q2 Q3 Q4
(In thousands, except per share amounts)
December 31, 1996
Revenues $8,020 $7,124 $ 4,193 $ 3,580
Gross Profit (Loss) 3,538 3,789 1,604 ( 3,370)
Net Income (Loss) ( 988) 204 ( 1,919) ( 5,929)
Earnings (Loss)
Per Share ( 0.11) 0.02 ( 0.21) ( 0.96)
August 31, 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)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
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<PAGE>
PART III
Item 10. Director 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: 65 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: 65 Information Corporation (Information Processing).
C. V. Ramamoorthy Director since 1968. Professor of Electrical
Age: 70 Engineering and Computer Sciences, University of
California at Berkeley.
Robert Spain Director since 1995. President, CFC, Inc.
Age: 59 (Electronic Components Manufacturing)
Sheldon M. Schenkler Vice President of Finance and Chief Financial
Age: 45 Officer from April, 1988 to date; Treasurer from April,
1988 to June, 1991.
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<PAGE>
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 December 31, 1996. 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.
During the third quarter of 1996, the Company entered into a Manufacturing
Agreement with Jupiter Technology, Inc. ("Jupiter"), the majority of which is
owned by Joseph F. Kruy, Chairman and Chief Executive Officer of Cambex
Corporation, and his son, Peter Kruy. Under the terms of this Agreement, Cambex
agreed to manufacture, sell and deliver products exclusively to Jupiter. Cambex
agreed to purchase approximately $300,000 of Jupiter inventory from Jupiter and
paid Jupiter $100,000 towards that amount. During 1996, the Company shipped
and billed to Jupiter $298,000 for Jupiter products plus $43,000 for expenses
related to a sublease agreement. As of December 31, 1996, Cambex owes Jupiter
$256,000 for inventory purchases and Jupiter owes Cambex $341,000 for revenue
shipments plus expenses.
On December 18, 1996, the Company announced that it entered into an agreement
to acquire privately held Jupiter Technology, Inc., a supplier of multiprotocol
Frame Relay Access Devices (FRADs) and network integration systems.
The acquisition will involve the issuance of Cambex common stock to Jupiter
Technology shareholders and is subject to approval by the shareholders of both
companies and the receipt of a fairness opinion from an independent investment
bank. Joseph F. Kruy, Chairman of Cambex, and members of his family are holders
of the controlling interest in Jupiter, and for this reason the transaction has
been negotiated and will be under the supervision of a committee of independent
Directors of Cambex, chaired by Phillip C. Hankins.
Under terms of the acquisition, 9,000,000 shares of Cambex common stock will be
issued for shares of Jupiter Technology. The proxy statement soliciting the
approval of Cambex shareholders will contain detailed information about Jupiter
as well as information on the proforma effect of the merger.
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<PAGE>
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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<PAGE>
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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<PAGE>
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 - December 31, 1996 and 1995 F - 3
Consolidated Statements of Operations for the Years
Ended December 31, 1996, August 31, 1995 and
August 31, 1994 and for the Four Months Ended
December 31, 1995 F - 4
Consolidated Statements of Stockholders' Investment
for the Years Ended December 31, 1996,
August 31, 1995 and August 31, 1994 and for
the Four Months Ended December 31, 1995 F - 5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, August 31, 1995 F - 6
and August 31, 1994 and for the Four Months
Ended December 31, 1995
Notes to Consolidated Financial Statements F - 7
SUPPLEMENTARY SCHEDULE
FOR THE YEARS ENDED DECEMBER 31, 1996,
AUGUST 31, 1995 AND AUGUST 31, 1994 AND FOR THE
FOUR MONTHS ENDED DECEMBER 31, 1995
Schedule Number
II Valuation and Qualifying Accounts F-23
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
<PAGE>
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 December 31,
1996 and 1995, and the related consolidated statements of operations, stock-
holders' investment and cash flows for the years ended August 31, 1994, August
31, 1995, the four month period ended December 31, 1995 and the year ended
December 31, 1996. 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 December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended August 31, 1994, August
31, 1995, the four month period ended December 31, 1995 and the year ended
December 31, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
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
<PAGE>
Report of Independent Public Accounts
Page - 2 -
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 states, 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 LLP
Boston, Massachusetts
March 4, 1997
F-2
- 19 -
<PAGE>
<TABLE>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
ASSETS
<S> <C> 1996 1995
CURRENT ASSETS: ----------- ----------
Cash and cash equivalents $ 615,949 $ 588,322
Accounts receivable, less reserves of $131,000
in 1996 and $136,000 in 1995 1,934,708 2,628,778
Current portion of investment in sales-type
leases, net of unearned interest income of
$34,000 in 1996 and $31,000 in 1995 423,220 393,284
Inventories 6,200,033 12,030,324
Refundable income taxes 2,335,295 6,388,659
Prepaid expenses 135,721 178,991
------------ ------------
Total current assets $11,644,926 $22,208,358
------------ ------------
LONG-TERM INVESTMENT IN SALES-TYPE LEASES,
net of unearned interest income of $5,000
in 1996 and $19,000 in 1995 $ 162,971 $ 362,992
------------ ------------
LEASED EQUIPMENT, at cost, net of
accumulated depreciation of $244,000
in 1996 and $245,000 in 1995 $ 140,417 $ 300,174
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment $ 7,379,202 $ 7,257,673
Furniture and fixtures 304,666 303,428
Leasehold improvements 620,949 606,454
------------ ------------
$ 8,304,817 $ 8,167,555
Less- Accumulated depreciation and amortization 7,258,383 6,706,326
------------ ------------
$ 1,046,434 $ 1,461,229
------------ ------------
OTHER ASSETS
Technology License/Marketing Agreement,
net of accumulated amortization of $8,500,000
in 1996 and $6,658,000 in 1995 $ - $ 1,841,671
Other 37,830 37,875
------------ ------------
Total Assets $13,032,578 $26,212,299
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-20-
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<S> <C>
1996 1995
CURRENT LIABILITIES: ------------ ------------
Revolving Credit Agreement $ 1,800,000 $ 3,200,000
Accounts payable 4,329,638 4,538,852
Obligations for trade-in memory 1,036,235 1,939,657
Accrued expenses -
Payroll and related 839,945 1,193,775
Income and other taxes 176,991 2,277,317
Other 302,301 246,599
------------- ------------
Total current liabilities $ 8,485,110 $13,396,200
------------- ------------
DEFERRED REVENUE $ 1,022,751 $ 917,087
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- 10,614,139 shares in 1996 and
10,452,987 shares in 1995 1,061,414 1,045,299
Capital in excess of par value 15,792,105 15,446,004
Cumulative translation adjustment 183,355 287,763
Retained earnings (deficit) (12,657,391) (4,025,288)
Less - Cost of shares held in treasury--
1,534,356 shares in 1996 and 1995 (854,766) (854,766)
------------- ------------
Total Stockholders' Investment $ 3,524,717 $11,899,012
------------- ------------
Total Liabilities and Stockholders'
Investment $ 13,032,578 $26,212,299
============= ============
</TABLE>
F-3 -20-
<PAGE>
<TABLE>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<S> <C>
Four Months
Year Ended Ended Year Ended Year Ended
December 31, December 31, August 31, August 31,
1996 1995 1995 1994
----------- ---------- ------------ -----------
REVENUES
Sales $ 17,741,399 $ 5,913,934 $ 28,038,337 $33,041,745
Maintenance and operating leases 5,083,624 2,561,759 7,013,674 7,407,619
License fees 91,667 33,333 100,000 100,000
------------- ------------- ------------- -----------
Total revenues $ 22,916,690 $ 8,509,026 $ 35,152,011 $40,549,364
COST OF SALES 17,355,948 5,029,670 23,414,676 21,087,303
DECLINE IN VALUE OF IBM TRADE-IN MEMORY - - 4,647,499 -
------------ ------------- -------------- ------------
Gross profit $ 5,560,742 $ 3,479,356 $ 7,089,836 $19,462,061
------------- ------------- -------------- ------------
OPERATING EXPENSES:
Research and development $ 3,432,772 $ 1,659,480 $ 6,345,165 $ 6,417,053
Selling 6,839,807 3,156,471 8,242,981 7,794,597
General and administrative 2,146,060 916,718 2,606,476 2,685,990
------------ ------------- -------------- ------------
$ 12,418,639 $ 5,732,669 $ 17,194,622 $16,897,640
------------ ------------- -------------- ------------
OPERATING INCOME (LOSS) $ (6,857,897) $ (2,253,313) $ (10,104,786) $ 2,564,421
OTHER INCOME (EXPENSE):
Interest expense (243,694) (92,726) (253,747) (202,533)
Interest income 92,361 43,217 107,559 96,222
Other income (expense) (1,822,873) (549,103) (1,426,935) (1,426,057)
------------ ------------- -------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES $ (8,832,103) $ (2,851,925) $ (11,677,909) $ 1,032,053
Credit (Provision) for income taxes 200,000 (3,000) 1,779,000 (442,000)
------------- ------------- -------------- ------------
NET INCOME (LOSS) $ (8,632,103) $ (2,854,925) $ (9,898,909) $ 590,053
============= ============= ============== ============
NET INCOME (LOSS) PER COMMON SHARE $(0.96) $(0.32) $(1.14) $.07
===== ===== ===== ====
Weighted Average Common and
Common Equivalent Shares Outstanding 9,000,000 8,920,000 8,700,000 8,550,000
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
-21-
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<S> <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, 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)
ADD:
Net loss $ - $ - $ - $ (2,854,925) $ -
Exercise of employee stock options 3,080 224,706 - - -
401(k) Employer match 191 22,419 - - -
Tax benefits related to stock options - 36,899 - - -
Translation adjustment - - 40,149 - -
------------ ------------ --------- ------------- -------------
BALANCE AT DECEMBER 31, 1995 $ 1,045,299 $15,446,004 $ 287,763 $ (4,025,288) $ (854,7
66)
ADD:
Net loss $ - $ - $ - $ (8,632,103) $ -
Exercise of employee stock options 7,627 53,864 - - -
401(k) Employer match 3,482 100,990 - - -
Stock Purchase Plan Shares 5,006 191,247 - - -
Translation adjustment - - (104,408) - -
------------ ------------ --------- ------------- -------------
BALANCE AT DECEMBER 31, 1996 $ 1,061,414 $15,792,105 $ 183,355 $(12,657,391)$ (854,766)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
- 22 -
<PAGE>
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED FOUR MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, AUGUST 31,
1996 1995 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: ------------- ------------- ------------- -------------
Net income (loss) $ (8,632,103) $ (2,854,925) $ (9,898,909) $ 590,053
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation $ 658,191 $ 262,460 $ 879,659 $ 1,012,998
Amortization 1,841,671 566,668 1,700,004 1,700,004
Provision for losses on accounts receivable - - - (150,000)
Provision for losses on inventory 2,800,000 - 1,881,428 -
Amortization of prepaid expenses 14,074 9,383 23,135 25,934
Common stock/warrants issued in lieu of cash 104,472 22,610 206,810 225,117
Decline in value of IBM trade-in memory - - 4,647,499 -
Change in assets and liabilities:
Decrease (increase) in accounts receivable 694,070 2,516,198 1,708,257 (3,399,325)
Decrease (increase) in inventory 3,030,291 (462,252) (3,943,260) (1,087,588)
Decrease (increase) in investment in sales-ty 170,085 165,968 (41,722) 41,720
Decrease (increase) in prepaid taxes 4,053,364 116,370 (3,559,004) 1,517,880
Decrease (increase) in prepaid expenses 29,196 54,507 491,056 (695,406)
Decrease in other assets 45 20 63 64
Increase (decrease) in accounts payable (209,214) (1,094,333) 1,224,438 (138,500)
Increase (decrease) in obligations for trade- (903,422) (772,660) 2,050,250 (2,406,567)
Increase (decrease) in accrued liabilities (2,398,454) (363,533) (292,878) 1,980,316
Increase (decrease) in deferred revenue 105,664 (406,330) (107,894) (359,295)
------------- ------------ ------------- -------------
Total adjustments $ 9,990,033 $ 615,076 $ 6,867,841 $ (1,732,648)
------------- ------------- ------------- -------------
Net cash provided by (used in) operating ac$ 1,357,930 $ (2,239,849) $ (3,031,068) $ (1,142,595)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, net $ (83,639) $ (73,016) $ (645,444) $ (596,947)
------------- ------------- ------------- -------------
Net cash used in investing activities $ (83,639) $ (73,016) $ (645,444) $ (596,947)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable $ - $ - $ (159,152) $ (266,991)
Proceeds from sale of common stock 257,744 264,685 826,976 199,064
Net borrowings (repayments) under revolving (1,400,000) (650,000) (50,000) 1,850,000
------------- ------------- ------------- -------------
Net cash provided by (used in) financing act$ (1,142,256) $ (385,315) $ 617,824 $ 1,782,073
Effect of exchange rate changes on cash (104,408) 40,149 178,752 256,085
<PAGE>
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equival$ 27,627 $ (2,658,031) $ (2,879,936) $ 298,616
Cash and cash equivalents at beginning of year 588,322 3,246,353 6,126,289 5,827,673
------------- ------------- ------------- -------------
Cash and cash equivalents at end of year $ 615,949 $ 588,322 $ 3,246,353 $ 6,126,289
============= ============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for: Interest $ 269,364 $ 92,096 $ 241,491 $ 188,274
Income Taxes 13,613 19,947 34,941 55,123
Refunds received from the Internal Revenue Servic 2,189,984 144,630 - 1,234,495
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-23-
F-6
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(1) Liquidity
The Company has suffered recurring losses from operations that raises
substantial doubt about its ability to continue as a going concern. The
Company's management believes it has taken the appropriate corrective
actions to reduce expenses through consolidation of the workforce and to
increase revenue through new strategic alliances and selling products
with improved gross margins. These consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result should the company be
unable to continue as a going concern.
(2) 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 non-
cancelable term of the lease. The Company has deferred revenue
associated with the sale of certain products that have future perform-
ance 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.
- 24 -
F-7
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(2) Summary of Significant Accounting Policies - Continued
License fees are amortized over the useful life of the technologies
being licensed.
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:
December 31, December 31,
1996 1995
Raw materials $ 2,386,454 $ 2,600,433
Work-in-process 861,073 1,017,749
Finished goods 2,765,006 7,097,086
Trade-in memory 187,500 1,315,056
$ 6,200,033 $12,030,324
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.
- 25 -
F-8
<PAGE>
CAMBEX CORPORATOIN AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(2) Summary of Significant Accounting Policies - Continued
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.
On March 3, 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share". The new standard must be applied
beginning in 1998 and at that time will require restatement of
previously reported earnings per share. The new statement cannot be
applied early. The Company believes that the effect of applying the new
standards will not be material.
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.
Disclosures about the Fair Value of Finanical Instruments
The Company's financial instruments consist mainly of cash, cash
equivalents, accounts receivable, investment in sales-type leases,
property held for sale, accounts payable, notes payable, and a revolving
credit agreement. The carrying amounts of these financial instruments
approximate their fair value due to the short-term nature of these
instruments.
- 26 -
F-9
<PAGE>
CAMBEX CORPORATIONA ND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(2) Summary of Significant Accounting Policies - Continued
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities as of the date of
the financial statements, and the reported amounts of income and
expenses during the reporting periods. Actual results could differ from
those estimates.
Accounting for Impairment of Long-Lived Assets and for Long-Lives Assets
To Be Disposed Of
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of". SFAS
No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The statement also requires
that certain long-lived assets and identifiable intangibles to be
disposed of be reported at the lower of the carrying amount or fair
value less cost to sell. Based on its review, the Company does not
believe that any material impairment of its long-lived assets has
occurred. The Company's review was based on the assumption that the
Company continues as a going concern. The financial statements do not
include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result should the company be
unable to continue as a going concern.
Investment Securities
On January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This statement
addresses the accounting and reporting for all investments in debt
securities and for investments in equity securities that have readily
determinable fair values. When securities are purchased, they are
classified as securities held to maturity if it is management's intent
and ability to hold them until maturity. These securities are carried
- 27 -
F-10
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(2) Summary of Significant Accounting Policies - Continued
Investment Securities - Continued
at cost, adjusted for amortization of premiums and accretion of
discounts, both computed by the effective yield method. If it is
managements intent at the time of purchase not to hold the securities to
maturity, these securities are classified as securities available for
sale and are carried at market value with unrealized gains and losses
reported, net of the related tax effect, as a separate component of
stockholders' equity. When securities are sold, the adjusted cost of
the specific security sold is used to compute gain or loss on the sale.
The Company had no investment securities as of December 31, 1996.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to
continue to account for such plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25. Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of grant
over the exercise price of the stock (See Note 8).
(3) 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.
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 years
ended August 31, 1995 and 1994 or the four month period ended December
31, 1995. During 1996, one customer accounted for 14% of total
revenues. Foreign sales were 20% in 1996 and 17% in fiscal 1994 and less
than 10% of total revenues in fiscal 1995.
- 28 -
F-11
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANICAL STATEMENTS
December 31, 1996
(Continued)
(4) Income Taxes
In accordance with SFAS No. 109, "Accounting For Income Taxes", deferred
tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse.
The following table presents the components of income (loss) before
income taxes:
Four months
Year ended ended Year ended Year ended
December 31, December 31, August 31, August 31,
1996 1995 1995 1994
<TABLE>
<S> <C>
Domestic $(6,506,000) $(2,191,000) $( 8,552,000) $ 262,000
Foreign (2,326,000) ( 661,000) ( 3,126,000) 770,000
$(8,332,000) $(2,852,000) $(11,678,000) $1,032,000
</TABLE>
- 29 -
F-12
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(4) 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 the following periods:
Four months
Year ended ended Year ended Year ended
December December August August
1996 1995 1995 1994
Provision (credit) at
federal statutory rate $(3,003,000) $( 969,000) $(3,970,000) $ 351,000
State tax provision
(credit), net of federal
tax benefit ( 380,000) ( 143,000) ( 700,000) 43,000
Foreign and other losses
for which no benefits have
been recorded 853,000 155,000 973,000 147,000
Change in valuation
allowances 2,711,000 759,000 1,976,000 ( 250,000)
Other ( 381,000) 201,000 ( 58,000) ( 151,000)
$( 200,000) $ 3,000 $(1,779,000) 442,000
The 1996 and 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.
- 30 -
F-13
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(4) Income Taxes - Continued
Refundable income taxes as of December 31, 1996 and 1995 and August 31,
1995 consisted of approximately $2,335,000, $6,389,000 and $6,505,000 of
federal and foreign incomes 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 1996 and 1995 are as follows:
December December August
1996 1995 1995
Assets
Reserves not currently deductible
for tax purposes $ 1,186,000 $ 961,000 $ 1,290,000
State tax net operating loss
carryforward 1,223,000 844,000 700,000
Federal net operating loss
carryforward 2,965,000 813,000 - - -
Employee benefits 112,000 148,000 152,000
Other 75,000 112,000 166,000
Total deferred tax assets $ 5,561,000 $ 2,878,000 $ 2,308,000
Liabilities
Fixed asset basis difference $( 67,000) $( 95,000) $( 145,000)
Other ( 48,000) ( 48,000) ( 187,000)
Total deferred tax liabilities $( 115,000) $( 143,000) $( 332,000)
Net deferred tax asset $ 5,446,000 $ 2,735,000 $ 1,976,000
Valuation allowance (5,446,000) (2,735,000) (1,976,000)
Tax asset 0 0 0
Tax refunds receivable 2,335,000 6,389,000 6,505,000
Total tax asset $ 2,335,000 $ 6,389,000 $ 6,505,000
- 31 -
F-14
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(4) Income Taxes - Continued
Due to the uncertainty of the realizability of the deferred tax assets,
the Company has established a valuation allowance for the net deferred
tax assets.
(5) 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 agree-
ment and technology license were amortized over a five-year period,
ending December 31, 1996. Amortization of $1,700,000 related to the
technology license and marketing agreement was recognized as other
expense in fiscal 1995, $1,842,000 in 1996 and $567,000 for the four
months ended December 31, 1995.
(6) Revolving Credit Agreement
During 1993, the Company obtained a $10 million unsecured, revolving line
of bank credit, bearing interest at the prime rate plus one-half percent
with a commitment fee of 3/8 of 1% per year on the unused portion. The
Company was required to repay any borrowings under this revolving credit
line on March 29, 1996.
- 32 -
F-15
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(6) Revolving Credit Agreement - Continued
During the second quarter of 1996, the Company agreed with its bank to
extend and modify its Revolving Credit Agreement. Under the terms of the
Modification Agreement, the outstanding balance at that time, $3,020,000
would be repaid, after an initial payment of $320,000, over a period of
twenty four (24) months at $120,000 per month, with interest at the prime
rate plus one percent. The Company granted to its bank a security
interest in the Company's accounts receivable, inventory and general
intangibles. In addition, the Company agreed to apply its anticipated
refund from the Internal Revenue Service of not less than $1,900,000 to
the outstanding balance upon receipt.
As of December 31, 1996, $1,800,000 remained outstanding under this
Agreement. Subsequent to the end of the year, the Company received its
refund from the Internal Revenue Service and repaid its bank in full and
the agreement was terminated. Consequently, the bank released its
security interest in the Company's accounts receivables, inventory and
general intangibles.
The Company's debt consists of the following at December 31, 1996 and
1995:
1996 1995
Revolving Credit Agreement $1,800,000 $3,200,000
- 33 -
F-16
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(7) Commitments and Contingenices
At December 31, 1996, the Company had minimum rental commitments under
long-term, noncancelable operating leases for facilities and other
equipment as follows:
Due during Fiscal Year
1997 $ 705,915
1998 $ 381,924
1999 $ 381,924
2000 $ 381,924
2001-2003 $ 922,983
$2,774,670
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 $1,691,000 for the year ended December 31, 1996,
$436,000 for the four months ended December 31, 1995, $1,733,000 for the
year ended August 31, 1995, and $1,934,000 for the year ended August 31,
1994.
In the ordinary course of business, the Company is involved in legal
proceedings. The Company believes that the outcome of these proceedings
will not have a material adverse effect on the Company's financial
condition or results of operations.
(8) Stock Options and Warrants
At December 31, 1996, the Company had two stock option plans for officers
and certain employees under which 630,130 shares were reserved and
options for 261,310 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
outstanding have a term of ten years and become exercisable in
installments as determined by the Board of Directors. The plan's options
vest between one through six years and all expire between January 21,
1996 and November 11, 2006.
- 34 -
F-17
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(8) Stock Options and Warrants - Continued
Stock option activity for the three years and four months ended December
31, 1996 was as follows:
Option Shares Number Option Price
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
Granted 182,500 7.22 - 7.65
Exercised, cancelled or
expired (148,550) .92 - 11.69
Outstanding at December 31, 1995 471,458 .25 - 16.15
Granted 217,000 2.23 - 5.95
Exercised, cancelled or
expired (319,638) 3.19 - 11.69
Outstanding at December 31, 1996 368,820 .25 - 16.15
As of December 31, 1996 and 1995, options for 140,218 and 86,490 shares
were exercisable at aggregate option prices of $435,613 and $523,632,
respectively.
- 35 -
F-18
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(8) Stock Options and Warrants - Continued
Had compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's net loss and loss per share would have been
increased to the following pro forma amounts:
Four months
Year ended ended Year ended
December 31, December 31, August 31,
1996 1995 1995
Net Income (Loss): As Reported (000's) (8,632) (2,855) ( 9,899)
Pro Forma (9,456) (3,120) (10,280)
Primary EPS: As Reported ( .96) ( .32) ( 1.14)
Pro Forma ( 1.05) ( .35) ( 1.18)
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted
average assumptions and values for grants in the periods presented.
Four months
Year ended ended Year ended
December 31, December 31, August 31,
1996 1995 1995
Assumptions:
Risk free interest rate 6.35% 6.03% 6.58%
Expected dividend yield 0% 0% 0%
Expected life in years 10 10 10
Expected volatility 65.56% 65.56% 65.56%
Values:
Weighted average fair
value of options granted 4.35 7.22 8.95
Weighted average exercise price 4.58 7.64 9.40
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to September 1, 1994, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
- 36 -
F-19
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(9) 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 pro-
vision for incentive bonus amounted to approximately $35,000, $55,000,
and $138,000 in fiscal years 1996, 1995 and 1994, respectively and $5,000
for the four month period ended December 31, 1995.
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 in fiscal year 1994 for matching
contributions. In fiscal 1995, the Company recorded a net reversal of
prior accruals of approximately $200,000. The Company's contributions
have been in the form of Cambex common stock since fiscal 1994.
The Company offers no post-retirement benefits other than those provided
under the Plan.
(10) 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 1996 and fiscal
1995, there were 50,060 and 94,440 shares issued under the Plan,
respectively. At December 31, 1996, there were 212,590 shares reserved
for issuance under the Plan.
- 37 -
F-20
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(11) Decline in Value of IBM Trade-In Memory
During the year ended August 31, 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 ES/9000 trade-in memory by $4,647,000 in fiscal 1995 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."
(12) Related Party Transactions and Proposed Acquisition
During the third quarter of 1996, the Company entered into a
Manufacturing Agreement with Jupiter Technology, Inc. ("Jupiter"), the
majority of which is owned by Joseph F. Kruy, Chairman and Chief
Executive Officer of Cambex Corporation, and members of his family.
Jupiter is a supplier of multiprotocol frame relay access devices (FRADs)
and network integration systems. Under the terms of this Agreement,
Cambex agreed to manufacture, sell and deliver products exclusively to
Jupiter. Cambex agreed to purchase approximately $300,000 of Jupiter
inventory from Jupiter and paid Jupiter $100,000 towards that amount.
During 1996, the Company shipped and billed to Jupiter $298,000 for
Jupiter products plus $43,000 for expenses related to a sublease
agreement. As of December 31, 1996, Cambex owes Jupiter $256,000 for
inventory purchases and Jupiter owes Cambex $341,000 for revenue
shipments plus expenses.
On December 18, 1996, the Company announced that it has entered into an
agreement to acquire Jupiter.
The acquisition will involve the issuance of Cambex common stock to
Jupiter Technology shareholders and is subject to approval by the
shareholders of both companies and the receipt of a fairness opinion from
an independent investment bank. Since Joseph F. Kruy and members of his
family are holders of the controlling interest in Jupiter, the
transaction has been negotiated and will be under the supervision of a
committee of independent Directors of Cambex, chaired by Phillip C.
Hankins.
- 38 -
F-21
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(12) Related Party Transactions and Proposed Acquisition - Continued
Under terms of the acquisition, 9,000,000 shares of Cambex common stock
will be issued for shares of Jupiter Technology. The proxy statement
soliciting the approval of Cambex shareholders will contain detailed
information about Jupiter as well as information on the proforma effect
of the merger.
(13) Events (Unaudited) Subsequent to date of Report of Independent Public
Accountants
On March 7, 1997, the Company established the 1997 Stock Option Plan
(subject to stockholder approval). The 1997 Stock Option Plan provides
for the issuance of up to 1,000,000 shares in the aggregate and up to
300,000 shares to any one employee.
- 39 -
F-22
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Charged To
Balance at (Recovered Balance
Beginning From) Writeoffs/ at End
of Year Income Deductions of Year
---------- --------- ---------- --------
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
FOUR MONTHS ENDED DECEMBER 31, 1995:
Reserve for doubtful accounts $135,000 $ - $ 1,000 $ 136,000
YEAR ENDED DECEMBER 31, 1996:
Reserve for doubtful accounts $136,000 $ - $ (5,000) $ 131,000
-40-
F-23
<PAGE>
<PAGE>
SIGNATURES
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 March 27, 1997
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 March 27, 1997.
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/ Robert J. Spain
Robert J. Spain, Director
By: /s/ Philip C. Hankins
Philip C. Hankins, Director
By: /s/ C. V. Ramamoorthy
C. V. Ramamoorthy, Director
- 41 -
<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
March 28, 1997
- 42 -
[ARTICLE] 5
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[CASH] 616
[SECURITIES] 0
[RECEIVABLES] 2066
[ALLOWANCES] 131
[INVENTORY] 6200
[CURRENT-ASSETS] 11645
[PP&E] 8305
[DEPRECIATION] 7258
[TOTAL-ASSETS] 13033
[CURRENT-LIABILITIES] 8485
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 1061
[OTHER-SE] 2464
[TOTAL-LIABILITY-AND-EQUITY] 13033
[SALES] 22917
[TOTAL-REVENUES] 22917
[CGS] 17356
[TOTAL-COSTS] 17356
[OTHER-EXPENSES] 14149
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 244
[INCOME-PRETAX] (8832)
[INCOME-TAX] (200)
[INCOME-CONTINUING] (8632)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (8632)
[EPS-PRIMARY] (0.96)
[EPS-DILUTED] (0.96)
</TABLE>
