<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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
January 31, 2000
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)
14192 Franklin Avenue, Tustin, California 92780
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 505-6483
--------------------------------------------------------------------------
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 March 10, 2000.
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
SI TECHNOLOGIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
(Unaudited)
-------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 97,620 $ 32,042
Trade accounts receivable, less allowance for doubtful
accounts of $391,700 and $339,744, respectively 7,097,203 8,635,695
Unbilled revenues 664,600 126,859
Inventories 10,099,871 10,087,125
Deferred tax asset 1,101,400 1,423,900
Income taxes receivable -- 85,894
Other current assets 670,987 508,961
-------------- ------------
Total current assets 19,731,681 20,900,476
Property and equipment, less accumulated depreciation
and amortization 6,133,300 6,516,834
Other assets:
Intangible assets, net 9,585,321 9,977,856
Other 249,828 272,596
-------------- ------------
$ 35,700,130 $ 37,667,762
============== ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to bank $ 4,323,000 $ 4,767,128
Current maturities of long-term debt 8,054,853 1,039,018
Trade accounts payable 4,092,752 3,559,770
Customer advances 5,700 109,140
Income taxes payable 281,092 --
Accrued liabilities 2,028,646 3,950,579
-------------- ------------
Total current liabilities 18,786,043 13,425,635
Long term debt, less current maturities 4,168,800 11,418,485
Other liabilities 918,368 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 1,230,356 1,108,637
Accumulated other comprehensive income (98,279) (37,402)
-------------- ------------
Total stockholders' equity 11,461,619 11,400,777
-------------- ------------
$ 35,700,130 $ 37,667,762
============== ============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
For the three month period ended For the six month period ended
January 31 January 31
-------------------------------- ------------------------------
2000 1999 2000 1999
------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 9,966,750 $ 10,836,458 $ 20,458,776 $ 22,184,466
Cost of sales 6,412,508 6,575,768 13,025,002 13,535,070
------------- --------------- ----------- ---------------
Gross profit 3,554,242 4,260,690 7,433,774 8,649,396
Operating expenses:
Selling, general and administrative 2,353,709 2,772,206 4,943,676 5,462,161
Research, development and engineering 470,427 717,129 990,742 1,428,047
Amortization of intangibles 117,867 116,937 229,933 229,891
------------- --------------- ----------- ---------------
2,942,003 3,606,272 6,164,351 7,120,099
------------- --------------- ----------- ---------------
Earnings from operations 612,239 654,418 1,269,423 1,529,297
Interest expense (498,146) (425,811) (924,303) (864,151)
Other income (expense), net 7,672 (16,292) 14,479 (14,492)
------------- --------------- ----------- ---------------
Net earnings before income taxes 121,765 212,315 359,599 650,654
Income tax expense (94,922) (78,505) (237,880) (316,140)
------------- --------------- ----------- ---------------
NET INCOME $ 26,843 $ 133,810 $ 121,719 $ 334,514
============= =============== =========== ==============
Earnings per common share-basic $ 0.01 $ 0.04 $ 0.03 $ 0.09
============= =============== =========== ==============
Earnings per common share-diluted $ 0.01 $ 0.04 $ 0.03 $ 0.09
============= =============== =========== ==============
Average shares outstanding-basic 3,547,123 3,547,123 3,547,123 3,547,123
------------- --------------- ----------- ---------------
Average shares outstanding-diluted 3,588,719 3,681,844 3,591,912 3,714,211
------------- --------------- ----------- ---------------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six month period ended
January 31
2000 1999
------------- ------------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities:
Net earnings $ 121,719 $ 334,514
Adjustments to reconcile net earnings to net cash provided by,
(used in) operating activities:
Depreciation and amortization 881,658 1,051,624
Deferred income taxes 286,200 (5,706)
Deferred rent (102,897) (102,455)
Changes in operating assets and liabilities:
Trade accounts receivable 1,538,492 (199,972)
Unbilled revenues (537,741) (207,800)
Inventories (12,746) (13,093)
Refundable income taxes 85,894 --
Other current assets (162,026) (219,257)
Trade accounts payable 532,982 (329,407)
Customer advances (103,440) 710,016
Accrued liabilities (1,746,933) (1,063,582)
Income taxes payable 281,092 (2,968)
------------- ------------
Net cash provided by (used) in operating
activities 1,062,254 (48,086)
Cash flows from investing activities:
Increase in other assets (3,921) --
Purchase of property and equipment (253,900) (327,830)
Acquisition expenses -- (299,065)
------------- ------------
Net cash used in investing activities (257,821) (626,895)
Cash flows from financing activities:
Payments (borrowings) on line of credit (150,312) 1,076,271
Payments on long-term debt (527,666) (622,025)
Cost associated with equity financing -- (26,694)
------------- ------------
Net cash (used) provided by financing activities (677,978) 427,552
Foreign currency translation adjustment (60,877) 39,311
Net increase (decrease) in cash 65,578 (208,118)
Cash at beginning of period 32,042 573,863
------------- ------------
Cash at end of period 97,620 $ 365,745
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 764,889 $ 819,165
Income taxes $ 91,000 $ 432,732
</TABLE>
See notes to consolidated financial statements
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, 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>
January 31, 2000 July 31, 1999
(unaudited)
---------------- -------------
<S> <C> <C>
Raw Materials $ 4,797,300 $ 4,987,726
Work in Progress 1,476,700 1,536,066
Finished Goods 3,825,871 3,563,333
----------- -----------
$10,099,871 $10,087,125
=========== ===========
</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 January 31, 2000
----------------------------------------------------------
EARNINGS/(LOSS) SHARES PER SHARE AMOUNT
--------------- --------- ----------------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common shareholders $ 26,843 3,547,123 $ 0.01
EFFECT OF DILUTIVE SECURITIES
Stock options 41,596
---------
DILUTED EPS
Income available to common shareholders plus
assumed conversions $ 26,843 3,588,719 $ 0.01
=========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the Three Month Period Ended January 31, 1999
--------------------------------------------------------
INCOME SHARES PER SHARE AMOUNT
--------- --------- ----------------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common shareholders $ 133,810 3,547,123 $ 0.04
EFFECT OF DILUTIVE SECURITIES
Stock options 134,721
---------
DILUTED EPS
Income available to common shareholders plus
assumed conversions $ 133,810 3,681,844 $ 0.04
========== ========== =======
</TABLE>
5
<PAGE>
NOTE 3. BASIC NET EARNINGS AND DILUTED NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE CONTINUED
<TABLE>
<CAPTION>
For the Six Month Period Ended January 31, 2000
---------------------------------------------------------------
INCOME SHARES PER SHARE AMOUNT
--------- --------- ----------------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common shareholders $ 121,719 3,547,123 $ 0.03
EFFECT OF DILUTIVE SECURITIES
Stock options 44,789
---------
DILUTED EPS
Income available to common shareholders plus
assumed conversions $ 121,719 3,591,912 $ 0.03
===================== ================ ========================
</TABLE>
<TABLE>
<CAPTION>
For the Six Month Period Ended January 31, 1999
-----------------------------------------------------
INCOME SHARES PER SHARE AMOUNT
--------- -------- ----------------
<S> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Income available to common shareholders $ 334,514 3,547,123 $ 0.09
EFFECT OF DILUTIVE SECURITIES
Stock options 167,088
---------
DILUTED EPS
Income available to common shareholders plus
assumed conversions $ 334,514 3,714,211 $ 0.09
=========== =========== ==========
</TABLE>
6
<PAGE>
NOTE 4. SEGMENT INFORMATION
The Company operates in two reportable business segments - (1) industrial
measurement, and (2) industrial automation. The Company's reportable segments
are strategic business units that offer different products. They are managed
separately based on the fundamental differences in their operations.
Included in the industrial measurement segment are industrial sensors and
controls products consisting of a wide range of NTEP and OIML approved, EX,
Factory Mutual and IP rated load cells, transducers, translators and sensors.
When matched with microprocessor-controlled digital electronics, they measure
forces such as pressure, weight, mass and torque. Also included in the
industrial measurement segment are weighing system products. These products
constitute the combination of load cells and microprocessor-controlled digital
electronics that in combination provide for an integrated system providing
weight data in both dynamic and static industrial weighing applications.
The industrial automation segment consists of load handling, moving and
positioning equipment and systems for applications in manufacturing,
construction and other environments in which heavy bulky materials are being
transported and positioned.
SEGMENT INFORMATION
<TABLE>
<CAPTION>
INDUSTRIAL INDUSTRIAL
MEASUREMENT AUTOMATION SI CONSOLIDATED
------------- ------------- ---------------
<S> <C> <C> <C>
Three months ended
January 31, 2000:
Net sales $ 7,540,336 $ 2,426,414 $ 9,966,750
Cost of sales 5,026,459 1,386,049 6,412,508
------------ ------------- -------------
Gross profit 2,513,877 1,040,365 3,554,242
Gross profit % 33% 43% 36%
Operating expenses 2,026,428 915,575 2,942,003
------------ ------------- -------------
Operating profit 487,449 124,790 612,239
Interest expense (498,146)
Other income, net 7,672
-------------
Net earnings before income
taxes 121,765
Income tax expense (94,922)
-------------
Net income $ 26,843
==============
Assets $ 28,436,152 $ 7,263,978 $ 35,700,130
============= =========== ==============
</TABLE>
7
<PAGE>
NOTE 4. SEGMENT INFORMATION - CONTINUED
<TABLE>
<CAPTION>
SEGMENT INFORMATION INDUSTRIAL INDUSTRIAL
MEASUREMENT AUTOMATION SI CONSOLIDATED
------------- ----------- ---------------
<S> <C> <C> <C>
Three months ended
January 31, 1999:
Net sales $ 9,008,558 $ 1,827,900 $10,836,458
Cost of sales 5,662,668 913,100 6,575,768
----------- ----------- -----------
Gross profit 3,345,890 914,800 4,260,690
Gross profit % 37% 50% 39%
Operating expenses 2,780,072 826,200 3,606,272
----------- ----------- -----------
Operating profit 565,818 88,600 654,418
Interest expense (425,811)
Other expense, net (16,292)
Net earnings before income
taxes 212,315
Income tax expense (78,505)
Net income $ 133,810
============
Assets $32,679,280 $ 7,325,000 $40,004,280
============= =========== ============
</TABLE>
<TABLE>
<CAPTION>
SEGMENT INFORMATION INDUSTRIAL INDUSTRIAL
MEASUREMENT AUTOMATION SI CONSOLIDATED
------------ ----------- ---------------
<S> <C> <C> <C>
Six months ended
January 31, 2000:
Net sales $15,600,242 $ 4,858,534 $20,458,776
Cost of sales 10,301,452 2,723,550 13,025,002
----------- ----------- -----------
Gross profit 5,298,790 2,134,984 7,433,774
Gross profit % 34% 44% 36%
Operating expenses 4,376,429 1,787,922 6,164,351
----------- ----------- -----------
Operating profit 922,361 347,062 1,269,423
Interest expense (924,303)
Other income, net 14,479
------------
Net earnings before income
taxes 359,599
Income tax expense (237,880)
------------
Net income $ 121,719
============
Assets $28,436,152 $7,263,978 $35,700,130
============= =========== ============
</TABLE>
8
<PAGE>
NOTE 4. SEGMENT INFORMATION - CONTINUED
<TABLE>
<CAPTION>
SEGMENT INFORMATION INDUSTRIAL INDUSTRIAL
MEASUREMENT AUTOMATION SI CONSOLIDATED
----------- ----------- ---------------
<S> <C> <C> <C>
Six months ended
January 31, 1999:
Net sales $18,618,766 $ 3,565,700 $22,184,466
Cost of sales 11,517,170 2,017,900 13,535,070
----------- ----------- -----------
Gross profit 7,101,596 1,547,800 8,649,396
Gross profit % 38% 43% 39%
Operating expenses 5,567,299 1,552,800 7,120,099
----------- ----------- -----------
Operating profit (loss) 1,534,297 (5,000) 1,529,297
Interest expense (864,151)
Other income, net (14,492)
------------
Net earnings before income
taxes 650,654
Income tax expense (316,140)
------------
Net income $ 334,514
============
Assets $32,679,280 $7,325,000 $40,004,280
============= =========== ============
</TABLE>
NOTE 5. 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.
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 January 31, 2000,
$571,000 of the restructuring reserve had been utilized. Of this amount,
approximately $176,000 was related to facility close down and lease costs for
a manufacturing facility, $234,000 for the write-down of discontinued
products, $137,000 for employee severance compensation and $24,000 for the
write-down of capital assets. The remaining restructuring requirement
primarily relates to the ongoing lease and upkeep costs of the closed
manufacturing facility. The Company in actively seeking to sublet this
facility. The current estimate for the remaining restructuring activities is
$735,000. The reduction of the current estimate from the original estimate,
totaling $115,000, is incorporated in the results of operations of the quarter
ended January 31, 2000.
9
<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 rockets and moving large assemblies in and out of
assembly line operations in numerous heavy equipment manufacturing facilities.
10
<PAGE>
RESULTS OF OPERATIONS
SALES
Net sales were $9,966,750 for the quarter ended January 31, 2000 as compared to
$10,836,458 for the same period last year. This is a decrease of $869,708 or 8%
from the prior year's second quarter results. Net sales for the six month period
ending January 31, 2000 were $20,458,776 compared to $22,184,466 in the same
period of fiscal 1999. This is a decrease of $1,725,690 or 8% from the prior
year's first six months.
The Company discontinued certain product lines in conjunction with its
restructuring activities and its subsequent consolidation of business units.
This has resulted in lower reported sales this year as compared to the same
periods of last year. In addition, during the quarter ended January 31, 2000,
production of industrial measurement products was initiated at the two
facilities that assumed manufacturing responsibility from the facility closed
in the Company's restructuring. Start up difficulties during this transition
created a shortfall in industrial measurement product deliveries of
approximately $750,000. This shortfall was not recovered in subsequent
months. In addition, order activity for industrial measurement product was
below last year's level by approximately $700,000. Shipments for industrial
automation products were higher than last year by approximately $600,000. In
the industrial automation segment, both standard products and custom
engineered systems were higher than a year ago.
The decrease in sales for the six month period ended January 31, 2000 was the
result of the second quarter activity described above and higher sales in the
first quarter of fiscal 1999 as compared to the first quarter of fiscal 2000
from an approximate $600,000 non-recurring order in the industrial measurement
segment.
GROSS PROFIT
Gross profit for the quarter was $3,554,242 compared to $4,260,690 in the second
quarter last year. This is a decrease of $706,448 or 17% from the prior year's
second quarter results. Gross profit for the six month period ending January 31,
2000 was $7,433,774 compared to $8,649,396 in the same period of fiscal 1999.
This is a decrease of $1,215,622 or 14% from the prior year's first six months.
Gross profit as a percentage of sales was 36% for both the quarter and the six
month period ended January 31, 2000. This compares to 39% for the comparable
periods of last year. The lower gross profit percentage for the quarter is due
primarily to higher manufacturing costs associated with the start up of
production in the new manufacturing locations. The results for the six month
period were likewise impacted and the year to year comparison was also
influenced by delivery of a large order in the prior year that recorded gross
profit margins higher that usual.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $2,353,709 for the
quarter ended January 31, 2000 from $2,772,206 for the same period last year.
This is a decrease of $418,497 or 15% from the prior year's second quarter.
Selling, general and administrative expenses as a percentage of revenue were 24%
in this year's second quarter and 26% in the second quarter last year. Selling,
general and administrative expenses for the six month period ending January 31,
2000 were $4,943,676 as compared to $5,462,161 in the same period of fiscal
1999. This is a decrease of $518,485 or 9%. For the first six months period of
fiscal 2000, selling, general and administrative expenses were 24% as a
percentage of revenue as compared to 25% during the first six months of fiscal
1999.
S,G & A expenses were lower due to lower staffing levels, a less expensive
average cost for the Company's sales force, and consolidation savings from
reduced overhead resulting from the combining of the Company's specialty
weighing businesses and its sensor businesses. Future S,G & A spending is likely
to be somewhat higher in future quarters as the Company has begun a program to
add to its sales resources.
11
<PAGE>
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
Research, development and engineering expenditures decreased to $470,427 for the
quarter ended January 31, 2000 from $717,129 for the same period last year. This
is a decrease of $246,702 or 34% from the prior year's second quarter. Research,
development and engineering expenditures as a percentage of revenues decreased
to 5% from 7% in the same quarter of last year. Research, development and
engineering expenditures were $990,742 for the six month period ending January
31, 2000 as compared to $1,428,047 in the same period of 1999. This is a
decrease of $437,305 or 31% from the same period of fiscal 1999. Expenditures as
a percentage of revenues were 5% in the six month period ended January 31, 2000
as compared to 6% in the same period of last year.
R,D & E expenses were lower due to lower staffing levels and reduced overhead
resulting from the combining of the Company's specialty weighing businesses and
its sensor businesses.
INTANGIBLES
The amortization of intangibles was $117,867 for the quarter ended January 31,
2000 as compared to $116,937 for the same period last year. For the six month
period ending January 31, 2000, amortization of intangibles was $229,933 as
compared to $229,891 in the same period of last fiscal year.
INTEREST EXPENSE AND OTHER INCOME (EXPENSE), (NET)
Interest expense increased to $498,146 for the quarter ended January 31, 2000
from $425,811 for the same period last year. This is an increase of $72,335 or
17% from the prior year's second quarter. For the six month period ending
January 31, 2000, interest expense was $924,303 as compared to $864,151 in the
same period of last fiscal year. This is an increase of $60,152 or 7% from the
prior year's six month period.
The increased interest expense is the result of higher market interest rates
this year as compared to last year.
INCOME TAX EXPENSE
Income tax expense increased to $94,922 for the quarter ended January 31, 2000
from $78,505 for the same period last year. This is an increase of $16,417 or
21% from the prior year's second quarter. For the six month period ended January
31, 2000 income tax expense was $237,880 as compared to $316,140 in the same
period of last year. This is an decrease of $78,260 or 25%.
The effective tax rate for the quarter and the six month period 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 adjustments.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2000 the Company's cash position was $97,620 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 $945,638 from $7,474,841 at July 31, 1999.
The decrease in working capital is due to the reclassification of the Company's
domestic line of credit from long term debt to current maturities of long term
debt. The credit agreement associated with the line of credit expires in
November 2000.
The Company's existing capital resources consist of cash balances, cash provided
by operating activities and funds available under its lines of credit. Cash
generated by operations during the six months ended January 31, 2000 was
$1,062,254. During the same period of the prior year, cash used by operations
was $48,086.
12
<PAGE>
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
$400,000 in fiscal 2000 as compared to $536,869 in 1999.
The Company's principal credit facility is made up of the following: a working
capital line of credit in the amount of $8,000.000, an interest only note in the
amount of $3,000,000, due in April 2000, a seven-year note due in July 2005 with
a balance outstanding of $3,928,571 and a second seven-year note, due in July
2004, with a balance of $1,221,429 as of January 31, 2000. The Company's
$8,000,000 line of credit, maturing November 2000, continues to be extended as
requested. As of January 31, 2000, the Company had borrowings of $7,048,345
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 January 31, 2000,
the Company had borrowings of $1,323,000 under the line of credit.
The Company's credit facility contains covenants requiring the Company to
maintain certain levels of working capital, stockholders' equity, debt leverage
and fixed charge coverage. As of January 31, 2000, the Company was out of
compliance with its fixed charge coverage covenant. The company is currently
renegotiating covenants with its bank.
The Company's principal credit agreement includes a requirement that the
Company obtain additional equity financing of no less than $3,000,000 no
later than April 10, 2000. The Company is currently seeking financing
alternatives that would satisfy this component of its credit facility. The
financing alternatives under consideration include: equity financing,
subordinated debt, and senior debt financing under revised terms. There can
be no assurance that the company will be able to locate such sources of funds
or that such financing can be obtained on terms acceptable to the Company.
YEAR 2000 INITIATIVES
The Company encountered no meaningful disruption of business activity as a
result of Y2K related issues in either its own operations or the operations of
its vendors and customers.
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.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held January 20, 2000 at the
Company's headquarters in Tustin California.
At the annual meeting the shareholders elected the directors as
nominated.
<TABLE>
<CAPTION>
DIRECTOR FOR WITHHELD
-------- --- --------
<S> <C> <C>
Edward A. Alkire 2,899,208 402,390
Rick A. Beets 2,899,208 402,390
Ralph Crump 2,899,208 402,390
S. Scott Crump 2,899,208 402,390
D. Dean Spatz 3,299,098 2,500
Heinz Zweipfennig 2,899,208 402,390
</TABLE>
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.
March 14, 2000 /s/ PAUL V. CAVANAUGH
---------------------------------------
Paul V. Cavanaugh
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
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