SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-19726
CAMBIO, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 94-3022377
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6006 North Mesa Street, Suite 515
El Paso, Texas 79912
(Address of principal executive offices)
(915) 581-5828
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of May 18, 1999, 3,832,411 shares of Class A Common Stock, no shares of Class
B Common Stock, and 51,073 shares of Series B Convertible Preferred Stock were
outstanding, which is convertible into 25,536,500 shares of Class A Common
Stock.
CAMBIO, INC.
Form 10-QSB
INDEX
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of March 31, 1999 3
Condensed Consolidated Statements
of Operations for the three months and
nine months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements
of Cash Flows for the nine months
ended March 31, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-12
Part II. Other Information and Signatures 13-14
2
CAMBIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1999
(Unaudited)
ASSETS
Current assets:
Accounts receivable - net of allowance
for doubtful accounts of $255,739 $ 245,000
Prepaids and deposits 47,000
------------
Total current assets 292,000
Property and equipment, net 109,000
Other assets:
Goodwill, net 4,283,000
------------
Total assets $ 4,684,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Bank Overdraft $ 180,000
Short-term borrowings and notes payable 614,000
Accounts payable - trade 1,631,000
Accrued expenses 495,000
Deferred revenue and customer deposits 119,000
------------
Total current liabilities 3,039,000
Long term obligations 250,000
Stockholders' equity:
Stock, Common and Preferred, and Paid in Capital $ 19,732,000
Accumulated deficit (18,337,000)
------------
Total stockholders' equity 1,395,000
------------
Total liabilities and stockholders' equity $ 4,684,000
============
The accompanying notes are an integral part of this statement
3
CAMBIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net revenue $ 373,000 $ 760,000
Cost of sales 171,000 244,000
----------- -----------
Gross profit 202,000 516,000
Selling, general and administrative expenses 1,271,000 $ 697,000 3,751,000 $ 1,114,000
Research and development expense 60,000 313,000
Loss from operations (1,129,000) (697,000) (3,548,000) (1,114,000)
----------- ----------- ----------- -----------
Other income (expense):
Interest and other income 46,000 127,000
Interest expense (35,000) (3,000) (62,000) (16,000)
----------- ----------- ----------- -----------
Total other income (expense) (35,000) 43,000 (62,000) 111,000
----------- ----------- ----------- -----------
Loss before discontinued operations (1,164,000) (654,000) (3,610,000) (1,003,000)
----------- ----------- ----------- -----------
Income (loss) from operations of
Discontinued businesses (170,000) (147,000) (170,000) 646,000
----------- ----------- ----------- -----------
Net income (loss) $(1,334,000) $ (801,000) $(3,780,000) $ (357,000)
=========== =========== =========== ===========
Basic and diluted net (loss) per common share
Continuing operations $ (0.31) $ (0.34) $ (1.04) $ (0.52)
=========== =========== =========== ===========
Basic and diluted net income per common
share - discontinued operations $ (0.04) $ (0.08) $ (0.05) $ 0.34
=========== =========== =========== ===========
Basic and diluted net income (loss) per
Common share $ (0.35) $ (0.42) $ (1.09) $ (0.18)
=========== =========== =========== ===========
Weighted average shares outstanding 3,832,000 1,907,000 3,488,000 1,923,000
<FN>
The accompanying notes are an integral part of these statements
</FN>
4
CAMBIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
---------
1999 1998
----------- -----------
Cash flows from operating activities: $(1,954,000) $ 44,000
Cash flows from investing activities: (745,000) 1,048,000
Cash flows from financing activities: 1,375,000 (473,000)
Net change in cash and cash equivalents (1,324,000) 619,000
Cash and cash equivalents at beginning of period 1,324,000 2,929,000
----------- -----------
Cash and cash equivalents at end of period $ 0 $ 3,548,000
=========== ===========
The accompanying notes are an integral part of these statement
5
CAMBIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements of Cambio,
Inc., formerly Meadowbrook Rehabilitation Group, Inc. and its subsidiaries
(collectively, the "Company") for the three and nine months ended March 31,
1999 and 1998 have been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information
includes all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of this interim information. Operating
results and cash flows for interim periods are not necessarily indicative
of results for the entire year. The information included in this report
should be read in conjunction with the Company's audited financial
statements and notes thereto included in the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1998 previously filed with the
Securities and Exchange Commission.
2. Cambio, Inc. is a global leader in telecommunications infrastructure
management. The company supplies software and professional services for
Operations Support Systems (OSS) of telecommunications industries and
general enterprise networks. Our flagship product, netRunner(TM)is designed
to improve telecommunications service providers' return on capital assets
and their time to service metrics. It was introduced late October 1998. It
allows service providers the ability to quickly build, provision, and view
networks and their utilization. It integrates with other applications such
as Hewlett Packard's OpenView and OEMF. It runs on Windows 95/98(TM)or
Windows NT(TM)operating systems and supports industry standard relational
database, Oracle, running on Windows or UNIX environments. Through the
Company's subsidiary, Cambio Networks, Inc., it also provides systems
support and consulting to customers using its COMMAND product.
Prior to Fiscal 1999 the Company provided outpatient, home health and
traditional acute, sub-acute and post-acute comprehensive rehabilitation
services through its various subsidiaries. These operations were
discontinued effective June 30, 1998.
On February 2, 1999, the Company entered into an agreement with Imperial
Loan Management Corporation ("Imperial") whereby the Company sold all of
the issued and outstanding stock of its discontinued healthcare
subsidiaries (the "Subsidiaries") to Imperial. As part of the agreement,
Imperial will use its best efforts to liquidate each of the Subsidiaries,
settling outstanding obligations and collecting all amounts due. The
Company remains a guarantor of the Subsidiaries' outstanding indebtedness,
which approximates $680,000 as of May 18, 1999, and is entitled to receive
one-half of proceeds received after payment of all expenses, including the
outstanding indebtedness. In connection with this transaction, the Company
recorded a charge to write-off the net asset remaining from discontinued
operation.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT EVENTS
Disposition of Healthcare Operations
Prior to June 30, 1998, Cambio, Inc., formerly Meadowbrook
Rehabilitation Group, Inc. and its subsidiaries (collectively, the "Company" or
"Cambio") provided outpatient, home health, and traditional acute, sub-acute and
post-acute comprehensive rehabilitation services. Since the beginning of Fiscal
1997, and as a result of poor operating results and poor prospects for growth in
their respective markets, the Company has sold or closed all of its healthcare
operating assets. As of June 30, 1998, the Company's assets consisted almost
exclusively of cash and accounts receivable.
The termination of the Company's healthcare operations was completed
during the fourth quarter of Fiscal 1998 after its Board of Directors approved
the closure or disposal of its home health agencies in Colorado and Kansas and
physical therapy clinics in Colorado. The closing and/or sale of such operations
were substantially completed on June 30, 1998.
The estimated loss on the disposition of these facilities recognized in
the Company's statements of operations for the year ended June 30, 1998 ("Fiscal
1998") includes the writedown of property and equipment to market value, the
write-off of goodwill, closedown expenses and the operating losses through the
disposition date.
On February 2, 1999, the Company entered into an agreement with
Imperial Loan Management Corporation ("Imperial") whereby the Company sold all
of the issued and outstanding stock of its discontinued healthcare subsidiaries
(the "Subsidiaries") to Imperial. As part of the agreement, Imperial will use
its best efforts to liquidate each of the Subsidiaries, settling outstanding
obligations and collecting all amounts due. The Company remains a guarantor of
the Subsidiaries' outstanding indebtedness, which approximates $680,000 as of
May 18, 1999, and is entitled to receive one-half of proceeds received after
payment of all expenses, including the outstanding indebtedness. In connection
with this transaction, the Company recorded a charge to write-off the net asset
remaining from discontinued operations.
Acquisition of Cambio Networks, Inc.
On September 14, 1998, the Company acquired Cambio Networks, Inc.
("Cambio Networks"), pursuant to an Agreement and Plan of Merger, dated as of
April 3, 1998, as amended by the Agreement of Amendment, dated as of July 27,
1998 (collectively, the "Agreement"). Under the terms of the Agreement, Cambio's
shareholders received an aggregate 1,238,842 of shares of the Company's Class A
Common Stock representing approximately 32.3% of the outstanding Class A and
Class B Common Stock. From the date of the acquisition, the Company's operations
consist solely of the acquired operations. Accordingly, the Company's historical
results of operations are not comparable to its future operating results.
7
Delisting of Class A Common Stock From NASDAQ
On October 20, 1998, the Company received notice of a decision by the
NASDAQ Stock Market to delist the Company's Class A Common Stock from the NASDAQ
National Market effective with the close of business on October 20, 1998.
Additionally, at that time, the Company did not meet, and currently does not
meet, the requirements to transfer its listing to the NASDAQ SmallCap Market.
Accordingly, trading in the Company's Class A Common Stock is being conducted on
the OTC Bulletin Board.
Name and Trading Symbol Change
On October 20, 1998, Meadowbrook Rehabilitation Group, Inc.
("Meadowbrook"), changed its name to Cambio, Inc. The name change was effected
by merging its wholly owned subsidiary, Cambio Acquisition Corporation into
Meadowbrook, and simultaneously changing its name to Cambio, Inc. In addition,
the trading symbol changed to CAMB and its new CUSIP number is 13200N 10 0. The
name change will serve to better reflect the development plans, current business
model, and future objectives of the organization.
Sale of Preferred Stock
On January 31, 1999, the Company's Board of Directors (the "Board")
approved the issuance of up to 37,500 shares of a newly created Convertible
Preferred Stock initially designated as Series A but now designated as Series B
(the "Preferred Stock") for $100.00 per share, an aggregate consideration of up
to $3,750,000. Each share of Preferred Stock is convertible into 500 shares of
the Company's Class A Common Stock or $0.20 per share and is entitled to receive
dividends in an amount equal to the equivalent per share dividend declared on
the Class A Common Stock when and as declared by the Board of Directors. On
February 3, 1999, Frederick Adler and Euro-America II, L.P. (collectively the
"Investor Group") converted certain indebtedness owing to them from the Company
in the aggregate amount of $1,057,318 into 10,573 shares of the Company's
Preferred Stock. Upon conversion the Investor Group would be issued an
equivalent of 5,286,590 shares of the Company's Class A Common Stock. The
Investor Group also purchased an additional $425,000 or 4,250 shares of
Preferred Stock, which upon conversion the Investor Group would be issued an
equivalent of 2,125,000 shares of the Company's Class A Common Stock. On April
29, 1999, the Board approved the issuance of an additional 62,500 shares of
Preferred Stock. As of May 18, 1999, the company has sold a total of 51,073
shares of Preferred Stock.
Management Changes
On February 3, 1999, Harvey Wm. Glasser, ("Dr. Glasser") the Company's
former Chairman and Chief Executive Officer, exchanged each share of Class B
Common Stock held by him for one share of Class A Common Stock of the Company,
and resigned from his position as Chief Executive Officer and Chairman of the
Board. On that same day, Mr. Ali Al-Dahwi was appointed Chief Executive Officer
and Mr. John P. McCracken resigned from the Board. The Company has yet to
appoint a Chairman of the Board. On March 10, 1999, Dr. Glasser resigned from
the Board.
Forward-looking Statements
In addition to the historical information contained herein, this Form
10-QSB contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to risks and uncertainties,
including risks and uncertainties set forth in this Form 10-QSB that may cause
actual results to differ materially. These forward-looking statements speak only
as of the date hereof. The Company disclaims any intent or obligation to update
these forward-looking statements.
8
RESULTS OF OPERATIONS
Three months ended March 31, 1999 as Compared to Three months ended March 31,
1998
Net revenues from continuing operations for the three months ended
March 31, 1999 ("Third Quarter Fiscal 1999") were $373,000. Revenues for the
same period last year were comprised only of discontinued operations. The net
loss for the Third Quarter Fiscal 1999 was $1,334,000 or $0.35 per share and was
primarily due to expenses associated with the development and introduction of
the Company's new flagship product, netRunner.
Nine months ended March 31, 1999 as Compared to Nine months ended March 31, 1998
Net revenues for the Nine Months Fiscal 1999 were $760,000. Revenues
for the same period last year were comprised only of discontinued operations.
Revenues for the current period include Cambio Networks operations following its
acquisition in September 1998.
During the month of January 1999 the Company entered into two
agreements to license its netRunner operations support system with two global
telecommunications companies. These agreements will generate over $1,000,000 in
revenues comprised of license, professional services and support fees over the
next 15 months. Cambio first introduced its flagship product, netRunner, in late
October 1998, and a few months later was selected by Hewlett-Packard, a leading
global provider of computing solutions, as a subcontractor to provide the
software and professional services in connection with these projects. The
Company believes it will continue to see more orders from Hewlett-Packard in the
near future as it cultivates and solidifies its global presence.
netRunner is designed to run under Windows 95, 98 or NT operating
systems using current development technologies. Extensions to netRunner are
continuously being developed to allow the product to integrate and interface to
other commonly used third party network element management products, help desks
and data bases allowing the Company's customers to economically implement the
plan and design of their network and manage increasing network costs
effectively.
Immediately following the acquisition of Cambio Networks in September
1998, the Company implemented a restructuring plan involving the closing and
relocating of Cambio Networks' headquarters from Bellevue, Washington to an
already existing office in Dallas, Texas. In addition, the Company moved its
research and development offices to El Paso, Texas and it assimilated Cambio
Networks' finance and accounting functions into its already existing
capabilities in Emeryville, California. The Company maintained its sales and
service offices domestically in Parsippany, New Jersey until its closure in
December 1998. The sales and services offices are currently in Washington D.C.,
Dallas, TX, and El Paso, TX in the U.S. and internationally in Egypt and the
United Kingdom. In an effort to further consolidate its operations, in February
1999 it decided to close its Emeryville, California office and move all finance
and administrative functions to its El Paso, Texas office.
Selling, general and administrative ("SG&A") expenses for the Nine
Months Fiscal 1999 were $3,751,000 a 237% increase from SG&A expenses of
$1,114,000 for the Nine Months Fiscal 1998. The increase in SG&A expenses was
primarily due to increased expenses associated with launching netRunner coupled
with the closure and or relocation of its offices as described above and
amortization of the goodwill associated with the acquisition of Cambio Networks.
SG&A expenses for the Nine Months Fiscal 1998 include only the administrative
costs not associated with the discontinued operations.
Research and development ("R&D") expense for the Nine Months Fiscal
1999 was $313,000. The Company incurred R&D expenses primarily as a result of
its new product development.
9
Net interest expense for the Nine Months Fiscal 1999 was $62,000 as
compared to a net interest expense of $16,000 for the Nine Months Fiscal 1998.
The increase relates to debt assumed in the acquisition of Cambio Networks'
interest expense on its existing debt.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had negative working capital of
$2,747,000, compared to working capital of $2,176,000 at June 30, 1998. The
Company's working capital position decreased following the acquisition of Cambio
Networks due to the consolidation of accounts and the elimination receivables
from the subsidiary . The Company had no cash and cash equivalents at March 31,
1999, as compared to $1,324,000 at June 30, 1998. The Company's cash and working
capital position decreased due to loans made to Cambio Networks prior to the
closing of the acquisition and the continued funding of the operations after the
closing of the acquisition.
During the Nine Months Fiscal 1999, the Company's operating activities
used cash of $1,954,000, as compared to cash provided by operating activities of
$44,000 during the same period in the prior fiscal year. The cash used for
operating activities during the Nine Months Fiscal 1999 is primarily the result
of the losses incurred.
As of June 30, 1998, the Company had net operating loss carryforwards
of approximately $8,500,000. Availability of the Company's net operating loss
carryforwards if not utilized will expire at various dates through the year
2013. Utilization of net operating loss carryforwards may be limited due to the
recent sales of its preferred stock.
The Company has no current material commitments for capital
expenditures. The Company also expects to make routine capital improvements to
its facilities in the normal course of business.
The Company's current operations are cash flow negative and as of March
31, 1999, the Company had negative working capital of $2,283,000. The Company
will need additional capital to fund its operations. There can be no assurance
that capital will be available, or that, if available, it can be obtained on
terms favorable to the Company. If adequate funds are not available, the
Company's liquidity could be impaired, which would have a material adverse
effect on its business.
In May 1999 the Company completed the sale of $3.6 million of Series B
Convertible Preferred Stock through direct purchase and conversion of
indebtedness.
Inflation in recent years has not had a significant effect on the
Company's business and is not expected to adversely effect the Company in the
future unless the current rate of inflation increases significantly.
Other Factors That May Affect Future Operating Results
Cambio Networks has incurred significant net losses since its
inception. There can be no assurance that the Company will be profitable in any
future period. The Company's business will also subject to the risks inherent in
the operation of a new business enterprise, and there can be no assurance it
will be able to successfully address such risks.
Fluctuating Operating Results. Factors that may contribute to future
fluctuations in the Company's quarterly and annual operating results include,
but are not limited to: (i) development and introduction of new operating
systems and new product development expenses; (ii) introduction or enhancement
of products by the Company; (iii) changes in pricing policies of the Company or
its competitors; (iv) increased competition; (v) technological changes in
computer systems and environments; (vi) the ability of the Company to timely
develop, introduce and market new products; (vii) quality control of products
sold; (viii) market readiness to deploy systems management products for
distributed computing environments; (ix) market acceptance of new products and
product enhancements; (x) customer order deferrals in anticipation of new
products and product enhancements; (xi) the Company's success in expanding its
sales and marketing programs; (xii) personnel changes; (xiii) foreign currency
exchange rates; (xiv) mix of products sold; (xv) acquisition costs; and (xvi)
general economic conditions.
10
Intense Competition. The markets in which the Company competes are
intensely competitive, highly fragmented and rapidly changing. In order to
compete effectively, the Company will have to enhance current products, enhance
the operability of its products with one another and develop new products in a
timely fashion.
The Company anticipates continued growth in competition in the
telecommunications industry and consequently, the entrance of new competitors
into the software systems market in the future. To maintain and improve its
competitive position, the Company must continue to develop and introduce, in a
timely and cost-effective manner, new product sets, new product features and
services and support that keep the Company competitive with its competitors. The
principal competitive factors in the Company's market are quality, performance,
price, customer support and training, business reputation, and product
attributes such as scalability, compatibility, functionality and acceptance. In
addition, the Company competes with a number of companies that have
substantially greater financial, technical, sales, marketing and other resources
as well as greater name recognition than the Company. As a result, the Company's
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
promotion and sale of their products and services than can the Company. There
can be no assurance that the Company will be able to compete successfully with
its existing competitors or with new competitors.
Risks Associated With International Operations. Historically, revenues
from sales outside the United States have accounted for a significant amount of
Cambio Networks' total revenues. The Company believes that its success depends
upon continued expansion of its international operations. The Company currently
has sales and service offices in the United Kingdom and Egypt. International
expansion may require the Company to establish additional foreign offices, hire
additional personnel and recruit additional international resellers. This may
require significant management attention and financial resources and could
adversely affect the Company's operating margins. To the extent the Company is
unable to effect these additions efficiently and in a timely manner, its growth,
if any, in international sales will be limited, and its business, operating
results and financial condition could be materially adversely affected. There
can be no assurance that the Company will be able to maintain or increase
international market demand for its products.
International operations subject the Company to a number of risks
inherent in developing products for sale outside of the United States, including
the potential loss of developed technology, imposition of governmental controls,
export license requirements, restrictions on the export of critical technology,
political and economic instability, trade restrictions, difficulties in managing
international operations, cultural differences in the conduct of business,
extended accounts receivable collection cycles, greater difficulty in accounts
receivable collection, unexpected changes in regulatory requirements and royalty
and withholding taxes that restrict the repatriation of earnings, tariffs and
other trade barriers, the burden of complying with a wide variety of foreign
laws, and the risk of foreign currency gains and losses. There can be no
assurance that any of the factors described herein will not have a material
adverse effect on the Company's future international sales and operations and,
consequently, its business, operating results and financial condition.
Reliance on Significant Customers. Historically, Cambio Networks has
generated a significant portion of its total revenues from a limited number of
customers, some of which have exceeded 10% of revenues. This concentration of
customers can cause the Company's revenues and earnings to fluctuate from
quarter to quarter based on these customers' requirements and the timing of
their orders. Although the Company believes it has good relationships with its
largest customers and has in the past received a substantial portion of its
revenues from repeat business with established customers, none of the Company's
major customers has any obligation to purchase additional products or services,
and these customers generally have acquired fully-paid licenses to their
installed systems. Therefore, there can be no assurance that any of the
Company's major customers will continue to purchase new systems, systems
enhancements and services in amounts similar to previous years. A reduction,
delay or cancellation in orders from any of its major customers would have a
material adverse effect on the Company's results of operations and financial
condition. In addition, the acquisition by a third party of one of the Company's
major customers could result in the loss of that customer and have a material
adverse effect on the Company's results of operations and financial condition.
11
Rapid Technological Change and Requirement for Frequent Product
Transitions. The market for the Company's products is intensely competitive,
highly fragmented and characterized by rapid technological developments,
evolving industry standards and rapid changes in customer requirements. The
introduction of products embodying new technologies, the emergence of new
industry standards or changes in customer requirements could render the
Company's existing products obsolete and unmarketable. As a result, the
Company's success depends upon its ability to continue to enhance existing
products, respond to changing customer requirements and develop and introduce in
a timely manner, new products that keep pace with technological developments and
emerging industry standards. Customer requirements include, but are not limited
to, product operability and support across distributed and changing
heterogeneous hardware platforms, operating systems, relational databases and
networks. There can be no assurance that the Company's products will achieve
market acceptance or will adequately address the changing needs of the
marketplace or that the Company will be successful in developing and marketing
enhancements to its existing products or new products incorporating new
technology on a timely basis. The Company has in the past experienced delays in
product development, and there can be no assurance that the Company will not
experience further delays in connection with its current product development or
future development activities. If the Company is unable to develop and introduce
new products, or enhancements to existing products, in a timely manner in
response to changing market conditions or customer requirements, the Company's
business, operating results and financial condition will be materially adversely
affected. Because the Company has limited resources, the Company must restrict
its product development efforts and its porting efforts to a relatively small
number of products and operating systems. There can be no assurance that these
efforts will be successful or, even if successful, that any resulting products
or operating systems will achieve market acceptance.
Dependence on Key Employees. The Company is highly dependent on the
principal members of its management staff, including Mr. Ali Al-Dahwi, its
President and Chief Executive Officer, the loss of whose services would have a
material adverse effect on the Company's business. Cambio does not maintain any
key person life insurance policy on the life of any employee. Failure to attract
and retain key personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
Year 2000 Compliance. The Company is currently evaluating the potential
impact of the Year 2000 difficulties on the processing of date-sensitive
information by the Company's computerized information system. The Year 2000
problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Any of the Company's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculations
or system failures. Based on preliminary information, the costs of addressing
the potential problems are not currently expected to have a material adverse
effect on the Company's financial position, liquidity or results of operations
in future periods. The software currently offered by the Company is either
designed to be Year 2000 compliant or has been upgraded to be Year 2000
compliant. However, if the Company, or its customers or vendors, are unable to
resolve such processing issues in a timely manner, it could pose a material
financial risk. Accordingly, the Company plans to devote the necessary resources
to resolve all significant Year 2000 issues in a timely manner.
12
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
On January 31, 1999, the Company's Board of Directors (the "Board")
approved the issuance of up to 37,500 shares of a newly created Series
B Convertible Preferred Stock (the "Preferred Stock") for $100.00 per
share, an aggregate consideration of up to $3,750,000. Each share of
Preferred Stock is convertible into 500 shares of the Company's Class A
Common Stock or $0.20 per share and is entitled to receive dividends in
an amount equal to the equivalent per share dividend declared on the
Class A Common Stock when and as declared by the Board of Directors. On
April 29, 1999, the Board approved the issuance of an additional 62,500
shares of Preferred Stock. As of May 18, 1999, the company has sold a
total of 51,073 shares of Preferred Stock.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit No.
10.4 Certificate of the Designations, Powers, Preferences, and
Rights of the Series B Convertible Preferred Stock.
27.1 Financial Data Schedule.
B. Reports on Form 8-K
None
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Cambio, Inc.
/s/ Ali Al-Dahwi
- ------------------------------
Ali Al-Dahwi
President and Chief Executive
Officer
/s/ Carolyn J. Durrett
- ------------------------------
Carolyn J. Durrett
Controller
(Principal Accounting
and Financial Officer)
May 18, 1999
14