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
For the fiscal year ended December 31, 1997
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 02451
Waltham, Massachusetts (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: 781-890-6000
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
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
nonaffiliates of Cambex Corporation as of June 29, 1998
was $4,703,439, based on the closing price of the common stock on
that date.
The number of shares of Cambex Corporation's common
stock outstanding as of June 29, 1998: 9,337,909.
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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
open systems computer platforms.
Products
The Company offers direct access storage solutions. The products include
add-in memories including STOR/9000 memories for the IBM 9672 CMOS and
the ES/9000 Model 9021 mainframe computers, Cache memory for the IBM 3990
Model 3 and Model 6 and the IBM 9390 Disk Controllers, Mainframe or Enterprise
Server Disk Storage Products, Open Systems Disk Arrays, and the Centurion
Storage Manager. The products are priced for under $10,000 to approximately
$500,000. 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 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 $2,322,000 in 1997, $3,433,000 in 1996, $1,659,000 in the
four months ended December 31, 1995 and $6,345,000 in fiscal year ended
August 31, 1995.
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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 direct access 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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Backlog
As of December 31, 1997, the dollar amount of the Company's firm backlog was
approximately $144,000. On the same date of the preceding year, the comparable
amount was approximately $163,000. 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
December 31, 1997 and August 31, 1995, 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 June 29, 1998, the Company employed 36 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 for a term ending December 31, 1998. On January 16,
1998, the Company entered into a sublease agreement with a third party pursuant
to which the Company sublet approximately 20,000 square feet in its Waltham,
Massachusetts facility (which is approximately 30% of the Company's total
leased space). The term of the sublease is coterminous with the primary lease
and expires on May 31, 2003. The Company also leases additional sales and
support offices throughout the United States and Europe.
Item 3. Legal Proceedings
The Company filed a voluntary petition for relief under Chapter 11 of the
bankruptcy code on October 10, 1997 with the United States Bankruptcy Court
(the "Court") in Boston, Massachusetts. The Company filed a reorganization
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plan (the "Plan") with the Court on February 9, 1998 and filed a Disclosure
Statement and amended the Plan on March 17, 1998.
The Court approved the Disclosure Statement on March 17, 1998 as containing
information of a kind and in sufficient detail adequate to enable the holders
of claims against the Company to make an informed decision with respect to
acceptance or rejection of the Plan.
On April 23, 1998, following the unanimous approval of the Plan by the
Company's unsecured creditors, the Court confirmed the Company's Plan and the
Company emerged from Chapter 11. Under the terms of the Plan, creditors will
receive a full payout over the next 36 months either in the form of all cash
or a combination of 80% cash and two shares of common stock for each dollar
of the remaining 20% of their claims. The maximum number of new shares to be
issued under the Plan is approximately 550,000.
Subsequent to confirmation of the Plan, the Company paid approximately $300,000
of pre-petition debt and $400,000 in legal and professional fees.
The remaining balance of unsecured debt of approximately $4,300,000 will be
paid over a thirty month period commencing in October, 1998.
The Company incurred approximately $400,000 in legal and professional expenses
relative to its Chapter 11 proceeding, of which approximately $200,000 was
accrued as of December 31, 1997.
The Company is involved in certain legal proceedings arising in the ordinary
course of business, including those relating to prepetition creditor claims.
The Company believes that the outcome of these proceedings will not have a
material adverse effect on the Company's financial condition.
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 over the counter. The approximate number
of shareholders of record at June 29, 1998 was 626. The high and low sales
prices for the Company's stock for each quarter during the years ended December
31, 1997 and December 31, 1996 are as follows:
1997 1996
High Low High Low
First Quarter 1.94 1.31 8.13 5.13
Second Quarter 1.56 0.97 7.13 5.38
Third Quarter 1.56 0.41 5.75 3.00
Fourth Quarter 0.41 0.13 3.88 1.69
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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Year Year Four Year Year Year
Ended Ended Months Ended Ended Ended
December December December August August August
1997 1996 1995 1995 1994 1993
(In thousands, except per share amounts)
Revenues $ 10,066 $ 22,917 $ 8,509 $35,152 $40,549 $46,160
Net income(loss) ( 6,597) ( 8,632) (2,855) (9,899) 590 ( 2,407)
Per share data:
Net income(loss) ( 0.72) ( 0.96) ( 0.32) ( 1.14) 0.07 ( 0.28)
Weighted Average
Common and Common
Equivalent Shares
Outstanding 9,100 9,000 8,920 8,700 8,550 8,650
Total assets $ 3,928 $ 13,033 $26,212 $32,027 $38,048 $36,119
Long-term debt ----- ------ ------ ------ 3,900 2,050
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Fiscal 1997 as compared with Fiscal 1996
The Company's revenues were $10,066,000 and $22,917,000 in 1997 and 1996,
respectively. The Company's revenues for the mainframe memory products for the
IBM ES/9021 declined significantly in 1997. Historically, the Company's
mainframe revenues have been cyclical, dependent on the technological changes
initiated by IBM. During 1997, IBM introduced a new CMOS mainframe processor,
and as a result, customers reduced their purchases of incremental memory for
the ES/9021 machines. The demand for additional memory usually lags the
introduction of new generations of mainframes by twelve to eighteen months, but
the Company is unable to predict whether or when the market will return to its
former position. The Company had planned to balance the decline in mainframe
memory revenues by selling mainframe and client/server disk storage products.
Initial shipments of the Company's mainframe disk storage product (Cascade)
experienced operating problems, which required additional time to resolve.
These problems were corrected by the end of 1997.
The Company has reduced its general level of expenses since 1994 as a result of
decreasing annual revenues. The total number of employees has decreased each
year. These staff reductions have impacted all functional areas and should be
considered when analyzing comparative financial statements.
8
Cost of sales as a percentage of revenues was 94% and 75% in 1997 and 1996,
respectively. The major reason for the increased cost of sales is the decrease
in total revenues and the resulting effect of fixed overhead costs. Inventory
write-downs in 1997 and 1996 were approximately $2,700,000 and $3,000,000,
respectively. Their effect on the cost of sales percentage was 28% and 13% in
1997 and 1996, respectively.
Research and development expenses represented 23% ($2,322,000) and 15%
($3,433,000) in 1997 and 1996, respectively. The reduction in total expenses is
due mainly to reduced staffing. Sales and general and administrative expenses
were $4,489,000 and $8,986,000 in 1997 and 1996, respectively. The reduction in
expenses is due primarily to lower staffing levels.
The Company recognized a net expense of $1,823,000 in 1996, which was entirely
due to amortization of a technology license and marketing agreement that was
acquired in 1992. The amortization was over a five year period, ending in 1996.
The Company recognized a net expense of $295,000 in 1997, of which
approximately $200,000 relates to accrued professional services in conjunction
with the Chapter 11 services. The Company recorded $244,000 in interest expense
in 1996, which was related to a revolving credit agreement with a bank. The
entire balance of the outstanding loan was repaid in February 1997.
The Company recorded no income tax provision or credit in 1997 and a net credit
of $200,000 in1996.
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. The Company was unable to gain significant market share with
its mainframe and client server disk storage products to offset the slowdown.
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
increase in reserves approximating $3,000,000 in the aggregate, lower margins
on the Company's mainframe disk storage products and significantly lower volume
which prevented the full absorption of manufacturing overhead.
9
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.
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. In February 1997, 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.
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.
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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.
Inflation
The Company did not experience any material adverse effects
in 1997, 1996 and 1995 due to general inflation.
Liquidity and Capital Resources
As discussed more fully in Note 1 to the financial statements, the Company
has suffered recurring losses from operations. Consequently, the Company's
ability to continue as a going concern is dependent upon several factors,
including the Company's ability to raise additional capital. The additional
financing will be used to pay certain expenses, fees and prepetition
administrative claims relative to consummation of the Plan and then to
fund continuing operations of the Company, particularly in development,
sales and marketing.
On June 1, 1998, the Company raised approximately $1,060,000, including
approximately $460,000 from Joseph F. Kruy, Chairman, President and Chief
Executive Officer of the Company, in cash from the issuance of 10% Secured
Subordinated Convertible Promissory Notes (the "Notes"). Under the terms of
the Notes, which are due on April 30, 2003, the holders may convert the notes
into shares of common stock at a conversion price of $0.22 per share.
In addition to the Note, each holder was issued a Stock Purchase Warrant (the
"Warrant"), the exercise of which will allow the warrant holder to purchase one
share of common stock, at $0.50 per share, for each dollar invested through the
issuance of the Notes.
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. There are no assurances that such actions will
increase revenues.
The Company's cash and marketable securities were $476,000 and $616,000 at
December 31, 1997 and December 31, 1996, respectively. Working capital was
$2,512,000 at December 31, 1997 compared to $3,160,000 at December 31, 1996.
During 1997, the Company expended $22,000 for capital equipment to support its
growth. During fiscal 1998, the Company expects to acquire less than $100,000
of capital equipment.
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Year 2000
The Company has evaluated the impact of changes necessary to achieve a year
2000 date conversion. Software failures due to processing errors arising from
calculations using the year 2000 date are a known risk. Major areas of
potential impact have been identified and it is management's opinion that the
software currently in use, or that which will be in use at the time is year
2000 compliant. Therefore, the Company does not expect a material impact on
future resultsdue to conversion or noncompliance.
Forward-Looking Statements
The statements contained in "Manangement Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere throughout this Annual
Report on Form 10-K that are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those reflected in the forward-looking
statements. These forward-looking statements reflect management's analysis,
judgement, belief or expectation only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof or to publicly
release the results of any revisions to such forward-looking statements that
may be made to reflect events or circumstances after the date hereof. In
addition to the disclosure contained herein, readers should carefully review
any disclosure of risks and uncertainties contained in other documents the
Company files or has filed from time to time with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934.
Item 8. Financial Statements and Supplememtary Data
See financial statements, beginning at page F-2, incorporated by
reference.
Unaudited quarterly financial data pertaining to the results of operations for
1997 and 1996 are as follows:
Q1 Q2 Q3 Q4
(in thousands, except per share amounts)
December 31, 1997
Revenues $ 3,027 $ 4,376 $ 1,225 $ 1,438
Gross Profit (Loss) 1,179 1,525 130 (2,269)
Net Income (Loss) (1,212) ( 583) (1,684) (3,118)
Earnings (Loss)
Per Share ( 0.13) ( 0.06) ( 0.18) ( 0.35)
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) ( 0.66)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers of the Company are as follows:
Name Positions and Offices with the Company;
Business Experience During Last Five Years
Joseph F. Kruy President and a Director from incorporation in
Age: 66 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
and August, 1997 to date.
Philip C. Hankins Director since 1979. President, Charter
Age: 66 Information Corporation (Informatio Processing).
Robert Spain Director since 1995. President CFC, Inc.
Age: 60 (Electronic Components Manufacturing).
Sheldon M. Schenkler Vice President of Finance and Chief Financial
Age: 47 Officer from April, 1988 to date; Treasurer from
April, 1988 to June, 1991.
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Item 11. Executive Compensation.
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the other executive officers of the Company
(determined as of the end of the last fiscal year) for the fiscal years ended
December 31, 1997, December 31, 1996, and August 31, 1995.
Summary Compensation Table
Annual Compensation
Commissions
Salary Salary and Incentive
Name and Position Year Paid Deferred(1) Bonuses
Joseph F. Kruy 1997 $136,270 $63,730 $ -
Chairman, President and CEO 1996 $200,000 $ - $ -
1995 $195,385 $ - $8,962
Sheldon M. Schenkler 1997 $ 96,091 $13,909 $ -
Vice President of Finance and 1996 $110,000 $ - $ -
Chief Financial Officer 1995 $110,000 $ - $ -
Long Term Compensation Awards
All Other
Name and Position Year Option(#) Compensation(2)
Joseph F. Kruy 1997 - $ -
Chairman, President and CEO 1996 - $3,854
1995 - $2,250
Sheldon M. Schenkler 1997 - $ -
Vice President of Finance and 1996 10,000 $3,237
Chief Financial Officer 1995 - $1,832
(1) Salary deferred is a prepetition obligation of the Company and will be paid
as an unsecured claim pursuant to the Plan and to the extent applicable, a
portion was treated as a priority claim. Under the terms of the
Reorganization Plan, Mr. Kruy was entitled to receive the salary deferral
as an executory contract. Rather than receive the deferral in cash, the
entire amount was incorporated into Mr. Kruy's loan to the Company in
exchange for a 10% secured subordinated promissory note.
(2) Company contribution in Company Common Stock on officer's behalf to the
Company's 401(K) Plan.
Directors who are not employed by the Company receive an annual fee
of $10,000 and a fee of $1,000 for each meeting of the Board attended.
14
Stock Options
No options were granted to or exercised by the executive
officers named in the Summary Compensation Table.
Aggregate Fiscal Year End Option Value
Number of Options Value of Unexercised In-the-money
at December 31, 1997 Options at December31, 1997(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
Joseph F. Kruy - -
Sheldon M. Schenkler 31,100/9,000 -/-
(1) The closing price of the Company's Common Stock on December 31, 1997 was
$0.14. The numbers shown reflect the value of options accumulated over all
years of employment.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is presently comprised of the Board
of Directors. Mr. Kruy, the Company Chairman of the
Board of Directors, President and CEO, participates as a
member of the Board in compensation decisions, excluding
decisions regarding his own compensation.
Employment Contracts and Termination Agreements
Mr. Kruy is employed under an agreement which provides for
his full-time employment as Chairman of the Board of
Directors, President and Chief Executive Officer of the
Company until December 31, 1998. Pursuant to an employment
agreement dated November 18, 1994, the Company has agreed to
pay Mr. Kruy minimum base compensation of $200,000 per year
and an incentive bonus pursuant to the Company's Incentive
Bonus Plan in an amount equal to 4% of the Company's pre-tax
profit, as defined, beginning in fiscal 1995 for each fiscal
year during the term of the agreement. If another person is
given either the title or the powers of the Chief Executive
Officer, Mr. Kruy will be entitled to resign and continue to be
paid his fixed and incentive compensation, subject to
mitigation, through December 31, 1998.
Report on Executive Compensation
The Company has designed its compensation program to
compensate employees, including its executives, in a
consistent manner to promote a cooperative effort toward
common goals of quality performance. Compensation is set at
levels which the Company believes will attract, motivate,
and retain employees who can achieve these goals.
Compensation for the Company's executive officers consists of
base salary, bonus and stock options. Base salaries and stock
options are approved by the
15
Compensation Committee presently comprised of the Board of
Directors based upon a review of the responsibilities of
the officer as well as a review of the base salaries and stock
options of similar positions in other high technology
companies of comparable revenues.
The Company believes that a substantial portion of an
employee's compensation should be based on the performance of
the Company. Therefore, the Company has an Incentive Bonus Plan
which provides for annual cash bonuses to certain key
employees of the Company based on the Company's operating
results for the year up to an aggregate maximum of 15% of the
Company's pre-tax income. As of December 31, 1997,
approximately 10 employees were eligible to participate in
this plan. Of the executive officers, Messrs. Kruy and
Schenkler were participants in this plan in 1997. The amount of
each individual bonus is determined at the discretion of the
Board of Directors.
The Company also has the Cambex Corporation Employee
Stock Purchase Plan which is an equity purchase plan designed to
attract and retain employees who can make significant
contributions to the success of the Company.
BOARD OF DIRECTORS
Joseph F. Kruy
Philip C. Hankins
C.V. Ramamoorthy
Robert J. Spain
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(#)Shares of Common
Stock Beneficially Owned
Name as of December 31, 1997 Percent of Class
Joseph F. Kruy 1,404,940(1) 15.43%
Philip C. Hankins 106,358 1.17%
C.V. Ramamoorthy 99,156 1.09%
Robert Spain - -
Sheldon M. Schenkler 10,900(2) 0.11%
All directors and
executive officers
as a group (5 persons) 1,621,354(3) 17.80%
(1) Includes 56,250 shares owned by Mr. Kruy as co-trustee for his wife and
children. Excludes 960,194 shares held by CyberFin Corporation, which is
owned by Mr. Kruy's son. Mr. Kruy disclaims any beneficial interest in
such shares.
(2) Excludes 31,100 shares as to which options are exercisable currently or
within 60 days, of which none are in-the-money options.
(3) Directors and officers have shared investment power with respect to 56,250
shares and sole voting power with respect to 1,565,104 shares.
16
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. During 1997, the Company
shipped and billed to Jupiter $174,000 for Jupiter products plus $118,000
for expenses related to a sublease agreement. As of December 31, 1997,
Cambex owed Jupiter $267,000 for inventory purchases and Jupiter owed Cambex
$504,000 for revenue shipments plus expenses. In January, 1998, substantially
all of the assets of Jupiter Technology were purchased by an
unrelated third party. In March, 1998, Jupiter paid the
Company $230,000, which represented the net amount due the Company.
On June 1, 1998, the Company raised approximately
$1,060,000, including approximately $460,000 from Joseph F.
Kruy, Chairman, President and Chief Executive Officer of the
Company, in cash from the issuance of 10%"Warrant"), the
exercise of which will allow the warrant holder to purchase one
share of common stock, at $0.50 per share, for each dollar
invested through the issuance of the Notes.
- 17 -
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.
- 18 -
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).
- 19 -
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).
10.11 Cambex Corporation Reorganization Plan (incorporated herein by
reference to Exhibit 10.11 to Form 8-K for April 23, 1998).
23. Consent of Independent Public Accountants.
- 20 -
CAMBEX CORPORATION AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
(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, 1997 and 1996 F - 3
Consolidated Statements of Operations for the Years
Ended December 31, 1997, December 31, 1996 and
August 31, 1995 and for the Four Months Ended
December 31, 1995 F - 4
Consolidated Statements of Stockholders' Investment
for the Years Ended December 31, 1997,
December 31, 1996 and August 31, 1995 and for
the Four Months Ended December 31, 1995 F - 5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, December 31, 1996
and August 31, 1995 and for the Four Months
Ended December 31, 1995 F - 6
Notes to Consolidated Financial Statements F - 7
SUPPLEMENTARY SCHEDULE
FOR THE YEARS ENDED DECEMBER 31, 1997,
DECEMBER 31, 1996 AND AUGUST 31, 1995 AND FOR THE
FOUR MONTHS ENDED DECEMBER 31, 1995
Schedule Number
II Valuation and Qualifying Accounts F - 24
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.
- 21 -
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders of Cambex Corporation:
We have audited the accompanying consolidated balance sheets of Cambex
Corporation (Debtor-In-Possession) (a Massachusetts corporation) and
subsidiaries as of December 31, 1997, and the related consolidated statements
of operations, stockholders' investment and cash flows for the year then
ended. 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 audit. The financial
statements of Cambex Corporation and subsidiaries as of December 31, 1996
and 1995 and August 31, 1995 were audited by other auditors whose report dated
March 4, 1997, on those statements included an explanatory paragraph
describing conditions that raised substantial doubt about the Company's ability
to continue as a going concern discussed in Note 1 to the financial statements.
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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of Cambex Corporation and
subsidiaries as of December 31, 1997 and the results of their operations
and their cash flows for the year then ended 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 audit was 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
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 audit 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.
BELANGER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Chelmsford, Massachusetts
June 15, 1998
F-2
22
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 and 1996
ASSETS
1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 476,246 $ 615,949
Accounts receivable, less reserves of $131,000
in 1997 and $131,000 in 1996 1,200,343 1,934,708
Current portion of investment in sales-type
leases, net of unearned interest income of
$4,000 in 1997 and $34,000 in 1996 59,299 423,220
Inventories 1,412,925 6,200,033
Refundable income taxes - 2,335,295
Prepaid expenses 121,183 135,721
Total current assets $3,269,996 $ 11,644,926
LONG-TERM INVESTMENT IN SALES-TYPE LEASES,
net of unearned interest income of $1,000
in 1997 and $5,000 in 1996 $ 25,820 $ 162,971
LEASED EQUIPMENT, at cost, net of
accumulated depreciation of $183,000
in 1997 and $244,000 in 1996 $ 37,886 $ 140,417
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment $3,036,699 $ 7,379,202
Furniture and fixtures 247,173 304,666
Leasehold improvements 620,949 620,949
$3,904,821 $ 8,304,817
Less- Accumulated depreciation and amortization 3,347,941 7,258,383
$ 556,880 $ 1,046,434
OTHER ASSETS
Technology License/Marketing Agreement,
net of accumulated amortization of $8,500,000
in 1997 and $8,500,000 in 1996 $ - $ -
Other 37,830 37,830
Total Assets $3,928,412 $ 13,032,578
========== ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-23-
F-3
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' INVESTMENT
1997 1996
LIABILITIES NOT SUBJECT TO COMPROMISE:
CURRENT LIABILITIES:
Revolving Credit Agreement $ - $ 1,800,000
Accounts payable 296,419 4,329,638
Obligations for trade-in memory - 1,036,235
Accrued expenses -
Payroll and related 96,713 839,945
Income and other taxes 12,143 176,991
Other 352,869 302,301
Total current liabilities $ 758,144 $ 8,485,110
DEFERRED REVENUE $ 15,478 $ 1,022,751
LIABILITIES SUBJECT TO COMPROMISE -
Accounts payable and accrued expenses $ 6,325,273 $ -
Total Liabilities $ 7,098,895 $ 9,507,861
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- 10,636,108 shares in 1997 and
10,614,139 shares in 1996 1,063,611 1,061,414
Capital in excess of par value 15,814,783 15,792,105
Cumulative translation adjustment 60,756 183,355
Retained earnings (deficit) (19,254,867) (12,657,391)
Less - Cost of shares held in treasury--
1,534,356 shares in 1997 and 1996 (854,766) (854,766)
Total Stockholders' Investment $(3,170,483) $ 3,524,717
Total Liabilities and Stockholders'
Investment $ 3,928,412 $ 13,032,578
</TABLE>
F-3 23
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
1997 1996 1995 1995
REVENUES
Sales $ 6,667,693 $17,741,399 $ 5,913,934 $ 28,038,337
Maintenance and operating leases 3,398,699 5,083,624 2,561,759 7,013,674
License fees - 91,667 33,333 100,000
Total revenues $10,066,392 $22,916,690 $ 8,509,026 $ 35,152,011
COST OF SALES 9,501,543 17,355,948 5,029,670 23,414,676
DECLINE IN VALUE OF IBM TRADE-IN MEMORY - - - 4,647,499
Gross profit $ 564,849 $ 5,560,742 $ 3,479,356 $ 7,089,836 - -
OPERATING EXPENSES:
Research and development $ 2,321,925 $ 3,432,772 $ 1,659,480 $ 6,345,165
Selling 3,193,271 6,839,807 3,156,471 8,242,981
General and administrative 1,295,465 2,146,060 916,718 2,606,476
$ 6,810,661 $12,418,639 $ 5,732,669 $ 17,194,622
OPERATING INCOME (LOSS) $(6,245,812) $(6,857,897) $(2,253,313) $(10,104,786)
OTHER INCOME (EXPENSE):
Interest expense (74,477) (243,694) (92,726) (253,747)
Interest income 17,674 92,361 43,217 107,559
Other income (expense) (84,861) (1,822,873) (549,103) (1,426,935)
INCOME (LOSS) BEFORE REORGANIZATION
ITEMS AND INCOME TAXES $(6,387,476) $(8,832,103) $(2,851,925) $(11,677,909)
Reorganization professional fees (210,000) - - -
INCOME (LOSS) BEFORE INCOME TAXES $(6,597,476) $(8,832,103) $(2,851,925) $(11,677,909)
Credit (Provision) for income taxes - 200,000 (3,000) 1,779,000
NET INCOME (LOSS) $(6,597,476) $(8,632,103) $(2,854,925) $ (9,898,909)
NET INCOME (LOSS) PER COMMON SHARE $(0.72) $(0.96) $(0.32) $(1.14)
Weighted Average Common and
Common Equivalent Shares Outstanding 9,100,000 9,000,000 8,920,000 8,700,000
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4 -24-
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
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, 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) $ (854,766)
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)
ADD:
Net loss $ - $ - $ - $ (6,597,476) $ -
Exercise of employee stock options 90 135 - - -
Stock Purchase Plan Shares 2,107 22,543 - - -
Translation adjustment - - (122,599) - -
BALANCE AT DECEMBER 31, 1997 $ 1,063,611 $15,814,783 $ 60,756 $(19,254,867) $ (854,766)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-25-
F-5
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED YEAR ENDED FOUR MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (6,597,476) $ (8,632,103) $ (2,854,925) $ (9,898,909)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation $ 569,207 $ 658,191 $ 262,460 $ 879,659
Amortization - 1,841,671 566,668 1,700,004
Provision for losses on accounts receivable - - - -
Provision for losses on inventory 2,300,000 2,800,000 - 1,881,428
Amortization of prepaid expenses 28,990 14,074 9,383 23,135
Common stock/warrants issued in lieu of cash - 104,472 22,610 206,810
Decline in value of IBM trade-in memory - - - 4,647,499
Change in assets and liabilities:
Decrease (increase) in accounts receivable 734,365 694,070 2,516,198 1,708,257
Decrease (increase) in inventory 2,487,108 3,030,291 (462,252) (3,943,260)
Decrease (increase) in investment in sales-type leases 501,072 170,085 165,968 (41,722)
Decrease (increase) in prepaid taxes 2,335,295 4,053,364 116,370 (3,559,004)
Decrease (increase) in prepaid expenses (14,452) 29,196 54,507 491,056
Decrease in other assets - 45 20 63
Increase (decrease) in accounts payable (4,033,219) (209,214) (1,094,333) 1,224,438
Increase (decrease) in obligations for trade-in memory (1,036,235) (903,422) (772,660) 2,050,250
Increase (decrease) in accrued liabilities (857,512) (2,398,454) (363,533) (292,878)
Increase (decrease) in deferred revenue (1,007,273) 105,664 (406,330) (107,894)
Increase in liabilities subject to compromise 6,325,273 - - -
Total adjustments $ 8,332,619 $ 9,990,033 $ 615,076 $ 6,867,841
Net cash provided by (used in) operating activities $ 1,735,143 $ 1,357,930 $ (2,239,849) $(3,031,068)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, net $ 22,878 $ (83,639) $ (73,016) $ (645,444)
Net cash used in investing activities $ 22,878 $ (83,639) $ (73,016) $ (645,444)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable $ - $ - $ - $ (159,152)
Proceeds from sale of common stock 24,875 257,744 264,685 826,976
Net borrowings (repayments) under revolving credit agreement (1,800,000) (1,400,000) (650,000) (50,000)
Net cash provided by (used in) financing activities $(1,775,125) $(1,142,256) $ (385,315) $ 617,824
Effect of exchange rate changes on cash (122,599) (104,408) 40,149 178,752
Net increase (decrease) in cash and cash equivalents $ (139,703) $ 27,627 $ (2,658,031) $(2,879,936)
Cash and cash equivalents at beginning of year 615,949 588,322 3,246,353 6,126,289
Cash and cash equivalents at end of year $ 476,246 $ 615,949 $ 588,322 $ 3,246,353
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for: Interest $ 43,477 $ 269,364 $ 92,096 $ 241,491
Income Taxes - 13,613 19,947 34,941
Refunds received from the Internal Revenue Service 2,335,295 2,189,984 144,630 -
Reorganization professional fees 210,000 - - -
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-26-
F-6
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(1) Liquidity
The Company filed a voluntary petition for relief under
Chapter 11 of the bankruptcy code on October 10, 1997 with
the United States Bankruptcy Court in Boston, Massachusetts.
The Company filed a reorganization plan which was confirmed
by the Court in April, 1998. Subsequently, the Company emerged
from Chapter 11 on April 23, 1998. As described in the Company's
Plan, the success of the Plan is dependent upon several
factors, including the Company's ability to raise additional
capital. The additional financing will be used to pay
certain expenses, fees and pre-petition administrative claims
relative to consummation of the Plan and then to fund
continuing operations of the Company, particularly in
development, sales and marketing. As further described in
Note 13, the Company raised $1,060,000 in cash from the
issuance of 10% Subordinated Convertible Promissory Notes, of
which $700,000 was used to pay pre-petition debt and legal
and professional fees.
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 net cash received.
When the memory is subsequently sold, the amount received 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
- 27 -
F-7
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(2) Summary of Significant Accounting Policies - Continued
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.
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,
1997 1996
Raw materials $ 987,920 $2,386,454
Work-in-process 255,377 861,073
Finished goods 169,628 2,765,006
Trade-in memory - 187,500
$ 1,412,925 $6,200,033
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.
- 28 -
F-8
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(2) Summary of Significant Accounting Policies - Continued
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.
Depreciation expense of $614,161, $658,191, $262,460, and
$879,659 was recorded for the periods ended December 31,
1997, December 31, 1996, December 31, 1995 and August 31,
1995, respectively.
Net Income (Loss) Per Common Share
On January 1, 1997, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". SFAS No. 128 replaces the presentation of primary
income (loss) per share with a dual presentation of basic
income (loss) per share and diluted income (loss) per share
for each year for which a statement of operations is
presented.
Basic income (loss) per share amounts are based on the
weighted average number of common shares outstanding during
each year. Diluted income (loss) per share amounts are based
on the weighted average number of common shares and common
share equivalents outstanding during each year to the extent
such equivalents have a dilutive effect on the income (loss)
per share.
For the years ended December 31, 1997 and 1996 and August 31,
1995 and the four months ended December 31, 1995, common
share equivalents were not included in diluted income (loss)
per share because the Company incurred a loss for each year.
The inclusion of the common stock equivalents would have had
an antidilutive effect on the computation of diluted income
(loss) per share.
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.
- 29 -
F-9
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(2) Summary of Significant Accounting Policies - Continued
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 Financial 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, except for the
following. Under the reorganization plan described in Note 14 to the
financial statements, accounts payable subject to compromise of
approximately $4,300,000 are expected to be paid over a 30 month
period commencing in October 1998, without interest. Accordingly, the
net present value of these payments approximate $4,000,000 at
December 31, 1997 assuming an interest rate of 9%.
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
Lived 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
- 30 -
F-10
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(2) Summary of Significant Accounting Policies - Continued
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 at cost, adjusted for
amortization of premiums and accretion of discounts, both
computed by the effective yield method. If it is
management's 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,
1997 and 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 9).
- 31 -
F-11
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(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 open systems platform computers.
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 December 31, 1997 and
August 31, 1995 or the four month period ended December 31,
1995. During the year ended December 31, 1996, one customer
accounted for 14% of total revenues. Foreign sales were 23%
in 1997, 20% in 1996 and less than 10% of total revenues in
fiscal 1995.
(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 Year ended ended Year ended
December 31, December 31, August 31, August 31,
1997 1996 1995 1995
Domestic $(5,689,000) (6,506,000) $(2,191,000) $ (8,552,000)
Foreign ( 908,000) (2,326,000) ( 661,000) (3,126,000)
$(6,597,000) $(8,832,000) $(2,852,000) $(11,678,000)
- 32 -
F-12
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(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 Year ended ended Year ended
December December December August
1997 1996 1995 1995
Provision (credit) at
federal statutory rate $(2,243,000) $(3,003,000) $( 969,000) $(3,970,000)
State tax provision
(credit), net of federal
tax benefit (358,000) ( 380,000) ( 143,000) (700,000)
Foreign and other losses
for which no benefits have
been recorded 309,000 853,000 155,000 973,000
Change in valuation
allowances 2,007,000 2,711,000 759,000 1,976,000
Other 285,000 ( 381,000) 201,000 (58,000)
$ -0- $( 200,000) $ 3,000 $(1,779,000)
The 1996 and 1995 tax benefit recognized is primarily for current
federal and foreign tax refunds receivable.
- 33 -
F-13
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(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 Company has federal net operating loss carryovers
totalling $13,356,000 which expire through the year ended
December 31, 2012.
The tax effects of the significant items which comprise the
deferred tax liability and tax asset, as of fiscal 1997, 1996
and 1995 are as follows:
December December December August
1997 1996 1995 1995
Assets:
Reserves not currently deductible
for tax purposes $ 1,874,000 $ 1,186,000 $ 961,000 $ 1,290,000
State tax net operating loss
carryforward 1,335,000 1,223,000 844,000 700,000
Federal net operating loss
carryforward 4,114,000 2,965,000 813,000 -
Employee benefits 96,000 112,000 148,000 152,000
Other 76,000 75,000 112,000 166,000
Total deferred tax assets $ 7,495,000 $ 5,561,000 $ 2,878,000 $ 2,308,000
Liabilities:
Fixed asset basis difference $ 0 $( 67,000) $( 95,000)$( 145,000)
Other (42,000) ( 48,000) ( 48,000) ( 187,000)
Total deferred tax liabilities (42,000) $( 115,000) $( 143,000)$( 332,000)
Net deferred tax asset $ 7,453,000 $ 5,446,000 $ 2,735,000 $ 1,976,000
Valuation allowance (7,453,000) (5,446,000) (2,735,000)$(1,976,000)
Tax asset 0 0 0 0
Tax refunds receivable 0 2,335,000 6,389,000 6,505,000
Total tax asset 0 $ 2,335,000 $ 6,389,000 6,505,000
- 34 -
F-14
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(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 was 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 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 for the year ended August 31, 1995,
$1,842,000 for the year ended December 31, 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.
- 35 -
F-15
CAMBEX CORPORATION AND SUBSIDIARIES (DEBTOR-IN-
POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(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 receivable, inventory and general
intangibles.
The Company's debt consists of the following at December 31,
1997 and 1996:
1997 1996
Revolving Credit Agreement - $1,800,000
- 36 -
F-16
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(7) Earnings Per Share
Options to purchase 259,305, 415,715, 468,008, and 562,342 weighted
average shares of common stock during the periods ended December 31,
1997, 1996, 1995 and August 31, 1995, respectively, were not included in
the computation of diluted loss per share because to do so would have had
an antidilutive effect on the computation of loss per share.
As more fully described in Note 9, options to purchase
187,420, 368,820, 471,458, and 437,508 shares of common stock
outstanding at December 31, 1997, 1996, 1995 and August 31,
1995, respectively, could potentially dilute basic income
(loss) per share in the future.
(8) Commitments and Contingencies
At December 31, 1997, the Company had minimum rental
commitments under long-term, noncancelable operating leases
for facilities and other equipment as follows:
Due during Fiscal Year
1998 $ 381,924
1999 $ 381,924
2000 $ 381,924
2001 $ 381,924
2002-2003 $ 541,059
$2,068,755
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 $1,160,000
for the year ended December 31, 1997, $1,691,000 for the year
ended December 31, 1996, $436,000 for the four months ended
December 31, 1995, and $1,733,000 for the year ended August
31, 1995. During 1997 and 1998, the Company entered into
agreements to sublet portions of its facilities to unrelated
parties.
In the ordinary course of business, the Company is involved
in legal proceedings, including those relating to pre
petition creditor claims. 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.
- 37 -
F-17
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(9) Stock Options and Warrants
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. At December 31, 1997, the Company had two
stock option plans for officers and certain employees under
which 1,187,420 shares were reserved and options for
1,000,000 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 April 29, 1998 and
November 11, 2006.
Stock option activity for the three years and four months
ended December 31, 1997 was as follows:
Option Shares Number Option
Price
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
Granted - -
Exercised, cancelled or
expired (181,400) .25 - 10.41
Outstanding at December 31, 1997 187,420 .35 - 16.15
- 38 -
F-18
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(9) Stock Options and Warrants - Continued
As of December 31, 1997 and 1996, options for 35,100 and
140,218 shares were exercisable at aggregate option prices of
$250,655 and $435,613, respectively.
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 Year ended ended Year ended
December 31, December 31, December 31,August 31,
1997 1996 1995 1995
Net Income (Loss) (000's):
As Reported (6,597) (8,632) (2,855) ( 9,889)
Pro Forma (6,597) (9,456) (3,120) (10,280)
Basic and Diluted EPS:As Reported ( .72) ( .96) (.32) ( 1.14)
Pro Forma ( .72) ( 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 Year ended ended Year ended
December 31, December 31, December31,August 31,
1997 1996 1995 1995
Assumptions:
Risk free interest rate N/A 6.35% 6.03% 6.38%
Expected dividend yield N/A 0% 0% 0%
Expected life in years N/A 10 10 10
Expected volatility N/A 65.56% 65.56% 65.56%
Values:
Weighted average fair
value of options granted 0 4.35 7.22 8.95
Weighted average exercise price 1.94 4.58 7.64 8.40
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.
- 39 -
F-19
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) 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. There was no provision in 1997. The
provision for incentive bonus amounted to approximately
$35,000 and $55,000, in fiscal years 1996 and 1995,
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.
(11) 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 1997, fiscal 1996 and fiscal 1995, there
were 21,069, 50,060 and 94,440 shares issued under the Plan,
respectively. At December 31, 1997, there were 191,521
shares reserved for issuance under the Plan.
- 40 -
F-20
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(12) 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 TradeIn
Memory."
(13) Related Party 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 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 1997, the
Company shipped and billed to Jupiter $174,000 for Jupiter
products plus $118,000 ,000 for expenses related to a
sublease agreement. 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, 1997, Cambex owed Jupiter $267,000 for inventory
purchases and Jupiter owed Cambex $504,000 for revenue
shipments plus expenses. In January, 1998, substantially all
of the assets of Jupiter Technology were purchased by an
unrelated third party. In March, 1998, Jupiter paid the
Company $230,000, which represented the net amount due the
Company.
On June 1, 1998, the Company raised approximately $1,060,000,
including approximately $460,000 from Joseph F. Kruy,
Chairman, President and Chief Executive Officer of the
Company, in cash from the issuance of 10% Subordinated
Convertible Promissory Notes. Under the terms of the Notes,
which are due on April 30, 2003, the holders may convert the
notes into shares of common stock at a conversion price of
$0.22 per share. In addition to the Note, each holder was
issued a Stock Purchase Warrant, the exercise of which will
allow the warrant holder to purchase one share of common
stock, at $0.50 per share, for each dollar invested through
the issuance of the Notes.
- 41 -
F-21
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(14) Events (Unaudited) Subsequent to date of Report of Independent
Public Accountants
The Company filed a voluntary petition for relief under
Chapter 11 of the bankruptcy code on October 10, 1997 with
the United States Bankruptcy Court (the "Court") in Boston,
Massachusetts. The Company filed a reorganization plan (the
"Plan") with the Court on February 9, 1998 and amended the
Plan on March 17, 1998. The Company also filed a Disclosure
Statement with the Court on March 17, 1998.
The Court approved the Disclosure Statement on March 17, 1998
as containing information of a kind and in sufficient detail
adequate to enable the holders of claims against the Company
to make an informed decision with respect to acceptance or
rejection of the Plan.
On April 23, 1998, following the unanimous approval of the
Plan by the Company's unsecured creditors, the Court
confirmed the Company's Plan. Subsequently, the Company emerged
from Chapter 11 on April 23, 1998. Under the terms of the Plan,
creditors will receive a full payout over the next 36 months
either in the form of all cash or a combination of 80% cash
and two shares of common stock for each dollar of the
remaining 20% of their claims. The maximum number of new
shares to be issued under the Plan is approximately 550,000.
As described in the Company's Plan, the success of the Plan
is dependent upon several factors, including the Company's
ability to raise additional capital. The additional
financing will be used to pay certain expenses, fees and pre
petition administrative claims relative to consummation of
the Plan and then to fund continuing operations of the Company,
particularly in development, sales, and marketing.
On June 1, 1998, the Company raised approximately $1,060,000,
including approximately $460,000 from Joseph F. Kruy, Chairman,
President and Chief Executive Officer of the Company, in cash from
the issuance of 10% Subordinated Convertible Promissory Notes
(the "Notes"). Under the terms of the Notes, which are due on
April 30, 2003, the holders may convert the notes into shares of
common stock at a conversion price of $0.22 per share. In addition
to the Note, each holder was issued a Stock Purchase Warrant ( the
"Warrant"), the exercise of which will allow the warrant
holder to purchase one share of common stock, at $0.50 per
share, for each dollar invested through the issuance of the
Notes.
- 42 -
F-22
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(14) Events (Unaudited) Subsequent to date of Report of Independent
Public Accountants - Continued
Subsequent to confirmation of the Plan, the Company paid
approximately $300,000 of pre-petition debt and $400,000 in
legal and professional fees. The remaining balance of
unsecured debt of approximately $4,300,000 will be paid over
a thirty month period commencing in October, 1998.
The Company incurred approximately $400,000 in legal and
professional expenses relative to its Chapter 11 proceeding,
of which approximately $200,000 was accrued as of December
31, 1997.
On January 16, 1998, the Company entered into a Sublease
Agreement with a third party pursuant to which the Company
sublet approximately 20,000 square feet in its Waltham,
Massachusetts facility (which is approximately 30% of the
Company's total leased space). The term of the sublease is
coterminous with the primary lease and expires on May 31,
2003.
(15) Credit Risk
The Company maintains cash balances at financial institutions
located in Massachusetts. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to
$100,000. At December 31, 1997, the Company's uninsured cash
balances total $325,009.
The Company's subsidiaries maintain cash balances at several
financial institutions located throughout Europe. These cash
balances are subject to normal currency exchange
fluctuations. At December 31, 1997, the Company's overseas
cash balances total $49,939.
- 43 -
F-23
CAMBEX CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
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, 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
YEAR ENDED DECEMBER 31, 1997:
Reserve for doubtful accounts $ 131,000 $ - $ - $131,000
- 44 -
F24
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 June 29, 1998
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
June 29, 1998.
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
- 45 -
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).
Chelmsford, Massachusetts
June 15, 1998
- 46 -
[ARTICLE] 5
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-29-1997
[CASH] 476
[SECURITIES] 0
[RECEIVABLES] 1331
[ALLOWANCES] 131
[INVENTORY] 1412
[CURRENT-ASSETS] 3270
[PP&E] 3905
[DEPRECIATION] 3348
[TOTAL-ASSETS] 3928
[CURRENT-LIABILITIES] 758
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 1064
[OTHER-SE] (4234)
[TOTAL-LIABILITY-AND-EQUITY] 3928
[SALES] 10066
[TOTAL-REVENUES] 10066
[CGS] 9502
[TOTAL-COSTS] 9502
[OTHER-EXPENSES] 7087
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 74
[INCOME-PRETAX] (6597)
[INCOME-TAX] 0
[INCOME-CONTINUING] (6597)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES]
</TABLE>
