<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
SBS TECHNOLOGIES, INC.
AMENDMENT NO. 1
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 12, 2000
SBS TECHNOLOGIES, INC.
----------------------
New Mexico 1-10981 85-0359415
------------------------ --------------------- -----------------------
(State of Incorporation) (Commission File No.) (IRS Employer I.D. No.)
2400 Louisiana Blvd, NE AFC Bldg 5-600 Albuquerque, New Mexico 87110
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (505) 875-0600
--------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The SDL Communications Inc. ("SDL") audited financial statements as of
December 31, 1999, the SDL unaudited financial statements as of March 31, 2000,
and the exhibits required under Item 7 have been completed and are filed
herewith electronically.
(b) Pro Forma Consolidated Financial Information
On April 12, 2000, SBS Technologies, Inc. ("SBS") acquired all of the
outstanding shares of SDL from the stockholders of SDL for $25 million in cash.
$250,000 of the purchase price was placed in escrow pending the completion of a
closing balance sheet. In connection with the completion of the closing balance
sheet, SBS expects to distribute additional funds to the stockholders of SDL
estimated at $550,000. Prior to the acquisition, SDL was a privately held
company. Located in Easton, Massachusetts, SDL specializes in the design,
manufacture and sales of WAN I/O for the Telecommunications and Data
Communications market. SDL designs, manufactures and markets T1/E1, T3/E3, HSSI
and OC3 products based on the PCI, CompactPCI and PMC form factors, and
supporting protocols such as Frame Relay, HDLC, PPP, X.25 and ATM. In addition,
SDL's products support the operating systems most commonly used in
communications, including Windows NT, Solaris and VxWorks. SDL customers include
major telecommunication OEM companies such as Nokia, Nortel, Motorola, IBM,
Network Associates and Compuware.
The acquisition of SDL was funded with existing cash and a $20 million drawdown
under SBS' Credit Agreement with Bank of America, N.A. The purchase price for
SDL was based on a multiple of revenues as determined by an analysis of
acquisitions of comparable companies, anticipated future earnings, and its
complementary technology and customer base.
The acquisition is being accounted for under the purchase method, whereby the
purchase price is allocated to the underlying assets acquired and liabilities
assumed based upon their estimated fair values. Based on a preliminary
assessment, in conjunction with an independent valuation firm, of purchased
technology of SDL, it is expected that approximately $4.0 million of the
purchase price will be allocated to in-process research and development which,
under generally accepted accounting principles, will be immediately expensed by
SBS. This assessment analyzed certain products that were under development at
the time of acquisition. These products were in various stages of completion
ranging from 35% of completion to 85% of completion, with estimated completion
dates ranging from the third quarter of calendar 2000 to the second quarter of
calendar 2001. The fair value of these development products was determined in
accordance with views expressed by the staff of the Securities and Exchange
Commission. The charge to SBS earnings will be recognized in the quarter ending
June 30, 2000, and it is possible that such charge will result in SBS reporting
a net loss for its fourth quarter.
The unaudited Pro Forma Consolidated Financial Statements reflect the following:
(i) preliminary adjustment for the purchase accounting and estimated fair value
allocation of the assets acquired and the obligations assumed; (ii) the assumed
borrowing of funds on July 1, 1998 with which to acquire SDL and the associated
increase of interest expense; (iii) reduction of interest income on surplus cash
used to consummate the transaction; and (iv) adjustments to current and deferred
taxes associated with the exercise of non-qualified stock options in conjunction
with the sale of SDL. The unaudited Pro Forma Consolidated Balance Sheet as of
March 31, 2000 was prepared as if the transaction had occurred on that date. The
unaudited Pro Forma Consolidated Statements of Operations for the 12-month
period ended June 30, 1999 and the nine-month period ended March 31, 2000 were
prepared as if the transaction had occurred on July 1, 1998.
In the opinion of SBS management, all adjustments necessary to present fairly
such Pro Forma Consolidated Financial Statements have been made based on the
terms and structure of the acquisition. However, SBS has not completed the final
purchase price allocation and adjustments may be necessary in the future based
on additional information and analysis.
<PAGE>
These unaudited Pro Forma Consolidated Financial Statements are not necessarily
indicative of what actual results would have been had the transaction occurred
at the beginning of the respective periods nor do they purport to indicate the
results of future operations of the Company.
These unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the accompanying notes and with the Financial Statements of SDL
filed electronically herewith.
<PAGE>
SDL COMMUNICATIONS, INC.
Financial Statements
December 31, 1999
(With Independent Auditors' Report Thereon)
<PAGE>
SDL COMMUNICATIONS, INC.
TABLE OF CONTENTS
PAGE
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Stockholder's Equity and Comprehensive Income 4
Statement of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SDL Communications, Inc.:
We have audited the accompanying balance sheet of SDL Communications, Inc. as of
December 31, 1999, and the related statement of operations, stockholders' equity
and comprehensive income, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SDL Communications, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Albuquerque, New Mexico
April 28, 2000
<PAGE>
SDL COMMUNICATIONS, INC.
Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 307,861
Investment securities (note 2) 605,980
Trade accounts receivable 1,448,100
Inventories:
Raw materials 674,644
Work in process 440,943
Finished goods 267,016
-----------
Total inventories 1,382,603
Income taxes receivable 38,161
Prepaid expenses 52,312
-----------
Total current assets 3,835,017
Property and equipment:
Leasehold improvements 43,935
Furniture and fixtures 42,370
Computers and equipment 248,394
Test and design equipment 244,484
-----------
579,183
Less accumulated depreciation and amortization 390,210
-----------
Net property and equipment 188,973
Deferred tax assets (note 4) 440,000
Other assets 32,042
-----------
$ 4,496,032
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 604,760
Accrued expenses 303,146
-----------
Total current liabilities 907,906
Stockholders' equity:
Common stock, $.001 par value. Authorized 4,725,000 shares;
issued and outstanding 3,586,950 shares 3,587
Additional paid-in capital 6,025,736
Accumulated deficit (2,475,088)
Accumulated other comprehensive income - net unrealized
appreciation on investment securities 33,891
-----------
Total stockholders' equity 3,588,126
Commitments (notes 3 and 6)
-----------
$ 4,496,032
===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
SDL COMMUNICATIONS, INC.
Statement of Operations
Year ended December 31, 1999
<TABLE>
<S> <C>
Net sales $ 12,321,495
Cost of goods sold 4,603,962
------------
Gross profit 7,717,533
Selling, general and administrative expenses 6,145,333
Stock-based compensation 4,549,509
------------
Loss from operations (2,977,309)
Other income (expense):
Other expense (69,848)
Interest income 31,681
------------
Loss before income taxes (3,015,476)
Income taxes (note 4) 209,800
------------
Net loss $ (3,225,276)
============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
SDL COMMUNICATIONS, INC.
Statement of Stockholders' Equity and Comprehensive Income
Year ended December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Common stock Retained other
------------------------- Additional earnings comprehensive
Shares Amount paid-in-capital (deficit) income Total
----------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 2,671,825 $ 2,672 1,468,629 750,188 11,109 $ 2,232,598
Net loss -- -- -- (3,225,276) -- (3,225,276)
Net unrealized change in investment
securities, net of tax effect of $13,556 -- -- -- -- 22,782 22,782
-----------
Comprehensive income (loss) (3,202,494)
-----------
Acquisition and retirement of common stock (5,000) (5) (7,495) -- -- (7,500)
Stock-based compensation -- -- 4,549,509 -- -- 4,549,509
Exercise of stock options 920,125 920 15,093 -- -- 16,013
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 3,586,950 $ 3,587 6,025,736 (2,475,088) 33,891 $ 3,588,126
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
SDL COMMUNICATIONS, INC.
Statement of Cash Flows
Year ended December 31, 1999
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net loss $(3,225,276)
Adjustments to reconcile net loss to net cash
provided (used) in operating activities:
Depreciation and amortization 133,294
Deferred income taxes (469,000)
Stock-based compensation 4,549,509
Loss on investment in unconsolidated subsidiary 66,939
Net changes in operating assets and liabilities:
Accounts receivable (305,598)
Inventories and prepaid expenses (781,994)
Accounts payable 405,264
Accrued expenses 143,345
Income taxes (610,200)
Other assets (1,675)
-----------
Net cash used in operating activities (95,392)
-----------
Cash flows from investing activities:
Proceeds from sale of investment securities available-for-sale 204,791
Purchases of investment securities available-for-sale (117,473)
Purchase of investment in unconsolidated subsidiary (90,000)
Purchases of property and equipment (140,136)
-----------
Net cash used in investing activities (142,818)
-----------
Cash flows from financing activities:
Repurchase of common stock (7,500)
Proceeds from exercise of stock options 16,013
-----------
Net cash provided by financing activities 8,513
-----------
Net decrease in cash and cash equivalents $ (229,697)
Cash and cash equivalents at beginning of year 537,558
-----------
Cash and cash equivalents at end of year $ 307,861
===========
Supplemental information:
Cash paid for interest $ 492
===========
Cash paid for income taxes $ 1,289,000
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
SDL COMMUNICATIONS, INC.
Notes to Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) DESCRIPTION OF BUSINESS
The Company is engaged in the business of the design, manufacture and
sales of advanced PCI, compact PCI and PMC wide area network adapters
for the use in networking platforms and systems. Additionally, the
Company is involved with designing and developing products for
emerging technologies such as PPP, Frame Relay and asynchronous
transfer mode (ATM). The Company's customer base encompasses the
entire region of the United States. The Company was organized as a
subchapter C Corporation in 1987 and is chartered in Massachusetts.
(B) CASH EQUIVALENTS
Cash equivalents of $307,861 at December 31, 1999, consist of money
market accounts and certificates of deposit with an initial term of
less than three months. For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(C) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(D) INVESTMENT SECURITIES
Investment securities at December 31, 1999 consist of mutual funds, an
obligation of a state government, and equity securities. The Company
classifies its debt and equity securities in the available-for-sale
category.
Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are
reported as a separate component of other comprehensive income until
realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific
identification basis.
A decline in the market value of any available-for-sale security below
cost that is deemed to be other than temporary results in a reduction
in carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established.
Premiums and discounts are amortized or accreted over the life of the
related available-for-sale security as an adjustment to yield using
the effective interest method. Dividend and interest income are
recognized when earned.
(Continued)
6
<PAGE>
SDL COMMUNICATIONS, INC.
Notes to Financial Statements
December 31, 1999
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property
and equipment is calculated on the straight-line method over the
estimated useful lives of the assets. Furniture and fixtures have an
estimated useful life of 4 years. Computers and equipment and test and
design equipment have an estimated useful life of 3 years. Leasehold
improvements are amortized straight line over the shorter of the lease
term or estimated useful life of the asset. Leasehold improvements are
currently amortized over 2.5 years.
(F) OTHER ASSETS
Other assets consist primarily of an investment in S-Link Corporation,
a closely held Delaware Corporation. The investment is accounted for
under the equity method of accounting.
(G) SALES RECOGNITION
Sales are recognized when goods are shipped to the customer.
(H) BUSINESS AND CREDIT CONCENTRATIONS
Customers comprising 10 percent or greater of the Company's net sales
are summarized as follows for the year ended December 31:
1999
----------------
Netscout 30%
Nokia 21%
Motorola 16%
(I) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed in the period incurred.
Research and development costs amounted to $1,890,768 in 1999.
(J) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs amounted
to $221,524 in 1999.
(K) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(Continued)
7
<PAGE>
SDL COMMUNICATIONS, INC.
Notes to Financial Statements
December 31, 1999
(L) STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations,
in accounting for its fixed plan stock options. As such, compensation
expense would be recorded on the date of grant only if the current
fair value of the underlying stock exceeded the exercise price.
Statement of Financial Accounting Standards No. 123 (SFAS 123),
ACCOUNTING FOR STOCK-BASED COMPENSATION, established accounting and
disclosure requirements using a fair value-based method of accounting
for stock-based employee compensation plans. As allowed by SFAS 123,
the Company has elected to continue to apply the intrinsic value-based
method of accounting described above, and has adopted the disclosure
requirements of SFAS 123.
(M) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains and fair value of
available-for-sale securities by major security type and class of security
at December 31, 1999, were as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED
AMORTIZED COST HOLDING GAINS FAIR VALUE
-------------- ------------- ----------
<S> <C> <C> <C>
Available-for-sale:
Equity securities $ 40,755 50,916 91,671
Mutual funds 308,740 5,569 314,309
Obligation of state government 200,000 -- 200,000
-------------- ------------- ----------
$ 549,495 56,485 605,980
============== ============= ==========
</TABLE>
Maturities of debt securities classified as available-for-sale were as
follows at December 31, 1999:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Available-for-sale - due after ten years $ 200,000 200,000
============== ==========
</TABLE>
Proceeds from the sale of investment securities available for sale were
$204,791 in 1999, resulting in gross realized losses of $5,170.
(Continued)
8
<PAGE>
SDL COMMUNICATIONS, INC.
Notes to Financial Statements
December 31, 1999
(3) LEASES
The Company has several noncancelable operating leases, primarily for
office and warehouse space, that expire over the next two years. Future
minimum lease payments under noncancelable operating leases (with initial
or remaining lease terms in excess of one year) as of December 31, 1999
are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31: AMOUNT
---------------------------- ------------------
<S> <C>
2000 $ 53,700
2001 3,850
------------------
Total minimum lease payments $ 57,550
==================
</TABLE>
Total rent expense for the year ended December 31, 1999 was $117,530.
(4) INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999 CURRENT DEFERRED TOTAL
------------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
U.S. Federal $ 518,700 (358,400) 160,300
State and local 160,100 (110,600) 49,500
----------------- ----------------- ----------------
$ 678,800 (469,000) 209,800
================= ================= ================
</TABLE>
Income tax expense (benefit) attributable to loss before income taxes
differed from the amounts computed by applying the U.S. federal income tax
rate of 34 percent to loss before income taxes as a result of the
following:
<TABLE>
<S> <C>
Computed "expected" tax (benefit) $ (1,025,262)
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of federal income tax benefit (188,556)
Valuation allowance 1,420,800
Other 2,818
-----------------
$ 209,800
=================
</TABLE>
(Continued)
9
<PAGE>
SDL COMMUNICATIONS, INC.
Notes to Financial Statements
December 31, 1999
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999
are presented below.
<TABLE>
<S> <C>
Deferred tax assets:
Losses from unconsolidated subsidiaries $ 47,000
Plant and equipment, principally due to differences in depreciation 2,800
Accrued vacation 18,300
Accrued expenses 9,694
Stock-based compensation 2,339,000
-----------
Total gross deferred tax assets 2,416,794
Less valuation allowance (1,954,200)
-----------
Total deferred tax assets 462,594
-----------
Deferred tax liabilities - unrealized gains on debt and equity securities 22,594
-----------
Net deferred tax asset $ 440,000
===========
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1999 was
$1,954,200. The net change in the total valuation allowance for the year
ended December 31, 1999 was an increase of $1,420,800. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not
the Company will realize the benefits of the net deferred tax asset (after
valuation allowance) existing at December 31, 1999. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income are reduced.
(5) STOCK OPTION PLAN
In 1996, the Company adopted the 1996 Non-Qualified Key Employees'
Incentive Stock Option Plan (the "Plan") pursuant to which the Company's
Board of Directors may grant stock options to officers and key employees.
The Plan authorizes grants of options to purchase up to 2,250,000 shares of
authorized but unissued common stock. All stock options have terms that
range from 1 to 4 years and vest and become fully exercisable as determined
by the board at the time of grant.
(Continued)
10
<PAGE>
SDL COMMUNICATIONS, INC.
Notes to Financial Statements
December 31, 1999
At December 31, 1999, there were 152,000 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock
options granted during 1999 was $4.79 on the date of grant using the Black
Scholes option-pricing model (excluding a volatility assumption) with the
following weighted-average assumptions: expected dividend yield of zero
percent, risk-free interest rate of 6.5 percent, and an expected life of
1.5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan. Had the
Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS 123, the Company's net loss would
have been increased to the pro forma amount indicated below:
Net loss As reported $ (3,225,276)
Pro forma (3,230,350)
Stock option activity during the period is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------------------ ------------------
<S> <C> <C>
Balance at December 31, 1998 95,175 $ 0.06
Granted 1,023,000 0.07
Exercised (920,125) 0.02
------------------
Balance at December 31, 1999 198,050 $ 0.31
==================
</TABLE>
At December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $0.01 - $1.00 and 1.5
years, respectively.
At December 31, 1999, the number of options exercisable was 147,800 and the
weighted-average exercise price of those options was $0.31.
(6) EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) contributory profit sharing plan that covers
employees who work at least 1,000 hours per year, are 21 years of age and
older, and have 1 year of service to the Company. The Company made
contributions to the plan of $42,840 during the year ended December 31,
1999.
During 1998, the Company established an age weighted non-contributory
profit sharing plan with the same age and service requirements as the
401(k) plan. The Company contributed $125,000 to this plan during the year
ended December 31, 1999.
(7) SUBSEQUENT EVENT
On April 13, 2000, all of the outstanding shares of the Company's common
stock were sold by the Company's shareholders to a third party.
11
<PAGE>
SDL COMMUNICATIONS, INC.
Financial Statements
March 31, 2000
(Unaudited)
<PAGE>
SDL COMMUNICATIONS, INC.
TABLE OF CONTENTS
PAGE
Balance Sheet 1
Statement of Operations 2
Statement of Stockholder's Equity and Comprehensive Income 3
Statement of Cash Flows 4
Notes to Financial Statements 5
<PAGE>
SDL COMMUNICATIONS, INC.
Balance Sheet
March 31, 2000
(Unaudited)
<TABLE>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 1,414,875
Investment securities 248,299
Trade accounts receivable 1,417,249
Inventories (note 2) 1,951,548
Prepaid expenses 50,032
------------------
Total current assets 5,082,003
Property and equipment, net (note 3) 190,431
Deferred tax assets 546,560
Other assets 31,836
------------------
$ 5,850,830
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,136,943
Accrued expenses 548,845
Income taxes payable 91,019
------------------
Total current liabilities 1,776,807
Stockholders' equity:
Common stock, $.001 par value. Authorized 4,725,000 shares;
issued and outstanding 3,666,550 shares 3,667
Additional paid-in capital 6,351,273
Accumulated deficit (2,334,224)
Accumulated other comprehensive income - net unrealized
appreciation on investment securities (note 4) 53,307
------------------
Total stockholders' equity 4,074,023
Commitments
------------------
$ 5,850,830
==================
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
SDL COMMUNICATIONS, INC.
Statements of Operations
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Net sales $ 4,448,737 $ 2,484,859
Cost of goods sold 2,136,783 1,364,732
------------------ ------------------
Gross profit 2,311,954 1,120,127
Selling, general and administrative expenses 1,692,102 842,958
Stock-based compensation 313,252 1,975,000
------------------ ------------------
Income (loss) from operations 306,600 (1,697,831)
Interest income 10,164 6,736
------------------ ------------------
Income (loss) before income taxes 316,764 (1,691,095)
Income taxes 175,900 19,800
------------------ ------------------
Net income (loss) $ 140,864 $ (1,710,895)
================== ==================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
SDL COMMUNICATIONS, INC.
Statement of Stockholders' Equity and Comprehensive Income
Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Retained other
--------------------- Additional earnings comprehensive
Shares Amount paid-in-capital (deficit) income Total
--------- ---------- --------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 3,586,950 $ 3,587 6,025,736 (2,475,088) 33,891 $3,588,126
Net income -- -- -- 140,864 -- 140,864
Net unrealized change in investment
securities, net of tax effect of $13,090 -- -- -- -- 19,416 19,416
----------
Comprehensive income 160,280
----------
Stock-based compensation -- -- 313,252 -- -- 313,252
Exercise of stock options 79,600 80 12,285 -- -- 12,365
--------- ---------- --------- ---------- -------- ----------
Balance at March 31, 2000 3,666,550 $ 3,667 6,351,273 (2,334,224) 53,307 $4,074,023
========= ========== ========= ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
SDL COMMUNICATIONS, INC.
Statement of Cash Flows
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 140,864 $ (1,710,895)
Adjustments to reconcile net income (loss) to net cash
provided (used) in operating activities:
Depreciation and amortization 35,217 17,343
Deferred income taxes (106,560) (115,173)
Stock-based compensation 313,252 1,975,000
Net changes in operating assets and liabilities:
Accounts receivable 30,851 77,855
Inventories and prepaid expenses (566,665) (283,989)
Accounts payable 532,183 317,117
Accrued expenses 245,699 (52,788)
Income taxes 129,180 (460,438)
Other assets 206 2,966
------------------ -------------------
Net cash provided (used) in operating activities 754,227 (233,002)
------------------ -------------------
Cash flows from investing activities:
Proceeds from sale of investment securities available-for-sale 446,479 202,349
Purchases of investment securities available-for-sale (69,382) (103,998)
Purchase of investment in unconsolidated subsidiary - (32,687)
Purchases of property and equipment (36,675) (75,424)
------------------ -------------------
Net cash provided (used) in investing activities 340,422 (9,760)
------------------ -------------------
Cash flows from financing activities:
Repurchase of common stock - (7,500)
Proceeds from exercise of stock options 12,365 1,543
------------------ -------------------
Net cash provided (used) by financing activities 12,365 (5,957)
------------------ -------------------
Net increase (decrease) in cash and cash equivalents $ 1,107,014 $ (248,719)
Cash and cash equivalents at beginning of period 307,861 537,558
------------------ -------------------
Cash and cash equivalents at end of period $ 1,414,875 $ 288,839
================== ===================
Supplemental information:
Cash paid for income taxes $ 166,620 $ 317,000
================== ===================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
SDL COMMUNICATIONS, INC.
Notes to Financial Statements
March 31, 2000
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
The accounting policies as set forth in SDL Communications, Inc.'s (the
Company) Financial Statements dated December 31, 1999 have been adhered
to in preparing the accompanying interim consolidated financial
statements. The accompanying statements are unaudited but include all
adjustments, consisting of normal recurring adjustments, that the Company
considers necessary for a fair presentation of the financial position,
results of operations, and cash flows for such interim periods. Results
for such interim periods are not necessarily indicative of results for a
full year
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<S> <C>
Raw materials $ 917,818
Work in process 844,401
Finished goods 189,329
-----------
$ 1,951,548
===========
</TABLE>
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<S> <C>
Furniture & fixtures $ 42,370
Computers & equipment 256,414
Test & design equipment 273,139
Leasehold improvements 43,936
----------
615,859
Less accumulated depreciation
and amortization 425,428
-----------
Net property and equipment $ 190,431
===========
</TABLE>
(4) COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 2000 and 1999
was $160,280 and $(1,686,567), respectively. The difference between
comprehensive income and net income was related to unrealized earnings on
available for sale securities.
5
<PAGE>
SBS TECHNOLOGIES, INC.
Pro Forma Consolidated Financial Statements (unaudited)
March 31, 2000
<PAGE>
SBS TECHNOLOGIES, INC.
TABLE OF CONTENTS
PAGE
Pro Forma Consolidated Balance Sheet 1
Pro Forma Consolidated Statements of Operations 2-3
Notes to Pro Forma Consolidated Financial Statements 4-5
<PAGE>
SBS TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
SBS SDL ADJUSTMENTS COMBINED
--- --- ----------- --------
ASSETS
-------------------------------------------------------------------------------------
Current Assets:
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 7,855,564 1,414,875 (1) (26,241,761) 3,028,678
(3) 20,000,000
Investments - 248,299 - 248,299
Receivables 24,852,299 1,417,249 - 26,269,548
Inventories 24,143,719 1,951,548 - 26,095,267
Deferred Income Tax Assets 2,687,501 - - 2,687,501
Income Tax Receivable 1,515,643 (91,019) (2) 1,555,702 2,980,326
Prepaid Expenses 850,455 50,032 - 900,487
Other Current Assets 369,500 - - 369,500
-------------------------------------------------------------------------------------
Total Current Assets 62,274,681 4,990,984 (4,686,059) 62,579,606
Property and Equipment, Net 7,267,897 190,431 - 7,458,328
Intangible Assets:
Pre-acquisition Intangible Assets, Net 31,476,454 - - 31,476,454
Preliminary Fair Value of Identifiable
Intangible Assets and Goodwill - - (2) 23,298,814 23,298,814
-------------------------------------------------------------------------------------
Intangible Assets, Net 31,476,454 - 23,298,814 54,775,268
Deferred Income Tax Assets 4,921,514 546,560 (2) 733,583 13,035
(2) 480,378
(2) (6,669,000)
Other Assets 100,662 31,836 132,498
-------------------------------------------------------------------------------------
TOTAL ASSETS $ 106,041,208 5,759,811 13,157,716 124,958,735
=====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------
Current Liabilities:
Note Payable - LOC $ - - (3) 20,000,000 20,000,000
Accounts Payable 4,967,386 1,136,943 - 6,104,329
Accrued Representative Commissions 561,629 - - 561,629
Accrued Salaries 1,589,629 419,557 - 2,009,186
Accrued Compensated Absences 1,149,223 62,124 - 1,211,347
Other Current Liabilities 1,898,880 67,164 - 1,966,044
-------------------------------------------------------------------------------------
Total Current Liabilities 10,166,747 1,685,788 20,000,000 31,852,535
Stockholders' Equity:
Common Stock 60,724,478 6,354,940 (2) 1,231,739 61,956,217
(4) (6,354,940)
Accumulated Other Comprehensive Loss (3,762,906) 53,307 (4) (53,307) (3,762,906)
Retained Earnings 38,912,889 (2,334,224) (2) (4,000,000) 34,912,889
(4) 2,334,224
-------------------------------------------------------------------------------------
95,874,461 4,074,023 (6,842,284) 93,106,200
-------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 106,041,208 5,759,811 13,157,716 124,958,735
=====================================================================================
</TABLE>
See notes to pro forma consolidated financial statements
1
<PAGE>
SBS TECHNOLOGIES, INC.
PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PROFORMA
SBS SDL ADJUSTMENTS COMBINED
--- --- ----------- --------
<S> <C> <C> <C> <C>
REVENUE $ 105,999,233 10,926,898 - 116,926,131
COST OF SALES 44,480,959 5,019,459 - 49,500,418
------------------------------------------------------------------------------
GROSS PROFIT 61,518,274 5,907,439 - 67,425,713
S G & A EXPENSES 23,983,186 2,177,762 - 26,160,948
R & D EXPENSES 14,350,995 1,773,007 - 16,124,002
STOCK BASED COMPENSATION - 4,251,260 - 4,251,260
ACQUIRED IN-PROCESS R & D CHARGE 527,514 - - 527,514
AMORTIZATION OF INTANGIBLE ASSETS 3,980,036 - (5) 3,087,352 7,067,388
------------------------------------------------------------------------------
OPERATING INCOME 18,676,543 (2,294,590) (3,087,352) 13,294,601
INTEREST INCOME (EXPENSE) 10,796 27,959 (6) (1,868,088) (1,829,333)
FOREIGN EXCHANGE GAINS 666,754 - - 666,754
------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 19,354,093 (2,266,631) (4,955,440) 12,132,022
INCOME TAXES 6,631,322 419,000 (5) (901,875) 4,131,902
(6) (728,554)
(7) (1,287,991)
------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST $ 12,722,771 (2,685,631) (2,037,020) 8,000,120
MINORITY INTEREST 444,383 - - 444,383
------------------------------------------------------------------------------
NET INCOME $ 12,278,388 (2,685,631) (2,037,020) 7,555,737
==============================================================================
COMMON SHARES OUTSTANDING 5,827,526 5,827,526
INCOME PER COMMON SHARE $ 2.11 $ 1.30
----------------- ----------------
COMMON AND POTENTIAL DILUTIVE
SHARES OUTSTANDING 6,168,118 6,208,604
INCOME PER COMMON SHARE -
ASSUMING DILUTION $ 1.99 $ 1.22
----------------- ----------------
</TABLE>
See notes to pro forma consolidated financial statements
2
<PAGE>
SBS TECHNOLOGIES, INC.
PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR NINE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PROFORMA
SBS SDL ADJUSTMENTS COMBINED
----------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
REVENUE 90,341,358 11,347,334 - 101,688,692
COST OF SALES 42,064,813 5,151,474 - 47,216,287
------------------------------------------------------------------------------
GROSS PROFIT 48,276,545 6,195,860 - 54,472,405
S G & A EXPENSES 18,713,659 2,943,184 - 21,656,843
R & D EXPENSES 11,241,327 1,753,738 - 12,995,065
STOCK BASED COMPENSATION - 840,290 - 840,290
AMORTIZATION OF INTANGIBLE ASSETS 3,307,502 - (5) 2,315,514 5,623,016
------------------------------------------------------------------------------
OPERATING INCOME 15,014,057 658,648 (2,315,514) 13,357,191
INTEREST INCOME (EXPENSE) 272,485 34,826 (6) (1,401,066) (1,093,755)
FOREIGN EXCHANGE LOSSES (92,359) - - (92,359)
------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 15,194,183 693,474 (3,716,580) 12,171,077
INCOME TAXES 5,180,170 506,000 (5) (676,406) 4,175,635
(6) (546,416)
(7) (287,713)
------------------------------------------------------------------------------
NET INCOME 10,014,013 187,474 (2,206,045) 7,995,442
==============================================================================
COMMON SHARES OUTSTANDING 6,120,828 6,120,828
INCOME PER COMMON SHARE $ 1.64 $ 1.31
----------------- --------------
COMMON AND POTENTIAL DILUTIVE
SHARES OUTSTANDING 6,705,173 6,747,659
INCOME PER COMMON SHARE -
ASSUMING DILUTION $ 1.49 $ 1.18
----------------- --------------
</TABLE>
See notes to pro forma consolidated financial statements
3
<PAGE>
SBS TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS (UNAUDITED)
<TABLE>
<S> <C>
1 Adjustment to cash consists of the purchase price
plus acquisition costs. $ (26,241,761)
2 Excess of estimated cost of acquisition over the fair value of net assets
acquired:
Purchase price plus acquisition costs $ 26,241,761
Plus fair value of SBS options issued in exchange for unvested SDL options 1,231,739
(DETERMINED USING THE BLACK SCHOLES VALUATION MODEL)
Less estimated in process research & development charge (4,000,000)
Less estimated fair value of SDL net tangible assets (6,363,308)
--------------------
Excess purchase price $ 17,110,192
====================
Estimated fair value of SDL net assets includes:
Fair value of tangible net assets $ 4,074,023
Current tax benefit from sale of SDL stock to SBS 1,555,702
Deferred tax benefit from sale of SDL stock to SBS 733,583
--------------------
Estimated fair value of SDL net tangible assets at acquisition date $ 6,363,308
====================
The excess purchase price is allocated as follows:
Core developed technology $ 14,800,000
Work force 600,000
Customer list 300,000
Covenant not-to-compete 1,400,000
Goodwill 6,198,814
Less: deferred tax liabilities on identifiable intangibles (6,669,000)
Plus: deferred tax asset on stock options exchanged 480,378
--------------------
$ 17,110,192
====================
</TABLE>
3 Record borrowing of $20,000,000 from SBS' revolving line of credit.
4 Elimination of SDL historical equity
5 Amortization of intangible assets for the year ended June 30, 1999
and the nine months ended March 31, 2000 of $3,087,352 and
$2,315,514, respectively.
<TABLE>
<CAPTION>
Projected Estimated Annual
Life (yrs) Fair Value Amortization
-------------------------------------------------
<S> <C> <C> <C>
Core developed technology 8 $ 14,800,000 $1,850,000
Work Force 8 $ 600,000 $ 75,000
Customer List 8 $ 300,000 $ 37,500
Covenant not-to-compete 4 $ 1,400,000 $ 350,000
Goodwill 8 $ 6,198,814 $ 774,852
------------------------------------
$ 23,298,814 $3,087,352
====================================
Annual
Income tax benefit from amortization of identifiable intangibles: tax benefit
----------------
Core developed technology $ (721,500)
Work Force $ (29,250)
Customer List $ (14,625)
Covenant not-to-compete $ (136,500)
Goodwill $ -
----------------
$ (901,875)
================
</TABLE>
(Continued)
4
<PAGE>
SBS TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS (UNAUDITED) - CONTINUED
6 Interest expense for the year ended June 30, 1999 and the nine months
ended March 31, 2000 due to assumed borrowing of $20,000,000 on July
1, 1998 for the purchase of SDL Communications, Inc., plus reduction
of interest income associated with the utilization of $6,241,761 of
surplus cash used to fund the acquisition. The revolving line of
credit at SBS expires on March 31, 2001. Interest on the line of
credit is equal to LIBOR plus 1.5 percent.
The interest rate on the new debt is assumed to be 7.78 percent. A change
of 1/8 percent in the interest rate would result in a change in
interest expense and net income of $25,000 and $15,250 before and
after taxes, respectively, for the year ended June 30, 1999, and
$18,750 and $11,438 before and after taxes, respectively, for the
nine months ended March 31, 2000.
7 Income tax benefit related to stock based compensation expense which
would have been recognized in a consolidated income tax return which
was not recognized on the stand alone tax provision of SDL prior to
the consummation of the acquisition by SBS.
5
<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: June 23, 2000 By: /s/ James E. Dixon
------------------------------
James E. Dixon, Vice President
Finance & Administration
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
-------------- ------------------------------ ----------------------------------
<S> <C> <C>
23 Consent of KPMG LLP Filed herewith electronically
</TABLE>
