FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Quarterly Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For the Quarter Ended: September 27, 1997 Commission File No: 0-6933 CAMBEX CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-244-2959 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 360 Second Avenue, Waltham, Massachusetts (Address of principal executive offices) 02154 (Zip Code) Registrant's telephone number, including area code: (617) 890-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 27, 1997 AND DECEMBER 31, 1996 (UNAUDITED) ASSETS SEPTEMBER 27, DECEMBER 31, 1997 1996 ------------- ------------- CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 103,199 $ 615,949 ACCOUNTS RECEIVABLE, LESS RESERVES OF $131,000 ON SEPTEMBER 27, 1997 AND $131,000 ON DECEMBER 31, 1996 1,578,296 1,934,708 CURRENT PORTION OF INVESTMENT IN SALES-TYPE LEASES, NET OF UNEARNED INTEREST INCOME OF $5,000 ON SEPTEMBER 27, 1997 AND $34,000 ON DECEMBER 31, 1996 58,383 423,220 INVENTORIES 4,579,538 6,200,033 PREPAID TAXES - 2,335,295 PREPAID EXPENSES 73,078 135,721 -------------- -------------- TOTAL CURRENT ASSETS $ 6,392,494 $ 11,644,926 -------------- -------------- LONG-TERM INVESTMENT IN SALES-TYPE LEASES, NET OF UNEARNED INTEREST INCOME OF $1,000 ON SEPTEMBER 27, 1997 AND $5,000 ON DECEMBER 31, 1996 $ 40,993 $ 162,971 LEASED EQUIPMENT, AT COST, NET OF ACCUMULATED DEPRECIATION OF $154,000 ON SEPTEMBER 27, 1997 AND $244,000 ON DECEMBER 31, 1996 $ 65,983 $ 140,417 PROPERTY AND EQUIPMENT, AT COST: MACHINERY AND EQUIPMENT $ 3,027,962 $ 7,379,202 FURNITURE AND FIXTURES 247,173 304,666 LEASEHOLD IMPROVEMENTS 620,949 620,949 -------------- -------------- $ 3,896,084 $ 8,304,817 LESS - ACCUMULATED DEPRECIATION AND AMORTIZATION 3,349,135 7,258,383 -------------- -------------- NET PROPERTY AND EQUIPMENT $ 546,949 $ 1,046,434 OTHER ASSETS TECHNOLOGY LICENSE/MARKETING AGREEMENT, NET OF ACCUMULATED AMORTIZATION OF $8,500,000 ON SEPTEMBER 27, 1997 AND ON DECEMBER 31, 1996 $ - $ - OTHER 37,830 37,830 -------------- -------------- TOTAL ASSETS $ 7,084,249 $ 13,032,578 ============== ============== -2- CONSOLIDATED BALANCE SHEETS SEPTEMBER 27, 1997 AND DECEMBER 31, 1996 (UNAUDITED) LIABILITIES AND STOCKHOLDERS' INVESTMENT SEPTEMBER 27, DECEMBER 31, 1997 1996 ------------- -------------- CURRENT LIABILITIES: REVOLVING CREDIT AGREEMENT $ -- $ 1,800,000 ACCOUNTS PAYABLE 4,670,813 4,329,638 OBLIGATIONS FOR TRADE-IN MEMORY 1,014,250 1,036,235 ACCRUED EXPENSES 710,429 1,319,237 ------------- -------------- TOTAL CURRENT LIABILITIES $ 6,395,492 $ 8,485,110 ------------- -------------- DEFERRED REVENUE $ 555,352 $ 1,022,751 STOCKHOLDERS' INVESTMENT: PREFERRED STOCK, $1.00 PAR VALUE PER SHARE AUTHORIZED - 3,000,000 SHARES ISSUED - NONE -- -- COMMON STOCK, $.10 PAR VALUE PER SHARE - AUTHORIZED - 25,000,000 SHARES ISSUED - 10,636,108 SHARES ON SEPTEMBER 27, 1997 AND 10,614,139 SHARES ON DECEMBER 31, 1996 $ 1,063,611 $ 1,061,414 CAPITAL IN EXCESS OF PAR VALUE 15,814,783 15,792,105 CUMULATIVE TRANSLATION ADJUSTMENT 246,819 183,355 RETAINED EARNINGS (DEFICIT) (16,137,042) (12,657,391) LESS - COST OF SHARES HELD IN TREASURY - 1,534,356 ON SEPTEMBER 27, 1997 AND ON DECEMBER 31, 1996 (854,766) (854,766) ------------- -------------- TOTAL STOCKHOLDERS' INVESTMENT $ 133,405 $ 3,524,717 ------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 7,084,249 $ 13,032,578 ============= ============== -3- CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (UNAUDITED) QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ REVENUES $ 1,225,125 $ 4,192,637 $ 8,627,760 $ 19,335,991 COST OF SALES 1,095,324 2,588,188 5,793,832 10,404,423 ------------ ------------- ------------- ------------- GROSS PROFIT $ 129,801 $ 1,604,449 $ 2,833,928 $ 8,931,568 OPERATING EXPENSES: RESEARCH AND DEVELOPMENT $ 555,043 $ 886,381 $ 2,067,447 $ 2,969,174 SELLING 705,902 1,679,713 2,912,404 5,483,343 GENERAL AND ADMINISTRATIVE 357,672 484,262 1,070,165 1,713,160 ------------ ------------- ------------- ------------- $ 1,618,617 $ 3,050,356 $ 6,050,016 $ 10,165,677 ------------ ------------- ------------- ------------- OPERATING INCOME (LOSS) $(1,488,816) $ (1,445,907) $ (3,216,088) $ (1,234,109) OTHER INCOME (EXPENSE): INTEREST EXPENSE $ (30,999) $ (61,681) $ (74,453) $ (196,814) INTEREST INCOME 2,368 28,317 21,686 84,889 OTHER INCOME (EXPENSE) (166,886) (439,536) (210,796) (1,356,613) ------------ ------------- ------------- ------------- INCOME (LOSS) BEFORE INCOME TAXES $(1,684,333) $ (1,918,807) $ (3,479,651) $ (2,702,647) PROVISION FOR INCOME TAXES $ 0 $ 0 $ 0 $ 0 ------------ ------------- ------------- ------------- NET INCOME (LOSS) $(1,684,333) $ (1,918,807) $ (3,479,651) $ (2,702,647) ============ ============= ============= ============= NET INCOME (LOSS) PER COMMON SHARE $ (0.18) $ (0.21) $ (0.38) $ (0.30) ============ ============= ============= ============= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 9,090,000 9,000,000 9,090,000 8,975,000 -4- CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 FOR THE NINE MONTHS ENDED SEPTEMBER 27, SEPTEMBER 28, 1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (3,479,651) $ (2,702,647) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization $ 587,258 $ 1,841,578 Amortization of prepaid expenses 28,990 14,074 Common stock issued in lieu of cash -- 161,715 Change in assets and liabilities: Decrease (increase) in accounts receivable 356,412 (2,225,309) Decrease in inventory 1,620,495 886,207 Decrease in investment in sales-type leases 486,815 10,255 Decrease in prepaid taxes 2,335,295 2,257,928 Decrease in prepaid expenses 33,653 3,787 Decrease in other assets -- 45 Increase in accounts payable 341,175 372,906 Decrease in obligations for trade-in memory (21,985) (319,456) Increase (decrease) in accrued liabilities (608,808) 419,544 Increase (decrease) in deferred revenue (467,399) 172,539 ------------- ------------ Total adjustments $ 4,691,901 $ 3,595,813 ------------- ------------ Net cash provided by operating activities $ 1,212,250 $ 893,166 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Equipment $ (13,339) $ (123,258) ------------ ------------ Net cash used in investing activities $ (13,339) $ (123,258) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock $ 24,875 $ 61,491 Repayments under revolving credit agreement (1,800,000) (920,000) ------------- ------------ Net cash used in financing activities $ (1,775,125) $ (858,509) Effect of exchange rate changes on cash 63,464 (117,281) ------------ ------------ Net increase (decrease) in cash and cash equivalents $ (512,750) $ (205,882) Cash and cash equivalents at beginning of period $ 615,949 $ 588,322 ------------- ------------ Cash and cash equivalents at end of period $ 103,199 $ 382,440 ============= ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 43,454 $ 196,814 Income Taxes -- 12,263 -5- FORM 10-Q CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: September 27, 1997 Commission File No: 0-6933 Notes & Comments: (1)Significant Accounting Policies The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The Company has deferred revenue associated with the sale of certain products which have future performance obligations, relating to reinstallation of IBM memory and maintenance. The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The information furnished includes all adjustments and accruals consisting only of normal recurring accrual adjustments which are, in the opinion of management, necessary for a fair presentation of results for the interim period. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Inventories, which include raw materials, labor and manufacturing overhead are stated at the lower of cost (first-in, first-out) or market and consist of the following: September 27, December 31, 1997 1996 Raw materials $2,463,054 $ 2,386,454 Work-in-process 1,004,292 861,073 Finished goods 1,072,192 2,765,066 Trade-in memory - 187,500 $4,579,538 $ 6,200,033 - 6 - FORM 10-Q CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: September 27, 1997 Commission File: 0-6933 Notes & Comments (Continued): (2) Income and Dividends Per Share Per share amounts are based on the weighted average number of shares outstanding during each year plus applicable common stock equivalents. There were no material differences for per share amounts assuming full dilution in either year. (3) Management's Discussion and Analysis of Financial Condition and Results of Operations Revenues for the third quarter ended September 27, 1997 decreased 71% from the comparable three months of the prior year due to decreased sales of the Company's mainframe storage and client/server storage products. The gross profit of 11% for the third quarter of 1997 was lower than the 38% achieved in 1996 due to product mix and to the relative amount of fixed costs in relation to lower revenues. Operating expenses for the three months ended September 27, 1997 decreased 47% from the comparable three months of the prior year due principally to the cost savings achieved through a work force reduction and other expense controls put in place. Other expense for the three months ended September 28, 1996 included approximately $425,000 in amortization expenses relating to the Company's technology license/marketing agreement, which was amortized over a five year period, ending in 1996. During the first quarter, the Company received approximately $2,300,000 in cash from the Internal Revenue Service, which represented the refund due from prior periods. This refund was then used to repay the Company's outstanding debt under its Revolving Credit Agreement. After the final payment to its bank, the Revolving Credit Agreement was terminated and the bank released its security interest in the Company's accounts receivable, inventory and general intangibles. - 7 - FORM 10-Q CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: September 27, 1997 Commission File: 0-6933 Notes & Comments (Continued): On July 25, 1997, the Cambex common stock ceased being traded on the Nasdaq stock market and began trading on the OTC bulletin board (symbol: CBEX). On October 10, 1997, Cambex filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code in Boston, Massachusetts. By filing this petition, Cambex will be given the opportunity to reorganize and restructure its indebtedness under court protection. The Company plans to file its Plan for Reorganization during the first quarter of 1998. - 8 - FORM 10-Q CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: September 27, 1997 Commission File: 0-6933 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMBEX CORPORATION By: /s/ Joseph F. Kruy Joseph F. Kruy President By: /s/ Sheldon M. Schenkler Sheldon M. Schenkler Chief Financial Officer Dated: November 10, 1997 - 9 -