FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Quarterly Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For the Quarter Ended: April 1, 2000 Commission File No: 0-6933 CAMBEX CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-244-2959 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 360 Second Avenue, Waltham, Massachusetts (Address of principal executive offices) 02451 (Zip Code) Registrant's telephone number, including area code: (781) 890-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 1, 2000 AND DECEMBER 31, 1999 (UNAUDITED) ASSETS APRIL 1, DECEMBER 31, 2000 1999 CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 1,008,108 $ 366,743 ACCOUNTS RECEIVABLE, LESS RESERVES OF $100,000 ON APRIL 1, 2000 AND $100,000 ON DECEMBER 31, 1999 245,187 202,466 INVENTORIES 562,223 622,430 PREPAID TAXES - - PREPAID EXPENSES 66,180 65,995 TOTAL CURRENT ASSETS $ 1,881,698 $ 1,257,634 PROPERTY AND EQUIPMENT, AT COST: MACHINERY AND EQUIPMENT $ 3,052,887 $ 3,052,887 FURNITURE AND FIXTURES 162,625 162,625 LEASEHOLD IMPROVEMENTS 602,092 602,092 $ 3,817,604 $ 3,817,604 LESS - ACCUMULATED DEPRECIATION AND AMORTIZATION 3,659,769 3,639,196 NET PROPERTY AND EQUIPMENT $ 157,835 $ 178,408 OTHER ASSETS OTHER $ 37,830 $ 37,830 TOTAL ASSETS $ 2,077,363 $ 1,473,872 -2- CONSOLIDATED BALANCE SHEETS APRIL 1, 2000 AND DECEMBER 31, 1999 (UNAUDITED) LIABILITIES AND STOCKHOLDERS' INVESTMENT APRIL 1, DECEMBER 31, 2000 1999 CURRENT LIABILITIES: LOAN AGREEMENT $ - $ 601,029 NOTES PAYABLE 2,287,940 550,000 ACCOUNTS PAYABLE 482,953 463,675 OBLIGATIONS FOR TRADE-IN MEMORY 240,000 286,250 OTHER LIABILITIES-SHORT TERM PORTION 1,177,421 967,558 ACCRUED EXPENSES 544,607 513,849 TOTAL CURRENT LIABILITIES $ 4,732,921 $ 3,382,361 LONG TERM DEBT $ 1,273,730 $ 1,273,730 OTHER LIABILITIES-LONG TERM PORTION 1,935,188 2,324,540 DEFERRED REVENUE 100,116 100,116 STOCKHOLDERS' INVESTMENT: PREFERRED STOCK, $1.00 PAR VALUE PER SHARE AUTHORIZED - 3,000,000 SHARES ISSUED - NONE COMMON STOCK, $.10 PAR VALUE PER SHARE - AUTHORIZED - 25,000,000 SHARES ISSUED - 11,169,615 SHARES ON APRIL 1, 2000 AND 11,076,232 SHARES ON DECEMBER 31, 1999 $ 1,116,962 $ 1,107,623 CAPITAL IN EXCESS OF PAR VALUE 15,972,066 15,970,199 ACCUMULATED OTHER COMPREHENSIVE INCOME 101,989 101,989 RETAINED EARNINGS (DEFICIT) (22,300,843)(21,931,920) LESS - COST OF SHARES HELD IN TREASURY - 1,534,356 ON APRIL 1, 2000 AND ON DECEMBER 31, 1999 (854,766) (854,766) TOTAL STOCKHOLDERS' INVESTMENT $ (5,964,592) $(5,606,875) TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 2,077,363 $ 1,473,872 -3- CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED APRIL 1, 2000 AND APRIL 3, 1999 (UNAUDITED) FOR THE THREE MONTHS ENDED APRIL 1, APRIL 3, 2000 1999 REVENUES $ 655,028 $ 1,390,148 COST OF SALES 361,494 624,917 GROSS PROFIT $ 293,534 $ 765,231 OPERATING EXPENSES: RESEARCH AND DEVELOPMENT $ 351,786 $ 311,728 SELLING 201,750 182,370 GENERAL AND ADMINISTRATIVE 123,248 148,782 $ 676,784 $ 642,880 OPERATING INCOME (LOSS) $ (383,250) $ 122,351 OTHER INCOME (EXPENSE): INTEREST EXPENSE $ (88,079) $ (35,000) INTEREST INCOME - 323 OTHER INCOME (EXPENSE) - 13,810 INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS $ (471,329) $ 101,484 PROVISION FOR INCOME TAXES - - INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $ (471,329) $ 101,484 EXTRAORDINARY ITEMS 102,406 - NET INCOME (LOSS) $ (368,923) $ 101,484 OTHER COMPREHENSIVE INCOME, NET OF TAX: FOREIGN CURRENCY TRANSLATION ADJUSTMENTS - - TOTAL COMPREHENSIVE INCOME (LOSS) $ (368,923) $ 101,484 TOTAL COMPREHENSIVE INCOME (LOSS) PER COMMON SHARE $ (0.04) $ 0.01 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,600,000 9,500,000 WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 10,390,000 9,500,000 -4- CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 1, 2000 AND APRIL 3, 1999 FOR THE THREE MONTHS ENDED APRIL 1, APRIL 3, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (368,923) $ 101,484 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization $ 20,573 $ 32,892 Amortization of prepaid expenses 7,210 8,422 Common stock issued in lieu of cash 10,246 - Change in assets and liabilities: Decrease (increase) in accounts receivable (42,721) (76,900) Decrease (increase) in inventory 60,207 (205,961) Decrease in investment in sales-type leases - 15,411 Decrease in prepaid taxes - - Decrease (increase) in prepaid expenses (7,395) 4,430 Decrease in other assets - - Increase (decrease) in accounts payable 19,278 56,505 Increase (decrease) in obligations for trade-in memory(46,250) - Increase (decrease) in accrued expenses 30,758 1,009 Increase (decrease) in deferred revenue - - Increase (decrease) in other liabilities (179,489) (37,781) Total adjustments $ (127,583) $ (201,973) Net cash provided by (used in) operating activities$(496,506) $ (100,489) CASH FLOWS FROM INVESTING ACTIVITIES: Sales (purchases) of Equipment - (3,395) Net cash provided by (used in) investing activities $ - $ (3,395) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings(payments) under loan agreement $ (601,029) $ 65,445 Increase(decrease) in notes payable 1,737,940 - Proceeds from sale of common stock 960 - Net cash provided by (used in) financing activities $1,137,871 $ 65,445 Effect of exchange rate changes on cash - - Net increase (decrease) in cash and cash equivalents $ 641,365 $ (38,439) Cash and cash equivalents at beginning of period $ 366,743 $ 211,452 Cash and cash equivalents at end of period $1,008,108 $ 173,013 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 1,618 $ - Income Taxes - - -5- FORM 10-Q CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: April 1, 2000 Commission File No: 0-6933 Notes & Comments: (1)Significant Accounting Policies The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The Company has deferred revenue associated with the sale of certain products which have future performance obligations, relating to reinstallation of IBM memory and maintenance. The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The information furnished includes all adjustments and accruals consisting only of normal recurring accrual adjustments which are, in the opinion of management, necessary for a fair presentation of results for the interim period. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Inventories, which include raw materials, labor and manufacturing overhead are stated at the lower of cost (first-in, first-out) or market and consist of the following: April 1, December 31, 2000 1999 Raw materials $ 358,653 $ 419,984 Work-in-process 98,085 78,572 Finished goods 105,485 123,874 $ 562,223 $ 622,430 - 6 - FORM 10-Q CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: April 1, 2000 Commission File: 0-6933 Notes & Comments (Continued): (2) Income and Dividends Per Share Per share amounts are based on the weighted average number of shares outstanding during each year plus applicable common stock equivalents. There were no material differences for per share amounts assuming full dilution in either year. (3) Management's Discussion and Analysis of Financial Condition and Results of Operations The statements contained in "Management Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout this Report on Form 10-Q that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those reflected in the forward-looking statements. These forward-looking statements reflect management's analysis, judgment, belief or expectation only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof or to publicly release the results of any revisions to such forward-looking statements that may be made to reflect events or circumstances after the date hereof. In addition to the disclosure contained herein, readers should carefully review any disclosure of risks and uncertainties contained in other documents the Company files or has filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. - 7 - FORM 10-Q CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: April 1, 2000 Commission File: 0-6933 Notes & Comments (Continued): (3) Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The Company develops, manufactures and markets leading-edge Fibre Channel hardware and software solutions for building Storage Area Networks (SANs). The Company offers high performance Fibre Channel host bus adapters and hubs, high availability software, Full-Fibre RAID arrays and management software for the deployment of heterogeneous SAN solutions, providing companies the competitive advantage of constant data access, storage consolidation and centralized management. The Company also supplies memory for IBM enterprise servers. Revenues for the first quarter ended April 1, 2000 decreased 53% from the comparable three months of the prior year due to decreased disk storage product and service revenue, which was partially offset by continued growth in sales of the Company's Fibre Channel connectivity products. The decrease in revenue from the disk storage products was due to the Company transitioning from the traditional SCSI based disks to end to end full-fibre solutions and to the fact that building its sales organization is still in an early stage. The gross profit of 45% for the first quarter of 2000 was lower than the 55% achieved in 1999 due to the relative amount of fixed costs in relation to revenues. Operating expenses for the three months ended April 1, 2000 increased 5% from the comparable three months of the prior year due principally to increased research and development and sales expenses. The Company continues to invest in the research and development of new and existing Fibre Channel connectivity products. The Company also invested in building its sales organization and indirect distribution channels. -8- FORM 10-Q CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: April 1, 2000 Commission File: 0-6933 Notes & Comments (Continued): (3) Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Extraordinary income for the three months ended April 1, 2000 was primarily payment of other liabilities at a discount from face value. During the first quarter of 2000, the Company raised an additional $2,000,000 in cash from the issuance of 8% Convertible Bridge Notes which are due in August and September, 2000. The notes are convertible at a weighted average share price of $4.08. The Company may redeem the notes at any time during the term of the notes. If the Company does not redeem the notes prior to maturity and the Company's stock price falls below certain levels, the holders are entitled to acquire additional shares. In addition to the notes, warrants to purchase 300,000 shares of common stock were issued at weighted average exercise prices of $4.54 per share. On March 1, 2000, the Company entered into a Sublease Agreement with a third party pursuant to which the Company sublet approximately 8,000 square feet in its Waltham, Massachusetts facility (which is approximately 12% of the Company's total leased space). The term of the sublease is coterminous with the primary lease and expires on May 31, 2003. -9- FORM 10-Q CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: April 1, 2000 Commission File: O-6933 SIGNATURES Pursuant to the requirements 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. CAMBEX CORPORATION By: /s/ Joseph F. Kruy Joseph F. Kruy President By: /s/ Peter J. Kruy Peter J. Kruy Chief Financial Officer Dated: May 12, 2000 - 10 -