As filed with the Securities and Exchange Commission on November 25, 2002
Registration No. 333 -
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,D.C. 20549
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)
Approximate date of commencement of proposed sale to public: from
time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be offering price aggregate registration
to be registered registered per share offering price fee
Common Stock,
$0.10 par value(1) 1,976,640 (1) $4,151,495.26(1) $381.94
(1) These shares to be registered may be offered for sale and sold from
time to time during the period the registration statement remains effective,
by or for the accounts of SovCap Equity Partners, Ltd., Correllus
International Ltd. and Arab Commerce Bank Ltd. These shares include: (a) a
total of up to 1,525,939 issuable to SovCap Equity Partners, Ltd. upon
conversion of Series B Convertible Preferred stock; a total of up to 42,735
issuable to Arab Commerce Bank Ltd. upon conversion of series 1 bridge
financing notes issued to them under the series 1 bridge note purchase
agreement described in this registration statement; (c) a total of up to
107,966 shares issuable to Arab Commerce Bank Ltd. upon exercise of repricing
warrants attached to the series 1 bridge note financings; and (d) a total of
up to 300,000 shares issuable to SovCap Equity Partners, Ltd., Correllus
International Ltd. and Arab Commerce Bank Ltd. upon exercise of the common
stock purchase warrants issued to them under the series 1 bridge note
purchase agreement. The total original principal amount of the series 1
bridge financing notes was $2 million. Since their respective maturity dates,
these bridge notes bore interest at the rate of 12% per annum and Cambex is
obligated to pay these lenders a premium ranging from 15% to 25% of the
original principal amount of the bridge notes. The conversion price for the
remaining $150,000 of the original principal borrowed is $6.0875 per share.
The exercise price of the attached repricing warrants is $0.10 per share.
The exercise price of the common stock purchase warrants issued to SovCap
Equity Partners, Ltd., Correllus International Ltd. and Arab Commerce Bank
Ltd. is $4.19 per share for warrants exercisable for 262,500 shares. The
exercise price for the remaining common stock purchase warrants is $7.01 per
shares for warrants exercisable for 37,500 shares. Common stock purchase
warrants issued to SovCap Equity Partners, Ltd., Correllus International Ltd.
and Arab Commerce Bank Ltd. exercisable for 262,500 shares may be exercised
until January 18, 2005 and the remaining warrants exercisable for 37,500
shares may be exercised until February 9, 2005.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED NOVEMBER 25, 2002
PROSPECTUS
CAMBEX CORPORATION
Common Stock
1,976,640 Shares
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
All of the shares of common stock being sold are offered by the selling
securityholders identified on pages 57 through 58 of this prospectus. The
shares of common stock that may be sold constitute up to 10.8% of the issued
and outstanding common stock of Cambex as of November 21, 2002. 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 upon the exercise for cash of the warrants exercisable for
shares of common stock held by selling securityholders. 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 November 21, 2002 was $0.22 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.
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 9.
_________________________________
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 November 25, 2002.
TABLE OF CONTENTS
Page
SUMMARY INFORMATION 3
THE OFFERING 5
RISK FACTORS 9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 21
USE OF PROCEEDS 22
CAPITALIZATION 23
MARKET FOR OUR COMMON STOCK 25
DIVIDEND POLICY 25
BUSINESS 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 34
DIRECTORS AND EXECUTIVE OFFICERS 38
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 45
PRINCIPAL SHAREHOLDERS 48
DESCRIPTION OF SECURITIES 51
SERIES B CONVERTIBLE PREFERRED STOCK 54
SOVEREIGN BRIDGE FINANCING 54
COMMON STOCK PURCHASE WARRANTS 56
SELLING SECURITYHOLDERS 57
PLAN OF DISTRIBUTION 59
LEGAL MATTERS 60
EXPERTS 60
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 our Consolidated Financial Statements and the
Notes to our Consolidated Financial Statements 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
We are a designer and supplier of data storage products and solutions. Our
products include memory for computing systems and fibre channel connectivity
and storage products used to build storage area networks (SANs).
We design, manufacture, and market memory products that enhance the
performance and reliability of computing systems and networking devices. We
have been selling memory products to our customers since 1970. A processor's
memory is used to hold temporary instructions and data needed to execute
tasks. This enables the computer's CPU to access instructions and data
quickly. After upgrading a processor's memory, the computer will process
data faster, because it will need to access its slower secondary storage
(i.e., the disk drive) less frequently. We provide memory upgrade solutions
for all the major servers, workstations, and personal computers manufactured
by IBM, Sun, Hewlett-Packard, and Dell. Adding additional memory is both
application transparent and the most cost-effective solution for eliminating
many system performance bottlenecks.
We began developing our current fibre channel SAN product business in 1997.
SANs enhance and simplify the centralized management and sharing of data
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 disk storage arrays and management
software for the deployment of SAN solutions. By reselling fibre channel
hardware and software products from leading manufacturers, together with our
internally developed products, we are able to offer customers a complete
interoperable SAN solution.
Founded in 1968, we have more than 32 years experience in providing
electronic data storage products and solutions. For more than 30 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 1997, in order to diversify our revenue stream as the
mainframe memory market collapsed in the mid-1990s, we entered the fibre
channel connectivity and disk array business. In March 2002, we acquired
Super PC Memory, Inc., a supplier of memory products for computing systems
and networking devices. As a result of the acquisition, we have realigned
most of our efforts to the memory business.
3
In order to successfully balance our business, meet our working capital
requirements and return to profitable operations, we need to generate
significant increases in revenues and gross profits. As of September 30,
2002, we had a working capital deficit of $5,815,000. We plan to achieve our
longer term goals by expanding and improving our sales and marketing
functions and increasing expenditures for research and development as needed
so that we can broaden and enhance our product offerings.
Our executive offices are located at 360 Second Avenue, Waltham,
Massachusetts 02451. We have field offices in Westminster, Colorado and
Irvine, California. 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 SovCap Equity
Partners, Ltd. that it may obtain by conversion
of Series B Convertible Preferred stock 1,525,939 shares
Common stock offered by SovCap Equity
Partners, Ltd., Correllus International Ltd., and
Arab Commerce Bank Ltd. that they may obtain by
exercise of common stock purchase warrants 300,000 shares
Common stock offered by Arab Commerce Bank Ltd.
that it may obtain by conversion of a
series 1 bridge financing note 42,735 shares
Common stock offered by Arab Commerce Bank Ltd.
that it may purchase by exercise of a repricing
warrant attached to the series 1 bridge
financing note 107,966 shares
Common stock outstanding:
Prior to the issuance of shares issuable
pursuant to securities held by selling
securityholders identified in
this prospectus 18,320,351 shares
After the issuance of shares issuable
pursuant to the securities held by selling
securityholders identified in
this prospectus 20,296,991 shares
Trading symbol for common stock CBEX
This prospectus covers a total of 1,976,640 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 represents
10.8% of our issued and outstanding common stock as of November 21, 2002.
The number of shares subject to this prospectus represents 9.7% after the
issuance of all currently unissued shares included in this prospectus.
Series B Convertible Preferred Stock
Pursuant to a Securities Exchange Agreement dated June 28, 2002, SovCap
Equity Partners, Ltd. ("SovCap") exchanged $1,600,000 of the original
principal amount of bridge financing notes along with accrued but unpaid
interest, premiums and penalties for a total of 147,240 shares of Series B
Convertible Preferred stock. The exchange price of the Series B Convertible
Preferred stock was $17.10 per share.
As long as SovCap holds shares of the Series B Preferred stock they are
entitled to receive cumulative, non-compounding cash dividends at the annual
simple rate of 12% of the issue price of each share. The dividend accrues but
is payable only (i) upon optional conversion, by SovCap, of the Series B
Preferred shares into shares of our common stock, (ii) if we liquidate or
merge or (iii) upon our redemption of the Series B Preferred stock for cash.
Upon the occurrence of an optional conversion by SovCap, we have the option
5
to pay any accrued or declared but unpaid dividends on the converted Series B
Preferred stock, in shares of common stock rather than cash.
In the event of any liquidation, dissolution or winding up of Cambex, SovCap,
if it is still a holder of the Series B Preferred stock, will be entitled to
be paid, out of available funds and assets, and prior and in preference to
any payment or distribution of any available funds and assets to any holders
of common stock, an amount per share equal to the original issue price of the
Series B Preferred stock plus any accrued but unpaid dividends.
Each share of Series B Preferred stock is convertible into the number of
shares of common stock which results from dividing the issue price plus any
accrued or declared but unpaid dividends, if the company so elects,
outstanding at such time of conversion, by the conversion price for the
Series B Preferred stock. The conversion price for the Series B Preferred
stock is $1.65. Therefore, the 147,240 shares of Series B Preferred stock
held by SovCap are convertible into up to a total of 1,525,939 shares of our
common stock, excluding conversion of any unpaid dividends.
In addition to the Securities Exchange Agreement, which contains
representations, warranties, covenants and other provisions typical to this
type of transaction, we entered into a registration rights agreement with
SovCap. Under this registration rights agreement, we agreed to register the
number of shares of our common stock into which the Series B Preferred stock
is convertible.
Sovereign Bridge Financing
We borrowed $2,000,000 in January and February 2000 in exchange for, among
other things, our issuance of bridge financing notes that accrued interest at
the rate of 8% per annum until their maturity in the third quarter of 2000.
Since their maturity, the remaining bridge notes have accrued interest at the
rate of 12% per annum. As of November 21, 2002, one bridge financing note,
held by Arab Commerce Bank Ltd., in the original principal amount of $150,000
remained outstanding.
Pursuant to lending us $150,000, we entered into a series 1 bridge note
purchase agreement with Arab Commerce Bank Ltd. under which we issued them
the following:
a series 1 bridge financing note that is convertible into up to a
total of 42,735 shares of our common stock, which number includes
shares issuable upon conversion of principal, accrued interest through
December 31, 2003, premium amounts and penalties due under the note;
a repricing warrant attached to the series 1 bridge financing note
that may be exercisable for up to a total of 107,966 shares of our
common stock; and
a common stock purchase warrant that is exercisable for up to a
total of 22,500 shares of our common stock.
The series 1 bridge financing note matured on September 6, 2000. Because the
bridge note 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 note and exercise of the repricing warrant and the
common stock purchase warrant described above, we owe Arab Commerce Bank
6
premiums and penalties totaling approximately $43,600 (in addition to the
repayment of principal and interest).
Before the maturity date, the series 1 bridge note accrued interest at 8% per
annum. Currently, since the maturity date, interest is accruing at a rate of
12% per annum until the note is converted into stock or 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 note
through December 31, 2003. If the actual interest amount exceeds the
calculated amount, we anticipate that we will pay the difference in cash.
In connection with the financing, attached to the series 1 bridge note is a
repricing warrant. If, during the 90 days after the bridge note is converted
into shares of our common stock (the "repricing period"), Arab Commerce Bank
sells any shares it receives from conversion of the bridge note and fails to
realize a gain of at least 20% above its conversion price of the bridge note,
then Arab Commerce Bank may exercise the repricing warrant on the 91st day
after conversion of the bridge note. If Arab Commerce Bank does not sell
shares received upon conversion of the 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 Arab Commerce Bank
realizes less than a 20% gain on shares sold during the repricing period, the
number of shares that it may acquire by exercise of the 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 Arab Commerce Bank 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 Arab Commerce Bank 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 warrant may
be exercised is a total of 107,966 shares. The exercise price of the
repricing warrant is $0.10 per share.
Two of our principal stockholders, Joseph F. Kruy, our Chairman, President
and Chief Executive Officer, and CyberFin Corporation, a corporation wholly
owned by Peter J. Kruy, Mr. Kruy's son, guaranteed our obligations under the
series 1 bridge financing note in the event that we fail to fulfill them.
The obligations of Joseph Kruy and CyberFin under these guarantees are
secured by their pledge 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
Arab Commerce Bank. 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 the common stock purchase warrants are exercisable.
Common Stock Purchase Warrants
In connection with bridge note financings in January and February 2000, we
issued the lenders common stock purchase warrants exercisable for up to a
total of 300,000 shares of our common stock.
7
SovCap Equity Partners, Ltd. was issued warrants exercisable for up to
240,000 shares of our common stock. The exercise price of SovCap's common
stock purchase warrant for up to 225,000 shares is $4.19 per share and
expires on January 18, 2005. The exercise price of SovCap's common stock
purchase warrant for up to 15,000 shares is $7.01 per share and expires on
February 9, 2005.
Correllus International Ltd. was issued warrants exercisable for up to 37,500
shares of our common stock. The exercise price of Correllus International's
common stock purchase warrant is $4.19 per share and expires on January 18,
2005.
Arab Commerce Bank Ltd. was issued warrants exercisable for up to 22,500
shares of our common stock. The exercise price of Arab Commerce Bank's common
stock purchase warrant for up to 15,000 shares is $7.01 per share and expires
on February 9, 2005.
8
RISK FACTORS
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 seven years
prior to the current fiscal year. At September 30, 2002, we had an
accumulated deficit of approximately $27.4 million. At September 30, 2002 we
had current assets totaling approximately $2.6 million. At that same date,
we had current liabilities totaling approximately $8.5 million. If B.A.
Associates, our revolving credit facility lender, or GE Capital Commercial
Services, the lender providing a line of credit to our Super PC Memory
subsidiary, choose to demand immediate payment of the amounts currently
outstanding to them, we will be unable to satisfy these obligations. In order
to continue as a going concern and compete effectively, we need to satisfy
our short-term obligations, continue to invest in research and development,
and increase our selling, general and administrative expenses as well as
other expenses, which may not be possible if revenues and gross profits do
not increase significantly. If revenues remain at current levels, it is
unlikely we will be able to achieve profitability on a quarterly or annual
basis.
We may need additional capital and additional financing may not be available.
There is substantial doubt about our ability to continue as a going concern
and if we are unable to continue as a going concern, you may lose some or all
of your investment
We believe that the combination of current existing cash, available
borrowing capacity and our ability to obtain additional long-term
indebtedness may not be adequate to finance our operations for our current
activities and foreseeable future. We have scaled back our operations as a
result of our recurring losses and insufficient cash flow and working capital
and will continue to do so if it is needed. Our inability to generate revenue
and gross profit in significantly greater amounts raises substantial doubt
about our ability to continue as a going concern and our ability to operate
our business on a full-scale basis. Without additional capital, we may be
unable to pay operating expenses, to satisfy current liabilities and other
obligations, to fund expansion, to develop new products and services, to
enhance existing products and services to respond to competitive pressures,
or to acquire complementary businesses or technologies. There can be no
assurance that we will ever generate the revenue or gross profits or be able
to raise the capital necessary for us to continue as a going concern or to
operate our business on a full-scale basis. 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. Our Financial Statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts and classification of liabilities that might result should
we be unable to continue as a going concern. See Report of independent
Accountants on Page F-2 of our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2001.
9
We have limited recent operating history with respect to our memory
products upon which you can evaluate our business and prospects
Although we have been selling memory products since our inception, memory
products have accounted for an insignificant percentage of our overall
revenues since 1998. In the first quarter of 2002, we began to shift our
product development, sales and marketing efforts towards the memory market
with our acquisition of Super PC Memory, Inc. Because we have a limited
recent operating history with respect to memory products offered by our Super
PC Memory subsidiary, you must consider the risks and difficulties frequently
encountered by companies developing a business such as ours in rapidly
evolving markets. In addition, because of the intense competition in the
memory market and the evolving nature of this market, achieving profitability
may be extremely challenging.
The application of the "penny stock rules" could adversely affect the market
price of our common stock
On November 21, 2002, the last sales price of our common stock was $0.22.
Because the trading price of our common stock is less than $5.00 per share
and our common stock no longer trades on the Nasdaq National Market, our
common stock comes within the definition of a "penny stock." The "penny
stock rules" impose additional sales practice requirements on broker-dealers
who sell our securities to persons other than established customers and
accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse).
For transactions covered by these rules, broker-dealers must satisfy certain
additional administrative criteria in order to effectuate sales of our common
stock, including disclosure of the broker-dealer's compensation received for
such transaction, any compensation received by a person associated with the
broker-dealer for this transaction and disclosing certain information to the
investor in writing. These additional burdens imposed on broker-dealers may
restrict the ability of broker-dealers to sell our securities and may affect
your ability to resell our common stock. Among the requirements of
transacting in penny stock is that broker-dealers effecting transactions in
penny stock are required to deliver to the investors, a document containing
specific information about penny stock, and to receive a manually signed and
dated acknowledgement of receipt of such document from investors, prior to
effecting such transactions. Such requirements may have the effect of making
your investment in our common stock less liquid because the rules will
decrease the number of potential investors and thereby reducing demand for
our stock.
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 may 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 74% percent of net revenues for the fiscal year
10
ended December 31, 2001. 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 have and
expect to continue 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 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
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
11
ability and willingness of OEM customers to develop and promote such products
is based upon a number of factors beyond our control.
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;
lack of adequate capital to fund product development efforts;
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 and associated gross margins of our
products to continue to decrease, which may reduce our revenues or gross
profits
The markets for memory, fibre channel connectivity and disk storage
products have experienced erosion of average selling prices and gross margins
due to a number of factors, including competitive pricing pressures and rapid
technological change. The gross margins for our memory products is lower than
the gross margins for our fibre channel connectivity and disk storage
products. 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 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. We may need additional working capital financing and we may
not be able to obtain such financing
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
12
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 memory and
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 employment agreements with Joseph F. Kruy, our
Chairman, President and Chief Executive Officer, Richard Schaefer, Executive
Vice President of our Super PC Memory, Inc. subsidiary, and Simon Le,
Executive Vice President of our Super PC Memory, Inc. subsidiary, 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
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.
Insiders have and will continue to have substantial control over us and could
delay or prevent a change in our corporate control, which may negatively
affect your investment
Prior to the issuance of any our common stock covered by this
registration statement, our officers and directors control the vote of
approximately 28.3% of the outstanding shares of our common stock prior to
the exercise of any outstanding warrants or options or the issuance of shares
issuable upon the conversion of Series A Preferred stock held by them.
Following the issuance of all shares of our common stock issuable to SovCap
Equity Partners, Ltd., Arab Commerce Bank Ltd, and Correllus International,
Ltd., our officers and directors would continue to control the vote of
approximately 25.6% 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.
13
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 APX Technology, Inc.
fabricate our printed circuit boards, and various subcontractors, such as
Stracon, Inc. and Circuit Technology, Inc., perform assembly of our memory
and host bus adapters boards. We have no long-term contracts with SAE-
Circuits Advanced Technology Division Inc., APX Technology, Inc., Stracon,
Inc. 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.
We have no long-term integrated circuit device supply contracts and are
dependent on a small number of suppliers to supply integrated circuit
devices, which represent approximately 90% of our component costs. Our
dependence on a small number of suppliers and our limited number of long-term
supply contracts expose us to several risks, including the inability to
obtain an adequate supply of components, price increases, late deliveries and
poor component quality. Micron Semiconductor Electronics and Samsung
Semiconductor currently supply a majority of the DRAM integrated circuit
devices used in our DRAM memory products. A disruption in or termination of
our supply relationship with any of these significant suppliers by natural
disaster or otherwise, or our inability to develop relationships with new
suppliers, if required, would cause delays, disruptions or reductions in
product shipments or require product redesigns which could damage
relationships with our customers, and would increase our costs and/or prices.
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
commencing volume production is expensive and time consuming. If we are
required or elect to change suppliers or contract manufacturers, we may lose
14
revenues, and our customer relationships may suffer.
We may be unable to maintain a steady supply of components
The electronics industry has experienced in the past, and may
experience in the future, shortages in IC devices, including DRAM, and SRAM
memory. We have experienced and may continue to experience delays in
component deliveries and quality problems, which have caused and could in the
future cause delays in product shipments. In addition, we have required and
could in the future require the redesign of some of our products. In
addition, industry capacity has, from time to time, become constrained such
that some vendors, which supply components for our products have placed their
customers, ourselves included, on allocation. This means that while we may
have customer orders, we may not be able to obtain the materials that we need
to fill those orders in a timely manner.
Our products are complex and may contain undetected hardware, firmware or
software 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 hardware, firmware or software 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. Failure to achieve interoperability
among products or the occurrence of hardware, firmware or software errors in
various products could adversely affect sales of our 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, and if so, we may be unable to compete effectively
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.
15
We may become involved in costly and lengthy patent infringement or
intellectual property litigation which could divert management attention,
cause us to incur significant costs and prevent us from selling our
products
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
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 and the price of our common stock could fall if quarterly results
are lower than investor expectations and you may lose all or part of your
investment
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;
16
The ability of our contract manufacturers and suppliers to produce
and supply our products in a timely manner;
The market acceptance of our new memory and 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;
Changes in the mix of products sold, as our fibre channel
connectivity products typically have higher margins than our memory and
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 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. 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 Our Industry
Because a significant proportion of our revenues are generated from the sale
of our memory products, our revenues will be limited if new memory
technologies obsolete our products and we cannot develop memories with such
new technologies in time, or we cannot develop memories for new processors
New memory technologies are currently in development by our competitors
that may obsolete and compete for market share with our current products 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 have, they may limit our growth.
We are subject to the cyclical nature of the semiconductor industry and
continued deterioration of the current cycle could adversely affect our
business
17
The semiconductor industry, including the memory markets in which we
compete, is highly cyclical and is characterized by constant and rapid
technological change, rapid product obsolescence and price erosion, evolving
standards, short product life cycles and wide fluctuations in product supply
and demand. The industry has experienced significant downturns in the past
and is currently experiencing a significant downturn that may get worse.
Industry downturns are often connected with, or in anticipation of, maturing
product cycles of both semiconductor companies' and their customers' products
and declines in general economic conditions. These downturns have been
characterized by diminished product demand, production overcapacity, high
inventory levels and accelerated erosion of average selling prices. The
continuation or worsening of the current downturn in the industry and any
future downturns could have a material adverse effect on our business and
operating results. Furthermore, any upturn in the semiconductor industry
could result in increased demand for, and possible shortages of, components
we use to manufacture and assemble our integrated circuits. Such shortages
could have a material adverse effect on our business and operating results.
Our operating results may suffer because of increasing competition in the
memory and fibre channel connectivity markets
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
memory 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.
We may not be able to maintain or improve our competitive position because of
the intense competition in our industry
We conduct business in an industry characterized by intense competition,
rapid technological change, evolving industry standards, declining average
sales prices and rapid product obsolescence. Our competitors include many
large domestic and international companies that have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines, lower cost structures, greater brand recognition and longer-
standing relationships with customers and suppliers. As a result, our
competitors are able to respond better to new or emerging technologies or
18
standards and to changes in customer requirements. Our competitors are able
to devote greater resources to the development, promotion and sale of
products, and may be able to deliver competitive products at a lower price.
We expect to face competition from existing competitors and new and
emerging companies that may enter our existing or future markets with similar
or alternative products, which may be less costly or provide additional
features. In addition, some of our significant suppliers are also our
competitors, many of whom have the ability to manufacture competitive
products at lower costs as a result of their higher levels of integration. We
also face competition from current and prospective customers that evaluate
our capabilities against the merits of manufacturing products internally.
Competition may arise due to the development of cooperative relationships
among our current and potential competitors or third parties to increase the
ability of their products to address the needs of our prospective customers.
Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share.
We expect our competitors will continue to improve the performance of
their current products, reduce their prices and introduce new products that
may offer greater performance and improved pricing, any of which could cause
a decline in sales or loss of market acceptance of our products. In addition,
our competitors may develop enhancements to or future generations of
competitive products that may render our technology or products obsolete or
uncompetitive.
In our industry, technology and other standards change rapidly, and we may be
unable to keep pace with changes and could hinder our ability to compete
effectively
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 many of 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
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.
19
Risks Related to the Securities Markets
The issuance of shares to SovCap Equity Partners, Arab Commerce Bank, and
others may cause significant dilution in the value of our common stock
The issuance of shares of our common stock to SovCap Equity Partners and
Arab Commerce Bank will dilute the equity interest of existing stockholders
and could have an adverse effect on the market price of our common stock. As
of November 21, 2002, we had 11,146,939 shares of common stock reserved for
possible future issuances upon, among other things, the conversion of the
series 1 bridge financing note held by Arab Commerce Bank and conversion of
the Series B Preferred shares held by SovCap Equity Partners, the conversion
of Series A Preferred shares, and the exercise of outstanding options and
warrants.
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.
The addition of a substantial number of shares of common stock into the
market, including those issuable upon conversion of the Series A Preferred
shares, 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
SovCap Equity Partners, Arab Commerce Bank, and Correllus International
hold securities which may be exercisable for and convertible into
approximately 9.7% of our outstanding capital stock at November 21, 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, which could cause you
to lose all or part of your investment
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,
technology, 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
20
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
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.
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.
If you invest in our common stock, you should not expect to receive a current
return because we do not pay, and have no foreseeable plans 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.
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
21
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 may receive the exercise price upon
the exercise of warrants held by selling securityholders that pay the
exercise price in cash. Depending on the market value of shares of our
common stock, we may use the proceeds of the exercise of any such warrant for
the repayment of debt and if not, then for working capital and other general
corporate purposes.
22
CAPITALIZATION
The following table shows our actual capitalization as of September 30, 2002
and our pro forma capitalization adjusted to reflect:
the conversion of the series 1 bridge notes;
the conversion of the Series B Preferred shares;
exercise of all outstanding warrants being registered;
for the acquisition of an aggregate of 1,976,640 of shares common stock and
the receipt by us of an aggregate $1,373,547 of proceeds.
You should read the following table with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the financial
statements and notes thereto.
As of September 30, 2002
Actual Pro forma
Stockholders' Equity:
Preferred Stock, par value $1.00 per share;
3,000,000 shares authorized;
Series A - 98,223 shares issued
and outstanding, actual; 98,233 shares issued
and outstanding, pro forma $98,223 $98,223
Series B - 147,240 shares issued
and outstanding, actual; no shares issued
and outstanding, pro forma 147,240 -
Common stock, $0.10 par value; 25,000,000
shares authorized
19,865,609 shares issued actual;
21,842,249 shares issued pro forma 1,986,561 2,184,225
Capital in excess of par value 20,498,545 21,821,668
Accumulated other comprehensive income 102,677 102,677
Retained earnings (deficit) (27,370,104) (27,370,104)
Less Cost of 1,545,258 shares held in treasury (888,971) (888,971)
Total stockholders' equity ( 5,425,829) ( 4,052,282)
Total capitalization ( 5,425,829) ( 4,052,282)
The outstanding share information and amounts shown in the table above
excludes the effect of the following:
Up to 850,620 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 up to 1,500,000 shares
of common stock issuable under our Year 2000 Equity Incentive Plan and up to
612,000 shares that are issuable to the members of our board of directors in
lieu of cash compensation;
Up to 982,230 shares of common stock issuable upon the conversion of
Series A Preferred stock; and,
23
Up to 5,961,103 shares of common stock issuable upon the exercise of
warrants issued to the current and former holders of our Loan and Security
Agreements and 10% Subordinated Convertible Promissory Notes.
24
MARKET FOR OUR COMMON STOCK
Our common stock is 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
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 1.56 0.62
2nd Quarter 0.75 0.34
3rd Quarter 0.37 0.20
4th Quarter 1.01 0.16
2002 1st Quarter 0.80 0.45
2nd Quarter 0.80 0.29
3rd Quarter 0.42 0.17
4th Quarter (through November 21, 2002) 0.30 0.13
The last reported sale price of our common stock on November 21, 2002 was
$0.22 per share. On that date, there were approximately 523 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 Arab Commerce Bank provides
that we may not pay dividends in cash or otherwise as long as the series 1
bridge note remains outstanding. With the consent of Arab Commerce Bank 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.
25
BUSINESS
Summary of Business
A Massachusetts corporation formed in 1968, we are a designer and supplier of
data storage products and solutions. Our products include memory for
computing systems and fibre channel connectivity and storage products used to
build storage area networks (SANs).
We design, manufacture, and market memory products that enhance the
performance and reliability of computing systems and networking devices. We
have been selling memory products to our customers since 1970. A processor's
memory is used to hold temporary instructions and data needed to execute
tasks. This enables the computer's CPU to access instructions and data
quickly. After upgrading a processor's memory, the computer will process
data faster, because it will need to access its slower secondary storage
(i.e., the disk drive) less frequently. We provide memory upgrade solutions
for most of the major servers, workstations, and personal computers
manufactured by IBM, Sun, Hewlett-Packard, and Dell. Adding additional
memory is both application transparent and the most cost-effective solution
for eliminating many system performance bottlenecks.
We began developing our current fibre channel SAN product business in 1997.
SANs enhance and simplify the centralized management and sharing of data
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 disk storage arrays and management
software for the deployment of SAN solutions. By reselling fibre channel
hardware and software products from leading manufacturers, together with our
internally developed products, we are able to offer customers a complete
interoperable SAN solution.
Founded in 1968, we have more than 32 years experience in providing
electronic data storage products and solutions. For more than 30 years we
were a supplier of IBM compatible mainframe computer memory having supplied
memory and related products for seven generations of IBM mainframe computers.
In 1997, in order to diversify our revenue stream as the mainframe memory
market collapsed in the mid-1990s, we entered the fibre channel connectivity
and disk array business. In March 2002, we acquired Super PC Memory, Inc., a
supplier of memory products for computing systems and networking devices. As
a result of the acquisition, we have realigned most of our efforts to the
memory business.
In order to successfully balance our business, meet our working capital
requirements and return to profitable operations, we need to generate
significant increases in revenues and gross profits. As of September 30,
2002, we had a working capital deficit of $5,815,000. We plan to achieve our
longer term goals by expanding and improving our sales and marketing
functions and increasing expenditures for research and development as needed
so that we can broaden and enhance our product offerings.
We sell our products domestically and internationally directly to end users
and through OEM, systems integrator, and value added reseller (VAR) channels.
We sell our memory products directly to end users and through VARs. Our SAN
26
products are sold through OEM, systems integrator and VAR channels and to a
limited extent directly to end users.
Our executive offices are located at 360 Second Avenue, Waltham,
Massachusetts 02451. We have field offices in Westminster, Colorado and
Irvine, California. 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.
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, and stored has grown dramatically over
the last decade. As a result, the ability to quickly access and manage large
amounts of stored data is one of the most important challenges for
organizations.
Memory
A computer typically accesses stored data from its own internal memory,
internal hard disk drive, or external storage device such as a disk storage
array or tape library. Memory provides the best performance, but is also the
most expensive per storage unit (megabyte). Data retrieval from memory is
more than 1000 times faster than retrieval from a disk drive. As CPU
processing power is doubling every 18 months, data retrieval from disk
storage is increasingly becoming a performance bottleneck. As a result,
applications and users spend much of their time waiting for the retrieval of
data resulting in lowered productivity. Recognizing the performance
limitations of disk-based storage, the major server vendors have
rearchitected their systems and processors to allow more data to be stored
and accessed directly from memory. High-end servers from the major vendors
(IBM, Sun Microsystems, Hewlett-Packard) now support more than 512 gigabytes
of internal main memory. The need for fast data access, new servers with
large memory capacities, and the decrease in memory prices is driving demand
for memory upgrades.
Memory upgrades for high volume computing systems and devices are typically
packaged as memory modules which conform to standards defining dimensions,
capacity, performance, interface and pin-out. We offer a broad range of
standard memory upgrades, including single in-line memory modules ("SIMMs"),
dual in-line memory modules ("DIMMs") and small outline DIMMs ("SO DIMMs").
Memory modules are compact circuit board assemblies consisting of dynamic
random access memory ("DRAM") chips, which constitute the main memory of a
computer system.
Unlike memory for high volume computing systems, memory upgrades for high-end
servers and mainframes typically involve proprietary designs. At the high-
end, vendors focus on maximizing the performance, reliability, and diagnostic
capabilities of the unique processor-to-memory architecture of their flagship
products. This often results in proprietary memory module designs
incorporating custom logic to support very high-speed memory bus protocols,
error detection and correction, and self-test capabilities.
Memory upgrades for computing systems and networking devices are available
from the original equipment manufacturer as well as from third party memory
27
vendors. In addition to competing with each other, third party vendors
primarily compete with the original equipment manufacturers by providing
fully compatible memory at a much lower price.
Storage Area Networks
Large quantities of business critical data are typically stored on external
disk storage arrays. These disk arrays are either directly attached to the
computer server or are accessed through a network connection. Due to the
significant volume of data being stored in today's business environment,
traditional direct attached and network attached architectures often do not
adequately support the requirements of data-intensive enterprises. In
response to the demand for high-speed and high-reliability storage-to-server
connectivity, the fibre channel interconnect protocol was developed in the
early 1990s.
A storage area network is a network of servers and data storage devices
interconnected via fibre channel at gigabit speeds. 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 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. 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 based operating systems.
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. Hubs are typically
deployed in workgroup or small enterprise environments; switches are used for
large SAN deployments.
28
Our Products
Memory Products
We offer a wide range of memory for the add-in memory market. Our add-in
memory is used to upgrade personal computers, laptops, workstations,
printers, routers, low-end servers, and other high volume computing and
networking products. Our memory is packaged as memory modules which conform
to standards defining dimensions, capacity, performance, interface and pin-
out. We offer a broad range of standard memory upgrades, including single
in-line memory modules ("SIMMs"), dual in-line memory modules ("DIMMs") and
small outline DIMMs ("SO DIMMs"). Memory modules are compact circuit board
assemblies consisting of dynamic random access memory ("DRAM") chips, which
constitute the main memory of a computer system.
Our SIMMs are modules containing one or more DRAM chips on a small circuit
board with pins connecting to a computer motherboard. SIMMs typically have
30 or 72 pins on one side of the board, delivering 8 and 32 data bits,
respectively. Four 30-pin SIMMs or one 72-pin SIMM can be used to support a
32-bit CPU such as Intel's 486. Since microprocessor speeds are increasing
rapidly, DIMMs are replacing SIMMs.
Our DIMMs are modules with pins on both sides of the memory module. DIMMs
typically contain DRAM or synchronous DRAM ("SDRAM") chips that support
faster microprocessors such as Intel's Pentium or IBM's PowerPC. For SDRAM
chips, which have a 64-bit data connection to a computer, a single 168-pin
DIMM supporting 64-bit data transfer can be used instead of two 72-pin SIMMs.
Our SO DIMMs are designed for notebook computers. Because of their small
size (2 1/4" for 72 pin and 2 3/4" for 144 pin), SO DIMMs can hold very few
DRAM chips.
We provide memory upgrade solutions for most of the major servers,
workstations, and PCs manufactured by IBM, Sun, Hewlett-Packard, and Dell.
We also sell memory upgrades for most white-box PCs, laser printers, and
Cisco routers. Our memory products are designed to the same exacting
specifications as original system memory and in most cases are identical in
fit, form and function.
Fibre Channel SAN Products
We are a developer, manufacturer and reseller of fibre channel 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 when required.
Technology
We possess multi-disciplinary technological expertise, which we utilize in
designing our memory and SAN products.
29
Our expertise in designing memories includes (1) high-availability memory
architecture and design including chip and board level sparing; (2) ASIC
design utilizing high-speed semiconductor technologies and high-density
packaging; and (3) comprehensive manufacturing test procedures -
incorporating functional, thermal, voltage, and mechanical stress.
Our expertise in developing fibre channel SAN products includes 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. 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 customers. The overall goal
is to ensure enterprise class performance and interoperability in real world
SAN deployments.
Customers
We sell our products to OEMs, resellers and directly to end-users. In 2000
and 2001, our largest customers included Compaq, StorageTek, FDC
Technologies, and EDS.
In the year ended December 31, 2001, our top five customers accounted
for approximately 74% of our total net revenues, and, in the year ended
December 31, 2000, our top five customers accounted for approximately 45% of
our total net revenues. During 2001,two customers, Compaq and StorageTek,
accounted for 46% and 16%, respectively, of total revenues. In 2000, these
two customers, Compaq and StorageTek, accounted for 18% and 11%,
respectively, of total revenues for the year. There is no assurance that
current customers will remain our customers in the future and the loss of a
major customer could have a material effect on our business.
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 our memory products principally through our Super PC Memory
subsidiary. Super PC sells to Fortune 1000 corporations, mid-level
businesses, government institutions and resellers. Our sales strategy is to
employ a business-to-business sales model that provides factory direct orders
to end users and resellers. We will continue to focus significant direct
sales efforts on Fortune 1000 enterprises. This sets us apart from most of
our major competitors in the memory upgrade business who sell through
reseller channels. Our goal is to establish ourselves as the vendor of choice
30
for filling the majority of the memory upgrade needs within large
corporations. Our marketing strategy consists primarily of telemarketing.
We sell our fibre channel SAN products 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
complete SAN solutions to end-users. Our sales and marketing strategy will
continue to focus on the development of these indirect channel relationships.
Our marketing efforts are focused on increasing awareness of our fibre
channel products, promoting SAN-based solutions, and advocating industry-wide
standards and interoperability. We plan to participate in industry
associations to promote and further enhance fibre channel technology and
increase our visibility as industry experts. We also plan to participate in
select trade show events and SAN conferences to promote our products and to
continue our efforts to educate potential customers on the value of SANs.
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 and our field facility in Irvine, California. This approach
enables us to reduce fixed costs and to provide flexibility in meeting market
demands.
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 four years ago. Over the last two fiscal years, our
research and development expenses were approximately $1.0 million in 2001,
compared to $1.4 million in 2000.
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.
31
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 memory upgrade business are the computer
system original equipment manufacturers (OEMs) and third party memory
vendors. The major system OEMs we compete against are International Business
Machines Corporation, Sun Microsystems, Hewlett-Packard, and Dell. The major
third party memory vendors we compete against are Kingston Technology,
Crucial Technology, and Dataram.
Our principal competitors in the fibre channel SAN market include Emulex
Corporation, QLogic Corporation, JNI Corporation, International Business
Machines Corporation, and Sun Microsystems.
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.
Intellectual Property
The intellectual property rights we have in our technology, which generally
consists of programmable hardware logic, 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
32
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.
Employees
At November 21, 2002, we had 41 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.
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 currently lease approximately 8,800 square feet in an office
facility in Westminster, Colorado pursuant to a lease that expires on
September 30, 2008. We also currently lease approximately 3,500 square feet
in an office facility in Irvine, California on a month-to-month basis.
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.
33
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 the three months ended September 30, 2002 and the three months
ended September 30, 2001
Our revenues were $3,401,000 for the quarter ended September 30, 2002 and
$504,000 for the quarter ended September 29, 2001. Revenues for the three
months ended September 30, 2002 increased 574% compared to revenues for the
same three months in the prior year due to the additional memory sales by our
Super PC Memory, Inc. subsidiary which was acquired during the first quarter
of 2002.
Gross profit rate was 28% of sales for the three months ended September 30,
2002 and 55% for the three months ended September 29, 2001 due to the product
mix as there are lower gross margins on our memory products than our fibre
channel connectivity products.
Operating expenses for the three months ended September 30, 2002 increased by
210% in comparison to operating expenses for the comparable three months of
the prior year. Selling and General and Administrative expenses for the three
months ended September 30, 2002 increased by 798% and 165% respectively
compared to the amount of these expenses in the third quarter of fiscal 2001
due to the additional expenses of our subsidiary.
Interest expense decreased by 46% for the three months ended September 30,
2002 compared to the three months ended September 29, 2001. This decrease in
interest expense was primarily due to the conversion of notes payable into
common and preferred stock in the first and second quarters of 2002,
partially offset by interest paid to GE Capital Commercial Services, the
lender providing a line of credit to our subsidiary.
We borrowed a total of $2,000,000 in January and February 2000 in exchange
for, among other things, our issuance of bridge financing notes that accrued
interest at the rate of 8% per annum until their maturity in the third
quarter of 2000. Since their maturity, the remaining bridge notes have
accrued interest at the rate of 12% per annum. As of November 21, 2002, one
bridge financing note, held by Arab Commerce Bank Ltd., in the original
principal amount of $150,000 remained outstanding. During 2002 and 2001, we
borrowed $150,000 and $550,000, respectively, in exchange for, among other
things, our issuance of 12% promissory notes. Our Super PC Memory subsidiary
has a line of credit of up to $2,000,000 with GE Capital Commercial Services,
Inc., which is limited to 75% of the eligible receivables of Super PC Memory.
At September 30, 2002 we had a balance of $816,639 under this line of credit.
We also have a loan and security agreement with B.A. Associates, Inc. which
is a corporation owned by Bruce D. Rozelle, a son-in-law of Joseph F. Kruy,
our Chairman, President and Chief Executive Officer. The outstanding balance
due to B.A. Associates, Inc. was $1,003,746 and $1,057,991 at September 30,
2002 and December 31, 2001, respectively. These borrowings were necessary to
finance the development of new products and for working capital purposes.
34
Total comprehensive net loss for the third quarter of fiscal 2002 was
$318,000, or $0.02 per share, as compared with $244,000, or $0.02 per share,
for the third quarter of fiscal 2001.
Inflation
We did not experience any material adverse effects in the third quarter of
2001 or in the third quarter of 2002 due to general inflation.
Comparison of fiscal years 2001 and 2000
Our revenues were $1,855,000 and $2,400,000 for 2001 and 2000, respectively.
Revenues for 2001 decreased 23% compared to revenues for the prior year due
primarily to decreases of approximately 63% in service revenues from $620,000
in 2000 to $232,000 in 2001.
Gross profit rate was 52% of sales in 2001, compared to 53% of sales in 2000.
Operating expenses in 2001 decreased by 33% in comparison to operating
expenses in the prior year. Research and development expenses in 2001
decreased by 24% compared to the amount of these expenses in 2000 due to
decreases in contract services. Selling expenses in 2001 decreased by 55%
compared to the amount of these expenses in 2000 due to decreases in
headcount and related expenses. General and administrative expenses decreased
by 10% compared to the amount of these expenses in 2000.
Interest expense decreased by 45% in 2001 compared to 2000. This decrease in
2001 was primarily due to the recording of $607,000 of penalties and premiums
relating to the Series 1 bridge financing notes in 2000. We did not incur a
similar penalty or premium in 2001. This decrease in interest expense was
partially offset by increased interest expense due to funds borrowed in 2000
and 2001. We borrowed $2,000,000 in January and February 2000 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 the
third quarter of 2000. Since their maturity, these notes are accruing
interest at the rate of 12% per annum. During 2001, we borrowed $550,000 in
exchange for, among other things, our issuance of 12% promissory notes. These
borrowings were necessary to finance the development of new products and for
working capital purposes.
Extraordinary income items of $102,000 for 2000 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 2001 was $1,543,000, or $0.16 per share, as
compared with total comprehensive net loss of $2,578,000, or $0.27 per share,
for 2000.
Inflation
We did not experience any material adverse effects in 2000 or 2001 due to
general inflation.
Liquidity and Capital Resources
We have suffered substantial recurring losses from operations for the last
seven consecutive years. Consequently, our ability to continue as a going
35
concern, is dependent upon several factors including, but not limited to, our
ability to generate revenues and gross profit in significantly greater
amounts than in the past four fiscal years, and our ability to raise
additional capital. Our working capital deficit is a significant threat to
our ability to continue as a going concern.
Management continues to work to establish new strategic alliances that it
believes will result in increases in revenues and gross profit in the future
through the sale of a greater volume of products. Management has also been
trying to secure additional capital. We cannot give any assurances that the
actions taken to date will increase revenues and gross profit or raise
additional capital.
Requirements
We need additional capital and additional financing may not be available. We
believe that the combination of current existing cash, available borrowing
capacity and our ability to obtain additional long-term indebtedness may not
be adequate to finance our operations for our current activities and
foreseeable future activities. Currently, our cash burn rate from operations
is approximately $80,000 per month or $960,000 per year at current sales
levels. For each $100,000 reduction in sales per month, our cash burn rate
would increase by approximately $28,000 per month. Conversely, for each
$100,000 increase in sales per month, our cash burn rate would decrease by
approximately $28,000 per month. These estimates may change based on product
mix. The time period for which we believe our capital is sufficient and the
burn rate are estimates. The actual time period and burn rate may differ
materially as a result of a number of factors, risks and uncertainties that
are described herein. We are trying to raise additional capital and if we are
unable to raise additional capital, we may not be able to meet our
anticipated working capital requirements.
We have a loan and security agreement with B.A. Associates, Inc. which is a
corporation owned by Bruce D. Rozelle, a son-in-law of Joseph F. Kruy, our
Chairman, President and Chief Executive Officer. The outstanding balance due
to B.A. Associates, Inc. was $1,003,746 at September 30, 2002. We also have
notes payable of $425,000 at September 30, 2002 include $275,000 of advances
payable which are due on demand. The $275,000 of advances payable includes
$175,000 of borrowings from related parties. The balance of $150,000
represents the series 1 bridge financing note issued to Arab Commerce Bank in
2000.
Resources
Our cash and marketable securities were $256,000, $210,000 and $235,000 at
September 30, 2002, December 31, 2001 and December 31, 2000, respectively.
Working capital was a deficit of $5,815,000, $8,576,000 and $6,425,000 at
September 30, 2002, December 31, 2001 and December 31, 2000, respectively.
The decrease in working capital deficit from December 31, 2001 to September
30, 2002 was primarily due to the conversion of debt into common and
preferred stock. The increase in working capital deficit from December 31,
2000 to December 31, 2001 was primarily due to the loss for the year 2001.
During 2001, we did not expend any funds for capital equipment. During fiscal
2002, we expect to acquire less than $100,000 of capital equipment.
Our Super PC Memory subsidiary has a line of credit of up to $2,000,000 with
GE Capital Commercial Services, Inc., which is limited to 75% of the eligible
36
receivables of Super PC Memory. At September 30, 2002 we had a balance of
$816,639 under this line of credit.
We also have a revolving credit facility with B.A. Associates, Inc. which is
a corporation owned by Bruce D. Rozelle, a son-in-law of Joseph F. Kruy, our
Chairman, President and Chief Executive Officer under which we may borrow up
to $1,100,000. At September 30, 2002 we had a balance of $1,003,746
outstanding under this revolving credit facility.
We need additional capital and additional financing may not be available. We
believe that the combination of current existing cash, available borrowing
capacity and our ability to obtain additional long-term indebtedness may not
be adequate to finance our operations for our current activities and
foreseeable future activities. We are actively pursuing raising additional
capital and if we are unable to raise additional capital, we may not be able
to meet our anticipated working capital requirements.
We are attempting to raise additional capital to cover the burn rate not
covered by incremental gross profit. This amount is dependent upon sales and
gross profit. If sales and gross profit do not increase or capital cannot be
raised to cover the current burn rate, we intend to reduce operating expenses
as much as practicable to continue operations until balance is established.
If we are not successful in raising additional capital or increasing our
sales to adequate levels, we will not be able to continue our current
operations and there is substantial doubt as to our ability to continue as a
going concern. There can be no assurance that we will be successful in
raising such additional capital at all or on terms commercially acceptable to
us or our shareholders.
37
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) 71 President, Chief Executive Officer,
Chairman of the Board and a Director
Philip C. Hankins (1)(2) 71 Director
C.V. Ramamoorthy, Ph.D. (1)(2) 76 Director
Robert J. Spain, Ph.D. (1)(2) 64 Director
Lois P. Lehberger 46 Vice President, Controller and Clerk
___________________
(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. and a Diploma Engineering degree in electrical engineering from the
Technical University of 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.
Lois P. Lehberger joined Cambex in June 1978 and has served as our controller
since August 1998, and our Vice President since November 1999. Mrs.
Lehberger was appointed clerk in May 2001. Mrs. Lehberger is responsible for
our accounting and financial control functions. Mrs. Lehberger holds a B.A.
in economics and accounting from the College of the Holy Cross.
38
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 June
28, 2001, the stockholders re-elected Dr. Spain as a Class II director with a
term of three years, or until the annual meeting of stockholders to be held
in 2004 and until his successor is elected and qualified. At the meeting of
stockholders held on December 23, 1999, Mr. Kruy and Dr. Ramamoorthy were
elected as Class I directors with terms of three years, or until the annual
meeting of stockholders to be held in 2003 and until their successors are
elected and qualified, and Mr. Hankins was elected as a Class III director
with a term of two years and until his successor is elected and qualified.
Board Committees
Our board of directors has an audit committee and a compensation committee.
Audit Committee. The current members of our audit committee are Mr.
Hankins, Dr. Ramamoorthy and Dr. Spain. 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.
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 cash has been paid to and 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."
39
Executive Compensation
The following table provides certain summary information concerning
compensation awarded to, earned by, or paid to our Chief Executive Officer
and our other executive officer for services rendered to Cambex in all
capacities during the fiscal years ended December 31, 2001 and December 31,
2000.
Summary Compensation Table(1)
Annual Long Term
Compensation Compensation Awards
Name and Position Year Salary Options(#)
Joseph F. Kruy 2001 $200,000(2) -
Chairman, President and CEO 2000 $200,000 -
Lois P. Lehberger 2001 $ 78,057(3) -
Vice President, 2000 $ 72,276 -
Controller and Clerk
(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)Includes $51,923 for which payment has been deferred indefinitely.
(3)Includes $5,128 for which payment has been deferred indefinitely.
Stock Options
No stock options were granted to our executive officers in the 2001 fiscal
year.
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 31,2001 December 31,2001(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized Unexercisable Unexercisable
Joseph F. Kruy - - -/- -/-
Lois P. Lehberger - - 44,000/ 60,500 13,820/17,815
(1) The closing price of our Common Stock on December 31, 2001 was
$0.65 per share. The numbers shown reflect the value of options
accumulated over all years of employment.
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.
40
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 November 21, 2002, no shares had been issued as the result of the
exercise of options or awards granted pursuant to the plan. As of November
21, 2002, 947,000 shares of our common stock were subject to outstanding
stock options granted pursuant to the plan and 553,000 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.
41
Employment Agreements
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 is
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.
Our Super PC Memory, Inc. subsidiary entered into an employment agreement
with Richard Schaefer as of March 12, 2002. Under his employment agreement,
Mr. Schaefer is engaged to serve as Super PC Memory's Executive Vice
President. During the term of the agreement, Mr. Schaefer is to devote all
of his working time and attention to the performance of his duties and
responsibilities at Super PC Memory. His employment, under the terms of his
employment agreement, commenced on March 12, 2002 ("Commencement Date") and
continues until December 31, 2004. Mr. Schaefer is to be paid an annual base
salary of $180,000 per year. Mr. Schaefer is also entitled to participate in
Cambex's Incentive Bonus Plan and is eligible to receive an annual bonus
equal to 1% of Cambex's pre-tax profit, determined pursuant to Cambex's
profit sharing plan, during the remainder of its 2002 fiscal year and its
2003 and 2004 fiscal years, subject to his continued employment at the
conclusion of the year in question. Mr. Schaefer was also granted stock
options to purchase up to 200,000 shares of the common stock of Cambex, such
options to vest, subject to his continued employment, over four years in
equal annual increments commencing on the first anniversary of his
Commencement Date. In addition, Mr. Schaefer was granted stock options to
purchase up to a maximum of 250,000 additional shares of the common stock of
Cambex ("Performance Options"), such Performance Options to vest, subject to
42
his continued employment, as follows: Performance Options earned based on
profits and earnings during fiscal year 2002 shall vest over four years in
equal annual increments commencing on the first anniversary of his
Commencement Date; Performance Options earned based on profits and earnings
during fiscal year 2003 shall vest over three years in equal annual
increments commencing on the second anniversary of his Commencement Date;
Performance Options earned based on profits and earnings during fiscal year
2004 shall vest over two years in equal annual increments commencing on the
third anniversary of his Commencement Date; provided that the Performance
Options shall be earned, and the vested portion shall be exercisable when
earned, then the Performance Options shall become exercisable according to
the following formula: two thousand shares shall vest for each $1,000,000 of
gross profits and five thousand shares for each $1,000,000 of EBITDA
generated by Super PC Memory in the three fiscal years ending December 31,
2004. If the application of this formula to the gross profits and EBIDTA over
the three fiscal years would result in Mr. Schaefer's vesting in more than
250,000 Performance Options, then additional Performance Options shall be
granted to him and will vest in four equal annual installments over the four
year period ending on the eighth anniversary of the Commencement Date. If Mr.
Schaefer voluntarily terminates his employment with Super PC Memory or he is
terminated by Super PC Memory for cause or as a result of his death or
disability, he is not entitled to receive any additional compensation
following such termination other than compensation accrued but unpaid as of
his termination date. If Super PC Memory terminates Mr. Schaefer's employment
for reasons other than for cause, and with a minimum of 90 days notice, then
Mr. Schaefer will receive 50% of his annual base salary for one additional
year following such termination. In addition, all options that would have
become exercisable by December 31 of the year of such termination, shall
immediately become exercisable. During the term of his employment and for a
period of one (1) year following the expiration or termination of his
employment, whether such termination is voluntary or involuntary, Mr.
Schaefer shall not compete with, or own any interest in a business
competitive with the business of, Super PC Memory, or solicit customers or
employees of Super PC Memory.
Our Super PC Memory, Inc. subsidiary entered into an employment agreement
with Simon Le as of March 12, 2002. Under his employment agreement, Mr. Le is
engaged to serve as Super PC Memory's Executive Vice President. During the
term of the agreement, Mr. Le is to devote all of his working time and
attention to the performance of his duties and responsibilities at Super PC
Memory. Mr. Le's employment, under the terms of his employment agreement,
commenced on March 12, 2002 ("Commencement Date") and continues until
December 31, 2004. Mr. Le is to be paid an annual base salary of $240,000 per
year, less all amounts paid by Super PC Memory for Mr. Le's automobile
expenses. Mr. Le is also eligible to receive an annual bonus equal to 0.5% of
Super PC Memory's gross profit during its 2003 and 2004 fiscal years, subject
to his continued employment. Mr. Le was also granted stock options to
purchase up to 150,000 shares of the common stock of Cambex, such options to
vest, subject to his continued employment, over four years in equal annual
increments commencing on the first anniversary of his Commencement Date. If
Mr. Le voluntarily terminates his employment with Super PC Memory or he is
terminated by Super PC Memory for cause or as a result of his death or
disability, he is not entitled to receive any additional compensation
following such termination other than compensation accrued but unpaid as of
his termination date. If Super PC Memory terminates Mr. Le's employment for
reasons other than for cause, then Super PC Memory must pay Mr. Le his annual
base salary and his options will continue to vest, as if he remained an
43
employee of Super PC Memory for the full term of his employment agreement,
except that any options scheduled to vest on the fourth anniversary of the
Commencement Date shall instead vest on the third anniversary of the
Commencement Date. During the term of his employment and for a period of one
(1) year following the expiration or termination of his employment, whether
such termination is voluntary or involuntary, Mr. Le shall not compete with,
or own any interest in a business competitive with the business of, Super PC
Memory, or solicit customers or employees of Super PC Memory.
44
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, and $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. 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.
On March 29, 2002, Joseph F. Kruy, Richard E. Calvert, H. Terry Snowday, Jr.
and a person unrelated to the company converted their 10% Subordinated
Convertible Promissory Notes and accrued interest into common stock. They
were issued 7,540,871 shares of common stock at $0.22 per share. As of
November 21, 2002 none of the 10% Notes remained outstanding.
On November 9, 1998, we entered into a Loan and Security Agreement with
B.A. Associates, Inc. (BAA), which is a corporation owned by Bruce Rozelle, a
son-in-law 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, 2001 (as so amended, the "BAA Loan Agreement"), allows
us to borrow up to $1,100,000, 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 are obligated to 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.
If we were to default under the terms of the Loan and Security Agreement and
45
as a result BAA demanded immediate repayment of the amounts owed to it under
the Loan and Security Agreement, we would be unable to satisfy the
obligation.
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 to 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. In
March through May 2001, we borrowed $50,000 from Joseph F. Kruy and $300,000
from Richard E. Calvert. We also entered into separate Loan and Security
Agreements with Messrs. Kruy and Calvert. Our payment obligations under these
Loan and Security Agreements (the "2001 Loan Agreements") are evidenced by
12% Notes due in March through May 2002. Under the 2001 Loan Agreements, we
granted each of Messrs. Kruy and Calvert a first priority security interest
in all of our accounts, instruments, documents, general intangibles,
equipment, inventory, and proceeds of any of the foregoing. Under the terms
of the 2001 Loan Agreements, Messrs. Kruy and Calvert received a warrant to
purchase up two shares of common stock for each dollar loaned to us, at an
exercise price of $0.50 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. In July through
September 2001, we borrowed $100,000 from Joseph F. Kruy and $100,000 from
Richard E. Calvert. We also entered into separate Loan and Security
Agreements with Messrs. Kruy and Calvert. Our payment obligations under these
Loan and Security Agreements (the "July through September 2001 Loan
Agreements") are evidenced by 12% Notes due in January 2002. Under the July
through September 2001 Loan Agreements, we granted each of Messrs. Kruy and
Calvert a first priority security interest in all of our accounts,
instruments, documents, general intangibles, equipment, inventory, and
proceeds of any of the foregoing. Under the terms of the July through
September 2001 Loan Agreements, Messrs. Kruy and Calvert received a warrant
to purchase up one share of common stock for each dollar loaned to us, at an
exercise price of $0.25 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. In April through July
2002, we borrowed $125,000 from Joseph F. Kruy and $50,000 from Richard E.
Calvert. We also entered into separate Loan and Security Agreements with
Messrs. Kruy and Calvert. Our payment obligations under these Loan and
Security Agreements (the "2002 Loan Agreements") are evidenced by 12% Notes
46
due in April through July 2003. Under the 2002 Loan Agreements, we granted
each of Messrs. Kruy and Calvert a first priority security interest in all of
our accounts, instruments, documents, general intangibles, equipment,
inventory, and proceeds of any of the foregoing. Under the terms of the 2002
Loan Agreements, Messrs. Kruy and Calvert received a warrant to purchase up
one share of common stock for each dollar loaned to us, at an exercise price
of $0.25 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. On June 28, 2002, in transactions
exempt under Section 4(2) of the Securities Act, Joseph F. Kruy, Richard E.
Calvert, H. Terry Snowday, Jr., and Philip Hankins converted Loan and
Security Agreements with an aggregate principal amount of $1,000,000 plus
accrued interest into Series A Convertible Preferred stock. They were issued
98,223 shares of Series A Convertible Preferred stock. The Series A
Convertible Preferred shares pay a 12% annual dividend. The purchase price
per share of the Series A Convertible Preferred stock was $12.50. The Series
A Preferred stock is convertible into shares of common stock, at any time at
the holder's option. The holders of the 98,223 shares of Series A Preferred
stock could convert their preferred shares into 982,230 shares of common
stock. As of November 21, 2002, the balance outstanding under these Loan
Agreements is $275,000 of which $125,000 is from Joseph F. Kruy and $50,000
from Richard E. Calvert.
On June 1, 1998, we entered into a Master Lease with CyberFin Corporation, a
corporation wholly owned by Peter J. Kruy, our former Executive Vice
President, Treasurer and Chief Financial Officer and the son of Joseph F.
Kruy. 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 believe that the lease
arrangement 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.
47
PRINCIPAL SHAREHOLDERS
The following table presents information regarding the beneficial ownership
of Cambex's common stock as of November 21, 2002, 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) 6,556,176 33.0% 30.0%
Richard E. Calvert(4) 4,073,586 20.2 18.4
7784 East Shore Road
Traverse City, MI 49686
H. Terry Snowday, Jr.(5) 2,617,302 13.7 12.4
7784 East Shore Road
Traverse City, MI 49686
SovCap Equity Partners, Ltd.(6)1,765,939 8.8 *
Cumberland House
#27 Cumberland St.
P.O. Box CB-13016
Nassau, New Providence
The Bahamas
Bruce D. Rozelle(7) 1,700,000 8.5 7.7
9 Webster Circle
Sudbury, MA 01776
Peter J. Kruy (8) 1,236,053 6.6 6.0
Philip C. Hankins (9) 630,220 3.3 3.0
C.V. Ramamoorthy 99,156 * *
Robert J. Spain -0- * *
Lois P. Lehberger (10) 64,500 * *
All directors and executive
officers as a group
(5 persons) (11) 7,350,052 35.9 32.7
* Represents beneficial ownership of less than 1%.
48
(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 following November 21, 2002
(January 20, 2003) 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 18,320,351 shares of common stock
outstanding as of November 21, 2002 and, in accordance with assumptions set
forth immediately preceding to the table, is based on 20,296,991 shares of
common stock outstanding immediately after effectiveness of the registration
statement of which this prospectus is a part.
(3) Includes 1,300,103 shares of common stock issuable upon exercise of stock
purchase warrants issued in 1998, 1999, 2000 and 2001 exercisable within 60
days following November 21, 2002 (or by January 20, 2003). Includes 270,200
shares of common stock issuable upon conversion of Series A Preferred stock
issued in 2002. 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 SovCap Equity Partners, Ltd., Arab Commerce Bank
Ltd., and Correllus International Ltd. 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 SovCap Equity
Partners, Ltd., Arab Commerce Bank Ltd., and Correllus International Ltd.,
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) Includes 1,342,000 shares issuable upon exercise of stock purchase
warrants exercisable within 60 days following November 21, 2002 (or by
January 20, 2003). Also, includes 469,200 shares of common stock issuable
upon conversion of Series A Preferred stock issued in 2002.
(5) Includes 642,000 shares issuable upon exercise of stock purchase warrants
exercisable within 60 days following November 21, 2002 (or by January 20,
2003). Some of these warrants are held by family members and Mr. Snowday
disclaims beneficial ownership of those shares. Includes 107,610 shares of
common stock issuable upon conversion of Series A Preferred stock issued in
2002.
(6) Consists of 1,525,939 shares issuable upon the conversion of Series B
Preferred stock and a total of 240,000 shares issuable upon exercise of two
common stock purchase warrants. Mr. Barry Herman, the President of SovCap
Equity Partners, Ltd. has both voting and investment control over these
shares. Mr. Herman disclaims beneficial ownership of these shares.
(7) Consists of 1,700,000 shares issuable upon exercise of stock purchase
warrants exercisable within 60 days following November 21, 2002 (or by
January 20, 2003) held by B.A. Associates. Bruce Rozelle, a son-in-law of
49
Joseph F. Kruy, has both voting and investment control over B.A. Associates.
Mr. Rozelle disclaims beneficial ownership of these shares.
(8) Includes 960,164 shares owned by CyberFin Corporation, a corporation
wholly owned by Peter J. Kruy, 135,000 shares subject to currently
exercisable options, and 138,889 shares issuable upon exercise of stock
purchase warrants exercisable within 60 days following November 21, 2002 (or
by January 20, 2003). 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 SovCap Equity
Partners, Ltd., Arab Commerce Bank Ltd., and Correllus International Ltd.
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.
(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 November 21, 2002 (or by January 20, 2003). Includes
135,220 shares of common stock issuable upon conversion of Series A Preferred
stock issued in 2002.
(10) Consists of 64,500 shares subject to options exercisable within 60 days
following November 21, 2002 (or by January 20, 2003).
(11) Includes 2,160,023 shares subject to options and warrants exercisable
within 60 days following November 21, 2002 (or by January 20, 2003) and stock
issuable upon conversion of Series A Preferred stock. See footnotes
(3)through (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.
50
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 18,320,351 shares were issued and outstanding as of
November 21, 2002. Our shareholders have approved but we have not yet filed
an increase in the authorized shares up to 50,000,000. Subject to preferences
that are applicable to 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 245,463 shares are issued and outstanding as of November 21,
2002. Of the 245,463 preferred shares outstanding, 98,223 shares are Series A
Convertible Preferred shares and 147,240 shares are Series B Convertible
Preferred shares.
Holders of shares of Series A Convertible Preferred stock are entitled to
receive cumulative, non-compounding cash dividends at the annual simple rate
of 12% of the original issue price of each share. The original issue price of
the Series A Convertible Preferred stock was $12.50 per share. The dividend
accrues but is payable only (i) upon optional conversion, by the holder, of
the Series A Preferred shares into common stock, (ii) if we liquidate or
merge or (iii) upon our redemption of the Series A Preferred stock for cash.
Upon the occurrence of an optional conversion by a holder, we have the option
to pay any accrued or declared but unpaid dividends on the converted Series A
Preferred stock, in shares of common stock rather than cash. In the event of
any liquidation, dissolution or winding up of the company, holders of the
Series A Preferred stock will be entitled to be paid, out of available funds
and assets, and prior and in preference to any payment or distribution of any
available funds and assets to any holders of other series of preferred stock
or of common stock, an amount per share equal to the original issue price of
the Series A Preferred stock plus any accrued but unpaid dividends. Each
share of Series A Preferred stock is convertible into the number of shares of
common stock which results from dividing the original issue price plus any
accrued or declared but unpaid dividends, if the company so elects,
51
outstanding at such time of conversion, by the conversion price for the
Series A Preferred stock. The conversion price for the Series A Preferred
stock is $1.25. Holders of shares of Series A Preferred stock are not
entitled to any voting rights for any shares of Series A Preferred stock
which they hold.
Holders of shares of Series B Convertible Preferred stock are entitled to
receive cumulative, non-compounding cash dividends at the annual simple rate
of 12% of the original issue price of each share. The original issue price of
the Series B Convertible Preferred stock was $17.10 per share. The dividend
accrues but is payable only (i) upon optional conversion, by the holder, of
the Series B Preferred shares into common stock, (ii) if we liquidate or
merge or (iii) upon our redemption of the Series B Preferred stock for cash.
Upon the occurrence of an optional conversion by a holder, we have the option
to pay any accrued or declared but unpaid dividends on the converted Series B
Preferred stock, in shares of common stock rather than cash. In the event of
any liquidation, dissolution or winding up of the company, holders of the
Series B Preferred stock will be entitled to be paid, out of available funds
and assets, and prior and in preference to any payment or distribution of any
available funds and assets to any holders of common stock, an amount per
share equal to the original issue price of the Series B Preferred stock plus
any accrued but unpaid dividends. Each share of Series B Preferred stock is
convertible into the number of shares of common stock which results from
dividing the original issue price plus any accrued or declared but unpaid
dividends, if the company so elects, outstanding at such time of conversion,
by the conversion price for the Series B Preferred stock. The conversion
price for the Series B Preferred stock is $1.65. Holders of shares of Series
B Preferred stock are not entitled to any voting rights for any shares of
Series B Preferred stock which they hold.
The future issuance of additional shares of Series A Preferred stock, Series
B Preferred stock or preferred stock that may be designated by the board of
directors 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.
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 Arab Commerce Bank Ltd.
provides that we may not pay cash dividends as long as any of the series 1
bridge notes remain outstanding. With the consent of Arab Commerce Bank Ltd.
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.
52
Registration Rights
Individuals holding shares and warrants to purchase an aggregate of 2,210,103
shares of our common stock have both demand and piggyback registration
rights. Our registration rights agreement with Arab Commerce Bank Ltd.
requires us to file a registration statement covering shares of common stock
issued or issuable to them pursuant to the series 1 bridge note financing.
Our registration rights agreement with SovCap Equity Partners requires us to
file a registration statement covering shares of common stock issued or
issuable to them pursuant to the conversion of their Series B Convertible
Preferred shares.
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.
53
SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to a Securities Exchange Agreement dated June 28, 2002, SovCap
Equity Partners, Ltd. ("SovCap") exchanged $1,600,000 of the original
principal amount of bridge financing notes along with accrued but unpaid
interest, premiums and penalties for a total of 147,240 shares of Series B
Convertible Preferred stock. The exchange price of the Series B Convertible
Preferred stock was $17.10 per share.
As long as SovCap holds shares of the Series B Preferred stock they are
entitled to receive cumulative, non-compounding cash dividends at the annual
simple rate of 12% of the issue price of each share. The dividend accrues but
is payable only (i) upon optional conversion, by SovCap, of the Series B
Preferred shares into shares of our common stock, (ii) upon a liquidation or
merger of the company or (iii) upon our redemption of the Series B Preferred
stock for cash. Upon the occurrence of an optional conversion by SovCap, we
have the option to pay any accrued or declared but unpaid dividends on the
converted Series B Preferred stock, in shares of common stock rather than
cash.
In the event of any liquidation, dissolution or winding up of Cambex, SovCap,
if it is still a holder of the Series B Preferred stock, will be entitled to
be paid, out of available funds and assets, and prior and in preference to
any payment or distribution of any available funds and assets to any holders
of common stock, an amount per share equal to the original issue price of the
Series B Preferred stock plus any accrued but unpaid dividends.
Each share of Series B Preferred stock is convertible into the number of
shares of common stock which results from dividing the issue price plus any
accrued or declared but unpaid dividends, if the company so elects,
outstanding at such time of conversion, by the conversion price for the
Series B Preferred stock. The conversion price for the Series B Preferred
stock is $1.65. Therefore, the 147,240 shares of Series B Preferred stock
held by SovCap are convertible into up to a total of 1,525,939 shares of our
common stock, excluding conversion of any unpaid dividends.
In addition to the Securities Exchange Agreement, which contains
representations, warranties, covenants and other provisions typical to this
type of transaction, we entered into a registration rights agreement with
SovCap. Under this registration rights agreement, we agreed to register the
number of shares of our common stock into which the Series B Preferred stock
is convertible.
SOVEREIGN BRIDGE FINANCING
We borrowed $2,000,000 in January and February 2000 in exchange for, among
other things, our issuance of bridge financing notes that accrued interest at
the rate of 8% per annum until their maturity in the third quarter of 2000.
Since their maturity, the bridge notes accrued interest at the rate of 12%
per annum. As of November 21, 2002, one bridge financing note, held by Arab
Commerce Bank Ltd., in the original principal amount of $150,000 remained
outstanding.
Pursuant to lending us $150,000, we entered into a series 1 bridge note
purchase agreement with Arab Commerce Bank Ltd. under which we issued them
the following:
54
a series 1 bridge financing note that is convertible into up to a
total of 42,735 shares of our common stock, which number includes
shares issuable upon conversion of principal, accrued interest through
December 31, 2003, premium amounts and penalties due under the note;
a repricing warrant attached to the series 1 bridge financing note
that may be exercisable for up to a total of 107,966 shares of our
common stock; and
a common stock purchase warrant that is exercisable for up to a
total of 22,500 shares of our common stock.
The series 1 bridge financing note matured on September 6, 2000. Because the
bridge note 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 note and exercise of the repricing warrant and the
common stock purchase warrant described above, we owe Arab Commerce Bank
premiums and penalties totaling approximately $43,600 (in addition to the
repayment of principal and interest).
Before the maturity date, the series 1 bridge note accrued interest at 8% per
annum. Currently, since the maturity date, interest is accruing at a rate of
12% per annum until the note is converted into stock or 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 note
through December 31, 2003. If the actual interest amount exceeds the
calculated amount, we anticipate that we will pay the difference in cash.
In connection with the financing, attached to the series 1 bridge note is a
repricing warrant. If, during the 90 days after the bridge note is converted
into shares of our common stock (the "repricing period"), Arab Commerce Bank
sells any shares it receives from conversion of the bridge note and fails to
realize a gain of at least 20% above its conversion price of the bridge note,
then Arab Commerce Bank may exercise the repricing warrant on the 91st day
after conversion of the bridge note. If Arab Commerce Bank does not sell
shares received upon conversion of the 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 Arab Commerce Bank
realizes less than a 20% gain on shares sold during the repricing period, the
number of shares that it may acquire by exercise of the 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 Arab Commerce Bank 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 Arab Commerce Bank may exercise the repricing warrant for a number
of shares of our common stock 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.
55
The maximum number of shares of common stock for which the repricing warrant
could be exercised is a total of 107,966 shares. The exercise price of the
repricing warrant is $0.10 per share.
Two of our principal stockholders, Joseph F. Kruy, our Chairman, President
and Chief Executive Officer, and CyberFin Corporation, a corporation wholly
owned by Peter J. Kruy, Mr. Kruy's son, guaranteed our obligations under the
series 1 bridge financing notes in the event that we fail to fulfill them.
The obligations of Joseph Kruy and CyberFin under these guarantees are
secured by their pledge 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
Arab Commerce Bank Ltd.. 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 the common stock purchase warrants are exercisable.
In connection with the series 1 bridge financing, we issued Sovereign
Capital Advisors LLC a warrant exercisable for up to 100,000 shares of our
common stock.
The shares of common stock being registered for Arab Commerce Bank Ltd. in
this registration statement is for stock issuable pursuant to the conversion
of a series 1 bridge financing note and attached repricing warrant. If in
the future, Arab Commerce Bank exchanges its series 1 bridge financing note
and attached repricing warrant for shares of our Series B Preferred stock,
then such common stock so registered would be the shares of common stock
issuable to Arab Commerce Bank upon conversion of its shares of Series B
Preferred stock into our common stock.
COMMON STOCK PURCHASE WARRANTS
In connection with bridge note financings in January and February, 2000, we
issued the lenders common stock purchase warrants exercisable for up to a
total of 300,000 shares of our common stock. SovCap Equity Partners, Ltd. was
issued warrants exercisable for up to 240,000 shares of our common stock.
The exercise price of SovCap's common stock purchase warrant for up to
225,000 shares is $4.19 per share and expires on January 18, 2005. The
exercise price of SovCap's common stock purchase warrant for up to 15,000
shares is $7.01 per share and expires on February 9, 2005. Correllus
International Ltd. was issued warrants exercisable for up to 37,500 shares of
our common stock. The exercise price of Correllus International's common
stock purchase warrant is $4.19 per share and expires on January 18, 2005.
Arab Commerce Bank Ltd. was issued warrants exercisable for up to 22,500
shares of our common stock. The exercise price of Arab Commerce Bank's common
stock purchase warrant for up to 15,000 shares is $7.01 per share and expires
on February 9, 2005.
56
SELLING SECURITYHOLDERS
Overview
Shares of our common stock registered for resale under this prospectus
constitute up to 9.7% of the issued and outstanding common stock of Cambex as
of November 21, 2002. The number of shares we are registering is based in
part on the decision to register the maximum number of shares issuable
through exercise of the attached repricing warrants currently held by Arab
Commerce Bank. Accordingly, the number of shares we are registering for
issuance may differ from the number we actually issue pursuant to exercise of
the repricing warrants.
SovCap Equity Partners, Ltd. currently holds Series B Convertible Preferred
stock that is convertible into shares of our common stock. SovCap also holds
common stock purchase warrants for shares of our common stock. Arab Commerce
Bank Ltd. currently holds a series 1 bridge financing note that is
convertible into shares of our common stock, together with a repricing
warrant attached to the bridge note that may be exercisable for shares of our
common stock. Arab Commerce Bank also holds a common stock purchase warrant
for shares of our common stock. Correllus International Ltd. holds a common
stock purchase warrant for shares of our common stock. Our securities now
held by the selling securityholders were acquired from us in a private
placement pursuant to a series 1 bridge note purchase agreement and through a
Securities Exchange 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 selling securityholders, the following
table shows, as of November 21, 2002:
The number of shares and the percentage each Sovereign Lender
beneficially owns before the effectiveness of the registration statement
of which this prospectus is a part, based on our common stock outstanding
on November 21, 2002 (which amount includes the maximum number of shares
that Arab Commerce Bank may acquire as a result of the exercise of its
attached repricing warrant);
The number of shares of common stock each selling securityholder may
resell under this prospectus; and
Assuming each selling securityholder sells all the shares it is entitled
to sell under this prospectus, the number of shares of common stock and
the percentage each selling securityholder will beneficially own after
the effectiveness of the registration statement of which this prospectus
is a part, based on our common stock outstanding on November 21, 2002 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,
57
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 November 21, 2002 (January 20, 2003) 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 Number Percentage
SovCap Equity Partners, Ltd.(2) 1,765,939 8.8% 0 0
Arab Commerce Bank Ltd. (3) 173,201 0.9 0 0
Correllus International Ltd. (4) 37,500 0.2 0 0
- -----------------------------------
(1) Assumes the sale of all shares of our common stock that the selling
security holder may sell under this prospectus.
(2) Consists of 1,525,939 shares issuable upon the conversion of Series B
Preferred stock and a total of 240,000 shares issuable upon exercise of two
common stock purchase warrants.
(3) Consists of 42,735 shares issuable upon the exercise of a series 1
bridge financing note, 107,966 shares issuable upon exercise of an attached
repricing warrant and 22,500 shares issuable upon exercise of a common
stock purchase warrant.
(4) Consists of 37,500 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.
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, its Secretary. Correllus International
Ltd., a Belize corporation, is controlled by its Director, Jan Telander.
58
PLAN OF DISTRIBUTION
General
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.
The 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, each of the selling securityholders, 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.
59
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.
Underwriting Compensation and Expenses
Per Share Total
Estimated offering expenses:
SEC filing fee $0.000193 $ 381.94
Accountants' fees and expenses
Legal fees and expenses
Total $ $
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby
will be passed upon for us by .
EXPERTS
The financial statements of the Company appearing in this prospectus have
been audited by Sullivan Bille, 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 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.
60
CAMBEX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F - 2
Consolidated Balance Sheets at December 31, 2000,
December 31, 2001 and September 30, 2002 (unaudited) F - 3
Consolidated Statements of Operations for the Years
Ended December 31, 2000 and December 31, 2001 and for
the nine months ended September 29, 2001 and
September 30, 2002 (unaudited) F - 5
Consolidated Statements of Stockholders' Investment
for the Years Ended December 31, 2000 and December 31, 2001
and the nine months ended September 30, 2002 (unaudited) F - 6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000 and December 31, 2001 and
for the nine months ended September 29, 2001 and
September 30, 2002 (unaudited) F - 7
Notes to Consolidated Financial Statements F - 9
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,
2001 and 2000, and the related consolidated statements of operations,
stockholders' investment and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cambex
Corporation and subsidiaries as of December 31, 2001 and 2000 and the results
of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States
of America.
As discussed in Note 2 to the consolidated financial statements, the
consolidated financial statements for the year ended December 31, 2000 have
been restated to reflect the recording of premiums and penalties relating to
certain notes payable.
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.
SULLIVAN BILLE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Tewksbury, Massachusetts
February 11, 2002
F-2
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 (UNAUDITED), DECEMBER 31, 2001 AND DECEMBER 31, 2000
ASSETS
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
2002 2001 2000
(RESTATED)
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 256,054 $ 209,573 $ 234,512
ACCOUNTS RECEIVABLE,
Less Reserves of $58,000
in 2002, 2001 and 2000 1,892,592 240,384 322,888
INVENTORIES 419,060 472,910 460,620
PREPAID EXPENSES 81,754 56,729 67,301
TOTAL CURRENT ASSETS $ 2,649,460 $ 979,596 $ 1,085,321
PROPERTY AND EQUIPMENT, at cost:
MACHINERY AND EQUIPMENT $ 3,064,767 $ 3,052,887 $ 3,052,887
FURNITURE AND FIXTURES 162,625 162,625 162,625
LEASEHOLD IMPROVEMENTS 602,092 602,092 602,092
$ 3,829,484 $ 3,817,604 $ 3,817,604
LESS - ACCUMULATED DEPRECIATION
AND AMORTIZATION 3,799,411 3,772,186 3,721,481
NET PROPERTY AND EQUIPMENT $ 30,073 $ 45,418 $ 96,123
OTHER ASSETS:
DEFERRED OFFERING COSTS $ - $ 427,975 $ 476,886
GOODWILL 313,670 - -
OTHER 45,630 37,830 37,830
TOTAL OTHER ASSETS $ 359,300 $ 465,805 $ 514,716
TOTAL ASSETS $ 3,038,833 $ 1,490,819 $ 1,696,160
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 (UNAUDITED), DECEMBER 31, 2001 AND DECEMBER 31, 2000
LIABILITIES AND STOCKHOLDERS' INVESTMENT
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
2002 2001 2000
(RESTATED)
CURRENT LIABILITIES:
LINE OF CREDIT $ 816,639 $ - $ -
LOAN AGREEMENT 1,003,746 1,057,991 1,032,443
NOTES PAYABLE 425,000 2,850,000 2,500,000
ACCOUNTS PAYABLE 2,202,059 826,852 584,726
OBLIGATIONS FOR TRADE-IN MEMORY 240,000 240,000 240,000
OTHER LIABILITIES-SHORT
TERM PORTION 2,689,540 2,629,765 1,692,733
ACCRUED EXPENSES 1,087,678 1,950,672 1,460,042
TOTAL CURRENT LIABILITIES $ 8,464,662 $ 9,555,280 $ 7,509,944
LONG TERM DEBT $ - $ 1,273,730 $ 1,273,730
OTHER LIABILITIES-LONG
TERM PORTION - 84,642 1,044,560
STOCKHOLDERS' INVESTMENT:
PREFERRED STOCK, $ 1.00 PAR
VALUE PER SHARE
AUTHORIZED - 3,000,000 SHARES
SERIES A - ISSUED -
98,223 shares in 2002 $ 98,223 $ - $ -
SERIES B - ISSUED -
147,240 shares in 2002 147,240 - -
COMMON STOCK, $ .10 PAR VALUE
PER SHARE
AUTHORIZED - 25,000,000 SHARES
ISSUED -
19,865,609 shares in 2002,
11,484,738 shares in 2001,and
11,287,847 shares in 2000 $ 1,986,561 $ 1,148,474 $ 1,128,785
CAPITAL IN EXCESS OF PAR VALUE 20,498,545 16,268,677 16,024,049
ACCUMULATED OTHER
COMPREHENSIVE INCOME 102,677 102,677 102,465
RETAINED EARNINGS (DEFICIT) (27,370,104) (26,053,690) (24,510,407)
LESS - COST OF SHARES HELD
IN TREASURY
1,545,258 in 2002 and 2001,
and 1,537,980 in 2000 (888,971) (888,971) (876,966)
TOTAL STOCKHOLDERS'
INVESTMENT $ (5,425,829) $ (9,422,833) $ (8,132,074)
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $ 3,038,833 $ 1,490,819 $ 1,696,160
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 2001
AND FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001 (UNAUDITED)
AND SEPTEMBER 30, 2002 (UNAUDITED)
Nine Months Nine Months
Ended Year Ended Ended Year Ended
September 30,December 31,September 29,December 31,
2002 2001 2001 2000
(restated)
REVENUES $11,475,309 $ 1,855,011 $ 1,388,184 $ 2,400,252
COST OF SALES 8,630,093 892,297 679,736 1,130,793
Gross profit $ 2,845,216 $ 962,714 $ 708,448 $ 1,269,459
OPERATING EXPENSES:
Research and development $ 749,323 $ 1,030,241 $ 790,929 $ 1,363,141
Selling 2,254,850 504,399 358,898 1,110,424
General and administrative 714,948 420,357 345,470 466,169
Total operating expenses $ 3,719,121 $ 1,954,997 $ 1,495,297 $ 2,939,734
OPERATING INCOME (LOSS) $ (873,905)$ (992,283)$ (786,849)$(1,670,275)
Interest Expense (442,509) (551,000) (412,000) (1,010,618)
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS $(1,316,414)$(1,543,283)$(1,198,849)$(2,680,893)
Provision for income taxes - - - -
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS $(1,316,414)$(1,543,283)$(1,198,849)$(2,680,893)
Extraordinary Items - - - 102,406
NET INCOME (LOSS) $(1,316,414)$(1,543,283)$(1,198,849)$(2,578,487)
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
Foreign Currency
translation Adjustments - 212 - 476
OTHER COMPREHENSIVE INCOME $ - $ 212 $ - $ 476
TOTAL COMPREHENSIVE LOSS $(1,316,414)$(1,543,071)$(1,198,849)$(2,578,011)
INCOME(LOSS)PER COMMON SHARE $ (0.09)$ (0.16)$ (0.12) (0.27)
Weighted Average Common Shares
Outstanding 14,500,000 9,890,000 9,875,000 9,680,000
Weighted Average Common and Common
Equivalent Shares Outstanding 14,500,000 9,890,000 9,875,000 9,680,000
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
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, 1999 $1,107,623 $15,970,199 $101,989 $(21,931,920)$(854,766)
ADD:
Net loss $ - $ - $ - $( 2,578,487)$ -
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 (RESTATED) $1,128,785 $16,024,049 $102,465 $(24,510,407)$(876,966)
ADD:
Net loss $ - $ - $ - $( 1,543,283)$ -
Issuance of warrants - 1,400 - - -
Issuance of common stock 250 3,031 - - -
Purchase of shares for
the treasury - - - - (12,005)
Translation adjustment - - 212 - -
Conversion of note payable19,439 240,197 - - -
BALANCE AT
DECEMBER 31, 2001 $1,148,474 $16,268,677 $102,677 $(26,053,690)$(888,971)
ADD:
Net loss $ - $ - $ - $( 1,316,414)$ -
Conversion of long
term debt 754,087 904,905 - -
Acquisition of business 84,000 302,800 - -
Conversion of notes
payable - 3,022,163 - -
BALANCE AT SEPTEMBER 30,
2002 (UNAUDITED) $1,986,561 $20,498,545 $102,677 $(27,370,104)$(888,971)
Preferred Stock
$1.00 Par Value
BALANCE AT
DECEMBER 31, 2001 $ -
ADD 245,463
BALANCE AT SEPTEMBER
30, 2002 (UNAUDITED) $245,463
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
AND FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001 (UNAUDITED)
AND SEPTEMBER 30, 2002 (UNAUDITED)
Nine Months Nine Months
Ended Year Ended Ended Year Ended
September 30,December 31,September 29,December 31,
2002 2001 2001 2000
(restated)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $(1,316,414)$(1,543,283)$(1,198,849)$(2,578,487)
Adjustments to reconcile
net income(loss) to net cash
provided by(used in)
operating activities:
Depreciation $ 27,225 $ 50,705 $ 38,025 $ 82,285
Amortization of prepaid
expenses 4,048 7,225 7,225 7,210
Common stock issued as
compensation - 3,281 - -
Change in assets and liabilities:
Decrease (increase) in
accounts receivable 1,055,507 82,504 24,437 (120,422)
Decrease(increase)in inventory 954,220 (12,290) 31,480 161,810
Decrease(increase)in prepaid
expenses (11,067) 3,347 2,407 (8,516)
Decrease(increase)in other assets 166 - - -
Increase(decrease)in accounts
payable (112,567) 242,126 206,399 121,051
Increase(decrease)in obligations
for trade-in memory - - - (46,250)
Increase(decrease)in accrued
expenses 139,317 599,177 358,062 946,193
Increase(decrease)in deferred
revenue - - - (100,116)
Increase(decrease)in other
liabilities (24,867) (22,886) (21,706) (554,805)
Total adjustments $ 2,031,982 $ 953,189 $ 646,329 $ 488,440
Net cash provided by(used in)
operating activities $ 715,568 $ (590,094)$ (552,520)$(2,090,047)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of equipment, net $ - $ - $ - $ -
Net cash provided by
(used in)investing activities$ - $ - $ - $ -
F-7
CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase(decrease) in notes
payable $ 175,000 $ 550,000 $ 550,000 $ 1,950,000
Proceeds from sale of common
stock and warrants - 1,400 4,681 75,012
Purchase of common stock for
the treasury - (12,005) - (22,200)
Decrease(increase)in deferred
offering costs, net - - - (476,886)
Net borrowings(repayments)
under loan agreement (54,245) 25,548 (377) 431,414
Net borrowings(repayments)
under line of credit (789,842) - - -
Net cash provided by (used
in) financing activities $ (669,087)$ 564,943 $ 554,304 $ 1,957,340
Effect of exchange rate
changes on cash - 212 - 476
Net increase (decrease) in
cash and cash equivalents $ 46,481 $ (24,939)$ 1,784 $ (132,231)
Cash and cash equivalents at
beginning of year 209,573 234,512 234,512 366,743
Cash and cash equivalents at
end of period $ 256,054 $ 209,573 $ 236,296 $ 234,512
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 75,868 $ 50,000 $ 50,000 $ 67,618
Income Taxes - - - -
Non-cash financing activity:
Conversion of notes payable
and accrued interest into
common stock, net of
deferred offering costs $ - $ 259,636 $ 171,756 $ 41,406
Conversion of long term debt
and accrued interest
into common stock $ 1,658,992 $ - $ - $ -
Net assets of business acquired
and increase in goodwill financed
via issuance of common
stock and accrued expenses $ 511,800 $ - $ - $ -
Conversion of notes payable and
accrued interest into preferred
stock, net of deferred
offering costs $ 3,267,626 $ - $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the Nine Months Ended September 30, 2002 and
2001 and related disclosures has not been audited by Independent Public
Accountants)
(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 $1,100,000 outstanding at any one time of
which $1,003,746 and $1,057,991 was outstanding as of September 30, 2002 and
December 31, 2001, respectively. 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 the third quarter
of 2000. During 2001, we raised $550,000 in cash from the issuance of notes
payable with interest at 12% per annum. During 2002, we raised $175,000 in
cash from the issuance of notes payable with interest at 12% per annum.
We have suffered recurring losses from operations that raise substantial
doubt about our ability to continue as a going concern. Our working capital
deficit is a significant threat to 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 four fiscal years and our
ability to raise additional capital. The additional financing, if obtained,
will be used to fund our continuing operations, particularly in development,
sales and marketing. Our management continues to work to establish 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.
We need additional capital and additional financing may not be available. Our
common stock purchase agreement with Thumberland Limited expired in June
2002. We believe that the combination of current existing cash, available
borrowing capacity and our ability to obtain additional long-term
indebtedness may not be adequate to finance our operations for our current
activities and foreseeable future. As of December 31, 2001, our cash burn
rate was approximately $40,000 per month or $480,000 per year at the current
sales levels. Currently, our cash burn rate from operations is approximately
$80,000 per month or $960,000 per year at the current sales levels. For each
$100,000 reduction in sales, our cash burn rate would increase by
approximately $28,000 per month. Conversely, for each $100,000 increase in
sales, our cash burn rate would decrease by approximately $28,000 per month.
These numbers may change based on product mix. The time period for which we
believe our capital is sufficient and the burn rate are estimates. The actual
time period and burn rate may differ materially as a result of a number of
factors, risks and uncertainties that are described herein. We are actively
pursuing raising additional capital and if we are unable to raise additional
capital, we may not be able to meet our anticipated working capital
requirements.
F-9
We are attempting to raise additional capital to cover the burn rate not
covered by incremental gross profit. This amount is dependent upon sales and
gross margin. If sales and gross profit do not increase or capital cannot be
raised to cover the current burn rate, we intend to reduce operating expenses
as much as practicable to continue operations until balance is established.
If we are not successful in raising additional capital or increasing our
sales to adequate levels, we will not be able to continue our current
operations and there is substantial doubt as to our ability to continue as a
going concern. There can be no assurance that we will be successful in
raising such additional capital at all or on terms commercially acceptable to
us or our shareholders.
In addition, the sale of equity securities could result in the dilution of
the percentage ownership of existing shareholders and could also adversely
affect the market price of our common stock.
(2) Summary of Significant Accounting Policies
Restatement of 2000 Consolidated Financial Statements
The consolidated financial statements for year ended December 31, 2000 have
been restated to reflect the recording of $607,000 of premiums and penalties
relating to the Series 1 bridge financing notes. The effect of the
restatement was to increase interest expense and accrued expenses. The
premiums and penalties were incurred 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.
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. We follow the guidance in Staff
Accounting Bulletin ("SAB") 101 in applying generally accepted accounting
principles to revenue recognition in consolidated financial statements. We
include items in revenue when the following criteria are met: persuasive
evidence of an arrangement exists, delivery has occurred or services have
been rendered, our price to the buyer is fixed or determinable and
collectibility is reasonably assured. Under certain equipment leases which
qualify as sales type leases, the present value of noncancelable payments is
currently included in revenues as sales, and all related costs, exclusive of
the residual value of the equipment, are currently included in cost of sales.
The unearned interest is recognized over the noncancelable term of the lease.
For equipment leased under operating lease agreements, revenue is recognized
over the lease term and the equipment is depreciated over its estimated
useful life. The "obligations for trade-in memory" were determined in each
contract when we took mainframe memory in trade when we installed our
F-10
mainframe memory in our customers' computers. The amount remaining in this
account is an obligation for product credit which was established when
mainframe memory was traded-in for the purchase of memory.
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, September 30,
2000 2001 2002
(Unaudited)
Raw materials $ 392,686 $ 367,570 $ 305,972
Work-in-process 20,453 59,591 57,640
Finished goods 47,481 45,749 55,448
$ 460,620 $ 472,910 $ 419,060
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.
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 $27,225, $50,705 $38,025 and $82,285, was recorded
for the periods ended September 30, 2002, December 31, 2001, September 29,
2001 and December 31, 2000, respectively.
Deferred Offering Costs
Deferred offering costs represent the costs associated with the registration
of our common stock and were reduced as series 1 bridge financing notes were
converted.
Net Income (Loss) Per Common Share
Basic income (loss) per share amounts are based on the weighted average
number of common shares outstanding during each period. Diluted income (loss)
per share amounts are based on the weighted average number of common shares
and common share equivalents outstanding during each period to the extent
such equivalents have a dilutive effect on the income (loss) per share.
F-11
Common share equivalents were not included in diluted income (loss) per share
because we incurred a loss for each period. 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.
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 consolidated 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 consolidated 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.
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
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
F-12
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
consolidated 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).
(3) Business Operations
We are a designer and supplier of data storage products and solutions. Our
products include memory for computing systems and fibre channel connectivity
and storage products used to build storage area networks (SANs). As discussed
in Note 14, we purchased Super PC Memory, Inc. as of March 12, 2002.
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 2001, two customers, Compaq and StorageTek,
accounted for 46% and 16%, respectively, of total revenues for the year.
During 2000, these two customers, Compaq and StorageTek, accounted for 18%
and 11%, respectively, of total revenues for the year. Foreign sales were 19%
in 2001 and 14% in 2000 of total revenues. In the year ended December 31,
2001, our top five customers accounted for approximately 74% of our total net
revenues, and in the year ended December 31, 2000, our top five customers
accounted for approximately 45% of our total net revenues.
F-13
(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,
2001 2000
Domestic $(1,541,000) $(2,653,000)
Foreign ( 2,000) ( 28,000)
$(1,543,000) $(2,681,000)
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
2001 2000
Provision (credit) at
federal statutory rate $( 524,700) $ (857,300)
State tax provision
(credit), net of federal
tax benefit ( 97,000) (182,100)
Foreign and other losses
for which no benefits have
been recorded 700 9,600
Change in valuation
allowances 620,600 1,040,300
Other 400 ( 10,500)
$ -0- $ -0-
We have federal net operating loss carryovers totalling $22,720,000 which
expire through the year ended December 31, 2021.
F-14
The tax effects of the significant items which comprise the deferred tax
liability and tax asset, as of fiscal 2001 and 2000 are as follows:
December December
2001 2000
Assets
Reserves not currently deductible
for tax purposes $ 1,350,000 $ 1,335,000
State tax net operating loss
carryforward 2,225,000 2,263,000
Federal net operating loss
carryforward 6,998,000 6,274,000
Employee benefits 32,000 47,000
Other 36,000 36,000
Total deferred tax assets $10,641,000 $ 9,955,000
Liabilities
Fixed asset basis difference $ 0 $ 0
Other 104,000 96,000
Total deferred tax liabilities $ 104,000 $ 96,000
Net deferred tax asset $10,745,000 $10,051,000
Valuation allowance (10,745,000) (10,051,000)
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.
(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 $1,003,746,
$1,057,991 and $1,032,443 at September 30, 2002, December 31, 2001 and 2000,
respectively.
Notes payable of $2,850,000 at December 31, 2001 include $1,100,000 of
advances payable which are due on demand. The $1,100,000 of advances payable
includes amounts of $1,000,000 from related parties. Notes payable of
$425,000 at September 30, 2002 include $275,000 of advances payable which are
due on demand. The $275,000 of advances payable includes amounts of $175,000
from related parties. These notes are further described in Note 13. In the
second quarter of 2002, related party holders of secured notes converted
$1,000,000 of principal plus $227,801 of accrued interest into 98,223 shares
of Series A Convertible Preferred stock. The Series A Convertible Preferred
shares pay a 12% annual dividend. The purchase price per share of the Series
A Convertible Preferred stock was $12.50. The Series A Preferred stock is
F-15
convertible into shares of common stock, at any time at the holder's option.
The holders of the 98,223 shares of Series A Preferred stock could convert
their preferred shares into 982,230 shares of common stock.
The balance of $150,000 and $1,750,000 as of September 30, 2002 and December
31, 2001, respectively, represents series 1 bridge financing notes issued in
2000. During the first quarter of 2000, we borrowed $2,000,000 in cash from
SovCap Equity Partners, Ltd., Arab Commerce Bank Ltd., and Correllus
International Ltd. in exchange for, among other things, our issuance of
series 1 bridge financing notes that matured in the third quarter of 2000. We
received net proceeds equal to $1,737,900 from SovCap Equity Partners, Ltd.,
Arab Commerce Bank Ltd., and Correllus International Ltd. as a result of this
bridge financing.
The series 1 bridge financing notes bore interest at the rate of 8% per annum
prior to maturity. Since maturity, interest is accruing on these notes at a
rate of 12% per annum. These bridge notes are convertible into shares of our
common stock at any time 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, SovCap
Equity Partners, Ltd., Arab Commerce Bank Ltd., and Correllus International
Ltd. became entitled to premiums and penalties totaling approximately
$607,000 (in addition to the repayment of principal and interest). Following
conversion of the bridge notes, if SovCap Equity Partners, Ltd., Arab
Commerce Bank Ltd., and Correllus International Ltd. 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 SovCap Equity Partners, Ltd., Arab Commerce
Bank Ltd., and Correllus International Ltd. 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. There is no value associated with these warrants recorded on our
books. In the fourth quarter of 2000, one of our lenders, converted a portion
of its Series 1 Bridge Financing Note ($50,000 of unpaid principal plus
interest, premiums and penalties) into 18,232 shares of our common stock at a
conversion price of $3.79.In the first quarter of 2001, the same lender,
converted the balance of 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 112,778 shares of our common stock. In the
second quarter of 2002, one of our lenders converted $1,600,000 of principal,
$487,067 of premium and penalties, $430,733 of interest, and all attached
repricing warrants into 147,240 shares of Series B Convertible Preferred
stock. The Series B Convertible Preferred shares pay a 12% annual dividend.
The purchase price per share of the Series B Convertible Preferred stock was
$17.10. The Series B Preferred stock is convertible into shares of common
stock, at any time at the holder's option. The holders of the 147,240 shares
of Series B Preferred stock could convert their Preferred shares into
1,525,939 shares of common stock. The holders of the Series B Convertible
Preferred stock were granted registration rights for the underlying common
stock into which the Preferred is convertible.
F-16
Our Super PC Memory, Inc. subsidiary has a line of credit of $2,000,000
available from GE Capital Commercial Services, Inc., limited to 75% of the
eligible receivables of Super PC Memory, Inc. At September 30, 2002 we had a
balance of $816,639 under this line of credit.
(6) Long-Term Debt and Related Matters
Long-term debt at September 30, 2002, December 31, 2001 and 2000 consists of
the following:
2002 2001 2000
Subordinated Convertible Notes
with interest rate of 10%
due April 30, 2003 $ - $1,273,730 $1,273,730
During 2002, under the terms of these 10% notes, the holders converted the
10% notes into shares of common stock at a conversion price of $0.22 per
share. Of the advances received for the notes, approximately $1,070,000 was
received from related parties and is discussed in Note 13.
(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 period.
The weighted average number of common shares outstanding during the periods
ended September 30, 2002, September 29, 2001, December 31, 2001 and 2000 were
approximately 14,500,000, 9,875,000, 9,890,000 and 9,680,000, 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 7,416,034 and 5,697,035 weighted average
shares of common stock during the years ended December 31, 2001 and December
31, 2000, respectively, were not included in the computation of diluted loss
per share because to do so would have had an antidilutive effect on the
computation of loss per share. Weighted average shares issuable from
convertible notes of 6,234,640 and 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 7,680,265
and 6,895,265 shares of common stock outstanding at December 31, 2001 and
2000, respectively, and 6,226,522 and 5,235,261 shares of common stock
issuable upon conversion of notes outstanding at December 31, 2001 and 2000
could potentially dilute basic income (loss) per share in the future.
F-17
(8) Commitments and Contingencies
At December 31, 2001, we had minimum rental commitments under long-term,
noncancelable operating leases for facilities and other equipment as follows:
Due during Fiscal Year
2002 $ 381,924
2003 $ 159,134
Total $ 541,058
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 $113,000 for the year ended December 31, 2001 and $111,000 for
the year ended December 31, 2000. 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, 2001. On March 7, 1997, we established the 1997 Stock Option
Plan. As of December 31, 2001, there were 775,000 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 and 252,000 options to purchase shares
of our common stock were outstanding as of December 31, 2001. The Year 2000
Equity Incentive Plan replaces the 1997 Plan for all future options. At
December 31, 2001, we had three stock option plans for officers and certain
employees under which 2,350,620 shares were reserved and options for
1,248,000 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 May 16, 2011.
F-18
Stock option activity for the two years and nine months ended September 30,
2002 was as follows:
Option Shares Number of shares Option Price
of common stock per share
covered by options
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
Granted 240,000 .40 - .62
Exercised, cancelled or
Expired (455,000) .26 - 5.30
Outstanding at December 31, 2001 1,102,620 .12 - 5.30
Granted 700,000
Exercised, cancelled or
Expired ( 5,000) 3.00
Outstanding at September 30, 2002 1,797,620 .12 - 5.30
As of December 31, 2001 and 2000, options for 598,020 and 352,520 shares were
exercisable at aggregate option prices of $122,594 and $78,702, 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,
2001 2000
Net Income (Loss): As Reported (000's) (1,543) (2,578)
Pro Forma (1,591) (2,663)
Basic and Diluted EPS:As Reported ( 0.16) ( 0.27)
Pro Forma ( 0.16) ( 0.28)
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,
2001 2000
Assumptions:
Risk free interest rate 4.64% 6.13%
Expected dividend yield 0% 0%
Expected life in years 10 10
F-19
As of December 31, 2001 and 2000, warrants to purchase 6,577,645 and
5,577,645 shares of common stock at weighted average prices of $1.19 and
$1.33 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 2002, 2001 or 2000.
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.
(11) Equity Line
During the third quarter of fiscal 2000, we signed a common stock purchase
agreement which expired in June 2002 with Thumberland Limited, a private
investor, for the future issuance and purchase of shares of our common stock.
(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. The termination became effective in 2000. 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
F-20
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. 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.
On March 29, 2002, Joseph F. Kruy, Richard E. Calvert, H. Terry Snowday, Jr.
and a person unrelated to the company converted their 10% Subordinated
Convertible Promissory Notes and accrued interest into common stock. They
were issued 7,540,871 shares of common stock at $0.22 per share. As of
November 21, 2002 none of the 10% Notes remained outstanding.
On June 1, 1998, we entered into a Master Lease with CyberFin Corporation, a
corporation wholly owned by Peter J. Kruy, our former Executive Vice
President, Treasurer and Chief Financial Officer and the son of Joseph F.
Kruy. 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 believe that lease
arrangement we made with CyberFin is 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 Bruce D. Rozelle, a
son-in-law 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, 2001 (as so amended, the "BAA Loan Agreement"), allows
us to borrow up to $1,100,000, 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.
F-21
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 H. Terry Snowday, Jr. and Richard E. 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.
In March through May 2001, we borrowed $50,000 from Joseph F. Kruy and
$300,000 from Richard E. Calvert. We also entered into separate Loan and
Security Agreements with Messrs. Kruy and Calvert. Our payment obligations
under these Loan and Security Agreements (the "2001 Loan Agreements") are
evidenced by 12% Notes due in March through May 2002. Under the 2001 Loan
Agreements, we granted each of Messrs. Kruy and Calvert a first priority
security interest in all of our accounts, instruments, documents, general
intangibles, equipment, inventory, and proceeds of any of the foregoing.
Under the terms of the 2001 Loan Agreements, Messrs. Kruy and Calvert
received a warrant to purchase up two shares of common stock for each dollar
loaned to us, at an exercise price of $0.50 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.
In July through September 2001, we borrowed $100,000 from Joseph F. Kruy and
$100,000 from Richard E. Calvert. We also entered into separate Loan and
Security Agreements with Messrs. Kruy and Calvert. Our payment obligations
under these Loan and Security Agreements (the "2001 Loan Agreements") are
evidenced by 12% Notes due in January 2002. Under the 2001 Loan Agreements,
we granted each of Messrs. Kruy and Calvert a first priority security
interest in all of our accounts, instruments, documents, general intangibles,
equipment, inventory, and proceeds of any of the foregoing. Under the terms
of the 2001 Loan Agreements, Messrs. Kruy and Calvert received a warrant to
purchase up one share of common stock for each dollar loaned to us, at an
exercise price of $0.25 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.
In April through July 2002, we borrowed $125,000 from Joseph F. Kruy and
$50,000 from Richard E. Calvert. We also entered into separate Loan and
Security Agreements with Messrs. Kruy and Calvert. Our payment obligations
F-22
under these Loan and Security Agreements (the "2002 Loan Agreements") are
evidenced by 12% Notes due in April through July 2003. Under the 2002 Loan
Agreements, we granted each of Messrs. Kruy and Calvert a first priority
security interest in all of our accounts, instruments, documents, general
intangibles, equipment, inventory, and proceeds of any of the foregoing.
Under the terms of the 2002 Loan Agreements, Messrs. Kruy and Calvert
received a warrant to purchase up one share of common stock for each dollar
loaned to us, at an exercise price of $0.25 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.
On June 28, 2002, in transactions exempt under Section 4(2) of the Securities
Act, Joseph F. Kruy, Richard E. Calvert, H. Terry Snowday, Jr., and Philip
Hankins converted Loan and Security Agreements with an aggregate principal
amount of $1,000,000 plus accrued interest into Series A Convertible
Preferred stock. They were issued 98,223 shares of Series A Convertible
Preferred stock. The Series A Convertible Preferred shares pay a 12% annual
dividend. The purchase price per share of the Series A Convertible Preferred
stock was $12.50. The Series A Preferred stock is convertible into shares of
common stock, at any time at the holder's option. The holders of the 98,223
shares of Series A Preferred stock could convert their preferred shares into
982,230 shares of common stock. As of November 21, 2002, the balance
outstanding under these Loan Agreements is $275,000 of which $125,000 is owed
to Joseph F. Kruy and $50,000 is owed to Richard E. Calvert.
(14) Events (Unaudited) Subsequent to date of Report of Independent Public
Accountants
Subsequent to the end of 2001, Cambex Corporation completed the acquisition
of Super PC Memory, Inc., pursuant to the terms of the Stock Purchase and
Sale Agreement dated as of January 31, 2002 by and among Cambex Corporation,
a Massachusetts corporation, Super PC Memory, Inc., a California corporation,
Son T. Pham, Simon Le and Richard G. Schaefer.
Effective as of March 12, 2002, Super PC Memory, Inc. is a wholly-owned
subsidiary of Cambex Corporation. The sellers, Son T. Pham, Simon Le and
Richard G. Schaefer received 560,000 shares of Cambex Corporation common
stock and were to receive fifteen percent (15%) of Super PC Memory, Inc.'s
gross profit for the period from March 12, 2002 through December 31, 2004,
payable in installment payments pursuant to the terms of the Stock Purchase
and Sale Agreement.
On July 29, 2002, we amended the agreement with the Sellers for the purchase
of 100% of the outstanding common stock of Super PC Memory, Inc. We issued
an additional 280,000 shares of Cambex common stock and in return the Sellers
agreed that they were no longer entitled to receive 15% of Super PC's gross
profit for the period from March 12, 2002 through December 31, 2004 or any
other additional consideration for the sale of 100% of the outstanding common
stock of Super PC Memory, Inc. The additional 280,000 shares are valued at
$145,600 based on the closing price on the date of the acquisition of $0.52
per share of Cambex common stock.
On March 29, 2002, Joseph F. Kruy, Richard E. Calvert, H. Terry Snowday, Jr.
and a person unrelated to the company converted their 10% Subordinated
Convertible Promissory Notes and accrued interest into common stock. They
F-23
were issued 7,540,871 shares of common stock at $0.22 per share. As of
November 21, 2002 none of the 10% Notes remained outstanding.
In the second quarter of 2002, related party holders of secured notes
converted $1,000,000 of principal plus $227,801 of accrued interest into
98,223 shares of Series A Convertible Preferred stock. The Series A
Convertible Preferred shares pay a 12% annual dividend. The purchase price
per share of the Series A Convertible Preferred stock was $12.50. The Series
A Preferred stock is convertible into shares of common stock, at any time at
the holder's option. The holders of the 98,223 shares of Series A Preferred
stock could convert their preferred shares into 982,230 shares of common
stock.
In the second quarter of 2002, one of our lenders converted $1,600,000 of
principal, $487,067 of premium and penalties, $430,733 of interest, and all
attached repricing warrants into 147,240 shares of Series B Convertible
Preferred stock. The Series B Convertible Preferred shares pay a 12% annual
dividend. The purchase price per share of the Series B Convertible Preferred
stock was $17.10. The Series B Preferred stock is convertible into shares of
common stock, at any time at the holder's option. The holders of the 147,240
shares of Series B Preferred stock could convert their Preferred shares into
1,525,939 shares of common stock. The holders of the Series B Convertible
Preferred stock were granted registration rights for the underlying common
stock into which the Preferred is convertible.
(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, 2001, our uninsured cash
balances total $102,813.
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, 2001, our overseas cash
balances total $5,330.
(16) Extraordinary Items
Extraordinary income in 2000 consists of the payment of other liabilities at
a discount from face value.
F-24
"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 ___________ (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 $381.94
Federal taxes
Blue Sky fees
State taxes and fees
Transfer agent's and registrar fees
Legal fees
Accounting fees
Miscellaneous fees
Item 26. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding securities
convertible into or exercisable for shares of our common stock issued by
Cambex within the past three years:
On November 9, 1998, we entered into a Loan and Security Agreement with
B.A. Associates, Inc. (BAA), which is a corporation owned by Bruce Rozelle, a
son-in-law 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, 2001 (as so amended, the "BAA Loan Agreement"), allows
us to borrow up to $1,100,000, which is the maximum that may be outstanding
at any one time. 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.
From June 1, 1999 through August 18, 1999, we borrowed $210,000 in exchange
for the issuance of 10% Subordinated Convertible Promissory Notes in a
transaction exempt under Section 4(2) of the Securities Act. During this time
period Joseph F. Kruy loaned us $100,000, and Richard E. Calvert and H. Terry
Snowday, Jr. each loaned us $55,000 of the total amount that we borrowed. In
addition to the notes, each of the holders received a stock purchase warrant
entitling the holder to purchase one share of common stock for each dollar
loaned to us. The exercise price of these warrants to purchase 210,000 shares
of common stock is $0.50.
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 H. Terry Snowday, Jr. and Richard E. 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. Under these
Loan and Security Agreements, the individuals, who are all accredited
investors, received in a transaction exempt under Section 4(2) of the
Securities Act warrants to purchase up to two shares of common stock for each
dollar loaned to us. The exercise price of these warrants to purchase
1,100,000 shares of common stock 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 a transaction exempt under Section 4(2) of the
Securities Act, received warrants to purchase 616,000 shares of common stock
at an exercise price of $1.25 per share.
In March through May 2001 we borrowed $50,000 from Joseph F. Kruy and
$300,000 from Richard E. Calvert and entered into Loan and Security
Agreements with Messrs. Kruy and Calvert, under which they received in a
transaction exempt under Section 4(2) of the Securities Act warrants to
purchase up to two shares of common stock for each dollar loaned to us. The
exercise price of these warrants to purchase 700,000 shares of common stock
is $0.50 per share. In July through September 2001 we borrowed $100,000 from
Joseph F. Kruy and $100,000 from Richard E. Calvert and entered into Loan and
Security Agreements with Messrs. Kruy and Calvert, under which they received
in a transaction exempt under Section 4(2) of the Securities Act warrants to
purchase up to one share of common stock for each dollar loaned to us. The
exercise price of these warrants to purchase 200,000 shares of common stock
is $0.25 per share.
On March 12, 2002, Cambex Corporation completed the acquisition of Super PC
Memory, Inc., pursuant to the terms of the Stock Purchase and Sale Agreement
dated as of January 31, 2002 and amended as of July 29, 2002 by and among
Cambex Corporation, a Massachusetts corporation, Super PC Memory, Inc., a
California corporation, Son T. Pham, Simon Le and Richard G. Schaefer.
Effective as of March 12, 2002, Super PC Memory, Inc. is a wholly-owned
subsidiary of Cambex Corporation. The sellers, Son T. Pham, Simon Le and
Richard G. Schaefer received 840,000 shares of Cambex Corporation common
stock.
On March 29, 2002, Joseph F. Kruy, Richard E. Calvert, H. Terry Snowday, Jr.
and a person unrelated to the company converted their 10% Subordinated
Convertible Promissory Notes and accrued interest into common stock. They
were issued 7,540,871 shares of common stock at $0.22 per share. As of
November 21, 2002 none of the 10% Notes remained outstanding.
In April through July 2002 we borrowed $125,000 from Joseph F. Kruy and
$50,000 from Richard E. Calvert and entered into Loan and Security Agreements
with Messrs. Kruy and Calvert, under which they received in a transaction
exempt under Section 4(2) of the Securities Act warrants to purchase up to
one share of common stock for each dollar loaned to us. The exercise price of
these warrants to purchase 175,000 shares of common stock is $0.25 per share.
On June 28, 2002, in transactions exempt under Section 4(2) of the Securities
Act, Joseph F. Kruy, Richard E. Calvert, H. Terry Snowday, Jr., and Philip
Hankins converted Loan and Security Agreements with an aggregate principal
amount of $1,000,000 plus accrued interest into Series A Convertible
Preferred stock. They were issued 98,223 shares of Series A Convertible
Preferred stock. The Series A Convertible Preferred shares pay a 12% annual
dividend. The purchase price per share of the Series A Convertible Preferred
stock was $12.50. The Series A Preferred stock is convertible into shares of
common stock, at any time at the holder's option. The holders of the 98,223
shares of Series A Preferred stock could convert their preferred shares into
982,230 shares of common stock. As of November 21, 2002, the balance
outstanding under these Loan Agreements is $275,000 of which $125,000 is owed
to Joseph F. Kruy and $50,000 is owed to Richard E. Calvert.
On June 28, 2002, in transactions exempt under Section 4(2) of the Securities
Act, SovCap Equity Partners, Ltd. converted Series 1 Bridge Financing Note
($1,600,000 of unpaid principal plus interest, premiums and penalties) into
147,240 shares of Series B Convertible Preferred stock. The Series B
Preferred stock is convertible into shares of common stock, at any time at
the holder's option. The holders of the 147,240 shares of Series B Preferred
stock could convert their Preferred shares into 1,525,939 shares of common
stock.
SovCap Equity Partners, Ltd., Arab Commerce Bank Ltd., Correllus
International Ltd., Son T. Pham, Simon Le, Richard G. Schaefer, B.A.
Associates, Inc., Joseph F. Kruy, Philip C. Hankins, Richard E. Calvert and
H. Terry Snowday, Jr. are all accredited investors and have provided us
written representations to that effect.
Item 27. Exhibits
**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).
**3.3 Series A Preferred Stock Certificate of Designations (included as
Exhibit 10.37 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2002 and incorporated herein by reference).
**3.4 Series B Preferred Stock Certificate of Designations (included as
Exhibit 10.39 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2002 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 SovCap Equity
Partners, Ltd. dated as of June 28, 2002
*5.1 Opinion of Counsel.
**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).
**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).
**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).
**10.22 Loan and Security Agreement, as amended, by and between the
Company and B.A. 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.)
**10.23 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 for
the fiscal year ended December 31, 2000 and incorporated herein by
reference.)
**10.24 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
for the fiscal year ended December 31, 2000 and incorporated herein by
reference.)
**10.25 Sixth Amendment to Loan and Security Agreement, as amended, by and
between the Company and B.A. Associates, Inc., dated as of December 27,
2001(included as Exhibit 10.30 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2001 and incorporated herein by
reference).
**10.26 Stock Purchase and Sale Agreement dated as of January 31, 2002 by
and among Cambex Corporation, Super PC Memory, Inc., Son T. Pham,
Simon Le and Richard G. Schaefer (included as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated March 27, 2002, and incorporated herein by
reference).
**10.27 Amendment to the Stock Purchase and Sale Agreement dated as of July
29, 2002 by and among Cambex Corporation, Super PC Memory, Inc., Son T. Pham,
Simon Le and Richard G. Schaefer (included as Exhibit 10.32 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002 and
incorporated herein by reference).
**10.28 Securities Exchange Agreement dated as of June 28, 2002 by and
between the Company and Richard Calvert (included as Exhibit 10.33 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002
and incorporated herein by reference).
**10.29 Securities Exchange Agreement dated as of June 28, 2002 by and
between the Company and H. Terry Snowday (included as Exhibit 10.34 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002
and incorporated herein by reference).
**10.30 Securities Exchange Agreement dated as of June 28, 2002 by and
between the Company and The Hankins Family Trust (included as Exhibit 10.35
to the Company's Quarterly Report on Form 10-QSB for the quarter ended June
30, 2002 and incorporated herein by reference).
**10.31 Securities Exchange Agreement dated as of June 28, 2002 by and
between the Company and Joseph Kruy (included as Exhibit 10.36 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002
and incorporated herein by reference).
**10.32 Securities Exchange Agreement dated as of June 28, 2002 by and
between the Company and SovCap Equity Partners, Ltd (included as Exhibit
10.38 to the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2002 and incorporated herein by reference).
**21.1 List of subsidiaries of the Company (included as Exhibit 21.1 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2001 and incorporated herein by reference).
23.1 Consent of Sullivan Bille, P.C.
**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).
____________
* To be filed by amendment.
** 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.
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.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has duly caused this registration statement to
be signed on its behalf of the undersigned, thereunto duly authorized, in the
City of Waltham, Commonwealth of Massachusetts, on November 25, 2002.
CAMBEX CORPORATION
By:/s/ Joseph F. Kruy
Joseph F. Kruy,
Chief Executive Officer,
President and
Chairman of the Board
POWER OF ATTORNEY
We the undersigned officers and directors of Cambex Corporation hereby
severally constitute and appoint Joseph F. Kruy our true and lawful attorney-
in-fact and agent, with full power of substitution and resubstitution in him
for him and in his name, place and stead, and in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement (or any other Registration Statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933), and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as full to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
that the said attorney-in-fact and agent, or his substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this 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 November 25, 2002
Joseph F. Kruy Officer and President
(principal executive officer)
/s/ Philip C. Hankins Director November 25, 2002
Philip C. Hankins
/s/ C.V. Ramamoorthy Director November 25, 2002
C.V. Ramamoorthy
/s/ Robert J. Spain Director November 25, 2002
Robert J. Spain
Exhibit Index
Exhibit
Number Description of Exhibit
4.3 Registration Rights Agreement between the Company and SovCap Equity
Partners, Ltd. dated as of June 28, 2002
23.1 Consent of Sullivan Bille, P.C.