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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-KSB

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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|For the Fiscal Year EndedJuly 31, 2001 |  | Commission File Number 0-12370
|-------------------------------------- |  | ------------------------------

SI TECHNOLOGIES, INC.(Exact name of Registrant as specified in its charter)

Delaware(State or other jurisdiction of
of incorporation or organization)

95-3381440(I.R.S. Employer Identification Number)14192 Franklin Avenue, Tustin, CA 92780(Address of principal executive offices)(Zip Code)714-505-6483Registrant'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            $36,291,000

The
number of shares outstanding of the issuer's common stock is 3,579,935

The
aggregate market value of the voting stock held by non-affiliates of the Registrant is $6,086,000 (as of October 22, 2001).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual meeting of Shareholders to be held on January 17, 2002 (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. Acquisitions over the past five years 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.

Since
1996, 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.

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, sitech@sitechnologies.com, 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 product development and acquisition of complementary products as an industry integrator in the $70-billion industrial measurement and
automation industry.

Operations Integration

SI believes its operations 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.

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Since 1996, SI Technologies has completed six acquisitions.

Acquired Company

Date Acquired

Primary Products

Industries ServedEvergreen Weigh, Inc.

1996

Dynamic & Static
Weighing Systems

Aviation, mining, transportationAeroGo, Inc.

1997

Factory Automation
Equipment & Systems

Aviation/aerospace, automotive, manufacturing, general industryNV Technology, Inc.

1998

Sensors

General industry, food, transportationAllegany Technology, Inc.

1998

Sensors & Dynamic
Weighing Systems

Aerospace, transportation, general industryRevere Transducers, Inc.

1998

Sensors & Static
Weighing Equipment

Aviation/aerospace, food, general industryLoadline N.V.

2000

Sensors & Static
Weighing Equipment

Aviation/aerospace, food, general industry


Further
acquisition detail may be found under theAcquisition Historysection.

On-going Acquisition/Merger Activities

In pursuit of the Company's growth strategy, management is continuously evaluating acquisition/merger opportunities with numerous companies. Companies of
interest are leading manufacturers, distributors and service providers who compete with technology advantage, are generating internal growth, and
show potential for strong 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

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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 theAirScale, Allegany,Checkmate, Evergreen Weigh, Structural
Instrumentation,
RouteMan, SmartPin, The Logger, Trojan,andTuffertrade 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 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 Runnerare 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 namesAeroCaster, AeroGo, AeroPallets, AeroPlanksandAirShuttleare
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.

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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 300 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 maintains North American regional sales offices in California, Maryland, Michigan, North Carolina, Oregon, Washington and British Columbia, 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.

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Market Conditions and Competition

Market Conditions

Worldwide annual 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 normally approximates inflation. Over the past eighteen months the Company believes the market and
specifically key market sectors in which it does business have contracted due to the global manufacturing recession which began in calendar year 2000. Beyond the current economic situation, the
Company believes its unique products, diversity of markets and worldwide geographic presence present significant opportunities for internal growth within the industry.

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, cross-selling of products and integration of Company sales
organizations have steadily increased market share in several markets including, aggregate, aviation, and construction 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 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 45% of inventory in finished goods. While the Company manufactures 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, industrial weighing systems. These companies include Cardinal Scale Manufacturing Company,
Fairbanks Scale

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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 recent years include Boeing, Caterpillar, Carrier, Chrysler, Ford, Hyundai, Mettler-Toledo, 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 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.

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,

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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.

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 load cells and 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 load cells and 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.

Acquisition of Loadline N.V.

In May 2000, the Company purchased Loadline N.V., a distributor for the Company in Belgium.

2001 Restructuring Plan

In the third quarter of fiscal 2001, the Company announced a restructuring plan to address a significant decline in sales brought about by the then
nine-month old global manufacturing recession and to position the Company for improved profitability in the future. The plan announced was comprised of three key components. The first was
the consolidation of the SI/Allegany business unit and Revere Transducers, resulting in the closing of operations in Cumberland, Maryland. Second, the plan called for development of offshore
manufacturing sources to reduce costs on certain high-volume, highly competitive load cells and sensors. The third component of the plan was for a downsizing of the Company's Tustin,
California, headquarters and manufacturing facility to a more appropriately sized facility in the same general area. In recognition of the expenses associated with this restructuring, the Company
recorded a $3,480,000 charge in the third quarter of fiscal 2001 to cover expenses related to implementation of the plan. Subsequently, in the fourth quarter, and upon implementation of the plan, the
Company recognized an additional charge of $364,000 associated with elimination of fixed assets and employee severance. Key cost components of the plan include: (1) reduction of manufacturing
capacity by abandoning and/or downsizing facilities, (2) disposing of redundant assets, (3) termination

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of approximately 50 employees, and (4) outsourcing a significant portion of the combined operation's higher volume products.

The
total incremental cash required to implement the restructuring plan is estimated at approximately $300,000. The remaining balance of the restructuring charge is either not an
incremental cash outlay to current operations (primarily lease payments) or a non-cash transaction.

The
Company expects future expense savings and gross profit improvement from implementation of the plan of approximately $2,200,000 annually. This savings estimate is comprised of the
following: (1) reduced fixed asset depreciation expense of $200,000 per year, (2) reduced facilities expenses of $400,000 per year, (3) reduced payroll-related, operating expenses
of $600,000 per year, and (4) reduced cost of sales, as a result of outsourcing certain products to low-cost producers, of approximately $1,000,000 per year.

The
Company expects to complete implementation of the restructuring plan by April 30, 2002. The initial financial benefits of plan implementation will be partially offset by
certain incremental expenses that may not be included in the restructuring charge. These expenses include production inefficiencies in operations being transitioned, employee travel, relocation and
training expense, and expenditures for software and professional services related to integrating information systems.

As
of July 31, 2001, the Company had completed the transfer of all customer service, metal goods manufacturing, engineering and accounting functions from the Cumberland,
Maryland facility to the Tustin, California facility. The consolidation of the SI/Allegany business unit is expected to be completed by January 31, 2002. Also, initial orders have been placed
to offshore manufacturing sources, and these sources are expected to be operating at full capacity by April 30, 2002. Finally, the Company is negotiating with its landlord for an early
termination of the Tustin facility lease, and has begun the process of identifying a suitable new facility. This process is expected to be completed by April 30, 2002.

Goodwill Impairment

As a result of the evaluation of its Allegany Technology subsidiary in connection with the restructuring plan noted above, the Company estimated the discounted
future cash flows of the continuing products, and determined that almost 40% of the remaining goodwill associated with the acquisition of companies previously incorporated into the Allegany Technology
operation has been impaired. In accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", a $2,000,000 charge for goodwill impairment was recorded in operating expenses for the quarter ended April 30, 2001.

Backlog

At July 31, 2001, the Company's backlog was $4,536,000, compared with $6,502,000 on July 31, 2000. The Company's backlog consists of written
orders and commitments believed to be firm, approximately 90% of which is shippable in fiscal 2002. 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.

Employees

At July 31, 2001, the Company employed 291 full time employees.

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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
2001 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

Foreign Operations

Included in the consolidated balance sheet at July 31, 2001 are the identifiable assets of the Company's subsidiary, Revere Transducers Europe B.V.,
which total approximately $4,098,000. Revere Transducers Europe, located in the Netherlands, was acquired by the Company at July 1, 1998.

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ITEM 2. PROPERTIES

|Location                 |  | Segment                |  | Utilization                                                                                        |  | Square
Footage |  | Leased or
Owned |  | Lease
Termination
|------------------------ |  | ---------------------- |  | -------------------------------------------------------------------------------------------------- |  | -------------- |  | --------------- |  | -----------------
|UNITED STATES Tustin, CA |  | Industrial Measurement |  | Corporate offices and Headquarters and U.S. operations for Revere Transducers and SI/Allegany      |  | 93,000         |  | Leased          |  | November 2004    
|Tukwila, WA              |  | Industrial Automation  |  | Headquarters and operations for AeroGo                                                             |  | 55,000         |  | Leased          |  | April 2004       
|Cumberland, MD           |  | Industrial Measurement |  | Discontinued use as operations for SI/Allegany. Partial use as East Coast Sales and Service Center |  | 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 2006         

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. As a key component of the restructuring plan the Company is presently
negotiating a lease termination agreement with the owner of the Tustin, California property. The Company is not able to predict if its negotiations will be successful at this time.

ITEM 3. LEGAL PROCEEDINGS

The Company was not engaged in any legal actions as of July 31, 2001.

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, 2001.

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PART II

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

As
of October 22, 2001, there were 204 shareholders of record. Management believes this represents approximately 600 beneficial owners of SI common stock. SI's common stock is
traded on the Nasdaq National Market under the symbol "SISI." The following chart describes the price range of Common Shares of SI, as quoted by the Nasdaq National Market, by quarter for fiscal 2001
and fiscal 2000:



2001

2000HIGH

LOW

LOW

HIGH1st Quarter

2.5

1.5

3.75

2.1252nd Quarter

2.125

1.0

3.625

23rd Quarter

2.0

1.5

6

1.754th Quarter

1.94

1.15

2.75

1.5


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.

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

|                                      |  | 2001 |            | 2000 |   | 1999        |  | 1998 |            | 1997(1)
|------------------------------------- |  | ---- | ---------- | ---- | - | ----------- |  | ---- | ---------- | -------
|Net sales                             |  | $    | 36,291,000 |      | $ | 41,329,000  |  | $    | 44,689,000 |        
|Net earnings (loss)                   |  |      | (7,128,000 | )    |   | 351,000     |  |      | (230,000   | )      
|Net earnings (loss) per share basic   |  |      | (2.00      | )    |   | .10         |  |      | (.07       | )      
|Net earnings (loss) per share diluted |  |      | (2.00      | )    |   | .09         |  |      | (.07       | )      
|Total assets                          |  |      | 25,910,000 |      |   | 33,018,000, |  |      | 37,668,000 |        
|Long-term debt, less current portion  |  |      |           |      |   | 10,809,000  |  |      | 11,418,000 |        
|Other long-term obligations           |  |      | 569,000    |      |   | 976,000     |  |      | 1,423,000  |        

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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 1996, the Company has acquired five businesses.

|                                          |  |       |   |       |   |       |   | Percent
Increase/(Decrease) |   
|----------------------------------------- |  | ----- | - | ----- | - | ----- | - | --------------------------- | --
|
|
|
|Net sales                                 |  | 100.0 | % | 100.0 | % | 100.0 | % | (12.2                       | )%
|Cost of sales                             |  | 67.1  |   | 64.7  |   | 61.7  |   | (8.9                        | ) 
|                                          |  |       |   |       |   |       |   |                             |   
|Gross profit                              |  | 32.9  |   | 35.3  |   | 38.3  |   | (18.2                       | ) 
|                                          |  |       |   |       |   |       |   |                             |   
|Selling, general and administrative       |  | 24.7  |   | 23.6  |   | 25.4  |   | (7.9                        | ) 
|Research, development and engineering     |  | 4.4   |   | 4.6   |   | 6.4   |   | (14.4                       | ) 
|Amortization of intangibles               |  | 1.2   |   | 1.1   |   | 1.0   |   | (9.6                        | ) 
|Restructuring charges                     |  | 10.6  |   |      |   | 1.9   |   | 100.0                       |   
|Goodwill impairment loss                  |  | 5.5   |   |      |   |      |   | 100.0                       |   
|                                          |  |       |   |       |   |       |   |                             |   
|Operating expenses                        |  | 46.4  |   | 29.3  |   | 34.7  |   | 39.3                        |   
|                                          |  |       |   |       |   |       |   |                             |   
|Operating profit                          |  | (13.5 | ) | 6.0   |   | 3.5   |   | (296.6                      | ) 
|Interest expense                          |  | (4.3  | ) | (4.5  | ) | (3.7  | ) | (15.9                       | ) 
|Other income                              |  | 0.0   |   | 0.2   |   | 0.1   |   | (80.4                       | ) 
|                                          |  |       |   |       |   |       |   |                             |   
|Earnings (loss) before income tax expense |  | (17.8 | ) | 1.7   |   | (0.1  | ) | (1030.4                     | ) 
|Income tax expense                        |  | (1.8  | ) | (0.8  | ) | (0.4  | ) | 92.4                        |   
|                                          |  |       |   |       |   |       |   |                             |   
|Net earnings (loss)                       |  | (19.6 | ) | 0.9   |   | (0.5  | ) | (2,130.8                    | ) 
|                                          |  |       |   |       |   |       |   |                             |   

RESULTS OF OPERATIONS

In 2001 the Company's revenues and profitability were significantly impacted by the global manufacturing recession. Overall revenues for the Company's products
declined 12.2% in comparison to the previous fiscal year. This reduction in revenue impacted all products in all business units. To deal
with the economic situation, the Company announced a restructuring plan in the third quarter. The aggressive plan consolidates business units, eliminates one manufacturing facility, substantially
expands the use of out-sourcing from low-labor markets and downsizes the corporate headquarters and manufacturing operations.

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, 2001 declined to $36,291,000 or 12.2% from $41,329,000 for the year ended July 31, 2000. The decrease in
sales is primarily attributable to continuation of the global manufacturing recession's impact on capital equipment markets. Following a sales decline of 5% year-over-year in
the first half of 2001, second half sales declined 20% year-over-year. From February through April, the Company's fiscal third quarter, the Company experienced a sharp decline
in sales due to a further reduction in demand for industrial equipment and components in the US and Europe.

Net
sales for 2000 declined to $41,329,000 or 7.5% from $44,689,000 for 1999. This decrease in sales was primarily attributable to soft market conditions in the aerospace, forestry
and capital

13

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equipment markets and lower export sales resulting from the strong US dollar, including currency exchange devaluation in the Company's European operations.

GROSS PROFIT

Gross profit for the year ended July 31, 2001 decreased $2,654,000 or 18.2% to $11,949,000 from $14,603,000 for the year ended July 31, 2000. The
decrease in gross profit is primarily attributable to lower sales volume, offset by minimal reductions in primarily fixed overhead costs. Gross profit also declined as product mix shifted sharply
between scale components and complete scale systems. Traditionally, the Company's complete scale system products earn substantilly higher gross profit than the load cell or scale components product
line. In the manufacturing recession of fiscal 2001, the Company has experienced the majority of the downturn in revenue in complete systems, whereas revenues from scale components have remained
nearly flat year-over-year.

Gross
profit for the year ended July 31, 2000 decreased $2,505,000 or 14.6% to $14,603,000 from $17,108,000 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.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the years ended July 31, 2001 and 2000 were $8,971,000 and $9,740,000 respectively. This is a decrease
of $769,000 or 7.9%. The decrease results from the business combinations and sale organization integration implemented during the year. Selling, general and administrative expenses as a percentage of
sales were 24.7% in 2001 as compared to 23.6% in 2000, due to the overall decline in net sales.

Selling,
general and administrative expenses for the years ended July 31, 2000 and 1999 were $9,740,000 and $11,365,000, respectively. Selling, general and administrative
expenses as a percentage of sales were 23.6% in 2000 as compared to 25.4% in 1999.

RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES

Research, development and engineering expenses for the years ended July 31, 2001 and 2000 were $1,621,000 and $1,893,000, respectively. This is a
decrease of $272,000 or 14.4%. 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, 2000 and 1999 were $1,893,000 and $2,866,000, respectively.

AMORTIZATION EXPENSES

Intangible amortization expenses amounted to $426,000 in 2001 as compared to $471,000 in 2000. In 1999 intangible amortization was $445,000. Amortization
primarily consists of the cost of assets in excess of book value from acquired companies.

14

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RESTRUCTURING CHARGES

During the quarter ended April 30, 2001, the Company began implementing a restructuring plan involving consolidation of two of its subsidiaries,
Allegany Technology and Revere Transducers. Approved by the Company's Board of Directors on May 7, 2001, this plan to consolidate operations was necessitated by worsening revenue trends in some
of the Company's key markets and consists of several elements, including: (1) reduction of manufacturing capacity by abandoning and/or downsizing facilities, (2) disposing of redundant
assets, (3) termination of approximately 50 employees, and (4) outsourcing a significant portion of the combined operation's higher volume products. A charge for restructuring of
$3,480,000 was recorded as of April 30, 2001. The restructuring charge was increased by $364,000 in the fourth quarter ended July 31, 2001 to accrue for additional disposition of fixed
assets and employee severance costs arising from management's decision to further utilize offshore manufacturing sources. The components of the restructuring charge are as follows:

Restructuring Category:

Year ended July 31,
2001Write-down of redundant and abandoned assets

$
2,168,000Abandoned facilities costs, primarily lease payments


1,225,000Employee termination costs


379,000Other


72,000Total estimated restructuring charge

$
3,844,000


The
total incremental cash required to implement the restructuring plan is estimated at approximately $300,000. The remaining balance of the restructuring charge is either not an
incremental cash outlay to current operations (primarily lease payments) or a non-cash transaction.

The
Company expects future expense savings and gross profit improvement from implementation of the plan of approximately $2,200,000 annually. This savings estimate is comprised of the
following: (1) Reduced fixed asset depreciation expense of $200,000 per year, (2) reduced facilities expenses of $400,000 per year, (3) reduced payroll-related, operating expenses
of $600,000 per year, and (4) reduced
cost of sales, as a result of outsourcing certain products to low-cost producers, of approximately $1,000,000 per year.

The
Company expects to complete implementation of the restructuring plan by April 30, 2002. The initial financial benefits of plan implementation will be partially offset by
certain incremental expenses that may not be included in the restructuring charge. These expenses include production inefficiencies in operations being transitioned, employee travel, relocation and
training expense, and expenditures for software and professional services related to integrating information systems.

As
of July 31, 2001, the Company had completed the transfer of all customer service, metal goods manufacturing, engineering and accounting functions from the Cumberland,
Maryland facility to the Tustin, California facility. The consolidation of the SI/Allegany business unit is expected to be completed by January 31, 2002. Also, initial orders have been placed
to offshore manufacturing sources, and these sources are expected to be operating at full capacity by April 30, 2002. Finally, the Company is negotiating with its landlord for an early
termination of the Tustin facility lease, and has begun the process of identifying a suitable new facility. This process is expected to be completed by April 30, 2002.

GOODWILL IMPAIRMENT

As a result of the evaluation of its Allegany Technology subsidiary in connection with the restructuring plan noted above, the Company estimated the discounted
future cash flows of the continuing products, and determined that almost 40% of the remaining goodwill associated with the

15

---

acquisition of companies previously incorporated into the Allegany Technology operation has been impaired. In accordance with Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", a $2,000,000 charge for goodwill impairment was recorded in operating expenses for the quarter
ended April 30, 2001.

INTEREST AND OTHER INCOME

Interest expense for 2001 decreased $296,000 or 15.9% from $1,860,000 in 2000 to $1,564,000 in 2001. This decrease was directly attributable to lower interest
rates during the current year in comparison to the prior year. Interest expense in 2000 was $1,860,000 in comparison to $1,657,000 in 1999. The original source of this debt was for financing the
AeroGo, Allegany Technology and Revere Transducers acquisitions in 1999 and 1998. Other income was $11,000 in 2001 as compared to $56,000 in 2000.

INCOME TAX EXPENSE

Income tax expense for the years ended July 31, 2001 and 2000 was $662,000 and $344,000, respectively. The Company's effective tax rate (income tax
expense as a percentage of pretax income) was 10.24% and 49.5% in 2001 and 2000, respectively. The U.S. federal corporate income tax rate exceeds the effective tax rate due primarily to the
amortization of intangible assets that are not deductible for income tax purposes, state and foreign income taxes, and the valuation allowance for the deferred tax assets for the year ended
July 31, 2001.

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 July 31, 2001 the Company's cash position was $380,000 compared to $112,000 at July 31, 2000. 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 a deficit of $(5,177,000) from $8,224,000 at July 31, 2000. This
significant change in working capital was principally caused by the Company's being in violation of certain of its debt covenants at July 31, 2001, which required that all long-term
debt be classified as short-term debt.

The
Company's existing capital resources consist of cash balances and funds available under its line of credit, which are increased or decreased by cash provided by or used in
operating activities. Cash provided by operating activities in 2001 was $1,032,000. During 2000, cash provided by operations was $2,995,000. The reduced cash flow in the current fiscal year can be
principally accounted for by a significant reduction of product demand in the forestry and manufacturing industries served by the Company's products.

The
Company's cash requirements consist of its general working capital needs, capital expenditures, and obligations under its leases and notes payable. 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 $200,000 in 2002 as compared to
$306,000 in 2001.

In
November 2000 the Company amended its principal credit agreement with its bank. This agreement included the continuation of the Company's existing $8,000,000 credit
facility, with favorable changes in
interest rates, borrowing base allowances and debt covenants. These favorable changes were a direct result of the Company's improved financial performance in fiscal 2000 and reduction in total

16

---

debt. The Company's balance on the credit facility was $6,911,000 on July 31, 2001, and $6,409,000 on July 31, 2000. Along with the amendment of the principal credit agreement, the
Company entered into a new long-term debt agreement with the same bank. Under the new agreement, which expires on November 1, 2005, the Company consolidated three
long-term notes totaling $6,891,000 and was able to obtain more favorable interest rates and debt covenants. The interest rate on the new note is prime plus 0.75% or a similar rate based
on LIBOR, at the option of the Company. 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. As of July 31, 2001, the Company had borrowings of $1,631,000 against this $1,970,000 line of credit.

In
November 2001, the Company signed a term sheet to amend its principal credit agreement with its bank. The Company's lender has not yet received all required internal
approvals and is therefore not yet bound by the term sheet. There can be no assurance that the Company will satisfactorily resolve its credit arrangements with the bank. The proposed terms provide for
a revolving line of credit up to a maximum of $6,500,000 with interest at prime plus 2.75%. Monthly payments on the line would be interest only with principal due November 30, 2002. The new
credit agreement would provide a new term note for $1,500,000 with interest at prime plus 3.25%. Monthly payments on the new term note would be $25,000 plus interest with principal due
November 30, 2002. Monthly payments on the existing note payable would be reduced to $66,000 plus interest at prime plus 1.75%, with the remaining terms of the existing note unchanged. The line
and both notes are secured by substantially all of the Company's assets and are cross-collateralized and subject to cross-default provisions. The Company would be required to maintain certain levels
of earnings before interest, taxes, depreciation and amortization, tangible net worth and fixed charge coverage and may not pay any cash dividends under terms of the term sheet.

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.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in the preceding discussion regarding the Company's financial position,
business strategy and plans of management for future operations are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are
reasonable; it can give no assurance that such expectations will prove to be correct.

17

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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     |  | 22                    
|Consolidated Statements of Cash Flows              |  | 23                    
|Notes to Consolidated Financial Statements         |  | 24-39                 

18

---

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, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 2001. 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, 2001 and 2000, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended July 31,
2001, in conformity with accounting principles generally accepted in the United States of America.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements,
the Company incurred a net loss of $7,128,000 for the year ended July 31, 2001, its current liabilities exceeded its current assets by $5,177,000 as of July 31, 2001, and the Company is
in violation of certain debt covenants as of July 31, 2001. These factors, among others, as discussed in Note A to the consolidated financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Notes A and F. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

/s/
Grant Thornton LLP

Irvine,
California
October 19, 2001, except for Note F,
  as to which the date is November 9, 2001.

19

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SI Technologies, Inc. and Subsidiaries  CONSOLIDATED BALANCE SHEETS  July 31,  (In Thousands Except Share Data)

|                                        |                                                                                                                              | 2001 |                           | 2000   |  
|--------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------------- | ------ | -
|ASSETS                                  |                                                                                                                             
|CURRENT ASSETS                          |                                                                                                                              |      |                           |        |  
|                                        | Cash                                                                                                                         |      | $                         | 380    |  
|                                        | Trade accounts receivable, less allowance for doubtful accounts of $289 in 2001 and $221 in 2000                             |      |                           | 5,980  |  
|                                        | Inventories, net                                                                                                             |      |                           | 8,584  |  
|                                        | Deferred tax asset                                                                                                           |      |                           |       |  
|                                        | Other current assets                                                                                                         |      |                           | 899    |  
|                                        |                                                                                                                              |      |                           |        |  
|                                        |                                                                                                                              |      | Total current assets      |        |  
|PROPERTY AND EQUIPMENT, net             |                                                                                                                              |      | 2,655                     |        |  
|OTHER ASSETS                            |                                                                                                                              |      |                           |        |  
|                                        | Intangible assets, net                                                                                                       |      |                           | 7,175  |  
|                                        | Other                                                                                                                        |      |                           | 237    |  
|                                        |                                                                                                                              |      |                           |        |  
|                                        |                                                                                                                              | $    | 25,910                    |        | $
|                                        |                                                                                                                              |      |                           |        |  
|LIABILITIES AND STOCKHOLDERS' EQUITY    |                                                                                                                             
|CURRENT LIABILITIES                     |                                                                                                                              |      |                           |        |  
|                                        | Current maturities of long-term debt                                                                                         |      | $                         | 14,514 |  
|                                        | Accounts payable                                                                                                             |      |                           | 3,249  |  
|                                        | Customer advances                                                                                                            |      |                           | 70     |  
|                                        | Accrued liabilities                                                                                                          |      |                           | 3,187  |  
|                                        |                                                                                                                              |      |                           |        |  
|                                        |                                                                                                                              |      | Total current liabilities |        |  
|LONG-TERM DEBT, less current maturities |                                                                                                                              |      |                          |        |  
|OTHER LIABILITIES                       |                                                                                                                              |      | 569                       |        |  
|DEFERRED TAXES                          |                                                                                                                              |      |                          |        |  
|COMMITMENTS AND CONTINGENCIES           |                                                                                                                              |      |                          |        |  
|STOCKHOLDERS' EQUITY                    |                                                                                                                              |      |                           |        |  
|                                        | Preferred stock, par value $.01 per share; authorized, 2,000,000 shares; none outstanding                                    |      |                           |       |  
|                                        | Common stock, par value $.01 per share; authorized, 10,000,000; 3,579,935 (2001) and 3,547,123 (2000) issued and outstanding |      |                           | 36     |  
|                                        | Additional paid-in capital                                                                                                   |      |                           | 10,377 |  
|                                        | Retained earnings (accumulated deficit)                                                                                      |      |                           | (5,668 | )
|                                        | Accumulated other comprehensive loss                                                                                         |      |                           | (424   | )
|                                        |                                                                                                                              |      |                           |        |  
|                                        |                                                                                                                              |      | 4,321                     |        |  
|                                        |                                                                                                                              |      |                           |        |  
|                                        |                                                                                                                              | $    | 25,910                    |        | $
|                                        |                                                                                                                              |      |                           |        |  

The
accompanying notes are an integral part of these statements.

20

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SI Technologies, Inc. and Subsidiaries  CONSOLIDATED STATEMENTS OF OPERATIONS  Year ended July 31,  (In Thousands Except Share Data)

|                                                    |                                       | 2001                                      |           | 2000  |        | 1999      |      
|--------------------------------------------------- | ------------------------------------- | ----------------------------------------- | --------- | ----- | ------ | --------- | -----
|Net sales                                           |                                       | $                                         | 36,291    |       | $      | 41,329    |      
|Cost of sales                                       |                                       |                                           | 24,342    |       |        | 26,726    |      
|                                                    |                                       |                                           |           |       |        |           |      
|                                                    |                                       | Gross profit                              |           |       | 11,949 |           |      
|                                                    |                                       |                                           |           |       |        |           |      
|Operating expenses:                                 |                                       |                                           |           |       |        |           |      
|                                                    | Selling, general and administrative   |                                           |           | 8,971 |        |           | 9,740
|                                                    | Research, development and engineering |                                           |           | 1,621 |        |           | 1,893
|                                                    | Amortization of intangibles           |                                           |           | 426   |        |           | 471  
|                                                    | Restructuring charges                 |                                           |           | 3,844 |        |           |     
|                                                    | Goodwill impairment loss              |                                           |           | 2,000 |        |           |     
|                                                    |                                       |                                           |           |       |        |           |      
|                                                    |                                       |                                           | 16,862    |       |        | 12,104    |      
|                                                    |                                       |                                           |           |       |        |           |      
|                                                    |                                       | Earnings (loss) from operations           |           |       | (4,913 | )         |      
|Interest expense                                    |                                       |                                           | (1,564    | )     |        | (1,860    | )    
|Other income, net                                   |                                       |                                           | 11        |       |        | 56        |      
|                                                    |                                       |                                           |           |       |        |           |      
|                                                    |                                       | Earnings (loss) before income tax expense |           |       | (6,466 | )         |      
|Income tax expense                                  |                                       |                                           | (662      | )     |        | (344      | )    
|                                                    |                                       |                                           |           |       |        |           |      
|                                                    |                                       | NET EARNINGS (LOSS)                       |           | $     | (7,128 | )         | $    
|                                                    |                                       |                                           |           |       |        |           |      
|Earnings (loss) per common share                    |                                       | $                                         | (2.00     | )     | $      | .10       |      
|Weighted average common shares outstanding          |                                       |                                           | 3,563,529 |       |        | 3,547,123 |      
|                                                    |                                       |                                           |           |       |        |           |      
|Earnings (loss) per common share, assuming dilution |                                       | $                                         | (2.00     | )     | $      | .09       |      
|Weighted average common shares outstanding          |                                       |                                           | 3,563,529 |       |        | 3,707,441 |      
|                                                    |                                       |                                           |           |       |        |           |      

The
accompanying notes are an integral part of these statements.

21

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SI Technologies, Inc. and Subsidiaries  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY  Three years ended July 31, 2001  (In Thousands Except Share Data)

|                                        |  | Common Stock |  |   |    | Retained
earnings
(accumulated
deficit) |   | Accumulated
other
comprehensive
income (loss) |   |   |        |   |  
|--------------------------------------- |  | ------------ |  | - | -- | --------------------------------------- | - | --------------------------------------------- | - | - | ------ | - | -
|
|
|Balance, July 31, 1998                  |  | 3,547,123    |  |   | 35 |                                         |   | 10,321                                        |   |   | 1,339  |   |  
|Cost associated with equity financing   |  |             |  |   |   |                                         |   | (27                                           | ) |   |       |   |  
|Foreign currency translation adjustment |  |             |  |   |   |                                         |   |                                              |   |   |       |   |  
|Net loss                                |  |             |  |   |   |                                         |   |                                              |   |   | (230   | ) |  
|                                        |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  
|Comprehensive loss                      |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  
|                                        |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  
|Balance, July 31, 1999                  |  | 3,547,123    |  |   | 35 |                                         |   | 10,294                                        |   |   | 1,109  |   |  
|Issuance of stock options for services  |  |             |  |   |   |                                         |   | 33                                            |   |   |       |   |  
|Foreign currency translation adjustment |  |             |  |   |   |                                         |   |                                              |   |   |       |   |  
|Net earnings                            |  |             |  |   |   |                                         |   |                                              |   |   | 351    |   |  
|                                        |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  
|Comprehensive income                    |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  
|                                        |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  
|Balance, July 31, 2000                  |  | 3,547,123    |  |   | 35 |                                         |   | 10,327                                        |   |   | 1,460  |   |  
|Issuance of stock for legal settlement  |  | 32,812       |  |   | 1  |                                         |   | 50                                            |   |   |       |   |  
|Foreign currency translation adjustment |  |             |  |   |   |                                         |   |                                              |   |   |       |   |  
|Net loss                                |  |             |  |   |   |                                         |   |                                              |   |   | (7,128 | ) |  
|                                        |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  
|Comprehensive loss                      |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  
|                                        |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  
|Balance, July 31, 2001                  |  | 3,579,935    |  | $ | 36 |                                         | $ | 10,377                                        |   | $ | (5,668 | ) | $
|                                        |  |              |  |   |    |                                         |   |                                               |   |   |        |   |  

The accompanying notes are an integral part of this statement.

22

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SI Technologies, Inc. and Subsidiaries  CONSOLIDATED STATEMENTS OF CASH FLOWS  Year ended July 31,  (In Thousands Except Share Data)

|                                        |                                                                                                | 2001                                       |                                               | 2000   |       | 1999  |       
|--------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------------------------------- | ------ | ----- | ----- | ------
|Cash flows from operating activities:   |                                                                                                |                                            |                                               |        |       |       |       
|                                        | Net earnings (loss)                                                                            |                                            | $                                             | (7,128 | )     | $     | 351   
|                                        | Adjustments to reconcile net earnings (net loss) to net cash provided by operating activities: |                                            |                                               |        |       |       |       
|                                        |                                                                                                | Depreciation and amortization              |                                               |        | 1,530 |       |       
|                                        |                                                                                                | Restructuring charges                      |                                               |        | 3,844 |       |       
|                                        |                                                                                                | Goodwill impairment loss                   |                                               |        | 2,000 |       |       
|                                        |                                                                                                | Deferred lease costs                       |                                               |        | (248  | )     |       
|                                        |                                                                                                | Deferred income taxes                      |                                               |        | 810   |       |       
|                                        |                                                                                                | Non-cash common stock and options expenses |                                               |        | 51    |       |       
|                                        | Changes in operating assets and liabilities:                                                   |                                            |                                               |        |       |       |       
|                                        |                                                                                                | Trade accounts receivable                  |                                               |        | 1,177 |       |       
|                                        |                                                                                                | Inventories                                |                                               |        | 142   |       |       
|                                        |                                                                                                | Income taxes receivable/payable            |                                               |        | (255  | )     |       
|                                        |                                                                                                | Other current assets                       |                                               |        | 54    |       |       
|                                        |                                                                                                | Accounts payable                           |                                               |        | (76   | )     |       
|                                        |                                                                                                | Accrued liabilities and customer advances  |                                               |        | (869  | )     |       
|                                        |                                                                                                |                                            |                                               |        |       |       |       
|                                        |                                                                                                |                                            | Net cash provided by operating activities     |        |       | 1,032 |       
|                                        |                                                                                                |                                            |                                               |        |       |       |       
|Cash flows from investing activities:   |                                                                                                |                                            |                                               |        |       |       |       
|                                        | Acquisition of intangibles and other assets                                                    |                                            |                                               | (296   | )     |       | 115   
|                                        | Purchase of property and equipment                                                             |                                            |                                               | (306   | )     |       | (484  
|                                        | Proceeds from the disposition of property and equipment                                        |                                            |                                               |       |       |       |      
|                                        |                                                                                                |                                            |                                               |        |       |       |       
|                                        |                                                                                                |                                            | Net cash used in investing activities         |        |       | (602  | )     
|                                        |                                                                                                |                                            |                                               |        |       |       |       
|Cash flows from financing activities:   |                                                                                                |                                            |                                               |        |       |       |       
|                                        | Net borrowings (payments) on line of credit                                                    |                                            |                                               | 1,404  |       |       | (1,142
|                                        | Payments on long-term debt                                                                     |                                            |                                               | (1,504 | )     |       | (1,226
|                                        | Costs associated with equity financing                                                         |                                            |                                               |       |       |       |      
|                                        |                                                                                                |                                            |                                               |        |       |       |       
|                                        |                                                                                                |                                            | Net cash provided usedby financing activities |        |       | (100  | )     
|                                        |                                                                                                |                                            |                                               |        |       |       |       
|Foreign currency translation adjustment |                                                                                                |                                            | (62                                           | )      |       | (178  | )     
|                                        |                                                                                                |                                            |                                               |        |       |       |       
|Net increase (decrease) in cash         |                                                                                                |                                            | 268                                           |        |       | 80    |       
|Cash at beginning of year               |                                                                                                |                                            | 112                                           |        |       | 32    |       
|                                        |                                                                                                |                                            |                                               |        |       |       |       
|Cash at end of year                     |                                                                                                | $                                          | 380                                           |        | $     | 112   |       
|                                        |                                                                                                |                                            |                                               |        |       |       |       
|Cash paid during the year for:          |                                                                                                |                                            |                                               |        |       |       |       
|                                        | Interest                                                                                       |                                            | $                                             | 1,405  |       | $     | 1,823 
|                                        | Income taxes                                                                                   |                                            | $                                             | 23     |       | $     |      

The
accompanying notes are an integral part of these statements.

23

---

SI Technologies, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

July 31, 2001 and 2000

(In Thousands Except Share Data)

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.Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company incurred a net loss of $7,128,000 for the year ended July 31, 2001 and has a working capital deficit of $(5,177,000) as of
July 31, 2001. At July 31, 2001, the Company was also in default of certain debt covenants with its bank.

Management
has taken steps to revise its operations and financial performance as described more fully in Note Q concerning Restructuring Charges. The Company is also in the
process of attempting to renew its bank credit agreement and has signed a term sheet (see Note F). Renewal of the credit agreement is subject to final approval by the bank. There is no
assurance that the bank agreement will be renewed. The Company's ability to continue operations is dependent upon its ability to maintain adequate financing and the success of future operation. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.

2.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.

3.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.

4.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

24

---

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:

Machinery and equipment

2 to 10 yearsBuildings

35 yearsLeasehold improvements

2 to 10 years


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

5.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. In accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," 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 $1,179 and $2,175 at
July 31, 2001 and 2000, respectively.

As
a result of the evaluation of its Allegany Technology subsidiary in connection with the 2001 restructuring plan, the Company recorded an impairment loss of $2,000 during the third
quarter. The
impairment loss was determined based upon management's estimate of discounted cash flows from products acquired and incorporated in the Allegany Technology operation.

6.Product Warranty

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

7.Revenue Recognition

Sales are recorded at the time of shipment for equipment. 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.

8.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.

25

---

9.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.

10.Recent Accounting Pronouncemnets

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, "Business
Combinations", and SFAS 142, "Goodwill and Intangible Assets." SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the
effective date of SFAS 142. Major provisions of these Statements and their effective dates for the Company are as follows:



The
Company will continue to amortize goodwill and intangible assets recognized prior to July 1, 2001, under its current method until August 1, 2002, at which time
annual and quarterly goodwill amortization of $320 and $80 and annual and quarterly amortization of $28 and $7 relating to intangible assets with indefinite lives will no longer be recognized. By
July 31, 2003 the Company will have completed a transitional fair value based impairment test of goodwill as of August 1, 2002. By October 31, 2002 the Company will have completed
a transitional impairment test of all intangible assets with indefinite lives. Impairment losses, if any, resulting from the transitional testing will be recognized in the quarter ended
October 31, 2002, as a cumulative effect of a change in accounting principle.

11.Reclassifications

Certain reclassifications have been made to the 2000 consolidated financial statements to conform with the 2001 presentation.

26

---

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 in cash. Revere is engaged in the manufacture of industrial sensors and weighing equipment. The combination is accounted for under the purchase method of accounting. The
fair value of net assets acquired exceeded the acquisition cost by $250, which was adjusted in 1999 from $552 for additional acquisition costs. This amount has been applied to reduce the fair value of
recorded property and equipment. 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 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 $3,000 which was adjusted in 1999 from $2,811. 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. In 2001 the Company recorded a $2,000 charge for goodwill impairment (see Note A). The remaining goodwill is being
amortized on a straight-line basis over twenty-five years.

4.AeroGo, Inc.

Effective July 1, 1997, the Company purchased 100% of the common stock of AeroGo, Inc. (AeroGo) for $6,000 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 $4,376 is being amortized on a straight-line basis over twenty-five years.

27

---

NOTE CINVENTORIES

Inventories consist of the following at July 31:

2001

2000Raw materials

$
4,354

$
4,050Work in process


977


1,235Finished goods


4,427


4,8859,758


10,170Less reserve for excess and obsolete inventories


(1,174
)

(1,303
)Inventories, net

$
8,584

$
8,867


NOTE DPROPERTY AND EQUIPMENT

Property and equipment consists of the following at July 31:

2001

2000Machinery and equipment

$
5,851

$
9,024Buildings


259


84Leasehold improvements


221


1,3516,331


10,459Less accumulated depreciation and amortization


(3,676
)

(4,810
)Property and Equipment, net

$
2,655

$
5,649


During
2001, the Company abandoned certain assets in connection with its restructuring plan (see Note Q).

NOTE EACCRUED LIABILITIES

Accrued liabilities consist of the following at July 31:

2001

2000Accrued salaries, wages and other compensation

$
1,001

$
963Warranty reserve


224


348Restructuring charges (see Note Q)


1,281


Deferred lease and rent cost-current


205


205Other


476


541$
3,187

$
2,057


28

---

NOTE FDEBT

Debt consists of the following at July 31:

|                                |  |                                                                                                                                                                                                                                                                                      |         | 2001 |        | 2000   |  
|------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------- | ---- | ------ | ------ | -
|1)                              |  | Revolving line of credit with a bank for up to $8,000, interest at the prime rate plus 0.75% (7.5% at July 31, 2001), secured by the Company's trade accounts receivable, inventories and certain equipment. Principal and
interest due November 2001. Utilized for U.S. Operations. |         | $    | 6,911  |        | $
|2)                              |  | Revolving line of credit with a bank for up to $1,970, interest at the rate of 6.75%, secured by certain of the Company's trade accounts receivable, inventories and equipment. Interest only due quarterly. Utilized for
European operations.                                       |         |      | 1,631  |        |  
|3)                              |  | Note payable to bank in monthly installments of $115 plus interest at the prime rate plus 0.75%, secured by substantially all of the Company's assets, due November 2005.                                                                                                            |         |      | 5,972  |        |  
|4)                              |  | Other                                                                                                                                                                                                                                                                                |         |      |       |        |  
|                                |  |                                                                                                                                                                                                                                                                                      |         |      |        |        |  
|                                |  |                                                                                                                                                                                                                                                                                      |         |      | 14,514 |        |  
|Less current maturities of debt |  |                                                                                                                                                                                                                                                                                      | (14,514 | )    |        | (3,805 | )
|                                |  |                                                                                                                                                                                                                                                                                      |         |      |        |        |  
|Long term debt                  |  | $                                                                                                                                                                                                                                                                                    |        |      | $      | 10,809 |  
|                                |  |                                                                                                                                                                                                                                                                                      |         |      |        |        |  

As
of July 31, the Company was in default of certain of its debt covenants.

On
November 9, 2001, the Company signed a term sheet to amend its principal credit agreement with its bank. The Company's lender has not yet received all required internal
approvals and is therefore not yet bound by the term sheet. There can be no assurance that the Company will satisfactorily resolve its credit arrangements with the bank. The proposed terms provide for
a revolving line of credit up to a maximum of $6,500 with interest at prime plus 2.75%. Monthly payments on the line would be interest only with principal due November 30, 2002. The new credit
agreement would provide a new term note for $1,500 with interest at prime plus 3.25%. Monthly payments on the new term note would be $25 plus interest with principal due November 30, 2002.
Monthly payments on the existing note payable would be reduced to $66 plus interest at prime plus 1.75%, with the remaining terms of the existing note unchanged. The line and both notes are secured by
substantially all of the Company's assets and are cross-collateralized and subject to cross-default provisions. The Company would be required to maintain certain levels of earnings before interest,
taxes, depreciation and amortization, tangible net worth and fixed charge coverage and may not pay any cash dividends under terms of the term sheet.

29

---

SI Technologies, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

July 31, 2001 and 2000

(In Thousands Except Share Data)

NOTE GOTHER LIABILITIES

Other liabilities consist of the following at July 31:

2001

2000Deferred lease costs

$
345

$
504Deferred rent


224


313$
569

$
817


Deferred
lease costs arising from an acquisition represent the discounted operating lease costs for excess plant capacity acquired at the acquisition date totaling $995. The deferred
lease cost is amortized over 40 months, the remaining life of the lease. The deferred rent is attributable to escalating rental payments on the Tustin facility lease, which is accounted for
using the straight line method of the total lease cost.

NOTE HFOREIGN CURRENCY TRANSLATION LOSS

In 2001 and 2000, respectively, the Company incurred a foreign currency translation loss of $294 and $93 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 2007. A portion of
one manufacturing facility is subleased under a lease, which expires in 2005. Total future minimum sublease rentals amount to $376 at July 31, 2001.

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

Year ending July 31,2002

$
1,1132003


1,1672004


1,0932005


4142006


263Thereafter


106$
4,156


Rent
expense under noncancelable operating leases was approximately $726, $1,245, and $1,110 for the years ended July 31, 2001, 2000 and 1999, respectively. Sublease income was
approximately $113 for the year ended July 31, 2001.

30

---

2.Consulting and Non-compete Agreements

Certain former executives of acquired companies 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:

Year ending July 31,2002

$
632003


632004


632005


632006


45$
297


The
expense associated with these agreements totaled $288, $123, and $123 for the years ended July 31, 2001, 2000 and 1999, respectively.

3.Litigation

As of July 31, 2001 the Company was not involved in any significant legal action.

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).

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

2001

2000

1999Current expense (benefit)

$
(255
)
$
132

$
506Deferred expense (benefit)


917


212


(325
)$
662

$
344

$
181


31

---

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

2001

2000

1999Tax at statutory rate

$
(2,198
)
$
231

$
(17
)Valuation allowance


1,915





Nondeductible goodwill


975


191


148State and foreign taxes


(137
)

(47
)

222State tax benefit from restructuring





(41
)

Foreign sales corporation








(121
)Credits and net operating losses utilized








(33
)Other


107


10


(18
)$
662

$
344

$
181


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

2001

2000Deferred tax asset:Net operating loss carryforwards

$
222

$
125Accrued vacation and warranty


198


223Provision for bad debts


105


69Accrued liabilities not paid





21Inventory reserve and capitalized overhead


428


530Asset write-downs


771


Abandoned facility costs


366


Employee termination costs


99


Foreign currency adjustment





22,189


970Valuation allowance


(1,915
)

274


970Deferred tax liability:Excess of tax over book depreciation


353


210Deferred lease costs


(79
)

(68
)Deferred state taxes





18274


160Net deferred tax assets

$


$
810


At
July 31, 2001, a 100% valuation allowance was established against the net deferred tax assets as the realization of the deferred tax assets cannot be reasonably assured. As
of July 31, 2001, the Company has federal and state net operating loss carryforwards of $516 and $522 which will expire beginning 2021 and 2005, respectively.

32

---

SI Technologies, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

July 31, 2001 and 2000

(In Thousands Except Share Data)

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 147,500 shares available to grant under the Plan at July 31, 2001. Additionally, options to purchase 115,000 shares 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:

2001

2000

1999Net earnings (loss):As reported

$
(7,128
)
$
351

$
(230
)Pro forma


(7,279
)

225


(387
)Earnings per common share:As reportedbasic

$
(2.00
)
$
.10

$
(.07
)Pro forma

$
(2.04
)
$
.06

$
(.11
)As reporteddiluted

$
(2.00
)
$
.09

$
(.07
)Pro forma

$
(2.04
)
$
.06

$
(.11
)


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,
2001, 2000 and 1999, respectively: dividend yields are nil, expected volatility of 64%, 61% and 54% percent; risk-free interest rate of 4.84%, 5.83% 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, 2001, 2000 and 1999, for which the weighted average exercise price equals the market
price on the grant date was $1.47, $1.34 and $2.20, respectively.

33

---

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

Stock Options Outstanding

Weighted-Average Exercise PriceBalance, July 31, 1998

376,500

$
2.87Granted

52,000

$
3.93Exercised



$
Expired/canceled



$
Balance, July 31, 1999

428,500

$
3.00Granted

70,000

$
2.34Exercised



$
Expired/canceled

(31,000
)
$
3.49Balance, July 31, 2000

467,500

$
2.89Granted

100,000

$
1.94Exercised



$
Expired/canceled



$
Balance, July 31, 2001

567,500

$
2.72


Range of Exercise Prices

Number of Shares
Outstanding
As of July 31, 2001:

Weighted-Average
Remaining Contractual
Life in Years

Weighted-Average
Exercise Price$1-$2

220,000

4.6

$
1.66$2-$3

180,000

7.9

$
2.39$3-$4

10,500

7.2

$
3.49$4-$5

157,000

5.6

$
4.53567,500


Range of Exercise Prices

Number of Shares
Exercisable

Weighted-Average
Exercise Price$1-$2

190,000

$
1.69$2-$3

94,000

$
2.60$3-$4

6,500

$
3.48$4-$5

137,000

$
4.51427,500


34

---

SI Technologies, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

July 31, 2001 and 2000

(In Thousands Except Share Data)

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 available to common shareholders. Earnings per share
assuming dilution is based on the assumption that outstanding stock options and warrants were exercised. Anti-dilutive options are excluded from the computation of diluted earnings per
share.

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

For the Year Ended July 31, 2001Loss
(Numerator)

Shares
(Denominator)

Per Share
AmountLoss available to common stockholders

$
(7,128
)
3,563,529

$
(2.00
)


For the Year Ended July 31, 2000Earnings
(Numerator)

Shares
(Denominator)

Per Share
AmountEarnings available to common stockholders

$
351

3,547,123

$
.10Effect of dilutive securitiesStock options




160,318Earnings per common share assuming dilutionEarnings available to common stockholders and effect of assumed conversions

$
351

3,707,441

$
.09


For the Year Ended July 31, 1999Loss
(Numerator)

Shares
(Denominator)

Per Share
AmountLoss available to common stockholders

$
(230
)
3,547,123

$
(.07
)


The
computation for loss per share assuming dilution for the years ended July 31, 2001 and 1999 were anti-dilutive.

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,

35

---

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

2001

2000

1999Identifiable Assets:Americas

$
21,812

$
28,649

$
32,550Europe


4,098


4,369


5,118Sales:Americas


27,566


31,549


34,373Europe


8,725


9,780


10,316Operating Profit (Loss):Americas


(5,578
)

1,897


747Europe


665


602


835


36

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Segment Information 2001

Industrial
Measurement

Industrial
Automation

Consolidation
Adjustments

SI ConsolidatedYear ended July 31, 2001:Sales

$
28,289

$
8,002



$
36,291Cost of goods sold


19,994


4,348




24,342Gross profit


8,295


3,654




11,949Gross profit %


29
%

46
%



33
%Operating expenses


8,363


2,655




11,018Restructuring charges


3,844







3,844Goodwill impairment


2,000







2,000Total expense


14,207


2,655




16,862Operating profit (loss)


(5,912
)

999




(4,913
)Interest expense










(1,564
)Other income, net










11Net loss before income taxes










(6,466
)Income tax expense










(662
)Net loss









$
(7,128
)Assets

$
20,542

$
5,368



$
25,910


37

---



SI Technologies, Inc. and Subsidiaries  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  July 31, 2001 and 2000  (In Thousands Except Share Data)

Segment Information 2000

|                               |  | Industrial
Measurement |        | Industrial
Automation |   | Consolidation
Adjustments |   | SI Consolidated | 
|------------------------------ |  | ---------------------- | ------ | --------------------- | - | ------------------------- | - | --------------- | 
|Year ended July 31, 2000:      |  |                        |        |                       |   |                           |   |                 | 
|Sales                          |  | $                      | 31,947 |                       | $ | 9,382                     |   |                 | 
|Cost of goods sold             |  |                        | 21,678 |                       |   | 5,048                     |   |                 | 
|                               |  |                        |        |                       |   |                           |   |                 | 
|Gross profit                   |  |                        | 10,269 |                       |   | 4,334                     |   |                 | 
|Gross profit %                 |  |                        | 32     | %                     |   | 46                        | % |                 | 
|Operating expenses             |  |                        | 8,599  |                       |   | 3,505                     |   |                 | 
|Restructuring charges          |  |                        |       |                       |   |                          |   |                 | 
|                               |  |                        |        |                       |   |                           |   |                 | 
|Total expense                  |  |                        | 8,599  |                       |   | 3,505                     |   |                 | 
|Operating profit               |  |                        | 1,670  |                       |   | 829                       |   |                 | 
|Interest expense               |  |                        |        |                       |   |                           |   |                 | 
|Other income, net              |  |                        |        |                       |   |                           |   |                 | 
|                               |  |                        |        |                       |   |                           |   |                 | 
|Net profit before income taxes |  |                        |        |                       |   |                           |   |                 | 
|Income tax expense             |  |                        |        |                       |   |                           |   |                 | 
|                               |  |                        |        |                       |   |                           |   |                 | 
|Net profit                     |  |                        |        |                       |   |                           |   |                 | 
|                               |  |                        |        |                       |   |                           |   |                 | 
|Assets                         |  | $                      | 26,863 |                       | $ | 6,155                     |   |                 | 
|                               |  |                        |        |                       |   |                           |   |                 | 

Segment Information 1999

|                             |  | Industrial
Measurement |        | Industrial
Automation |   | Consolidation
Adjustments |   | SI Consolidated |     
|---------------------------- |  | ---------------------- | ------ | --------------------- | - | ------------------------- | - | --------------- | ----
|Year ended July 31, 1999:    |  |                        |        |                       |   |                           |   |                 |     
|Sales                        |  | $                      | 35,378 |                       | $ | 9,976                     |   | $               | (665
|Cost of goods sold           |  |                        | 22,575 |                       |   | 5,672                     |   |                 | (665
|                             |  |                        |        |                       |   |                           |   |                 |     
|Gross profit                 |  |                        | 12,803 |                       |   | 4,305                     |   |                 |    
|Gross profit %               |  |                        | 36     | %                     |   | 43                        | % |                 |    
|Operating expenses           |  |                        | 11,128 |                       |   | 3,548                     |   |                 |    
|Restructuring charges        |  |                        | 850    |                       |   |                          |   |                 |    
|                             |  |                        |        |                       |   |                           |   |                 |     
|Total expense                |  |                        | 11,978 |                       |   | 3,548                     |   |                 |    
|Operating profit             |  |                        | 825    |                       |   | 757                       |   |                 |     
|Interest expense             |  |                        |        |                       |   |                           |   |                 |     
|Other income, net            |  |                        |        |                       |   |                           |   |                 |     
|                             |  |                        |        |                       |   |                           |   |                 |     
|Net loss before income taxes |  |                        |        |                       |   |                           |   |                 |     
|Income tax expense           |  |                        |        |                       |   |                           |   |                 |     
|                             |  |                        |        |                       |   |                           |   |                 |     
|Net loss                     |  |                        |        |                       |   |                           |   |                 |     
|                             |  |                        |        |                       |   |                           |   |                 |     
|Assets                       |  | $                      | 29,921 |                       | $ | 8,018                     |   | $               | (271
|                             |  |                        |        |                       |   |                           |   |                 |     

38

---



SI Technologies, Inc. and Subsidiaries  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  July 31, 2001 and 2000  (In Thousands Except Share Data)

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 $162, $142, and $112 for the years ended July 31, 2001, 2000 and 1999, respectively.

NOTE PFAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash, accounts receivable, accounts payable, customer advances, accrued liabilities, and short and
long-term debt. Management has determined that the fair value of cash, accounts receivable, accounts payable, customer advances, accrued liabilities, and short and long-term
debt approximate the carrying values due to the short-term nature of these instruments.

NOTE QRESTRUCTURING CHARGE

During the quarter ended April 30, 2001, the Company began implementing a restructuring plan involving consolidation of two of its subsidiaries,
Allegany Technology and Revere Transducers. Approved by the Company's Board of Directors on May 7, 2001, this plan to consolidate operations was necessitated by worsening revenue trends in some
of the Company's key markets and consists of several elements, including: (1) reduction of manufacturing capacity by abandoning and/or downsizing facilities, (2) disposing of redundant
assets, (3) termination of approximately 50 employees, and (4) outsourcing a significant portion of the combined operation's higher volume products. A charge for restructuring of $3,480
was recorded as of April 30, 2001. The restructuring charge was increased by $364 in the fourth quarter ended July 31, 2001 to accrue for additional disposition of fixed assets and
employee severance
costs arising from management's decision to further utilize offshore manufacturing sources. The components of the restructuring charge are as follows:

Restructuring Category:

Year ended
July 31, 2001Write-down of redundant and abandoned assets

$
2,168Abandoned facilities costs, primarily lease payments


1,225Employee termination costs


379Other


72Total estimated restructuring charge

$
3,844


The
Company expects to complete implementation of the restructuring plan by April 30, 2002. The initial financial benefits of plan implementation will be partially offset by
certain incremental expenses that may not be included in the restructuring charge. These expenses include production inefficiencies in operations being transitioned, employee travel, relocation and
training expense, and expenditures for software and professional services related to integrating information systems.

As
of July 31, 2001, the Company had completed the transfer of all customer service, metal goods manufacturing, engineering and accounting functions from the Cumberland,
Maryland facility to the Tustin, California facility. The consolidation of the SI/Allegany business unit is expected to be completed by January 31, 2002. Also, initial orders have been placed
to offshore manufacturing sources, and these sources are expected to be operating at full capacity by April 30, 2002. Finally, the Company is negotiating with its landlord for an early
termination of the Tustin facility lease, and has begun the process of identifying a suitable new facility. This process is expected to be completed by April 30, 2002.

39

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PART III

The information required byITEMS 9, 10, 11 and 12will be included in the registrant's 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 registrant's fiscal year end, July 31, 2001.

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

(a) The
following documents are filed herewith:

|3  | (a) | Certificate of Incorporation (Incorporated by reference to the same exhibit number as the Company's Annual Report on Form 10-KSB for the fiscal year ending July 31, 1993)                                                                                       
|-- | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3  | (b) | By-Laws (1)                                                                                                                                                                                                                                                      
|3  | (c) | Certificate of Amendment to the Certificate of Incorporation of SI Technologies, Inc. (Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended January 31, 1998)                                                 
|4  | (a) | Specimen certificate evidencing shares of Common Stock (Incorporated by reference to the same exhibit number as the Company's Annual Report on Form 10-KSB for the fiscal year ending July 31, 1993)                                                             
|4  | (b) | Form of Subscription Agreement Supplement incorporated in the Company's April 1998 financing (Incorporated by reference to the Company's Registration Statement on Form S-3 dated July 31, 1998)                                                                 
|4  | (c) | Form of Subscription Agreement Supplement incorporated by reference into the Company's Subscription Agreement (Incorporated by reference to the Company's Registration Statement on Form S-3 dated July 31, 1998)                                                
|4  | (d) | Form of Warrant issued in connection with the Company's April 1998 financing (Incorporated by reference to the Company's Registration Statement on Form S-3 dated July 31, 1998)                                                                                 
|4  | (e) | Form of Placement Agent Warrant issued in connection with the Company's April 1998 financing (Incorporated by reference to the Company's Registration Statement on Form S-3 dated July 31, 1998)                                                                 
|4  | (f) | Registration Rights Agreement entered into by and between the Company and participants in the Company's April 1998 financing (Incorporated by reference to the Company's Registration Statement on Form S-3 dated July 31, 1998)                                 
|10 | (a) | 1994 Stock Option Plan (Incorporated by reference to the Company's Proxy Statement for the annual meeting held January 19, 1995)                                                                                                                                 
|10 | (b) | Amended and Restated 1984-85 Stock Option Plan (Incorporated by reference to the same exhibit number to the Company's Annual Report on Form 10-KSB for the fiscal year ending July 31, 1994)                                                                     
|10 | (c) | Lease between Halverson-Lindell and SI dated November 20, 1988, for the premises located at 4611 South 134th Place, Tukwila, Washington. (Incorporated by reference to exhibit 1 to the Company's Annual Report on Form 10K for fiscal year
ending July 31, 1989)
|21 |     | Subsidiaries of the Registrant                                                                                                                                                                                                                                   
|23 |     | Consent of Grant Thornton to incorporation by reference of financial statements into Registration Statement on Form S-3                                                                                                                                          

---

(b) No
reports on Form 8-K were filed during the quarter ended July 31, 2001.

40

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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: November 13, 2001 |  | By:                  

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed as of November 13, 2001 by the following persons in the capacities indicated:

|                                    |  |                                                          
|----------------------------------- |  | ---------------------------------------------------------
|                                    |  |                                                          
|/s/RICK A. BEETSRick A. Beets       |  | President, CEO and Director
(Principal Executive Officer)
|/s/ANDREW M. FITEAndrew M. Fite     |  | Chief Financial Officer                                  
|/s/EDWARD A. ALKIREEdward A. Alkire |  | Director, Secretary                                      
|/s/RALPH E. CRUMPRalph E. Crump     |  | Chairman of the Board, Director, Treasurer               
|/s/D. DEAN SPATZD. Dean Spatz       |  | Director                                                 
|                                    |  |                                                          
|S. Scott Crump                      |  | Director                                                 
|Heinz Zweipfennig                   |  | Director                                                 
|Bryant Riley                        |  | Director                                                 

41

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