<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - KSB
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number 0-12370
July 31, 1996
SI TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3381440
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4611 South 134th Place, Tukwila, Washington 98168
(Address of principal executive offices) (Zip Code)
(206) 244-6100
Registrant's telephone number, including area code
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g):
Common Stock, par value $.01 per share
(Title of Class)
Check 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
-------- --------
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ( )
Issuers revenues for most recent fiscal year $11,087,537.
The number of shares outstanding of each of the issuer's classes of
common stock is 2,347,240 (as of October 16, 1996).
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant is $2,796,536 (as of October 16, 1996).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual meeting of
Shareholders to be held on January 8, 1997 (the "Proxy Statement"), are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
SI Technologies, Inc. (formerly Structural Instrumentation, Inc.) and
Subsidiaries ("SI" or the "Company") is a manufacturer of mobile and stationary
weighing systems, fleet information systems and force measurement devices. The
Company's products are marketed both directly and through dealers to original
equipment manufacturers (OEMs) and industrial users. Key markets served by the
Company include forestry, waste, agriculture, weight enforcement, construction,
mining/quarry, aviation, oil and gas, freight transportation and municipal
services.
The Company was incorporated in California on May 29, 1979 and was
reincorporated in Delaware on April 20, 1983. In July 1993, the Company changed
its name from Invention, Design, Engineering Associates, Inc. to Structural
Instrumentation, Inc. In February 1996 the Company changed its name from
Structural Instrumentation, Inc. to SI Technologies, Inc.
The Company's executive offices are located at 4611 South 134th Place,
Tukwila, Washington. The telephone number is (206) 244-6100.
Acquisition of LODEC, Inc.
In March 1990, the Company acquired LODEC Inc., a Washington
corporation. LODEC was a manufacturer of on-board weighing systems and axle
platform scales. Both product lines are used in the general transportation
industry.
The acquisition of LODEC diversified the Company by adding a
well-established international distribution network with significant sales in
Europe, Asia, South America, Canada, and Australia. The Company also obtained
through the LODEC acquisition a market position in both the portable and
permanent axle scale markets. In January 1991, LODEC was merged into SI.
Asset Purchase from Advanced Recording Instruments, Inc.
In October 1995, the Company purchased the assets of Advanced Recording
Instruments, Inc. (ARI). The asset purchase included the ARI on-board recorder
and fleet information system product lines, all related technology, trade names,
inventory and fixed assets. The ARI product line acquisition has formed the
basis for the Company's entrance into the mobile fleet information system
market.
Acquisition of Evergreen Weigh, Inc.
In April 1996, the Company acquired Evergreen Weigh, Inc., a Washington
corporation. Evergreen Weigh is a manufacturer of on-board weighing systems and
axle platform scales. Evergreen Weigh products are primarily designed for and
marketed to the construction, mining/quarry and aviation industries. The
acquisition of Evergreen Weigh further diversified the Company by adding
well-established product lines in new markets.
Asset Purchase from Load Measurement Corporation
In June 1996, the Company purchased the assets of Load Measurement
Corporation (LMC). The asset purchase included the LMC on-board weighing system
product lines, all related technology, trade names and inventory. LMC products
are designed for and marketed to the agriculture industry.
(b) NARRATIVE DESCRIPTION OF BUSINESS PRODUCTS
On-board Weighing Systems
The Company designs, manufactures and markets electronic weighing
systems used in the transportation industry with particular emphasis in the
forestry, waste, construction, mining/quarry, agriculture, and special freight
hauling industries. These industries are the primary market for on-board
weighing systems as they often have loads that vary and are difficult to
estimate. In addition it is often difficult, if not impossible, to access
platform scales to determine weight due to the location in which many of these
vehicles are loaded.
The Company's on-board weighing system is typically mounted on the
vehicle so that it weighs the vehicle payload. A microprocessor mounted in the
cab of the vehicle displays to the driver and records in memory the net payload
weight, the gross vehicle weight, and individual axle group weights. This
enables the driver to know the vehicle load weight at all times to ensure that
the vehicle load is maximized, but not in excess of legal weight limits.
The Company's scale systems use load sensors (transducers) that employ
electronic strain gage technology. There are two general types of transducers
that mount onto the vehicle: primary, direct sensing
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transducers such as load cells that are mounted between the load and frame; and
secondary, indirect sensing transducers that respond to changes in a key
load-bearing suspension component. Examples of this secondary type of transducer
include deflection transducers that measure the change in axle deflection with
increasing loads and air or hydraulic transducers that measure the change in
fluid pressure with changing loads.
The sensors emit a millivolt signal that is converted to a more robust
signal before being transmitted to a remote cab-mounted microprocessor-based
indicator. The signal can be either a digital or frequency signal that varies in
proportion to the applied load on the transducers. The microprocessor-based
indicator processes the signal and converts it into a displayed weight.
The scale systems are calibrated individually for each vehicle after
installation to ensure accuracy. Depending on the vehicle, the load sensors are
commonly accurate to within 1% or 100 pounds of the indicated weight on the
microprocessor mounted in the cab.
Portable and Permanent Axle Scales
The Company designs, manufactures and markets platform scales of
varying design. The industrial axle scale line is used primarily by trucking
fleets for axle check weighing at freight distribution terminals and remote work
sites. The weight enforcement system line consists of certified mobile weighing
systems used by state and municipal agencies for enforcing vehicle axle weight
limits. The aviation scale line is used to weigh aircraft at maintenance
facilities. The platform systems utilize load cell technology similar to the
on-board systems, but incorporate additional technology that facilitates the
integration of load cells in steel or aluminum platforms.
On-board Fleet Information Systems
The Company designs, manufactures and markets fleet information systems
for the ground transportation industry. The systems consist of
microprocessor-based hardware installed on vehicles that record operating
information, a driver data input unit located in the vehicle cab, and related
software reporting applications used in base operations for development of fleet
information related to vehicle operation, driver performance and fleet
logistics.
Sales
The Company's products are sold throughout the world with principal
markets in the United States, Europe, Asia, Canada, Australia and New Zealand,
using direct sales and a network of dealers who sell and service to the end
user. Dealers are most often, OEMs (original equipment manufacturers), OEM
dealers, truck repair and service shops or truck equipment installation
companies. As part of their representation agreement with the Company, dealers
provide customers in their local trade area with on-going service and support
after the sale. The Company employs a sales and marketing force that is
primarily responsible for establishing, training and managing the dealer network
and servicing large key accounts that the Company sells direct. The Company's
sales personnel are based in Seattle, Washington; Indianapolis, Indiana;
Arlington, Texas; Eugene, Oregon; Kelowna, British Columbia, Canada; Toronto,
Ontario, Canada, and Brussels, Belgium.
Sources of Supply
The materials and components used by the Company to manufacture its
products are available from a variety of sources. The Company believes that it
is not dependent at this time on any particular supplier for either its
materials or components and has experienced no difficulty in obtaining supplies.
Patents and Trademarks
The Company holds eight patents on various load cell and transducer
designs and applications used on its on-board weighing systems. The patents have
expiration dates ranging from 1996 to 2013. Currently the Company has eight
patents pending approval. The Company has no reason to believe the patents are
not valid. However, if the patents were successfully contested, management does
not believe it would have a material adverse impact on the Company.
Customers
The Company's primary customers in the on-board market segments are its
network of dealers who, in turn, sell to individual truck operators and fleet
operators located throughout the world with principal markets in the United
States, Europe, Asia, Canada, Australia and New Zealand. The operators are
engaged in many industries including forestry, waste, construction,
mining/quarry, agriculture, and specialty bulk material hauling.
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The platform scale market has two distinct segments. In the industrial
axle scale market, the primary customers are carrier trucking fleets and
trucking terminals. The customers in the weight enforcement market are state and
municipal agencies responsible for enforcing weight limits.
Customers for on-board fleet information systems are operators of
vehicle fleets.
Backlog
The Company's backlog, as of July 31, 1996 and 1995, was approximately
$739,424 and $570,000 respectively. The Company estimates that all its current
backlog will be shipped during its fiscal year ending July 31, 1997.
Competition
Competitors in the on-board market are generally equal in size to, or
smaller than, the Company and have equal or lesser financial and other resources
than the Company. Competitors in platform weighing systems generally are larger
in size and have more financial or other resources than the Company. Examples of
these competitors are Cardinal Scale, Fairbanks Scales, Toledo Scales, and
Weigh-Tronix. Competition is based principally on product performance and price.
The Company has no significant competition in the on-board market from
manufacturers of conventional weighing products due to the specialized nature of
on-board weighing systems.
In the Company's on-board fleet information systems business,
competitors range in size from large corporations such as Rockwell Corporation
and Cummins Engine, which have more financial and other resources than the
Company, to smaller competitors with financial and other resources equal to or
lesser than those available to the Company.
Research & Development
The Company conducts ongoing research and development to refine and
improve its existing product line and to develop new product lines. Research and
development expenses were approximately $904,655 in the fiscal year ended July
31, 1996 as compared with $700,600 and $531,008 in the fiscal years ended July
31, 1995 and 1994, respectively.
Employees
As of October 18, 1996, the Company employed 97 full-time employees.
None of the Company's employees is represented by a labor union and the Company
has experienced no work stoppages. The Company believes that its employee
relations are good.
(C) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The products manufactured and marketed by the Company are sold both
domestically and internationally. The following table sets forth the primary
areas in which export sales occurred.
<TABLE>
<CAPTION>
Years Ended July 31
1996 1995 1994
<S> <C> <C> <C>
CANADA $ 2,591,000 $ 2,973,000 $2,346,000
OTHER 1,344,000 1,080,000 1,367,000
------------- ------------- ---------
$ 3,935,000 $ 4,053,000 $3,713,000
============= ============= ==========
</TABLE>
Export sales accounted for approximately 36%, 41% and 45% of total
sales for fiscal year 1996, 1995, and 1994 respectively. The Company presently
has no foreign manufacturing operations and does not have a material amount of
foreign identifiable assets.
ITEM 2. PROPERTIES
The Company currently leases a 30,000 square-foot facility in an
industrial area of Tukwila, Washington (a suburb of Seattle), which houses its
executive and administrative offices as well as its marketing, engineering, and
primary manufacturing facilities. This lease, which expires in April 1998,
contains an option for renewal. The Company leases an 11,000 square-foot
facility in a commercial area of Lynnwood, Washington (a suburb of Seattle),
which houses the sales and manufacturing facilities for its Evergreen Weigh
subsidiary. This lease expires in January 1997. The Company has negotiated an
extension to this lease for a term of 12 months with an option to renew.
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The Company leases three other facilities: a 5,000 square-foot
manufacturing facility in Seattle, Washington; a 2,500 square-foot office
facility in Spokane, Washington, which is devoted to engineering activities; and
a 3,000 square-foot sales/service office located in Kelowna, British Columbia,
Canada. This office houses sales, service and maintenance facilities for the
Canadian market. The Company feels that its current facilities are fully
utilized and can accommodate the Company's operations for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
In July 1996, the Company initiated a lawsuit in the U.S. District
Court, Western District of Washington against Stress-Tek, Inc. to overturn a
recently issued patent concerning load cells that the Company believes to be
unenforceable. The Company has asserted that the patent should be declared
invalid, due to prior art relating to the same technology. Stress-Tek, Inc. has
responded to the claim and has counter-claimed for patent infringement, alleging
that certain of the Company's products infringe upon its patent. The proceedings
are at an early stage. Currently the Company and the defendant are engaged in
pretrial discovery.
The Company intends to vigorously pursue the litigation. Based upon
discovery and investigation to date, it is not possible to provide an informed
evaluation of the likelihood of a favorable or unfavorable outcome. However,
based on the information available, the opinion of Company counsel is that the
Company has a reasonable likelihood of prevailing.
There can be no assurance, however, that the Company will be successful
in prosecuting its claims, or defending against such counterclaims. At the
current stage of litigation, insufficient information exists to reasonably
estimate the amount or range of potential loss in the event of an unfavorable
outcome. An award of damages, injunctive relief, or the expenditure of
significant sums in connection with this litigation could have a material
adverse effect on the Company's financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Security Holders during the
quarter ended July 31, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of October 16, 1996, there were 243 shareholders of record.
Management believes this represents approximately 600 beneficial owners of SI
common stock. SI's common stock is traded on the over-the-counter market on the
NASDAQ system under the symbol "SISI." The Company has not declared or paid any
dividends since its inception. The following chart describes the price range
(bid) of Common Shares of SI, as quoted by NASDAQ, by quarter for fiscal 1996
and fiscal 1995:
<TABLE>
<CAPTION>
Price Range (Bid) of Common Shares
1996 1995
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
1st Quarter 5 3/4 3 1/2 1 1/2 3/4
2nd Quarter 5 1/2 3 1/4 3 1/8 1
3rd Quarter 4 1/2 3 5/8 3 3/4 2 1/4
4th Quarter 4 1/8 2 5/8 3 5/8 2 1/2
</TABLE>
These quotations reflect inter-dealer prices, without retail markup,
mark down or commission and may not necessarily represent actual transactions.
The Company has not paid cash dividends on its common stock and does
not anticipate paying regular cash dividends in the foreseeable future. The
Company's loan agreements prohibit the payment of cash dividends without the
bank's prior approval.
SI TECHNOLOGIES, INC.
Selected Consolidated Financial Data
Year ended July 31
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992(1)
<S> <C> <C> <C> <C> <C>
Net Sales $11,087,537 $ 9,816,011 $ 8,288,058 $ 7,996,627 $ 7,679,845
Net Earnings
(loss) 581,189 510,465 227,068(2) (182,968) 399,174
Net Earnings (loss) .24 .21 .09(2) (.08) .18
per share
Weighted average 2,426,088 2,431,069 2,494,331 2,407,678 2,243,840
no. of shares
outstanding
Total Assets 8,846,830 6,747,068 6,676,242 7,542,214 7,785,817
Long Term debt, less
current portion 1,433,049 53,729 217,529 379,120 339,157
Other long term 468,000 407,200 412,400 --- 50,000
obligations
</TABLE>
The Company has not declared any dividends since its inception.
(1) Prior to October, 1991, the Company was engaged in the business of
manufacturing automation equipment for the semiconductor industry.
Revenue from this segment accounted for $139,534 in fiscal 1992.
(2) Includes cumulative effect on prior years of change in
accounting principal ($120,000 or .05 per share).
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following table
indicates the percentage of sales that each income statement item represents and
the percentage increase or decrease in such items for the years indicated.
<TABLE>
<CAPTION>
Percentage
Year ended July 31, Increase (Decrease)
1996 1995
VS. VS.
1996 1995 1994 1995 1994
---------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 13.0 18.4
Cost of sales 52.1 51.7 52.1 13.8 17.5
----------------------------------
Gross margin 47.9 48.3 47.9 12.1 19.4
Selling, general and administrative 30.0 31.8 35.4 6.9 6.2
Research, development and engineering 8.1 7.1 6.4 29.1 31.9
Amortization of intangibles .9 1.3 2.5 (25.8) (36.5)
----------------------------------
Operating expense 39.0 40.2 44.3 9.8 7.6
Income from operations 8.9 8.1 3.6 23.6 163.3
Interest expense (1.0) (1.2) (2.8) (5.4) (49.6)
Other income .5 .2 (.4) 196.2 NM
------ ------ ------
Earnings before income tax 8.4 7.1 .4 33.3 2076.5
Income tax (expense) benefit (3.2) (1.9) .9 86.4 NM
Cumulative effect on prior years of a
change in accounting principle -- -- 1.4
----------------------------------
Net earnings 5.2 5.2 2.7 13.9 124.8
====== ====== ======
</TABLE>
NM: Not Meaningful
RESULTS OF OPERATIONS
Sales, net income and earnings per share were at record levels for 1996. This
performance exceeded sales, net income and earnings per share performance in
1995 that had surpassed all prior records.
NET SALES
Net sales increased to $11,087,537 for 1996 from $9,816,011 in 1995. This is an
increase of $1,271,526 or 13% over 1995. Sales to U.S. customers grew 24% with
the largest contributions coming from newly acquired products and the Company's
continued penetration of the waste and forestry markets. International sales
outside of Canada also grew 24%. Canadian sales decreased 13%. The decrease in
Canadian sales was a direct result of a slowdown in the Canadian pulp industry.
Throughout 1995 and the first half of fiscal 1996, the Canadian pulp industry
was operating at record-setting levels. In the second half of 1996, pulp
production returned sharply to more normal operating levels.
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Sales in both the waste and forestry markets were weaker in the second half of
1996 as compared to the first half of 1996. Management expects this weakness to
continue through the first half of 1997.
1996 sales were favorably impacted by acquisitions completed during the year.
Approximately $1,000,000 of revenue was generated by acquired business units.
Construction and mining industry products from the Evergreen Weigh acquisition
made the largest contribution to sales.
Sales for 1995 increased 18% over 1994. This increase in sales was directly
attributable to increased penetration of the U.S. waste market, growing sales in
the southeastern U.S. forestry market, and strong forestry sales in Canada
driven by record demand for pulp products.
International sales, including Canada, accounted for 36% and 41% of total
Company sales in 1996 and 1995 respectively, and 45% of sales in 1994. Canadian
sales are transacted in Canadian dollars. International sales outside of Canada
are transacted in U.S. dollars. Due to negligible fluctuation of the Canadian
dollar exchange rate, there has not been a significant impact on the financial
statements for foreign currency exchange.
GROSS PROFIT
Gross profit for 1996 was $5,316,227 compared to $4,743,188 in 1995. This is an
increase of $573,039 or 12%. Gross profit as a percentage of sales was 47.9% as
compared to 48.3% in 1995. The increase in gross profit dollars was due to the
higher sales volume. Variations in gross margin as a percentage of sales reflect
varying product mixes and the cost of bringing new products into production
during the year.
Gross profit for 1995 increased $772,293 to $4,743,188 from $3,970,895 in 1994.
Gross profit as a percentage of sales in 1995 was 48.3% as compared to 47.9% in
1994. The increase in gross profit as a percentage of sales in 1995 as compared
to 1994 was due to higher manufacturing capacity utilization and lower material
costs.
In future periods, management expects gross profit margins to decrease due to
increased price competition on traditional products in existing markets and a
shift in product mix. Product mix will be impacted by lower margin acquired
products and new business created by the Company's entry into new markets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for 1996 were $3,329,126 compared
to $3,114,778 in 1995. This is an increase of $214,348 or 7% from 1995. The
higher spending in 1996 resulted from increased investment in field sales staff
and the inclusion of selling, general and administrative costs of the acquired
businesses. These higher expense levels were offset in part by lower
professional service fees as compared to 1995.
Selling, general and administrative expenses for 1995 increased 6% or $183,096
as compared to $2,931,682 in 1994. The increase in 1995 was primarily due to
increased debt collection expenses and professional service fees.
RESEARCH AND DEVELOPMENT EXPENSES
Research, development and engineering expenses increased $204,055 or 29% in 1996
to $904,655 from $700,600 in 1995. The spending increase reflected continued
emphasis on new product development, product certifications and new product
applications for existing products. The increased investment level built on the
work accomplished in 1995 when research, development and engineering spending
increased $169,592 or 32% from the level in 1994 of $531,008.
In future periods, management expects investment in product development to
return to more modest levels after several years of accelerated spending.
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INTANGIBLES
The amortization of intangibles was $96,774 in 1996 as compared to $130,443 in
1995. This was a decrease of $33,669 or 26% from 1995. The amortization of
intangibles decreased in 1995 by $74,882 or 36% from the $205,325 recorded in
1994. The reductions in both periods were due to the declining balance of
non-compete and consulting agreements resulting from the Lodec acquisition in
1990.
In future periods, amortization of intangibles will increase due to acquisitions
made in 1996.
INTEREST AND OTHER INCOME
Interest expense for 1996 was $112,355 as compared to $118,754 in 1995. This was
a decrease of $6,399 or 5% in 1996 from 1995. Lower interest expense resulted
from reduced borrowings on the Company's line of credit. This was partially
offset by added interest expense from the debt incurred in the Evergreen Weigh
acquisition.
Other income, net was $57,288 in 1996 as compared to $19,343 in 1995. This was
an increase of $37,945 or 196% from 1995. The largest entry in other income, net
in 1996 came from collection of a previously written off account receivable.
INCOME TAXES
Income tax expense was $349,416 in 1996 as compared to $187,491 in 1995. This
was an increase of $161,925 or 86% from 1995. The effective tax rate in 1996 was
37.5% as compared to 26.9% in 1995. The increased expense reflects the higher
pretax income recorded in the current year and a higher effective rate due to
depletion of prior year tax credits. The effective tax rate of 37.5% exceeds the
U.S. federal corporate income tax rate of 34% due primarily to the amortization
of intangible assets that are not deductible for income tax purposes and due to
state income taxes.
The income tax expense of $187,491 in 1995 is compared to a net income tax
benefit of $75,000 in 1994.
LEGAL MATTERS
In July 1996, the Company initiated a lawsuit in U.S. district court against a
competitor to overturn a recently issued patent that the Company believes to be
unenforceable. The competitor has answered the claim and counter-claimed for
patent infringement seeking unspecified monetary damages and injunctive relief.
The Company intends to vigorously pursue the litigation. Based upon discovery
and investigation to date, it is not possible to provide an informed evaluation
of the likelihood of a favorable or unfavorable outcome. However, based on the
information available, the opinion of Company counsel is that the Company has a
reasonable likelihood of prevailing.
There can be no assurance, however, that the Company will be successful in
prosecuting its claims, or defending against such counterclaims. At the current
stage of litigation, insufficient information exists to reasonably estimate the
amount or range of potential loss in the event of an unfavorable outcome. An
award of damages, injunctive relief, or the expenditure of significant sums in
connection with this litigation could have a material adverse effect on the
Company's financial condition and results of operations.
INFLATION
Historically, the impact of inflation has been negligible, as the Company has
been able to offset the effects through efficiency and price adjustments.
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<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's line of credit of $2,000,000 that matures November 29, 1997
continues to be extended as requested. As of July 31, 1996, the Company had
borrowings of $558,049 under the line of credit.
In April 1996, the Company entered into a $1,000,000 ten year term loan
agreement for the purpose of financing the acquisition of Evergreen Weigh, Inc.
The Company believes cash flow from operations and the funds available under its
bank facility will be sufficient to meet the Company's working capital needs and
Company obligations under outstanding put options.
ITEM 7. FINANCIAL STATEMENTS
(Form 10-KSB)
Pages(s)
Independent Auditors' Report ....................... 12
Consolidated Balance Sheets ........................ 13
Consolidated Statements of Earnings ................ 14
Consolidated Statement of Stockholders' Equity ..... 15
Consolidated Statements of Cash Flows .............. 16
Notes to Consolidated Financial Statements ......... 17-24
10
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Financial Statements and Report of
Independent Certified Public Accountants
SI TECHNOLOGIES, INC.
AND SUBSIDIARIES
July 31, 1996, 1995 and 1994
11
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Report of Independent Certified Public Accountants
Board of Directors
SI Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of SI Technologies,
Inc. and Subsidiaries as of July 31, 1996 and 1995 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended July 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SI Technologies,
Inc. and Subsidiaries as of July 31, 1996 and 1995, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended July 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Grant Thornton
- -----------------------
Seattle, Washington
September 13, 1996
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SI Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
July 31,
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 57,737 $ 540,044
Trade accounts receivable, less allowance
for doubtful accounts of $174,675 in 1996
and $154,454 in 1995 (note G) 2,068,216 1,404,791
Inventories (notes A2, D and G) 1,958,424 926,088
Deferred tax asset (notes B and K) 309,300 318,900
Other current assets 125,960 72,255
---------- ----------
Total current assets 4,519,637 3,262,078
PROPERTY AND EQUIPMENT, less accumulated depreciation
and amortization (notes A3, E and G) 821,529 550,559
OTHER ASSETS
Intangible assets, net (note A4) 3,250,289 2,874,881
Other 255,375 59,550
---------- ----------
$8,846,830 $6,747,068
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $155,938 $257,364
Trade accounts payable 964,141 496,225
Income taxes payable (notes B and K) 145,420 260,991
Accrued liabilities (note F) 709,840 882,306
---------- ----------
Total current liabilities 1,975,339 1,896,886
LONG-TERM DEBT, less current maturities (note G) 1,433,049 53,729
PUT OPTION OBLIGATIONS (note H) 385,000 385,000
DEFERRED TAXES (notes B and K) 83,000 22,200
COMMITMENTS AND CONTINGENCIES (notes I, M and N) - -
STOCKHOLDERS' EQUITY (note J)
Common stock, par value $.01 per share; authorized, 5,000,000 shares; issued
and outstanding, 2,347,240 shares 23,472 23,472
Additional paid-in capital 4,769,268 4,769,268
Retained earnings (deficit) 177,702 (403,487)
---------- ----------
4,970,442 4,389,253
---------- ----------
$8,846,830 $6,747,068
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 14
SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended July 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales (note L) $ 11,087,537 $ 9,816,011 $ 8,288,058
Cost of sales 5,771,310 5,072,823 4,317,163
------------ ------------ ------------
Gross profit 5,316,227 4,743,188 3,970,895
Operating expenses:
Selling, service, general and administrative 3,329,126 3,114,778 2,931,682
Research, development and engineering 904,655 700,600 531,008
Amortization of intangibles 96,774 130,443 205,325
------------ ------------ ------------
4,330,555 3,945,821 3,668,015
------------ ------------ ------------
Earnings from operations 985,672 797,367 302,880
Interest expense (112,355) (118,754) (235,578)
Other income (expense), net 57,288 19,343 (35,234)
------------ ------------ ------------
Net earnings before income taxes and cumulative
effect of a change in accounting principle
930,605 697,956 32,068
Income tax (expense) benefit (note K) (349,416) (187,491) 75,000
------------ ------------ ------------
Earnings before cumulative effect of a change in
accounting principle 581,189 510,465 107,068
Cumulative effect on prior years of a
change in accounting principle (note B) -- -- 120,000
------------ ------------ ------------
NET EARNINGS $ 581,189 $ 510,465 $ 227,068
============ ============ ============
Earnings per common and common equivalent share
Earnings before cumulative effect of a change in
accounting principle $ .24 $ .21 $ .04
Cumulative effect on prior years of a change in
accounting principle -- -- .05
------------ ------------ ------------
Net earnings per share
(note A6) $ .24 $ .21 $ .09
============ ============ ============
Weighted average shares outstanding 2,426,088 2,431,069 2,494,331
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 15
SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional Retained Total
Common stock paid-in earnings stockholders'
Shares Amount capital (deficit) equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1993 2,387,240 $ 23,872 $ 4,938,027 $(1,141,020) $ 3,820,879
Net earnings -- -- -- 227,068 227,068
Adjustment of put option obligations -- -- (154,200) -- (154,200)
Stock options exercised 110,000 1,100 136,400 -- 137,500
----------- ----------- ----------- ----------- -----------
Balance, July 31, 1994 2,497,240 24,972 4,920,227 (913,952) 4,031,247
Net earnings -- -- -- 510,465 510,465
Settlement of put option obligations (40,000) (400) 7,441 -- 7,041
Purchase of common stock (110,000) (1,100) (158,400) -- (159,500)
----------- ----------- ----------- ----------- -----------
Balance, July 31, 1995 2,347,240 23,472 4,769,268 (403,487) 4,389,253
Net earnings -- -- -- 581,189 581,189
----------- ----------- ----------- ----------- -----------
Balance, July 31, 1996 2,347,240 $ 23,472 $ 4,769,268 $ 177,702 $ 4,970,442
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
15
<PAGE> 16
SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended July 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash Cash flows from operating activities:
Net earnings $ 581,189 $ 510,465 $ 227,068
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 353,884 288,488 348,871
Deferred income taxes 70,400 (81,700) (215,000)
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable (253,968) 93,120 318,489
Decrease (increase) in inventories (540,349) 258,323 469,897
Decrease (increase) in other current assets (32,637) 70,671 3,844
Increase in trade accounts payable 384,718 51,521 43,863
Increase (decrease) in accrued liabilities (327,051) 257,976 224,938
Increase (decrease) in income taxes payable (114,560) 243,791 15,600
----------- ----------- -----------
Net cash provided by
operating activities 121,626 1,692,655 1,437,570
Cash flows from investing activities:
Decrease (increase) in other assets (4,700) -- 19,975
Purchase of equipment (660,390) (182,225) (77,239)
Acquisition of subsidiary (net of $2,181 cash acquired) (997,819) -- --
----------- ----------- -----------
Net cash used in investing activities (1,662,909) (182,225) (57,264)
Cash flows from financing activities:
Borrowings (payments) on notes payable to bank, net 339,131 (544,147) (1,067,472)
Proceeds from long-term debt 1,000,000 159,500 --
Payments on long-term debt (280,155) (233,880) (159,869)
Proceeds from issuance of common stock -- -- 137,500
Purchase of common stock -- (159,500) --
Payments on put option obligation -- (209,700) (265,000)
Payments on non-compete obligations -- -- (50,000)
----------- ----------- -----------
Net cash provided by (used in) financing
activities 1,058,976 (987,727) (1,404,841)
----------- ----------- -----------
Net increase (decrease) in cash (482,307) 522,703 (24,535)
Cash at beginning of year 540,044 17,341 41,876
----------- ----------- -----------
Cash at end of year $ 57,737 $ 540,044 $ 17,341
=========== =========== ===========
Cash paid during the year for:
Interest $ 105,412 $ 230,173 $ 175,384
Income taxes $ 383,575 $ 25,400 $ 2,800
Noncash investing and financing activities:
In conjunction with the acquisition, as described in Note C,
liabilities were assumed as follows:
Fair value of assets acquired $ 1,455,689 $ - $ -
Cash paid 1,000,000 - -
------------ ------------ ----------
Liabilities assumed $ 455,689 $ - $ -
============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
SI Technologies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SI Technologies, Inc. (formerly Structural Instrumentation, Inc.) manufactures
and markets mobile and stationary weighing systems, fleet information systems
and force measurement devices. Sales are made to customers throughout the
United States and Canada, as well as other international markets. A summary of
significant accounting policies applied in the preparation of the accompanying
consolidated financial statements follows.
1. Principles of Consolidation
The consolidated financial statements include the accounts of SI Technologies,
Inc. (SI or Company) and its subsidiaries; Evergreen Weigh, Inc.,
IDEAutomation International, Inc. and Structural Instrumentation Manufacturing
Co. (SI Manufacturing). SI Manufacturing was merged into SI effective May
1995. All significant intercompany accounts and transactions have been
eliminated in consolidation.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
3. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives, principally on a straight-line basis. Estimated
service lives of property and equipment are as follows:
<TABLE>
<S> <C>
Machinery and equipment 2 to 10 years
Motor vehicles 3 to 5 years
Leasehold improvements 2 to 10 years
</TABLE>
The straight-line method of depreciation is followed for substantially all
assets for financial reporting purposes, but accelerated methods are used for
tax purposes.
4. Intangible Assets
Intangible assets represent the excess costs of acquiring subsidiaries over
the fair value of net assets acquired at the date of acquisition which are
amortized using the straight-line method primarily over periods of 25 to 40
years. The Company periodically reviews goodwill to assess recoverability.
Impairment is recognized in operating results if expected future operating
undiscounted cash flows of the acquired business are less than the carrying
value of goodwill. Accumulated amortization totaled $837,450 and $740,676 at
July 31, 1996 and 1995, respectively.
5. Product Warranty
Product warranty costs are estimated and accrued at the time sales are
recorded.
6. Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share is calculated based upon the
weighted average common and common equivalent shares outstanding during the
period.
17
<PAGE> 18
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
7. Use of Estimates
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
8. Reclassifications
Certain reclassifications have been made to the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation.
NOTE B - CHANGE IN ACCOUNTING PRINCIPLE
The Company adopted, effective August 1, 1993, Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
cumulative effect of this change in accounting principle from the deferred
method to the liability method of accounting for income taxes increased the
Company's 1994 earnings by $120,000, or $.05 per share. The effect on the 1994
net earnings before the cumulative effect of the change in accounting
principle was to increase net earnings by approximately $95,000.
NOTE C - BUSINESS COMBINATION
Effective April 1, 1996, the Company purchased 100% of the common stock of
Evergreen Weigh, Inc. (Evergreen) for $1,000,000 in cash. Evergreen is
principally engaged in the manufacture of electronic weighing devices. The
combination is accounted for under the purchase method of accounting. The
excess of the total acquisition cost over the fair value of net assets
acquired in the amount of $467,482 is being amortized on a straight-line basis
over twenty-five years. Earnings include the results of operations of
Evergreen from the acquisition date, April 1, 1996.
The following table reflects the unaudited pro forma consolidated results of
operations of the acquisition of Evergreen as if it had occurred on August 1,
1994.
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
7/31/96 7/31/95
----------- -----------
<S> <C> <C>
Net sales $12,521,000 $11,920,619
Net earnings $ 566,400 $ 553,348
Earnings per share $ .23 $ .23
</TABLE>
NOTE D - INVENTORIES
Inventories consist of the following at July 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials $ 867,912 $ 413,052
Work in process 367,629 192,292
Finished goods 916,400 455,174
---------- ----------
2,151,941 1,060,518
Less allowance for obsolescence 193,517 134,430
---------- ----------
$1,958,424 $ 926,088
========== ==========
</TABLE>
18
<PAGE> 19
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at July 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Machinery and equipment $2,006,228 $1,530,455
Motor vehicles 32,641 22,903
Leasehold improvements 110,747 98,042
---------- ----------
2,149,616 1,651,400
Less accumulated depreciation and
amortization 1,328,087 1,100,841
---------- ----------
$ 821,529 $ 550,559
========== ==========
</TABLE>
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consist of the following at July 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued salaries, wages and
other compensation $309,938 $223,798
Product start up and warranty reserve 284,145 389,635
Accrued professional fees 46,892 225,334
Other 68,865 43,539
-------- --------
$709,840 $882,306
======== ========
</TABLE>
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following at July 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revolving line of credit with a bank for up to $2,000,000,
interest at the prime rate plus 1%, .625% or .25%
depending on certain financial ratios of the Company (8.5%
at July 31, 1996), secured by trade accounts receivable,
inventories and certain equipment, due November 1997 $ 558,049 $ --
Note payable to bank in monthly installments of $14,677
including interest at the prime rate plus .5% and 1.25% at
July 31, 1996 and 1995, respectively (8.75% at July 31,
1996), secured by equipment, due September 1996 29,355 204,760
Note payable to bank in monthly installments of $6,646 plus
interest at the prime rate plus .5% (8.75% at July 31, 1996),
secured by accounts receivable and inventory, due
November 1996 26,583 106,333
Note payable to bank in monthly installments of $8,333 plus
interest at the prime rate plus .25% or IBOR plus 2.625%
(8.125% at July 31, 1996), secured by all assets, due May
2006 975,000 --
---------- ----------
1,588,987 311,093
Less current maturities 155,938 257,364
---------- ----------
$1,433,049 $ 53,729
========== ==========
</TABLE>
19
<PAGE> 20
NOTE G - LONG-TERM DEBT - Continued
Aggregate maturities of long-term debt are as follows at July 31, 1996:
<TABLE>
<CAPTION>
Year ending July 31,
--------------------
<S> <C>
1997 $ 155,938
1998 658,049
1999 100,000
2000 100,000
2001 100,000
Thereafter 475,000
----------
$1,588,987
==========
</TABLE>
These notes payable to the bank are also included in the terms of the
revolving line of credit agreement. The Company is required to maintain
certain levels of working capital, net worth and debt-to-equity ratios and may
not pay any cash dividends under terms of its revolving line of credit.
NOTE H - PUT OPTION OBLIGATIONS
In 1990, the Company entered into put option agreements with five individuals,
in conjunction with its acquisition of LODEC, Inc., to repurchase 201,000
shares of the Company's common stock for aggregate consideration of
$1,005,000. During the 1995 and 1994 fiscal years, the Company repurchased
124,000 shares of common stock of three of the individuals through payment and
has entered into extension agreements with two other individuals for their
77,000 shares. Under the terms of these amended put option extension
agreements, 65,000 shares are exercisable during a 120-day period commencing
October 2, 1997, and 12,000 shares are exercisable beginning October 22, 1997.
The Company has the ability to call the stock at $5 per share at any time
during the extension agreements. The put options bear interest at prime plus
2% and prime plus 2-1/2% which is payable during the extension period.
The currently anticipated liability associated with the Company's agreements
to repurchase 77,000 shares as of July 31, 1996 and 1995, of the Company's
common stock upon exercise of the remaining put options is included in the put
option obligation on the Company's balance sheet.
NOTE I - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases its manufacturing and office space and certain equipment
under terms of noncancelable operating leases.
Future minimum lease payments under noncancelable operating leases as of July
31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
Year ending July 31,
--------------------
<S> <C>
1997 $303,700
1998 194,100
1999 59,100
2000 21,300
2001 14,500
--------
$592,700
========
</TABLE>
Rent expense, net of sublease income, under noncancelable operating leases was
approximately $285,000, $230,000 and $197,000 for the years ended July 31,
1996, 1995 and 1994, respectively.
20
<PAGE> 21
NOTE I - COMMITMENTS AND CONTINGENCIES - Continued
Sublease rental income under noncancelable operating leases was approximately
$5,000, and $38,000 for the years ended July 31, 1995 and 1994, respectively.
2. Consulting and Non-compete Agreements
Certain former executives of Evergreen Weigh have entered into consulting and
non-compete agreements with the Company. The consulting agreements have a term
of five years and the non-compete agreements have a term of ten years. Future
payments under these agreements are as follows:
<TABLE>
<CAPTION>
Year ending July 31,
--------------------
<S> <C>
1997 $122,500
1998 122,500
1999 122,500
2000 122,500
2001 98,500
Thereafter 291,667
--------
$880,167
========
</TABLE>
The expense associated with these agreements totaled $44,833 for the year
ended July 31, 1996.
3. Legal Matters
The Company has initiated a lawsuit against a competitor to overturn a
recently issued patent which the Company believes to be unenforceable. The
competitor has answered the claim and counter-claimed for patent infringement.
The litigation is at an early stage. The Company intends to vigorously pursue
the litigation. Based upon discovery and investigation to date, it is not
possible to provide an informed evaluation of the likelihood of a favorable or
unfavorable outcome. However, based on that investigation and discovery, the
opinion of counsel is that the Company has a reasonable likelihood that it
will prevail. At the current stage of litigation, insufficient information
exists to reasonably estimate the amount or range of potential loss in the
event of an unfavorable outcome.
NOTE J - STOCK OPTION PLAN
The Company implemented a new stock option plan in 1995 for key employees and
has authorized a total of 300,000 shares of common stock to be set aside for
grants. Additionally, options are outstanding under the old plan which expired
July 31, 1994. The vesting and expiration dates of the stock options are at
the discretion of the Board of Directors. A summary of stock options follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Outstanding at beginning of year 151,000 206,600 106,600
Granted 101,500 21,500 100,000
Exercised -- -- --
Expired/canceled (10,000) (77,100) --
-------- -------- --------
Outstanding at end of year 242,500 151,000 206,600
======== ======== ========
Exercisable at end of year 97,200 52,000 102,600
Price range $1.5625-4.50 $1.08-3.375 $1.08-3.125
------------ ----------- -----------
Available for future grant 187,500 279,000 --
</TABLE>
21
<PAGE> 22
NOTE K - INCOME TAXES
Income taxes consist of the following at July 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current expense $ 279,016 $ 269,191 $ 20,000
Deferred expense (benefit) 70,400 (81,700) (95,000)
--------- --------- ---------
$ 349,416 $ 187,491 $ (75,000)
========= ========= =========
</TABLE>
The income tax provision reconciled to the tax computed at the statutory
federal rate was as follows at July 31: 1996 1995 1994
<TABLE>
<S> <C> <C> <C>
Tax at statutory rate $ 316,400 $ 237,300 $ 10,900
Valuation allowance -- (145,000) (125,000)
Nondeductible goodwill 50,000 47,300 48,500
State and foreign taxes 16,000 32,000 --
Non-deductible meals and entertainment 11,400 9,900 --
Credits utilized (42,900) -- --
Other (1,484) 5,991 (9,400)
--------- --------- ---------
$ 349,416 $ 187,491 $ (75,000)
========= ========= =========
</TABLE>
The components of deferred taxes included in the balance sheet are as follows
at July 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax asset:
Accrued vacation and warranty $120,000 $147,600
Provision for bad debts 59,400 52,500
Accrued liabilities not timely paid 12,100 51,900
Inventory reserve and capitalized overhead 115,500 66,200
Foreign currency adjustment 2,300 700
-------- --------
$309,300 $318,900
======== ========
Deferred tax liability:
Excess of tax over book depreciation $ 83,000 $ 22,200
======== ========
</TABLE>
The Company established a valuation allowance of $145,000 as of July 31, 1994,
due to the uncertainty of certain carryforwards. This allowance was eliminated
as of July 31, 1995.
22
<PAGE> 23
NOTE K - INCOME TAXES - Continued
The components of deferred income tax expense (benefit) are as follows for the
years ended July 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Allowance for doubtful receivables $ (6,900) $ 12,700 (22,000)
Excess of book (over) under tax depreciation 60,800 (5,200) (8,000)
Inventory reserve and capitalized overhead (49,300) 26,000 64,000
Foreign currency (1,600) 15,300 (2,000)
Accrued product start up and warranty reserve 35,900 (70,700) (4,000)
Accrued liabilities 39,800 (18,000) (30,000)
Valuation allowance reduction -- (145,000) (125,000)
Tax credits utilized -- 104,700 17,000
Net operating loss carryforward -- -- 8,000
Other (8,300) (1,500) 7,000
--------- --------- ---------
$ 70,400 $ (81,700) $ (95,000)
========= ========= =========
</TABLE>
NOTE L - EXPORT SALES
The Company sells its products in the United States, Europe, Australia, Canada
and other parts of the world. Net export sales by foreign geographic areas are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Canada $2,591,000 $2,973,000 $2,346,000
Other areas 1,344,000 1,080,000 1,367,000
---------- ---------- ----------
$3,935,000 $4,053,000 $3,713,000
========== ========== ==========
</TABLE>
NOTE M - FUTURE EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 123, Accounting for Stock-Based Compensation
(SFAS 123). SFAS 123 allows the Company to adopt the fair value based method
of accounting for stock as described in this standard or continue to account
for employee stock options under APB 25, Accounting for Stock Issued to
Employees (APB 25), and disclose among other things, the proforma effects on
net earnings and earnings per share had compensation cost for the plan been
determined based on the fair value of the options at the grant dates. SFAS 123
is effective for the Company's 1997 fiscal year end. The Company plans to
continue to apply APB 25 and the only effect of adopting SFAS 123 will be the
new disclosure requirements.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of (SFAS 121). SFAS
121 requires that long-lived assets and certain identifiable intangibles held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows (undiscounted and
without interest) is less than the carrying amount of the asset, an impairment
loss is recognized. Measurement of that loss would be based on the fair value
of the asset. SFAS 121 also generally requires long-lived assets and certain
identifiable intangibles to be disposed of to be reported at the lower of the
carrying amount or the fair value less cost to sell. SFAS 121 is effective for
the Company's 1997 fiscal year end. The Company has made no assessment of the
potential impact of adopting SFAS 121 at this time.
23
<PAGE> 24
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of "Statement of Financial Accounting
Standards No. 107 - Disclosure About Fair Value of Financial Instruments", the
following methods and assumptions were used to estimate the fair value of each
class of financial instruments.
1. Long-Term Debt
The carrying amount approximates fair value because of the variable interest
rates which are consistent with market changes.
2. Put Option Obligations
It was not practicable to estimate the fair value due to the specific nature
of the contracts.
NOTE O - BENEFIT PLANS
The Company has defined contribution 401(k) plans for each subsidiary. All
employees are eligible for participation upon completion of a waiting period.
The Evergreen Weigh plan is expected to be consolidated into the Company plan
in the near future. The contribution expense associated with these plans
totaled approximately $17,000, $6,800 and $8,000 for the years ended July 31,
1996, 1995 and 1994, respectively.
24
<PAGE> 25
PART III
The information required by ITEMS 9, 10, 11, and 12 will be included in
the registrants proxy statement under the captions "Election of Directors,"
"Executive Officers," "Compensation," and "Principal Shareholders" and is
incorporated herein by reference. Such proxy statement will be filed within 120
days of the registrants last fiscal year end, July 31, 1996.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) Exhibits
The following documents are filed herewith for informational
purposes, but are not part of this Annual Report, except as
otherwise indicated.
2(a) Acquisition Agreement and Plan of Merger dated April 12, 1996
among SI Technologies, Inc., SI Acquisition Corporation,
Evergreen Weigh, Inc., Carl Harris and Ruth Harris
(Incorporated by reference to the current report on Form 8-K
dated April 12, 1996)
3(a) Certificate of Incorporation (Incorporated by reference to the
same exhibit number as the Company's Annual Report on Form
10-KSB for the fiscal year ending July 31, 1993)
(b) By-Laws (1)
4(a) Specimen certificate evidencing shares of Common Stock
(Incorporated by reference to the same exhibit number as the
Company's Annual Report on Form 10-KSB for the fiscal year
ending July 31, 1993)
10(a) 1994 Stock Option Plan (Incorporated by reference to the
Company's Proxy Statement for the annual meeting held January
19, 1995)
10(b) Amended and Restated 1984-85 Stock Option Plan (Incorporated by
reference to the same exhibit number to the Company's Annual
Report on Form 10-KSB for the fiscal year ending July 31, 1994)
(d) Lease between Halverson-Lindell and SI dated November 20, 1988,
for the premises located at 4611 South 134th Place, Tukwila,
Washington. (Incorporated by reference to exhibit 1 to the
Company's Annual Report on Form 10K for fiscal year ending July
31, 1989)
22.1 Subsidiaries of the Registrant
24.1 Consent of Grant Thornton to incorporation by reference of
financial statements into Registration Statement on Form S-8
27 Financial Data Schedule
(1) Incorporated by reference to the same exhibit number to the Company's
Registration Statement of Form S-1 (File No. 2-83781), as amended.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this to be signed on its
behalf by the undersigned, thereunto duly authorized.
SI TECHNOLOGIES, INC.
DATED: October 25, 1996 /s/ Rick A. Beets
----------------------------------------------
Rick A. Beets, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed as of October 25, 1996 by the following persons in
the capacities indicated:
/s/ Rick A. Beets
----------------------------------------------
Rick A. Beets, President, CEO & CFO
(Principal Executive & Financial Officer)
/s/ Edward A. Alkire
----------------------------------------------
Edward A. Alkire, Director, Secretary
/s/ S. Scott Crump
----------------------------------------------
S. Scott Crump, Director
/s/ Heinz Zweipfennig
----------------------------------------------
Heinz Zweipfenning, Director
/s/ Ralph E. Crump
----------------------------------------------
Ralph E. Crump, Chairman of the Board,
Director, Treasurer
/s/ D. Dean Spatz
----------------------------------------------
D. Dean Spatz, Director
26
<PAGE> 1
EXHIBIT 22.1
Subsidiaries of the Registrant
IDEAutomation International, Inc.
Incorporated in the U.S. Virgin Islands
Evergreen Weigh, Inc.
Incorporated in Washington state
27
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 13, 1996, accompanying the
consolidated financial statements included in the Annual Report of SI
Technologies, Inc. and subsidiaries on Form 10-KSB for the year ended July 31,
1996. We hereby consent to the incorporation by reference of said reports in the
Registration Statement of SI Technologies, Inc. on Form S-8 (File No. 2-92865,
effective August 6, 1984).
/s/ Grant Thornton LLP
- -------------------------
Grant Thornton LLP
Seattle, Washington
October 25, 1996
28
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