<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10 - QSB
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number 0-12370
October 31, 1998
SI TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 95-3381440
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
4611 South 134th Place, Seattle, Washington 98168
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(Address of principal executive offices) (Zip Code)
(206) 244-6100
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Registrant's telephone number, including area code
SAME
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(Former name, former address and former fiscal year, if changed since
last report.)
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
--- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date. 3,547,123 shares of Common
Stock, par value $.01 on December 9, 1998.
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1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
SI TECHNOLOGIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31, 1998
(Unaudited) July 31, 1998
---------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash $ 197,297 $ 573,863
Trade accounts receivable, less allowance for doubtful
accounts of $367,551 and $466,134 respectively 8,518,866 7,764,447
Inventory 10,988,436 11,026,104
Deferred tax asset 1,245,000 1,245,000
Other current assets 733,774 498,533
----------- -----------
Total current assets 21,683,373 21,107,947
Property and equipment, less accumulated depreciation
and amortization 8,101,178 8,049,006
Other assets:
Intangible assets, net 10,174,250 10,217,389
Other 515,485 622,663
----------- -----------
$40,474,286 $39,997,005
----------- -----------
----------- -----------
Liabilities and stockholders' equity
Current liabilities:
Notes payable to bank $ 4,776,304 $ 5,104,411
Current maturities of long-term debt 1,284,147 1,319,060
Trade accounts payable 3,201,892 3,758,849
Income taxes payable 280,881 134,280
Accrued liabilities 3,398,846 3,901,864
----------- -----------
Total current liabilities 12,942,070 14,218,464
Long term debt, less current maturities 13,565,778 12,134,989
Other liabilities 1,368,231 1,385,307
Deferred taxes 541,594 547,300
Stockholders' equity
Preferred stock, par value $0.01 per share; Authorized
2,000,000 shares; none outstanding - -
Common stock, par value $.01 per share. Authorized
10,000,000 shares; issued and outstanding, 3,547,123 35,471 35,471
Additional paid-in capital 10,320,765 10,320,765
Retained earnings 1,539,058 1,338,352
Cumulative translation adjustment 161,319 16,357
----------- -----------
Total stockholders' equity 12,056,613 11,710,945
----------- -----------
$40,474,286 $39,997,005
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements
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2
<PAGE>
SI TECHNOLOGIES, INC.
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
For the three month period ended
October 31
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
Net sales $11,348,008 $5,345,640
Cost of sales 6,959,302 3,001,686
------------------------------
Gross profit 4,388,706 2,343,954
Operating expenses:
Selling, general and administrative 2,689,955 1,332,335
Research, development and engineering 710,918 265,118
Amortization of intangibles 112,954 78,219
------------------------------
3,513,827 1,675,672
------------------------------
Earnings from operations 874,879 668,282
Interest expense (438,339) (294,082)
Other income, net 1,801 3,087
------------------------------
Net earnings before income taxes 438,341 377,287
Income tax expense (237,635) (139,000)
------------------------------
NET INCOME $ 200,706 $ 238,287
------------------------------
------------------------------
Earnings per common share-basic $ 0.06 $ 0.09
Earnings per common share-diluted $ 0.05 $ 0.09
------------------------------
------------------------------
Average shares outstanding-basic 3,547,123 2,547,240
------------------------------
------------------------------
Average shares outstanding-diluted 3,717,421 2,743,564
------------------------------
------------------------------
</TABLE>
See notes to consolidated financial statements
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3
<PAGE>
SI TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three month period ended
October 31
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities:
Net earnings $ 200,706 $ 240,618
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization 537,241 214,593
Deferred income taxes (5,706) 11,155
Changes in operating assets and liabilities:
Increase in trade accounts receivable (754,419) (478,457)
Decrease (increase) in inventories 37,668 (189,813)
Decrease in refundable income taxes - 319,844
(Increase) decrease in other current assets (235,241) 64,939
Increase (decrease) in trade accounts payable (556,957) (386,457)
Increase (decrease) in accrued liabilities (503,018) (314,705)
Increase in income taxes payable 146,600 335
-------------------------------
Net cash provided by (used in) operating activities (1,133,126) (517,948)
Cash flows from investing activities:
Increase in other assets - (18,650)
Purchase of equipment and software development (192,708) (79,207)
Acquisition expenses (246,387) -
-------------------------------
Net cash used in investing activities (439,095) (97,857)
Cash flows from financing activities:
Borrowings on line of credit 1,430,789 665,764
Payments on long-term debt (380,096) (96,952)
-------------------------------
Net cash provided by financing activities 1,050,693 568,812
Foreign currency translation adjustment 144,962 -
Net decrease in cash (376,566) (46,993)
Cash at beginning of period 573,863 155,826
-------------------------------
Cash at end of period $ 197,297 $ 108,833
-------------------------------
-------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 386,841 $ 65,341
Income taxes $ 283,101 $ 76,000
</TABLE>
See notes to consolidated financial statements
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4
<PAGE>
SI TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements of the Company and its
subsidiaries have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the entire fiscal year ending July 31, 1999. This form 10-QSB should be read in
conjunction with the Annual Report and form 10-KSB for the year ended July 31,
1998.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market and consisted of the following at:
<TABLE>
<CAPTION>
October 31, 1998 July 31, 1998
(unaudited)
<S> <C> <C>
Raw Materials $ 4,649,185 $ 4,782,003
Work in Progress 1,952,397 2,434,209
Finished Goods 4,396,854 3,809,892
-------------------------------
$10,998,436 $11,026,104
-------------------------------
-------------------------------
</TABLE>
NOTE 3. BASIC NET EARNINGS AND DILUTED NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
<TABLE>
<CAPTION>
For the Three month period
ended October 31, 1998
-----------------------------------------
Per Share
Income Shares Amount
-------- --------- ---------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common shareholders $200,706 3,547,123 $0.06
EFFECT OF DILUTIVE SECURITIES
Stock options 170,298
---------
DILUTED EPS
Income available to common shareholders
plus assumed conversions $200,706 3,717,421 $0.05
----------------------------------
----------------------------------
For the Three month period
ended October 31, 1997
-----------------------------------------
Per Share
Income Shares Amount
-------- --------- ---------
BASIC NET EARNINGS PER SHARE
Income available to common shareholders $238,287 2,547,240 $0.09
EFFECT OF DILUTIVE SECURITIES
Stock options 196,324
---------
DILUTED EPS
Income available to common shareholders
plus assumed conversions $238,287 2,743,564 $0.09
----------------------------------
----------------------------------
</TABLE>
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5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
SI Technologies, Inc. and Subsidiaries ("SI" or the "Company") is a rapidly
growing designer, manufacturer and marketer of high-performance industrial
sensors and controls, and engineered equipment and systems. Recent acquisitions
have diversified the Company's revenue base and positioned SI Technologies as a
consolidator of technologies, products and companies that are enabling SI to
become a leading global provider of devices, equipment and systems that handle,
measure and inspect goods and materials. SI products are used throughout the
world in a wide variety of industries, including aerospace, agriculture,
aviation, food processing and packaging, forestry, manufacturing, mining,
transportation/distribution and waste management.
In recent years, the Company has been capitalizing on its technology and
existing customer relationships through product and market expansion in selected
segments of a $70-billion industrial component and equipment market. Driving
SI's business expansion are both an aggressive internal product development
program and the acquisition of businesses with technology and revenue synergy.
PRODUCTS AND SERVICES
ENGINEERED EQUIPMENT AND SYSTEMS
WEIGHING
SI designs and manufactures dynamic and static electronic weighing equipment and
systems for use in a wide array of industrial applications. As a result of the
uniqueness of the Company's combined sensor, weighing and material-handling
technologies, SI is one of few manufacturers in the industry who design and
manufacture all three of the primary components of an electronic scale. These
components are the load-handling structure, sensors and instrumentation. Many
manufacturers of conventional scale systems manufacture only load-handling
structures, outsourcing to industry suppliers their sensor and instrumentation
requirements. The Company utilizes its expertise and manufacturing know-how in
each of these critical components to competitive advantage and believes our
broad expertise can be exploited through our consolidation strategy.
Dynamic weighing systems are installed on transportation vehicles,
material-handling equipment and in manufacturing process systems for weight
measurement of goods and materials. Weight information generated by these
systems has broad application including loading, transporting and delivery
payload management; manufacturing process, inventory and quality control; and
operations automation. Key products marketed under the AIRSCALE, ALLEGANY,
CHECKMATE, EVERGREEN WEIGH, STRUCTURAL INSTRUMENTATION, ROUTEMAN, SMARTPIN, THE
LOGGER, TROJAN, and TUFFER trade names are dynamic "weigh-in-motion" and mobile
on-board vehicle and material-handling equipment scales, pallet weighers, crane
scales and engineered system scales. SI systems are available as standard
products for use with most major original equipment manufacturer (OEM) trucks,
trailers, forklifts, loaders, cranes and lifting devices. Products are marketed
predominately to the agriculture, construction, forestry, foundry, freight
transportation, manufacturing, mining, steel and waste management industries.
Depending on application, specific economic benefit is derived from reduced
overweight vehicle fines and delays; reduced time loading, checkweighing and
adjusting loads to maximum legal limits; reduced mileage and driving time to
checkweighing locations such as commercial in-ground truck scales; immediate
measurement and recording of pick-up and delivery weights; reduced equipment
abuse, maintenance downtime and expense; and higher capital equipment capacity
utilization. Additionally, the weight information produced by these systems is
often the critical measurement in controlling batching, blending and mixing
operations in the manufacture of materials.
MATERIAL HANDLING
SI's material handling equipment products consist of load handling, moving and
positioning equipment and systems. These products often utilize highly
specialized air-bearing movement systems to move loads of any weight efficiently
and with extreme precision. Air bearings are air-cushion devices that are used
to "float" heavy loads on a thin film of air. Additionally, the Company
manufactures systems utilizing water
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6
<PAGE>
bearings for use in large outdoor applications where water is used as the
flotation medium rather than air. These products, marketed under the trade
names AEROCASTER, AEROGO, AEROPALLETS and AEROPLANKS, are the world leaders in
practical and efficient methods of movement, transfer, location, rotation and
alignment of materials and products weighing from several hundred pounds to
more than 6,000 tons.
The Company's load-handling, moving and positioning product line comprises two
distinct categories. The first is a standard product line of rugged, industrial,
off-the-shelf air-cushion devices that allow a single person to easily and
safely move loads weighing from a few hundred pounds to many tons. Standard
products routinely move manufacturing fixtures, printing press bulky paper
rolls, jet engines, and other heavy loads. The other category of the product
line consists of engineered products. Engineered products and specialized
systems designed and manufactured by the Company in recent years are currently
moving 100,000-pound dies, launching ships, moving 4,500-ton stadium sections,
transporting aerospace booster rockets and moving large assemblies in and out of
assembly line operations in numerous heavy equipment manufacturing facilities.
Additional examples of engineered products include: automated guided vehicle
systems, transporters, assembly line turntable systems, precision handling and
positioning fixtures, quick die/mold changing carts, caisson manufacturing and
moving systems, and aircraft inspection turntables.
SI load-handling and moving products commonly represent significant economic
benefit in comparison to conventional material handling equipment through lower
capital investment in manufacturing site construction, preparation and system
installation, and greater operating efficiencies based on system versatility
(not limited to following rails or tracks, as typically required with cranes and
conveyors). These systems often represent the most viable means for handling
extreme material handling applications involving very heavy loads and precision
movement and positioning.
SENSORS AND CONTROLS
The Company's industrial sensors and controls products consists of a wide range
of NTEP and OIML approved, EX, Factory Mutual and IP rated load cells,
transducers, translators and sensors. These devices, representing a core SI
technology, are electromechanical components that convert a physical force to
an electrical signal. When matched with microprocessor-controlled digital
electronics, they measure forces such as pressure, weight, mass and torque.
Commercially, the products are used for measurement, inspection and control. SI
sensor and control products are principally used in electronic weighing
equipment; batching, blending, mixing, fill-by-weight and product inspection
operations and, machinery operation and control systems. SI
controls/instrumentation is normally designed as an integral part of a complete
weighing system. In recent years, SI instrumentation has been expanded to
provide users with the ability to acquire, record in memory and download to
management information systems operational information other than weight
information. In this expanded capacity, SI instrumentation becomes a critical
link between operations and management information systems.
RESULTS OF OPERATIONS
SALES
Net sales increased to $11,348,008 for the quarter ended October 31,
1998 from $5,345,640 for the same period last year. This is an
increase of $6,002,368 or 112% from the prior year's first quarter
results.
The increased sales in the quarter are the result of incremental sales
resulting from the inclusion of Revere Transducers and Allegany
Technology operations which were acquired in July 1998.
GROSS PROFIT
Gross profit for the quarter was $4,388,706 compared to $2,343,954 in
the first quarter last year. This is an increase of $2,044,752 or 87%
from the prior year's first quarter results.
Gross profit as a percentage of sales was 39% in this year's first
quarter as compared to 44% in last year's first quarter. Variations
in gross margin reflect varying product mixes in one period as
compared to another. The gross profit margins of future periods are
likely to be lower than the levels of recent years. Some products and
markets of recently acquired companies experience lower average
margins that those that the Company has historically recorded.
Consequently, the Company anticipates these products will lower the
gross margin percentage reported in the future.
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7
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG & A expenses increased to $2,689,955 for the quarter ended October
31, 1998 from $1,332,335 for the same period last year. This is an
increase of $1,357,620 or 102% from the prior year's first quarter.
SG & A expense as a percentage of revenue was 24% in this year's first
quarter and 25% in the first quarter of last year.
Total SG & A expenses increased due to the inclusion of the Revere
Transducers and Allegany Technology operations in the quarter
following the July 1998 acquisition. However, the added level of
expense was lower than the sales increase, thereby resulting in a
modest reduction in the ratio of total SG & A expense (24% this year
vs. 25% last year) to total sales in the period.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
RD & E expenditures increased to $710,918 for the quarter ended
October 31, 1998 from $265,118 for the same period last year. This is
an increase of $445,800 or 168% from the prior year's first quarter.
RD & E expenses as a percentage of revenues increased to 6% from 5% in
the same quarter of last year.
INTANGIBLES
The amortization of intangibles increased to $112,954 for the quarter
ended October 31, 1998 from $78,219 for the same period last year.
This is an increase of $34,735 or 44% from the prior year's first
quarter. This increase reflects the amortization of intangibles
associated with the acquisition of Allegany Technology made in July
1998.
INTEREST EXPENSE AND OTHER INCOME,(NET)
Interest expense increased to $438,339 for the quarter ended October
31, 1998 from $294,082 for the same period last year. This is an
increase of $144,257 or 49% from the prior year's first quarter. The
increased interest expense is the result of the debt incurred for the
Revere Transducers and Allegany Technology acquisitions and from
increased working capital needs.
Other income, net was $1,801 in the first quarter as compared to
$3,087 in last year's first quarter. This is a decrease of $1,286
from the prior year's first quarter.
INCOME TAX EXPENSE
Income tax expense increased to $237,635 for the quarter ended October
31, 1998 from $139,000 for the same period last year. This is an
increase of $98,635 or 71% from the prior year's first quarter. The
increased expense reflects the higher pretax income recorded in the
current quarter. The effective tax rate for the quarter exceeds the
U.S. federal corporate income tax rate of 34% primarily due to the
amortization of intangible assets which is not deductible for income
tax purposes and due to state income taxes.
INFLATION
Historically, the impact of inflation has been negligible, as the Company has
been able to offset the effects through efficiency and price increases.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1998 the Company's cash position was $197,297 compared to
$573,863 at July 31, 1998. Cash available in excess of that required for
general corporate purposes is used to reduce borrowings under the Company's line
of credit. Working capital increased to $8,741,303 from $6,889,483 at July 31,
1998.
The Company's existing capital resources consist of cash balances, cash provided
by operating activities and funds available under its line of credit. Cash used
by operations during the quarter ended October 31, 1998 was $1,133,126. During
the same quarter of the prior year, cash used by operations was $517,948.
The Company's cash requirements consist of its general working capital needs,
capital expenditures, obligations under its leases, notes payable and capital
required for future acquisitions. Working capital requirements include the
salary costs of employees and related overhead and the purchase of material and
components. The Company anticipates capital expenditures of approximately
$350,000 in 1999 as compared to $217,000 in 1998.
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8
<PAGE>
In July 1998, the Company amended its principal credit agreement with its bank
for the purpose of financing the acquisitions of Allegany Technology, Inc. and
Revere Transducers. This agreement included an increase to the Company's
existing line of credit from $4,000,000 to $8,000,000, a one-year note in the
amount of $3,000,000, a seven-year note in the amount of $5,000,000 and the
continuation of a seven-year note (due in 2004) with a balance of $1,628,571 as
of July 31, 1998. The amended credit agreement includes a requirement that the
Company obtain additional equity financing of no less than $3,000,000 no later
than July 1, 1999. The Company's credit facility requires the Company to
maintain certain levels of working capital, stockholders' equity, and other
covenants.
The Company's $8,000,000 line of credit, maturing November 1999, continues to be
extended as requested. As of October 31, 1998, the Company had borrowings of
$7,562,184 under the line of credit.
In addition to its principal credit agreement, the Company maintains a second
line of credit to support the working capital requirements of its European
operations. This line of credit amounts to $3,250,000. As of October 31, 1998,
the Company had borrowings of $1,688,014 under the line of credit.
Except with respect to funding any future acquisitions, the Company believes
that cash flow from operations, funds available under its bank facilities and
the anticipated equity financing will be sufficient to meet the Company's
working capital needs, anticipated capital expenditures and payments required
under its credit facilities. The Company believes that it could obtain the
capital necessary to make additional acquisitions primarily through either
issuances of common or preferred stock or debt, although no assurance can be
given with respect to whether such financing would be available when required or
whether such financing can be obtained on terms acceptable to the Company.
YEAR 2000 INITIATIVES
The Company is currently working to resolve the potential impact of "Year 2000"
issues on the processing of date-sensitive information by the Company's
information processing systems. The Company regularly updates its information
systems capabilities and has evaluated all significant computer software
applications for compatibility with the year 2000. With the system changes
implemented to date and other planned changes, the Company anticipates that its
computer software applications will be compatible with the year 2000.
Expenditures specifically related to software modifications for year 2000
compatibility are not expected to have a material effect on the Company's
operations or financial position. However, the Company is dependent on numerous
vendors and customers who may incur disruptions as a result of year 2000
software issues. The Company is taking steps to assess the year 2000 status of
its significant customers and suppliers. The Company has not yet developed a
contingency plan to operate in the event that any critical systems are not year
2000 compliant, or if failure of vendors, suppliers or third party systems have
a material effect on the Company. Accordingly, no assurances can be given that
the Company's results of operations will not be affected by this global issue.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements other than statements of
historical facts included in the preceding discussion regarding the Company's
financial position, business strategy and plans of management for future
operations are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct.
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9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits to Part II
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter.
The items omitted are either inapplicable or are items to which the answer is
negative.
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.
SI TECHNOLOGIES, INC.
December 14, 1998 /s/ Paul V. Cavanaugh
-------------------------------------------
Paul V. Cavanaugh
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 197,297
<SECURITIES> 0
<RECEIVABLES> 8,518,866
<ALLOWANCES> 367,551
<INVENTORY> 10,988,436
<CURRENT-ASSETS> 21,683,373
<PP&E> 8,101,178
<DEPRECIATION> 2,586,373
<TOTAL-ASSETS> 40,474,286
<CURRENT-LIABILITIES> 12,942,070
<BONDS> 0
0
0
<COMMON> 35,471
<OTHER-SE> 12,021,142
<TOTAL-LIABILITY-AND-EQUITY> 40,474,286
<SALES> 11,348,008
<TOTAL-REVENUES> 11,348,008
<CGS> 6,959,302
<TOTAL-COSTS> 6,959,302
<OTHER-EXPENSES> 3,513,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 438,339
<INCOME-PRETAX> 438,341
<INCOME-TAX> 237,635
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,706
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
