##### Table of Contents





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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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Form 10-Q



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

For the quarterly period ended September 30, 2003



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Commission File Number 1-10981

SBS Technologies, Inc.

Incorporated in New Mexico



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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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TABLE OF CONTENTS



|                                                  |                                                                                               |                                                          |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- |  |  |  |  |  | 
|                                                  |                                                                                               | Consolidated Balance Sheets                             
|                                                  |                                                                                               | Consolidated Statements of Operations                   
|                                                  |                                                                                               | Consolidated Statement of Change in Stockholders Equity
|                                                  |                                                                                               | Consolidated Statements of Cash Flows                   
|                                                  |                                                                                               | Notes to Consolidated Financial Statements              
|                                                  | Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operation
|                                                  | Item 3  Quantitative and Qualitative Disclosures about Market Risk                          
|                                                  | Item 4  Controls and Procedures                                                             
|PART II  OTHER INFORMATION                      
|                                                  | Item 6  Exhibits and Reports on Form 8-K.                                                   
|SIGNATURES                                       
|INDEX TO EXHIBITS                                
|EX-10.by Employment Agreement-Christopher Amenson
|EX-10.bz Employment Agreement-Clarence Peckham   
|EX-10.ca Employment Agreement-James E. Dixon     
|EX-10.cb Employment Agreement-David H. Greig     
|EX-10.cc Employment Agreement-Bruce E. Castle    
|EX-31.1 Certification of Chief Executive Officer 
|EX-31.2 Certification of Chief Financial Officer 
|EX-32.1 Certification of Chief Executive Officer 
|EX-32.2 Certification of Chief Financial Officer 



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##### Table of Contents



SBS Technologies, Inc. and Subsidiaries
Form 10-Q for the Quarter Ended September 30, 2003
Table of Contents

PageForward Looking Statements
    
    
    2PART I
    
    FINANCIAL INFORMATIONItem 1 - Unaudited Condensed Financial StatementsConsolidated Balance Sheets as of September 30, 2003 and June 30,
2003
    
    
    3Consolidated Statements of Operations, For Three Months Ended
September 30, 2003 and 2002
    
    
    4Consolidated Statement of Changes in Stockholders Equity, For
Three Months Ended September 30, 2003
    
    
    5Consolidated Statements of Cash Flows, For Three Months Ended
September 30, 2003 and 2002
    
    
    6Notes to Condensed Consolidated Financial Statements as of
September 30, 2003
    
    
    8Item 2 - Managements Discussion and Analysis of Financial
Condition and Results of Operation
    
    
    14Item 3 - Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4 - Controls and Procedures
    
    
    19PART II
    
    OTHER INFORMATIONItem 6 - Exhibits and Reports of Form 8-K
    
    
    21SIGNATURES
    
    
    22EXHIBIT INDEX
    
    
    23






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##### Table of Contents



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:



| |  |  | statements regarding future events and the future financial
performance of SBS;
| | - |  | -------------------------------------------------------------------------------



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



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



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



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



| |  |  | 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:



| |  |  | 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | 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.

2



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##### Table of Contents









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



---

September 30,
    
    June 30,2003
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    40,858
    
    
    
    37,130Receivables, net
    
    
    18,049
    
    
    
    23,164Inventories
    
    
    18,417
    
    
    
    16,816Income tax receivable
    
    
    4,112
    
    
    
    4,830Deferred income taxes
    
    
    1,630
    
    
    
    1,629Prepaid expenses
    
    
    1,531
    
    
    
    1,661Other current assets
    
    
    369
    
    
    
    431Total current assets
    
    
    84,966
    
    
    
    85,661Property and equipment, net
    
    
    8,027
    
    
    
    8,462Goodwill, net
    
    
    16,300
    
    
    
    16,124Intangible assets, net
    
    
    6,341
    
    
    
    6,906Deferred income taxes
    
    
    11,089
    
    
    
    11,086Other assets
    
    
    363
    
    
    
    371Total assets
    
    $
    127,086
    
    
    
    128,610Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    3,456
    
    
    
    3,990Accrued representative commissions
    
    
    796
    
    
    
    688Accrued compensation
    
    
    3,398
    
    
    
    4,595Accrued severance and consolidation costs
    
    
    1,401
    
    
    
    224Other current liabilities
    
    
    2,342
    
    
    
    2,977Total current liabilities
    
    
    11,393
    
    
    
    12,474Other long-term liabilities
    
    
    24
    
    
    
    29Total liabilities
    
    
    11,417
    
    
    
    12,503Stockholders equity:Common stock, no par value; 200,000,000 shares authorized;
15,022,878 issued and outstanding at September 30, 2003,
14,989,248 issued and outstanding at June 30, 2003
    
    
    90,272
    
    
    
    89,916Unearned compensation
    
    
    (9
    )
    
    
    (37
    )Accumulated other comprehensive income
    
    
    625
    
    
    
    257Retained earnings
    
    
    24,781
    
    
    
    25,971Total stockholders equity
    
    
    115,669
    
    
    
    116,107Total liabilities and stockholders equity
    
    $
    127,086
    
    
    
    128,610


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)



---

Three months endedSeptember 30,2003
    
    2002Sales
    
    $
    26,577
    
    
    
    27,833Cost of sales
    
    
    13,644
    
    
    
    14,379Gross profit
    
    
    12,933
    
    
    
    13,454Selling, general and administrative expense
    
    
    7,618
    
    
    
    8,235Research and development expense
    
    
    4,811
    
    
    
    4,714Employee severance and consolidation costs
    
    
    2,054
    
    
    
    335Amortization of intangible assets
    
    
    548
    
    
    
    584Operating loss
    
    
    (2,098
    )
    
    
    (414
    )Interest and other income, net
    
    
    342
    
    
    
    125Foreign exchange losses
    
    
    (75
    )
    
    
    (22
    )267
    
    
    
    103Loss before income taxes and cumulative effect of
change in accounting principle
    
    
    (1,831
    )
    
    
    (311
    )Income tax benefit
    
    
    (641
    )
    
    
    (128
    )Loss before cumulative effect of change in
accounting principle
    
    
    (1,190
    )
    
    
    (183
    )Cumulative effect of change in accounting
principle (net of income taxes of $3,412)
    
    
    
    
    
    
    (6,058
    )Net loss
    
    $
    (1,190
    )
    
    
    (6,241
    )Earnings per share data:Net loss per share:Loss before cumulative effect
    
    $
    (0.08
    )
    
    
    (0.01
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (0.41
    )Net loss
    
    $
    (0.08
    )
    
    
    (0.42
    )Net loss per share  assuming dilution:Loss before cumulative effect
    
    $
    (0.08
    )
    
    
    (0.01
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (0.41
    )Net loss
    
    $
    (0.08
    )
    
    
    (0.42
    )


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)



---

Accumulatedother
    
    
    
    Total
    
    Compre-Common Stock
    
    Unearned
    
    Compre-
    
    
    
    Stock-
    
    hensiveCompen-
    
    hensive
    
    Retained
    
    holders'
    
    incomeShares
    
    Amount
    
    sation
    
    income
    
    earnings
    
    equity
    
    (loss)Balances at June 30, 2003
    
    
    14,989,248
    
    
    $
    89,916
    
    
    
    (37
    )
    
    
    257
    
    
    
    25,971
    
    
    
    116,107Exercise of stock options
    
    
    33,630
    
    
    
    326
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    326Income tax benefit from stock
options exercised
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,190
    )
    
    
    (1,190
    )
    
    $
    (1,190
    )Other comprehensive income:Foreign currency translation
    adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    368
    
    
    
    368Comprehensive income
(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (822
    )Balances at September 30, 2003
    
    
    15,022,878
    
    
    $
    90,272
    
    
    
    (9
    )
    
    
    625
    
    
    
    24,781
    
    
    
    115,669


See accompanying notes to condensed consolidated financial statements

5



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



---

Three months endedSeptember 30,2003
    
    2002Cash flows from operating activities:Net loss
    
    $
    (1,190
    )
    
    
    (6,241
    )Cumulative effect of change in accounting principle, net
    
    
    
    
    
    
    6,058Loss before cumulative effect of change in accounting principle
    
    
    (1,190
    )
    
    
    (183
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    1,551
    
    
    
    1,614Bad debt expense
    
    
    31
    
    
    
    125Deferred income taxes
    
    
    
    
    
    
    2,856Income tax benefit of stock options exercised
    
    
    30
    
    
    
    Loss on disposition of assets
    
    
    6
    
    
    
    4Foreign exchange losses
    
    
    75
    
    
    
    22Stock-based compensation
    
    
    28
    
    
    
    92Changes in assets and liabilities:Receivables
    
    
    5,121
    
    
    
    942Inventories
    
    
    (1,499
    )
    
    
    600Income tax receivable
    
    
    718
    
    
    
    (2,959
    )Prepaid expenses and other assets
    
    
    204
    
    
    
    (119
    )Accounts payable
    
    
    (613
    )
    
    
    (1,292
    )Accrued representative commissions
    
    
    101
    
    
    
    123Accrued compensation
    
    
    (1,205
    )
    
    
    (993
    )Accrued severance and consolidation costs
    
    
    1,177
    
    
    
    121Other liabilities
    
    
    (632
    )
    
    
    (102
    )Net cash provided by operating activities
    
    
    3,903
    
    
    
    851Cash flows from investing activities:Acquisition of property and equipment
    
    
    (592
    )
    
    
    (343
    )Purchase of license agreement
    
    
    
    
    
    
    (200
    )Net cash used by investing activities
    
    
    (592
    )
    
    
    (543
    )Cash flows from financing activities:Repurchase and retirement of common stock
    
    
    
    
    
    
    (321
    )Proceeds from exercise of stock options
    
    
    326
    
    
    
    13Net cash provided (used) by financing activities
    
    
    326
    
    
    
    (308
    )Effect of exchange rate changes on cash
    
    
    91
    
    
    
    (31
    )Net change in cash and cash equivalents
    
    $
    3,728
    
    
    
    (31
    )Cash and cash equivalents at beginning of period
    
    
    37,130
    
    
    
    24,811Cash and cash equivalents at end of period
    
    $
    40,858
    
    
    
    24,780


(Continued)

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##### Table of Contents



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



---

Three months endedSeptember 30,2003
    
    2002Supplemental disclosure of cash flow information:Interest paid
    
    $
    
    
    
    
    12Income taxes paid (received)
    
    $
    (1,281
    )
    
    
    44


See accompanying notes to condensed consolidated financial statements

7



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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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months endedThousands (except per share amounts)
    
    September 30,2003
    
    2002Net loss, as reported
    
    
    (1,190
    )
    
    
    (6,241
    )Add: stock-based employee compensation included
in reported net loss, net of tax effects
    
    
    17
    
    
    
    56Deduct: stock-based employee compensation
determined under fair value method for all
awards, net of tax effects
    
    
    (131
    )
    
    
    (1,006
    )Pro forma net loss
    
    
    (1,304
    )
    
    
    (7,191
    )Net loss per common share  as reported
    
    
    (0.08
    )
    
    
    (0.42
    )Net loss per common share  pro forma
    
    
    (0.09
    )
    
    
    (0.48
    )Net loss per common share assuming dilution -
as reported
    
    
    (0.08
    )
    
    
    (0.42
    )Net loss per common share assuming dilution -
pro forma
    
    
    (0.09
    )
    
    
    (0.48
    )


8



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##### Table of Contents



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:
| |  | ------------------------------------------

September 30,
    
    June 30,Thousands
    
    2003
    
    2003Accounts receivable
    
    $
    18,702
    
    
    
    24,000Less allowance for doubtful accounts
    
    
    (653
    )
    
    
    (836
    )$
    18,049
    
    
    
    23,164




|3) |  | Inventories
|-- |  | -----------



| |  | Inventories consist of the following:
| |  | -------------------------------------

September 30,
    
    June 30,Thousands
    
    2003
    
    2003Raw materials
    
    $
    8,722
    
    
    
    8,793Work in process
    
    
    5,526
    
    
    
    5,414Finished goods
    
    
    4,169
    
    
    
    2,609$
    18,417
    
    
    
    16,816




| |  | 
| |  | 



| |  | 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

Thousands
    
    Americas
    
    Europe
    
    TotalBalance at June 30, 2003
    
    $
    3,496
    
    
    
    12,628
    
    
    
    16,124Foreign currency translation
adjustments
    
    
    8
    
    
    
    168
    
    
    
    176Balance at September 30, 2003
    
    $
    3,504
    
    
    
    12,796
    
    
    
    16,300


9



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##### Table of Contents



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

GrossEstimated
    
    carrying
    
    Accumulated
    
    Net carryingThousands
    
    useful life
    
    amount
    
    amortization
    
    amountAs
of September 30, 2003Core developed technology
    
    2 - 7 yrs
    
    $
    9,718
    
    
    
    5,966
    
    
    
    3,752License agreements
    
    2 - 5 yrs
    
    
    2,425
    
    
    
    1,414
    
    
    
    1,011Covenant not to compete
    
    3 - 5 yrs
    
    
    2,838
    
    
    
    1,496
    
    
    
    1,342Other intangibles
    
    8 - 17 yrs
    
    
    368
    
    
    
    132
    
    
    
    236Total
    
    
    
    
    
    $
    15,349
    
    
    
    9,008
    
    
    
    6,341As of June 30, 2003Core developed technology
    
    2 - 7 yrs
    
    $
    9,723
    
    
    
    5,679
    
    
    
    4,044License agreements
    
    2 - 5 yrs
    
    
    2,561
    
    
    
    1,424
    
    
    
    1,137Covenant not to compete
    
    3 - 5 yrs
    
    
    2,842
    
    
    
    1,365
    
    
    
    1,477Other intangibles
    
    8 - 17 yrs
    
    
    368
    
    
    
    120
    
    
    
    248Total
    
    
    
    
    
    $
    15,494
    
    
    
    8,588
    
    
    
    6,906


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

Estimated amortization expense:
    
    ThousandsRemainder of fiscal year ending June 30, 2004
    
    $
    1,570For the fiscal years ending:June 30, 2005
    
    
    1,734June 30, 2006
    
    
    1,310June 30, 2007
    
    
    1,181June 30, 2008
    
    
    512Thereafter
    
    
    346,341




| |  | 
| |  | 



|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:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ThousandsBalance at beginning of period
    
    $
    548Estimated warranty costs for product sales
    
    
    368Adjustments to settle warranty activity
    
    
    (270
    )Balance at end of period
    
    $
    646


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##### Table of Contents



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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months endedThousands (except per share amounts)
    
    September 30,2003
    
    2002Loss before cumulative effect of change in
accounting principle
    
    
    (1,190
    )
    
    
    (183
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (6,058
    )Net loss
    
    
    (1,190
    )
    
    
    (6,241
    )Net loss per shareWeighted-average common shares outstanding
    
    
    15,001
    
    
    
    14,615Loss before cumulative effect of change in
accounting principle
    
    
    (0.08
    )
    
    
    (0.01
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (0.41
    )Net loss
    
    
    (0.08
    )
    
    
    (0.42
    )Net loss per share  assuming dilutionWeighted-average common shares outstanding
used in earnings per share computations
    
    
    15,001
    
    
    
    14,615Loss before cumulative effect of change in
accounting principle
    
    
    (0.08
    )
    
    
    (0.01
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (0.41
    )Net loss
    
    
    (0.08
    )
    
    
    (0.42
    )Shares Used in Per Share ComputationsWeighted average common shares outstanding
    
    
    15,001
    
    
    
    14,615Incremental shares from assumed conversions -
potential common shares
    
    
    
    
    
    
    Shares used in computations  assuming dilution
    
    
    15,001
    
    
    
    14,615




| |  |  | 
| |  |  | 



| |  |  | 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.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Americas
    
    Europe
    
    Corporate &Thousands
    
    
    
    
    
    Group
    
    Group
    
    Unallocated (1)
    
    TotalThree-month periods ended
September 30Gross sales
    
    
    2003
    
    
    21,535
    
    
    
    7,761
    
    
    
    
    
    
    
    29,296Inter-segment sales
    
    
    
    
    
    
    (1,257
    )
    
    
    (1,462
    )
    
    
    
    
    
    
    (2,719
    )Sales to external customers
    
    
    
    
    
    
    20,278
    
    
    
    6,299
    
    
    
    
    
    
    
    26,577Gross sales
    
    
    2002
    
    
    25,060
    
    
    
    4,426
    
    
    
    
    
    
    
    29,486Inter-segment sales
    
    
    
    
    
    
    (241
    )
    
    
    (1,412
    )
    
    
    
    
    
    
    (1,653
    )Sales to external customers
    
    
    
    
    
    
    24,819
    
    
    
    3,014
    
    
    
    
    
    
    
    27,833Segment profit (loss)
    
    
    2003
    
    
    (121
    )
    
    
    1,310
    
    
    
    (3,020
    )
    
    
    (1,831
    )2002
    
    
    2,333
    
    
    
    486
    
    
    
    (3,130
    )
    
    
    (311
    )Total Assets
    
    As of September 30, 2003
    
    
    31,188
    
    
    
    18,679
    
    
    
    77,219
    
    
    
    127,086As of June 30, 2003
    
    
    35,798
    
    
    
    17,540
    
    
    
    75,272
    
    
    
    128,610




(1)
    
    The corporate and unallocated column includes amounts for corporate items. With regard to results of
operations, corporate and unallocated includes corporate overhead expenses other than corporate marketing
costs, substantially all interest expense and interest income, and substantially all amortization associated
with acquisitions. Corporate assets primarily include cash and cash equivalents, deferred and current
income tax assets, goodwill and intangible assets.


12



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##### Table of Contents



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



---



|9) |  | Employee Severance and Consolidation Costs
|-- |  | ------------------------------------------



| |  | On June 12, 2003, the Company announced the closure of its Carlsbad,
California facility and the consolidation of its manufacturing operations
into the Companys St. Paul, Minnesota facility, centralizing all
manufacturing in the United States to one facility. The total employee
severance and consolidation costs to be incurred as a result of the
consolidation are estimated at approximately $3.3 million. Included in the
estimated total costs of $3.3 million are approximately $150,000 of
severance and other costs to be recorded in future periods as incurred in
accordance with SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities(SFAS 146). The total estimated costs as a result of
the consolidation includes employee severance and related costs recorded
over the remaining service period in accordance with SFAS 146,
consolidation costs recorded as incurred in accordance with SFAS 146,
leasehold improvement impairment charges recorded as a result of the
announcement in accordance with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assetsand lease termination costs recorded on the
cease use date in accordance with SFAS 146. The following table summarizes
the accounting for the consolidation and closure of the Companys Carlsbad,
California facility:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ThousandsEmployee
    
    Propertyseverance
    
    andDescription
    
    and related costs
    
    equipment
    
    Facilities
    
    Other costs
    
    TotalQuarter ended
June 30, 2003Employee severance and
consolidation costs
    
    $
    290
    
    
    
    841
    
    
    
    
    
    
    
    
    
    
    $
    1,131Expenditures
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66
    )Write-offs
    
    
    
    
    
    
    (841
    )
    
    
    
    
    
    
    
    
    
    
    (841
    )Accrued at June 30, 2003
    
    $
    224
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    224Quarter ended
September 30, 2003Employee severance and
consolidation costs
    
    $
    429
    
    
    
    
    
    
    
    1,350
    
    
    
    275
    
    
    $
    2,054Expenditures
    
    
    (531
    )
    
    
    
    
    
    
    (71
    )
    
    
    (275
    )
    
    
    (877
    )Accrued at September 30, 2003
    
    $
    122
    
    
    
    
    
    
    
    1,279
    
    
    
    
    
    
    $
    1,401


The lease termination costs, recorded on the cease use date as a result of
closure of the Companys Carlsbad, California facility, represents the
estimated fair value of the remaining future lease payments and related
obligations, net of estimated sublease income, over the term of the lease.
The remaining accrued employee severance and related costs are expected to
be paid over the next three months. The remaining facilities costs
represent primarily lease obligations expected to be paid monthly through
April 2006.

On July 22, 2002, due to the continued depressed economic and market
conditions impacting the Companys communications customers, SBS notified
19 full and part-time employees at our Madison, Wisconsin engineering
design center that their jobs had been eliminated. For the same reason, on
September 30, 2002, SBS notified 22 additional employees that their jobs
were being eliminated. As a result, for the quarter ended September 30,
2002, SBS recorded employee severance and consolidation costs of $335,000.
There are no costs remaining to be paid related to these activities at
September 30, 2003.

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##### Table of Contents









Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operation

For a description of SBS critical accounting policies and an
understanding of the significant factors that influenced SBS
performance during the three months ended September 30, 2003 and 2002, this
Managements Discussion and Analysis of Financial Condition and Results of
Operation (MD&A) should be read in conjunction with the consolidated financial
statements, including the related notes, appearing in Item 1 of this
Form 10-Q, as well as our Annual Report on Form 10-K for the year ended June
30, 2003.

Company Overview

We design and build open-architecture embedded computer products that enable
original equipment manufacturers (OEM) to serve the commercial,
communications and government markets. Our products are integrated
into a variety of applications, including communications networking, medical
imaging, industrial automation and military systems. Our portfolio includes an
extensive line of CPU boards, computer interconnections, avionics, telemetry,
and fully integrated systems and enclosures. Our objective is to continue to
capitalize on our design expertise and customer service capabilities to enhance
product quality and reduce time to market for OEM customers. We have grown, and
intend to continue to do so, through a combination of internal growth and
acquisitions. We completed eleven acquisitions between 1992 and June 30, 2003
that broadened our product offerings and customer base. We achieve internal
growth by expanding our existing product lines through new product development,
through increasing penetration of our existing customer base, and by adding new
customers.

During the first quarter of fiscal 2004:



| |  |  | Sales were $26.6 million;
| | - |  | -------------------------



| |  |  | Consolidation and closure of our Carlsbad, California facility was completed;
| | - |  | -----------------------------------------------------------------------------



| |  |  | Cash increased to $40.9 million as of September 30, 2003 and we remain debt free; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Gross profit as a percentage of sales was 48.7%.
| | - |  | ------------------------------------------------

Sales for the three-month period ended September 30, 2003, were $26.6 million,
a 4.5% decrease from the $27.8 million in sales for the three-month period
ended September 30, 2002. On a sequential basis, sales decreased 10%, compared
with sales of $29.5 million for the quarter ended June 30, 2003. Total company sales for the quarter
ended September 30, 2003 were negatively impacted by approximately $2.0 million
due to shipment delays caused by production issues associated with certain
advanced technology systems.

Net loss for the three-month period ended September 30, 2003 was ($1,190,000),
or net loss per share  assuming dilution of ($0.08). Our
reported net loss
during the first quarter of fiscal 2004 included employee severance and
consolidation costs of approximately $2.1 million ($0.09 per share assuming
dilution on an after tax basis). The net loss in fiscal 2004 compares with a
loss before the cumulative effect of change in accounting principle of
($183,000) or ($0.01) per common share  assuming dilution for the same period
of the prior fiscal year. Net loss for the three-month period ended September
30, 2002 was ($6,241,000), or net loss per common share  assuming dilution of
$(0.42), including the $9.5 million transitional impairment charge, ($6,058,000
net of tax or $0.41 per share assuming dilution), related to the cumulative
effect of change in accounting as a result of our adoption of
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, (SFAS 142) effective July 1, 2002.

14



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##### Table of Contents



Results of Operation(references to fiscal 2004 and fiscal 2003 relate to interim periods of the
fiscal years ending on June 30)

The following table sets forth for the periods indicated certain operating data
as a percentage of sales:

Three months endedSeptember 302003
    
    2002Sales
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    51.3
    
    
    
    51.7Gross profit
    
    
    48.7
    
    
    
    48.3Selling, general and administrative expense
    
    
    28.7
    
    
    
    29.6Research and development expense
    
    
    18.1
    
    
    
    16.9Employee severance and consolidation costs
    
    
    7.7
    
    
    
    1.2Amortization of intangible assets
    
    
    2.1
    
    
    
    2.1Operating loss
    
    
    (7.9
    )
    
    
    (1.5
    )Interest and other income, net
    
    
    1.3
    
    
    
    0.5Foreign exchange losses
    
    
    (0.3
    )
    
    
    (0.1
    )Loss before income taxes and cumulative effect
of change in accounting principle
    
    
    (6.9
    )
    
    
    (1.1
    )Income tax benefit
    
    
    (2.4
    )
    
    
    (0.5
    )Loss before cumulative effect of change in
accounting principle
    
    
    (4.5
    )
    
    
    (0.6
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (21.8
    )Net loss
    
    
    (4.5
    )
    
    
    (22.4
    )


Three Months Ended September 30, 2003 Compared To Three Months Ended September 30, 2002

Sales. For the three-month period ended September 30, 2003, sales declined
4.5%, or $1.3 million, from sales of $27.8 million during fiscal 2003, to $26.6
million. On a sequential basis, sales decreased 10%, or $2.9 million compared
to sales for the quarter ended June 30, 2003 of $29.5 million. Total company sales for the quarter ended
September 30, 2003 were negatively impacted by approximately $2.0 million due
to shipment delays caused by production issues associated with advanced
technology systems. The decline was partially offset by approximately $0.3
million of sales contributed from the acquisition of Avvida Systems
(Avvida) on June 30,
2003.

By end market, sales for the first quarter of fiscal 2004 compare to the comparable period of fiscal 2003 as follows:



| |  |  | Sales to government customers were $13.1 million, an increase of 4%;
| | - |  | --------------------------------------------------------------------



| |  |  | Sales to commercial customers were $8.7 million, a decrease of 22%; and
| | - |  | -----------------------------------------------------------------------



| |  |  | Sales to communications customers were $4.8 million, an increase of 17%.
| | - |  | ------------------------------------------------------------------------

Looking forward, we are beginning to be encouraged by the external market
environment. Defense funding levels for the U.S.
government fiscal year which began on October 1, 2003, include funds for
programs in which we believe our products are well positioned. In both the
commercial and communications markets, we see indications of new activity. For
example, in the wireless market, next generation push-to-talk (i.e.
walkie-talkie) services are generating interest, which we believe will generate
requirements for additional infrastructure in both wireless equipment and
network monitoring  creating opportunities for our products. In the
commercial market, we also continue to see opportunities for our products in
medical and semiconductor manufacturing equipment. At this time, we expect
consolidated sales to be between $30 million and $31 million for the quarter
ending December 31, 2003; however, actual results may vary.

Gross Profit.For the three-month period ended September 30, 2003, gross
profit of $12.9 million represented a decrease of $521,000, or 3.9%, from the
$13.5 million during the three month period ended September 30, 2002. The

15



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##### Table of Contents



decrease in gross profit was primarily
due to the decline in sales. During the three months ended September
30, 2003 and 2002, gross profit included approximately $230,000 and
$375,000, respectively, as a result of the utilization of inventory
previously written down to zero cost. Gross
profit as a percent of sales was consistent at 48.7 percent in
the first quarter of fiscal 2004
compared to 48.3 percent in the first quarter of fiscal 2003. On a sequential basis, gross profit
decreased 12.8%, or $1.9 million, compared to gross profit of $14.8 million
during the quarter ended June 30, 2003. The decrease in gross profit when
compared to the quarter ended June 30, 2003 was due to the decline in sales and
a change in the sales mix to lower gross margin products. For these reasons,
gross profit as a percentage of sales decreased to 48.7% in the first quarter
of fiscal 2004 from 50.2% during the three-month period ended June 30, 2003.
For the quarter ending December 31, 2003, we anticipate gross profit as a
percentage of sales to be similar to or slightly better than the percentage
experienced during the quarter ended September 30, 2003; however, actual
results may vary.

Selling, General and Administrative Expense.For the three-month period ended
September 30, 2003, selling, general and administrative (SG&A) expense
decreased 7.5%, or $617,000, from $8.2 million for the three-month period ended
September 30, 2002, to $7.6 million. This decrease was due primarily to the
cost reduction efforts implemented in connection with the consolidation of
operations during the past several quarters, partially offset by the costs
added as a result of the acquisition of Avvida in June 2003. As a
result, SG&A expense as a percentage of sales decreased to 28.7% during the
first quarter of fiscal 2004, from 29.6% in the comparable period of fiscal
2003.

Research and Development Expense.For the three-month period ended September
30, 2003, research and development (R&D) expense increased 2.1%, or $97,000,
from $4.7 million for the three-month period ended September 30, 2002, to $4.8
million. The increase was due primarily to the addition of research and
development employees as a result of the acquisition of Avvida offset by reduced costs due to our consolidation of
the communications operations and the closure of our Carlsbad, California
facility. Due primarily to the decline in sales, R&D expense as a percentage
of sales increased to 18.1% during the first quarter of fiscal 2004, from 16.9%
in the same period of fiscal 2003.

Employee Severance and Consolidation Costs.On June 12, 2003, we announced
that we would be closing our Carlsbad, California facility and consolidating
its manufacturing operations into our St. Paul, Minnesota facility,
centralizing all manufacturing in the United States to one facility. This
consolidation was completed in August, 2003. As a result of these actions, we
recorded employee severance and consolidation costs totaling $2.1 million
during the three-month period ended September 30, 2003. These costs included:



| |  |  | Employee severance and related costs of $429,000 (recorded over the
remaining service period in accordance with SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities) due to the reduction
of our workforce. Of this amount, approximately $122,000 was
accrued at September 30, 2003; we expect to pay substantially all of
these costs during the quarter ending December 31, 2003. The remaining
severance and related costs associated with the closure of the Carlsbad,
California facility are estimated not to exceed $50,000 and will be
recorded as incurred during the remainder of fiscal 2004.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other consolidation costs of $275,000 (recorded as incurred in
accordance with SFAS 146) as a result of the consolidation of
our communications operations to other facilities. There were no
accrued consolidation costs at September 30, 2003. The remaining
consolidation related costs are estimated not to exceed $100,000 and
will be recorded as incurred during the remainder of fiscal 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lease termination costs of $1,350,000 (recorded on the cease use date
in accordance with SFAS 146) as a result of the closure of our Carlsbad,
California facility in August 2003. The lease termination costs
represent the estimated fair value of the remaining future lease
payments and related obligations, net of estimated sublease income, over
the term of the lease. The remaining lease obligations are expected to
be paid monthly through April 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employee severance and consolidation costs of $335,000 recorded during the
three months ended September 30, 2002 were primarily the result of workforce
reductions implemented as a result of the depressed market conditions impacting
our communications market customers.

Amortization of Intangible Assets.For the three-month period ended September
30, 2003, amortization of intangible assets was $548,000, compared to $584,000
for the three-month period ended September 30, 2002. Amortization expense in
the prior fiscal year included a write-down of $136,000 recorded in connection
with a prepaid license agreement for a product that SBS determined during the
quarter ended September 30, 2002, would not be brought to market. In addition,
amortization in fiscal 2004 increased due to the purchased identifiable
intangible assets recorded in connection with the acquisition of Avvida Systems
in June 2003.

Interest and Other Income, Net.For the three-month period ended September 30,
2003, net interest and other income of $342,000, which included interest
received in connection with income tax refunds of payments made in prior
periods of

16



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##### Table of Contents



approximately $250,000, represented an increase of 173.6% from the $125,000 in
the same period of fiscal 2003. Excluding the interest on the tax refunds in
fiscal 2004, net interest and other income represents primarily interest income
associated with surplus cash. Net interest earnings on surplus cash balances
declined from fiscal 2003 levels due to lower interest rates.

Income Tax Benefit.For the three-month periods ended September 30, 2003 and
2002, income tax benefit was recorded based upon our estimated
worldwide effective tax rates for the respective fiscal years of 35.0% and
41.2%, respectively. The difference in the effective income tax rate was due
principally to the impact of a shift in the mix of pre-tax income from domestic
and foreign sources.

Cumulative Effect of Change in Accounting Principle. For the three month
period ended September 30, 2002, we recorded a transitional impairment
charge of $9.5 million ($6,058,000 net of tax), reported as a cumulative effect
of change in accounting principle, as a result of our adoption of
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, (SFAS 142) effective July 1, 2002.

Earnings Per Share.For the three-month period ended September 30, 2003, net
loss per common share and net loss per common share  assuming dilution were
$(0.08). This compares to the per share loss before the cumulative effect of
the change in accounting principle of $(0.01) during the three-month period
ended September 30, 2002. For the three-month period ended September 30, 2002,
net loss per share and net loss per common share  assuming dilution of $(0.42)
included the impact of the cumulative effect of change in accounting for
goodwill of $(0.41) per common share as a result of our adoption of
SFAS 142 effective July 1, 2002.

Review of Business Segments

During fiscal 2004, we changed our reportable segments to a structure
based on geographic markets as a result of changes in management
responsibility, our desire to enhance its regional-based sales and
service to our European customers, and the June 2003 acquisition of
SBS Canada (formerly Avvida Holdings Corp. and Avvida Systems Inc.). 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.

We operate 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 our Chief Executive
Officer. The Americas Group consists of our 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 our operations based in
Germany, which include the engineering, test, assembly, and manufacturing
activities located in Augsburg and Mindelheim, Germany.

The following is a discussion of sales to external customers and segment profit
(loss) for each reportable segment. We measure 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:



| |  |  | the allocation of corporate overhead expenses other than marketing costs;
| | - |  | -------------------------------------------------------------------------
| |  |  | substantially all amortization expense associated with acquisitions; and 
| |  |  | the majority of interest income earned on cash balances.                 

Americas Group

Three months ended
    
    Sales to External
    
    SegmentSeptember 30,
    
    Customers
    
    Profit (Loss)Fiscal 2004
Fiscal 2003
    
    $20.3 million
$24.8 million
    
    $       (121,000) *
$2,333,000




| | * | - | the fiscal 2004 segment loss includes approximately $2.0 million
of employee severance and consolidation costs as a result of the
consolidation of our communications operations that resulted in the
closure of our Carlsbad, California facility in August 2003.
| | - | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Sales to External Customers. For the three-month period ended September 30,
2003, sales to external customers decreased 18.3%, or approximately $4.5
million, compared to the same quarter of fiscal 2003 as unit shipments declined
across all product lines. Total company sales for the quarter ended September 30, 2003 were
negatively impacted by approximately $2.0 million due to shipment delays caused
by production issues associated with advanced technology

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systems. The Groups
fiscal 2004 sales to external customers exclude approximately $900,000 of sales
that, after the transfer of sales and support for our European customers to our
German operations, were included in sales for the Europe Group. The decrease
was partially offset by the sales of approximately $0.3 million contributed by
the acquisition of Avvida Systems in June 2003. We expect sales in the quarter
ending December 31, 2003 to be between $23.5 million and $24 million; however,
actual results may vary.

Segment Profit (Loss).For the three-month period ended September 30, 2003,
segment loss of $(121,000) represents a decrease of approximately $2.5 million
compared to the segment profit of $2,333,000 during the comparable period of
fiscal 2003. The fiscal 2004 segment loss includes approximately $2.0 million
of employee severance and consolidation costs as a result of the consolidation
of our communications operations that resulted in the closure of our Carlsbad,
California facility in August 2003. The decrease in segment profit in fiscal
2004 also resulted from the reduced sales to external customers coupled with a
change in product mix to lower margin products in fiscal 2004, partially offset
by reduced SG&A expenses as a result of the actions discussed above. For the
same reasons, for the three-month period ended September 30, 2003, segment
profit (loss) as a percentage of sales to external customers declined from 9.4%
for the three-month period ended September 30, 2002 to (1.0)%.

Europe Group

Three months ended
    
    Sales to
    
    SegmentSeptember 30,
    
    External Customers
    
    ProfitFiscal 2004
Fiscal 2003
    
    $6.3 million
$3.0 million
    
    $
$
    1,310,000
486,000


Sales to External Customers.For the three-month period ended September 30,
2003, sales to external customers increased 109%, or $3.3 million, compared to
the same quarter of fiscal 2003. The Groups first quarter sales included an
increase of approximately $900,000 of sales that, prior to the transfer of
sales and support for our European customers to our German operations, would
have been included in sales of the Americas Group. We expect sales in the
quarter ending December 31, 2003 to be between $6.5 million and $7 million;
however, actual results may vary.

Segment Profit.For the three-month period ended September 30, 2003, the
increase in segment profit was due primarily to the increase in sales, offset
partially by an increase in SG&A and R&D expenses commensurate with the growth
in business. For these reasons, segment profit as a percentage of sales
increased 4.7% for fiscal 2004 to 20.8%, compared to 16.1% for the comparable
period of fiscal 2003.

Liquidity and Financial Condition

We use a combination of internally generated funds, the sale of equity
securities, and bank borrowings to finance our operations, acquisitions,
working capital requirements and capital expenditures. Management believes that
our internally generated funds will be sufficient to finance our current
operations and capital expenditures, excluding acquisitions, for at least the
next twelve months. Because long-term cash flow cannot be predicted with
certainty, in the future we might require external
financing through bank facilities, the sale of equity or debt securities, or
other sources of capital. The sale of any equity or debt securities, if
required, may result in additional dilution to the shareholders. We cannot be
certain that additional financing will be available, in amounts, or on terms,
acceptable to us.

Cash of $40.9 million at September 30, 2003 represents an increase of $3.7
million during the period. Sources of the increase include:

Cash flows from:
    
    ThousandsOperating activities
    
    $
    3,903Investing activities
    
    
    (592
    )Financing activities
    
    
    326Net effect of exchange rate changes on cash
    
    
    91$
    3,728


Net cash inflows are comprised of cash provided by operating activities of $3.9
million, which included approximately $1.7 million of income tax refunds of
payments made in prior periods received during the quarter, and the cash
provided by the exercise of stock options of $326,000. These cash inflows were
offset by $592,000 used for the purchase of capital equipment during the
quarter. During the three month period ended September 30, 2003, the decrease
in

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accounts receivable due to cash collections provided cash for operations of
$5.1 million, and the increase in inventory used cash from operations of $1.5
million, prior to foreign currency translation adjustments of approximately
$100,000, due to the delayed shipments discussed previously. Liabilities
decreased by $1.1 million, consistent with the current level of business.

As of the date of this report, we do not have any material capital expenditure
commitments. As of September 30, 2003, we were committed under noncancelable
operating leases that expire at various dates through fiscal 2008, as described
in Managements Discussion and Analysis in our Annual Report on Form 10-K for
the fiscal year ended June 30, 2003.

For the three-month period ended September 30, 2003, there was no significant
impact from inflation.

Business Outlook

Looking forward, we are beginning to be encouraged by the external market
environment. Defense funding levels for the U.S.
government fiscal year which began on October 1, 2003, include
funds for
programs in which we believe our products are well positioned. In both the
commercial and communications markets, we see indications of new activity. For
example, in the wireless market, next generation push-to-talk (i.e.
walkie-talkie) services are generating interest, which we believe will generate
requirements for additional infrastructure in both wireless equipment and
network monitoring  creating opportunities for our products. In the
commercial market, we also continue to see opportunities for our products in
medical and semiconductor manufacturing equipment. At this time, we expect
consolidated sales to be between $30 million and $31 million for the quarter
ending December 31, 2003; however, actual results may vary.

Management expects that corporate representatives of SBS will meet privately
during the quarter with investors, investment analysts, the media and others,
and may reiterate the Business Outlook published in this Form 10-Q. At the
same time, this Form 10-Q and the included Business Outlook will remain
publicly available on our Web site (www.sbs.com). Unless a notice stating
otherwise is published, the public can continue to rely on the Business Outlook
published on the Web site as representing our current expectations on matters
covered.







Item 3  Quantitative and Qualitative Disclosures about Market Risk

SBS liquid investment is cash invested in either money market
accounts or in overnight repurchase agreements. Due to the nature of these
investments, we believe that the market risk related to these investments is
minimal. As a result of our German and Canadian operating and
financing activities, we are exposed to market risk from changes in foreign
currency exchange rates. As of September 30, 2003, we do not anticipate
entering into foreign exchange forward contracts to reduce exposure to changes
in foreign currency exchange rates.







Item 4  Controls and Procedures

Quarterly Controls Evaluation and Related CEO and CFO Certifications

As of the end of the period covered by
this Quarterly Report on Form 10-Q, we evaluated the effectiveness of the design and operation of disclosure
controls and procedures (Disclosure Controls). The controls evaluation was
done under the supervision and with the participation of management, including
our Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Attached as Exhibits to this Quarterly Report on Form 10-Q are
certifications of the CEO (Exhibit 31.1) and the CFO (Exhibit 31.2), which are
required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934
(the Exchange Act). This Controls and Procedures section includes the
information concerning the controls evaluation referred to in the
certifications and it should be read in conjunction with the certifications for
a more complete understanding of the topics presented.

Disclosure Controls and Internal Controls

Disclosure Controls are procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act, such as this
Quarterly Report, is recorded, processed, summarized and reported within the
time periods specified in the U.S. Securities and Exchange Commissions rules
and forms. Disclosure Controls are also designed to ensure that the information
is accumulated and communicated to our management, including the CEO and CFO,
as appropriate to allow timely decisions regarding required disclosure.

Internal control over financial reporting (Internal Controls) are procedures
which are designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America and includes

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those policies and procedures that: (1) pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of SBS; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of SBS are being made only in accordance
with authorizations of management and directors of SBS; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the SBS assets that could have a
material effect on the financial statements. To the extent that components of
our Internal Controls are included in our Disclosure Controls, they are
included in the scope of our quarterly controls evaluation.

Limitations on the Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our Disclosure
Controls or Internal Controls will prevent all error and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control systems objectives will be met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.

Conclusions

Based on our controls evaluation (with the participation of our CEO and CFO),
as of the end of the period covered by this report, our CEO and CFO have
concluded that, subject to the limitations noted above, our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, (the Exchange Act)) are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.

There was no change in our internal control over financial reporting during our
first fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

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PART II  OTHER INFORMATION









Item 6  Exhibits and Reports on Form 8-K.



| | (a) |  | Exhibits (exhibit reference numbers refer to Item 601 of Regulation S-K)
| | --- |  | ------------------------------------------------------------------------

03.i
    
    
    
    (1)
    
    Restated Articles of Incorporation.03.ii
    
    
    
    (1)
    
    Restated and Amended Bylaws.04.a
    
    
    
    (1)
    
    Article VI of the Restated Articles of
Incorporation, as included in the Restated Articles of
Incorporation of SBS Technologies, Inc.04.b
    
    
    
    (1)
    
    Articles I and II of the Restated and Amended Bylaws of SBS Technologies, Inc.04.c
    
    
    
    (1)
    
    Form of certificate evidencing Common Stock.04.1
    
    
    
    (1)
    
    Rights Agreement dated September 15, 1997
between SBS Technologies, Inc. and First Security Bank (now
Wells Fargo), National Association, as Rights Agent, which
includes the form of Right Certificate as Exhibit A and the
Summary of Rights to Purchase Common Stock as Exhibit B.2 and
Agreement to Serve as Rights Agent; on January 21, 1998,
pursuant to Section 21 of the Shareholder Rights Agreement
dated September 15, 1997, we appointed Norwest Bank Minnesota
N.A. (now Wells Fargo) as Successor Rights Agent.10.by
    
    
    
    (1)
    
    Employment agreement between Christopher J.
Amenson, and SBS Technologies, Inc., effective April 17, 2003,
dated April 17, 200310.bz
    
    
    
    (1)
    
    Employment agreement between Clarence W.
Peckham, and SBS Technologies, Inc., effective April 17, 2003,
dated April 17, 200310.ca
    
    
    
    (1)
    
    Employment agreement between James E. Dixon
and SBS Technologies, Inc., effective July 29, 2003, dated July 29, 200310.cb
    
    
    
    (1)
    
    Employment agreement between David H. Greig
and SBS Technologies, Inc., effective July 29, 2003, dated July 29, 200310.cc
    
    
    
    (1)
    
    Employment agreement between Bruce E. Castle
and SBS Technologies, Inc., effective July 29, 2003, dated July 29, 200331.1
    
    
    
    (1)
    
    Certification of the Companys Chief Executive
Officer under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    (1)
    
    Certification of the Companys Chief Financial
Officer under Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    (1)
    
    Certification of the Chief Executive Officer,
Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    (1)
    
    Certification of the Chief Financial Officer,
Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(1) See Exhibit Index




| | (b) |  | Reports on Form 8-K during the quarter
| | --- |  | --------------------------------------



| | 1. |  | On August 12, 2003, SBS Technologies, Inc. filed
a Form 8-K regarding its financial results for the quarter
and fiscal year ended June 30, 2003.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

SBS TECHNOLOGIES, INC.(Registrant)By:
    
    /s/ Clarence W. PeckhamClarence W. PeckhamChief Executive OfficerBy:
    
    /s/ James E. Dixon Jr.James E. Dixon Jr.Executive Vice President and
Chief Financial OfficerDate: November 12, 2003


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INDEX TO EXHIBITS

Incorporated by ReferenceFiledExhibit
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal period
    
    Here-Number
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    ended
    
    with3.i
    
    Restated Articles of Incorporation dated
November 10, 2000
    
    10-Q
    
    
    001-10981
    
    
    
    3.i
    
    
    9-30-20003.ii
    
    Restated and amended By-laws dated
November 10, 2000
    
    10-Q
    
    
    001-10981
    
    
    
    3.ii
    
    
    9-30-20004.a
    
    Article VI of the Articles of
Incorporation, as amended, as included in
the Articles of Incorporation of SBS
Technologies, Inc.
    
    10-Q
    
    
    001-10981
    
    
    
    3.i
    
    
    9-30-20004.b
    
    Articles I and II of the Restated and
Amended Bylaws of SBS Technologies, Inc.
    
    10-Q
    
    
    001-10981
    
    
    
    3.ii
    
    
    9-30-20004.c
    
    Form of certificate evidencing Common Stock
    
    10-Q
    
    
    001-10981
    
    
    
    4.c
    
    
    3-31-20014.1
    
    Rights Agreement dated as of September 15,
1997 between SBS Technologies, Inc. and
First Security Bank (now Wells Fargo),
National Association, as Rights Agent,
which includes the form of Right
Certificate as Exhibit A, and the Summary
of Rights to Purchase Common Stock as
Exhibit B.2. Agreement to Serve as Rights
Agent. On January 21, 1998, pursuant to
Section 21 of the Rights Agreement, SBS
appointed Norwest Bank Minnesota, N.A.
(now Wells Fargo) as Successor Rights
Agent
    
    10-K
    
    
    001-10981
    
    
    
    4.1
    
    
    6-30-200210.by
    
    Employment agreement between Christopher
J. Amenson and SBS Technologies, Inc.,
effective April 17, 2003, dated April 17,
2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    X10.bz
    
    Employment agreement between Clarence W.
Peckham and SBS Technologies, Inc.,
effective April 17, 2003, dated April 17,
2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    X10.ca
    
    Employment agreement between James E.
Dixon, Jr. and SBS Technologies, Inc.,
effective July 29, 2003, dated July 29,
2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    X10.cb
    
    Employment agreement between David Greig
and SBS Technologies, Inc., effective July
29, 2003, dated July 29, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    X10.cc
    
    Employment agreement between Bruce E.
Castle and SBS Technologies, Inc.,
effective July 29, 2003, dated July 29,
2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    X14
    
    Code of Ethics
    
    10-K
    
    
    001-10981
    
    
    
    14
    
    
    6-30-200331.1
    
    Section 302 certification of Clarence W.
Peckham, Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Section 302 certification of James E.
Dixon Jr., Chief Financial Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Section 906 certification of Clarence W.
Peckham, Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    X32.2
    
    Section 906 certification of James E.
Dixon Jr., Chief Financial Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    X


23