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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

Commission File Number 1-10981

SBS Technologies, Inc.

Incorporated in New Mexico

IRS Employer Identification No. 85-0359415

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 (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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO o

The total number of shares outstanding of the registrant’s Common Stock as of October 27, 2003 was 15,063,832.

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SBS Technologies, Inc. and Subsidiaries
Form 10-Q for the Quarter Ended September 30, 2003
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FORWARD-LOOKING STATEMENTS

     This Form 10-Q contains forward-looking statements with respect to the financial condition, results of operations and business of SBS Technologies, Inc. and subsidiaries (referred to variously as “SBS”, “we”, “us” and “our”). You may find many of these statements by looking for words like “intends,” “expects,” “projects,” “believes,” “anticipates” or similar expressions in this Form 10-Q. These forward-looking statements include:

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statements regarding future events and the future financial performance of SBS;

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statements regarding anticipated defense funding levels for the U.S. government fiscal year beginning October 1, 2003;

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statements regarding anticipated opportunities in the communications market for additional infrastructure in both wireless equipment and network monitoring;

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statements regarding anticipated opportunities for medical and semiconductor manufacturing equipment in the commercial market;

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expected sales and gross margin for the quarter ending December 31, 2003; and

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expectations of internally-generated cash flows.

     These statements are based upon certain assumptions and assessments we made because of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These assumptions and assessments include the volume and product mix of sales, estimates of costs and inventory and receivable levels based on preliminary information, and other items.

     The forward-looking statements included in this document are subject to a number of risks, uncertainties, and other factors. Among these factors are:

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business and economic conditions generally affecting our customers and their end customers, including but not limited to the changes in size and program priorities of military procurement budgets, which may be less favorable than we expect, resulting in lower sales and earnings;

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a high degree of uncertainty and rapid change in the markets addressed by our products, which may impact the timing and amount of future sales levels or cause the market value of our inventory to decline, resulting in reduced gross profit levels;

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customer demand for and acceptance of our products, which may be less than we expect, which may decrease both sales and margins;

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costs related to the integration into SBS of newly-acquired businesses may be greater than we expect;

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our ability to design, test and introduce new products on a timely basis, which, if we are not able, may decrease both sales and margins;

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the financial condition of our customers may be less favorable than we expect, resulting in reduced sales and earnings; and

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the other risk factors listed under “Risk Factors” included in SBS’ Annual Report on Form 10-K for the year ended June 30, 2003.

     Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by them. SBS cautions you not to place undue reliance on these statements, which speak only as of the date of this Form 10-Q.

     SBS does not undertake any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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

See accompanying notes to condensed consolidated financial statements

3

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

See accompanying notes to condensed consolidated financial statements

4

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SBS Technologies, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity
For Three Months Ended September 30, 2003
Thousands (except share amounts)
(Unaudited)

See accompanying notes to condensed consolidated financial statements

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

(Continued)

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

See accompanying notes to condensed consolidated financial statements

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SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2003
(Unaudited)

1)

Summary of Significant Accounting Policies

The accounting policies as set forth in SBS Technologies, Inc.’s (SBS or the Company) Annual Report on Form 10-K for the year ended June 30, 2003 have been adhered to in preparing the accompanying interim condensed consolidated financial statements. 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. Certain reclassifications have been made to prior year balances to conform to current year presentation.

The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (SFAS 142) on July 1, 2002. In accordance with the provisions of SFAS 142, the Company completed the required transitional goodwill impairment analysis during the year ended June 30, 2003 and recorded a transitional impairment charge of approximately $9.5 million ($6,058,000, net of income taxes) effective July 1, 2002.

Stock Based Compensation

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Substantially all stock-based compensation reflected in reported net loss relates to restricted stock award grants to members of the Company’s Board of Directors, as all employee stock options granted under the Company’s stock option plans had an exercise price equal to the market value of the underlying common stock on the grant date. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by SFAS 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS 123. The following table illustrates the effect on net loss and net loss per common share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation.

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SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
September 30, 2003
(Unaudited)

2)

Receivables, net

Receivables, net consist of the following:

3)

Inventories

Inventories consist of the following:

During the quarter ended September 30, 2003, approximately $230,000 of inventory previously written down to zero cost had been sold.

4)

Goodwill and Intangible Assets

The Company adopted SFAS 142 on July 1, 2002. In accordance with the provisions of SFAS 142, the Company completed the required transitional goodwill impairment analysis during the year ended June 30, 2003. As a result, the Company recorded a transitional impairment charge of approximately $9.5 million ($6,058,000 net of income taxes) which has been reflected as a cumulative effect of a change in accounting principle in the three months ended September 30, 2002 in the accompanying statements of operations.

On April 1, 2003, the Company completed the required annual goodwill impairment analysis for the fiscal year ended June 30, 2003 and the estimated fair value of goodwill was determined to be in excess of its carrying value, indicating the underlying goodwill was not impaired at that date.

Changes in the carrying amount of goodwill for the three months ended September 30, 2003 are as follows:

Total Goodwill by Operating Segment

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SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
September 30, 2003
(Unaudited)

The following table discloses information regarding the carrying amounts and associated accumulated amortization for intangible assets subject to amortization.

Amortized Intangible Assets

The following table summarizes estimated amortization expense for future periods as follows:

5)

Product Warranty Liability

The Company’s customers receive a warranty, generally for a period of two years, upon purchase of products. The Company accrues estimated costs to repair or replace potentially defective products when products are shipped and revenue is recognized. Estimated warranty costs are based upon prior actual warranty costs for substantially similar products. The following table presents the activity in the Company’s product warranty liability for the three months ended September 30, 2003:

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SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
September 30, 2003
(Unaudited)

6)

Earnings Per Share

Net income (loss) per share is based on weighted average shares outstanding. Net income (loss) per share - assuming dilution includes the dilutive effects of potential common shares outstanding during the period.

Due to the reported net loss for the three months ended September 30, 2003 and 2002, 133,182 and 22,710 potential common shares, respectively, were not included in the computation of earnings per share - assuming dilution because the effect would be anti-dilutive. For the three months ended September 30, 2003 and 2002, options to purchase 2,443,815 and 3,376,444 shares of common stock, respectively, were outstanding but were not included in the computation of earnings per share - assuming dilution because the options’ exercise prices were greater than the average market price of the common shares.

7)

Comprehensive Income (Loss)

Comprehensive loss was ($822,000) for the three months ended September 30, 2003. Comprehensive loss for the three months ended September 30, 2002 of ($6,449,000) includes a transitional impairment charge of $6,058,000, net of tax, as a result of the Company’s adoption of SFAS 142 effective July 1, 2002. The difference between comprehensive loss and net loss was related to foreign currency translation adjustments.

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SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
September 30, 2003
(Unaudited)

8)

Segment Financial Data

As a result of changes in management responsibility, the Company’s desire to enhance its regional-based sales and service to the Company’s European customers and the June 2003 acquisition of SBS Canada (formerly Avvida Holdings Corp. and Avvida Systems Inc.), the Company changed its reportable segments to a structure based on geographic markets. This change has enabled management to focus on regional market development, alignment of sales channels with customers’ product needs, and enhancement of customer service and satisfaction.

The Company operates worldwide through two operating segments: the Americas Group and the Europe Group. Each segment has its own sales and distribution channels and a manager who reports directly to the Company’s Chief Executive Officer. The Americas Group consists of the Company’s operations based in the United States and Canada including the engineering, test, and assembly activities in Albuquerque, New Mexico, Mansfield, Massachusetts, Newark, California, Raleigh, North Carolina, St. Paul, Minnesota, and Waterloo, Ontario, Canada, as well as the manufacturing operations located in St. Paul, Minnesota. The Europe Group consists of the Company’s operations based in Germany which include the engineering, test, assembly, and manufacturing activities located in Augsburg and Mindelheim, Germany.

SBS measures the results of operations for segments (segment profit (loss)) based on income (loss) before income taxes and the cumulative effect of change in accounting principle and prior to (a) the allocation of corporate overhead expenses other than marketing costs, (b) substantially all amortization associated with acquisitions and (c) the majority of interest income and interest expense. The accounting policies used to measure segment profit (loss) are the same as those referred to in note 1. Reportable segments for all periods presented have been reclassified to conform to the current segment reporting structure.