UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 1995
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from _______ to ________
Commission file number 0-8419
SBE, INC.
_____________________________________________________
(Exact name of registrant as specified in its charter)
California 94-1517641
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4550 Norris Canyon Road, San Ramon, California 94583
(Address of principal executive offices and zip code)
(510) 355-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether 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 Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of Registrant's Common Stock outstanding as of September
6, 1995 was 2,074,255.
<PAGE>
SBE, INC.
INDEX TO JULY 31, 1995 FORM 10-Q
PART I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1995, and October 31, 1994 3
Condensed Consolidated Statements of Operations for the
three and nine months ended July 31, 1995, and 1994 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended July 31, 1995, and 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II Other Information
Items 1, 2, 3, 4, 5, and 6 11
SIGNATURES 12
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<TABLE>
Part I. Financial Information
Item 1. Financial Statements
SBE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 1995, and October 31, 1994
(In thousands)
<CAPTION>
July 31, October 31,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 912 $ 2,566
Short-term investments 1,970 ---
Trade accounts receivable, net 2,861 3,444
Inventories 2,665 2,048
Income tax receivable 1,298 ---
Other 554 709
Total current assets 10,260 8,767
Property, plant and equipment, net 3,620 2,782
Investments --- 5,454
Capitalized software costs, net 1,698 230
Other 372 372
Total assets $ 15,950 $ 17,605
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,008 $ 802
Other accrued expenses 635 529
Total current liabilities 1,643 1,331
Noncurrent liabilities 482 410
Total liabilities 2,125 1,741
Shareholder's equity:
Common stock 7,555 7,393
Unrealized loss on investments (122) (525)
Retained earnings 6,392 8,996
Total shareholders' equity 13,825 15,864
Total liabilities and shareholders' equity $ 15,950 $ 17,605
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine months ended July 31, 1995, and 1994
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 4,584 $ 6,086 $ 14,467 $ 16,781
Cost of sales 2,410 2,618 6,964 7,307
Gross profit 2,174 3,468 7,503 9,474
Product research and development 1,712 1,381 4,990 3,560
Sales and marketing 1,476 674 3,472 1,903
General and administrative 901 928 2,956 2,545
Operating (loss) income (1,915) 485 (3,915) 1,466
Nonoperating (expense) income, net (53) 102 85 310
(Loss) income before income taxes (1,968) 587 (3,830) 1,776
(Benefit) provision for income taxes (723) 176 (1,226) 533
Net (loss) income $ (1,245) $ 411 $ (2,604) $ 1,243
Net (loss) income per common share $ (0.60) $ 0.20 $ (1.27) $ 0.59
Weighted average common shares 2,058 2,107 2,049 2,103
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended July 31, 1995, and 1994
(In thousands)
<CAPTION>
1995 1994
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,604) $ 1,243
Adjustments to reconcile net (loss) income to net
cash (used) provided by operating activities:
Depreciation and amortization 936 864
Changes in assets and liabilities:
Decrease in trade accounts receivable 583 976
(Increase) in inventories (617) (232)
(Increase) in income tax receivable (1,298) ---
Decrease (increase) in other assets 155 (97)
Increase in trade accounts payable 206 269
Increase (decrease) in other liabilities 178 (384)
Net cash (used) provided by operating activities (2,461) 2,638
Cash flows from investing activities:
Purchases of property and equipment (1,744) (464)
Capitalized software (1,499) (60)
Investments, net 3,888 (782)
Net cash provided (used) by investing activities 645 (1,306)
Cash flows from financing activities:
Principal payments on capital lease obligations --- (27)
Proceeds from stock plans 162 161
Net cash provided by financing activities 162 134
Net (decrease) increase in cash and cash equivalents (1,654) 1,466
Cash and cash equivalents at the beginning of period 2,566 2,224
Cash and cash equivalents at the end of period $ 912 $ 3,690
<FN>
See accompanying notes
</TABLE>
<PAGE>
SBE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Period Reporting:
The condensed consolidated financial statements are unaudited and include all
adjustments consisting of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations and cash flows for the interim periods. The
results of operations for the quarter and nine months ended July 31, 1995, are
not necessarily indicative of expected results for the full 1995 fiscal year.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes contained in the Company's 1994 Annual Report to Shareholders.
2. Inventories:
Inventories comprise the following (in thousands):
July 31, October 31,
1995 1994
Finished goods $ 730 $ 559
Subassemblies 170 217
Parts and materials 1,765 1,272
$ 2,665 $ 2,048
3. Net (Loss) Income Per Common Share:
Net (loss) income per common share was computed by dividing net (loss) income
by the weighted average number of shares of common stock and dilutive common
stock equivalents outstanding. Common stock equivalents relate to stock
options.
4. Bank Facility:
On May 22, 1995, the Company entered into a loan agreement for a $4,000,000
revolving line of credit for working capital purposes. Borrowings under the
line of credit bear interest at the bank's prime rate plus one half of one
percent and are collateralized by accounts receivable and other assets.
Borrowings are limited to 75% of adjusted accounts receivable balances. The
credit line, which expires on April 30, 1996, requires the Company to meet
certain financial covenants and maintain a tangible net worth of $10,800,000 on
a quarterly basis. As of July 31, 1995, there were no borrowings outstanding
under the line of credit.
<PAGE>
5. Short-Term Investments:
In the quarter ended April 30, 1995, the Company reclassified its investments,
previously included in noncurrent assets, to short-term investments, reflecting
the intent of management to utilize these assets to support operations over the
next year. The Company classifies these investments as "available for sale"
and records them at fair market value with any unrealized losses or gains
reflected as a separate component of shareholders' equity. The aggregate cost
of the investments on July 31, 1995, was $2,092,000 and the fair market value
was $1,970,000. The unrealized holding loss on these investments was reduced
by $404,000 in the nine months ended July 31, 1995. Gross proceeds from sales
of investments during the first nine months of 1995 were $3,923,000, with
realized losses of $187,000 on these sales. Realized gains and losses are
included as a component of nonoperating income.
6. Commitments:
The Company leases all its buildings under noncancelable operating leases which
expire at various dates through the year 2006. During the third quarter of
1995, the Company signed a six-year, $3,567,000 million extension of the lease
for its headquarters building. It also entered into manufacturing equipment
lease agreements with payments totaling $866,000 over the next five years.
Future minimum lease payments under all operating leases with initial or
remaining noncancelable lease terms in excess of one year at July 31, 1995, are
as follows:
Three months ending October 31, 1995 $ 52,000
Year ending October 31:
1996 852,000
1997 776,000
1998 762,000
1999 752,000
2000 726,000
Thereafter 3,460,000
Total minimum lease payments $ 7,380,000
Under the terms of one building lease, rent includes the lessors' operating
costs. This building lease also includes two five-year renewal options at
market rates as defined by the lease.
7. Reclassifications:
Certain reclassifications have been made to the 1994 condensed consolidated
financial statements to conform to the 1995 presentation.
<PAGE>
SBE, INC.
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three and Nine Months 1995 Compared to Three and Nine Months 1994
The Company's sales are dependent upon a customer base that is highly
concentrated, and consequently the timing of significant orders from major
customers causes the Company's operating results to fluctuate. The Company
began shipping its netXpand remote internetworking products in the quarter
ending July 31, 1995. The Company expects the netXpand products over the next
year to reduce the concentration of its customer base and provide sales growth.
There are numerous risks associated with the sale of netXpand product and
therefore the Company cannot determine whether it will be successful in the
distribution of this new product.
Net sales for the third quarter of fiscal 1995 were $4.6 million, down from net
sales of $6.1 million for the third quarter of the prior year. This decline is
primarily due to a decrease in sales to two customers, Cisco Systems, Inc. and
a military contractor, which declined by $1.0 million each in the third quarter
of fiscal 1995 from the third quarter of fiscal 1994. These decreases were
partially offset by increases in sales of the Company's VME communications
products. Sales of VME products increased 19 percent in the third quarter of
1995 compared to the same period of 1994. This increase was principally due to
higher sales of the Company's high-speed, serial communications controller
product to Siemens AG.
Net sales for the nine months ended July 31, 1995, were $14.5 million, down
from $16.8 million for the same period of 1994. The decrease in sales was
primarily due to a $4.1 million decline in sales to Cisco, partially offset by
increased VME product sales.
Sales to Siemens AG accounted for 19 percent of net sales for the quarter ended
July 31, 1995. This compares to three customers accounting for an aggregate of
48 percent of net sales for the quarter ended July 31, 1994. For the nine
months ended July 31, 1995, America Online and one other customer accounted for
19 and 13 percent of net sales, respectively. For the same period of 1994
Cisco and one other customer accounted for 24 and 12 percent of net sales,
respectively.
The Company's gross profit as a percent of net sales for the three and nine
months ended July 31 decreased from 57 and 56 percent, respectively, in fiscal
year 1994 to 47 and 52 percent in fiscal year 1995. These decreases were due
to changes in product mix, excess manufacturing capacity, and additional
expenses to support the manufacturing of the new remote internetworking
products.
Product research and development (R&D) expenses as a percent of sales increased
to 37 percent for the third quarter of 1995 compared to 23 percent for the same
period of 1994. The increase was due to expenditures to support the
development of the new remote internetworking product line. R&D costs of
$500,000 related to software development were capitalized in the third quarter
of fiscal 1995; $50,000 of costs were capitalized for the same period of 1994.
The Company anticipates that fiscal 1995 R&D expenses will continue at the same
levels for the remainder of the year.
<PAGE>
Engineering costs relating to new product designs and product revisions are
charged to product research and development expense when incurred. Contractual
reimbursements under joint development contracts are accounted for as a
reduction of product research and development expense. For the three and nine
months ended July 31, 1995, the Company received $33,000 and $221,000,
respectively, in contractual reimbursements compared to $136,000 and $156,000
for the same periods of 1994.
Sales and marketing expenses for the three and nine months ending July 31,
1995, increased by 119 percent and 82 percent, respectively, from the same
periods of 1994, primarily due to increased expenditures associated with the
Company's launch of the new line of remote internetworking products. The
Company expects that sales and marketing expenses will continue to be above
fiscal 1994 expenses for the remainder of fiscal 1995 as the Company develops
and expands its marketing channels for the new remote internetworking products.
General and administrative costs for the three months ended July 31, 1995,
remained flat when compared to the same period of 1994, while for the nine
months ended July 31, 1995, they increased by 16 percent from 1994 levels. The
increase for the nine months is due to the Company incurring additional costs
to recruit new staff and to install new systems and structure to support the
new internetworking product line.
The Company's effective tax benefit was 37 percent in the third quarter of 1995
compared to a provision of 30 percent for the third quarter of 1994. For the
nine months ended July 31, the tax benefit was 32 percent in 1995 compared to a
provision of 30 percent in 1994. The tax benefit for the nine months of fiscal
1995 will be realized through the carryback of the current net operating loss.
The tax benefit rate for the nine months approximates the effective tax rate
the Company anticipates for the full fiscal year ending October 31, 1995.
The Company lost $1.2 million for the three months ending July 31, 1995,
compared to a profit of $411,000 for the same period of fiscal 1994. This loss
is due to lower sales and to higher expenses for product research and
development and sales and marketing costs associated with the development and
introduction of the new remote internetworking product line. The net loss for
the nine months ended July 31, 1995, was $2.6 million compared to net income of
$1.2 million for the same period of 1994. The nine month decline is
principally due to the same reasons as the quarterly decline discussed above.
In the short term the Company expects that the increased expense levels for the
new products will adversely affect profitability until new product sales begin
to generate sufficient revenue. Accordingly, there can be no assurance the
Company will be able to generate sufficient sales to achieve profitability.
Liquidity and Capital Resources
As of July 31, 1995, the Company had cash and cash equivalents of $912,000
compared to $2.6 million as of October 31, 1994. For the nine months ending
July 31, 1995, the Company used $2.5 million of cash flows in operations
compared to providing $2.6 million for the same period in 1994. This decrease
in cash from operations was primarily due to a net loss for the period,
increased inventories, and income taxes receivable. The Company had net
working capital on July 31, 1995, of $8.6 million compared to net working
capital of $7.4 million on October 31, 1994. This increase in working capital
was due principally to the reclassification of investments from long-term to
short-term investments.
<PAGE>
During the nine months ending July 31, 1995, the Company capitalized $1,499,000
in software development costs for its new remote internetworking product line
compared to $60,000 for the same period last year. The Company purchased
$1,744,000 of new equipment in the first nine months of fiscal 1995 compared to
$464,000 for the first nine months of fiscal 1994. The Company financed these
additions using existing cash balances, investments, and credit facilities.
Additionally, the company entered into equipment operating leases with payments
totaling $866,000 over the next five years.
On May 22, 1995, the Company signed a loan agreement for a $4.0 million
revolving line of credit for working capital purposes that expires on April 30,
1996. Borrowings under the credit line bear interest at the bank's prime rate
plus one half of one percent and are collateralized by accounts receivable
and other assets. Borrowings are limited to seventy-five percent of adjusted
accounts receivable balances and require the Company to maintain certain
financial covenants. As of July 31, 1995, the Company had no balances
outstanding under its revolving line of credit.
Based upon the current operating plan, the Company anticipates that internally
generated funds, cash and cash equivalents, short-term investments, leases,
and credit facilities should be adequate to satisfy its liquidity, business
development, and capital resource needs through fiscal 1995.
<PAGE>
SBE, INC.
Part II Other Information
Items 1, 2, 3, 4, and 5
The above items have been omitted as inapplicable.
Item 6. Exhibits and Reports on Form 8-K
The following documents are filed as part of this report:
(a) Exhibits - EX-27 - Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the quarter
ended July 31, 1995.
<PAGE>
SBE, INC.
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, as of September 8, 1995.
SBE, Inc.
Registrant
/S/ Timothy J. Repp
Timothy J. Repp
Chief Financial Officer, Vice President of
Finance (Principal Financial and Accounting
Officer)
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<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 912
<SECURITIES> 1970
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<ALLOWANCES> 0
<INVENTORY> 2665
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