-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ThDGAdxtzI4J0lfhXyeRRVLwOvQyKmzYMgIENybF+mIKkuOw9zx1mzYqG2EZWIik qgb3Q7Z0PRD2ibl0iFhCfw== 0000087050-00-000012.txt : 20000313 0000087050-00-000012.hdr.sgml : 20000313 ACCESSION NUMBER: 0000087050-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SBE INC CENTRAL INDEX KEY: 0000087050 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 941517641 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08419 FILM NUMBER: 566091 BUSINESS ADDRESS: STREET 1: 4550 NORRIS CANYON ROAD CITY: SAN RAMON STATE: CA ZIP: 94583 BUSINESS PHONE: 5103552000 MAIL ADDRESS: STREET 1: 4550 NORRIS CANYON RD CITY: SAN RAMON STATE: CA ZIP: 94583 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2000 [ ] Transition report pursuant to section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from _______ to ________ Commission file number 0-8419 ------ SBE, INC. _____________________________________________________ (Exact name of registrant as specified in its charter) Delaware 94-1517641 _______________________________ _________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4550 Norris Canyon Road, San Ramon, California 94583 ______________________________________________________ (Address of principal executive offices and zip code) (925) 355-2000 ______________________________________________________ (Registrant's telephone number, including area code) Indicate by check mark whether 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares of Registrant's Common Stock outstanding as of February 29, 2000 was 2,915,111. 1 SBE, INC. INDEX TO JANUARY 31, 2000 FORM 10-Q PART I FINANCIAL INFORMATION ITEM 1 Financial Statements Condensed Consolidated Balance Sheets as of January 31, 2000 and October 31, 1999 . . . . . . . . . . . . . . . . . .3 Condensed Consolidated Statements of Operations for the three months ended January 31, 2000 and 1999. . . . . . . . . . .. . . . 4 Condensed Consolidated Statements of Cash Flows for the three months ended January 31, 2000 and 1999. . . . . . . . . . . . . . .5 Notes to Condensed Consolidated Financial Statements. . . . . . . . . . . . 6 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . 8 ITEM 3 Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . 12 PART II OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . .13 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 EXHIBIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
SBE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS JANUARY 31, 2000 AND OCTOBER 31, 1999 (In thousands) January 31, October 31, 2000 1999 ------------- ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,061 $ 3,326 Trade accounts receivable, net 6,538 3,290 Inventories 2,255 1,517 Deferred income taxes 158 158 Other 618 298 ------------- -------------- Total current assets 11,630 8,589 Property, plant and equipment, net 1,529 1,513 Capitalized software costs, net 319 338 Other 39 40 ------------- ------------- Total assets $ 13,517 $ 10,480 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 2,469 $ 935 Accrued payroll and employee benefits 636 320 Accrued product warranties 100 101 Other accrued expenses 171 130 ------------- ------------- Total current liabilities 3,376 1,486 Deferred tax liabilities 158 158 Deferred rent 329 345 ------------- ------------- Total liabilities 3,863 1,989 ------------- ------------- Stockholders' equity: Common stock 11,009 10,924 Note receivable from stockholder (744) (744) Treasury stock (358) (358) Accumulated deficit (253) (1,331) ------------- ------------- Total stockholders' equity 9,654 8,491 ------------- ------------- Total liabilities and stockholders' equity $ 13,517 $ 10,480 ============= ============= See notes to condensed consolidated financial statements.
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SBE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS for the three months ended January 31, 2000 and 1999 (In thousands, except per share amounts) (Unaudited) Three months ended January 31, 2000 1999 ------ ------ Net sales $6,581 $6,518 Cost of sales 2,058 2,251 ------ ------ Gross profit 4,523 4,267 Product research and development 1,333 1,005 Sales and marketing 1,065 987 General and administrative 1,038 1,033 ------ ------ Total operating expenses 3,436 3,025 ------ ------ Operating income 1,087 1,242 Interest and other (expense) income, net 33 39 ------ ------ Income before income taxes 1,120 1,281 Provision for income taxes 41 51 ------ ------ Net income $1,079 $1,230 ====== ====== Basic earnings per common share $ 0.38 $ 0.44 ====== ====== Diluted earnings per common share $ 0.37 $ 0.41 ====== ====== Basic--shares used in per share computations 2,828 2,823 ====== ====== Diluted--shares used in per share computations 2,946 3,030 ====== ====== See notes to condensed consolidated financial statements.
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SBE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JANUARY 31, 2000 AND 1999 (In thousands) (Unaudited) Three months ended January 31, 2000 1999 -------- -------- Cash flows from operating activities: Net income $ 1,079 $ 1,230 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 267 177 Changes in operating assets and liabilities: (Increase) decrease in trade accounts receivable (3,247) 1,950 (Increase) decrease in inventories (737) (39) (Increase) decrease in other assets (321) 173 Increase (decrease) in trade accounts payable 1,533 (573) Increase (decrease) in other current liabilities 357 97 Increase (decrease) in noncurrent liabilities (17) (5) -------- -------- Net cash provided by (used in) operating activities (1,086) 3,010 -------- ------- Cash flows from investing activities: Capital expenditures: Purchases of property and equipment (224) (80) Capitalized software costs (40) (19) -------- -------- Net cash used in investing activities (264) (99) -------- -------- Cash flows from financing activities: Proceeds from stock plans 51 62 Other 34 - -------- -------- Net cash provided by financing activities 85 62 -------- -------- Net increase (decrease) in cash and cash equivalents (1,265) 2,973 Cash and cash equivalents at beginning of period 3,326 3,381 -------- -------- Cash and cash equivalents at end of period $ 2,061 $ 6,354 ======== ======== See notes to condensed consolidated financial statements.
5 SBE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. INTERIM PERIOD REPORTING: These condensed consolidated financial statements are unaudited and include all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods. The results of operations for the three months ended January 31, 2000 are not necessarily indicative of expected results for the full 2000 fiscal year. Certain information and footnote disclosures normally contained in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in the Company's Annual Report on Form 10-K for the year ended October 31, 1999. 2. INVENTORIES: Inventories comprise the following (in thousands): January 31, October 31, 2000 1999 ---------- --- ------- Finished goods $ 999 $ 773 Parts and materials 1,256 744 ----------- ----------- $ 2,255 $ 1,517 ========== =========== 3. NET EARNINGS PER SHARE: The Company computes earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic earnings per common share for the three months ended January 31, 2000 and January 31, 1999 were computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per common share for the three months ended January 31, 2000 and for the three months ended January 31, 1999 were computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents relate to outstanding options to purchase 1,075,700 shares and 891,950 shares of the Company's common stock as of January 31, 2000 and January 31, 1999, respectively. 6 4. CONCENTRATION OF RISK: In the first three months of fiscal 2000 and 1999, most of the Company's sales were attributable to sales of wireless communications products and were derived from a limited number of OEM customers. Sales to Compaq Computer accounted for 83 percent of the Company's net sales in the first three months of fiscal 2000 and 1999. Also, Compaq Computer accounted for 89 percent and 75 percent of the Company's accounts receivable as of January 31, 2000 and January 31, 1999, respectively. The Company expects that sales from Compaq will continue to constitute a substantial portion of the Company's net sales in the remainder of fiscal 2000. A significant reduction in orders from any of the Company's OEM customers, particularly Compaq, could have a material adverse effect on the Company's business, operating results and financial condition. In December 1996, the Company sold all of its manufacturing operations to XeTel Corporation ("XeTel"), a contract manufacturing company headquartered in Austin, Texas. At the same time the Company and XeTel entered into an exclusive manufacturing service agreement under which XeTel is to manufacture all of the Company's products until at least December 2000. The Company is dependent on XeTel's ability to manufacture the Company's products according to specifications and in required volumes on a timely basis. The failure of XeTel to perform its obligations under the manufacturing service agreement could have a material adverse effect on the Company's business, operating results and financial condition. All of the Company's cash and cash equivalents are held in one large financial institution. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section and those discussed in the Company's Annual Report on Form 10-K for the year ended October 31, 1999, particularly in the section entitled "Item 1--Business--Risk Factors." SBE, Inc. (the "Company") designs and sells products to meet the needs of traditional and converged telecommunication markets. The Company's products are designed for incorporation within high-end computer systems and integrated into signaling, switching and routing networks. They include SS7/AIN controllers for switch manufacturers, WAN interface adapters for workstations and servers, high-speed communications controllers for computer systems, and other specialized communications products. The Company's products are sold worldwide through direct sales, OEM, and System Integration partners. The Company's business is characterized by a concentration of sales to a small number of customers and consequently the timing of significant orders from major customers and of their product cycles causes fluctuations in the Company's operating results. This concentration, which is expected to continue, also makes it difficult to project future sales and operating results. The Company's sales to any single OEM customer are also subject to significant variability from quarter to quarter. Such fluctuations may have a material adverse effect on the Company's operating results. A significant reduction in orders from any of the Company's OEM customers, particularly Compaq, could have a material adverse effect on the Company's business, operating results and financial condition. The Company is attempting to diversify its sales with the introduction of new products that are targeted at large growing markets within telecommunication industry. The Company's Highwire products are focused on the telecommunications applications market that is driven by the convergence of traditional telephony applications with the Internet. These products are designed to fully support the Solaris 8 Operating Environment. In addition, the Company partnered with Trillium Digital Systems and Data Connection Limited which will provide SS7 protocol software solutions for integration with the Company's Highwire products. There can be no assurance that the Company will be able to succeed in penetrating this market and diversifying its sales. The Company believes that to be successful in the telecommunications applications market it will need to continue to expand its product offerings through relationships with other software and equipment providers. RESULTS OF OPERATIONS The following table sets forth, as a percentage of net sales, certain consolidated statements of operations data for the three months ended January 31, 2000 and 1999. These operating results are not necessarily indicative of the Company's operating results for any future period. 8
THREE MONTHS ENDED JANUARY 31, ------------ 2000 1999 ----- ----- Net sales 100% 100% Cost of sales 32 35 ----- ----- Gross profit 68 65 ----- ----- Product research and development 20 15 Sales and marketing 16 15 General and administrative 16 16 ----- ----- Total operating expenses 52 46 ----- ----- Operating income 16 19 Interest and other income, net 1 1 ----- ----- income before income taxes 17 20 Provision for income taxes 1 1 ----- ----- Net income 16% 19% ===== =====
NET SALES Net sales for the first quarter of fiscal 2000 were $6.6 million, a 1 percent increase from the first quarter of fiscal 1999. Sales of VME communication controller products increased 1 percent and sales of PCIbus increased 76 percent from the first quarter of fiscal 1999. Sales to Compaq Computer represented 83 percent of net sales in the first quarter of fiscal 2000 and the first quarter of fiscal 1999. No other customer accounted for over 10 percent of sales. The Company expects to continue to experience fluctuation in communication Controller product sales as large customers' needs change. International sales constituted 3 percent and 4 percent of net sales in the first quarter of fiscal 2000 and the first quarter of fiscal 1999, respectively. The decrease in international sales was primarily attributable to decreased demand for our products in Asia. GROSS PROFIT Gross profit as a percentage of sales in the first three months of fiscal 2000 was 69 percent, up from 65 percent for the same period of 1999. The increase from fiscal 1999 to fiscal 2000 was primarily attributable to lower material costs and a more favorable product mix. PRODUCT RESEARCH AND DEVELOPMENT Product research and development expenses were $1.3 million in the first quarter of fiscal 2000, an increase of 33 percent from $1.0 million in the first quarter of fiscal 1999. The increase in research and development spending from fiscal 1999 to fiscal 2000 was a result of higher spending on new telecommunications product development. The Company expects that product research and development expenses will remain near the current expenditure levels for future periods. 9 SALES AND MARKETING Sales and marketing expenses for the first quarter of fiscal 2000 were $1.1 million, an increase of 8 percent from $987,000 in the first quarter of fiscal 1999. The increase for the first quarter of fiscal 2000 was primarily due to higher marketing program costs for advertising and trade shows associated with new Highwire products. The Company expects sales and marketing expenses will remain near the current expenditure levels for future periods. GENERAL AND ADMINISTRATIVE General and administrative expenses were $1.0 million for the first quarter of fiscal 2000 and the first quarter of 1999. In future periods, the Company expects that general and administrative expenses may increase from current expenditure levels as a result of variable compensation to the extent the Company is successful in increasing its profitability. INTEREST AND OTHER INCOME, NET Interest income decreased in the first quarter of fiscal 2000 from the same periods in fiscal 1999 due to lower cash balances. INCOME TAXES The Company recorded a provision from income taxes of $41,000 in the first quarter of fiscal 2000 and $51,000 in the first quarter of fiscal 1999. The Company's current effective income tax rate is lower than the statutory rate as operating loss and tax credit carryforwards are being recognized. The Company had net operating loss carryforwards for federal and state purposes of approximately of $3.6 million and $2.6 million, respectively, and research and experimentation tax credit carryforwards for federal and state purpose of $1.4 million as of October 31, 1999 that can be utilized to offset current and future tax liabilities. NET INCOME As a result of the factors discussed above, net income for the first quarter of fiscal 2000 was $1.1 million, as compared to a net income of $1.2 million for the same period of 1999. LIQUIDITY AND CAPITAL RESOURCES At January 31, 2000 the Company had cash and cash equivalents of $2.1 million, as compared to $3.3 million at October 31, 1999. In the first three months of fiscal 2000, $1.1 million of cash was used in operating activities, primarily as a result of a $3.2 million increase in accounts receivable, a $737,000 increase in inventories, and a $321,000 increase in other assets. The accounts receivable increase was primarily a result of a sales increase. The inventory increase was a result of purchases of certain components to be used in the Company's VME products. The Company believes that it has acquired sufficient components to meet customer demand for the next three years. The other assets increase was primarily a result of deposits made to some vendors. These cash outflows were partially offset by $1.1 million in net income, $267,000 in depreciation and 10 amortization, a $1.5 million increase in accounts payable, and a $357,000 increase in other current liabilities. The accounts payable increase was primarily a result of a sales increase. The other current liabilities increase was a result of various compensation increase. Working capital at January 31, 2000 was $8.3 million, as compared to $7.1 million at October 31, 1999. In the first quarter of fiscal 2000 the Company purchased $224,000 of fixed assets, consisting primarily of computer and engineering equipment. Software costs of $40,000 were also capitalized during the first quarter of 2000. The Company expects capital expenditures will remain at current levels. The Company received $51,000 in the first quarter of fiscal 2000 from employee stock option exercises and employee stock purchase plan purchases. Based on the current operating plan, the Company anticipates that its current cash balances and anticipated cash flow from operations will be sufficient to meet its working capital needs over at least the next twelve months. 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's cash and cash equivalents are subject to interest rate risk. The Company invests primarily on a short-term basis. The Company's financial instrument holdings at January 31, 2000 were analyzed to determine their sensitivity to interest rate changes. The fair values of these instruments were determined by net present values. In our sensitivity analysis, the same change in interest rate was used for all maturities and all other factors were held constant. If interest rates increased by 10%, the expected effect on net income related to the Company's financial instruments would be immaterial. 12 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K List of Exhibits: 11.1 Statements of Computation of Net Income per Share 27.1 Financial Data Schedule Reports on Form 8-K: No report on Form 8-K was filed by the Company during the quarter ended January 31, 2000. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on March 10, 2000. SBE, INC. ---------- Registrant /s/ Timothy J. Repp ------------------------ Timothy J. Repp Chief Financial Officer, Vice President of Finance and Secretary (Principal Financial and Accounting Officer) 14 EX-11.1 2
EXHIBIT 11.1 SBE, INC. STATEMENTS OF COMPUTATION OF NET INCOME PER SHARE FOR THE THREE MONTHS ENDED JANUARY 31, 2000 AND 1999 (In thousands, except per share amounts) (Unaudited) Three months ended January 31, -------------------- 2000 1999 -------- ------- BASIC Weighted average number of common shares outstanding 2,828 2,823 -------- -------- Number of shares for computation of net income per share 2,828 2,823 ======== ======== Net income $1,079 $1,230 ======== ======== Net income per share $ 0.38 $ 0.44 ======== ======== DILUTED Weighted average number of common shares outstanding 2,828 2,823 Shares issuable pursuant to options granted under stock option plans, less assumed repurchase at average market value for the period 118 207 -------- -------- Number of shares for computation of net income per share 2,946 3,030 ======== ======== Net income $1,079 $1,230 ======== ======== Net income per share $ 0.37 $ 0.41 ======== ========
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5 1000 3-MOS OCT-31-2000 NOV-01-1999 JAN-31-2000 2061 0 6538 0 2255 11630 1529 0 13517 3376 0 0 0 11009 (1355) 13517 6581 6581 2058 2058 0 0 (33) 1120 41 1079 0 0 0 1079 .38 .37
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