<TABLE>
Form 10-Q
MEASUREMENT SPECIALTIES, INC.
80 Little Falls Road,
Fairfield, New Jersey 07004
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
September 30, March 31,
1997 1997
(unaudited)
Current assets:
Cash and cash equivalents $158,206 $238,787
Accounts receivable, trade, net of
allowance for doubtful accounts of
$43,000 (September) and $32,000 (March) 3,473,943 2,811,756
Inventories (Note 2) 4,016,928 3,675,870
Prepaid expenses and other current assets 415,022 398,756
--------- ---------
Total current assets 8,064,099 7,125,169
Property and equipment 3,525,873 3,030,387
Less accumulated depreciation and
amortization 1,900,681 1,643,976
--------- ---------
1,625,192 1,386,411
Other assets:
Intangible assets, net of accumulated
amortization of $133,000 (September)
and $101,000 (March) 137,355 108,316
Other assets 638,047 614,288
--------- ---------
775,402 722,604
--------- ---------
--------- ---------
$10,464,693 $9,234,184
See notes to consolidated financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
September 30, March 31,
1997 1997
(unaudited)
Current liabilities:
Accounts payable, trade $2,403,860 $2,319,840
Accrued payrolls and fringe benefits 315,445 337,787
Accrued expenses and other current
liabilities 942,214 763,022
--------- ---------
Total current liabilities 3,661,519 3,420,649
Other liabilities:
Borrowings under bank line of credit
agreement (Note 3) 1,494,000 778,000
Other liabilities 355,150 392,195
--------- ---------
1,849,150 1,170,195
--------- ---------
Total liabilities 5,510,669 4,590,844
Contingencies (Note 7)
Shareholders' equity (Note 4):
Serial preferred stock; 221,756 shares
authorized; none outstanding
Common stock, no par; 20,000,000 shares
authorized; issued and outstanding
3,559,087 (September) and 3,531,987
(March) 5,447,969 5,384,950
Additional paid-in capital 67,104 47,141
Deficit (549,343) (773,109)
Currency translation and other adjustments (11,706) (15,642)
--------- ---------
Total shareholders' equity 4,954,024 4,643,340
--------- ---------
--------- ---------
$10,464,693 $9,234,184
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C> <C> <C>
For the three months For the six months
ended September 30, ended September 30,
1997 1996 1997 1996
Net sales $7,345,339 $4,878,375 $13,945,722 $9,579,779
Cost of goods sold 4,547,517 3,178,065 9,019,839 6,262,768
---------- ---------- ----------- ----------
Gross profit 2,797,822 1,700,310 4,925,883 3,317,011
Other expenses (income):
Selling, general and administrative 1,923,453 1,412,745 3,612,447 2,922,920
Provision for doubtful accounts 10,246 58,000 10,246 58,568
Research and development, net of
customer funding 507,207 401,411 1,002,590 722,689
Interest expense 29,968 50,496
Interest and other income (21,926) (11,761) (28,662) (14,913)
---------- ---------- ----------- ----------
2,448,948 1,860,395 4,647,117 3,689,264
Income (loss) before income taxes 348,874 (160,085) 278,766 (372,253)
Provision for income taxes 70,000 55,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Net income (loss) $278,874 ($160,085) $223,766 ($372,253)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Earnings (net loss) per common share $0.08 ($0.05) $0.06 ($0.11)
(Note 5)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the year ended March 31, 1997
and the six months ended September 30, 1997 (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Currency
Common stock Additional translation
Number paid-in and other
of shares $ capital Deficit adjustments Total
Balance, April 1, 1996 3,531,987 $5,384,950 $25,000 ($1,947,953) ($2,608) $3,459,389
Fair value of nonemployee common stock
purchase warrants and nonemployee
options issued for services 22,141 22,141
Net income for the year ended
March 31, 1997 1,174,844 1,174,844
Currency translation adjustment and
unrealized holding gains and losses
on available-for-sale marketable
securities (13,034) (13,034)
--------- --------- ------- --------- ------- ---------
Balance, March 31, 1997 3,531,987 5,384,950 47,141 (773,109) (15,642) 4,643,340
Common shares issued upon exercise of
options and related income tax benefit 27,100 63,019 19,963 82,982
Net income for the six months ended
September 30, 1997 223,766 223,766
Currency translation adjustment and
unrealized holding gains and losses on
available-for-sale marketable securities 3,936 3,936
--------- --------- ------- --------- ------- ---------
--------- --------- ------- --------- ------- ---------
Balance, September 30, 1997 3,559,087 $5,447,969 $67,104 ($549,343) ($11,706) $4,954,024
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 6)
(Unaudited)
<S> <C> <C>
For the six months ended September 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $223,766 ($372,253)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization of property and
equipment 256,555 198,829
Amortization of intangible assets and deferred
financing costs 40,120 31,598
Provision for doubtful accounts 10,246 58,568
Other adjustments28,515
Net changes in operating assets and liabilities:
Accounts receivable, trade (670,134) 747,512
Inventories (341,058) 431,334
Prepaid expenses and other current assets (25,378) (51,299)
Other assets (3,796) 11,835
Accounts payable, trade 84,020 (20,072)
Accrued expenses and other current liabilities 156,850 (575,224)
Other liabilities (37,045) (153,838)
---------- ----------
Net cash provided by (used in) operating activities (305,854) 335,505
Cash flows from investing activities:
Purchases of property and equipment (491,215) (435,101)
Purchases of intangible assets and other (59,979) (52,024)
---------- ----------
Net cash used in investing activities (551,194) (487,125)
Cash flows from financing activities:
Borrowings under bank line of credit agreement 8,298,000
Repayments under bank line of credit agreement (7,582,000)
Proceeds from exercise of options and warrants 63,019
Payment of deferred financing costs (10,000)
---------- ----------
Net cash provided by (used in) financing activities 779,019 (10,000)
Effect of exchange rate changes on cash and cash
equivalents (2,552) (2,579)
Net change in cash and cash equivalents (80,581) (164,199)
Cash and cash equivalents, beginning of period 238,787 771,016
---------- ----------
---------- ----------
Cash and cash equivalents, end of period $158,206 $606,817
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Information about interim periods is unaudited)
1. Interim financial statements:
Basis of presentation:
These interim financial statements were prepared pursuant to generally accepted accounting
principles for interim financial information, the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, while they conform with the measurement and classification
provisions of generally accepted accounting principles, they do not include the footnote
information required by generally accepted accounting principles for annual financial
statements. Preparation of these financial statements requires management to make estimates
and assumptions which affect the amounts reported. Actual results could differ from those
estimates. Additionally, these financial statements are subject to adjustments that might
result from the independent audit of the Company's financial statements for the year ending
March 31, 1998. In the opinion of management, all adjustments and disclosures necessary to
make these interim financial statements not misleading have been included. Nevertheless,
reference is made to the annual financial statements included in the Company's Annual Report
on Form 10-K for the year ended March 31, 1997. Operating results for the six months ended
September 30, 1997 are not necessarily indicative of the results that may be expected for the
year ending March 31, 1998.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market. Cost was
estimated using standard cost.
Stock based compensation:
The Company accounts for employee stock option grants using the intrinsic value based method.
Income taxes:
Income taxes are provided based on the estimated effective annual tax rate. The estimate
gives effect to net operating loss carryforwards and low foreign tax rates on the
undistributed earnings of the Company's subsidiaries, on which deferred income taxes are not
provided.
2. Inventories:
<S> <C> <C>
September March
Raw materials $ 772,838 $ 584,970
Work-in-process 585,112 734,010
Finished goods 2,658,978 2,356,890
------------ ------------
$4,016,928 $3,675,870
3. Borrowings under bank line of credit agreement:
At September 30, 1997, $1,494,000 was outstanding under a $2 million revolving line of credit
agreement, extended by a domestic bank. Advances are repayable by September 30, 1998, the
date of the agreement's expiration, and collateralized by a senior security interest in
substantially all assets. Borrowings bear interest at 0.5 percent above the bank's prime rate
(aggregating 9.0 percent at September 30, 1997). The agreement requires the Company to
maintain certain levels of working capital and net worth, limits the Company's capital
expenditures and advances to its subsidiaries and requires the bank's consent for the payment
of dividends. Additionally, the agreement requires payment of an annual facility fee.
On October 20, 1997, the bank approved a modification to the agreement which provides, among
other things, for an increase in maximum borrowings, an extension of the term of the agreement
and a decrease in interest rates and fees. Accordingly, borrowings at September 30, 1997 are
included in long-term debt.
4. Shareholders' equity:
The Company is authorized to issue 21,200,000 shares of capital stock of which 221,756 shares
have been designated as serial preferred stock and 20,000,000 shares have been designated as
common stock. No serial preferred stock was outstanding at September 30, 1997. The Board of
Directors has not designated 978,244 authorized shares.
The Company's China subsidiary is subject to certain government regulations, including
currency exchange controls, which limit cash dividends and loans. At September 30, 1997, this
subsidiary's restricted net assets approximated $440,000.
5. Per share information and impact of recently issued accounting standard:
Primary per share information is computed based on the weighted average common shares and
dilutive common equivalent shares outstanding during each period, after deducting preferred
dividend requirements from net income and considering the shares that may be issued upon
exercise of stock options and warrants, reduced by the shares that may be repurchased with the
funds received from their exercise. When applicable, dilutive common equivalent shares are
computed using the modified treasury stock method, which assumes investment of a portion of
the exercise proceeds. Fully diluted per share information is computed as above and assumes
conversion of dilutive convertible preferred shares, if any, after adding preferred dividend
requirements back to net income. Fully diluted per share information has not been presented
because there would be no dilutive effect. The weighted average numbers of shares used were:
<S> <C> <C> <C>
For the three months For the six months
ended September 30, ended September 30,
1997 1996 1997 1996
3,797,251 3,531,987 3,796,609 3,531,204
5. Per share information and impact of recently issued accounting standard (continued):
In February 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which requires public companies to present
basic and, if applicable, diluted per share information. Statement No. 128 also eliminates
the modified treasury stock method of computing potential common shares. The Company will
adopt Statement No. 128 on October 1, 1997. The Company estimates that per share information
for prior periods, determined pursuant to Statement No. 128, would have been:
<S> <C> <C> <C> <C>
For the three months For the six months
ended September 30, ended September 30,
1997 1996 1997 1996
Basic $ .08 ($ .05) $ .06 ($ .11)
Diluted $ .08 ($ .05) $ .06 ($ .11)
6. Supplemental disclosures of cash flow information:
For 1997, payments of interest expense approximated $49,000 and payments of income taxes
approximated $19,000. Additionally, the Company recognized $19,963 of income tax benefits on
stock option exercises for 1997. For 1996, the Company issued nonemployee common stock
purchase warrants and nonemployee options for services with a fair value of $22,141.
7. Contingencies:
Consumer products generally are marketed under warranties to end users of up to ten years.
The Company provides for estimated product warranty obligations at the time of sale, based on
its warranty claims experience. This estimate is susceptible to changes in the near term
based on introductions of new products, product quality improvements and changes in end user
behavior.
Certain compensation of substantially all employees is contingent upon various performance
criteria. Approximately $184,000 and $76,000 were provided for estimated contingent payments
earned for the six months ended September 30, 1997 and 1996, respectively.
At September 30, 1997, the Company was contingently liable for $67,000 under unused import
letters of credit.
On October 9, 1997, pursuant to a Court-sponsored mediation program, the Company agreed to
settle a dispute with a licensee of its technology, over certain terms of a 1991 agreement to
produce and market industrial pressure sensors. The settlement, terms of which are
confidential, has been submitted for Court approval. The licensee had filed a complaint
against the Company in United States District Court, District of New Jersey, on January 23,
1997, seeking declaratory judgment and legal costs. The Company had filed an answer and
counterclaim on February 25, 1997, requesting a declaration of the parties' rights under the
agreement.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this report, which discuss the Company's expectations, intentions and
strategies for the future, are "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. These
statements are based on information available to the Company on the date of this report and
the Company assumes no obligation to update them. Actual results could differ materially from
the forward looking statements. Among the important factors that could cause actual results
to differ are the timely development, market acceptance and warranty performance of new
products, the impact of competitive products and pricing, the continuity of bookings trends,
customers' financial condition, the absence of supply interruptions, success in identifying,
financing and integrating acquisition candidates, uncertainties of doing business in China and
Hong Kong and such additional risks and uncertainties as are detailed from time to time in the
Company's reports and filings with the Securities and Exchange Commission (the "SEC").
RESULTS OF OPERATIONS
Revenues for the six months ended September 30 increased by $4,366,000 or 46 percent, from
$9,580,000 for 1996 to $13,946,000 for 1997, reflecting record sales levels for the six-month
and three-month periods ended September 30, 1997. Sales performance benefited from certain
consumer product promotions, which also favorably affected profitability in the second
quarter. Net income for 1997 was $224,000 for the six months ended September 30 ($279,000 for
the second quarter), compared with losses of $372,000 for the six months ($160,000 for the
second quarter) one year earlier.
Sales of consumer bath scales increased by $2,484,000 or 39 percent, from $6,333,000 for 1996
to $8,817,000 for 1997. Sales of tire pressure gauges increased by $1,161,000 or 156 percent,
from $743,000 for 1996 to $1,904,000 for 1997. Both product categories benefited from
promotional sales campaigns. A major European promotion of bath scales benefited the first
quarter. Several United States promotions of tire pressure gauges benefited the second
quarter.
Sales of industrial pressure sensors increased by $300,000 or 40 percent, from $744,000 for
1996 to $1,044,000 for 1997, partly as a result of the launch of a new product offering
protection against electrostatic effects, electromagnetic and radio-frequency interference.
The Company granted Dresser Industries a license to manufacture comparable products under a
1991 agreement, certain terms of which had been disputed. On October 9, 1997, pursuant to a
Court-sponsored mediation program, the Company and Dresser agreed to settle their differences
over the agreement's interpretation. The settlement, terms of which are confidential, has
been submitted for Court approval.
Gross profit for the six month period increased from 1996 to 1997 by $1,608,000, with the
gross profit percentage increasing to 35.3 percent from 34.6 percent. This increase primarily
reflects shifts in the product mix in favor of higher margin tire pressure gauges, mainly as a
result of the promotions in the second quarter. Future gross profit percentages may be
expected to fluctuate with changes in product and customer mixes. Additionally, the Company
may experience future price pressures caused by the effects of foreign currency exchange rates
on its foreign sales, and because of the introduction of competing consumer products. The
Company intends to maintain its competitiveness by continuing to expand its product lines,
with technological advances, innovative designs and broader price ranges, while making major
efforts to reduce product costs.
Selling, general and administrative ("SG&A") expenses for the six months increased by
$689,000, or 24 percent, but declined significantly as a percentage of net sales, from 30.5
percent for 1996 to 25.9 percent for 1997. Certain variable SG&A expenses increased somewhat,
mainly as a result of the promotional orders mentioned above, which required special packaging
and handling. These increases were more than offset by a lower provision for estimated
product warranty obligations, reflecting the Company's more recent warranty claims experience
which benefited from quality improvements. In March 1997, the Company's China subsidiary
received certification of its conformity with the International Standards Organization ("ISO")
9002 Quality System Standard. The estimate of product warranty obligations is susceptible to
changes in the near term based on introductions of new products, product quality improvements
and changes in end user behavior. Consumer products are marketed under warranties to end users
of up to ten years. Fixed SG&A expenses increased as a result of higher sales and marketing
expenses, principally personnel, advertising, packaging development and trade show
participation. The Company added to its sales and marketing staff, which was reorganized
around product segments. A regional sales manager was added to penetrate additional consumer
products accounts including premium, incentive and promotional business, and two new hires are
dedicated to developing the industrial pressure sensor business. Advertising and trade show
expenses rose, in part, to support the growth of the Company's industrial pressure sensor
business. Packaging development grew, as a result of expansion of the number of consumer
product offerings.
Research and development expenses increased by $280,000, or 39 percent. A significant portion
of this increase was attributable to industrial pressure sensor product development at the
Company's Virginia Transducer Engineering Center ("VA-TEC"), which was not operational for the
full six-month period in 1996. Approximately one-fourth of the Company's research and
development spending for 1997 was attributable to VA-TEC. The Company's revenue growth has
relied on, and is likely to continue to rely on, expansion of its product lines and,
accordingly, research and development expenses will continue to be significant. The Company
intends to continue to invest in industrial pressure product development, and launch new
consumer products and line extensions. Plans include development of a "smart"
microcontroller-based industrial pressure sensor and a new application-specific integrated
circuit to reduce the cost in substantially all products. The Company recently began to ship
its new "frame" scale, which incorporates "Sensor Disc" TM technology in a lower cost, one-piece
frame.
For 1997, the Company provided income taxes of $55,000, at an approximate effective income tax
rate of 20 percent. This estimated rate of tax, which is subject to change in the near term,
is based on the proportion of pretax profits now expected to be earned by the Company's
foreign subsidiaries and favorable overseas tax rates now in effect. Deferred income taxes
are not provided on these subsidiaries' earnings, which are expected to be reinvested. Income
tax benefits were not provided for 1996 because of management's assessment, then, that the tax
benefits were unlikely to be realized in the near term.
Per share information normally considers the shares that may be issued upon exercise of stock
options and warrants, reduced by the shares that may be repurchased with the funds received
from their exercise. For the three- and six- month periods ended September 30, 1996, dilutive
common equivalent shares were not taken into account because there were net losses for these
periods. Additionally, per share information for all periods presented would not have been
affected by Statement of Financial Accounting Standards No. 128, "Earnings per Share," had
this accounting pronouncement then been in effect. The total number of potential common
shares underlying stock options and warrants outstanding at September 30, 1997 was 1,040,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs for 1997 have increased, compared with 1996, mainly from
higher inventory levels, attributable in part to expansion of the number of products offered
for sale, and from increased accounts receivable, primarily consumer product promotions
accounts. Operating activities for the six months ended September 30, 1997 used $306,000 of
cash.
Fixed asset purchases for 1997, aggregating $491,000, mainly comprised productive equipment,
to augment China manufacturing and certain semiconductor wafer processing in New Jersey, and
office space expansion at both sites. Additionally, $60,000 was spent on computer software to
enhance office connectivity and productivity. The Company expects such capital spending to
continue, in line with growth of its product lines and staff size. At September 30, 1997,
there were no material commitments for capital expenditures.
The Company continues to finance its requirements with accounts payable and bank borrowings.
The Company's principal supplier, River Display Ltd. ("RDL"), assembles substantially all
consumer products. While the Company furnishes RDL with the proprietary subassemblies
required in its products, RDL purchases other required components from third parties, reducing
the Company's need to finance certain raw materials through their conversion to finished
inventories.
At September 30, 1997, $1,494,000 was outstanding under the Company's $2 million bank line of
credit agreement. Borrowings at that date are included in long-term debt because, on October
20, 1997, the bank approved a modification to the agreement, which provides, among other
things, for an increase in maximum borrowings, an extension of the term of the agreement and
decreases in interest rates and fees.
Management believes that these resources and cash flows expected from operating activities
will continue to be adequate for the Company's existing business and planned internal growth.
However, the Company has begun a pursuit of industrial product acquisition candidates, which
is likely to require additional financing.
The Company has not declared cash dividends on its common equity. Management expects that
earnings that may be generated from the Company's near-term operations will be reinvested and
that, accordingly, dividends will not be paid to common shareholders in the near future.
Additionally, the payment of dividends is subject to the consent of the bank that extended a
revolving credit agreement.
At present, there are no material restrictions on the ability of the Company's Hong Kong
subsidiary to transfer funds to the Company as cash dividends, loans, advances or purchases of
materials, products or services. However, distribution and repatriation of dividends by the
Company's China subsidiary are restricted by Chinese laws and regulations, including currency
exchange controls. At September 30, 1997, this subsidiary's restricted net assets
approximated $440,000.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On October 9, 1997, pursuant to a Court-sponsored mediation program, the Company and Dresser
Industries, Inc. ("Dresser") agreed to settle their differences over the interpretation of
their 1991 agreement to produce and market industrial pressure sensors. The settlement, terms
of which are confidential, has been submitted for Court approval. Dresser had filed a
complaint against the Company in United States District Court, District of New Jersey, on
January 23, 1997, seeking declaratory judgment and legal costs. The Company had filed an
answer and counterclaim on February 25, 1997, requesting a declaration of the parties' rights
under the agreement.
ITEM 4. Submission of Matters to a Vote of Security Holders
On September 29, 1997, the Company held an Annual Meeting of Shareholders at which the
Shareholders elected seven Directors to hold terms of office until their respective successors
are elected and qualified. Additionally, the Shareholders amended the Company's Certificate
of Incorporation to provide for a classified Board of Directors and ratified the appointment
of Grant Thornton as the Company's independent auditor. The number of votes cast for, against
or withheld and the number of abstentions and broker non-votes were:
<S> <C> <C> <C>
Number of votes Number of
cast against or abstentions and
for withheld broker non-votes
Election of Directors:
Joseph R. Mallon Jr. 2,943,346 80,100
John D. Arnold 2,943,446 80,000
Richard S. Betts 2,943,446 80,000
Theodore J. Coburn 2,943,446 80,000
Damon Germanton 2,943,446 80,000
Steven P. Petrucelli 2,943,446 80,000
The Honorable Dan J. Samuel 2,943,446 80,000
Amendment to Certificate
of Incorporation 961,976 149,941 51,400
Ratification of Appointment
of Grant Thornton 3,005,946 13,000 4,500
ITEM 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(10) Material contract: Supply Agreement, by and between Signature Brands, Inc. and
Measurement Specialties, Inc.
(11) Statements regarding computation of per share earnings for 1997 and 1996
(27) Financial Data Schedule
The Company did not file any reports on Form 8-K during the three months ended September 30,
1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
MEASUREMENT SPECIALTIES, INC.
(Registrant)
Date: November 4, 1997 /s/ Joseph R. Mallon Jr.
President, Chief Executive Officer and
Chairman of the Board of Directors
Date: November 4, 1997 /s/ Mark A. Shornick
Chief Financial Officer, Assistant Secretary
and Treasurer
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<TABLE>
MEASUREMENT SPECIALTIES, INC.
EXHIBIT 11 - STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
September 30, 1997
<S> <C> <C>
For the three months For the six months
ended September 30, ended September 30,
1997 1996 1997 1996
Primary net income (loss) per common share:
Net income (loss) $278,874 ($160,085) $223,766 ($372,253)
Assumed interest income net of tax
effect under modified treasury stock
method (a) 8,215 16,807
-------- -------- -------- --------
Net income (loss) available to
common shareholders $287,089 ($160,085) $240,573 ($372,253)
Weighted average common shares
outstanding 3,549,687 3,531,987 3,545,781 3,531,204
Net effect of dilutive common
equivalent shares based on the
modified treasury stock method
using average market price (a) 247,564 250,828
--------- --------- --------- ---------
Total 3,797,251 3,531,987 3,796,609 3,531,204
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary net income (loss) per common share $0.08 ($0.05) $0.06 ($0.11)
Fully diluted net income (loss) per common share:
Net income (loss) $278,874 ($160,085) $223,766 ($372,253)
Assumed interest income net of tax
effect under modified treasury stock
method (a) 8,215 16,807
--------- --------- --------- ---------
Net income (loss) available to
common shareholders $287,089 ($160,085) $240,573 ($372,253)
Weighted average common shares
outstanding 3,549,687 3,531,987 3,545,781 3,531,204
Net effect of dilutive common
equivalent shares based on the
modified treasury stock method using
period-end market price, if higher
than average market price (a) 247,564 250,828
--------- --------- --------- ---------
Total 3,797,251 3,531,987 3,796,609 3,531,204
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted net income (loss) per $0.08 ($0.05) $0.06 ($0.11)
common share (a)
(a) Improvements of earnings per common share have not been taken into account
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF MEASUREMENT SPECIALTIES, INC. AND SUBSIDIARIES AS
OF SEPTEMBER 30, 1997, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS,
SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE SIX-MONTH PERIOD THEN ENDED, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000778734
<NAME> MEASUREMENT SPECIALTIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 158
<SECURITIES> 0
<RECEIVABLES> 3517
<ALLOWANCES> (43)
<INVENTORY> 4016
<CURRENT-ASSETS> 8064
<PP&E> 3526
<DEPRECIATION> (1901)
<TOTAL-ASSETS> 10465
<CURRENT-LIABILITIES> 3662
<BONDS> 0
<COMMON> 5448
0
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<OTHER-SE> 55
<TOTAL-LIABILITY-AND-EQUITY> 10465
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<TOTAL-REVENUES> 13946
<CGS> 9020
<TOTAL-COSTS> 9020
<OTHER-EXPENSES> 4587
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<TABLE>
EXHIBIT 10 - MATERIAL CONTRACT: SUPPLY AGREEMENT BY AND
BETWEEN SIGNATURE BRANDS, INC. AND MEASUREMENT SPECIALTIES, INC.
September 30, 1997
AGREEMENT
This Agreement is made and entered into this 26 day of September, 1997 by and
between Signature Brands, Inc., an Ohio corporation ("SBI"), and Measurement
Specialties, Inc., a New Jersey corporation ("MSI").
WHEREAS, MSI is engaged in the manufacture and distribution of lithium-powered
scales and other scale products (including body-weight type bathroom scales) and
the components and parts related thereto; and
WHEREAS, SBI, formerly known as Health o meter, Inc., a Delaware corporation
("HOM"), is engaged in the manufacture and distribution of scales, including
body weight scales for consumer use, medical scales, office scales, food service
scales, and other scales for professional use; and
WHEREAS, MSI and HOM have previously entered into an agreement dated December
27, 1993 (the "1993 Agreement") providing for the sale by MSI of various
lithium-powered scales and components to HOM; and
WHEREAS, since the 1993 Agreement, MSI has sold to HOM and SBI various lithium-
powered scales and components in accordance with the terms of the 1993
Agreement; and
WHEREAS, MSI and SBI now desire to enter into an exclusive arrangement
superseding the 1993 Agreement and any amendments thereto, pursuant to which SBI
will be the sole distributor within the defined territory of certain scales
manufactured by MSI;
NOW, THEREFORE, for and in consideration of the premises contained herein, the
parties mutually agree as follows:
I. DEFINITIONS
Unless the context clearly indicates otherwise, the following terms as used
herein shall have the meanings set forth below:
A. "Products" shall refer to any and all products sold to SBI by MSI pursuant to
this Agreement.
B. "MSI/SBI Scales" shall refer to Products which are designed by MSI, and for
which the tooling is owned by MSI. The parties acknowledge that MSI Scales
shall include SBI (formerly HOM) Models 601 and 605, as well as any other scale
models which the parties may agree to designate in writing as MSI/SBI Scales
during the term of this Agreement.
C. "SBI Scales" shall refer to Products for which the aesthetic design is
proprietary to SBI, and for which the tooling is owned by SBI. The parties
acknowledge that SBI Scales shall include SBI (formerly HOM) Models 604, 606 and
193, as well any other scale models which the parties may agree to designate in
writing as SBI Scales during the term of this Agreement.
D. "Body Weight Scales" shall refer to any scales designed for the measurement
of human body weight, whether such scales are intended for consumer or
professional use.
E. "Territory" shall refer to the United States (including Alaska and Hawaii).
F. "Other Lithium Scales" shall refer to any lithium powered Body Weight Scales
manufactured by, for or on behalf of MSI, which are not Products under this
Agreement.
II.PRODUCT SALES AND DELIVERIES
A. Product Sales
During the term of this Agreement, MSI agrees to manufacture and supply SBI
with, and SBI agrees to purchase from MSI, the Products ordered by SBI at the
prices and on the terms and conditions set forth herein.
B. Pricing
1. Sales Within Territory
An initial price list for the Products is attached hereto as Exhibit A. The
parties agree that all Product prices reflected on Exhibit A will be ________
effective September 1, 1997. In addition. MSI agrees to implement _________
effective June 30, 1998. Such _____________ shall become effective as of June
30, 1998 unless MSI demonstrates by documentation reasonably acceptable to SBI
that (1) MSI in fact implemented ____________ contemplated by the parties; and
(2) such ______________________.
2. Sales Outside of Territory
For any purchase order of Products intended for sales outside of the Territory
(to the extent permitted by Section III, below), pricing shall be as set forth
in Subsection 1, above, provided that the quantity of Products in such purchase
order is at least _____ units. For any such purchase order under _____ units,
pricing shall be as set forth in Exhibit B hereto. In any event the minimum
order for Products intended for sales outside of the Territory shall be ____
units.
C. Purchase Orders
All purchase orders for Products will be issued by SBI in the form of purchase
order attached hereto as Exhibit C. This Agreement shall be incorporated into,
and made a part of, each and every purchase order for Products. In the event of
conflict between any provision of this Agreement and any provision of the
Standard Contract Terms and Conditions set forth in the purchase orders, this
Agreement shall govern. In the event of any conflict between any provision of
this Agreement and the face of any purchase order for Products, such purchase
order shall govern.
D. Packaging
All Products shall be packaged as the parties mutually agree.
E. Warranty
MSI warrants to SBI that the Products sold to SBI under this Agreement (i) will
be free from defects in manufacturing, materials, workmanship, packaging and
labeling, and (ii) will conform to the specifications and quality standards
established by SBI and accepted by MSI for each Product.
F. Delivery and Import Duties
All deliveries of Products shall be FOB Hong Kong Port or such other shipping
points in the country or countries of manufacture that may be designated by
mutual agreement of MSI and SBI.
G. Shipment and Insurance
MSI will arrange shipment according to SBI's shipping instructions contained in
a purchase order or other direction from SBI, at SBI's cost (which cost shall be
invoiced directly to SBI) to customers or facilities designated from time to
time by SBI. SBI shall be responsible for insurance on all shipments.
H. Inspection; Quality Assurance
SBI shall have the right, upon reasonable notice to MSI: (1) to monitor and
inspect manufacture and test operations during normal business hours; (2) to
perform quality assurance tests on site; (3) to inspect all records and data
accumulated in the course of the activities contemplated hereby; and (4) to
insist on strict compliance with the terms hereof. If any Product sold to SBI
pursuant to the Agreement fails to comply with any of the conditions set forth
in Section II.E., above, then, at SBI's option, SBI may return any defective
products to MSI for replacement (with all shipping, repackaging, replacement and
repair costs to be at the expense of MSI). SBI agrees to notify MSI promptly
after discovering defects in any Products hereunder.
I. Forecasts
SBI shall Provide MSI with a four-month rolling forecast of intended purchases
of Products, which shall be updated on a monthly basis. These forecasts are
intended for planning purposes only, and shall not be considered firm or binding
commitments.
J. Payment Terms
Payment for purchases shall be by wire transfer within 15 days of SBI's receipt
of goods at dock in Hong Kong or such other shipping point designated by the
parties pursuant to subsection F, above.
III. DISTRIBUTION RIGHTS; EXCLUSIVITY
A. General Provisions
The parties agree that all Products sold to SBI pursuant to this Agreement shall
be designated as either MSI/SBI Scales or SBI Scales, as those terms are defined
in Section I, above, unless otherwise agreed in writing by the parties. It is
agreed and understood that SBI may market and sell the Products, to the extent
permitted by this Agreement, under any SBI trademark or tradenames owned,
licensed or otherwise controlled by SBI, including, without limitation, HEALTH 0
METER(r), PELOUZE(r), BORG(r), and COUNSELOR(r) (collectively, the Trademarks").
To the extent that MSI retains any rights to sell, market or distribute Products
under this Agreement, MSI agrees that it shall not, under any circumstances,
use, display or exhibit any Trademarks in connection with such marketing, sale
or distribution.
B. MSI/SBI Scales
Notwithstanding any other provision of this Agreement, SBI shall have, and MSI
hereby grants to SBI, the exclusive right to market, sell and distribute, in the
Territory, all MSI/SBI Scales, in any and all channels of distribution. SBI
shall have no right to market, sell or distribute any Products which are MSI/SBI
Scales outside of the Territory, except upon express written agreement by MSI,
in which case SBI shall have the non-exclusive right to market, sell or
distribute the specified MSI/SBI Scales outside of the Territory. MSI shall
retain all rights to sale and distribution of MSI/SBI Scales outside of the
Territory.
C. SBI Scales
Notwithstanding any other provision of this Agreement, SBI shall have, and MSI
hereby grants to SBI, the exclusive right to sell and distribute SBI Scales
anywhere in the world, in any and all channels of distribution, under any
Trademarks. MSI shall have no right to sell or distribute SBI Scales inside or
outside of the Territory, except upon express written agreement by SBI, in which
case MSI shall have the non-exclusive right to market, sell or distribute the
specified SBI Scales outside of the Territory.
D. Other Lithium Scales
Notwithstanding any other provision of this Agreement, MSI agrees that it will
not sell, market or distribute Other Lithium Scales to any scale manufacturer or
OEM distributor other than SBI for the purpose of sale or distribution within
the Territory. MSI shall retain the right to sell, market and distribute, on
its own behalf, Other Lithium Scales within the Territory directly to the
retailers identified in Exhibit D, and in the channels of distribution
identified in Exhibit D hereto. MSI shall further retain unrestricted rights to
sell Other Lithium Scales outside of the Territory.
E. Right of First Refusal
As used herein, "New Products" shall refer to any scale products developed and
solely owned by MSI during the term of this Agreement. MSI agrees that SBI
shall have a Right of First Refusal (as defined below) for any and all New
Products which (1) fall within the following product categories: (1) medical
scales; (2) bath scales; (3) food scales; or (4) office scales. For any New
Product subject to SBI's Right of First Refusal hereunder, the parties agree
that MSI will provide SBI with a written description of such New Product,
including specifications, prototypes and samples, where available. SBI shall
then have the opportunity to negotiate with MSI for the acquisition of
distribution rights for such New Product. If the parties fail to reach an
agreement regarding such New Product within ninety (90) days of the date on
which SBI receives a written description, then MSI shall have the right to
market such New Product to third parties. "New Products," as used in this
Section, shall refer to new product designs and/or new technology, but shall not
include minor aesthetic variations in pre-existing products, such as a new top
or mat for an existing platform.
The parties further agree that they will endeavor to jointly develop other scale
and home health care products on terms mutually acceptable to each of them.
F. Right to Supply
For Purposes of this provision, "Third Party Purchases" shall refer to purchases
by SBI of lithium-powered scale products from any supplier other than MSI; and
"Third Party Supplier" shall refer to any supplier of lithium-scale products
other than MSI.
Subject to the terms, conditions and limitations set forth herein, SBI agrees
that it will, during the term of this Agreement (including any renewal term)
purchase at least _______ of its total requirements of lithium-powered scales
from MSI. SBI's compliance with this provision shall be measured quarterly
during the term of this Agreement by comparing for the preceding twelve-month
period. The total dollar volume of Products purchased by SBI from MSI with the
total dollar volume of all lithium-powered scales purchased by SBI from any
supplier, including MSI and Third Party Suppliers. In the event that SBI
purchases less than ________ of its total requirements of lithium-powered scales
from MSI during any twelve-month period, then MSI's sole and exclusive remedy
shall be the right, within 60 days of the end of such calendar year, and upon 30
days written notice, to convert any exclusive rights granted to SBI under this
Agreement (not including the exclusive rights with respect to SBI Scales under
Section III.C.) to non-exclusive rights for the remainder of the term of this
Agreement and be relieved of the objectives of Sections III.D. and E.
In the event of a Change of Control (as defined herein) during the term of the
Agreement, the provisions of this section shall not apply provided that the
_______ requirement was met for the twelve months period prior to the Change of
Control.
MSI will exert its best efforts to provide Products at competitive pricing,
quality and delivery as compared to any other vendor that offers substitute
Products. Furthermore, it will exert its best efforts to provide all Other
Products required by SBI. It will not intentionally or unreasonably withhold
its best efforts in supplying SBI with Products or Other Products needed by SBI
at competitive pricing, quality and delivery as compared to any other vendor
that offers substitute Products. If requested by SBI, MSI will provide
substantiation of these efforts. Should SBI purchase more than _______ of its
requirements for lithium powered scales from a third party as a result of MSI's
willful or unreasonable actions which result in less than its best efforts being
exerted in this regard, then the provisions of this section will not apply.
Disputes arising from this paragraph will be submitted to binding arbitration.
As used herein, "Change of Control" shall mean any of the following:
i) any consolidation or merger of MSI in which MSI is not the continuing or
surviving corporation or pursuant to which shares of MSI's common stock would be
converted into cash, securities or other property (other than a merger in which
the holders of MSI common stock maintain the same proportionate ownership in the
surviving corporation after the merger as they held in MSI prior to such merger;
or
ii) any person, entity or group shall acquire fifty (50) percent or more of the
outstanding common stock of MSI.
The requirements of this section shall not affect the minimum purchase
requirements set forth in Paragraph VI.B. below.
IV.SERVICES
A. Engineering
MSI shall, if requested, provide to SBI, without cost, reasonable electronic
engineering services, mechanical engineering services, and other technical
advice and know-how necessary for the service and repair of Products.
B. Research and Development
Upon SBI's request and pursuant to terms mutually agreed upon by the parties,
MSI will conduct product research and development activities on behalf and for
the benefit of SBI with respect to MSI's strain gauge and lithium technology as
it applies to scale products.
V. CONFIDENTIALITY
MSI and SBI each agrees on behalf of itself, its officers, employees and agents,
to maintain in strict confidence, not to disclose to any third party, to take
all reasonable precautions to prevent disclosure of, not to make any
unauthorized use of and to take all reasonable precautions to prevent
unauthorized use of, any know-how and to enter into a mutual confidentiality
agreement in a form agreed upon by the parties.
VI.TERM; MINIMUM PURCHASE REOUIREMENTS
A. Term
This Agreement shall have a term ending December 31, 2000, unless earlier
terminated under any other provision of this Agreement. The Agreement will be
automatically renewed for additional one-year terms unless either party gives
written notice no less than six (6) months prior to the expiration of the term
(including any renewal term) of its intent not to renew the Agreement.
B. Minimum Purchase Requirements
Notwithstanding the foregoing, if SBI's total purchases of Products do not
exceed the amounts set forth below for any calendar year, then, in such case,
MSI may elect, in writing, and upon ninety (90) days advance notice, to convert
any exclusive rights granted to SBI under Section III(B) to non-exclusive rights
and be relieved of obligations under Sections III.D and III.E for the remainder
of the term of this Agreement:
<S> <C>
1998 $ ______________
1999 $ ______________
2000 $ ______________
If the Agreement continues in effect for any renewal terms beyond December 31,
2000, then the parties agree that they will negotiate in good faith concerning
the amount of purchases required to maintain exclusivity for such renewal term.
Nothing herein shall be construed as a contractual commitment on the part of SBI
to purchase the foregoing minimums. MSI's sole and exclusive remedy in the
event of failure to achieve the foregoing minimum purchase amounts shall be the
right to convert SBI's exclusive rights to non-exclusive rights as described
above.
C. Termination for Cause
If either party should fail to pay or perform any obligation that it has to the
other party under this Agreement (said occurrence constituting a "Default"),
then the non-defaulting party may give written notice to the defaulting party,
and the defaulting party shall have fifteen (15) days after receipt to cure said
Default. In the event the defaulting party does not cure the Default within
said fifteen (15) day period to the reasonable satisfaction of the non-
defaulting party, then the non-defaulting party may, at its option, terminate
this Agreement or discontinue its performance during the pendency of said
Default, in addition to seeking any other remedy or cause of action it may have.
Even if a defaulting party is able to cure its Default hereunder in a timely
manner, this shall not restrict the non-defaulting party's right to seek any
damages to which it may prove itself entitled as a result of such Default. In
no event will MSI or SBI be liable for any incidental or consequential damages
as a result of this Agreement, except to the extent that such incidental or
consequential damages are included in any claim brought by a Third party against
SBI which is subject to indemnification under Section VII.F.
VII.GENERAL PROVISIONS
A. Relationship of The Parties
Nothing contained in this Agreement shall be construed to constitute either
party as the partner, employee or agent of, or joint venture with, the other
party, nor shall either party have any authority to bind the other in any
respect.
B. Force Majeure
The obligations of MSI and SBI will be suspended to the extent and for the
period that performance is prevented because of Force Majeure, which shall mean
acts of God, strikes, lockouts, industrial or labor disturbances, act of the
public enemy, wars, blockades, insurrections, riots, epidemics, landslides,
lightning, earthquakes, fires, storms, floods, wash-outs, tornadoes, hurricanes,
boycotts, explosions and any other causes similar to those above which are not
within the reasonable control of the party claiming force majeure, and which by
the exercise of due diligence such party is unable to overcome. The party whose
performance is so impaired shall promptly give notice to the other party,
stating the reasons for the suspension, and shall resume performance as soon as
possible.
C. Liquidation, Dissolution or Bankruptcy of MSI
MSI agrees that SBI shall have the right to acquire all intellectual property
rights, patents, patent applications, technology and know-how applicable to
lithium powered or permanently powered scales, and their "fair market value" in
the event of the liquidation, dissolution or bankruptcy of MSI during the term
of this Agreement.
D. Choice of Law
This Agreement shall be construed and interpreted under the laws of the State of
Illinois applicable to contracts to be performed entirely within such state.
E. Effect of Default or Termination
In the event of the termination of this Agreement by reason of the Default of
MSI, MSI shall, at SBI's option, have the obligation to complete and sell to SBI
all Products that have been ordered by SBI prior to the occurrence of such
Default. This section shall survive termination of the Agreement.
F. Indemnification by MSI
1. Intellectual Property
MSI hereby agrees to indemnify and hold SBI harmless from and against any
liability, loss, damage, cost or expense (including reasonable attorneys' fees)
which SBI may at any time suffer, incur or be required to pay by reason of any
action, suit or proceeding alleging that any Products sold to SBI hereunder
infringe the rights of any third parties; provided, however, that the foregoing
duty to indemnify shall not apply to any claim based on the aesthetic design of
any SBI Designed Scales.
2. Product Liability
MSI hereby agrees to indemnify and hold SBI harmless from and against any
liability for property damage, bodily injury or economic damage, or other loss,
damage, cost or expense arising out of or relating to any alleged defect in the
design (with the exception of the aesthetic design of any SBI Designed Scales)
or manufacturing of any Product sold pursuant to this Agreement.
3. Assumption of Defense
SBI will give MSI immediate notice of any action, claim, suit or proceeding
subject to indemnification under this Section, and afford MSI the opportunity to
assume the defense of same at its own expense. If MSI falls to defend any such
action within thirty (30) days after notice from SBI, then SBI shall have the
right to defend, and MSI shall assist and cooperate with SBI in such defense,
and shall reimburse SBI for all costs, expenses and judgments incurred in such
action. The indemnification granted under this section shall survive the
termination of this Agreement.
G. Notices
Unless otherwise provided herein, any notice, request, instruction or other
document to be given hereunder by any party to the other shall be in writing,
and delivered personally or mailed by certified mail, postage prepaid, return
receipt requested (such mailed notice to be effective on the date of such
receipt), or by facsimile (such notice to be effective on the date the facsimile
is confirmed), as follows:
If to MSI, addressed to: If to SBI, addressed to
Measurement Specialties, Inc. Signature Brands, Inc.
41 Plymouth Street 7005 Cochran Road
Fairfield, NJ 07004 Glenwillow, OH 44139
Attn.: President Attn.: President
Copy to:
Kathryn K. Vanderwist, Corporate Counsel
or to such other place as any party may designate by written notice to the
others.
H. Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the respective
parties hereto and their respective successors and assigns, including any parent
or subsidiary of the respective parties. Neither party may assign this
Agreement to a third party without the prior written consent of the other party,
which consent shall not be unreasonably withheld. In the event of any such
assignment, the assigning party shall remain secondarily liable unless otherwise
agreed in writing by the non-assigning party.
I. Entire Agreement
This Agreement and the Schedules and Exhibit attached hereto embody the entire
agreement among the parties, and supersedes all prior agreements or
understandings.
J. Paragraph Headings
The paragraph headings used herein are descriptive only and shall not affect the
meaning or interpretation of this Agreement.
K. Severability
If any provision of this Agreement shall for any reason be held violate of
applicable law, and so much of said Agreement is held unenforceable, then the
invalidity of such specific provision herein shall not be held to invalidate any
other provision herein, which shall remain in full force and effect.
L. Non-waiver
Failure on the part of a party in any one or more instances to enforce any of
its rights which arise in connection with this Agreement, or to insist upon the
strict performance of any of the terms, conditions or covenants of this
Agreement, shall not be construed as a waiver or relinquishment for the future
of any such rights, terms, conditions or covenants. No waiver of any condition
of this Agreement shall be valid unless it is in writing.
M. Conflict
In the event of any conflict between the provisions contained in this Agreement
and the terms and conditions contained in a purchase order, the provisions of
this Agreement shall fully govern and control.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it as of
the date first above written.
SIGNATURE BRANDS, INC. MEASUREMENT SPECIALTIES, INC.
By: /s/ S. Donald McCullough By: /s/ Joseph R. Mallon Jr.
Its: President Its: CEO
Date: 9/26/97 Date: 9/26/97
EXHIBIT A
Price List
[omitted from Exhibit]
EXHIBIT B
Pricing on Products Purchased for Sales Outside of Territory
Orders of Less than Units
[omitted from Exhibit]
EXHIBIT C
[Form of Purchase Order omitted from Exhibit]
EXHIBIT D
MSI Rights to Sell Other Lithium Scales Within Territory
Customers:
JC Penneys
Sears
Home Shopping Network
Kohls
Channels of Distribution:
Department Stores
Specialty Stores
Direct Mail
Catalogue Showroom
Premium
Military
Electronics Specialty Stores
</TABLE>
