<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 MARCH 31, 1997 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 Number)
incorporation or organization)
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 April 30, 1997, the Registrant had 5,374,671 shares of its common
stock outstanding.
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Assets March 31, 1997 June 30, 1996
------ ------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,064,553 1,130,030
Receivables, net (note 2) 9,515,263 6,421,224
Inventories (note 3) 8,404,588 5,160,962
Deferred income tax 844,829 317,100
Income tax receivable 340,134 -
Prepaid expenses 382,962 303,846
Other current assets 250,578 104,249
------------ ------------
Total current assets 35,802,907 13,437,411
------------ ------------
Property and equipment, at cost 4,347,868 2,389,289
Less accumulated depreciation 2,081,346 1,041,719
------------ ------------
Net property and equipment 2,266,522 1,347,570
------------ ------------
Intangible assets, net 14,569,441 5,571,135
Deferred income taxes 4,121,134 55,900
Other assets 31,656 31,656
------------ ------------
Total assets $ 56,791,660 20,443,672
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,029,673 1,458,976
Accounts payable 1,460,770 1,243,748
Accrued representative commissions 497,743 353,278
Accrued salaries 1,817,599 1,077,121
Accrued compensated absences 533,551 340,342
Accrued software license fees 9,000 33,000
Income taxes - 223,381
Other current liabilities 603,101 425,033
Reserve for discontinued operations 63,742 49,553
------------ ------------
Total current liabilities 6,015,179 5,204,432
Long-term liabilities:
Long-term debt, excluding current installments 2,779,300 5,188,320
------------ ------------
Total long-term liabilities 2,779,300 5,188,320
------------ ------------
Total liabilities 8,794,479 10,392,752
------------ ------------
Stockholders' equity:
Common stock, no par value; 30,000,000 shares authorized,
5,374,671 issued and outstanding at March 31, 1997;
3,178,133 issued and outstanding at June 30, 1996 43,740,346 4,690,786
Common stock warrants 118,575 180,000
Retained earnings 4,138,260 5,180,134
------------ ------------
Total stockholders' equity 47,997,181 10,050,920
------------ ------------
Total liabilities and stockholders' equity $ 56,791,660 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>
Nine Months Ended March 31 Three Months Ended March 31
---------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 37,736,431 22,913,386 14,206,062 7,895,826
Cost of sales 17,975,657 10,792,814 6,609,181 3,682,345
------------ ------------ ------------ ------------
Gross Profit 19,760,774 12,120,572 7,596,881 4,213,481
Selling, general and administrative expense 7,584,841 4,595,300 2,716,372 1,559,443
Research and development expense 2,871,852 2,067,868 1,355,886 705,626
Acquired in-process research and
development charge 11,000,000 - - -
Amortization of intangible assets 1,034,337 669,149 472,402 222,305
------------ ------------ ------------ ------------
Operating income (loss) (2,730,256) 4,788,255 3,052,221 1,726,107
------------ ------------ ------------ ------------
Interest income 280,049 1,772 176,954 396
Interest expense (426,996) (681,187) (124,831) (200,264)
------------ ------------ ------------ ------------
(146,947) (679,415) 52,123 (199,868)
------------ ------------ ------------ ------------
Income (loss) before income taxes (2,877,203) 4,108,840 3,104,344 1,526,239
Income taxes (1,151,500) 1,644,000 1,241,100 560,000
------------ ------------ ------------ ------------
Net income (loss) $ (1,725,703) 2,464,840 1,863,244 966,239
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per common and
common equivalent share (note 4) $ (0.41) 0.70 0.31 0.26
---- ---- ---- ----
</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> <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 394,951 1,749,947 - - 1,749,947
Exercise of warrants 101,587 61,425 (61,425) - -
Income tax benefit from stock
options exercised - 1,645,740 - - 1,645,740
Acquisition of Logical Design
Group Inc. 200,000 68,000 - 683,829 751,829
Common stock issued in
public offering 1,500,000 35,524,448 - - 35,524,448
Net loss - - - (1,725,703) (1,725,703)
---------- -------------- ------------- ------------- --------------
Balance at March 31, 1997 5,374,671 $ 43,740,346 $ 118,575 $ 4,138,260 $ 47,997,181
---------- -------------- ------------- ------------- --------------
---------- -------------- ------------- ------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements
Page 4
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31
-------------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ (1,725,703) 2,464,840
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 432,191 203,094
Amortization of intangible assets 1,034,337 669,149
Bad debt expense 204,503 12,823
Gain on disposition of assets (503) -
Imputed interest 82,327 -
Acquired in-process research and development charge 11,000,000 -
Deferred income taxes (4,527,000) -
Changes in assets and liabilities:
Receivables (1,141,317) 1,713,403
Inventories (831,037) (1,079,746)
Prepaids and other assets (12,330) 205,458
Accounts payable (224,112) (750,454)
Accrued representative commissions 127,225 39,420
Accrued salaries 632,379 406,181
Accrued compensated absences 39,074 32,019
Accrued software license fees (24,000) (313,000)
Income taxes 1,083,777 (111,021)
Other current liabilities (86,476) (761,623)
------------ ------------
Net adjustments 7,789,038 265,703
------------ ------------
Net cash provided by operating activities 6,063,335 2,730,543
------------ ------------
Cash flow from investing activities:
Business acquisition (note 5) (20,511,319) (172,559)
Acquisition of property and equipment (824,049) (538,734)
------------ ------------
Net cash used by investing activities (21,335,368) (711,293)
------------ ------------
(Continued)
Page 5
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<CAPTION>
Nine Months Ended March 31
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable to bank - 3,995,000
Payments on notes payable to bank - (4,567,383)
Payments on liability to stockholder (75,000) (75,000)
Payments on long-term borrowings (6,992,839) (2,877,481)
Proceeds from exercise of stock options and warrants 1,749,947 777,912
Net proceeds from sale of common stock 35,524,448 -
------------ ------------
Net cash provided (used) by financing activities 30,206,556 (2,746,952)
------------ ------------
Net increase (decrease) in cash and cash equivalents 14,934,523 (727,702)
Cash and cash equivalents at beginning of period 1,130,030 883,804
------------ ------------
Cash and cash equivalents at end of period $ 16,064,553 156,102
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Interest paid $ 274,892 689,632
Income taxes paid 2,285,277 1,755,021
Noncash financing and investing activities:
Assets acquired through capital leases 70,733 -
Income tax benefit from stock options exercised 1,645,740 -
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
Page 6
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 March 31, 1996 financial statements have been
reclassified to conform with the March 31, 1997 presentation.
2) RECEIVABLES, NET
Receivables, net consisted of the following:
March 31, 1997 June 30, 1996
-------------- -------------
Accounts receivable $ 8,891,480 5,527,620
Contract receivables:
Amounts billed 598,639 721,803
Recoverable costs and accrued profit
on progress completed - not billed 303,812 242,038
----------- -----------
902,451 963,841
----------- -----------
9,793,931 6,491,461
----------- -----------
Less: allowance for doubtful accounts (278,668) (70,237)
----------- -----------
$ 9,515,263 6,421,224
----------- -----------
----------- -----------
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.
March 31, 1997 June 30, 1996
------------- -------------
Raw materials $ 3,572,026 2,254,788
Work in process 2,891,043 1,546,800
Finished goods 1,941,519 1,359,374
----------- ----------
$ 8,404,588 5,160,962
----------- ----------
----------- ----------
Page 7
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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>
Nine Months Ended Three Months Ended
March 31 March 31
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares of common
stock outstanding during the year 4,211,660 2,987,398 5,349,065 3,046,044
Common equivalent shares - assumed
exercise of options and warrants - 665,326 690,377 653,597
--------- --------- --------- ---------
Total common and common
equivalent shares 4,211,660 3,652,724 6,039,442 3,699,641
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Common equivalent shares and income per common and common equivalent share
for the periods ending March 31, 1996 were calculated using the Treasury
Stock Method as modified for the 20% test.
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 864,610
Accumulated depreciation (609,322)
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)
Page 8
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(CONTINUED)
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.
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 10,032,643
Accounts payable (184,150)
Accrued salaries (88,099)
Accrued compensated absences (87,700)
Other accrued liabilities (242,358)
----------
13,206,987
In process research and development 11,000,000
----------
$ 24,206,987
----------
----------
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 534,808
----------
$ 24,206,987
----------
----------
Page 9
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
The following proforma consolidated results of operations have been prepared as
if the acquisition of Bit 3 had occurred at July 1, 1995 and 1996:
(in thousands except per share amounts)
Nine Months Ended Three Months Ended
March 31 March 31
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Sales $ 43,870 $ 33,298 $ 14,206 $ 11,730
Net income (loss) $ (561) $ (1,718) $ 1,863 $ 1,802
Net income (loss) per common
and common equivalent share $ (.13) $ (.38) $ .31 $ .35
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. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
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.
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), 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 or to be 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 $10.0 million of goodwill which is being
amortized over a ten year period.
Page 11
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
(CONTINUED)
The following proforma consolidated results of operations have been prepared as
if the acquisition of Bit 3 had occurred at July 1, 1995 and 1996:
( in thousands except per share amounts)
Nine Months Ended Three Months Ended
March 31 March 31
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Sales $ 43,870 $ 33,298 $ 14,206 $ 11,730
Net income (loss) $ (561) $ (1,718) $ 1,863 $ 1,802
Net income (loss) per common
and common equivalent share $ (.13) $ (.38) $ .31 $ .35
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
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
SALES. For the nine month period ended March 31, 1997, sales increased 64.6%,
or $14.8 million, from $22.9 million for the nine month period ended March 31,
1996, to $37.7 million. Of this 64.6% increase, 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, comprised 41.9% of this increase, and 22.7% of
this increase was attributable to the Company's other product lines. During
the nine month period ended March 31, 1997, prices for the Company's products
remained firm and unit shipments increased in all product lines.
GROSS PROFIT. For the nine month period ended March 31, 1997, gross profit
increased 63.6%, or $7.7 million, from $12.1 million for the nine month period
ended March 31, 1996, to $19.8 million, due to the effect of the higher sales
volume. For the nine month period ended March 31, 1997, gross profit as a
percentage of sales remained consistent with the nine month period ended March
31, 1996, 52.4% versus 52.9%, respectively.
SELLING, GENERAL AND ADMINISTRATION EXPENSE. For the nine month period ended
March 31, 1997, selling, general and administration (SG&A) expense increased
65.2%, or $3.0 million, from $4.6 million, for the nine month period ended March
31, 1996, to $7.6 million, largely because of the increased staffing resulting
from the LDG and Bit 3 acquisitions and subsequent augmentation of those staffs
in an effort to increase productivity and efficiency. For the nine month period
ended March 31, 1997, SG&A expense as a percentage of sales remained unchanged
at 20.1%, compared to the nine month period ended March 31, 1996.
Page 12
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
(CONTINUED)
RESEARCH AND DEVELOPMENT EXPENSE. For the nine month period ended March 31,
1997, research and development expense (R&D) increased 38.1%, or $800,000, from
$2.1 million for the nine month period ended March 31, 1996, to $2.9 million,
largely because of the added expenditures resulting from the LDG and Bit 3
acquisitions as well as increases in expenditures in the Company's other product
areas as the Company continued to invest in new products. For the nine month
period ended March 31, 1997, R&D expense as a percentage of sales decreased
1.4%, to 7.6%, from 9.0% in the nine month period ended March 31, 1996.
Although R&D expense as a percentage of sales was lower than in the same period
of the previous year, actual expenditures increased.
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 nine month period ended March 31,
1997, amortization of intangible assets increased 49.5%, or $331,000, from
$669,000 for the nine month period ended March 31, 1996, to $1.0 million. This
increase was primarily the result of the amortization of goodwill associated
with the acquisition of Bit 3.
INTEREST INCOME. For the nine month period ended March 31, 1997, interest
income increased $278,277, from $1,772, for the nine month period ended March
31, 1996, to $280,049. 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 nine month period ended March 31, 1997, interest
expense decreased 37.3%, or $254,000, from $681,000 for the nine month period
ended March 31, 1996, to $427,000. 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 nine month period ended March 31, 1997 and the nine
month period ended March 31, 1996, income taxes represent an effective income
tax rate of 40%.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE. For the nine month
period ended March 31, 1997, net income (loss) per common and common equivalent
share was ($0.41) compared to $0.70 for the nine month period ended March 31,
1996. The loss for the nine month period is due to the $11.0 million charge to
earnings associated with the acquisition of Bit 3. For the nine month period
ended March 31, 1997, net income per common and common equivalent share
excluding the charge to earnings would have been $0.97.
Page 13
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
SALES. For the three month period ended March 31, 1997, sales increased 79.7%,
or $6.3 million, from $7.9 million for the three month period ended March 31,
1996, to $14.2 million. Of this 79.7% increase, 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, accounted for
60.7% of this increase, and 19.0% of this increase was attributable to growth in
the Company's other product lines. During the three month period ended March
31, 1997, prices for the Company's products remained firm and except for our
interconnect products, unit shipments increased in all other product lines.
GROSS PROFIT. For the three month period ended March 31, 1997, gross profit
increased 81.0%, or $3.4 million, from $4.2 million for the three month period
ended March 31, 1996, to $7.6 million, due to the effect of the higher sales
volume. For the three month period ended March 31, 1997, gross profit as a
percentage of sales was 53.5%, consistent with the three month period ended
March 31, 1996.
SELLING, GENERAL AND ADMINISTRATION EXPENSE. For the three month period ended
March 31, 1997, selling, general and administration (SG&A) expense increased
68.8%, or $1.1 million, from $1.6 million for the three month period ended March
31, 1996, to $2.7 million, largely because of the increased staffing resulting
from the LDG and Bit 3 acquisitions and subsequent augmentation of those staffs
in an effort to increase productivity and efficiency. For the three month
period ended March 31, 1997, SG&A expense as a percentage of sales decreased
.7%, to 19.1%, from 19.8% in the three month period ended March 31, 1996, as
increased sales volume more than offset the increase in actual expenditures.
RESEARCH AND DEVELOPMENT EXPENSE. For the three month period ended March 31,
1997, research and development expense (R&D) increased 92.2%, or $.65 million,
from $.7 million for the three month period ended March 31, 1996, to $1.35
million, largely because of the added expenditures resulting from the LDG and
Bit 3 acquisitions as well as increases in expenditures in the Company's other
product areas as the Company continued to invest in new products. For the same
reason, for the three month period ended March 31, 1997, R&D expense as a
percentage of sales increased .6%, to 9.5%, from 8.9% in the three month period
ended March 31, 1996.
AMORTIZATION OF INTANGIBLE ASSETS. For the three month period ended March 31,
1997, amortization of intangible assets increased 112.6%, or $250,000, from
$222,000 for the three month period ended March 31, 1996, to $472,000. This
increase was the result of the amortization of goodwill associated with the
acquisition of Bit 3.
INTEREST INCOME. For the three month period ended March 31, 1997, interest
income increased $176,558, from $396, for the three month period ended March 31,
1996, to $176,954. This increase is primarily 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.
Page 14
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
(CONTINUED)
INTEREST EXPENSE. For the three month period ended March 31, 1997, interest
expense decreased 37.5%, or $75,000, from $200,000, for the three month period
ended March 31, 1996, to $125,000. This decrease is attributable to the
reduction of debt entered into 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 March 31, 1997 and the three
month period ended March 31, 1996, income taxes represent an effective income
tax rate of 40% and 36.7%, respectively. During the three month period ended
March 31, 1996, the Company made an adjustment to the effective tax rate,
lowering the rate on a year to date basis from 42% to 40%, as a result of
implementing tax planning strategies.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE. For the three month
period ended March 31, 1997, net income per common and common equivalent share
was $0.31, compared to $0.26 for the three month period ended March 31, 1996, an
increase of 19.2%. The difference in growth in earnings per share compared to
the growth in net income is attributable to the additional shares issued in the
Company's follow-on public offering, which closed in November 1996, and the
effects of stock options.
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 $16.1 million at March 31, 1997, an increase of $15.0 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 "Public Offering"). Net
cash provided by operating activities for the nine month period ended March 31,
1997 was $6.1 million. Increases in sales volume and demand for semiconductor
parts during the nine month period ended March 31, 1997 caused the Company to
increase accounts receivable and inventory. Liabilities were in line with the
current level of business. In addition, the exercise and subsequent sale of
stock related to stock option plans reduced the Company's current year tax
liability. Net cash used in investing activities for the nine month period
ended March 31, 1997 was $21.3 million. Of the $21.3 million, $20.5 million was
for the acquisition of Bit 3 (see "Recent Acquisition") and $824,000 was used
for the purchase of equipment. Net cash provided by financing activities for
the nine month period ended March 31, 1997 was $30.2 million. Net proceeds from
the sale of common stock (see "Recent Public Offering") was $35.5 million, with
additional cash received from the exercise of stock options and warrants of $1.7
million. A portion of these funds, $6.9 million, was used in November 1996 to
pay down all existing debt, including interest due, with NationsBank of Texas,
N.A. ("NationsBank") incurred in April 1995 primarily to finance the acquisition
of GreenSpring Computers, Inc.
Page 15
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
On April 26, 1996, the Company amended its bank financing agreement with
NationsBank, originally entered into 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 nine month period ended March 31, 1997, 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 March 31, 1997, excluding the one time $11.0 million charge, the Company
was in compliance with all of the covenants of the amended financing
agreement.
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 nine and three month periods ended March 31, 1997, there has been no
impact from inflation or changing prices on 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 - None
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.
27. Financial Data Schedule
(b) Reports on Form 8-K - None
(1) 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: May 9, 1997 /s/ Christopher J. Amenson
President and Chief Executive Officer
Date: May 9, 1997 /s/ James E. Dixon, Jr.
Vice President of Finance & Administration
Page 18
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Number Description Method of Filing
- -------------- -------------------------------------- ----------------
03.i (1) Articles of Incorporation, as amended. --
03.ii (1) Bylaws, as amended. --
27. Financial Data Schedule Filed herewith
electronically
(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.
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 STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,064,553
<SECURITIES> 0
<RECEIVABLES> 9,793,931
<ALLOWANCES> (278,668)
<INVENTORY> 8,404,588
<CURRENT-ASSETS> 35,802,907
<PP&E> 4,347,868
<DEPRECIATION> 2,081,346
<TOTAL-ASSETS> 56,791,660
<CURRENT-LIABILITIES> 6,015,179
<BONDS> 0
0
0
<COMMON> 43,740,346
<OTHER-SE> 4,256,835
<TOTAL-LIABILITY-AND-EQUITY> 56,791,660
<SALES> 37,736,431
<TOTAL-REVENUES> 37,736,431
<CGS> 17,975,657
<TOTAL-COSTS> 40,466,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 204,503
<INTEREST-EXPENSE> 426,996
<INCOME-PRETAX> (2,877,203)
<INCOME-TAX> (1,151,500)
<INCOME-CONTINUING> (2,877,203)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,725,703)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> 0.00
</TABLE>
