<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934 for the quarterly period ended DECEMBER 31, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934
COMMISSION FILE NUMBER 1-10981
SBS TECHNOLOGIES, INC.
New Mexico 85-0359415
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
2400 Louisiana Blvd. NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
(505) 875-0600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
As of February 1, 1997, the Registrant had 5,322,853 shares
of its common stock outstanding.
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Assets December 31, 1996 June 30, 1996
------ ----------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,573,585 1,130,030
Receivables, net (note 2) 8,948,666 6,421,224
Inventories (note 3) 8,110,158 5,160,962
Deferred income tax 676,396 317,100
Prepaid expenses 367,978 303,846
Other current assets 215,518 104,249
-------------- -------------
Total current assets 31,892,301 13,437,411
-------------- -------------
Property and equipment, at cost 4,087,870 2,389,289
Less accumulated depreciation 1,916,289 1,041,719
-------------- -------------
Net property and equipment 2,171,581 1,347,570
-------------- --------------
Intangible assets, net 14,789,790 5,571,135
Deferred income taxes 4,162,567 55,900
Other assets 31,656 31,656
-------------- -------------
Total assets $ 53,047,895 20,443,672
============== =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,072,231 1,458,976
Accounts payable 1,756,712 1,243,748
Accrued representative commissions 498,540 353,278
Accrued salaries 1,288,771 1,077,121
Accrued compensated absences 602,084 340,342
Accrued software license fees 9,000 33,000
Income taxes - 223,381
Other current liabilities 686,747 425,033
Reserve for discontinued operations 65,094 49,553
-------------- -------------
Total current liabilities 5,979,179 5,204,432
Long-term liabilities:
Long-term debt, excluding current installments 2,788,193 5,188,320
-------------- -------------
Total long-term liabilities 2,788,193 5,188,320
-------------- -------------
Total liabilities 8,767,372 10,392,752
-------------- -------------
Stockholders' equity:
Common stock, no par value; 30,000,000 shares authorized,
5,249,617 issued and outstanding at December 31, 1996;
3,178,133 issued and outstanding at June 30, 1996 41,857,818 4,690,786
Common stock warrants 147,689 180,000
Retained earnings 2,275,016 5,180,134
-------------- -------------
Total stockholders' equity 44,280,523 10,050,920
-------------- -------------
Total liabilities and stockholders' equity $ 53,047,895 20,443,672
============== =============
</TABLE>
See accompanying notes to consolidated financial statements
Page 2
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended December 31 Three Months Ended December 31
------------------------------- -------------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $ 23,530,369 15,017,560 12,266,903 7,442,675
Cost of sales 11,366,476 7,110,469 6,120,723 3,529,997
---------- ---------- ---------- ---------
Gross Profit 12,163,893 7,907,091 6,146,180 3,912,678
Selling, general and administrative expense 4,868,469 3,035,857 2,194,823 1,486,380
Research and development expense 1,515,966 1,362,242 861,020 677,518
Acquired in-process research and
development charge 11,000,000 - 11,000,000 -
Amortization of intangible assets 561,935 446,844 342,563 213,468
---------- ---------- ---------- ---------
Operating income (loss) (5,782,477) 3,062,148 (8,252,226) 1,535,312
---------- ---------- ---------- ---------
Interest income 103,095 1,376 88,251 417
Interest expense (302,165) (480,923) (138,185) (199,563)
---------- ---------- ---------- ---------
(199,070) (479,547) (49,934) (199,146)
---------- ---------- ---------- ---------
Income (loss) before income taxes (5,981,547) 2,582,601 (8,302,160) 1,336,166
Income taxes (2,392,600) 1,084,000 (3,320,800) 560,000
---------- ---------- ---------- ---------
Net income (loss) $ (3,588,947) 1,498,601 (4,981,360) 776,166
========== ========== ========== =========
Net income (loss) per common and
common equivalent share (note 4) $ (0.97) 0.45 (1.24) 0.23
==== ==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements
Page 3
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Total
stock Common stock-
------------------------ stock Retained holders'
Shares Amount warrants earnings equity
------------------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1995 2,893,654 $ 3,375,021 $ 75,000 $ 1,599,227 $ 5,049,248
Exercise of stock options 257,618 1,295,765 - - 1,295,765
Warrants issued for business
acquisition - - 125,000 - 125,000
Exercise of warrants 26,861 20,000 (20,000) - -
Net income - - - 3,580,907 3,580,907
--------- ----------- ---------- ----------- ----------
Balance at June 30, 1996 3,178,133 4,690,786 180,000 5,180,134 10,050,920
========= =========== ======= ===========
Exercise of stock options 319,715 1,373,523 - - 1,373,523
Exercise of warrants 51,769 32,311 (32,311) - -
Acquisition of Logical Design
Group Inc. 200,000 68,000 - 683,829 751,829
Common stock issued in
public offering 1,500,000 35,693,198 - - 35,693,198
Net loss - - - (3,588,947) (3,588,947)
--------- ---------- ---------- ------------ -----------
Balance at December 31, 1996 5,249,617 $ 41,857,818 $ 147,689 $ 2,275,016 $ 44,280,523
========= ========== ========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
Page 4
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended December 31
------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ (3,588,947) 1,498,601
------------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 267,161 127,060
Amortization of intangible assets 561,935 446,844
Bad debt expense 186,002 50,200
Gain on disposition of assets (503) -
Imputed interest 20,582 -
Acquired in-process research and development charge 11,000,000 -
Changes in assets and liabilities:
Receivables (556,219) 1,020,174
Inventories (536,607) (616,001)
Deferred income taxes (4,400,000) -
Prepaids and other assets 37,714 185,913
Accounts payable 71,830 (731,143)
Accrued representative commissions 128,022 (14,030)
Accrued salaries 103,551 200,884
Accrued compensated absences 107,607 74,212
Accrued software license fees (24,000) 6,000
Income taxes (221,829) (202,875)
Other current liabilities (1,478) (614,880)
------------- -----------
Net adjustments 6,743,768 (67,642)
------------- -----------
Net cash provided by operating activities 3,154,821 1,430,959
------------- -----------
Cash flow from investing activities:
Business acquisition (note 5) (20,259,266) -
Acquisition of property and equipment (564,078) (256,625)
------------- -----------
Net cash used by investing activities (20,823,344) (256,625)
------------- -----------
</TABLE>
(Continued)
Page 5
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended December 31
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable to bank - 3,020,000
Payments on notes payable to bank - (2,770,782)
Payments on liability to stockholder (50,000) (50,000)
Payments on long-term borrowings (6,904,643) (2,304,465)
Proceeds from exercise of stock options and warrants 1,373,523 638,436
Net proceeds from sale of common stock 35,693,198 -
------------- -----------
Net cash provided (used) by financing activities 30,112,078 (1,466,811)
------------- -----------
Net increase (decrease) in cash and cash equivalents 12,443,555 (292,477)
Cash and cash equivalents at beginning of period 1,130,030 883,804
------------- -----------
Cash and cash equivalents at end of period $ 13,573,585 591,327
============= ===========
Supplemental disclosure of cash flow information:
Interest paid $ 270,043 478,740
Income taxes paid $ 2,231,027 1,301,875
Noncash financing and investing activities:
Assets acquired through capital leases $ (70,733) -
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements
Page 6
<PAGE>
SBS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies as set forth in SBS Technologies, Inc.'s Annual
Report on Form 10-K dated September 23, 1996 have been adhered to in
preparing the accompanying interim consolidated financial statements.
These statements are unaudited but include all adjustments, consisting of
normal recurring adjustments, that the Company considers necessary for a
fair presentation of the results for such interim period. Results for an
interim period are not necessarily indicative of results for a full year.
Certain amounts in the December 31, 1995 financial statements have been
reclassified to conform with the December 31, 1996 presentation.
2) RECEIVABLES, NET
Receivables, net consisted of the following:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
Accounts receivable $ 8,387,871 5,527,620
Contract receivables:
Amounts billed 358,174 721,803
Recoverable costs and accrued profit
on progress completed - not billed 467,172 242,038
------------ ---------
825,346 963,841
------------ ---------
9,213,217 6,491,461
------------ ---------
Less: allowance for doubtful accounts (264,551) (70,237)
------------ ---------
$ 8,948,666 6,421,224
============ =========
</TABLE>
Recoverable costs and accrued profit not billed are comprised principally
of amounts of revenue recognized on contracts for which billings had not
been presented to the contract owners since the amounts were not billable
at the balance sheet date, because contract specified milestones had not
yet been reached or because progress billings are restricted by the
contract to a percentage of costs incurred.
3) INVENTORIES
Inventories are valued at average cost which does not exceed market.
December 31, 1996 June 30, 1996
----------------- -------------
Raw materials $ 3,535,128 2,254,788
Work in process 2,608,851 1,546,800
Finished goods 1,966,179 1,359,374
------------ ---------
$ 8,110,158 5,160,962
============ =========
Page 7
<PAGE>
SBS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(CONTINUED)
4) EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the weighted
average shares of common stock and, if dilutive, common equivalent shares
(options and warrants) outstanding during the period.
The number of shares used in the earnings per share computations are as
follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31 December 31
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares of common
stock outstanding during the year 3,709,624 2,960,576 4,025,670 3,017,012
Common equivalent shares - assumed
exercise of options and warrants - 362,615 - 374,836
Total common and common --------- --------- --------- ---------
equivalent shares 3,709,624 3,323,191 4,025,670 3,391,848
========= ========= ========= =========
</TABLE>
5) BUSINESS ACQUISITIONS
On August 19, 1996, the Company acquired Logical Design Group, Inc.
("LDG"), a Raleigh, North Carolina based designer and manufacturer of
Intel-based VME central processing unit boards. The acquisition qualified
as a pooling of interests for accounting purposes and constituted a tax
free reorganization for federal income tax purposes. Under the terms of
the agreement, LDG shareholders exchanged all outstanding shares of LDG
stock for 200,000 shares of the Company's stock.
Assets, liabilities, and equity assumed in the acquisition are as follows:
Cash and equivalents $ 1,351
Accounts receivable 441,279
Inventory 821,141
Deferred income tax 26,500
Prepaid and other assets 6,029
Property and equipment (net) 255,288
Income taxes 1,552
Accounts payable (256,984)
Accrued representative commissions (17,240)
Accrued salaries (20,000)
Accrued compensated absences (66,435)
Debt (404,277)
Other current liabilities (36,375)
Common stock (68,000)
Retained earnings (683,829)
The financial position and results of operations of the Company and LDG are
combined in fiscal 1997 on a prospective basis. LDG's historical results
do not have a material affect on combined financial position or results of
operations.
Page 8
<PAGE>
SBS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(CONTINUED)
On November 18, 1996, the Company completed the purchase of Bit 3 Computer
Corporation ("Bit 3"), a Minneapolis-based manufacturer of computer
networking and interconnection hardware. The Company acquired all the
outstanding capital stock of Bit 3 for a total purchase price of $24.0
million. The initial cash payment to the two shareholders of Bit 3 ("the
Sellers") of $20.0 million was funded by an offering of SBS common stock.
Subsequent cash payments of $1.0 million and $3.0 million will be paid to
the Sellers on July 1, 1997 and July 1, 1998, respectively. In connection
with the acquisition, the Company made an assessment, in conjunction with
an independent valuation firm, of purchased technology of Bit 3. The
assessment determined that $11 million of Bit 3's purchase price
represented technology that does not meet the accounting definitions of
"completed technology," and thus was charged to earnings under generally
accepted accounting principles. The acquisition was accounted for using
the purchase method of accounting, and goodwill is being amortized over 10
years.
Assets acquired and liabilities assumed in the acquisition are as follows:
Cash and equivalents $ 22,138
Accounts receivable 1,715,946
Inventory 1,591,448
Prepaid and other assets 207,086
Property and equipment (net) 200,570
Deferred tax asset 39,463
Goodwill 9,780,590
Accounts payable (184,150)
Accrued salaries (88,099)
Accrued compensated absences (87,700)
Other accrued liabilities (242,358)
-----------
12,954,934
In process research and development 11,000,000
-----------
$ 23,954,934
==========
The purchase price was paid as follows:
Cash $ 20,000,000
Notes payable issued 4,000,000
Discount of notes payable (327,821)
Acquisition costs 282,755
----------
$ 23,954,934
==========
Page 9
<PAGE>
SBS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The following (unaudited) proforma consolidated results of operations have
been prepared as if the acquisition of Bit 3 had occurred at July 1, 1995
and 1996:
($ in millions except per share amounts)
Six Months Ended Three Months Ended
December 31 December 31
------------ -----------
1996 1995 1996 1995
---- ---- ---- ----
Sales 31.4 16.3 21.6 10.8
Net income (loss) (2.4) 1.9 (3.5) 1.4
Net income (loss) per common
and common equivalent share (.49) .31 (.79) .30
The proforma information is presented for informational purposes only and
is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisition been consummated as of that
time, nor is it intended to be a projection of future results.
Page 10
<PAGE>
SBS TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO. INFORMATION DISCUSSED HEREIN
MAY INCLUDE FORWARD-LOOKING STATEMENTS REGARDING FUTURE EVENTS OR THE FUTURE
FINANCIAL PERFORMANCE OF THE COMPANY, AND ARE SUBJECT TO A NUMBER OF RISKS AND
OTHER FACTORS WHICH COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTAINED IN ANY FORWARD LOOKING STATEMENTS. AMONG SUCH FACTORS ARE:
GENERAL BUSINESS AND ECONOMIC CONDITIONS; CUSTOMER ACCEPTANCE AND DEMAND FOR
THE COMPANY'S PRODUCTS; THE COMPANY'S OVERALL ABILITY TO DESIGN, TEST, AND
INTRODUCE NEW PRODUCTS ON A TIMELY BASIS; THE NATURE OF THE MARKETS ADDRESSED BY
THE COMPANY'S PRODUCTS; AND OTHER RISK FACTORS LISTED FROM TIME TO TIME IN
DOCUMENTS FILED BY THE COMPANY WITH THE SEC.
RECENT PUBLIC STOCK OFFERING
On November 18, 1996, SBS Technologies, Inc. (the "Company") consummated a fully
underwritten public offering of 1,500,000 shares of the Company's Common Stock
at a price of $25.625 per share. In addition, certain selling shareholders sold
an additional 300,000 shares in the offering. The proceeds of the sale of the
300,000 additional shares did not benefit the Company; however, the Company did
receive the exercise price of $4.80 per share from the exercise of warrants
covering 100,000 of the shares. The offering was managed by an underwriting
group led by Cowen & Co. and SoundView Financial Group, Inc. The net proceeds
to the Company of the public offering were used to fund the acquisition of Bit
3 Computer Corporation ("Bit 3") (see Recent Acquisition below), and to repay
long-term debt, and the balance will be used for general working capital
requirements.
RECENT ACQUISITION
On November 18, 1996, the Company completed the purchase of Bit 3. Bit 3 is a
Minneapolis-based manufacturer of computer networking and interconnection
hardware for many of the most widely used computer architecture standards in the
standard bus embedded computer market. Under the terms of the purchase
agreement dated October 8, 1996 (the "Acquisition Agreement") among the Company
and the two shareholders of Bit 3 (the " Sellers"), the Company acquired all of
the outstanding capital stock of Bit 3 for a total purchase price of $24.0
million, paid from proceeds from the public offering and cash flow from the
Company's operations. Of this total purchase price, $20.0 million was paid to
the sellers in cash upon the closing of the offering. Of the balance of $4.0
million, $1.0 million will be paid to the Sellers on July 1, 1997 and $3.0
million will be paid to the sellers on July 1, 1998, pursuant to secured
promissory notes according to the terms of the Acquisition Agreement. The
financial results of Bit 3 have been included in the Company's Consolidated
Financial Statements from November 18, 1996. In connection with the acquisition
of Bit 3, the Company recorded an $11.0 million earnings charge based on an
assessment by the Company, in conjunction with an independent valuation firm, of
purchased technology of Bit 3. The assessment determined that $11.0 million of
Bit 3's purchase price represented technology that does not meet the accounting
definitions of "completed technology," and thus should be charged to earnings
under generally accepted accounting principles. In addition, as a result of the
acquisition, the Company recorded $9.78 million of goodwill which is being
amortized over a ten year period.
Page 11
<PAGE>
The following (unaudited) proforma consolidated results of operations have
been prepared as if the acquisition of Bit 3 had occurred at July 1, 1995
and July 1, 1996:
($ in millions except per share amounts)
Six Months Ended Three Months Ended
December 31 December 31
------------ -----------
1996 1995 1996 1995
---- ---- ---- ----
Sales 31.4 16.3 21.6 10.8
Net income (loss) (2.4) 1.9 (3.5) 1.4
Net income (loss) per common
and common equivalent share (.49) .31 (.79) .30
The proforma information is presented for informational purposes only and
is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisition been consummated as of that
time, nor is it intended to be a projection of future results.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995
SALES. For the six month period ended December 31, 1996, sales increased 57%
or $8.5 million from $15.0 million for the six month period ended December 31,
1995 to $23.5 million. This increase was primarily attributable to the sales
contributed by Logical Design Group, Inc. ("LDG"), which was acquired effective
August 19, 1996, and pooled effective July 1, 1996, and sales contributed by
Bit 3, which was acquired on November 18, 1996, as well as from increases in
sales of the Company's avionics and I/O products. During the six month period
ended December 31, 1996 prices for the Company's products remained firm and unit
shipments increased in avionics and I/O products.
GROSS PROFIT. For the six month period ended December 31, 1996, gross profit
increased 54.4% or $4.3 million from $7.9 million for the six month period
ended December 31, 1995 to $12.2 million. For the six month period ended
December 31, 1996 gross profit as a percentage of sales decreased .8% to 51.9%
from 52.7% for the six month period ended December 31, 1995. This decrease was
primarily due to the effect of including for the entire period the results of
operations of the Company's CPU products subsidiary, LDG, which traditionally
generates lower margins than the Company's other product areas, sales mix
changes in the Company's other product lines, partially offset by reductions in
component material costs.
SELLING, GENERAL AND ADMINISTRATION EXPENSE. For the six month period ended
December 31, 1996, selling, general and administration (SG&A) expense increased
63.3% or $1.9 million from $3.0 million for the six month period ended December
31, 1995 to $4.9 million due primarily to costs associated with the increased
sales for the period. For the six month period ended December 31, 1996, SG&A
expense as a percentage of sales increased 0.5% to 20.7% from 20.2% in the six
month period ended December 31, 1995, indicating that increased sales volume
largely offset the increase in actual expenditures and reserves as the Company
expanded its business.
Page 12
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSE. For the six month period ended December 31,
1996, research and development expense (R&D) increased 11.8% or $160,000 from
$1.36 million for the six month period ended December 31, 1995 to $1.52
million. For the six month period ended December 31, 1996, R&D expense as a
percentage of sales decreased 2.6% to 6.4% from 9.0% in the six month period
ended December 31, 1995. Although R&D expense as a percentage of sales was
lower than in the same period of the previous year, the total dollars spent
increased as the Company continued to invest in new products.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE. In connection with the
acquisition of Bit 3 completed on November 18, 1996, the Company recorded an
$11.0 million earnings charge based on an assessment by the Company, in
conjunction with an independent valuation firm, of purchased technology of Bit
3. The assessment determined that $11.0 million of Bit 3's purchase price
represented technology that does not meet the accounting definitions of
completed technology, and thus should be charged to earnings under generally
accepted accounting principles.
AMORTIZATION OF INTANGIBLE ASSETS. For the six month period ended December 31,
1996, amortization of intangible assets increased 25.7% or $115,000 from
$447,000 for the six month period ended December 31, 1995 to $562,000. This
increase was primarily the result of the amortization of goodwill associated
with the acquisition of Bit 3.
INTEREST INCOME. For the six month period ended December 31, 1996, interest
income increased $101,719 from $1,376 for the six month period ended December
31, 1995 to $103,095. This increase is due to earnings on surplus cash from
operations as well as earnings on cash received above the Company's immediate
requirements from the public offering consummated on November 18, 1996.
INTEREST EXPENSE. For the six month period ended December 31, 1996, interest
expense decreased 37.2% or $179,000 from $481,000 for the six month period ended
December 31, 1995 to $302,000. This decrease is attributable to the reduction
of debt incurred primarily to finance the acquisition of GreenSpring Computers,
Inc. in April 1995 and the elimination of all bank debt effective November 22,
1996 by application of some of the proceeds of the public offering.
INCOME TAXES. For the six month period ended December 31, 1996 and the six
month period ended December 31, 1995, income taxes represented an effective
income tax rate of 40% and 42%, respectively.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE. For the six month
period ended December 31, 1996, net income (loss) per common and common
equivalent share was ($0.97) compared to $0.45 for the six month period ended
December 31, 1995. The loss for the six month period is due to the $11.0
million charge to earnings associated with the acquisition of Bit 3. For the
six month period ended December 31, 1996 net income per common and common
equivalent share before the charge to earnings was $0.65.
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
SALES. For the three month period ended December 31, 1996, sales increased
66.2% or $4.9 million from $7.4 million for the three month period ended
December 31, 1995 to $12.3 million. This increase was primarily attributable to
the sales contributed by LDG, which was acquired on August 19, 1996, and pooled
effective July 1, 1996, and sales contributed by Bit 3 which was acquired on
November 18, 1996, as well as from increases in the Company's avionics and I/O
products. During the three month period ended December 31, 1996 prices for the
Company's products remained firm and unit shipments increased in avionics and
I/O products.
Page 13
<PAGE>
GROSS PROFIT. For the three month period ended December 31, 1996, gross profit
increased 56.4% or $2.2 million from $3.9 million for the three month period
ended December 31, 1995 to $6.1 million. For the three month period ended
December 31, 1996, gross profit as a percentage of sales decreased 2.5% to
50.1% from 52.6% for the three month period ended December 31, 1995. This
decrease was primarily due to the effect of including for the entire period the
results of operations of our CPU products subsidiary, LDG, which traditionally
generates lower margins than the Company's other product areas, as well as sales
mix changes in the Company's other product lines.
SELLING, GENERAL AND ADMINISTRATION EXPENSE. For the three month period ended
December 31, 1996, selling, general and administration (SG&A) expense increased
46.7% or $700,000 from $1.5 million for the three month period ended December
31, 1995 to $2.2 million due primarily to costs associated with the increased
sales for the period. For the three month period ended December 31, 1996, SG&A
expense as a percentage of sales decreased 2.1% to 17.9% from 20.0% in the three
month period ended December 31, 1995, indicating that increased sales volume
more than offset the increase in actual expenditures incurred as the Company
expanded its business.
RESEARCH AND DEVELOPMENT EXPENSE. For the three month period ended December
31, 1996, research and development expense (R&D) increased 27.0% or $183,000
from $678,000 for the three month period ended December 31, 1995 to $861,000.
For the three month period ended December 31, 1996, R&D expense as a percentage
of sales decreased 2.1% to 7.0% from 9.1% in the three month period ended
December 31, 1995. Although R&D expense as a percentage of sales was lower than
in the same period of the previous year, the total dollars spent increased as
the Company continued to invest in new products.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE. In connection with the
acquisition of Bit 3 completed on November 18, 1996, the Company recorded an
$11.0 million earnings charge based on an assessment by the Company, in
conjunction with an independent valuation firm, of purchased technology of Bit
3. The assessment determined that $11.0 million of Bit 3's purchase price
represented technology that does not meet the accounting definitions of
completed technology, and thus should be charged to earnings under generally
accepted accounting principles.
AMORTIZATION OF INTANGIBLE ASSETS. For the three month period ended December
31, 1996, amortization of intangible assets increased 60.3% or $129,000 from
$214,000 for the three month period ended December 31, 1995 to $343,000. This
increase was primarily the result of the amortization of goodwill associated
with the acquisition of Bit 3.
INTEREST INCOME. For the three month period ended December 31, 1996, interest
income increased $87,834 from $417 for the three month period ended December 31,
1995 to $88,251. This increase is due to earnings on surplus cash from
operations as well as earnings on cash received above the Company's immediate
requirements from the public offering consummated on November 18, 1996.
INTEREST EXPENSE. For the three month period ended December 31, 1996, interest
expense decreased 31.0% or $62,000 from $200,000 for the three month period
ended December 31, 1995 to $138,000. This decrease is attributable to the
reduction of debt incurred primarily to finance the acquisition of GreenSpring
Computers, Inc. in April 1995 and the elimination of all bank debt effective
November 22, 1996 by application of some of the proceeds of the public
offering.
INCOME TAXES. For the three month period ended December 31, 1996 and the three
month period ended December 31, 1995 income taxes represented an effective
income tax rate of 40% and 42%, respectively.
Page 14
<PAGE>
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE. For the three month
period ended December 31, 1996, net income (loss) per common and common
equivalent share was ($1.24) compared to $0.23 for the three month period ended
December 31, 1995. The loss for the three month period is due to the $11.0
million charge to earnings associated with the acquisition of Bit 3. For the
three month period ended December 31, 1996 net income per common and common
equivalent share before the charge to earnings was $0.32.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses a combination of the sale of equity securities, internally
generated funds and bank borrowings to finance its acquisitions, working capital
requirements, capital expenses and operations.
Cash totaled $13.6 million at December 31, 1996, an increase of $12.5 million
from June 30, 1996. This increase is a result of cash flow provided by
operations as well as cash received above immediate requirements from the
Company's public offering consummated on November 18, 1996 (see "Recent Public
Offering"). Net cash provided by operating activities for the six month period
ended December 31, 1996 was $3.2 million. Increases in sales volume and demand
for semiconductor parts during the six month period ended December 31, 1996
caused the Company to increase accounts receivable and inventory. Liabilities
were in line with the current level of business. Net cash used in investing
activities for the six month period ended December 31, 1996 was $20.8 million;
$20.3 million was for the acquisition of Bit 3 (see "Recent Acquisition") and
$564,000 was used for the purchase of equipment. Net cash provided by financing
activities for the six month period ended December 31, 1996 was $30.1 million.
Net proceeds from the sale of common stock (see "Recent Public Offering") were
$35.7 million, with additional cash received from the exercise of stock options
and warrants of $1.4 million. A portion of these funds, $6.9 million, was used
to pay down all existing debt with NationsBank of Texas, N.A. ("NationsBank")
incurred in April 1995 primarily to finance the acquisition of GreenSpring
Computers, Inc.
On April 26, 1996, the Company amended its bank financing agreement with
NationsBank, originally established in April 1995, to provide the Company with a
$6.8 million term loan and a $2.5 million revolving line of credit. The term
loan was completely paid down from the proceeds of the public offering. The
revolving line of credit matures on October 30, 1997. For the entire six month
period ended December 31, 1996, there were no borrowings drawn on the revolving
line of credit. The interest rate of the revolving line of credit is
NationsBank's prime rate or LIBOR plus 2.25% in 30, 60, or 90 day options. The
amended financing agreement provides for a security interest by NationsBank in
the Company's receivables, inventories, and equipment and imposes certain
performance ratios on the Company. These ratios include a current maturities
ratio which requires that the Company's net earnings, plus depreciation and
amortization expense for the preceding four quarters from time of measurement
compared to the Company's current portion of its long-term debt, will not be
less than a ratio of 2 to 1, a senior funded debt to EBITDA ratio which requires
that the Company's total debt evidenced by promissory notes, loan agreements,
bonds or similar instruments, but excluding subordinated debt, will not be
greater than a ratio of 1.5 to l when compared to the Company's profit before
tax plus interest, depreciation, and amortization expense for the preceding four
quarters from time of measurement, and a fixed charge coverage ratio requiring
that the Company's income before tax plus interest expense and operating lease
expense for the preceding four quarters from time of measurement will not be
less than a ratio of 2 to l when compared to the Company's interest expense plus
operating lease expense for the same preceding four quarters. The Company is
also prohibited from disposing of or acquiring certain assets and businesses
without the consent of the lender. At December 31, 1996, the Company was in
compliance with all of the covenants of the amended financing agreement.
Page 15
<PAGE>
Management believes that financial resources, including its internally generated
funds, available bank borrowings and the net proceeds from the public offering,
will be sufficient to finance the Company's current operations and capital
expenditures, excluding acquisitions, for the next twelve months.
For the six and three month periods ended December 31, 1996, there has been no
impact from inflation or changing prices to the Company's sales or income from
operations.
Page 16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults by the Company upon its Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
The following items were submitted to a vote and approved at the
Annual Meeting of Stockholders held on November 12, 1996:
TABULATION OF VOTES
<TABLE>
<CAPTION>
Against Abstentions and
or Broker Non-
Item Voted For Withheld Votes
---------- --- -------- -----
<S> <C> <C> <C>
Election of Directors:
Scott A. Alexander 3,349,925 100 1,376
Warren Andrews 3,346,925 3,100 1,376
Christopher J. Amenson 3,349,743 282 1,376
William J. Becker 3,349,125 900 1,376
Lawrence A. Bennigson 3,346,543 3,482 1,376
A. Wade Black 3,349,725 300 1,376
Andrew C. Cruce 3,350,025 0 1,376
--------- ----- ---------
Ratification of selection of KPMG Peat Marwick LLP as independent
auditor for the Company for fiscal year ending 1997 3,336,772 6,612 8,017
--------- ----- --------
Approval of amendment to 1993 Director and Officer Stock Option Plan
to: clarify and redefine the membership of the Committee, redefine
the responsibilities of the Committee, to revise eligibility for
grants to appointed Directors, to revise the time of award of grants
to re-elected Directors and to, increase the number of options
received by the Directors, to amend the terms of the exercise of and
payment for the options, to revise transferability provisions, to
make tax withholding optional, and to amend the terms on which the
Plan is to be amended. 3,099,724 74,384 177,293
--------- ------ ---------
Ratification of the 1997 Employee Incentive Stock Option Plan 1,787,787 48,182 1,515,432
--------- ------ ---------
Ratification of the 1996 Employee Stock Purchase Plan 1,803,338 30,672 1,517,391
--------- ------ ---------
</TABLE>
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (exhibit reference numbers refer to Item 601 of
Regulation S-K)
03.i (1) Articles of Incorporation, as amended.
03.ii (1) Bylaws, as amended.
10.1 (2) Stock Purchase Agreement dated October 8, 1996 between
the Registrant and Philip M. Vukovic and
Larry L. Larsen.
10.2 (3) Form of Underwriting Agreement between Cowen & Company
and SBS Technologies, Inc.
27. Financial Data Schedule
(b) Reports on Form 8-K - None
--------------------------------------
(1), (2), (3) See Exhibit Index on Page 19
Page 17
<PAGE>
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.
SBS TECHNOLOGIES, INC.
Date: February 13, 1997 /s/ Christopher J. Amenson
President and Chief Executive Officer
Date: February 13, 1997 /s/ James E. Dixon, Jr.
Vice President of Finance & Administration
Page 18
<PAGE>
SBS TECHNOLOGIES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
- -------------- ------------------------------------------------ ------------------------------------
<S> <C> <C>
03.i (1) Articles of Incorporation, as amended. - -
03.ii (1) Bylaws, as amended. - -
10.1 (2) Stock Purchase Agreement dated October 8, 1996 - -
between the Registrant and Philip M. Vukovic and
Larry L. Larsen.
10.2 (3) Form of Underwriting Agreement between Cowen & - -
Company and SBS Technologies, Inc.
27. Financial Data Schedule Filed herewith electronically
</TABLE>
(1) Incorporated by reference to Exhibits 3.1 and 3.2, respectively, of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995.
(2) Incorporated by reference to Exhibit 10.18 of the Registrants Registration
Statement on Form S-2, effective November 19, 1996.
(3) Incorporated by reference to Exhibit No. 1 of the Registrants Registration
Statement on Form S-2, effective November 19, 1996.
Page 19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN
THE COMPANY'S 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 13,573,585
<SECURITIES> 0
<RECEIVABLES> 9,213,217
<ALLOWANCES> (264,551)
<INVENTORY> 8,110,158
<CURRENT-ASSETS> 31,892,301
<PP&E> 4,087,870
<DEPRECIATION> 1,916,289
<TOTAL-ASSETS> 53,047,895
<CURRENT-LIABILITIES> 5,979,179
<BONDS> 0
0
0
<COMMON> 41,857,818
<OTHER-SE> 2,422,705
<TOTAL-LIABILITY-AND-EQUITY> 53,047,895
<SALES> 23,530,369
<TOTAL-REVENUES> 23,530,369
<CGS> 11,366,476
<TOTAL-COSTS> 29,312,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 186,002
<INTEREST-EXPENSE> 302,165
<INCOME-PRETAX> (5,981,547)
<INCOME-TAX> (2,392,600)
<INCOME-CONTINUING> (3,588,947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,588,947)
<EPS-PRIMARY> (0.97)
<EPS-DILUTED> 0.00
</TABLE>
