<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 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, 1999
SI TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-3381440
- ------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
14192 Franklin Avenue, Tustin, California 92780
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 505-6483
- -------------------------------------------------------------------------------
Registrant's telephone number, including area code
SAME
- -------------------------------------------------------------------------------
(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, 1999.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
SI TECHNOLOGIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31, July 31,
1999 1999
(Unaudited)
---------------------- ----------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 42,369 $ 32,042
Trade accounts receivable, less allowance for doubtful
accounts of $350,408 and $339,744 respectively 7,782,614 8,635,695
Unbilled revenue 208,488 126,859
Inventory 9,892,681 10,087,125
Deferred tax asset 1,131,400 1,423,900
Income taxes receivable -- 85,894
Other current assets 542,505 508,961
-------------------------------------
Total current assets 19,600,057 20,900,476
Property and equipment, less accumulated depreciation
and amortization 6,340,529 6,516,834
Other assets:
Intangible assets, net 9,871,818 9,977,856
Other 263,520 272,596
-------------------------------------
$ 36,075,924 $ 37,667,762
=====================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to bank $ 4,241,000 $ 4,767,128
Current maturities of long-term debt 1,023,068 1,039,018
Trade accounts payable 3,283,851 3,559,770
Customer advances 166,714 109,140
Income taxes payable 123,155 --
Accrued liabilities 3,431,799 3,950,579
-------------------------------------
Total current liabilities 12,269,587 13,425,635
Long term debt, less current maturities 10,981,661 11,418,485
Other liabilities 969,668 1,021,265
Deferred taxes 365,300 401,600
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 10,294,071 10,294,071
Retained earnings 1,203,513 1,108,637
Cumulative translation adjustment (43,347) (37,402)
-------------------------------------
Total stockholders' equity 11,489,708 11,400,777
-------------------------------------
$ 36,075,924 $ 37,667,762
=====================================
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
SI TECHNOLOGIES, INC.
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
For the three month period ended
October 31
-------------------------------------------
1999 1998
-------------------------------------------
<S> <C> <C>
Net sales $ 10,492,026 $ 11,348,008
Cost of sales 6,612,494 6,959,302
-------------------------------------------
Gross profit 3,879,532 4,388,706
Operating expenses:
Selling, general and administrative 2,589,967 2,689,955
Research, development and engineering 520,315 710,918
Amortization of intangibles 112,066 112,954
-------------------------------------------
3,222,348 3,513,827
-------------------------------------------
Earnings from operations 657,184 874,879
Interest expense (426,157) (438,339)
Other income, net 6,807 1,801
-------------------------------------------
Net earnings before income taxes 237,834 438,341
Income tax expense (142,958) (237,635)
-------------------------------------------
NET INCOME $ 94,876 $ 200,706
===========================================
Earnings per common share-basic $ 0.03 $ 0.06
===========================================
Earnings per common share-diluted $ 0.03 $ 0.05
===========================================
Average shares outstanding-basic 3,547,123 3,547,123
===========================================
Average shares outstanding-diluted 3,598,597 3,717,421
===========================================
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
SI TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three month period ended
October 31
--------------------------------------
1999 1998
--------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities:
Net earnings $ 94,876 $ 200,706
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 425,100 537,241
Deferred income taxes 256,200 (5,706)
Deferred lease costs (51,597) --
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable 771,452 (754,419)
Decrease in inventories 194,444 37,668
Decrease in refundable income taxes 85,894 --
(Increase) in other current assets (35,544) (235,241)
Decrease in trade accounts payable (275,919) (556,957)
Decrease in accrued liabilities and customer advances (461,206) (503,018)
Increase in income taxes payable 123,155 146,601
--------------------------------------
Net cash provided by (used) in operating activities 1,128,855 (1,133,125)
Cash flows from investing activities:
Decrease in other assets 18,419 --
Purchase of equipment (152,100) (192,709)
Acquisition expenses -- (246,387)
--------------------------------------
Net cash used in investing activities (133,681) (439,096)
Cash flows from financing activities:
(Payments) borrowings on line of credit (526,128) 1,430,789
(Payments) on long-term debt (452,774) (380,096)
--------------------------------------
Net cash provided by (used in) financing activities (978,902) 1,050,693
Foreign currency translation adjustment (5,945) 144,962
Net increase (decrease) in cash 10,327 (376,566)
Cash at beginning of period 32,042 573,863
--------------------------------------
Cash at end of period $ 42,369 $ 197,297
======================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 350,958 $ 386,841
Income taxes $ 75,000 $ 283,101
</TABLE>
See notes to consolidated financial statements
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, 2000. This form 10-QSB should be read in
conjunction with the Annual Report and form 10-KSB for the year ended July 31,
1999.
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, 1999 July 31, 1999
(unaudited)
<S> <C> <C>
Raw Materials $ 4,847,585 $ 4,987,726
Work in Progress 1,370,959 1,536,066
Finished Goods 3,674,137 3,563,333
---------------------------------------------------
$ 9,892,681 $ 10,087,125
===================================================
</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, 1999
--------------------------------------------------------------------
Per Share
Income Shares Amount
------ ------ ----------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common shareholders $ 94,876 3,547,123 $ 0.03
EFFECT OF DILUTIVE SECURITIES
Stock options 51,474
--------------------------------------------------------------------
DILUTED EPS
Income available to common shareholders plus
assumed conversions $ 94,876 3,598,597 $ 0.03
====================================================================
For the Three month period ended October 31, 1998
--------------------------------------------------------------------
Per Share
Income Shares Amount
------ ------ ----------
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
====================================================================
</TABLE>
5
<PAGE>
NOTE 3. RESTRUCTURING CHARGE
In fiscal 1999, the Company announced a plan to consolidate its two industrial
scale businesses, the Weighing Systems Division and Allegany Technology, and to
consolidate its two load cell/sensor business units, Revere Transducers and NV
Technology. These reorganizations included the planned closure of the Company's
facility that housed the Weighing Systems Division. In conjunction with this
reorganization, the Company established a restructuring reserve of $850,000.
This recorded charge was for the closure and lease costs of the vacated
facility, employee severance costs and the write-down of assets related to
products to be discontinued.
As of October 31, 1999, the majority, but not all, of the reorganization
activities have been completed. The Weighing Systems Division facility was
closed at the end of the first quarter of fiscal 2000. As of the end of the
quarter ended October 31, 1999, $406,000 of the restructuring reserve had been
utilized. The remaining restructuring balance $444,000 primarily relates to the
ongoing lease and upkeep costs of the closed manufacturing facility. The Company
in actively seeking to sublet this facility.
6
<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, weighing and factory automation systems, and related products. Recent
acquisitions have diversified the Company's revenue base and positioned SI
Technologies as an integrator 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.
PRODUCTS AND SERVICES
INDUSTRIAL MEASUREMENT
The Company's industrial sensor and control products consist 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.
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 automation system
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 acquisition/integration growth
strategy.
INDUSTRIAL AUTOMATION
SI's industrial automation 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 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,
AEROPLANKS and AIRSHUTTLE 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 industrial automation 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
7
<PAGE>
rockets and moving large assemblies in and out of assembly line operations in
numerous heavy equipment manufacturing facilities.
RESULTS OF OPERATIONS
SALES
Net sales decreased to $10,492,026 for the quarter ended October 31, 1999
from $11,348,008 for the same period last year. This is a decrease of
$855,982 or 8% from the prior year's first quarter results.
The lower sales in the current quarter reflect the benefit last year's
first quarter received from several non-recurring orders delivered for
sensor products and specialty weighing systems. With these orders excluded,
sales were essentially unchanged between the first quarter of fiscal 2000
and the same quarter in the prior year.
GROSS PROFIT
Gross profit for the quarter was $3,879,532 compared to $4,388,706 in the
first quarter last year. This is a decrease of $509,174 or 12% from the
prior year's first quarter results. The lower gross profit reflects the
impact of the lower sales volume in the quarter. Gross profit as a
percentage of sales was 37% in this year's first quarter as compared to 39%
in last year's first quarter. Variations in gross margin reflect varying
product mixes in one period as compared to another. The non-recurring
orders delivered in last year's first quarter generated higher than average
gross profit and thereby contributed to a rise in last year's recorded
gross margin percentage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG & A expenses decreased to $2,589,967 for the quarter ended October 31,
1999 from $2,689,955 for the same period last year. This is a decrease of
$99,988 or 4% from the prior year's first quarter. SG & A expense as a
percentage of revenue was 25% in this year's first quarter and 24% in the
first quarter of last year.
Total SG & A expenses decreased due to reductions in staffing levels and
associated spending in the industrial measurement business segment. Over
the course of the last four quarters spending reductions have been
implemented in the industrial measurement business which have reduced
overhead.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
RD & E expenditures decreased to $520,315 for the quarter ended October 31,
1999 from $710,918 for the same period last year. This is a decrease of
$190,603 or 27% from the prior year's first quarter. RD & E expenses as a
percentage of revenues decreased to 5% from 6% in the same quarter of last
year.
The RD & E expense decrease reflects cost savings created in the
consolidation of operations within the industrial measurement business
segment. The previously noted restructuring activities has resulted in
concentrating RD & E activities into two, rather than three engineering
sites within the industrial measurement segment. This has resulted in
reduced staffing and lower overhead spending while engineering activities
continue at pre-consolidation levels.
INTANGIBLES
The amortization of intangibles was $112,066 for the quarter ended October
31, 1999 as compared to $112,954 for the same period last year.
INTEREST EXPENSE AND OTHER INCOME,(NET)
Interest expense decreased to $426,157 for the quarter ended October 31,
1999 from $438,339 for the same period last year. This is a decrease of
$12,182 from the prior year's first quarter. The change in interest expense
is the result of lower average debt balances during the quarter which were
offset in part by higher market interest rates as compared to last year's
first quarter.
Other income, net was $6,807 in the first quarter as compared to $1,801 in
last year's first quarter. This is an increase of $5,006 from the prior
year's first quarter.
INCOME TAX EXPENSE
Income tax expense decreased to $142,958 for the quarter ended October 31,
1999 from $237,635 for the same period last year. This is a decrease of
$94,677 or 40% from the prior year's first quarter. The decreased expense
reflects the lower pretax income recorded in the
8
<PAGE>
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, 1999 the Company's cash position was $42,369 compared to $32,042
at July 31, 1999. 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 decreased to $7,330,470 from $7,474,841 at July 31,
1999.
The Company's existing capital resources consist of cash balances, cash provided
by operating activities and funds available under its line of credit. Cash
generated by operations during the quarter ended October 31, 1999 was
$1,128,855. During the same quarter of the prior year, cash was consumed by
operations in the amount of $1,133,125.
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
$500,000 in 2000 as compared to $536,869 in 1999.
In September 1999, the Company amended its principal credit agreement with its
bank. This agreement included the continuation of the Company's existing credit
facilities, including, a line of credit in the amount of $8,000,000, a note (due
April 2000) in the amount of $3,000,000, a seven-year note (due in 2005) in the
amount of $5,000,000 with a balance of $4,106,586 (as of October 31, 1999) and a
seven-year note (due in 2004) in the amount of $1,900,000 with a balance of
$1,289,286 (as of October 31, 1999). The amended credit agreement includes a
requirement that the Company obtain additional equity financing of no less than
$3,000,000 no later than April 2000. 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. The Company is currently completing documentation to
extend the line of credit to November 2000. In the interim, the bank is making
funds available under the terms of the existing facility. As of October 31,
1999, the Company had borrowings of $6,566,150 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, 1999,
the Company had borrowings of $1,241,000 under the line of credit.
The Company believes that cash flow from operations, funds available under its
bank facilities and future equity financing will be sufficient to meet the
Company's working capital needs, anticipated capital expenditures and payments
required under its credit facilities. Additional capital will be required for
the Company to make additional acquisitions. The Company believes that it could
obtain the capital necessary to make 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
9
<PAGE>
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 assessing the year 2000 status of its
significant customers and suppliers. The Company has not developed a contingency
plan to operate in the event that 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 Quarterly Report on Form 10-QSB 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.
10
<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, 1999 /s/ Paul V. Cavanaugh
-----------------------------------
Paul V. Cavanaugh
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 42,369
<SECURITIES> 0
<RECEIVABLES> 7,991,102
<ALLOWANCES> 350,408
<INVENTORY> 9,892,681
<CURRENT-ASSETS> 19,600,057
<PP&E> 6,340,529
<DEPRECIATION> 3,844,400
<TOTAL-ASSETS> 36,075,924
<CURRENT-LIABILITIES> 12,269,587
<BONDS> 0
0
0
<COMMON> 35,471
<OTHER-SE> 11,454,237
<TOTAL-LIABILITY-AND-EQUITY> 36,075,924
<SALES> 10,492,026
<TOTAL-REVENUES> 10,492,026
<CGS> 6,612,494
<TOTAL-COSTS> 6,612,494
<OTHER-EXPENSES> 3,222,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 426,157
<INCOME-PRETAX> 237,834
<INCOME-TAX> 142,958
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,876
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
