MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 March 31
(Dollars in thousands) 1998 1998
(unaudited)
Current assets:
Cash and cash equivalents $160 $303
Accounts receivable,
trade, net of allowance for
doubtful 2,651 3,124
accounts of $130 (June)
and $130 (March)
Inventories 3,340 3,815
Deferred Income Taxes 355 213
Prepaid expenses and other
current assets 179 173
Total current assets 6,685 7,628
Property and equipment 3,128 2,898
Less accumulated depreciation
and amortization 1,315 1,135
1,813 1,763
Other assets:
Intangible assets, net of
accumulated amortization of
$141 (June) and $165 (March) 142 155
Deferred Income Taxes 372 372
Other assets 302 299
816 826
$9,314 $10,217
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30 March 31
(Dollars in thousands)
1998 1998
(unaudited)
Current liabilities:
Accounts payable, trade $2,504 $3,123
Customers Advances 9 5
Accrued payroll and
fringe benefits 509 384
Current portion of
product warranty obligations 180 261
Income Taxes payable 63 63
Accrued expenses and other
current liabilities 416 457
Total current liabilities 3,681 4,293
Other liabilities:
Borrowings under bank line
of credit agreement 526 21
Product warranty obligations,
net of current portion 217 212
Other liabilities 113 112
856 345
Total liabilities 4,537 4,638
Shareholders' equity
Common stock, no par;
20,000,000 shares authorized;
issued and outstanding
3,582,687 (June and March) 5,502 5,502
Additional paid-in capital 75 75
Retained earnings
(accumulated deficit) (797) 3
Currency translation and
other adjustments (3) (1)
Total shareholders' equity 4,777 5,579
$9,314 $10,217
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three monthsended June 30,
(Dollars in thousands - except per share amounts)
1998 1997
Net sales $3,882 $6,600
Cost of goods sold 2,568 4,472
Gross profit 1,314 2,128
Other expenses (income):
Selling, general and
administrative 1,857 1,689
Provision for doubtful accounts
Research and development,
net of customer funding 455 495
Interest (net) and other income 3 14
2,315 2,198
Income (loss) before income taxes (1,001) (70)
Provision (benefit)
for income taxes (201) (15)
Net income (loss) ($800) ($55)
Earnings (loss) per common share
Basic ($0.22) ($0.02)
Diluted ($0.22) ($0.02)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the year ended March 31, 1998
and the three months ended June 30, 1998 (Unaudited)
Common Stock Additional Retained
(Dollars in thousands) Number of paid-in Earnings Currency
shares (000's) Dollars Capital (Deficit)translation Total
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, 1998776 776
Currency translation adjustment 14 14
Balance, March 31, 1998 3,583 5,502 75 3 (1)5,579
Net loss for the
three months ended
June 30, 1998 (800)(800)
Currency translation adjustment (2)(2)
Balance, June 30, 1998 3,583 5,502 75 (797)(3) 4,777
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended June 30(Dollars in thousands)1998 1997
Cash flows from operating activities:
Net income (loss) ($800)($55)
Adjustments to reconcile
net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 165 145
Net changes in operating
assets and liabilities:
Accounts receivable, trade 473 401
Inventories 475 (310)
Deferred Income Taxes (142)0
Prepaid expenses and
other current assets (6)54
Other assets 0 (62)
Accounts payable, trade (619)(379)
Accrued expenses and
other current liabilities 4 215
Other liabilities 6 (22)
Net cash provided by
(used in) operating activities (444)(13)
Cash flows from investing activities:
urchases of property and equipment (199)(197)
Purchases of intangible assets and other(3)(56)
Net cash used in investing activities(202)(253)
Cash flows from financing activities:
Borrowings under bank
line of credit agreement 2,465 4,584
Repayments under bank
line of credit agreement (1,960)(4,146)
Proceeds from exercise of
options and warrants 0 28
Net cash provided by
financing activities 505 466
Effect of exchange rate changes
on cash and cash equivalents (2)(6)
Net change in cash and cash equivalents(143)194
Cash and cash equivalents,
beginning of period 303 239
Cash and cash equivalents,
end of period $160 $433
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 three months ended June 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. Inventories:
(Dollars in thousands) June 1998 March 1998
Raw materials $ 728$ 731
Work-in-process 454 475
Finished goods 2,158 2,609
$ 3,340$ 3,815
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(Information about interim periods is unaudited)
3. Borrowings under bank line of credit agreement:
At June 30, 1998, $526,000 was outstanding under a $3.3 million revolving line
of credit, extended by a domestic bank. Advances are collateralized by a
senior security interest in substantially all assets and are repayable by
September 30, 1999, the agreement's amended expiration date. Borrowings bear
interest at 0.125 percent above the bank's prime rate (aggregating 8.6 percent
at June 30, 1998) or at 2.25 percent above the London interbank offered rates
for certain maturities, at the Company's option. The agreement requires
maintenance of certain levels of net worth, limits capital expenditures and
advances to the Company's subsidiaries and requires the bank's consent for
dividend payments. It also requires payment of a non-usage fee, computed on
the average unused portion of the line of credit.
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 June 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
June 30, 1998, this subsidiary's restricted net assets approximated $719,000.
5. 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 total numbers of potential common shares at June 30, 1998 and June 30,
1997 were 1,002,600 and 1,002,600, respectively. These potentially dilutive
shares were not included in the earnings per share computation as the effect
would be antidilutive.
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(Information about interim periods is unaudited)
The following is a reconciliation of the numerators and denominators of basic
and diluted EPS computations:
For the three months ended June 30, 1998 For the three
months ended June 30, 1997
(Numbers in thousands Income Shares Per Share
Income Shares Per Share
except per share amounts)(Numerator) (Denominator) Amount
(Numerator) (Denominator) Amount
Basic per share information ($800) 3,583 ($0.22) ($55)
3,542 ($0.02)
Effect of dilutive securities 62
107
Diluted per share information ($800) 3,645 ($0.22) ($55)
3,649 ($0.02)
6. Supplemental disclosures of cash flow information:
For the three months ended June 1998, payments of interest expense approximated
$7,000.
7. 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.
On May 21, 1998, the Company signed a nonbinding letter of intent to acquire
the Sensors Division of AMP Incorporated. The letter of intent is subject to
final due diligence and execution of a definitive contract. The transaction
is expected to close during the second fiscal quarter ending September, 1998.
The Sensors Division, with unaudited calendar 1997 sales of approximately $8
million, designs, manufactures and markets piezoelectric polymer sensors.
These sensors are marketed for industrial, consumer and instrumentation
applications. The transaction will be financed with debt by an extension of
the Company's existing banking relationship.
8. 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.
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 $000)
Revenues for the three months ended June 30 decreased by $2,718 or 41 percent,
from $6,600 for 1999 to $3,882 for 1998. The net loss for the first quarter
was $800 in 1999 compared to $55 for 1998.
Sales of consumer bath scales decreased by $2,561 or 57 percent, from $4,506
for 1998 to $1,945 for 1999. The first quarter of 1998 included $2,100 of
promotional sales, which have been replaced by sales scheduled for the second
and third quarter of 1999. Sales of tire pressure gauges decreased by $265
from $823 in 1998 to $558 in 1999. This category included a promotion of $600
in the first quarter of 1998, which is also replaced by sales scheduled for
the remainder of the current year. Sales of industrial pressure sensors
decreased by $161 or 24 percent, from $681 for 1998 to $520 for
1999. The timing of customer orders also impacted sales in this category.
The Company's backlog of $8.4 million compares with $4.4 million at the
beginning of the year and $6.5 million at June 30, 1998. Backlog includes
orders received related to the previously discussed promotions. Despite the
decline in first quarter sales, it is anticipated Fiscal 1999 sales will be
greater than Fiscal 1998.
In May 1998, the Company announced it had signed a nonbinding letter of intent
to acquire the Sensors Division of AMP Incorporated. The letter of intent is
subject to final due diligence and execution of a definitive contract. The
transaction is expected to close in August 1998. The Sensors Division, with
unaudited calendar 1997 sales of approximately $8 million, is the leader in
designing, manufacturing and marketing piezoelectric polymer sensors for
industrial, consumer and instrumentation applications.
Due to the lower sales volume, gross profit for the quarter decreased from
1998 to 1999 by $764 to $1,314 in 1999 from $2,128 in 1998. However, the
gross profit percentage increased to 33.8 percent from 33.2 percent. This
percentage increase is due to changes in product mix and manufacturing cost
reductions. In fiscal 1998, the Company introduced a glass frame bath scale
priced to sell in the mass U. S. market. While the selling price of this
frame scale is lower than the other glass scales offered by the Company,
manufacturing cost reductions on both this and other products have more than
offset the impact of the price decline. 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 quarter
increased by $168 or 10 percent to $1,857 in 1999 compared to $1,689 in
1998. The change results from increased sales and marketing efforts and
investments in infrastructure (both people and information systems) to support
the expected growth of the Company.
Research and development expenses were flat at $456 compared to $495 in the
prior year. 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 not
continue at the same rate. The Company intends to more effectively utilize its
engineering talent to complete projects at lower costs. Projects 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.
For the first quarter of FY 1999 and FY 1998, the Company recognized a tax
benefit of $201 and $15 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.
Liquidity And Capital Resources
The Company continues to have adequate resources for its financing
requirements. Net working capital was $3,004 at June 30, 1998, compared to
$3,335 at March 31, 1998. For the quarter ended June 30, 1998, cash decreased
to $160 at June 30, 1998 compared to $303 at March 31, 1998. Operating
activities used $444, primarily to fund the net loss, offset by decreases in
account receivable and inventory.
Fixed asset purchases for 1999 of $202, mainly comprised production equipment
and tooling, to augment China manufacturing. The Company expects capital
spending to continue, in line with growth of its product lines. At June 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 June 30, 1998, $526 was outstanding under the Company's $3.3 million bank
line of credit agreement. Advances are payable by September 30, 1999, the date
of the agreement's expiration. Accordingly, if the agreement were not renewed
by September 30, 1998, thereafter borrowings would be classified as short-term
debt, affecting the Company's current ratio. The Company is currently
renegotiating its existing line of credit in connection with the acquisition
of the Sensors division of AMP Incorporated. It is anticipated the new
agreement will expire subsequent to March 31, 2000. At June 30, 1998, the
Company's current ratio was 1.8.
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.
In May 1998, the Company announced that it had signed a nonbinding letter of
intent to acquire the Sensors Division of AMP Incorporated. The letter of
intent is subject to final due diligence and execution of a definitive
contract. The transaction is expected to close in August 1998. The
acquisition is expected to be financed with debt raised as an extension of the
Company's existing banking relationship.
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 June 30, 1998, this subsidiary's restricted net assets
approximated $719,000.
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(27)Financial Data Schedule
Second Restated Certificate of Incorporation
During the three months ended June 30, 1998, the company filed a report on Form
8-K June 1, 1998.
/s/ Joseph R. Mallon Jr.
Date: August 14, 1998Joseph R. Mallon Jr.
Chief Executive Officer, and
Chairman of the Board of Directors
/s/ Kirk J. Dischino
Date: August 14, 1998Kirk J Dischino
Chief Financial Officer
