10QSB 1 q102.txt FORM 10-QSB 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: March 31, 2002 Commission File No: 0-6933 CAMBEX CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-244-2959 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 360 Second Avenue, Waltham, Massachusetts (Address of principal executive offices) 02451 (Zip Code) Registrant's telephone number, including area code: (781) 890-6000 Indicate by "X" 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 Indicate the number of share outstanding of each of the issuer's classes of common stock, As of the latest practicable date. Class Outstanding as of March 31, 2002 Common 18,040,351 shares Part I. FINANCIAL INFORMATION Item 1. Financial Statements CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2002 AND DECEMBER 31, 2001 ASSETS MARCH 31, DECEMBER 31, 2002 2001 CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 219,751 $ 209,573 ACCOUNTS RECEIVABLE, Less Reserves of $88,000 in 2002 and $58,000 in 2001 3,091,989 240,384 INVENTORIES 1,359,445 472,910 PREPAID EXPENSES 77,696 56,729 TOTAL CURRENT ASSETS $ 4,748,881 $ 979,596 PROPERTY AND EQUIPMENT, at cost: MACHINERY AND EQUIPMENT $ 3,064,767 $ 3,052,887 FURNITURE AND FIXTURES 162,625 162,625 LEASEHOLD IMPROVEMENTS 602,092 602,092 $ 3,829,484 $ 3,817,604 LESS - ACCUMULATED DEPRECIATION AND AMORTIZATION 3,781,261 3,772,186 NET PROPERTY AND EQUIPMENT $ 48,223 $ 45,418 OTHER ASSETS DEFERRED OFFERING COSTS $ 427,975 $ 427,975 GOODWILL 168,070 - OTHER 45,796 37,830 TOTAL OTHER ASSETS $ 641,841 $ 465,805 TOTAL ASSETS $ 5,438,945 $ 1,490,819 2 CONSOLIDATED BALANCE SHEETS MARCH 31, 2002 AND DECEMBER 31, 2001 LIABILITIES AND STOCKHOLDERS' INVESTMENT MARCH 31, DECEMBER 31, 2002 2001 CURRENT LIABILITIES: LINE OF CREDIT $ 1,606,481 $ - LOAN AGREEMENT 1,045,296 1,057,991 NOTES PAYABLE 2,850,000 2,850,000 ACCOUNTS PAYABLE 2,501,753 826,852 OBLIGATIONS FOR TRADE-IN MEMORY 240,000 240,000 OTHER LIABILITIES-SHORT TERM PORTION 2,631,057 2,629,765 ACCRUED EXPENSES 2,284,309 1,950,672 TOTAL CURRENT LIABILITIES $ 13,158,896 $ 9,555,280 LONG TERM DEBT $ - $ 1,273,730 OTHER LIABILITIES-LONG TERM PORTION 77,330 84,642 DEFERRED REVENUE - - 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 -19,585,609 shares in 2002, and 11,484,738 shares in 2001 $ 1,958,561 $ 1,148,474 CAPITAL IN EXCESS OF PAR VALUE 17,358,782 16,268,677 ACCUMULATED OTHER COMPREHENSIVE INCOME 102,677 102,677 RETAINED EARNINGS (DEFICIT) (26,328,330) (26,053,690) LESS - COST OF SHARES HELD IN TREASURY 1,545,258 in 2002 and in 2001 (888,971) (888,971) TOTAL STOCKHOLDERS' INVESTMENT $ (7,797,281) $ (9,422,833) TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 5,438,945 $ 1,490,819 3 CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001 March 31, March 31, 2002 2001 REVENUES $ 2,228,708 $ 416,942 COST OF SALES 1,508,021 228,116 Gross profit $ 720,687 $ 188,826 OPERATING EXPENSES: Research and development $ 237,178 $ 291,564 Selling 429,512 146,522 General and administrative 134,831 114,389 Total operating expenses $ 801,521 $ 552,475 OPERATING INCOME (LOSS) $ (80,834)$ (363,649) OTHER INCOME (EXPENSE): Interest expense (193,806) (132,000) Interest income - - Other income (expense) - - INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS $ (274,640)$ (495,649) Provision for income taxes - - INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $ (274,640)$ (495,649) Extraordinary Items - - NET INCOME (LOSS) $ (274,640)$ (495,649) OTHER COMPREHENSIVE INCOME,NET OF TAX: Foreign Currency translation Adjustments - - OTHER COMPREHENSIVE INCOME $ - $ - TOTAL COMPREHENSIVE INCOME (LOSS) $ (274,640)$ (495,649) INCOME(LOSS) PER COMMON SHARE $ (0.02)$ (0.05) Weighted Average Common Shares Outstanding 12,000,000 9,800,000 Weighted Average Common and Common Equivalent Shares Outstanding 12,000,000 9,800,000 4 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 JANUARY 1, 2001 $1,128,785 $16,024,049 $102,465 $(24,510,407)$(876,966) ADD: Net loss $ - $ - $ - $( 495,649)$ - Issuance of warrants - 1,400 - - - Exercise of warrants 2,364 - - - - Purchase of shares for the treasury - - - - ( 2,364) Conversion of note payable 7,434 164,322 - - - BALANCE AT March 31, 2001 $1,138,583 $16,189,771 $102,465 $(25,006,056)$(879,330) BALANCE AT JANUARY 1, 2002 $1,148,474 $16,268,677 $102,677 $(26,053,690)$(888,971) ADD: Net loss $ - $ - $ - $( 274,640)$ - Conversion of long term debt 754,087 904,905 - - - Acquisition of business 56,000 185,200 - - - BALANCE AT MARCH 31, 2002 $1,958,561 $17,358,782 $102,677 $(26,328,330)$(888,971) 5 CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001 Three Months Ended March 31, March 31, 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $( 274,640)$( 495,649) Adjustments to reconcile net income(loss) to net cash provided by(used in) operating activities: Depreciation $ 9,075 $ 12,675 Amortization of prepaid expenses 4,048 7,225 Change in assets and liabilities: Decrease (increase) in accounts receivable ( 143,890) 113,301 Decrease(increase)in inventory 13,835 17,790 Decrease(increase)in prepaid expenses ( 7,009) ( 7,708) Increase(decrease)in accounts payable 187,127 48,730 Increase(decrease)in accrued expenses 240,347 98,911 Increase(decrease)in other liabilities ( 6,020) ( 18,534) Total adjustments $ 297,513 $ 272,390 Net cash provided by(used in) operating activities $ 22,873 $( 223,259) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment, net $ - $ - Net cash provided by(used in)investing activities $ - $ - CASH FLOWS FROM FINANCING ACTIVITIES: Increase(decrease) in notes payable $ - $ 50,000 Proceeds from sale of common stock and warrants - 1,400 Net borrowings (repayments)under loan agreement ( 12,695) 7,484 Net cash provided by (used in) financing activities $( 12,695)$ 58,884 Effect of exchange rate changes on cash - - Net increase (decrease) in cash and cash equivalents $ 10,178 $( 164,375) Cash and cash equivalents at beginning of year 209,573 234,512 Cash and cash equivalents at end of period $ 219,751 $ 70,137 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ - $ - Income Taxes - - Non-cash financing and investing activities: Conversion of notes payable and accrued interest into common stock, net of deferred offering costs $ - $ 171,756 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 $ 366,200 $ - 6 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Notes & Comments: (1)Significant Accounting Policies The accompanying consolidated financial statements include our accounts and our wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The condensed financial statements included herein have been prepared by us, 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 we believe 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 our opinion, 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 our latest annual report on Form 10-KSB. 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: March 31, December 31, 2002 2001 Raw materials $ 436,970 $ 367,570 Work-in-process 131,164 59,591 Finished goods 791,311 45,749 $1,359,445 $ 472,910 The increase in inventory is a result of the acquisition of Super PC Memory, Inc. on March 12, 2002(see footnote 5). 7 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 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) Short Term Borrowings We have a line of credit of $2,000,000 available from GE Capital Commercial Services, Inc., limited to 70% of the eligible receivables of Super PC Memories, Inc. At March 31, 2002 we had a balance of $1,606,000 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 $1,045,296 and $1,057,991 at March 31, 2002 and December 31, 2001, respectively. Notes payable of $2,850,000 at March 31, 2002 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. The balance of $1,750,000, due on demand, represents series 1 bridge financing notes issued in 2000. During the first quarter of 2000, we borrowed $2,000,000 in cash from the Sovereign Lenders in exchange for, among other things, our issuance of series 1 bridge financing notes that matured in the third quarter of 2000. We received net proceeds equal to $1,737,900 from the Sovereign Lenders as a result of this bridge financing. The series 1 bridge financing notes bore interest at the rate of 8% per annum prior to 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, the Sovereign Lenders 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 the Sovereign Lenders do not realize at least a 20% gain on shares of 8 CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Notes & Comments (Continued): (3) Short Term Borrowings(continued) common stock that they choose to sell during the 90 days following conversion, then the Sovereign Lenders are entitled to acquire additional shares of common stock at a price of $0.10 per share through the exercise of repricing warrants. In addition to these bridge notes and the attached repricing warrants, we issued warrants to purchase 300,000 shares of common stock. These warrants have a weighted average exercise price of $4.54 per share. 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. (4) Long-Term Debt and Related Matters Long-term debt at March 31, 2002 and December 31, 2001 consists of the following: March 31, December 31, 2002 2001 Subordinated Convertible Notes with interest rate of 10% due April 30, 2003 $ - $1,273,730 Under the terms of these 10% notes, the holders converted the 10% notes and accrued interest into 7,540,871 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. 9 CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Notes & Comments (Continued): (5) Acquisition of Super PC Memory, Inc. On March 12, 2002, Cambex Corporation completed the acquisition of 100% of the outstanding common stock of Super PC Memory, Inc. and Super PC Memory, Inc. became a wholly-owned subsidiary of Cambex Corporation. The results of Super PC Memory, Inc.'s operations have been included in the consolidated financial statements since that date. Super PC Memory is a leading provider of memory products for servers, workstations, desktop PCs and laptops. The purchase price includes the issuance of 560,000 shares of Cambex common stock and payments based on the gross profit of the subsidiary over the next three years. The 560,000 shares are valued at $291,200 based on the closing price on March 12, 2002 of $0.52 per share of Cambex common stock. The Sellers, Son T. Pham, Simon Le and Richard G. Schaefer received 560,000 shares of Cambex Corporation common stock and will 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 quarterly installment payments pursuant to the terms of the Stock Purchase and Sale Agreement. As of March 12, 2002, we have recorded the net assets of Super PC on our books at $198,000, after allowances for bad debts and inventory valuation, and have recorded goodwill in the amount of $168,000. The aggregate purchase price to be paid by Cambex to the Sellers is premised upon Super PC having total assets minus liabilities ("Net Assets") as of the closing date of at least Two Million One Hundred Thousand Dollars ($2,100,000) (the "Minimum Net Asset Amount") as set forth on Super PC's closing date balance sheet. For purposes of this determination, Net Assets shall be the sum of all current assets plus other assets all as set forth in the closing date balance sheet, reduced by the amount of all current liabilities and long term liabilities as set forth in the closing date balance sheet. In the event that Super PC's net assets on the closing date are not at least the Minimum Net Asset Amount, then the purchase price shall be reduced by offsetting the shortfall against the installment payments. Based upon preliminary calculations, the net asset value as of the closing date amounted to $198,000 and the difference between such amount and the Minimum Net Asset Amount will be offset against the installment payments. 10 CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Notes & Comments (Continued): (5) Acquisition of Super PC Memory, Inc. (continued) The targeted amount of the installment payments is $5,500,000 reduced by the value of the Cambex Shares as of December 31, 2004 and any offsets which are provided for in the Stock Purchase and Sale Agreement. The amount of offsets has been calculated to be $1,600,000 on a preliminary basis. If the total of the Installment Payments due from Cambex for the period extending from March 12, 2002 through December 31, 2004 (the "Cumulative Installment Payments"), do not total at least the Targeted Amount, then no later than the Q4 2004 Installment Date, Cambex will notify Sellers whether it elects that the Cumulative Installment Payments shall be deemed to be equal to the Targeted Amount (the "Election"). If Cambex makes the Election, then in lieu of any payment obligations to Sellers which Cambex may have at the time of the Election, Cambex's obligation shall instead be to pay to Sellers the shortfall between the Targeted Amount, and the aggregate of all Installment Payments previously paid by Cambex to the Sellers. If Cambex does not deem the Cumulative Installment Payments to be equal to the Targeted Amount, either as a result of electing in such notice not to deem them so or as a result of failing to provide such notice, then Sellers, within 15 days of Cambex's notice regarding same (or in the absence of such notice, then within 15 days of the Q4 2004 Installment Date), shall be entitled to notify Cambex that Sellers unanimously elect to treat Cambex's failure to deem the Cumulative Installment Payments to be equal to the Targeted Amount as an event of default under the Stock Purchase and Sale Agreement. If Sellers unanimously elect to treat this failure as an event of default, and timely provide Cambex with written notice thereof as well as a request for return of the Shares, then Sellers shall be entitled to a return of the Shares, however in such event, Sellers shall not be entitled to claim or receive, and shall have no further rights to, any additional payments, monies, claims or damages from Cambex from and after such date, under the Stock Purchase and Sale Agreement. If Sellers do not elect to treat this failure as an event of default, then Cambex's obligations shall continue in full force and effect as set forth in the foregoing three paragraphs, but this provision shall be deemed deleted from the Stock Purchase and Sale Agreement, and this provision shall be of no further force or effect. Once Cambex has distributed an aggregate of $5,500,000 in purchase price payments, then the provision requiring Cambex to make an election whether to deem the Cumulative Installment Payments to be equal to the Targeted Amount, shall be void and of no further 11 CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Notes & Comments (Continued): (5) Acquisition of Super PC Memory, Inc.(continued) force or effect and shall be deemed deleted from the Stock Purchase and Sale Agreement. Certain costs and expenses have not been completely determined at this point in time and may be adjusted in the future. Had the results of operations for Super PC Memory, Inc. been included for the whole quarter ended March 31, 2002 and for the quarter ended March 31, 2001, our revenue, net income(loss) and income(loss) per share would have been changed to the following pro forma amounts: Quarter ended Quarter ended March 31, March 31, 2002 2001 Revenue: As Reported (000's) $ 2,229 $ 417 Pro Forma 7,030 7,688 Net Income(Loss): As Reported (000's) ( 275) ( 496) Pro Forma ( 268) ( 220) Basic and Diluted EPS:As Reported ( 0.02) ( 0.05) Pro Forma ( 0.02) ( 0.02) 12 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The statements contained in "Management Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout this Report on Form 10-QSB that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those reflected in the forward-looking statements. These forward- looking statements reflect management's analysis, judgment, belief or expectation only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof or to publicly release the results of any revisions to such forward-looking statements that may be made to reflect events or circumstances after the date hereof. In addition to the disclosure contained herein, readers should carefully review any disclosure of risks and uncertainties contained in other documents we file or have filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. We are a leading supplier of advanced memory products that cost- effectively enhance the performance and reliability of computer systems and storage networks. We design and supply memories for computers and fibre channel hardware and software products used to build storage area networks (SANs). SANs enhance and simplify the centralized management and sharing of storage resources while providing improved availability, scalability, performance, and disaster recovery. SANs have been enabled by the emergence of fibre channel, a new generation of server to storage communications technology. We develop and offer fibre channel host bus adapters and hubs, high availability software, fibre channel RAID disk arrays and management software for the deployment of SAN solutions. We supplement our own fibre channel product offerings by reselling fibre channel SAN hardware and software solutions from leading manufacturers. 13 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Comparison of the quarter ended March 31, 2002 and the quarter ended March 31, 2001 Our revenues were $2,229,000 for the quarter ended March 31, 2002 and $417,000 for the quarter ended March 31, 2001. Revenues for the three months ended March 31, 2002 increased 435% compared to revenues for the same three months in the prior year due to memory sales of approximately $1,789,000 by our subsidiary which was acquired during the first quarter of 2002. Gross profit rate was 32% of sales for the three months ended March 31, 2002 and 45% for the three months ended March 31, 2001 due to the product mix as there are lower gross margins on memory products than fibre channel connectivity products. Operating expenses for the three months ended March 31, 2002 increased by 45% in comparison to operating expenses for the comparable three months of the prior year. Selling expenses for the three months ended March 31, 2002 increased by 193% compared to the amount of these expenses in the first quarter of fiscal 2001 due to the acquisition of Super PC Memory, Inc. which has a 25 person sales force, which is many times larger than the Cambex sales force. Interest expense increased by 46% for the three months ended March 31, 2002 compared to the three months ended March 31, 2001. This increase in interest expense was primarily 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. The borrowings which led to the 46% interest expense 14 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) increase were necessary to finance the development of new products and for working capital purposes. Total comprehensive net loss for the first quarter of fiscal 2002 was $275,000, or $0.02 per share, as compared with $496,000, or $0.05 per share, for the first quarter of fiscal 2001. Inflation We did not experience any material adverse effects in the first quarter of 2001 or in the first quarter of 2002 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 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, our ability to raise additional capital and the assumption that certain of our lenders will accept shares of our common stock instead of cash in satisfaction of our obligations. 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 in the future through the sale of a greater volume of products. Management has also been active in trying to secure additional capital. We cannot give any assurances that the actions taken to date will increase revenues or raise additional capital. 15 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Recent Developments During the first quarter of 2002, Cambex Corporation completed the acquisition of Super PC Memory, Inc., a memory supplier for desktop and laptop personal computers and workstations. 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 will 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. Since Super PC has a 25 person sales force, which is many times larger than the size of the Cambex sales force, we believe that as a result of the acquisition the Cambex sales will increase from the present levels thereby reducing the current cash burn rate. However, there is no assurance that the expected burn rate reduction will occur in 2002. Therefore, we will continue our efforts to raise additional capital to finance operations. Requirements Depending upon the market value of shares of our common stock, any additional financing that we obtain through the sale of common stock under our common stock purchase agreement we entered into in 2000 or cash that we may receive from the exercise of outstanding warrants may be used to repay and prepay debt and for working capital purposes to fund our continuing operations including research and development and sales and marketing expenses. During the first quarter of 2000, we borrowed $2,000,000 in cash in exchange for, among other things, our issuance of series 1 bridge financing notes that matured in August and September 2000. We received net proceeds equal to $1,737,900 as a result of this bridge financing. The series 1 bridge financing notes bore interest at the rate of 8% per annum prior to their respective maturity dates. Since their respective maturity dates, interest 16 CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) is accruing at a rate of 12% per annum. These bridge notes are convertible into shares of our common stock at a weighted average per share price of $4.08. Because the bridge notes matured before we registered, under the Securities Act of 1933, as amended, the offer and resale of shares of our common stock issuable upon conversion of the bridge notes and exercise of the repricing warrants and the common stock purchase warrants, we owe premiums and penalties totaling approximately $607,000 (in addition to the repayment of principal and interest). Following conversion of the bridge notes, if the lenders do not realize at least a 20% gain on shares of common stock that they choose to sell during the 90 days following conversion, then the lenders are entitled to acquire additional shares of common stock at a price of $0.10 per share through the exercise of repricing warrants. In addition to these bridge notes and the attached repricing warrants, we issued warrants to purchase 300,000 shares of common stock. These warrants have a weighted average exercise price of $4.54 per share. 17 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Resources Our cash and marketable securities were $220,000 and $210,000 at March 31, 2002 and December 31, 2001, respectively. Working capital was a deficit of $8,410,000 and $8,576,000 at March 31, 2002 and at December 31, 2001, respectively. During the quarter ended March 31, 2001, we did not expend any funds for capital equipment. During fiscal 2002, we expect to acquire less than $100,000 of capital equipment. We have a line of credit of $2,000,000 available from GE Capital Commercial Services, Inc., limited to 70% of the eligible receivables of Super PC Memories, Inc. At March 31, 2002 we had a balance of $1,606,000 under this line of credit. We also have a revolving credit facility under which we may borrow up to $1,100,000. At March 31, 2002 we had a balance of $1,045,000 outstanding under this revolving credit facility. During the third quarter of fiscal 2000, we signed a common stock purchase agreement with Thumberland Limited, a private investor, for the future issuance and purchase of shares of our common stock. The common stock purchase agreement was amended during the fourth quarter of fiscal 2000. The common stock purchase agreement establishes what is often referred to as a structured equity line or an equity drawdown facility. In general, the drawdown facility operates as follows: the investor has committed to provide us up to $10 million as we request it over an 18 month period, in return for common stock we issue to the investor, subject to registering in advance the shares of common stock issuable under the Securities Act of 1933. Once every 22 trading days, we may request a draw of up to $1 million of that money (except that our initial drawdown may be for up to $2 million), subject to a maximum of 18 draws. The maximum amount we actually can drawdown upon each request will be determined by the volume-weighted average daily price of our common stock for the 22 trading days prior to our request and the average trading volume for the 45 trading days prior to our request. Per the terms of this agreement, we are currently unable to draw because we cannot meet the minimum draw amount of $250,000. We filed registration statements on Form SB-2 with the Securities and Exchange Commission registering 4,981,542 shares issuable in connection with the bridge loan financing from the Sovereign Lenders and the purchase agreement with Thumberland. Those registration statements were declared effective on November 7, 2000 and December 22, 2000. We filed a post-effective amendment on Form SB-2 in the second quarter of 2001 and we plan to file an additional amendment in the second quarter of 2002. 18 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) We need additional capital and additional financing may not be available. If our stock price and trading volume stay at current levels, we will not be able to draw down any of the $10 million under the common stock purchase agreement with Thumberland Limited which expires 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. Currently, our cash burn rate is approximately $40,000 per month or $480,000 per year at the current sales levels. We believe that as a result of the acquisition of Super PC Memory, Inc. the Cambex sales will increase from the present levels thereby reducing the cash burn rate from the previously expected $40,000 per month or $480,000 in 2002. However, there is no assurance that the expected burn rate reduction will occur in 2002.For each 10 percent reduction in sales, our cash burn rate would increase by approximately $10,000 per month. Conversely, for each 10 percent increase in sales volume, our cash burn rate would decrease by approximately $10,000 per month. In order to drawdown the minimum amount of $250,000 under our equity drawdown facility, the average daily trading volume for the 45 trading days prior to our drawdown notice multiplied by the average of the volume-weighted average daily prices of our common stock for the 22 trading days prior to the notice would have to equal or exceed $56,819. For example, if the average volume-weighted average daily price of our common stock was $1.00 and the average daily trading volume for the 45 days prior to our drawdown notice was 56,819, we would be able to draw down the minimum amount of $250,000. The closing price for our common stock on March 25, 2002 was $0.60 per share and the average daily trading volume for the 45 days preceding March 25, 2001 was 5,622 shares which is not sufficient to allow us to be able draw down the minimum amount of $250,000. 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. In addition, business and economic conditions may not make it feasible to draw down under the facility at every opportunity, and drawdowns are available only every 22 trading days. We are actively pursuing raising additional capital but our ability to raise investment capital during the term of the common stock purchase agreement is restricted with regard to under market offerings, and if we need capital but are unable to drawdown under the common stock purchase agreement for any reason, we may not be able to meet our anticipated working capital requirements. 19 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) We are attempting to raise additional capital to cover the burn rate not covered by incremental gross profit. This amount is dependent upon sales. If sales 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. 20 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Part II. OTHER INFORMATION Item 1. Legal Proceedings The Company is a party to litigation and claims arising in the normal course of its business. Barring unforeseen circumstances, management does not expect the results of these actions to have a material adverse effect on the Company's business or financial condition. Item 2. Change in Securities and Use of Proceeds 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 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 will 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 March 29, 2002, in transactions exempt under Section 4(2) of the Securities Act, 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. Son T. Pham, Simon Le, Richard G. Schaefer, Joseph F. Kruy, Richard E. Calvert, H. Terry Snowday, Jr. and the other note holder are all accredited investors and have provided us written representations to that effect. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. 21 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits EXHIBIT INDEX The following exhibits are filed herewith or incorporated by reference herein. Exhibit 3.1 Restated Articles of Organization of Cambex Corporation (included as Exhibit 3.1 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 3.2 Restated By-laws of Cambex Corporation (included as Exhibit 3.2 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 4.1 Specimen Stock Certificate (included as Exhibit 4.1 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 4.2 Registration Rights Agreement among the Company and the Purchasers identified therein (the "Sovereign Purchasers") dated as of January 18, 2000 (included as Exhibit 4.1 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 4.3 Registration Rights Agreement between the Company and Thumberland Limited dated as of July 14, 2000 (included as Exhibit 4.3 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 4.4 Amendment to Registration Rights Agreement between the Company and Thumberland Limited dated as of November 8, 2000 (included as Exhibit 4.4 to the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 2001 and incorporated herein by reference). 10.1 Employment Agreement between Joseph F. Kruy and the Company, dated as of November 18, 1994 (included as Exhibit 10.1 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 22 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 6. Exhibit Index (continued) 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). 23 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 6. Exhibit Index (continued) 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 Common Stock Purchase Agreement between the Company and Thumberland Limited dated as of July 14, 2000 (included as Exhibit 10.22 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 24 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 6. Exhibit Index (continued) 10.23 Amendment to Common Stock Purchase Agreement between the Company and Thumberland Limited, dated as of November 8, 2000 (included as Exhibit 10.23 to the Company's Quarterly Report on 10QSB for the quarter ended March 31, 2001, and incorporated herein by reference). 10.24 Escrow Agreement among the Company, Thumberland Limited and Epstein, Becker & Green, P.C., dated as of July 14, 2000 (included as Exhibit 10.23 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 10.25 Stock Purchase Warrant in favor of Thumberland Limited dated as of July 14, 2000 (included as Exhibit 10.24 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 10.26 Stock Purchase Warrant in favor of Ladenburg Thalmann & Co. Inc. dated as of July 14, 2000 (included as Exhibit 10.25 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 10.27 Loan and Security Agreement, as amended, by and between the Company and BA Associates, Inc. (included as Exhibit 10.27 to the Company's Registration Statement on Form SB-2 filed with the Commission on November 29, 2000, Reg. No. 333-50936, and incorporated herein by reference.) 10.28 Fifth Amendment to Loan and Security Agreement, as amended, by and between the Company and B.A. Associates, Inc., dated as of December 27, 2000 (included as Exhibit 10.28 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000 and incorporated herein by reference). 10.29 Form of Warrant Certificate between the Company and B.A. Associates, Inc. (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). 10.30 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). 10.31 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). 25 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 Commission File: 0-6933 Item 6. Exhibits and Reports on Form 8-K (continued) (b) Reports on Form 8-K On November 7, 2001, we filed a Report on Form 8-K disclosing that we have entered into a letter of intent with Super PC Memory, Inc., a privately-held company, pursuant to which Super PC Memory would become a wholly-owned subsidiary of Cambex Corporation. On March 27, 2002, we filed a Report on Form 8-K disclosing that we had completed the acquisition of Super PC Memory, Inc. 26 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: March 31, 2002 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 and Treasurer Dated: May 20, 2002