As filed with the Securities and Exchange Commission on April 3, 2001
Registration No. 333-50936
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,D.C. 20549
Post-Effective Amendment No. 1
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CAMBEX CORPORATION
(Name of small business issuer in its charter)
Massachusetts 3572 04-2442959
(State or jurisdiction (Primary Standard (I.R.S.Employer
of incorporation or Classification Identification No.)
organization) Code Number)
Cambex Corporation
360 Second Avenue, Waltham, MA 02451
(781) 890-6000
(Address and telephone number of principal executive offices
and principal place of business)
--------------------------------
Joseph F. Kruy
Chairman of the Board, President and Chief Executive Officer
Cambex Corporation
360 Second Avenue, Waltham, MA 02451
(781) 890-6000
(Name, address and telephone number of agent for service)
With copies to:
Neil H. Aronson, Esquire
Anthony E. Hubbard, Esquire
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Telephone: (617) 542-6000
PROSPECTUS
CAMBEX CORPORATION
Common Stock
4,981,542 Shares
All of the shares of common stock being sold are offered by the selling
securityholders identified on pages 68 through 71 of this prospectus. The
shares of common stock that may be sold constitute up to 50.6% of the issued
and outstanding common stock of Cambex as of March 23, 2001. We will not
receive any proceeds from the sale of the shares of common stock by the
selling securityholders. However, we will receive the sale price of
any common stock that we sell to Thumberland Limited under the common stock
purchase agreement described in this prospectus or upon the exercise for cash
of the warrants exercisable for shares of common stock held by other selling
securityholders, including warrants we issued to Thumberland. We will pay
the costs of registering the shares under this prospectus, including legal
fees.
Our common stock is listed on the OTC Bulletin Board under the trading
symbol "CBEX." The last reported sales price of our common stock on the OTC
Bulletin Board on March, 23, 2001 was $0.8125 per share.
The selling securityholders may offer shares of our common stock on the
OTC Bulletin Board in negotiated transactions or otherwise, or by a
combination of these methods. The selling securityholders may sell the
shares through broker-dealers who may receive compensation from the selling
shareholders in the form of discounts or commissions. Thumberland Limited is
an "underwriter" within the meaning of the Securities Act of 1933 in
connection with its sales.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
_________________________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------
The date of this prospectus is April 3, 2001.
TABLE OF CONTENTS
Page
SUMMARY INFORMATION 3
THE OFFERING 5
RISK FACTORS 10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 23
USE OF PROCEEDS 23
CAPITALIZATION 24
MARKET FOR OUR COMMON STOCK 26
DIVIDEND POLICY 26
BUSINESS 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 39
DIRECTORS AND EXECUTIVE OFFICERS 43
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 49
PRINCIPAL SHAREHOLDERS 51
DESCRIPTION OF SECURITIES 54
SOVEREIGN BRIDGE FINANCING 57
THUMBERLAND COMMON STOCK PURCHASE AGREEMENT 60
SELLING SECURITYHOLDERS 68
PLAN OF DISTRIBUTION 72
LEGAL MATTERS 78
EXPERTS 78
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
2
SUMMARY INFORMATION
To understand this offering fully, we encourage you to read this entire
prospectus carefully, including the Financial Statements and the Notes to the
Consolidated Financial Statements of the Company appearing elsewhere in this
prospectus.
This prospectus contains forward-looking statements. The outcome of
the events described in these forward-looking statements is subject to risks
and actual results could differ materially. The sections entitled "Risk
Factors," "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as other sections in this
prospectus, contain a discussion of some of the factors that could contribute
to those differences.
Our Business
Cambex Corporation is a designer and supplier of fibre channel hardware
and software products used to build storage area networks (SANs). SANs
enhance and simplify the centralized management and sharing of storage
resources while providing improved availability, scalability, performance,
and disaster recovery. SANs have been enabled by the emergence of fibre
channel, a new generation of server to storage communications technology. We
develop and offer fibre channel host bus adapters and hubs, high availability
software, fibre channel RAID disk arrays and management software for the
deployment of SAN solutions. We supplement our own fibre channel product
offerings by reselling fibre channel SAN hardware and software solutions from
leading manufacturers. We also offer SAN design, integration, and
implementation services to value-added resellers (VARs) and end-users.
Fibre channel protocol, developed in the early 1990's, is the backbone
connectivity technology that enables SANs to be a more effective means of
managing, storing and retrieving electronic data. We currently offer fibre
channel connectivity products consisting of host bus adapters and hubs, fibre
channel disk storage devices utilizing a redundant array of inexpensive disks
(RAID) technology, and software applications that significantly enhance the
performance and availability of SANs. By reselling fibre channel hardware
and software products from leading manufacturers, together with our host bus
adapters, hubs, disk storage arrays and proprietary software products, we are
able to offer customers a complete interoperable SAN solution.
We began developing our current fibre channel product business in 1997.
In 1998, we began to ship our Centurion brand of fibre channel RAID disk
arrays. Our strategy has been to take advantage of the relationships
developed from being a long time supplier of memory and disk storage products
primarily for IBM mainframe computer users and to re-position Cambex as a
leading supplier of fibre channel connectivity and storage products. We have
also established relationships with a small number of leading resellers and
OEMs in the SAN market. However, these relationships have not yet resulted
in significant increases in our revenues. We also are working to position
ourselves as a source for customers for complete SAN solutions including SAN
design, integration and implementation services together with the hardware
and software needed to supply fibre channel connectivity and storage products
for a SAN solution.
3
Founded in 1968, we have more than 30 years experience in providing
highly reliable electronic data storage products. For more than 27 years we
were a leading supplier of IBM compatible mainframe computer memory having
supplied memory and related products for seven generations of IBM mainframe
computers. In the mid-1990's, the IBM mainframe computer market experienced
a significant decline and our business suffered. In October 1997, we
voluntarily filed for protection under chapter 11 of the federal bankruptcy
laws. In April 1998, we emerged from bankruptcy protection under a
reorganization plan that we are continuing to implement. Since 1998, we
have continued to transition our business towards the fibre channel
products business, though we continue to support our computer memory
customers with memory products, upgrades and maintenance services. In order
to successfully transition our business and return to sustained profitable
operations, we need to generate significant increases in revenues and meet
our short-term debt obligations that have matured. In support of our
strategy, we established an eighteen month $10 million equity drawdown
facility that should enable us to meet our short-term working capital needs.
In addition, we plan to achieve our longer term goals by expanding and
improving our sales and marketing function and increasing expenditures for
research and development so that we can broaden and enhance our product
offerings.
Our executive offices are located at 360 Second Avenue, Waltham,
Massachusetts 02451. Our telephone number is (781) 890-6000. Our Web site
is located at http://www.cambex.com. Information contained on our Web site
is not a part of this prospectus.
4
THE OFFERING
Common stock offered by Thumberland Limited
that it may purchase under the common stock
purchase agreement 2,537,784 shares
Common stock offered by Thumberland Limited
that it may purchase by
exercise of stock purchase warrant 195,771 shares
Common stock offered by Ladenburg Thalmann & Co.
Inc. that it may purchase
by exercise of stock purchase warrant 195,771 shares
Common stock offered by the Sovereign Lenders
that they may obtain by conversion of the
series 1 bridge financing notes 745,458 shares
Common stock offered by the Sovereign Lenders
that they may purchase by exercise of repricing
warrants attached to the series 1 bridge
financing notes 1,006,758 shares
Common stock offered by the Sovereign Lenders
that they may obtain by
exercise of common stock purchase warrants 300,000 shares
Common stock outstanding:
Prior to the sale of shares to Thumberland
under the common stock
purchase agreement 9,846,414 shares
After sale of maximum number of shares to
Thumberland Limited registered under
this registration statement related to the
equity drawdown facility and before
issuance of shares issuable pursuant
to other securities held by selling
securityholders identified in this
prospectus 12,384,198 shares
After sale of maximum number of shares to
Thumberland Limited registered under this
registration statement related to the equity
drawdown facility and after issuance of
shares issuable pursuant to other securities
held by selling securityholders identified in
this prospectus 14,827,956 shares
Trading symbol for common stock CBEX
This prospectus covers a total of 4,981,542 shares of our common stock
that may be sold by selling securityholders identified in this prospectus.
The number of shares of our common stock subject to this prospectus
5
represents 50.6% of our issued and outstanding common stock as of March
23, 2001. The number of shares subject to this prospectus represents 33.6%
after the issuance of all currently unissued shares included in this
prospectus.
Sovereign Bridge Financing
In January and February 2000, we borrowed a total of $2 million which
was arranged for us with the assistance of Sovereign Capital Advisors, LLC.
We entered into a series 1 bridge note purchase agreement with SovCap Equity
Partners, Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd.
Pursuant to the series 1 bridge note purchase agreement, we issued these
lenders, who are referred to throughout this prospectus as the Sovereign
Lenders, the following:
series 1 bridge financing notes that are convertible into up to a
total of 745,458 shares of our common stock, which number includes
shares issuable upon conversion of accrued interest, premium amounts
and penalties due under the notes;
repricing warrants attached to each series 1 bridge financing note
that may be exercisable for up to a total of 1,006,758 shares of our
common stock; and
common stock purchase warrants that are exercisable for up to a
total of 300,000 shares of our common stock.
The series 1 bridge financing notes matured on August 15, 2000 and
September 6, 2000. Because the bridge notes matured before we registered,
under the Securities Act of 1933, as amended, the offer and resale of shares
of our common issuable upon conversion of the bridge notes and exercise of
the repricing warrants and the common stock purchase warrants described
above, we owe the Sovereign Lenders premiums and penalties totaling
approximately $607,000 (in addition to the repayment of principal and
interest). On September 26, 2000, the Sovereign Lenders agreed, for a
specified period, to not cause us to default on our obligations by demanding
payment in cash, allowing us to continue the registration process. Before
the end of that grace period, we successfully completed the registration of
the offer and resale of shares of our common stock issuable to the Sovereign
Lenders in connection with the bridge notes and warrants on November 7, 2000.
This means that from and after November 7, 2000, the Sovereign Lenders have
the choice to accept cash or shares of our common stock to satisfy our
obligations. Currently, if the Sovereign Lenders demand immediate payment of
cash in full satisfaction of our obligations, we anticipate that we would be
unable to meet these obligations.
Before the maturity dates, the series 1 bridge notes accrued interest
at 8% per annum. Currently, since the maturity dates, interest is accruing
at a rate of 12% per annum until the notes are paid in full. The number of
shares of our common stock covered by the registration statement of which
this prospectus is a part, assumes accrued interest on the bridge notes
6
through December 31, 2001. If the actual interest amount exceeds the
calculated amount, we anticipate that we will either pay the difference in
cash or we will issue other registered but unissued shares of our common
stock.
In connection with the Sovereign Bridge Financing, attached to each
series 1 bridge note is a repricing warrant. If, during the 90 days after a
bridge note is converted into shares of our common stock (the "repricing
period"), a Sovereign Lender sells any shares it receives from conversion of
the bridge note and fails to realize a gain of at least 20% above the
applicable conversion price of the bridge note, then that Lender may exercise
the repricing warrant on the 91st day after conversion of the bridge note.
If a Sovereign Lender does not sell shares received upon conversion of a
bridge note during the repricing period, then it may not exercise the
repricing warrant regardless of market price of our common stock during the
repricing period. If the Sovereign Lender realizes less than a 20% gain on
shares sold during the repricing period, the number of shares that it may
acquire by exercise of a repricing warrant depends upon the number of shares
sold and the market price of our common stock during the repricing period.
If the average market price of our common stock during the repricing period
is equal to or greater than the conversion price of the converted bridge
note, then the Sovereign Lender may not acquire any shares by exercising the
repricing warrant. If the average market price of our common stock is less
than the conversion price of the converted bridge note, then the Sovereign
Lender may exercise the repricing warrant for a number of shares of our
common stock determined in accordance with a formula. The maximum number of
shares of common stock for which the repricing warrants may be exercised is a
total of 1,006,758 shares. The exercise price of the repricing warrants is
$0.10 per share.
We also issued the Sovereign Lenders common stock purchase warrants
exercisable for up to a total of 300,000 shares of our common stock. The
exercise price of these common stock purchase warrants is $4.19 per share for
warrants exercisable for up to 262,500 shares and $7.01 per share for
warrants exercisable for up to 37,500 shares. These common stock purchase
warrants expire on January 18, 2005 for warrants exercisable for up to
262,500 shares and on February 9, 2005 for warrants exercisable for up to
37,500 shares.
Our two largest stockholders, Joseph F. Kruy, our Chairman, President
and Chief Executive Officer, and CyberFin Corporation, a corporation wholly
owned by Peter J. Kruy, our Executive Vice President, Treasurer and Chief
Financial Officer, guaranteed our obligations under the Sovereign Bridge
Financing in the event that we fail to fulfill them. The obligations of
Joseph Kruy and CyberFin under these guarantees are secured by their pledge
to the Sovereign Lenders of a total of 1,709,467 shares of our common stock
that they own.
In addition to a series 1 bridge note purchase agreement, which
contains representations, warranties, covenants and other provisions typical
to this type of transaction, we entered into a registration rights agreement
with the Sovereign Lenders. Under this registration rights agreement, we
agreed to register the number of shares of our common stock into which the
series 1 bridge financing notes are convertible and for which the repricing
7
warrants and the common stock purchase warrants are exercisable, within 60
days following the issuance of the bridge notes and related warrants. The
Sovereign Lenders have waived their rights resulting from our failure to file
a registration statement covering shares of our common stock 60 days
following our issuance of the bridge notes and related warrants, allowing us
to register those shares of our common stock under the registration statement
that was declared effective on November 7, 2000, and of which this prospectus
is a part. On November 14, 2000, one of the Sovereign Lenders converted a
portion of the amount outstanding under the bridge note it held into 18,232
shares of our common stock. The Sovereign Lender sold these shares within
the applicable repricing period and did not realize a gain of at least 20%
above the applicable conversion price of the bridge note. Accordingly, the
Sovereign Lender exercised its repricing warrant and was issued 22,212 shares
of our common stock on February 13, 2001.
Thumberland Equity Drawdown Facility
We signed a common stock purchase agreement with Thumberland Limited, a
British Virgin Islands corporation, on July 14, 2000, for the future issuance
and purchase of shares of our common stock. The transaction closed on
November 8, 2000. The common stock purchase agreement establishes what is
sometimes termed an equity line of credit or an equity drawdown facility.
In general, the drawdown facility operates as follows: the investor,
Thumberland, has committed to provide us with up to $10 million as we request
through June 22, 2002, in return for shares of common stock we issue to
Thumberland. Subject to a maximum of 18 draws, once every 22 trading days we
may request a draw of up to $1 million of that money, except that the initial
draw may be up to $2 million. The maximum amount we actually can draw down
upon each request will be determined by the volume-weighted average daily
price of our common stock for the 22 trading days prior to our request and
the average trading volume for the 45 trading days prior to our request.
Each draw down must be for at least $250,000. At the end of a 22-day trading
period following the drawdown request, the final drawdown amount is
determined based on the volume-weighted average stock price during that 22-
day period. We then use the formulas contained in the common stock purchase
agreement to determine the number of shares we will issue to Thumberland in
return for that money.
The formulas for determining the final drawdown amounts, the number of
shares we issue to Thumberland and the price per share paid by Thumberland
are described in detail beginning on page 60 of this prospectus. We may make
up to a maximum of 18 draws; however, the aggregate total of all draws cannot
exceed $10 million and no single draw can exceed $1 million, except for the
initial draw which may not exceed $2 million. We are under no obligation to
request a draw for any period.
The closing price for our common stock on May 31, 2000 was $2.5625 per
share and the average daily trading volume for the 45 trading days ended May
31, 2000 was 28,357 shares per trading day. For example, if our market price
on May 31, 2000 and the 45-day average trading volume preceding May 31, 2000
each remained constant over the 18 month period of the common stock purchase
agreement and we requested the maximum amount available to us under the
8
common stock purchase agreement, each draw would be capped at $319,725 and we
could make 18 draws for a total amount drawn of $5,755,050. As the example
shows, if our common stock price and trading volume for our common stock were
at those levels, we would not be able to draw down all $10 million under the
common stock purchase agreement. Moreover, if, as a result of applying these
formulas, the amount of the draw would be less than $250,000, then we may not
drawdown. For example, if the market price for shares of our common stock at
February 28, 2001 ($0.94 per share) and our average trading volume for the 45
days preceding February 28, 2001 (13,742 shares) remained constant, we would
not be able to draw funds from Thumberland because, as a result of applying
the formulas, the drawdown amount would be less than $250,000.
The number of shares registered under the registration statement of
which this prospectus is a part may limit the amount of money we receive
under the common stock purchase agreement. Moreover, the funds we may
receive could be further limited by a provision of the common stock purchase
agreement that prevents us from issuing shares to Thumberland to the extent
Thumberland would beneficially own more than 9.9% of our then outstanding
common stock. Any resales of shares by Thumberland under this prospectus
would reduce the number of shares beneficially owned by Thumberland, and
would enable us to issue additional shares to Thumberland without violating
this condition.
The per share dollar amount Thumberland pays for our common stock for
each drawdown includes a 7% discount to the average daily market price of our
common stock for the 22-day period after our drawdown request, weighted by
trading volume. We will receive the amount of the drawdown less an escrow
agent fee equal to $1,500 per drawdown and a 5% placement fee payable to the
placement agent, Ladenburg Thalmann & Co. Inc., which introduced Thumberland
to us. Ladenburg Thalmann is a registered broker dealer. It is not
obligated to purchase any of our shares, but as an additional placement agent
compensation, we have issued to Ladenburg Thalmann a stock purchase warrant
to purchase up to 195,771 shares of our common stock at an exercise price of
$2.9376 per share. The common stock issuable upon exercise of this warrant
is included in the registration statement of which this prospectus is a part.
We did not make a commitment to Thumberland to draw a minimum amount of
funds under the common stock purchase agreement. In lieu of making a
commitment to Thumberland to draw a minimum aggregate amount, on July 20,
2000, we issued to Thumberland a stock purchase warrant to purchase up to
195,771 shares of our common stock. The common stock purchase warrant gives
Thumberland an opportunity to purchase shares of our common stock even though
we draw little or no amount of funds under the common stock purchase
agreement. The common stock purchase warrant has an exercise price of
$2.9376 per share, which is equal to 115% of the volume-weighted average
share price for the five trading days prior to the date the warrant was
issued. The warrant expires July 20, 2003.
9
RISK FACTORS
Risks Related to Our Industry
Because a growing proportion of our revenues are generated from the sale of
our fibre channel products, our revenues will be limited if fibre channel
technology does not achieve a widespread market acceptance or develops more
slowly than we anticipate
The growth of the market for our fibre channel products is dependent
upon the broad acceptance of fibre channel technology as an alternative to
other technologies traditionally utilized for network and storage
communications. The fibre channel market, while rapidly evolving and
attracting an increasing number of market participants, is still at an early
stage of development. If the fibre channel market fails to develop, develops
more slowly than anticipated or attracts more competitors than we expect, our
business, operating results and financial condition would be materially
adversely affected. We cannot be certain that fibre channel products will
gain broader market acceptance or that customers will choose our technology
and products.
To achieve widespread market acceptance, fibre channel must supplant
current widely accepted alternative technologies such as small computer
systems interface or SCSI. Because many technology companies with SCSI-based
product portfolios already have (a) well-established relationships with our
current and potential customers, (b) extensive knowledge of the markets we
serve, (c) better name recognition and (d) extensive development, sales and
marketing resources, it may be difficult to convince customers to adopt fibre
channel technology. If fibre channel does not replace existing technologies
such as SCSI in emerging applications such as SANs or otherwise achieve broad
market acceptance, the growth of our fibre channel product sales will be
limited. Additionally, new technologies are currently in development that
may compete with fibre channel for market share if they are successfully
developed and commercialized. Because these competing new technologies are
likely to have support from technology companies with more significant
resources than we and other fibre channel companies have, they may limit the
growth of the fibre channel market and therefore our growth.
The SAN market in which we compete is new and unpredictable, and if this
market does not develop and expand as we anticipate, our business will suffer
The market for SANs and the related equipment, including disk arrays
and host bus adapters, and management software that we offer, has only
recently begun to develop and is rapidly evolving. If this market does not
develop as rapidly as we anticipate, our operating results may be below the
expectations of public market analysts and investors, which would likely
cause our stock price to decline. Because this market is new, it is
difficult to predict its potential size or future growth rate. Our products
are principally purchased for use in SANs. Widespread adoption of SANs as an
integral part of data-intensive enterprise computing environments is critical
to our future success. Potential end-users that have invested substantial
resources in their existing data storage and management systems may be
reluctant or slow to adopt a new SAN approach.
10
Our operating results may suffer because of increasing competition in the
fibre channel market, as well as additional competition from alternative data
storage solutions
The market in which we compete is intensely competitive. As a result,
we face a variety of significant challenges, including rapid technological
advances, price erosion, changing customer preferences and evolving industry
standards. Our competitors continue to introduce products with improved
price/performance characteristics, and we will have to do the same to remain
competitive. Increased competition could result in significant price
competition, reduced revenues, lower profit margins or loss of market share,
any of which would have a material adverse effect on our business, operating
results and financial condition. We cannot be certain that we will be able
to compete successfully against either current or potential competitors in
the future.
Many of our current and potential competitors have substantially
greater financial, technical, marketing and distribution resources than we
have. We face the threat of potential competition from new entrants into the
fibre channel market, including large technology companies that may develop
or acquire differentiating technology and then apply their resources,
including established distribution channels and brand recognition, to obtain
significant market share. It is also possible that we will face increased
competition due to mergers or consolidations of existing or potential
competitors. Emerging companies attempting to obtain a share of the existing
market act as potential competition as well. Our products may also compete
at the end-user level with other technology alternatives, such as SCSI.
Further, businesses that implement SANs may select fully integrated
SAN systems that are offered by large technology companies. Because such
systems may not interoperate with products from independent open system
suppliers, like us, customers that invest in these systems may be less likely
to purchase our products. Because other technologies designed to address the
applications served by fibre channel today are under development, our
business would suffer as a result of competition from such competing
technologies.
In our industry, technology and other standards change rapidly, and we must
keep pace with the changes to compete successfully
The market for our products is characterized by rapidly changing
technology, evolving industry standards and the frequent introduction of new
products and enhancements. If we do not keep pace with these changes, we may
lose market share to our competitors and fail to meet our financial and
operational objectives. Because our products are designed to work with
software produced by third parties, our operating results could be adversely
affected if such third parties delay introduction of new versions of their
software for which we have designed new products or if they make
unanticipated modifications to such software. Our future success depends in
a large part on our ability to enhance our existing products and to introduce
new products on a timely basis to meet changes in customer preferences and
evolving industry standards. We cannot be certain that we will be successful
11
in designing, supplying and marketing new products or product enhancements
that respond to such changes in a timely manner and achieve market
acceptance. We also cannot be certain that we will be able to develop the
underlying core technologies necessary to create new products and
enhancements, or that we will be able to license the core technologies from
third parties. Additionally, changes in technology and customer preferences
could potentially render our current products uncompetitive or obsolete. If
we are unable, for technological or other reasons, to develop new products or
enhance existing products in a timely manner in response to technological and
market changes, our business, operating results and financial condition would
be materially adversely affected.
Risks Related to Our Business
We have a history that includes substantial operating losses and we are in an
unfavorable financial position that makes an evaluation of our business
difficult
We incurred substantial operating losses in each of the five years
prior to the current fiscal year. At December 31, 2000, we had an
accumulated deficit of approximately $24 million. At December 31, 2000 we
had current assets totaling approximately $1.1 million. At that same date,
we had current liabilities totaling approximately $6.9 million and long-term
liabilities totaling approximately $2.3 million, a substantial portion of
which is attributable to a 1998 bankruptcy reorganization plan that we
continue to implement. On August 15, 2000 and September 6, 2000 the series 1
bridge notes held by the Sovereign Lenders matured. Currently, if the
Sovereign Lenders choose to demand immediate payment of cash instead of
shares of common stock in full satisfaction of our obligations, we will be
unable to satisfy this obligation. In order to continue as a going concern
and compete effectively, we need to satisfy our short-term obligations,
increase our expenditures for research and development expenses and selling,
general and administrative expenses as well as other expenses, which may not
be possible if revenues do not increase significantly. If revenues remain at
current levels, we will not be able to achieve profitability on quarterly or
annual basis.
We have a limited operating history with respect to our fibre channel
products
We commenced our fibre channel products business in 1997 and we shipped
our first commercially available fibre channel products in 1998. Because we
have a limited operating history with respect to our fibre channel products,
you must consider the risks and difficulties frequently encountered by
companies in the early stage of developing a business such as ours in new and
rapidly evolving markets. Although our net product revenues from the sale of
fibre channel products have become a majority of our total product revenues,
sales from these products may not increase and we may not realize sufficient
net revenues to become profitable. In addition, because of the competition
in the fibre channel and SAN markets and the evolving nature of these
markets, sustaining profitability may be extremely challenging.
12
We have developed relationships with potential OEM, distribution channel and
end user customers and a decision by any one of these potential customers not
to purchase our products, or any cancellation or delay of orders that may be
placed by any of these potential customers will have a significant and
adverse affect on our net revenues
Historically, a limited number of OEMs, distribution channel and end
user customers have accounted for a significant majority of our total net
revenues in each fiscal period. For example, sales to our top five customers
accounted for approximately 45% percent of net revenues for the fiscal year
ended December 31, 2000. We have established relationships with a small
number of potential OEM, distribution channel and end user customers. If any
one of these potential customers decides not to purchase our products or
decides to purchase our products in quantities that are below our
expectations, then our net revenues will be adversely affected. We expect to
experience substantial period-to-period fluctuations in future operating
results because, among other factors, we depend to a significant extent upon
revenues from a small number of customers.
Our sales cycle, particularly to OEMs, typically involves a lengthy
qualification cycle during which there is a need to expend significant
resources in addressing customer specifications. Because of the length of
the sales cycle, we may experience a delay between increasing expenses for
research and development and sales and marketing efforts and the generation
of higher revenues, if any, from such expenditures. The purchase of our
products or of solutions that incorporate our products typically involves
significant internal procedures associated with the evaluation, testing,
implementation and acceptance of new technologies. This evaluation process
frequently results in a lengthy sales process, typically ranging from three
months to longer than a year, and subjects the sales cycle associated with
the purchase of our products to a number of significant risks, including
budgetary constraints and internal acceptance reviews. The length of our
sales cycle also varies substantially from customer to customer.
Because we anticipate that none of our potential customers will be, and
none of our current customers are, contractually obligated to purchase any
fixed amount of products from us in the future, they may stop placing orders
with us at any time, regardless of any forecast they may have previously
provided. If any of our significant customers stop or delay purchases, our
revenues and operating results would be adversely affected, which could cause
our stock price to decline. We cannot be certain that we will retain our
current OEM, distribution channel or end user customers or that we will be
able to recruit additional or replacement customers. As is common in an
emerging technology industry, agreements with OEMs and distribution channel
customers are typically non-exclusive and often may be terminated by either
party without cause. Moreover, many OEM and distribution channel customers
carry competing product lines. If we were to suddenly lose one or more
important OEM, distribution channel or end user customers or potential
customers to a competitor, our business, operating results or financial
condition could be materially adversely affected. Moreover, OEM customers
could develop products internally that would replace our products. The
resulting reduction in sales of our products to any OEM customers, in
addition to the increased competition presented by these customers, could
13
have a material adverse effect on our business, operating results or
financial condition and could affect our ability to continue as a going
concern.
The failure of OEM customers to keep pace with rapid technological change and
to successfully develop and introduce new products could adversely affect our
net revenues
Our ability to generate increased revenues depends significantly upon
the ability and willingness of OEM customers to develop and promote products
on a timely basis that incorporate our technology. If OEM customers do not
successfully develop and market the solutions that incorporate our products,
then sales of our products to OEM customers will be adversely affected. The
ability and willingness of OEM customers to develop and promote such products
is based upon a number of factors beyond our control.
While we have established relationships with a small number of OEM and
reseller customers, most of these customers are still at the very early
stages of incorporating fibre channel products into their systems. If our
early stage customers are unable to, or otherwise do not ship systems that
incorporate our products, or if their shipped systems are not commercially
successful, our business, operating results or financial condition could be
materially adversely affected as well as our ability to continue as a going
concern.
Delays in product development could adversely affect our market
position or customer relationships
We have experienced delays in product development in the past and may
experience similar delays in the future. Given the short product life cycles
in the markets for our products, any delay or unanticipated difficulty
associated with new product introductions or product enhancements could cause
us to lose customers and damage our competitive position. Prior delays have
resulted from numerous factors, such as:
changing product specifications;
difficulties in hiring and retaining necessary personnel;
difficulties in reallocating engineering resources and other
resource limitations;
difficulties with independent contractors;
changing market or competitive product requirements;
unanticipated engineering complexity;
undetected errors or failures in software and hardware; and
delays in the acceptance or shipment of products by customers.
We expect the average selling prices of our products to continue to decrease,
which may reduce gross margins or revenues
The markets for fibre channel and disk storage products have
experienced erosion of average selling prices due to a number of factors,
including competitive pricing pressures and rapid technological change. We
may experience substantial period-to-period fluctuations in future operating
results due to the erosion of our average selling prices. We anticipate that
the average selling prices of our products will decrease in the future in
14
response to competitive pricing pressures, increased sales discounts, new
product introductions by us or our competitors or other factors. Therefore,
to maintain our gross margins, we must develop and introduce on a timely
basis, new products and product enhancements and continually reduce our
product costs. Our failure to do so would cause our revenue and gross
margins to decline, which could materially adversely affect our operating
results and cause the price of our common stock to decline.
If our business improves rapidly, our operations may be negatively impacted
and we may be required to incur substantial costs to upgrade our
infrastructure
If our business expands rapidly, then a significant strain may be
placed on our resources. Unless we manage such growth effectively, we may
make mistakes in operating our business such as inaccurate sales forecasting,
incorrect material planning or inaccurate financial reporting, which may
result in unanticipated fluctuations in our operating results. Our
management team has had limited experience managing rapidly growing companies
on a public or private basis. We may not be able to install adequate control
systems in an efficient and timely manner, and our current or planned
personnel, systems, procedures and controls may not be adequate to support
our future operations.
The loss of or failure to attract and retain key technical, sales and
marketing and managerial personnel could adversely affect our business
Our success depends to a significant degree upon the performance and
continued service of engineers involved in the development of our fibre
channel technology and technical support of products and customers. Our
success also depends to a significant degree upon the continued contributions
of our key management, sales and marketing and manufacturing personnel.
Accordingly, our future success depends upon our ability to attract, train
and retain such technical, sales and marketing and managerial personnel.
Except for an employment agreement with Joseph F. Kruy, our Chairman,
President and Chief Executive Officer, we do not have employment agreements
with any of these personnel. We do not maintain key person life insurance on
any of our personnel. As we further develop our product line we will need to
increase the number of sales and marketing personnel as well as technical
staff members with experience in hardware and software development. We are
currently seeking to hire additional skilled software programmers and
experienced sales personnel. Competition for such highly skilled employees
in our industry is intense, and we cannot be certain that we will be
successful in recruiting or retaining such personnel. Our employees may
leave and subsequently compete against us. The loss of key employees could
have a material adverse effect on our business, operating results or
financial condition.
We also believe that our success depends to a significant extent on the
ability of our key personnel to operate effectively, both individually and as
a group. Some of our employees have only recently joined us, and our desire
is to expand our employee base significantly. If we are unable to identify,
hire and integrate new employees in a timely and cost-effective manner, our
operating results may suffer.
15
Our management has significant influence over stockholder decisions
Prior to the issuance of any our common stock covered by our registration
that was declared effective on December 22, 2000, our officers and directors
control the vote of approximately 26.1% of the outstanding shares of common
stock prior to the exercise of any outstanding warrants or options held by
them. Following the issuance of all shares of our common stock issuable to
the Sovereign Lenders, SovCap and Thumberland, our officers and directors
will control the vote of approximately 17.3% of the then outstanding shares
of common stock. As a result, they may be able to significantly influence
all matters requiring approval by our stockholders, including the election of
directors.
Because we rely on a limited number of third party suppliers and
manufacturers, and failures by any of these third parties to provide key
components or to manufacture and assemble products of sufficient quality and
quantity could cause us to delay product shipments, which could result in
delay or lost revenues or customer dissatisfaction
SAE-Circuits Advanced Technology Division Inc. and Dynamic Details
Incorporated fabricate our printed circuit boards, and various
subcontractors, such as Circuit Technology, Inc., perform assembly of our
host bus adapters and hub circuit boards. We have no long-term contracts
with SAE-Circuits Advanced Technology Division Inc., Dynamic Details or
Circuit Technology, Inc. Also, key components that we use in our products
may, from time to time, only be available from single sources with which we
do not have long-term contracts. In particular, QLogic Corporation is
currently the sole supplier of certain components in certain of our host bus
adapters. The components we use for our products are based on an emerging
technology and may not be available with the performance characteristics or
in the quantities that we require. Accordingly, our major suppliers are not
obligated to supply products to us for any specific period, or in any
specific quantity, except as may be provided in a particular purchase order.
Moreover, any inability to supply products due to a lack of components or to
redesign products to incorporate alternative components in a timely manner
could materially adversely affect our business, operating results or
financial condition. If any of our third-party manufacturers experiences
delays, disruptions, capacity constraints or quality control problems in its
manufacturing operations, then product shipments to our customers could be
delayed, which would negatively impact our net revenues, competitive position
and reputation.
Our business would be harmed if we fail to effectively manage the
manufacture of our products. Because we place orders with our suppliers and
manufacturers based on our forecasts of expected demand for our products, if
we inaccurately forecast demand, we may be unable to obtain adequate
manufacturing capacity or adequate quantities of components to meet our
customers' delivery requirements, or we may accumulate excess inventories.
We may in the future need to find new suppliers and contract
manufacturers in order to increase our volumes or to reduce our costs. We
may not be able to find suppliers or contract manufacturers that meet our
needs, and even if we do, qualifying a new contract manufacturer and
16
commencing volume production is expensive and time consuming. If we are
required or elect to change suppliers or contract manufacturers, we may lose
revenues, and our customer relationships may suffer.
Our products are complex and may contain undetected software or hardware
errors or may fail to achieve interoperability standards that could lead to
an increase in our costs, reduce our net revenues, or damage our reputation
In order to satisfy our customers, the solutions that we design require
several different products to work together in a seamless fashion. Our
solutions may fail to achieve various interoperability standards necessary to
satisfy our customers. Moreover, products as complex as ours frequently
contain undetected software or hardware errors when first introduced or as
new versions are released. We have from time to time found errors in
existing products, and we may from time to time find errors in our existing,
new or enhanced products. Generally, we provide our customers with a one
year warranty covering our products. Therefore, failure to achieve
interoperability among products or the occurrence of hardware or software
errors in various products could adversely affect sales of our customer
solutions and products, cause us to incur significant warranty and repair
costs, divert the attention of our engineering personnel from our product
development efforts, cause significant customer relations problems and could
result in product returns and loss of revenue.
Steps taken to protect our intellectual property may not be adequate to
protect our business
We primarily rely on unpatented trade secrets to protect our
proprietary rights. We seek to protect these secrets, in part, through
confidentiality agreements with employees, consultants, and our customers and
potential customers. If these agreements are breached, or if our trade
secrets become known to, or are independently developed by competitors, we
may not have adequate remedies for such breach. We cannot be certain that
the steps we take to protect our intellectual property will adequately
protect our proprietary rights, that others will not independently develop or
otherwise acquire equivalent or superior technology or that we can maintain
such technology as trade secrets. In addition, the laws of some of the
countries in which our products are or may be developed, manufactured or sold
may not protect our products and intellectual property rights to the same
extent as the laws of the United States, or at all. Our failure to protect
our intellectual property rights could have a material adverse effect on our
business, operating results or financial condition.
We may become involved in costly and lengthy patent infringement or
intellectual property litigation that could seriously harm our business
We may receive communications from third parties alleging infringement
of patents or other intellectual property rights, and there is the chance
that third parties may assert infringement claims against us. Any such
claims, with or without merit, could result in costly and time-consuming
litigation or cause product shipment delays that would adversely affect our
17
business, financial condition or operating results. It is possible that
holders of patents or other intellectual property rights may assert rights
that apply broadly to our industry, and that such patent or other
intellectual property rights, if valid, may apply to our products or
technology. These or other claims may require us to stop using the
challenged intellectual property or to enter into royalty or licensing
agreements. We cannot be certain that the necessary licenses will be
available or that they can be obtained on commercially reasonable terms. Our
business, operating results or financial condition could be materially
adversely affected if we were to fail to obtain such royalty or licensing
agreements in a timely manner or on reasonable terms.
Failure to comply with governmental regulations by our OEM customers or us
could reduce our sales or require design modifications
Our products are subject to U.S. Department of Commerce and Federal
Communications Commission regulations as well as various standards
established by various state, local and foreign authorities. Failure to
comply with existing or evolving U.S. or foreign governmental regulation or
to obtain timely domestic foreign regulatory approvals or certificates, could
materially harm our business by reducing our sales or requiring design
modifications to our products or the products of OEM customers. U.S. export
laws also prohibit the export of our products to a number of countries deemed
by the United States to be hostile. These restrictions may make foreign
competitors facing less stringent controls on their products more competitive
in the global market than we or our customers are. The U.S. government may
not approve future export license requests. In addition, the list of
products and countries for which export approval is required, and the
regulatory policies with respect thereto, could be revised.
Our quarterly operating results are volatile and may cause our stock price to
fluctuate
Our revenues and operating results have varied on a quarterly basis in
the past and are likely to vary significantly from quarter to quarter in the
future. The variations in our revenues and operating results are due to a
number of factors, many of which are outside of our control, including among
others:
Changes in our operating expenses;
Our ability to develop and market new products;
The ability of our contract manufacturers and suppliers to produce
and supply our products in a timely manner;
The market acceptance of new fibre channel products;
The timing of the introduction or enhancement of products by us, OEM
and distribution channel customers, and competitors;
The level of product and price competition;
Our ability to expand our relationship with OEMs, distribution
channel and end user customers;
Activities of and acquisitions by our competitors;
Changes in technology, industry standards or consumer preferences;
18
Changes in the mix of products sold, as our fibre channel
connectivity products typically have higher margins than our disk
array products;
Personnel changes;
Changes in customer budgeting cycles and the timing of their purchase
decisions; and
General economic conditions.
Accordingly, you should not rely on quarter-to-quarter comparisons of
our operating results as an indication of future performance. It is possible
that in some future periods our operating results will be below the
expectations of public market analysts and investors. In this event, the
price of our common stock will likely decline.
We generally do not have a significant backlog of unfilled orders. As
a result, our revenues in a given quarter depend substantially on orders
booked in that quarter. A decrease in the number of orders we receive is
likely to adversely and disproportionately affect our quarterly operating
results. Moreover, a substantial portion of our sales of disk array products
involve large commitments by customers and the timing or occurrence of one or
more of these sales would have a significant impact on quarterly revenue and
operating results. Our expense levels are partially based on our
expectations of future sales. Therefore, our expenses may be
disproportionately large as compared to sales in a quarter with reduced
orders. As a result, we may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Any shortfall in sales
in relation to our quarterly expectations or any delay of customer orders
would likely have an immediate and adverse impact on our business, quarterly
operating results and financial condition.
Risks Related to the Securities Markets
We may need additional capital and additional financing may not be available
We currently anticipate that our available cash resources combined with
the maximum drawdown under the common stock purchase agreement with
Thumberland Limited will be sufficient to meet our anticipated working
capital and capital expenditure requirements through at least the next 24
months. However, if our stock price and trading volume stay at current
levels, we will not be able to draw down any of the $10 million under the
common stock purchase agreement and our available cash resources will meet
our requirements for only the next four months. The time periods for which
we believe our capital is sufficient are estimates. The actual time periods
may differ materially as a result of a number of factors, risks and
uncertainties which are described herein. In addition, business and economic
conditions may not make it feasible to draw down under the common stock
purchase agreement at every opportunity, and drawdowns are available only
every 22 trading days. Without additional capital, we may be unable to fund
expansion, to develop new products and services and to enhance existing
products and services to respond to competitive pressures, or to acquire
complementary businesses or technologies.
19
Our agreement with Thumberland restricts us from raising investment capital
during the term of the common stock purchase agreement except through the
common stock purchase agreement. If we need capital but are unable to
drawdown under the common stock purchase agreement for any reason, we will
need to separately negotiate with Thumberland to lift those restrictions so
we can obtain the capital from other sources. Our common stock purchase
agreement with Thumberland provides that if we sell our securities for cash
at a discount to the then current market price before June 22, 2002, then we
must pay Thumberland $100,000 as liquidated damages before we may drawdown
additional funds under the equity drawdown facility.
Even if Thumberland agrees to permit us to raise additional capital, we may
not be able to obtain additional financing on terms favorable to us, if at
all. If adequate funds are not available or are not available on terms
favorable to us, we will not be able to effectively execute our business plan
and we may not be able to continue as a going concern.
The issuance of shares to Thumberland and the Sovereign Lenders may cause
significant dilution in the value of our common stock.
The issuance of shares of our common stock to Thumberland will dilute
the equity interest of existing stockholders and could have an adverse effect
on the market price of our common stock. As of March 23, 2001, we had
12,283,486 shares of common stock reserved for possible future issuances
upon, among other things, draws under equity drawdown facility with
Thumberland, the conversion of series 1 bridge financing notes held by the
Sovereign Lenders and the exercise of outstanding options and warrants.
Under the common stock purchase agreement with Thumberland, the amount
of common stock issued to Thumberland is based on a formula that is directly
related to the market price and trading volume of our common stock prior to
the time of draw down under the equity drawdown facility. The issuance of
some or all of the shares of common stock under this common stock purchase
agreement could result in dilution of the per share value of our common stock
held by current stockholders. The lower the average trading price of our
common stock and our trading volume at the time of the draw down, the greater
the number of shares of common stock that will be issued. This causes a
substantial risk of dilution. The perceived risk of dilution may cause
Thumberland as well as other stockholders to sell their shares, which would
contribute to the downward movement in the stock price of our common stock.
We may seek additional financing, which would result in the issuance of
additional shares of our capital stock and/or rights to acquire additional
shares of our capital stock. Additional issuances of capital stock would
result in a reduction of current shareholders' percentage interest in Cambex.
If the exercise price of any outstanding options or warrants is lower than
the price per share of common stock at the time of the exercise, then the
price per share of common stock may decrease because the number of shares of
common stock outstanding would increase without a corresponding increase in
the dollar amount assigned to stockholders' equity. For example, if the
Sovereign Lenders become eligible to exercise the repricing warrants, which
have an exercise price of $0.10 per share, the shares of common stock issued
would have a significant dilutive effect on stockholders' equity
20
The addition of a substantial number of shares of common stock into the
market or by the registration of any other of our securities under the
Securities Act may significantly and negatively affect the prevailing market
price for our common stock. Furthermore, future sales of shares of common
stock issuable upon the exercise of outstanding options and warrants may have
a depressive effect on the market price of the common stock, as these
warrants and options would be more likely to be exercised at a time when the
price of the common stock is in excess of the applicable exercise price.
Sales of our common stock in the public market by the selling securityholders
could cause our stock price to decline
The shares of our common stock that we registered under our registration
statements that were declared effective on November 7, 2000 and December 22,
2000 can, since those dates, be sold in the public market. The Sovereign
Lenders hold securities which may be exercisable for and convertible into
approximately 20.8% of our outstanding capital stock at March 23, 2001.
Moreover, Thumberland and Ladenburg Thalmann could purchase and resell up to
approximately 29.8% of our outstanding capital stock at March 23, 2001 until
June 22, 2002. Sales of a substantial number of shares of our common stock
could cause our stock price to decline. In addition, the sale of these
shares could impair our ability to raise capital through the sale of
additional stock.
Our stock price is volatile and may drop unexpectedly
The stock market in general, and the stock prices of technology-based
companies in particular, have experienced extreme volatility that often has
been unrelated to the operating performance of any specific public company.
Changes in general economic conditions or developments in the data storage,
Internet, and personal computer and workstation markets that affect investor
confidence could have a dramatic impact on the market price of our common
stock. Also, changes in estimates of our earnings as well as any of the
factors described in the "Risk Factors" section of this prospectus could have
a significant impact on the market price of our common stock. In the past,
companies that have experienced volatility in the market price of their stock
have been the subject of securities class action litigation. We may be a
target of such litigation in the future. If we become the subject of
securities class action litigation, it could result in substantial costs and
a diversion of management's attention and resources and could seriously harm
our business, financial condition and results of operations.
We may engage in future acquisitions that dilute our stockholders' equity and
cause us to incur debt or assume contingent liabilities
Although we have no current plans to pursue any acquisition in the near
future, we may pursue acquisitions that could provide new technologies or
products. Future acquisitions may involve the use of significant amounts of
cash, potentially dilutive issuances of equity or equity-linked securities,
the incurrence of debt, or amortization expenses related to goodwill and
other intangible assets.
21
In addition, acquisitions involve numerous risks, including:
difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
the diversion of management's attention from other business
concerns;
risks of entering markets in which we have no or limited prior
experience; and
the potential loss of key employees of the acquired company.
In the event that such an acquisition does occur and we are unable to
successfully integrate businesses, products, technologies or personnel that
we acquire, our business, operating results or financial condition could be
materially adversely affected.
We do not plan to pay cash dividends on our common stock
We have never paid cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We intend to
retain future earnings, if any, to finance the growth and expansion of our
business and for general corporate purposes.
22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make many statements in this prospectus under the captions "Summary
Information," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business," and elsewhere
that are forward-looking and are not based on historical facts. These
statements relate to our future plans, projections, objectives, expectations,
assumptions, beliefs and intentions. In some cases you can identify these
statements by the use of words such as "anticipate," "assume," "believe,"
"could," "estimates," "expect," "intend," "may," "plan," "project," "should"
and other similar expressions. These forward-looking statements involve a
number of known and unknown risks and uncertainties. Our and our industry's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those we
discuss in "Risk Factors" and elsewhere in this prospectus. These forward-
looking statements speak only as of the date of this prospectus, and we
caution you not to rely on these statements without also considering the
risks and uncertainties associated with these statements and our business
that are addressed in this prospectus.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, levels
of activity, performance, or achievements. The forward-looking statements
made in this prospectus relate only to events and assumptions as of the date
on which the statements are made. Moreover, neither we or any other person
assumes responsibility for the accuracy and completeness of the forward-
looking statements.
USE OF PROCEEDS
We will not receive any of the proceeds from sales of common stock by
any of the selling securityholders. However, we will receive the sale price
of any common stock we sell to Thumberland under the common stock purchase
agreement described in this prospectus and upon the exercise of warrants held
by selling securityholders that pay the exercise price in cash. Depending
upon the market value of shares of our common stock, we may use the proceeds
of any such sales for the repayment of debt and if not, then for working
capital and other general corporate purposes.
23
CAPITALIZATION
The following table shows our actual capitalization as of December 31,
2000 and our pro forma capitalization adjusted to reflect:
the conversion of the series 1 bridge notes;
Thumberland drawdown of $5,755,050 in accordance with the example
using our common stock price and trading volume at May 31, 2000 on
page 7; and
exercise of all outstanding warrants being registered, excluding the
repricing warrants issued to the Sovereign Lenders;
for the acquisition of an aggregate of 3,791,048 of shares common stock and
the receipt by us of an aggregate $9,550,753 of proceeds.
You should read the following table with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements and notes thereto and the description of the equity drawdown
facility under "Thumberland Common Stock Purchase Agreement."
As of December 31, 2000
Actual Pro forma
Long-term obligations $1,273,730 $1,273,730
Stockholders' Equity:
Preferred Stock, par value $1.00 per share;
3,000,000 shares authorized; no shares issued
and outstanding, actual; no shares issued
and outstanding, pro forma
Common stock, $0.10 par value; 25,000,000
shares authorized
11,287,847 shares issued actual;
15,078,895 shares issued pro forma $1,128,785 $1,507,890
Capital in excess of par value 16,024,049 25,195,697
Accumulated other comprehensive income 102,465 102,465
Retained earnings (deficit) (23,903,407) (23,903,407)
Less Cost of 1,537,980 shares held in treasury (876,966) (876,966)
Total stockholders' equity (7,525,074) 2,025,679
Total capitalization (6,251,344) 3,299,409
The outstanding share information and amounts shown in the table above
excludes the effect of the following:
Shares of common stock that are issuable upon the exercise of
options that remain outstanding under our former 1987 Stock Option
Plan and our former 1997 Combination Stock Option Plan and shares of
common stock issuable under our Year 2000 Equity Incentive Plan and
that are issuable to the members of our board of directors in lieu
of cash compensation;
24
Shares of common stock issuable upon the conversion of 10%
Subordinated Convertible Promissory Notes and our Loan and Security
Agreements and upon the exercise of warrants issued to the holders
of those notes; and
Shares of common stock issuable upon the exercise of the repricing
warrants that are attached to the series 1 bridge financing notes
issued to the Sovereign Lenders.
25
MARKET FOR OUR COMMON STOCK
Our common stock was listed on Nasdaq from 1972 until 1986. From 1986
through November 1989, our common stock was listed for quotation by the
National Quotation Bureau "pink sheets". From November 1989 until July 1997
our common stock was relisted on Nasdaq. Since July 1997, our common stock
has been listed for quotation on the OTC Bulletin Board under the symbol
"CBEX". However, the market for such shares is limited. No assurance can be
given that a trading market for our common stock will be sustained.
The following table sets forth the range of the high and low closing
bid prices of our common stock during each of the calendar quarters
identified below. These bid prices were obtained from The OTC Bulletin Board
or from the National Quotation Bureau, Inc., and do not necessarily reflect
actual transactions, retail markups, mark downs or commissions. The
transactions include inter-dealer transactions.
High Low
1999
1st Quarter 0.33 0.16
2nd Quarter 1.03 0.20
3rd Quarter 3.13 0.69
4th Quarter 4.50 1.50
2000
1st Quarter 9.25 3.00
2nd Quarter 5.75 1.56
3rd Quarter 2.96 1.50
4th Quarter 1.62 0.62
2001 1st Quarter(through March 23, 2001) 1.56 0.62
The last reported sale price of our common stock on March 23, 2001 was
$0.8125 per share. On that date, there were approximately 512 holders of
record of our common stock.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We presently
intend to retain future earnings, if any, to finance the expansion of our
business and do not anticipate that we will pay cash dividends in the
foreseeable future. Our future dividend policy will depend on our earnings,
capital requirements, expansion plans, financial condition and other relevant
factors.
The series 1 bridge note purchase agreement with the Sovereign Lenders
provides that we may not pay dividends in cash or otherwise as long as any of
the series 1 bridge notes remain outstanding. With the consent of the
Sovereign Lenders and as long as we are not in default, we may pay dividends
to preferred shareholders in accordance with our articles of organization and
we may repurchase shares of our common stock issued upon the exercise of
options granted under our stock option plans.
26
BUSINESS
Summary of Business
We are a designer and supplier of fibre channel hardware and software
products used to build storage area networks (SANs). SANs enhance and
simplify the centralized management and sharing of storage resources while
providing improved availability, scalability, performance, and disaster
recovery. SANs have been enabled by the emergence of fibre channel, a new
generation of server to storage communications technology. We develop and
offer fibre channel host bus adapters and hubs, high availability software,
fibre channel RAID disk arrays and management software for the deployment of
SAN solutions. We supplement our own fibre channel product offerings by
reselling fibre channel SAN hardware and software solutions from leading
manufacturers. We also offer SAN design, integration, and implementation
services to value-added resellers (VARs) and end-users.
We were organized as a corporation in Massachusetts in 1968. Our principal
executive offices are located at 360 Second Avenue, Waltham, Massachusetts.
Prior to 1997, most of our revenue came from selling computer memory products
to customers using mainframe computers primarily manufactured by
International Business Machines Corporation. Our fibre channel development
efforts began in 1997, and in 1998 we began to ship our Centurion brand of
fibre channel RAID disk arrays. We began shipping our FibreQuik brand of
fibre channel host bus adapters in 1999 and our FibreQuik brand of fibre
channel hubs in 2000. In 2000, we announced the introduction of the Centurion
2000 FF RAID disk storage array, our fifth generation disk array, which
utilizes full-fibre channel technology. The Centurion 2000 FF delivers
excellent price/performance for deploying workgroup and enterprise level
SANs. We also recently entered into reseller relationships with Hitachi Data
Systems, Storage Technology Corporation, and Brocade Communications
Corporation under which we offer for resale fibre channel disk arrays, tape
drives and libraries, and fibre channel switches manufactured by these
vendors.
We offer Cambex branded fibre channel connectivity products consisting of
host bus adapters and hubs for the SAN market. A host bus adapter provides
fibre channel connectivity between a computer workstation or server and a
SAN. Our host bus adapters are deployable across a wide variety of network
configurations and operating systems. Our proprietary driver software
incorporates features that enhance and simplify SAN device integration and
provide high availability. We work closely with some of our customers to
tailor our products to their specific requirements by making software driver
modifications to optimize performance with our customers' products. Our fibre
channel hubs enable users to create star topology fibre channel SANs which
greatly simplifies cabling and allows servers and storage to be non-
disruptively added or removed from the SAN.
We offer Cambex branded fibre channel RAID disk arrays that allow users to
store large amounts of online information with increased data protection,
availability and access capabilities. RAID systems allocate data across
multiple hard disk drives and allow the server to access these drives
simultaneously, thus increasing system storage and input/output performance.
RAID algorithms allow lost data on any drive to be recreated, thus ensuring
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the integrity of RAID-protected data even in the event of a disk drive
failure. In addition, our RAID systems incorporate redundant power, cooling
and processing components for additional fault tolerance. Through reseller
relationships, we also offer fibre channel disk arrays manufactured by
Hitachi Data Systems, tape storage products manufactured by Storage
Technology Corporation, and fibre channel switches manufactured by Brocade
Communications Corporation.
We sell our products domestically and internationally through OEM, systems
integrator, VAR and end-user channels. Our fibre channel connectivity
products are sold primarily through OEM, systems integrator and VAR channels.
Our disk arrays and products that we resell are sold primarily through VARs
and directly to end-users.
Industry Background
In today's information-based economy, a company's information and
databases are central to the value of the enterprise. The volume of business-
critical data generated, processed, stored and manipulated has grown
dramatically over the last decade, and managing the increase in data is one
of the most important challenges for organizations. The dramatic increase in
stored data is the result of a variety of factors, including:
the development of internet-based business operations and e-commerce;
high volume database access and transaction processing;
data warehousing and data mining of large databases;
data replication services;
digital video storage, transmission and editing; and
business and scientific computing.
As a result, enterprises face heightened requirements for data storage
solutions that offer:
improved access to shared data;
efficient management of shared data;
disaster tolerance and recovery;
reduced costs of ownership;
increased connectivity capabilities;
higher performance; and
greater reliability.
The traditional storage architectures are commonly referred to as direct
attached and network attached storage. In the widely-deployed direct attached
architecture, each server is linked to a limited number of storage systems in
close proximity using SCSI technologies. In the network attached storage
architecture, stored data can be accessed over the local area network because
the storage device is connected directly to the local area network by a
dedicated storage server. Due to the significant volume of data being stored
in today's business environment, both of these architectures have become
increasingly costly to maintain and expand. As a result, traditional
architectures often do not adequately support the requirements of data-
intensive enterprises.
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In response to the demand for high-speed and high-reliability storage-
to-server and server-to-server connectivity, the fibre channel interconnect
protocol was developed in the early 1990s and received the American National
Standards Institute approval in 1994. Fibre channel is an open, efficient
transport system supporting multiple protocols.
Fibre channel technology has the following capabilities:
Performance capability of over four gigabits/second;
Support for distances up to 10 kilometers;
Scalable networks to thousands of devices;
Reliable data transmission;
Interoperability with standard components; and
Ability to carry multiple existing interface data protocols,
including Internet Protocol, SCSI and VI.
As a result of its broad range of features, many industry analysts
consider fibre channel to be the most reliable, scalable, gigabit
communications technology for data storage applications available today.
Since its introduction, fibre channel has earned increasing acceptance from
industry and independent testing laboratories. Fibre channel technology can
be implemented in a wide variety of applications, including computer
clustering, networking, digital video transmission and editing and storage
access. To date, the most widely accepted and deployed application for fibre
channel technology has been in SANs.
A storage area network is a network of servers and data storage devices
interconnected at gigabit speeds. Fibre channel is the enabling technology
that has made implementation of a SAN possible. Businesses are investing in
SANs because they have found that establishing a separate network for storage
takes data movement off the local area network, thereby freeing up network
resources and reducing the impact on network users. SANs provide an open,
extensible platform for storage access in data intensive environments like
those used for web hosting, online transaction processing and data
warehousing. Equally important, SANs can be significantly less expensive to
maintain and expand than traditional storage architectures because they
enable shared, high-speed access to stored data as well as centralized
management.
SANs provide the following benefits that address the growing challenges
facing businesses using data-intensive, mission-critical applications:
Availability: SANs enable businesses to eliminate the bottlenecks
inherent in traditional storage architectures and to reduce the dependence on
a single server to access each storage device. Because SANs use fibre channel
technology and a networked approach, SANs can be designed with multiple
redundant paths to provide more reliable connections and thereby assure
availability of data in spite of failures of individual links or components
of the system.
Performance: By using fibre channel technology, SANs support large
data block transfers at gigabit speeds and are therefore very effective for
data transfers between storage systems and servers. Fibre channel has
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demonstrated transmission speeds of up to two gigabits per second and is
designed to scale to significantly higher speeds.
Distance: Fibre channel supports transmission distance in excess of 10
kilometers without loss of speed, which simplifies network configuration and
significantly reduces susceptibility to environmental disasters.
Scalability: By combining networking models with advanced server
performance and mass storage capacity, a SAN eliminates the bandwidth
bottlenecks and scalability limitations imposed by traditional storage
architectures. The network architecture reduces the need to replicate data
because all servers can share access to each storage device.
Manageability: SANs facilitate the use of centralized management
software for monitoring and control, allowing administrators to more closely
monitor their storage systems.
Flexibility: SANs provide high-speed connectivity for data-intensive
applications across multiple operating systems, including UNIX, Linux and
Windows NT. SANs can be configured in multiple topologies, and the various
topologies contribute to the flexibility of the SAN to solve storage
management issues by offering enterprises alternatives in cost and scale.
Components of a SAN
Virtually all SANs use several basic components to make up the network,
including the following:
servers and workstations;
fibre channel host bus adapters;
fibre channel hubs and/or switches;
disk and/or tape storage devices;
copper or fiber optic cables; and
management software.
All the components must work together to deliver a functional SAN
environment.
Each server connects to a SAN through host bus adapters, which are printed
circuit cards that fit in standard sockets on computer motherboards and
enable high-speed data transfer. A host bus adapter connects the server to
other devices in a SAN via cables. The cables connect the host bus adapter
either directly to a fibre channel disk array or tape library or to a hub or
a switch. Host bus adapters are typically classified by (a) bus architecture,
(b) computer operating system, and (c) topology. Each host bus adapter is
designed to support a particular bus architecture, such as IBM's Micro
Channel bus architecture, Sun Microsystems SBus architecture or the
Peripheral Component Interconnect, or PCI, bus architecture. Because fibre
channel host bus adapter functions are regulated by software, each host bus
adapter must include software designed to work with the particular operating
system being used by the server/storage solution. These systems typically
include all types of UNIX as well as Linux and Windows NT systems.
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Hubs and switches are devices that direct the flow of data from one computing
device to another. When connecting multiple servers to one or more storage
devices, a hub or switch is used to create a fibre channel network. Hubs and
switches simplify cabling and allow the non-disruptive addition or removal of
servers or storage devices from the storage area network. There are two main
industry standards for the fibre channel protocol: fibre channel arbitrated
loop (FC-AL) and fibre channel switched fabric (FC-SW), commonly known as
"Fabric". Hubs utilize the fibre channel arbitrated loop protocol, whereas
switches use the fibre channel switched fabric protocol. Hubs are typically
deployed in workgroup or small enterprise environments. A hub based
arbitrated loop SAN can scale to 126 devices, but all devices on the
arbitrated loop share the fibre channel bandwidth on the loop. On the other
hand, switches are used for large SAN deployments, as a fabric network can
scale to thousands of devices and each device connected to a switch is
provided with dedicated bandwidth when talking to other devices on the fabric
even when multiple conversations are occurring simultaneously.
The Cambex Solution
We are a developer, manufacturer and reseller of fibre channel hardware
and software products that enable users to deploy SANs. We have developed a
family of host bus adapters, hubs and software that provide increased
bandwidth and availability when deploying mission-critical SANs. Our fibre
channel disk arrays allow the storage of large amounts of online data in a
high performance, high availability environment. By offering other SAN
products, including disk arrays, tape drives and libraries, switches,
routers, and software, from other leading manufacturers, we are able to
deliver a complete, tested and interoperable SAN solution to our customers.
Our objective is to become a leading solution provider for deploying high-
speed fibre channel SANs by providing both our internally developed fibre
channel connectivity products, high availability software, and disk arrays,
as well as the highest quality products available from other fibre channel
product and storage vendors.
Products
We believe we offer high quality fibre channel products with a superior
price/performance profile. Our internally developed products include a
comprehensive suite of host bus adapters, hubs, disk arrays, and software. We
also offer for resale best-in-class SAN products from Hitachi Data Systems,
Storage Technology, and Brocade Communications.
Host Bus Adapters
We design, manufacture and sell a family of fibre channel host bus adapters
and related device driver software. A host bus adapter is a printed circuit
card that plugs into the motherboard of servers and workstations and enables
these devices to connect to other fibre channel devices in a SAN.
Communication between the host bus adapter and the operating system is
regulated by device driver software that is included with the host bus
adapter. Working in conjunction with our device driver software, our host
bus adapters can be used with both the Micro Channel and the PCI interface
and interoperate with a wide variety of operating systems, making our host
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bus adapter capabilities one of the broadest currently available. Our
software drivers operate under all three fibre channel topologies - switched
fabric, arbitrated loop and point-to-point. The result is our drivers
simplify the installation and ensure interoperability between many types of
platforms and servers. We introduced our FibreQuik MC1000 host bus adapter
designed for the Micro Channel interface in early 1999 and, to our knowledge,
we are currently the only supplier of gigabit speed fibre channel host bus
adapters for the Micro Channel bus architecture. In mid-1999, we introduced
our FibreQuik PC1000 host bus adapter for the PCI interface.
Hubs
We design, manufacture and sell an entry-level fibre channel hub targeted at
workgroup and small enterprise SAN applications. Our FibreQuik HB2000
provides a cost-effective solution that addresses SAN interconnect
requirements, linking servers with storage devices. By enhancing
functionality and reducing costs for entry-level SAN products, our hub
effectively addresses this segment of the SAN interconnect market. Introduced
in 2000, the FibreQuik HB2000 has been tested in a wide range of demanding,
mission-critical network environments and is a good option for cost-
conscious, entry-level SAN installations. Our hub supports full gigabit data
transfer speeds and automatically bypasses failed or unused ports in a SAN.
Our Gigabit Interface Converter (GBIC) based design allows customers to add,
move or delete storage capacity and Fibre Channel devices on the SAN as
needed. The flexible design of our entry-level hub also enables different
combinations of copper, short-wave optical, and long-wave optical
transceivers in a single SAN solution.
Cambex Disk Arrays
We sell full fibre channel RAID (redundant array of inexpensive disk) disk
arrays that allow users to store large amounts of online information in high
availability, high performance environments. The Centurion 2000 FF is our
fifth generation disk array and is targeted at enterprises running mission-
critical Internet, e-commerce, on-line transaction processing, data
warehousing, and multimedia applications. The Centurion 2000 FF is ideal for
deploying heterogeneous SANs in IBM, Sun, HP, Windows, and Linux
environments. A fully redundant architecture ensures no single point of
failure - redundant components include RAID controllers, power supplies,
fans, AC power cords, Fibre I/O modules and global hot spares. All critical
system components are hot swappable allowing for little or no downtime
maintenance. Centurion's building block modularity allows users to start with
configurations as small as 18 gigabytes, but with the ability to scale up to
25 terabytes behind a pair of RAID controllers. Centurion Storage Manager, an
intuitive graphical user interface-based software management and
configuration application, allows for single seat management of Centurion
2000 FF arrays both locally and remotely. Users can monitor the status of
system components, gather performance statistics, and dynamically reallocate
storage to specific clients on the SAN.
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Software
We develop and sell software designed to provide very high availability
for enterprise level, mission-critical SAN deployments. Our Dynamic Path
Failover (DPF) software, used with our FibreQuik host bus adapters, provides
full data path redundancy for superior data availability, delivers load
balancing capabilities, and operates in active-active mode to deliver up to
twice the performance when accessing storage in a SAN environment. The
software is deployed with two FibreQuik host bus adapters in each server that
is connected to the SAN. The SAN is constructed to have redundant fibre
channel data paths from each server to the storage resources on the SAN. DPF
software intelligently monitors the end-to-end integrity of each fibre
channel data path and automatically detects a host bus adapter, cable, hub,
switch, or RAID controller failure. Upon detection of a path failure, DPF
dynamically remaps the storage on the failed path to the active data path.
When the network failure is corrected, DPF dynamically remaps the storage to
the restored path. The failover/failback sequence is transparent to users and
provides high storage availability and performance. DPF operates in active-
active mode which means that both fibre channel data paths from each server
can be accessing SAN-attached storage at the same time. This can effectively
double throughput to SAN attached storage. Furthermore, DPF's load balancing
capability acts as a traffic cop to provide for optimal utilization of
active-active fibre channel paths.
SAN Integration Services
In addition to selling our internally developed fibre channel connectivity,
disk array, and software products, we resell high quality SAN solutions from
leading manufacturers of fibre channel disk arrays, tape storage libraries,
switches and management software. This allows us to offer our customer a
complete, fully integrated storage area network solution.
Technology
We possess a high level of multi-disciplinary technological expertise,
which we utilize in designing our products. This expertise includes fibre
channel technology, software design and development, embedded hardware
design, system design, and systems integration. We believe that our expertise
in these technologies provides us with competitive advantages in time-to-
market, price/performance, interoperability and product capabilities.
At our principal offices in Waltham, Massachusetts, we have established
a systems integration lab to provide comprehensive functional and system
level integration/interoperability testing between our fibre channel host bus
adapters, hubs, disk arrays, and software with various computer platforms and
fibre channel systems. To facilitate expanded market penetration of our
products and technology, our integration test methodologies and software are
continually evolving. Integration testing at our lab combines our products
with various fibre channel SAN components to simulate the most commonly used
functional configurations defined by our reseller partners. The overall goal
is to ensure enterprise class performance and interoperability in real world
SAN deployments.
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Customers
We sell our products to OEMs, resellers and directly to end-users. Our
OEM and reseller customers include Compaq, StorageTek, FDC Technologies, and
EDS. In 1999 and 2000, our end-user customers of our products and
services have included BASF, Mobil, EDS, Lockheed Martin and MCI/Worldcom.
In the year ended December 31, 2000, our top five customers accounted
for approximately 45% of our total net revenues, and, in the year ended
December 31, 1999, our top five customers accounted for approximately 40% of
our total net revenues.
Customer Service and Support
We offer customer service and support programs that include telephone
and on-site support 24 hours a day, seven days a week. In addition, we have
designed our products to allow easy diagnostics and administration. We employ
systems engineers for pre- and post-sales support and technical support
engineers for field support.
Sales and Marketing
We sell domestically and internationally to OEMs, systems integrators,
and VARs as well as directly to end users in the United States. We target
OEMs, systems integrators, and VARs who resell our products as a part of
complete SAN solutions to end-users. Our sales and marketing strategy will
continue to focus on the development of the fibre channel market through
these relationships. We also sell complete fibre channel SAN solutions to
certain targeted end-users through a small direct sales force.
Our marketing efforts are focused on increasing awareness of our fibre
channel products and ability to deliver complete SAN solutions, promoting
SAN-based solutions, and advocating industry-wide standards and
interoperability. Key components of our marketing efforts include:
extending our partnerships with leading manufacturers of fibre channel
connectivity, disk and tape storage, and SAN management software products
allowing us to offer a complete SAN solution;
continuing our participation in industry associations and standards
committees to promote and further enhance fibre channel technology and
increase our visibility as industry experts; and
participating in major trade show events and SAN conferences to promote
our products and to continue our efforts to educate potential customers
on the value of SANs.
OEMs
OEMs can exercise significant influence in the early development of our
market because they utilize products to deliver to end users complete,
factory-configured solutions that are installed and field-serviced by the
OEMs' technical support organizations. We intend to continue our efforts to
develop relationships with leading OEM customers to introduce new products.
We believe that OEMs will continue to provide critical input as we develop
our next generation of products.
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Reseller Customers
As the markets for fibre channel products and SAN solutions evolve, and
as end-user awareness of the benefits of fibre channel increases, we believe
an increasing volume of sales will occur through reseller channels. We
believe that as the market for fibre channel matures, we will be able to
leverage sales through distributors, systems integrators, and value-added
resellers and that such sales will represent an increasing percentage of our
total net revenues. As this market continues to develop, we plan to establish
additional relationships with select domestic and international resellers to
reach additional markets and increase our geographic coverage.
Manufacturing, Test and Assembly
We outsource the majority of our manufacturing, and we conduct quality
assurance, manufacturing, engineering, documentation control and certain
finish assembly and test operations at our headquarter facility in Waltham,
Massachusetts. This approach enables us to reduce fixed costs and to provide
flexibility in meeting market demands.
Except for the QLogic Corporation hardware we utilize in our host bus
adapters, we believe most component parts used in our products are standard
off-the-shelf items, which are, or can be, purchased from two or more
sources. We select suppliers primarily on the basis of technology,
manufacturing capacity, quality and cost. Our reliance on third-party
suppliers and manufacturers involves risks, including possible limitations on
availability of products due to market abnormalities, unavailability of, or
delays in obtaining access to, certain product technologies and the absence
of complete control over delivery schedules, manufacturing yields, and total
production costs. The inability of our suppliers and third party
manufacturers to deliver products of acceptable quality and in a timely
manner or our
inability to procure adequate supplies of our products could have a material
adverse effect on our business, financial condition or operating results.
Research and Development
Our success will depend to a substantial degree upon our ability to
develop and introduce in a timely fashion new products and enhancements to
our existing products that meet changing customer requirements and emerging
industry standards. We have made, and plan to continue to make, expenditures
for research and development and to participate in the development of
industry standards. However, because our net revenues declined in each of the
five most recently completed fiscal years, our expenditures for research and
development are significantly lower than the amount we expended for research
and development three years ago. Over the last two fiscal years, our
research and development expenses were approximately $1.4 million in 2000,
compared to $1.1 million in 1999.
Because the amount of resources available for research and development
are limited, we have made the decision to devote all research and development
expenditures on storage I/O technologies and products, related software, and
on high availability software applications for the SAN market. Before a new
35
product is developed, our research and development engineers work with
marketing managers and customers to develop a comprehensive requirements
specification. After the product is designed and commercially released, our
engineers continue to work with customers on early design-in efforts to
understand requirements for future generations and upgrades.
Research and development expenses primarily consist of salaries and
related costs of employees engaged in ongoing research, design and
development activities and subcontracting costs. We are seeking to hire
additional skilled development engineers. Our business, operating results
and financial condition could be adversely affected if we encounter delays in
hiring additional engineers.
Competition
The markets in which we compete are intensely competitive and are
characterized by frequent new product introductions, changing customer
preferences and evolving technology and industry standards. Our competitors
continue to introduce products with improved price/performance
characteristics, and we will have to do the same to remain competitive.
Increased competition could result in significant price competition, reduced
revenues, lower profit margins or loss of market share, any of which would
have a material adverse effect on our business, operating results and
financial condition.
Our principal competitors in the fibre channel connectivity product market
include Emulex Corporation, QLogic Corporation, JNI Corporation, Agilent
Corporation, Vixel Corporation, and Gadzoox Networks, Inc. Our primary
competitors in the disk array market include International Business Machines
Corporation, EMC Corporation and Sun Microsystems.
Our principal competitors in the host bus adapter market include Emulex,
QLogic, JNI and Agilent. Our products may also compete at the end-user level
with other technology alternatives, such as SCSI, which are available from
companies such as Adaptec, LSI Logic and QLogic as well as a number of other
companies. In the future, other technologies may evolve to address the
applications served by fibre channel today, and because we focus on fibre
channel, our business would suffer as a result of competition from such
competing technologies.
Some of our OEM and reseller customers could develop products internally that
would replace our products. The loss of opportunities to sell our products to
any such OEM and reseller customers, in addition to the increased competition
presented by these customers, could have a material adverse effect on our
business, operating results and financial condition.
We believe that the principal bases of fibre channel product competition
presently include interoperability, reliability, scalability, connectivity,
performance and customization. We believe that other competitive factors
include pricing and technical support. We believe that we compete favorably
with respect to each of these factors.
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Intellectual Property
The intellectual property rights we have in our technology, which generally
consist of system designs, software and know-how associated with our product
portfolio, principally arise from our own internal development efforts. We
attempt to protect our technology through a combination of unpatented trade
secrets, trademarks and contractual obligations. Our software products are
protected by copyright laws. We cannot assure that our intellectual property
protection measures will be sufficient to prevent misappropriation of our
technology or that our competitors will not independently develop
technologies that are substantially equivalent or superior to our technology.
In addition, the laws of many foreign countries do not protect our
intellectual property rights to the same extent as the laws of the United
States. Our failure to protect our proprietary information could have a
material adverse effect on our business, financial condition or operating
results.
We may need to initiate litigation in the future to enforce our intellectual
property rights, to protect trade secrets or to determine the validity and
scope of the proprietary rights of others. Litigation could result in
substantial costs and diversion of our resources and could materially harm
our business. In the future, we may receive notice of infringement claims of
other parties' proprietary rights. Infringement or other claims could be
asserted or prosecuted against us in the future, and it is possible that such
assertions or prosecutions could harm our business. Any such claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause delays in the
development and release of our products, or require us to develop non-
infringing technology or enter into royalty or licensing arrangements. Such
royalty or licensing arrangements, if required, may not be available on terms
acceptable to us, or at all. For these reasons, infringement claims could
materially harm our business.
In October 1997, we voluntarily filed for protection under chapter 11 of the
federal bankruptcy laws and we emerged from bankruptcy protection in April
1998.
Employees
At March 23, 2001, we had 25 full-time employees. None of our employees are
represented by a labor union. We have not experienced any work stoppages and
consider our relations with our employees to be good.
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Properties
We currently lease approximately 68,000 square feet in an office facility in
Waltham, Massachusetts pursuant to a lease that expires on May 31, 2003. Of
the approximately 68,000 square feet leased, approximately 42,000 square feet
of this space is subleased to unrelated parties for a term ending May 31,
2003.
We also own 12.4 acres of land in Poughkeepsie, New York. This land is
vacant and not subject to a mortgage.
Legal Proceedings
There are no material legal proceedings pending against us. We are involved
in certain legal proceedings arising in the ordinary course of business. We
believe that the outcome of these proceedings will not have a material
adverse effect on our financial condition.
38
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this
prospectus. Please refer to "Special Note Regarding Forward-Looking
Statements" for additional information.
Comparison of fiscal years 2000 and 1999
Our revenues were $2,400,000 and $3,402,000 for 2000 and 1999, respectively.
Revenues for 2000 decreased 29% compared to revenues for the prior year due
to decreased disk array product sales and related service revenues, which was
partially offset by growth in sales of our fibre channel connectivity
products. The decrease in revenues from sales of our disk array products and
related services was partly due to transitioning our line of storage products
from traditional SCSI-based disk arrays to full fibre channel disk arrays as
well as the impact of a slowing economy in the fourth quarter of fiscal 2000
which resulted in purchase decisions being postponed by prospective
customers.
Gross profit rate was 53% of sales in 2000, compared to 58% of sales in 1999.
This decrease in our gross profit rate was the result of the greater relative
amount of fixed manufacturing costs in relation to revenues in this year as
compared to fiscal 1999.
Operating expenses in 2000 increased by 18% in comparison to operating
expenses in the prior year. Research and development expenses in 2000
increased by 24% compared to the amount of these expenses in 1999. In order
to remain competitive, we continue to expend significant amounts for research
and development for new product development and the enhancement of existing
fibre channel connectivity products. Selling expenses in 2000 increased by
43% compared to the amount of these expenses in 1999. We continued to expend
increased amounts to build our sales and marketing organization and reseller
channels. General and administrative expenses decreased by 23% compared to
the amount of these expenses in 1999.
Interest expense increased by 133% in 2000 compared to 1999. This increase in
interest expense was primarily due to funds borrowed beginning in the third
and fourth quarters of 1999. We borrowed $210,000 in exchange for, among
other things, an issuance of 10% subordinated convertible promissory notes
from June 1999 through August 1999 due in 2003. We initially borrowed
$550,000 in November 1999 in exchange for, among other things, our issuance
of 12% promissory notes due November 2000. These notes were extended to
November 2001. We also borrowed $2,000,000 in January and February 2000 from
the Sovereign Lenders in exchange for, among other things, our issuance of
series 1 bridge financing notes that accrued interest at the rate of 8% per
annum until their maturity in August and September 2000. Since their
maturity, these notes are accruing interest at the rate of 12% per annum.
39
Extraordinary income items of $102,000 and $758,000 for 2000 and 1999,
respectively, were recorded as a result of some of our creditors agreeing to
accept partial cash payments in full satisfaction of liabilities owed to
those creditors.
Total comprehensive net loss for 2000 was $1,971,000, or $0.20 per share, as
compared with total comprehensive income of $110,000, or $0.01 per share, for
1999.
Inflation
We did not experience any material adverse effects in 1999 or 2000 due to
general inflation.
Liquidity and Capital Resources
As discussed more fully in Note 1 to our audited consolidated financial
statements, we have suffered substantial recurring losses from operations for
the last five consecutive years. Consequently, our ability to continue as a
going concern is dependent upon several factors including, but not limited
to, our ability to generate revenues in significantly greater amounts than in
the past two fiscal years, our ability to raise additional capital and the
assumption that certain of our lenders will accept shares of our common stock
instead of cash in satisfaction of our obligations.
Management has been active in establishing new strategic alliances that it
believes will result in increases in revenues in the future through the sale
of a greater volume of products. Management has also been active in trying to
secure additional capital. We cannot give any assurances that the actions
taken to date will increase revenues or raise additional capital.
Requirements
Depending upon the market value of shares of our common stock, any additional
financing that we obtain through the sale of common stock to Thumberland
Limited under the common stock purchase agreement we entered into in 2000 or
cash that we may receive from the exercise of outstanding warrants may be
used to repay and prepay debt and for working capital purposes to fund our
continuing operations including research and development and sales and
marketing expenses.
During the first quarter of 2000, we borrowed $2,000,000 in cash from the
Sovereign Lenders in exchange for, among other things, our issuance of series
1 bridge financing notes that matured in August and September 2000. We
received net proceeds equal to $1,737,900 from the Sovereign Lenders as a
result of this bridge financing. The series 1 bridge financing notes bore
interest at the rate of 8% per annum prior to their respective maturity
dates. Since their respective maturity dates, interest is accruing at a rate
of 12% per annum. These bridge notes are convertible into shares of our
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common stock at a weighted average per share price of $4.08. Because the
bridge notes matured before we registered, under the Securities Act of 1933,
as amended, the offer and resale of shares of our common stock issuable upon
conversion of the bridge notes and exercise of the repricing warrants and the
common stock purchase warrants described above, we owe the Sovereign Lenders
premiums and penalties totaling approximately $607,000 (in addition to the
repayment of principal and interest). Following conversion of the bridge
notes, if the Sovereign Lenders do not realize at least a 20% gain on shares
of common stock that they choose to sell during the 90 days following
conversion, then the Sovereign Lenders are entitled to acquire additional
shares of common stock at a price of $0.10 per share through the exercise of
repricing warrants. In addition to these bridge notes and the attached
repricing warrants, we issued warrants to purchase 300,000 shares of common
stock. These warrants have a weighted average exercise price of $4.54 per
share.
Resources
Our cash and marketable securities were $235,000 and $367,000 at December 31,
2000 and December 31, 1999, respectively. Working capital was a deficit of
$5,818,000 and $2,125,000 at December 31, 2000 and at December 31, 1999,
respectively. The increase in working capital deficit was primarily due to
the loss for the year 2000. During 2000, we did not expend any funds for
capital equipment. During fiscal 2001, we expect to acquire less than
$100,000 of capital equipment.
We have a revolving credit facility with B.A. Associates, Inc. under which we
may borrow up to $1,050,000. At December 31, 2000 we had a balance of
$1,032,000 outstanding under this revolving credit facility.
During the third quarter of fiscal 2000, we signed a common stock purchase
agreement with Thumberland Limited, a private investor, for the future
issuance and purchase of shares of our common stock. The common stock
purchase agreement was amended during the fourth quarter of fiscal 2000. The
common stock purchase agreement establishes what is often referred to as a
structured equity line or an equity drawdown facility. In general, the
drawdown facility operates as follows: the investor has committed to provide
us up to $10 million as we request it over an 18 month period, in return for
common stock we issue to the investor, subject to registering in advance the
shares of common stock issuable under the Securities Act of 1933. Once every
22 trading days, we may request a draw of up to $1 million of that money
(except that our initial drawdown may be for up to $2 million), subject to a
maximum of 18 draws. The maximum amount we actually can drawdown upon each
request will be determined by the volume-weighted average daily price of our
common stock for the 22 trading days prior to our request and the average
trading volume for the 45 trading days prior to our request. Per the terms of
this agreement, we are currently unable to draw because we cannot meet the
minimum draw amount of $250,000. We filed registration statements on Form SB-
2 with the Securities and Exchange Commission registering 4,981,542 shares
issuable in connection with the bridge loan financing from the Sovereign
Lenders and the purchase agreement with Thumberland. Those registration
statements were declared effective on November 7, 2000 and December 22, 2000.
41
We may need additional capital and additional financing may not be available.
We currently anticipate that our available cash resources combined with the
maximum drawdown under the equity draw down facility will be sufficient to
meet our anticipated working capital and capital expenditure requirements
through at least the next 24 months. However, if our stock price and trading
volume stay at current levels, we will not be able to draw down any of the
$10 million under the common stock purchase agreement and our available cash
resources will meet our requirements for only the next 4 months. The time
periods for which we believe our capital as sufficient are estimates. The
actual time periods may differ materially as a result of a number of factors,
risks and uncertainties that are described herein. In addition, business and
economic conditions may not make it feasible to draw down under the facility
at every opportunity, and drawdowns are available only every 22 trading days.
Without additional capital, we may be unable to fund expansion, to develop
new products and services and to enhance existing products and services to
respond to competitive pressures, or to acquire complementary businesses or
technologies. Further our ability to raise investment capital during the term
of the common stock purchase agreement is restricted and if we need capital
but are unable to drawdown under the common stock purchase agreement for any
reason, we may not be able to meet our anticipated working capital. If
adequate funds are not available or are not available on terms favorable to
us, we will not be able to effectively execute our business plan and we may
not be able to continue as a going concern.
42
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The following table shows the name, age and position of each of our
executive officers and directors as of the date of this prospectus.
Name Age Position
Joseph F. Kruy (1) 69 President, Chief Executive Officer
and Chairman of the Board and
a Director
Philip C. Hankins (1)(2) 69 Director
C.V. Ramamoorthy, Ph.D. (1)(2) 74 Director
Robert J. Spain, Ph.D. (1) 63 Director
Peter J. Kruy, M.D. 38 Executive Vice President, Treasurer
and Chief Financial Officer
Lois P. Lehberger 44 Vice President and Controller
___________________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Joseph F. Kruy has served as our President, Chief Executive Officer and a
member of our board of directors since our inception in 1968. Mr. Kruy has
served as our Chairman of the Board since October 1975. Mr. Kruy holds a
B.S. in electrical engineering and a Dipl. Eng. from the Technical University
in Budapest.
Philip C. Hankins has been a member of our board of directors since 1975.
Since 1975 Mr. Hankins has been the President of Charter Information
Corporation, an information processing company. Mr. Hankins holds a B.S. in
mechanical engineering from Cornell University and a M.S. from Harvard
University.
C.V. Ramamoorthy, Ph.D. has been a member of our board of directors since our
inception in 1968. Since prior to 1995, Dr. Ramamoorthy has been a Professor
of Electrical Engineering and Computer Sciences at the University of
California Berkeley. Dr. Ramamoorthy holds a B.S. in physics from the
University of Madras, India, a M.S. in mechanical engineering from the
University of California Berkeley and a M.S. and a Ph.D. from Harvard
University.
Robert J. Spain, Ph.D. has been a member of our board of directors since
1995. Dr. Spain was also our Vice President of Research from 1969 to 1977.
Since prior to 1995, Dr. Spain has been the President of CFC, Inc., an
electronic component manufacturing company. Dr. Spain holds a B.S.E.E. and a
M.S.E.E. from the Massachusetts Institute of Technology and a Doctor of
Science from Paris, Sorbonne.
43
Peter J. Kruy has served as our Executive Vice President, Treasurer and Chief
Financial Officer since August 1998. From November 1993 to January 1998, Dr.
Kruy was the President, Chief Financial Officer and Chief Executive Officer
of Jupiter Technology, Inc. a data networking company. Dr. Kruy holds a B.A.
in biology from the University of Pennsylvania, a M.D. from Tufts University
School of Medicine and an M.B.A. from the Wharton School at the University of
Pennsylvania. Dr. Kruy is also the owner of CyberFin Corporation, a more
than five percent shareholder of Cambex. Peter J. Kruy is the son of Joseph
F. Kruy.
Lois P. Lehberger joined Cambex in June 1978 and has served as our controller
since August 1998, and our vice president since November 1999. Since joining
Cambex, Ms. Lehberger has been responsible for our accounting function. Ms.
Lehberger holds a B.A. in economics and accounting from the College of the
Holy Cross.
Board Composition
Under Massachusetts law, our board of directors is classified into
three classes, as nearly equal in number as possible, with the term of office
of one class expiring each year. At the meeting of stockholders held on
December 23, 1999, the stockholders re-elected all directors for a one, two
or three year term and until their successors are duly elected and qualified.
At that meeting, Messrs. Joseph Kruy and C.V. Ramamoorthy were elected as
Class I directors with terms of three years, or until the annual meeting of
stockholders to be held in 2003, Dr. Spain was elected as a Class II director
with a term of one year, or until the next annual meeting of stockholders to
be held in 2001, and Mr. Hankins was elected as a Class III director with a
term of two years, or until the annual meeting of stockholders to be held in
2002.
Board Committees
Our board of directors has an audit committee and a compensation
committee.
Audit Committee. The current members of our audit committee are Dr.
Ramamoorthy and Mr. Hankins. Our audit committee reviews, acts on, and
reports to the board of directors with respect to various auditing and
accounting matters, including the selection of our independent auditors, the
scope of the annual audits, fees to be paid to the auditors, the performance
of our independent auditors and our accounting practices. On July 10, 2000
the board of directors adopted an audit committee charter as required under
the rules of the Securities and Exchange Commission.
44
Compensation Committee. The current members of our compensation
committee are the members of the board of directors. Our compensation
committee determines the salaries and incentive compensation of our officers
and provides recommendations for the salaries and incentive compensation of
our other employees.
Compensation Committee and Insider Participation
The voting members of the compensation committee are the members of our
board of directors. Mr. Kruy is on the compensation committee but abstains
from discussions and voting on decisions regarding his compensation.
Director Compensation
We compensate our non-employee directors with an annual fee of $10,000
and a fee of $1,000 for each meeting of the board of directors attended. In
August 1998, the board of directors authorized the non-employee director
compensation to be converted from cash to shares of our common stock at a
price of $0.25 per share, or 50% of the fair market value, whichever is
greater. To date, no shares have been issued to the non-employee directors
as compensation for services as a member of the board of directors.
The board of directors is also covered by indemnification provisions of
our by-laws, as amended. See the section entitled "Description of
Securities."
Executive Compensation
The following table provides certain summary information concerning
compensation awarded to, earned by, or paid to our Chief Executive Officer
and each of our other executive officers for services rendered to Cambex in
all capacities during the fiscal years ended December 31, 2000 and December
31, 1999.
Summary Compensation Table
Annual Long Term
Compensation(1) Compensation Awards
Name and Position Year Salary Options(#)
Joseph F. Kruy 2000 $200,000 -
Chairman, President and CEO 1999 $200,000 -
Peter J. Kruy 2000 $100,385 75,000
Executive Vice President and 1999 $ 85,000 300,000
Chief Financial Officer
Lois P. Lehberger(2) 2000 $ 72,276 -
Vice President and 1999 $ 68,000 100,000
Controller
(1)The columns for "Bonus", "Other Annual Compensation" and "All Other
Compensation" have been omitted because there is no such compensation
required to be reported.
(2)Mrs. Lehberger became an executive officer in November, 1999.
45
Stock Options
The following table contains information concerning the grant of stock
options under our Year 2000 Equity Incentive Plan to the executive officers
named in the Summary Compensation Table. Each of the option grants listed
below vests in five equal installments on the first through the sixth
anniversaries of the date of grant.
Option Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name (#) Fiscal Year ($/Share) Date
Joseph F. Kruy - - - -
Peter J. Kruy 75,000 24.9% $5.30 3/8/2010
Lois P. Lehberger - - - -
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option
Value
Value of
Unexercised
Number of In-the-money
Options at Options at
December 31,2000 December 31,2000(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized Unexercisable Unexercisable
Joseph F. Kruy - - -/- -/-
Peter J. Kruy - - 60,000/315,000 24,000/96,000
Lois P. Lehberger - - 23,000/ 81,500 9,620/32,810
(1) The closing price of our Common Stock on December 31, 2000 was
$0.66 per share. The numbers shown reflect the value of options
accumulated over all years of employment.
46
Employee Benefit Plans
Year 2000 Equity Incentive Plan. The following description of Cambex's
Year 2000 Equity Incentive Plan is a summary of the material terms of the
plan.
The purpose of the plan is to enhance the profitability and value of
Cambex for the benefit of its stockholders by enabling Cambex to offer
incentives to employees and other persons or entities associated with it.
This is a means to both increase the ownership of Cambex held by those
individuals in order to attract, retain and reward them and more closely
align the interests of those individuals and the stockholders of Cambex. The
plan authorizes the grant of awards in the form of stock options, stock
appreciation rights (SARs), restricted stock or unrestricted stock awards,
deferred stock awards, performance awards, loans or supplemental grants, or
combinations thereof, to employees and others associated with Cambex and its
affiliates.
The plan was approved by Cambex's board of directors in November 1999
and its stockholders in December 1999. Our board of directors reserved a
total of 1,500,000 shares of our common stock for issuance under the plan.
As of February 28, 2001, no shares had been issued as the result of the
exercise of options or awards granted pursuant to the plan. As of February
28, 2001, 287,000 shares of our common stock were subject to outstanding
stock options granted pursuant to the plan and 1,213,000 shares were
available for future grants. The plan is administered by the board of
directors. According to the plan, the board of directors has authority to
determine the individuals or entities associated with Cambex or one of its
subsidiaries who are to be granted awards and the terms of these awards,
including:
the number of shares subject to an award;
the type of award;
the exercise price per share; and
the duration of the award.
Incentive stock options must have an exercise price equal to at least
100%, 110% if the grant is to a stockholder holding more than 10% of Cambex's
voting stock, of the fair market value of our common stock on the date of the
award. Incentive stock options generally have a duration of 10 years, and a
duration of five years if the grant is to a stockholder holding more than 10%
of Cambex's voting stock.
There are also outstanding options granted under our 1997 Combination
Stock Option Plan that was adopted by the board of directors. While the 1997
Combination Stock Option Plan was not approved by our stockholders, the stock
options granted under this plan covering 1,176,500 shares of our common stock
were approved by our stockholders in December 1999. Our Year 2000 Equity
Incentive Plan replaced the 1997 Combination Stock Option Plan.
Incentive Bonus Plan. In April 1980, the board of directors and the
stockholders approved the Incentive Bonus Plan. The Incentive Bonus Plan
authorizes the payment of a percentage of our pretax income to key employees.
The maximum aggregate incentive bonus awards for any fiscal year shall be 15%
of Cambex's pretax profits for each year. Pretax profit is defined under the
plan as net income before taxes, with certain adjustments. The bonus plan is
administered by the board of directors. The awards granted under the bonus
plan are non-transferable.
47
Employment Agreement
We entered into an employment agreement with Joseph F. Kruy on November
18, 1994. An extension of the term of this employment agreement to December
31, 2002 was approved by our board of directors in November 1999. Under his
employment agreement, Mr. Kruy is engaged to serve as our Chairman of the
Board, President and Chief Executive Officer. Except for illness, reasonable
vacations and other customary exceptions, during the term of the agreement,
Mr. Kruy is to devote all of his working time and attention to the
performance of his duties and responsibilities at Cambex. Mr. Kruy is to be
paid a minimum annual base salary of $200,000 per year. Mr. Kruy is also
entitled to participate in our Incentive Bonus Plan and is eligible to
receive an annual bonus equal to 4% of our pre-tax profit, as that term
defined in the Incentive Bonus Plan. If Mr. Kruy voluntarily terminates his
employment with us, he is entitled to receive his base annual compensation
through the date of termination and any amount that he may be entitled to
receive under the Incentive Bonus Plan in accordance with the terms of that
Plan. If, after Mr. Kruy voluntarily terminates his employment with us, he
accepts employment during the remaining then current term of his agreement
with an entity that directly competes with us, then we may cease paying Mr.
Kruy any further amounts. If we terminate Mr. Kruy's employment for reasons
other than for cause or if we give another person either the title or the
powers of the Chief Executive Officer, then Mr. Kruy is entitled to continue
to receive his annual base salary through the end of the then current term of
the agreement, and is entitled to receive any incentive bonus that would have
been earned under the Incentive Bonus Plan during the fiscal year in which
his employment was terminated. If, following termination of Mr. Kruy's
employment with us, he accepts employment elsewhere before December 31, 2002,
then we do not have to continue to pay Mr. Kruy for the year ending December
31, 2002. Moreover, if on the date of termination of Mr. Kruy's employment
with us, our assets are in the hands of a receiver, an assignee for the
benefit of creditors, trustee in bankruptcy, debtor-in-possession or other
entity for the benefit of creditors or if our consolidated net worth is less
than our consolidated net worth at December 31, 1999, then we have no
obligation to pay Mr. Kruy any amount after termination of his employment.
48
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On June 1, 1998, we borrowed approximately $1,060,000, including
approximately $460,000 from Joseph F. Kruy, our Chairman of the Board,
President and Chief Executive Officer, $250,000 from each of H. Terry
Snowday, Jr. and Richard E. Calvert, each greater than 5% shareholders of
Cambex, in exchange for the issuance of 10% Subordinated Convertible
Promissory Notes (the "10% Notes"). Under the terms of the 10% Notes, which
are due on April 30, 2003, the holders may convert the 10% Notes into shares
of common stock at a conversion price of $0.22 per share. In addition to the
10% Notes, each holder, including Messrs. Kruy, Snowday and Calvert, were
issued a Stock Purchase Warrant, the exercise of which will allow the warrant
holder to purchase one share of common stock, at $0.50 per share, for each
dollar loaned to us. Additional Stock Purchase Warrants to purchase 96,373
shares of common stock, at an exercise price of $0.50 per share, were issued
to the holders of 10% Notes on June 1, 1999 in relation to interest due on
the June 1, 1998 notes. We believe that the borrowing arrangements we made
with Messrs. Kruy, Snowday and Calvert and others are on terms at least as
favorable to us as we would have expected from lenders unrelated to us and
Messrs. Kruy, Snowday and Calvert.
On June 1, 1998, we entered into a Master Lease with CyberFin
Corporation, a corporation wholly owned by Peter J. Kruy, our Executive Vice
President, Treasurer and Chief Financial Officer. Under the Master Lease we
are renting from CyberFin an IBM 2003 S/390 Multiprise Processor and related
software and maintenance at the rate of $3,787.64 per month for a period of
three years. We also purchased computer memory from CyberFin for $141,920 in
1998 and $73,000 in 1999. We believe that lease and the purchase
arrangements we made with CyberFin are on terms at least as favorable to us
as we would have expected from an equipment lessor unrelated to us, CyberFin
and Dr. Kruy for equipment of comparable quality.
On November 9, 1998, we entered into a Loan and Security Agreement with
B.A. Associates, Inc. (BAA), which is a corporation owned by a relative of
Joseph F. Kruy, our Chairman, President and Chief Executive Officer. This
Loan and Security Agreement, as amended by a First Amendment to Loan and
Security Agreement dated March 15, 1999, and further amended through December
27, 2000 (as so amended, the "BAA Loan Agreement"), allows us to borrow up to
$1,050,000, which is the maximum that may be outstanding at any one time.
Under the BAA Loan Agreement, we granted BAA a first priority security
interest in all of our accounts, instruments, documents, general intangibles,
equipment, inventory, and proceeds of any of the foregoing. We
pay all amounts that we receive from collections of our accounts receivable
to BAA not less frequently than each week until the outstanding loan amount
plus interest, which accrues at a 12% annual rate, is fully paid. Under the
terms of the BAA Loan Agreement, originally BAA received a warrant for the
purchase of 1.3 million shares of common stock, at an exercise price of $0.22
per share. In consideration for increasing the amount of available funds,
the Company agreed to issue an additional warrant to BAA for the purchase of
400,000 shares of our common stock, at an exercise price of $1.25. We
believe that the borrowing arrangements we made with BAA are on terms at
least as favorable to us as we would have expected from lenders unrelated to
us and relatives of Mr. Kruy.
49
From June 1, 1999 through August 18, 1999, we raised $210,000 in exchange for
the issuance of 10% Subordinated Convertible Promissory Notes. During this
time period Joseph F. Kruy loaned us $100,000, and Messrs. Snowday and
Calvert each loaned us $55,000 of the total amount that we borrowed. In
exchange for these loans, we issued 10% Subordinated Convertible Promissory
Notes, including 10% Subordinated Convertible Promissory Notes to Messrs.
Kruy, Snowday and Calvert. We believe that the borrowing arrangements we
made with Messrs. Kruy, Snowday and Calvert are on terms at least as
favorable to us as we would have expected from lenders unrelated to us and
Messrs. Kruy, Snowday and Calvert.
In November 1999, we borrowed $125,000 from Joseph F. Kruy and $125,000 from
Philip C. Hankins, a member of our board of directors, and $100,000 from each
of Messrs. Snowday and Calvert. We also entered into separate Loan and
Security Agreements with each of Messrs. Kruy, Hankins, Calvert and Snowday.
At that time, we entered into one other Loan and Security Agreement with a
person unrelated to the company (the "Other 1999 Lender") pursuant to which
we borrowed an additional $100,000. Our payment obligations under these Loan
and Security Agreements (the "1999 Loan Agreements") are evidenced by 12%
Notes due in November 2001. Under the 1999 Loan Agreements, we granted each
of Messrs. Kruy, Hankins, Snowday and Calvert and the Other 1999 Lender a
first priority security interest in all of our accounts, instruments,
documents, general intangibles, equipment, inventory, and proceeds of any of
the foregoing. Originally, under the terms of the 1999 Loan Agreements,
Messrs. Kruy, Hankins, Calvert and Snowday and the Other 1999 Lender received
a warrant to purchase up two shares of common stock for each dollar loaned to
us, at an exercise price of $2.00 per share. When we extended the term of
the loans in November 2000, the Company agreed to issue additional warrants
to Messrs. Kruy, Hankins, Snowday and Calvert and the Other 1999 Lender to
purchase one share of our common stock for each dollar loaned to us at an
exercise price of $1.25 per share. We believe that the borrowing
arrangements we made with Mr. Kruy and others are on terms at least as
favorable to us as we would have expected from lenders unrelated to us and
Mr. Kruy.
50
PRINCIPAL SHAREHOLDERS
The following table presents information regarding the beneficial ownership
of Cambex's common stock as of March 23, 2001, by:
each person, or group of persons, known to us to be the beneficial
owner of more than five percent of our outstanding shares of common
stock;
each of our directors;
each of our executive officers; and
all current directors and officers of Cambex as a group.
Unless otherwise noted in the table, the address for each person listed in
the table is c/o Cambex Corporation, 360 Second Avenue, Waltham, MA 02451.
Name and Address (#)Shares of Percentage of Outstanding
of Beneficial Owner Common Stock Shares Beneficially Owned(2)
Beneficially Owned(1) Before Offering After Offering
Joseph F. Kruy (3) 2,400,043 22.1% 19.5%
B.A. Associates, Inc.(4) 1,700,000 14.7 13.2
Richard E. Calvert(5) 1,178,800 11.2 9.9
7784 East Shore Road
Traverse City, MI 49686
Peter J. Kruy (6) 1,037,164 10.5 9.1
H. Terry Snowday, Jr.(7) 821,806 7.8 6.9
7784 East Shore Road
Traverse City, MI 49686
SovCap Equity Partners, Ltd.(8) 856,078 8.7 *
Cumberland House
#27 Cumberland St.
P.O. Box CB-13016
Nassau, New Providence
The Bahamas
Philip C. Hankins (9) 495,000 4.8 4.2
C.V. Ramamoorthy 99,156 1.0 *
Robert J. Spain -0- * *
Lois P. Lehberger (10) 24,000 * *
All directors and executive
officers as a group
(6 persons) (11) 4,055,363 35.8 31.8
_______________
* Represents beneficial ownership of less than 1%.
51
(1) Beneficial ownership for purposes of the table is determined in
accordance with the rules of the Securities and Exchange Commission and is
not necessarily indicative of beneficial ownership for any other purpose. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock issuable upon the
exercise of options and warrants held by that person that are currently
exercisable or exercisable within 60 days of following March 23, 2001 (May
22, 2001) are deemed to be outstanding. These shares, however, are not
considered outstanding for purposes of computing the percentage ownership of
any other person. Except as indicated in the footnotes, we believe that the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned by them, subject to
community property laws where applicable.
(2) Percentage of ownership is based on 9,846,414 shares of common stock
outstanding as of March 23, 2001 and, in accordance with assumptions set
forth immediately preceding to the table, is based on 11,283,414 shares of
common stock outstanding immediately after effectiveness of the registration
statement of which this prospectus is a part.
(3) Includes 1,000,103 shares of common stock issuable upon exercise of
stock purchase warrants issued in 1998, 1999 and 2000 exercisable within 60
days following March 23, 2001 (or by May 22, 2001). This number also
includes 56,250 shares held by the Kruy Family Trust, for which Mr. Kruy's
wife and children are the beneficial owners. Mr. Kruy disclaims beneficial
ownership of these shares. Of these shares of common stock, 979,239 are
subject to the terms of a stock pledge agreement dated as of January 18, 2000
(the "Kruy Pledge Agreement"), among Joseph F. Kruy, Cambex and the Sovereign
Lenders. Provided that Cambex is not in default under the series 1 bridge
note purchase agreement dated as of January 18, 2000 (the "Bridge Note
Purchase Agreement"), among Cambex and the Sovereign Lenders, the
series 1 bridge financing notes issued pursuant to the Bridge Note Purchase
Agreement, or the Kruy Pledge Agreement, Mr. Kruy has the right to vote the
pledged shares.
(4) Consists of 1,700,000 shares issuable upon exercise of stock purchase
warrants exercisable within 60 days following March 23, 2001(or by May 22,
2001).
(5) Includes 642,000 shares issuable upon exercise of stock purchase warrants
exercisable within 60 days following March 23, 2001(or by May 22, 2001).
(6) Includes 960,164 shares owned by CyberFin Corporation, a corporation
wholly owned by Peter J. Kruy, and 75,000 shares subject to currently
exercisable options. Of these shares of common stock, 730,228 are subject to
the terms of a stock pledge agreement dated as of January 18, 2000 (the
"CyberFin Pledge Agreement"), among CyberFin, Cambex, and the Sovereign
Lenders. Provided that Cambex is not in default under the Bridge Note
Purchase Agreement, the series 1 bridge financing notes, or the CyberFin
Pledge Agreement, CyberFin has the right to vote the pledged shares.
52
(7) Includes 642,000 shares issuable upon exercise of stock purchase warrants
exercisable within 60 days following March 23, 2001(or by May 22, 2001). Some
of these warrants are held by family members and Mr. Snowday disclaims
beneficial ownership of those shares.
(8) Consists of 616,078 shares issuable upon the exercise of two series 1
bridge financing notes and a total of 240,000 shares issuable upon exercise
of two common stock purchase warrants.
(9) Includes 390,000 shares of common stock issuable upon exercise of
stock purchase warrants issued in November 1999 and 2000 exercisable within
60 days following March 23, 2001(or by May 22, 2001).
(10) Consists of 24,000 shares subject to options exercisable within 60 days
following March 23, 2001 (or by May 22, 2001).
(11) Includes 1,489,103 shares subject to options and warrants exercisable
within 60 days following March 23, 2001 (or by May 22, 2001). See
footnotes (3), (6), (9) and (10) above.
Solely for the purpose of calculating the aggregate market value of voting
stock held by non-affiliates of the Company as set forth on the Cover Page,
it was assumed that only directors and executive officers on the calculation
date together with spouses and dependent children of such persons constituted
affiliates.
53
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue up to 25,000,000 shares of common stock,
$0.10 par value per share, of which 9,846,414 shares were issued and
outstanding as of February 28, 2001. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common
stock are entitled to receive ratably such dividends when, as and if declared
by our board of directors, out of funds legally available therefor. Holders
of common stock have one vote for each share held of record and do not have
cumulative voting rights. In the event of any liquidation, dissolution or
winding-up of our affairs, holders of our common stock are entitled to share
ratably in the net assets that are remaining after payment or provision for
payment of all or our debts and obligations, and after liquidation payments
to holders of any preferred stock then outstanding, if any. Shares of common
stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of common stock are, and the shares of common stock to be
offered by us when issued will be, fully paid and nonassessable.
Preferred Stock
Our restated articles of organization authorize our board of directors,
subject to the limitations prescribed by law and without further approval of
our stockholders, to establish one or more series of preferred stock, to
determine from time to time the number of shares constituting any series, and
to fix the designation, preferences, powers, qualifications, special and
relative rights and privileges of the shares of any series and the
qualifications, limitations or restrictions thereof. We are authorized to
issue up to 3,000,000 shares of series preferred stock, $1.00 par value per
share, of which none are issued or outstanding as of the date hereof. We
have no present intention to issue any shares of preferred stock. The future
issuance of preferred stock could operate to dilute the voting power of
holders of common stock, could create voting impediments or deter persons
seeking to effect a takeover or otherwise gain control of Cambex, or could
otherwise adversely affect the rights of holders of common stock.
Miscellaneous
One of the provisions of our 1998 bankruptcy reorganization plan is
deemed to be an amendment to our restated articles of organization that
prohibits us from:
issuing non-voting equity securities;
creating a class of equity securities having a preference over any
other class of equity securities with respect to dividends unless
adequate provision is made for the election of directors
representing the preferred class in the event of a default in the
payment of its dividends; and
creating any other class of equity securities unless an appropriate
distribution of voting power is made among all such classes.
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Dividend Policy
We have not paid any cash dividends to date, and have no intention to
pay any cash dividends on our common stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the
board of directors and to certain limitations imposed by the Massachusetts
Corporation Laws. The timing, amount and form of dividends, if any, will
depend, among other things, on our results of operations, financial
condition, cash requirements and other factors deemed relevant by our board
of directors.
The series 1 bridge note purchase agreement with the Sovereign Lenders
provides that we may not pay dividends in cash or otherwise as long as any of
the series 1 bridge notes remain outstanding. With the consent of the
Sovereign Lenders and as long as we are not in default, we may pay dividends
to preferred shareholders in accordance with our articles of organization and
we may repurchase shares of our common stock issued upon the exercise of
options granted under our stock option plans.
Registration Rights
Individuals holding warrants to purchase an aggregate of
1,370,103 shares of our common stock have both demand and piggyback
registration rights.
Our registration rights agreement with the Sovereign Lenders
requires us to file a registration statement covering shares of common stock
issued or issuable to them pursuant to the Sovereign Bridge Financing,
including their assignees and transferees, within 60 days following the
completion of that financing. Moreover, the Sovereign Lenders have the right
to include shares of common stock issued or issuable to them pursuant to the
Sovereign Bridge Financing, including their assignees and transferees, in
registration statements that we file. The Sovereign Lenders also may require
that we register their shares of common stock in any registration statements
that we file to sell shares for our own account or the account of others. We
are obligated to pay the costs for the exercise of the Sovereign Lenders'
registration rights including their legal fees and disbursements. The
Sovereign Lenders have waived our failure to file a registration statement
covering the shares of common stock issuable to them in accordance with the
time periods described in the registration rights agreement.
Under the registration rights agreement with Thumberland, as amended,
we are obligated to use our best efforts to cause a registration statement
covering shares of our common stock issuable to Thumberland under the common
stock purchase agreement and upon the exercise of the stock purchase warrant
issued to Thumberland to be declared effective by the Securities and Exchange
Commission. We are also obliged to pay the costs associated with the filing
of this registration statement and related costs associated with the
registration of the shares of common stock issuable to Thumberland.
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Indemnification Provisions
Our by-laws, as amended, reflect the adoption of the provisions of the
Massachusetts General Laws, Chapter 156B, Section 67 which empowers a
Massachusetts corporation to indemnify any person in connection with any
action, suit or proceeding brought or threatened by reason of the fact that
such person is or was a director, officer, employee or agent of the
corporation or was serving as such with respect to another corporation or
other entity at the request of such corporation, unless such person shall
have been adjudicated in any proceeding not to have acted in good faith in
the reasonable belief that such action was in the best interests of the
corporation. Our by-laws, as amended, also provide that we will indemnify
any person, who was or is a party to a proceeding by reason of the fact that
he is or was one of our directors or officers, or is or was serving at our
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with such proceeding if he acted in good faith and in a manner he
reasonably believed to be or not opposed to our best interests, in accordance
with, and to the full extent permitted by, the Massachusetts General
Corporation Law.
Transfer Agent and Registrar
The transfer agent for our common stock is American Stock Transfer and
Trust Company New York, New York.
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SOVEREIGN BRIDGE FINANCING
In January and February, 2000 we borrowed a total of $2 million from
the Sovereign Lenders which was arranged for us with the assistance of
Sovereign Capital Advisors, LLC. We entered into a series 1 bridge note
purchase agreement and other related agreements with the Sovereign Lenders
pursuant to which we issued the Sovereign Lenders:
series 1 bridge financing notes that are convertible into up to a
total of 745,458 shares of our common stock, which number includes
shares issuable upon conversion of accrued interest, premium amounts
and penalties due under the notes;
repricing warrants that are attached to each series 1 bridge
financing note which may be exercisable for up to a total of
1,006,758 shares of our common stock; and
common stock purchase warrants that are exercisable for up to a
total of 300,000 shares of our common stock.
The series 1 bridge financing notes matured on August 15, 2000 and
September 6, 2000. Because the bridge notes matured before we registered,
under the Securities Act of 1933, as amended, the offer and resale of shares
of our common issuable upon conversion of the bridge notes and exercise of
the repricing warrants and the common stock purchase warrants described
above, we owe the Sovereign Lenders premiums and penalties totaling
approximately $607,000 (in addition to the repayment of principal and
interest). On September 26, 2000, the Sovereign Lenders agreed, for a
specified period, to not cause us to default on our obligations by demanding
payment in cash allowing us to continue the registration process. Before the
end of that grace period, we successfully completed the registration of the
offer and resale of shares of our common stock issuable to the Sovereign
Lenders in connection with the bridge notes and warrants on November 7, 2000.
This means that from and after November 7, 2000, the Sovereign Lenders have
the choice to accept cash or shares of our common stock to satisfy our
obligations. Currently, if the Sovereign Lenders demand immediate payment of
cash in full satisfaction of our obligations, we anticipate that we would be
unable to meet these obligations.
Before the maturity dates, the series 1 bridge notes accrued interest
at 8% per annum. Currently, since the maturity dates, interest is accruing
at a rate of 12% per annum until the notes are paid in full. The number of
shares of our common stock covered by the registration statement of which
this prospectus is a part assumes that accrued interest on the
bridge notes through December 31, 2001. If the actual interest amount exceeds
the calculated amount, we anticipate that we will either pay the difference
in cash or we will issue other registered but unissued shares of our common
stock.
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In connection with the Sovereign Bridge Financing, attached to each
series 1 bridge note is a repricing warrant. If, during the 90 days after a
bridge note is converted into shares of our common stock (the "repricing
period"), a Sovereign Lender sells any shares it receives from conversion of
the bridge note and fails to realize a gain of at least 20% above the
applicable conversion price of the bridge note, then that Lender may exercise
the repricing warrant on the 91st day after conversion of the bridge note.
If a Sovereign Lender does not sell shares received upon conversion of a
bridge note during the repricing period, then it may not exercise the
repricing warrant regardless of market price of our common stock during the
repricing period. The number of shares that a Sovereign Lender may acquire
by exercise of a repricing warrant is equal to the number of shares sold for
less than a 20% gain during the repricing period, multiplied by a fraction.
The numerator of the fraction is the difference between the conversion price
of the bridge note and the average market price of our common stock during
the repricing period. The denominator of the fraction is the average market
price of our common stock during the repricing period. The lowest average
market price that may be used in calculating the fraction is $1.65 per share.
The Sovereign Lenders may not exercise the repricing warrants to
acquire shares of our common stock if:
we redeem the bridge notes in cash;
the average market price of our common stock during the repricing
period is equal to or greater than the conversion price of the
bridge notes;
the Sovereign Lenders do not sell any shares of common stock
received upon conversion of the bridge notes during the repricing
period; or
the Sovereign Lenders sell shares of common stock received upon
conversion of the bridge notes during the repricing period and
realize a gain of 20% or greater.
However, if the average market price of our common stock is less than
the conversion price of the bridge notes and the Sovereign Lenders do not
realize a 20% gain from the sale during the repricing period of shares
received from conversion of the bridge notes, then they are entitled to
acquire, depending upon the number of shares sold during the repricing period
and the average market price of our common stock during that period, a
maximum (assuming that accruals on the bridge notes due not exceed $193,000)
of up to 1,005,411 shares by exercise of the repricing warrants. The
exercise price of the repricing warrants is $0.10 per share.
We also issued the Sovereign Lenders common stock purchase warrants
exercisable for up to a total of 300,000 shares of our common stock. The
exercise price of these common stock purchase warrants is $4.19 per share for
warrants exercisable for up to 262,500 shares and $7.01 per share for
warrants exercisable for up to 37,500 shares. These common stock purchase
warrants expire on January 18, 2005 for warrants exercisable for up to
262,500 shares and on February 9, 2005 for warrants exercisable for up to
37,500 shares.
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Our two largest stockholders, Joseph F. Kruy, our Chairman, President
and Chief Executive Officer, and CyberFin Corporation, a corporation wholly
owned by Peter J. Kruy, our Executive Vice President, Treasurer and Chief
Financial Officer, guaranteed our obligations under the Sovereign Bridge
Financing in the event that we fail to fulfill them. The obligations of
Joseph Kruy and CyberFin under these guarantees are secured by their pledge
to the Sovereign Lenders of a total of 1,709,467 shares of our common stock
that they own.
In connection with the Sovereign Bridge Financing, we issued Sovereign
Capital Advisors LLC a warrant exercisable for up to 100,000 shares of our
common stock.
In addition to a series 1 bridge note purchase agreement, which
contains representations, warranties, covenants and other provisions typical
for this type of transaction, we entered into a registration rights agreement
with the Sovereign Lenders. Under this registration rights agreement, we
agreed to register the number of shares of our common stock into which the
series 1 bridge financing notes are convertible and for which the repricing
warrants and other warrants are exercisable within 60 days of issuing the
bridge notes. The Sovereign Lenders have waived their rights resulting from
our failure to register shares of our common stock issuable to them within 60
days after issuance of the bridge notes with the understanding that we would
to register those shares pursuant to the registration statement that was
declared effective on November 7, 2000, of which this prospectus is a part.
The series 1 bridge note purchase agreement with the Sovereign Lenders
provides that we may not pay any cash dividends as long as any of the series
1 bridge notes remain outstanding. With the consent of the Sovereign Lenders
and as long as we are not in default, we may pay dividends to preferred
shareholders in accordance with our articles of organization and we may
repurchase shares of our common stock issued upon the exercise of options
granted under our stock option plans.
On November 14, 2000, Correllus International Ltd., one of the Sovereign
Lenders, converted a portion of the amount outstanding under the series 1
bridge note it held into 18,232 shares of our common stock. Correllus
International sold these shares within the applicable repricing period and
did not realize a gain of at least 20% above the applicable conversion price
of its bridge note. Accordingly, on February 13, 2001, Correllus
International partially exercised its repricing warrant and was issued 22,212
shares of our common stock. On February 2, 2001, Correllus International
converted the remaining amount outstanding under the series 1 bridge note it
held into 74,335 shares of our common stock.
59
THUMBERLAND COMMON STOCK PURCHASE AGREEMENT
Overview
We signed a common stock purchase agreement with Thumberland Limited, a
British Virgin Islands corporation, on July 14, 2000, for the future issuance
and purchase of shares of our common stock. The transaction closed on
November 8, 2000. The common stock purchase agreement establishes what is
often referred to as a structured equity line or an equity drawdown facility.
In general, the drawdown facility operates as follows: the investor,
Thumberland, has committed to provide us up to $10 million as we request
through June 22, 2002, in return for common stock we issue to Thumberland.
Once every 22 trading days, we may request a draw of up to $1 million of that
money (except that our initial drawdown may be for up to $2 million), subject
to a maximum of 18 draws. The maximum amount we actually can drawdown upon
each request will be determined by the volume-weighted average daily price of
our common stock for the 22 trading days prior to our request and the average
trading volume for the 45 trading days prior to our request.
Each draw down must be at least $250,000. If, as a result of applying
the formulas in the common stock purchase agreement, the amount of the draw
down is less than $250,000, then we may not draw funds under this facility.
The closing price for our common stock on February 28, 2001 was $0.94 per
share and the average daily trading volume for the 45 days preceding February
28, 2001 was 13,742 shares. If, for example, our market price on February
28, 2001 and the 45-day average trading volume at that date remains constant,
we may not draw funds from Thumberland because, as a result of applying the
formulas, because the drawdown amount would be less than $250,000.
At the end of a 22-day trading period following the drawdown request,
the actual drawdown amount principally is determined based on the volume-
weighted average stock price during that 22-day period. We then use the
formulas in the common stock purchase agreement to determine the number of
shares we will issue to Thumberland in return for that money. We may make up
to a maximum of 18 draws; however, the aggregate total of all draws cannot
exceed $10 million and no single draw can exceed $1 million, except that our
first draw may not exceed $2 million. We are under no obligation to request
a draw for any period.
The per share dollar amount Thumberland pays for our common stock for
each drawdown includes a 7% discount to the average daily market price of our
common stock for the 22-day period after our drawdown request, weighted by
trading volume. We will receive the amount of the drawdown less an escrow
agent fee equal to $1,500 per drawdown, and a 5% placement fee payable to the
placement agent, Ladenburg Thalmann, which introduced Thumberland to us.
Ladenburg Thalmann is not obligated to purchase any of our shares, but as
additional placement agent compensation, we have issued to Ladenburg Thalmann
a stock purchase warrant to purchase up to 195,771 shares of our common stock
at an exercise price of $2.9376 per share, which is equal to 115% of the
volume-weighted average share price for the five trading days prior to July
20, 2000. The warrant expires on July 20, 2003. The shares of common stock
issuable upon exercise of that stock purchase warrant are included in the
registration statement of which this prospectus is a part.
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We did not make a commitment to Thumberland to draw a minimum amount
under the common stock purchase agreement. In lieu of making a commitment to
Thumberland to draw a minimum aggregate amount, on July 20, 2000, we issued
to Thumberland a stock purchase warrant to purchase up to 195,771 shares of
our common stock. The common stock purchase warrant gives Thumberland an
opportunity to purchase shares of our common stock even though we draw little
or no amount under the common stock purchase agreement. The common stock
purchase warrant has an exercise price of $2.9376 per share, which is equal
to 115% of the volume-weighted average share price for the five trading days
prior to July 20, 2000. The warrant expires July 20, 2003.
The number of shares registered under the registration statement of
which this prospectus is a part may limit the proceeds we receive under the
common stock purchase agreement. Moreover, the proceeds we receive could be
further limited by a provision of the common stock purchase agreement that
prevents us from issuing shares to Thumberland to the extent Thumberland
would beneficially own more than 9.9% of our then outstanding common stock.
Any resales of shares by Thumberland under this prospectus would reduce the
number of shares beneficially owned by Thumberland, and would enable us to
issue additional shares to Thumberland without violating this condition.
The Drawdown Procedure and the Stock Purchases
We may request a drawdown by faxing a drawdown notice to Thumberland,
stating the amount of the drawdown we wish to exercise and the minimum
threshold price, if any, at which we are willing to sell the shares. We will
set the threshold price by determining the price below which we are unwilling
to sell shares of our common stock, and Thumberland may not purchase any
shares at or below the threshold price.
Amount of the Draw
Except for the initial drawdown which may not exceed $2 million, no
draw may exceed the lesser of $1 million and the capped amount that is
derived from the following formula:
Average daily trading volume for the 45 trading days immediately
prior to the date we give notice of the drawdown, multiplied by 22;
multiplied by
The average of the volume-weighted average daily prices for the 22
trading days immediately prior to the date we give notice of the
drawdown;
multiplied by
20%.
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The lesser of our draw request and the capped amount is reduced by 1/22
for every day in the 22 trading days after our drawdown request that the
volume-weighted average daily price for a trading day is below the threshold
price set by us in the request. If the daily price for a day is below the
threshold price we will not issue any shares and Thumberland will not
purchase any shares for that day. Thus, if we set a threshold price too high
and our stock price does not consistently meet that level during the 22
trading days after our drawdown request, the amount we can draw and the
number of shares we can sell to Thumberland will be reduced. However, if we
set a threshold price too low and our stock price falls significantly but
stays above the threshold price, we will be able to draw the lesser of our
draw request and the capped amount, but we will have to issue a greater
number of shares to Thumberland at a reduced price. We cannot make another
drawdown request until expiration of the 22 trading days that follow a
drawdown request we have already made.
Number of Shares
The 22 trading days immediately following the drawdown notice are also
used to determine the number of shares we will issue in return for the money
provided by Thumberland, and thus the price per share Thumberland will pay
for our shares. To determine the number of shares of common stock we must
issue in connection with a drawdown, take 1/22 of the drawdown amount
determined by the formulas above, and for each of the 22 trading days
immediately following the date we give notice of the drawdown, divide it by
93% of the volume-weighted average daily trading price of our common stock
for that day. The 93% accounts for Thumberland's 7% discount. The sum of
these 22 daily calculations produces the number of common shares we will
issue, unless the volume-weighted average daily price for any given trading
day is below the threshold amount, in which case that day is ignored in the
calculation. The price per share Thumberland ultimately pays is determined by
dividing the final drawdown amount by the number of shares we issue
Thumberland.
Sample Calculation of Stock Purchases
The following is an example of the calculation of the drawdown amount
and the number of shares we would issue to Thumberland in connection with
that drawdown based on hypothetical assumptions.
Sample drawdown amount calculation.
We provide a drawdown request notice to Thumberland. Suppose that we
specify in our drawdown notice a threshold price of $1.75 per share, below
which we will not sell any shares to Thumberland during this drawdown period.
Suppose further the average daily trading volume for the 45 trading
days prior to our drawdown notice is 40,000 shares and that the average of
the volume-weighted average daily prices of our common stock for the 22
trading days prior to the notice is $2.00. You can apply the formula to these
hypothetical numbers as follows:
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the average trading volume for the 45 trading days prior to our
drawdown notice (40,000) multiplied by 22, equals 880,000
multiplied by
the average of the volume-weighted average daily prices of our
common stock for the 22 trading days prior to the notice ($2.00)
multiplied by
20%.
The maximum amount we can draw down under the formula is therefore
capped at $352,000, subject to further adjustments if the volume-weighted
average daily price of our common stock for any of the 22 trading days
following the drawdown notice is below the threshold price we set of $1.75
per share. For example, if the volume-weighted average daily per share price
of our common stock is below $1.75 on one of those 22 days, the $352,000
would be reduced by 1/22 for each of those days and our draw down amount
would be 21/22 of $352,000, or $336,000.
Sample Calculation of Number of Shares
Assume that we have made a drawdown request with a threshold price of
$1.75 per share. Assume the maximum amount we can draw down is capped at
$352,000 based on the formula above. Also, assume that the volume-weighted
average daily price for our common stock is as set forth in the table below.
The number of shares to be issued based on any trading day during the
drawdown period is calculated from the formula:
1/22 of the drawdown amount of $352,000,
divided by
93% of the volume weighted average daily price.
For example, for the first trading day in the example in the table
below, the calculation is as follows: 1/22 of $352,000 is $16,000. Divide
$16,000 by 93% of the volume-weighed average daily price for that day of
$2.00 per share, to get 8,602 shares. Perform this calculation for each of
the 22 measuring days, excluding any days on which the volume-weighted
average daily price is below the $1.75 threshold price, and add the results
to determine the number of shares to be issued. In the table below, there is
one day which must be excluded: day 8.
After excluding the day that is below the threshold price, the amount
of our drawdown in this example would be $336,000, and the total number of
shares we would issue to Thumberland for this drawdown request would be
137,702, as long as those shares would not cause Thumberland to beneficially
own more than 9.9% of our then outstanding common stock. Thumberland would
pay $2.44 per share for these shares.
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Trading Volume-Weighted 1/22 of Requested Number of Shares of
Day Average Daily Draw Down Amount Common Stock to be
Stock Price* Issued for the Trading Day
1 $2.563 $ 16,000.00 6,713
2 2.625 16,000.00 6,554
3 1.750 16,000.00 9,831
4 1.844 16,000.00 9,330
5 1.840 16,000.00 9,350
6 2.000 16,000.00 8,602
7 1.844 16,000.00 9,330
8 1.563 ** **
9 1.875 16,000.00 9,176
10 2.469 16,000.00 6,968
11 2.688 16,000.00 6,400
12 2.750 16,000.00 6,256
13 3.000 16,000.00 5,735
14 3.313 16,000.00 5,193
15 3.375 16,000.00 5,098
16 3.531 16,000.00 4,872
17 3.500 16,000.00 4,916
18 3.563 16,000.00 4,829
19 3.688 16,000.00 4,665
20 3.750 16,000.00 4,588
21 3.781 16,000.00 4,550
22 3.625 16,000.00 4,746
Total $336,000.00 137,702
* The share prices are illustrative only and should not be interpreted as
a forecast of share prices or the expected or historical volatility of the
share prices of our common stock.
** Excluded because the volume-weighted average daily price is below the
threshold specified in our hypothetical draw down notice.
We would receive the amount of our drawdown ($336,000) less a 5% cash
fee paid to the placement agent of $16,800, less a $1,500 escrow fee, for net
proceeds to us of $317,700. The delivery of the requisite number of shares
and payment of the draw will take place through an escrow agent, Epstein,
Becker & Green, P.C. of New York, New York. The escrow agent pays 95% of the
draw to us-after subtracting its escrow fee-and 5% to Ladenburg Thalmann &
Co. Inc., our placement agent, in satisfaction of placement agent fees.
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Necessary Conditions Before Thumberland is Obligated to Purchase our Shares
The following conditions must be satisfied before Thumberland is
obligated to purchase the common shares that we wish to sell from time to
time:
A registration statement for the shares must be declared effective
by the Securities and Exchange Commission and must remain effective
and available as of the draw down settlement date for making resales
of the common shares purchased by Thumberland;
There can be no material adverse change in our business, operations,
properties, prospects or financial condition;
We must not have merged or consolidated with or into another company
or transferred all or substantially all of our assets to another
company, unless the acquiring company has agreed to honor the common
stock purchase agreement;
No statute, rule, regulation, executive order, decree, ruling or
injunction may be in effect which prohibits consummation of the
transactions contemplated by the common stock purchase agreement;
No litigation or proceeding nor any investigation by any
governmental authority can be pending or threatened against us or
Thumberland seeking to restrain, prevent or change the transactions
contemplated by the stock purchase agreement or seeking damages in
connection with such transactions; and
Trading in our common shares must not have been suspended by the
Securities and Exchange Commission or The OTC Bulletin Board, nor
shall minimum prices have been established on securities whose
trades are reported by The OTC Bulletin Board.
On each drawdown settlement date for the sale of common shares, we must
deliver an opinion from our counsel about these matters.
Restrictions on Future Financings
The common stock purchase agreement provides that we must pay Thumberland a
$100,000 fee before we may raise money by selling our securities for cash at
a discount to the market price until the earlier of June 22, 2002 or the date
which is 60 days after Thumberland has purchased the maximum of $10 million
worth of common stock from us under the common stock purchase agreement.
There are exceptions to this liquidated damages payment for securities that
we may sell under the following circumstances:
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in a registered public offering which is underwritten by one or more
established investment banks;
in one or more private placements where the purchasers do not have
registration rights;
pursuant to any presently existing or future employee benefit plan
which plan has been or is approved by the our stockholders;
pursuant to any compensatory plan for a full-time employee or key
consultant;
in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to raise
money; and
a transaction to which Thumberland gives its written approval.
Costs of Closing the Transaction
On July 20, 2000, we delivered the requisite opinion of counsel to
Thumberland and paid the escrow agent, Epstein Becker & Green P.C., $10,000
for Thumberland's legal, administrative and escrow costs. We paid Ladenburg
Thalmann & Co. Inc. an additional $7,500 for its expenses. Ladenburg Thalmann
also received a stock purchase warrant exercisable for up to 195,771 shares
of our common stock with an exercise price equal to 115% of the volume-
weighted average price of our common stock on the five trading days prior to
July 20, 2000 or $2.9376. We amended the common stock purchase agreement and
registration rights agreement on November 8, 2000 and closed the transaction
on that day. We are also obligated to pay a fee of $17,500 to Ladenburg upon
our initial draw. Ladenburg Thalmann is not obligated to purchase any of our
shares pursuant to the warrant.
Termination of the Stock Purchase Agreement
Thumberland may terminate the equity draw down facility under the
common stock purchase agreement if any of the following events occur:
a material adverse change affecting our business, operations,
properties or financial condition or other condition, circumstance
or situation that would materially interfere with our ability to
perform our material obligations under any material agreement to
which we are a party; or
we file for protection from creditors.
We may terminate the common stock purchase agreement if Thumberland
fails to fund more than one drawdown within three trading days of the date
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payment for such drawdown is due. If Thumberland fails to fund more than one
drawdown, each of the stock purchase warrants issued to Thumberland and
Ladenburg Thalmann will be cancelled except as to ten percent of the shares
covered by the stock purchase warrant and any warrant shares previously
purchased under the warrant. This cancellation does not apply to the shares
of common stock already purchased through the exercise of the warrants prior
to Thumberland's failure to timely fund more than one drawdown.
Indemnification of Thumberland
Thumberland is entitled to customary indemnification from us for any
losses or liabilities suffered by it based upon material misstatements or
omissions from the registration statement and the prospectus, except as they
relate to information supplied by Thumberland to us for inclusion in the
registration statement and prospectus.
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SELLING SECURITYHOLDERS
Overview
Shares of our common stock registered for resale under this prospectus
constitute up to 50.6% of the issued and outstanding common stock of Cambex
as of March 23, 2001. The number of shares we are registering is based in
part on:
our good faith estimate of the maximum number of shares we will
issue to Thumberland under the common stock purchase agreement; and
the decision to register the maximum number of shares issuable
through exercise of the attached repricing warrants held by the
Sovereign Lenders.
Accordingly, the number of shares we are registering for issuance under
the common stock purchase agreement and for exercise of the repricing
warrants, may differ from the number we actually issue under the common stock
purchase agreement and pursuant to exercise of the repricing warrants. If we
anticipate that the number of shares of common stock registered under the
registration statement, of which this prospectus is part, will be less than
the number of shares of common stock we may issue to Thumberland, then we
will then file another registration statement with the Securities and
Exchange Commission to register the offer and resale of additional shares of
our common stock.
Thumberland Limited
Thumberland Limited is engaged in the business of investing in publicly
traded equity securities for its own account. Thumberland's principal offices
are located at c/o Dr. Batliner & Partner, Aeulestrasse 74, FL-9490 Vaduz,
Liechtenstein. Investment decisions for Thumberland are made by the members
of its board of directors, Messrs. Hans Glassner and Martin Gstoehl. Other
than the stock purchase warrant we issued to Thumberland in connection with
closing the common stock purchase agreement, Thumberland does not currently
own any of our securities as of the date of this prospectus. Other than its
obligation to purchase shares of our common stock under the common stock
purchase agreement, it has no other commitments or arrangements to purchase
or sell any of our securities. Prior to being introduced to Thumberland by
Ladenburg Thalmann, there was no business relationship between Cambex and
Thumberland. Moreover, since that introduction, there remains no other
business relationship between Thumberland and Cambex other than the
relationship established by the common stock purchase agreement.
Ladenburg Thalmann & Co. Inc.
Ladenburg Thalmann & Co. Inc. acted as placement agent in connection with the
common stock purchase agreement. Ladenburg Thalmann introduced us to
Thumberland and assisted us with structuring the equity drawdown facility
with Thumberland. Ladenburg Thalmann's duties as placement agent were
undertaken on a reasonable best efforts basis only. It made no commitment to
purchase shares from us and did not ensure us of the successful placement of
any securities.
68
In addition to the other shares of common stock covered by this prospectus,
the prospectus also covers 195,771 shares of common stock issuable upon
exercise of a stock purchase warrant we issued to Ladenburg Thalmann as
placement compensation for introducing us to Thumberland. That warrant is
exercisable at $2.9376 per share and expires on July 20, 2003. The decision
to exercise the warrant issued, and the decision to sell the common stock
issuable through the exercise of the warrant, will be made by Ladenburg
Thalmann's officers and board of directors. Other than the warrant,
Ladenburg Thalmann does not currently own any of our securities as of the
date of this prospectus. Our engagement agreement with Ladenburg Thalmann
provides Ladenburg Thalmann with a right of first refusal for one year after
completion of the offering under the common stock purchase agreement, as
underwriter or placement agent, of all of our financing arrangements at terms
no less favorable than we could obtain in the market.
Sovereign Lenders
Of the 4,981,542 shares covered by this prospectus, 1,990,000 shares were
registered under a registration statement declared effective by the
Commission on November 7, 2000, and the remainder were registered under a
registration statement declared effective on December 22, 2000. This
prospectus is a part of those registration statements. The 1,990,000 shares
so registered may be offered for sale from time to time during the period the
registration statement remains effective, by or for the accounts of the
Sovereign Lenders. Two of the Sovereign Lenders currently hold series 1
bridge financing notes that are convertible into shares of our common stock,
together with repricing warrants attached to the bridge notes that may be
exercisable for shares of our common stock. The Sovereign Lenders also hold
common stock purchase warrants for shares of our common stock. Our
securities now held by the Sovereign Lenders were acquired from us in a
private placement pursuant to a series 1 bridge note purchase agreement.
Certain of the shares of common stock being registered for resale will be
issued upon exercise of warrants.
Selling Securityholders Table
Based on information provided to us by each of Thumberland and the
Sovereign Lenders, the following table shows, as of February 28, 2001:
The number of shares and the percentage each Sovereign Lender and
Thumberland beneficially owns before the effectiveness of the
registration statement of which this prospectus is a part, based on
our common stock outstanding on February 28, 2001 (which amount
includes the maximum number of shares that the Sovereign Lenders may
acquire as a result of the exercise of attached repricing warrants);
The number of shares of common stock each Sovereign Lender and
Thumberland have resold under this prospectus through February 28, 2001;
The number of shares of common stock each Sovereign Lender and
Thumberland may resell under this prospectus; and
69
Assuming each Sovereign Lender and Thumberland sells all the shares
it is entitled to sell under this prospectus, the number of shares
of common stock and the percentage each Sovereign Lender and
Thumberland will beneficially own after the effectiveness of the
registration statement of which this prospectus is a part, based on
our common stock outstanding on February 28, 2001 and the issuance of
shares included in this prospectus.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, is not necessarily indicative of
beneficial ownership for any other purpose, and generally includes voting or
investment power with respect to securities. Except as indicated, we believe
each person possesses sole voting and investment power with respect to all of
the shares of common stock owned by such person, subject to community
property laws where applicable. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock issuable upon the exercise of options or warrants held
by that person that are currently exercisable or exercisable within 60 days
following February 28, 2001 (April 29, 2001) are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
Shares of Common Stock Shares of Common
Beneficially Owned Before Stock to be Beneficially
Offering Under this Prospectus Owned After Offering
Under this Prospectus(1)
Name Number Percentage Shares Shares Number Percentage
To Be Offered
Offered Through
February 28,
2001
Thumberland Limited (2) 2,733,555 21.7% 2,733,555 0 0 0%
SovCap Equity Partners, Ltd.(3)1,657,052 14.4 1,657,052 0 0 0
Correllus International Ltd. (4) 242,846 2.4 242,846 18,232 0 0
Ladenburg Thalmann & Co., Inc.(5)195,771 1.9 195,771 0 0 0
Arab Commerce Bank, Ltd. (6) 152,318 1.5 152,318 0 0 0
- -----------------------------------
(1) Assumes the sale of all shares of our common stock that the selling
security holder may sell under this prospectus.
(2) Assumes Thumberland is issued all 2,537,784 shares of our common stock
under the common stock purchase agreement that are being registered
pursuant to the registration statement of which this prospectus is a part
and includes 195,771 shares issuable upon exercise of a stock purchase
warrant.
(3) Consists of a total of 616,078 shares issuable upon the exercise of two
series 1 bridge financing notes, a total of 800,974 shares issuable upon
exercise of two attached repricing warrants and a total of 240,000 shares
issuable upon exercise of two common stock purchase warrants.
70
(4) Consists of 92,567 shares issuable upon the exercise of a series 1
bridge financing note, 112,779 shares issuable upon exercise of an
attached repricing warrant and 37,500 shares issuable upon exercise of a
common stock purchase warrant. On November 14, 2000, Correllus converted
a portion of the amount outstanding under the series 1 bridge note it held
into 18,232 shares of our common stock. Correllus sold these shares within
the applicable repricing period and did not realize a gain of 20% above the
applicable conversion price of its bridge note. Accordingly, on February 13,
2001, Correllus partially exercised its repricing warrant and was issued
22,212 shares of our common stock. On February 2, 2001, Correllus
International converted the remaining amount outstanding under the series 1
bridge note into 74,335 shares of our common stock.
(5) Consists of shares issuable upon exercise of a stock purchase warrant.
(6) Consists of 36,813 shares issuable upon the exercise of a series 1
bridge financing note, 93,005 shares issuable upon exercise of an attached
repricing warrant and 22,500 shares issuable upon exercise of a common
stock purchase warrant.
The selling securityholders have not held any positions or offices or
had material relationships with us or any of our affiliates within the past
three years other than as a result of the common stock purchase agreement
with Thumberland, the engagement letter with Ladenburg Thalmann and the
ownership of securities convertible into or exercisable for shares of our
common stock.
SovCap Equity Partners, Ltd., a Bahamas corporation, is controlled by
Mr. Barry Herman, its President. Arab Commerce Bank Ltd., a Caymans
corporation is controlled by Tony DeNazareth, the Company Secretary.
Canellus International, Ltd., a Belize corporation, is controlled by its
Director, Jan Telander.
71
PLAN OF DISTRIBUTION
General
Thumberland is offering the shares of common stock for its account as
statutory underwriter, and not for our account. We will not receive any
proceeds from the sale of common shares by Thumberland. Thumberland may be
offering for sale up to 2,537,784 shares of common stock acquired by it
pursuant to the terms of the stock purchase agreement more fully described
under the section above entitled "Thumberland Common Stock Purchase
Agreement" and the stock purchase warrant we issued to it in connection with
the transaction. Thumberland has agreed to be named as a statutory
underwriter within the meaning of the Securities Act of 1933, as amended, in
connection with such sales of common stock and will be acting as an
underwriter in its resales of the shares of common stock under this
prospectus. Thumberland has, prior to any sales, agreed not to effect any
offers or sales of the common shares in any manner other than as specified in
the prospectus and not to purchase or induce others to purchase shares of
common stock in violation of any applicable state and federal securities
laws, rules and regulations and the rules and regulations of The National
Association of Securities Dealers.
On February 28, 2001, we had 9,846,414 shares of common stock
outstanding. The following table shows the number of shares we would issue
to Thumberland and the price it would pay for those shares given the
hypothetical variables shown in the table, if :
we requested drawdowns of the maximum amounts under the common stock
purchase agreement;
the volume weighted average daily price in the table is the volume-
weighted average daily price of our common stock for the 22 trading
days before each drawdown request under the common stock purchase
agreement and the 22 trading days after each drawdown request;
the average trading volume in the table is the average trading volume
for the 45 trading days before each drawdown request; and
we do not issue more shares to Thumberland under the common stock
purchase agreement than we are currently registering for resale of the
shares issued under the common stock purchase agreement.
72
Weighted Average Number of shares Price per share Percentage of
Average Trading issued to Thumberland paid by shares owned
Daily Price Volume(h) under Common Stock Thumberland by Thumberland
Purchase Agreement (i)
$0.938(a) 13,742 0 0 0
$0.704(b) 13,742 0 0 0
$0.469(c) 13,742 0 0 0
$0.235(d) 13,742 0 0 0
$1.173(e) 13,742 0 0 0
$1.407(f) 13,742 0 0 0
$1.642(g) 13,742 0 0 0
(a) Represents the closing price of our stock on February 28, 2001.
(b) Represents 75% of the closing price of our stock on February 28, 2001.
(c) Represents 50% of the closing price of our stock on February 28, 2001.
(d) Represents 25% of the closing price of our stock on February 28, 2001.
(e) Represents 125% of the closing price of our stock on February 28, 2001.
(f) Represents 150% of the closing price of our stock on February 28, 2001.
(g) Represents 175% of the closing price of our stock on February 28, 2001.
(h) Represents the average trading volume of our common stock for the
45 trading days preceding February 28, 2001.
(i) The number of shares we would issue is limited by a provision of
the common stock purchase agreement that prevents us from issuing
shares to Thumberland to the extent that Thumberland would
beneficially own more than 9.9% our then outstanding stock and by
the minimum drawdown amount of $250,000.
To permit Thumberland to resell the shares of common stock issued to it
under the stock purchase agreement, we agreed to register those shares and to
maintain that registration. To that end, we have agreed with Thumberland that
we will prepare and file such amendments and supplements to the registration
statement and the prospectus as may be necessary in accordance with the
Securities Act and the rules and regulations promulgated thereunder, to keep
it effective until the earliest of any of the following dates:
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement of which this prospectus is a part have been sold under
the provisions of Rule 144 under the Securities Act;
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement have been transferred to persons who may trade such shares
without restriction under the Securities Act and we have delivered
new certificates or other evidences of ownership of such common
shares without any restrictive legend;
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement have been sold by Thumberland or its transferees pursuant
to such registration statement;
73
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement may be sold, in the opinion of our counsel, under Rule 144
under the Securities Act irrespective of any applicable volume
limitations;
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement may be sold, in the opinion of our counsel, without any
time, volume or manner limitations under Rule 144(k) or similar
provision then in effect under the Securities Act; or
the date after which none of the shares of common stock held by
Thumberland that are covered by the registration statement are or
may become issued and outstanding.
Shares of common stock offered through this prospectus may be sold from
time to time by Thumberland, Ladenburg Thalmann and the Sovereign Lenders or
by pledgees, donees, transferees or other successors in interest to the
Sovereign Lenders. We will supplement this prospectus to disclose the names
of any pledgees, donees, transferees or other successors in interest that
intend to offer common stock through this prospectus.
Sales may be made on the OTC Bulletin Board, or otherwise at prices and
at terms then prevailing or at prices related to the then current market
price, or in negotiated private transactions, or in a combination of these
methods. The selling securityholders will act independently of us in making
decisions with respect to the form, timing, manner and size of each sale. We
have been informed by the selling securityholders that there are no existing
arrangements between any selling stockholder and any other stockholder,
broker, dealer, underwriter or agent relating to the sale or distribution of
shares of common stock which may be sold by selling securityholders through
this prospectus. Selling securityholders may be deemed underwriters in
connection with resales of their shares.
The shares of common stock may be sold in one or more of the following
manners:
a block trade in which the broker or dealer so engaged will attempt
to sell the shares as agent, but may position and resell a portion
of the block as principal to facilitate the transaction;
purchases by a broker or dealer for its account under this
prospectus; or
ordinary brokerage transactions and transactions in which the broker
solicits purchases.
74
In effecting sales, brokers or dealers engaged by the selling
securityholders may arrange for other brokers or dealers to participate.
Except as disclosed in a supplement to this prospectus, no broker-dealer will
be paid more than a customary brokerage commission in connection with any
sale of shares of common stock by the selling securityholders. Brokers or
dealers may receive commissions, discounts or other concessions from the
selling securityholders in amounts to be negotiated immediately prior to the
sale. The compensation to a particular broker-dealer may be in excess of
customary commissions. Profits on any resale of shares of common stock as a
principal by such broker-dealers and any commissions received by such broker-
dealers may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended. Any broker-dealer participating in such
transactions as agent may receive commissions from the selling
securityholders (and, if they act as agent for the purchaser of shares of
common stock, from such purchaser).Broker-dealers may agree with the selling
securityholders to sell a specified number of shares of common stock at a
stipulated price per share, and, to the extent a broker dealer is unable to
do so acting as agent for the selling securityholders, to purchase as
principal any unsold shares of common stock at a price required to fulfill
the broker-dealer commitment to the selling securityholders. Broker-dealers
who acquire shares of common stock as principal may thereafter resell such
shares from time to time in transactions (which may involve crosses and block
transactions and which may involve sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market, in negotiated transactions or otherwise at market prices prevailing
at the time of sale or at negotiated prices, and in connection with such
resales may pay to or receive from the purchasers of such shares commissions
computed as described above. Brokers or dealers who acquire shares of common
stock as principal and any other participating brokers or dealers may be
deemed to be underwriters in connection with resales of the shares.
In addition, any shares of common stock covered by this prospectus
which qualify for sale pursuant to Rule 144, may be sold under Rule 144
rather than pursuant to this prospectus. We will not receive any of the
proceeds from the sale of these shares, although we have paid the expenses of
preparing this prospectus and the related registration statement of which it
is a part, and have reimbursed Thumberland $10,000 for its legal,
administrative and escrow costs.
Thumberland and each of the other selling securityholders are subject
to the applicable provisions of the 1934 Securities Exchange Act, including
without limitation, Rule 10b-5 thereunder. Under applicable rules and
regulations under the Exchange Act, any person engaged in a distribution of
shares of common stock may not simultaneously engage in market making
activities with respect to such securities for a period beginning when such
person becomes a distribution participant and ending upon such person's
completion of participation in a distribution, including stabilization
activities in the shares to effect covering transactions, to impose penalty
bids or to effect passive market making bids. In addition, in connection with
the transactions involving shares of common stock, Thumberland, each of the
Sovereign Lenders, and the Company will be subject to applicable provisions
of the Exchange Act and the rules and regulations under that Act, including,
without limitation, the rules set forth above. These restrictions may affect
the marketability of the shares.
75
The selling securityholders will pay all commissions and their own
expenses, if any, associated with the sale of shares of the common stock,
other than the expenses associated with preparing this prospectus and the
registration statement of which it is a part.
The price at which we will issue the common shares to Thumberland under
the stock purchase agreement will be 93% of the volume-weighted average daily
price traded on the OTC Bulletin Board, for each day in the pricing period
with respect to each drawdown request. Assuming we receive $5,755,000 of
financing available under the stock purchase agreement using 18 drawdowns,
and assuming we issue the 2,414,917 shares registered for issuance under the
common stock purchase agreement in connection with the $5,755,000 we receive,
we will pay underwriting compensation to and expenses for Thumberland, and
other offering expenses, as follows:
Underwriting Compensation and Expenses
Per Share Total
DISCOUNT TO THUMBERLAND (A) $0.179375 $433,176
Expenses payable on behalf of Thumberland:
Escrow Fees 0.011181 27,000
Legal fees of Thumberland 0.004141 10,000
Estimated offering expenses:
Placement agent fees (b) 0.129509 312,753
SEC filing fee 0.001668 4,029
Accountants' fees and expenses 0.000580 1,400
Legal fees and expenses 0.041409 100,000
Total $0.367863 $888,358
(a) We also issued to Thumberland a stock purchase warrant to purchase
195,771 shares of our common stock at $ 2.9376 per share as consideration
for providing the common stock purchase agreement. The closing price of
our common stock on July 20, 2000 was $2.969. The warrant expires July
20, 2003.
(b) We also issued to the placement agent a stock purchase warrant to
purchase 195,771 shares of our common stock at $2.9376 per share as
consideration for placement services. The closing price of our common
stock on July 20, 2000 was $2.969 per share. The warrant expires on July
20, 2003.
Limited Grant of Registration Rights
We granted registration rights to Thumberland to enable it to sell the
common stock it purchases under the common stock purchase agreement. In
connection with any such registration, we will have no obligation:
76
to assist or cooperate with Thumberland in the offering or
disposition of such shares;
to indemnify or hold harmless the holders of any such shares (other
than Thumberland) or any underwriter designated by such holders;
to obtain a commitment from an underwriter relative to the sale of
any such shares; or
to include such shares within any underwritten offering we do.
We will assume no obligation or responsibility whatsoever to determine
a method of disposition for such shares or to otherwise include such shares
within the confines of any registered offering other than the registration
statement of which this prospectus is a part.
We will use our best efforts to file, during any period during which we
are required to do so under our registration rights agreement with
Thumberland, one or more post-effective amendments to the registration
statement of which this prospectus is a part to describe any material
information with respect to the plan of distribution not previously disclosed
in this prospectus or any material change to such information in this
prospectus. This obligation may include, to the extent required under the
Securities Act of 1933, as amended, that a supplemental prospectus be filed,
disclosing:
the name of any broker-dealers;
the number of common shares involved;
the price at which the common shares are to be sold;
the commissions paid or discounts or concessions allowed to broker-
dealers, where applicable;
that broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus,
supplemented; and
any other facts material to the transaction.
Our registration rights agreement with Thumberland permits us to
restrict the resale of the shares Thumberland has purchased from us under the
common stock purchase agreement for a period of time sufficient to permit us
to amend or supplement this prospectus to include material information. If
we restrict Thumberland for more than 30 consecutive days and our stock price
declines during the restriction period, we are required to pay to Thumberland
cash to compensate Thumberland for its inability to sell shares during the
restriction period. The amount we would be required to pay would be the
difference between our stock price on the first day of the restriction period
and the last day of the restriction period, for each share held by
Thumberland during the restriction period that has been purchased under the
common stock purchase agreement.
77
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby
will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C., Boston, Massachusetts.
EXPERTS
The financial statements of the Company appearing in this prospectus
have been audited by Sullivan Bille, P.C. or Belanger & Company, P.C.,
independent certified public accountants, to the extent and for the periods
set forth in their reports appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the United States Securities and Exchange Commission
(the "Commission"). You may read and copy any document we file at the
Commission's public reference room in Washington, D.C. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
room. Our filings with the Commission are also publicly available through
the Commission's Web site on the Internet at http://www.sec.gov. This
prospectus does not contain all of the information set forth in the
registration statement and the exhibits thereto. Descriptions of any
contract or other document referred to in this prospectus are not complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement for a more
complete description of the matter involved, each such statement being
qualified in its entirety by such reference. At your written or telephonic
request, we will provide you, without charge, a copy of any of the
information that is incorporated by reference herein (excluding exhibits to
the information that is incorporated by reference unless the exhibits are
themselves specifically incorporated by reference). Direct your request to
the Company at Cambex Corporation, 360 Second Avenue, Waltham, MA 02451,
Attention: Chief Executive Officer, telephone (781) 890-6000.
78
CAMBEX CORPORATION AND SUBSIDIARIES
(Information required by Part II, Item 8 and
Part IV, Item 14 of Form 10-KSB)
FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F - 2
Report of Independent Public Accountants F - 3
Consolidated Balance Sheets - December 31, 2000 and 1999 F - 4
Consolidated Statements of Operations for the Years
Ended December 31, 2000 and December 31, 1999 F - 6
Consolidated Statements of Stockholders' Investment
for the Years Ended December 31, 2000 and
December 31, 1999 F - 7
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000 and December 31, 1999 F - 8
Notes to Consolidated Financial Statements F - 9
SUPPLEMENTARY SCHEDULE
FOR THE YEARS ENDED DECEMBER 31, 2000
AND DECEMBER 31, 1999
Schedule Number
II Valuation and Qualifying Accounts F-26
Schedules other than those referred to above have been omitted, as they are
not required or the information is included elsewhere in the financial
statements or the notes thereto.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Cambex Corporation
We have audited the accompanying consolidated balance sheet of Cambex
Corporation (a Massachusetts corporation) and subsidiaries as of December 31,
2000, and the related consolidated statements of operations, stockholders'
investment and cash flows for the year then ended. These consolidated
financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cambex
Corporation and subsidiaries as of December 31, 2000 and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered
recurring losses from operations that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in
the index of the consolidated financial statements is presented for the
purpose of complying with the Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in our audit of the
basic 2000 consolidated financial statements and, in our opinion, fairly
states, in all material respects, the financial data required to be set forth
therein in relation to the basic 2000 financial statements taken as a whole.
SULLIVAN BILLE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Tewksbury, Massachusetts
February 15, 2001
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders of Cambex Corporation:
We have audited the accompanying consolidated balance sheet of Cambex
Corporation (a Massachusetts corporation) and subsidiaries as of December 31,
1999, and the related consolidated statements of operations, stockholders'
investment and cash flows for the year ended December 31, 1999. These
financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cambex Corporation and
subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for the year ended December 31, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts
or the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
the financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in
our opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
BELANGER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Chelmsford, Massachusetts
March 29, 2000
F-3
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
ASSETS
DECEMBER 31, DECEMBER 31,
2000 1999
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 234,512 $ 366,743
ACCOUNTS RECEIVABLE,
Less Reserves of $58,000
in 2000 and $100,000 in 1999 322,888 202,466
INVENTORIES 460,620 622,430
PREPAID EXPENSES 67,301 65,995
TOTAL CURRENT ASSETS $ 1,085,321 $ 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 3,721,481 3,639,196
NET PROPERTY AND EQUIPMENT $ 96,123 $ 178,408
OTHER ASSETS
DEFERRED OFFERING COSTS $ 476,886 $ -
OTHER 37,830 37,830
TOTAL OTHER ASSETS $ 514,716 $ 37,830
TOTAL ASSETS $ 1,696,160 $ 1,473,872
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' INVESTMENT
DECEMBER 31, DECEMBER 31,
2000 1999
CURRENT LIABILITIES:
LOAN AGREEMENT $ 1,032,443 $ 601,029
NOTES PAYABLE 2,500,000 550,000
ACCOUNTS PAYABLE 584,726 463,675
OBLIGATIONS FOR TRADE-IN MEMORY 240,000 286,250
OTHER LIABILITIES-SHORT
TERM PORTION 1,692,733 967,558
ACCRUED EXPENSES 853,042 513,849
TOTAL CURRENT LIABILITIES $ 6,902,944 $ 3,382,361
LONG TERM DEBT $ 1,273,730 $ 1,273,730
OTHER LIABILITIES-LONG
TERM PORTION 1,044,560 2,324,540
DEFERRED REVENUE - 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 -11,287,847 shares in 2000, and
11,076,232 shares in 1999 $ 1,128,785 $ 1,107,623
CAPITAL IN EXCESS OF PAR VALUE 16,024,049 15,970,199
ACCUMULATED OTHER
COMPREHENSIVE INCOME 102,465 101,989
RETAINED EARNINGS (DEFICIT) (23,903,407) (21,931,920)
LESS - COST OF SHARES HELD IN TREASURY
1,537,980 in 2000,and
1,534,356 in 1999 (876,966) (854,766)
TOTAL STOCKHOLDERS' INVESTMENT $ (7,525,074) $ (5,606,875)
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $ 1,696,160 $ 1,473,872
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
Year Ended Year Ended
December 31, December 31,
2000 1999
REVENUES $ 2,400,252 $ 3,401,733
COST OF SALES 1,130,793 1,422,430
Gross profit $ 1,269,459 $ 1,979,303
OPERATING EXPENSES:
Research and development $ 1,363,141 $ 1,096,806
Selling 1,110,424 778,839
General and administrative 466,169 607,408
Total operating expenses $ 2,939,734 $ 2,483,053
OPERATING INCOME (LOSS) $(1,670,275)$ (503,750)
OTHER INCOME (EXPENSE):
Interest expense (403,618) (173,265)
Interest income - 405
Other income (expense) - 14,827
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS $(2,073,893)$ (661,783)
Provision for income taxes - -
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $(2,073,893)$ (661,783)
Extraordinary Items(Note 15) 102,406 757,907
NET INCOME (LOSS) $(1,971,487)$ 96,124
OTHER COMPREHENSIVE INCOME,NET OF TAX:
Foreign Currency translation Adjustments 476 13,855
OTHER COMPREHENSIVE INCOME $ 476 $ 13,855
TOTAL COMPREHENSIVE INCOME (LOSS) $(1,971,011)$ 109,979
INCOME(LOSS) PER COMMON SHARE $ (0.20)$ 0.01
Weighted Average Common Shares Outstanding 9,680,000 9,540,000
Weighted Average Common and Common
Equivalent Shares Outstanding 9,680,000 10,390,000
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
Common Stock Capital in Accumulated Retained Cost of
$.10 Excess of Other Earnings Shares
Par Value Par Value Comprehensive (Deficit) Held in
Income Treasury
BALANCE AT
DECEMBER 31, 1998 $1,107,258 $15,966,625 $ 88,134$(22,028,044)$(854,766)
ADD:
Net income $ - $ - $ - $ 96,124 $ -
Exercise of employee
stock options 365 74 - - -
Issuance of warrants - 3,500 - - -
Translation adjustment - - 13,855 - -
BALANCE AT
DECEMBER 31, 1999 $1,107,623 $15,970,199 $101,989$(21,931,920)$(854,766)
ADD:
Net loss $ - $ - $ - $( 1,971,487)$ -
Exercise of employee
stock options 800 160 - - -
Exercise of warrants 10,000 12,200 - - -
Purchase of shares for
the treasury - - - -
(22,200)
Stock Purchase Plan Shares 8,539 1,707 - - -
Translation adjustment - - 476 - -
Conversion of note payable 1,823 39,783 - - -
BALANCE AT
DECEMBER 31, 2000 $1,128,785 $16,024,049 $102,465$(23,903,407)$(876,966)
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
Year Ended Year Ended
December 31, December 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,971,487)$ 96,124
Adjustments to reconcile net income(loss)
to net cash provided by(used in)
operating activities:
Depreciation $ 82,285 $ 131,603
Amortization of prepaid expenses 7,210 7,822
Change in assets and liabilities:
Decrease (increase) in accounts receivable (120,422) 311,869
Decrease(increase)in inventory 161,810 (318,710)
Decrease(increase)in investment
in sales-type leases - 25,820
Decrease(increase)in prepaid expenses (8,516) (965)
Increase(decrease)in accounts payable 121,051 54,834
Increase(decrease)in obligations
for trade-in memory (46,250) (74,000)
Increase(decrease)in accrued expenses 339,193 119,810
Increase(decrease)in deferred revenue (100,116) (155,250)
Increase(decrease)in other liabilities (554,805)(1,027,077)
Total adjustments $ (118,560)$ (924,244)
Net cash provided by(used in) operating activities $(2,090,047)$ (828,120)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, net $ - $ (1,988)
Net cash provided by(used in)investing activities $ - $ (1,988)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase(decrease) in notes payable $ 1,950,000 $ 760,000
Proceeds from sale of common stock and warrants 75,012 3,939
Purchase of common stock for the treasury (22,200) -
Increase in deferred offering costs, net (476,886) -
Net borrowings (repayments)under loan agreement 431,414 207,605
Net cash provided by
(used in) financing activities $ 1,957,340 $ 971,544
Effect of exchange rate changes on cash 476 13,855
Net increase (decrease) in
cash and cash equivalents $ (132,231)$ 155,291
Cash and cash equivalents at beginning of year 366,743 211,452
Cash and cash equivalents at end of year $ 234,512 $ 366,743
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 67,618 $ 13,265
Income Taxes - -
Non-cash financing activity:
Conversion of note payable into common stock $ 41,606 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(1) Liquidity
As further described in Note 13, from June 1, 1998 through August 18, 1999,
we raised $1,270,000 in cash from the issuance of 10% Subordinated
Convertible Promissory Notes. We also have a loan and security agreement
under which we may borrow up to $1,050,000 outstanding at any one time of
which $1,032,443 was outstanding as of December 31, 2000. During 1999, we
raised $550,000 in cash from the issuance of notes payable with interest at
12% per annum and maturities of November, 2001. During 2000, we raised
$2,000,000 in cash from the issuance of series 1 bridge financing notes that
matured in August and September.
We have suffered recurring losses from operations that raise substantial
doubt about our ability to continue as a going concern. Our ability to
continue as a going concern, is dependent upon several factors including, but
not limited to, our ability to generate revenues in significantly greater
amounts than in the past two fiscal years, our ability to raise additional
capital and the assumption that certain of our lenders will accept shares of
our common stock instead of cash in satisfaction of our obligations. The
additional financing, if obtained, will be used to fund our continuing
operations, particularly in development, sales and marketing. Our management
has been active in establishing new strategic alliances that it believes will
result in increased revenues through the sale of a greater volume of
products. These consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should we be unable to continue as a going concern.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Cambex Corporation and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition
We manufacture equipment for sale or lease. Revenue from product sales is
recognized at the time the hardware and software are shipped. Service and
other revenues are recognized ratably over the contractual period or as the
services are provided. Under certain equipment leases which qualify as sales
type leases, the present value of noncancelable payments is currently
F-9
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(2) Summary of Significant Accounting Policies - Continued
included in revenues as sales, and all related costs, exclusive of the
residual value of the equipment, are currently included in cost of sales.
The unearned interest is recognized over the noncancelable term of the lease.
We have deferred revenue associated with the sale of certain products that
have future performance obligations. For equipment leased under operating
lease agreements, revenue is recognized over the lease term and the equipment
is depreciated over its estimated useful life.
License fees are amortized over the useful life of the technologies being
licensed.
Inventories
Inventories, which include materials, labor and manufacturing overhead, are
stated at the lower of cost (first-in, first-out) or market and consist of
the following:
December 31, December 31,
2000 1999
Raw materials $ 392,686 $ 419,984
Work-in-process 20,453 78,572
Finished goods 47,481 123,874
$ 460,620 $ 622,430
Property and Equipment
We provide for depreciation and amortization on a straight- line basis to
amortize the cost of property and equipment over their estimated useful lives
as follows:
Leasehold improvements 2-10 Years
Machinery and equipment 3- 8 Years
Furniture and fixtures 3- 8 Years
Leased equipment 3- 5 Years
Maintenance and repair items are charged to expense when incurred; renewals
or betterments are capitalized.
F-10
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(2) Summary of Significant Accounting Policies - Continued
If property is sold or otherwise disposed of, our policy is to remove the
related cost and accumulated depreciation from the accounts and to include
any resulting gain or loss in income.
Depreciation expense of $82,285 and $131,603, was recorded for the periods
ended December 31, 2000 and December 31, 1999, respectively.
Deferred Offering Costs
Deferred offering costs represent the costs associated with the registration
of our common stock and will be reduced as series 1 bridge financing notes
are converted.
Net Income (Loss) Per Common Share
On January 1, 1997, we adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share". SFAS No. 128 replaces the presentation
of primary income (loss) per share with a dual presentation of basic income
(loss) per share and diluted income (loss) per share for each year for which
a statement of operations is presented.
Basic income (loss) per share amounts are based on the weighted average
number of common shares outstanding during each year. Diluted income (loss)
per share amounts are based on the weighted average number of common shares
and common share equivalents outstanding during each year to the extent such
equivalents have a dilutive effect on the income (loss) per share.
For the year ended December 31, 1999, common stock equivalents had no
material effect on the computation of earnings per share. For the year ended
December 31, 2000, common share equivalents were not included in diluted
income (loss) per share because we incurred a loss for the year. The
inclusion of the common stock equivalents would have had an antidilutive
effect on the computation of diluted income (loss) per share.
Cash and Cash Equivalents
Cash and cash equivalents are recorded at cost which approximates market
value. Cash equivalents include certificates of deposit, government
securities and money market instruments purchased with maturities of less
than three months.
F-11
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(2) Summary of Significant Accounting Policies - Continued
Stock Options and Employee Stock Purchase Plan
Proceeds from the sale of newly issued stock to employees under our stock
option plans and Employee Stock Purchase Plan are credited to common stock to
the extent of par value and the excess to capital in excess of par value.
Income tax benefits attributable to stock options are credited to capital in
excess of par value.
Disclosures about the Fair Value of Financial Instruments
Our financial instruments consist mainly of cash, cash equivalents, accounts
receivable, investment in sales-type leases, property held for sale, accounts
payable, notes payable, and a revolving credit agreement. The carrying
amounts of these financial instruments approximate their fair value due to
the short-term nature of these instruments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements,
and the reported amounts of income and expenses during the reporting periods.
Actual results could differ from those estimates.
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To
Be Disposed Of
On January 1, 1996, we adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of". SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
F-12
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(2) Summary of Significant Accounting Policies - Continued
The statement also requires that certain long-lived assets and identifiable
intangibles to be disposed of be reported at the lower of the carrying amount
or fair value less cost to sell. Based on our review, we do not believe that
any material impairment of its long-lived assets has occurred. Our review
was based on the assumption that we continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should we be unable to
continue as a going concern.
Comprehensive Income
On January 1, 1998, we adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement requires that changes in stockholders' equity from
transactions and events other than those resulting from investments by and
distributions to stockholders be reflected in comprehensive income or loss.
Segment Reporting
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," became effective for periods beginning after December 31, 1997.
This statement requires the presentment of information about the identifiable
components comprising an enterprise's business activities.
We have determined that there are no separately reportable operating segments
and, therefore, do not present separate reporting segments in the financial
statements.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. We have chosen to continue to account for
such plans using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of our
stock at the date of grant over the exercise price of the stock (See Note 9).
F-13
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(3) Business, Operations and Segment Information
We are a designer and supplier of fibre channel hardware and software
solutions for building Storage Area Networks (SAN). Our products include
fibre channel host bus adapters, hubs, high availability software and disk
arrays for building SANs in heterogeneous open systems operating
environments.
We sell our equipment to end users, resellers, distributors and OEMs. Our
principal customers operate in a wide variety of industries and in a broad
geographical area. During 2000, two customers accounted for 18% and 11% of
total revenues for the year. During 1999, one customer accounted for 11% of
total revenues. Foreign sales were 14% in 2000 and less than 10% of total
revenues in fiscal 1999. In the year ended December 31, 2000, our top five
customers accounted for approximately 45% of our total net revenues, and in
the year ended December 31, 1999, our top five customers accounted for
approximately 40% of our total net revenues.
(4) Income Taxes
In accordance with SFAS No. 109, "Accounting For Income Taxes", deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse.
The following table presents the components of income (loss) before income
taxes and extraordinary items:
Year ended Year ended
December 31, December 31,
2000 1999
Domestic $(2,046,000) $( 531,000)
Foreign ( 28,000) ( 131,000)
$(2,074,000) $( 662,000)
F-14
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(4) Income Taxes - Continued
The following table presents a reconciliation between taxes provided at the
statutory federal income tax rate and the actual tax provision recorded for
the following periods:
Year ended Year ended
December December
2000 1999
Provision (credit) at
federal statutory rate $( 670,300) $ 32,700
State tax provision
(credit), net of federal
tax benefit ( 124,400) 14,300
Foreign and other losses
for which no benefits have
been recorded 9,600 44,400
Change in valuation
allowances 795,600 ( 90,800)
Other ( 10,500) ( 600)
$ -0- $ -0-
F-15
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(4) Income Taxes - Continued
We have federal net operating loss carryovers totalling $20,593,000 which
expire through the year ended December 31, 2020.
The tax effects of the significant items which comprise the deferred tax
liability and tax asset, as of fiscal 2000 and 1999 are as follows:
December December
2000 1999
Assets
Reserves not currently deductible
for tax purposes $1,335,000 $1,584,000
State tax net operating loss
carryforward 2,205,000 1,612,000
Federal net operating loss
carryforward 6,087,000 5,012,000
Employee benefits 47,000 41,000
Other 36,000 49,000
Total deferred tax assets $9,710,000 $8,298,000
Liabilities
Fixed asset basis difference $ 0 $ (164,000)
Other 96,000 158,000
Total deferred tax liabilities $ 96,000 $ ( 6,000)
Net deferred tax asset $9,806,000 $8,292,000
Valuation allowance (9,806,000) (8,292,000)
Tax asset 0 0
Tax refunds receivable 0 0
Total tax asset 0 0
Due to the uncertainty of the realizability of the deferred tax assets, we
have established a valuation allowance for the net deferred tax assets.
F-16
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(5) Short Term Borrowings
We have a loan and security agreement with a related party referred to in
Note 13. The outstanding balance due to the related party was $1,032,443 and
$601,029 at December 31, 2000 and 1999, respectively.
Notes payable of $2,500,000 at December 31, 2000 include $550,000 of advances
payable which are due November, 2001. These notes include amounts of $250,000
from related parties. These notes are further described in Note 13. The
balance of $1,950,000, due on demand, represents series 1 bridge financing
notes issued in 2000.
(6) Long-Term Debt and Related Matters
Long-term debt at December 31, 2000 and 1999 consists of the following:
2000 1999
Subordinated Convertible Notes
with interest rate of 10%
due April 30, 2003 $1,273,730 $1,273,730
Less: Current maturities -0- -0-
Total $1,273,730 $1,273,730
Of the advances received for the notes, approximately $1,070,000 was received
from related parties and is discussed in Note 13.
F-17
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(6) Long-Term Debt and Related Matters - Continued
The maturities of long-term debt for each of the succeeding five years
subsequent to December 31, 2000 are as follows:
Year Amount
2001 -0-
2002 -0-
2003 $1,273,730
Thereafter -0-
Total $1,273,730
(7) Earnings Per Share
Earnings per share are computed by dividing net income by the average number
of common shares and common stock equivalents outstanding during the year.
The weighted average number of common shares outstanding during the years
ended December 31, 2000 and 1999 were approximately 9,680,000 and 9,540,000,
respectively.
Common stock equivalents include the net additional number of shares that
would be issuable upon the exercise of the outstanding common stock options
and warrants (see Note 9), assuming that we reinvested the proceeds to
purchase additional shares at market value. Common stock equivalents also
include shares of common stock that would be issuable upon conversion of
subordinated promissory convertible notes.
Options and warrants to purchase 5,697,035 weighted average shares of common
stock during the year ended December 31, 2000 were not included in the
computation of diluted loss per share because to do so would have had an
antidilutive effect on the computation of loss per share. Weighted average
shares of 855,313 common stock equivalents had no material effect on the
computation of earnings per share for the year ended December 31, 1999.
Weighted average shares issuable from convertible notes of 5,235,261 were not
included in the diluted earnings per share because to do so would have had an
antidilutive effect on the computation of earnings per share.
As more fully described in Note 9, options and warrants to purchase 6,895,265
and 4,959,423 shares of common stock outstanding at December 31, 2000 and
1999, respectively, and 5,235,261 shares of common stock issuable upon
conversion of notes outstanding at December 31, 2000 and 1999 could
potentially dilute basic income (loss) per share in the future.
F-18
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(8) Commitments and Contingencies
At December 31, 2000, we had minimum rental commitments under long-term,
noncancelable operating leases for facilities and other equipment as follows:
Due during Fiscal Year
2001 $ 381,924
2002 $ 381,924
2003 $ 159,134
$ 922,982
Total rental expense, including the cost of short-term equipment leases, real
estate taxes and insurance paid to the landlord and charged to operations
approximated $111,000 for the year ended December 31, 2000 and $213,000 for
the year ended December 31, 1999. During 1999 and 2000, we entered into
agreements to sublet portions of our facilities to unrelated parties.
In the ordinary course of business, we are involved in legal proceedings. We
believe that the outcome of these proceedings will not have a material
adverse effect on our financial condition or results of operations.
(9) Stock Options and Warrants
On March 24,1987, we established the 1987 Stock Option Plan and 75,620
options to purchase shares of our common stock were outstanding as of
December 31, 2000. On March 7, 1997, we established the 1997 Stock Option
Plan. As of December 31, 2000, there were 955,000 options to purchase shares
of our common stock outstanding under the 1997 Plan. On November 12, 1999,
the 1997 Plan was cancelled. On November 12, 1999, we established and on
December 23, 1999, shareholders approved the Year 2000 Equity Incentive Plan.
The Year 2000 Equity Incentive Plan provides for the issuance of up to
1,500,000 shares of our common stock. The Year 2000 Equity Incentive Plan
replaces the 1997 Plan for all future options. At December 31, 2000, we had
three stock option plans for officers and certain employees under which
2,530,620 shares were reserved and options for 1,213,000 shares were
available for future grants. Options are granted at not less than 85%, or in
certain cases, not less than 100%, of the fair market value of the common
stock on the date of grant. Options outstanding have a term of ten years and
become exercisable in installments as determined by the Board of Directors.
The plans' options vest between one through six years and all expire between
January 6, 2002 and November 9, 2010.
F-19
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(9) Stock Options and Warrants - Continued
Stock option activity for the two years ended December 31, 2000 was as
follows:
Option Shares Number of shares Option Price
of common stock per share
covered by options
Outstanding at December 31, 1998 94,970 .12
Granted 1,204,500 .12 - 1.67
Exercised, cancelled or
expired (210,150) .12 - 1.67
Outstanding at December 31, 1999 1,089,320 .12 - 1.67
Granted 301,000 1.25 - 5.30
Exercised, cancelled or
expired ( 72,700) .12 - 3.00
Outstanding at December 31, 2000 1,317,620 .12 - 5.30
As of December 31, 2000 and 1999, options for 352,520 and 161,620 shares were
exercisable at aggregate option prices of $78,702 and $33,524, respectively.
Had compensation cost for these plans been determined consistent with SFAS
No. 123, our net income(loss) and income(loss) per share would have been
changed to the following pro forma amounts:
Year ended Year ended
December 31, December 31,
2000 1999
Net Income (Loss): As Reported (000's) (1,971) 96
Pro Forma (2,056) 96
Basic and Diluted EPS:As Reported ( 0.20) 0.01
Pro Forma ( 0.21) 0.01
F-20
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(9) Stock Options and Warrants - Continued
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
for grants in the periods presented.
Year ended Year ended
December 31, December 31,
2000 1999
Assumptions:
Risk free interest rate 6.13% 6.92%
Expected dividend yield 0% 0%
Expected life in years 10 10
As of December 31, 2000 and 1999, warrants to purchase 5,577,645 and
3,870,103 shares of common stock at weighted average prices of $1.33 and
$0.82 per share, respectively, were outstanding and an equal number of shares
were reserved for issuance.
(10) Incentive Bonus Plan and 401(k) Profit Sharing Retirement Plan
We have an incentive bonus plan under which certain key employees as a group
are entitled to receive additional compensation up to a maximum of 15% of our
pre-tax income, as defined. There was no provision in 2000 or 1999.
On September 1, 1988, we established the Cambex Corporation 401(k) Profit
Sharing Retirement Plan (the Plan). Under the Plan, employees are allowed to
make pre-tax retirement contributions. In addition, we may provide matching
contributions based on pre-established rates. Each year the Board of
Directors determines whether matching contributions will be made and in what
amounts. Our contributions have been in the form of Cambex common stock since
fiscal 1994.
We offer no post-retirement benefits other than those provided under the
Plan.
F-21
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(11) Equity Line
During the third quarter of fiscal 2000, we signed a common stock purchase
agreement with Thumberland Limited, a private investor, for the future
issuance and purchase of shares of our common stock. The common stock
purchase agreement was amended during the fourth quarter of fiscal 2000. The
common stock purchase agreement establishes what is often referred to as a
structured equity line or an equity drawdown facility. In general, the
drawdown facility operates as follows: the investor has committed to provide
us up to $10 million as we request it over an 18 month period, in return for
common stock we issue to the investor, subject to registering in advance the
shares of common stock issuable under the Securities Act of 1933. Once every
22 trading days, we may request a draw of up to $1 million of that money
(except that our initial drawdown may be for up to $2 million), subject to a
maximum of 18 draws. The maximum amount we actually can drawdown upon each
request will be determined by the volume-weighted average daily price of our
common stock for the 22 trading days prior to our request and the average
trading volume for the 45 trading days prior to our request. Per the terms of
this agreement, we are currently unable to draw because we cannot meet the
minimum draw amount of $250,000.
(12) Employee Stock Purchase Plan
On December 20, 1993, we established the Cambex Corporation Employee Stock
Purchase Plan (the Plan), which was approved by the shareholders. On August
31, 1998, the Board of Directors voted, subject to shareholder approval, to
increase the number of shares to cover the number of shares purchased under
the Plan during the period of January 1, 1998 to June 30, 1998 and to
terminate the Plan. Under the Plan, employees could elect to have a specified
percentage of their wages withheld through payroll deduction and purchase
common stock shares at 85% of the lower of the fair market value of Common
Stock on the first or last trading day of each Purchase Period. There were
two (2) Purchase Periods each year - the first six months and the last six
months of each calendar year. During fiscal 2000, there were 85,383 shares
issued under the Plan.
(13) Related Party Transactions
On June 1, 1998, we borrowed approximately $1,060,000, including
approximately $460,000 from Joseph F. Kruy, our Chairman of the Board,
President and Chief Executive Officer, $250,000 from each of H. Terry
Snowday, Jr. and Richard E. Calvert, each greater than 5% shareholders of
Cambex, in exchange for the issuance of 10% Subordinated Convertible
Promissory Notes (the "10% Notes"). Under the terms of the 10% Notes, which
are due on April 30, 2003, the holders may convert the 10% Notes into shares
of common stock at a conversion price of $0.22 per share. In addition to the
10% Notes, each holder, including Messrs. Kruy, Snowday and Calvert, were
issued a Stock Purchase Warrant, the exercise of which will allow the warrant
holder to purchase one share of common stock, at $0.50 per share, for each
dollar loaned to us. Additional Stock Purchase Warrants to purchase 96,373
shares of common
F-22
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(13) Related Party Transactions - Continued
stock, at an exercise price of $0.50 per share, were issued to the holders of
10% Notes on June 1, 1999 in relation to interest due on the June 1, 1998
notes. We believe that the borrowing arrangements we made with Messrs. Kruy,
Snowday and Calvert, and others are on terms at least as favorable to us as
we would have expected from lenders unrelated to us and Messrs. Kruy, Snowday
and Calvert.
On June 1, 1998, we entered into a Master Lease with CyberFin Corporation, a
corporation wholly owned by Peter J. Kruy, our Executive Vice President,
Treasurer and Chief Financial Officer. Under the Master Lease we are renting
from CyberFin an IBM 2003 S/390 Multiprise Processor and related software and
maintenance at the rate of $3,787.64 per month for a period of three years.
We also purchased computer memory from CyberFin for $141,920 in 1998 and
$73,000 in 1999. We believe that lease and the purchase arrangements we made
with CyberFin are on terms at least as favorable to us as we would have
expected from an equipment lessor unrelated to us, CyberFin and Dr. Kruy for
equipment of comparable quality.
On November 9, 1998, we entered into a Loan and Security Agreement with
B.A. Associates, Inc. (BAA), which is a corporation owned by a relative of
Joseph F. Kruy, our Chairman, President and Chief Executive Officer. This
Loan and Security Agreement, as amended by a First Amendment to Loan and
Security Agreement dated March 15, 1999, and further amended through December
27, 2000 (as so amended, the "BAA Loan Agreement"), allows us to borrow up to
$1,050,000, which is the maximum that may be outstanding at any one time.
Under the BAA Loan Agreement, we granted BAA a first priority security
interest in all of our accounts, instruments, documents, general intangibles,
equipment, inventory, and proceeds of any of the foregoing. We pay all
amounts that we receive from collections of our accounts receivable to BAA
not less frequently than each week until the outstanding loan amount plus
interest, which accrues at a 12% annual rate, is fully paid. Under the terms
of the BAA Loan Agreement, originally BAA received a warrant for the purchase
of 1.3 million shares of common stock, at an exercise price of $0.22 per
share. In consideration for increasing the amount of available funds, the
Company agreed to issue an additional warrant to BAA for the purchase of
400,000 shares of our common stock, at an exercise price of $1.25. We
believe that the borrowing arrangements we made with BAA are on terms at
least as favorable to us as we would have expected from lenders unrelated to
us and relatives of Mr. Kruy.
From June 1, 1999 through August 18, 1999, we raised $210,000 in exchange for
the issuance of 10% Subordinated Convertible Promissory Notes.
During this time period Joseph F. Kruy loaned us $100,000, and Messrs.
Snowday and Calvert each loaned us $55,000 of the total amount that we
borrowed. In exchange for these loans, we issued 10% Subordinated
Convertible Promissory Notes, including 10% Subordinated Convertible
Promissory Notes to Messrs. Kruy, Snowday and Calvert. We believe that the
borrowing arrangements we made
F-23
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(13) Related Party Transactions - Continued
with Messrs. Kruy, Snowday and Calvert are on terms at least as favorable to
us as we would have expected from lenders unrelated to us and Messrs. Kruy,
Snowday and Calvert.
In November 1999, we borrowed $125,000 from Joseph F. Kruy and $125,000
from Philip C. Hankins, a member of our board of directors, and $100,000 from
each of Messrs. Snowday and Calvert. We also entered into separate Loan and
Security Agreements with each of Messrs. Kruy, Hankins, Calvert and Snowday.
At that time, we entered into one other Loan and Security Agreement with a
person unrelated to the company (the "Other 1999 Lender") pursuant to which
we borrowed an additional $100,000. Our payment obligations under these Loan
and Security Agreements (the "1999 Loan Agreements") are evidenced by 12%
Notes due in November 2001. Under the 1999 Loan Agreements, we granted each
of Messrs. Kruy, Hankins, Calvert and Snowday and the Other 1999 Lender a
first priority security interest in all of our accounts, instruments,
documents, general intangibles, equipment, inventory, and proceeds of any of
the foregoing. Originally, under the terms of the 1999 Loan Agreements,
Messrs. Kruy, Hankins, Calvert and Snowday and the Other 1999 Lender received
a warrant to purchase up two shares of common stock for each dollar loaned to
us, at an exercise price of $2.00 per share. When we extended the term of
the loans in November 2000, the Company agreed to issue additional warrants
to Messrs. Kruy, Hankins, Calvert and Snowday and the Other 1999 Lender to
purchase one share of our common stock for each dollar loaned to us at an
exercise price of $1.25 per share. We believe that the borrowing
arrangements we made with Mr. Kruy and others are on terms at least as
favorable to us as we would have expected from lenders unrelated to us and
Mr. Kruy.
(14) Events Subsequent to date of Report of Independent Public Accountants
Subsequent to the end of 2000, one of the Sovereign Lenders, Correllus
International Ltd., converted its Series 1 Bridge Financing Note($200,000 of
unpaid principal plus interest, premiums and penalties) into 74,335 shares of
our common stock at a conversion price of $3.79. They also exercised a
repricing warrant and received 22,212 shares of our common stock.
(15) Credit Risk
We maintain cash balances at financial institutions located in Massachusetts.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 2000, our uninsured cash
balances total $125,189.
Our subsidiaries maintain cash balances at several financial institutions
located throughout Europe. These cash balances are subject to normal
currency exchange fluctuations. At December 31, 2000, our overseas cash
balances total $7,875.
F-24
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(Continued)
(16) Extraordinary Items
Extraordinary income in 2000 and 1999 consists of the payment of other
liabilities at a discount from face value. The per share amount of the gain
on the extinguishment of debt was $0.07 in 1999.
F-25
CAMBEX CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Charged To
Balance at (Recovered Balance
Beginning From) Writeoffs/ at End
of Year Income Deductions of Year
---------- ----------- --------- -------
YEAR ENDED DECEMBER 31, 1999:
Reserve for doubtful accounts $ 100,000 $ - $ - $100,000
YEAR ENDED DECEMBER 31, 2000:
Reserve for doubtful accounts $ 100,000 $ - $ (42,000) $ 58,000
F-26
"Cambex", "Centurion", "Centurion Storage Manager", "Dynamic Path
Failover", "FibreQuik" and "STOR" are trademarks and trade names of Cambex
Corporation. All other trademarks or trade names referred to in this
prospectus are the property of their respective owners.
Until January 16, 2001 (25 days after the commencement of this
offering), all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our by-laws, as amended, reflect the adoption of the provisions of the
Massachusetts General Laws, Chapter 156B, Section 67 which empowers a
Massachusetts corporation to indemnify any person in connection with any
action, suit or proceeding brought or threatened by reason of the fact that
such person is or was a director, officer, employee or agent of the
corporation or was serving as such with respect to another corporation or
other entity at the request of such corporation, unless such person shall
have been adjudicated in any proceeding not to have acted in good faith in
the reasonable belief that such action was in the best interests of the
corporation. Our by-laws, as amended, also provide that the Company shall
indemnify any person, who was or is a party to a proceeding by reason of the
fact that he is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be or not opposed to the
best interests of the Company, in accordance with, and to the full extent
permitted by, the Massachusetts General Corporation Law.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance and
distribution of securities being registered:
Registration fees 4,028.26
Federal taxes
State taxes and fees
Legal fees 100,000.00
Accounting fees 1,400.00
Item 26. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding securities
convertible into or exercisable for shares of Cambex common stock issued by
Cambex within the past three years:
In June 1998 we borrowed approximately $1,060,000 in exchange for the
issuance of 10% Subordinated Convertible Promissory Notes in an exempt
transaction. In addition to the notes, each of the holders received a stock
purchase warrant entitling the holder to purchase one share of our common
stock at a price of $0.50 per share for each dollar loaned to us. Additional
stock purchase warrants were issued to the holders of these 10% notes on June
1, 1999 in relation to interest due on these notes.
II-1
In November 1998 we entered into a Loan and Security Agreement with B.A.
Associates, Inc. which allows us to borrow up to $650,000. In exchange for
this revolving loan facility, we issued the lender in an exempt transaction
warrants for the purchase of two shares of common stock for each dollar it
committed to loan to us. In November 2000, the agreement with B.A. Associates
was amended to increase the amount we can borrow to $1,000,000. In exchange
for this $350,000 increased commitment, we agreed to issue the lender a
warrant to purchase one share of common stock for each additional dollar it
committed to loan to us. In December 2000, the agreement with B.A. Associates
was amended to increase the amount we can borrow to $1,050,000. In exchange
for this $50,000 increased commitment, we agreed to issue the lender a
warrant to purchase one share of common stock for each additional dollar it
committed to loan to us.
In November 1999 we entered into Loan and Security Agreements with five
individuals, under which the individuals received in an exempt transaction
warrants to purchase up to two shares of common stock for each dollar loaned
to us. The exercise price of the warrants is $2.00 per share. In November
2000, we amended the Loan and Security Agreements to expand the date the
loans are due. The individuals, in an exempt transaction, received warrants
to purchase up to one share of common stock for each dollar loaned to us, at
an exercise price of $1.25 per share.
II-2
Item 27. Exhibits
**2.1 Reorganization Plan of Cambex Corporation dated March 17, 1998
(included as Exhibit 2.1 to the Company's Amendment to Quarterly Report
on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated
herein by reference).
**2.2 Amended Disclosure Statement with respect to Reorganization Plan of the
Company dated March 17, 1998 (included as Exhibit 2.2 to the Company's
Amendment to Quarterly Report on Form 10-Q/A for the quarter ended
April 1, 2000, and incorporated herein by reference).
**3.1 Restated Articles of Organization of Cambex Corporation (included as
Exhibit 3.1 to the Company's Registration Statement on Form SB-2,
declared effective with the Commission on November 7, 2000, Reg. No.
333-43294, and incorporated herein by reference).
**3.2 Restated By-laws of Cambex Corporation (included as Exhibit 3.2 to the
Company's Registration Statement on Form SB-2, declared effective with
the Commission on November 7, 2000, Reg. No. 333-43294, and
incorporated herein by reference).
**4.1 Specimen Stock Certificate (included as Exhibit 4.1 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**4.2 Registration Rights Agreement among the Company and the Purchasers
identified therein (the "Sovereign Purchasers") dated as of January 18,
2000 (included as Exhibit 4.1 to the Company's Amendment to Quarterly
Report on Form 10-Q/A for the quarter ended April 1, 2000, and
incorporated herein by reference).
**4.3 Registration Rights Agreement between the Company and Thumberland
Limited dated as of July 14, 2000 (included as Exhibit 4.3 to the
Company's Registration Statement on Form SB-2, declared effective with
the Commission on November 7, 2000, Reg. No. 333-43294, and
incorporated herein by reference).
**4.4 Amendment to Registration Rights Agreement between the Company and
Thumberland Limited dated as of November 8, 2000 (included as Exhibit
4.4 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2000 and incorporated herein by reference).
**5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included as Exhibit 5.1 to the Company's Registration Statement on Form SB-2
filed with the Commission on November 29, 2000, Reg. No. 333-50936, and
incorporated herein by reference.)
**10.1 Employment Agreement between Joseph F. Kruy and the Company,
dated as of November 18, 1994 (included as Exhibit 10.1 to the Company's
Amendment to Quarterly Report on Form 10-Q/A for the quarter ended
April 1, 2000, and incorporated herein by reference).
II-3
**10.2 Incentive Bonus Plan (included as Exhibit 10.2 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**10.3 1987 Combination Stock Option Plan (included as Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the fiscal year ended August
31, 1987, and incorporated herein by reference).
**10.4 2000 Equity Incentive Plan (included as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, and incorporated herein by reference).
**10.5 Series 1 Bridge Note Purchase Agreement among the Company and the
Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit
10.7 to the Company's Amendment to Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by reference).
**10.6 Escrow Agreement among the Company, the Sovereign Purchasers and
Suntrust Bank, Atlanta dated as of January 6, 2000 (included as Exhibit
10.8 to the Company's Amendment to Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by reference).
**10.7 Placement Agent Agreement between the Company and Sovereign
Capital Advisors, LLC ("Sovereign Advisors") dated as of January 18, 2000
(included as Exhibit 10.9 to the Company's Amendment to Quarterly
Report on Form 10-Q/A for the quarter ended April 1, 2000, and
incorporated herein by reference).
**10.8 Guaranty Agreement among Joseph F. Kruy, the Company and the
Sovereign Purchasers dated as of January 18, 2000. (included as Exhibit 10.10
to the Company's Amendment to Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
**10.9 Guaranty Agreement among CyberFin Corporation, the Company and
the Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit
10.11 to the Company's Amendment to Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by reference).
**10.10 Stock Pledge Agreement by Joseph F. Kruy in favor of the
Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit
10.12 to the Company's Amendment to the Quarterly Report on Form 10-Q/A
for the quarter ended April 1, 2000, and incorporated herein by
reference).
**10.11 Stock Pledge Agreement by CyberFin Corporation in favor of the
Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit
10.13 to the Company's Amendment to the Quarterly Report on Form 10-Q/A
for the quarter ended April 1, 2000, and incorporated herein by
reference).
II-4
**10.12 Series 1 Bridge Financing Note in favor of SovCap Equity
Partners, Ltd. dated as of January 18, 2000 (included as Exhibit 10.14
to the Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by reference).
**10.13 Series 1 Bridge Financing Note in favor of Correllus
International, Ltd. dated as of January 18, 2000 (included as Exhibit
10.16 to the Company's Amendment to the Quarterly Report on Form 10-Q/A
for the quarter ended April 1, 2000, and incorporated herein by
reference).
**10.14 Common Stock Purchase Warrant in favor of SovCap Equity Partners,
Ltd. dated as of January 18, 2000 (included as Exhibit 10.18 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
**10.15 Common Stock Purchase Warrant in favor of Correllus
International, Ltd. dated as of January 18, 2000 (included as Exhibit
10.19 to the Company's Amendment to the Quarterly Report on Form 10-Q/A
for the quarter ended April 1, 2000, and incorporated herein by
reference).
**10.16 Sovereign Warrant Agreement between the Company and Sovereign
Advisors dated as of January 18, 2000 (included as Exhibit 10.20 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
**10.17 Warrant Certificate registered in the name of Sovereign Advisors
dated January 18, 2000 (included as Exhibit 10.21 to the Company's
Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended
April 1, 2000, and incorporated herein by reference).
**10.18 Series 1 Bridge Financing Note in favor of Arab Commerce Bank
Ltd. dated as of February 9, 2000 (included as Exhibit 10.22 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
**10.19 Common Stock Purchase Warrant in favor of Arab Commerce Bank Ltd.
dated as of February 9, 2000 (included as Exhibit 10.24 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
**10.20 Series 1 Bridge Financing Note in favor of SovCap Equity
Partners, Ltd. dated as of February 9, 2000 (included as Exhibit 10.25
to the Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by reference).
**10.21 Common Stock Purchase Warrant in favor of SovCap Equity Partners,
Ltd. dated as of February 9, 2000 (included as Exhibit 10.27 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
II-5
**10.22 Common Stock Purchase Agreement between the Company and
Thumberland Limited dated as of July 14, 2000 (included as Exhibit
10.22 to the Company's Registration Statement on Form SB-2, declared
effective with the Commission on November 7, 2000, Reg. No. 333-43294,
and incorporated herein by reference).
**10.23 Amendment to Common Stock Purchase Agreement between the Company
and Thumberland Limited, dated as of November 8, 2000 (included as
Exhibit 10.23 to the Company's Quarterly Report on 10QSB for the
quarter ended September 30, 2000, and incorporated herein by
reference).
**10.24 Escrow Agreement among the Company, Thumberland Limited and
Epstein, Becker & Green, P.C., dated as of July 14, 2000 (included as
Exhibit 10.23 to the Company's Registration Statement on Form SB-2,
declared effective with the Commission on November 7, 2000, Reg. No.
333-43294, and incorporated herein by reference).
**10.25 Stock Purchase Warrant in favor of Thumberland Limited dated as
of July 14, 2000 (included as Exhibit 10.24 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**10.26 Stock Purchase Warrant in favor of Ladenburg Thalmann & Co. Inc.
dated as of July 14, 2000 (included as Exhibit 10.25 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**10.27 Loan and Security Agreement, as amended, by and between the
Company and BA Associates, Inc. (included as Exhibit 10.27 to the Company's
Registration Statement on Form SB-2 filed with the Commission on November 29,
2000, Reg. No. 333-50936, and incorporated herein by reference.)
**10.28 Fifth Amendment to Loan and Security Agreement, as amended, by and
between the Company and B.A. Associates, Inc., dated as of December 27,
2000(included as Exhibit 10.28 to the Company's Annual Report on Form 10-KSB
filed with the Commission on March 30, 2001 and incorporated herein by
reference.)
**10.29 Form of Warrant Certificate between the Company and B.A. Associates,
Inc. (included as Exhibit 10.29 to the Company's Annual Report on Form 10-KSB
filed with the Commission on March 30, 2001 and incorporated herein by
reference.)
**21.1 List of subsidiaries of the Company (included as Exhibit 21.1 to
the Company's Registration Statement on Form SB-2, declared effective with
the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
II-6
**23.1 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 5.1 to the Company's Registration Statement on Form SB-2
filed with the Commission on November 29, 2000, Reg. No. 333-50936, and
incorporated herein by reference.)
**23.2 Consent of Belanger & Company, P.C. (included as Exhibit 23.2 to
the Company's Registration Statement on Form SB-2 filed with the Commission
on November 29, 2000, Reg. No. 333-50936, and incorporated herein by
reference.)
**23.3 Consent of Sullivan Bille, P.C. (included as Exhibit 23.1 to
the Company's Annual Report on Form 10-KSB filed with the Commission
on March 30, 2001 and incorporated herein by reference.)
**24.1 Powers of Attorney (included in the signature page to the Company's
Registration Statement on Form SB-2 filed with the Commission on November 29,
2000, Reg. No. 333-50936, and incorporated herein by reference.)
**99.1 Audit Committee Charter (included as Exhibit 99.1 to the
Company's Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
____________
** Previously filed with the Commission.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the registrant pursuant to any
charter provision, by-law, contract arrangements, statute, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-7
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sales
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering of those securities.
(3) For determining any liability under the Act, to treat the
information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant under
Rule 424(b)(1) or (4), or 497(h) under the Securities Act as part
of this Registration Statement as of the time the Securities and
Exchange Commission declared it effective.
(4) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
II-8
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has duly caused this Post-Effective Amendment
No. 1 to the registration statement to be signed on its behalf of the
undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth
of Massachusetts, on April 3, 2001.
CAMBEX CORPORATION
By:/s/ Joseph F. Kruy
Joseph F. Kruy,
Chief Executive Officer,
President and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 1 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Joseph F. Kruy Chairman, Chief Executive April 3, 2001
Joseph F. Kruy Officer and President
(principal executive officer)
* Executive Vice President and April 3, 2001
Peter J. Kruy Chief Financial Officer
(principal financial and accounting
officer)
* Director April 3, 2001
Philip C. Hankins
* Director April 3, 2001
C.V. Ramamoorthy
* Director April 3, 2001
Robert J. Spain
* By executing his name hereto, Joseph F. Kruy is signing this document on
behalf of the persons indicated above pursuant to the powers of attorney duly
executed by such persons and filed with the Securities and Exchange
Commission.
By: /s/ Joseph F. Kruy Attorney-in-fact April 3, 2001
Joseph F. Kruy
II-9