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,
1999
[ ] 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: 3,788,087 shares of common
stock, no par, at November 1, 1999.
<PAGE>
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<CAPTION>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets, . . . . . . . . . . . . . . . . . . . . . . . . . . 2 - 3
September 30, 1999 (Unaudited) and March 31, 1999
Consolidated Statements of Operations (Unaudited),. . . . . . . . . . . . . . . . 4
Three and Six Months Ended September 30, 1999 and 1998
Consolidated Statements of Shareholders' Equity,. . . . . . . . . . . . . . . . . 5
Six Months Ended September 30, 1999 (Unaudited) and Year Ended March 31, 1999
Consolidated Statements of Cash Flows (Unaudited),. . . . . . . . . . . . . . . . 6
Six Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statement. . . . . . . . . . . . . . . . . . . . . 7 - 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND. . . . . . 12 - 16
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . 17 - 18
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
------
(DOLLARS IN THOUSANDS)
SEPT. 30, MARCH 31,
1999 1999
========== ==========
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 3,131 $ 2,711
Accounts receivable, trade, net of allowance for doubtful
accounts of $313 (Sept 1999) and $257 (March 1999) . . . 9,169 4,918
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 5,311 4,662
Deferred income taxes. . . . . . . . . . . . . . . . . . . 491 580
Prepaid expenses and other current assets. . . . . . . . . 517 259
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . 18,619 13,130
---------- ----------
PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . . . 7,172 6,061
Less accumulated depreciation and amortization . . . . . . 3,494 2,801
---------- ----------
3,678 3,260
---------- ----------
OTHER ASSETS:
Goodwill and other intangible assets, net of accumulated
amortization of $309 (Sept. 1999) and $218 (March 1999) . 2,023 1,898
Deferred income taxes. . . . . . . . . . . . . . . . . . . 17 21
Other assets . . . . . . . . . . . . . . . . . . . . . . . 481 226
---------- ----------
2,521 2,145
---------- ----------
$ 24,818 $ 18,535
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------
(DOLLARS IN THOUSANDS)
SEPT. 30, MARCH 31,
1999 1999
=========== ===========
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt . . . . . . . . . . . . $ 700 $ 550
Accounts payable. . . . . . . . . . . . . . . . . . . . . 7,174 4,067
Accrued compensation. . . . . . . . . . . . . . . . . . . 699 897
Current portion of product warranty obligations . . . . . 385 290
Income taxes payable. . . . . . . . . . . . . . . . . . . 832 539
Accrued acquisition costs . . . . . . . . . . . . . . . . 508 508
Accrued expenses and other current liabilities. . . . . . 443 514
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . 10,741 7,365
----------- -----------
OTHER LIABILITIES:
Long term debt, net of current portion. . . . . . . . . . 2,900 3,250
Borrowings under bank line of credit agreement. . . . . . - -
Product warranty obligations, net of current portion. . . 207 302
Other liabilities, including deferred income taxes. . . . 186 76
----------- -----------
3,293 3,628
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . . 14,034 10,993
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Serial preferred stock;
221,756 shares authorized; none outstanding . . . . . . - -
Common stock, no par; 20,000,000 shares authorized;
shares issued and outstanding 3,788,087 (Sept.1999) and
3,663,787 (March 1999) . . . . . . . . . . . . . . . . . 5,502 5,502
Additional paid-in capital. . . . . . . . . . . . . . . . 822 308
Retained earnings . . . . . . . . . . . . . . . . . . . . 4,461 1,733
Currency translation and other adjustments. . . . . . . . (1) (1)
----------- -----------
Total shareholders' equity . . . . . . . . . . . 10,784 7,542
----------- -----------
$ 24,818 $ 18,535
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPT 30, ENDED SEPT 30,
================== ==================
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . $15,445 $10,455 $27,466 $14,337
Cost of goods sold . . . . . . . . . . . . . . 8,748 6,429 15,359 8,997
-------- -------- -------- --------
Gross profit . . . . . . . . . . . . . . . . 6,697 4,026 12,107 5,340
-------- -------- -------- --------
Other expenses (income):
Selling, general and administrative. . . . . 3,915 2,472 7,525 4,329
Research and development . . . . . . . . . . 854 739 1,613 1,194
Customer funding of research and development (477) (285) (830) (285)
Interest expense (net) and other income. . . 111 53 161 56
-------- -------- -------- --------
4,403 2,979 8,469 5,294
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . 2,294 1,047 3,638 46
Income tax provision . . . . . . . . . . . . . 574 210 910 9
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . $ 1,720 $ 837 $ 2,728 $ 37
======== ======== ======== ========
Earnings per common share
Basic. . . . . . . . . . . . . . . . . . . $ 0.46 $ 0.23 $ 0.73 $ 0.01
======== ======== ======== ========
Diluted. . . . . . . . . . . . . . . . . . $ 0.40 $ 0.23 $ 0.64 $ 0.01
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1999 AND THE SIX MONTHS ENDED SEPT. 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
CURRENCY
ADDITIONAL RETAINED TRANSLATION
COMMON PAID-IN EARNINGS/ AND OTHER
STOCK CAPITAL (DEFICIT) ADJUSTMENTS TOTAL
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1998 . . . . . . . . . . . . . . . 5,502 75 4 (1) 5,580
81,500 common shares issued upon exercise of options. - 233 - - 233
Net income for the year ended March 31, 1999. . . . . - - 1,729 - 1,729
--------------------------------------------------------
Balance, March 31, 1999 . . . . . . . . . . . . . . . 5,502 308 1,733 (1) 7,542
124,300 common shares issued upon exercise of options - 514 - - 514
Net income for the period ended Sept. 30, 1999. . . . - - 2,728 - 2,728
--------------------------------------------------------
BALANCE, SEPT 30, 1999. . . . . . . . . . . . . . . . 5,502 822 4,461 (1) 10,784
========================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
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<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
FOR THE SIX MONTHS
ENDED SEPT 30,
==================
1999 1998
==================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,728 $ 37
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and Amortization . . . . . . . . . . . . . 794 386
Warranty expense. . . . . . . . . . . . . . . . . . . . 136 267
Deferred income taxes . . . . . . . . . . . . . . . . . 93 (9)
Net changes in operating assets and liabilities:
Accounts receivable, trade. . . . . . . . . . . . . . (4,251) (1,936)
Inventories . . . . . . . . . . . . . . . . . . . . . (649) 1,719
Prepaid expenses and other current assets . . . . . . (258) (62)
Other assets. . . . . . . . . . . . . . . . . . . . . (380) 22
Accounts payable, trade . . . . . . . . . . . . . . . 3,107 313
Accrued expenses and other liabilities. . . . . . . . (17) (204)
------------------
Net cash provided by (used in) operating activities . . . 1,303 533
------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment . . . . . . . . . . . . (1,197) (515)
Acquisition of business, net of cash acquired . . . . . . . - (3,985)
------------------
Net cash used in investing activities . . . . . . . . . . (1,197) (4,500)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank line of credit agreement. . . . . . . - 5,435
Repayments under bank line of credit agreement. . . . . . . - (4,940)
Procceds of long term debt. . . . . . . . . . . . . . . . . - 4,000
Repayments of long term debt. . . . . . . . . . . . . . . . (200) -
Proceeds from exercise of options and warrants. . . . . . . 514 -
------------------
Net cash provided by (used in) financing activities . . . 314 4,495
------------------
Effect of exchange rate changes on cash and cash equivalents. - (2)
------------------
Net change in cash and cash equivalents . . . . . . . . . . . 420 526
Cash and cash equivalents, beginning of year. . . . . . . . . 2,711 303
------------------
Cash and cash equivalents, end of period. . . . . . . . . . . $ 3,131 $ 829
==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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, 2000. 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, 1999. Operating results for
the six months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2000.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Stock based compensation:
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees" and related interpretations
in accounting for its employee stock options. Under APB 25, because the
exercise price of the employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recorded. The
Company has adopted the disclosures only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation."
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),
"Reporting Comprehensive Income." Comprehensive income consists of net earnings
or loss for the current period and other comprehensive income (income, expenses,
gains, and losses that currently 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.
Recent Accounting Pronouncements:
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments." The statement is effective for financial years beginning after
December 31, 1999. SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities and measure
those instruments at fair market value. Under certain circumstances, a portion
of the derivative's gain or loss is initially reported as a component of income
when the transaction affects earnings. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. The Company utilizes an interest rate swap as a hedge of its interest
rate risk associated with long term debt. The Company believes that adoption of
SFAS 133 will have no material impact on its financial position or results of
operations.
7
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. ACQUISITION:
On August 14, 1998, the Company acquired certain assets and assumed certain
liabilities of the Sensors Division of AMP Incorporated (PiezoSensors).
PiezoSensors 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 $3,985. The excess purchase price over assets acquired (goodwill) of $1,693
is being amortized over 15 years. The transaction was financed with a term loan
issued by the Company's principal bank. Net assets acquired were $2,292
consisting of the fair value of assets acquired ($3,545) less liabilities
assumed ($1,253).
The following unaudited pro forma consolidated results of operations for the
periods ended June assume the PiezoSensors acquisition had occurred as of April
1, 1998, 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, 1998.
(In thousands except per share)
<TABLE>
<CAPTION>
Three months Six months
ended Sept 30: ended Sept 30:
---------------- -----------------
1999 1998 1999 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . $15,445 $11,266 $27,466 $16,759
Net income (loss). . . . . . 1,720 368 2,728 (1,072)
Earnings (loss) per share
Basic. . . . . . . . . . $ 0.46 $ 0.10 $ 0.73 $ (0.30)
Diluted. . . . . . . . . $ 0.40 $ 0.10 $ 0.64 $ (0.30)
</TABLE>
3. INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) SEPT. 30, 1999 MARCH 31, 1999
--------------- ---------------
<S> <C> <C>
Raw Materials. . . . . $ 2,139 $ 1,378
Work-in-process. . . . 838 420
Finished goods . . . . 2,334 2,864
$ 5,311 $ 4,662
--------------- ---------------
</TABLE>
4. LONG TERM DEBT:
At September 30, 1999, $0 was outstanding under the Company's bank line of
credit agreement. The agreement provides for a maximum amount available of $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%. As a result of achieving certain financial ratios in 1999, the rate
decreases to the lesser of the bank's prime rate plus 0.125% or a Eurodollar
rate plus 2.0%. The agreement requires payment of a commitment fee equal to 0.25
percent of the unutilized available balance. Borrowings are limited to the sum
of eligible Accounts Receivable and Inventory and 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.
8
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MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
In connection with the acquisition of Sensors, the Company entered into a $4.0
million term loan agreement with the Company's principal bank. As of September
30, 1999, $3,600 was outstanding under the term loan. The term loan bears
interest at a Eurodollar rate plus 3.0%. The term loan requires quarterly
repayments in the following remaining annual amounts:
Principal
Fiscal Year Repayments
----------- ----------
2000 350
2001 800
2002 950
2003 1,000
2004 500
Additional principal payments are required if the Company's cashflow exceeds
certain levels and security for the loan falls below the sum of the outstanding
term loan and the total bank line. 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
As a hedge of its interest rate risk associated 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 notional amount of the Swap decreases as follows:
Principal
Fiscal Year Repayments
----------- ----------
2000 900
2001 700
2002 900
2003 1,000
The carrying amount of both the outstanding indebtedness and the Swap
approximate their fair value because, in the opinion of management, the
borrowing rates approximate market.
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 December 31, 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, 1999, this subsidiary's restricted net assets approximated $2453
On September 13, 1999 shareholders approved the 1998 Stock Option Plan (the
"1998 Plan"). The plan provides for granting of options to purchase up to
750,000 common shares until its expiration on October 19, 2008. Shares issuable
under 1998 Plan grants which expire or otherwise terminate without being
exercised become available for later issuance. Options are intended to
generally vest over service periods of up to five years and expire no later than
ten years from the date of grant. Options may, but need not, qualify as
"incentive stock options" under section 422 of the Internal Revenue Code.
9
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MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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>
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPT 30, 1999 ENDED SEPT 30, 1998
----------------------------------- -----------------------------------
(Numbers in thousands INCOME SHARES PER SHARE INCOME SHARES PER SHARE
except per share amounts) NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic per share information. . $ 1,720 3,768 $ 0.46 $ 837 3,583 $ 0.23
Effect of dilutive securities. 565 110
---------- -----------
Diluted per share information. $ 1,720 4,333 $ 0.40 $ 837 3,693 $ 0.23
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED SEPT 30, 1999 ENDED SEPT 30, 1998
----------------------------------- -----------------------------------
(Numbers in thousands INCOME SHARES PER SHARE INCOME SHARES PER SHARE
except per share amounts) NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic per share information. . $ 2,728 3,734 $ 0.73 $ 37 3,583 $ 0.01
Effect of dilutive securities. 549 34
---------- -----------
Diluted per share information. $ 2,728 4,283 $ 0.64 $ 37 3,617 $ 0.01
----------- -----------
</TABLE>
7. SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
For the six months ended September 30, 1999, payments of interest expense
approximated $136.
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:
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" in 1999.
The Company's reportable segments are strategic business units that offer
different products. They are managed separately because each business requires
different technology and marketing strategies. The Company has two reportable
segments: Sensors and Consumer Products. The Sensor segment designs,
manufactures, markets and sells sensors for OEM (Original Equipment Manufacture)
applications and includes the Company's "MSP" pressure transducer and
Piezoelectric product lines. The Consumer Products segment designs,
manufactures, markets, and sells sensor based consumer products. The basis of
these segments is the same as prior periods.
The Company has no material intersegment sales. There has been no material
change in total assets from the amounts disclosed in the last annual report.
10
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MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following is information related to industry segments:
<TABLE>
<CAPTION>
Three months Six months
ended Sept 30: ended Sept 30:
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales
Consumer Products . . . $12,422 $ 8,910 $21,538 $12,572
Sensors . . . . . . . . 3,023 1,545 5,928 2,065
Total. . . . . . . . $15,445 $10,455 $27,466 $14,337
-------- -------- -------- --------
Segment Profitability
Consumer Products . . . $ 3,493 $ 2,113 $ 5,709 $ 2,224
Sensors . . . . . . . . 703 205 1,315 321
Unallocated expenses. . (1,791) (1,218) (3,225) (2,443)
Interest expense. . . . (111) (62) (201) (65)
Other (expenses) income 0 9 40 9
Income before taxes. $ 2,294 $ 1,047 $ 3,638 $ 46
-------- -------- -------- --------
</TABLE>
11
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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. Forward looking statements may be
identified by such words or phases as "will likely result," are expected to,"
"will continue," "is anticipated," "estimated," "projected," or similar
expressions. The forward-looking statements above involve a number of risks and
uncertainties. 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 materially include: conditions in the general economy and in the markets
served by the Company; competitive factors, such as price pressures and the
potential emergence of rival technologies; interruptions of suppliers'
operations affecting availability of component materials at reasonable prices;
timely development and market acceptance, and warranty performance of new
products; success in identifying, financing and integrating acquisition
candidates; changes in product mix, costs and yields, fluctuations in foreign
currency exchange rates; uncertainties related to doing business in Hong Kong
and China; ability of material suppliers or key customers of the Company to
reduce or eliminate risks to their business or operations arising from the year
2000 issue, and the risk factors listed from time to time in the Company's SEC
reports.
RESULTS OF OPERATIONS (IN THOUSANDS)
Revenues for the three months ended September 30, 1999 increased by $4,990 or 48
percent to a record quarterly level of $15,445 compared with $10,455 for the
second quarter of Fiscal 1999. The net income for the second quarter was $1,720
in Fiscal 2000 compared to $837 for Fiscal 1999. This is the highest quarterly
income in the Company's history. For the first six months of Fiscal 2000,
revenues increased $13,129 or 92 percent to $27,466 from $14,337 during the
first six months of the prior year. The current Fiscal 2000 revenues and net
income benefited from the August 1998 acquisition of the Sensors division of AMP
Inc (PiezoSensors).
For the second quarter ended September 30, 1999, sales of the Consumer Products
segment increased by $3,512 or 39 percent, to $12,422 for this year from $8,910
in the prior year. The increase resulted from expansion of European sales,
higher U.S. sales from strong consumer spending and expansion of product
offerings, and postal scale sales. For the six months ended September 30, 1999,
Consumer Products revenue grew to $21,538, a $8,966 or 71 percent increase from
$12,572 in the prior year's period. The increase is attributable to the impacts
discussed above, as well as increased sales to the Company's primary U.S. OEM
customer. Sales of the Sensors segment for the quarter increased to $3,023 in
second quarter of Fiscal 2000 from $1,545 in the prior period, primarily due to
the PiezoSensors acquisition and the MSP pressure transducer product line.
Sensors sales for the six months ended September 30, 1999 were $5,928 versus
$2,065 in the prior fiscal year's period. The increase of $3,863 or 187% is due
to the same factors discussed for the second quarter.
Due to the higher sales volume, product mix, and ongoing cost reduction efforts,
gross profit for the second quarter increased by $2,671 to $6,697 in Fiscal 2000
from $4,026 in Fiscal 1999, with the gross profit percentage increasing to 43.4
percent compared to 38.5 percent in the prior year. For the six months ended
September 30, 1999, gross profit was $12,107 or 44.1 percent compared to $5,340
or 37.2 percent in the prior year comparable period. For both the quarter and
six month periods, higher margins resulted from favorable product mix, the
higher margins from PiezoSensors sales, and lower manufacturing costs which were
partially offset by price reductions to expand market share and react to
competitive pricing pressures. 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
12
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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 $1,443 or 58 percent to $3,915 in Fiscal 2000 compared to $2,472 in
Fiscal 1999. For the first six months of Fiscal 2000, S, G & A expenses were
$7,525 versus $4,329 in Fiscal 1999, an increase of $3,196 or 74%. The change
results in part from the impact of the PiezoSensors acquisition and variable
expenses associated with the higher sales volume.
The Company continues to actively invest in Research and Development projects in
support of new products and product line extensions. For the second quarter of
Fiscal 2000, research and development expenses were $854 versus $739 in Fiscal
1999. For the six months ended September 30, 1999, Research and Development
expenses were $1,613 compared with $1,194 for the same period of the prior
fiscal year. The increase for both the quarter and six month period was due to
the impact of the PiezoSensors acquisition. However, net Research & Development
expenses for the second quarter of Fiscal 2000 were reduced to $377 compared to
$454 in the prior year's quarter. Research & Development, net was also lower
for the six month period ended September 30, amounting to $783 for Fiscal 2000,
versus $909 in Fiscal 1999. The Company received significant funding of
development costs from customers, amounting to $477 for the second quarter of
Fiscal 2000 and $830 for the six month period versus $285 for both in the prior
year's quarter and six month period. Development funding is anticipated to
continue, but will likely vary from quarter to quarter.
To support revenue growth and to continue to expand product lines research and
development expenses will continue to be significant. The Company intends to
continue to invest in pressure sensor product development, and launch new
consumer products and line extensions. Utilizing its engineering talent in the
Shenzhen, PRC facility, to perform detail design efforts, the Company is able to
invest in a greater number of cost effective projects.
For the six month period of FY 2000 and FY 1999, the Company recognized a tax
provision of $910 and $9 respectively, at an estimated effective income tax rate
of approximately 25 percent for Fiscal 2000. The estimated rate of tax is based
on the current proportion of pretax profits expected to be earned by the each of
the countries in which the Company operates. The foreign overseas tax rates now
in effect are lower than the U.S. rates. Deferred income taxes are not provided
on these subsidiaries' earnings, which are expected to be reinvested.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes it continues to have adequate resources for its financing
requirements. Net working capital was $7,878 at September 30, 1999, compared to
$5,765 at March 31, 1999, reflecting the increase in Accounts Receivable due to
higher revenues. At September 30, 1999, the Company's current ratio was 1.7.
Cash increased to $3,131 at September 30, 1999 compared to $2,711 at March 31,
1999. Operating activities provided $1,303, primarily from net income and
increases in accounts payable, offset by increases in accounts receivable.
Investing activities used $1,197 to fund capital expenditures.
On August 14, 1998, the Company acquired certain assets and assumed certain
liabilities of the Sensors Division of AMP Incorporated (PiezoSensors).
PiezoSensors designs, manufactures, and markets piezoelectric polymer sensors
for industrial, consumer, and instrumentation applications. The acquisition is
13
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
being accounted for as a purchase, and accordingly, the financial statements
include operations from the date of acquisition. The aggregate purchase price
was $3,985. The excess purchase price over assets acquired (goodwill) of $1,693
is being amortized over 15 years. The transaction was financed with a term loan
issued by the Company's principal bank. Net assets acquired were $2,292
consisting of the fair value of assets acquired ($3,545) less liabilities
assumed ($1,253).
Fixed asset purchases for the first six months of Fiscal 2000 of $1,197, were
mainly comprised of computer equipment and related software, production
equipment, and tooling. The Company expects capital spending to expand as a
result of growth of its product lines. At September 30, 1999, there were no
significant commitments for capital expenditures.
The Company continues to finance its requirements with internally generated
working capital. The Company's principal supplier, assembles substantially all
consumer products. While the Company furnishes the supplier with the
proprietary subassemblies required in its products, the supplier 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, 1999, $0 was outstanding under the Company's bank line of
credit agreement. The agreement provides for a maximum amount available of $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%. As a result of achieving certain financial ratios in 1999, the rate
decreases to the lesser of the bank's prime rate plus 0.125% or a Eurodollar
rate plus 2.0%. The agreement requires payment of a commitment fee equal to 0.25
percent of the unutilized available balance. Borrowings are limited to the sum
of eligible Accounts Receivable and Inventory and 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.
In connection with the acquisition of Sensors, the Company entered into a $4.0
million term loan agreement with the Company's principal bank. As of September
30, 1999, $3,600 was outstanding under the term loan. The term loan bears
interest at a Eurodollar rate plus 3.0%. The term loan requires quarterly
repayments in the following remaining annual amounts:
Principal
Fiscal Year Repayments
----------- ----------
2000 $350
2001 800
2002 950
2003 1,000
2004 500
Additional principal payments are required if the Company's cashflow exceeds
certain levels and security for the loan falls below the sum of the outstanding
term loan and the total bank line. 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.
14
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
As a hedge of its interest rate risk associated 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 notional amount of the Swap decreases as follows:
Principal
Fiscal Year Repayments
----------- ----------
2000 $ 900
2001 700
2002 900
2003 1,000
The carrying amount of both the outstanding indebtedness and the Swap
approximate their fair value because, in the opinion of management, the
borrowing rates approximate market.
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 that may be generated from the Company's near-term
operations will be substantially reinvested and, accordingly, dividends will not
be paid to common shareholders in the short term. 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, 1999, this subsidiary's restricted net assets
approximated $2,453.
THE YEAR 2000 ISSUE
The Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If uncorrected, this could result in a
major system failure or miscalculations.
The Company's significant business computer systems have been upgraded, tested
and are believed to be compliant. The cost of these upgrades was not material.
Communications with suppliers and customers that interface with the Company's
business systems will continue throughout 1999 to try to assure there is not a
significant impact on the Company's operations. Based upon communications with
customers, and review of publically available information, the Company believes
its major suppliers and customers have either substantially achieved or have
active programs to achieve Year 2000 compliance.
None of the Company's products have date-sensitive software or embedded chips
and accordingly the Year 2000 issue is not applicable to products we sell.
The Company believes that it has an effective program to resolve the Year 2000
issue in a timely manner. Because of the range of possible issues and the large
number of variables involved, it is impossible to quantify the potential cost of
15
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
problems should the Company or its trading partners fail to complete all Year
2000 plans and become completely Year 2000 compliant. The current assessment is
that such costs and failure of compliance efforts would not have a material
adverse effect. The Company believes that the most likely risks of a possible
serious Year 2000 business disruption would be external in nature, including
disruption of utility and transportation services, customers' non-compliance,
and disruptions in the general economy.
Because the Company expects to be compliant for all business-critical systems,
no contingency plans have been established at this time. The Company will
reevaluate its readiness throughout calendar 1999 and determine what, if any,
contingency plans are required at that time.
16
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 13, 1999 the Company held an Annual Meeting of Shareholders at
which the Shareholders elected two Directors 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 and
approved the adoption of the Corporation's 1998 Stock Option Plan. The number
of votes cast for, against or withheld, and the number of abstentions and broker
non-votes were:
<TABLE>
<CAPTION>
Number of votes
---------------------------------
Against or Number of abstentions
Cast for withheld and broker non-votes
---------- --------------------- --------------------
<S> <C> <C> <C>
Election of Director
Damon Germanton . . . . . . . . . . . . . . 3,499,596 9,036
Steven P. Petrucelli. . . . . . . . . . . . 3,499,496 9,136
Approval of 1998 Stock Option Plan. . . . . . 1,916,826 352,025 1,239,781
Ratification of Appointment of Grant Thornton 3,484,117 17,400
</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, 1999, the company did not file any
reports on Form 8-K.
17
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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 15, 1999 Joseph R. Mallon Jr.
Chief Executive Officer, and
Chairman of the Board of Directors
/s/ Kirk J. Dischino
------------------------
Date: November 15, 1999 Kirk J Dischino
Chief Financial Officer
18
<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, 1999, 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3131
<SECURITIES> 0
<RECEIVABLES> 9482
<ALLOWANCES> 313
<INVENTORY> 5311
<CURRENT-ASSETS> 18619
<PP&E> 7172
<DEPRECIATION> 3494
<TOTAL-ASSETS> 24818
<CURRENT-LIABILITIES> 10741
<BONDS> 0
0
0
<COMMON> 5502
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24818
<SALES> 15445
<TOTAL-REVENUES> 15445
<CGS> 8748
<TOTAL-COSTS> 8748
<OTHER-EXPENSES> 4403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> 2294
<INCOME-TAX> 574
<INCOME-CONTINUING> 1720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1720
<EPS-BASIC> .46
<EPS-DILUTED> .40
</TABLE>
