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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the fiscal year ended June 30, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 1-10981
SBS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
New Mexico 85-0359415
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
2400 Louisiana Blvd. NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
(505) 875-0600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, no par value NASD National Market System
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on September
1, 1996 as reported on NASDAQ was approximately $29,612,369. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of September 1, 1996, Registrant had 3,386,133 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into Part III of
this Form 10-K Report: (1) Definitive Proxy Statement for Registrant's 1996
Annual Meeting of Stockholders to be held November 12, 1996.
PART I
ITEM 1. BUSINESS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND 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.
INTRODUCTION
Fiscal 1996 was a year of excellent progress for the Company. During fiscal
1996:
- Sales increased by 93.2% from $16.2 million in fiscal 1995 to $31.3
million.
- Income from continuing operations increased 94.1% from $1.8
million in fiscal 1995 to $3.6 million.
- Income per common and common equivalent share from
continuing operations increased 49.2% from $0.65 to $0.97.
- The Company reduced its indebtedness, primarily incurred in
connection with the April 1995 acquisition of GreenSpring
Computers, Inc., by approximately $3.4 million.
- The Company's debt to equity ratio improved from 2.9 to 1 at
the start of the year to 1 to 1 by year end.
- Return on equity from continuing operations improved from 34% in
fiscal 1995 to 47%.
During fiscal 1996, the Company made significant investments targeted toward
developing more solutions for its customers, and providing them the support they
want and have come to expect. This investment included increasing research and
development spending by 69% so that the Company could continue to offer current
technology in its product offerings to its growing base of customers, and to
expand the Company's product offerings to provide more solutions for customer
needs. During 1996, the Company also introduced more than 20 new products, such
as our Com360 IndustryPacks-Registered Trademark- for the telecommunications
industry, our ABI V6 avionics interface board to help the developers of avionics
for military aircraft and the Space Station and our 4400VF 10 telemetry card to
receive high data rate satellite transmissions.
We also increased selling, general and administrative expense by 62% in order to
put in place an organization capable of handling the current level of business
activity without decline in the Company's commitment to serving its customers
needs. Much of this increase resulted from the addition of 18 new employees.
The Company designs, manufactures and sells board level products for the
standard bus (VME, ISA, PCI, Multibus, etc.) embedded industrial computer
industry. The Company's product lines include a series of general purpose
input/output boards known as IndustryPacks-Registered Trademark- designed in
accordance with an ANSI standard and several high end, special purpose
input/output devices that serve the avionics and telemetry markets.
SBS' PRODUCTS
The Company's current product line is a result of the application of its
combined strategy of internal growth and acquisition. It entered the standard-
bus embedded computer market with the internal development of an application-
specific product line, its avionics interface products. These products are used
in military and space applications, are in relatively small, protected market
niches and require very high levels of hardware and software performance. The
Company's expansion continued with its acquisition of a line of telemetry
interface products, which are also application-specific and are in a high
technology, high performance market niche. The acquisition of GreenSpring
Computers, Inc. in April 1995 moved the Company into the main stream of the
embedded computer market with general purpose input/output and processor
products that can be used over a very wide range of applications. The wide
applicability of these product lines provides substantial opportunity for
growth. The growing technology base associated with each of these product lines
also supports synergy between product lines in developing new products and
upgrading existing products. The Company's product lines are divided into two
groups, including general purpose I/O products and special purpose interface
equipment, including telemetry and avionics interface products.
GENERALIZED I/O PRODUCTS: In April 1995, the Company purchased GreenSpring
Computers, Inc., the leading developer and producer of input/output modules
known as IndustryPacks-Registered Trademark- ("IP"s), a registered trademark of
GreenSpring. IPs are small mezzanine boards that plug into an embedded computer
card and provide specific types of input/output for embedded computer systems.
GreenSpring originally developed the IP in conjunction with Motorola as a
modular input/output solution for Motorola's VME-162 processor board, which has
become the most popular processor board in the VME market. Up to four IPs can
be installed on a VME-162 product to provide whatever type of I/O a system
designer requires. In conjunction with a VME-162 or some other processor board,
IP products provide an industrial computer with an interface to sense, interpret
and/or control an external process. The Company has continued to expand its
market opportunity for IP products by introducing a line of carrier cards for
VME systems that can accommodate up to four IPs. This allows system designers
to use IPs even if they do not use Motorola VME-162 products. GreenSpring's
product line of over ninety input/output products services a very wide range of
applications in the embedded computer market. In fiscal years 1996, 1995 and
1994, sales of this product comprised approximately 35%, 9% and 0%,
respectively, of the Company's total sales. As of September 1, 1996 and 1995,
backlog orders were $2.5 million and $2.8 million, respectively. All backlog
orders are expected to be filled in the current fiscal year.
SPECIAL PURPOSE INPUT/OUTPUT INTERFACE EQUIPMENT
TELEMETRY PRODUCTS: In August 1992, the Company purchased Berg Systems
International, Inc. ("BSI"), a leading supplier of telemetry interface equipment
for the embedded computer market. BSI was the developer of the concept of using
a special purpose, embedded computer interface boards for telemetry ground
station applications. Telemetry is the process used in sending and receiving
digital data via radio waves. Historically it has been used to transmit data
from some object under test, such as an aircraft, to a receiving station while
the test is underway. This allows engineers to monitor test performance in real
time while the test is being performed. Use of this technology has expanded to
include continuous monitoring of remote sites and transmission of digital data
from satellites to the earth. The Company's telemetry interface products, when
installed in industrial computers, allow computers to receive, interpret and
process telemetry data. Since its acquisition, BSI has seen a steady increase
in demand for its telemetry interface equipment and has expanded its product
offerings to include specialized equipment designed to receive and process
satellite data. The Company's telemetry products serve a high technology, niche
market and include a significant software component. In fiscal years 1996, 1995
and 1994, sales of this product comprised approximately 21%, 34% and 44%,
respectively, of the Company's total sales. As of September 1, 1996 and 1995,
backlog orders were $.7 million and $.9 million, respectively. All backlog
orders are expected to be filled within the current fiscal year.
AVIONICS INTERFACE PRODUCTS: Avionics interface products were the
Company's first entry into the standard-bus, embedded computer market.
Introduced in 1988, these products interfaced a standard embedded computer
system to an avionics data bus used in a broad range of military and space
applications. Initial applications for the Company's products were avionics
system development, avionics system testing and simulation. Over the past
several years, the Company has introduced a number of related products that have
expanded its potential market in this area. These include ruggedized interface
products that are used in operational systems, and monitor and test systems that
can be used as diagnostic tools for operational systems. The result has been
steady, continuous revenue and income growth in this product line, with sales to
some of the country's largest and most technologically advanced organizations.
Like its telemetry products, the Company's avionics products occupy a high
technology, niche market and include a significant software component. In
fiscal years 1996, 1995 and 1994, sales of this product comprised approximately
40%, 50% and 45%, respectively, of the Company's total sales. As of September
1, 1996 and 1995, backlog orders were $1.9 million and $1.3 million,
respectively. All backlog orders are expected to be filled within the current
fiscal year.
The Company also produces a judgmental use of force product which utilizes an
embedded computer in a device to train police officers and military personnel in
proper responses to crisis situations. In fiscal years 1996, 1995 and 1994,
sales of this product comprised approximately 4%, 4% and 9%, respectively, of
the Company's total sales. As of September 1, 1996, backlog orders were $.1
million and are expected to be filled within the current fiscal year. Backlog
orders were not significant at September 1, 1995.
CUSTOMERS AND APPLICATIONS
The Company's broad range of products support a very wide range of applications.
These include:
Commercial/Industrial Applications: Standard-bus embedded computers are
used in a wide range of commercial applications. Examples include
maintenance monitoring equipment on large, heavy earth moving equipment,
entertainment systems and copiers. The Company's input/output products may
be used in all of these devices.
Communications: Modern communications technology relies heavily on
industrial computers. Communications switches combine interface switching
hardware with industrial computer processors to provide overall system
operation and control. The Company supplies processor cards that can be
used to control overall switch operation and communications interface IPs.
Industrial Automation: Embedded industrial computers are used to automate
plants and factories. Individual computers connect to and control
machines. Individual computers controlling machines are also networked to
allow other computers to exercise supervisory control over the entire
factory operation. Company-supplied products include input/output
equipment to provide sensing and control of plant operation and processor
cards to generate control strategies.
Medical Devices: Numerous high-end medical instruments use standard-bus,
embedded processors for data collection, data processing, data display and
system operation. Typical applications are embedded computer systems in
PET, CAT and MRI scanners. The Company's input/output products may be used
in all of these devices.
Military and Aerospace Applications: As the performance and reliability of
commercial, industrial computer systems have increased, these systems have
increasingly been used as economical alternatives to custom designed, MIL-
SPEC equipment by domestic and international military and space agencies.
Additionally, open architecture approaches to applications such as
telemetry and satellite ground stations have provided an economical
alternative to dedicated, special purpose design approaches. All of the
Company's products, including its telemetry and avionics interface
equipment, may be used in this application area.
Test and Measurement Applications: Many process control and quality
systems are based on embedded computer systems whereby the input element of
the computer measures some set of parameters and the processing portion of
the computer makes some assessment based on the measured data. These types
of systems have very broad applicability, including aircraft test sets,
measurement systems associated with semiconductor production and factory
quality measurement systems. The Company's input/output products may be
used in all of these devices.
Transportation: Embedded computer systems are used in a variety of
transportation applications. For example, they control the operation of
people movers at airports and are used to control locomotives. On a
smaller scale, they provide the sensing and control for today's automated
toll booths based on "pass cards". The Company's input/output products may
be used in all of these devices.
SALES AND MARKETING
The Company markets its products both domestically and internationally through a
combination of 14 sales employees, who are typically degreed engineers, and
approximately 36 independent manufacturer's representatives. Employee sales
personnel are educated on the Company's complete product line portfolio and are
able to take advantage of cross-selling opportunities between product lines.
Primary sales methods vary among the Company's product lines. The Company's
avionics interface and telemetry products generally have the most complex
applications and, as a result, leads are generally identified by independent
manufacturer's representatives and sales are closed by the sales employees. In
the case of its computer I/O products, a higher percentage of sales are either
closed by independent manufacturer's representatives or are the result of
catalogue sales.
COMPANY RESEARCH AND DEVELOPMENT
The Company maintains a research and development program to develop new products
in related markets and to integrate advanced technology into existing products.
As of September 1, 1996, the Company had approximately 28 employees engaged in
research and development activities. Of these, 20 have technical degrees and 8
have advanced degrees. The Company's products combine special-purpose hardware
and software to provide a customer with the required functionality.
Approximately 60% of the Company's research and development efforts in fiscal
year 1996 were software related. The Company's expenditure on research and
development was $2.8 million, $1.7 million and $1.2 million in fiscal years
1996, 1995 and 1994 respectively, corresponding to 9.1%, 10.4% and 11.6% of
sales.
SUPPLIERS
The Company uses contract manufacturing to produce all of its board-level
products. Parts are obtained from large electronics parts suppliers and
provided as kits to contract manufacturing companies that fabricate the
Company's products. The Company believes contract manufacturing is the most
economical approach to producing its products at its current level of
production. Dependence on a particular contract manufacturer is reduced by
using a different contract manufacturer for each of the Company's product lines.
However, the Company may choose in the future to consolidate all of its
manufacturing at a single manufacturer to gain economies of scale and to shift
its inventory control to the manufacturer, in which case the Company would be
dependent on that manufacturer for the continued timely and efficient production
of all of its inventory.
Many of the Company's products consist in part of state-of-the-art digital
electronic components. The Company is dependent upon third parties for the
continuing supply of many of these components, some of which are obtained from a
sole supplier such as Xylinx, Inc. or a limited number of suppliers and
alternative sources for which would be difficult to locate. Moreover, suppliers
may discontinue or upgrade some of the products incorporated into the Company's
products, which could require the Company to redesign a product to incorporate
newer or alternative technology. Although the Company believes that it has
arranged for an adequate supply of components to meet its short-term
requirements, the Company does not have contracts for the components which would
assure availability and price. Lack of timely availability of components could
cause delays in shipment of product and affect the Company's revenues during
certain periods as well as lead to customer dissatisfaction. Limited
availability of components could also require the Company to pay premiums for
parts to make shipment deadlines and thus affect the Company's profit margin, or
cause the Company to increase its inventory of scarce parts and thus affect the
Company's cash flow. There is no assurance that the Company will continue to be
able to obtain all of the components it requires or that the price of certain
components in short supply will not materially and adversely affect its
business, financial condition or results of operations.
COMPETITION
The Company faces competition in each of its product line markets. Because of
the diverse nature of the Company's products and the fragmented nature of the
embedded computer market, there is little overlap of competitors for each
product line. The Company competes through a combination of technical
excellence, superior support and a competitive performance to price ratio.
In the generalized computer I/O product area serviced by GreenSpring and its
IndustryPack-Registered Trademark- product line, the Company has two classes of
competition. The first are companies that compete directly by selling
IndustryPack-Registered Trademark- products. The second are companies that
compete with I/O products using a different implementation to provide
functionally equivalent products.
In the telemetry products market, the Company is recognized as the innovator
that replaced the traditional, high cost, proprietary, closed architecture
approach to telemetry equipment with an open architecture approach that allowed
standard industrial computers with the proper interface boards to be used as
self-contained telemetry ground stations. In this business area, the Company
competes with other suppliers of open architecture telemetry solutions. It also
indirectly competes with suppliers of traditional, closed architecture telemetry
systems.
In the avionics interface market, the Company competes with a number of other
companies that produce similar avionics interface products.
EMPLOYEES
As of September 1, 1996, the Company had approximately 114 employees at its
three locations: Albuquerque, New Mexico; Menlo Park, California; and Carlsbad,
California. On August 19, 1996 the Company added 30 employees at its Raleigh,
North Carolina facility. See "Subsequent Event" under Item 7.
ITEM 2. PROPERTIES
The Company leases office and manufacturing space in Albuquerque, New Mexico,
Carlsbad, California and Menlo Park, California. The Company's standard
practice is to obtain all its facilities through operating leases. Management
maintains a comprehensive insurance plan covering all its facilities and
contents.
The Albuquerque, New Mexico leased facility consists of 15,741 square feet
located in a multi-floor office building which includes adequate assembly and
test space for the Company's avionics interface and judgmental use-of-force
product lines, as well as serving as the Company's corporate headquarters.
Expansion space is available, if required. Currently the assembly and test
operations utilize approximately 85% of their productive floor space. The lease
term for the Albuquerque, New Mexico location is five years commencing July 1,
1995, with one additional five year option.
The Carlsbad, California leased facility is a one story, 13,000 square foot
building, located in a business park, consisting of 3,000 square feet of office
space and 10,000 square feet of assembly and test areas for the Company's
telemetry products. Management believes that this facility is capable of
handling projected increases in production for the foreseeable future because
the current capacity utilization of the manufacturing area is approximately 35%.
The lease term for the Carlsbad, California location is two years commencing May
1994, plus two additional one year options. The first one year option was
exercised in May 1996.
In March 1996, the Company entered into a four year lease commencing June 1,
1996 and ending May 31, 2000 for a facility located in Menlo Park, California
for the Company's I/O business. The facility is a one story, multi-tenanted
building in a business park, of which the Company leases approximately 16,394
square feet, consisting of 6,000 square feet of office space and 10,394 square
feet of assembly and test areas. The Company relocated to this facility in
July 1996 from a leased facility in the immediate area at the expiration of the
lease as the Company had outgrown the facility. Management believes that the
new facility will be sufficient to serve the I/O business' needs through the
term of the lease.
Before the sale of its simulation business to Camber Corporation in April 1995,
the Company had additional leased facilities in Albuquerque, New Mexico, Dallas
and Houston, Texas. In conjunction with this sale, the Company entered into
sublease and lease assumption agreements with Camber Corporation, transferring
the obligations under these leases.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a defendant in Virtual Systems Group, Inc. (VSG)
v. SBS Technologies, Inc., filed on June 19, 1996 in the Second Judicial
District Court, County of Bernalillo, State of New Mexico. The plaintiff, a
company engaged by SBS to market its judgmental use of force trainers, claims
that the Company failed to fulfill all its obligations under an Agreement
between the Company and VSG whereby VSG would market the Company's judgmental
use of force trainers. The Company is vigorously defending the lawsuit and has
filed a counter suit alleging misrepresentation and failure to perform on the
part of VSG, and on the advise of counsel, does not believe that the outcome of
the litigation will have a material effect on the Company's financial condition
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the range of closing price of the Company's
common stock as reported on the NASDAQ National Market System for the last two
fiscal years:
High Low
---- ---
1st Quarter 1995 6.75 4.00
2nd Quarter 1995 7.13 4.38
3rd Quarter 1995 5.00 3.75
4th Quarter 1995 5.25 4.00
1st Quarter 1996 9.00 5.00
2nd Quarter 1996 8.94 7.13
3rd Quarter 1996 10.13 7.63
4th Quarter 1996 17.13 8.88
The Company's common stock is traded over the counter on the NASDAQ National
Market System using the symbol SBSE.
Based on the Company's survey of brokerage houses, management believes that as
of September 1, 1996, the number of common stockholders of record was
approximately 2,000, at which date the closing market value of the Company's
common stock was $14.25 per share.
The Company has not paid any cash dividends on its common stock. Management's
current policy is to retain earnings for use in the Company's operations and for
expansion of the Company's business. The Company's bank line of credit also
requires bank approval before the payment of any cash dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the years ended June 30, 1992 through
June 30, 1996 have been derived from the Company's audited consolidated
financial statements. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements and related notes
thereto included elsewhere herein.
Years ended June 30
------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ----- ----
Sales - continuing operations $ 31,331,793 16,217,648 10,196,568 5,907,658 2,542,131
Income - continuing operations 3,580,907 1,844,876 870,750 168,099 73,222
Income per common and common
equivalent share - continuing operations $0.97 0.65 0.30 0.05 0.03
Total assets $ 20,443,672 19,904,922 13,476,737 11,732,328 5,515,402
Long-term debt, excluding
current installments 5,188,320 5,341,649 273,573 329,979 3,243
Total liabilities 10,392,752 14,855,674 7,611,400 6,885,973 1,618,074
Total stockholders' equity $ 10,050,920 5,049,248 5,865,337 4,846,355 3,897,328
Note: The Company has not declared any dividends during the periods
presented.
On April 28, 1995 the Company acquired GreenSpring Computers, Inc.,
and on April 26, 1995 the Company sold its flight simulation business
to Camber Corporation, which is reported as discontinued operations on
the consolidated financial statements. The Selected Financial Data
are for continuing operations only. The financial statements herein
reflect the separation of continuing operations from discontinued
operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND 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.
OVERVIEW
The Company designs, manufactures and sells board level products for the
standard bus (VME, ISA, PCI, Multibus, etc.) embedded industrial computer
industry. The Company's product lines include a series of general purpose
input/output boards known as IndustryPacks-Registered Trademark-, designed in
accordance with an ANSI standard, and several high-end, special purpose
input/output devices that serve the avionics and telemetry markets. The
Company's first project after its incorporation in 1986 was to support the U.S.
Navy in the development of a V-22 flight simulator. In 1988, the Company
entered the embedded computing market with the development of its avionics
interface board, which is used in ground-based avionics systems development and
test. In 1992, the Company acquired a second embedded computer product line
with the acquisition of Berg Systems International, Inc., a developer of
telemetry interface circuit boards. In April 1995, following a significant
decline in the defense flight simulation industry, the Company divested its
flight simulation business and recorded a related charge of $2.25 million. It
also ceased providing engineering services, a line of business in which it had
been engaged since 1987 but which had had minimal impact on its overall revenue
and profitability. The Company has since focused its efforts and investments in
the embedded computing marketplace, expanding its product offerings and
marketing with the acquisition of two embedded computing companies as discussed
in "Completed Acquisition" and "Subsequent Event" below. The Company markets a
Judgmental Use of Force Training System, utilizing an embedded computer, which
is used to train police and military personnel in appropriate situational use of
force.
COMPLETED ACQUISITION
On April 28, 1995, the Company acquired GreenSpring Computers, Inc., a
corporation based in California, for $7.5 million. GreenSpring is engaged in
the design, development, marketing and manufacturing of general purpose computer
input/output products utilized in multiple segments of the embedded computer
systems market. The acquisition was accounted for as a purchase and the Company
recorded $5.8 million in goodwill with $653,245 amortized through June 30, 1996
and the remainder to be amortized through June 30, 2005.
Net income and earnings per common and common equivalent share for the year
ended June 30, 1994 would have been approximately $1.7 million and $0.56,
respectively, had the acquisition taken place on July 1, 1993. Had the
acquisition taken place on July 1, 1994, the reported net loss and net loss per
common and common equivalent share would have been decreased by approximately
$804,000 and $0.28, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of sales:
YEAR ENDED JUNE 30
-------------------------
1996 1995 1994
----- ---- -----
Sales 100.0% 100.0% 100.0%
Cost of sales 46.3 41.7 47.9
------ ------- ------
Gross profit 53.7 58.3 52.1
Selling, general and administrative expense 20.1 24.0 21.8
Research and development expense 9.1 10.4 11.6
Amortization of intangible assets 2.8 3.0 3.8
------ ------- ------
Operating income from continuing operations 21.7 20.9 14.9
Interest income (expense) (2.7) (1.2) (.1)
Income from continuing operations
before income taxes 19.0 19.7 14.8
------ ------- ------
Income taxes 7.6 8.4 6.3
------ ------- ------
Net income from continuing operations 11.4% 11.3% 8.5%
------ ------- ------
------ ------- ------
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
SALES. Sales increased 93.2% or $15.1 million from $16.2 million in fiscal
1995, to $31.3 million in fiscal 1996. This growth reflected the inclusion of
$11.1 million in sales from GreenSpring as its results were included for full
year in fiscal 1996 as compared to fiscal 1995, which included only $1.5 million
in sales during the two months for which GreenSpring's results were consolidated
into the Company's results. In addition, sales of the Company's other existing
products increased by 37.5% in fiscal 1996. The increases in sales for 1996
resulted from increased sales of existing products, introduction of new products
and sales of new and existing products to new customers in all the Company's
product lines. Sales of the Company's products are recorded at the time of
shipment.
GROSS PROFIT. Gross profit increased 77.8% or $7.4 million from $9.5
million in fiscal 1995, to $16.8 million in fiscal 1996 as a result of increased
sales volume. In fiscal 1996, gross profit decreased to 53.7% of sales from
58.3% in fiscal 1995 primarily as a result of sales mix. Fiscal 1996 sales were
comprised of a higher proportion of sales of GreenSpring products which yield
lower margins than the Company's other products. Reductions in component
material costs in each of the Company's product lines partially offset this
shift in sales mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 61.7% or $2.4 from $3.9 million in fiscal 1995,
to $6.3 million in fiscal 1996. The increase resulted primarily from the
addition of the GreenSpring operations and staffing and promotional expense
increases in the Company's avionics and telemetry product lines. The Company's
sales increased such that as a percentage of sales, selling, general and
administrative expense decreased from 24.0% in fiscal 1995 to 20.1% in fiscal
1996, as a result of operating leverage.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased by 68.8% or $1.2 million from $1.7 million in fiscal 1995 to $2.9
million in fiscal 1996, reflecting the costs of the GreenSpring operation and
additional staffing required for new product development in the avionics product
line. However, research and development expense decreased as a percentage of
sales from 10.4% in fiscal 1995 to 9.1% in fiscal 1996 primarily due to a more
rapid increase in sales over research and development expenses.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased 79.3% or $391,029 from $493,409 in fiscal 1995 to $884,438 in fiscal
1996 due to the increase in intangible assets recorded with the acquisition of
GreenSpring.
INTEREST INCOME (EXPENSE). Interest income (expense) increased by 342% or
$642,013 from $187,805 in fiscal 1995 to $829,818 in fiscal 1996, primarily as a
result of debt incurred late in fiscal 1995 to finance the acquisition of
GreenSpring.
INCOME TAXES. Income taxes increased 75.9% or $1.0 million from $1.4
million in 1995 to $2.4 million in fiscal 1996, representing effective tax rates
of 42% and 40% respectively. The reduction in effective tax rates resulted
primarily from the use of a foreign sales corporation.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
SALES. Sales increased 59.1% or $6.0 million from $10.2 million in fiscal
1994 to $16.2 million in fiscal 1995. This increase resulted from a number of
factors including, introduction of the PASS 1000 bus analyzer product,
participation in certain government programs and $1.5 million in sales of
GreenSpring products included for the two months following its acquisition in
April 1995. Sales of the Company's products are recorded at the time of
shipment.
GROSS PROFIT. Gross profit increased 78.0% or $4.2 million to $9.5 million
in fiscal 1995 from $5.3 million in fiscal 1994. In fiscal 1995, gross profit
as a percentage of sales increased from 52.1% in fiscal 1994 to 58.3% in fiscal
1995, as a result of reductions in per unit material and labor costs, and
increased volume which allowed for more efficient use of manufacturing overhead.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 75.1% or $1.7 million from $2.2 million in
fiscal 1994 to $3.9 million in fiscal 1995. The increase resulted from the
addition of GreenSpring costs and staffing and promotional expense increases in
the avionics and telemetry product lines. As a percentage of sales, selling,
general and administrative expense increased from 21.8% in fiscal 1994 to 24.0%
in fiscal 1995, reflecting expenses incurred in anticipation of increased sales.
RESEARCH AND DEVELOPMENT. Research and development expense increased by
42.1% or $499,773 from $1.2 million in fiscal 1994 to $1.7 million in fiscal
1995, reflecting the costs of additional staffing required for new product
development in the avionics product line such as the ABI V6, ABI V and PASS 1000
interface boards. However, research and development decreased as a percentage
of sales from 11.6% to 10.4% primarily due to a more rapid increase in sales
over research and development expenses.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased 28.8% or $110,324 from $383,085 in fiscal 1994 to $493,409 in fiscal
1995, due to the increase in intangible assets recorded with the acquisition of
GreenSpring.
INTEREST INCOME (EXPENSE). Interest income (expense) increased by $173,171
from $14,634 in fiscal 1994 to $187,805 in fiscal 1995, primarily as a result of
debt incurred late in fiscal 1995 to finance the acquisition of GreenSpring.
INCOME TAXES. Income taxes increased 112.7% or $719,000 from $638,000 in
1994 to $1.4 million in fiscal 1995, representing statutory tax rate of 42%.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses a combination of the sale of equity offerings, invested
capital, internally generated funds and bank borrowings to finance its
operations, capital equipment and working capital requirements.
Cash totaled $1.1 million at June 30, 1996, an increase of $246,226 from June
30, 1995. Net cash provided by operating activities for the year ended June 30,
1996 was $3.4 million, primarily due to the collection of contract receivables
of $2.9 million, the majority of which were from the Company's discontinued
flight and radar simulation business which were retained by the Company when it
exited this business in April 1995. Increases in sales volume and demand for
semiconductor parts during the year caused the Company to increase accounts
receivable and inventory. In addition, liabilities increased in line with the
current level of business activity. Net cash used by investing activities for
the year ended June 30, 1996 of $1.1 million was primarily for the purchase of
software and equipment totaling $764,191 and $236,626 for the purchase of the
IndustryPack-Registered Trademark--compatible product line from Wavetron
Microsystems, Inc. in January 1996. During the year ended June 30, 1996, the
Company utilized $3.4 million to pay down short and long term bank
debt.
In fiscal years ended June 30, 1995 and June 30, 1994, the Company generated
$1.1 million and $711,569 respectively of positive cash flow from its operating
activities. In fiscal 1995, the positive cash flow combined with bank
borrowings provided the Company sufficient funds to acquire GreenSpring
Computers, Inc. in April 1995, as well as to purchase required equipment. In
fiscal 1994, the positive cash flow was primarily used to purchase required
equipment and pay down short and long term bank debt.
On April 26, 1996, the Company amended its bank financing agreement with
NationsBank of Texas, N.A., 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 which management believes is sufficient. The term loan is a three and
one-half year note with a five year amortization maturing on October 30, 1999.
This loan refinanced a majority of the Company's outstanding debt, including the
$1.0 million note payable to the former shareholders and option holders of
GreenSpring Computers, Inc. entered into in April 1995 at the time the Company
acquired GreenSpring. The revolving line of credit matures on October 30, 1997.
The interest rate on the term loan is NationsBank's prime rate plus .25% or
LIBOR plus 2.50% in 30, 60, or 90 day options. 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 2.00 to 1.00, 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 1.50 to 1.00 when compared to the
Company's profit before tax plus interest, depreciation, and amortization
expense for the preceding four quarters from time 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 2.00 to 1.00 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 June 30, 1996 the Company was in compliance with all of the covenants of the
amended financing agreement.
The outstanding balance on the Company's term loan with NationsBank at June 30,
1996 was $6.5 million, of which $5.0 million was at LIBOR plus 2.5% (8% at June
30, 1996) and $1.5 million was at NationsBank's prime rate plus .25% (8.5% at
June 30, 1996). The term loan is payable in monthly installments of $112,500.
As of June 30, 1996 there were no borrowings drawn on the Company's revolving
line of credit. During fiscal 1996, total borrowings were reduced by $3.4
million.
Management believes that its financial resources, including its internally
generated funds and available bank borrowings, will be sufficient to finance the
Company's current operations and capital equipment requirements for the next
twelve months. The Company subcontracts much of its manufacturing, and
therefore its capital expenditures generally consist of computing equipment,
leasehold improvements and office furniture.
SUBSEQUENT EVENT
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 qualifies as a pooling of
interests for accounting purposes and will constitute 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.
The financial position and results of operations of the Company and LDG will be
combined in fiscal 1997 on a prospective basis. LDG's historical results do not
have a material affect on combined results of operations.
NEW ACCOUNTING STANDARDS
In October 1995, the FASB issued Financial Accounting Standard No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation". Under the provisions of FAS
123, companies may elect to account for stock-based compensation plans using a
fair-value-based method or may continue measuring compensation expense for those
plans using the intrinsic-value-based method. Companies electing to continue
using the intrinsic-value-based method must provide pro forma disclosures of net
income and earnings per share as if the fair-value-based method had been
applied. Management intends to continue to account for stock-based compensation
using the intrinsic value based method and, as such, FAS 123 will not have an
impact on the Company's results of operations or financial position. FAS 123
becomes effective in fiscal year 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
KPMG Peat Marwick LLP
6565 Americas Parkway, NE-#700
Post Office Box 3939
Albuquerque, NM 87190
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SBS Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of SBS
Technologies, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended June 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SBS Technologies,
Inc. and subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Albuquerque, New Mexico
July 30, 1996
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
JUNE 30
-------
ASSETS 1996 1995
------ ---- -----
Current assets:
Cash and cash equivalents $ 1,130,030 883,804
Receivables, net (notes 4, 5 and 6) 6,421,224 7,151,563
Inventories (notes 5 and 6) 5,160,962 3,903,957
Deferred income taxes (note 7) 317,100 360,000
Prepaid expenses 303,846 359,083
Other current assets 104,249 175,649
----------- -----------
Total current assets 13,437,411 12,834,056
----------- -----------
Property and equipment, at cost (notes 5 and 6) 2,389,289 1,728,764
Less accumulated depreciation 1,041,719 784,673
----------- -----------
Net property and equipment 1,347,570 944,091
----------- -----------
Intangible assets, net 5,571,135 6,076,894
Deferred income taxes (note 7) 55,900 -
Other assets 31,656 49,881
----------- -----------
Total assets $ 20,443,672 19,904,922
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
Current liabilities:
Current portion of long-term debt (note 6) $ 1,458,976 1,751,392
Notes payable to bank (note 5) - 2,959,920
Accounts payable 1,243,748 1,878,797
Accrued representative commissions 353,278 325,468
Accrued salaries 1,077,121 514,518
Accrued compensated absences 340,342 282,072
Accrued software license fees 33,000 313,000
Income taxes (note 7) 223,381 350,913
Other current liabilities 425,033 353,877
Reserve for discontinued operations (note 3) 49,553 784,068
----------- -----------
Total current liabilities 5,204,432 9,514,025
Long-term liabilities:
Long-term debt, excluding current installments (note 6) 5,188,320 5,341,649
----------- -----------
Total long-term liabilities 5,188,320 5,341,649
----------- -----------
Total liabilities 10,392,752 14,855,674
----------- -----------
Stockholders' equity:
Common stock, no par value; 30,000,000 shares authorized,
3,178,133 and 2,893,654 issued and outstanding
at June 30, 1996 and 1995, respectively 4,690,786 3,375,021
Common stock warrants (note 2) 180,000 75,000
Retained earnings 5,180,134 1,599,227
----------- -----------
Total stockholders' equity 10,050,920 5,049,248
----------- -----------
Total liabilities and stockholders' equity $ 20,443,672 19,904,922
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year Ended June 30
------------------------------
1996 1995 1994
---- ---- ----
Sales $31,331,793 16,217,648 10,196,568
Cost of sales 14,510,106 6,756,560 4,881,851
------------- ----------- -----------
Gross profit 16,821,687 9,461,088 5,314,717
Selling, general and administrative expense 6,292,954 3,891,408 2,221,431
Research and development expense 2,846,300 1,686,590 1,186,817
Amortization of intangible assets 884,438 493,409 383,085
------------- ----------- -----------
Operating income from
continuing operations 6,797,995 3,389,681 1,523,384
------------- ----------- -----------
Interest income 9,210 3,315 1,761
Interest expense (839,028) (191,120) (16,395)
------------- ----------- -----------
(829,818) (187,805) (14,634)
------------- ----------- -----------
Income from continuing operations before
income taxes 5,968,177 3,201,876 1,508,750
Income taxes (note 7) 2,387,270 1,357,000 638,000
------------- ----------- -----------
Income from continuing operations 3,580,907 1,844,876 870,750
------------- ----------- -----------
Discontinued operations (net of tax benefits (expense)
of $1,160,000 and ($627,000) for 1995 and
1994, respectively) - (1,781,235) 855,555
Loss on disposal of discontinued operations (net of
tax benefits of $896,000) - (1,354,000) -
------------- ----------- -----------
Income (loss) from discontinued operations - (3,135,235) 855,555
------------- ----------- -----------
Net income (loss) $ 3,580,907 (1,290,359) 1,726,305
------------- ----------- -----------
------------- ----------- -----------
Income (loss) per common and
common equivalent share:
Continuing operations $ 0.97 0.65 0.30
Discontinued operations - (1.10) 0.29
----- ----- -----
Net income (loss) per common and
common equivalent share $ 0.97 (0.45) 0.59
---- ------ -----
See accompanying notes to consolidated financial statements.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Common Total
stock Common stock-
-------------- stock Retained holders'
Shares Amount warrants earnings equity
------ ------- -------- --------- ------
Balances at June 30, 1993 2,964,957 $ 3,683,074 $ - $ 1,163,281 $ 4,846,355
Common stock repurchased (154,531) (707,323) - - (707,323)
Net income - - - 1,726,305 1,726,305
------------ ----------- --------- ---------- -----------
Balances at June 30, 1994 2,810,426 2,975,751 - 2,889,586 5,865,337
Exercise of stock options 8,228 18,020 - - 18,020
Common stock issued under
employee stock bonus plan 75,000 381,250 - - 381,250
Warrants issued for business
acquisition (note 2) - - 75,000 - 75,000
Net loss - - - (1,290,359) (1,290,359)
------------ ----------- --------- ---------- -----------
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 (note 2) - - 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
------------ ----------- --------- ---------- -----------
------------ ----------- --------- ---------- -----------
See accompanying notes to consolidated financial statements.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year Ended June 30
-------------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 3,580,907 (1,290,359) 1,726,305
---------- ---------- ----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 316,494 384,057 340,344
Amortization of intangible assets 884,438 536,328 459,467
Bad debt expense 56,933 - -
Loss on disposition of assets 44,218 - -
Loss from sale of discontinued operations - 2,250,000 -
Stock issued under employee stock bonus plan - 399,270 -
Changes in assets and liabilities:
Receivables 673,406 3,314,458 (1,459,380)
Inventories (1,192,938) (1,101,607) (539,916)
Deferred income taxes (13,000) (360,000) -
Prepaids and other assets 144,862 (476,828) (54,780)
Accounts payable (635,049) 1,172,798 (809,055)
Accrued representative commissions 27,810 218,669 54,770
Accrued salaries 562,603 277,433 372,972
Accrued compensated absences 58,270 (155,833) 85,055
Accrued software license fees (280,000) 21,000 41,000
Income taxes (127,532) (1,500,209) 615,000
Other current liabilities (663,359) (2,580,768) (120,213)
---------- ---------- ----------
Net adjustments (142,844) 2,398,768 (1,014,736)
---------- ---------- ----------
Net cash provided by operating activities 3,438,063 1,108,409 711,569
---------- ---------- ----------
(continued)
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year Ended June 30
-------------------------------
1996 1995 1994
---- ---- ----
Cash flow from investing activities:
Business acquisition (note 2) (317,746) (5,196,815) (95,000)
Refund of down payment on contracts - - 500,000
Acquisition of property and equipment (764,191) (426,769) (854,671)
Cash received from sale of discontinued
operations (note 3) - 400,300 -
----------- ----------- ----------
Net cash used by investing activities (1,081,937) (5,223,284) (449,671)
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from notes payable to bank 4,095,000 6,950,437 13,501,622
Payments on notes payable to bank (4,717,383) (7,690,517) (12,913,622)
Payments on liability to stockholder (100,000) (116,666) (204,166)
Proceeds from long-term borrowings - 7,000,000 -
Payments on long-term borrowings (3,232,390) (1,227,901) (55,442)
Net proceeds from refinancing long-term borrowings 549,108 - -
Proceeds from exercise of stock options 1,295,765 - -
Repurchase of common stock - - (707,323)
----------- ----------- ----------
Net cash provided (used) by financing activities (2,109,900) 4,915,353 (378,931)
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 246,226 800,478 (117,033)
Cash and cash equivalents at beginning of period 883,804 83,326 200,359
----------- ----------- ----------
Cash and cash equivalents at end of period $ 1,130,030 883,804 83,326
----------- ----------- ----------
----------- ----------- ----------
Supplemental disclosure of cash flow information:
Interest paid $ (875,736) (497,002) (163,953)
Income taxes paid $ (2,431,749) (700,000) (700,000)
Noncash financing and investing activities:
Acquisition of GreenSpring Computers, Inc.
(note 2):
Common stock warrants issued $ 125,000 75,000 -
Long-term debt issued - 1,000,000 -
----------- ----------- ----------
----------- ----------- ----------
$ 125,000 1,075,000 -
----------- ----------- ----------
----------- ----------- ----------
Assets acquired through capital leases $ - - 145,238
----------- ----------- ----------
----------- ----------- ----------
See accompanying notes to consolidated financial statements.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
The consolidated financial statements include the accounts of SBS
Technologies, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
SBS Technologies, Inc. and subsidiaries (the Company) is an embedded
computer products supplier with operations in New Mexico and
California. The Company specializes in the design and manufacture of
computer interface products and industrial circuit boards.
(b) SALES RECOGNITION
Sales are recognized when goods are delivered to the customer.
(c) CASH AND CASH EQUIVALENTS
Temporary investments with original maturities of ninety days or less
are classified as cash and cash equivalents.
(d) INVENTORIES
Inventories are valued at average cost which does not exceed market.
June 30
-------------------
1996 1995
---- ----
Raw materials $ 2,254,788 1,724,307
Work in process 1,546,800 757,682
Finished goods 1,359,374 1,421,968
---------- ----------
$ 5,160,962 3,903,957
---------- ----------
---------- ----------
(e) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
June 30
-------------------
1996 1995
---- ----
Computers $ 1,194,888 836,593
Software 411,839 226,659
Furniture and equipment 782,562 665,512
---------- ----------
$ 2,389,289 1,728,764
---------- ----------
---------- ----------
Depreciation of property and equipment is provided over the estimated
useful lives (three to seven years) of the respective assets using
straight-line and accelerated methods.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(f) INTANGIBLE ASSETS
Intangible assets are stated at cost and consisted of the following:
June 30
-------------------
1996 1995
---- ----
Noncompete covenants $ 1,540,000 1,540,000
Goodwill 6,551,671 6,172,992
---------- ----------
8,091,671 7,712,992
Less accumulated amortization (2,520,536) (1,636,098)
---------- ----------
$ 5,571,135 6,076,894
---------- ----------
---------- ----------
Noncompete covenants are amortized over the life of the covenants
using the straight-line method. Goodwill is amortized over the
estimated useful lives (three to ten years) of the respective assets
using the straight-line method. The Company assesses the
recoverability of goodwill by determining whether the amortization of
the goodwill balance over its remaining life can be recovered through
projected undiscounted future results. Impairment would be recognized
in operating results if a permanent diminution in value were to occur.
(g) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Deferred income taxes are recognized for the tax consequences
of differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities by applying enacted
statutory tax rates applicable to future years. The affect on
deferred taxes of a change in tax rates is recognized in income in the
period that includes the change.
(h) 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 numbers of shares used in the earnings per share computations are
as follows:
Year ended June 30
------------------------------
1996 1995 1994
---- ---- ----
Weighted average shares of common
stock outstanding during the year 3,017,575 2,810,426 2,874,058
Common equivalent shares - assumed
exercise of options and warrants 1,377,923 48,514 74,110
Shares assumed to be repurchased with
proceeds from exercise subject to 20% of
average shares outstanding maximum (603,515) - -
---------- ---------- ----------
Total common and common
equivalent shares 3,791,983 2,858,940 2,948,168
---------- ---------- ----------
---------- ---------- ----------
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(i) FINANCIAL INSTRUMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107, DISCLOSURES ABOUT
FAIR VALUES OF FINANCIAL INSTRUMENTS, requires the fair value of
financial instruments be disclosed. The Company's financial
instruments are accounts receivable, accounts payable, and long-term
variable rate debt. The carrying amounts of accounts receivable,
accounts payable, and long-term variable rate debt, because of their
nature, approximate fair value.
(j) RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation.
(k) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(l) NEW ACCOUNTING STANDARDS
In October 1995, the FASB issued Financial Accounting Standard No. 123
("FAS 123"), "Accounting for Stock-Based Compensation". Under the
provisions of FAS 123, companies may elect to account for stock-based
compensation plans using a fair-value-based method or may continue
measuring compensation expense for those plans using the intrinsic-
value-based method. Companies electing to continue using the
intrinsic-value-based method must provide pro forma disclosures of net
income and earnings per share as if the fair-value-based method had
been applied. Management intends to continue to account for stock-
based compensation using the intrinsic-value-based method and, as
such, FAS 123 will not have an impact on the company's results of
operations or financial position. FAS 123 becomes effective in fiscal
year 1997.
(2) BUSINESS ACQUISITIONS
On January 10, 1996, the Company's wholly owned subsidiary, GreenSpring
Computers, Inc., completed an asset purchase of the IndustryPack-Registered
Trademark--compatible product line from Wavetron Microsystems, Inc. The
purchase price, including capitalizable expenses, was $236,626. In
conjunction with the acquisition, goodwill of $172,559 was recorded and is
being amortized over five years. The reported net income and net income
per common and common equivalent shares for the reported periods would not
have been materially different from that reported had the acquisition taken
place at the beginning of the respective fiscal year.
On April 28, 1995, the Company acquired GreenSpring Computers, Inc.
(GreenSpring), a corporation based in California, for $7,450,000.
GreenSpring is engaged in the design, development, marketing and
manufacturing of industrial circuit boards and computers. The acquisition
was accounted for using the purchase method of accounting, and goodwill is
being amortized over 10 years.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Assets acquired and liabilities assumed in the acquisition are as follows:
Cash and equivalents $ 1,053,185
Accounts receivable 1,725,641
Inventory 1,216,904
Other assets 39,908
Property and equipment 129,695
Goodwill and other intangible assets 5,752,440
Accounts payable (2,467,773)
---------
$ 7,450,000
---------
---------
The purchase price was paid as follows:
Notes payable issued $ 1,000,000
Warrants issued 200,000
Cash 6,250,000
---------
$ 7,450,000
---------
---------
Warrants to purchase 400,000 shares of common stock were issued to the
former shareholders and option holders of GreenSpring, of which 150,000
were exercisable immediately upon closing and the remaining 250,000
warrants vested during fiscal year 1996. At June 30, 1996, 40,000 warrants
were exercised under the net issuance method with the balance exercisable
ratably over the next two years.
Net income and net income per common and common equivalent share for the
year ended June 30, 1994, would have been approximately $1,655,000 and
$0.56, respectively, had the acquisition taken place on July 1, 1993. Had
the acquisition taken place on July 1, 1994, the reported net loss and net
loss per common and common equivalent share for the year ended June 30,
1995 would have been decreased by approximately $804,000 and $0.28,
respectively.
(3) SIGNIFICANT CUSTOMERS
Sales to significant customers as a percentage of total sales are as
follows:
Year ended June 30
------------------
Customers 1996 1995 1994
--------- ---- ---- ----
A - - 14
B - - 20
--- --- --
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sales to significant customers in 1994 were related to the simulation
division which was sold during 1995. All of the Company's operations are
conducted in the United States. International sales are denominated in
U.S. dollars. During the years ended June 30, 1996, 1995 and 1994, export
sales from continuing operations, all of which were to unaffiliated
customers, were approximately $5.1 million, $1.6 million and $1.2 million
respectively. Export sales from discontinued operations in 1995 and 1994
were $2.4 million and $6.8 million, respectively. Export sales from
continuing operations were made primarily in the following foreign markets:
1996 1995 1994
---- ---- ----
Sales % Sales % Sales %
Foreign Market (000's) (000's) (000's)
-------------- ----------------- ---------------- ----------------
United Kingdom $ 1,000 19.6
Germany 800 15.7
Korea 500 9.8
France 400 7.8 600 37.5
Japan 400 7.8
Canada 600 11.8 600 37.5 800 66.7
Belgium 300 5.9
All Others 1,100 21.6 400 25.0 400 33.3
------- ----- ------ ----- ------ -----
Total $ 5,100 100.0 1,600 100.0 1,200 100.0
Sales from
continuing operations $31,300 16.3 16,200 9.9 10,200 11.8
------- ----- ------ ----- ------ -----
------- ----- ------ ----- ------ -----
(4) RECEIVABLES
Receivables, net consisted of the following:
June 30
--------------------
1996 1995
---- ----
Accounts receivable $ 5,527,620 3,276,762
Contract receivables:
Amounts billed 721,803 2,216,673
Recoverable costs and accrued profit
on progress completed - not billed 242,038 1,665,799
---------- ----------
963,841 3,882,472
---------- ----------
6,491,461 7,159,234
---------- ----------
Less: allowance for doubtful accounts (70,237) (7,671)
---------- ----------
$ 6,421,224 7,151,563
---------- ----------
---------- ----------
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.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(5) FINANCING
The Company has an available bank line of credit of $2,500,000, which
matures October 1997. Interest is payable monthly at LIBOR plus 2.25
percent or the bank's prime lending rate. The bank's prime lending
rate at June 30, 1996 was 8.25 percent. During the year ended June
30, 1996 the Company refinanced through long-term borrowings
$2,337,537 previously outstanding on the line of credit. The Company
had no amounts drawn on this line of credit at June 30, 1996. The
line of credit provides for security interests in the Company's
receivables, inventories and equipment. Management anticipates that
the line of credit will be renewed at maturity in the normal course of
business.
(6) LONG-TERM DEBT
Long-term debt consisted of the following:
June 30
--------------------------
1996 1995
---- ----
Note payable to bank, $5,000,000 at LIBOR plus
2.5% (8% at June 30, 1996), $1,525,000 at prime
plus .25% (8.5% at June 30, 1996), secured by
receivables, inventories and equipment,
due in monthly installments of $112,500 $ 6,525,000 -
Note payable to bank at prime plus 1.5% (10.5%
at June 30, 1995), secured by receivables,
inventories and equipment, due in monthly
installments of $116,667 - 5,819,469
16% notes payable to former shareholders and
option holders of GreenSpring, Computers, Inc.
common stock, secured by receivables but
subordinate to the above described note,
due in quarterly installments commencing
when the principal balance of the aforementioned
note is less than $3,000,000 - 1,000,000
Note payable, non-interest-bearing,
payable in monthly installments through
August 1997 113,316 213,316
8.24% note due in monthly installments of $2,215
including interest through August 1996 4,385 31,470
8.14% note due in monthly installments of
$2,321 including interest through
August 1996 4,595 28,786
--------- ---------
6,647,296 7,093,041
Less current installments (1,458,976) (1,751,392)
--------- ---------
$ 5,188,320 5,341,649
--------- ---------
--------- ---------
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal maturities of long-term debt as of June 30, 1996 are as follows:
1997 $ 1,458,976
1998 1,363,320
1999 3,825,000
-----------
$ 6,647,296
-----------
-----------
(7) INCOME TAXES
Income tax expense (benefit) is comprised of the following:
Year ended June 30
--------------------------------
1996 1995 1994
---------- --------- -----------
Current:
U.S. Federal $ 1,916,770 1,211,000 716,000
State 483,500 352,000 208,000
Deferred:
U.S. Federal (11,000) (145,000) (209,000)
State (2,000) (61,000) (77,000)
---------- --------- -----------
Income tax before discontinued operations 2,387,270 1,357,000 638,000
Income tax expense (benefit) from
Discontinued operations - (1,160,000) 627,000
Loss on disposal - (896,000) -
---------- --------- -----------
Total income tax expense $ 2,387,270 (699,000) 1,265,000
---------- --------- -----------
---------- --------- -----------
Income tax expense was provided for at an effective rate of 40.0, 42.4
and 42.2 percent in 1996, 1995 and 1994, respectively. The actual tax
expense differs from the "expected" tax expense (computed by applying
the U.S. Federal corporate tax rate of 34 percent to income before
income taxes) as follows:
Year ended June 30
-----------------------------------
1996 1995 1994
---------- --------- -----------
Computed "expected" tax expense $ 2,029,180 1,089,000 513,000
State income tax, net of federal income
tax benefit 319,112 212,000 65,000
Goodwill amortization 21,508 66,000 60,000
Other 17,470 (10,000) -
---------- --------- -----------
$ 2,387,270 1,357,000 638,000
---------- --------- -----------
---------- --------- -----------
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The significant components of deferred income tax assets
(liabilities) are as follows:
Year ended June 30
1996 1995
----- ----
Vacation and severance accruals $ 136,136 176,274
Reserve for discontinued operations - 169,435
Inventory capitalization 198,792 -
Other 35,072 14,291
----------- ----------
$ 370,000 360,000
----------- ----------
----------- ----------
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 on the
Company's historical taxable transactions, the timing of the reversal
of existing temporary differences, and the evaluation of tax planning
strategies, management believes it is more likely than not that the
Company's future taxable income will be sufficient to realize the
benefit of the deferred tax assets existing at June 30, 1996.
Accordingly, management has no allowance for deferred tax assets at
June 30, 1996 or 1995.
(8) LEASES
The Company leases its main facilities in Albuquerque, New Mexico,
Carlsbad, California and Menlo Park, California under noncancelable
operating leases which expire at various dates through 2000. The
Company also leases various items of equipment under noncancelable
operating leases which expire at various dates through the year 2001.
Buildings Equipment
Year ending minimum minimum
June 30 lease payments lease payments Total
------- -------------- -------------- ------
1997 $ 542,831 45,710 588,541
1998 450,633 43,179 493,812
1999 443,932 43,179 487,111
2000 436,599 43,179 479,778
2001 - 13,929 13,929
--------- -------- -----------
$ 1,873,995 189,176 2,063,171
--------- -------- -----------
--------- -------- -----------
Total rental expense for operating leases for the years ended June 30,
1996, 1995, 1994 was $521,885, $511,150 and $569,188, respectively.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(9) STOCK OPTION PLANS
(a) 1991 KEY EMPLOYEE STOCK OPTION PLAN
The Company has a 1991 Key Employee Stock Option Plan (Key
Employee Plan) whereby 42,908 shares of its common stock are
reserved for discretionary issuance by the Board to certain key
employees to encourage them to continue to promote the growth of
the Company.
The Key Employee Plan is not intended to be tax-qualified under
the Internal Revenue Code. Options granted under the Key
Employee Plan must (i) be accompanied by an agreement signed by
each grantee setting forth the terms of the option; (ii) may not
equal more than $100,000 aggregate purchase price; (iii) may be
transferable by grantees only in accordance with applicable
securities laws; and (iv) have a price per share that will be
equal to fair market value at the time of the decision to grant
the option as determined by the Board of Directors.
(b) 1992, 1993, 1995 AND 1996 INCENTIVE STOCK OPTION PLANS
The Company has 1992, 1993, 1995, and 1996 Incentive Stock Option
Plans (Plans) whereby a total of 1,100,000 shares of its common
stock are reserved for discretionary grant of options by the
Board to officers and employees who are not directors. The Plans
all terminate ten years after inception, from 2001 to 2005.
The options are intended to qualify as "incentive stock options"
within the meaning of Section 422A of the Internal Revenue Code
(the Code). The option plan generally permits options to be
granted (i) only to employees or officers and not to directors as
such; (ii) for a period of up to ten years; and (iii) at prices
not less than fair market value at the date of grant. Under the
Code, holders of more than 10 percent of the Company's stock
cannot be granted options with a duration of more than five years
or exercisable at a price less than 110 percent of the fair
market value on the date of grant. Options granted under the
plan may be exercised as provided by the administering committee
or Board of Directors of the Company. All options granted prior
to the Company's initial public offering are exercisable at $4.00
per share, the presumed market value at that time. All other
options are exercisable at the quoted market value of the
Company's stock in effect on the respective dates of the grants.
(c) 1993 DIRECTOR AND OFFICER STOCK OPTION PLAN
The 1993 Director and Officer Stock Option Plan permits options
to be granted to all Directors of the Company who are not
employees and all Executive Officers of the Company. Directors
who are not employees of the Company receive automatic grants on
the anniversary date of their service as a director of the
Company. Executive Officers receive grants subject to the
discretion of the Board.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(d) 1996 EMPLOYEE STOCK PURCHASE PLAN
The 1996 Employee Stock Purchase Plan was adopted by the Board of
Directors on January 21, 1996 but is subject to shareholder
approval at the November 1996 annual meeting. Those eligible to
participate in the plan are full-time employees of the Company
who are not participants in any Incentive Stock Option Plans
provided by the Company. The plan provides for the grant of
options to eligible employees on January 21, 1996, 1997 and 1998.
Individual grants are issued for a percentage of the employee's
annual base salary, (as determined each year by the Board of
Directors, up to 10%), divided by the fair market value of one
share of the Company's stock on the date of grant. Options are
eligible to be exercised beginning 18 months after the date of
grant for a period of nine months at which time they will expire.
Information regarding the Company's stock option plans is
summarized below:
1991 ALL 1993 1996
NSOP ISOP's D & O ESPP
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING - 06/30/93 26,512 318,533 20,000 -
Granted - 520,000 10,000 -
Exercised - - - -
Canceled - 75,725 - -
--------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING - 06/30/94 26,512 762,808 30,000 -
Granted - 140,000 10,000 -
Exercised 8,228 - - -
Canceled - 236,667 - -
--------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING - 06/30/95 18,284 666,141 40,000 -
Granted - 360,000 118,500 42,894
Exercised 18,284 234,334 5,000 -
Canceled - 60,000 - 4,889
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING - 06/30/96 - 731,807 153,500 38,005
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
OPTIONS AVAILABLE TO GRANT - 06/30/96 - 133,859 157,833 261,995
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
AVERAGE OPTION PRICE PER SHARE:
at June 30, 1994 2.190 4.600 5.375 -
at June 30, 1995 2.190 5.102 5.438 -
at June 30, 1996 - 7.047 5.773 7.750
OPTIONS EXERCISABLE:
at June 30, 1994 26,512 297,546 - -
at June 30, 1995 18,284 347,807 - -
at June 30, 1996 - 471,807 115,000 -
AVERAGE PRICE OF OPTIONS EXERCISED:
at June 30, 1995 2.190 - - -
at June 30, 1996 2.190 4.620 5.500 -
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(10) RETIREMENT PLAN
The Company maintains a retirement plan under Section 401(k) of the
Internal Revenue Code for all employees of the Company. The plan
provides for employees to selectively defer a percentage of their
wages, which the Company matches at a predetermined rate not to exceed
4 percent of the employee's wages. The plan also provides for
additional contributions at the discretion of the Board of Directors.
Total Company contributions to the plan during the years ended
June 30, 1996, 1995 and 1994 were $185,387, $251,493 and $273,373,
respectively.
(11) INITIAL PUBLIC OFFERING
In connection with the 1992 initial public offering, warrants to
purchase 100,000 common shares at $4.80 per share were issued to the
underwriter. The warrants are exercisable from January 9, 1993
through January 8, 1997.
(12) DISCONTINUED OPERATIONS
On April 26, 1995, the company sold its flight simulation business for
$400,300. Included in the sale were net assets of approximately
$1,225,000. The purchaser has agreed to complete simulation contracts
in progress at the time of the sale on a time and material and fixed
price basis. The Company is responsible for completion of these
contracts, until novation of the contracts by the customer, to the
purchaser of the simulation operations. As of June 30, 1996, the
majority of these contracts have been substantially completed.
The disposition of the flight simulation business has been accounted
for as a discontinued operation and prior years consolidated
statements of operations have been restated accordingly. Revenue of
the discontinued operations were approximately $8,700,000 and
$18,560,00 in 1995 and 1994, respectively.
(13) CONTINGENCIES
The New Mexico Department of Taxation and Revenue is currently
auditing the Company's compliance with applicable New Mexico gross
receipts tax laws and regulations. Certain compliance issues have
been identified during the audit which may result in an assessment of
additional tax, penalties and interest. The Company intends to
contest any proposed adjustments vigorously and expects that the
ultimate resolution of this matter will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
Direct and allocable indirect costs charged to government contracts
are subject to audit by the Company's customers or their principal
agent, the Defense Contract Audit Agency (DCAA). As of June 30, 1996,
as a result of past audits, no significant adjustments were required.
Disallowed costs, if any, resulting from future audits will be
recognized in the period of the disallowance. Management estimates
that any such disallowed cost would not be material to the
consolidated financial statements.
The Company has been named as a defendant in a lawsuit filed on June
19, 1996. The Company is vigorously defending the lawsuit and has
filed a counter suit. Management does not believe that the outcome of
the litigation will have a material affect on the Company's financial
condition or results of operations.
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(14) SUBSEQUENT EVENT
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
qualifies as a pooling of interests for accounting purposes and will
constitute 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.
The financial position and results of operations of the Company and
LDG will be combined in fiscal 1997 on a prospective basis. LDG's
historical results do not have a material affect on combined results
of operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is incorporated by reference to the
Company's definitive proxy statement pursuant to Regulation 14A (the "Proxy
Statement") for its annual meeting to be held November 12, 1996.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the section entitled "Directors and Executive
Officers".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the section entitled "Compensation of Executive
Officers".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
corresponding section of the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the section entitled "Directors and Executive
Officers".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits. The Exhibits listed on the accompanying Index to Exhibits at the
end of this Report are filed as part of, or incorporated by reference into,
this Report.
(b) Financial Statement Schedules. The schedules are omitted inasmuch as the
required information is not present or not present in amounts sufficient to
require submission of the respective schedules, or the information is
included in the financial statements, including the notes thereto.
(c) Reports on Form 8-K during the fourth quarter.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Andrew C. Cruce
Andrew C. Cruce
Chairman of the Board and
Chief Executive Officer
Date: Sept. 23, 1996
SBS Technologies, Inc.
Annual Report on Form 10-K
Fiscal Year Ended June 30, 1996
Index to Exhibits
Exhibit
No. Description Page
- ------ -------------- ----
3.i(4) Articles of Incorporation, as amended on June 28, 1995 - -
3.ii(4) By-laws, as amended on May 8, 1995 - -
4.a(5) Article VI of the Articles of Incorporation, as amended, as included in the
Articles of Incorporation of SBS Technologies, Inc. - -
4.b(5) Articles I, II of the Bylaws of SBS Engineering, Inc., as amended - -
4.c(5) Form of certificate evidencing Common Stock - -
10.a Employment agreement between Registrant and
Dr. Andrew C. Cruce, dated October 1, 1993,
as amended Filed herewith electronically
10.b Employment agreement between Registrant and
Scott A. Alexander, dated October 1, 1993,
as amended Filed herewith electronically
10.d Employment agreement between Registrant and
Christopher J. Amenson, dated August 24, 1992,
as amended Filed herewith electronically
10.e(1) 1991 Key Employee Stock Option Plan - -
10.f(1) 1992 Incentive Stock Option Plan - -
10.g(1) Stock Bonus Plan - -
10.h(2) 1993 Incentive Stock Option Plan - -
10.i(2) 1993 Director and Officer Stock Option Plan - -
10.q(3) Asset Purchase Agreement dated April 26, 1995 between registrant
and Camber Corporation. - -
10.r(3) Purchase Agreement dated April 28, 1995 between Registrant and GreenSpring
Computers, Inc. et al - -
10.s(3) Credit Agreement dated April 28, 1995 with NationsBank of Texas, N.A. - -
10.t(3) Lease dated May 25, 1995 between Registrant and PARS Asset
Management Company - -
10.v 1996 Employee Stock Purchase Plan, adopted January 21, 1996,
subject to shareholder approval. Filed herewith electronically
10.w Amended and Restated Term Loan and Revolver
Credit Facility from NationsBank of Texas, N.A.
dated April 26, 1996. Filed herewith electronically
10.x Lease dated March 5, 1996, between Registrant and
Bohannon Trust Partnership II. Filed herewith electronically
10.y Pooling Agreement dated August 19, 1996 between
Registrant and Logical Design Group, Inc. et al Filed herewith electronically
10.z Management Incentive Plan Filed herewith electronically
11 Statement Re Computation of Per-Share Income Filed herewith electronically
22 Subsidiaries of the registrant Filed herewith electronically
25 Power of attorney Filed herewith electronically
27 Financial Data Schedules Filed herewith electronically
(1) Incorporated by reference to the exhibit filed with the Registrant's Registration
Statement on Form S-18 (No 33-43256-D), originally filed October 8, 1991, which
Registration Statement became effective January 9, 1992.
(2) Incorporated by reference to Exhibits "A" & "B" of the Registrant's Proxy Statement for
its annual meeting held November 10, 1992.
(3) Incorporated by reference to Exhibits 10.q, 10.r, 10.s and 10.t of the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995.
(4) Incorporated by reference to Exhibits 3.1 and 3.2 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995.
(5) Incorporated by reference to Exhibits 4.1, 4.2 and 4.3 of Registrant's Registration
Statement on Form S-3 originally filed on January 5, 1996 and Amendment No. 1 filed
on March 14, 1996.