UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-16085
MEASUREMENT SPECIALTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-2378738
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
- --------------------------------------------------------------------------------
80 LITTLE FALLS ROAD, FAIRFIELD, NEW JERSEY 07004
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(973) 808-1819
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,582,887 shares of common
stock, no par, at November 1, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets, September 30, 1998 (Unaudited) and March 31, 1998 3 - 4
Consolidated Statements of Operations (Unaudited), Six Months Ended
September 30, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Shareholders' Equity, Six Months Ended
September 30, 1998 (Unaudited) and Year Ended March 31, 1998 . . . . . . . . 6
Consolidated Statements of Cash Flows (Unaudited), Six Months Ended
September 30, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 8 - 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 12 - 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . 16
The following exhibits are included herein:
Exhibit 27 Financial Data Schedule
Other items are omitted because they are not required or are not applicable.
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
------
SEPTEMBER 30 MARCH 31
(DOLLARS IN THOUSANDS) 1998 1998
------------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 829 $ 303
Accounts receivable, trade, net of allowance for doubtful. 5,955 3,124
accounts of $142 (Sept) and $130 (March)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 3,189 3,815
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . 204 213
Prepaid expenses and other current assets. . . . . . . . . 300 173
------------- ---------
Total current assets . . . . . . . . . . . . . . . . . . 10,477 7,628
------------- ---------
Property and equipment . . . . . . . . . . . . . . . . . . . 4,837 2,898
Less accumulated depreciation and amortization . . . . . . 1,414 1,135
------------- ---------
3,423 1,763
------------- ---------
Other assets:
Goodwill and other intangible assets, net of accumulated
amortization of $171 (Sept) and $165 (March) . . . . . . 1,765 155
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . 372 372
Other assets . . . . . . . . . . . . . . . . . . . . . . . 295 299
------------- ---------
2,432 826
------------- ---------
$ 16,332 $ 10,217
============= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
SEPTEMBER 30 MARCH 31
(DOLLARS IN THOUSANDS) 1998 1998
------------- ----------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable, trade. . . . . . . . . . . . . . . $ 4,113 $ 3,113
Accrued expenses and other current liabilities . . . 1,717 1,180
Current portion of long term debt . . . . . . . . . 450 0
------------- ----------
Total current liabilities. . . . . . . . . . . . . 6,280 4,293
------------- ----------
Other liabilities:
Borrowings under bank line of credit agreement . . . 516 21
Long term debt, net of current portion . . . . . . . 3,550 0
Other liabilities. . . . . . . . . . . . . . . . . . 358 324
------------- ----------
4,424 345
------------- ----------
Total liabilities. . . . . . . . . . . . . . . . . 10,704 4,638
------------- ----------
Shareholders' equity
Common stock, no par; 20,000,000 shares authorized;
issued and outstanding 3,582,687 (Sept and March). 5,502 5,502
Additional paid-in capital . . . . . . . . . . . . . 75 75
Retained earnings. . . . . . . . . . . . . . . . . . 40 3
Currency translation and other adjustments . . . . . 11 (1)
------------- ----------
Total shareholders' equity . . . . . . . . . . . . 5,628 5,579
------------- ----------
$ 16,332 $ 10,217
============= ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------- ----------------
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . $10,455 $7,345 $14,337 $13,946
Cost of goods sold. . . . . . . . . . . . . . . . . 6,429 4,547 8,997 9,020
------- ------ ------- -------
Gross profit. . . . . . . . . . . . . . . . . . . 4,026 2,798 5,340 4,926
------- ------ ------- -------
Other expenses (income):
Selling, general and administrative . . . . . . . 2,460 1,923 4,317 3,612
Provision for doubtful accounts . . . . . . . . . 12 10 12 10
Research and development, net of customer funding 454 507 909 1,003
Interest (net) and other income . . . . . . . . . 53 9 56 22
------- ------ ------- -------
2,979 2,449 5,294 4,647
------- ------ ------- -------
Income before income taxes . . . . . . . . . . . . 1,047 349 46 279
Provision for income taxes . . . . . . . . . . . . 210 70 9 55
------- ------ ------- -------
Net income. . . . . . . . . . . . . . . . . . . . . $ 837 $ 279 $ 37 $ 224
------- ------ ------- -------
Earnings per common share
Basic . . . . . . . . . . . . . . . . . . . . . . $ 0.23 $ 0.08 $ 0.01 $ 0.06
======= ====== ======= =======
Diluted . . . . . . . . . . . . . . . . . . . . . $ 0.23 $ 0.08 $ 0.01 $ 0.06
======= ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1998
AND THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
COMMON STOCK
-------------------
Number Additional Retained
of shares paid-in Earnings Currency
(DOLLARS IN THOUSANDS) (000'S) DOLLARS CAPITAL (DEFICIT) TRANSLATION TOTAL
---------- ------- ---------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1997. . . . . . . . . . . . . . . . . 3,532 5,385 47 (773) (15) 4,644
50,900 Common shares issued upon exercise of options. . 51 117 28 145
Net income for the year ended March 31, 1998 776 776
Currency translation adjustment 14 14
---------- ------- ---------- --------- ------------ -----
Balance, March 31, 1998 . . . . . . . . . . . . . . . . 3,583 5,502 75 3 (1) 5,579
Net income for the six months ended September 30, 1998 37 37
Currency translation adjustment 12 12
---------- ------- ---------- --------- ------------ -----
Balance, September 30, 1998. . . . . . . . . . . . . . 3,583 5,502 75 40 11 5,628
========== ======= ========== ========= ============ =====
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED SEPT. 30
---------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 37 $ 224
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 386 297
Net changes in operating assets and liabilities,
excluding effects of acquistion:
Accounts receivable, trade . . . . . . . . . . . . . . . . (1,936) (661)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 1,719 (341)
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . (9) 0
Prepaid expenses and other current assets. . . . . . . . . (62) (25)
Other assets . . . . . . . . . . . . . . . . . . . . . . . 22 (4)
Accounts payable, trade. . . . . . . . . . . . . . . . . . 887 84
Accrued expenses and other current liabilities . . . . . . 29 157
Other liabilities. . . . . . . . . . . . . . . . . . . . . 34 (37)
-------- --------
Net cash provided by (used in) operating activities. . . . . . 1,107 (306)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment. . . . . . . . . . . . . . . (515) (552)
Acquisition:
Fair value of assets acquired. . . . . . . . . . . . . . . . . (5,180) 0
Liabiliies assumed or incurred . . . . . . . . . . . . . . . . 621 0
Acquistion. . . . . . . . . . . . . . . . . . . . . . . . . (4,559) 0
-------- --------
Net cash used in investing activities. . . . . . . . . . . . . (5,074) (552)
-------- --------
Cash flows from financing activities:
Borrowings under bank line of credit agreement . . . . . . . . . 5,435 8,298
Repayments under bank line of credit agreement . . . . . . . . . (4,940) (7,582)
Proceeds from long term debt . . . . . . . . . . . . . . . . . . 4,000 0
Proceeds from exercise of options and warrants . . . . . . . . . 0 63
-------- --------
Net cash provided by financing activities. . . . . . . . . . . 4,495 779
-------- --------
Effect of exchange rate changes on cash and cash equivalents . . . (2) (2)
-------- --------
Net change in cash and cash equivalents. . . . . . . . . . . . . . 526 (81)
Cash and cash equivalents, beginning of period . . . . . . . . . . 303 239
-------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . . $ 829 $ 158
======== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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, 1999. 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, 1998. Operating results for
the six months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1999.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
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.
Comprehensive income:
On April 1, 1998 the Company adopted, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 130 (FAS 130),
"Comprehensive Income," which requires companies to present comprehensive
income. Comprehensive income consists of net income or loss for the current
period and other comprehensive income - income, expenses, gains, and losses that
bypass the income statement and are reported directly in a separate component of
equity. The Company does not have any material items that bypass the income
statement.
2. ACQUISITION:
On August 14, 1998, the Company acquired certain assets and assumed certain
liabilities of the Sensors Division of AMP Incorporated (Sensors). Sensors
designs, manufactures and markets piezoelectric polymer sensors for industrial,
consumer and instrumentation applications. The acquisition is being accounted
for as a purchase, and accordingly, the financial statements include operations
from the date of acquisition. The aggregate purchase price was $4,489 including
closing and restructuring costs of $633. The excess purchase price over assets
acquired (goodwill) of $1,652 is being amortized over 15 years. The transaction
was financed with a term loan issued by the Company's principal bank.
8
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
The following unaudited pro forma consolidated results of operations for the
periods ended September 30 assume the Sensors acquisition had occurred as of
April 1, 1997, giving effect to purchase accounting adjustments. The proforma
data is for informational purposes only and may not necessarily reflect results
of operations had Sensors been operated as part of the Company since April 1,
1997.
<TABLE>
<CAPTION>
(In thousands except per share)
Three months Six months
ended Sept. 30: ended Sept. 30:
---------------- -------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . $11,266 $9,145 $16,759 $18,145
Net income (loss). . . . . 368 (451) (1,072) (1,254)
Earnings (loss) per share
Basic. . . . . . . . . $ 0.10 $(0.13) $ (0.30) $ (0.35)
Diluted. . . . . . . . $ 0.10 $(0.13) $ (0.30) $ (0.35)
</TABLE>
3. INVENTORIES:
<TABLE>
<CAPTION>
(Dollars in thousands) SEPT. 1998 MARCH 1998
---------- ----------
<S> <C> <C>
Raw materials . $ 475 $ 731
Work-in-process 587 475
Finished goods. 2,127 2,609
----------- ---------
$ 3,189 $ 3,815
----------- ---------
</TABLE>
4. LONG TERM DEBT:
At September 30, 1998, $516 was outstanding under the Company's bank line of
credit agreement. In August, 1998 the Company renegotiated it bank line of
credit. The new agreement increased the maximum amount available from $3.3
million to $5.0 million until October 30, 1999 and $4.0 million from November 1,
1999 until the agreement's expiration on September 30, 2000. Borrowings bear
interest at a maximum of the lesser of the bank's prime rate plus 1.00% or a
Eurodollar rate plus 2.75%. The interest rate decreases should the Company
achieve certain financial ratios. Borrowings are collateralized by a senior
security interest in substantially all the Company's assets. Additionally, the
Company is required to maintain minimum levels of certain profitability ratios,
limits capital expenditures and advances to subsidiaries and requires the bank's
consent for the payment of dividends, acquisitions or divestitures. The
agreement requires payment of a commitment fee equal to 0.25 percent of the
unutilized available balance.
9
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
In connection with the acquisition of Sensors, the Company entered into a $4.0
million term loan agreement with the Company's principal bank. The term loan
bears interest at a Eurodollar rate plus 3.0%. The term loan requires quarterly
repayments in the following annual amounts:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ----------- ----------
<S> <C>
1999 200
2000 550
2001 800
2002 950
2003 1,000
2004 500
</TABLE>
Additional principal payments are required if the Company's cashflow exceeds
certain levels. The term loan is collateralized by a senior security interest in
substantially all the Company's assets. Additionally, the Company is required
to maintain minimum levels of certain profitability ratios, limits capital
expenditures and advances to subsidiaries and requires the bank's consent for
the payment of dividends, acquisitions or divestitures
In connection with the term loan, the Company has entered a Rate Swap
Transaction (Swap) with the same bank through August 1, 2002. The swap has an
initial notional amount of $3.5 million with a fixed rate of 8.32%. The
amortization of the Swap is as follows:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ----------- ----------
<S> <C>
1999 0
2000 900
2001 700
2002 900
2003 1,000
</TABLE>
5. 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, 1998. 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, 1998, this subsidiary's restricted net assets approximated $499.
10
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
6. PER SHARE INFORMATION:
Basic per share information is computed based on the weighted average common
shares outstanding during each period, after deducting preferred dividend
requirements from net income. Diluted per share information additionally
considers the shares that may be issued upon exercise or conversion of stock
options, warrants and convertible securities (less the shares that may be
repurchased with the funds received from their exercise), after adding preferred
dividend requirements back to net income available to common shareholders.
The following is a reconciliation of the numerators and denominators of basic
and diluted EPS computations:
<TABLE>
<CAPTION>
(Numbers in thousands
except per share amounts)
FOR THE THREE MONTHS ENDED SEPT 30, 1998 FOR THE THREE MONTHS ENDED SEPT 30, 1997
---------------------------------------- ----------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic per share information . $ 837 3,583 $ 0.23 $ 279 3,583 $ 0.08
Effect of dilutive securities 110 96
------------ ------------- ---------- ------------ ------------- ----------
Diluted per share information $ 837 3,693 $ 0.23 $ 279 3,646 $ 0.08
------------ ------------- ---------- ------------ ------------- ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPT 30, 1998 FOR THE SIX MONTHS ENDED SEPT 30, 1997
--------------------------------------- ---------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic per share information . $ 37 3,583 $ 0.01 $ 224 3,546 $ 0.06
Effect of dilutive securities 34 101
------------ ------------- ---------- ------------ ------------- ----------
Diluted per share information $ 37 3,617 $ 0.01 $ 224 3,647 $ 0.06
------------ ------------- ---------- ------------ ------------- ----------
</TABLE>
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the six months ended September 1998, payments of interest expense
approximated $16,000.
8. CONTINGENCIES:
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.
9. SEGMENT INFORMATION:
On April 1, 1998 the Company adopted Statement of Financial Accounting Standards
No. 131 (FAS 131), "Disclosures about Segments of an Enterprise and Related
Information." FAS 131 requires disclosure of certain information regarding
operating segments, products and services, geographic areas of operation and
major operations. FAS 131 does not require disclosures for interim periods in
the year of adoption. The FAS is not expected to require the Company to make
additional material disclosures beyond those presented in the annual financial
statements.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this report, concerning 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. The Company
assumes no obligation to update them. Actual results could differ materially
from these 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,
supply interruptions, 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.
RESULTS OF OPERATIONS (IN THOUSANDS)
Revenues for the three months ended September 30 increased by $3,110 or 42
percent to a record $10,455 for Fiscal 1999 from $7,345 for Fiscal 1998.
Revenues for the six months ended September 30 increased by $391 or 3% to
$14,337 in Fiscal 1999 compared to $13,946 in the prior year. The net income
for the second quarter was $837 in Fiscal 1999 compared to $279 for Fiscal 1998.
This quarterly income is a record for the second quarter, and the second highest
in the Company's history. Net income for the six month period ended September
30 was $37 in Fiscal 1999 versus $224 in Fiscal 1998. Results for Fiscal 1999
include the acquisition of Sensors Division of AMP Incorporated (Sensors), which
was acquired mid quarter on August 14, 1998. Sensors is the leader in designing,
manufacturing and marketing piezoelectric polymer sensors for industrial,
consumer and instrumentation applications. The acquisition is being accounted
for as a purchase; accordingly, the financial statements include operations from
the date of acquisition. Concurrent with the acquisition, the Company
reorganized into two divisions: the Sensor Products Division and the Consumer
Division. The Sensor Products Division includes the industrial pressure and the
piezoelectric polymer sensors. The Consumer Division includes bath, kitchen,
and other scales and tire pressure gauges.
For the second quarter, sales of the Consumer Division increased by $2,163 or 32
percent, to $8,910 for Fiscal 1999 from $6,747. Bath sales to U.S. direct and
OEM customers increased compared with the prior years quarter as a result of
growth in sales to the Company's major U.S. OEM customer and additional
placements at direct customers. European scale sales also increased for the
quarter versus the prior year as a result of promotional sales, partially offset
the impact of changes in the buying pattern of the Company's major European
distributor and increased competition in the European market. For the quarter,
sales of tire pressure gauges increased due to promotional activity. Sales of
the Sensor Products Division for the quarter increased to $1,545 in Fiscal 1999
from $598 in Fiscal 1998. Fiscal 1999 includes sales related to Sensors
subsequent to the August 14, 1998 acquisition. For calendar year 1997, Sensors
had sales of $7,793.
For the six months ended September 30, sales of Consumer Division scales
decreased by $423 or 3 percent, to $12,244 for Fiscal 1999 from $12,667 in
Fiscal 1998. Bath scales sold to U.S. direct and OEM customers increased as a
result of growth during the second quarter. The U.S. increase was offset by
lower European sales as a result of the timing of promotional events, a change
in the buying pattern of the Company's major European distributor and increased
competition in the European market. For the six month period, sales of tire
pressure gauges increased by due to higher promotional activity. Sales of the
Sensors Products Division for the period increased to $2,093 in Fiscal 1999 from
$1,279 in Fiscal 1998. Fiscal 1999 includes sales related to Sensors subsequent
to the August 14, 1998 acquisition.
12
<PAGE>
The Company's backlog of $14.2 million compares with $4.4 million at the
beginning of the year and $5.3 million at September 30, 1998. Backlog includes
the impact of the acquisition of Sensors. Based upon the Sensors acquisition,
the incoming order rate, backlog which is shippable during the current fiscal
year, and acceptance of new products, record sales for Fiscal 1999 are
anticipated.
Due to the higher sales volume, gross profit for the quarter increased by $1,228
to $4,026 in 1999 from $2,798 in 1998, with the gross profit percentage
remaining flat versus the prior year. Improved product mix and lower
manufacturing costs were offset by lower margins at the Sensor Products Division
due to fixed manufacturing expenses. In connection the acquisition of Sensors
piezoelectric film operation, the Company announced plans to lower costs by
shifting manufacturing to its lower cost Asian facility. After the program is
fully implemented in the early part of Fiscal 2000, payroll and facility costs
will be significantly reduced, and after restructuring, margins in the Sensor
Products Division are anticipated to be higher than the Consumer Products
Division. For the six months ended September 30, gross profit increased by $414
to $5,340 in Fiscal 1999 versus $4,926 in Fiscal 1998. The gross margin
percentage in the first half improved to 37 percent in Fiscal 1999 compared with
35 percent in Fiscal 1998. The improvement in gross margin reflects changes in
product mix and manufacturing cost reductions, partially offset by competitive
pricing pressures and lower Sensors margins. The Company expects that it may
continue to experience price pressures, because of the effect of the current
strength of the United States dollar on foreign sales and 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 continuing efforts
to reduce product costs.
Selling, general and administrative ("SG&A") expenses for the second quarter
increased by $533 or 28 percent to $2,456 in Fiscal 1999 compared to $1,923 in
Fiscal 1998. The change results from variable expenses associated with the
higher sales volume and the impact of the Sensors acquisition. For the six
months ended September 30, SG&A expenses increased by $701 or 19 percent to
$4,313 in Fiscal 1999 compared to $3,612 in Fiscal 1998. The increase is a
result of the Sensors acquisition, the expansion of the sales force, and
additional foreign consumer sales efforts.
Research and development expenses for the second quarter were flat at $504 for
Fiscal 1999 compared to $495 in the prior year and show a similar tend for the
six months ended September 30 at $909 for Fiscal 1999 compared to $1,003 in
Fiscal 1998. The second quarter of Fiscal 1999 includes the Sensors
acquisition, offset by $285 of development funding received from customers.
Development funding is anticipated to continue, but will likely vary from
quarter to quarter. Revenue growth has and is likely to continue to rely on,
expansion of its product lines and, accordingly, research and development
expenses will continue to be significant. However, while the Company intends to
continue to invest in industrial pressure product development, and launch new
consumer products and line extensions, it is anticipated these expenses will be
reduced as a percent of revenue over the next several years. The Company intends
to more effectively utilize its engineering talent to complete projects at lower
costs.
For the first half of FY 1999 and FY 1998, the Company recognized a tax
provision of $9 and $55 respectively, at an estimated effective income tax rate
of approximately 20 percent. The 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.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have adequate resources for its financing requirements.
Net working capital was $4,197 at September 30, 1998, compared to $3,335 at
March 31, 1998. At September 30, 1998, the Company's current ratio was 1.7. For
the six months ended September 30, 1998, cash increased to $829 at September
30, 1998 compared to $303 at March 31, 1998. Operating activities provided
$1,107, primarily from decreases in inventory and increases in accounts payable,
offset by increases in accounts receivable. Financing activities used $5,074,
primarily to fund the acquisition of Sensors.
In August, 1998 the Company acquired certain assets and assumed selected
liabilities of Sensors. Sensors is the leader in designing, manufacturing and
marketing piezoelectric polymer sensors for industrial, consumer and
instrumentation applications. The aggregate purchase price was $4,489 including
closing and restructuring costs of $633. The acquisition is being accounted for
as a purchase, and accordingly, the financial statements include operations from
the date of acquisition. The excess purchase price over assets acquired
(goodwill) of $1,652 is being amortized over 15 years. The transaction was
financed with a term loan issued by the Company's principal bank.
Fixed asset purchases for 1999 of $515, mainly comprised production equipment
and tooling. The Company expects capital spending to continue, in line with
growth of its product lines. At September 30, 1998, there were no significant
commitments for capital expenditures.
The Company continues to finance its requirements with accounts payable and bank
borrowings. The Company's principal supplier, 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, 1998, $516 was outstanding under the Company's bank line of
credit agreement. In August, 1998 the Company renegotiated it bank line of
credit. The new agreement increased the maximum amount available from $3.3
million to $5.0 million until October 30, 1999 and $4.0 million from November 1,
1999 until the agreement's expiration on September 30, 2000. Borrowings bear
interest at a maximum of the lesser of the bank's prime rate plus 1.00% or a
Eurodollar rate plus 2.75%. The interest rate decreases should the Company
achieve certain financial ratios. Borrowings are collateralized by a senior
security interest in substantially all the Company's assets. Additionally, the
Company is required to maintain minimum levels of certain profitability ratios,
limits capital expenditures and advances to subsidiaries and requires the bank's
consent for the payment of dividends, acquisitions or divestitures. The
agreement requires payment of a commitment fee equal to 0.25 percent of the
unutilized available balance.
In connection with the acquisition of Sensors, the Company entered into a $4.0
million term loan agreement with the Company's principal bank. The term loan
bears interest at a Eurodollar rate plus 3.0%. The term loan requires quarterly
repayments in the following annual amounts:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ----------- ----------
<S> <C>
1999 200
2000 550
2001 800
2002 950
2003 1,000
2004 500
</TABLE>
14
<PAGE>
Additional principal payments are required if the Company's cashflow exceeds
certain levels. The term loan is collateralized by a senior security interest in
substantially all the Company's assets. Additionally, the Company is required
to maintain minimum levels of certain profitability ratios, limits capital
expenditures and advances to subsidiaries and requires the bank's consent for
the payment of dividends, acquisitions or divestitures
In connection with the term loan, the Company has entered a Rate Swap
Transaction (Swap) with the same bank through August 1, 2002. The swap has an
initial notional amount of $3.5 million with a fixed rate of 8.32%. The
amortization of the Swap is as follows:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ----------- ----------
<S> <C>
1999 0
2000 900
2001 700
2002 900
2003 1,000
</TABLE>
Further expansion of the Company's financing requirements are likely to require
additional resources. The Company believes that suitable resources for
expansion of its financing requirements will be available, though no assurance
can be given.
The Company has not declared cash dividends on its common equity. Management
expects that earnings which may be generated from the Company's near-term
operations will be reinvested and, 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 with which the Company has 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 in the form of cash
dividends, loans, advances or purchases of materials, products or services.
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, 1998, this subsidiary's restricted net assets
approximated $499.
THE YEAR 2000 ISSUE
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has developed an
implementation plan to resolve the issue. The "Year 2000" problem is the result
of computer programs that use two digits rather than four digits to represent
the year. Such programs may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations.
The Company believes that, with conversion to new software for certain
applications, the "Year 2000" problem will not pose significant operational
problems for its computer systems. The cost of these new systems is not
material. However, if such conversions are not completed on time, the "Year
2000" problem may have a material impact on the operations of the Company.
Also, other companies systems may not be timely converted and such failure to
convert may have an adverse effect on the Company's systems or operations.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 29, 19978 the Company held an Annual Meeting of Shareholders at
which the Shareholders elected one Director to serve until their respective
successors are elected and qualified. Additionally, the Shareholders ratified
the appointment of Grant Thornton as the Company's independent auditor. A
proposal to approve the Corporation's 1998 Stock Option Plan did not achieve the
number of votes required for approval. The number of votes cast for, against or
withheld and the number of abstentions and broker non-votes were:
<TABLE>
<CAPTION>
Number of votes Number of
---------------------
cast against or abstentions and
for withheld broker non-votes
--------- ---------- ----------------
<S> <C> <C> <C>
Election of Director:
John D. Arnold. . . . . . . . . . . . . . . 2,978,846 103,400
Approval of the 1998 Stock Option Plan. . . . 1,324,021 241,459 1,516,767
Ratification of Appointment of Grant Thornton 3,064,401 11,145 6,700
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
(27) Financial Data Schedule
During the three months ended September 30, 1998, the company filed a report on
Form 8-K on August 27, 1998.
16
<PAGE>
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)
/s/ Joseph R. Mallon Jr.
-----------------------------
Date: November 10, 1998 Joseph R. Mallon Jr.
Chief Executive Officer, and
Chairman of the Board of Directors
/s/ Kirk J. Dischino
-----------------------------
Date: November 10, 1998 Kirk J Dischino
Chief Financial Officer
17
<PAGE>
<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, 1998, 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>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 829
<SECURITIES> 0
<RECEIVABLES> 6097
<ALLOWANCES> 142
<INVENTORY> 3189
<CURRENT-ASSETS> 10477
<PP&E> 4837
<DEPRECIATION> 1414
<TOTAL-ASSETS> 16332
<CURRENT-LIABILITIES> 6280
<BONDS> 0
<COMMON> 5502
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16332
<SALES> 14337
<TOTAL-REVENUES> 14337
<CGS> 8997
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 0
<INCOME-TAX> 9
<INCOME-CONTINUING> 37
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
