<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10 - Q
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
April 30, 1999
SI TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 95-3381440
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4611 South 134th Place, Tukwila, 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 practical date. 3,547,123 shares of
Common Stock, par value $.01 on June 10, 1999.
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1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
SI Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
April 30, 1999 July 31, 1998
---------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 63,090 $ 573,863
Trade accounts receivable, less allowance for doubtful
accounts of $348,224 and $466,134 respectively 7,032,100 7,764,447
Inventories 11,586,426 11,026,104
Deferred tax asset 1,245,000 1,245,000
Net assets held for sale 870,118 -
Income tax receivable 521,768 -
Other current assets 574,917 498,533
---------------------------------------------
Total current assets 21,893,419 21,107,947
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 6,598,386 8,049,006
OTHER ASSETS
Intangible assets, net 9,968,467 10,217,389
Other 377,663 622,663
---------------------------------------------
$ 38,837,935 $ 39,997,005
---------------------------------------------
---------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 5,617,670 $ 5,104,411
Current maturities of long-term debt 1,188,331 1,319,060
Trade accounts payable 2,878,472 3,758,849
Customer advances 149,932 -
Income taxes payable - 134,280
Accrued liabilities 3,905,171 3,901,864
---------------------------------------------
Total current liabilities 13,739,576 14,218,464
LONG-TERM DEBT, less current maturities 12,054,194 12,134,989
OTHER LIABILITIES 1,231,625 1,385,307
DEFERRED TAXES 541,594 547,300
COMMITMENTS and CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, par value $.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 10,320,765
Retained earnings 1,008,214 1,338,352
Accumulated other comprehensive income (66,810) 16,357
---------------------------------------------
Total stockholders' equity 11,270,946 11,710,945
---------------------------------------------
$ 38,837,935 $ 39,997,005
---------------------------------------------
---------------------------------------------
</TABLE>
See notes to consolidated financial statements
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2
<PAGE>
SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three month period ended For the nine month period ended
April 30 April 30
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net sales $ 10,257,792 $ 5,021,993 $ 32,442,258 $ 15,834,167
Cost of sales 6,249,355 2,695,990 19,784,425 8,914,688
-----------------------------------------------------------------------------------
Gross profit 4,008,437 2,326,003 12,657,833 6,919,479
Operating expenses:
Selling, general and administrative 2,864,018 1,467,188 8,326,179 4,095,549
Research, development and engineering 720,197 277,511 2,148,244 795,424
Amortization of intangibles 119,161 77,065 349,052 230,695
Restructuring costs 850,000 - 850,000 -
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4,553,376 1,821,764 11,673,475 5,121,668
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Earnings (loss) from operations (544,939) 504,239 984,358 1,797,811
Interest expense (383,493) (177,448) (1,247,643) (737,236)
Other (income) expense, net 13,773 (2,399) (718) (17,381)
-----------------------------------------------------------------------------------
Net earnings (loss) before income
taxes (914,659) 324,392 (264,003) 1,043,194
Income tax (expense) benefit 250,005 (89,860) (66,135) (371,860)
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NET INCOME (LOSS) $ (664,654) $ 234,532 $ (330,138) $ 671,334
-----------------------------------------------------------------------------------
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Earnings (loss) per common share-basic $ (0.19) $ 0.09 $ (0.09) $ 0.26
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Earnings (loss) per common share-diluted $ (0.18) $ 0.08 $ (0.09) $ 0.24
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Average shares outstanding-basic 3,547,123 2,637,538 3,547,123 2,578,005
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Average shares outstanding-diluted 3,666,273 2,826,008 3,689,942 2,773,995
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</TABLE>
See notes to consolidated financial statements
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3
<PAGE>
SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the nine month period ended
April 30
------------------------------------
1999 1998
------------------------------------
<S>
Increase (Decrease) in Cash <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (330,138) $ 671,334
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization 1,616,392 657,859
Deferred income taxes (5,706) 11,155
Changes in operating assets and liabilities:
Trade accounts receivable 732,347 (1,056,122)
Inventories (560,322) (514,397)
Other current assets (76,384) 109,146
Trade accounts payable (880,377) (638,327)
Customer advances 149,932 -
Accrued liabilities 3,307 (366,285)
Income taxes payable/receivable (656,048) 760,087
Other liabilities (153,682) -
---------------------------------------
Net cash used in operating activities (160,679) (365,550)
Cash flows from investing activities:
Increase in other assets - (28,227)
Purchase of property and equipment (354,881) (122,850)
Disposal of property and equipment 45,732 -
Acquisition expenses (232,819) -
---------------------------------------
Net cash used in investing activities (541,968) (151,077)
Cash flows from financing activities:
Borrowings on line of credit 1,230,975 352,155
Repayment of notes payable - (3,000,000)
Payments on long-term debt (929,240) (572,159)
Cost associated with equity financing (26,694) -
Proceeds of equity financing - 3,686,403
---------------------------------------
Net cash provided by financing activities 275,041 466,399
Foreign currency translation adjustment (83,167) -
Net increase (decrease) in cash (510,773) (50,228)
Cash at beginning of period 573,863 155,826
---------------------------------------
Cash at end of period $ 63,090 $ 105,598
---------------------------------------
---------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,330,818 $ 659,262
Income taxes $ 599,533 $ 337,000
</TABLE>
See notes to consolidated financial statements
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4
<PAGE>
SI Technologies, Inc. and Subsidiaries
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>
April 30, 1999 July 31, 1998
(unaudited)
--------------------------------------------------
<S> <C> <C>
Raw Materials $ 4,771,954 $ 4,782,003
Work in Progress 1,614,322 2,434,209
Finished Goods 5,200,150 3,809,892
--------------------------------------------------
$11,586,426 $11,026,104
--------------------------------------------------
--------------------------------------------------
</TABLE>
NOTE 3. BASIC NET EARNINGS AND DILUTED NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Basic net earnings per share and diluted net earnings per share are based on the
following computations.
<TABLE>
<CAPTION>
For the Three Month Period Ended April 30, 1999
-------------------------------------------------------
Loss Shares Per Share Amount
---- ------ ----------------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common
shareholders $(664,654) 3,547,123 $(0.19)
EFFECT OF DILUTIVE SECURITIES
Stock options 119,150
---------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $(664,654) 3,666,273 $(0.18)
-----------------------------------------------------------------
-----------------------------------------------------------------
<CAPTION>
For the Three Month Period Ended April 30, 1998
-----------------------------------------------------------------
Income Shares Per Share Amount
------ ------ ----------------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common
shareholders $ 234,532 2,637,538 $ 0.09
EFFECT OF DILUTIVE SECURITIES
Stock options 188,470
---------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $ 234,532 2,826,008 $ 0.08
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
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5
<PAGE>
<TABLE>
<CAPTION>
For the Nine Month Period Ended April 30, 1999
---------------------------------------------------------------
Loss Shares Per Share Amount
---- ------ ----------------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common
shareholders $ (330,138) 3,547,123 $ (0.09)
EFFECT OF DILUTIVE SECURITIES
Stock options 142,819
---------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $ (330,138) 3,689,942 $ (0.09)
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Nine Month Period Ended April 30, 1998
---------------------------------------------------------------
Income Shares Per Share Amount
------ ------ ----------------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common
shareholders $ 671,334 2,578,005 $ 0.26
EFFECT OF DILUTIVE SECURITIES
Stock options 195,990
---------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $ 671,334 2,773,995 $ 0.24
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-----------------------------------------------------------------
</TABLE>
NOTE 4. RESTRUCTURING CHARGE
In the third quarter of fiscal 1999, the Company announced a plan to consolidate
its two specialty scale products 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 will result in the
closure of the Company's facility that currently houses the Weighing Systems
Division. In conjunction with this reorganization, the Company established a
restructuring reserve of $850,000. The reserve is composed of $405,000 for lease
costs on vacated leased facilities, $250,000 for the write-down of discontinued
products, $120,000 for employee severance compensation for 42 employees and
$75,000 for the write-down of redundant capital equipment. The consolidation
activities commenced in May 1999. As of April 30, 1999 none of the reserve had
been utilized.
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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 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.
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7
<PAGE>
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 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 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.
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8
<PAGE>
RESULTS OF OPERATIONS
SALES
Net sales increased to $10,257,792 for the quarter ended April 30, 1999 from
$5,021,993 for the same period last year. This is an increase of $5,235,799 or
104% from the prior year's third quarter results. Net sales for the nine month
period ending April 30, 1999 were $32,442,258 compared to $15,834,167 in the
same period of fiscal 1998. This is an increase of $16,608,091 or 105% from the
prior year's first nine months.
The third quarter sales of $10,257,792 compared to sales in the first quarter of
$11,348,008 and sales of $10,836,458 in the second quarter. The reduced sales
volume reflects lower sensor sales and lower sales of engineered weighing
systems, which were offset in part by higher sales of engineered material
handling systems. Sales in the fourth quarter are expected to be higher than the
volume level of the third quarter and to be closer to sales levels recorded in
the first half of the fiscal year.
The increased sales in the quarter and the nine month period are the result of
incremental sales from the inclusion of Revere Transducers and Allegany
Technology operations which were acquired in July 1998. Sales in the current
fiscal year have benefited from increased diversification in both products sold
and markets served as these acquisitions and earlier acquisitions completed by
the Company have reduced the dependence on any single market. In the quarter,
the growth in sales from Revere Transducers and Allegany Technology offset a
reduction in sales in engineered systems sales to weighing systems customers. In
the nine month period, the growth in sales from Revere Transducers and Allegany
Technology offset a reduction in sales in engineered systems sales to both
weighing systems customers and material handling customers. The fourth quarter
beginning backlog for engineered material handling systems is at a level which
should provide a strong fourth quarter for these products. The fourth quarter
beginning backlog for engineered weighing systems and sensor products is at a
level approximating the backlog existing at the beginning of the third quarter.
GROSS PROFIT
Gross profit for the quarter was $4,008,437 compared to $2,326,003 in the third
quarter last year. This is an increase of $1,682,434 or 72% from the prior
year's third quarter results. Gross profit for the nine month period ending
April 30, 1999 was $12,657,833 compared to $6,919,479 in the same period of
fiscal 1998. This is an increase of $5,738,354 or 83% from the prior year's
first nine months.
The third quarter gross profit of $4,008,437 compared to gross profit in the
first quarter of fiscal 1999 of $4,388,706 and gross profit of $4,260,690 in the
second quarter of fiscal 1999. The lower gross profit in the quarter as compared
to the first two quarters of fiscal 1999 reflect the reduced sales volume in the
current quarter.
Gross profit as a percentage of sales was 39.1% in this year's third quarter as
compared to 46.3% in last year's third quarter. For the nine month period ended
April 30, 1999 gross profit as a percentage of sales was 39.0% as compared to
43.7% recorded in the first nine months of last year. These variations in gross
profit margin are the result of varying product mixes in one period as compared
to another. The gross profit margins of future periods are likely to be somewhat
lower than the levels of recent years. Some products and markets of recently
acquired companies experience lower average margins than those the Company has
historically recorded.
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9
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $2,864,018 for the
quarter ended April 30, 1999 from $1,467,188 for the same period last year. This
is an increase of $1,396,830 or 95% from the prior year's third quarter.
Selling, general and administrative expenses as a percentage of revenue were 28%
in this year's third quarter and 29% in the third quarter last year. Selling,
general and administrative expenses for the nine month period ending April 30,
1999 were $8,326,179 as compared to $4,095,549 in the same period of fiscal
1998. This is an increase of $4,230,630 or 103%. For the first nine month period
of 1999, selling, general and administrative expenses were 26% as a percentage
of revenue as compared to 26% during the first nine months of fiscal 1998.
For both the quarter and the nine month period, total S,G&A expenses increased
due to the inclusion of the Revere Transducers and Allegany Technology
operations following the July 1998 acquisitions.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
Research, development and engineering expenditures increased to $720,197 for the
quarter ended April 30, 1999 from $277,511 for the same period last year. This
is an increase of $442,686 or 160% from the prior year's third quarter.
Research, development and engineering expenditures as a percentage of revenues
increased to 7% from 6% in the same quarter of last year. Research, development
and engineering expenditures were $2,148,244 for the nine month period ending
April 30, 1999 as compared to $795,424 in the same period of 1998. This is an
increase of $1,352,820 or 170% from the same period of fiscal 1998. Expenditures
as a percentage of revenues were 7% in the nine month period ended April 30,
1999 as compared to 5% in the same period of last year.
For both the quarter and the nine month period, total R,D&E expenses increased
due to the inclusion of the Revere Transducers and Allegany Technology
operations following the July 1998 acquisitions.
RESTRUCTURING COSTS
In the third quarter of fiscal 1999, the Company announced a plan to
consolidation its two specialty scale products 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 will
result in the closure of the Company's facility that currently houses the
Weighing Systems Division. In conjunction with this reorganization, the Company
established a restructuring reserve of $850,000. The reserve is composed of
$405,000 for lease costs on vacated leased facilities, $250,000 for the
write-down of discontinued products, $120,000 for employee severance
compensation for 42 employees and $75,000 for the write-down of redundant
capital equipment. The consolidation activities commenced in May 1999. As of
April 30, 1999 none of the reserve had been utilized.
The Company anticipates that as a result of these actions, savings of $1,300,000
annually will be realized in future manufacturing overhead and operating expense
levels.
INTANGIBLES
The amortization of intangibles increased to $119,161 for the quarter ended
April 30, 1999 from $77,065 for the same period last year. This is an increase
of $42,096 or 55% from the prior year's third quarter. For the nine month period
ending April 30, 1999, amortization of intangibles was $349,052 as compared to
$230,695 in the same period of last fiscal year. This is an increase of $118,357
or 51% from the prior year's nine month period.
This increase reflects the amortization of intangibles associated with the
acquisition of Allegany Technology made in July 1998.
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10
<PAGE>
INTEREST EXPENSE AND OTHER (INCOME) EXPENSE, (NET)
Interest expense increased to $383,493 for the quarter ended April 30, 1999 from
$177,448 for the same period last year. This is an increase of $206,045 or 116%
from the prior year's third quarter. For the nine month period ending April 30,
1999, interest expense was $1,247,643 as compared to $737,236 in the same period
of last fiscal year. This is an increase of $510,407 or 69% from the prior
year's nine month period.
The increase in interest expense is the result of the debt incurred for the
Revere Transducers and Allegany Technology acquisitions and from increased
working capital needs.
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11
<PAGE>
INCOME TAX EXPENSE (BENEFIT)
Income tax expense decreased to a net benefit of $250,005 for the quarter ended
April 30, 1999 from an expense of $89,860 for the same period last year. This is
a decrease of $339,865 from the prior year's third quarter. For the nine month
period ended April 30, 1999 income tax expense was $66,135 as compared to
$371,860 in the same period of last year. This is a decrease of $305,725 or 82%.
The changes in expense from period to period reflect the changes in pretax
income in the periods. The effective tax rate for the quarter and the nine month
period varies from 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 other non-deductible expenses 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 adjustments.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1999 the Company's cash position was $63,090 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 $8,153,843 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 lines of credit. Cash used
by operations during the nine months ended April 30, 1999 was $160,679. During
the same period of the prior year, cash used by operations was $365,550.
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
$450,000 in 1999 as compared to $217,000 in 1998.
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 $1,425,000 as
of April 30, 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 July 1, 1999. The Company's credit facility requires the Company to
maintain certain levels of working capital, stockholders' equity, and other
covenants. As of March 4, 1999 this credit agreement was extended to November
30, 2000.
The Company's $8,000,000 line of credit, maturing November 2000, continues to be
extended as requested. As of April 30, 1999, the Company had borrowings of
$7,141,984 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 April 30, 1999, the
Company had borrowings of $1,959,288 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
- --------------------------------------------------------------------------------
12
<PAGE>
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 Quarterly Report on Form 10-Q 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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13
<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 8K 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 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.
June 14, 1999 /s/ Paul V. Cavanaugh
-----------------------------------------------
Paul V. Cavanaugh
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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14
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<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
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