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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-19726
CAMBIO, INC.
(Name of small business issuer in its charter)
DELAWARE 94-3022377
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6006 N. MESA, SUITE 515, EL PASO, TEXAS 79912
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (915) 581-5828
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, par value $0.01 per share
(Title of Class)
Indicate whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 .
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSB
or any amendment to this Form 10-KSB [ ].
The registrant's revenues for its most recent fiscal year were
$823,000.
As of September 25, 1999, the aggregate market value of the
Registrant's voting stock held by nonaffiliates of the registrant, based on the
closing price for the registrant's Class A Common Stock in The Nasdaq Stock
Market on such date, was $7,872,726. This calculation does not reflect a
determination that certain persons are affiliates of the registrant for any
other purposes.
The number of shares of Class A Common Stock outstanding on September
25, 1999 was 4,037,236. There were no shares of Class B Common Stock outstanding
and 51,073 shares of Series B Convertible Preferred Stock were outstanding. The
Series B Convertible Stock is convertible into 25,536,500 shares of Class A
Common Stock.
Part III of this Form 10-KSB incorporates by reference information from
the Registrant's proxy statement with respect to the 1999 Annual Meeting of
Stockholders.
Transitional Small Business Disclosure Format (check one): Yes No X.
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TABLE OF CONTENTS
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Page
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PART I. ........................................................................................ 3
ITEM 1. DESCRIPTION OF BUSINESS.............................................. 3
ITEM 2. DESCRIPTION OF PROPERTY.............................................. 6
ITEM 3. LEGAL PROCEEDINGS.................................................... 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................. 6
PART II. ....................................................................................... 7
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............. 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............ 8
ITEM 7. FINANCIAL STATEMENTS................................................. 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................................. 16
PART III. ...................................................................................... 16
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT.................................................. 16
ITEM 10. EXECUTIVE COMPENSATION............................................... 18
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT....................................................... 19
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................... 20
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..................................... 21
SIGNATURES ..................................................................................... 24
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
On October 20, 1998 Cambio, Inc. changed its name from Meadowbrook
Rehabilitation Group, Inc. to Cambio, Inc. (together with its subsidiaries, the
"Company" or "Cambio"). Prior to June 30, 1998, the Company provided outpatient,
home health, and traditional acute, sub-acute and post-acute comprehensive
rehabilitation services. Since the beginning of the fiscal year ended June 30,
1997 ("Fiscal 1997"), and as a result of poor operating results and poor
prospects for growth in their respective markets, the Company's Board of
Directors began to sell its healthcare operating assets. As of June 30, 1998,
the Company's assets consisted mainly of cash and accounts receivable.
On September 14, 1998, the Company acquired Cambio Networks, Inc.
("Networks"), pursuant to an Agreement and Plan of Merger, dated as of April 3,
1998, as amended by the Agreement of Amendment, dated as of July 27, 1998
(collectively, the "Acquisition Agreement"). Under the terms of the Agreement,
Networks' shareholders received an aggregate of 1,238,842 shares of the
Company's Class A Common Stock representing approximately 32.3% of the
outstanding Class A and Class B Common Stock.
With the wind-down of its health care business substantially complete,
the Company is now solely in the business of producing software and providing
services for the purpose of network documentation, network inventory and
equipment provisioning functions for telecommunication networks. The Company's
products and services are designed to enhance network operations support and
reduce network-related costs associated with a variety of business needs
including network changes, relocations, mergers and acquisitions, network
outsourcing, backup and disaster recovery planning. Network documentation is an
essential corporate information system that allows network support professionals
to create, maintain and access a centralized model of the entire network, its
components and their relationships. The Company also provides a broad range of
network integration, consulting, training and implementation services.
The Company was incorporated in Delaware as Meadowbrook Rehabilitation
Group, Inc. in 1986. The Company's finance and accounting office is located at
6006 N. Mesa, Suite 515, El Paso, Texas 79912, and its telephone number is (915)
581-5828.
STRATEGY
At Cambio, our mission is to deliver a software solution that provides
the telecommunication industry with the highest utilization of their capital,
and gives them a competitive advantage in providing new services to the market.
Broadening service offerings which in turn increases market share is of primary
concern to our customers. Our vision is to deliver end-to-end solutions
amplifying usability and simplicity that are designed with customer input.
PRODUCTS AND SERVICES
netRunner(TM). netRunner(TM) was introduced in October of 1998 and is
the Company's flagship product. It allows the user to create and maintain a
data model that represents all of the equipment, physical connections, and
circuit connections used to operate a global telecommunications network.
netRunner(TM) provides many different ways to view and maintain network
physical equipment information both graphically and in graphic user interface
("GUI") forms. netRunner(TM) also models essential relationships such as
location and connectivity. All information created and maintained by
netRunner(TM) is stored in a central repository available to network operations
personnel for planning, operating, isolating faults, and repairing large
complex networks. The Company and Phifer Consulting Group, Inc. jointly own
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the rights to source code for netRunner(TM) pursuant to a Source Code Rights
Transfer and License Agreement between them dated September 15, 1998.
COMMAND. COMMAND was the primary product offering of Networks. COMMAND
was developed as a UNIX based client and database in the late 1980s. COMMAND is
an integrated database with proprietary graphics technology which provides
graphical views of an enterprise network. In 1997, Networks released COMMAND
Version 5.0, which added Windows NT/95 client products with GUI data forms for
ease of data entry and maintenance. Because of market saturation and low growth
opportunities for the provision of COMMAND in enterprise applications, the
Company is no longer actively marketing the COMMAND product or targeting the
enterprise market. The Company has instead focused resources on targeting the
telecommunications network market and the promotion of its netRunner(TM)
product. Networks still provides maintenance and year 2000 upgrade services to
COMMAND clients.
Services. The Company provides software and consulting services needed
to install, customize and fully deploy a complete network inventory, operations
systems support or network documentation system for the telecommunications
market. Typical services include installation, customer specific enhancements,
customized development of extensions to core products, data modeling, and data
maintenance. The Company also provides technical support programs and training
programs for all products.
MARKETING AND SALES
The Company's targeted market is the communications infrastructure
industry, which is currently dominated by the telecommunications industry. As
the communications infrastructure merges data, voice and video communications
Cambio aims to provide the necessary asset management and related operations
support system solutions necessary for the industry to provide its customers
with fast and efficient service. Our marketing is presently focused on
telecommunications companies and is expected to broaden as the communications
infrastructure merges.
Cambio currently has its sales forces aligned between the North and
South American continents and markets outside of the America's hemisphere. The
entire sales strategy of the Company is primarily focused on sales made through
the Company's alliance with its strategic partner Hewlett Packard and its other
main alliance partner Oracle, who offer end to end solutions for operational
support systems of telecommunications companies. Cambio's international sales
team primarily operates in conjunction with strategic partners for sales.
International sales are expected to comprise a significant percentage of the
Company's revenues.
The Company has an agreement with Hewlett Packard ("HP") whereby HP
and the Company co-market the Company's software and services. This relationship
with HP is significant to the promotion and sales of the Company's products and
its termination would have a material adverse effect on the Company. The Company
has a similar agreement with Oracle that is significant to the Company.
SOFTWARE DEVELOPMENT
The Company's research and development efforts are directed at the
needs of telecommunications service providers. Within this market, the focus is
on new application development to meet strategic customer requirements,
enhancement of existing products, software tools for data entry, conversion and
maintenance, migration from existing systems, and integration with complementary
systems. The Company had research and development costs of $0.3 million in the
fiscal year ended June 30, 1999, compared with none in the fiscal year ended
June 30, 1998.
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All of the Company's research and development has been performed in the
United States. The Company intends to continue recruiting and hiring software
developers and to consider acquisition and licensing of software and
technologies that accelerate the development and release of new products.
COMPETITION
Competition in the telecommunications markets is intense. However, the
Company believes that the segment of the market within which Cambio competes is
currently under-served. While competition in this segment is not intense, the
rapid changes within the industry as a whole could change this. The Company's
continued development of enhanced network management and operational support
systems should broaden its range of available competing products. Competitors
include hardware manufacturers that have developed software (or obtained
software from third parties) to operate on their hardware. The Company also
encounters competition from a large number of small software developers which
sell software or integrated systems either for specific industries or
applications within those industries.
The Company believes that in order to maintain and improve its
competitive position, it must continue to offer comprehensive services that help
customers effectively implement a complete, integrated software solution by
providing a full range of industry-leading consulting, integration, training and
customer support services. The timely delivery of flexible, cost-effective
solutions for the growing dynamic marketplace will continue to be the
competitive initiative of the Company.
The principal competition currently faced by the Company in the
telecommunications service provider market is the customer's development of
in-house solutions. The Company's principal North American competitors are
Architel Corporation, Granite, Inc., and a few other customer care providers
attempting to expand into telecommunications asset management. Additional
competition in all of the Company's markets comes from Europe and Japan where a
number of companies have developed or are developing software and integrated
systems products which may compete with the Company's products.
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trademark and trade
secret laws, confidentiality procedures and licensing arrangements to establish
and protect its proprietary rights. Presently, the Company has no patents, no
patent applications on file, and no intent to file patent applications in the
near future. As part of its confidentiality procedures, the Company generally
enters into non-disclosure agreements with its employees, distributors and
corporate partners, and license agreements with respect to its software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, or to develop similar
technology independently. Policing unauthorized use of the Company's products is
difficult and, although the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be a
persistent problem. In selling its products, the Company relies on both signed
license agreements and "shrink wrap" licenses that are not signed by licensees
and, therefore, may be unenforceable under the laws of certain jurisdictions. In
addition, effective protection of intellectual property rights is unavailable or
limited in certain foreign countries. There can be no assurance that the
Company's protection of its proprietary rights, will be adequate or that the
Company's competitors will not independently develop similar technology,
duplicate the Company's products or design around any of the Company's
intellectual property rights.
The Company is not aware that any of its products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim such infringement by the Company with respect to
current or future products. The Company expects that software product developers
will
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increasingly be subject to such claims as the number of products and competitors
in the Company's industry segment grows and the functionality of products in the
industry segment overlaps.
The Company jointly owns the rights to certain source code for
netRunner(TM) pursuant to a Source Code Rights Transfer and License Agreement
between the Company and Phifer Consulting Group, Inc., dated September 15, 1998.
Each has independent control over its use.
EMPLOYEES
As of September 25, 1999, the Company had 35 full time employees,
consisting of 14 in customer service and engineering, 10 in sales and marketing,
and 11 in general and administrative functions. The Company's future performance
depends to a significant degree upon the continued service of its key members of
management, as well as marketing, sales, consulting and product development
personnel, none of whom are bound by an employment contract, and its ability to
attract and retain highly skilled personnel in these areas. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its key employees or that it will be successful in attracting, assimilating and
retaining such personnel in the future. None of the Company's employees are
represented by a labor union. The Company has not experienced any work stoppages
and considers its relations with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases all of its properties. The Company maintains its
finance and accounting office in El Paso, Texas and its corporate office in
Dallas, Texas. The Company has engineering/development and support groups
located in El Paso, Texas. In addition, the Company has sales executives located
in London, England and Cairo, Egypt. The Company believes that its existing
facilities are adequate to meet its current needs and in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Cambio is a party to various claims and routine litigation arising in
the ordinary course of business. Cambio does not believe that the results of any
such claims and litigation, individually or in the aggregate, will have a
material adverse effect on its business, financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In the fourth quarter the holders of a majority of the outstanding
shares of our stock entitled to vote consented to the amendment of the Company's
articles of incorporation. The amendment was to (1) increase the number of
authorized shares of Class A Common Stock from 15,000,000 to 50,000,000 shares
and to cancel the authorization of the Series A Preferred Stock and (2) amend
the Company's Certificate of Designations to clarify the preemptive rights of
the Series B Preferred Stock. This action was taken pursuant to Section 242 of
the General Corporation Law of Delaware. The record date for the outstanding
shares entitled to vote on the consent was June 15, 1999. An information
statement regarding this matter was filed on June 22, 1999 with the Securities
and Exchange Commission and distributed to the shareholders on July 12, 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock is traded in the Nasdaq Over the
Counter (OTC) Market. On September 25, 1999, the closing sales price of the
Class A Common Stock was $0.625 per share.
The table below sets forth the quarterly high and low closing sales
prices for the Class A Common Stock in the period from July 1, 1997 through June
30, 1999 (giving effect to the three-for-two stock split reflected on April 22,
1998 as if it had occurred on July 1, 1997):
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Fiscal 1998 Fiscal 1999
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Quarter High Low High Low
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1st $2.16 $1.50 $1.06 $0.50
2nd $1.96 $1.00 $0.63 $0.25
3rd $2.83 $1.66 $0.50 $0.13
4th $2.50 $0.22 $2.44 $0.19
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In the foregoing chart, the sales quotations for dates after October
20, 1998 reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The Company has not paid
cash dividends in the past and does not anticipate paying cash dividends on its
common stock in the foreseeable future. As of September 25, 1999, there were 91
holders of record of the Company's Class A Common Stock and no holders of record
of the Company's Class B Common Stock.
On January 31, 1999 the Company's Board of Directors (the "Board")
authorized for issuance 37,500 shares of Series B Convertible Preferred Stock
(the "Preferred Stock"). The Board on April 29, 1999 amended its earlier
resolution to allow authorization of the issuance of up to 62,500 shares of
Preferred Stock. The Preferred Stock was issued at $100 per share and has the
following attributes:
i. Each share is convertible into 500 shares of the Company's Class
A Common Stock.
ii. Each share is entitled to vote and receive dividends as if it
has been converted.
iii. Each share is entitled to a liquidation preference of $100 per
share.
iv. Each share is redeemable at the Company's option for its $100
liquidation value if the market price of the Class A Common
Stock equals or exceeds 500% of the conversion price and the
Class A Common Stock has traded with an average daily volume in
excess of 50,000 shares for a period of 30 consecutive trading
days.
v. Each share is redeemable at the holder's option if the Company
(a) materially breaches its obligations under the Certificate of
Designations or the Series B Convertible Preferred Stock
Purchase Agreement, dated as of February 1, 1999 and the breach
continues for a period of thirty (30) days after notice, (b)
sells all or substantially all of its assets, (c) becomes
insolvent or (d) goes private.
vi. Each share enjoys preemptive rights to purchase certain capital
stock, including warrants or securities convertible into capital
stock.
vii. Each share is entitled to an adjustment in conversion price if,
prior to August 3, 2000, the Company sells $1 million or more
shares of Class A Common Stock (or securities convertible into
the same) to financial investors for a consideration per share
of less than $0.20.
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On February 3, 1999 the following shares of Preferred Stock were issued:
i. 7,548 shares were issued for the conversion of debt owing to
Frederick Adler in the amount of $754,800 and an additional
3,034 shares were issued to Mr. Adler for $303,400 in cash; and
ii. 3,025 shares were issued for the conversion of debt owing to
Euro-America II, L.P. in the amount of $302,500 and an
additional 1,216 shares were issued to Euro-America II, L.P. for
$121,600 in cash.
In the fourth quarter additional Preferred Stock was issued as follows:
i. 3,500 shares were issued for the conversion of debt in the
amount of $350,000; and
ii. 32,750 shares were issued for $3,275,000 in cash.
In all, 51,073 shares have been issued as of June 30, 1999 for the
conversion of $1,407,300 in debt and $3,700,000 for cash. In connection with the
sale of the Preferred Stock 1,256,495 warrants were issued as fees. The warrants
expire on May 3, 2004. The warrants have an exercise price of $0.20 and may also
be exercised pursuant to a cashless exercise clause. As of September 30, 1999
the Company had been notified that the holders of 1,085,495 desired to exercise
their warrants pursuant to the cashless exercise clause that would result in the
issuance of 998,656 shares of Class A Common Stock upon tender of the warrants.
On March 26, 1999 the Board approved the grant of 2,567,000 options to
selected employees with an exercise price of $0.20 a share for Class A Common
Stock. The Company also issued 25,000 shares of Class A Common Stock on August
25, 1999 in settlement of a lawsuit and 179,825 shares on August 31, 1999 for
$35,965 in conjunction with the exercise of a former employee's vested options.
All of these securities were issued in transactions exempt from registration
under Section 4(2) of the Securities Act of 1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
TRENDS AND RECENT EVENTS
DISPOSITION OF HEALTHCARE OPERATIONS
Prior to June 30, 1998, the Company provided outpatient, home health,
and traditional acute, sub-acute and post-acute comprehensive rehabilitation
services. Since the beginning of fiscal year 1997, and as a result of poor
operating results and poor prospects for growth in its respective markets, the
Company has sold or closed all of its healthcare operating assets. As of June
30, 1998, the Company's assets consisted almost exclusively of cash and accounts
receivable.
Home health agencies have traditionally received Medicare
reimbursements based on actual reasonable allowable costs subject to per visit
limitations. As a result of regulations adopted by the Health Care Financing
Administration effective July 1, 1998, such reimbursements were subject to new
aggregate annual per-beneficiary limitations. The decision to close its
healthcare operations was prompted by the receipt of Medicare's notice to the
Company of the new per-beneficiary cost limits for each of its locations. These
reimbursement amounts fell far below the Company's per-beneficiary operating
expense. In order for the Company to decrease its operating losses and be able
to retain as much capital as possible for its acquisition strategy, the Company
decided to dispose of its healthcare operations.
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The termination of the Company's healthcare operations was completed
during the fourth quarter of fiscal year 1998 after its Board of Directors
approved the closure or disposal of its home health agencies in Colorado and
Kansas and physical therapy clinics in Colorado.
The estimated loss on the disposition of these facilities reflected in
the Company's statement of operations for the fiscal year ended June 30, 1998
includes the writedown of property and equipment to market value, the write-off
of goodwill, closedown expenses and the estimated operating losses through the
disposition date.
On February 2, 1999, the Company entered into an agreement with
Imperial Loan Management Corporation ("Imperial") whereby the Company
transferred all of the issued and outstanding stock of its discontinued
healthcare subsidiaries (the "Subsidiaries") to Imperial. As part of the
agreement, Imperial will use its best efforts to liquidate each of the
Subsidiaries, settling outstanding obligations and collecting all amounts due.
The Company remains a guarantor of the Subsidiaries' outstanding indebtedness
consisting of amounts loaned to Cambio and the Subsidiaries by Imperial, which
approximates $678,000 as of June 30, 1999. The Company is entitled to receive
one-half of any amounts remaining after payment of the Imperial loans and
expenses. As of June 30, 1999, the outstanding receivables related to the
discontinued healthcare operations amounted to $1,189,000. In connection with
this transaction, the Company recorded a charge to write off the remaining net
asset from discontinued operations.
ACQUISITION OF CAMBIO NETWORKS, INC.
On September 14, 1998, the Company acquired Networks, pursuant to the
Acquisition Agreement. Under the terms of the Agreement, Networks' shareholders
received an aggregate 1,238,842 of shares of the Company's Class A Common Stock
representing approximately 32.3% of the then-outstanding Class A and Class B
Common Stock.
Immediately following the acquisition of Networks in September 1998,
the Company implemented a restructuring plan involving the closing and
relocating of Networks' headquarters from Bellevue, Washington to an existing
office in Dallas, Texas. In addition, the Company moved its research and
development offices to El Paso, Texas; and it assimilated Networks' finance and
accounting functions into its existing capabilities in Emeryville, California.
The Company maintained its sales and service offices domestically in Parsippany,
New Jersey until their closure in December 1998.
The Company's sales and services offices are currently in Dallas,
Texas, and El Paso, Texas in the U.S.; and internationally the Company has sales
executives in London, England and Cairo, Egypt. In an effort to further
consolidate its operations, in February 1999 it decided to close its Emeryville,
California office and move all finance and administrative functions to its El
Paso, Texas office. No material costs were incurred in connection with these
relocations.
DELISTING OF CLASS A COMMON STOCK FROM NASDAQ
On October 20, 1998, the Company received notice of a decision by the
Nasdaq Stock Market to delist the Company's Class A Common Stock from the Nasdaq
National Market effective with the close of business on October 20, 1998.
Additionally, at that time, the Company did not meet the requirements to
transfer its listing to the Nasdaq SmallCap Market. Accordingly, trading in the
Company's Class A Common Stock is being conducted on the OTC Bulletin Board.
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NAME AND TRADING SYMBOL CHANGE
On October 20, 1998, Meadowbrook Rehabilitation Group, Inc.
("Meadowbrook"), changed its name to Cambio, Inc. The name change was effected
by merging its wholly owned subsidiary, Cambio Acquisition Corporation, into
Meadowbrook, and simultaneously changing its name to Cambio, Inc. In addition,
the trading symbol changed to CAMB, and its new CUSIP number is 13200N 10 0.
SALE OF PREFERRED STOCK
On January 31, 1999 the Company's Board of Directors (the "Board")
authorized for issuance 37,500 shares of Series B Convertible Preferred Stock
(the "Preferred Stock"). The Board on April 29, 1999 amended its earlier
resolution to allow authorization of the issuance of up to 62,500 shares of
Preferred Stock. The Preferred Stock was issued at $100 per share and has the
following attributes:
i. Each share is convertible into 500 shares of the Company's Class
A Common Stock.
ii. Each share is entitled to vote and receive dividends as if it
has been converted.
iii. Each share is entitled to a liquidation preference of $100 per
share.
iv. Each share is redeemable at the Company's option for its $100
liquidation value if the market price of the Class A Common
Stock equals or exceeds 500% of the conversion price and the
Class A Common Stock has traded with an average daily volume in
excess of 50,000 shares for a period of 30 consecutive trading
days.
v. Each share is redeemable at the holder's option if the Company
(a) materially breaches its obligations under the Certificate of
Designations or the Series B Convertible Preferred Stock
Purchase Agreement, dated as of February 1, 1999 and the breach
continues for a period of thirty (30) days after notice, (b)
sells all or substantially all of its assets, (c) becomes
insolvent or (d) goes private.
vi. Each share enjoys preemptive rights to purchase certain capital
stock, including warrants or securities convertible into capital
stock.
vii. Each share is entitled to an adjustment in conversion price if,
prior to August 3, 2000, the Company sells $1 million or more
shares of Class A Common Stock (or securities convertible into
the same) to financial investors for a consideration per share
of less than $0.20.
On February 3, 1999 the following shares of Preferred Stock were issued:
i. 7,548 shares were issued for the conversion of debt owing to
Frederick Adler in the amount of $754,800 and an additional
3,034 shares were issued to Mr. Adler for $303,400 in cash; and
ii. 3,025 shares were issued for the conversion of debt owing to
Euro-America II, L.P. in the amount of $302,500 and an
additional 1,216 shares were issued to Euro-America II, L.P. for
$121,600 in cash.
In the fourth quarter additional Preferred Stock was issued as follows:
i. 3,500 shares were issued for the conversion of debt in the
amount of $350,000; and
ii. 32,750 shares were issued for $3,275,000 in cash.
In all, 51,073 shares have been issued as of June 30, 1999 for the
conversion of $1,407,300 in debt and $3,700,000 for cash.
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MANAGEMENT CHANGES
On February 3, 1999, Harvey Wm. Glasser M.D., the Company's Chairman
and Chief Executive Officer, exchanged each share of Class B Common Stock held
by him for one share of Class A Common Stock of the Company. Dr. Glasser had
previously resigned from his positions as Chief Executive Officer and Chairman
of the Board on January 21, 1999. On that same day, Mr. Ali Al-Dahwi was
appointed Chief Executive Officer and Mr. John P. McCracken resigned from the
Board. On March 10, 1999 Dr. Glasser and Robert Rush resigned from the Board. On
May 20, 1999 Philip Chapman was elected as Chairman of the Board. On October 6,
1999 Gari Grimm resigned from the Board.
FORWARD-LOOKING STATEMENTS
In addition to the historical information contained herein, this Form
10-KSB contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements speak only as of the date hereof and the
Company disclaims any intent or obligation to update these forward-looking
statements. These forward-looking statements are subject to risks and
uncertainties, including risks and uncertainties set forth in this Form 10-KSB
that may cause actual results to differ materially from those projected in these
forward-looking statements. Important factors that might cause such a
difference include, but are not limited to, those discussed. Readers should not
place undue reliance on these forward-looking statements, as they reflect
management's analysis as of the date of this report. Readers should carefully
review the risk factors described in other documents the Company files from time
to time with the SEC, including quarterly reports on Form 10-QSB and current
reports filed on Form 8-K.
RESULTS OF CONTINUING OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND JUNE 30, 1998
The Company has undergone significant changes in its business
operations in the past two fiscal years ended June 30, 1999 ("fiscal year 1999")
and June 30, 1998 ("fiscal year 1998"). In fiscal year 1998 the Company was
primarily engaged in the wind down of its health care business; and by the end
of that year substantially all health care operations had ceased. The only
carry-over health care operations that occurred in fiscal year 1999 were
associated with the management of receivables and liabilities emanating from
former health care operations. As a result of the transfer of these assets and
liabilities to Imperial (as discussed above) the expenses associated with the
management of these assets and liabilities are part of the Results of
Discontinued Operations discussed below. Fiscal year 1999 saw the development of
a new line of business with the acquisition of Networks and the development of
netRunner(TM), the Company's new software offering.
Fiscal year 1999 had a loss from continuing operations of $9.0 million
compared to $1.1 million in fiscal year 1998. The loss from continuing
operations in 1998 was almost entirely made up of administrative and general
expenses and was due to the fact that the Company had no revenues associated
with continuing operations. In fiscal year 1999 the Company had $0.8 million in
revenues with the resulting loss associated primarily with administrative and
general expenses of $4.4 million and the write off of goodwill in the amount of
$4.9 million.
Goodwill in the amount of $4.9 million was originally recorded as part
of the acquisition of Networks. The subsequent write off of this goodwill was
taken in response to the inability of the primary product of Networks, Command,
to maintain its place in the market without a major upgrade and the prohibitive
cost of such an upgrade. The Company withdrew the Command product from the
market
11
<PAGE> 12
place in the fourth quarter of fiscal year 1999; and consequently, the decision
was made to write off the goodwill associated with the Command product.
The Company's revenues of approximately $0.8 million were split
between sales, services and maintenance of the Command product and its newly
introduced netRunner(TM) product. The Command revenues consisted primarily of
services and maintenance revenues with a negligible amount of new sales. The
netRunner(TM) revenues were all new sales of software and attendant
implementation services.
Because netRunner(TM) is a new product, and because of the Company's
liquidity difficulties, the launch and marketing activities of the netRunner(TM)
product were severely constrained which resulted in poor sales and market
penetration. Provided that the Company is able to secure adequate financing the
Company plans to engage in marketing aimed at realizing the market potential of
the netRunner(TM) product. An additional effect on fiscal year 1999 sales
revenue was the Company's change in market focus in conjunction with the
introduction of the netRunner(TM) product and the subsequent phase out of the
Command product. The Command product was designed for, and primarily aimed at,
IT Center applications. The netRunner(TM) product was designed for, and is
primarily marketed to the telecommunications industry. This change in market
focus contributed to the slow sale start for the netRunner(TM) product. The
Company's liquidity difficulties and financing activities referred to above are
discussed below in the Liquidity and Capital Resources section.
The increase in general and administrative expenses to $4.4 million in
fiscal year 1999 from $1.2 million in fiscal year 1998, a 266% increase,
reflects the increased expenses associated with entering a new line of business
and the launch of a new product. The Company had research and development costs
of $0.3 million in fiscal year 1999 compared with none in fiscal year 1998.
Interest income decreased in fiscal year 1999 to $13,000 from $140,000
in fiscal year 1998. This decrease is with the result of the Company's reduced
cash balances in fiscal year 1999 as compared to fiscal year 1998. Interest
expense for fiscal year 1999 was $66,000 compared to none in fiscal year 1998.
This expense is associated with the debt acquired in the acquisition of
Networks.
RESULTS OF DISCONTINUED OPERATIONS
The Company's loss from discontinued operations declined to $1,013,000
in fiscal year 1999 from $1,798,000 in fiscal year 1998. The loss associated
with fiscal year 1999 was primarily due to the write off of the net receivables
associated with the health care subsidiaries transferred to Imperial as
discussed above. The losses incurred prior to the transfer of the Subsidiaries
to Imperial had been fully provided for at June 30, 1998. The operational
aspects of discontinued operations in fiscal year 1999 were limited to the
management of the liabilities and receivables that existed at June 30, 1998.
This is in contrast to the loss for fiscal year 1998 which was associated
primarily with the expenses of health care business operations exceeding
revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company has had negative working capital since its acquisition of
Networks as Networks had significant negative working capital at the date of
acquisition. The continuation of the Company's negative working capital has been
the result of the Company's lack of sales and increased liabilities resulting
from the development and introduction of the netRunner(TM) product and the
Company's ongoing administrative and general expenses.
12
<PAGE> 13
The Company's working capital at June 30, 1999 was a negative
$1,381,000 compared to a positive working capital position of $2,176,000 at June
30, 1998. The Company had cash and cash equivalents at June 30, 1999 of
$1,923,000 compared to $1,324,000 at June 30, 1998. The Company's cash and cash
equivalents at September 30, 1999 was $726,000. The Company's cash position
since the acquisition of Networks has been minimal, showing only $289,000 at the
end of the first quarter and going to $0 at the end of the third quarter.
Through the sale of preferred stock the Company's cash position marginally
improved through the infusion of $3.3 million in the fourth quarter. However,
that infusion has not been adequate to establish a marketing and sales presence
to create revenues to provide sufficient operational funds going into the
present fiscal year. At present, the Company will need an additional infusion of
capital in the form of loans or sales of additional equity in order to fund
operations for the next twelve months.
The Company is actively seeking to raise additional capital by issuing
preferred stock. However, there can be no assurance that capital will be
available, or that, if available, it can be obtained on terms favorable to the
Company. If adequate funds are not available, the Company's liquidity will be
impaired, which will have a substantial and materially adverse effect on its
business.
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Reorganization. With the reorganization of the Company and the
introduction of netRunner(TM) as discussed in Item 1, the Company believes that
it is poised to take advantage of the market opportunities existing in the
telecommunications industry. With the state of the art programming that
netRunner(TM) represents and our continuing development of this product, the
Company believes that additional funding will enable it penetrate and
significantly expand in its market niche within the telecommunications industry.
Accumulated Deficits; Uncertain Profitability. On September 14, 1998,
the Company acquired Networks. Networks has incurred significant net losses
since its inception, and had an accumulated deficit of approximately $26,998,000
at June 30, 1998. Networks incurred net losses of $7,466,000 and $3,175,000 on
net revenues of $7,232,000 and $5,515,000 for the years ended December 31, 1996
and 1997, respectively.
The performance of Networks' primary product Command did not improve
with the acquisition of Networks by the Company. As was discussed above the
Command product has been retired by the Company and the market focus of the
Company has been directed to telecommunications entities in conjunction with its
new product offering, netRunner(TM). Even if financing is secured by the Company
as discussed in the Liquidity and Capital Resources section there can be no
assurance that the Company will be profitable in any future period. The
Company's business will also be subject to the risks inherent in the operation
of a new business enterprise, and there can be no assurance it will be able to
successfully address such risks.
Factors influencing Operating Results. Factors that may influence the
Company's quarterly and annual operating results include, but are not limited
to: (i) development and introduction of new operating systems and new product
development expenses; (ii) introduction or enhancement of products by the
Company; (iii) changes in pricing policies of the Company or its competitors;
(iv) increased competition; (v) technological changes in computer systems and
environments; (vi) the ability of the Company to timely develop, introduce and
market new products; (vii) quality control of products sold; (viii) market
readiness to deploy systems management products for distributed computing
environments; (ix) market acceptance of new products and product enhancements;
(x) customer order deferrals in anticipation of new products and product
enhancements; (xi) the Company's success in expanding its sales and marketing
programs; (xii) personnel changes; (xiii) foreign currency exchange rates; and
(xiv) general economic conditions.
Competition. The markets in which the Company competes are competitive,
highly fragmented and rapidly changing. In order to compete effectively, the
Company will have to enhance current products, enhance the operability of its
products with one another and develop new products in a timely fashion.
13
<PAGE> 14
The Company anticipates continued growth in competition in the
telecommunications industry and consequently, the entrance of new competitors
into the software systems market in the future. To maintain and improve its
competitive position, the Company must continue to develop and introduce, in a
timely and cost-effective manner, new product sets, new product features and
services and support that keep the Company competitive with its competitors. The
principal competitive factors in the Company's market are quality, performance,
price, customer support and training, business reputation, and product
attributes such as scalability, compatibility, functionality and acceptance. In
addition, the Company competes with a number of companies that have
substantially greater financial, technical, sales, marketing and other resources
as well as greater name recognition than the Company. As a result, the Company's
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
promotion and sale of their products and services than can the Company. There
can be no assurance that the Company will be able to compete successfully with
its existing competitors or with new competitors.
Risks Associated With International Operations. The Company's revenues
are materially dependent on international sales. Consequently, international
operations subject the Company to a number of risks inherent in developing
products for sale outside of the United States, including the potential loss of
developed technology, imposition of governmental controls, political and
economic instability, trade restrictions, difficulties in managing international
operations, cultural differences in the conduct of business, longer accounts
receivable payment cycles, unexpected changes in regulatory requirements and
royalty and withholding taxes that restrict the repatriation of earnings,
tariffs and other trade barriers, the burden of complying with a wide variety of
foreign laws, and the risk of foreign currency translation gains and losses.
There can be no assurance that any of the factors described herein will not have
a material adverse effect on the Company's future international sales and
operations and, consequently, its business, operating results and financial
condition.
Reliance on Significant Customers. In fiscal year 1999 the Company
generated a significant portion of its total revenues from a limited number of
customers, some of which have exceeded 10% of revenues. This concentration of
customers can cause the Company's revenues and earnings to fluctuate from
quarter to quarter based on these customers' requirements and the timing of
their orders. Although the Company believes it has good relationships with its
largest customers and has in the past received a substantial portion of its
revenues from repeat business with established customers, none of the Company's
major customers has any obligation to purchase additional products or services,
and these customers generally have acquired fully-paid licenses to their
installed systems. Therefore, there can be no assurance that any of the
Company's major customers will continue to purchase new systems, systems
enhancements and services. A reduction, delay or cancellation in orders from any
of its major customers would have a material adverse effect on the Company's
results of operations and financial condition. In addition, the acquisition by a
third party of one of the Company's major customers could result in the
14
<PAGE> 15
loss of that customer and have a material adverse effect on the Company's
results of operations and financial condition.
Rapid Technological Change and Requirement for Frequent Product
Transitions. The market for the Company's products is competitive, highly
fragmented and characterized by rapid technological developments, evolving
industry standards and rapid changes in customer requirements. The introduction
of products embodying new technologies, the emergence of new industry standards
or changes in customer requirements could render the Company's existing products
obsolete and unmarketable. As a result, the Company's success depends upon its
ability to continue to enhance existing products, respond to changing customer
requirements and develop and introduce in a timely manner, new products that
keep pace with technological developments and emerging industry standards.
Customer requirements include, but are not limited to, product operability and
support across distributed and changing heterogeneous hardware platforms,
operating systems, relational databases and networks.
Dependence on Key Employees. The Company is highly dependent on the
principal members of its management staff, including Ali Al-Dahwi, its President
and Chief Executive Officer, Steven B. Dong, its Executive Vice President of
Operations, Anas El-Mahdi its Vice President of Business Development, and K.
Crandal McDougall, its Vice President and Chief Financial Officer, the loss of
whose services would have a material adverse effect on the Company's business.
The Company has entered into employment agreements with Mr. Al-Dahwi and Mr.
Dong. The Company has not entered into employment agreements with Mr. El-Mahdi
and Mr. McDougall and does not maintain any key-person life insurance policy on
any employee. Failure to attract and retain key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Year 2000 Compliance. The Company has evaluated the potential impact of
year 2000 difficulties on the processing of date-sensitive information by the
Company's computerized information system and believes that its systems are year
2000 compliant. The year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year. Any
of the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures. The Company believes that if
such year 2000 difficulties arise, the cost of addressing the potential problems
will not have a material adverse effect on the Company's financial position,
liquidity or results of operations in future periods. The Company's software
product, netRunner(TM), is year 2000 compliant. The Company's prior product
offering in its final release was year 2000 compliant. Earlier versions of the
Command product prior to its final version were not year 2000 compliant. The
Company made a reasonable business effort to inform its prior Command customers
of the fact that certain versions of the Command product were not year 2000
compliant and offered a year 2000 upgrade.
15
<PAGE> 16
ITEM 7. FINANCIAL STATEMENTS
Reference is made to the Consolidated Balance Sheet, Consolidated
Statements of Operations, Consolidated Statement of Stockholders' Deficit and
Consolidated Statements of Cash Flows, Notes to Consolidated Financial
Statements, and Report of Independent Certified Public Accountants attached to
this Form 10-KSB. See page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information regarding the
Company's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE OFFICE OFFICER OR DIRECTOR SINCE
---- --- ------ -------------------------
<S> <C> <C> <C>
Philip R. Chapman 38 Chairman of the Board 1998
Ali Al-Dahwi 44 Director, President and 1998
Chief Executive Officer
Steven B. Dong 47 Executive Vice President 1999
of Operations
Anas El-Mahdi 32 Vice President of Business 1999
Development
K. Crandal McDougall 44 Vice President of Finance, 1999
Chief Financial Officer
and Secretary
</TABLE>
The following is a summary of the business experience of each executive officer
and director of the Company:
Philip R. Chapman has served as a director of the Company since
September 1998. From April 1997 to September 1998, Mr. Chapman was a director of
Cambio Networks, Inc. Mr. Chapman is currently and has been for the past five
years, a General Partner of Adler & Company, which is a member of Euro-America
Venture Partners LLC, which is the general partner of Euro-America-II. Mr.
Chapman is presently a director of Global Pharmeceutical Corp. and Shells
Seafood Restaurants as well as several privately held companies. Mr. Chapman
holds a BS in Psychology and an MBA in Finance and Marketing from Columbia
University.
Ali Al-Dahwi has served as a Director of the Company since September
1998 and has served as President and Chief Executive Officer of the Company
since January 1999. From September 1998 to January 1999, Mr. Al-Dahwi was
President and Chief Operating Officer of
16
<PAGE> 17
the Company. From June 1998 to September 1998, Mr. Al-Dahwi served as President
and Chief Operating Officer of Cambio Networks, Inc. From 1982 to 1998, Mr.
Al-Dahwi held various positions at Accugraph Corporation including Vice
President and General Manager - Global Complex Enterprise Network Business Unit
from 1996 to 1998 and Manager of International Operations from 1992 to 1996.
Mr. Al-Dahwi holds a BS in Civil Engineering from the University of Texas El
Paso.
Steven B. Dong has served as Executive Vice President of Operations of
the company since March 1, 1999. From August 1997 to February 1999, he was
Business Unit Vice President at Beechwood/Cap Gemini. From February 1995 to
August 1997, he served as General Manager of Accugraph Services Group. From
August 1992 to August 1995, he was the Executive Director at Intergraph Federal
Systems Corporation. From August 1982 to August 1992, Mr. Dong held multiple
domestic and international assignments including Vice President of Marketing and
Product Management for McDonnell Douglas Systems Integration Company/EDS. Prior
to that he was at Dravo and Lester B. Knight and Associates. Mr. Dong received
his BSEE degree from The City College, New York, NY and his MBA from Washington
University, St. Louis, MO.
Anas El-Mahdi has served as Vice President Business Development of the
company since June 1999. Mr. El-Mahdi joined Cambio in October of 1998. From
April 1998 to October 1998, he was a consultant for British Telecom in the
United Kingdom. From September 1994 to March 1998, he was a Telecommunications
and Networking Consultant for Accugraph Corporation. From September 1992 to
August 1994, he was an Application Engineer for Opensoft. From October 1990 to
September 1992, he was a Development Engineer for AAW Consulting Engineers. Mr.
El-Mahdi holds a BSc. degree in Engineering from the Faculty of Engineering,
Cairo University, Egypt.
K. Crandal McDougall has served as Vice President of Finance and Chief
Financial Officer since July 1999. From July 1997 to July 1999, Mr. McDougall
worked in the External Reporting Section and New Business Initiatives Section of
the Finance Department for Archstone Communities, a real estate investment
trust. From 1995 to 1997 Mr. McDougall was with the accounting firm of KPMG,
LLP. Prior to 1995 Mr. McDougall was an attorney in the Law Department of
Florida Power & Light Company. Additionally, Mr. McDougall served as an
Administrative Law Judge for the Public Utility Commission of Texas. Mr.
McDougall is a CPA and a member of the Texas, Florida and Missouri bars.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of forms submitted to the Company during and with
respect to the 1999 fiscal year and the written representations of reporting
persons, the Company believes that all reports required to be filed under
Section 16(a) of the Securities Exchange Act of 1934 for transactions occurring
during fiscal 1999 were timely filed except as identified hereafter. Mr. Steven
B. Dong and Mr. Anas El-Mahdi did not file a Form 3 upon joining the Company and
did not report on Form 4 the grant of stock options to them on March 26, 1999.
17
<PAGE> 18
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation earned by the Company's Chief Executive Officer and certain
executive officers of the Company as of June 30, 1999 for services rendered in
all capacities to the Company during the last three fiscal years.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ------------------
FISCAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
- --------------------------- ---- --------- ------- ------------------
<S> <C> <C> <C> <C>
Harvey Wm. Glasser, M.D. 1999 $ 50,005 $ 0
Chief Executive Officer 1998 $ 100,010 $ 0
1997 $ 100,010 $ 0
Ali Al-Dahwi 1999 $ 112,512 $8,895 250,000
Chief Executive Officer 1998 $ 0 $ 0
1997 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION GRANTS AND AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
% of Total
Grants in Exercise
Current Fiscal Price/Market
Name Options Granted Year Price Expiration Date
---- --------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Ali Al-Dahwi 1,000,000 39.0% $0.20 March 26, 2004
-------------------------------------------------------------------------------------------------
</TABLE>
At this time the Company does not have a long term incentive plan.
The Company does have an employment agreement with Mr. Al-Dahwi. The terms of
the contract generally provide for the following:
i. Salary of $150,000, with a bonus of 1% of sales.
ii. Options of 1,000,000 with each option being exercisable for 1
share of the Company's Class A Common Shares at $0.20 a share.
750,000 of the options vest over a three-year period and the
remaining 250,000 vested at issuance.
iii. The agreement has a one-year renewable term which renews on
February 4, 2000.
iv. In the event of termination of the agreement, Mr. Al-Dahwi is
entitled to a severance payment of 6 months base salary payable
semi-monthly over 6 months, and all options outstanding will
vest.
The Directors of the Company are not compensated.
AGGREGATED OPTION AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Number of securities underlying Value of unexercised in the-
unexercised options at FY-end money options at FY-end
Name Exercisable/Unexercisable Exercisable/Unexercisable
----------------------------- ------------------------------- ----------------------------
<S> <C>
Ali Al-Dahwi 250,000/750,000 $207,500/$622,500
---------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1999 certain
information as to the Company's Class A Common Stock beneficially owned by (i)
each person known to the Company to beneficially own more than 5% of the
Company's Class A Common Stock, (ii) each of the Company's directors, (iii) the
chief executive officer and (iv) all executive officers and directors as a
group:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
NAME OF BENEFICIAL CLASS A COMMON PERCENTAGE OF SERIES B PERCENTAGE OF VOTING POWER
OWNER STOCK CLASS A COMMON PREFERRED SERIES B OF STOCK
BENEFICIALLY STOCK STOCK PREFERRED OUTSTANDING
OWNED (1) BENEFICIALLY BENEFICIALLY STOCK AND
OWNED (2) OWNED BENEFICIALLY BENEFICIALLY
OWNED OWNED (3)
------------------- --------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Frederick R. Adler 12,444,286(4) 81.2% 22,323(5) 43.7% 42.1%
Harvey Glasser 1,208,392 29.9% 4.1%
Euro-America-II, L.P. 3,972,238(6) 51.8% 7,027 13.8% 13.4%
The Travelers 4,500,000 52.7% 9,000 17.6% 15.2%
Insurance Company
Ali Al-Dawhi 250,000(7) 5.8% 0.8%
Philip Chapman 268,141(8) 6.2% 500(9) 1.0% 0.9%
All officers and 518,141 11.4% 500 1.0% 1.8%
directors as a group
-------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes conversion of the Series B Preferred Stock into Class A Common.
Each share of Series B Preferred Stock is convertible into 500 shares of
Class A Common Stock.
(2) This column was prepared in strict accordance with SEC rules in determining
the percentage ownership of the individual or entity identified. Given the
voting rights of the Series B Preferred Stockholders to vote with the Class
A Common Shareholders as described in note (3) below, the percentage of
ownership indicated in this column does not connote control of the Company
in the event that the individual or entity identified were to exercise the
underlying options or conversion rights or control that the beneficial
ownership column identifies. The percentage of ownership assumes that only
this individual or entity exercised their rights to the shares beneficially
owned and that no other individual or entity exercised their rights. For an
understanding as to voting control of the Company, please see the column
entitled "Voting power of stock outstanding and beneficially owned" and
note (3) to this table. Furthermore, a majority of the Series B Preferred
Stock shareholders identified in Exhibit 10.4 would own 5% or more of the
Class A Common Stock if they
19
<PAGE> 20
were to convert their Series B Preferred Stock and no other person owning
Series B Preferred Stock so converted at that time. Any such conversion
would not affect the voting power of any shareholder.
(3) The Preferred Stock votes as a single class with all other stockholders of
the Company on all matters voted on by the holders of Class A Common Stock,
with each holder of Preferred Stock being entitled to the number of votes
equal to the number of shares of Class A Common Stock into which his shares
would then be convertible. The percentages in this column represent the
stockholder's percentage of voting stock based on his or her beneficial
ownership of stock divided by the 29,573,736 currently outstanding votes
that may be cast with respect to any matter submitted for the consideration
of the holders of the 4,037,236 shares of Class A Common Stock outstanding.
(4) Includes the shares beneficially owned by Euro-America-II, L.P. Mr. Adler
acts as general partner to a partnership that serves as a member of Euro
America Venture Partners LLC, which is the general partner of
Euro-America-II, L.P. As such, Mr. Adler may be deemed to be the beneficial
owner of these shares. Mr. Adler disclaims beneficial ownership of the
shares held by Euro-America-II, L.P.
(5) Includes 7,027 shares of Series B Preferred Stock owned by Euro-America-II,
L.P. Mr. Adler acts as general partner to a partnership that serves as a
member of Euro America Venture Partners LLC, which is the general partner
of Euro-America-II, L.P. As such, Mr. Adler may be deemed to be the
beneficial owner of these shares. Mr. Adler disclaims beneficial ownership
of the shares held by Euro-America-II, L.P.
(6) Includes 120,052 warrants to purchase Class A Common Stock.
(7) Consists of options to purchase 250,000 shares of Class A Common Stock.
(8) Includes 9,000 warrants held by Mr. Chapman and 6,000 warrants held by his
wife, Susan Chapman, for the purchase of Class A Common Stock. Mr. Chapman
disclaims beneficial ownership of these warrants.
(9) Includes 200 shares of Preferred Stock held by Mr. Chapman's wife, Susan
Chapman. Mr. Chapman disclaims beneficial ownership of these warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no material interests, direct or indirect, of directors,
executive officers or senior officers of the Company or any known associate or
affiliate of any of the foregoing in any transaction since the commencement of
the Company's last fiscal year, or in any proposed transaction which has
materially affected or would materially affect the Company or any of its
subsidiaries and which is not otherwise disclosed herein except for the
following:
A corporation previously owned and controlled by the Company's Chief
Executive Officer, Harvey Wm. Glasser, M.D., purchased and leased to the Company
several facilities which the Company was not able to purchase due to its lack of
capital and borrowing capacity prior to its initial public offering in February
1992. One such lease, for the Company's rehabilitation hospital in Gardner,
Kansas, was in effect during fiscal year 1997 and a portion of fiscal year 1998.
Dr. Glasser sold the Kansas facility leased to the Company in conjunction with
the Company's sale of its Kansas operations. Such lease provided for a base rent
plus a percentage of the leased facility's net revenues. Under the lease
agreement, the Company was responsible for all taxes and expenses associated
with the ownership and operation of the property. The Company made payments in
the amount of $382,000 during fiscal year
20
<PAGE> 21
1997 and $31,809 during fiscal year 1998 under the lease for such hospital. No
payments were made in 1999.
During the fiscal year ended June 30, 1994, the Company closed the
operations of its San Jose, California subacute facility, which also was leased
from a corporation previously controlled by Dr. Glasser. In December 1994, the
Company sold its lease for the San Jose facility to an investment partnership
for a nominal sum and the investment partnership's rent obligation commenced on
February 15, 1995. The Company, however, remained obligated to make lease
payments of $19,500 per month to the lessor until August 1998 in the event that
the investment partnership defaulted on its obligations under the lease. The
Company made no rent payments under such lease during fiscal years 1997, 1998 or
1999.
On February 2, 1999, the Company entered into an agreement with
Imperial Loan Management Corporation ("Imperial") whereby the Company
transferred all of the issued and outstanding stock of its discontinued
healthcare subsidiaries (the "Subsidiaries") to Imperial, an affiliate of the
Company's former Chairman and CEO, Harvey Wm. Glasser, M.D., who is overseeing
the liquidation of the Subsidiaries on behalf of Imperial. As part of the
agreement, Imperial will use its best efforts to liquidate each of the
Subsidiaries, settling outstanding obligations and collecting all amounts due.
The Company remains a guarantor of the Subsidiaries' outstanding indebtedness,
which approximates $677,808 as of June 30, 1999, and is entitled to receive
one-half of proceeds received after payment of all expenses. In connection with
this transaction, the Company recorded a charge to write-off the remaining net
assets from discontinued operations.
As described in Items 5 and 11, Frederick Adler purchased a significant portion
of the Preferred Stock offered in fiscal year 1999. Mr. Adler is the
father-in-law of the Chairman of the Board, Philip Chapman.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Agreement and Plan of Merger, dated April 3, 1998,
between the Registrant, Networks' majority
shareholders and Networks, filed as Exhibit 2.1 to
the Registrant's current report on Form 8-K dated
April 22, 1998 and incorporated herein by reference.
2.2 Agreement of Amendment, dated July 27, 1998, between
the Registrant, Networks' majority shareholders and
Networks, filed as Annex A to the Registrant's Joint
Information/Consent Solicitation Statement on
Schedule 14C dated August 14, 1998 and incorporated
herein by reference.
2.3 Secured Bridge Financial Note dated April 3, 1998,
between the Registrant and Networks, filed as Exhibit
2.2 to the Registrant's current report on Form 8-K
dated April 22, 1998 and incorporated herein by
reference.
3.1 Amended and Restated Certificate of Incorporation of
the Company, filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Commission File
No. 33-44197) (the "Registration Statement") and
incorporated herein by reference.
3.2 Certificate of Amendment of Restated Certificate of
Incorporation filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 and incorporated herein by reference.
21
<PAGE> 22
3.3 Certificate of Amendment of the Certificate of
Incorporation of Cambio, Inc. dated August 5, 1999.
3.4 Certificate of the Designations, Powers, Preferences,
and Rights of the Series B Convertible Preferred
Stock, filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1999, and incorporated herein by reference.
3.5 Certificate of Amendment of the Certificate of the
Designations, Powers, Preferences, and Rights of the
Series B Convertible Preferred Stock amended August
5, 1999.
3.6 Amended and Restated By-Laws of the Company, filed
as Exhibit 3.2 to the Registration Statement and
incorporated herein by reference.
10.1 1994 Stock Incentive Plan of the Company filed as
Exhibit 10.1 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1995 (the
"1995 10-K") and incorporated herein by reference.
10.2 Agreement dated February 2, 1999 by and between
Harvey Wm. Glasser, Cambio, Inc., and certain
security holders, filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1998, and incorporated
herein by reference.
10.3 Agreement dated February 2, 1999 by and between
Imperial Loan Management Corporation, Cambio, Inc.,
and Medbrook Home Health, Inc., filed as Exhibit 10.3
to the Company's Quarterly Report on Form 10-QSB for
the quarter ended December 31, 1998, and incorporated
herein by reference.
10.4 Series B Convertible Preferred Stock Purchase
Agreement, dated as of the 1st day of February, 1999
between Cambio, Inc. and certain specified
purchasers.
21.1 Subsidiaries of the Company.
23.1 Consent of Grant Thornton LLP (see page 25 of this
Form 10-KSB).
24.1 Power of Attorney (see Page 24 of this Form 10-KSB).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
On August 10, 1998, the Company filed a current report on Form
8-K with the Securities and Exchange Commission reporting under Item 4
that on August 6, 1998 its Board of Directors changed from using Arthur
Andersen LLP as its principal independent accountant and appointed
Grant Thornton LLP as its new independent accountant.
On September 24, 1998, the Company filed a current report on
Form 8-K with the Securities and Exchange Commission reporting under
Item 2 that the Company has acquired Cambio Networks, Inc.
22
<PAGE> 23
On November 5, 1998, the Company filed a current report on
Form 8-K with the Securities and Exchange Commission reporting under
Item 5 that the Company had received notice that the Nasdaq Stock
Market would delist the registrant's Class A Common Stock from the
Nasdaq National Market effective with the close of business on October
20, 1998.
On November 5, 1998, the Company filed a current report on
Form 8-K with the Securities and Exchange Commission reporting under
Item 5 that the Company had changed its name to Cambio, Inc.
On November 25, 1998, the Company filed a current report on
Form 8-K/A with the Securities and Exchange Commission reporting under
Item 7 providing financial information in connection with its
acquisition of Cambio Networks, Inc.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATE: October 13, 1999 CAMBIO, INC.
By /s/ Ali Al-Dahwi
-------------------------------
Ali Al-Dahwi
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ali Al-Dahwi, his attorney-in-fact, with
full power of substitution, for him in any and all capacities, to sign any
amendments to this Report on Form 10-KSB and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
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
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Philip R. Chapman Chairman of the Board October 13, 1999
- ------------------------------
Philip R. Chapman
/s/ Ali Al-Dahwi President and Chief Executive Officer October 13, 1999
- ------------------------------
Ali Al-Dahwi
Vice President of Finance, Chief
/s/ K. Crandal McDougall Financial Officer and Secretary October 13, 1999
- ------------------------------
K. Crandal McDougall
</TABLE>
24
<PAGE> 25
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 1, 1999, accompanying the consolidated
financial statements and schedule of Cambio, Inc. (the "Company") included in
the Company's Annual Report on Form 10-KSB for the year ended June 30, 1999. We
hereby consent to the incorporation by reference of said report in the Company's
previously filed Registration Statement on Form S-8, Registration No. 33-50772.
GRANT THORNTON LLP
San Jose, California
September 1, 1999
25
<PAGE> 26
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountants........................F-2
Consolidated Balance Sheet................................................F-3
Consolidated Statements of Operations.....................................F-4
Consolidated Statement of Stockholders' Deficit...........................F-5
Consolidated Statements of Cash Flows.....................................F-6
Notes to Consolidated Financial Statements................................F-8
</TABLE>
F-1
<PAGE> 27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Cambio, Inc.
We have audited the accompanying consolidated balance sheet of Cambio, Inc. (a
Delaware corporation) and subsidiaries as of June 30, 1999, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the two years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cambio,
Inc. and subsidiaries as of June 30, 1999, and the consolidated results of their
operations and their cash flows for each of the two years then ended, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of $10,015,000 during the
year ended June 30, 1999, and, as of that date, the Company's current
liabilities exceeded its current assets by $1,381,000 and its total liabilities
exceeded its total assets by $1,215,000. These factors, among others, as
discussed in Note 2 to the consolidated financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
GRANT THORNTON LLP
San Jose, California
September 1, 1999
F-2
<PAGE> 28
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents..................................................................... $ 1,923,000
Accounts receivable, less allowance for doubtful accounts of $37,000.......................... 203,000
Prepaid expenses.............................................................................. 23,000
-------------
Total current assets............................................................. 2,149,000
Property and equipment, net....................................................................... 141,000
Other assets ................................................................................. 25,000
-------------
Total assets..................................................................... $ 2,315,000
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities...................................................... $ 2,509,000
Deferred revenue.............................................................................. 93,000
Note payable to stockholder................................................................... 250,000
Liabilities of discontinued operations........................................................ 678,000
-------------
Total current liabilities........................................................ 3,530,000
Stockholders' equity (deficit)
Common stock, $.01 par value -
55,000,000 shares authorized; 3,832,411 shares issued
and outstanding......................................................................... 38,000
Preferred stock, $.01 par value -
1,000,000 shares authorized; 51,073 shares issued and outstanding.......................... 1,000
Paid-in capital............................................................................... 23,318,000
Accumulated deficit........................................................................... (24,572,000)
-------------
Total stockholders' deficit...................................................... (1,215,000)
-------------
Total liabilities and stockholders' deficit...................................... $ 2,315,000
=============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 29
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Continuing operations
Net revenues ........................................................ $ 823,000 $ --
Cost of revenue ..................................................... 286,000 --
------------ ------------
Gross profit ........................................... 537,000 --
Operating expenses
Administrative expenses .......................................... 4,371,000 $ 1,207,000
Research and development ......................................... 280,000 --
------------ ------------
...................................................... 4,651,000 1,207,000
------------ ------------
Operating loss ......................................... (4,114,000) (1,207,000)
Other income (expense)
Interest income .................................................. 13,000 140,000
Interest expense ................................................. (66,000) --
Write-off of goodwill ............................................ (4,850,000) --
Other, net ....................................................... 15,000 --
------------ ------------
------------
...................................................... (4,888,000) 140,000
------------ ------------
Loss from continuing operations ........................ (9,002,000) (1,067,000)
Discontinued operations
Loss on disposal of discontinued businesses ......................... (1,013,000) (1,563,000)
Loss from operations of discontinued businesses ..................... -- (235,000)
------------ ------------
Loss from discontinued operations ...................... (1,013,000) (1,798,000)
------------ ------------
NET LOSS ............................................... $(10,015,000) $ (2,865,000)
============ ============
Basic and diluted net loss per common share - continuing operations ..... $ (2.52) $ (0.37)
Basic and diluted net loss per common share - discontinued operations ... $ (0.28) $ (0.63)
------------ ------------
Basic and diluted net loss per common share ............................. $ (2.80) $ (1.00)
============ ============
Weighted average shares outstanding ..................................... 3,574,460 2,851,893
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 30
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
Preferred Stock Class A Class B
----------------------- ----------------------- ----------------------
Shares Amount Shares Amount Shares Amount
---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1997 -- -- 1,735,866 $ 17,000 1,159,500 $ 12,000
Net loss -- -- -- -- -- --
Redemption of shares -- -- (301,797) (3,000) -- --
---------- --------- ---------- ---------- ---------- ----------
Balance, June 30, 1998 -- -- 1,434,069 14,000 1,159,500 12,000
Net loss -- -- -- -- -- --
Issuance of Common Stock
in connection with
Cambio Networks, Inc.
acquisition -- -- 1,238,842 12,000 -- --
Conversion of debt into
preferred stock 14,073 -- -- -- -- --
Issuance of Preferred
Stock 37,000 1,000 -- -- -- --
for cash
Conversion of Class B to
Class A stock -- -- 1,159,500 12,000 (1,159,500) (12,000)
---------- --------- ---------- ---------- ---------- ----------
Balance, June 30, 1999 51,073 $ 1,000 3,832,411 $ 38,000 -- $ --
========== ========= ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Total
Paid-in Accumulated Stockholders'
Capital Deficit Deficit
------------ ------------- --------------
<S> <C> <C> <C>
Balance, July 1, 1997 17,898,000 $ (11,692,000) $ 6,235,000
Net loss -- (2,865,000) (2,865,000)
Redemption of shares (293,000) -- (296,000)
------------ ------------- --------------
Balance, June 30, 1998 17,605,000 (14,557,000) 3,074,000
Net loss -- (10,015,000) (10,015,000)
Issuance of Common Stock
in connection with
Cambio Networks, Inc.
acquisition 607,000 -- 619,000
Conversion of debt into
preferred stock 1,407,000 -- 1,407,000
Issuance of Preferred
Stock 3,699,000 -- 3,700,000
for cash
Conversion of Class B to
Class A stock -- -- --
------------ ------------- --------------
Balance, June 30, 1999 $ 23,318,000 $ (24,572,000) $ (1,215,000)
============ ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 31
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................................... $ (10,015,000) $ (2,865,000)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization .................................... 195,000 --
Write-off of goodwill ............................................ 4,850,000 --
Gain on sale of equipment ........................................ (2,000) --
Loss from discontinued operations ................................ 1,013,000 1,798,000
Changes in assets and liabilities, net of effects from the
acquisition accounted for as a purchase:
Receivables ................................................... (5,000) --
Prepaid expenses .............................................. 60,000 --
Other assets .................................................. (25,000) --
Net assets of discontinued operations ......................... (211,000) (522,000)
Accounts payable and accrued liabilities ...................... 974,000 (43,000)
Deferred revenue .............................................. (123,000) --
------------ ------------
Net cash used in operating activities ......................... (3,289,000) (1,632,000)
Cash flows from investing activities:
Proceeds from sale of equipment ............................................ 25,000 --
Cash advanced to acquired company prior to acquisition ..................... (638,000) (875,000)
Costs related to acquisition ............................................... (100,000) --
Additions to property and equipment ........................................ (143,000) --
Discontinued operations, net ............................................... -- 1,352,000
------------ ------------
Net cash (used in) provided by investing activities ........... (856,000) 477,000
Cash flows from financing activities:
Proceeds from issuance of preferred stock and warrants ..................... 3,700,000 --
Net borrowings (payments) on debt .......................................... 64,000 (178,000)
Decrease in cash deposited to secure a loan ................................ -- 24,000
Decrease in restricted cash ................................................ 302,000 --
Common stock redemptions ................................................... -- (296,000)
Net proceeds of loans collateralized by assets of discontinued operations .. 678,000 --
------------ ------------
Net cash provided by (used in) financing activities ........... 4,744,000 (450,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents .......... 599,000 (1,605,000)
Cash and cash equivalents, beginning of year ................................... 1,324,000 2,929,000
------------ ------------
Cash and cash equivalents, end of year ......................................... $ 1,923,000 $ 1,324,000
============ ============
Supplemental disclosure of cash flow information:
Interest paid .............................................................. $ 21,000 $ 19,000
Income taxes paid .......................................................... -- 10,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 32
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Supplemental disclosure of noncash investing and financing activities:
Purchase of Cambio Networks, Inc.
Common stock issued to seller ...................................................... $ 619,000 $ --
Liabilities assumed (including cash advanced prior to acquisition of $1,513,000) ... 4,658,000 --
Acquisition costs .................................................................. 100,000 --
-------------- --------------
Assets acquired (including goodwill of $4,875,000) .............................. $ 5,377,000 $ --
============== ==============
Conversion of debt into preferred stock ............................................ $ 1,207,000 $ --
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 33
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 - ORGANIZATION AND OPERATIONS
Cambio, Inc. ("Cambio" or the "Company"), formerly Meadowbrook Rehabilitation
Group, Inc., acquired Cambio Networks, Inc. ("Networks") on September 14, 1998.
The Company currently provides professional services and supplies software
products, for operations support systems of telecommunications networks. The
Company's primary product is netRunner(TM). The Company's corporate headquarters
is in Dallas, Texas. The Company's accounting, finance, and research and
development functions are located in El Paso, Texas. The Company also has sales
executives located in the United Kingdom and Egypt.
Prior to the acquisition of Networks, the Company provided outpatient, home
health, and traditional acute, sub-acute and post-acute comprehensive
rehabilitation services through several subsidiaries. In the fourth quarter of
fiscal 1998, the Company's Board of Directors decided to discontinue the
Company's remaining rehabilitation operations due to continued losses and a
diminishing market for the Company's services. Previously, several of the
Company's service locations and units had been sold or otherwise disposed. In
connection with the decision to discontinue the remaining operations, the
Company recorded a charge of $1,563,000 for the write down of tangible and
intangible assets, termination and severance costs and other costs of disposal.
As of June 30, 1998, all health care operations had substantially ceased and the
Company's assets consisted almost exclusively of cash and accounts receivable.
On February 2, 1999, Cambio transferred all of the issued and outstanding stock
of the discontinued healthcare subsidiaries (the "Subsidiaries") to Imperial
Loan Management Corporation ("Imperial"), an affiliate of the Company's former
Chairman and CEO, Harvey Wm. Glasser M.D. Dr. Glasser, who in February 1999
resigned his position as CEO and in March 1999 resigned from the Board of
Directors, is overseeing the liquidation of the Subsidiaries on behalf of
Imperial. The Company received no proceeds from the transfer. Prior to the
transfer, Imperial loaned $900,000 to the Subsidiaries and Cambio, represented
by 10% notes payable. Imperial will use its best efforts to liquidate each of
the Subsidiaries, settle outstanding obligations and collect all amounts
receivable. Cambio remains a guarantor of the Imperial loans, amounting to
$678,000 as of June 30, 1999. Upon liquidation of the Subsidiaries and
settlement of the outstanding indebtedness, Cambio is entitled to receive
one-half of the proceeds remaining after payment of Imperial's expenses. At June
30, 1999, the assets and liabilities of the discontinued businesses consist
primarily of the accounts receivable and the Imperial loans. The Company
considers the realization of the remaining assets to be unlikely and the assets
have been fully provided for. All other material obligations of the Subsidiaries
have been settled except for the Imperial loans.
Results of discontinued operations are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net revenues .......................................... $ -- $ 6,797,000
Net expenses .......................................... -- (7,032,000)
------------ ------------
Net loss from operations of discontinued businesses ... $ -- $ (235,000)
============ ============
Net loss on disposal of discontinued businesses ....... $ (1,013,000) $ (1,563,000)
============ ============
</TABLE>
F-8
<PAGE> 34
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 - ORGANIZATION AND OPERATIONS (CONTINUED)
The operations of Networks are reflected in the Company's fiscal year 1999
results from the date that Networks was acquired by the Company. Pro forma
results of operations assuming the acquisition of Networks occurred at the
beginning of 1998 are as follows. Pro forma results for 1999 are not
presented, as the results would not be materially different than the results
reported.
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
Net revenues......................................... $ 3,346,000
Gross margin......................................... $ 1,809,000
Net loss ........................................... $ (7,304,000)
Net loss per share................................... $ (1.72)
Shares used in per share computation................. 4,090,735
</TABLE>
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of $10,015,000 during the
year ended June 30, 1999, and, as of that date, the Company's current
liabilities exceeded its current assets by $1,381,000 and its total liabilities
exceeded its total assets by $1,215,000.
The Company is actively seeking additional funding through loans and preferred
stock and plans to fund its operations for the next twelve months from the
proceeds received. However, there can be no assurance that capital will be
available, or that, if available, it can be obtained on terms favorable to the
Company. If adequate funds are not available, the Company's liquidity will be
impaired, which will have a material adverse effect on its business. In the
event additional funds are not timely advanced to the Company through the sale
of preferred stock or in the form of a loan, there will be substantial doubt as
to the ability of the Company to remain as a going concern.
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies applied in the
preparation of the accompanying financial statements follows.
Revenue Recognition
Revenue is recognized when earned in accordance with American Institute of
Certified Public Accountants Statements of Position ("SOP") 97-2, "Software
Revenue Recognition" as amended by SOP 98-9. Revenue from products licensed to
customers directly is recorded when the software has been delivered. Maintenance
revenue is recognized ratably over the contract period. Revenue from
professional services are recorded monthly when the services are performed and
invoiced. Provisions are recorded for returns and bad debts.
Consolidation
The consolidated financial statements include the accounts of Cambio and
Networks. All significant intercompany accounts and transactions have been
eliminated.
F-9
<PAGE> 35
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over the lesser of
the lease term or the estimated useful life of the assets.
Research and Development Costs
All expenditures for research and development are expensed when incurred.
Software development costs are charged to expense until technological
feasibility of the computer software product has been established. No software
development costs have been capitalized to date, as costs incurred after
establishing technological feasibility have been immaterial.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. When management determines that it is more likely than not that a
deferred tax asset will not be realized, a valuation allowance is established.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, accounts receivables and accounts
payables approximates carrying value due to the short maturity of such
instruments. The fair value of debt with related parties is not readily
determinable due to the terms of the debt and no comparable market for such
debt.
Use of Estimates
In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Earnings Per Share
Basic earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common and dilutive common equivalent
shares outstanding during the period. Dilutive common equivalent shares consist
of options and warrants. The Company did not have any common equivalent shares
for 1998 or 1999.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
F-10
<PAGE> 36
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Concentration Of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents and trade accounts receivable.
Cash equivalents are maintained with high quality institutions and are regularly
monitored by management. The Company extends credit to its customers, most of
whom are large, established companies. Credit risk is mitigated by performing
ongoing credit evaluations of its customers' financial condition. The Company
generally does not require collateral. The Company provides an allowance for
expected uncollectible amounts and actual amounts not collected have been within
management's expectations.
Accounting For Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting For Stock Issued To Employees." The Company provides additional pro
forma disclosures as required under Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting For Stock-Based Compensation."
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," effective July 1, 1998. The adoption of SFAS No. 131
had no effect on the Company's net loss or stockholders' deficit. The Company
currently has one operating segment based on the markets in which the Company's
operates and the information used to manage the business. Identifiable assets
held outside the United States are not material. Revenues attributable to
customers outside the United States, primarily in Egypt, amounted to $479,000 in
1999.
Goodwill
In 1999, the Company recorded an impairment loss on the goodwill associated with
the Networks acquisition, as the products obtained in the acquisition were no
longer being sold by the Company.
New Accounting Pronouncements
The Financial Accounting Board has issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, which is effective
for financial statements issued for periods beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company does not
expect SFAS No. 133 to have an effect on the financial statements as the Company
currently has no derivative financial instruments.
Reclassifications
Certain items in 1998 have been reclassified to conform to the 1999
presentation. These reclassifications have no effect on the Company's financial
position or results of operations.
F-11
<PAGE> 37
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
Office and warehouse equipment ............................. $280,000
Leasehold improvements ..................................... 27,000
--------
307,000
Less accumulated depreciation and amortization ............. 166,000
--------
$141,000
========
</TABLE>
NOTE 5 - NOTES PAYABLE TO STOCKHOLDERS
The Company has promissory notes payable to common stockholders of $250,000
bearing interest at 7% per annum, due on demand, collateralized by first
position on all assets of the Company.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its office and service facilities and certain equipment under
noncancelable and month-to-month operating lease agreements, which expire at
various dates through 2002. Future minimum lease payments under these agreements
for the fiscal years ending June 30, follow:
<TABLE>
<S> <C> <C>
2000..................................... $ 329,000
2001..................................... 223,000
2002..................................... 79,000
-----------
$ 631,000
===========
</TABLE>
Rent expense for the years ended June 30, 1999 and 1998 was $419,000 and
$573,000, respectively.
Contingencies
The Company is subject to Value Added Tax in the United Kingdom resulting from
the acquisition of Networks and is currently in the process of finalizing the
tax liability for all years since 1995. Management believes any liability the
Company may owe will not be material to the financial statements.
The Company is involved in certain claims and lawsuits occurring in the normal
course of business. Management, after consultation with outside legal counsel,
does not believe that the outcome of these actions would have a material impact
on the financial statements of the Company.
F-12
<PAGE> 38
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has a defined contribution savings plan (401(k)) covering
substantially all employees who have completed three months of service. At the
discretion of the Board of Directors, the Company can match 50% of employee
contributions up to a total contribution of 3% of each employee's annual salary.
There were no employer contributions in 1999 and 1998.
NOTE 8 - STOCKHOLDERS' EQUITY
Common Stock
The Company has authorized 50,000,000 shares of Class A and 5,000,000 shares of
Class B Common Stock. During 1999, all shares of Class B Common Stock were
converted into Class A Common Stock. Class A Common Stock includes the same
rights as Class B Common Stock in all respects except for the following:
o Class B Common Stock has ten votes per share and Class A Common Stock has
one vote per share.
o Class B Common Stock is convertible 1 for 1 into Class A Common Stock at
any time at the option of the holder.
o Class B Common Stock automatically converts to Class A Common Stock when
Class B Common Stock represents less than 12.5% of the total number of
votes entitled to be cast in the election of directors.
o No shares of Class B Common Stock will be issued without prior approval of
the Class A Common stockholders except for stock dividends and stock
splits.
Sale of Preferred Stock
During 1999, the Company's Board of Directors approved the issuance of up to
62,500 shares of a newly created Convertible Preferred Stock designated as
Series B (the "Preferred Stock") for $100 per share. Each share of Preferred
Stock is convertible into 500 shares of the Company's Class A Common Stock and
is entitled to receive dividends in an amount equal to the equivalent per share
dividend declared on the Class A Common Stock when and as declared by the Board
of Directors.
Stock Dividend
In April 1998, the Company effected a three for two stock split paid as a
dividend in the form of shares at the rate of one share for every two shares of
stock owned at the date of reward. The Company has retroactively reflected the
stock dividend in the financial statements for all periods presented.
Conversion of Debt to Equity
In February 1999 and May 1999, the Company converted debt and accrued interest
of $1,057,000 and $350,000 into 10,573 and 3,500 shares of the Company's
Preferred Stock.
F-13
<PAGE> 39
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Plan
The Company has in place the 1994 Stock Incentive Plan which has 1,022,500
shares available for grant. No options are outstanding from this plan.
Nonqualified stock options granted to employees in 1999 outside the 1994 plan
vest within three years and terminate ten years from the date of grant.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Price
Shares Per Share
----------- ----------
<S> <C> <C>
Balance at June 30, 1997 ................. 140,000 $ 5.02
Granted ............................. 5,000 1.96
Exercised ............................. -- --
Cancelled ............................. (115,000) 3.87
----------- ----------
Balance at June 30, 1998.................. 30,000 2.73
Granted ............................. 2,567,000 .20
Exercised ............................. -- --
Cancelled ............................. (30,000) 2.73
------------ ----------
Balance at June 30, 1999.................. 2,567,000 $ 0.20
=========== ==========
</TABLE>
The following table summarizes information about stock options outstanding as of
June 30, 1999:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Number Exercise Remaining Number Exercise
Price Outstanding Price Life (Years) Exercisable Price
-------- ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.20 2,567,000 $ 0.20 10 556,000 $0.20
</TABLE>
The following table depicts the Company's pro forma results had compensation
expense for employee stock options been determined based on the fair value at
the grant dates as prescribed in SFAS No. 123:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Net loss applicable to common shareholders
As reported .............................. $ (10,015,000) $ (2,865,000)
Pro forma ................................ (10,329,000) (2,875,000)
Basic and diluted net loss per share
As reported .............................. $ (2.80) $ (1.00)
Pro forma ................................ (2.89) (1.01)
</TABLE>
F-14
<PAGE> 40
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
The fair value of each option grant was determined using the Black-Scholes
model. The weighted average fair value of options granted to employees was $.20
and $2.88 in 1999 and 1998, respectively. The following weighted average
assumptions were used to perform the calculations: expected life of 5 years;
interest rate of 6%; volatility of 390%; and no dividend yield. The pro forma
disclosures above may not be representative of pro forma effects on reported
financial results for future years.
Warrants
On May 3, 1999, the Company sold 39,000 shares of preferred stock and issued
1,256,495 warrants to purchase 1,256,495 shares of class A common stock of the
Company at $0.20 per share. The warrants were issued as a fee for the sale of
the preferred stock. The warrants expire May 6, 2004.
Delisting of Class A Common Stock from NASDAQ
On October 20, 1998, the Company received notice of a decision by the NASDAQ
Stock Market to delist the Company's Class A Common Stock from the NASDAQ
National Market effective with the close of business on October 20, 1998.
Additionally, at that time, the Company did not meet, and currently does not
meet, the requirements to transfer its listing to the NASDAQ SmallCap Market.
Accordingly, trading in the Company's Class A Common Stock is being conducted on
the OTC Bulletin Board.
NOTE 9 - INCOME TAXES
No provision for taxes was made in 1999 or 1998 due to the losses in each year.
The Company increased the valuation allowance on net deferred tax assets by
$3,085,000 and $1,203,000 in 1999 and 1998.
The primary differences between the statutory federal tax rate and the effective
rate are the non-deductibility of expenses related to discontinued operations,
the non-deductibility of goodwill in 1999 related to the Networks acquisition
and the valuation allowance provided against deferred tax assets. The Company
has $18,062,000 of net operating loss carryforwards for federal purposes and
associated state net operating loss carryforwards, which expire at various dates
through 2019. Current federal and state tax law includes certain provisions
limiting the annual use of net operating loss carryforwards in the event of
certain defined changes in stock ownership. The annual use of the Company's net
operating loss carryforwards are limited according to these provisions.
Deferred income taxes are comprised of the following at June 30, 1999:
<TABLE>
<S> <C>
Accruals not currently deductible................ $ 220,000
Tax loss carry forwards.......................... 6,864,000
-----------
Total deferred income tax assets................. 7,084,000
Less valuation allowance......................... (7,084,000)
-----------
Net deferred income tax assets................ $ --
===========
</TABLE>
F-15
<PAGE> 41
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 10 - MAJOR CUSTOMERS
In 1999, the Company had sales in excess of 10% to three customers amounting to
$429,000, $117,000 and $96,000. The customers accounted for 52%, 14% and 12%,
respectively, of net revenues.
F-16
<PAGE> 42
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger, dated April 3, 1998,
between the Registrant, Networks' majority
shareholders and Networks, filed as Exhibit 2.1 to
the Registrant's current report on Form 8-K dated
April 22, 1998 and incorporated herein by reference.
2.2 Agreement of Amendment, dated July 27, 1998, between
the Registrant, Networks' majority shareholders and
Networks, filed as Annex A to the Registrant's Joint
Information/Consent Solicitation Statement on
Schedule 14C dated August 14, 1998 and incorporated
herein by reference.
2.3 Secured Bridge Financial Note dated April 3, 1998,
between the Registrant and Networks, filed as Exhibit
2.2 to the Registrant's current report on Form 8-K
dated April 22, 1998 and incorporated herein by
reference.
3.1 Amended and Restated Certificate of Incorporation of
the Company, filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Commission File
No. 33-44197) (the "Registration Statement") and
incorporated herein by reference.
3.2 Certificate of Amendment of Restated Certificate of
Incorporation filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 and incorporated herein by reference.
3.3 Certificate of Amendment of the Certificate of
Incorporation of Cambio, Inc. dated August 5, 1999.
3.4 Certificate of the Designations, Powers, Preferences,
and Rights of the Series B Convertible Preferred
Stock, filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1999, and incorporated herein by reference.
3.5 Certificate of Amendment of the Certificate of the
Designations, Powers, Preferences, and Rights of the
Series B Convertible Preferred Stock amended August
5, 1999.
3.6 Amended and Restated By-Laws of the Company, filed
as Exhibit 3.2 to the Registration Statement and
incorporated herein by reference.
10.1 1994 Stock Incentive Plan of the Company filed as
Exhibit 10.1 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1995 (the
"1995 10-K") and incorporated herein by reference.
10.2 Agreement dated February 2, 1999 by and between
Harvey Wm. Glasser, Cambio, Inc., and certain
security holders, filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1998, and incorporated
herein by reference.
10.3 Agreement dated February 2, 1999 by and between
Imperial Loan Management Corporation, Cambio, Inc.,
and Medbrook Home Health, Inc., filed as Exhibit 10.3
to the Company's Quarterly Report on Form 10-QSB for
the quarter ended December 31, 1998, and incorporated
herein by reference.
10.4 Series B Convertible Preferred Stock Purchase
Agreement, dated as of the 1st day of February, 1999
between Cambio, Inc. and certain specified
purchasers.
21.1 Subsidiaries of the Company.
23.1 Consent of Grant Thornton LLP (see page 25 of this
Form 10-KSB).
24.1 Power of Attorney (see Page 24 of this Form 10-KSB).
27.1 Financial Data Schedule.
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
CAMBIO INC.
(Pursuant to Section 242 of the General
Corporation Law of Delaware)
CAMBIO INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation duly
adopted resolutions setting forth proposed amendments to the Certificate of
Incorporation of the Corporation, declaring said amendments to be advisable and
directing that the proposed amendments be placed before the stockholders of the
Corporation for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
RESOLVED, that subsection (a) of Article IV of the Restated
Certificate of Incorporation of the Corporation be, and it hereby is,
amended and restated as follows:
"(a) Authorized Capitalization. The total number of shares of
all classes of stock which the Corporation shall have authority to
issue is fifty six million (56,000,000) shares, consisting of fifty
million (50,000,000) shares of Class A Common Stock, par value $.01
per share ("Class A Common Stock"), five million (5,000,000) shares of
Class B Common Stock, par value $.01 per share ("Class B Common
Stock") ("Class A Common Stock" and "Class B Common Stock" being
herein the "Common Stock"), and one million (1,000,000) shares of
preferred stock, par value $.01 per share ("Preferred Stock"). The
number of authorized shares of Preferred Stock or any series thereof
and Class A Common Stock may be increased or decreased (but not below
the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the voting power of all of the then
outstanding shares of stock entitled to vote in any general election
of directors voting together as a single class. The number of
authorized shares of Class B Common Stock may be increased only with
the affirmative vote of (i) a majority of the Class B Common Stock
voting as a class and (ii) a majority of the Class A Common Stock and
any other class of stock entitled to vote thereon as a class."
RESOLVED, that subsection (d) of Article IV of the Restated
Certificate of Incorporation of the Corporation be, and it hereby is,
amended and restated as follows:
<PAGE> 2
"(d) Preferred Stock. The shares of Preferred Stock may be
issued from time to time in one or more series. The Board of Directors
is hereby expressly vested with authority to fix by resolution or
resolutions the designations and the powers, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof (including,
without limitation, the voting powers, if any, the dividend rate,
conversion rights, redemption price, or liquidation preference of any
series of Preferred Stock), to fix the number of shares constituting
any such series, and to increase or decrease the number of shares of
any such series (but not below the number of shares thereof then
outstanding). In case the number of shares of any such series shall be
so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution or
resolutions, originally fixing the number of shares of such series."
RESOLVED, that subsection (e) of Article IV of the Restated
Certificate of Incorporation of the Corporation be, and it hereby is,
deleted in its entirety.
SECOND: That pursuant to resolution of the Board of
Directors, the proposed amendment was submitted to the stockholders of the
Corporation and was duly adopted by the stockholders of the Corporation
pursuant to a written consent in accordance with the applicable provisions of
Section 228 of the General Corporation Law of Delaware, and in accordance with
such Section 228 written notice has been given to those stockholders who have
not consented in writing.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of Delaware.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate and affirm, under penalties of perjury that the Certificate is the
act and deed of the Corporation and the facts stated herein are true.
Date: August 5, 1999 /s/ Ali Al-Dahwa
---------------------------------
Ali Al-Dahwa
President
-2-
<PAGE> 1
Exhibit 3.5
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE SERIES B CONVERTIBLE PREFERRED STOCK
(Par Value, $.01 per share)
OF
CAMBIO INC.
------------------------
(Pursuant to Section 242 of the General
Corporation Law of Delaware)
-----------------------
CAMBIO INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That Article 4 of the Corporation's Restated
Certificate of Incorporation provides that the Corporation is authorized to
issue 1,000,000 shares of preferred stock, $.01 par value per share, in any
number of series, with such designations, rights and preferences as may be
determined from time to time by the Board of Directors.
SECOND: That pursuant to such authority expressly vested in
the Board of Directors of the Corporation, said Board of Directors duly adopted
a Certificate of the Designations, Powers, Preferences and Rights of the Series
B Convertible Preferred Stock, $.01 par value per share (the "Series B
Certificate of Designations") which was filed on May 6, 1999 with the Secretary
of State of the State of Delaware pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware.
THIRD: That by unanimous written consent the Board of
Directors of the Corporation, a resolution was duly adopted as set forth below:
RESOLVED, that subsection (a) of Section 9 of the Certificate
of Designations of the Series B Preferred Stock of the Corporation be,
and it hereby is, amended and restated as follows:
"Section 9. Preemptive Rights.
(a) Except for (i) stock options granted to employees,
directors, officers or consultants of the Corporation or any of its
subsidiaries, or warrants granted in the ordinary course of business or
warrants (or other convertible securities) or capital stock granted, issued or
sold to persons, joint venturers, participating entities or other companies or
institutions with which the
<PAGE> 2
Corporation has a business relationship, (ii) shares of capital stock issued
pursuant to the exercise of any such warrants, options or other convertible
securities, or of any warrants or options in existence on the date hereof, or
of any warrants or convertible securities (including the Series B Preferred
Stock) issued in connection with the Series B Preferred Stock financing
undertaken by the Corporation on or about May 3, 1999, and (iii) stock issued
in connection with any merger, acquisition or business combination, the holders
of the Series B Preferred Stock, in order to enable such holders to maintain
their fully diluted percentage ownership of the Corporation, shall have
preemptive rights, as hereinafter set forth, to purchase any capital stock,
including warrants or securities convertible into capital stock, of the
Corporation hereafter issued by the Corporation so that a holder of the Series
B Preferred Stock shall hereafter be entitled to acquire a percentage of
capital stock which is hereafter issued equal to the same percentage of the
issued and outstanding Common Stock as is held (directly or obtainable upon
conversion of the Series B Preferred Stock) by such holder of Series B
Preferred Stock immediately prior to the date on which the capital stock is to
be issued on a fully diluted basis."
FOURTH: That this amendment of the Certificate of
Designations was authorized by a majority of the holders of the Corporation's
Series B Preferred Stock, by written consent in accordance with Section 228 of
the General Corporation Law of the State of Delaware.
FIFTH: That this amendment of the Certificate of Designations
was duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate and affirm, under penalties of perjury that the Certificate is the
act and deed of the corporation and the facts stated herein are true.
Date: August 5, 1999 /s/ Ali Al-Dahwa
----------------------------------
Ali Al-Dahwa
President
<PAGE> 1
Exhibit 10.4
CAMBIO, INC.
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of the 1st day of February, 1999, by and among
CAMBIO, INC., a Delaware corporation (the "Company"), and each of the entities
severally listed on the Schedule of Purchasers attached hereto (collectively,
the "Purchasers" and individually, a "Purchaser").
WHEREAS, the Company desires to issue and sell, and the Purchasers
desire to purchase, certain securities of the Company.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and conditions herein contained, the parties hereto agree as follows:
SECTION 1
Authorization and Sale of the Shares
1.1 Authorization of the Shares. The Company has, or before
the first Subsequent Closing to occur pursuant to this Agreement will have,
authorized the sale and issuance of up to 100,000 shares of its Series B
Convertible Preferred Stock, par value $.01 per share (the "Preferred Stock"),
having the rights, restrictions, privileges and preferences set forth in the
Certificate of the Designations, Powers, Preferences and Rights of the Series B
Convertible Preferred Stock (par value $.01 per share) to the Restated
Certificate of Incorporation of the Company (the "Certificate of Designations")
attached to this Agreement as Exhibit A. The shares of Preferred Stock being
sold to the Purchasers hereunder are referred to herein collectively as the
"Shares" and individually as a "Share." As used herein, at and as of the
Closing, the term Certificate of Incorporation shall include the Restated
Certificate of Incorporation, as amended to date (including any previously
filed certificates of designation, as amended), and the Certificate of
Designations. Unless otherwise agreed to by the Purchasers, any Closing
occurring prior to the filing of the Company's Certificate of Designations,
shall be deemed to have occurred immediately subsequent to the filing of the
Certificate of Designations.
1.2 Sale of the Shares. Subject to the terms and conditions
hereof and in reliance upon the representations, warranties and agreements
contained herein, the Company will issue and sell to each of the Purchasers,
severally and not jointly, and each of the Purchasers will purchase from the
Company, the number of shares of Preferred Stock set forth opposite such
Purchaser's name on the Schedule of Purchasers attached hereto (the "Schedule
of Purchasers") under the column labeled "Shares of Series B Preferred Stock,"
at the aggregate purchase price set forth opposite such Purchaser's name on the
Schedule of Purchasers under the column heading "Total Investment."
1
<PAGE> 2
SECTION 2
Closing Date
2.1 Initial Closing Date. The first closing of the purchase
and sale of the Shares hereunder (the "Initial Closing") shall be held shortly
following the execution and delivery of this Agreement on February 3, 1999 (the
"Initial Closing Date") at a time and place determined pursuant to Section 2.3
hereof.
2.2 Delivery. At the Initial Closing or as soon as
practicable thereafter, the Company shall deliver to each Purchaser
certificates in such denominations and registered in such names as set forth in
the Schedule of Purchasers attached hereto, representing the number of shares
of Preferred Stock to be purchased by such Purchaser from the Company, against
payment at the Initial Closing, by certified or bank check, or wire transfer,
of the amount set forth opposite such Purchaser's name in the column labeled
"Total Investment" on the Schedule of Purchasers.
2.3 Place of Initial Closing. The Initial Closing (including
the delivery to the Purchasers by the Company of the certificates evidencing
all Shares being purchased and the place of payment to the Company (except in
the case of a wire transfer) by the Purchasers of the purchase price therefor)
shall take place at 10 a.m., New York time, at the offices of Fulbright &
Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103 or at such other
time and place as shall be mutually agreed upon by the parties.
2.4 Subsequent Closings. At any time, on or after February 3,
1999, upon the mutual agreement of the Company and any additional prospective
investors (the "Subsequent Closing Purchasers"), the Company may conduct
additional closings (the "Subsequent Closings") of the purchase and sale of
Preferred Stock ("Subsequent Closing Securities"), provided that the aggregate
purchase price of the Shares sold at the Initial Closing and the Subsequent
Closings does not exceed $6 million. The Subsequent Closings shall take place
at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New
York 10103 at 10:00 a.m., New York time, or at such other locations as may be
agreed upon among the Subsequent Closing Purchasers purchasing Subsequent
Closing Securities at such closings and the Company (such dates and times being
called the "Subsequent Closing Dates"). At the Subsequent Closings, or as soon
as practicable thereafter, the Company shall issue and deliver to each
Subsequent Closing Purchaser a stock certificate or certificates in definitive
form, registered in the name of such Subsequent Closing Purchaser, representing
the Shares being purchased by it at such Subsequent Closings. On each of the
Subsequent Closing Dates this Agreement shall be amended by adding the name and
address of each such Subsequent Closing Purchaser to the Schedule of Purchasers
attached hereto, along with the number of Shares purchased and the aggregate
purchase price to be paid by each Subsequent Closing Purchaser, and as payment
in full for the Shares being purchased by it at each Subsequent Closing, and
against delivery of the stock certificates therefor as aforesaid, each
Subsequent Closing Purchaser shall deliver to the Company a certified or bank
check in the amount set forth opposite
2
<PAGE> 3
the name of such Purchaser in the column labeled "Total Investment" on the
Schedule of Purchasers, as so amended, or shall transfer such sum to the
account of the Company by wire transfer. Following such amendment to this
Agreement, each Subsequent Purchaser at each Subsequent Closing shall be deemed
a Purchaser for all purposes hereunder and all such Subsequent Closing
Securities shall be deemed Shares.
2.5 Closing Date. As used in this Agreement, the term
"Closing" shall mean, as applicable, the Initial Closing or any Subsequent
Closing, and the term "Closing Date" shall mean, as applicable, the Initial
Closing Date or any Subsequent Closing Date.
SECTION 3
Representations and Warranties of
the Company
Except as set forth in the "Schedule of Exceptions" delivered
to each Purchaser prior to the execution hereof and attached hereto, the
Company hereby represents and warrants to each Purchaser that, as of the date
hereof:
3.1 Organization and Standing; Articles and By-Laws. The
Company is a corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware and is qualified to do
business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification, except where the failure to
so qualify would not have a material adverse effect upon the business,
operations or prospects of the Company. The Company has the requisite corporate
power to own the properties owned by it and to conduct business as now being
conducted by it and possesses all governmental and other permits, licenses and
other authorizations to own its properties as now owned and to conduct its
business as now conducted.
3.2 Corporate Power. The Company has all requisite corporate
power to enter into this Agreement, and has or will have at the first
Subsequent Closing all requisite corporate power to sell the Shares and to
carry out and perform its obligations under the terms of this Agreement, except
for the filing of an amendment to the Company's Certificate of Incorporation to
increase the authorized number of Class A Common Stock.
3.3 Authorization. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated herein, and for the
authorization, issuance and delivery of the Shares has been taken or will be
taken prior to the first Subsequent Closing, except for the filing of an
amendment to the Company's Certificate of Incorporation to increase the
authorized number of Class A Common Stock. This Agreement is a valid and
binding obligation of the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and moratorium
laws and other laws of general
3
<PAGE> 4
application affecting enforcement of creditors' rights generally and to general
equitable principles. The execution, delivery and performance by the Company of
this Agreement and compliance herewith and the issuance and sale of the Shares
and the issuance of Common Stock issuable upon conversion of the Shares will
not (a) result in any violation of and will not conflict with, or result in a
breach of any of the terms of, or constitute a default under, the Company's
Certificate of Incorporation or By-Laws, as amended, any mortgage, indenture,
agreement, instrument, judgment, decree, order, rule or regulation or other
restriction to which the Company is a party or by which it is bound or any
provision of state or Federal law to which the Company is subject, or (b)
result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company pursuant to any such term,
or (c) result in the suspension, revocation, impairment, forfeiture or
non-renewal of any permit, license, authorization or approval applicable to the
Company's operations or any of its assets or properties. The Shares, when
issued in compliance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable; will be free of any liens or
encumbrances; and will have the rights, privileges and preferences as set forth
in the Certificate of Designations. Upon the filing of an amendment to the
Company's Certificate of Incorporation to increase the authorized number of
Class A Common Stock, the shares of Common Stock issuable upon conversion of
the Shares will be duly and validly reserved and will not be subject to any
preemptive rights or rights of first refusal and, upon issuance, will be
validly issued, fully paid and nonassessable.
3.4 Capitalization. The Company has 15,000,000 authorized
shares of the Company's Class A Common Stock, par value $.01 per share (the
"Common Stock"), 5,000,000 authorized shares of the Company's Class B Common
Stock, par value $.01 per share (the "Class B Common Stock") and 1,000,000
authorized shares of Preferred Stock. As of the date hereof: (i) 3,832,411
shares of Common Stock are issued and outstanding; (ii) no shares of the Class
B Common Stock are issued and outstanding; (iii) options to purchase 5,645,603
shares of Common Stock have been authorized; and (iv) no shares of Preferred
Stock are issued and outstanding. Except for warrant to be issued in connection
with the transactions contemplated by this Agreement (the "Warrant"), there are
no other shares outstanding or issuable under existing warrants or options.
3.5 Litigation. There is neither pending nor, to the
Company's knowledge and belief, threatened any action, suit, proceeding or
claim, or any basis therefor or threat thereof, whether or not purportedly on
behalf of the Company, to which the Company is or may be named as a party or to
which its property is or may be subject or to the Company's knowledge, after
due inquiry, to which any director or officer of the Company (in his or her
capacity as such) is subject, and in which an unfavorable outcome, ruling or
finding in any such matter or for all such matters taken as a whole might
reasonably have a material adverse effect on the condition, financial or
otherwise, prospects, operations or results of operations of the Company.
3.6 Absence of Undisclosed Liabilities. The Company does not
have any debts, liabilities or obligations of any nature arising out of
transactions entered into prior to the date hereof except for (i) liabilities
specifically provided for in the consolidated financial statements of the
Company and the notes thereto contained in the Company's Quarterly Report on
Form 10-QSB for
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the quarter ended December 31, 1998 and (ii) for liabilities and obligations
arising out of the ordinary course of business, consistent in form and amount
with past practice, since December 31, 1998.
3.7 SEC Reports. The Company has filed all required forms,
reports and documents with the Securities and Exchange Commission (the "SEC")
since January 1, 1997 (collectively, the "SEC Reports" and, individually, an
"SEC Report"), all of which SEC Reports have complied in all material respects
with all applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
3.8 Absence of Certain Changes. Except as set forth or
otherwise reflected in an SEC Report, since December 31, 1998, the Company has
conducted its business only in the ordinary and usual course and there has not
occurred (i) any material adverse change in the business, financial condition,
operations, results of operations or prospects of the Company or (ii) any
change by the Company in accounting principles or methods, except insofar as
may be required by a change in generally accepted accounting principles.
3.9 Taxes. The Company has filed all tax returns that are
required to have been filed for, by, on behalf of or with regard to the Company
and its business and such returns are true, correct, and complete and reflect
all liabilities for taxes for the periods covered thereby. The Company has paid
in full all taxes, interest and penalties, if any, reflected on such tax
returns or otherwise due and payable by it.
SECTION 4
Representations and Warranties of Purchasers
Each Purchaser, severally and not jointly, represents and
warrants with respect to such Purchaser to the Company as follows:
4.1 Experience; Accredited Investor Status. (a) Such
Purchaser is experienced in evaluating and investing in companies such as the
Company. Such Purchaser has such knowledge and experience in financing and
business matters that such Purchaser is capable of evaluating the merits and
risks of an investment in the Shares and of making an informed decision.
(b) Such Purchaser is an "accredited investor," as such
term is defined in Rule 501(a) promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
4.2 Investment. Such Purchaser is acquiring the Shares for
investment for such Purchaser's own account and not with the view to, or for
resale in connection with, any distribution thereof. Such Purchaser understands
that the Shares are being issued to such Purchaser, and the
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shares of Common Stock issuable upon conversion of the Shares are to be issued
to such Purchaser, (i) without registration under the Securities Act by reason
of a specified exemption from the registration provisions of the Securities Act
which depends upon, among other things, the bona fide nature of such
Purchaser's investment intent as expressed herein, and (ii) without
qualification under applicable state securities laws.
4.3 Rule 144. Such Purchaser acknowledges that the Shares and
the shares of Common Stock issuable upon conversion of the Shares must be held
indefinitely unless they are subsequently registered under the Securities Act
and qualified under applicable state securities laws or exemptions from such
registration and qualification are available. Such Purchaser is familiar with
Rule 144 promulgated under the Securities Act and understands the resale
limitations imposed thereby.
4.4 Access to Data. Such Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs with its
management and has had the opportunity to review the Company's books, records
and facilities.
4.5 Access to SEC Reports. Such Purchaser has received and
carefully reviewed (i) the Company's Quarterly Report on Form 10-QSB for the
quarters ended September 30, 1998 and December 31, 1998 and (ii) all other
information filed by the Company pursuant to the Securities Act or the
Securities Exchange Act of 1934, as amended. Such Purchaser has reviewed the
section in the Company's Quarterly Reports on Form 10-QSB entitled "Other
Factors That May Affect Future Operating Results" and is aware of the risks
affecting the Company specified therein.
4.6 Restrictions on Transfers. Such Purchaser understands and
agrees as follows:
(a) The certificates evidencing the Preferred Stock (and, to
the extent not otherwise registered, the Common Stock issuable upon conversion
thereof), and each certificate issued in transfer of the foregoing, will bear
the following legends (or substantially similar legends):
(i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF WITHOUT SUCH REGISTRATION AND
QUALIFICATION OR THE DELIVERY TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS"; and
(ii) any legend required by applicable state securities
laws.
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(b) Such Purchaser will not offer, sell, transfer or
otherwise dispose of any of the Preferred Stock, or any Common Stock issuable
upon conversion thereof, unless (i) an effective registration under the
Securities Act (and an effective qualification under applicable state
securities laws, or exemption therefrom) covers the disposition of such
securities, or (ii) such Purchaser has delivered to the Company an opinion of
counsel, reasonably satisfactory to the Company, that such offer, sale,
transfer or other disposition will not require registration of such securities
under the Securities Act or qualification under any applicable state securities
laws.
4.7 Authorization. All corporate or partnership action, as
the case may be, on the part of such Purchaser, and its directors and
stockholders or partners, as applicable, necessary for the authorization,
execution, delivery and performance by such Purchaser of this Agreement and the
consummation of the transactions contemplated herein, has been taken or will be
taken prior to the Closing. This Agreement is a valid and binding obligation of
such Purchaser, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting enforcement of creditors' rights generally and to
general equitable principles. The execution, delivery and performance by such
Purchaser of this Agreement and compliance herewith will not result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, such Purchaser's Certificate of
Incorporation or By-Laws or Agreement of Limited Partnership, as applicable.
4.8 Principal Place of Business; Place of Negotiations. Such
Purchaser's principal place of business is at the location set forth on the
Schedule of Purchasers. This Agreement was negotiated only in the state of New
York. The Company's offer of Shares to such Purchaser, and such Purchaser's
acceptance of the Company's offer, occurred in the State of New York, unless
otherwise indicated under such Purchaser's name in the Schedule of Exceptions.
SECTION 5
Conditions to Closing of Purchasers
The obligation of each Purchaser to purchase the Shares to be
purchased at the Closing is subject to the fulfillment to such Purchaser's
reasonable satisfaction on or prior to the Closing Date of each of the
following conditions:
5.1 Representations and Warranties Correct. The
representations and warranties made by the Company in Section 3 hereof shall be
true and correct in all material respects when made, and shall be true and
correct in all material respects on the Closing Date with the same force and
effect as if they had been made on and as of the Closing Date.
5.2 Legal Investment. At the time of the Closing, the
purchase of the Shares to be purchased by the Purchasers hereunder shall be
legally permitted by all laws and regulations to which the Purchasers and the
Company are subject.
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5.3 Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Company on
or prior to the Closing Date shall have been performed or complied with in all
material respects.
SECTION 6
Conditions to Closing of Company
The Company's obligation to sell the Shares to be purchased
at the Closing is subject to the fulfillment to its satisfaction on or prior to
the Closing Date of each of the following conditions:
6.1 Representations. The representations made by each of the
Purchasers pursuant to Section 4 hereof shall be true and correct in all
material respects when made and shall be true and correct in all material
respects on the Closing Date.
6.2 Legal Investment. At the time of the Closing, the
purchase of the Shares to be purchased by the Purchasers hereunder shall be
legally permitted by all laws and regulations to which the Purchasers and the
Company are subject.
SECTION 7
Registration of Securities
7.1 Certain Definitions. As used in this Section 7, the
following terms shall have the following respective meanings:
"Registrable Securities" shall mean, collectively, the shares
of Common Stock issuable upon conversion of the Shares, the exercise of the
Warrant and upon any stock split, stock dividend, recapitalization or similar
event relating thereto.
The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in compliance with Sections 7.2 and 7.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which
shall be paid in any event by the Company).
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"SEC" shall mean the U.S. Securities and Exchange Commission.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions, if any, applicable to the sale of securities and all fees
and disbursements of counsel for any Holder (as hereinafter defined).
"Holder" shall mean any holder of Registrable Securities
which have not been sold to the public.
7.2 Mandatory Registration. The Company shall use its best
efforts to prepare and file with the SEC a registration statement (the
"Registration Statement") for the registration under the Securities Act of all
of the Registrable Securities within 90 days after the first Subsequent
Closing. The Company shall use its best efforts to cause such Registration
Statement to become effective as soon as practicable, and to remain effective
and current until the earlier of (i) the redemption by the Company of all the
Preferred Stock and (ii) the sale of all the Registrable Securities (the
"Effective Period"); but in no event later than the earlier to occur of (i)
three years after the conversion of all Shares of Preferred Stock or (ii)
December 31, 2004. If the Registration Statement covering the Registrable
Securities is not declared effective by the SEC by the 180th day after the
first Subsequent Closing and there is a delay for up to 30 additional days (a
"30 Day Delay"), then the base price for computing the Conversion Price (as
defined in the Certificate of Designations) shall be reduced from $0.20 per
share to $0.16 per share; and if the Registration Statement covering the
Registrable Securities is not declared effective by the SEC by the 180th day
after the final Closing and there is a delay for up to between 31 and 60
additional days (a "60 Day Delay"), then such base price shall be reduced from
$0.16 per share to $0.12 per share.
7.3 Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to this Agreement. All Selling Expenses
shall be borne by the Holders pro rata on the basis of the number of their
shares so registered, or, in the case of fees and disbursements of
Holders' counsel, in such proportions and amounts as the Holders shall mutually
agree.
7.4 Registration Procedures. The Company will keep each
Holder advised in writing as to the initiation of the registration and as to
the completion thereof. At its expense, as long as the Company is required to
use its best efforts to keep the Registration Statement effective pursuant to
Section 7.2 hereof, the Company will:
(a) Prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with Section 7.2
hereof and with the provisions of the Securities Act with respect to the
disposition of securities covered by such Registration Statement;
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<PAGE> 10
(b) Furnish such number of prospectuses and other
documents incident thereto, including any amendments of or supplements to the
prospectus, as a Holder from time to time may reasonably request;
(c) Notify each seller of Registrable Securities covered
by the Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchaser of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or incomplete in the light of the circumstances then existing;
(d) Cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the Company are
then listed, as set forth in Section 7.9 hereof;
(e) Make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to the Registration Statement, and any attorney or accountant retained
by any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers and directors to supply all information reasonably requested by any
such seller, underwriter, attorney or accountant in connection with such
Registration Statement: provided, however, that such seller, underwriter,
attorney or accountant shall agree to hold in confidence and trust all
information so provided;
(f) Furnish to each selling Holder upon request a copy of
all documents filed with and all correspondence from or to the SEC in
connection with any such offering other than non-substantive cover letters and
the like;
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to
its security holders, an earnings statement covering a period of at least
twelve months beginning after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act. Such statement may be provided to the Company's security
holders through the first annual report mailed to such security holders which
includes financial statements for the appropriate period; provided, however,
that if any Shares are converted into Common Stock prior to the date such
earnings statement is made generally available to the Company's security
holders, the Company shall make such statement generally available as soon as
practicable; and
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(h) Use its best efforts to register or qualify the
Registrable Securities under the securities or blue sky laws of each
jurisdiction as any Holder shall reasonably request, to keep such registration
or qualification in effect for so long as the Registration Statement remains in
effect, and do any and all other acts or things which may be necessary or
advisable to enable such Holder to consummate the public sale or other
disposition in such jurisdictions of the Registrable Securities: provided,
however, that the Company shall not be required to consent to general service
of process in any jurisdiction where it is not then qualified or subject itself
to the payment of any taxes or the jurisdiction of any taxing authority where
the Company would not otherwise be subject.
7.5 Indemnification. (a) To the extent permitted by
applicable law, the Company will indemnify each Holder, each of their
respective officers, directors and partners, and each person controlling such
Holder, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any registration,
qualification or compliance required pursuant to this Section 7, or based on
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of their respective
officers, directors and partners, and each person controlling such Holder, each
such underwriter, if any, and each person who controls any such underwriter,
for any legal and any other expenses as are reasonably incurred in connection
with investigating and defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by any person to be indemnified hereunder and stated
to be specifically for use therein.
(b) To the extent permitted by applicable law, each Holder
will, if securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any, of
the Company's securities covered by such other Registration Statement, and each
person who controls the Company or such underwriter within the meaning of the
Securities Act and the rules and regulations thereunder, each other Holder, and
each of their officers, directors and partners, and each person controlling
such other Holder, against all claims, losses, damages and liabilities (or
actions, proceedings or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any
registration, qualification, or compliance required pursuant to this Section 7,
or based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such other Holders, directors,
officers, partners, underwriters, if any, or control persons for any legal or
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any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein: provided,
however, that the obligations of any such Holder hereunder shall be limited to
an amount equal to the proceeds to such Holder of securities sold under such
registration statement, prospectus, offering circular or other document as
contemplated herein.
(c) Each party entitled to indemnification under this
Section 7.5 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense; and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
7.5 unless such failure to notify shall be materially prejudicial to the
Indemnifying Party's ability to defend such action. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party (which consent shall not be unreasonably withheld),
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
No Indemnified Party shall, except with the consent of each Indemnifying Party
(which consent shall not be unreasonably withheld), consent to entry of any
judgment or enter into any settlement.
7.6 Information by Holder. Each Holder of Registrable
Securities shall furnish to the Company such information regarding such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement. If requested by the Company, the Holder will
specifically state that such information is to be used in a prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any registration,
qualification or compliance required pursuant to this Section 7.
7.7 Limitations on Registration of Issues of Securities. From
and after the date of this Agreement until the Registration Statement has been
declared effective, the Company shall not enter into any agreement with any
holder or prospective holder of any securities of the Company giving such
holder or prospective holder a right to require the Company to register
securities owned by such holder, other than as contemplated by this Agreement.
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7.8 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
shall until the tenth anniversary of the final Closing agree to:
(a) Use its best efforts to make and keep public information
available as those terms are understood and defined in Rule 144 under the
Securities Act at all times after the final Closing;
(b) Use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 and of the
Securities Act and the Exchange Act and such other reports and documents so
filed as the Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing the Holder to sell any such securities without
registration.
7.9 OTC Listing. Prior to the registration of all of the
Registrable Securities pursuant to this Section 7, (i) all applications,
filings and documents necessary to list on the OTC Bulletin Board (the "OTC")
the Registrable Securities shall have been filed and, where applicable,
approved, and (ii) all such Registrable Securities shall have been listed (or
approved for listing subject to issuance) on the OTC.
7.10 Additional OTC Listing. Upon the happening of any event
pursuant to which additional shares of Common Stock not otherwise included in
the Registrable Securities shall become issuable upon conversion of the
Preferred Stock, the Company will file all applications, filings and documents
necessary to list, and will use its best efforts to cause the listing of all
such additional shares of Common Stock on the OTC (or such other national
securities exchange on which the Common Stock is then being traded). Such
additional shares of Common Stock shall, upon their listing, be classified as
and included in the term "Registrable Securities" for all purposes of this
Agreement.
SECTION 8
Covenants
The Company covenants and agrees as follows:
8.1 Information Rights. So long as any of the Shares are
outstanding, the Company will deliver to holders of the Shares the following:
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(i) as soon as practicable but in any event within ninety
(90) days after the close of each fiscal year of the Company, (A) a
consolidated balance sheet of the Company as of the end of such fiscal year,
(B) consolidated statements of operations, stockholders' equity and cash flows
of the Company for such fiscal year; the Company's Annual Report on Form 10-KSB
shall satisfy such requirement provided that it is in compliance with all
applicable requirements of the SEC and is certified by a "Big Five" accounting
firm; and (C) a certificate of the Chief Financial Officer, Chief Executive
Officer or the President certifying the Company's compliance with the covenants
contained in Section 8.3 of this Agreement; the Company's Annual Report on Form
10-KSB shall satisfy the requirements of clauses (A) and (B), provided that it
is in compliance with all applicable requirements of the SEC;
(ii) as soon as practicable, copies of (A) all financial
statements, proxy material or reports sent to the Company's stockholders, (B)
any public press releases and (C) all reports or registration statements filed
with the SEC pursuant to the Securities Act or the Securities Exchange Act;
(iii) as soon as practicable and in any event within
forty-five (45) days after the close of each of the first three (3) fiscal
quarters of the Company, (A) a consolidated balance sheet of the Company as of
the end of such fiscal quarter, (B) consolidated statements of operations,
stockholders' equity and cash flows of the Company for the portion of the
fiscal year ended with the end of such quarter and (C) a certificate of the
Chief Financial Officer, Chief Executive Officer or the President certifying
the Company's compliance with the covenants contained in Section 8.3 of this
Agreement; the Company's Quarterly Report on Form 10-QSB shall satisfy the
requirements of clauses (A) and (B), provided that it is in compliance with all
applicable requirements of the SEC;
(iv) as soon as practicable and without duplication of any
of the above items, any other materials furnished to holders of the Company's
capital stock; and
(v) as soon as practicable, such other information as may
reasonably be requested by holders of the Shares.
8.2 Amendment of Certificate of Incorporation. The Company
will use its best efforts, subject to the requirements of relevant federal
securities laws and state corporate law, to file an amendment to its
Certificate of Incorporation, increasing the number of authorized shares of
Class A Common Stock, so that the Company will have sufficient shares of Class
A Common Stock reserved for issuance upon the conversion of the Series B
Preferred Stock.
8.3 Negative Covenants. The Company covenants and agrees that
without the prior written consent of the holders of more than 66 2/3% of the
Shares, it will not:
(i) issue any class or series of equity or equity-linked security
senior or pari passu to the Preferred Stock as to payment of dividends
or payments on liquidation or winding up
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of the Company; (ii) enter into any agreement that would restrict the
Company's right to perform under this Agreement; (iii) incur debt or
encumber its assets above $10 million; (iv) amend the certificate of
incorporation or bylaws in any manner which would impair or reduce the
rights of the Preferred Stock; (v) liquidate or dissolve; (vi) go
private; (vii) redeem or repurchase any outstanding stock except
pursuant to employee stock option or similar plans; or (viii) enter
into any other line of business other than a business substantially
similar or related to the existing business.
SECTION 9
Miscellaneous
9.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of New York.
9.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto; provided, however, the Company may not assign its rights
hereunder; and provided, further, that the Company shall be under no obligation
to disclose to any non-Purchaser transferee (other than a transferee who or
which is an "affiliate" of such transferring Purchaser, as such term is defined
in Rule 12b-2 of the Exchange Act) any confidential information otherwise
required to be disclosed by the Company hereunder.
9.3 Entire Agreement; Amendment. This Agreement (including
the Schedules and Exhibits hereto) and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof. Neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated, except by
a written instrument signed by the Company and those Purchasers holding in the
aggregate not less than a majority of the outstanding Shares held by the
Purchasers.
9.4 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given: (a) on the date of delivery, if delivered to the persons
identified below; (b) seven calendar days after mailing, if mailed, with proper
postage, by certified or registered first-class mail, postage prepaid, return
receipt requested, addressed (i) if to a Purchaser, at the address set forth
for such Purchaser on the Schedule of Purchasers attached hereto or at such
other address as such Purchaser shall have furnished to the Company in writing,
or (ii) if to any other holder of Shares or any Common Stock issued upon
conversion of Shares at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (iii) if to the Company, at 6006 North
Mesa Street, Suite 515, El Paso, Texas 79912, Attention: Chief Executive
Officer, or at such other address as the Company shall have furnished to the
Purchasers and each such other holder in writing, with a copy to Fulbright &
Jaworski L.L.P.,
15
<PAGE> 16
666 Fifth Avenue, New York, NY 10103, Attention: Sheldon G. Nussbaum, Esq.; (c)
on the date of receipt if sent by telecopy, and confirmed in writing in the
manner set forth in (b) on or before the next day after the sending of the
telecopy; or (d) one business day after delivery to a nationally recognized
overnight courier service marked for overnight delivery in the manner set forth
in (b). Notwithstanding the foregoing, notices of conversion must be sent by
holders of Shares pursuant to the methods set forth in both (c) and (d) above,
with such notices of conversion to be deemed first given at the earlier time
that delivery under each such method may be deemed given.
9.5 Separability. In case any provision of the Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
9.6 Broker's Fees. (a) The Company (i) represents and
warrants that the Company has not retained a finder or broker in connection
with the transactions contemplated by this Agreement and (ii) hereby agrees to
indemnify and to hold the Purchasers harmless of and from any liability for
commission or compensation in the nature of an agent's fee to any broker or
other person or firm incurred in connection with the transactions contemplated
hereby (and the costs and expenses of defending against such liability or
asserted liability) arising from any act by the Company or any of its employees
or representatives.
(b) Each of the Purchasers, severally and not jointly, (i)
represents and warrants that it has retained no finder or broker in connection
with the transactions contemplated by this Agreement and (ii) hereby agrees to
indemnify and to hold the Company and the other Purchasers harmless from any
liability for any commission or compensation in the nature of an agent's fee to
any broker or other person or firm incurred in connection with the transactions
contemplated hereby (and the costs and expenses of defending against such
liability or asserted liability) arising from any act by such Purchaser or any
of its employees or representatives.
9.7 Expenses. Each of the Company and the Purchasers shall
bear its own expenses and legal fees incurred on its behalf with respect to
this Agreement and the transactions contemplated hereby, except that the
Company shall reimburse the Purchasers up to a maximum of $15,000 for due
diligence and legal expenses.
9.8 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
9.9 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
16
<PAGE> 17
IN WITNESS WHEREOF, each of the parties has executed this
Agreement as of the date above written.
CAMBIO, INC., a Delaware corporation
By:
------------------------------------
Title:
PURCHASER:
By:
------------------------------------
Title:
17
<PAGE> 18
CAMBIO, INC.
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Name of Purchaser Shares of Series B Total Investment
- ----------------- Preferred Stock ----------------
------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frederick R. Adler 15,296 $1,529,600
1520 South Ocean Blvd.
Palm Beach, FL 33480
- ---------------------------------------------------------------------------------------------------------
Euro-America-II, L.P. 7,027 $ 702,700
c/o Venad Administrative Services, Inc.
342 Madison Avenue
New York, NY 10173
- ---------------------------------------------------------------------------------------------------------
Philip Chapman 300 $ 30,000
c/o Venad Administrative Services, Inc.
342 Madison Avenue
New York, NY 10173
- ---------------------------------------------------------------------------------------------------------
Susan R. Chapman 200 $ 20,000
c/o Venad Administrative Services, Inc.
342 Madison Avenue
New York, NY 10173
- ---------------------------------------------------------------------------------------------------------
Carl Kaplan 150 $ 15,000
c/o Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
- ---------------------------------------------------------------------------------------------------------
Bernard Marden 2,000 $ 200,000
1290 South Ocean Blvd.
Palm Beach, FL 33480
- ---------------------------------------------------------------------------------------------------------
Jay Nickse 100 $ 10,000
77 Putting Green Road
Trumbull, CT 06611
- ---------------------------------------------------------------------------------------------------------
Joseph K. Pagano 1,000 $ 100,000
434 E. Cooper Street
Suite 201
Aspen, CO 81611
- ---------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 19
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Berol Family Trust FBO Margaret Beattie 1,000 $ 100,000
c/o Trainer, Wortham
845 Third Avenue, 6th Floor
New York, NY 10022
- ---------------------------------------------------------------------------------------------------------
Trust U/W Kenneth Berol FBO John A. Berol 1,000 $ 100,000
c/o Trainer, Wortham
845 Third Avenue, 6th Floor
New York, NY 10022
- ---------------------------------------------------------------------------------------------------------
Trust U/W Kenneth Berol FBO David N. Berol 1,000 $ 100,000
c/o Trainer, Wortham
845 Third Avenue, 6th Floor
New York, NY 10022
- ---------------------------------------------------------------------------------------------------------
A. Alexander Arnold III 500 $ 50,000
c/o Trainer, Wortham
845 Third Avenue, 6th Floor
New York, NY 10022
- ---------------------------------------------------------------------------------------------------------
Jim Joy 1,000 $ 100,000
c/o CVC Capital
Citicorp Venture Capital
Floor 14, Zone 4
399 Park Avenue
New York, NY 10043
- ---------------------------------------------------------------------------------------------------------
Anthony Pantaleoni 500 $ 50,000
c/o Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
- ---------------------------------------------------------------------------------------------------------
C. Nicholas Potter 600 $ 60,000
120 Horseshoe Road
Mill Neck, NY 11765
- ---------------------------------------------------------------------------------------------------------
Chance Vought 2,500 $ 250,000
c/o Providence Capital
19 Fulton Street, Suite 306
New York, NY 10038
- ---------------------------------------------------------------------------------------------------------
The Travelers Insurance Company 9,000 $ 900,000
388 Greenwich Street
New York, NY 10013
- ---------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 20
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Robert Annunziata 400 $ 40,000
95 Minnisink Road
Short Hills, NJ 07078
- ---------------------------------------------------------------------------------------------------------
Excess Capital LLC 200 $ 20,000
1 West 67th Street- #310
New York, NY 10023
Attn: John Stuart
- ---------------------------------------------------------------------------------------------------------
Gary and Stephanie Escandon 400 $ 40,000
204 New York Blvd.
Sea Girt, NJ 08750
- ---------------------------------------------------------------------------------------------------------
Thomas Finnegan III 200 $ 20,000
943 Whitepoint Court
Charleston, SC 29412
- ---------------------------------------------------------------------------------------------------------
Andrea Fraenkel 200 $ 20,000
253 Hartshorn Drive
Short Hills, NJ 07078
- ---------------------------------------------------------------------------------------------------------
Fred Fraenkel 200 $ 20,000
253 Hartshorn Drive
Short Hills, NJ 07078
- ---------------------------------------------------------------------------------------------------------
Hollywell Investments Pty Ltd. 400 $ 40,000
Level 52- Rialto South Tower
525 Collins Street
Melbourne VIC 3000, Australia
Attn: Michael Karp
- ---------------------------------------------------------------------------------------------------------
Elise Kimmel 400 $ 40,000
76 Old Hollow Road
Short Hills, NJ 07078
- ---------------------------------------------------------------------------------------------------------
Jagen Nominees Pty Ltd (ACN 073 513 738) 400 $ 40,000
Level 9, 161 Collins Street
Melbourne 3000
Australia
Attn: Bori Liberman
- ---------------------------------------------------------------------------------------------------------
Norman Merksamer 400 $ 40,000
64 Lincoln Road
Scarsdale, NY 10583
- ---------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 21
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Frederick W. Moran 400 $ 40,000
ING Baring Furman Selz LLC
55 East 52nd Street-15th Floor
New York, NY 10055
- ---------------------------------------------------------------------------------------------------------
Janet Toledano 200 $ 20,000
51 Duffield
South Orange, NJ 07079
- ---------------------------------------------------------------------------------------------------------
Udi Toledano 200 $ 20,000
c/o Andromeda Enterprises, Inc.
545 Madison Avenue
New York, NY 10022
- ---------------------------------------------------------------------------------------------------------
Marshall Tycher 400 $ 40,000
c/o Roseland Property Company
140 Eagle Rock Avenue
Roseland, NJ 07068
- ---------------------------------------------------------------------------------------------------------
Gari Grimm 1,500 $ 150,000
2005 East Lake Sammamish Place S.E.
Issaquah, WA 98029
- ---------------------------------------------------------------------------------------------------------
Phifer Consulting Group, Inc. 2,000 $ 200,000
P.O. Box 119
Lakewood, WA 98259
- ---------------------------------------------------------------------------------------------------------
Total $5,107,300
==========
</TABLE>
4
<PAGE> 1
Exhibit 21.1
Subsidiaries of Cambio, Inc.
Cambio Networks, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,923,000
<SECURITIES> 0
<RECEIVABLES> 240,000
<ALLOWANCES> 37,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,149,000
<PP&E> 307,000
<DEPRECIATION> 166,000
<TOTAL-ASSETS> 2,315,000
<CURRENT-LIABILITIES> 3,530,000
<BONDS> 0
0
1,000
<COMMON> 38,000
<OTHER-SE> (1,254,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,315,000
<SALES> 823,000
<TOTAL-REVENUES> 823,000
<CGS> 286,000
<TOTAL-COSTS> 286,000
<OTHER-EXPENSES> 4,651,000
<LOSS-PROVISION> 89,000
<INTEREST-EXPENSE> 66,000
<INCOME-PRETAX> (9,002,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,002,000)
<DISCONTINUED> (1,013,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,015,000
<EPS-BASIC> (2.80)
<EPS-DILUTED> (2.80)
</TABLE>
