SBS TECHNOLOGIES INC - 10-Q Quarterly Report

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 September 30, 2002

		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 (State or other jurisdiction of incorporation or organization)		85-0359415 (IRS Employer Identification 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 November 1, 2002, the Registrant had 14,592,829 shares of its common stock outstanding.

TABLE OF CONTENTS


		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statement of Changes in Stockholders’ Equity
		Consolidated Statements of Cash Flows
		Notes to Condensed Consolidated Financial Statements
	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Quantitative and Qualitative Disclosures about Market Risk
	Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
CERTIFICATION
EXHIBIT INDEX
EX-10.ac Office/Warehouse Lease
EX-10.ad Amendment #1 to Lease
EX-10.bw Lease Agreement
EX-99.1 Certification Pursuant to 18 USC Sec. 1350
EX-99.2 Certification Pursuant to 18 USC Sec. 1350

SBS Technologies, Inc. and Subsidiaries
Form 10-Q for the Quarter Ended September 30, 2002
Table of Contents


PART I — FINANCIAL INFORMATION			Page

	Item 1 — Unaudited Condensed Financial Statements
		Consolidated Balance Sheets at September 30, 2002 and June 30, 2002		2
		Consolidated Statements of Operations, Three Months Ended September 30, 2002 and 2001		3
		Consolidated Statement of Changes in Stockholders’ Equity, Three Months Ended September 30, 2002		4
		Consolidated Statements of Cash Flows, Three Months Ended September 30, 2002 and 2001		5
		Notes to Unaudited Condensed Consolidated Financial Statements as of September 30, 2002		6
	Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
	Item 3 — Quantitative and Qualitative Disclosures about Market Risk			17
	Item 4 — Controls and Procedures			18
PART II — OTHER INFORMATION
	Item 1 — Legal Proceedings			19
	Item 6 — Exhibits and Reports on Form 8-K			19
SIGNATURES				20
CERTIFICATIONS				21
EXHIBIT INDEX				23

SBS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
Thousands (except share amounts)
(Unaudited)


					September 30,			June 30,
					2002			2002

				Assets
Current assets:
	Cash and cash equivalents				$	24,780			24,811
	Receivables, net					21,516			22,619
	Inventories					17,788			18,428
	Deferred income taxes					6,715			9,446
	Income tax receivable					7,551			4,584
	Prepaid expenses					1,254			1,226
	Other current assets					265			165

		Total current assets				79,869			81,279

Property and equipment, net						10,810			11,507
Goodwill, net						20,357			20,468
Intangible assets, net						5,899			6,284
Deferred income taxes						5,571			5,703
Other assets						397			407

		Total assets			$	122,903			125,648

			Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable				$	3,092			4,361
	Accrued representative commissions					639			518
	Accrued compensation					3,292			4,170
	Other current liabilities					2,823			2,926

		Total current liabilities				9,846			11,975

Long-term liabilities:
	Other liabilities					18			27

		Total liabilities				9,864			12,002

Stockholders’ equity:
	Common stock, no par value; 200,000,000 shares authorized, 14,592,829 issued and outstanding at September 30, 2002, 14,628,709 issued and outstanding at June 30, 2002					86,122			86,338
	Accumulated other comprehensive loss					(3,321	)		(3,113	)
	Retained earnings					30,238			30,421

		Total stockholders’ equity				113,039			113,646

		Total liabilities and stockholders’ equity			$	122,903			125,648

See accompanying notes to condensed consolidated financial statements
Page 2

SBS Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
Thousands (except per share amounts)
(Unaudited)


		Three Months Ended September 30

		2002			2001

Sales		$	27,833			31,799
Cost of sales			14,379			15,878

	Gross profit		13,454			15,921
Selling, general and administrative expense			8,235			8,915
Research and development expense			4,714			4,274
Severance and other employee termination costs			335			185
Amortization of intangible assets			584			1,928

	Operating income (loss)		(414	)		619

Interest and other income, net			125			436
Foreign exchange gains (losses)			(22	)		49

			103			485

Income (loss) before income taxes			(311	)		1,104
Income tax expense (benefit)			(128	)		456

Net income (loss)		$	(183	)		648

Net income (loss) per common share		$	(0.01	)		0.04

Net income (loss) per common share — assuming dilution		$	(0.01	)		0.04

See accompanying notes to condensed consolidated financial statements
Page 3

SBS Technologies, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity
Thousands (except share amounts)
(Unaudited)


		Common						Accumulated						Total
		stock						other						stock-
								comprehensive			Retained			holders'
		Shares			Amount			loss			earnings			equity

Balance at June 30, 2002			14,628,709		$	86,338		$	(3,113	)	$	30,421		$	113,646
Exercise of stock options and warrants			4,560			13			—			—			13
Stock issued to directors under restricted stock awards			5,560			92			—			—			92
Stock repurchased and retired			(46,000	)		(321	)		—			—			(321	)
Net income (loss)			—			—			—			(183	)		(183	)
Other comprehensive income:
	Foreign currency translation adjustments		—			—			(208	)		—			(208	)

Balance at September 30, 2002			14,592,829		$	86,122		$	(3,321	)	$	30,238		$	113,039

See accompanying notes to condensed consolidated financial statements
Page 4

SBS Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Thousands
(Unaudited)


					Three months ended
					September 30,

					2002			2001

Cash flows from operating activities:
	Net income (loss)				$	(183	)		648

	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation				1,030			824
		Amortization of intangible assets				584			1,928
		Bad debt expense				125			80
		Deferred income taxes				2,856			374
		Income tax benefit of stock options exercised				—			5
		Loss on disposition of assets				4			7
		Foreign exchange (gains) losses				22			(49	)
		Stock-based compensation				—			28
		Stock issued to directors under restricted stock awards				92			—
		Changes in assets and liabilities:
			Receivables			942			1,337
			Inventories			600			3,906
			Income tax receivable			(2,959	)		2,424
			Prepaids and other assets			(119	)		124
			Accounts payable			(1,292	)		(153	)
			Accrued representative commissions			123			(296	)
			Accrued compensation			(872	)		(1,084	)
			Other current liabilities			(102	)		557

				Net cash provided by operating activities		851			10,660

Cash flows from investing activities:
	Acquisition of property and equipment					(343	)		(1,013	)
	Purchase of license agreement					(200	)		—

				Net cash used by investing activities		(543	)		(1,013	)

Cash flows from financing activities:
	Payments on notes payable					—			(2,500	)
	Repurchase and retirement of common stock					(321	)		(488	)
	Proceeds from exercise of stock options and warrants					13			199

				Net cash used by financing activities		(308	)		(2,789	)

Effect of exchange rate changes on cash						(31	)		58

Net change in cash and cash equivalents						(31	)		6,916
Cash and cash equivalents at beginning of period						24,811			9,734

Cash and cash equivalents at end of period					$	24,780			16,650

Supplemental disclosure of cash flow information:
	Interest paid				$	12			15

	Income taxes paid (received)				$	44			(2,315	)

See accompanying notes to condensed consolidated financial statements
Page 5

SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002
(Unaudited)

1) Summary of Significant Accounting Policies

The accounting policies as set forth in SBS Technologies, Inc.’s (“SBS”) Annual Report on Form 10-K for the year ended June 30, 2002 have been adhered to in preparing the accompanying interim condensed consolidated financial statements except as amended for the following discussion on accounting for goodwill. These statements are unaudited but include all adjustments, consisting of normal recurring adjustments that SBS 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.

The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142) on July 1, 2002. SFAS 142 eliminates the amortization of goodwill and other intangible assets that have indefinite useful lives. Amortization will continue to be recorded for intangible assets with definite useful lives. SFAS 142 also requires at least an annual impairment review of goodwill and other intangible assets. Any asset deemed to be impaired is to be written down to its fair value. The Company has not completed its review of goodwill for impairment in accordance with SFAS 142; however, the review will be completed by December 31, 2002.

2) Receivables, net

Receivables, net consist of the following:


	September 30,			June 30,
Thousands	2002			2002

Accounts receivable		22,840			23,992
Less allowance for doubtful accounts		(1,324	)		(1,373	)

		21,516			22,619

3) Inventories

Inventories consist of the following:


	September 30,		June 30,
Thousands	2002		2002

Raw materials		10,038		9,663
Work in process		5,095		5,328
Finished goods		2,655		3,437

		17,788		18,428

For the three-month period ended September 30, 2002, approximately $375,000 of inventory previously written down to zero had been sold.

Page 6

SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002
(Unaudited) (Continued)

4) Goodwill and Intangible Assets

Effective July 1, 2002, SBS adopted Statement of Financial Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets,” and no longer amortizes goodwill. As of the date of adoption, SBS had unamortized goodwill of approximately $20.5 million, subject to the transition provisions of SFAS 142. There was no goodwill amortization expense for the three-month period ended September 30, 2002, whereas goodwill amortization amounted to $1.2 million for the three-month period ended September 30, 2001.

The following table presents the impact of the adoption of SFAS 142 on the Company’s reported net income (loss) and net income (loss) per applicable common share had SFAS 142 been in effect in fiscal 2001:


		Three months ended
Thousands except per share amounts		September 30,

		2002			2001

Reported net income (loss)		$	(183	)	$	648

Adjustments:
	Goodwill amortization		—

	1)		Summary of Significant Accounting Policies

			The accounting policies as set forth in SBS Technologies, Inc.’s (“SBS”) Annual Report on Form 10-K for the year ended June 30, 2002 have been adhered to in preparing the accompanying interim condensed consolidated financial statements except as amended for the following discussion on accounting for goodwill. These statements are unaudited but include all adjustments, consisting of normal recurring adjustments that SBS 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.

			The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142) on July 1, 2002. SFAS 142 eliminates the amortization of goodwill and other intangible assets that have indefinite useful lives. Amortization will continue to be recorded for intangible assets with definite useful lives. SFAS 142 also requires at least an annual impairment review of goodwill and other intangible assets. Any asset deemed to be impaired is to be written down to its fair value. The Company has not completed its review of goodwill for impairment in accordance with SFAS 142; however, the review will be completed by December 31, 2002.

	2)		Receivables, net

			Receivables, net consist of the following:

	4)		Goodwill and Intangible Assets

			Effective July 1, 2002, SBS adopted Statement of Financial Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets,” and no longer amortizes goodwill. As of the date of adoption, SBS had unamortized goodwill of approximately $20.5 million, subject to the transition provisions of SFAS 142. There was no goodwill amortization expense for the three-month period ended September 30, 2002, whereas goodwill amortization amounted to $1.2 million for the three-month period ended September 30, 2001.

			The following table presents the impact of the adoption of SFAS 142 on the Company’s reported net income (loss) and net income (loss) per applicable common share had SFAS 142 been in effect in fiscal 2001: