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SI TECHNOLOGIES INC
10KSB40, 2000-10-27
MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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SI TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

14192 Franklin Avenue, Tustin, CA 92780
(Address of principal executive offices) (Zip Code)

714-505-6483
Registrant's telephone number, including area code

    Securities registered pursuant to Section 12 (b) of the Act:

None

    Securities registered pursuant to Section 12 (g):

Common Stock, par value $.01 per share
(Title of Class)

    Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      /x/      No      / /

    Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. /x/

    Issuer's revenues for most recent fiscal year            $41,329,345

    The number of shares outstanding of each of the issuer's classes of common stock is 3,547,123

    The aggregate market value of the voting stock held by nonaffiliates of the Registrant is $7,537,636 (as of October 5, 2000).

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the definitive Proxy Statement for the Annual meeting of Shareholders to be held on January 23, 2000 (the "Proxy Statement") are incorporated by reference into Part III.

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PART I

ITEM 1.  BUSINESS

General

    SI Technologies, Inc. and Subsidiaries ("SI" or the "Company") is a 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.

    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 measurement and automation industry. Driving SI's business expansion are both an aggressive internal product development program and the acquisition of businesses with technology and revenue synergy.

    The Company was incorporated in California on May 29, 1979 as IDEA, Invention, Design, Engineering Associates, Inc. and was reincorporated in Delaware on April 20, 1983. In February 1996, the Company changed its name to SI Technologies, Inc. The name SI Technologies serves to preserve a loyal customer following in the Company's dynamic weighing systems business while at the same time representing the broader technologies and business interests of the Company.

    The Company's principal executive offices and headquarters are located at 14192 Franklin Avenue, Tustin, California. Headquarters communication information is as follows: telephone, 714-505-6483, fax, 714-505-6484, e-mail address, [email protected], Web site, www.sitechnologies.com.

Business Strategy

    The Company aspires to become a leading provider of manufactured devices, equipment, engineered systems and services used in the niche industrial markets in which it operates and to expand its markets through acquisition of complementary product and service lines as an industry integrator in the $70-billion industrial measurement and automation industry. SI Technologies has experienced significant growth from 1994 to 1999 through a combination of internal growth and strategic acquisitions.

Internal Growth

    The Company expects to continue generating organic growth through internal product development, entrance into new markets and geographic expansion. In recent years, internal growth has been hampered by reduced market demand for the Company's onboard scale product line and elimination of several low margin product lines. Current internal growth activities are focused on the integration of technologies across product lines and business units, expansion and training of distribution channels to effectively cross-sell products to key markets and a restructuring of sales operations to improve the Company's ability to enter new markets.

Acquisition Strategy

    SI Technologies pursues a strategy of acquiring leading providers of complementary manufactured products and services in highly fragmented industrial equipment markets, with a view to further

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consolidating those markets. In general, the Company pursues the acquisition of businesses that meet the following criteria:

•

Well-managed companies serving the industrial measurement and automation market



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Products utilizing technology compatible with SI core technologies



•

Significant installed product base and successful operating history



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Complementary products and services that offer cross-selling opportunities



•

Potential for international business expansion



•

Predictable cash flow and earnings potential

    SI believes its integration strategy will allow it to achieve greater efficiencies in acquired companies through elimination of redundant costs and by leveraging economies of scale in manufacturing operations, and procurement of materials and services. Past the early stages of assimilating acquired companies, SI expects to capitalize on revenue synergies developed through cross-selling, joint market development, and sharing and integration of technology across product lines and business units.

    The Company intends to finance acquisitions primarily with debt, relieved subsequently by capital raised through the sale of equity. As the momentum of the growth plan increases, the Company expects to utilize equity on an increasing basis as currency in acquisition and merger transactions.

    Since 1990, SI Technologies has completed eight acquisitions.

    Further acquisition detail may be found under the Acquisition History section.

Current Acquisition Activities

    In pursuit of the Company's growth strategy, management is continuously evaluating acquisition/merger opportunities with numerous companies ranging in size from $5 million to $50 million in annual revenue. Companies of interest are leading manufacturers, distributors and service providers who compete with technology advantage, are generating internal growth, and show potential for strong

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synergy with the Company's technology, manufacturing operations and marketing and sales organization.

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.

    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, manufacturing, mining, steel, transportation 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.

    All systems include force measurement sensors and microprocessor-based electronic instrumentation. The instrumentation supplies power to the sensors, provides all operator interface and controls, processes sensor electronic signals to determine weights, and displays and records in memory weight information and other inputs from the system and/or the operator. Force measurement sensors

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employing electronic strain gage technology measure force values. The electrical resistance of force measurement sensors changes proportionally to the force applied; thus the return signal to the meter varies by load or force.

    The company's static weighing system product line consists of scales designed for numerous industrial and aviation weighing applications. Key products marketed under the trade names Air Guardian, Jet Weigh, Lodec, MTSERIES, Road Guardian, and Road Runner are permanent and portable axle scales, wheel-load weighers, canister load cell systems and heavy-capacity platform scales. Much like dynamic weighing systems, the static weighing systems have broad industrial application. Key markets in which these products enjoy significant market share include aggregate, aviation, construction, freight terminals, land remediation, mining and weight enforcement. Static weighing systems utilize the same technology as dynamic weighing systems; however, they are designed to weigh loads in a static or stationary mode.

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.

    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 industrial automation 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, precision movement and positioning, and high efficiency assembly line automation.

Marketing and Sales

    The Company's products are marketed throughout the world primarily through 400 distributors and manufacturer representatives, each operating in a specific trade area and serving industrial customers, engineering firms and various government agencies. In addition to headquarters marketing and sales personnel, and subsidiary business unit marketing and sales operations, the Company

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maintains North American regional sales offices in California, Illinois, Maryland, Michigan, North Carolina, Oregon, Washington and British Columbia and Alberta, Canada; and European regional sales offices in France, Germany, the United Kingdom and the Netherlands. Company regional sales personnel assist distributors and representatives, make direct sales calls on potential customers in areas not covered by distribution, and support the Company's direct major accounts.

    The Company generates leads through a full complement of marketing practices, including advertisement in industry publications, direct-mail advertising, direct-fax advertising, trade show participation and telemarketing. Headquarters and subsidiary personnel initiate the Company's sales process on all inquiries by providing the inquirer with information on Company products and services and qualifying the lead. After qualification, inquiries are either maintained in sales for follow-up by Company sales personnel and distribution, or dispatched to engineering for design, cost estimating and preparation of price quotations or bid packages.

    Due to the Company's mix of standard off-the-shelf products and custom-engineered products, the time period between initial inquiry, purchase order receipt and shipment varies widely. Standard product orders are normally shipped within one to three days of purchase order receipt at published prices and with trade terms of FOB factory and 30 days net. Engineered products and projects are subject to specific contract terms negotiated between the Company and customer. Typically, contract terms provide for progress payments, provision for change orders and, on longer-term projects, provision for inflation-based price adjustment. On certain projects, the Company provides complete site preparation, system installation, start-up and customer training services. In this capacity, from time to time, the company serves as a contractor on a time and material basis.

Market Conditions and Competition

Market Conditions

    Worldwide capital expenditures for industrial measurement and automation equipment and systems have averaged about $70 billion in recent years, with domestic spending accounting for approximately 30% of the total. Overall industry growth approximates inflation. Although the overall industry is mature, the Company believes our unique products, diversity of markets and worldwide geographic presence present significant opportunities for internal growth within the industry. Additionally, the high fragmentation of the industry provides similar opportunities for execution of the Company's acquisition strategy.

    Product uniqueness (niche products) is a competitive advantage for SI. Manufacturers of conventional mature products competing for market share with non-differentiated products normally compete primarily on product price and availability. SI's unique products such as dynamic weighing and air-bearing load-handling and factory automation systems frequently compete within the industry as substitute products or as an alternative means for meeting the customers' needs. As a result of this high level of product differentiation and the application versatility of SI's unique products, the Company believes demand for SI products is more elastic than demand for conventional products within the industry.

    Market diversity is a growing competitive advantage for SI. Over the past few years, SI has been redirecting its focus to new markets in an effort to mitigate a sharp capital spending downturn in the Company's traditionally strong forestry and waste management markets. Since the 1996 acquisition of Evergreen Weigh and Load Measurement Corporation, cross-selling of products and integration of Company sales organizations have steadily increased revenues in the aggregate, agriculture, aviation, construction and mining industries. With the acquisition of AeroGo late in fiscal 1997, and the acquisitions of NV Technology, Allegany Technology and Revere Transducers in fiscal 1998, the Company has further expanded its market diversity and potential for revenue synergies. The Company

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intends to capitalize on its growing market diversity, worldwide presence and cross-selling opportunities with an expanding product line to create internal growth.

    SI maintains inventories of raw materials, work-in-process and finished goods. To supply products with competitive availability, the Company carries approximately 35% of inventory in finished goods. While the Company manufacturers the majority of its value-added components, certain components, manufacturing processes and sub-assemblies are outsourced. Outsourced items are normally purchased on fixed price contracts on a just-in-time basis. Should the need arise, the Company believes that any supplier and/or subcontractor could be replaced without significant disruption to its business.

Competition

    Competition in the industrial measurement and automation equipment and system industry is extremely fragmented with approximately 6,000 manufacturers and a greater number of distributors and service companies. To the Company's knowledge, there are no competitors with the same product mix as SI. Direct competitors (competing head-to-head with similar products) normally compete on a single product line and are smaller and have less financial resources than SI. General industry-wide competitors (competing with alternative conventional products) range from very small, local companies to large, international companies with greater financial resources than SI.

    In the dynamic and static weighing systems product line, direct competitors are all smaller, privately held companies. Occasionally and on specific applications, the weighing systems product line competes as an alternative product with larger companies that manufacture conventional weighing systems. These companies include Cardinal Scale Manufacturing Company, Fairbanks Scale Company, Mettler-Toledo Holding, Inc. and Weigh-Tronix, Inc. Competition among larger manufacturers of conventional weighing systems, due to lack of product differentiation, is principally based on price, local dealer trade-area presence and relationships, and product availability.

    Competition in the industrial sensor and control product line varies widely depending on customer type and application. Industry standard sensors sold directly to large industrial scale manufacturers compete primarily on price, quality and service. Standard and custom sensors sold to OEMs of other types of products and equipment, and to user customers in process industries, primarily compete on the supplier's ability to provide engineering expertise and assistance, quality, and on-going customer support and service. Competitors range from small, local companies to large, international companies.

    Competition in load handling and factory automation products is similar to weighing system products. In the air and water bearing product line, all competitors are smaller, privately held companies with less financial resources than the Company. Direct competitors include Airfloat, Hovair, and Aircaster. In custom-engineered products and projects, the Company normally competes as a substitute or alternative product versus conventional material-handling equipment manufactured by companies ranging in size from much smaller to significantly larger than the Company.

    International markets vary widely in competitive issues. In some countries, price competition is more intense than in North America, while in others prior relationships and product quality receive more customer emphasis than do marginal pricing differentials, thus price competition is less intensive. As a result of product uniqueness, innovative design solutions, quality of product and dependability, SI products and services are frequently sold in situations where the Company is not the low bidder.

Significant Customers

    Historically the Company's primary customers have been transportation, agriculture, forestry, manufacturing, waste management and general industrial companies. Over the past few years, as a result of the Company's growth strategy, the customer base has expanded to include the aviation/ aerospace, automotive, food processing, construction and maritime industries. Significant customers in

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recent years include Boeing, Caterpillar, Carrier, Chrysler, Ford, Hyundai, Kraft Foods, Lockheed, Michelin, Mitsubishi, NASA, Siemens, and Thiokol.

    While a significant portion of the Company's annual revenues represent repeat business from its customers, no individual customer represents 10% or more of the Company's revenues.

Acquisition History

Acquisition of Lodec, Inc.

    In March 1990, the Company acquired Lodec, Inc., a Washington corporation. As a manufacturer of dynamic and static weighing systems, Lodec was a direct competitor of the Company at the time of acquisition. Lodec's primary product at the time of acquisition was an on-board weighing system. The acquisition of Lodec increased the Company's market share in on-board weighing systems, expanded the product line through the addition of Lodec portable axle scales, and brought the Company an international dealer organization in Latin America, Europe and Asia.

Asset Purchase from Advanced Recording Instruments, Inc.

    In October 1995, the Company purchased the assets of Advanced Recording Instruments, Inc. (ARI). The asset purchase included the ARI on-board data recorder and operations information system product lines, all related technology, trade names, inventory and fixed assets. Acquisition of the ARI product line strengthened the Company's ability to serve a growing customer demand for operations information useful for improving the performance of material-handling and transportation operations.

Acquisition of Evergreen Weigh, Inc.

    In April 1996, the Company acquired Evergreen Weigh, Inc. (Evergreen), a Washington corporation. Evergreen is a manufacturer of dynamic and static weighing systems. Evergreen's primary products include weigh-in-motion on-board scales for material-handling equipment, axle scales and wheel-load weighers. Key markets served by Evergreen products include the aviation, heavy construction, mining, quarry and transportation industries. The acquisition of Evergreen expanded the Company's product line and increased the number of markets in which the Company sells products. SI and Evergreen sales organizations merged into one integrated sales organization shortly after the acquisition.

Asset Purchase from Load Measurement Corporation

    In June 1996, the Company purchased the assets of Load Measurement Corporation (LMC). The asset purchase included the LMC on-board weighing system product lines, all related technology, trade names and inventory. LMC products are designed for and marketed primarily to the agriculture industry.

Acquisition of AeroGo, Inc.

    In July 1997 the Company acquired AeroGo, Inc., a Washington corporation. AeroGo is a world leader in the design and manufacture of load-handling, moving, positioning and factory automation equipment and systems. AeroGo products, utilizing both standard and highly specialized air bearing movement systems, are marketed chiefly to aviation/aerospace, automotive, construction, manufacturing, maritime and general industry. AeroGo's factory automation expertise lies in the design and manufacturing of heavy load moving equipment, die carts, automated guided vehicle systems, transport skates, sideloaders, step conveyors and flexible manufacturing systems.

    The acquisition of AeroGo provided the Company with an entrance to the industrial automation industry where additional acquisitions of complementary products and businesses will be pursued.

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Acquisition of NV Technology, Inc.

    In February 1998, the Company acquired NV Technology, Inc. (NV), a Nevada corporation. The transaction, which was a tax-free merger, was accounted for as a pooling-of-interest. NV is a manufacturer of high-performance, stainless steel sensors. The addition of NV's National Institute of Science & Technology (NIST) certified products expanded the Company's business in legal-for-trade, weighing and process control applications.

Acquisition of Allegany Technology, Inc.

    In July 1998, the Company acquired Allegany Technology, Inc. (Allegany), a Delaware corporation. Allegany is a leading designer and manufacturer of specialty sensors, industrial crane, and lift truck scales, along with billet weighing systems. Allegany's unique billet weighing systems increase productivity and profitability in the steel and heavy metals industries. Other major markets for Allegany products include aerospace, distribution, manufacturing, transportation and warehousing. Allegany products expanded the Company's strong position as a manufacturer of weighing products for niche markets.

Acquisition of Revere Transducers

    In July 1998, the Company acquired Revere Transducers, Inc. and Revere Transducers Europe B.V. (Revere) from Harnischfeger Industries (NYSE-HPH). Revere is headquartered in Tustin, California, with operations in Tustin and Breda, the Netherlands. Revere is one of the four largest manufacturers of electronic weighing load cells, sensors and related devices in the industry, with world wide market share estimated at 8%. In addition to a highly recognized brand name, the acquisition of Revere brought the Company new technology and manufacturing capability in the design and manufacture of proprietary strain gages and a manufacturing facility and marketing organization in Europe.

2000 Business Combination and Facility Consolidation

    In 2000 the Company completed the internal consolidation plan announced in the third quarter of fiscal 1999. At that time, the Company announced plans to combine four business units and to restructure manufacturing operations resulting in the closure of one manufacturing facility. In recognition of the expenses associated with this restructuring, the Company established an $850,000 reserve in the third quarter of 1999 to cover expenses related to implementation of the plan. Upon announcement of the plan, the Company estimated future savings of approximately $1.3 million annually due to lower manufacturing overhead and operating expenses as a result of the restructuring.

    Under the Plan, Allegany Technology of Cumberland, Maryland and the Weighing Systems Division, of Seattle, Washington were combined to form SI/Allegany. SI/Allegany now operates from a Cumberland, Maryland headquarters, with it's western US markets served from a Seattle based Sales & Service Center. Additionally, the Company combined its two sensor businesses, Revere Transducers, of Tustin, California and NV Technology, of Seattle, Washington. The newly formed sensor business unit operates from a Tustin, California headquarters and has retain the name Revere Transducers.

Backlog

    At July 31, 2000, the Company's backlog was $6,502,133, compared with $8,433,983 on July 31, 1999. The Company's backlog consists of written orders and commitments believed to be firm and shippable in fiscal 2000. Purchase orders and contracts for products and services are from time to time modified and/or canceled by mutual consent between the Company and the customer. Therefore, the backlog on any specific date may not be indicative of the Company's future performance.

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Employees

    At July 31, 2000, the Company employed 404 full time employees.

Sources of Supply

    The materials and components used by the Company to manufacture its products are available from a variety of sources. The Company believes that it is not dependent at this time on any particular supplier for either its materials or components and has experienced no difficulty in obtaining supplies.

Patents and Trademarks

    The Company holds numerous patents on various force measurement devices and weighing system design applications. The patents have expiration dates ranging from 2000 to 2016. The company also has patent license agreements to build force measurement devices under patents held by others. The license agreements are fully paid up and irrevocable for the lifetime of these patents. The Company has no reason to believe its patents are not valid. However, if the patents were successfully contested, management does not believe it would have a material adverse impact on the Company.

Financial Information about Foreign Operations and Export Sales

Foreign Operations

    Included in the consolidated balance sheet at July 31, 2000 are the identifiable assets of the Company's subsidiary, Revere Transducers Europe B.V., which total approximately $4,368,800. Revere Transducers Europe, located in the Netherlands, was acquired by the Company at July 1, 1998.

Export Sales

    The Company sells its products throughout the world. Net export sales by foreign geographic area are as follows:

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ITEM 2.  PROPERTIES

Location		Segment		Utilization		Square Footage		Leased or Owned		Lease Termination
UNITED STATES
Tukwila, WA		Industrial Measurement		Former Corporate offices and Weighing Systems Division operations		30,000		Leased		April 2004
Tustin, CA		Industrial Measurement		Corporate offices and Headquarters and U.S. operations for Revere Transducers		93,000		Leased		November 2004
Tukwila, WA		Industrial Automation		Headquarters and operations for AeroGo		55,000		Leased		April 2004
Cumberland, MD		Industrial Measurement		Headquarters and operations for SI/Allegany Technology		33,000		Leased		May 2006
Cumberland, MD		Industrial Measurement		Aircraft hanger		4,200		Owned
INTERNATIONAL
Breda, the Netherlands		Industrial Measurement		European operations for Revere Transducers		22,000		Leased		June 2007
Kelowna, B.C., Canada		Industrial Measurement		Canadian Sales & Service Center		3,000		Leased		May 2001

    The Company believes that its properties have been adequately maintained, are in generally good condition and are suitable for the Company's business as presently conducted. The Company believes its existing facilities provide sufficient production capacity for its present needs and for its anticipated needs in the foreseeable future. The Company also believes that upon the expiration of its current leases, it either will be able to secure renewal terms or enter into leases for alternative locations at market terms.

ITEM 3.  LEGAL PROCEEDINGS

    The Company is engaged in various legal actions. In the opinion of management, based upon the advice of counsel, the ultimate outcome of these actions will not have a material impact on the Company's consolidated financial statements.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of Security Holders during the quarter ended July 31, 2000.

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PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

    As of October 5, 2000, there were 205 shareholders of record. Management believes this represents approximately 600 beneficial owners of SI common stock. SI's common stock is traded on the over-the-counter market on the NASDAQ system under the symbol "SISI." The Company has not declared nor paid any dividends since its inception. The following chart describes the price range of Common Shares of SI, as quoted by NASDAQ, by quarter for fiscal 2000 and fiscal 1999:

Price Range of Common Shares

Dividend Policy

    The Company has never declared nor paid cash dividends on the Common Stock. The Company intends to retain all future earnings for reinvestment in its business and does not plan to pay dividends in the foreseeable future. Furthermore, the Company is prohibited from declaring and/or paying cash dividends on its capital stock under the terms of certain indebtedness.

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SI TECHNOLOGIES, INC.
Selected Consolidated Financial Data
Year ended July 31:

		2000			1999			1998			1997(1)			1996(1)
Net sales		$	41,329,345		$	44,688,775		$	23,829,033		$	14,123,243		$	12,385,777
Net earnings (loss)			351,190			(229,715	)		830,379			499,276			666,546
Net earnings (loss) per share basic			.10			(.07	)		0.30			0.20			0.26
Net earnings (loss) per share diluted			.09			(.07	)		0.28			0.19			0.25
Total assets			33,017,669			37,667,762			39,997,005			17,604,726			10,131,990
Long-term debt, less current portion			10,809,300			11,418,485			12,134,989			4,348,405			1,952,162
Other long-term obligations			976,253			1,422,865			1,773,475			178,300			468,000

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as restated for the NV Technology acquisition

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ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    As an aid to understanding the Company's operating results, the following table indicates the percentage of revenues that each income statement item represents and the percentage increase or decrease in such items for the years indicated. Since 1990, the Company has acquired eight businesses.

								Percent Increase/(Decrease)
		Year ended July 31
								2000 vs. 1999		1999 vs. 1998
		2000		1999		1998
Net sales		100.0	%	100.0	%	100.0	%	(7.5	)%	87.5	%
Cost of sales		64.7		61.7		57.4		(3.1	)	101.7
Gross profit		35.3		38.3		42.6		(14.6	)	68.4
Selling, general and administrative		23.6		25.4		26.1		(14.3	)	82.9
Research, development and engineering		4.6		6.4		5.2		(34.0	)	130.7
Amortization of intangibles		1.1		1.0		1.4		5.9		31.2
Restructuring charges		—		1.9		—		(100.0	)	100.0
Operating expenses		29.3		34.7		32.7		(22.0	)	99.2
Operating profit		6.0		3.5		9.9		58.0		(33.1	)
Interest expense		(4.5	)	(3.7	)	(4.0	)	12.3		74.3
Other income		0.1		0.1		—		—		386.8
Earnings (loss) before income tax expense		1.7		(0.1	)	5.9		—		(103.4	)
Income tax expense		(0.8	)	(0.4	)	(2.4	)	89.7		(69.1	)
Net earnings (loss)		0.9		(0.5	)	3.5		—		(127.7	)

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RESULTS OF OPERATIONS

    In 2000 the Company focused on completing the internal consolidation announced in late 1999. Sales declined due to product line rationalization and strategic eliminations, the strong US dollar and temporary production problems experienced in newly consolidated manufacturing facilities. Cash flow, as measured by EBITDA, remained strong allowing the Company to make substantial reductions in debt and accrued liabilities. Due to the magnitude of recent acquisitions, and the integration of the acquired operations with the Company's existing businesses, results of operations for prior periods are not necessarily comparable with or indicative of results of operations for current or future periods.

NET SALES

    Net sales for the year ended July 31, 2000 declined to $41,329,345 or 7.5% from $44,688,775 for the year ended July 31, 1999. The decrease in sales is primarily attributable to product line rationalization and strategic eliminations, lower export sales resulting from the strong US dollar, including currency exchange devaluation in the Company's European operations, and temporary production problems experienced in newly consolidated manufacturing facilities.

    Net sales for 1999 increased by $20,859,772 or 87.5% over the 1998 net sales of $23,829,003. The increase in sales is primarily attributable to the added product lines resulting from the acquisitions of AeroGo, Inc., Allegany Technology, Inc., NV Technology, Inc. and Revere Transducers.

GROSS PROFIT

    Gross profit for the year ended July 31, 2000 decreased $2,504,348 or 14.6% to $14,603,471 from $17,107,819 for the year ended July 31, 1999. The decrease in gross profit is primarily attributable to lower sales volume and product mix. The new measurement products and markets entered as a result of the sales growth generated by companies acquired in recent years compete in lower gross margin industries. The corresponding gross margins for the periods were 35.3% and 38.3%, respectively. The year over year decrease in gross margin is the result of the changing mix of products resulting from product lines acquired in 1998. Gross margin was also negatively impacted by excess capacity in the industrial measurement industry and increased pricing pressure from competitors manufacturing products in off-shore low cost labor markets.

    Gross profit for the year ended July 31, 1999 increased $6,951,165 to $17,107,819 from $10,156,654 for the year ended July 31, 1998. This increase in gross profit is directly attributable to higher sales volume resulting from acquisitions completed in later fiscal 1997, and in fiscal 1998. The corresponding gross margins for the periods were 38.3% and 42.2%, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    Selling, general and administrative expenses for the years ended July 31, 2000 and 1999 were $9,740,242 and $11,364,869, respectively. This is a decrease of $1,624,627 or 14.3%. The decrease results from the business combinations and facility consolidation implemented during the year. Selling, general and administrative expenses as a percentage of sales were 23.6% in 2000 as compared to 25.4% in 1999.

    Selling, general and administrative expenses for the years ended July 31, 1999 and 1998 were $11,364,869 and $6,212,443, respectively. This is an increase of $5,152,426 or 83%. The increase is primarily related to the acquisitions made in 1998.

15

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RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES

    Research, development and engineering expenses for the years ended July 31, 2000 and 1999 were $1,892,656 and $2,866,494, respectively. This is a decrease of $973,838 or 34%. The decrease in dollar amount is attributable to the business unit combinations and facility consolidation implemented during the year.

    Research, development and engineering expenses for the years ended July 31, 1999 and 1998 were $2,866,494 and $1,242,533, respectively. This is an increase of $1,623,961 or 131%. The increase in dollar amount is attributable to the acquisitions noted earlier.

AMORTIZATION EXPENSES

    Intangible amortization expenses amounted to $471,368 in 2000 as compared to $444,889 in 1999. This is an increase of $26,479 or 6%. In 1998 intangible amortization was $339,114. The increases in amortization in both years were the results of increases in the costs in excess of assets acquired recorded for the acquisitions completed during prior years.

RESTRUCTURING CHARGES

    In 2000 the Company completed the internal restructuring plan announced in late 1999. In 1999 the Company recorded restructuring charges totaling $850,000 in connection with a plan to combine four business units and to restructure manufacturing operations resulting in the closure of one manufacturing facility. The charges related to severance and other related benefits and costs of exiting the facility to be closed, including lease termination costs, and write-down of existing assets to their expected net realizable value. As of July 31, 2000, the balance of the restructuring reserve had been depleted.

INTEREST AND OTHER INCOME

    Interest expense for 2000 increased $203,579 or 12.3%, to $1,860,131 from $1,656,552 in 1999. Interest expense in 1998 was $950,601. These increases in interest expense reflect the rising interest rates on the Company's debt required for financing the AeroGo, Allegany Technology and Revere Transducers acquisitions in 1999 and 1998. Other income was $55,724 in 2000 as compared to $26,366 in 1998. In 1998 other income was $5,414.

INCOME TAXES

    Income tax expense for the years ended July 31, 2000 and 1999 was $343,608 and $181,096, respectively. The Company's effective tax rate (income tax expense as a percentage of pretax income) was 49.5% in 2000. An effective tax rate is not calculable in 1999 due to the recording of a loss before income taxes. The effective tax rate exceeds the U.S. federal corporate income tax rate due primarily to the amortization of intangible assets that are 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.

16

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LIQUIDITY AND CAPITAL RESOURCES

    At July 31, 2000 the Company's cash position was $112,286 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 increased to $8,223,710 from $7,407,338 at July 31, 2000.

    The Company's existing capital resources consist of cash balances, cash provided by operating activities and funds available under its line of credit. Cash provided by operations in 2000 was $2,995,161. During 1999, cash provided by operations was $937,902.

    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 2001 as compared to $484,529 in 2000. Excluding payments under the Company's lines of credit, principal payments made under notes payable and long-term debt totaled approximately $1,226,580 for the year ended July 31, 2000. In 2001, approximately $3,804,968 in principal and long-term debt will be due on notes payable and debt obligations.

    Subsequent to July 31, 2000, and retroactive to July 31, 2000, the Company amended its principal credit agreement with its bank, extending the $8,000,000 line of credit to November of 2001, thus the line of credit has been recorded as long term debt. As of July 31, 2000, the Company had borrowings of $6,408,500 under the line of credit. In April of 2000, the maturity date of the Company's one-year note of $3,000,000 was extended, and its terms were modified to include monthly principal payments of $62,500, plus interest. The current maturity date of the note is May 2001 and as of July 31, 2000, its principal balance was $2,812,500.

    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 July 31, 2000, the Company had borrowings of $729,374 under the line of credit. This line of credit expires November 2002 and has been recorded as long term debt.

    The Company believes that cash flow from operations and funds available under its bank facilities will be sufficient to meet the Company's working capital needs and principal payments on long term debt. Repayment of the $2,812,500 note due May 2001 will require capital from an equity financing or negotiation of revised terms with the bank. 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. 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 experienced 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 Annual Report on Form 10-KSB includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in the preceding discussion regarding the

17

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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.

ITEM 7.  FINANCIAL STATEMENTS

		(Form 10-KSB) Pages(s)
Report of Independent Certified Public Accountants		19
Consolidated Balance Sheets		20
Consolidated Statements of Operations		21
Consolidated Statement of Stockholders' Equity and Comprehensive Income		22
Consolidated Statements of Cash Flows		23
Notes to Consolidated Financial Statements		24-39

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Report of Independent Certified Public Accountants

Board of Directors
SI Technologies, Inc. and Subsidiaries

    We have audited the accompanying consolidated balance sheets of SI Technologies, Inc. and Subsidiaries as of July 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended July 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SI Technologies, Inc. and Subsidiaries as of July 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended July 31, 2000, in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Irvine, California
October 20, 2000

19

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SI Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
July 31,

ASSETS

						2000			1999
CURRENT ASSETS
	Cash					$	112,286		$	32,042
	Trade accounts receivable, less allowance for doubtful accounts of   $221,000 in 2000 and $340,000 in 1999						7,157,160			8,635,695
	Unbilled revenues						—			126,859
	Inventories, net						8,866,766			10,087,125
	Deferred tax asset						970,360			1,423,900
	Income taxes receivable						—			85,894
	Other current assets						657,059			441,458
				Total current assets			17,763,631			20,832,973
PROPERTY AND EQUIPMENT, less accumulated depreciation and   amortization							5,648,963			6,516,834
OTHER ASSETS
	Intangible assets, net						9,279,751			9,977,856
	Other						325,324			340,099
						$	33,017,669		$	37,667,762

LIABILITIES AND STOCKHOLDERS' EQUITY

						2000			1999
CURRENT LIABILITIES
	Current maturities of long-term debt					$	3,804,968		$	5,564,018
	Accounts payable						3,324,559			3,559,770
	Customer advances						352,974			109,140
	Accrued liabilities						2,057,420			4,192,707
				Total current liabilities			9,539,921			13,425,635
LONG-TERM DEBT, less current maturities							10,809,300			11,418,485
OTHER LIABILITIES							816,355			1,021,265
DEFERRED TAXES							159,898			401,600
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;   issued and outstanding 3,547,123						35,471			35,471
	Additional paid-in capital						10,326,711			10,294,071
	Retained earnings						1,459,827			1,108,637
	Accumulated other comprehensive income						(129,814	)		(37,402	)
							11,692,195			11,400,777
						$	33,017,669		$	37,667,762

The accompanying notes are an integral part of these statements.

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SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended July 31,

				2000			1999			1998
Net sales				$	41,329,345		$	44,688,775		$	23,829,033
Cost of sales					26,725,874			27,580,956			13,672,379
		Gross profit			14,603,471			17,107,819			10,156,654
Operating expenses:
	Selling, general and administrative				9,740,242			11,364,869			6,212,443
	Research, development and engineering				1,892,656			2,866,494			1,242,533
	Amortization of intangibles				471,368			444,889			339,114
	Restructuring charges				—			850,000			—
					12,104,266			15,526,252			7,794,090
		Earnings from operations			2,499,205			1,581,567			2,362,564
Interest expense					(1,860,131	)		(1,656,552	)		(950,601	)
Other income, net					55,724			26,366			5,416
		Net earnings (loss) before income tax expense			694,798			(48,619	)		1,417,379
Income tax expense					(343,608	)		(181,096	)		(587,000	)
		NET EARNINGS (LOSS)		$	351,190		$	(229,715	)	$	830,379
Earnings (loss) per common share				$	.10		$	(.07	)	$	.30
Earnings (loss) per common share, assuming dilution				$	.09		$	(.07	)	$	.28

The accompanying notes are an integral part of these statements.

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SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Three years ended July 31, 2000

		Common Stock											Accumulated other comprehensive income
							Additional paid-in capital			Retained earnings						Total stockholders' equity			Comprehensive income
		Shares		Amount
Balance, July 31, 1997		2,547,240		$	25,472		$	5,391,256		$	507,973		$	—		$	5,924,701
Expiration of put option obligations		—			—			385,000			—			—			385,000
Compensation associated with stock bonus		—			—			72,000			—			—			72,000
Proceeds from exercise of stock options		18,000			180			29,632			—			—			29,812
Proceeds from sale of common stock, net of issuance costs		839,664			8,397			3,644,303			—			—			3,652,700
Issuance of common stock related to acquisition		142,219			1,422			798,574			—			—			799,996
Foreign currency translation adjustment		—			—			—			—			16,357			16,357			16,357
Net earnings		—			—			—			830,379			—			830,379			830,379
Comprehensive income																				846,736
Balance, July 31, 1998		3,547,123			35,471			10,320,765			1,338,352			16,357			11,710,945
Cost associated with equity financing		—			—			(26,694	)		—			—			(26,694	)
Foreign currency translation adjustment		—			—			—			—			(53,759	)		(53,759	)		(53,759	)
Net loss		—			—			—			(229,715	)		—			(229,715	)		(229,715	)
Comprehensive loss																				(283,474	)
Balance, July 31, 1999		3,547,123			35,471			10,294,071			1,108,637			(37,402	)		11,400,777
Issuance of stock options for services								32,640									32,640
Foreign currency translation adjustment														(92,412	)		(92,412	)		(92,412	)
Net earnings		—			—			—			351,190			—			351,190			351,190
Comprehensive income																			$	258,778
Balance, July 31, 2000		3,547,123		$	35,471		$	10,326,711		$	1,459,827		$	(129,814	)	$	11,692,195

The accompanying notes are an integral part of this statement.

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SI Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended July 31,

							2000			1999			1998
Increase (Decrease) in Cash
Cash flows from operating activities:
	Net earnings (loss)						$	351,190		$	(229,715	)	$	830,379
	Adjustments to reconcile net earnings (net loss) to net   cash provided by operating activities:
			Depreciation and amortization					1,860,021			2,187,213			996,069
			Deferred lease costs					(204,910	)		(204,910	)		—
			Deferred income taxes					211,838			(324,600	)		32,344
			Stock options issued for services					32,640			—			—
			Changes in operating assets and liabilities:
				Trade accounts receivable and unbilled revenues				1,605,394			(998,107	)		(646,309	)
				Inventories				1,220,359			938,979			(634,615	)
				Income taxes receivable/payable				145,196			(220,174	)		951,162
				Other current assets				(215,601	)		(10,428	)		43,749
				Accounts payable				(235,211	)		(199,079	)		(264,320	)
				Accrued liabilities and customer advances				(1,775,755	)		(1,277	)		(283,691	)
					Net cash provided by operating activities			2,995,161			937,902			1,024,768
Cash flows from investing activities:
	Other assets							115,273			(475,221	)		(61,828	)
	Purchase of property and equipment							(484,529	)		(531,859	)		(216,870	)
	Proceeds from the disposition of property and equipment							—			898,020			—
	Acquisition of subsidiaries							—			—			(10,286,722	)
					Net cash used in investing activities			(369,256	)		(109,060	)		(10,565,420	)
Cash flows from financing activities:
	Borrowings on notes payable							—			—			3,088,290
	Net Borrowings (Payments) on line of credit							(1,141,655	)		843,520			2,197,852
	Proceeds from long-term debt							—			—			5,000,000
	Proceeds from sale of common stock							—			—			3,682,512
	Payments on long-term debt							(1,226,580	)		(2,133,730	)		(4,098,322	)
	Costs associated with equity financing							—			(26,694	)		—
	Other							—			—			72,000
					Net cash provided (used) by financing activities			(2,368,235	)		(1,316,904	)		9,942,332
Foreign currency translation adjustment								(177,426	)		(53,759	)		16,357
Net increase (decrease) in cash								80,244			(541,821	)		418,037
Cash at beginning of year								32,042			573,863			155,826
Cash at end of year							$	112,286		$	32,042		$	573,863
Cash paid during the year for:
	Interest						$	1,822,652		$	1,707,642		$	778,539
	Income taxes						$	—		$	736,934		$	567,866

The accompanying notes are an integral part of these statements.

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SI Technologies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000 and 1999

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    SI Technologies, Inc. designs, manufactures and markets high performance industrial sensors, weighing and factory automation equipment, and related products. SI products incorporate devices, equipment and systems for the handling, inspection and measurement of goods and materials. Key markets served by SI include aerospace/aviation, food, forestry, manufacturing, mining, transportation/distribution and waste management. Sales are made to customers throughout the world. A summary of significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follow.

1.  Principles of Consolidation

    The consolidated financial statements include the accounts of SI Technologies, Inc. (SI or Company) and its subsidiaries; AeroGo, Inc., Allegany Technology, Inc., Evergreen Weigh, Inc., NV Technology, Inc., Revere Transducers, Inc., Revere Transducers Europe B.V., AeroGo Export, Inc., and IDEAutomation International, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

2.  Inventories

    Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Uncompleted contracts are included in inventory at the accumulated cost of each contract not in excess of realizable value.

3.  Property and Equipment

    Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, principally on a straight-line basis. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Estimated service lives of property and equipment are as follows:

    The straight-line method of depreciation is followed for substantially all assets for financial reporting purposes, while accelerated methods are used for tax purposes.

4.  Intangible Assets

    Intangible assets represent the excess costs of acquiring subsidiaries over the fair value of net assets acquired at the date of acquisition, which are amortized using the straight-line method primarily over periods of 25 to 40 years. The Company periodically reviews goodwill to assess recoverability. Impairment is recognized in operating results if expected future operating undiscounted cash flows of the acquired business are less than the carrying value of goodwill. Accumulated amortization totaled $2,175,496 and $1,748,600 at July 31, 2000 and 1999, respectively.

5.  Product Warranty

    Product warranty costs are estimated and accrued at the time sales are recorded.

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6.  Revenue Recognition

    Sales are recorded at the time of shipment for equipment and for special orders with relatively short production time requirements. On long-term contracts, sales are recorded based on the percentage that incurred costs bear to the total estimated costs at completion. Estimated losses are recorded in total when they become evident. Such billings are generally made and collected in the subsequent year.

7.  Comprehensive Income

    Foreign currency assets and liabilities are translated into their U.S. dollar equivalents based on year end exchange rates. Revenue and expense accounts are translated at average exchange rates for the appropriate fiscal year. Aggregate exchange gains and losses arising from the translation of foreign assets and liabilities are included in stockholders' equity. Transaction gains and losses are included in income and have not been significant in amount.

8.  Use of Estimates

    In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

9.  Reclassifications

    Certain reclassifications have been made to the 1999 consolidated financial statements to conform with the 2000 presentation.

NOTE B—BUSINESS COMBINATIONS

1.  NV Technology, Inc.

    Effective February 1998, the Company completed a merger with NV Technology, Inc. (NV) by exchanging 200,000 shares of its common stock for all of the common stock of NV. NV is engaged in the manufacture of industrial sensors. The merger constituted a tax-free reorganization and has been accounted for as a pooling of interests. Accordingly, all prior period consolidated financial statements presented have been restated to include the combined results of operations, financial position and cash flows as though NV had always been a part of the Company.

    Prior to the merger, NV's fiscal year ended on December 31. In recording the business combination, NV's prior period financial statements have been restated to a year ended July 31, to conform to the Company's year end. There were no transactions between the Company and NV prior to the combination, and adjustments were recorded to conform NV's accounting policies. Certain reclassifications were made to the NV financial statements to conform to the Company's presentation.

2.  Revere Transducers

    Effective July 1, 1998, the Company purchased 100% of the common stock of Revere Transducers, Inc. and Revere Transducers Europe B.V. (jointly—Revere) for $8,282,000 in cash. Revere is engaged in the manufacture of industrial sensors and weighing equipment. The combination is

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accounted for under the purchase method of accounting. The fair value of net assets acquired exceeded the acquisition cost by $249,930, which was adjusted in 1999 from $552,297 for additional acquisition costs. This amount has been applied to reduce the fair value of recorded property and equipment. The results of operations of Revere have been included in the accompanying consolidated statements of operations from the acquisition date, July 1, 1998. The purchase of Revere was funded by the issuance of notes payable to a bank as described in Note F.

3.  Allegany Technology, Inc.

    Effective July 1, 1998, the Company purchased 100% of the common stock of Allegany Technology, Inc. (Allegany) for $2,888,290 in cash and SI common stock. Allegany is engaged in the manufacture of industrial sensors and weighing equipment and systems. The combination is accounted for under the purchase method of accounting. The excess of the total acquisition cost over the fair value of net assets acquired in the amount of $2,999,686, which was adjusted in 1999 from $2,810,537 for adjustments to the fair value of assets, is being amortized on a straight-line basis over twenty-five years. The results of operations of Allegany have been included in the accompanying consolidated statements of operations from the acquisition date, July 1, 1998. The purchase of Allegany was funded by borrowings under the Company's line of credit and from the issuance of 142,219 shares of common stock.

4.  AeroGo, Inc.

    Effective July 1, 1997, the Company purchased 100% of the common stock of AeroGo, Inc. (AeroGo) for $6,000,000 in cash. AeroGo is engaged in the manufacture of load handling and factory automation equipment and systems. The combination is accounted for under the purchase method of accounting. The excess of the total acquisition cost over the fair value of net assets acquired in the amount of $4,347,468 is being amortized on a straight-line basis over twenty-five years.

NOTE C—INVENTORIES

    Inventories consist of the following at July 31:

    Inventory reserves for excess and obsolete inventory were $1,303,000 in 2000 and $1,573,000 in 1999.

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NOTE D—PROPERTY AND EQUIPMENT

    Property and equipment consists of the following at July 31:

NOTE E—ACCRUED LIABILITIES

    Accrued liabilities consist of the following at July 31:

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NOTE F—DEBT

    Debt consists of the following at July 31:

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    Future schedule of debt payments are as follows at July 31, 2000:

    The Company is required to maintain certain levels of working capital, net worth and cash flow ratios and may not pay any cash dividends under terms of its credit agreement as amended on October 20, 2000.

NOTE G—OTHER LIABILITIES

    Other liabilities consist of the following at July 31:

    Deferred lease costs arising from an acquisition represent the discounted operating lease costs for excess plant capacity acquired at the acquisition date totaling $994,593. The deferred lease cost is amortized over 52 months, the remaining life of the lease.

NOTE H—STOCKHOLDERS' EQUITY

1.  Foreign Exchange Translation Loss

    In 2000 the Company incurred a foreign exchange translation loss of $92,412 due to differences in the exchange rate between the US dollar and the Dutch Guilder.

NOTE I—COMMITMENTS AND CONTINGENCIES

1.  Leases

    The Company conducts a portion of its operations in leased facilities under noncancelable operating leases expiring at various dates through 2006. A portion of one manufacturing facility is subleased under a lease, which expires in 2005. Total future minimum sublease rentals amount to $445,500 at July 31, 2000.

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    The minimum rental commitments, excluding sublease income, under operating leases are as follows:

    Rent expense under noncancelable operating leases was approximately $1,244,600, $1,110,000, and $510,500 for the years ended July 31, 2000, 1999 and 1998, respectively. Sublease income was approximately $118,800 for the year ended July 31, 2000.

2.  Consulting and Non-compete Agreements

    Certain former executives of companies acquired entered into consulting and non-compete agreements with the Company. The consulting agreements have a term of five years and the non-compete agreements have terms ranging from two to ten years. The following table summarizes remaining obligations under these agreements:

    The expense associated with these agreements totaled $122,500, $122,500, and $122,500 for the years ended July 31, 2000, 1999 and 1998, respectively.

3.  Litigation

    The Company is engaged in various legal actions. In the opinion of management, based upon advice of counsel, adequate accruals and settlements are provided for in the consolidated financial statements and the ultimate outcome of these actions will not have a material impact on the Company's consolidated financial statements.

NOTE K—INCOME TAXES

    The Company accounts for income taxes on the liability method as prescribed by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).

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    Income tax expense consists of the following for the year ended July 31:

    The income tax provision reconciled to the tax computed at the statutory federal rate was as follows for the year ended July 31:

    The components of deferred taxes included in the balance sheet are as follows at July 31:

    The Company has recorded a deferred tax asset of $970,360 and $1,423,900 as of July 31, 2000 and 1999, respectively. The Company has not recorded a valuation allowance against the asset as it believes it is more likely than not that all of the deferred tax assets will be realized through future taxable earnings or implementation of tax planning strategies.

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    As of July 31, 2000, the Company has federal and state net operating loss carryforwards of $204,600 and $523,600 which will begin expiring beginning 2002 and 2005, respectively.

NOTE L—STOCK OPTION PLAN

    The Company implemented a new stock option plan in 1995 (the Plan) and has authorized a total of 600,000 shares of common stock to be granted under the Plan. The Company had 247,500 shares available to grant under the Plan at July 31, 2000. Additionally, options are outstanding under the old stock option plan that expired July 31, 1994. The vesting period and expiration dates of the stock options are at the discretion of the Board of Directors.

    The Company has adopted only the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). In accounting for its plans the Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," which does not require recognition of compensation expense due to options being granted at fair value on the date of grant. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed by SFAS 123, the Company's net earnings (loss) and earnings (loss) per share would be adjusted to the pro forma amounts indicated below:

    These pro forma amounts may not be representative of future disclosures because they do not take into effect pro forma compensation expense related to grants made before 1996.

    The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions for the periods ending July 31, 2000, 1999 and 1998, respectively: dividend yields are nil, expected volatility of 61%, 54% and 52% percent; risk-free interest rate of 5.83%, 5.13% and 5.13%; and an expected option life of 5 years. The weighted-average fair value of options granted during the periods ending July 31, 2000, 1999 and 1998, for which the weighted average exercise price equals the market price on the grant date was $1.34, $2.20 and $3.23, respectively.

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    The following tables summarize information concerning currently outstanding and exercisable stock options:

NOTE M—EARNINGS PER SHARE

    The Company uses Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" which established standards for computing and presenting earnings per share (EPS). Earnings per share are based on the average number of shares outstanding during each period and income

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available to common shareholders. Earnings per share assuming dilution is based on the assumption that outstanding stock options and warrants were exercised.

    The table below presents the information used to compute earnings per common share, with and without dilution:

				For the Year Ended July 31, 2000
				Earnings (Numerator)			Shares (Denominator)		Per Share Amount
Earnings available to common stockholders				$	351,190		3,547,123		$	.10
Effect of dilutive securities
	Stock options						160,318
Earnings per common share assuming dilution
		Earnings available to common stockholders and effect of assumed conversions		$	351,190		3,707,441		$	.09

			For the Year Ended July 31, 1999
			Loss (Numerator)			Shares (Denominator)		Per Share Amount
Loss per common share
Loss available to common stockholders			$	(229,715	)	3,547,123		$	(.07	)

    The computation for loss per share assuming dilution for the year ended July 31, 1999 was anti-dilutive.

				For the Year Ended July 31, 1998
				Earnings (Numerator)			Shares (Denominator)		Per Share Amount
Earnings per common share
Earnings available to common stockholders				$	830,379		2,801,431		$	.30
Effect of dilutive securities
	Stock options				—		154,339
	Warrants				—		33,688
Earnings per common share assuming dilution
	Earnings available to common stockholders and effect of assumed conversions			$	830,379		2,989,458		$	.28

    Warrants to purchase 168,000 shares of common stock at $8.00 per share were not included in the computation of diluted EPS because the exercise prices were greater than the average market price of the common shares.

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NOTE N—INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION

    In fiscal 1999, the Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related 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. The accounting policies of the segments are the same as those described in Note A—Summary of Significant Accounting Policies. Segment data includes intersegment revenues.

    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. Weighing Systems' 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.

Foreign Operations

Export Sales

    The Company sells its products throughout the world. Net export sales by foreign geographic area are as follows:

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Segment Information 2000

		Industrial Measurement			Industrial Automation			Consolidation Adjustments		SI Consolidated
Year ended July 31, 2000:
Sales		$	31,947,010		$	9,382,335				$	41,329,345
Cost of goods sold			21,677,854			5,048,020					26,725,874
Gross profit			10,269,156			4,334,315					14,603,471
Gross profit %			32	%		46	%				35%
Operating expenses			8,599,375			3,504,891					12,104,266
Restructuring charges			—			—					—
Total expense			8,599,375			3,504,891					12,104,266
Operating profit			1,669,781			829,424					2,499,205
Interest expense											(1,860,131	)
Other income, net											55,724
Net profit before income taxes											694,798
Income tax expense											(343,608	)
Net profit										$	351,190
Assets		$	26,862,543		$	6,155,126				$	33,017,669

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Segment Information 1999

			Industrial Measurement			Industrial Automation			Consolidation Adjustments			SI Consolidated
Year ended July 31, 1999:
Sales			$	35,377,809		$	9,976,220		$	(665,254	)	$	44,688,775
Cost of goods sold				22,574,612			5,671,598			(665,254	)		27,580,956
Gross profit				12,803,197			4,304,622			—			17,107,819
Gross profit %				36	%		43	%		—			38%
Operating expenses				11,128,156			3,548,096			—			14,676,252
Restructuring charges				850,000			—			—			850,000
Total expense				11,978,156			3,548,096			—			15,526,252
Operating profit				825,041			756,526						1,581,567
Interest expense													(1,656,552	)
Other income, net													26,366
Net loss before income taxes													(48,619	)
Income tax expense													(181,096	)
Net loss												$	(229,715	)
Assets			$	29,920,990		$	8,017,925		$	(271,153	)	$	37,667,762

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Segment Information 1998

			Industrial Measurement			Industrial Automation			Consolidation Adjustments			SI Consolidated
Year ended July 31, 1998:
Sales			$	14,193,335		$	9,635,698		$	—		$	23,829,033
Cost of goods sold				8,354,829			5,317,550			—			13,672,379
Gross profit				5,838,506			4,318,148			—			10,156,654
Gross profit %				41	%		45	%		—			43%
Total expense				4,619,672			3,174,418			—			7,794,090
Operating profit				1,218,834			1,143,730			—			2,362,564
Interest expense													(950,601	)
Other income, net													5,416
Net earnings before income taxes													1,417,379
Income tax expense													(587,000	)
Net earnings												$	830,379
Assets			$	32,868,030		$	7,142,074		$	(13,099	)	$	39,997,005

NOTE O—BENEFIT PLANS

    The Company has defined contribution 401(k) plans for each subsidiary. All employees are eligible for participation upon completion of a waiting period. The contribution expense associated with these plans totaled approximately $141,956, $111,600, and $30,316 for the years ended July 31, 2000, 1999 and 1998, respectively.

NOTE P—FAIR VALUE OF FINANCIAL INSTRUMENTS

    In accordance with the requirements of Statement of Financial Accounting Standards No. 107—"Disclosure About Fair Value of Financial Instruments", the following methods and assumptions were used to estimate the fair value of each class of financial instruments.

1.  Notes Payable

    The carrying amount approximates fair value because of the short maturities of the notes payable and the fact that the term loan and working capital line of credit originated in July 1998.

2.  Long Term Debt

    Quoted market prices for the same or similar issues or the current rates offered to the Company for debt of the same remaining maturities are used to estimate the fair value of the Company's long-term debt. The estimated fair value approximated the carrying value at July 31, 2000.

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NOTE Q—RESTRUCTURING RESERVE

    In fiscal 2000, the Company completed the internal restructuring plan announced in the third quarter of fiscal 1999. The plan was comprised of the consolidation of two specialty scale products businesses, the Weighing Systems Division and Allegany Technology and, the consolidation of two load cell/sensor business units, Revere Transducers and NV Technology and relocation of Company headquarters from Seattle, Washington to Tustin, California. The reorganizations resulted in the closure of the Company's facility that previously housed the Weighing Systems Division and Company headquarters in Seattle, Washington. In conjunction with this reorganization, the Company established a restructuring reserve of $850,000 in fiscal 1999. The reserve was composed of $404,500 for lease costs on vacated leased facilities, $228,800 for the write-down of discontinued products, $126,700 for employee severance compensation for 42 employees and $90,000 for the write-down of redundant capital equipment. In fiscal 1999, the Company utilized $100,678 of the reserve. In fiscal 2000 the remaining balance of $749,322 was utilized.

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PART III

    The information required by ITEMS 9, 10, 11 and 12 will be included in the registrants proxy statement under the captions "Election of Directors," "Executive Officers," "Compensation," and "Principal Shareholders" and is incorporated herein by reference. Such proxy statement will be filed within 120 days of the registrants' fiscal year end, July 31, 2000.

ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

    The following documents are filed herewith for informational purposes, but are not part of this annual report, except as otherwise indicated.

21.		Subsidiaries of the Registrant
22.1		Consent of Grant Thornton to incorporation by reference of financial statements into Registration Statement on Form S-8 and Form S-3
27.		Financial Data Schedule July 31, 2000

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SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this to be signed on its behalf by the undersigned, thereunto duly authorized.

		SI TECHNOLOGIES, INC.
DATED: October 27, 2000		By:	/s/ RICK A. BEETS    Rick A. Beets President

    Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed as of October 27, 2000 by the following persons in the capacities indicated:

/s/ RICK A. BEETS    Rick A. Beets		President, CEO, CFO and Director (Principal Executive Officer, Chief Financial Officer)
/s/ EDWARD A. ALKIRE    Edward A. Alkire		Director, Secretary
/s/ RALPH E. CRUMP    Ralph E. Crump		Chairman of the Board, Director, Treasurer
/s/ S. SCOTT CRUMP    S. Scott Crump		Director
/s/ D. DEAN SPATZ    D. Dean Spatz		Director
/s/ HEINZ ZWEIPFENNIG    Heinz Zweipfennig		Director

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QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE
PART I

ITEM 1. BUSINESS
Products and Services
Industrial Measurement
Industrial Automation
Marketing and Sales
Market Conditions and Competition
Acquisition History
2000 Business Combination and Facility Consolidation
Backlog
Employees
Sources of Supply
Patents and Trademarks
Financial Information about Foreign Operations and Export Sales
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Shares
SI TECHNOLOGIES, INC. Selected Consolidated Financial Data Year ended July 31:

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES
GROSS PROFIT
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
AMORTIZATION EXPENSES
RESTRUCTURING CHARGES
INTEREST AND OTHER INCOME
INCOME TAXES
INFLATION
LIQUIDITY AND CAPITAL RESOURCES
YEAR 2000 INITIATIVES
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
ITEM 7. FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants
ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY

Foreign Operations
Export Sales
Segment Information 2000
Segment Information 1999
Segment Information 1998

PART III

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

SIGNATURES